Tsakos Energy Navigation Ltd (TEN) 2015 Q3 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 third 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,

Friday, November the 6th, 2015.

And I'll now pass the floor to Mr. Paul Lampoutis, Investor Relations Advisor. Please go ahead, sir.

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

We'd like to first take the opportunity to congratulate Tsakos Energy Navigation for receiving the Corporate Social Responsibility Award for the year during the Capital Link event in London this past week.

The company released its financial results for the third 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 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 our presentation on the webcast.

Please note that the slides of the webcast will be available as an archive on the Company's website after the conference call. Also please note that the slides of the webcast presentation are user controlled. 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 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 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 Arapoglou, the Chairman of the Board of Tsakos Energy Navigation. Mr. Arapoglou, please go ahead sir.

Thank you, Paul. Good morning, everyone. Today we announced another set of exceptional results for the third quarter, confirming TEN's leading position in the business.

This exceptional financial performance is the result of executing our balanced strategy on all fronts, strong revenue generation, disciplined cost control, accretive targeted sale and purchase activity, and a pristine safety record, and all this within a very comfortable cash and funding framework.

On behalf of the Board of TEN, I wish to congratulate management and the whole team for this excellent performance and hard work, which continues to generate high and sustainable shareholder value.

Now over to you, Nick.

Thank you. Thank you, Chairman. And good morning and good afternoon to all of you. Thank you for participating in our third quarter release.

And it seems we are on the way for another profitable and strong year. I think what is more important is that we see that the market maintained its strength.

We got a bit jittery sometime in August when we had the figure -- we saw that the Chinese economy was slowing down. And it was affecting various parts of the world, but we were pleasantly surprised to see that that slowdown was short lived. And as soon as I would say the August lull came to an end, the market started going again from strength to strength.

So, as we are approaching the winter months, we are seeing spot rates strengthening in all sectors. Right now we have a very strong Aframax market everywhere. And the Caribbean, who lagged behind for a short period of time, is back in very, very strong returns, close to $30,000, $40,000 and above.

The Suezmax market is also very strong. And actually we look very, very positive in the last four acquisitions that we finally made, for very modern Suezmaxes that are contributing very strongly to our bottom line. And I think the same is true on the VLCCs and down, and the product tanker market is strengthening.

So, overall we are looking at a market that has good imminent spot prospects. But, what is more encouraging for me is that we are seeing the clients, the people who actually buy and sell the oil long term, looking for covering their requirements for a long period of time.

And when I say longer, I think we are seeing increases to three to five years. We just announced last month the fixing of four of our ships, three plus one additional vessel, for an average of three years on fixed rates. I think this is a very good development.

But, this does not mean that we expect that the markets will take a dip. But, I think it's good housekeeping when you see levels that are accretive. Don't forget we are a company that has acquired the majority of our fleet at the low cycle, so our break-even costs -- and I think George will go into that in his presentation -- gives us the ability to enjoy very accretive positions in today's market.

So, we are -- we have a big spot, right now, participation. We are also looking to travel through long term time charters with profit sharing as our position. We expect that if the current supply -- tonnage supply is maintained, which we hope that most of responsible owners out there will continue doing so, we are not seeing, because of problems in the other segments of the shipping business, the very depressed market in dry cargo, the non market in containers, and the slowdown in LNG.

We see a lot of investors shying now away from shipping, or at least shying now from new-building orders, which I think this is going to play a long term positive role for us and keep the supply-demand curve at a good check.

So, with this in mind, we are looking at a positive third quarter and a very positive fourth quarter. But, I think what is more important for us is we're looking for 2016 a being similar or hopefully a better year. And the prospects even further for 2017 do not look that different.

So, medium to long term, the market seems to be in a positive environment. And so, we are I think enjoying this. And hopefully -- because we feel comfortable going forward we have increased our dividend, and hopefully the market remains strong. We might have the possibility to increase it again as we go forward.

And with this preface, I will ask George to give us the developments of the last quarter and the last nine months, and then I will be happy to continue. Thank you.

Thank you, Nick. The Company reported today another strong quarter and profitable nine months.

We are now in November in the seasonally strong fourth quarter, and TEN is on route to another profitable year, second in a row since 2014, which will make the Company's profitable year track record since inception in 1993 to 20 and three; 20 profitable years and three loss making years, which were the three difficult years from 2011, 2012, and 2013 in the middle of the worst crisis shipping market have entered.

For those of you who are connected with the Internet and our website, there is an online slide presentation whose format we will follow during the call. If we go to slide number three, during the quarter we sold two of our older tankers, a 2002 build Suezmax and a 2004 build Handysize product tanker, and we acquired two new-building deals. These are two modern Suezmax.

We have already taken delivery of the first Suezmax yesterday, which immediately began earning for TEN an accretive rate in the spot market. The second vessel will be delivered to us during January of 2016.

As a result of these transactions, TEN has today a pro forma fleet of 65 vessels, excluding the option for a fourth shuttle tanker. Thanks to the modernity of the fleet and the balanced employment strategy, we continue to operate the fleet at a very high utilization rate, 98% for the nine months of the year.

We should highlight that we have 31 vessels that take full advantage of the strong spot market, as we are into the seasonally strong period for energy transportation demands. And oil majors, as Mr. Tsakos said, continue to have an appetite to fix vessels forward to three year charters.

And in this environment, we have recently announced a charter for an average of 36 months of three LR2 Aframaxes for a European oil major at rates that these vessels earned back in 2006 when we first acquired the vessels that are approximately expected to generate total gross revenues of $100 million.

We have 60% of the remaining 2015 days and 52% of the available 2016 days of the fleet at secured revenue. And the total pro forma fleet contracted revenue is minimum $1.5 billion without, of course, accounting for any profit sharing in this strong market.

The collapse in the price of oil continues to impact the group sector and TEN in a very positive way. We see world oil demand growing. We see on the supply side OPEC continuing to produce high volumes, which benefits crude tanker demand coming out of the AEG and, through the spillover effect to the other markets, benefits the entire crude market sector.

Fleet growth so far has been fairly limited, and the order book remains reasonable through 2017. The market, especially for crude tankers, is fairly balanced. And as long as the oil keeps flowing, the trade markets should stay balanced and strong.

For product tankers, the quarter has also been good thanks to strong refinery margins as a result of lower crude prices and more production volumes coming out of the new refineries in the Middle East and India.

The next slide, slide four, has the main financial highlights of our press release; strong profitability for both the quarter and the first nine months; $40 million net income for the third quarter versus $5.2 million in the third quarter of 2014; operating income of $45.1 million versus $13.8 million in the third quarter of last year, which is a threefold increase; very strong cash reserves with cash currently in excess of $300 million; 31 vessels benefitting from the very strong spot tanker rates; and have total contracted revenue of the operating fleet of about $850 million, excluding again any potential profit sharing, which is certain in this market, with an average chartered length of 2.6 years.

The Company's pro forma fleet, on the next slide, is 65 vessels. And that includes 49 vessels in operation and our new-building fleet. We have strong fleet growth thanks to the Company's new-building program which is built against long term business, as 12 out of the 15 new-building vessels the Company is constructing are fixed on time charters with minimum five year duration, excluding again the optional period the charterers have.

The fleet is very modern. The average age of the operating fleet is today 8.3 years versus 9.6 years for the world tanker fleet.

The next slide has the Company's clients. All of the names are blue chip names with whom the Company is doing repeat business over the years thanks to the quality of service, fleet modernity, and the safety record of the enterprise fleet. These 10 names continue to account for almost 80% of the revenue this year as well.

The low cost base, on slide seven, is thanks to the fleet that we had built before the rise of the new-building prices. You see on the left side the all-in break-even cost for the fleet and on the right side the snapshot of where the market is right now.

The freight market has been strong and is expected to remain strong, as the current and next quarter are typically the strongest quarter for energy transportation.

The Company's financial performance for the year so far looks as if we are back in 2005 when, with half of the fleet we have today, we produced net income of $160 million. This year in the nine months of 2015, TEN has produced net income of approximately $120 million.

If one wonders where we are into the cycle, in TEN we feel that, provided the oil price stays below or around the $65.00 level and the order book doesn't overshoot, then we should be looking for at least another two very good years ahead of us.

Slide eight shows the balanced employment strategy where we see that the corporate fleet is employed in a combination of spot charters, CoA's, period charters with fixed rates, and minimum risk with profit sharing arrangements.

We have 18 vessels on time charter with fixed employment, 10 vessels in time charters with profit sharing, two vessels in CoA's, and 19 tankers taking advantage of the strong spot market. As of today, the 30 vessels of the operating fleet have secured employment through fixed time charters, charters with profit sharing and CoA's that can generate minimum revenues of $850 million over the next 2.6 years, again excluding the profit sharing that in this market these vessels will definitely have.

The next two slides, nine and 10, talk a little bit about the market both from the demand and the supply said. Oil demand grew this year at about 1.8 million barrels per day, and this is the highest rate of growth for the last five years. For the next year, the forecast is for growth of 1.2 million barrels per day, which is close to the long term trends of growth.

The global economy, despite headwinds in some regions, continues to grow. Lower oil prices are supporting strong demand coming especially out of the United States and China.

The supply driven drop in the price of oil benefits the tanker market; rising volumes, longer distances, very modest fleet growth for fuel tankers over the next few years. We expect to see that the good market themes continue to be supported over this period.

Slide 11, we see track record in the sale and purchase of the Company since 2003. We sold for profit and further trading two of our older vessels, a Suezmax and a Handysize tanker, and acquired two new-building VLCCs, two resale new-building VLCCs, and two modern Suezmaxes. We also continue to have interest to sell some more of our first generation vessels we have in the fleet, the vessels that were built up to 2007.

The dividend history; here we show the distributions that we have paid since 2002. The next dividend of $0.06 will be paid on December 15, 2015. We recently announced an increase in the dividend by 33% from $0.06 to $0.08 starting from the first dividend payment of 2016 that will take place in the first quarter of 2016.

In the last two years, dividends have increased by 60% from $0.05 per quarter to $0.08 per quarter per share. The Company likes to reward shareholders with sustainable and growing dividends. In total, since 2002, TEN paid $10.12 in cash dividends for approximately $450 million. And this compares with the listing price in our IPO of $7.50.

The next slide has the most recent NAV calculation and lists the analysts covering the Company.

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. At the same time, believing in the Company's value and the business in which we operate, management continues to increase their holding in the Company.

And that concludes the operational part of our presentation. Paul will walk you through the financial highlights for the quarter and the nine months. Paul?

Thank you, George. Although we expected a muted quarter after the robust half year, in fact quarter three was very positive for us, with net income at $40 million, nearly eight times more than the prior quarter three, while nine month income was $119 million against $20 million last year.

Operating income was $45 million. And as George said, that's over triple the prior quarter three and, for the nine months, 200% higher at $140 million. This includes $2.1 million in net gains from the sales of vessels Triathlon and Delphi, demonstrating shipping can also generate income from asset sales as a secondary core activity when opportunities arise.

But, the main bottom line provided is of course revenue which, after voyage expenses, totaled $110 million in quarter three, up 33% from the prior quarter three despite two less vessels, and for the nine months $343 million, a 39% increase.

Our Aframaxes mostly operated in a dynamic spot market, with average daily TCE rates in quarter three at $26,000. Average Suezmax TCE rates, at nearly $30,000, were 39% more than in the prior quarter three.

Panamax and Handymax daily earnings enjoyed reasonable or respectable increases over the prior quarter three, but Handysize rates really shot up, by 54% on average.

Although there was clearly some negative seasonal impact on rates compared to six month rates, the average TCE rate in quarter three, at nearly $25,500, was 38% over the prior quarter three and, in the nine months, 36% higher at $25,900.

Quarter three generated $69 million EBITDA, 68% up. All fully operating vessels generated positive EBITDA. For the nine months, EBITDA increased by 75% to $217 million.

Operating expenses fell by almost $1 million due to the sale of the two vessels and the stronger dollar, offset by expenditure on increased dry dockings, with four vessels in dock compared to three in the prior year -- prior quarter three.

Daily average OpEx for quarter three and the nine months was at a gratifying $8,070 per vessel, despite the impact of large and specialized vessels in our fleet. For the nine months, there was a 1% decrease in daily OpEx.

Finance costs fell to $5.1 million, mainly due to a $3.2 million discount on a loan prepaid as part of a program to refinance debt nearing maturity, and to increased swap valuations offset by payments on the swaps.

The prepaid loan was refinanced for six more years with a new $46 million loan at competitive terms. We also received $20 million in free delivery finance relating to the vessels under construction.

We prepaid loans of $23 million from the proceeds of the two sold vessels, releasing cash totaling nearly $20 million. So, debt at September 30 was $1.37 billion, net debt to capital 44%, and leverage on fair market value at 48%.

We've now arranged finance for the 12 tankers being built and the two recently acquired Suezmaxes, with discussions for delivery finance for the LNG carrier and two VLCCs in progress.

We aim to sell certain vessels over 10 years old in the next 18 months, with proceeds expected to be more than adequate to repay related debt, leaving a stronger balance sheet with healthy cash reserves. These reserves, together with expected cash flows, will cover our remaining equity contributions to compete our new-building program and, of course, provide a sustainable dividend payout.

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

Well, thank you for the good news, and hopefully we can have more of this going forward.

And again, I want to thank for the -- for your mentioning of the CCR award. I think in shipping we take very seriously our social responsibility. And I think this is something we have been doing for a very long period of time, although sometimes it's not as obvious. But, I think it is really very important to be recognized sometimes.

And with this, I would like to again open the floor for any questions that you may have.

Thank you very much indeed, sir. (Operator instructions.)

Hey, guys. Thanks for taking the question. Just wanted to start off with the recent dividend increase and maybe just the trajectory from here. You have a lot of vessels delivering next year, and you talked a bit about locking in more term fixtures now that that market's I guess improved and a little more deep. But, what does that mean for the $0.08 dividend from here? Will investors be waiting until 2017 for the next hike, or could we actually see you lift that again in 2016 if term business really does develop?

Thank you. Well, I think as George mentioned earlier, the management and the Tsakos family are the largest shareholder. So, I think we are on the same exact boat like our shareholders are. So, any time that we see that we can increase the dividend, [irrespective] if it then happens, we are there to look at it.

But, however we recognize that we are in a market where we have to take delivery of a big number of ships going forward. And the last thing, we are a long term shipping company. We are dedicated to our company and to our business, so we're not going to be risking the company just to make us happy for a couple of quarters by extraordinary dividends.

But, I think when we believe it's -- the time is there, and we will be looking to increase the dividend. I think (inaudible).

Okay, that's fair. And Paul, last time you mentioned potentially ending the year with nearly $400 million in cash. It sounds like you've got some vessel sales that are maybe going to be on the block soon. Just wondering if that's still your view, and then maybe if you could just let us know how much of the current cash balance is earmarked for recent acquisitions in the new-build program.

Well, I think the $400 million related to the end of next year, should the profit remain as it was in 2015.

A lot of that cash that we do have is in fact earmarked for the CapEx program. We still have about $160 million of equity contributions to make. But, as I mentioned just now, we believe the cash reserves that we have and the cash that we will continue to generate will comfortably cover them.

Great. And then just last one and I'll turn it over. So, I know you guys don't like to place new build order without a contract. But, with new-building price I guess on the decline, I have to think it's getting a little harder to ignore. So, I guess I'm just wondering, can you give us a sense of how much interest is out there to do a deal similar to the Statoil deal where you can capture these low prices now but then still have a contract behind it?

Yes, I think -- and as I said, when we assumed our position at INTERTANKO, we do not like to see at additional supply coming in the market. As I said, in shipping, we should try and keep this market lasting as long as possible and not turn it into what the dry cargo market is today or the container market.

So, I think we have to keep our fingers crossed. Right now there is a lot of appetite for similar deals for a number of owners. So, we are looking at all those deals. I think what we try to do is perhaps not go for new-buildings.

But, there are numbers of owners that are, for their own reasons -- either they have a diversified fleet and bulk carrier business that makes money in the tankers, that might have resales for this type of business. But, inevitably this is golden mean in between, new-buildings and not adding supply in the market.

Got it. That's it for me. Thanks, guys. Have a great weekend.

Thank you. Same to you.

Michael Webber, Wells Fargo.

Hey, good morning, guys. How are you?

Thank you. Hi, Mike.

I just wanted to follow up a bit, I guess a couple questions around your value proposition and maybe assets here. But, I guess first off, given where the stock's trading and the relatively firm market and that it's below NAV, I'm just curious how you weighed the value proposition of more aggressively buying back the stock versus expanding into other traditional carriers, LNG or shuttles. It would seem that the value disconnect is -- could be greater within your own equity. So, I'm just curious how you weigh that value prop right now.

Yes. We look very closely to that, and I think we will be -- we recognize that we don't want to have to pay expensive debt. And this was the exercise that I think Paul mentioned earlier, where we used our cash to reduce significantly our debt by making also a capital gain on it.

And we are looking at ways to, first of all, reduce our debt. This is, I would say, the first way to enhance shareholder value.

And also, of course, we have our securities, our prefs, which of course are equity but they're out there, that also are an expensive way of financing. That was used at the times the market was not the way it is today. So, I think we will be having something with that before the end of the year.

Okay. That's helpful. Now, I wanted just to follow up on Spiro's question around -- I guess around new builds, but more around just the fact that net asset values are sliding back, it seemed like, a bit here with secondhand inching in as well. I'm just curious. From a market perspective, it seems to be a bit of a debatable point. But, do you think we've seen peak asset values for the cycle already, just given the fact that we are seeing kind of a drag from new builds despite firm cash flows? I'm just curious how you think about where we are right now in the asset cycle.

I have to say that right now, if it was just -- if we were in the market that only tanker owners are only operating oil in tankers, we would expect to have seen much firmer values that the ones we are seeing on the new-building side today.

As you may know, and I hope you're not experiencing it as a third person, there are a lot of investors in shipping which are suffering from other segments of the business. And I think that puts a lot -- the yard that builds the vessels actually will build vessels -- it's the same yard and it builds all the types of ships. So, I think that is what has put a dampening on the prices right now.

I agree with you, but we are -- we have never seen and we are not seeing the prices in either new-buildings or secondhand ships representing what we are running today in the spot or the term market. And that's why we were very aggressive in the summer, which is usually the slow period, and we took four ships within that month.

Okay. You mentioned the strength in the term market. You guys have obviously added some contracted offers, and there have been a handful of charters, actually one announced today, on three year. And it seems like that market's picking up. I'm just curious how you think about your mix here and whether you -- how aggressively you'd want to get a bit longer with some of your larger tonnage.

I think we believe that, because I think George has portrayed our all-in break-even -- which for many shipping companies sometimes it represents the OpEx break-even. But, if you go to page seven of your presentation, you see that our Suezmax break-even is at $17,500, our Aframax -- all of them at about that level.

So, today's market is double that. So, I think at double that, I think we're starting getting very interested to cover two, three, or five years.

Are those inbound calls at this point, or are you going to -- is this something where you get to that level and you need -- and you reach out? Are you seeing a lot of inquiry right now on long term business?

I'm talking about term. I'm talking about term. This is term business.

Right. No, I'm saying are you getting inbound inquiry on term business right now?

Yes, we are getting -- our chartering manager is here. Yes, he's getting a lot of calls, and of course we welcome them. And they all come from the names that we want to do business with.

Right. All right. Okay, great. And I'll turn it over. Thank you, guys, for the time.

Thank you.

Noah Parquette, JPMorgan.

Thanks. My first question was can you just give an update on --you were chartering for the LNG vessel you have, and the progress you're having on your new build?

Yes. Thank you. Well, I think it's -- as you know right now, we have quite an exciting year coming forward for us. We just took delivery today, actually, of our -- the Pentathlon, which is the secondhand Suezmax which we acquired earlier. We have a delivery coming in the first quarter, and then we have also at the same time the VLCCs.

So, we are seeing a very big demand. We could actually fix all the vessels that we have out there on long period employment right now. As you might know, we have nine, with six to be delivered this year, vessels. A big number of those vessels are for the Statoil transaction, which are chartered out up to 12 years.

So, the vessels that -- and then we have two LR1 product carriers chartered to Shell for, again, five years with profit sharing arrangements. And the weakest segment of the market right now, of course, is the LNG.

And I think we are very happy that we are participating in this market. Our existing ship, the Neo Energy, has been carrying the company with very good profitability in the bottom line for the last four years. It is opening up sometime in the second quarter of next year.

We're still -- we are in discussion with the existing charterers for extending the ship. However, the rates are not where we want them to be right now. Our other vessel, the Maria Energy, is opening up most probably in the third quarter of 2016. So, I think we have time.

So, other than the LNG, other than the Maria Energy, the other vessels, we could have chartered them at levels we actually believe are very accretive today.

Okay, that's helpful. And then secondly, the one VLCC you have in the water now, I think last we heard it was at $55,000 through September, I think. Can you give an update on that? Has it gone into the spot market?

No, no. That now is chartered out for three years in excess of $30,000.

Oh, okay. Great. That's all I had. Thanks.

Thank you.

Magnus Fyhr, GMP Securities.

Hey, guys. Just a question on, I mean, this -- if you can confirm that three year charter on those LR2 product tankers. It seemed like a very strong rate. You said 36 months with a minimum of $100 million for three vessels?

Yes, for the LR2s, LR2s.

Right, right. And would those rates -- compare them to some of the long term charters that you see in the crude market. I'd be curious to see your view now on the crude tanker market going forward versus the product tanker market. Seems like that product tanker has lagged a little bit. But, with these rates being fixed, I was just curious to see if there's a shift there, you think, over the next year.

Don't forget, Magnus, this is the TEN vessels. They're not anybody's vessels, yes?

The three vessels are actually providing huge flexibility for the charterers. When we say a vessel is an LR2, it means that these are vessels that can have the flexibility to carry crude, and then we have to clean her up at the start of the next one and carry products with a very, very eminent line.

So, that's why we are getting these high rates, because this is a play from the major oil companies to the flexibility that the quality of our ships can provide in both trades. So, it's not really there to play in either one of the trades. It's because they have the view that they are going to be using those ships really aggressively for the next three years as an average, because some of the periods are longer, for both trades.

All right. Thank you. And I hate to spoil the party here, but I have to ask a question on the LNG outlook as well. At the analyst meeting last -- you said you guys were looking at expand five vessels, maybe by 2020. Has that view changed? I mean, the market is very challenging currently, or you see opportunities there to get long term contracts to fix some vessels on -- against new-buildings?

I mean, our view is that we would like -- as we have a footprint in the products, we have crude carriers, we have shuttle tankers, we would like to have a significant participation in gas. I believe that time is on our side, as the song goes, because the market, I think, there is going to be quite -- the values are going to be quite interesting for buyers going forward.

So, I think we're not in any hurry. And I think in today's market we will not do anything unless this businesses -- these vessels come with businesses. So, right now this is not our main focus, but I think in the next six to nine months opportunities might arise in this segment.

Thank you. That's all I had. Congrats on a good quarter.

Thank you, Magnus.

Fotis Giannakoulis, Morgan Stanley.

Yes. Hi, guys, and congratulations for the great quarter. Paul, I think that you mentioned that you have arranged already the debt for your new-buildings. Can you give us an estimate of what is the equity requirement that you need? How much of this $311 million that you have in your balance sheet has to go for the equity portion of the new-buildings?

Yes. Actually, it's a number I mentioned a little earlier. It's about -- approaching $170 million.

And regarding a little bit of a follow up on the dividend, I am trying to understand how you think of your dividend policy. What is the mechanism behind and what drives any potential dividend increase? Is there a certain level of cash that you consider from the remaining amount that is left that you need to have in your balance sheet to operate? Is this capital, this excess cash that you have, that you are reserving for additional acquisitions? Why do you have so much cash in your balance sheet at this point?

Yes. Well, I think, having mentioned the $170 million, and we have $300 million at the moment, and we want to pay our, as we mentioned, sustainable dividend -- and there are other factors, of course. In the not too distant future, we have to start thinking about redeeming the first of our preferred stock, and of course looking for opportunities. I mean, there will be opportunities at some stage, opportunities hopefully with charterers or opportunities without and we get the charters.

So, I think to be really comfortable, the kind of cash we have at the moment is the kind of level that we want to -- we would want to have. And I think it would give comfort also to both our bankers and our shareholders as far as dividend payments are concerned.

Thank you, Paul. That's very helpful. Nick, I would like to ask you about -- you mentioned about the fact that the market seems more disciplined right now on the new-buildings, yet there are some people that they are a little bit skeptical about the new-buildings at the end of 2016. How much this worries you? How long do you think that this cycle of very strong earnings is going to last? And what are your estimates of the trade growth that is required in order to absorb the new-buildings? And I am not talking about 2016. I am talking about after 2016 in order for the market to stay at these great levels that it is today.

Yes, thank you. I think -- the markets and the charterers I think have already taken in consideration the supply coming in 2016. I think on page 10 of the presentation you can see that we will have about, I think at the end of the day, 50 VLs coming in, because you have some slippages and delays; a number of about 40 Suezmaxes; a bit less, I think, than 50 Aframaxes, because a lot of those Aframaxes are discussions of the dry cargo ships also that have been discussed in changing into -- onto the wet side.

Where I think the situation is a bit heavier, and I think that this is the final -- I think the final year of the deliveries from the crazy super ego period of two or three years ago, it's going to hand in the amount. So, I think this is going to be the year with most of the deliveries.

We are seeing very little coming for 2018, because people are numb. I mean, they're not sure about -- they are seeing that the other tanker markets -- sorry, the other shipping markets are hurting, and they are not sure about the tanker market. So, I think the offers that we have for long term employment today have taken in consideration the existing new-building order for the next two years.

This makes us comfortable 2016 and 2017 will be good years. If the price of oil maintains around $50.00, $60.00 or lower, I think it will be even more exciting years. But, I think we have two solid years going forward. So, I think that's as far as we can see right now. And that's why we are also covering our position going forward.

Thank you, Nick. And one last question about the two LNG carriers. Obviously these are -- it's a very small part of your portfolio. But, I want to ask you if there would be any value for you to include your vessels in the Cool Pool that some of your peers initiated a few months ago, or your plan is to put them in time charters and operate them on your own.

Well, as you know, we are all for communication between the owners. And I think this is want INTERTANKO provides also. It's a mechanism where owners can communicate all their issues, mainly technical, legal, but also commercial issues. So, I think you are talking to someone who is very much pro communication. So, yes, I think for us we are already in discussion with the other owners.

I think for us right now, of course, we still have another five or six months of employment with our existing one vessel, and then almost a year for the second vessel. But, we are in discussion and we are open for this discussion, because I think that the owners should be discussing not only in the bad times -- because pools are like an umbrella. People go when it rains and they just gather together under it.

But, I think they should be able to continue talking when the markets are good, like they are right now in tankers in order to uphold the rate. So, this is -- I agree with you, that we are there and we would like to discuss. We have no -- I think there is a lot of knowledge to be shared and it will always be possible between owners.

Thank you very much, Nick. Congratulations for the great quarter.

Thank you.

Mark Suarez, Euro Pacific.

Good morning, guys, and thanks for taking my questions here. Just maybe I had a question about your capital deployment strategy. I know in the beginning of the year you were aggressive in looking at secondhand charter attached. You did the resales with the VLCCs.

I'm wondering if that's your strategy. It sounds to me from your comments that there is an opportunity here to maybe switch to return some of that cash to shareholders at this point in the form of share buyback. Obviously you've done the increase in dividend. I'm wondering if you can maybe talk around that.

Yes, I think the beginning of the year we felt there were opportunities in the market. I think we took advantage of them. We moved very swiftly. Right now we are looking more in selling some of our assets in order to maintain a very high -- a very young level for the company fleet.

And in the meantime, we are increasing our dividend because we like rewarding our long term shareholders with dividends. And I think this is something we would like. We hope to be able to increase that dividend if the circumstances provide it even further.

As I said, the management and the Tsakos are the largest shareholders, and we are telling the benefits of the dividend together. So, I think -- but, again, we are very responsible and we are not planning to put the company into any sort of a question mark for our balance sheet by overpaying.

Okay. So, you mentioned overpaying and not overpaying and, of course, the dividend policy here. And I know you touched on it on a few questions. I'm wondering if maybe also the dividend policy is a function of, as you take in these new builds, you take in the -- you grow your distributable cash flow, do you have -- is the dividend policy mostly a function of your employment mix between spot and TC, or would you describe it as a function of the employment mix plus of course the cash that you have available in the balance sheet? I'm wondering if you can give us some sort of -- how you think about potential dividend increases going forward in 2016.

Well, I think 2016 is going to be a very demanding year for us for deliveries of new ships. And that's why I think we have increased the dividend by 33%. But, this is something we feel we can comfortably do and take all the deliveries, and also in consideration of a slow market on the LNG side.

We hope -- if the market continues with its same pace in 2016, we hope that we will be able to happily increase our dividend going forward for 2017. I think this is always our intention.

However, if the market does not meet our expectations, our company will be able to maintain the existing dividend for a couple -- for two years or longer going forward. The last thing we would like to do is come back with a surprise to our shareholders by cutting the dividend.

So, I think this is the way we view the situation. If we have some special capital situation from having to -- some insane proceeds or -- then again we will consider the increase of the dividend.

Okay. And then, you also talked about term -- long term fixtures actually getting more attractive now and the potential of maybe switching some of the spot contracts into TCs. Do you have a target employment mix between spot and TC that you would like to see as the margin remains strong? I mean, do you have maybe a target you are aiming for as you switch some of the spots into TCs here?

We have always been, I think -- we have two conservative Chairmen, a past and a present. So, we have always been conservative.

I think we were in the past 70% fixed, including of course profit sharing arrangements which gave us both exposure, and 30% spot. So, we came back to the exact reversal earlier this year for good reason. I think it was perfect timing. And now for next year we're at 52% or --?

We're almost 53%.

We are almost 53% again. But, our intention will be perhaps to reach back to the 70%/30%.

To increase the fixed employment with also a bias toward profit sharing.

Fine. Okay. And I guess on the VLCC resales expected to be delivered in 2016, are your expectations here to employ this under spot contracts to begin with? Is that what your thinking here is?

Yes. I think this is exactly what we did with the contracts right now. We just took delivery of the vessel. I think it's making $68,000 on the first voyage. So, a tremendous value, so that's what will give us a good start.

And because there are a number of charterers looking for long term employment, we will be discussing with them as we go into the winter months. And as I think George said, this quarter and the next quarter are traditionally the two strongest quarters in -- seasonally for the market.

Right. And then I guess lastly on the DP2 shuttle market, Nick, I'm wondering how you've seen that market trend so far in the fourth quarter and through 2016. And do you have any updates regarding the potential exercise of the option there? I know you have an option for another DP2 shuttle here.

Well, first of all, I am very impressed that you are following our company so closely. I think it's like you are part of the management, because this option is also one of our concerns, yes.

As you know, this is not really a market that has a spot day-to-day rate. I think we actually started out three of them at what I would consider a positive side during the cycle when the price of oil was in excess of $100.00 a ton. And we are enjoying 15 year contracts -- barrels, enjoying these contracts as we go forward.

We have been asked and we have extended the option up to the end of the year for that vessel. And we will be very happy to have a fourth vessel in the fleet.

Okay, great. Well, that's all I have for now. Thanks for your time as always.

Thank you.

Charles Rupinski, Seaport Global.

Thank you, operator, and thank you for taking the call -- my question. I appreciate all the industry color, and I just had one follow up regarding potential longer term employment. And how willing are some of your customers, the oil majors or what have you, to include profit sharing? I know you got the profit sharing on the LR2s. Would you say that you would aim to get profit sharing on all of the future long term business? And to what extent do you think that's possible, given what your customers' views are? Thanks.

Yes. Well, I think initially that was a concept that, I would say, three or four years ago during the difficult market, it was not hard -- it was not easy to convince the charterers. In recent -- in the recent year, I would say in the last year most of the charterers are open to something in profit sharing.

And I think it is fair arrangement as long as we are long term players in this market. We're not trying to get a quick fix for like one or two quarters and then disappear from the market. So, we are long term energy players. So, I think as long as we can get an accretive base rate and then share the upside based on the market with our clients, I think it's a win-win situation.

There are many different things that -- you leave something on the table, which I admit me do. But, I think at the same time, having an effective meeting guarantees to us business, full utilization, and profitability regardless of the market cycle.

So, as the market is strong right now, the majority of our charterers are -- we're actually negotiating the base rate and the profit sharing is not a concern. They're all happy.

Okay, great. That was very helpful, and I appreciate the time.

Thank you.

Robert Perri, AXIA Capital Markets.

Hi, guys. Great quarter. Pretty much most of my question have been answered, but just a quick -- if you could, give just a quick update on what's going on in the product market. It's been a bit weak coming into November. I was wondering if you guys are seeing anything that looks like that's going to change or how you see the market shaping up for the rest of the year.

I think typically the strongest season for product tankers is usually the second and third quarter, with basically most of the focus being on the United States and the driving season. So, the market, I think, took a pause from, let's say, the results that we have seen in the third quarter.

But, we are entering the heating season. We are entering the winter period. So, there's going to be demand for diesel and heating oil. And so, I think -- and as the refineries are coming back from their turnarounds, I think we are going to see an improvement in the flows of product.

And let's not also forget another thing that has been recently introduced in the market. We have in some of the markets, especially on the diesel market, the contango steepening up, and we might see storage for products coming in fashion as we move into the next couple of months.

Okay. Thank you very much. Great quarter, guys.

Thank you.

Amit Mehrotra, Deutsche Bank.

Yes, thank you. Thank you very much. Good morning, afternoon. Euronav, when they reported results they talked about speeding up, which they saw a little bit of in the third quarter, obviously on the crude tankers. Maybe that was part of the reason sort of the super spike that we saw was somewhat short lived. Can you just sort of talk about that, given where obviously bunker prices are and where rates are today, how you think speeding up may impact the market as we head into sort of the seasonally strong period where expectations seems to be high? Thanks.

I think speeding up in tankers right now is like speeding up around a kindergarten. So, I think we have to keep things nice and slow.

And these are things we discuss with our colleagues. As I said, we look at this market and the cycle as a marathon. So, in a marathon, you have to actually take -- have a pace rather than a sprint. And none of us here are Jamaican, so none of us can really sprint.

So, I think we are all for the -- for conservative speeding. I think it's good for the environment. It's good for the our emission -- our environmental footprint. So, I think we would encourage -- I think we encourage our operating people here -- I don't know if they listen, but we encourage them to try and keep the speeds under control as possible.

I think it is -- for some of the owners it is intriguing to see that you can -- if you actually do 40 knots you will get to next port and get another $40,000 or $50,000. But, I think it's better if you can do it for a shorter period of time than longer.

And we are trying to resist also on the time charter ships as much as possible the charter pressure to speed up. So, in the spot market we are trying on the laden voyages too to keep the natural urge of human greed of speeding under control.

Right. By the way, I think Jamaica is bobsledding. I think you meant to say Kenyan.

The other question I had was just with respect to the capital structure, and everyone's asked this question. But, I don't know if you've ever provided sort of a target leverage that you guys are comfortable with that sort of balances your I guess prudently conservative sort of approach to sustaining the business model versus sort being able to optimize the balance sheet for shareholder value. So, is there any quantitative things around whatever it is that you can point to that maybe, when you've breach those levels, that's sort of a signal to everybody that maybe you're going to do something that's going to use that balance sheet capacity? Thanks.

Yes. Again, as I said -- well, when I said Jamaican, he's on the sprint side. We are not 100 meter sprinters.

But, I think what we want to try and do is have a conservative long term view that is able to sustain the cyclical changes that are inevitable in our business. So, I mean, we have never -- I think, George, if you go back to the balances, I think you mentioned the various debt to equity ratios over the period of years. And you will see that we never really exceeded -- even in the worst period of times in the market between 2011 and 2013, we never exceeded 60%.

Okay. That answers my question. That's great. Thank you so much. I appreciate it, guys.

And as there are no further questions, I shall pass the floor back to you for closing remarks.

Well, again, as I said, thank you for being interested in the Company. I think we are -- we have been talking about this recovery for quite some time. I think we are right now feeling it, in the middle of it. We are taking advantage of it as a Company as much as possible.

At the same time, we believe that, because of the uncertainties out there about shipping, the values of vessels and hence the values of share prices have not -- in our case at least, is not portrayed. So, I think we still have a big opportunity in TEN.

We as management and major shareholders have been buying -- our share price never showed any of us surprises. I think it has served us well. And we believe we are -- with your support, we hopefully will enjoy a longer term good market. Mr. Chairman?

Well, thank you, Nico. Once again, congratulations to all. There seems to be a very balanced earnings mix, asset allocation, and tight expense control. I think that's a guarantee that, with this market, you will continue providing to shareholders accretive performance.

One thing I need to clarify or repeat about our dividend policy, the dividend policy and the cash related to -- the cash kept by the company is all -- it's not a science. It is a mixture of things that we have to take into account to ensure that we have enough cash to make use of opportunities, that we have enough equity to invest in new-buildings, and maybe to allow our shareholders to participate in the good rise that the firm has.

So, there is no formula. You as analysts obviously need to put numbers, but we cannot do that. It is more of a hunch and taking view on what's happening. So, we hate to reduce -- to have to reduce dividends, as Nico said. So, we are steadily increasing as, if, and when the market allows us to do so.

So, I have nothing else to say. Congratulations, and let's hope we get the same results next quarter.

Thank you.

Thank you very much indeed. And with many thanks to our speakers today, that does conclude the conference. Thank you for partaking, and you may now disconnect. Thank you all.

Bye-bye.