Tsakos Energy Navigation Limited
Q1 2015 Earnings Call Transcript

Published: 22 May 2015

[Operator:]

Thank you for standing-by ladies and gentlemen and welcome to Tsakos Energy Navigation Conference Call on the First Quarter 2015 Financial Results. We have with us Mr. Takis Arapoglou, Chairman of the Board; Mr. Nikolas Tsakos, President and CEO; Mr. Paul Durham, Chief Financial Officer; and Mr. George Saroglou, Chief Operating Officer of the company. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions] I must advice 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 sir.

[Nicolas Bornozis:]

Thank you very much and good morning to all of our participants. This is Nicolas Bornozis of Capital Link, Investor Relations Advisor to Tsakos Energy Navigation. The company released its financial results for the first quarter of 2015 this morning. The press release has been distributed publicly. In case you do not have a copy of it, please call us at 212-661-7566 or e-mail us at [e-mail] and we will e-mail a copy the press release to you right away. Please note, that parallel to today's conference call, there is also a live audio and slide webcast, which can be accessed on the company's Web site 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 and the webcast. Please note that the slides of the webcast will be available as an archive on the company's Web site after the conference call. Also please note that the slides of the webcast presentation are user controlled and that means that by clicking on the proper button you can move to the next or to the previous slide on your own. At this time, I would like to read the Safe Harbor statement. This conference call and slide presentation of the webcast contains certain forward-looking statements within the meaning of the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements, involve risks and uncertainties, which may affect TEN's business prospects and results of operations. Such risks are more fully disclosed in TEN's filings with the Securities and Exchange Commission. Ladies and gentlemen at this point I would like to turn the call over to Mr. Takis Arapoglou, the Chairman of the Board of Tsakos Energy Navigation. Mr. Arapoglou, please go ahead sir.

[Takis Arapoglou:]

Thank you, Nicolas. Good morning, good afternoon to all and thank you for joining us on this call. Well, with profits for the quarter more than doubling year-on-year, the highest result since the second quarter 2011, a buoyant market, ample liquidity, new equity generation for its shareholders, new accretive and fully funded project coming on-stream later in the year. The sky is the limit to TEN. Many congratulations to management and all employees for this superior performance on virtually all fronts, and many thanks to all of you, the market and our shareholders who had long-last begin to demonstrably appreciate the true-value of our stock. That's all from me. Over to you Nikol.

[Nikolas Tsakos:]

Thank you, Chairman, and good morning to everybody and thank you for begin here on our call. And we promised to make your Memorial Day weekend; I think start as a pleasant experience. So as soon as the call finishes, you can go and enjoy the weekend, hopefully with a smile. We have been waiting for a long time to see that the market is stabilizing at a very positive level. If you remember, we have been always discussing and we had questions about how long this growing market could last? I think we are looking now that we are more than within a year of this cycle and we expect there are no major changes; I would say significant changes in the course of the product we carry that we are in for a medium to long-term cycle at least for the next two years because that's what we can foresee – the supply of tonnage in the market. Talking about supply, we are happy also to see that there are a lot of the dry cargo newbuilding friendly that was placed in the market in the last couple of years and we were worried that it could turn into tankers. It's not happening. It's only happening in some small sporadic spaces and a lot of vessels have been turned into container vessels. I think this is the preference for the yards it seems simpler to have a dry vessel actually being replaced by another dry vessel which is a container. So I think this is another positive factor for us as we are worried for the supply. On the demand, we have been seeing demand growing almost by 1.3 million barrels a day from a year ago. OPEC is pumping its highest ever level of 31 million barrels and that's the highest for the last 2.5 years. And company specific, I think surprises as the Chairman said, this is the highest since 2011 and our profits are the best since the second quarter of 2008. And if you remember 2008 was one of the best years or quarter ever in tanker history before the collapse of Lehman Brother some time in the fall of that year. Company specific we are looking at these things as a very – I would say positive signs of our vessels operated at 99.3% utilization. I mean this is a full real utilization other than the one of our ship that was undergoing a special survey. But, I think what is more exciting for us in the next two quarters, so second and third quarter we are going to get nine of our existing vessels which are currently driving on time charters back in the spot market. So if the market maintains this momentum, we hope we will be able to continue very positive results for the remaining of the year and going forward. I think you have not heard me as positive before, but we believe that, God forbid that, right now, we are – the start are aligned for tank owners to finally make a very well-deserved return on their investment, which we hope as we have seen already we have our share price has doubled exactly in the last 12 months, but we hope that there is quite a lot of space for it go forward. And with that, I will let George Saroglou to give us in a more detailed what has happened and what is happening in the environment we operate. George?

[George Saroglou:]

Thank you, Nikolas. It is my pleasure to speak with all of you today and provide some details of the operation for the first quarter of 2015, another profitable quarter in fact the best quarter we had in TEN after the second quarter of 2008. For those of you who are connected to the Internet and our Web site, there is an online slide presentation which format we will follow during the call. Let's turn to Slide number 3; we had a pro forma fleet of 64 vessels, 44 of which carried crude oil and consist of 1 VLCCs, 12 Suezmaxes, 17 Aframax tankers with 8 vessels in the water and 9 newbuilding under construction for Statoil. We have 4 DP2 Suezmax vessel tankers, 2 in the water, 6 on long-time charters and 1 on the order for delivery in the first quarter of 2017 also fixed on long-time charters and we have an option for another DP2 Suezmax Shuttle tanker. We also have 14 out of the 28 product tankers in the fleet engaged at the moment in crude trade operation resulting in 35 vessels out of the 50 vessel operating fleet trading in crude oil today. 33 vessels out of the 50 have their earning side to a robust spot market. We also have 2 LNG vessels including 1 in the water and 1 on order. Thanks to our balance time charter philosophy we continue to operate the fleet at a very high utilization rate. 99.3% for the third quarter of 2015, when the average utilization for the tanker fleet is expected to be below 90%. We should highlight that 33 vessels out of the 50 vessel operating fleet that take full advantage of a strong spot market that continues into the second quarter. We have another 9 vessels whose charter expires at different intervals during the year. The last crude carriers 3 Suezmaxes and 1 Aframax are expected to trade in the spot market until suitable period employment is identified, preferably with profit sharing while the 3 MRs and 1 Handysize vessel will be split between renewals at higher fixed rates and spot trading. We charted 3 vessels so far in 2015 to fund our tankers with profit sharing at higher base rates and expiring base rates and extended for 6 more months, the company sold VLCC tanker in a fixed time charter for solids with a fixed rate reflecting the current market reality. The collapse in the price of oil which accelerated from the start of the fourth quarter of 2014 and reached 6 year lows in mid-January 2015 impacted the crude sector and TEN in a very positive way. Brent rose 22% in April, the biggest monthly gain in six years driven primarily by financial flows into the oil complex, however, the current price level of around $65 or 43% below the high of 2014 at $115 and 35% below the brent average price for 2014 which was almost $100. World oil demand growth has been relatively strong so far this year beating earlier forecast. Thanks to a rebound in European product demand, increased demand coming out of India and steady demand growth in China, and of course, higher demand for transport fuels in the United States. Naturally lower oil prices, changes consumer buying patterns and contributes to increasing oil demand. On the supply side, OPEC crude oil outputs soared in March and April, exceeding 31 million barrels per day. This was the highest monthly increase in OPECs production in almost three years. U.S. imports from the Middle East Gulf Shore show a sign of rebound from 1 million to 1.2 million barrels per day to approximately 1.6 million to 1.8 million barrels per day in the last few months and that is on an expected positive for ton miles and fleet utilization. Fleet growth is fairly limited for the balance of the year and the order book remains reasonable through 2017. The market especially for the crude tankers is fairly balanced and as long as the oil will keep flowing, the freight market should stay strong. The next Slide that is the main financial highlight of our press release; strong profitability, the best quarter results in six years setting the tone for the year, $37.3 million of net income for the third quarter versus $14.6 million for the first quarter of 2014, 156% increase, 87% increase in operating income to $45.7 million, EBITDA of $72 million, a 47% year-over-year increase from the first quarter of 2014. Strong cash reserves of $290 million and 33 vessels benefiting from very strong spot tanker rates. The next Slide is a snapshot of the three sectors the company operates, we operate in crude, in products and DP2 and LNG. The fleet is very sophisticated, therefore built to fit the transportation requirements for the company's clients. Slide number 6 has a pro forma fleet of 64 vessels which includes the 50 vessel in operation and the following vessels under construction, 9 Aframax crude carriers for delivery in 2016 and 2017; 2 LR1 Panamax tanker for delivery in 2016; 1 Suezmax DP2 Shuttle tanker to be delivered in the first quarter of 2017; plus an option for another one; and 1 dry fuel LNG vessel for delivery at the end of the first quarter of 2016. 73% of the 2015 ship available dates are fixed in the spot market or spot related contracts. The fleet is very modern with the average rate of the operating fleet at 7.9 years versus 9.5 years for the world tanker fleet. 21 tankers have ice-class capabilities and 17 out of the 10 vessel – out of the company 50 vessel operating fleet at fixed employment, with 10 operating profit sharing charters and together with the fixed-term vessels range from a less than a year remaining employment to 13 years. We have 23 vessels trading in the spot market with a break down of 20 vessels in the crude spot market 2 in CoAs and 1 vessel in pooling arrangements. So today we have 33 vessels that take full advantage of the current strong market conditions. The next Slide shows the company's clients, blue chips names with some of the companies doing repeat business over the year, thanks to the quality of the fleet, the fleet modality, the quality of service and the safety record of the enterprise. This 10 clients' names account for 78% of the 2014 revenue. Slide 8 shows the low cost base that TEN has, we have built the fleet before the rise of newbuilding prices. We have tanker markets continuing to be strong in 2015. We are already seeing the results and the rewards and definitely 2015 is going to be a very strong year for TEN. Moving to Slide number 9, we have a balance employment strategy with the mix of four charters CoA and pooling arrangements and three charters with fixed rates and minimum rates with profit sharing arrangements. So 17 vessels are in time charter with fixed employment as we speak, 10 vessels in profit sharing and 23 vessels trade in a combination of spot, CoAs and pool. Another way of reading this Slide, this that we have – that is that we have 30 vessels with secured employment from less than a year, 13 years and 33 vessels have the revenue side in full or up to 50% over a minimum base rate with spot market that is off levels we have experienced back in 2008. Let me give you some color with regard to the market, oil demand continues to grow and the global economy despite some problems in certain areas continue to expand. The supply driven drop in oil prices benefit the tanker market and we have rising volumes, longer distances, very modest fleet growth, especially for crude tankers and this is expected to continue to lend support to the market. Last, we see here also the order book is very modest and we have – and that for the next two, three years very good supply of vessel is very much intact, in balance. If we put a dollar value on the above we see that as of today May 22, we have 41%, 43% of the available 2015 operating days and 51% of the 2016 days fixed forward, assuming only the minimum rates, TEN has secured 756 months of forward employment of 2.3 years per vessel and 884 million minimum gross revenue. By choice the company has currently – the highest spot market exposure in order to take advantage of – in order to continue to take advantage of the strong spot trade market environment. The next Slide, as a track record of our sales and purchase activity since 2013, we have – beside the recent acquisition at attractive levels in – of two modern Suezmaxes, sister vessels with Suezmaxes we already operate in the fleet. The company strategically and opportunistically should be seen divesting certain assets that provide capital gains and reduced cash. There is interest for our vessels, but actual sales activity remains minimal in the market, as bid ask between buyers and sellers is still wide. Nevertheless, TEN will sell, as we said some of our older tankers during the course of the year. For TEN, fleet modality while growing responsibly with committed business rather than building on speculation remains key elements of our strategy. The next slide is a Slide with our dividend, this is a history of our cash dividend distribution, we will pay the next dividend of $0.06 per common share on May 28, 2015 and we have also announced today another $0.06 dividend for the common shares to be paid on September 10. In total, since 2002, we have paid $10.06 in cash dividends or approximately $410 million and this compares with a listing price in our IPO of $7.50. Slide 15 has a more frequent NAV calculation and lists the analysts covering TEN. The management vision is to continue growing the company responsibly and at the same time have this reality being reflected in the company's share price. Before I hand over the call to Paul, let me take this opportunity to thank our seafarers and Tsakos [indiscernible] management, our technical managers for their operating performance 24/7 without which wouldn't be a reputable solid and reliable service provider for so many of our clients. Let me also thank our bankers for their support in good and bad shipping times, and finally, the analysts and investor community to continue to interact us with their time and money. That concludes the operational part of our presentation. Paul will walk you through the financial highlights for the third quarter. Paul?

[Paul Durham:]

Thank you, George. TEN generated net income of $37 million in quarter one more than achieved in whole of 2014 and 2.5x the net income of quarter one 2014. Our earnings per share was $0.42 on a weighted average of nearly 85 million common shares compared to $0.19 on 67 million shares for the prior quarter one. Limited vessel availability and low oil prices stoking demand created a booming tanker market by modifying our chartering strategy, we had the right vessels available placed in the right position and operating at full employment to take advantage of that market. Revenue after voyage expenses was $114 million, $23 million more than in quarter one 2014. As other expenses was stable compared to quarter one 2014 that $23 million extra net revenue went straight to the bottom line. The timely addition of two modern Suezmax tankers in mid 2014 mentioned by George also contributed $2 million to profit. Average TCE per vessel increased by $4,000 to $25,600 per day compared to the prior quarter one. Crude carrying Suezmaxes and Aframaxes had much higher spot rates than quarter one 2014. While those on time charter with profit share contributed a welcome extra $5.5 million revenue. Our product carriers also continued to recover generating highest operation than the prior quarter one. Voyage expenses was down 11% from quarter one 2014 despite an increase in days on spot related voyages due to a 40% fall in bunker prices. EBITDA totaled $72 million an increase of $23 million over the prior quarter one. As Nikol say all vessels and of this EBITDA apart from one undergoing special survey in the quarter. The two new Suezmaxes in fact added $1 million to operating expenses but the total fell slightly from the prior quarter one due mainly to a stronger dollar as the euro fell by 18%. Average OpEx per vessel per day fell by $450 to under $8,000 due to the weaker euro positively impacting crude cost and our technical managers' ability generally to keep a hold on costs. Finance costs totaled $8.5 million, $1 million down from the prior quarter one. Our quarter one cost of debt fell from about 2.5% to 2% year-on-year. The quarter one impact of bunker swaps was mutual following the one-off hit in quarter four. We currently have $1.41 billion debt outstanding and net debt to capital is now at about 46%. We have arranged debt financing for all our newbuildings with major banks at competitive terms including predelivery finance. And with $290 million cash currently, there is enough to cover all of our remaining equity portion of the newbuilding commitments and for us to take advantage of attractive opportunities. At the same time, our daily cash inflow remain healthy with our fleet generating over $700,000 EBITDA daily in the strong rate environment that continued in quarter two. Fortunately, we see no sign or indeed recent fall any material reversal in the foreseeable future apart from possible seasonal fluctuations. And this concludes my comment and now I will hand the call back to Nicolas.

[Nicolas Bornozis:]

Paul, thank you very much for a very positive report and I have to say that we have here with us other than the usual participants both our current and previous Chairmen, Mr. Stavropoulos and Mr. Arapoglou. They do not only come to the positive announcement, but also do when the news are not good. So they have been with us all through the sightings. And with that I would like to open the floor for any questions or any clarifications that you might have. Thank you very much.

[Operator:]

Thank you very much indeed. And your first question comes from Stifel comes from the line of Ben Nolan. Your line is now open sir.

[Ben Nolan:]

Yes, thanks. So obviously, it's good news and a good quarter. But, was curious how you think and just sort of my impression from reading the press release and listening to you guys is, obviously, you feel much better about the direction of the market. And then in previous quarters, you'd said that any growth would probably be focused around project-oriented deals where there were long-term time charters associated with whatever newbuilding or acquisition that you might do. Has that changed at all? Would you at this point be willing to just sort of buy vessels without contracts, given your opinion with respect to both asset values and the outlook for the market?

[Nikolas Tsakos:]

Yes. Thank you very much. First of all, I have to tell you that the newbuilding word is a forbidden word. We are not talking about the newbuildings. While joking apart, I think we said that if we have and we do not I think I would like to but if we have to look at newbuilding vessels that will be specialized vessels and vessels of our clients would there be to charter for a long period of time and vessels that are not existing in our fleet. So I think this is something we want to make very clear. It was all of us will have to help this market to help itself. On the other hand, we are looking at taking the view that right now, we are in the middle or the beginning I would say depending on the supply. But, I think in the beginning of a good cycle, we are looking for strategic acquisitions of vessels that are in the water regardless of the chartering profile.

[Ben Nolan:]

Okay. That's very helpful. And my next question has or relates to the balance sheet. Maybe, Paul, you could help me with this. But, just looking through the filings, you guys have quite a bit of debt that is amortizing and maturing in the next one to two years that, on the surface, would limit the availability of your cash flow to service growth. I'm curious about how you guys think about that debt. Are you looking to refinance it, or is this also going to be a very heavily deleveraged part of the cycle or deleveraging part of the cycle for you guys?

[Paul Durham:]

Yes. On the face of it, when you look at the balance sheet and you look at our schedule from now on, it looks very daunting. But, two things to bear in mind, the first is, that behind those balloons which are going to start profiting up, in fact from this year $100 million a year for the next three years and on. There are relatively young vessels behind those balloons and those vessels today are at quite respectable values, in fact, values which cover most of those balloons. The other thing to bear in mind is that we have excellent relationships with our lenders and already in fact for quite a while now they have been talking to us in anticipation and helping us refinance that which isn't repaid by vessel sales. Already they are talking about being able to provide the finance on that terms that sounds relatively competitive, we haven't got into the nitty-gritty yet. But, they are talking on reasonable terms. So we have no fear in either prepaying those set of vessel sales or securing a new finance.

[Ben Nolan:]

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

[Paul Durham:]

That would really depend on which vessels we are going to sell. I mean we earmarked a number of vessels for potential sales whether the market is right for the actual sale is another matter. But, we believe if we look at it – if we assume a $100 million a year balloon that we can refinance the greater part of that based on the values of those unsold vessels if you like. Indeed refinance beyond the amount of the actual debt if you give us more ammunition for the special opportunity that we are looking at.

[Nikolas Tsakos:]

That's a very good point. Paul because I think as our finance department is letting us know and right now there is quite a large appetite again, very, very logical for today's spread environment offers to refinance any balloon also at above the actual outstanding right now. So we could actually be adding, it will decide because we have a very conservative debt to liquidity ratio for both 47%, should we decide to increase this closer to 50 could be couple of dozen million dollars added to our balance at the relative cost.

[Ben Nolan:]

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

[Nikolas Tsakos:]

First of all, when we say all our newbuildings, of course, it includes our LNG. Again, I would say that banks have very – they are very positive in where LNG is going. From our rounds, right now, I think we are within LNGs somewhere in – we always think in tankers terms. So I think we are at approximately in the autumn of 2013 in tanker terms in that market. So I think the market is bouncing to the bottom. But, there are lot of projects coming online. The market was delayed. People were expecting this year 2015 to be the positive year for LNG. But, I think for us, I would say that because we have many, many more tankers than LNG as the low price of oil as made it less interesting for people to push on those projects. But, I think we are expecting things – and we are watching. Today the market is actually on its knees. It's about $35,000 a day. We are very happy that our LNG is fixing for another year and a little bit $80,000 and change, $80,000 and change. So that's of course a very good accretive transaction that we had secured for five years there. And we hope when our existing energy comes off and in the middle of 2016 and our newbuilding at approximately at the same time to look at much stronger market.

[Ben Nolan:]

Okay, great. And again, nice quarter guys. I will turn it over to someone else.

[Nikolas Tsakos:]

Thank you.

[Operator:]

Thank you very much indeed sir. And your next question from UBS comes from the line of Spiro Dounis and your line is now open.

[ChintanDesai:]

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

[Nikolas Tsakos:]

Yes. Well, I think if you look at – thank you very much for your good words. And if you look in our fleet profile. I mean we are diversified as we said energy company. So we are not focusing – we go where our client goes and we go where the money goes. So we are not – we don't have any redline as we say here in – of which type of vessel we are going to invest. I think we have seen interest for long-term VLCC acquisitions again from resales and not from newbuildings and we are looking at this market. Right now, we are looking I think as we elect as we said in our press release that quite number of accretive transactions. And I think VLCCs of course is on the top of that list.

[ChintanDesai:]

Okay. I think that's helpful. And one more before I turn it over, can you give us an update on the status of the option for the shuttle tanker, I believe the option belong to the charter, and that it was set to expire fairly soon?

[Nikolas Tsakos:]

Yes. That's a good point. I think because the option expires at the end of this month which actual is the – I think the next weekend. And we have – get an extension or they have asked for an extension of that option for the end of July. And we have actually been able because also of our relationship and the weakness of the newbuilding situation to tie up for the extension with the yard. So we will know in July, I think it's a very accretive transaction, we hope it will happen. And we will try to support it to happen. But again, it has been a victim of the low price of oil and people are looking at – on development of oil wells at lower price than they did. But, I hope we can have good news in July.

[ChintanDesai:]

Great. Thank you.

[Nikolas Tsakos:]

Thank you.

[Operator:]

Thank you very much indeed. Now from Morgan Stanley you have a question from the line of Fotis Giannakoulis. Your line is now open.

[Fotis Giannakoulis:]

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

[Nikolas Tsakos:]

Thank you.

[Fotis Giannakoulis:]

I want to ask to – about your cash position right now. You have plenty of cash. The market is booming. We all know that this is a cyclical market. And perhaps not now or maybe in two years or at some point, the market may turn on the other side. My question has to do with, what are you planning to do with this cash? You mentioned about potential acquisitions. Can you be a little bit more explicit on that? I think that you had talked about some VLCCs with long-term charters in the past. Where are these discussions and also, what about your thoughts of paying back dividends or higher dividends to shareholders?

[Nikolas Tsakos:]

Thank you for this. Well, as I said we are looking – the VLCC transaction is there, I think it is presented; it's ours to take it step forward or not. Right now, and you might know – we are looking at more strategic decisions of existing vessels in the water in the medium to large size. So I think you sure understand, there are couple of fleet out there in the water earning money as we speak today that might be for sale, and I think that could make sense for us to look into growing in that. And of course, the Board, we will have our strategic meeting on the 10 of October as every year to look how the year has gone to climb forward. And I think at that meeting, if the market continues the way it is, it will go through the summer with a strong market, I believe we can convince our Board of Directors to consider a high dividend.

[Fotis Giannakoulis:]

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

[Nikolas Tsakos:]

I think because the company traditionally had and I think we are going to end up, I mean we will take advantage of this market as we did in the last cycle. We will not see us – we will be 80% spot by next quarter if all the main ships come within this. So you will not see us, we are a traditional company closer to 60% fix, 40% export. So I think, we will be heading towards that by the end of the year looking at the rates or with the profit sharing arrangements. And we like our shareholders to have a steady dividend. However, I think what we would like to see that if we have an extraordinary year, but we announce our fourth quarter results to be able to talk to the Board and then have a top up of the dividend. So I think we want to have a steady dividend to our shareholders, we would know they will have a steady return and then to be pleasantly hopefully surprise like we are the largest shareholders when a good year has been completed.

[Fotis Giannakoulis:]

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

[Nikolas Tsakos:]

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

[Fotis Giannakoulis:]

Okay. Thank you for that. And I want to ask you about asset prices and about the period market. We have seen a booming spot market. The supply of vessels is practically – is not growing for over a year right now. But, at the same time, the last few months, we do not see period contracts. And the gap between the spot market and what the brokers are reporting is quite large. Where do you attribute this lack of period activity and also, why asset prices, they seem to have lagged significantly compared to the charter market?

[Nikolas Tsakos:]

I think this is a very good point. I think the reason if you see, you do not see such a long-term facilities because the owners for the first time they are resisting. I know from experience within my organization here and with the broader intertanko organization that the owners are resisting the levels, I think charters have started to bite the bullet. And I say that from our side we are always open to profit sharing arrangement. That does not – so we do not have to negotiate down to the last payment. But, I mean we saw earlier this week for the first time in MR 53,000 ton has been fixed for a year at about $17,000, $17,500 but breaking the $17,000 is something new. So that's a quite substantial case for the 53000 ton. I think right now – I think most of the owners with good quality ships could charter the ships for three years, I mean charters spot is a two year period. But, I think you could a three year employment for producing ships at accretive rate. But, I think the owners or I would say enjoying the spot market right now. And they are resisting a long-term and that's why as you correctly said we are not seeing any really long-term business being placed as we speak. As far as the price of vessels I think that's – the positive thing in this and I know that Morgan Stanley you are one of the leaders in the shipping sphere. But, the positive things that we do not have yet, and hopefully we will not have it soon, the money that was hitting shipping back in 2006 to 2008. People have lost money, people are skeptical, people have 100s of newbuildings in shipping of all sorts and the money is not there. So the equity is not there in a big way as you – I'm sure look at very well. And then the – of course, the banks are still licking their wounds, I mean the German banks are non-existent. We have gone to fraction of the banks that finance shipping during the last 12 months. That's why we are seeing the asset values actually not added to the spot market.

[Fotis Giannakoulis:]

So, I assume -- I understand it's the lack of financing that prevents that because -- or you think that there is structurally more discipline in the crude tanker space. I understand that you have done your share in preventing newbuilding orders. But, how disciplined can the shipping industry be to this recommendation as a President of Intertanko and not ordering newbuildings? And how do you see the private equity firms that they have been very close to the overall shipping sector the last few years affecting the newbuilding balance or potentially creating opportunities, acquisition opportunities, for you?

[Nikolas Tsakos:]

Well, I think you said correctly. A lot of the private equity firms have – are actually still trying to absorb the gigantic losses they have in the dry cargo market. And I think after all shipping is always looked as one entity. So I think a lot of that have been scared from shipping. And I mean we welcome private equity firms as long as they – there are plenty of second hand ships and very good quality ships to buy out there. But, don't have to spoil the market by buying newbuildings. I think they have to pay to learn, I think they paid their learning that this is the case in shipping. It's not an easy market. I mean you are actually making sure – you are making long-term decisions based on short-term data. So I think this is something that is very rare to see in any other industry. I mean you asked right now, I mean you can ship to $75,000 today on May 22. You may place an order for the vessel that you will receive in May 22, 2017 at the best. At that time, if you will receive the ship – if you keep in the spot that market might be $2000 or negative. So I think what you are doing is, you are actually – it's one of the matter that you have to make huge capital expenditures based on the spot market, which is to-date.

[Fotis Giannakoulis:]

And my last question, do you have – are there any discussions about acquiring assets through issuing shares to any of this – the owners of this fleets?

[Nikolas Tsakos:]

The closer we get to our net asset value and I think the more interesting this transactions are becoming. Yes.

[Fotis Giannakoulis:]

Okay. Thank you very much. I appreciate it.

[Nikolas Tsakos:]

Thank you.

[Operator:]

Thank you very much indeed. Now from GMP Securities, you now have a question from the line of Magnus Fyhr. Your line is open sir.

[Magnus Fyhr:]

Hi, guys, congratulations on a good quarter. I had a couple of questions. First, on the LNG side, you mentioned on the Analyst Day that you are thinking possibly having six ships by 2020, just curious with current weakness in the market, if you – how you thinking about the expansion of $200 million a copy that could take care of most of your use of cash?

[Nikolas Tsakos:]

Yes. Thank you, Magnus. I mean we are doing the background is at the lot of LNG start-ups are happening both in the United States both in Australia, both in Indonesia you have a lot of companies that are going to run and own and produce a lot of LNG. And they don't have shipping experience. So these companies will have as many as possible or closer relationship so we are only ordering those ships in case we have contracts. But I think we will like to end up with half dozen ships up to $200 million to 2020, we already have two vessels operating. So I think purchasing another four LNGs in the next five years, it's not something out of what we consider that can be done.

[Magnus Fyhr:]

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

[Nikolas Tsakos:]

We did not order an LNG without the contract. And the reason I'm saying that I think so emphatically is because the technology of those ships is different from project-to-project that might be a project that requires a 125,000 cubic for – it might be a project that requires 160 some of them 175. So I think it's not the plain vanilla tanker business where you order an Aframax and the Aframax either it's 110 or 105,000 tons, it will have a similar trade. It's a completely different market.

[Magnus Fyhr:]

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

[Nikolas Tsakos:]

Yes. As I said right now there is a lot of large companies that would like to take vessels for 5 to 7 years.

[Magnus Fyhr:]

Okay. And if you would that would it still be kind of on a profit sharing basis or would you – I mean, how those discussions going, would you do fix, or would like to retain some upside?

[Nikolas Tsakos:]

The reference, I mean I have to say that as our chartering team – with us because this recent event, we have actually rejected first class name business on fixed rates. And not because we believe in this market, I mean, let's say we are offered decks. We are willing to get x minus 2 plus profit shares. So it's not that we are trying to be – we want to make it a win-win situation for us and our clients. So it's not that we are trying to right now not to do business with people we have been doing business for many years. But, I think that profit sharing is much more preferred.

[Magnus Fyhr:]

Okay. All right. And one last is the housekeeping item, the daily OpEx seem like declined a little bit in the quarter a little lower than our expectation, is anything going on there or should we expect that run rate going forward?

[Paul Durham:]

It really depends on the euro rates. I mean this is exceptional forward, it's much due to the weakness of the euro. And you probably remember that a lot our expenditure – about a quarter of our expenditure is in euro a lot relates to the ops in our vessels and so when the euro fell and dollar strengthened and we are a dollar functioning company that was good for us that impacted OpEx. Now, we are not going to expect another full liner that would kind of hoping will stay steady if the rates stay in the same realm. Otherwise, I think our technical managers are doing a fantastic job in holding cost as I mentioned. There are short-term spikes. I mean we expense our vessel supplies on delivery, so it's a lot of deliveries take place around the world and a lot our ships at one particular quarter end. Then it's going to be a spike in our OpEx. So it's really looking at 6 months or 12 months basis to get a proper idea of what our ideal OpEx should be.

[Magnus Fyhr:]

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

[Nikolas Tsakos:]

Thank you.

[Operator:]

Thank you very much indeed. Now from Euro Pacific, you have a question from the line of Mark Suarez. Your line is now open.

[Mark Suarez:]

Good morning, Nik, George and Paul. Thanks for taking my questions. Maybe we can just go back to the potential acquisitions. I know you have raised the capital and you extended the DP2 option, I'm wondering we should revisit, the DP2 Shuttle segment now becoming a priority at least in the near term for any potential capital allocations at least this year?

[Nikolas Tsakos:]

Yes. I think we hope it will be in the fourth quarter. I mean September event because I think if we make the subjects in July when we have the negotiation on the vessel with the yards and then we will have contract signing in September. So it will be later in the year.

[Mark Suarez:]

Okay. That's helpful. And you also touched on second-hand transactions, best-case scenario chartered attached transactions, although you're – now, you're maybe looking at some unchartered opportunities if the returns are there. And you even said that may include some of the larger-sized VLCC second hands. Just taking a look at that, do you still see opportunities out there in the market, considering where the contango curve is at this point in time to maybe lock in some of these larger-sized vessels, if that were to happen into specifically oil storage services at sort of levels that we saw with the Millennium? Is that a possibility?

[Nikolas Tsakos:]

This is possibility. I think if you look at the spot market is approaching $70,000 to $80,000 a day, I think in the 80 to current – it touch close to $100,000 a day. So I think that's a -- $50,000 plus for – will not be out of the money, if the market trending is like this.

[Mark Suarez:]

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

[Paul Durham:]

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

[Mark Suarez:]

Got you. Great. That's helpful. That's all I have for now. Thanks for your time again.

[Nikolas Tsakos:]

Thank you. Thank you very much.

[Operator:]

Thank you very much. Now from Global Hunter, you have a question from the line of Charles Rupinski. Your line is now open sir.

[Charles Rupinski:]

Thank you for taking my question, and congratulations on the quarter.

[Nikolas Tsakos:]

Thank you.

[Charles Rupinski:]

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

[Nikolas Tsakos:]

Yes. I think that's a very valid question. But, we also as a – we hope and we have seen a small increase in average speed, I would say from 11 knots to 12.2 because of the market. But, these are still much better speed than with the 40 knots that vessels were traveling in the past. So I think we would like to continue this slow steaming and because many people think that faster they are going to go get the good rate. That's very good. But, faster you go, someone will get the good rate, the shorter the good rate is going to last. So I think all of us are able to keep on – I think it's good for our consumption. It's good for our environmental footprint to keep our vessels and it's good for our pockets to make sure that our ships keep on at logical speeds of 12 knots. Every owner has his own agenda, but I think this is what we are trying to at least within our organization to convince our captains and technical managers.

[Charles Rupinski:]

Well, it makes sense. And yes, it's actually – seems like it's a pretty conservative increase that you mentioned so far. So hopefully, it stays that way. I think it'd be good for the industry. That was really all I had. Clearly, congratulations on the quarter, and thanks for taking the call.

[Nikolas Tsakos:]

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

[Operator:]

Thank you very much. Now our next question from JPMorgan comes from the line of Noah Parquette. Your line is now open sir.

[Noah Parquette:]

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

[Nikolas Tsakos:]

Well, as I said the MLP is a very useful vehicle for companies to grow. But, of course, we do not want to grow at any costs and right now, as we speak we are throwing about $0.5 million a day of net cash flow, so I think although the MLP transaction will always be analyzed at the right time. Right now, I think it's not our main focus. In terms that our NAV is approaching – our share price is approaching NAV and hopefully – and so far in the future. And the recent – the most recent transactions of MLPs have really made it very expensive for anybody who is not a distressed company to raise money. We have seen companies for their own reasons raising money in the 10%, 11%, 12%, 13% and then trading even worse. So I think this is not an environment of TEN and we want to be participating in.

[Noah Parquette:]

Okay. It makes a lot of sense. On the asset value side, second hand prices really have – moved as much as you think considering the strength, sales volume is not that strong. Also I mean do you see – what do you see the bid-ask spread there and is there potential for a gap up, what are your thoughts?

[Nikolas Tsakos:]

Today, there I think there is – as big as never between 15% to 20% gap between actually for sale and purchase. So the bid-and-ask spread, I think if this quarter – the second quarter which is traditionally a quarter where and the third quarter together are traditionally the seasonal lows with the market continues where it is today. I think we are going to have a very hot [September] with people coming back from holidays and really looking to buy ships. So I think these two quarters are going to be – I think the bellwether for where we are going on that.

[Noah Parquette:]

And segue into that kind of on the industry side, the potential for the Iranian sanctions to – the situation be resolved. What are your thoughts there, I mean obviously more oil would be good for the market, but there is some negative ton mile dynamics and then the storage of ships being released. How do you think of that affecting the market?

[Nikolas Tsakos:]

I think in the long-term as you said before the market adjust with the right route, there might be some negative – initial there will a lot of enthusiasms, so we will see – I would say for a very strong quarter. Then things will stabilize. And then when the – these and when this happens, it will take another quarter for normalization. But, I think initially it will be greater due to enthusiasm where you are going to have more balance in the market.

[Noah Parquette:]

Okay. That's very helpful. Thanks again.

[Nikolas Tsakos:]

Thank you. Thank you very much.

[Operator:]

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

[Nikolas Tsakos:]

Well, from – again, thank you very much for being on our call. I think this has been a long awaited reversal, the company has been profitable since inception a couple of years – of painful years we were able to use them for bringing the company where it is today enable to reap the benefit of a strong market. And as I said, we expect in the next two quarters, if the market continues where it is to have the significant reversal, or I think a significant increase to our – directly to our bottom line from the nine ships that we reversed from the time charter market to the spot market. And with this, we would like to wish everybody a nice long Memorial Weekend. And looking forward to talk to you again in June when we will be participating – the company will be participating in Marine money. Thank you very much.

[Operator:]

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

[Nikolas Tsakos:]

Thank you. Thank you for your help.

[Operator:]

All the very best to you. Bye-bye.

[Nikolas Tsakos:]

Bye-bye.