Tsakos Energy Navigation Ltd (TEN) 2007 Q3 法說會逐字稿

Good morning. My name is [Brianna] and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Tsakos Energy Navigation third-quarter earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer period. (OPERATOR INSTRUCTIONS) it is now my pleasure to turn the floor over to your host, Tom Rozycki.

Good morning and thank you for joining us for Tsakos Energy Navigation's third-quarter 2007 earnings conference call. By now you should've received a copy of the earnings press release. If you have not, please contact Laura [Kowalski] of CHDP Communications at 212-279-3115, extension 209, and she will fax or email a copy of the release to you.

Again this quarter, TEN is presenting providing a supplemental slide presentation with fleet employment and financial data, which can be accessed from the front page of TEN's web site at www.TENN.gr. Please note that this is an informational presentation only and will not directly reflects the flow of management's comments on the call this morning.

As a reminder, this conference call is also being webcast. To access the webcast, please refer to the press release for the Web address, which will direct you to the registration page.

At this time, I would like to read the Safe Harbor statement. This conference and the accompanying slide presentation contain certain forward-looking statements within the meaning of the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties, which may affect TEN's business prospects and results of operation. Such risks are more fully discussed in TEN's filings with the Securities and Exchange Commission.

Thank you. At this time I would like to turn the call over to Mr. Nikolas Tsakos, President and CEO of Tsakos Energy Navigation.

Thank you, Tom. Good morning and good afternoon to those of you on this side of the Atlantic. Thank you very much for being in on our call on our fifty-sixth consecutive profitable quarter.

I would first would like to ask our Chairman to give us his wise advice and then I will be back on the line giving you just a very brief financial analysis of our performance and our Chief Operating Officer, Mr. Saroglou, with talk about the operations, and our CFO, Mr. Paul Durham, will go on with the financials. Then will all be available for questions and answers.

Again, thank you very much for being online this morning. Mr. Chairman, it is to you. Thank you.

Thank you very much. Good morning or good afternoon, as the case may be, for everyone. As we all know, there has been some very dramatic events that have taken place since our last conference call on August 3. It has only been three short months, but in that interim, the world of finance has turned on its head.

Financial institutions with powerful names have become discredited, mistrusted among their peers and investors alike. Careers have been trashed. Even the central bankers halos are somewhat dimmer. Marginal credit seekers are having a very difficult time in arranging their necessary financings.

Against this backdrop, the euro/U.S. dollar has moved from 1.37 to 1.45. West Texas crude oil has gone from $77 to $95 a barrel. Gold has crossed $800 an ounce. Economic forecasts are all over the map, a very wide range of -- comes finally to a consensus that the troika of the USA, the euro zone, and Japan economies will expand about 2% in 2008, while the world GNP grows about 4.5% driven by China, India, and Russia.

There is growing concern that today's oil price will create demand destruction, however the power of economic growth has proven in the past that the demand will be sustained. The current expectation is that for 2008, oil demand will grow about 2% from the level of 2007, which will top last year by about 1.5%.

What does all this mean for our industry? I think it means that the supply/demand balance of recent years will be challenged. The five-year run of 2003 to 2007, which has brought great prosperity, will be put to the test. Volatility in spot rates will accelerate. Operating costs will be pressured. Financing costs probably will rise.

Although these developments are unwelcomed, I am comforted by TEN's strategies and business plan, which are very well adapted to navigate such waters. I'm further comforted by the knowledge that TEN has traversed three sharp cycles in the past fourteen years and has delivered fifty-six profitable quarters in succession, as Niko pointed out earlier.

Based on the confidence that the Board of Directors has in the management and its plans, it has authorized a two-for-one stock split to attracting even wider universe of investors.

Nikos, congratulations for the exceptional results you and your team have delivered. We are all looking to you and your team to build even greater shareholder value in the future. Thank you.

Chairman, thank you very much. As you said, this was a challenging quarter. I think it means, though, this was a very seasonal period of time. It's lucky we did not have this decision, but still, we are very happy to announce an increase of our net revenues to $97.2 million for the third quarter, $50 million of net income, up from $44.5 million in the same period last year, and earnings of $2.61, up from $2.33.

With this positive numbers and our fifty-sixth consecutive profitable quarters since our inception, I will ask our COO, Chief Operating Officer, Mr. Saroglou, to talk to us about the integrating of the operations that have happened within the last three months and the nine-month period. George.

Thank you, Nick, and thank you, Mr. Chairman. It is my pleasure to speak with all of you today to provide you with the details of a very busy, but commercially satisfying quarter and year-to-date.

In the beginning of 2007, we're expecting to take delivery of 11 newbuilding tankers, including the Company's first (inaudible). As we speak today, we have taken delivery and integrated nine vessels in the core corporate fleet. We elected to take delivery of the two Panamax project tankers that initially were due for a late fourth-quarter 2007 delivery during January and February 2008. Late-year newbuilding deliveries are always considered and valued in future sale and purchase transactions, the same way like beginning for early-year deliveries. When you get the chance to gain a month or a few days in the delivery certificate of a tanker and make it a next-year newbuilding delivery, like in the case of the two sanctioned Panamax tankers, you just do it.

The future earnings capacity has not been compromised in anyway, since both vessels have already been fixed exit year to a three-year time chartered at a fixed rate to one of the Company's long-term clients, a state oil company. Following this development, the Company has eight newbuilding tankers to take delivery from 2008 until the end of the first quarter of 2010.

What else will we do during the first nine months of the year? Bought back during the first quarter the 1999 to build out from our tanker Olympia at the price 50% below the vessels market value, which in the third quarter we agreed to sell together with our two 1998-built Imabari sister vessel tankers, Maria Tsakos in Athens 2004, for a total capital gain of $96 million without affecting the vessel's existing employment arrangement since we agreed with the buyers a one vessel per quarter delivery schedule.

What we did with Olympia we will repeat at the end of 2008 with Cape Baker and Cape Balboa, the Company's 2002-built Suezmax tankers, which have also been sold to a German [KB] system through a sale and leaseback transaction and we are -- TEN currently holds purchase options for their reacquisition at values at least 50% below current market value.

We also sold the Company's oldest tanker, the 1989-built Panamax tanker Bregen for a capital gain of $6.4 million, celebrated our fifth-year anniversary in the U.S. New York Stock Exchange, and paid two semiannual dividends, one in April of $1.50 per share and one in October of $1.65 per share. We also chartered Neo Energy, our Company's first LNG tanker, in a period time chartered to a major LNG entity at approximately the rate after trading the vessel initially for a short period in the spot market. We're very excited by how well LNG market participants received TEN's first LNG carrier.

We continue weathering the operational and financial challenges, which in most cases originated from regions' extraordinary proceedings and continued chartering on incoming newbuilding tonnage and existing tankers from the fleet. The combination of peer time charters and volume charters in line with our balance chartering strategy. More specifically, during the third quarter, one vessel, a 1B ice-class Handysize product tanker, Motortanker Bosporos, entered the fleet, completing the Company's 2007 newbuilding delivery schedule of eight tankers and one LNG vessel. The Bosporos was the last of eight sister vessels, four with 1A ice-class status, two with 1B ice-class status, and two with no special ice-class status, that the Company built since 2004.

We expect to take delivery of eight more tankers through 2010, including four tankers in 2008, the two (inaudible) Panamax tankers, and two Sumitomo DNA Aframax tankers; three tankers in 2009, also all Sumitomo-built DNA Aframax tankers; and one in 2010, the last one of eight sister ships contracted with Sumitomo. These newbuilding introductions have raised the number of operating vessels currently in the fleet to 43 vessels, compared with 36 at the end of the third quarter of last year. In deadweight terms, TEN experienced a 16.7% increase, filling 4.7 million deadweight tonnes, while at the same time reducing the average days of the fleet by 10% from six years to 5.4 years.

Sales and purchase is an integral part of our operations and philosophy as a shipping company. We continually and actively look for opportunities that can enhance our fleet profile operationally, commercially, and financially.

On July 10, we announced the sale of the 1998-built Aframax tankers Maria Tsakos and Athens 2004. The buyers confirmed on September 3 the purchase of a third Aframax Sister Vessel, the 1999-built Olympia. The sale of these three Aframax tankers generates $96 million in capital gains. A one-per-quarter vessel delivery has been agreed in order not to disrupt the vessels existing chartering variances.

Maria Tsakos was delivered to her new buyers on July 11, Athens 2004 on October 2, while Olympia will be delivered to them during January 2008. These sales also release approximately $60 million in cash after repayment of debt associated with the first two delivered vessels. Olympia is debt free, so all cash received as a transaction cost will be available and this is a figure of $60 million. In total from three vessels sales, $120 million of this cash will be available.

We have a healthy new business model and we are well positioned to entertain offers for some of our third generation newbuilds and 90 built tankers at very healthy prices and as demonstrated in the above-mentioned transaction. With the existing newbuilding program, the Company has guaranteed fleet renewal and growth over the next years. We are always looking for fresh opportunities in the newbuilding front, in the secondhand market, and on the available consolidating opportunities.

In this case, the investment criteria are the same -- any potential acquisition must compliment the enterprise fleet, should not put an unbearable burden of the Company's balance sheet, and should create shareholder value. Since 1993, when we started with a four-vessel fleet, this principle has been the foundation that guided our expansion and guaranteed our growth through three different market cycles.

The high quality 100% double-hulled fleet working in tandem with increasing demand for quality tonnage from world-class charters has allowed us to effectively maintain our balanced charter profile. Our chartering policy would dictate that the majority of our vessels operate on timecharter with profit savings built in, insure that we are profitable even if only the minimum rates are achieved, while still reaping the benefits of a healthy spot market. This was particularly evident and helpful during the third quarter. In a strong spot market, where the realized freight rates have been the lowest of the last five years, the flow rates for the 21 tankers with profit sharing arrangements during this third quarter and on average in daily revenue, which was 55%, or $160,000 per day, higher than the spot freight rate of the voyages these vessels actually perform. These long-term profit sharing projects allows for TEN to insure that the Company can continue growing and maintain a healthy dividend for our shareholders.

As of today, we have fixed 75% of the fleet operating days of 2008 and 60% of 2009, with currently 38 vessels with fixed timecharter rates and timecharter with profit sharing out of an operating fleet of 43 tankers. And assuming only the minimum rates, that has a total 962 months of forward employment or 2.1 years per vessel and $705 million in earnings.

On slide eight, as you can see in the presentation we have an our website, this balanced, long-term, client-driven chartering policy allows us to secure the Company's revenue stream going forward.

On the chartering front, the third quarter was very busy. Bosporos, which was delivered to TEN on August 21, entered a three-year timecharter with European operator with the minimum rate that covers the vessel's holding costs and guarantees a daily profit and a 50-50 profit share over and above the floor rate. We expect our vessls to generate a minimum of $21 million in gross revenue over the duration of the charter.

The min-max rate in the Aframax's part on and Marathon (inaudible), for major U.S. Gulf refineries have been increase for minimum 17 and max 35 to minimum 25 and maximum 55 per day. The new rates started applying from September 2007. Two Suezmaxes, Eurochampion 2004 and Antarctic, have been fixed for three years to a major international oil company, again with a minimum rate and a 50-50 profit share over and above this minimum floor rate. These charters that we've been working during the summer months and announced on October 30 will generate minimum $76 million in gross revenues and again, enhance our relationship of one of the Company's premier clients.

All nine newbuilding tankers that we've taken delivery since the beginning of the year have full employment with eight of them on period charters. Five vessels on a three-year timecharter, one vessel on two-year timecharter, one vessel on one-year timecharter, and one vessel on an evergreen fee rate. As we speak, we have, in an operating field fleet for 43 tankers, four tankers trading spot, three 1A ice-class Suezmax tankers, and the Aframax tanker Olympia. We could have fixed all remaining Suezmaxes to build employment in similar arrangements like the Eurochampion 2004 and Antarctic.

Demand is there, however, with the winter season hopefully arriving in the Northern Hemisphere, we believe it makes commercial sense to have at least four tankers 100% in the spot market out of an operating fleet of 43 tankers. Despite the [shorter] quarter in the spot market, we continue to see all the major state-run companies and commodity traders aggressively fix forward both fuel and product tankers, as demonstrated with the above-mentioned period pictures. We believe that this is a good sign for the prospect of the tanker market for the years that follow. In fact, the 2007 year-to-date average for the one-year and three-year timecharters is in line, if not marginally higher, with the 2006 average.

The strong rate environment in the dry bulk market has resulted in some owners converting tanker slots to dry bulk flock slots and selling double-hulled tankers for conversion to bulk tonnage. Also the upcoming OPEC meeting on November 17/18 in Riyadh, Saudi Arabia could provide additional support to the market.

Balancing the oil markets for both producers and consumers without jeopardizing sustainable growth, double growth, would be in the interests of all market participants.

Demand of crude oil and products is expected to see a strong growth during the winter months as first quarter of 2007 and the first quarter of 2008. This (technical difficulty) is put together can have very positive connotations for the tanker market and the spot freight rates.

Again turning to our website on slide six and seven, you can see graphically the current structure of our employment policies and the worldwide trading pattern of our existing fleet.

Let's talk a bit about the market. The global economy continues to grow strongly despite the recent turbulence due to the subprime problems in the United States. The International Monetary Fund, as a result, marked down moderately its global growth prospects for 2008 from 5.2% to 4.8%. The 2007 forecast, however, was left untouched at 5.2%. The biggest downward adjustments to 2008 growth was in the United States, which was revised 1.9 versus the July estimates of 2.8%. China's economy is estimated to grow by 11.2% in 2007, while India and Russia are expected to grow at 8.9 and 7%, respectively. These three countries alone accounted for half of global growth over (technical difficulty) year.

The expansion also continued in other emerging and developing countries. Among the advanced economies, growth in the Euro area and Japan slowed in the second quarter of '07 after two quarters of strong gains. For '08, the forecast of been revised downward, with growth in the Euro area now expected at 2.1 and Japan at 1.7%.

Global oil demand remains strong at 85.9 million barrels per day in 2007, up 1.5% from '06 and 88 million barrels per day for 2008, 44% up from 2007. In recent years, oil prices have tended to ease with the end of the summer driving season and the start of the autumn refinery maintenance. This year, however, prices kept rising to record levels and exhibited unusual strength despite OPEC's decision in early September to increase production by 5000 barrels effective November 1, one month prior to the end of the refinery maintenance season.

The continued price trends can be explained by fears of potential supply disruptions, refinery outages, particularly in the United States, increasing geopolitical tensions in various regions, and increased fund buying of oil futures and derivative projects ahead (technical difficulty) a falling U.S. dollar. The global economy is now in its fifth year of solid expansion and the world growth rate remains high compared to the past three decades.

Energy demand is highly correlated with economic expansion and expected to continue growing with the global economy. We're optimistic about the prospects for the tanker market, however having said that, we should not forget to mention the ongoing challenges that affect both the revenue and the cost base of owners and operators. Rises in risk premiums, credit market tightening due to the subprime events, increases in lubricants and bunker prices, as well as insurance premiums following unusual natural catastrophes, increases in personnel expenses, and a weakening dollar will be challenges to be confronted by everyone in the industry.

These risks, however, are manageable and TEN has proved successful in not letting them jeopardize the financial health over its fourteenth year of existence. Our forward-fixing philosophy, which provides revenue, cash flow, and earnings protection, allows us to (inaudible). With 962 months of forward employment fixed, or 2.1 years per vessel in a fleet of 43 operating tankers, with check rates and $705 million secured revenues, we believe we're very well positioned to take advantage of any long downturns the market faces in the future. For now, just entering the fourth quarter of the year, the Company remains optimistic that 2007, despite some turbulences, which are not in usual in shipping markets, will prove another good year for the tanker industry as a whole.

The Company continued its impressive growth and profitability for the fifty-sixth consecutive quarter. Our dividend policy continues full speed ahead with $1.50 paid in April with respect to 2006 operations and a $1.65 in October being the first semiannual dividend for fiscal year 2007. The October 2007 dividend represents a 32% increase over the $1.10 paid in October 2006 and the first semiannual dividend for fiscal 2006.

The average share price during the quarter was $70. During July and early August, we traded between $70 and $75, but in August as the subprime market problems unfolded, we tested below $63.51 before going back into the $70 area.

We continued the buyback program during the quarter. We bought back and retired 20,800 shares at an average all-in cost of $64.33, a modest buyback, having also in mind about the retiring almost 6% of the Company's shares outstanding in the last two years, the daily volume of the shares traded in New York is decreasing. In order to enhance the marketability and liquidity of the Company's shares, the Board of Directors agreed with a 2-for-1 split by means of 100% share dividend. Each shareholder of record will receive one additional share of common stock for everyone share owned. These additional shares issued as a result of the stock dividend will be distributed after the close of trading on November 14, 2007 to shareholders of record at the close of business on November 9, 2007. The shares distributed as a result of the split will begin trading at the open of the market on November 15, 2007. The stock split will increase the Company's total shares outstanding from approximately 19 million shares to approximately 38 million shares.

We have committed to confirming the optimism expressed by our Board of Directors' actions to split the stock and attract additional investors. We still have a long way to go. Our ongoing remaining the building program guarantees fleet expansion. We are also looking at and for growth opportunities in those energy transportation-related asset classes and at the same time, continue on a daily basis to manage the challenges and risks of the environment in which we operate and run the business we built together since 1993.

In our business endeavors, we feel that we are not alone. We therefore wish to thank the Board for their support, as well as all our steadfast shareholders who have held our stock over the years. Also our thanks to the lab personnel in TEN and Tsakos Shipping & Trading for (inaudible). We also think the officers and crew onboard our vessels who go give their best 24/7.

As always, we welcome all of you to our headquarters in Greece and hope to see many of you this week during Greek week in the New York Stock Exchange and next week in New York during the Goldman Sachs conference and our roadshow as we follow the East Coast. We also plan following Thanksgiving to be on the West Coast and in the Midwest presenting TEN to existing and new shareholders. Please contact Mr. Rozycki, who handles our schedule during the management's upcoming visits in the US.

At this time, I would like to call over to Paul Durham for a review of the finances.

Thank you, George, and thank you all for joining us today. Before I begin, please note that the summary of selected financial data is included in the press release for your reference and I will talk more about these items occurring in the quarter and nine months.

TEN earned net income of $50 million in the quarter, compared to $44.5 million in quarter three 2006, an increase of 12%. Capital gains amounted to $31.8 million in the quarter from the sale of the Maria Tsakos, compared to $13.3 million in last year's quarter.

George has pointed out capital gains are a steady feature of our results and we've already secured similar gains for quarter four and for quarter one 2008. Diluted earnings per share were $2.61 from 19.15 million weighted average shares, $32.03 on 19.06 million average shares for quarter three last year. For the nine-month period, net income was $131 million, compared to just over $119 million last year, an increase of nearly 10%.

Revenue in the quarter was $122 million, compared to $115 million in quarter three 2006. The 6% increase was primarily due to fleet growth. The average number of vessels was 42.6 compared to an average of 37.1 vessels in quarter three 2006.

Despite a poorer market than expected, the average daily TCE per vessel for quarter three 2007 was approximately $26,500 compared to $29,800 in the previous year's unusually-strong third quarter. For the nine months, $29,200 was achieved, compared to $30,300 last year. Fleet productivity was 96.7%, approximately the same as last year. (technical difficulty) more saves in this quarter three related to the drydocking of the Silia T (technical difficulty) and Cape Baker.

Operating costs in quarter three amounted to $28.1 million, compared to $19.8 million for (technical difficulty) quarter three due to increasing the size of the fleet and to higher costs. The daily average cost per vessel increased from $6422 to $7507 through quarter three 2007. Fuel costs, which account for half of operating expenses, increased by 18% due to pay increases retroactively applied and was impacted by a further weakening of the dollar by 8%. As mentioned before, the addition of (technical difficulty) area and two Suezmaxes also raised the average level of operating costs.

Expenses for the quarter were approximately $500,000, some 25% down from the third quarter of 2006 mainly due to lower order (technical difficulty) levels and roadshow expenses. Vessel management fees rose from $2 million to $2.6 million due to steep growth and fee increases. A further non-cash $1.6 million was amortized relating to issue (technical difficulty) topside.

Taking these three categories together, our daily overhead cost per vessel amounted to (technical difficulty) $5167 in the third quarter 2007 from $3767 per day in quarter three 2006. The grant amortization accounted for most of the difference.

Total finance costs for the quarter amounted to $23.6 million, compared to $18.4 million in quarter three 2006 due to the increase in average loans for the quarter from $1.1 billion to $1.6 billion. There were non-cash negative interest rate swap valuations of approximately $4.8 million in both years quarter three due to falling long-term interest rates, over $3.5 million in the nine-month period of 2007, however actual swap cash received in the nine months amounted to (technical difficulty) $[0.8] million, reducing the cost of debts this year from 6% to 5.6%.

During quarter three, our net outstanding debts positions fell slightly by just $18 million to $1.40 billion. The net debt to capital ratio was 60% at the quarter end, while the percentage of outstanding debts compared the total fleet value fell to 39%. The sale of the Aframax Maria Tsakos, besides achieving a net gain of nearly $32 million, released $33 million in cash after the repayment of debt.

Currently, we have eight vessels (technical difficulty) at a current contract price of $469 million, of which $148 million has already been paid out of cash, leaving $321 million to be paid, $11 million before this year-end, $119 million in 2008, $149 million in 2009, and $42 million in 2010. (technical difficulty) this remaining expenditure will be financed by debts.

During quarter four, we have completed the sale of Athens 2004 at a gain of $31 million, releasing another $33 million in cash and we have scheduled the drydockings of the vessels Cape Balboa, Triathlon, and La Madrina for approximately 20 to 30 days each.

This concludes like comments. I will now have the call back.

Thank you, Paul. Thank you, George. Well, if any of you have any questions after these very thorough presentations by George and Paul, we will be very happy to answer. Thank you.

(OPERATOR INSTRUCTIONS) Jonathan Chappell, JPMorgan.

That was a very thorough presentation, but I only have two questions for you. The first one I think the stock split was a great idea and it looks like the market agrees. Just wondering now with a little bit more potential liquidity how you're looking at share buybacks now. I would imagine that you still believe your stock is under your net asset value by a pretty material amount. Also potentially switch to a quarterly dividend now that there's more shares outstanding.

Thank you very much and thank you for your good wishes. As I said, we believe that the value of our shares is undervalued and doubling the outstanding shares will give us a significant flexibility to further our buybacks and increase perhaps our buybacks, or at least particularly without the fear of draining all free-float out there. The quarterly dividend is something we have strived from because of the internal logistical purposes in our valuation for the Company, but if this is, at a later stage, what takes to get our share price up and to stay above $100 it is something we would consider.

Good, it probably would not hurt. Second question has to do at the fleet. I share the Chairman's remarks at the beginning (technical difficulty) demand balance does not look as favorable going forward as in the last five years. I think your operational strategy is set up perfectly for that type of environment, but just wondering about the fleet developments going forward. Would you imagine maybe there would be less newbuildings in the immediate term and potentially save some of your dry powder for if the market were to fall and secondhand assets might be a better use of proceeds? Also would you think that you could consider still selling some of the first-generation double-hull ships if the asset prices remain robust in a weakening rate environment?

Yes, I mean as you know we are, as George mentioned, in a very good stage to still have a significant amount of what we call newbuildings that have been ordered at the appropriate time, so their value is still quite original (inaudible) or in many cases very reasonable. So we have a growth strategy out there. We are looking to sell the first-generation double-hulled 2006. There is a bigger (technical difficulty) during the cash position for the filing contract to be replaced by the Selecao, the Socrates sometime in the first quarter of '08. So we are negotiating, again, capital gains and profitable sales of our older ships.

We have, as George mentioned, after the case studies transcational (inaudible) resources ship we built back in 98. We sold it in '99. We made a significant capital gain at that time and then we repurchased the ship just a few months ago at $31 million and so the double of the price what will be delivered in January. We still do have the Cape Baker, the Cape Balboa, which are in our books today because we built both the ships and they still have (inaudible) transaction. Those ships, as George mentioned, we have the option to purchase them back in less than a year from now at 50% of what their value is today.

So we are looking at internal transactions that create value for the shareholders and we expect -- we're optimistic for our industry and see that the newbuilding orders for tankers are drying up. We have not heard of any significant newbuilding orders for oil tankers in the last, I would say, six months. A lot of interest is going into the dry cargo markets, but we are seeing a lot of our also ships going out for either converted into PSO projects or bulk carriers. So I think that we will see a balanced supply and demand as we're going. Our fleet with our minimum rates and profit split is -- will be able to absorb any fluctuations. I mean, this quarter was one of the poorest quarters in five years, but we were I think -- it happened to be one of our most profitable and we believe that the next two quarters will be hopefully better than this one.

Okay, thanks very much.

Natasha Boyden, Cantor Fitzgerald.

I just wanted to echo John's remarks on the stock split. I think it is an excellent idea. I think you went over most of the company-specific questions but, Nick, if we could get your thoughts on maybe some macro issues, specifically on the product carriers, U.S. product inventories and refinery utilization, given where they are, what is your outlook on the product carriers for the moment?

Well, we believe that we are seeing a low inventory environment. We're entering into what has been for the last five years (inaudible) a very seasonal period of strength. This category of ships has been, I would say, left in a low market environment as we speak today, but they are catching up. We see already the Panamaxes in the U.S. Gulf area increasing on a timeshare (inaudible) basically, we see current market being a bit more comfortable, anything close to 200 on a world scale, so I think we believe that the product market will be coming back as we go into winter.

Does the order book give you pause for concern? It is pretty large, even though the fundamentals look quite good with low inventories. Do you think there is going to be an oversupply of ships or is demand enough to control that?

Well, it all depends on what we have in on the 2010 phase out. I think it is a category of ships that we might not -- you might not be seeing TEN investing so much because I know we're comfortable when balanced the way we are today. But again, we are -- finance has got to be declining. India and China always thirsty for this, for products and exports, exported products also. So I think will see a balanced market.

Okay, I might just ask another general question, rates have been fairly weak for the last -- certainly last quarter and have strengthened slightly, but not as much as we expected into this quarter We're still seeing asset values very high. In fact, one of your peers just bought to Suezmaxes for $90 million each. What is a going to take to (technical difficulty) value down there?

Well, I think the expectation is out there and as George mentioned, we still see that those 90 million Suezmaxes. We find a home with a very good charter for a long-term period. I think what will actually start bringing value (technical difficulty) ships lower will be when the major oil companies will stop providing employment for those -- for these ships, which I think you have seen in the last -- we just started four similar ships, the Eurochampion and the Antarctic, with a major international oil company for three years and there is business for similar ships. We can charter all our ships, so as long as those businesses are there at healthy rates, I think we will see the value share maintaining.

Okay, great. Thank you very much.

Greg Lewis, Credit Suisse.

Paul, my first question I guess is for you. You mentioned that I guess non-cash interest swaps were about $4.8 million for the quarter.

That's right, yes.

Is there any thought about stripping that out and like talking about that in the press release, because that is about $0.25 for the quarter. Being as it is non-cash, it seems like you're kind of penalizing yourself because shouldn't that eventually -- quarter-to-quarter it is going to move around, but it is not really a charge.

Quarter-to-quarter, of course, at the end of the day, these things will come back to zero. They are non-cash valuation. The particular non-hedging swaps to which they relate will indeed peter out over the next couple of years. They lost their hedging criteria as a result of refinancing that we did in the same vessels that we did in the past. We're now looking at those closely, especially in the light of interest rate movements, to see whether we showed prematurely terminate them.

I take your point. Yes, if we do have movements of such magnitude and personnel, if they are indeed material, then we will make more noise about them in our press releases.

Okay, great. I guess turning to more of a marked question, rates in the Baltic have started picking up as a result -- I'm sorry, rates in the Black Sea have picked up primarily as a result of weather delays and the fog in the shorter daylight hours in the Turkish streets. When do we typically see that delays become the most severe?

I think it is -- we expect it to be from now until March. We expect these delays to be, but of course, December and January is the season of time to where on top of this you have snowstorms and (inaudible) that we're going to take. I would say from November 1, subject to global warming, everything, of course, from our November 1 through April 1 is the delay period, with January, December and January of the peak period times for this.

Okay, great. Then just following up in your Athena comment about (technical difficulty) are we starting to see any sort of ice-class premiums in the Baltics? Or is it still too early for that to take into effect?

Not yet in a big way because it is still early, but we'll expect -- charters to be expected over the course of the normal period this winter, so we are seeing them out in the market trying to charter ice-class vessels.

Okay, great. Thank you.

(OPERATOR INSTRUCTIONS) John Kartsonas, Citigroup.

You're talking about your coverage obviously for next year and '09, pretty significant revenue coverage there. When you look at the cost side, you said inflation is picking up here. Can you give us an idea since you should look at this big part of the fleet that you operate, what kind of inflation you (technical difficulty) next year and how much is ahead of us in terms of higher costs?

I think worldwide inflation is expected to accelerate as we go forward. It first is going to impact the shipping industry. As you well know, one of the key challenges in shipping is to attract and retain a high quality of seafarers and because that scarcity factor, our wages are going up. They're going up much more rapidly than they did historically.

I think you heard the comment earlier that one of the impacts in the most recent quarter (technical difficulty) was a retroactive salary adjustment for our key officers. This is something that is not going to go away. TEN will insist on having the very best of the available seamen and as a result, we will match whatever the industry requires in order to (technical difficulty) things of that affected force.

Insurance costs, unrelated to shipping, they have been -- catastrophes that are embedded in the rate systems, you pay irrespective of which risks you are covering. It looks like for the next couple of years, because of the historical impact of these catastrophes, that insurance rates will continue to rise. Lubricants, we know oil prices have skyrocketed. Lubricants are tend to move up even more (technical difficulty) than crude oil. Also there is a long list of factors that are going to impact us as it relates to inflationary costs.

We also have the wonderful phenomenon of the strength of the dollar. I mean that jokingly. It's impact over the last five years from -- has been erratic, but significant. I think if you refer to Mr. Buffett's comments or those of Mr. Gross I think is his name and most recently the world highest-paid model says that she does not want be paid in dollars. She wants to paid in any other currency. So we're going to have difficulty with the dollar, it is going to be a pressure.

I do not know if I have answered your question. All I can say is that we have a management that is very attentive to cost control. We will maintain quality, but we'll do it with a keen eye on cost.

So if you were to put a number, let's say, on average for the next two years in terms of OpEx per day, what would be your guess -- in terms of increases for the next few years?

I'm not going to a venture because it would be a guess. It will be higher than it has been over the last four or five years. The rate of increase will accelerate, but I am not prepared to venture at what pace that will be.

We usually (inaudible) 5% percent increase, however if this is the weaker the dollar will be, which we're hoping, because as you know we are in using dollars in this business, then (technical difficulty) another lift. If we have another deterioration of the dollar, it will be very hard for us (technical difficulty) to this company, so I think it will be, as I said, higher, as the Chairman said. We usually use 5% as a ballpark.

Okay. Thank you very much.

[Sunil Jugwanny, Catapult].

Congratulations on a good quarter. I just had a very quick question. The -- since the actual closing of, I believe, the Athens and the Olympia are deferred for the next two quarters, can you tell me what the expected cash inflow is that is not reflect on the balance sheet yet, not including the -- not including the debt adjustment.

After the repayment of debt, we expect to (technical difficulty) cash resources to increase by $30 million for the Athens and because we had no debt with regard to the Olympia, virtually all the sale proceeds will go to cash, which is over $60 million. (technical difficulty) over $90 million.

Okay, perfect. Thank you and congratulations, again.

At this time there are no further questions. I would like to turn the call back over to management for any closing remarks.

Well, thank you very much. We will continue to work hard to make each quarter a better quarter if possible and hopefully we will be able to do this. The management, Mr. Saroglou and Mr. Tsakos, will be in New York the later part of this week in order to attend the Greek week and our roadshow and they will be very happy to see you there. There are a couple of conferences taking part next week and we will be available in a one-on-one or see you close. Thank you very much and there will be a European roadshow by starting in the following week. Thank you.

Thank you. That does conclude today's Tsakos Energy Navigation third-quarter earnings conference call. You may now disconnect and have a wonderful day.

Goodbye.