Tsakos Energy Navigation Ltd (TNP) 2011 Q2 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 second quarter and six months 2011 financial results.

We have with us 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, Thursday, July 28, 2011.

And now I pass the floor to Mr. Nicolas Bornozis.

Thank you very much and good morning to all of our participants. This is Nicolas Bornozis of Capital Link, the investor relations advisor to Tsakos Energy Navigation. The Company released its financial results for the second quarter of 2011. The press release has been distributed publicly and you should have received a copy of it by now. Should you not have a copy, please call us at 212-661-7566, or e-mail us at TEN@capitallink.com, and we will be happy to e-mail it to you.

Parallel to today's conference call, there is also a live audio and slide webcast, which can be accessed through the Company's website at the front page at www.tenn.gr. The conference call will follow the presentation slides, so we urge you to access the presentation and webcast.

Please note that the slides and webcast will also be available as an archive after the conference call. Also, please note that the webcast presentation slides are user controlled, so 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 point your attention to 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. Nikolas Tsakos, President and CEO of Tsakos Energy Navigation. Mr. Tsakos, Please go ahead.

Thank you, Nicholas. Good afternoon, good morning to all of you. We are here with our Chairman, Mr. Stavropoulos, our deputy chairman, Mr. Jolliffe, our CFO, our COO and the rest of the team.

We have just announced the first-half and second-quarter results. This has been a very difficult market conditions. However, for a company like TEN, with our forward thinking and avoidance of the expensive new-buildings, we are in a sense welcoming this slow period where we see opportunities and values happen as we speak.

In the meantime, we are trying to reduce our operating expenses, as we have done. And also, we are spending a lot of time in looking at opportunities outside, always on the energy business, but outside our main core business, where the margins are much more interesting as we speak today.

I think one of the most interesting points for the first six months was that the strong liquid with a strong balance sheet company like TEN was able at this time to secure contracts of $830 million in new and existing sectors. And we are very proud of the fact, although it is something that is not represented today, in today's depressing market, in our bottom line.

I think what we should keep from today's market condition is that unfortunately we, the shipholders, have inflicted pain on ourselves by overordering, and it is mainly by companies with no traditional outlook in shipping that we want to provide an opportunity to overhaul all the (inaudible) and tankers from 2007, '08 and '09. And we are -- actually right now, the consequences of this overbuilding is in the spot market today.

And as George Saroglou, our COO, will tell us, we are looking at the market where the demand for our product has risen significantly since 2008. But of course, with our newbuilding orders we are keeping a very low spot market. However, for a company like TEN, we have always worked on the expectations that a softening will have happened, and I think we are looking at taking advantage of this today.

The sectors we are actually looking into is for the shuttle business, where we have signed two contracts for 15 years at very attractive rates for two of our suezmaxes. Our two existing suezmax deliveries of this quarter and last quarter have already been fixed. The next one delivery is in a couple of days, for 11 and 12 years.

And of course, we are looking at existing opportunities in the LNG by chartering our LNG at very attractive rates until 2016. And also at opportunities in the LNG in general, and together with our team, we are investigating very attractive opportunities at this very exciting side of the business.

Of course, we are looking to take advantage of the growing demand for oil and the extraction of oil by using some of our vessels and tenders and FPSOs and FSOs, which are also energy-related businesses, but with much better margins today.

So this has been, I would say, a very difficult spot market quarter, but the Company has the liquidity. I think as Paul would say, out of our 47 vessels, 48 now in the water, we had only five of those ships did not have positive cash flow. So our positive cash flow then [meets] our growth; then meets us to look at new business and permit us continuing to pay, hopefully in the foreseeable future, our [stated] dividend.

So although we are not happy with what the spot market is doing, in many cases, we have outbid the results of the spot market. We are looking at this as a bottom of the barrel situation, where strong companies are going to use it and be profitable again in the future.

So with this, I will take the opportunity before George speaks to console him for the loss of his beloved brother yesterday, and ask him to -- in this difficult time to give us some of his words. Thank you very much.

Thank you, Nikolas. It is my pleasure to speak with all of you today and provide you with the details in the operations of another quarter. 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 this call. Please go to slide number 3 on the online presentation.

The second quarter of 2011 was the most challenging quarter for the spot freight market, especially for crude carriers, since the outbreak of the global financial crisis in September of 2008. The reason for the softness is not the lack of demand, which at 89.5 million barrels per day, the average demand figures for 2011, is the highest demand number ever. It is the rapid growth in the supply of tankers, especially in the larger crude categories, which is putting downward pressure on spot tanker rates.

The only sector in the energy complex enjoying a good market is the LNG sector, with rates quadrupling from the bottom established in the summer of 2010, when rates were around the $20,000 per day level.

In '10, we took full advantage of the rebound in the LNG market and fixed our vessel Neo Energy for the next four years from early 2012 at a rate that is double the vessel's all-in breakeven cost. For now and the next six months, the vessel will be earning $40,000 per day, which is the vessel's all-in breakeven cost.

During the second quarter, we also announced two long-term fixtures for 11 and 12 years respectively for the Company's two conventional 2011 built suezmax tankers, Spyros K and Dimitri P, to a major Far Eastern entity. The agreed rate has a minimum base rate above the vessel's all-in breakeven cost and profit selling provision. Spyros K has already commenced a time charter in mid-May, while Dimitris P is expected to be delivered to TEN and simultaneously commence a time charter in early August, next week.

On top of these three long fixtures, one must add the two 15-year time charters for the Company's first two shuttle tankers that are expected to come online at the end of 2011 and beginning of 2013, respectively. These five charters are expected to generate minimum revenues in excess of $830 million over the duration of their respective charters, expanding significantly the Company's future revenue stream and cash flow generating ability.

Despite the current weak spot market, demand for period employment continues to be healthy. We have renewed for two more years the charters for our 2009-built Panamax tankers, Chantal and World Harmony. The vessels will earn minimum $15,000 per day, with a potential of upside over and above the minimum rate 100% for TEN.

We also fixed our 2008-built DNA-Aframax tanker Maria Princess for a one-year time charter to a major Chinese oil concern. Just to give you -- to compare this with what the spot market will give for these vessels, the year-to-date average for Aframaxes is a little over $9,500. We have fixed the vessel on a fixed time charter rate at $16,000 per day.

As you can see from the above transactions, the Company is seeking opportunities in higher-margin businesses, like in shuttle tankers and LNG, without of course ignoring opportunities in conventional tankers.

Our corporate strategy focuses around the following elements. A young, modern, diversified fleet providing its clients with quality service. Nourish client relationships that have been built and developed over a long period of time by both them and the Tsakos Group. An employment strategy that emphasizes generating sustainable cash flow, that provides a strong balance sheet, profitable operation, and the ability to finance growth and maintain dividends.

We have a prudent fleet renewal strategy to not only maintain a young and growing fleet, but also to provide a rich source of capital gains, which since our listing in the New York Stock Exchange has generated profits of over $282 million.

We maintain a very high fleet operating rate, currently at 98% for the first half of 2011. Over the five-year period since 2007, the annual fleet utilization rate has been at least 97%, if not higher. We maintain a very high retention rate of [masters] and senior ratings, contributing to operating efficiency. We have a lot of sister vessels in the fleet contributing to crew familiarity, operating skills and savings.

The contributions of Tsakos Columbia ShipManagement to purchasing proficiencies should be recognized. A high and improving safety record has been maintained. We have also maintained a strong balance sheet and cash reserves, currently at the end of the quarter at $237 million, to take advantage of market opportunities in both of conventional tankers and in higher-margin sectors of the energy spectrum, like the LNG and the shuttle tankers. And of course we maintain very strong banking relationships that guarantee access to bank shipping finance.

And of course we are optimistic about the prospects of our market. The tanker market is going to rebound. Nobody can time the recovery, but as we have seen in the 18 years that we have been operating in this market, we think we are going to be around to make sure to take advantage of the new boom in this era that we are going to enjoy.

Going back to the highlights for the quarter and the first half of 2011, as we speak and following the sale and delivery both of Opal Queen and Vergina II, TEN has a pro forma fleet of 50 tankers, with 47 in operation, soon to be 48 from next week, and three shuttle tankers under construction, soon to be two. And these two are two DP2 shuttle suezmax tankers which we expect to take delivery in the fourth quarter of 2012 and the first quarter of 2015.

The fleet is 100% double-hull versus 92% for the world tanker fleet. And following the sale of our oldest tanker, Vergina II, the average fleet age has been further reduced from 7 to 6.7 years, which compares to 8.6 years for the world tanker fleet.

Fleet utilization for the quarter and the first half was high, at 97% and 98%, respectively. Some metrics that we consider to be milestones for TEN is the continuous profitability since our inception in 1993; accumulated net income in excess of $1 billion since our New York Stock Exchange listing in 2002; total capital gains of approximately $282 million; and cash dividend distribution of $340 million during the same period.

Moving on to the next slide, we see some financial highlights here, and Paul will give some more detail a bit later on. We should see for the six months, voyage revenues a little over $200 million. Net income, we had a loss of $8.8 million, and the time charter equivalent per vessel per day at $17,203. And the OpEx at $7,654, again, 3% reduction thanks to the newly -- thanks to the established Tsakos Columbia ShipManagement company.

Moving on to the fleet, we have a modern, very versatile fleet, which is split equally between crude and product tankers. 23 crude carriers going from the VLCC all the way down to Aframax and 26 product tankers from Aframax down to Handysize, and of course the one LNG. Except for the two VLCCs, the fleet was built in South Korea and Japan to very high specification standards, and we have 21 of the 50 vessels with ice class capabilities.

Going to slide number 6, we have a very balanced employment strategy, as this slide demonstrates. Currently, we have 12 tankers trading in the spot market, six vessels in pooling arrangements, one tanker operating in a contract of affreightment and 28 tankers in period charters with fixed rates and profit-sharing arrangements.

How this translates, this is what the next slide tells us, slide number 7. We have, as of today, fixed 68% of the remaining available 2011 operating days and 46% of the 2012 available fleet operating days. And if we assume only the minimum rate for the 28 tankers and the 47 vessel fleet we currently operate, we have secured forward 524 months, or 1.6 years per vessel, which is approximately $405 million in minimum revenues.

The sale and purchase, as the next slide demonstrates, has always been an integral part of our operation, and we have been able to generate a lot of transactions -- close to 100 transactions -- since -- in the last -- since 2002. Most recently, we have the sale of Opal Queen in March and Vergina II in June, which produced a capital gain of $5 million and released $18.2 million in our cost reserves.

Of course, we continue to evaluate offers for vessels in our fleet and we could report further profitable transactions in the next quarters.

If we move now to the last slide, which is a dividend, this shows -- slide number 9 -- our dividend distribution since we listed the Company in the New York Stock Exchange. Our next dividend distribution of $0.15 per share is payable on August 10. And since we listed the Company in the New York Stock Exchange, we have paid in total $8.93 in cash dividends, and that compares with a split-adjusted IPO price of $7.50.

That concludes my part, the operational part. Paul will walk you through the financial highlights of the second quarter and the first half. Paul?

Thank you, George, and thank you all for joining us today. A summary of selected financial data is included in the press release, and now I will add a few points about quarter two and the first half.

Total revenue for the quarter was $101 million compared to $113 million in quarter two 2010, the fall due to a difficult freight market, although rates for smaller product carriers were higher. We sold the Aframax Vergina II at approximate book value, but associated sales expenses, including cleaning and delivery, resulted in a loss on sale of $800,000. However, given doubtful employment prospects for an old vessel and given the scheduled dry-docking, we avoided at least $4 million in operating repair and financing costs in the second half of 2011.

Despite all our efforts in securing significant future revenue streams and ensuring a fully-employed fleet, the impact of the weak market and high bunker costs was primarily responsible for a net loss of $18.1 million in quarter two, and for the six-month period a net loss of $8.8 million.

The average rounded daily TCE per vessel for quarter two was $16,400 compared to $22,100 in the previous year's quarter two. For the six months, $17,200 was achieved compared to $21,400.

Total operating expenses amounted to $33 million in quarter two compared to $29.4 million in last year's quarter two, partly due to an increase in average fleet size by 2.5 vessels and partly to increased costs, mainly non-deferrable repair costs on three vessels undergoing dry-dock in Europe. The daily average operating cost per vessel was just 2% higher than for the year 2010. For the half year, average daily running cost per vessel actually fell 3% to $7,654, as George has mentioned.

Savings were achieved in crew costs, but unfortunately, were mostly eliminated by a significant weakening of the dollar compared to the previous a second quarter.

G&A expenses were up by $260,000 from quarter two 2010, mainly because of expenses on financial reporting systems and new project expenses, both areas of cost being potential investments. Finance costs fell nearly $5 million to $16.9 million, mainly due to positive movements in valuations of non-hedging swaps and higher cash receipts on bunker swaps compared to quarter two 2010. Despite the disappointing market, nearly all vessels apart from five had positive EBITDA.

In quarter two, we took delivery of the Suezmax Spyros K, with a final payment of nearly $14 million, but receiving $48 million in new debt. The ship entered immediate employment well above breakeven.

Net debt to capital was 56%, and we were compliant with all loan covenants. Capital commitments are currently $180 million. We will take delivery of the suezmax Dimitris P next week, also fixed at a strong rate, paying a final installment of nearly $15 million from the newly-arranged $49 million financing received from a European bank at very competitive terms. That brings our total cash and liquid investments now to over $275 million.

We also have two shuttle suezmaxes being built, on which a further $18 million will be paid in 2011, $101 million in 2012 and $46 million in 2013. We don't expect to commit to financing until late 2012.

And this concludes my comments and now I will hand the call back to Nikolas.

Thank you. Thank you, Paul. And please, we would like to open the floor for any questions.

(Operator Instructions). Greg Lewis, Credit Suisse.

Yes, thank you and good afternoon. I guess my first question is in thinking about the current state of, I guess, the crude and product tanker markets, I don't think anyone at this point is surprised that the markets are in a fairly bearish state of mind. In thinking about that, what are sort of the key things you are looking for in terms of trying to gauge when the market may indeed be turning?

I think for us, as I mentioned in the beginning of this call, the oversupply of tonnage. I think what makes us look a little optimistic -- I think George [starts] on it -- because we still see strong demand. We are close to 89 million, George?

89.5.

89.5 million barrels, where at the peak of 2008 --

We were around 87 (multiple speakers).

So we are still higher -- we are today higher than where we were at the booming of the tanker market. So I mean, of course, I think our blame has to do is the biggest part for the overcapacity that we are seeing. And unfortunately, this fragmented market shoots itself in the foot the whole time.

And of course, after the slower pace that the Western economies are moving, you know we are trying to figure our problems here in Europe. I am sure hopefully by Tuesday, you will have figured some of your problems in the United States. So I think for us it is going to be -- but that is not the main course.

What makes us optimistic is that we are at almost an all-time high demand for oil, but Korea and Japanese and Chinese yards have overflowed the system with ships. It is not difficult to see that those ships start becoming less and less on the tanker side next year and even less in 2013.

So we are planning -- I mean, the reason we are taking the longer-term contracts, the reason we are looking at businesses that are very profitable not on the mainstream, is to cover this 2-, 2.5-year period.

Okay. So in thinking about -- I mean, in thinking about where oil demand is today, where supply is today, you know, on the demand side, is there anything we could see in the tanker markets? In other words, are you looking for maybe pockets of ton mile expansion? Are you looking for maybe some regions that have been a little bit weaker where we could see a pickup?

I mean, is that something that you are looking at, that you think is a possibility? Or is it more just need to work through the supply and wait for demand to gradually catch up with supply? Is that sort of how you are thinking about it?

Well, I think you are very correct in what you said. You can still see -- I mean, don't forget, from about the middle of January and the middle of March that was in the first quarter, we had an unprecedented tightness of ice class demand. And in a market which today is very, very depressed, we had ships -- some of our ships earning on a profit-sharing arrangement close to $100,000 a day, just because of that pocket of the ice class vessels in this period.

I think we are expecting more and more oil to come from these parts of the world and from Russia in general. But as it is, our main concern is getting rid and hopefully get the pens out of all these characters [which are] down and sign their new-building contracts as soon as possible. I mean, we foresee 2013 and '14 being relatively good years because of no supply. No one is crazy enough to go right now under newbuildings, so we know we are going to see a good cycle at that stage. But we hope we can keep it that way.

Okay, great. And then just, I mean, you touched on potential LNG opportunities. Could those take -- I mean, at this point where we are in the LNG cycle, is that something that could take the form of newbuildings? Is that something -- in other words, are there LNG vessels available for sale that you may be looking at? Is this something that we really think is a possibility over the next couple of years for TEN?

Well at TEN, we have one LNG right now, which is by far -- and will be a higher -- a very high earner. We believe that after -- I mean we have been early in this game. We ordered the ship in 2004, took delivery in 2007. We have been very happy and proud of the operation, together with our charters. And what we have seen right now, mainly after the March '11 incident in Japan, is that this side of the business is becoming more and more important.

So we took the strategic decision to invest more into it. What we are seeing today is that newbuilding prices, because of the poor state of the shipping market in general, are not representing what the ships can earn. So yes, newbuildings for ships in delivery in the middle of '14 have very positive cash flow. You can get ships for under $200 million and you can charter them out for close to $90,000 to $100,000. I think you can do the math on this; it is positive.

But also, we are looking all at situations where we could acquire a fleet of vessels in the water, together with newbuildings, which will enhance also our management capabilities and, I think, contribute positively to the bottom line more imminently.

Just given that type of capital outlay for acquiring, you know, I guess even one or two LNG vessels, how do you think about funding those types of acquisitions?

The funding will not be with equity because we dealt with this, thank God, nine months ago. And that is why we preemptively raised, with the help of [Banco] and Credit Suisse, about $120 million. With our ATM at the time, we were criticized for raising money, but we always raise money in the good days to use it in the opportunity days.

So our balance is -- I think Paul mentioned that we have as we sit today $275 million of free cash flow. We have very small obligations in newbuildings. We are taking delivery of a new building on Tuesday. And now we are down to the last two vessels. So the Company has enough. We are still producing positive cash flow even in today's market.

So it is going to be -- and also, these are not going to be orders of -- in speculation. So if we get a contract for seven to 10 years for one of those ships, the financing there will be at the higher ratio than usual and the terms will be very good.

I think another point -- I mean, don't forget, in today's dire market, TEN has raised more than $1 billion in finance to acquire newbuildings at dropping margins. So I think it is going to be -- a part of our cash will be used for these acquisitions. So if you look at the vessel of $190 million, we might have to contribute $20 million to $30 million for something which is fixed out for a good bit of the time.

So I think just to put your mind at ease that we are not looking to raise any equity, because we have done this at much higher levels and we can -- able to right now to take advantage of the market.

Okay, great. Thank you very much for the time.

Natasha Boyden, Cantor Fitzgerald.

Thank you, operator. Good morning, gentlemen. You have mentioned that you made a lot of progress so far in terms of cost savings and vessel operating expenses in general. But do you expect that there are more savings to be had or do you think the current level is a good run rate going forward?

I think the majority of it has been achieved. I will let Paul talk on that. The majority of the savings have been achieved, but there is always -- I mean, what we have done July the 1st last year was a very new direction with joining with a big technical manager ourselves. I think we have already seen the fruits from this.

And I think the fruits are not only -- I think you should look at the fruits also on the utilization side, because you could have very low expenses and most of your ships might be laid up. So I think in our case, we have reduced our expenses and our ships are at 98%, 97% utilization in a very depressed market.

So I think there might be another 5% to 7% as we dip to the bottom of the barrel.

Okay. I just wanted to follow up on Greg's question, talking about sort of acquisitions to the fleet, just in terms of tankers as well as LNG. Is LNG more attractive to you at this point in time than perhaps going out and potentially acquiring more tankers?

Yes, I think as we speak today, the two tankers we acquired, the one is going to be on Tuesday, I think. And the other -- or I'm sure -- and I think the other was last quarter. Those ships, they were acquired subject to '11 and '12 employment with a minimum of 23,000 and everything up 100% for owners account, and then a 50/50 split. So this is accretive business long-term with long-term oil companies.

This is business we will continue in doing. And of course, we will not be shy in renewing our VLCC fleet, which today is the oldest segment -- it is the last three ships that were built in the previous century we have; everything else is current century. So we might be looking opportunities -- if we see the market weaken, if we see VLCC's values drop further, we might snatch a VLCC, a good-quality, low-consumption VLCC, to rejuvenate our fleet.

We are in negotiation as we speak today to use our existing one and perhaps two of our older VLs in FSO projects that will give them another 25 years of life going forward, and that will take these nice older ladies into very productive and accretive business.

But I think the LNG, as we sit today, and much more up to the unfortunate events in Japan over the winter, we have been happy that -- we are happy that we had the one LNG there and now we are going to build on it.

And just from your comment there about Japan, I mean, we have sort of been hearing from a number of different sources that the rebuilding hasn't really had any impact or hasn't really started yet, and hasn't had any impact on shipping.

Are you seeing any kind of movement or activity that would indicate to you that the rebuilding out of Japan is starting to have an impact on the market?

Well, I mean, I know the Japanese are very well-organized and careful people. They do not do things ad hoc. So as you said correctly, the majority -- other than the immediate infrastructural needed rebuilding, we are not seeing yet. So we are expecting this, and this is why we hope that this unfortunate event will bring us.

And I think that this is the expectation in the upcoming [GDP] forecast for Japan in the next quarters. We are going to see positive -- strong positive growth in the Japanese GDP, and we think that this is going to be translated in an increase in their oil demand.

Okay, great. I just have one last market question, really. You know, Saudi Arabia has announced that it would increase oil production unilaterally after OPEC kept the quotas unchanged at the last meeting. And I'm wondering if you have seen any evidence of these extra barrels hitting the market. And if not, what kind of timing do you expect?

Yes, we see more barrels going to the east, in the sense to developing Asia. We would have ideally like to see -- and at the same time, we have seen a drop in cargoes going from West Africa primarily to China and developing Asia. We would have liked to see, you know, more cargoes going to the west, because it is adds to the ton mile and it is much better for the utilization of the fleet.

But we have seen an impact with Saudi Arabia putting more oil out there in the market to compensate for lost barrels from the non-geopolitical factors.

Okay, great. Thank you very much for your time, gentlemen.

Rob MacKenzie, FBR & Co.

Yes, thank you. Good afternoon, gentlemen. George, I wanted to follow up on your comment about potential conversion of some of your older Vs into FSOs or FPSOs. Since you guys have been looking at that market, do you have a reasonable idea as to how many VLCCs or other tankers that market might absorb over the next couple of years? Because it seems like there are conversions going on all over the place.

I mean, first of all, we know that the new developments, the new discoveries for oil are offshore. And there is a big growth area in West Africa, in Brazil and in other parts of the world. In Brazil, particularly, we have seen growth in the shuttle tanker business. And just to give you an example, the numbers that we are hearing is for maybe over 20 more shuttle tankers in the next five years or a bit longer.

And these projects will definitely require support, like FSOs, FPSOs. So the growth is going to come from places like Brazil, West Africa, and we could see some smaller growth in also Asia.

Okay. And do you have a feeling for whether that growth will be material in terms of reducing the competitive tanker market?

I think the majority of these vessels will be the VLCCs and will be maybe suezmaxes; these are going to be the two classes of tankers that are going to benefit from potential conversions. And we could see especially the older units maybe around between 10% to 15% of the capacity going towards this type of projects (multiple speakers).

Okay, thanks. And I guess my other follow-up question is on your chartering strategy going forward here. I mean, you are already pretty reasonably fixed at 46% for 2012 right now. Are you thinking of kind of leaving your spot -- spot now, expecting rates to rise, or would you look to fix some more of your capacity in '12 at this point?

Well, now we are doing also -- hi, it is Nick Tsakos -- we are doing also some relationship chartering, which means that all our suezmaxes are charted out and it is going to be for the foreseeable future.

There is (inaudible) -- I think we touched on this and Paul touched on this -- of our loss in the second quarter were the repositioning of our VLCCs, because those ships were on very long time charters. And so they came up at the beginning of the quarter and the end of the previous, and then we had to move them to loading areas. So hopefully, those -- we will not have this again for the following quarter.

But I think on our Aframaxes, we just chartered one of them to a large Chinese company, which is not so much on the attractiveness of the rate, which is almost 1.5 times higher than what the spot market has performed, but also starting a relationship with a very large end user.

So we will be -- I think we will be looking to expand this, make it close to 60% to 65% in the next couple of quarters.

Great, thank you very much. That does it for me.

Fotis Giannakoulis, Morgan Stanley.

Yes, hi, everybody. I want to ask you -- we have seen the last 12 months a dramatic drop in tanker rates. But at the same time, the values have stayed relatively stable. This has not been the case in other sectors, for example, drybulk vessels. How do you explain that, and if you see that the tanker -- crew tankers will also follow the example of drybulk vessels?

Thank you. Well, what you are saying is correct. We have seen a sustainability of much less elastic price movements on these ships. And okay, they are much lower from the huge -- I mean, from the -- from the ballooning tops. So (inaudible) I still have colleagues of ours that we see here in Greece and in New York -- and you know who I am talking about -- that they have to take delivery of about a number -- or a half a dozen of VLCCs order at $155 million.

So this -- now we are looking closer to 90 or perhaps breaking 90 for the same ships, but the values of tankers have stayed relatively strong, because our opinion is is the market, out of the three main markets, that shows, depending on the supply and demand scenarios there, the best future expectations, when the supply of VLs mainly will dry up by 2015.

But if the market continues, I think we might see another drop. And then, as I mentioned, we will be interested perhaps to start buying ships even on speculation basis. We still believe today that there is no reason for us, having a very modern fleet, to buy on speculation. But, you know, if we see VLs, newbuilding VL prices starting with a seven, if we see the five-year-olds dropping under 45, you know, it will be starting to become interesting again. o we give it -- I give it a possibility that we might see this if the market continues, if we do not see a seasonal uplift in September.

So you place -- expect a recovery around 2013, I assume, for the crew tankers. Can you give us your view about the product tankers? This is an area that had a lot -- had high expectations for this year, but we have seen that the improvement has been only moderate. When do you expect and what shall we expect for product tankers?

I personally believe and then I think, you know, that we will see [that] quicker than 2013. I mean, we had a good March, April and May this year. So I think since then, they have weakened. But I believe that this will be the first ships to be affected positively.

And there are so many more because of the opening of China, of India, of the ex-Soviet Union, so many pockets for business for mainly the smaller product tankers, as we see today. I mean -- and I think if you analyze our figures, you will see that we have (inaudible) our spot ships on an average of about $17,000 a day for vessels of 40,000 tons, which is not -- it is about twice what our VLCCs are doing today. So I think they will turn up quicker than crude.

My last question. You mentioned about your potential growth opportunities both in the offshore sector and in the LNG sector. And obviously, this will absorb some capital, although most of it is going to be through debt financing. How do you view your ability to simultaneously expand your fleet with these new opportunities and pay dividend at the same time?

Well, I think, as I said before, we are -- the Company has, even in today's -- and we hope this was the worst quarter, but you never say -- you never know -- we have seen, because of the reasons I mentioned before, the positioning of the VLs -- the Company has a positive cash flow even in today's very low market.

I think we are, with the $0.15 that the Board has announced -- and it is going to be payable, I think, August 10, so people can enjoy the holidays with some cash in their pockets, at least, including ourselves -- it is going to continue -- it is a comfortable level; it has a good return. We are close to 8% now at today's -- 7% to 8% at today's share price. And still, it is something that we feel comfortable we can continue without taking power away from our future growth plans.

That is very clear. Thank you.

Michael Pak, Clarkson Capital Markets.

Yes, hi. Good afternoon, everyone. Just a couple of questions here. One, the five ships you mentioned that were sort of negative earners or negative cash flow, can you give us a sense of what that impact was on the quarter? It is the two Vs and the one LNG. And also, were they in the suezmax category? Just want to get a sense of how the fleet shook out there.

Two of them were, in fact, the VLs that we have just been talking about, that kind of lost a lot of money on repositioning. They were kind of natural candidates for a negative EBITDA. The other vessel was the Vergina, the ship that was sold, because it took a long repositioning voyage itself after its last delivery and was waiting a long time before the actual sale.

Another one was one of the vessels that was in drydock, and that had a lot of expenditure on repairs. And another one was, I think, one of the Aframaxes. I think total impact must have been around -- if we mean impact in terms of how much EBITDA did we lose from what we usually expect, we are talking about about $12 million to $15 million in total.

The majority of (inaudible).

Yes. Total EBITDA for the quarter was about $25 million. We were hoping for something (inaudible) up to $30 million. And the depressed market and these particular vessels knocked it down.

Thank you. That was helpful. The other question I had was the opportunity to convert -- for conversion of the Vs possibly. Can you give us a sense of timing? Do you think that could be something you can announce by year-end? Could it be a 2012 event? Or how are your talks progressing in terms of customers and things like that? If you could give us more color, it would be great.

Hi, it is Nick Tsakos. It is going to be a 2011 event, but the actual -- we will need about six to nine months for the conversion. So the actually very positive cash flow that we hope to be able to get from this business is going to be, I would say, three quarters down the road.

I see. And just to be clear, you are examining your existing Vs, or are you looking at possibly acquiring an older V to convert? What are sort of -- if you can give us some insight on those parallel tracks.

I cannot tell you because you are with Clarkson and you will tell my competition, so it is (multiple speakers). No, I mean, actually we are building for business for our own vessels as we speak. We have two of those very heavy -- not fat -- heavy ladies from Denmark built in the mid-90s, and those ships are about 10,000 lightweight tons fatter than the Japanese or Korean vessels, and those ships are ideal for future business for FSOs and FPSOs.

Great, that is all I had. Thanks a lot for your time.

(Operator Instructions). You have no further questions at this time. I now pass the floor back to the speakers for any closing comments. Please go ahead.

Well, thank you very much. And as I said, this has been -- the last two quarters have been an unfortunate market conditions. Our aim here is to try and, as much as possible, beat the odds and use these circumstances as positively, as always.

The Company has preemptively chartered a large part of our fleet forward, but at rates that give us a very certain and positive cash flow. So it will -- by looking out there, I think from the companies -- or the tanker companies that are out there, we feel that we are in one of the strongest positions to take advantage of changes in this market.

If the market moves positively, which we hope it will soon, then we have enough of our vessels to take advantage of it in a very big way, namely that Aframax fleet and our profit-sharing arrangements. If the market continues for a couple of quarters a downturn, then again, the Company is in such a situation that we can take advantage and prepare the Company for even a bigger bounce as we look forward.

We do not stop for looking in certain business. We are in the energy business, and that is why now we are also looking on the LNGs and the FSOs and the shuttle tankers, and we have already successfully, in the first six months in a down market, signed contracts of $830 million on these sectors, some of them starting immediately and some of them starting down the road.

I think the LNG sector and the new rates on our LNGs that are mentioned in the press release are going to give a very big boost to the Company starting in 2012. So in that -- with that, we believe that we are prepared to take advantage of the situation.

So thank you very much and we wish everybody to have a very good August. All right? We are planning not to rest that much because we have to do some business in between. So thank you very much.

That does conclude our conference for today.