Tsakos Energy Navigation Ltd (TEN) 2016 Q2 法說會逐字稿

Thank you for standing by, ladies and gentlemen, and welcome to Tsakos Energy Navigation conference call on the second-quarter 2016 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 will be a presentation followed by a question-and-answer session, (Operator Instructions). I must advise you that this conference is being recorded today.

And now I pass the floor to Mr. Nicolas Bornozis, President of Capital Link, investor relations advisor of Tsakos Energy Navigation. Please go ahead.

Thank you very much, and good morning to all of our participants. This is Nicolas Bornozis, investor relations advisor to capital -- to Tsakos Energy Navigation.

This morning, the Company, Tsakos Energy Navigation, publicly released its financial results for the second quarter of 2016. In case you do not have a copy of today's earnings release, please call us at 212-661-7566, or email us at TEN@capitallink.com and we will email 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 addressed 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 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, 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 contain certain forward-looking statements within the meaning of the Safe Harbor provisions 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 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 TEN. Mr. Arapoglou, please go ahead, sir.

Thank you, Nicol. Good morning, everyone. Thank you for attending our call for the third-quarter results.

Despite the difficult times in the world economy and world trade, Tsakos Energy Navigation management continues to run the Company in a profitable way. On the way, there are shortcomings, difficulties, but profitability is unquestionable. It underlines that TEN is one of the few companies that can demonstrate such profitability in difficult times. And on behalf of the Board, I'd like to congratulate Nikolas Tsakos and his team for this continued success.

The positive trend of the Company's profitability will be reinforced going forward in view of the delivery of a series of vessels in the next 12 months that are estimated to add an additional $100 million per annum in EBITDA. So, again, congratulations to Nikolas Tsakos and his team, and for managing and navigating the Company in such a profitable way in difficult times.

Over to you, Nikolas. Thank you.

Thank you, Chairman. Thank you, ladies and gentlemen, and welcome to our second-quarter results. As Mr. Arapoglou said, the market environment in the second quarter has been uncertain. However, TEN with the structure of our chartering that has followed for many quarters now, is trying to take the seasonality out of -- or to be affected by the seasonality as little as possible.

We are -- these are the second quarter, we are facing a seasonal down in the market. This year, it has been very, very obvious. On top of this, we had political events that were out of the ordinary. We have had a lot of disruptions of exports from Nigeria, which is one of the largest exporters of oil and affects a lot the Suezmax and, secondarily, VLCC and Aframax size. I'm glad to hear that these disruptions are being ironed out, and very soon we will go back to full exports from Nigeria. So, those are going to come on time for the market to turn around as we expected significantly on the fourth quarter.

We have also seen some of the countries using inventories more, and we are seeing in the United States quite a strong growth for in the early two weeks of inventories, which is another good sign. We have been affected by Russia due to sanctions and low prices of oil. They have significantly limited their exports from the Black Sea and from the north side of the country. And they have been using a lot of their production to fulfill local obligations, but we expect also this -- and a winter, a colder winter, to help the rates on the spot market.

On the other hand, we are TEN; we are following a steadier program. We are in the process of almost on the first third of a very long renewal of our fleet, which we started and planned in 2013 when the market was very poor. We started taking delivery of those ships. All those ships have a long-term accretive contracts. And what we would like to be able to have as a Company, that is long-term fleet which will approach 70% of our outstanding days will be able to cover all our obligations. So, profitability will not be in question. The 70% of our fleet that will have the long-term employment will cover all our obligations, and then anything else that our spot fleet produces will be the profit. So I think this is the model we would like to follow when we are almost halfway there. We still have up to the end of 2017 to achieve this target.

And with this, I would again thank all of you for your support. We are living at exciting times. There are always opportunities during the high and lows of the market, and we are here always trying to take advantage of them. And I will ask George Saroglou, our COO, to tell us quickly what we have been doing for the last three and six months.

Thank you, Nicolas. We reported today another profitable quarter and half-year results. 2016 is a landmark year for the Company, as its growth program, being the largest since inception in 1993, is coming to fruition.

Despite the decline in rates during the second quarter and the summer months due to seasonal factors and reduced oil supply in key export areas, rates have remained significantly above the cyclical lows experienced in the period from the second half of 2010 until the end of 2015. We expect rates to gradually move higher during the upcoming winter months, when increased oil demand and winter weather seasonality typically improves tanker market conditions and rates.

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, with the key operating highlights. We took delivery of two new buildings during the second quarter: VLCC Ulysses in May; and the Aframax tanker Elias Tsakos in late June. After a repositioning voyage, Ulysses started a 40-month employment at an accretive rate. Elios Tsakos is the first of nine purpose-built Aframax tankers that will serve Statoil for a minimum seven years, maximum 12, if (inaudible) exercise all extension options.

In addition, during the third quarter TEN took delivery of the second Aframax, Thomas Zafiras, chartered to Statoil, and the first of two Panamax LR1 tankers -- again, billed against a five-year time charter.

From now and until the end of the year, the Company expects to take delivery of another two Aframax tankers also chartered for seven years to Statoil, a second Panamax LR1 tanker also chartered for five years and the Company's second LNG vessel, Maria Energy. 2016 is the Company's busiest growth here since 2007. Following a successful four-year charter that ended in February 2016, and a few spot-trading fixtures since then, we announced today the fixture of a 2007 build, LNG NEO Energy, to two years plus 6 months in charter (inaudible) options at the rate that covers the vessels' expenses.

The LNG market is improving after touching bottom earlier this year. We expect to take delivery of the Company's second LNG vessel, Maria Energy, during the fourth quarter. We are in active discussions with various parties for a charter either of short- or medium-term tenor that will eventually reflect the expected recalibration of rates to higher levels. During the second quarter of 2016, TEN operated an average 50.5 vessels. Pro forma, we have a fleet of 65 vessels.

Thanks to the modernity of the fleet and the balanced employment strategy, we continue to operate the fleet at a very high utilization rate. For all the tankers in the fleet, the number is 98%, almost full employment. We should also point out that we have 60% of the earnings capacity days of the operating fleet fixed forward. 33 vessels in the 54-vessel fleet have secured employment at healthy rates with an average duration of 2.8 years. We have 21 vessels currently trading in the spot market as we are about to enter the winter months, which usually are the strongest months for energy demand and transportation requirements. The oil price seems to have found the floor and appears to be trading in a range which for Brent is currently at the $40 to $50 range level.

Compared to where the oil price has been not so long ago, back in 2014, this low oil price environment continues to impact the crude sector and TEN in a positive way. World oil demand continues to be strong. We have seen upward revisions that 2016 global oil demand figures by in the international energy agencies coming back to the 1.4 million barrels per day growth number forecasted at the start of the year. The low oil price continues to stimulate demand and encourage strategic and commercial stockpiling among consuming nations.

Despite significant oil supply disruptions in Nigeria, the problems in Libya and supply disruption in certain Latin American producers, OPEC continues to produce oil at record levels, reaching 33.5 million in August, led mainly by increases in productions coming out of Iraq and Iran. Supply of oil going forward is expected to remain at these elevated levels, and this is positive for tanker demand and tanker earnings.

Fleet growth in the first half of 2016 was less than 3%. Fleet growth is expected to be higher during the next 12 months. However, the lack of new tanker orders during 2016, mainly due to restricted access to capital, should result in low fleet growth once the current order book is absorbed over the next 12 to 18 months. Scrapping should pick up, as we have more vessels reaching 20 years in the next couple of years, together with new environmental regulations coming into force.

Overall, we still believe that 2016 is going to be another positive year for crude tankers thanks to growing global oil demand, high supply of oil and relative low oil price which moderates the effect of a growing tanker fleet.

The next slide is the main financial highlights of our press release, which Paul will presence in more detail. I would like to point out the $16.4 million net income for the second quarter to $41.8 million for the six-month period, EBITDA of [111 (inaudible) million] for the six months, and a strong balance sheet and cash reserves at $263 million at the end of the first half of the year.

This is the fleet as it stands right now, pro forma -- 65 vessels, which includes the 54 vessels in operation. And as we said, we have a strong fleet growth thanks to the Company's new-building program which is already financed and built against long-term business, as 13 out of the 15 new-building vessels the Company is building are fixed on longtime charters with minimum five-year duration, excluding optional periods. Predominantly, the fleet is engaged in crude oil transportation, that is a sizable number of vessels engaged in transporting products, while with five vessels are specialized covering the LNG and the offshore and shuttle tanker sector.

The fleet is very modern. The average age of the operating fleet today is 8.6 years versus 9.9 years for the world tanker fleet. As more new-building vessels enter the enterprise fleet, the average age number of TEN's fleet is expected to be reduced.

Slide 6 lists the clients of TEN, all of whom 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.

The next slide shows the all-in breakeven quotes for the various vessel types that form the enterprise fleet. The cost base, as you can see, is low, as TEN builds most of the fleet before the rise of new-building price. The purchasing power of the technical manager, Tsakos Columbia Shipmanagement, and the stringent cost control by management has reduced the fleet OpEx levels, and this has also to be highlighted.

Slide 8 shows -- gives some few pointers about the market. Demand, as we said, is expected to continue growing at 1.4 million barrels per day, which is higher than the long-term growth trend which is about 1 million barrels per day. The global economy, despite headwinds in some regions, continues to grow. Lower oil prices are supporting demand -- strong demand, we have to say -- especially in the United States of America, China and India. This supply-driven drop in the price of oil benefits the tanker market. Rising volumes, arbitrage rates, longer distances and manageable fleet growth for crude tankers are expected to support the market in 2016 and beyond.

Next slide is the order book, and as you can see the order book beyond the next three or four quarters is shrinking. Shipyards in the Far East reduced capacity, are also in the midst of restructuring, and available bank finance is very selective and also shrinking. Also, a significant percentage of the fleet is above 15 years, approaching 20.

The dividend -- slide 10 has the dividend history of the Company. We announced today a dividend payment of $0.08 per share payable on November 10 to the shareholders of record on November 4. In total since 2002, TEN has paid $10.36 in cash dividends per share, or approximately $436 million, and this compares with the listing price in our IPO of $7.50. The average yield since the IPO is 5.25% per annum. In addition, the Company has repurchased since January 3.7 million common shares at an all-in cost of $5.58 per share. In the last 10 years, the Company has repurchased 7.5 million common shares at an all-in cost in excess of 130 -- $103 million.

Slide 11 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. At the same time, believing in the Company's value and the business in which we operate, management continues to increase their holdings in the Company.

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

Thank you, George. So despite the challenging quarter, TEN achieved net income of $16.4 million in quarter two and earnings per share of $0.15, after preferred stock dividends of $4 million. Six months' net income was $41.8 million, with earnings per share of $0.39. The reduction in net income compared to previous periods was mainly due to rates softening due to factors, as Nikolas and George had mentioned, and factors that we expect to have a declining effect in the forthcoming months from now.

The LNG carrier faced an especially poor market and consequently repositioned in search of more favorable earnings. That alone reduced our revenue in quarter two by $7 million compared to the previous quarter two. Fortunately, as George has mentioned, the vessel's new storage charter will generate revenues that offset its costs while we seek future profitable employment in the stronger LNG market anticipated by observers to start in 2017. Nevertheless, excluding the LNG carrier, the remainder of the fleet enjoyed full employment at 98%.

The average daily rounded TCE rate in quarter two was $21,700, and $22,500 for the six months. Half our Suezmaxes were on spot at rates 18% down on the prior quarter two, and Aframax rates were similarly down.

The Suezmax tanker Decathlon acquired in quarter one, and the more recently delivered VLCC Ulysses, fortunately did help to boost net income by a combined $1.5 million in quarter two. While those product carriers on spot also earned less than in the prior quarter two, the rates earned by our product carriers on time charter were at least 50% higher than average available spot rates.

TEN's technical managers kept operating expenses under control. Quarter-two daily average OpEx per vessel fell 2% to $8,026. For the six months, OpEx was $7,958, also 2% down from the six months 2015.

Despite a temporary modest increase in vessels overhead costs, we believe they remain within the lowest levels of such costs within the industry at about $1,400 per vessel per day. Finance costs were $8 million similar to the prior quarter two, slightly higher interest being offset by reduced payments on bunker hedges, which also helped reduce six-month finance costs. EBITDA amounted to over $51 million in quarter two, while six-months EBITDA was $111 million. All vessels generated positive EBITDA in quarter two, apart from one vessel in dry dock and the LNG carrier.

In quarter, two outstanding loans increased by $133 million as our new-building program progressed. $77 million of this was for the new VLCC, which generated healthy income on the spot market before entering an accretive time charter. This brings overall debt to $1.56 billion as the half-year ends and net debt to capital to 47.8%. We have approximately $410 million arranged debt still to draw in connection with the remaining 11 vessels, nine of which have charters attached, which will generate more than adequate cash to service that debt.

And now I'll return the call to Nikolas.

Thank you, Paul. As you said, I think this is a challenging market environment, which we expect to look at it in a much more positive way going forward. Have very positive segment seems to be the change of sentiment in the LNG, and I think this is very well-timed, very welcome, not only for our long-term FSU charter on the new energy but on the delivery of our vessels, which is going to be subject to finance (inaudible) trials within October. And we believe that she will enjoy a much healthier rate, and those rates will be increasing as we are looking for a much better market.

So, whether this LNG puts a burden on our second-quarter results because of her repositioning for her FSU charter, we hope that we will be able to pay this investment bank back very soon.

And with this, we would like to open the floor to any questions that you may have. Thank you.

(Operator Instructions). Noah Parquette, JPMorgan.

Thanks. A couple questions. Can you give any guidance on the terms of the LNG floating storage charter, perhaps an annual EBITDA number, something that we could use to get a sense of what the profitability is?

Yes, this is something that we see as a long-term project. So, the initial two-year period is covering our all-in breakeven, as George mentioned it. And if the options are taken, I think that we will have additional profits from that. And, of course, after that the vessel is being chartered for two years on a fixed rate, which covers our bottom line, a significant increase almost more than doubling of the other period -- of the optional period, and then much more negotiations going forward.

So I think for that, it's a very good -- we are very happy with the situation because it's the ideal employment for those who understand the dynamics of the LNG market. For this very good quality (inaudible) ships, which is a very efficient membrane vessel when it's on storage.

Okay. Great. And for the Ulysses, the charter, is that -- again, can you give us some color there? Is that more like an index-length charter or is that more of a minimum profit-sharing -- I know you can't disclose the actual formula.

It has a fixed rate which is very accretive. All I can say is why are breakeven for -- it's twice our breakeven if you go to a breakeven charter (inaudible) also something very accretive. And it has also upside because it has banker fuel protection clauses. But if I tell you more I would have to send you the chartered (inaudible).

All right. And I just wanted to ask a little bit about in the news, the Dallas water treatment regulations. How does that affect you guys in terms of what CapEx you would still need to do, and have you given some thought to that? Thanks.

Again, we tried to act thanks to the guidance from our technical people. We acted preemptively -- not only us, big part of the industry. So, a big part of the industry acted preemptively. Which means that we completed a heavy dry-docking and special survey schedule that has -- will show effects in our 2016 results. In order to get the five-year extension to when we will have to implement the system on our vessels. In today's market, we estimate every time we will have to re-profit the system like this, ownership depending on the very confusing technology that the minimum cost will be $0.5 million per vessel for the average size of ships excluding the (inaudible). But we believe that within five years technology will have caught up with developments, and the investment will be more efficient and less time-consuming and cheaper.

That's all I have. Thank you very much.

Mark Webber, Wells Fargo.

Just wanted to follow up first on Noah's question on the FSU contracts -- the potential FSU contract. I guess maybe without giving a firm sense on EBITDA, can you talk to where the rate on that would be kind of relevant to where spot rates are today, so kind of call it $38,000? I know it's a bit of a loaded number because utilization across the fleet is not nearly uniform. But if we just think about it, if we just kind of allow for that and just kind of think about $38,000 rate on a spot basis, how would an FSU contract look right now for two years?

I think you -- on two years down the road, it's significantly higher than the $38,000 today, which I think is the ongoing spot rate if you can get it for correctly as you said for the drive fuel vessel. Of course, then you have to put some discounts on some ships that are (inaudible) technology is more better. Hopefully by next week -- I don't know because I'm in the market (inaudible) -- by next week we can talk about $40,000 a day. So every week we can get a little bit more.

So the FSU, considering an FSU project the vessel is -- it's been semi layup, so you do not have the expenses of a normal (inaudible). You have less growth, less lubricant consumption, less expenses , less insurance (inaudible) on the vessel. So you have a discount from -- we have probably a discount from the 38 -- today, I would say for a (inaudible) vessel if you could find business, it would be in the mid-20s. So I think that's about the levels of the storage business. But of course then you have to -- it is more profitable because you have less expenses also.

Right. That's very helpful. In term -- I guess with regards to the term, and you mentioned rates are kind of grinding a little higher, as it's pretty easy to see I guess (inaudible) said that it's somewhat of an improvement over the next couple years in rate. Do you bake in some escalations into those contracts and/or some sort of contango into that rate structure?

Yes. I think this is for sure. I think we get the feeling that in 2018 -- it's not a feeling; it's what we hear from the market and actually from the end-users. And from 2018 on, there will be a significant disturbance between supply and demand, so there will be more cargoes than ships that would hold (inaudible). From 2016 and 2017, like in the tankers, you have more deliveries, but we believe that 2018 will be useful. We will not charter a ship post-2018 at today's levels. I think (multiple speakers).

That makes sense.

When you're building, it's very important to get a very good name to start the vessels and on the right foot, and then we believe that she has a very, very good future.

Got you. Just one more and then I'll move on. But that asset was replacing a relatively new FSRU that presumably gets re-led into the market. Can you talk about the dynamics around those negotiations, the rationale for the Chinese moving to a pair of FSUs as opposed to keeping the current equipment in place?

Well, it's not exactly the issue because they, the Chinese, as you correctly said, (inaudible) information here. The Chinese, they had the choice to build a storage unit at the harbor or to charter a ship that was not really replacing the FSRU (inaudible) building expensive and environmentally confusing and delaying storage facilities at the port and decided to use our ship as this tank (multiple speakers).

Okay. That's helpful. Just one or two -- one more from me and I'll move on. But just around uses of cash, obviously rates are easing. You have a good slide on your deck kind of outlining the EBITDA generation versus your dividend over the last decade plus. You have got a decent amount of amortization but nothing that can't be handled, and there should be some surplus cash in there.

I'm just curious -- you've been buying back a little bit of stock. Would we expect that to continue? And then at what point do you think that assets get attractive enough that you'd want to take on a bit more leverage and/or use most of that cash to kind of dive into asset values that are a multi-year low?

As I said, I think we have already a problem -- well-planned since 2015 of the delivery. So we are not looking immediately for an additional -- we have too much tonnage and all of it is chartered out coming. We are very excited about what is happening, what is coming. We will of course -- we will not shy out of opportunities. But I think our cash, first of all, we will keep to reduce debt and to pay dividends. Those are our obligations to our bankers and to our shareholders.

That's helpful. Thanks for the time, guys.

Ben Nolan, Stifel.

Yes, thanks. I guess I have a couple of questions. First, just for modeling purposes, after having done the share repurchases that you have done thus far, what share count should we be using as of the end of the quarter or maybe currently?

About 83 million, 83.5 million shares (multiple speakers). 83 million -- I think that is a good round number.

Perfect. Thank you. Then another question maybe for you, Nik. I know in the past you talked a lot about ongoing discussions that you have been having with primarily oil majors who are looking to really do project-specific situations, be it long-term tankers, shuttle tankers or other things, even in the LNG market. Just curious if those conversations of varying types are still taking place in this environment. Or have -- is that not really the case, at least to the extent that it was?

I think from what we see today -- and we do see (inaudible) being in the market companies that traditionally are not that often out in the market -- like Exxon, they are out there. Chevron is out there for long-term businesses. And I think at this stage they are just discussing with owners like ourselves to see where new-building prices will end up or secondhand prices will end up in order to price this business.

But -- and I said we're all for this. And we are right now in a turning point, a very positive turning point, after 23 years where we are trying -- we are in the process of turning the Company from one of the major transfer shipping transporting tanker companies into a much more industrial Company helped by the nine newbuildings that are coming with very long contract from one major, two from another major -- the shuttle tankers. So all the ships that we are going to be taking in, it will change the balance, and we will become much more long-term player rather than a spot player. But -- and this will be accomplished by the end of 2017.

And our way will be to be able to cover, as we do with profit-sharing, all our obligations by our chartered-out fleet. And, of course, as George pointed out, it (inaudible) all breakeven transactions, and I think this is something that we can achieve to know that all the ships that have two or three years more employment can cover the obligations for the whole fleet. And then the remaining of the fleet make -- anything positive EBITDA, and that will go straight to the bottom line.

Yes, that makes sense. And that's very helpful color there.

But along those same lines, everything that we are hearing is that bank finance is extremely hard to come by. And obviously there are the haves and the have-nots, and I would assume that you guys would put yourselves in the category of those that can access finance. But does that change the way you think about rates of return when looking at these kind of transactions, long-term charters with oil majors, to the extent that probably very few of your competitors actually can participate in situations like that? Does it -- and even for you, bank finance is probably not quite as easy as it used to be. Does it mean that you need to get better rates of return in order to justify effectively higher cost of capital for the industry?

This is a very good point. And as you know, our strategy has always been in order to avoid having to aim for huge rates of return that I think when the market should be paying tanker owners for their effort. We prefer the method where we achieve a comfortable minimum rate, let's say, for five or 10 years. So we know that all our obligations will be paid, then we will make a high single-digit or low double-digit return and then have a profit share that could actually have a very much higher return. And that's a strategy we have been following to avoid having to fight long battles with our players.

Okay. So just on that line, we would -- or you would expect that probably the incremental business that you would be doing would very likely include some sort of profit-sharing element?

Yes. We can -- we would be happy to get the 10% return on our equity guaranteed and then split 50-50 the upside that could double that. But at least we could be guaranteed the 10% (inaudible).

Okay. That's very helpful. That does it for me. Thanks a lot.

Spiro Dounis, UBS Securities.

Just want to start off on LNG. You've been building out the technical management in that area. And I'm just wondering was that solely around the NEO Energy FSU project, or should we still expect you, I guess, to grow that segment out more and explore new opportunities?

I -- we believe that the LNG segment is a segment with a lot of future. We are an energy Company and we are a diversified energy Company, so we are not perhaps -- we are not a very simple Company to analyze because we are in every single part of energy transportation, starting from small product carriers up to VLCCs and, of course, LNGs.

So we are going to follow the requirements of the client. And we are seeing that the clients will require us to build more LNGs. We are going to be doing this not opportunistically, but with employment. So I have to say we are very excited about the LNG prospects, long term. We have the feeling that the LNGs, where the tankers were back in the 1960s when everything was chartered by appointment between oil companies and a handful of owners, we see the same environment now prevailing in LNG. And 50 years down the road, you see how spot-ended the oil is, it could happen. I'm not saying it will -- it could happen that this could be in the next 50 years. I doubt we will be around in the same shape that we are now. But at least the future generations can enjoy a much more liquid LNG. So we are in cooperation with (inaudible) services, which is -- we have a 50-50 joint venture to run in-house technical management and, of course, the commercial management.

Got it. Appreciate that color. Then just one follow-up on Ben's question just around doing the strategic deals, but maybe ask it a different way. Obviously, the Statoil/Aframax deal is pretty significant -- hard to come by those every year. And so there's no expectation of that, but I guess in a smaller opportunistic transaction since then.

And if you think about the next two years maybe, is it more likely that we're going to see these continuing bolt-on transactions? And maybe what's going to make the majors sort of trigger over to say, okay, we want a lot of tonnage for a lot of years? I guess, what's the inflection point we're looking for?

This is a business -- a pure business of supply and demand in good names. I think it's coming, and I think the question was up previously (inaudible) by then. But about -- there is significant -- right now, because the rates have shown a softening, we get more calls by major oil companies trying to get long-term business, but of course at numbers that do not meet our criteria. So I think the lesser new buildings that are coming in 2018 and 2019, the more interest will be from oil companies to cover their obligations. So I expect to see, as we go through 2017, interesting offers on this.

Got you. That's helpful. Last one -- just quick housekeeping on the buyback program. Sorry if I missed it. But I think last quarter you mentioned that the Board approved an increase from the $20 million up to something higher; not sure if you can disclose what that was and how much is left.

We have agreed to another $20 million.

Perfect. That's it for me. Thanks, gentlemen. Have a nice weekend.

Fotis Giannakoulis, Morgan Stanley.

Nik, I want to ask about some of the comments that your Chairman made at the beginning of this call about the poor market and, contrary to this poor market, your solid profitability. And I want to ask you about your dividend distribution. If the market continues to be as weak as it has been at this point, but your earnings are rising because of the new buildings as you take delivery, how are going to think about your capital allocation and your dividend policy? You have stated about a 30% to 50% earnings distribution, and I'm wondering if in a weaker market environment you would still consider raising your dividend. If earnings go up, of course.

I believe that we are -- as you know, every October we have a (inaudible) imaging where the Board and a lot of -- with advisors will discuss these issues. But I think our aim is to stick to the 25 to 50 or 30 to 50 distribution as we have been doing. We exited the busiest time. But if we continue, I think our aim is to continue the dividend. We believe the dividend is the best way to reward shareholders.

I just want to be a little -- to insist a little bit on this question. Would your recommendation be to increase the dividend if earnings increased together with the newbuildings that you know that they are coming and they have solid contracts?

If the market environment also is in a healthy -- not in a (inaudible) -- in a healthy situation, yes, I think this will be our aim is our income increases to increase the dividend. Not to levels that will put the Company in any danger, but to levels that would satisfy the shareholders and return the right value. Of course, if the environment around us is collapsing, which we don't expect it to be, we will have to consider.

Okay, that's very clear. Thank you, Nik. And I want to ask about the asset values. We have seen asset values softening even before the chartering environment becoming so soft as it has been in the third quarter. And we've been hearing about the lack of capital, the pressure that a lot of ship owners, they have not only from tankers but particularly from dry bulk and container ships. And also the lack of financing. Given the order book, and it seems that this year or next year is going to be weaker than 2015 or earlier 2016, how do you see the risk of a further softening in asset prices, and how do you see asset prices compared to the previous downturn during 2010 to 2014?

This is the first time that you are right -- that we are seeing complete lack of financing for (inaudible) ships. No bank would pay attention to someone who will just go place an order or buy a shift in the second market without a specific business, mainly the dry cargo, the container that have affected the tankers.

But this is the first time -- last week -- that we have seen an [interversion] by the Korean development bank. And I think that this is unprecedented. And it's creates a new, I would say, buffer. There were some orders being placed speculatively at significantly -- at very low prices at Korean yards, I think, in the $80,000's for VLCCs and in the mid-$50,000's for Suezmaxes. And we had the current development bank actually not guaranteeing the loans and pulling the plug or the carpet under the shipyards. The shipyards were desperate to get the loans. As you know, these loans are going to destroy -- of course, the shipyards right now, the majority of them are financed and owned by the Korean development banks. So, whereas you rightly said in 2010 in 2011, the yards were competing very hard for business, but of course did not have the best results for them, as we saw. Right now because it has this -- the opposite, so there is support on that.

Okay. Thank you. And Nik, I also want to ask about your exposure with Petrobras, if there is anything there that you can give us some color, how this projects that you have with Petrobras are developing and if you have seen any risks on these contracts.

We are doing business with Petrobras for 40 years, and we have never had a single problem with them. You can never say never. But I think, you know, every month no news is good news. So we are continuing with the relationship. And I think when they get right now their -- they finish the Olympics, they have to finish the Paralympics. And after they get a little bit straight with their political situation, the underlying demand for shipping there is there. And I think it's a huge country; Petrobras plays a very significant role. So I believe that more opportunities will come. I expect a lot of more opportunities to come from Brazil in the next two years. Because the Brazilians, I think, now with the new political situation, they have accepted the fact that they cannot build 150 vessels that they were planning to build of any certain time to move their own oil, which was a more, I would say, left-wing socialistic mentality for their experts. I think they have accepted that their ship-building capacity is not at this level (inaudible) is at all. So I get the feeling that in the next two years we're going to see a lot of demand for ships from Petrobras.

Just to clarify, you're talking about shuttle tanker deals and long-term deals, and these are (multiple speakers) -- yes.

All sorts of vessels, not only shuttle takers.

And these are long-term deals that they might be interest for you, I assume.

Yes, for me. And I'm afraid for some other people, so I don't have to talk to them now because --. But, yes, I think for the industry it will be interesting.

And one last question. Given that you are the last company that you have reported, so which means that you have a pretty good view of the third-quarter results, what shall we expect for shuttle -- for Suezmaxes and Aframaxes during the third quarter? I'm talking about mostly both for your spot fleet but also for your overall blended rate including your time charters.

I think that the third quarter had faced a little bit of bumps on the way. I mentioned the Russian reduction of oil experts to Nigeria as you know and the Nigeria disruptions, which are turning back. But from what we see, hopefully this will turn around. We're going to look at the much stronger market. We're already looking to the Chinese. We will be looking for more imports, more fuel. So I think we based everything with our breakeven, so I believe that our average will be well above our breakeven.

Is this a number that you can guide us that is average of the market? I'm not asking specifically for you -- I know that you have better numbers than the market. But [Claxos], for example, for Suezmaxes, it shows something like I think a very low number is something like $11,000 in the third quarter, if this is something close to reality or it's understating (inaudible).

The year-to-date figures are in the mid-20s, which are comfortable. The specific third quarter which are not so finished yet could be -- the market could be half of that. So you are right. But with process to be -- to get higher with Nigeria coming back.

Okay. Thank you very much for your answers.

Magnus Fyhr, Seaport Global.

Just one question left to ask on the LNG projects that you're working on. With two of these ships now soon contracted, what are your prospects after getting these two put away on contracts? Are you looking to order ships against contracts? And maybe you can talk a little bit about delivery schedule and pricing for additional vessels.

Our aim is to -- as I said, we are not going -- this is going to be another segment under the contemporaries that the company has -- VLCCs, Suezmaxes, Aframaxes, Panamaxes, Handy's, shuttle tankers and LNGs. So we are not gas look. I believe these guys do an amazing job and they are focusing on gas, and we are not Dynagas. We are a Company that will own, I would say, half a dozen LNGs from now up to the end of (inaudible) case based on long-term charters. And we are always open and in discussions, but we want to be as good in running LNGs as we are in running tankers. This is something that we will achieve.

And maybe, you mentioned the 10% return on equity plus profit-sharing on some of those tanker long-term contracts. What kind of are your targets on the LNG for going ahead with a contract?

Well, our target should have been higher. Because, of course, it is a more specialized business, it's a more demanding business, it's a much more expensive asset and it's an asset with technology still. So our four targets, according to our Chairman here, should have been in at least 15% and higher. However, some of our colleagues in the peer group tend to get business for half of that. So we will have to -- without completely exposing ourselves, we will have to compete up to a level that is comfortable.

Thanks. And what's the -- if you would order a ship today, what kind of deliveries could you get on that, and also what pricing are we talking about?

Magnus, this is so complicating because right now we will not order a ship unless it's out there, it will come and actually explain to us what type of ships they would like us to order, which means what type of engine, what type of size.

I mean, right now the dust has not settled in technology. The dry fuels, which we have -- we're going to be taking delivery of one of the highest-quality build dry fuels with amazing performance equal to the MEG engines and much better and much more tested than some technologies. But some old charters might even go back to steam. Other charters would like to -- we have charters talking to us about morse designs on signs and ships. So this -- we will not order anything unless it is specifically instructed by a charter what to order.

That's good to hear. Okay, that's all -- it's on me. Thank you.

[Ahmet Merotti].

I just have a quick one, and maybe from my own education. And it's regarding the age profile of the fleet and really sort of the tipping point, if there is one, in the crude tanker market -- the ship needs to go for scrap. And the reason I ask that, if I just looked at the VLCC fleet that's on the water today, only 1.5% of that -- of the ships are 21 years or older. And I can compare that to over 6% of the Capesize fleet that's at that age. So obviously there is a practical reason for scrapping older tonnage. And that makes sense to me.

But the question is if we look over the next three or so years, over 4% of the VLCC fleet will basically come of age. So there's obviously a good story here. And I just wanted to understand it better maybe from a technical standpoint of how difficult is it for older crude tanker tonnage to actually trade in the spot market. And what would the market need to be like to maybe offset the extra cost associated with trading older tonnage? Thanks.

If you look at how many vessels -- I think we have it also in the presentation -- are currently over 15 years, we have 128 VLCCs, and the current order book is at about 119 vessels, 120 vessels. We don't say that all of them immediately will go to scrap. Scrap levels for tankers because of the market being very strong in the last two years have been minimal.

But on the other hand, if rates softened and this softening remains for, let's say, a period of three or four quarters, then people when they have vessels that are due to go for the next special survey, you know, they would have to think always they are going to pass a vessel that will be 20 years old or approaching 20 years old.

Also, the new regulations with the water ballast system and everything will make all these things a little bit more expensive for them to pass the survey. And let's not forget that in a market environment where we have menu options, younger options, you have oil majors who are lowering the age bar. And so if, let's say, in previous cycles we had people that were willing to take vessels up to 20 years, not for spot but for period employment, now you see that 15 years is the barrier. So for all these reasons we expect that in the next two, three, four years, we are going to see significant part of the older tonnage exiting or going to places that will be best reserved for the fate of the older vessels.

Right. And that's what I was getting at. So right now, is it -- how difficult is it today to get employment for 20-, 21-year-old VLCC? Is there any sort of way you could just -- I know you talk about the bar being lower, but clearly those ships are still on the water and not being scrapped. So they are soon to be getting some employment. So how difficult is that, just so we get a little bit of a sense in terms of the headwind?

I think it's going to -- it's more difficult for an oil major to approve a vessel to trade on their behalf. You might have certain spots like places in China. You might have places in maybe Africa where you can trade. But going to, let's say, places like Europe or the United States, you might have significant restrictions invading the vessels there.

Okay. Thank you for that. One last question specifically related to -- maybe for Paul or someone else in terms of the capital structure. Let me -- we are so far out of the end of June. Is there a way to just update us on what the capital structure and the new-building commitments are maybe as of today or as of a more recent time in the end of the second quarter?

Sure. I know you've been following our CapEx payments. We kicked off with a program of $1.1 billion. About half of that is now being paid. The debt agreed related to that program was $800 million -- $340 million of that. And we have about another -- whatever the difference is -- $410 million or whatever to drill over the next 18 months or so.

Okay. So as of today you've got $550 million left, of which $460 million of that will be debt-financed.

Yes, give or take.

Okay. Great. Thanks. That helps. Okay, guys, I appreciate it. Have a good weekend. Thank you.

Gregory Lewis, Credit Suisse.

I realize the call has run a little bit late here, so really just a quick one for me on the industry. I can see it seems like in the last week we've seen a pickup in Aframax rates in the Caribbean that might have coincided with a lack of imports into the US. The [Deeley] numbers were down sharply yesterday. Is there any insight you have on that and what's kind of going on in that market which maybe helped -- has picked up Aframaxes? Has there been a shift in trading? Is it congestion? Any sort of color you can provide on that would be pretty helpful.

As I said, we are looking at first at one side of the Atlantic going through some sort of anomaly in the exploration and the export of oil. And I think that's why we have seen this side of the Atlantic moving up from the very low rates that they have been in the lull of August. Also I think in the United States you are preparing for some stormy season.

You had the Hermine, the tropical storm Hermine which passed last week, and I think this is the main reason why we've seen this drop -- which we haven't seen drop in the crude stocks, which we haven't seen since, I think, 1999. So the market is trying right now to assess whether this is a one-off event. I think 14.1 million barrels drawn -- this is a huge number. That's why we've seen the rally in the price of oil yesterday. So, you know, let's wait and see if this significant, let's say, drop in the crude stocks is a one-off event because of the tropical storm that hit the US Gulf area, or whether this is going to be continuing.

Okay, guys. Thanks for the time.

Mark Suarez, McQuillan Holdings.

Thanks for taking my question. I will also keep it quick here. I know it's been a long call. But just to go back on opportunities, I know that we've talked about strategic opportunities on the new builds. I know you guys have done a pretty good job of (inaudible) those rates. But I'm wondering if you have seen any renewed interest on the secondhand market, particularly on the zero to five-year, let's say, VLCC and Suezmax. I know you talked about having a pecking order in terms of buybacks and dividends. But have you seen any sort of interest pickup in that area in the second hand on the five- to 10-year, let's say, VLCC, Suezmax sort of like the same total transaction you had with the Suezmax recently?

We are seeing right now the only interest that actually is out, the only same candidate out in the market. There are same candidates that are in force, I would say, situation by banks. So we see owners that might own three or four tankers, and then they have a fleet of five or 10 dry cargo ships. They are in distressed situations. So we have -- it's been a while since we have seen such a wide environment on the secondhand market. I have to say the summer is not the best period. But we are waiting to see how it will develop now in the autumn.

Got you. Then real quick on the Suezmaxes, I know they currently are on spot. And I know Nik, you mentioned that you want to increase your secure available base from 60% to a target of maybe 70%. I'm wondering if the strategy here will be to at some point lock into a Suezmax and time charter. And what sort of duration and type of employment are you looking for? You mentioned profit-sharing, something you often want to see, 50% above the current level. Is that something you can obtain for those two Suezmaxes?

Yes, I think right now the (inaudible) are on the spot. But we have actually as we speak charterers offering for them for at least one year's employment. We could fix them today, but we would like to get into October, closer to the winter season, to be able to get a better rate. But yes, a 50-50 split will be also our policy.

Okay. I appreciate it, guys. Thanks for the call.

There are no further questions at this time. Sirs, please continue.

Thank you very much for being so interested in TEN. And hopefully you will also be interested in the TEN stock which will be (inaudible) -- as the Company moves in its new phase, it will be a very good opportunity. And we are here very busy on both operational and commercial brands looking for an exciting autumn, remaining of the third and fourth quarter.

And looking forward -- the team is arriving in New York over the weekend, and they will be participating and doing a lot of one on ones and presentations during that period of time. I think there is also a big event in Boston on the 15th that the team will be presenting. So for those of you who did not get bored by our presentation already, we will have the TEN team in New York for the next two weeks. Thank you very much for your interest.

Thank you, ladies and gentlemen. That does conclude our conference for today. Thank you for participating. You may now disconnect.