Tsakos Energy Navigation Limited (TEN) Q3 2015 Earnings Report, Transcript and Summary

Thank you for standing-by, ladies and gentlemen and welcome to the Tsakos Energy Navigation Conference Call on the Third Quarter 2015 Financial Results. We have with us Mr. Takis Arapoglou, Chairman of the Board; Mr. Nikolas Tsakos, President and CEO; Mr. Paul Durham, Chief Financial Officer; and Mr. George Saroglou, Chief Operating Officer of the company. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions] I must advice you the conference is being recorded today, Friday, November 6, 2015. And I now pass the floor to Mr. Paul Lampoutis, Investor Relations Advisor. Please go ahead, sir.

Thank you very much and good morning to all our participants. This is Paul Lampoutis of Capital Link, Investor Relations Advisor to Tsakos Energy Navigation. We would like to first take the opportunity to congratulate Tsakos Energy Navigation for receiving the Corporate Social Responsibility Award for the year during the Capital Link even in London this past week. The company released its financial results for the third quarter of 2015 this morning. The press release has been distributed publicly. In case you do not have a copy of it, please call us at 212-661-7566 or email us at ten@capitallink.com and we will email a copy to you right away. Please note, that parallel to today's conference call, there is also a live audio and slide webcast which can be 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 our 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, 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.

Thank you, Paul. Good morning, everyone. Today we announced another phase of exceptional results for third quarter confirming TEN's leading position in the business. This exceptional financial performance is the result of executing our balanced strategy in all fronts. Strong revenue generation, a disciplined cost control, accretive targeted sale and purchase activity and a pristine safety record. And always, within a very comfortable cash and funding framework. On behalf of the board of TEN, I wish to congratulate management and the whole team for this excellent performance and hard work which continues to generate high and sustainable shareholder value. Over to you Nikolas.

Thank you. Thank you, Chairman and good morning and good afternoon to all of you and thank you for participating in our third quarter release. And it seems we are on the way for another profitable and strong year. I think what is more important is that we see that the market maintains its strength. We got a bit jittery sometime in August when we had the figures show that the Chinese economy was slowing down and it was affecting various parts of the world. But we were pleasantly surprised to see that that slowed down. It was short-lived and as soon as I would say the August lull came to an end, the market started going again from strength to strength. So as we are approaching the winter months, we are seeing spot rates strengthening in all sectors. Right now we had a very strong Aframax market everywhere. The Caribbean who lagged behind for a short period of time is back in very very strong returns, close to $30,000-$40,000 and above. The Suezmax market is also very strong and actually we look very very positively in the last four acquisitions that we timely made of very modern Suezmaxes and have contributed very strong to our bottom line and I think the same is on the VLCCs and the product tanker market is strengthening. So overall, we are looking at a market that has good imminent spot prospects but what is more encouraging for me is that we are seeing the clients, the people who actually buy and sell the oil long-term, looking for covering their requirements for long period of time. And when I say long term, I think we are saying businesses three to five years. We just announced last month a fixture for four of our ships, three plus one additional vessel for another for three years. On fixed rate I think this is a very good development but this does not mean that we expect that the market will take a dip, but I think it's good housekeeping when you see levels that are accretive. Don’t forget we are a company that has acquired the majority of our fleet at low cycles so our breakeven quotient , I think George will go into that in his presentation, gives us the ability to enjoy very accretive positions in today's market. So we have a big spot, right now, participation. We are also looking to cover through long-term time charters with profit sharing position. We expect that if the current supply, tonnage supply is maintained which we hope that most of the responsible owners out there will continue to ensure, we are not seeing because of problems in the other segments of the shipping business, the very depressed market in dry cargo, the non-market in containers and the slowdown in LNG, we see a lot of investors shying out away from shipping or at least shying out from new building orders, which I think this is going to play a long-term positive role for us and keep the supply demand curve at a good check. So with this mind, we are looking at positive third quarter, a very positive fourth quarter. But I think what is more important for us is we are looking for 2016 being similar or hopefully better year and the prospects even further for 2017 do not look that different. So medium to long-term, the market seems to be in a positive environment and so we are I think enjoying this and hopefully because we feel comfortable going forward, we have increased our dividend and hopefully if the market remains strong, we might have a possibility to increase it again as we go forward. And with this preface, I will ask George to give us the developments of the last quarter and the last nine months and then we will be happy to continue. Thank you.

Thank you, Nik. The company reported today another strong quarter and profitable nine months. We are now in November, in the seasonally strong fourth quarter and TEN is on route to another profitable year, second in a row since 2014 which will make the company's profitable year track record since inception in 1993 to 20 and 3. 20 profitable years and three loss making years which were the three difficult years from 2011, '12 and '13, in the middle of worst crisis shipping markets have entered. For those of you who are connected to the Internet, on our Web site there is an online Slide presentation whose format we will follow during the call. If we go to Slide number 3, during the quarter we sold two of our older tankers. A 2002 build Suezmax and a 2004 build handysize product tanker and we acquired two newbuilding VLCCs and two modern Suezmax. We have already taken delivery of the first Suezmax yesterday, which immediately began earning TEN an accretive rate in the spot market. The second vessel will be delivered to us during January of 2016. As a result of this transaction, TEN has today a pro forma fleet of 65 vessels, excluding the option for a port shuttle tanker. Thanks to the modernity of the fleet and the balance employment strategy, we continue to operate the fleet at a very high utilization rate, 98% for the nine months of a year. We should highlight that we have 31 vessels that take full advantage of the strong spot market as we are into the seasonally strong period for energy transportation demand. And oil majors, as Mr. Tsakos said, continue to have an appetite for fixed vessels forward to three year charters and in this environment we have recently announced a charter for an average of 36 months of three LR2 Aframaxes to a European oil major at rates that these vessels turned back in 2006 when we first acquired the vessels, that are approximately expected to generate total gross revenues of $100 million. We have 60% of the remaining 2015 days and 52% of the available 2016 days of the fleet at secured revenue. And the total pro forma fleet contracted revenue is minimum $1.5 billion without of course accounting for any profit sharing in this strong market. The collapse in the price of oil continues to impact the crude sector and TEN in a very positive way. We see world oil demand growing. We see on the supply side the OPEC continue to produce high volumes which benefit crude tanker demand coming out of the AEG. And through the spillover effects to the other markets, benefits the entire crude market sector. Fleet growth so far has been fairly limited and the order book remains reasonable through 2017. The market, especially for crude tankers is fairly balanced and as long as the oil keeps flowing, the freight market should seem balanced and strong. For product tanker, the quarter has also been good, thanks to strong refinery margin as a result of lower crude prices and more production of volumes coming out of the new refineries in the Middle East and India. The next Slide, Slide 4 has the main financial highlights -- of our press release. Strong profitability for both the quarter and the first nine months. $40 million net income for the third quarter versus $5.2 million in the third quarter of 2014. Operating income of $45.1 million versus $13.8 million in the third quarter of last year, which is a three-fold increase. Very strong cash reserves with cash currently in excess of $300 million. 31 vessels benefitting from the very strong spot tanker rates and have total contracted revenue of the operating fleet of about $850 million excluding, again, any potential profit sharing which is certain in this market. We have an average charter rate of 2.6 years. The company's pro forma fleet, on the next Slide, is 65 vessels. And that includes 49 vessels in operation and our newbuilding fleet. We have strong fleet growth thanks to the company's newbuilding program which is built against long-term business as 12 out of the 15 newbuilding vessels that company is constructing are fixed on time charters with minimum five-year duration, excluding again the optional period that charters have. The fleet is very modern. The average age of the operating fleet is today 8.3 years versus 9.6 years for the world tanker fleet. The next Slide is the company's clients. All of the names are blue-chip names with whom the company is doing repeat business over the years, thanks to the quality of service, fleet modernity and the safety record of the enterprise fleet. These ten names continue to account for almost 80% of the revenues this years as well. The low-cost base, on Slide 7, thanks to the fleet that we have built before the rise of the newbuilding prices. You see on the left side, the all-in breakeven cost for the fleet and on the right side the snapshot of where the market is right now. The freight market has been strong and is expected to remain strong as the current and next quarter are typically the strongest quarter for energy transportation. The company's financial performance for the year so far looks as if we are back in 2005 when with half of the fleet we have today, we produced net income of $160 million. This year in the nine months of 2015 TEN has produced net income of approximately $120 million. If one wonders where we are into the cycle, in TEN we feel that provided the oil price stays below or around the $65 level and the order book doesn’t overshoot, then we should be looking for at least another two very good years ahead of us. Slide 8 shows the balanced employment strategy where we see that the corporate fleet is employed in a combination of spot charter CoAs, period charters with fixed rates and minimum rates with profit sharing arrangement. We have 18 vessels on time charter with fixed employment. Ten vessels in time charter with profit sharing two vessels in CoAs and 19 tankers taking advantage of the strong spot market. As of today, the 30 vessels of the operating fleet have secured employment through fixed time charters, start charters with profit sharing and CoAs that can generate minimum revenues of $850 million over the next 2.6 years, again excluding the profit sharing that in this market these vessels will definitely have. The next two Slide, nine and ten, talk a little bit about the market both from the demand and supply side. Oil demand grew this year at about 1.8 million barrels per day and this is the highest rate of growth of the last five years. For the next year the forecast is for growth of 1.2 million barrels per day which is lowest through the long-term trends of growth. The global economy despite headwinds in some regions, continues to grow. Lower oil price are supporting strong demand, coming out especially out of the United States and China. The supply driven drop in the price of oil benefits the tanker market. Rise in volumes, longer distances, very modest fleet growth for crude tankers over the next few years we expect to see that the goods markets continue to be supported over this period. Slide 11, we see track record in the sale and purchase of the company since 2003. We sold for profit and further trade for older vessels, the Suezmax and the Handy size tanker and acquired two newbuilding VLCCs, two resale newbuilding VLCCs and two modern Suezmaxes. We also continue to have interest to sell some more of fresh generation vessels we have in the fleet. Vessels that were build up to 2007. The dividend history. Where we show the distributions that we have paid since 2002. The next dividend of $0.06 will be paid on December 15, 2015. We recently announced an increase in the dividend by 33% from $0.06 to $0.08, starting from the first dividend payment of 2015 that will take place in the first quarter of 2016. In the last two year, dividend have increased by 60% from $0.05 per quarter to $0.08 per quarter per share. The company likes to reward shareholders with sustainable and growing dividend. In total since 2002, TEN paid $10.12 in cash dividend or approximately $450 million and this compares with the listing price in our IPO of $7.50. The next Slide has the most recent NAV calculation and lists the analysts covering the company. The management's vision is to continue to growing the company responsively and at the same time have this reality being reflected in the company's share price. At the same time, believing in the company's value and the business in which we operate. Management continues to increase their holding in the company. And that concludes the operational part of our presentation. Paul will walk you through the financial highlights for the quarter and the nine months. Paul?

Thank you, George. Although we expected a muted quarter after the robust half year, in fact quarter three was very positive for us with net income at $40 million, eight times more than the prior quarter three. While nine months was $119 million against $20 million last year. Operating income was $45 million and as George said, that’s over triple the prior quarter three. And for the nine months, 200% higher at $140 million. This includes $2.1 million net gains from the sale of vessels Triathlon and Delphi, demonstrating shipping can also generate income from asset sales as a secondary core activity when opportunities arise. But the main bottom line provided is of course revenue which after voyage expenses total $110 million in quarter three, up 33% from the prior quarter three despite two less vessels. And for the nine months $343 million, a 39% increase. Our Aframaxes mostly operated in the dynamic spot market with average daily TCE rates in quarter three at $26,000. Average Suezmax TCE rates at nearly $50,000 were 39% more than in the prior three. Panamax and Handymax daily earnings enjoyed reasonable or respectable increases over the prior quarter three but handysize rates really shot up by 54% on average. Although there was clearly some negative seasonal impact from rates compared to six month rates, the average TCE rates in quarter three at nearly $25,500 was 38% over the prior quarter three. And in the nine months, 36% higher at $25,900. Quarter three generated $69 million EBITDA, 68% up. Our fully operating vessels generated positive EBITDA. For the nine months EBITDA increased by 75% to $217 million. Operating expenses fell by almost $1 million due to the sale of the two vessels and the strong dollar. Offset by expenditure on increased dry dockings with four vessels in dock compared to three in the prior year for our quarter three. Daily average OpEx for quarter three and the nine months was at a gratifying $8070 per vessel. Despite the impact of large and specialized vessels in our fleet, for the nine months there was a 1% decrease in daily OpEx. Finance costs fell to $5.1 million, mainly due to a $3.2 million discount on a loan prepaid as part of a program to refinance debt nearing maturity and to increased swap valuations offset by payments on the swaps. The prepaid loan was refinanced for six more years with a new $46 million at competitive terms. We also received $20 million in pre-delivery finance relating to vessels under construction. We prepaid loans of $23 million from the proceeds of the two sold vessels, releasing cash totaling nearly $20 million. So debt at September 30 was $1.37 billion, net debt to capital 44%, and leverage on fair market value at 48%. We have now arranged finance for the 12 tankers being built and the two recently acquired Suezmaxes with discussion for delivery finance with the LNG carrier and two VLCCs in progress. We aim to sell certain vessels over ten years old in the next 18 months with proceeds expected to be more than adequate to repay related debt, given a stronger balance sheet with healthy cash reserve. These reserve together with expected cash flows, will cover our remaining equity contribution to completed our newbuilding program. And of course, provide a sustainable dividend payout. And this concludes my comments and now I will hand the call back to Nikolas.

Paul, thank you for the positive news and hopefully we can have more of this going forward. And, again, I want to thank for your mentioning of the CCR award. I think in shipping we take very seriously our social responsibility and I think it's something we have been doing for a very long period of time although sometimes it's not as obvious, but I think it is really very important to be recognized sometimes. And with this, I would like to open the floor any questions that you may have.

[Operator Instructions] And your first question from UBS comes from the line of Spiro Dounis. And your line is now open.

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

Thank you. Well, I think as George mentioned earlier, the management and the Tsakos family are the largest shareholder, so I think we are on the same exact boat like our shareholders are. So anytime we see that we can increase the dividend if especially that happens, we are going to look at it. But, however, we recognize that we are in a market where we have to take delivery of a big number of ships going forward. And the last thing, we are a long-term shipping company. We are dedicated to our company and to our business. So we are not going to be risking the company just to make us happy for a couple of quarters by extraordinary dividends. But I think when we believe the time is there then we will be looking to increase the dividend I think I [indiscernible].

Okay. No, that’s fair. And Paul, last time you mentioned potentially ending the year with nearly $400 million in cash. It sounds like you have got some vessels sales that are maybe going to be on the block soon. Just wondering if that’s still your view and then maybe if you can just let us know how much of the current cash balance is earmarked for recent acquisitions on the newbuild program.

I think the $400 million related to the end of next year, assuming that market remains as it was in 2015. A lot of that cash that we do have is in fact earmarked for the CapEx program. We still have about $160 million of equity contributions to make. But as I mentioned just now, we believe the cash reserve that we have and the cash that we will continue to generate, will comfortably cover this.

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

Yes. I think, again, as I said, when we assumed our position at INTERTANKO, we do not like to see additional supply coming in the market. As I said, shipping, we should try and keep this market lasting as long as possible and not turn it into what the dry cargo market is today or the container market. So I think we have to keep our fingers crossed. Right now there is a lot of appetite for similar deals for a number of owners. So we are looking at these. I think what we try to do is perhaps not go for newbuildings but there are numbers of owners that, for their own reasons, see that we have a diversified fleet and the only side of the business that makes money is the tankers, that might have re-sales out there for this type of business. So I think this is the golden mean in between. Newbuilds and not adding supply in the market.

Thank you very much indeed, sir. Now from Wells Fargo, your next question comes from the line of Michael Webber. Your line is now opens, sir.

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

Yes. I mean we look very closely to that and I think we will be -- we recognize that we don’t want to have to pay expensive debt and this was the exercise that I think Paul mentioned earlier, where we used our cash to reduce significantly our debt by making also a capital gain on it. And we are looking at ways to first of all reduce our debt. And this is, I would say, the first way to enhance shareholder value. And also of course we have our securities, our preps , which of course are equity but they are out there that also are an expensive way of financing. That was used at the times that other -- the market was the way it is today. So I think we would be coming something with that before the end of the year.

Okay. It's helpful. I wanted just to follow up on Spiro's question around, I guess around newbuilds, but more around just the fact that asset values are sliding back, it seemed, like a bit here with second hand inching in as well. I am just curious, from a market perspective, and it seems to be a bit of a debatable point, but do you think we have seen peak asset values for this cycle already? Just given the fact that we are seeing kind of a drag from newbuilds despite firm cash flows. I am just curious how you think about where we are right now in the asset cycle?

I have to say that right now, if it was just -- if we are in the market of only tanker-owners, operating only in tankers, we would expect to have seen much firmer values than the ones we are seeing on the newbuilding side today. As you may know and I hope you are not experiencing it as a firm, but certainly there are a lot of investors in shipping which are suffering from other segments of the business. And I think that puts a lot. The yard that built the vessels, actually they build vessels in the same yard, then it builds all the type of ships. So I think that is what has put a dampening on the price right now. I agree with you that we have never seen and we are not seeing the prices, either newbuildings or second hand ships, representing what we are having today in the spot or the term market. And that’s why we were very aggressive in the summer, which is usually the low period and we have [shipped] [ph] four ships within that month.

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

I think we believe because I think, George has portrayed our all-in breakeven which for many shipping companies represents, sometimes it represents the OpEx breakeven. But if you go to page seven of your presentation, you see that our Suezmax breakeven, it's at $17,500, our Aframax --all of them at about that level. So today's market is double of that. So I think at double that I think we are starting getting very interested to cover two or three or five year.

Are those inbound calls at this point, are you going to -- is it somehow you get that level and you reach out. Are you seeing a lot of enquiry right now on long-term?

No, I am talking about term, this is term business.

Right. No, I am saying, are you getting inbound enquiry on term business right now, or having...?

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

Thank you very much indeed, sir. Now from JPMorgan, your next question comes from Noah Parquette. Your line is now open.

My first question was, can you just give an update on -- you were chartering for the LNG vessels you have and the progress you are having on your newbuild?

Yes. Thank you. Well, I think as you know right now we have quite an exciting year coming forward for us. We just took delivery today actually, the Pentathlon, which is the second hand Suezmax which we acquired earlier. We have delivery coming in the first quarter. And then we have also at the same time the VLCCs. So we are seeing a very big demand. We could actually fix all the vessels that we have out there on long-period of employment right now. As you might know, we have nine with six to be delivered this year, vessels. A big number of those vessels are for the Statoil transaction which started out up to 12 years. So the vessels -- and then we have two LR1 product carriers started to sail for, again, five years with profit sharing arrangements. And the weakest segment of the market right now of course is the LNG. And I think we are very happy that we are participating in this market. Our existing ships [indiscernible] energy has been cutting the company with very good profitability in the bottom line for the last four year. It's opening up sometime in the second quarter of next year. We are still -- we are discussing with additional charters for extending the ship. However, the rates are not to where we want them to be to right now. Our other vessel, the Maria Energy is opening up most probably in the third quarter of 2016. So I think we have time. So other than the LNG, other than the Maria Energy, the other vessels, we could have chartered them at levels we actually believe are very accretive today.

Okay. That’s helpful. And then secondly, at the one VLCC you have in the water now, I think last we heard it was $55,000 through September, I think. Can you give an update on that as regarding to the spot market as...

No, no, that’s now -- it's chartered out for three years in excess of $30,000.

Thank you very much indeed, sir. Now from GMP Securities, your next question comes from line of Magnus Fyhr. Your line is open.

Just a question on -- if you can confirm that three-year charter on those LR2 product tankers, it seem liked a very strong rate. Your said 36 months with a minimum $100 million for three vessels.

Yes. For LR2s.

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

Don’t forget, Magnus, this is a TEN vessel. They are not anybody's vessels. The three vessels actually are providing huge flexibility for the charters. When we say a vessels is an LR2, it means that it's a vessel that can have the flexibility to carry crude and then we have to clean here up, [starter] [ph] expense, and carry products with a very very imminent lag. So that’s why we are getting this high rates because this is a play from the major oil companies to the flexibility that the quality of our ships can provide in both trades. So it's not really that they play either one of the trade, it's because they have a view that they are going to be using those ships really aggressively for the next three years as an average, because some of the periods are longer, for both trades.

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

Our view is that we would like, as we have a footprint in the products, we have crude carriers, we have shuttle tankers, we would like to have a significant participation in gas. I believe that time is on our side, as the song goes. Because the market I think, there is going to be quite -- and values are going to be quite interesting for buyers going forward. So I think we are not in any hurry and it think in today's market we will not do anything unless these businesses -- these requests come with businesses. So right now this is not our main focus but I think in the next six to nine months opportunities might arise in this segment.

Thank you very much indeed. Now from Morgan Stanley, your next question comes from the line of Fotis Giannakoulis. And your line is now open.

Congratulations for the great quarter. Paul, I think that you mentioned that you have arranged already that for your newbuildings, can you give us an estimate of what is the equity requirement that you need? How much of this $311 million that you have in your balance sheet has to go for the equity portion of the newbuildings?

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

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

Yes, I think having mentioned $170 million and we have $300 million at the moment and we want to pay our -- as we mentioned, a sustainable dividend. And there are other factors, of course, in the not too distant future. We have to start thinking about redeeming the first of our preferred stock and of course looking for opportunities. I mean there will be opportunities at some stage. Opportunities hopefully with charter or opportunities without and we get the charters. So I think to be really comfortable, the kind of cash we have at the moment, is the kind of level that we would want to have. And I think that would give comfort also to both our bankers and our shareholders as far as dividend payments are concerned.

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

I think the market and the charterers I think have already taken in consideration the supply coming in 2016. So I think on page 10 of the presentation, you can see that we will have about -- I think at the end of the day 50 VLs coming in because you have slippages, some delays. A number of about 40 Suezmaxes is a bit less I think than 50. The Aframaxes, because there are a lot of those Aframaxes are discussions of the dry cargo ships also, that are being discussed in changing on to the wet side. What I think the situation is a bit on heavier, and I think that this is the final year of the deliveries from the crazy [superego] [ph] period of the two or three years ago, it certainly turned the hand in [VMR] [ph]. So I think this is going to be the year with most of the deliveries. We are seeing very little coming for 2018 because people are not -- I mean they are not sure about -- they are seeing that the other tanker market -- sorry, the other shipping markets are hurting and they are not sure about the tanker market. So I think the offers that we get for long-term employment today have taken in consideration the existing newbuilding order for the next two years. This makes us comfortable '16 and '17 will be good years. If the price of oil maintains around that, $50, $60 or lower, I think there could be even more exciting years. But I think we have two solid years going forward. So I think that as far as we can see right now and that’s why we are also covering our position going forward.

Thank you, Nik. One last question about the 2 LNG carriers. Obviously these are -- it's a very small part of your portfolio, but I want to ask you if there would be any value for you to include your vessels in the [cool] [ph] pool that some of your peers initiated a few months ago. Or your plan is to put them in time charters and operate them on your own?

Well, as you know we are all for communication between the owners. And I think this is what INTERTANKO provides. Also it's a mechanism where owners can communicate all their issues, mainly technical, legal but also commercial issues. So I think you are talking to someone who is very much pro-communication. So, yes, I think for us we are already in discussion with the other owners. I think for us right now, of course, we still have another five or six months of employment with our existing one vessel and then almost a year for the second. But we are in discussion and we are open for this discussion because I think that the owner should be discussing not only in the bad times because the pools are like an umbrella. People go when it rains and they just got to get under it. But I think they should be able to continue talking when the markets are good, like they are right now in tankers, in order to avoid the rain. So, I agree with you that we are there and we would like to discuss. We have no -- it think there is a lot of knowledge to be shared and it will always be possible between owners.

Thank you very much indeed. Now your next question from Euro Pacific comes from the line of Mark Suarez. Your line is now open.

Just maybe I had a question about your capital deployment strategy. I know in the beginning of the year you are aggressive in looking at second hand charter-attached. You did the resales with the VLCCs. I am wondering if that's your strategy. It sounds to me from your comments that there is an opportunity here to may be switch to return some of that cash to shareholders at this point in the form of share buyback. Obviously, you have done increasing dividend. I am wondering if you can maybe talk around that?

Yes. I think in the beginning of the year, we felt that were opportunities in the market. I think we took advantage of them. We moved very swiftly. Right now we are looking more in selling some of our assets in order to maintain a very high, very young level for the company in split. And in the meantime we are increasing our dividend because we like rewarding our long-term shareholders with dividend. And I think this is something we would like -- we hope to be able to increase that dividend if the circumstances provide it even further. As I said, the management and the Tsakos family are the largest shareholders and we are sharing the benefits of the dividend together. But, again, we are very responsible and we are not planning to put the company into any sort of question mark for our balance sheet by overpaying.

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

Well, I think 2016 is going to be a very demanding year for us deliveries of new ships. And that’s why I think we have increased our dividend by 33% but this is something we feel we can comfortably do and take all the deliveries and also in consideration of a slow market on the LNG side. We hope if the market continues with its same pace in 2016, we hope that we will be able to happily increase our dividend going forward for dividend for 2017. I think this is always our intention. However, if the market does not meet our expectations, our company will be able to maintain the existing dividends for two years or longer going forward. Because the last thing we would like to do is come back with surprise to our shareholders by cutting the dividend. So this is the way we view the situation. If we have some special capital situation, having some sale proceeds, than again we will consider increase of the dividend.

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

We have always been, I think, we have two conservative chairmen in the past and the present, so we have always been conservative. I think we were in the past 70% fixed, including for profit sharing arrangement which gave us for [exposure] [ph] and 30% spot. We started with the exact reversal earlier this year for good reasons. I think it was a perfect timing. And now for next year, we are at 52%.

We are almost [indiscernible]

But our intention would be perhaps to revert to the 70%-30% we were.

To increase the ships employment with also a bias towards profit-sharing.

Right. And I guess on the VLCC resales, expected to be delivered in 2016. Are your expectations, you want to employ this under spot contract to begin with? Is that what you're thinking here is?

Yes. I think this is exactly what we did the Pentathlon right now. We just took delivery of the vessel. I think it's making $68,000 on the first voyage. So it maybe have been [voyage] [ph]. So that will give a good start. And because there are a number of charters looking for long-term employment, so we will be discussing with them as we go into the winter months and I think George has this quarter and the next quarter, are traditionally the strongest quarters seasonally for the market.

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

Well, first of all I am very impressed that you are following our company so closely. I think it's like your are part of the management because this option is also one of our concerns, yes. As you know, this is not really a market that has a spot day to day rate. I think we actually chartered our ships, all three of them, at what I would consider a positive side during the cycle when the price of oil as in excess of $100 a ton and we are enjoying 15 year contracts balance, during this contract as we go forward. We have been asked and we have extended the option up to the end of the year for the vessel and we will be very happy to have a fourth vessel in the fleet.

Thank you very much indeed sir. Now from Seaport Global, your next question comes from the line of Charles Rupinski. Your line is now open, sir?

I appreciate all the industry color and I just had one follow up regarding potential longer-term employment. How willing are some of our customers, the oil majors or what have you, to include profit sharing. I know you have got the profit sharing on the LR2s. Would you say that you would aim via profit sharing on all of the future long term business and to what extent do you think that’s possible given what your customers' view are?

Well, I think initially that was a concept that I would say three or four years ago during the difficult market it was not hard -- it was not easy to convey to the charterers. In the recent year, I would say in the last year, most of the charterers are open to something like a profit sharing. I think it is a fair arrangement as long as we are long-term players in this market. We are not trying to get a quick fix for one or two quarters and then disappear from the market. So we are long-term energy players. So I think as long as we can get an accretive base rate and then share the upside based on the market with our clients, I think it's a win-win situation. Many people think that you leave something on the table, which I admit we do, but I think at the same time having an effective minimum guarantees to us business, full utilization and profitability regardless of the market prices. So as the market is strong right now. The majority of our charterers are -- we are actually negotiating the base rate and the profit sharing is not a concern. They are all [accepting] [ph].

Thank you very much indeed. So your next question from AXIA Capital Markets comes from the line of Robert Perri. And your line is now open.

Pretty much most of my questions have been answered. If you can give just a quick update on what's going on in the product market. It's been a bit weak coming into November. I was wondering if you guys have seen anything that looks like that’s going to change or how you see the market shaping up for the rest of the year?

I think typically the strongest season for product tankers is usually the second and third quarter with basically most of the focus begin on the United States and the driving seasons. So the market I think took a pause from, let's say the results that we have seen in the third quarter but we are entering the heating season, we are entering the winter period. So there is going to be demand for diesel and heating oil. And so I think and as you know, the refineries are coming back from their turnaround, I think we are going to see an improvement in the flow of products. And let's not also forget another thing that has been recently introduced in the market. Some of the market, especially on the diesel market, the container cost steepening up and we might see storage for products coming in fashion as we are moving through the next couple of months.

Thank you very much indeed, sir. And your next question from Deutsche Bank comes from the line of Amit Mehrotra. Your line is now open.

Euronav, when they reported results, they talked about speeding up. We just saw a little bit of it in the third quarter, obviously on the crude tankers. Maybe that was part of the reason, sort of the super spike that we saw was so much short-lived. Can you just sort of talk about that given where obviously tanker prices and where rates are today, how you think speeding up may impact the market as we head into sort of the seasonally strong period where expectations seem to be high. Thanks.

Speeding up in tankers right now is like speeding up around a kindergarten. So I think we have to keep the things nice and slow. And these are things we discuss with our colleagues. As I said, we look at this market and the cycle has a marathon. So in the marathon you have to actually take, have a pace rather than a sprint and none of us here are Jamaicans. So none of us can really sprint. So I think we are all for the conservative speeding. I think it's good for the environment. It's good for our emission, our environmental footprint. So I think we would encourage -- I think we encourage our operating people here, I don’t know if they listen, but we encourage them to try and keep the speed under control as possible. I think it is for some of the owners, it is intriguing to see that you can -- if you actually do 40 knots you will get to the next port and get another $40,000 or $50,000. But I think it's better if you can do it for a shorter period of time other than longer. And we are trying to resist also on the time charter, ships as much as possible, the charter pressure to speed up. I think on the spot market we are trying on the laden voyages to the natural urge of human greed of speeding under control.

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

Again, as I said -- when I said Jamaican, it's on the sprint side, because we are not 100 meters sprinters. But I think what we want to try and do is have a conservative long-term view that is able to sustain the cyclical changes that are inevitable in our business. I mean we have never, I think, George, if you go back to the balance sheet I think we mentioned, the values of debt to equity ratios over the period of years. And we will see that we never really exceed this even in the worse period of time, when the market is doing 11 and 13, we never achieved 60%. So I think...

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

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

Well, again, as I said, thank you for being interested in the company. I think we have been talking about this recovery for quite some time and I think we are right now feeling it, in the middle of it. We are taking advantage as a company as much as possible. At the same time we believe that because of the uncertainties out there about shipping, the values of vessels and hence the values of share prices have not, in our case, at least is not portrayed. So I think we still have a big opportunity in TEN. We as management and major shareholders have been buying -- our share price never showed any of our surprises. I think it has served us well. And we believe with your support hopefully we will enjoy good market. Mr. Chairman?

Thank you, Nikol. Once again, congratulations to all. There seems to be a very balanced earnings mix, asset allocation and tight expense control. I think that’s a guarantee that with this market you will continue providing shareholders accretive performance. One thing I need to clarify or repeat about our dividend policy. The dividend policy and the cash related to -- the cash kept by the company is all -- it's not a science. It is a mixture of things that we have to take into account to ensure that we have enough cash to make sure of opportunities. That we have enough equity to invest in newbuildings. And maybe to allow our shareholders to participate in the good ride that the firm has. So there is no formula. You as analysts obviously need to put numbers but we cannot do that. It is more of a hunch and taking view on what's happening. So we would hate to have to reduce dividend, as Nikol said. So we are steadily increasing as, if and when the market allows us to do so. So I have nothing else to say. Congratulations and let's hope we get the same results next quarter. Thank you.

Thank you very much indeed and many thanks to our speakers today. That does conclude the conference. Thank you for participating. You may disconnect. Thank you all.