Tsakos Energy Navigation Ltd (TEN) 2015 Q1 法說會逐字稿

Thank you for standing by, ladies and gentlemen, and welcome to the Tsakos Energy Navigation conference call on the first quarter 2015 financial results.

We have with us Mr. Takis Arapoglou, Chairman of the Board; Mr. Nikolas Tsakos, President and CEO; Mr. Paul Durham, Chief Financial Officer; and Mr. George Saroglou, Chief Operating Officer of the Company.

At this time, all participants are in a listen-only mode. There'll be a presentation followed by a question-and-answer session. (Operator Instructions). I must advise you the conference is being recorded today.

And I now pass the floor to Mr. Nicolas Bornozis, President of Capital Link, Investor Relation Advisor of Tsakos Energy Navigation. Please go ahead, sir.

Thank you very much, and good morning to all of our participants. This is Nicolas Bornozis of Capital Link, Investor Relations Advisor to Tsakos Energy Navigation.

The Company released its financial results for the first quarter of 2015 this morning. The press release has been distributed publicly. In case you do not have a copy of it, please call us at 212-661-7566 or e-mail us at ten@capitallink.com, and we will e-mail a copy of the press release to you right away.

Please note that, parallel to today's conference call, there is also a live audio and slide Webcast, which can be accessed on the Company's Website on the front page at www.tenn.gr. The conference call will follow the presentation slides. So, please, we urge you to access the presentation on the Webcast.

Please note that the slides of the Webcast will be available at an archive on the Company's Website after the conference call. Also, please note that the slides of the Webcast presentation are user controlled. And that means that, by clicking on the proper button, you can move to the next or to the previous slide on your own.

At this time, I would like to read the safe harbor statement. This conference call and slide presentation of the Webcast contains 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 operations. Such risks are more fully disclosed in TEN's filings with the Securities and Exchange Commission.

Ladies and gentlemen, at this point, I would like to turn the call over to Mr. Takis Arapoglu, the Chairman of the Board of Tsakos Energy Navigation. Mr. Arapoglu, please go ahead, sir.

Thank you, Nico. Good morning, good afternoon to all, and thank you for joining us on this call. Well, with profit for the quarter more than doubling year on year, the highest result since the second quarter 2011, a buoyant market, ample liquidity, new equity generation for its shareholders, new accretive and fully funded projects coming on stream later on the year, the sky's the limit for TEN.

Many congratulations to management and all employees for this superior performance on virtually all fronts. And many thanks to all of you, the market and our shareholders, (inaudible) begin to demonstrably appreciate the true value of our stock.

That's all from me. Over to you, Niko, Niko Tsakos.

Thank you, Chairman. And good morning to everybody. And thank you for being here on our call. We promise to make your Memorial Day weekend I think start as a pleasant experience. So, as soon as our call finishes, you can go and enjoy the weekend hopefully with a smile.

We've been waiting for a long time to see that the market is stabilizing at a very positive level. If you remember, we've been always discussing that we have questions about how long this growing market could last.

I think we are looking now that we are more than within a year's of this cycle. And we expect there are no major changes, I would say, significant changes in the course of the product we carry, that we are in for a long- or medium- to long-term cycle, at least for the next two years because that's what we can foresee the supply of tonnage in the market.

Talking about the supply, we are happy also to see that a lot of the dry cargo, newbuilding friendly, that was placed in the market in the last couple of years, we were worried that it would -- could turn into tankers. It's not happening. It's only happening in some small sporadic spaces. And a lot of vessels are being turned into container vessels. I think this is the preference for the yards, since it's simpler to have a dry vessel actually being replaced by another dry vessel, which is the container. So, I think this is another positive factor for us as we are worried for the supply.

On the demand, we've been seeing demand growing almost by 1.3 million barrels a day from a year ago. OPEC is pumping its highest-ever level of 31 million barrels. And that's the highest for the last 2.5 years.

And company specific, I think our [surplus], as the Chairman said, is at least highest since 2011. And our profits are the best since the second quarter of 2008. And if you remember, 2008 was one of the best years or quarters ever in tanker history before the collapse of Lehman Brothers sometime in the fall of that year.

Company specific, we're looking at these things as a very I would say positive side. Our vessels operated at 99.3% utilization. This is full real utilization other than the one of our six that was undergoing a special survey.

But, I think what is more exciting for us is, in the next two quarters, so second and third quarter, we're going to get nine of our existing vessels, which are currently trading in the -- on time charters, back in the spot market. So, if the market maintains this momentum, we hope we will be able to continue very positive results for the remaining of the year and going forward.

I think you have not heard me as positive before. But, we believe that, God forbid that, right now, we are -- the stars are aligned for tanker owners to finally make a very well-deserved return on their investments, which we hope -- as we have seen already, we have -- our [surplus] has doubled exactly in the last 12 months. But, we hope that there's quite a lot of space for it to go forward.

And with that, I would ask George Saroglou to give us in a more detail what has happened and what is happening in the environment we operate. George?

Thank you, Nikos. It is my pleasure to speak with all of you today and provide you with details of the operation for the first quarter of 2015, another profitable quarter, in fact the best quarter we had in TEN after the second quarter of 2008.

For those of you who are connected to the Internet and our Website, there is an online slide presentation, whose format we will follow during the call. Let's turn to slide number 3. We have a pro forma fleet of 64 vessels, 44 of which carry crude oil and consist of one VLCC, 12 Suezmaxes, 17 Aframax tankers, with eight vessels in the water and nine newbuildings under construction for Statoil.

We have four DP2 Suezmax shuttle tankers, two in the water fixed on long-time charters, one on order for delivery in the first quarter of 2017, also fixed on long-time charter, and we have an option for another DP2 Suezmax shuttle tanker. We also have 14 out of the 28 product tankers in the fleet engaged at the moment in crude trade operations, resulting in 35 vessels out of the 50-vessel operating fleet trading in crude oil today.

33 vessels out of the 50 have their earnings side to the robust spot market. We also have two LNG vessels, including one in the water and one on order.

Thanks to our balanced time charter philosophy, we continue to operate the fleet at a very high utilization rate, 99.3% for the first quarter of 2015, when the average utilization for the tanker fleet is expected to be below 90%.

We should highlight the 33 vessels out of the 50-vessel operating fleet that take full advantage of a strong spot market that continues into the second quarter. We have another nine vessels whose charter expires at different intervals during the year.

The last crude carriers, three Suezmaxes and one Aframax, are expected to trade in the spot market until suitable period employment is identified, preferably with profit sharing, while the three MRs and one Handysize vessel will be split between renewals at higher fixed rates and spot trading.

We charted three vessels so far in 2015, two Panamax tankers with profit sharing at higher base rates than expiring base rates, and extended for six more months the Company's [shore build CC] tanker in a fixed time charter for solids with a fixed rate reflecting the current market reality.

The collapse in the price of oil, which accelerated from the start of the fourth quarter 2014 and reached six-year lows in mid-January 2015, impacted the crude sector and TEN in a very positive way. Brent rose 22% in April, the biggest monthly gain in six years, driven primarily by financial flows into the oil complex.

However, the current price levels of around $65 are 43% below the high of 2014 at $115 and 35% below the Brent average price for 2014, which was almost $100.

World oil demand growth has been relatively strong so far this year, beating earlier forecasts, thanks to a rebound in European product demand, increased demand coming out of India, and steady demand growth in China, and of course, higher demand for transport fuel in the United States.

Naturally, lower oil prices changes consumer buying patterns and contributes to increasing oil demand.

On the supply side, OPEC crude oil outputs soared in March and April, exceeding 31 million barrels per day. This was the highest monthly increase in OPEC's production in almost three years. [US reports] from the Middle East Gulf show a sign of rebound from 1 million to 1.2 million barrels per day to approximately 1.6 million to 1.8 million per day in the last few months. And that is an unexpected positive for ton miles and fleet utilization.

Fleet growth is fairly limited for the balance of the year. And the order book remains reasonable through 2017. The market especially for crude tankers is fairly balanced. And as long as the oil will keep flowing, the freight markets should stay strong.

The next slide has the main financial highlights of our press release, strong profitability, the best quarter results in six years, setting the tone for the year, $37.3 million of net income for the first quarter versus $14.6 million for the quarter of -- the first quarter of 2014, a 156% increase, 87% increase in operating income to $45.7 million, EBITDA of $72 million, a 47% year-over-year increase from the first quarter of 2014, strong cash reserves of $290 million, and 33 vessels benefiting from very strong spot tanker rates.

The next slide is a snapshot of the three sectors the Company operates. We operate in crude, in products, in DP2 and LNG. The fleet is very sophisticated, therefore built to fit the transportation requirements for the Company's clients.

Slide number 6 has a pro forma fleet of 64 vessels, which includes the 50 vessels in operation and the following vessels under construction: nine Aframax crude carriers for delivery in 2016 and 2017, two LR1 Panamax tankers for delivery in 2016, one Suezmax DP2 shuttle tanker to be delivered in the first quarter of 2017, plus an option for another one, and one dry [hull] LNG vessel for delivery at the end of the third quarter of 2016.

73% of the 2016 ship available days are spot -- are fixed in the spot market or at spot-related contracts. The fleet is very modern, with the average age of the operating fleet at 7.9 years versus 9.5 years for the world tanker fleet.

21 tankers have ice class capabilities. And 17 out of the 10 vessel -- out of the Company's 50-vessel operating fleet have fixed employments with 10 operating profit sharing charters and together with the fixed-term vessels range from less than a year remaining employment to 13 years.

We have 23 vessels trading in the spot market with a breakdown of 20 vessels in the pure spot market, two in [COH], and one vessel in pooling arrangements. So, today, we have 33 vessels that take full advantage of the current strong market conditions.

The next slide shows the Company's clients, blue chip names with whom the Company is doing repeat business over the year, thanks to the quality of the fleet, the fleet modality, the quality of service, and the safety record of the enterprise.

These 10 client names account for 78% of the 2014 revenue.

Slide 8 shows the low-cost base that TEN has. We have built the fleet before the rise of newbuilding prices, with the tanker market continuing to be strong in 2015. We are already seeing the results and the rewards. And definitely 2015 is going to be a very strong year for TEN.

Moving to slide number 9, we have a balanced employment strategy with a mix of spot (inaudible), CoAs, and pooling arrangements and period charters with fixed rates and minimum weight with profit sharing arrangements.

So, 17 vessels are on time charter with fixed employment as we speak, 10 vessels in profit sharing, and 23 vessels trading a combination of spot, CoAs, and pools. Another way of reading this slide is that we have -- that is that we have 30 vessels with secure employment from less than a year to 13 years, and 33 vessels have their earnings tied in full or up to 50% over a minimum base rate with spot markets that is levels we have experienced back in 2008.

Let's give you some color with regard to the markets. Oil demand continues to grow. And the global economy, despite some problems in certain areas, we continuously expand. The supply-driven drop in oil prices benefits the tanker market. And we have rising volumes, longer distances, very modest fleet growth, especially for crude tankers. And this is expected to continue to support to the market.

As we see here, also the order book is very modest, and we have -- that for the next two, three years very good -- the supply of vessels is very much intact, in balance.

If we put a dollar value on the above, we see that, as of today, May 22nd, we have 41% -- 43% of the available 2015 operating days and 31% of the 2016 days fixed forward. Assuming only the minimum rates, TEN has secured 766 months of forward employment, or 2.3 years per vessel, and $884 million in minimum gross revenues. By choice, the Company has currently the highest spot market exposure in order to take advantage of -- in order to continue taking advantage of the strong spot freight market environment.

The next slide has the track record of our sale and purchase activity since 2013. We have -- besides the recent acquisition at attractive levels in -- of two modern Suezmaxes, sister vessels to Suezmaxes we already operate in the fleet, the Company strategically and opportunistically should be seen divesting certain assets that provide capital gains and release cash.

There is interest for our vessels. But, actual sales activity remains minimal in the market as bid-ask between buyers and sellers is still wide.

Nevertheless, TEN will sell, as we said, some of our older tankers within the course of the year. For TEN, fleet modernity while growing responsibly with committed business rather than building on speculation remains key elements of our strategy.

The next slide is a slide with our dividends. This is the history of our cash dividend distribution. We will pay the next dividend of $0.06 per common share on May 28th, 2015. And we have also announced today another $0.06 dividend for the common shares to be paid on September 10th. In total, since 2002, we have paid $10.06 in cash dividends, or approximately $410 million. And this compares with the listing price in our IPO of $7.50.

Slide 15 has the most recent NAV calculation and lists the analysts covering TEN. The management vision is to continue growing the Company responsibly and at the same time have this reality being reflected in the Company's share price.

Before I hand over the call to Paul, let me take this opportunity to thank our seafarers and Tsakos (inaudible) management, our technical managers for their operating performance 24/7 without which we wouldn't be a reputable, solid, and reliable service provider for so many of our clients. Let me also thank our bankers for their support in good and in bad shipping times and, finally, the analyst and investor community, who continue to entrust us with their time and money.

That concludes the operational part of our presentation. Paul will walk you through the financial highlights for the first quarter. Paul?

Thank you, George. TEN generated net income of $37 million in quarter one, more than achieved in all of 2014 and 2.5 times the net income of quarter one 2014.

Our earnings per share was $0.42 on a weighted average of nearly 85 million common shares compared to $0.19 on 67 million shares for the prior quarter one.

Limited vessel availability and low oil prices stoking demand created a booming tanker market. By modifying our chartering strategy, we had the right vessels available placed in the right position and operating at full employment to take advantage of that market.

Revenue after voyage expenses was $114 million, $23 million more than in quarter one 2014. As other expenses were stable compared to quarter one 2014, that $23 million extra net revenue went straight to the bottom line.

The timely addition of two modern Suezmax tankers in mid-2014 mentioned by George also contributed $2 million to profit.

Average TCE per vessel increased by $4,000 to $25,600 per day compared to the prior quarter one. Crude-carrying Suezmaxes and Aframaxes earned much higher spot rates in quarter one 2014, while those on time charter with profit share contributed a welcome extra $5.5 million revenue.

Our product carriers also continued to recover, generating higher spot rates than the prior quarter one.

Voyage expenses were down 11% from quarter one 2014, despite an increase in days on spot-related voyages, due to a 40% fall in bunker prices.

EBITDA totaled $72 million, an increase of $23 million over the prior quarter one. As Nikos said, all vessels earned positive EBITDA, apart from one undergoing special survey in the quarter.

The two new Suezmaxes in fact added $1 million to operating expenses. But, the total fell slightly from the prior quarter one due mainly to a stronger dollar as the euro fell by 18%.

Average OpEx per vessel per day fell by $450 to under $8,000 due to the weaker euro positively impacting crew costs and our technical managers' ability generally to keep a hold on costs.

Finance costs totaled $8.5 million, $1 million down from the prior quarter one. Our quarter one cost of debt fell from about 2.5% to 2% year on year. The quarter one impact of bunker swaps was neutral following the one-off hit in quarter four.

We currently have $1.41 billion debt outstanding. And net debt to capital is now at about 46%. We have arranged debt financing for all our newbuildings with major banks at competitive terms, including predelivery finance. And with $290 million cash currently, there is enough to cover all of our remaining equity portions of the newbuilding commitments and for us to take advantage of attractive opportunities.

At the same time, our daily cash inflow remains healthy, with our fleet generating over $700,000 EBITDA daily in the strong rate environment that continues in quarter two. Fortunately, we see no sign of or indeed reason for any material reversal in the foreseeable future, apart from possible seasonal fluctuations.

And this concludes my comments. And now, I'll hand the call back to Nikos.

Paul, thank you very much for a very positive report. And I have to say that we have here with us, other than the usual participants, both our current and previous chairmen Mr. Stavropoulos and Mr. Arapoglou. They do not only come to the positive announcements but also do when the news are not good. So, they've been with us all through the [sightings].

And with that, I would like to open the floor for any questions or any clarifications that you might have. Thank you very much.

(Operator Instructions). Ben Nolan, Stifel, Nicolaus & Co.

Yes, thanks. So, obviously, it's good news and a good quarter. But, was curious how you think and just sort of my impression from reading the press release and listening to you guys is, obviously, you feel much better about the direction of the market.

And then in previous quarters, you'd said that any growth would probably be focused around project-oriented deals where there were long-term time charters associated with whatever newbuilding or acquisition that you might do.

Has that changed at all? Would you at this point be willing to just sort of buy vessels without contracts, given your opinion with respect to both asset values and the outlook for the market?

Yes, and thank you very much. First of all, I have to tell you that the newbuilding word is a forbidden word. We're not talking about newbuildings. Well, talking about -- I think, yes, we said that, if we have and we do not -- I think I would like to -- but if we have to look at newbuilding vessels, they will be specialized vessels and vessels that our clients will be there to charter for a long period of time and vessels that are not existing in our fleet. So, I think that this is something we want to make very clear because all of us will have to help this market to help itself.

On the other hand, we are looking at taking the view that, right now, we are in the middle or the beginning, I would say, depending on the supply, but I think in the beginning of a good cycle. And we would be looking for strategic acquisitions of vessels that are in the water regardless of their chartering profile.

Okay. That's very helpful. And my next question has or relates to the balance sheet. Maybe, Paul, you could help me with this. But, just looking through the filings, you guys have quite a bit of debt that is amortizing and maturing in the next one to two years that, on the surface, would limit the availability of your cash flow to service growth.

I'm curious about how you guys think about that debt. Are you looking to refinance it, or is this also going to be a very heavily deleveraged part of the cycle or deleveraging part of the cycle for you guys?

Yes, on the face of it, when you look at the balance sheet and you look at our schedule from now on, it looks fairly daunting. But, there's two things to bear in mind. The first is that, behind those balloons which are going to start propping up, in fact from this year $100 million a year for the next three years and on, there are relatively young vessels behind those balloons. And those vessels today are at quite respectable values, in fact values which cover most of those balloons.

The other thing to bear in mind is that we have excellent relationships with our lenders. And already -- well, in fact, for quite a while now, they've been talking to us in anticipation in helping us refinance that which isn't repaid by vessel sales.

Already, they are talking about being able to provide the finance and at terms that sound relatively competitive. We haven't got into the nitty-gritty yet, but they're talking at reasonable -- on reasonable terms. So, we have no fear in either prepaying those debts with vessel sales or securing new finance.

That's very helpful. So, if I were to handicap it, approximately how much annually of that debt would you anticipate actually being repaid versus being refinanced?

Well, that would really depend on which vessels we're going to sell. We've earmarked a number of vessels for potential sale. Whether the market is right for the actual sale is another matter.

But, we believe, if we look at it -- if we assume $100 million a year balloon that we can refinance the greater part of that based on the values of the unsold vessels, if you like, indeed refinance beyond the amount of the actual debt, which will give us more ammunition for the potential opportunities that we are looking at.

No, that's a very good point, Paul, because I think that's -- our finance department is letting us know. Right now, there's quite a large appetite that, again, very, very logical for today's spread environment offers to refinance any balloon, also at above the actual outstanding right now.

So, we could actually be adding (inaudible) because we have a very conservative debt-to-equity ratio of about 47%. So, if we would decide to increase this closer to 50%, it could be a couple of dozen million dollars added to our balance at a very cheap cost.

Okay. That's great. And then my last question, and I'll turn it over, relates to a comment on the first page of the presentation, where you say that all of your predelivery financing is in place. I was curious if that also includes the LNG vessel. And ultimately, it's a pretty tough market at the moment for LNG. Do you have -- is long-term financing relatively available? What about contracts? How are you thinking about that vessel in that market?

First of all, when we say all our newbuildings, of course, it includes our LNG.

Right.

And again, I would say in the -- that the banks have very -- clearly in a very -- they're very positive in where LNG's going. From our rounds, right now, I think we are with LNGs somewhere in -- we always think in tanker terms. So, I think we are at approximately in the autumn of 2013 in tanker terms in that market. So, I think the market is bouncing to the bottom. But, there are a lot of projects coming on line.

The market was delayed. People were expecting this year, 2015, to be the positive year for LNGs. But, I think, for us, I would say it's better because we have many, many more tankers than LNGs. The low price of oil has made it less interesting for people to push on those projects. But, I think we are expecting things to -- and we are watching.

Today, the market is actually on its knees. It's about $35,000 a day. We're very happy that our LNG is fixed for another year and a little bit at $80,000 and change. So, that's, of course, a very good and accretive transaction that we had secured for five years there. And we hope, when our existing LNG comes open in the middle of 2016 and our newbuilding at approximately the same time, to look at a much stronger market.

Okay. Great. And again, nice quarter, guys. And I'll turn it over to someone else.

Thank you.

Spiro Dounis, UBS.

Thank you. This is [Chintan Stone] in for Spiro. First of all, I just want to congratulate you on the strong first quarter. And just had a couple of questions for you. On the last call, you talked about your interest in VLCCs. And there was a recent comment made about 10% of the VLCC fleet was available for sale. Is that something that you guys are seeing? And could you comment about the bid-ask spread?

Yes, well, I think, if you look at the fleet -- thank you very much for your good words. And if you look in our fleet profile, we are a diversified, as we said, energy company. So, we are not focusing. We go where the -- we go where our client goes. And we go where the money goes. So, we're not -- we don't have any red lines, as we say here in Greece, of which type of vessel we're going to invest.

I think we have seen interest for long-term VLCC acquisitions, again, from resales and not from newbuildings. And we're looking at this market. That -- right now, we're looking at -- as I think as we let -- as we said in our press release that quite a number of accretive transactions. And I think VLCCs, of course, is on the top of that list.

Okay. Thank you. That's helpful. And one more before I turn it over. Can you give us an update on the status of the option for the shuttle tanker? I believe the option belonged to the charterer and that it was set to expire fairly soon.

Yes, that's a good point and I think a timely point because the option expires at the end of this month, which actually is the -- I think the next weekend. And we have -- get an extension, or they have asked for an extension of that option for the end of July. And we have actually been able -- because also of our relationship and the weakness of the newbuilding situation to tie up the extension with the yard.

So, we will know in July. It's a very accretive transaction. We hope it will happen. And we are trying to support it to happen. But, again, it has been a victim of the low price of oil. And people are looking at -- on development of oil wells at a slower pace than they did. But, I hope we can have good news in July.

Great. Thank you.

Thank you.

Fotis Giannakoulis, Morgan Stanley.

Yes, hi, guys. And thank you. And congratulations for the fantastic quarter.

Thank you.

I want to ask to -- about your cash position right now. You have plenty of cash. The market is booming. We all know that this is a cyclical market. And perhaps not now or maybe in two years or at some point, the market may turn on the other side.

My question has to do with, what are you planning to do with this cash? You mentioned about potential acquisitions. Can you be a little bit more explicit on that? I think that you had talked about some VLCCs with long-term charters in the past. Where are these discussions? And also, what about your thoughts of paying back dividends or higher dividends to shareholders?

Thank you for this. Well, as I said, we are looking -- the VLCC transaction is there. I think it's -- it is presented. It's ours to take it a step forward or not.

Right now, and you might know what we mean, we are looking at more strategic decisions of existing vessels in the water in the medium to large size. So, I think -- I'm sure you understand that there are a couple of fleets out there in the water earning money as we speak today that might be for sale. And I think that could make sense for us to look into growing in that.

And of course, the Board will have our strategic meeting on the 10th of October as every year to look how the year has gone and to plan forward. And I think, at that meeting, if the market continues the way it is, if we go through the summer with a strong market, I believe we can convince our Board of Directors to consider a higher dividend.

Can you be -- can you give us your thoughts -- share your thoughts with us? I know that we cannot really forecast what the Board is going to decide. But, what would the management decision or recommendation will be regarding the dividend policy? And I'm not asking about a potential increase, which seems very likely. I'm asking more about the way that you are thinking of your dividend payout, whether you might be moving towards a higher payout ratio or even a floating dividend, like some of your peers.

Well, I think -- because the Company traditionally has had -- and I think we are going to adapt. We will take advantage of this market as we did in the last cycle. We will not -- you will not see us -- we'll be 80% spot by next quarter before all the nine ships come within. So, you will not see us with a traditional Company closer to 60% fixed, 40% spot.

So, I think we will be heading towards that by the end of the year because we're looking at the rates, always with profit sharing arrangements. And we like our shareholders to have a steady dividend.

However, I think what we would like to say that, if we have an extraordinary year when we announce our fourth quarter results to be able to talk to the Board and have a top-up of the dividend. So, I think we want to have a steady dividend so our shareholders will know they will have a steady return and then to be pleasantly, hopefully surprised, like we (inaudible) the shareholders when a good year has been completed.

That's very interesting. So, a special dividend is on the table, from what I understand.

It will not be a special dividend. It will be included on our normal dividend. But, perhaps it will have some sort of, hopefully, increase at that stage.

Okay. Thank you for that. And I want to ask you about asset prices and about the period market. We have seen a booming spot market. The supply of vessels is practically -- is not growing for over a year right now. But, at the same time, the last few months, we do not see period contracts. And the gap between the spot market and what the brokers are reporting is quite large.

Where do you attribute this lack of period activity? And also, why asset prices, they seem to have lagged significantly compared to the charter market?

I think this is a very good point. I think the reason you see -- you do not see (inaudible) long-term facilities because the owners are, for the first time, resisting. I know from my experiences within my organization here and with the broader Intertanko organization that the owners are resisting the levels. I think charters have started to bite the bullet. And I say that, from our side, we are always open to profit sharing arrangements. There's not -- so, we do not have to negotiate down to the last penny.

But, we saw [only] this week, for the first time, an MR 53,000 tonner being fixed for the year at above 17,000, 17,500. But, breaking the 17,000 is something new. So, that's quite a substantial case for a 53,000 tonner.

I think, right now, I think most of the owners with good quality ships could charter the ships for up to three years. Charters I think (inaudible) spot is the two-year period. But, I think you could get the three year employed and for existing ships at accretive rates.

But, I think the owners are, I would say, enjoying the spot market right now. And they are resisting long term. And that's why, as you correctly said, we are not seeing any really long-term business being placed as we speak.

As far as the price of vessels, I think that's the positive thing in this. And I know that, Morgan Stanley, you're one of the leaders in the shipping sphere. But, the positive thing is that we do not yet, and hopefully we will not have it soon, the money that was hitting shipping back in 2006 to 2008.

People have lost money. People are skeptical. People have -- with hundreds of newbuildings in shipping (inaudible) and the money is not there. And so, the equity is not there in a big way, as you I'm sure look at very well.

And of course, the banks are still licking their wounds. The German banks are nonexistent. We are down to a fraction of the banks that finance shipping during the last boom. And that's why we are seeing the asset values actually not reacting to the spot market.

So, I assume -- I understand it's the lack of financing that prevents that because -- or you think that there is structurally more discipline in the crude tanker space. I understand that you have done your share in preventing newbuilding orders.

But, how disciplined can the shipping industry be to this recommendation as a President of Intertanko and not ordering newbuildings? And how do you see the private equity firms that they have been very close to the overall shipping sector the last few years affecting the newbuilding balance or potentially creating opportunities, acquisition opportunities, for you?

Well, I think you should -- correctly, a lot of the private equity firms have -- are actually still trying to absorb the gigantic losses they have in the dry cargo market. And I think, after all, shipping is always looked as one entity. So, I think a lot of people have been scared from shipping.

And we welcome private equity firms as long as they -- there are plenty of second-hand ships and very good quality ships to buy out. They don't have to spoil the market by buying newbuildings.

I think they have to pay to learn. I think they paid, and they're learning that this is the case in shipping. It's not an easy market. You're actually making short -- you're making long-term decisions based on short-term data. So, I think this is something that is very hard to see in many other industries.

(inaudible) right now you can see (inaudible) at $75,000 today, on May 22nd. And you might place an order for a vessel that you won't receive in May 22nd, 2017, at the best. At that time that you will receive the ship, if you keep it in the spot market, might be $2,000 or negative.

So, I think, what you're doing is you're actually -- it's one of the markets that you have to make huge capital expenditures based on the spot market, which is today.

And my last question, do you have other -- any discussions about acquiring assets through issuing shares to any of these -- of the owners of these fleets?

The closer we get to our net asset value, and I think the more interesting these transactions are becoming, yes.

Okay. Thank you very much. Appreciate.

Thank you.

Magnus Fyhr, GMP Securities.

Yes, hey, guys. Congratulations on a good quarter. I had a couple questions. First, on the LNG side, you mentioned on the Analysts' Day that you were thinking possibly having six ships by 2020. Just wanted -- curious with the current weakness in the market if you -- how you're thinking about that expansion of $200 million of copy that could take care of most of your use of cash.

Yes, thank you, Magnus. And well, we are doing -- the background is that a lot of LNG startups are happening, both in the United States, both in Australia, both in Indonesia. You have a lot of companies that are going to run and own and produce a lot of LNG. And they don't have -- they do not have shipping experience. So, with these companies, we have as many as possible closer relationships. So, we will only order in those ships in case we have contracts.

But, I think we would like to end up with half a dozen ships up to 2020. We already have two vessels operating. So, I think purchasing another four LNGs in the next five years, it's not something out of what we consider that can be done.

And the current one you have delivering next year was ordered without a contract. Would you order a ship before you got a contract, or would you need a contract first before entering into newbuilding?

We will not order an LNG without a contract. And the reason I'm saying that I think so emphatically is because the technology of those ships is -- it's different from project to project. There might be a project that requires 125,000 cubics for -- might be a project that requires 160,000, some of them 175,000. So, I think it's not a plain vanilla tanker business, where you order an Aframax, and the Aframax is either 210,000 or 105,000 tons (inaudible) trade. It's -- they're completely different markets.

All right. That's good. Just also moving over to -- you mentioned that the -- you've seen -- you continue discussions with the oil companies regarding strategic relationships. With rates moving up, have you seen an increase in the interest from oil companies in doing strategic relationships? I know you have some ongoing discussions.

Yes. As I said, right now, there's a lot of oil companies that would like to take vessels from -- for five to seven years.

Okay. And if you would do that, would it still be kind of on a profit sharing basis, or would you -- how are those discussions going? Will you do six, or would you like to retain some upside?

Our strong preference -- I have to say that we have a chartering team next -- with us because this recent also event that we have actually rejected first-class name business on fixed rates and not because we -- because we believe in this market. Let's say we are offered X. We are willing to get X minus two plus profit shares.

So, it's not that we are trying to be -- we want to make it a win-win situation for us and our clients. So, it's not that we're trying to right now not do business with the people we've been doing business for many years. But, I think that profit sharing is much more preferable.

Okay. All right. I have one last question, just a housekeeping item. The daily OpEx seemed like it declined a little bit in the quarter, a little lower than our expectations. Anything going on there, or should we expect that run rate going forward?

Paul?

It really depends on dollar-euro rates. This exceptional fall was much due to the weakness of the euro. And you probably remember that a lot of our expenditure, about a quarter of our expenditure is in euro. A lot relates to the offices in our vessels.

So, when the euro fell and the dollar strengthened, and we are a dollar-functioning company, that was good for us. That impacted OpEx. Now, we're not going to expect another fall like that. But, we're kind of hoping it will stay steady if the rates stay in the same realm.

All right.

Otherwise, I think our technical managers are doing a fantastic job in holding cost, as I mentioned. There are short-term spikes. We expense our vessel supplies on delivery. So, if a lot of deliveries take place around the world on a lot of our ships at one particular quarter end, then it's going to be a spike in our OpEx. So, it's really looking at together on six-month or 12-month basis to get a proper idea of what our ideal OpEx should be.

All right. Thank you, Paul. That's all I had. Thanks.

Thank you.

Mark Suarez, Euro Pacific Capital Markets.

Good morning, Nik, George, and Paul. Thanks for taking my questions here. Maybe we can just go back to the potential acquisitions. I know you raised the capital. And you extended the DP2 option. I'm wondering if we should read this as the DP2 shuttle segment now be coming up early or at least in the near term for any potential capital allocations at least this year.

Yes, I think we hope it will be a fourth quarter event, in September event because I think, if we -- if they [lift the subjects] in July, we will have the negotiation on the vessel with the yard. And we will have a contract signing as in September. So, yes, it will be later in this year.

Okay. That's helpful. And you also touched on second-hand transactions, best-case scenario chartered attached transactions, although you're -- now, you're maybe looking at some unchartered opportunities if the returns are there. And you even said that may include some of the larger-sized VLCC second hands.

Just taking a look at that, do you still see opportunities out there in the market, considering where the contango curve is at this point in time to maybe lock in some of these larger-sized vessels, if that were to happen into specifically oil storage services at sort of levels that we saw with the Millennium? Is that a possibility?

This is a possibility. And I think, if you're looking at the spot market, it's approaching $70,000 to $80,000 a day. I think, in the (inaudible) close to $100,000 a day. So, I think that's -- 50-plus thousand for storage will not be out of the money, if the market continues like this.

Gotcha. And then I guess, finally, I think it was you or Paul, you mentioned potential divestments and the refinancing of the balance sheet. I know that you have some of the older LR1s and Suezmax tankers in your fleet. Are you thinking of -- would this be a second half event, if you will, in terms of divesting some of those assets and then sort of reusing that to renew your fleet?

I think we have -- yes, we have some of our first, I would say, generation Suezmaxes and Panamaxes are contenders for -- to be sold in the next two quarters.

Gotcha. Okay. Great. That's helpful. That's all I have for now. Thanks for your time again.

Thank you. Thank you very much.

Charles Rupinski, Global Hunter.

Well, thank you for taking my question. And congratulations on the quarter.

Thank you.

Most of my questions have been answered. But, I just had an industry question generally. We've had very strong rates from fourth quarter into this year. And I'm just wondering what your views are on potential for vessel speeds moving up and how that could potentially affect the market one way or the other over the rest of the cycle.

Yes, I think that's a very valid concern that we have also as a -- we hope and we have seen a small increase in average speeds, I would say, from 11 knots to 12.2 in -- because of the market. But, these are still much better speeds than the 14 knots that vessels were trading in the past.

So, I think we would like to continue the slow steaming and because many people think that faster, we're going to go get the good rate. That's very good. But, the faster you go, and someone will get the good rate, the shorter the good rate is going to last.

So, I think, if all of us are able to keep on -- I think it's good for consumption. It's good for our environmental footprint and to keep our vessels -- and it's good for our pockets to make sure that our ships keep on at logical speeds of 12.2 knots. But, every owner has his own agenda. But, I think this is what we're trying to -- at least within our organization to convince our captains and technical managers.

Well, it makes sense. And yes, it's actually -- seems like it's a pretty conservative increase that you mentioned so far. So, hopefully, it stays that way. I think it'd be good for the industry.

That was really all I had. Clearly, congratulations on the quarter, and thanks for taking the call.

Thank you very much. And all the best for the weekend.

Noah Parquette, JPMorgan.

Thanks, guys. Thanks for taking the questions. Everything's pretty much been answered. I guess I just wanted to come back to the dividend really quickly. Is the MLP something that's still on the table? And if not, how does that factor into your decision-making process on potentially increasing the dividend?

Yes, well, as I said, the MLP is a very useful vehicle for companies to grow. But, of course, we do not want to grow at any cost. And right now, as we speak, we're throwing about $0.5 million a day of net cash flow. So, I think, although the MLP transactions will always be analyzed at the right time, right now, I think it's not our main focus in the sense that our NAV is approaching -- our surplus is approaching NAV and hopefully not so far in the future.

And the recent demonstration transactions of MLPs have really made it very expensive for anybody who's not a distressed company to raise money. We've seen companies for their own reasons raising money in the 10s, 11%, 12%, 13%, and then trading even worse. So, I think that this is not an environment that TEN wants to be participating in.

Okay. Makes a lot of sense. On the asset value side, second-hand prices really haven't been as -- moved as much as you'd think, considering the strength, and sales volume's not that strong also. Do you see -- where do you see the bid-ask spread there? And is there potential for a gap up, or what are your thoughts?

Yes, well, today, there -- I think there is as big as anywhere between 15% to 20% gap between ask and for sale and purchase. So, the bid-and-ask piece is quite -- I think, if this quarter -- the second quarter, which is traditionally a quarter, and the third quarter together, are traditionally the seasonal lows.

If the market continues where it is today, I think we're going to have a very hot, in brackets, September with people coming back from holidays and really looking to buy ships. So, again, I think those -- these two quarters are going to be I think the bellwether for where we're going on that.

Okay. And seguing into that, kind of on the industry side, there's a potential for the Iranian sanctions to -- the situation be resolved. What are your thoughts there? Obviously, more oil would be good for the market. But, there's some negative ton-mile dynamics and then the storage of ships being released. How do you think of that affecting the market?

Well, I think, in the long term, as we said, before the market adjusts with the right routes, there might be some negative -- [and we said] there would be a lot of enthusiasm. So, we'll see. I would say, for a very strong quarter, then things will stabilize. And then when the -- if and when this happens, it will take another quarter for normalization. But, I think, initially, it will be greeted with enthusiasm, where we're going to have more [balance] in the market.

Okay. That's very helpful. Thanks, again.

Thank you. Thank you very much.

Thank you very much indeed. And as there are no further questions at this time, we'll now pass the floor back to you for closing remarks.

Well, from -- again, thank you very much for being on our call. I think this has been a long-awaited reversal. The Company has been profitable since inception. And a couple of painful years, we were able to use them for bringing the Company where it is today and able to reap the benefits of a strong market.

And as I said, we expect in the next two quarters, if the market continues where it is, to have a significant reversal or I think a significant increase to our -- I think to our bottom line from the nine ships that we reversed from the time charter market to the spot market.

And with this, we would like to wish everybody a nice long Memorial weekend, and looking forward to talk to you again in June when we will be participating -- the Company will be participating in Marine Money. Thank you very much.

And thank you, sir. And with many thanks to all our speakers today, that does conclude our conference. Thank you, all, for participating. You may now disconnect. Thank you, gentlemen.

Thank you. Thank you for your help. Thank you.

All the very best to you. Bye, bye.

Bye, bye.