Tsakos Energy Navigation Limited (TEN) Q2 2016 Earnings Report, Transcript and Summary

Thank you for standing by ladies and gentlemen, and welcome to Tsakos Energy Navigation Conference Call on the Second Quarter 2016 Financial Results. We have with us, Mr. Takis Arapoglou, Chairman of the Board; Mr. Nikolas Tsakos, President and CEO; Mr. Paul Durham, Chief Financial Officer and Mr. George Saroglou, Chief Operating Officer of the company. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions] I must advise you that this conference is being recorded today. And now, I pass the floor to Mr. Nicolas Bornozis, President of Capital Link, Investor Relation Advisor of Tsakos Energy Navigation. Please go ahead.

Thank you very much and good morning to all of our participants. This is Nicolas Bornozis, Investor Relations Advisor to Tsakos Energy Navigation. This morning, the company, Tsakos Energy Navigation, publicly released its financial results for the second quarter of 2016. In case you do not have a copy of today's earnings release, please call us at 212-661-7566 or e-mail us at ten@capitallink.com, and we will e-mail a copy to you right away. Please note that parallel to today's conference call, there is also a live audio and slide webcast, which can be addressed on the company's website on the front page at www.tenn.gr. The conference call will follow the presentation slides, so please we urge you to access the presentation on the webcast. Please note that the slides of the webcast will be available at an archive on the company's website after the conference call. Also, please note that the slides of the webcast presentation are user-controlled, and that means that by clicking on the proper button, you can move to the next or to the previous slide on your own. At this time I would like to read the safe harbor statement. This conference call and slide presentation of the webcast contain certain forward-looking statements within the meaning of the safe harbor 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 fully disclosed in TEN's filings with the Securities and Exchange Commission. Ladies and gentlemen, at this point, I would like to turn the call over to Mr. Takis Arapoglou, the Chairman of the Board of TEN. Mr. Arapoglou, please go ahead, sir.

Thank you, Niko. Good morning, everyone. Thank you for attending our call for the third quarter results. Despite the difficult times in the world economy and world trade, Tsakos Energy Navigation management continues to run the company in a profitable way. On the way, there are shortcomings, difficulties but profitability is unquestionable. It underlines that TEN is one of the few companies that can demonstrate such profitability in difficult times. And on behalf of the board, I would like to congratulate Nikos Tsakos and his team for this continued success. The positive trend of the company's profitability will be reinforced going forward in view of the delivery of a series of vessels in the next 12 months that are estimated to add an additional $100 million per annum in EBITDA. So, again, congratulations to Nikos Tsakos and his team, and for managing and navigating the company in such a profitable way in difficult times. So over to you, Nikos. Thank you.

Thank you, Chairman. Thank you, ladies and gentlemen, and welcome to our second quarter results. As Mr. Arapoglou said, as the market demand in the second quarter has been uncertain, however, TEN, with the structure of our charter that has followed for many quarters now is trying to take the seasonality out of – or to be affected by this seasonality as little as possible. We are – usually the second quarter, we are facing a seasonal down in the market. At this year, it has been very, very obvious. Now on top of this, we had political events that were out of the ordinary. We have had a lot of disruptions of exports from Nigeria, which is one of the largest exporters of oil and affects a lot of the suezmax and second the VLCC and then the aframax sides. I'm glad to hear that this disruptions are being ironed out and very soon, we will go back to full exports from Nigeria. So those are going to come on time for the market to turn around as we expect it significantly on the fourth quarter. We have also seen some of the countries using inventories more, and we are seeing in the United States, quite a strong drop on their recent week of inventories, which is another good sign. We have been affected by Russia due to sanctions and low prices of oil. They have a significantly limited exports from the Black Sea and from the north side of the country. And they've been using a lot of their production to fulfill local obligations. But we expect also this and a winter, a colder winter to help the rates on the spot market. On the other hand. We are following steadily our program. We are in the process of almost on the first third of a very long renewal of our feet, which we started and planned in 2013 when the market was very poor. We started taking delivery of those ships, all those ships have a long-term accretive contracts. And what we would like to be able to have is a company that its long-term fleet will approach 70% of our outstanding days. We'll be able to cover all our obligation. So profitability will not be in question. The 70% of our fleet that will have the long-term employment will cover all our obligation and then anything else that our spot fleet produces will be the profit. So I think this is the model we would like to follow and we're almost halfway there. We still have up to the end of 2017 to achieve this target. And with this, I would again thank all of you for your support. We are living at exciting times. There are always opportunities during the high and lows of the market. And we are here always trying to take advantage of them. And I will ask George Saroglou, our COO, to tell us quickly what we've been doing for the last three and six months.

Thank you, Nikos. We reported today, another profitable quarter and half year results. 2016 is a landmark year for the company as its growth program being the largest since inception in 1993, is coming to fruition. Despite the decline in rates during the second quarter and the summer months, due to seasonal factors and reduced early supply in key export areas, rates have remained significantly above the cyclical lows experienced in the period from the second half of 2010 until the end of 2015. We expect rates to gradually move higher during the upcoming winter months when increased oil demand and winter weather seasonality typically improves tanker market conditions and rates. For those of you who are connected to the Internet and our website, there is an online slide presentation, with format we will follow during the call. Let's turn to Slide 3, the key operating highlights. We took delivery of two newbuildings during the second quarter. VLCC Ulysses in May, and the aframax tanker, Ilias Tsakos in late June. After repositioning voyage, Ulysses started a 40-month employment at an accretive rate. Ilias Tsakos is the first of nine build aframax tankers that will serve Statoil for a minimum of 7 years, maximum 12. It's exercised all extension options. In addition, during the first quarter, TEN took delivery of the second aframax, Thomas Zafiras chartered to Statoil and the first of two Panamax seller one tankers, again built against a five-year time charter. From now and until the end of the year, the company expects to take delivery of another 12 aframax tankers, also chartered for seven years to Statoil, a second Panamax seller one tankers, also chartered for five years and the company's second LNG vessel, Marianos. 2016 is the company's busiest growth year since 2007. Following a successful four-year charter that ended in February of 2016 and a huge spot trade in fixture since then, we announced today the fixture of a 2017-buid LNG new energy to two years plus six months in chartered options at the rate that covers the vessel’s expenses. The LNG market is improving after touching bottom earlier this year. We expect to take delivery of the company's second LNG vessel, Maria Energy, during the fourth quarter. We are in active discussions with various parties for a charter, either offshore or medium tenure that will eventually reflect the expected recalibration of rates to higher levels. During the second quarter of 2016, TEN operated on average 50.5 vessels. Pro forma, we have a fleet of 65 vessels. Thanks to the modernity of the fleet and the balanced employment strategy, we continue to operate the fleet at a very high utilization rate for all the tankers in the fleet, the number is 98%, almost full employment. We should also point out that we have 60% of the earnings capacity days of the operating fleet fixed forward. 33 vessels in the 54 vessel fleet have secured employment at healthy rates with an average duration of 2.8 years. We have 21 vessels currently trading in the spot market as we're about to enter the winter months, which usually are the strongest months for energy demand and transportation requirements. The oil price seems to have found the floor and appears to be trading in a range, which for Brent is currently at the $40 to $50 range level. Compared to where the oil price has been not so long ago back in 2014, this low oil price environment continues to impact the crude sector in TEN in a positive way. World oil demand continues to be strong. We have seen upward revisions to the 2016 global oil demand figures by the International Energy Agency, coming back to the 1.4 million barrels per day growth number forecasted at the start of the year. The low oil price continues to stimulate demand and encouraged strategic and commercial filings among consuming nations. Despite significant oil supply deductions in Nigeria, the problems in Libya and supply disruption in certain Latin American producers, OpEx continues to produce oil at record levels reaching $33.5 million in August, led mainly by increases in productions coming out of Iraq and Iran. Supply of oil going forward, is expected to remain at this elevated levels, and this is positive for tanker demand and tanker earnings. Fleet growth in the first half of 2016 was less than 3%. Fleet growth is expected to be higher during the next 12 months. However, the lack of new tanker orders during 2016, mainly due to restricted access to capital, should result in low fleet growth once the current order book is absorbed over the next 12 to 18 months. Scrapping should pickup as we have more vessels reaching 20 years in the next couple of years together with new environmental regulations coming into force. Overall, we still believe that 2016 is going to be another positive year for crude tankers, thanks to growing global oil demand, high supply of oil and relatively low oil price, which moderate the effect of the growing tanker fleet. The next slide is the main financial highlights of our press release, which Paul will present in more detail. I would like to point out the $16.4 million net income for the second quarter $41.8 million for the 6-month period, EBITDA of 111, almost million [ph] for the 6 months, and the strong balance sheet and cash reserves at $263 million at the end of the first half of the year. This is the fleet as it stands right now: pro forma, 65 vessels, which includes the 54 vessels in operation and as we said, we have a strong fleet growth, thanks to the company's newbuilding program, which is already financed and built against long-term business as 13 out of the 15 the new building vessels the company’s building are fixed on long time charters with minimum 5-year duration, excluding optional periods. Predominantly the fleet is engaged in crude oil transportation that is a sizable numbers of vessels engaged in transporting products, while 5 vessels are specialized covering the LNG and the offshore shuttle tankers sector and offshore and shuttle tanker sector. The fleet is very modern. The average days of the operating fleet today is 8.6 years. That's 9.9 years for the world tanker fleet. As more newbuilding vessels enter the enterprise fleet, the average age number of TEN's fleet is expected to be reduced. Slide 6, list the clients of TEN, all of whom are blue chip names, with whom the company is doing repeat business over the years thanks to the quality of service, fleet modernity and the safety record of the enterprise fleet. The next slide shows the all-in breakeven court for the various vessel types that form the enterprise fleet. The cost base as you can see is low, as TEN builds most of the fleet before the rise of newbuilding price. The purchasing power of the technical manager, Tsakos Columbia Ship Management and the stringent cost control by management has reduced the fleet OpEx levels and this has also to be highlighted. Slide 8 gives few pointers about the market. Demand, as we said, is expected to continue growing at 1.4 million barrels per day, which is higher than the long-term growth trend, which is about 1 million barrels per day. The global economy, despite headwinds in some regions, continues to grow. Lower oil prices are supporting demand, strong demand, we have to say especially in the United States of America, China and India. This supply-driven growth in the price of oil benefits the tanker markets. Rising volumes, arbitrary trades, longer distances and manageable fleet growth of crude tankers are expected to support the market in 2016 and beyond. Next slide is the order book. And as you can see, the order book beyond the next day 3, 4 quarter is shrinking, as shipyards in the Far East reduce capacity and are also in the midst of restructuring and available bank finance is very selective and also shrinking. Also, a significant percentage for the fleet is above 15 years, approaching 20. The dividend. Slide 10 has a dividend history of the company. We announced today, a dividend payment of $0.08 per share, payable on November 10 for shareholders of record on November 4. In total, since 2002, TEN has paid $10.36 in cash dividends per share for approximately $436 million. And this compares with a listing price in our IPO of $7.50. The average yield since the IPO is 5.25 per annum. In addition, the company has repurchased since January, 3.7 million common shares at an all-in cost of $5.58 per share. In the last 10 years, the company has repurchased 7.5 million common shares at an all-in cost in excess of $103 million. Slide 11 has the most recent NAV calculation and lists the analysts covering TEN. The management vision is to continue growing the company responsibly, and at the same time, have this reality being reflected in the company's share price. At the same time, believing in the company's value and the business in which we operate, management continues to increase their volumes in the company. That concludes the operational part of our presentation. Paul will walk you through the financial highlights for the second quarter and first half of the year. Paul?

Thank you, George. So despite a challenging quarter, TEN achieved net income of $16.4 million in quarter 2, and earnings per share of $0.15, after preferred stock dividends of $4 million. Six months net income was $41.8 million with earnings per share of $0.39. The reduction in net income, compared to previous periods, was mainly due to rates softening, due to factors, as Nikolas and George have mentioned, and factors that we expect to have a declining effect in the forthcoming months from now. The LNG carrier facing this especially poor market and consequently, repositioned in search of more favorable earnings. That alone reduce our revenue in quarter 2 by $7 million compared to the previous quarter 2. Fortunately, as George has mentioned, the vessels new storage charter will generate revenues that offsets its costs while we seek future profitable employment in the stronger LNG market, anticipated by observers to start in 2017. Nevertheless, excluding the LNG carrier, the remainder of the fleet enjoyed full employment at 98%. The average daily rounded TCU rate in quarter 2 was $21,700 and $22,500 for the 6 months. Half our suezmax’s were on spot at rates 18% down on the prior quarter 2 and aframax rates were similarly down. The suezmax tankers decathlon acquired in quarter 1 and the more recently delivered VLCC Ulysses fortunately did help to boost net income by a combined $1.5 million in quarter 2. While those product carriers on spot also earned less than in the prior quarter 2, the rates earned by our product carriers on time charter were at least 50% higher than average available spot rates. TEN's technical managers kept operating expenses under control. Quarter 2 daily average OpEx per vessel fell 2% to $8,026. For the 6 months, OpEx was $7,958, also 2% down from 6 months 2015. Despite a temporary modest increase in vessel overhead costs, we believe they remain within the lowest level of such costs within the industry at about $1,400 per vessel per day. Finance costs were $8 million, similar to the prior quarter 2, slightly higher interest being offset by reduced payments on bunker hedges, which also help reduce 6 month finance cost. EBITDA amounted to over $51 million in quarter 2, while 6 months EBITDA was $111 million, all vessels generated positive EBITDA in quarter 2, apart from 1 vessel in drydock and the LNG carrier. In quarter 2, outstanding loans increased by $133 million as our newbuilding program progressed. $77 million of this was for the new VLCC, which generated healthy income on the spot market before entering an accretive time charter. This brings overall debt to $1.56 billion at the half year-end and net debt-to-capital to 47.8%. We have approximately $410 million of range debt still to draw in connection with the remaining 11 vessels, 9 of which has charters attached, which will generate more than adequate cash to service that debt. And now I’ll return the call to Nikolas.

Thank you, Paul. And as you said, I think this is a challenging market environment, which we expect to look at it in a much more positive way going forward. Had very positive segment seems to be the change of sentiment in the LNG, and I think this is very well timed and very welcomed, not only for our long-term FSU charter on the new energy, but on the delivery of our vessel, which is going to be subject to the finance within October, and we believe that we will enjoy a much healthy rate and those rates will be increasing as we're looking for a much better market. So whether the LNG put the burden on our second quarter results because of our repositioning [indiscernible] charter, we hope that we will be able to pay this investment bank very soon. And with this, we would like to open the floor and to any questions that you may have. Thank you.

[Operator Instructions] Your first question comes from the lineup Noah Parquette from JPMorgan. Please go ahead

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

Yes, this is something that we see as a long-term project. So the initial 2-year period is covering are all-in break even as George mentioned it. And if the options are taken, I think then we will have additional profits on that. And of course, after that, the vessel has been charter for 2 years on a fixed rate, which covers our bottom line, a significant increase, almost more than doubling of the other period, of the optional period and then much more negotiations going forward. So, I think for us, it's a very good, we're very happy with this situation because if we - it's the ideal employment for those who understand the dynamics of the LNG market for very good qualities into [indiscernible], which is a very efficient membrane vessel when it's on storage.

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

It has a fixed rate, which is very accretive. Like I said, it's twice our breakeven for – it’s twice our breakeven if you go to our breakeven chart. This is also something that is very accretive. And it has also upside because it has bunker fuel protection cruise. If I tell you more, I will have to send you the charter party dealership.

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

Again, we try to ask the - thanks to the guidance from our technical - I could preemptively, not only us, a big part of the industry. So big part of the industry acted preemptively, which means that we completed a heavy dry docking and special survey schedule, but has a win or so effect in our 2016 results. In order to get a 5 year extension to when we will have to implement the system on our vessels. In today's market, we estimate every time we will have to retrofit the system like this ownership, depending on the very confusing technology, that the minimum cost will be $0.5 million per vessel for the average size of ships, excluding the off hire. But we believe that within 5 years, technology will have caught up with developments and the investment will be more efficient and less time-consuming and cheaper.

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

Next question comes from the line of Mark Webber from Wells Fargo.

Hi good morning guys, how are you?

Hi Mark.

Just wanted to follow-up first on Noah's question on the FSU contracts, of potential FSU contracts. I guess, may be without giving a firm sense on EBITDA, can you talk to where the rate on that would be kind of relative to where spot rates are today? So kind of call it 38k. I know it's little bit of a loaded number because utilization across the fleet is not nearly uniform, but if we just think about it, if you can just kind of allow for that, and just kind of thinking about a 38k rate on a spot basis. How would the FSU contract look now for 2 years?

So I think you have on 2 years down the road with significantly higher than 38 today, which I think is the ongoing spot rate, if you and get it for, currently as we said for the price fuel vessel, because then you would have to put some discounts in just - probably be more incentives, and hopefully by next week and I'm not – because I mean the market taught [indiscernible] by next week, we can talk about 40,000 a day, so every week, we can get a little bit more. So the FSU, considering that an FSU project, the vessel is layer here, it's semi lay up so you do not have to expenses of a normal ship. You will have less crew lubricant consumption, less extent, less insurance on the vessels. So, you have a discount from - you have to have a discount from the 38 - today, I would say for a thing to buy vessel if you can find business, it would be in the mid-20s. So, I think that's about the levels of the storage business, but the first, then you have to increase, it is more profitable because you have less expenses also.

Right. No, that's very helpful. I guess with regards to the term and then you mentioned rates are kind of grinding a little higher, and it's pretty easy to see I guess, to the degree that's somewhat of an improvement over the next couple of years on rate. You bake in some escalations on those contracts and/or some sort of the contango into the restructure?

Yes. I think this is for sure. I think we get the feeling that in 2018, so the feeling is what you hear, but from the market and actually from the end users, and from 2018 we will be a significant disturbance here, between supply and demand. So it will be more cargos than ships. We hope this is true. From 2016 and 2017 like in the tankers, you have more believers, but we believe that 2018 we will a year too. We will not charter a ship post 2018 at today's level. So, I think the newbuilding, it's very important to get a very good name to start the vessels on the right foot. And then we believe that we see as a very, very good future.

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

Well, it's not exactly the issue because they the Chinese as you correctly said, the information here. The Chinese, they had a choice to build a storage unit at the harbor or to charter a ship. We will not be replacing an FSRU, it was happening between building an expensive and environmentally confusing and delaying storage facility, so they both decided to use our ship has this tank [indiscernible].

Okay that’s helpful. Just 1 or 2 more for me, and then I'll move on. Just around the use of the cash. Obviously, rates are easing and a good slide on your deck kind of outlining the EBITDA generation versus your dividend over the last decade plus. You got a decent amount of amortization, but nothing that can be handled and there should be some surplus cash in there. I'm just curious, you've been buying back a little bit of stock, would we expect that to continue? And then at what point do you think that the assets get attractive enough that you don't want to take on a bit more leverage and/or use most of that cash to kind of dive into asset values that are at a multi-year low?

As I said, I think the - we have already a problem, well planned since 2013 over the leverage. So we're not looking immediately for any additional. We have too much tonnage and all of it started out coming. We are very exciting about what is happening, what is coming. We will of course, we will not shy out of opportunities, but I think our cash first of all, we will keep to reduce debt and to pay dividends. Those are our obligations to our bankers and to our shareholders.

That’s helpful. Thanks for the time guys.

Question comes from the line of Ben Nolan from Stifel. Please go ahead.

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

About 83 million, 83.5 million shares between these numbers.

83 million, I think that's a good round number.

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

I think from what we see today and you see that most of being in the market and I mean, the company that traditionally are not that often out in the market, like Exxon, they are out there [indiscernible] is out there for long-term businesses. And I think at this stage they are just in discussion with owners like ourselves to see where the newbuild tankers will end up with second hand prices, will end up to price this business. But as I said, we're all for this. And we are right now, in a turning point, a very positive turning point after 23 years. We are trying - we are in the process of turning the company from one of the major ship - transfer shipping transporting tanker companies into a much more industrial company. It helped by the 9 newbuildings that are coming with very long-term contracts from 1 major, 2 from another major, the shuttle tankers. So, all this, we are going to be taking in. It will change the balance and we will become a much more long-term player rather than a small player. And this will be accomplished by the end of 2017. And our way will be to be able to cover as we do with profit-sharing. All our obligations by our chartered out fleet. And because as George pointed out, this is all breakeven productions. I think this is something that we can achieve to know that all the ships that have 2 or 3 years more employment can cover the obligations for the full fleet, and then the remaining of the fleet make anything positive EBITDA on that will go straight to the bottom line.

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

This is a very good point and as you know our strategy has always been, in order to avoid having to aim for huge rates of returns, but I think when the market should be paying the tanker owners for their effort. We prefer the method where we are achieve a comfortable minimum rate, let's say for 5 or 10 years. So we know that all our obligations will be paid then we will make at high single digits or low double-digit returns. And then have a profit share that could actually have a very much higher return. That’s a strategy we’ve been following to avoid having to fight long battles with our clients.

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

Yes. This is, I mean we can - we would be happy to get the 10% return on our equity guaranteed and then split 50-50, the upside that could double that. But at least we could be guaranteed the 10% in this environment.

Okay. Now that’s very helpful. That does it for me. Thanks a lot.

Thank you.

Question comes from the line of Spiro Dounis from UBS Securities. Please go ahead.

Good morning everyone. Thanks for taking the question. Just wanted to start off on LNG. You've been building out the management in that area. And I'm just wondering, was that solely around the new energy FSU projects or should we still expect you, I guess to grow that segment out more and explore new opportunities?

We believe that the LNG segment is a segment with a lot of future. We are an energy company and we are a diversified energy company. So we're not perhaps, we are not a very simple company to analyze, because we're never a single part of the fixed energy transportation, starting from small product categories up to the of course, LNGs. So we are going to follow the requirements of the clients. So, if and when we are seeing the clients will require us to build more LNGs. We are going to be doing this not opportunistically, but with employment. So, I have to say, we are very excited about the LNG prospects long-term. We have the feeling that the LNG is where the tankers were back in the '60s when everything was chartered by appointment between oil companies and a handful of owners. And we see the same environment now prevailing in LNG, and 50 years down the road, you see how spot oriented the oil is. It could happen, I'm not saying it will, it could happen. But this will be in the next 50 years, but I doubt we will be around in the same shape, but we are now - but the future generations can enjoy much more liquid LNG. So, we are in cooperation with the overseas services, which is a - we have a 50-50 joint venture to run in-house and technical management, and of course, the commercial management.

Got it. I appreciate that color. And then just one follow-up on Ben's question just around these very strategic deals, but may be ask it in a different way. Obviously, the Statoil Aframax deal was pretty significant, hard to come by those every year. And so is the expectation of that, I guess a smaller opportunistic transaction since then? And if we think about the next 2 years may be, is it more likely that we will see these continuing bolt-on transactions? And then what's going to make the major sort of trigger over to say okay, we want a lot of comments for a lot of years, I guess what's the inflection point to look for?

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

Got you. That's helpful. Last one, just a housekeeping, on the buyback program. Sorry if I missed it, but I think last quarter you mentioned that the board approved an increase from the 29 up higher, I'm not sure if you can disclose what that was, but how much is left?

We have agreed to another $20 million.

Perfect, that’s it from. Thanks again and have a nice weekend.

Thank you.

Question comes from the line of Fotis Giannakoulis from Morgan Stanley. Please go ahead.

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

I believe that we are, I mean, honesty as you know, every October, we have to start admitting with the board and then a lot of good advisors to discuss these issues. But I think our aim is to stick to the 25 to 50, or 30 to 50 distribution as we've been doing. We exceeded the bid this time. But if we continue, I think our aim is to continue the dividend. We believe that dividend is the best way to reward a shareholder.

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

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

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

Well, this the first time that – you are right, we are seeing a complete lack of financing for speculative ships. I mean, no bank would pay attention to someone, who will just go, place an order or buy a ship in the second market without a specific business, mainly in the dry cargo and the container that has affected the tankers. But this is the first time last week that we have seen an intervention by the Korean Development Bank and I think that this is unprecedented and it creates a new, I would say, buffer. There were some orders being placed speculatively at – significantly at very low prices at Korean yards. I think in the 80s for VLCCs, and in the mid-50s for suezmaxes and we have the Korean Development Bank, actually not guaranteeing the loads and pulling the plug or the carpet under the shipyards, the shipyards who are desperate to get a loans, so these loans are going to destroy. Because the shipyards right now, the majority of them are financed and owned by the Korean Development Bank. So whereas as you rightly said in 2010, 2011, the yards were competing very hard for business, but of course, do not have the best results for them as we saw. Right now, it was the – it has this – the opposite – so there is supported on that.

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

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

Just to clarify, you're talking about shuttle tanker deals and long-term deals? And these are – yeah?

All sorts of vessels, not only shuttle tankers.

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

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

And one last question, given that you're the last company that you have reported, so which means that you have a very good view of the third quarter results. What shall we expect for shuttle – for suezmaxes and aframaxes during the third quarter? I'm talking about mostly for your – both for your spot fleet, but also for your overall blended rate, including your time charters?

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

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

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

Okay. Thank you very much for your answers.

Thank you.

The next question comes from the line of Magnus Fyhr from Seaport Global.

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

Hi, Magnus. Yes, our aim is to, as I said, we’re not going to – as I said this is going to be another segment under the categories that the company has VLCC, suezmaxes, aframaxes, Panamaxes, shuttle tankers and LNG. So we're not – we are not [indiscernible]. I believe these guys do an amazing job and they're focusing on gas. We are not Dynagas. We are a company, but we will own I would say half a dozen LNG's from now up to the end of this decade based on the long-term charters. And we're always open to any discussions, but we want to be as good in running LNGs as we are in running tankers and this is something that we will achieve.

And maybe you mentioned a 10% return on equity plus profit-sharing on some of those tanker long-term contracts, what kind of are your targets on the LNG for the – if we're going ahead of a contract?

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

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

Magnus it is so complicating because right now, we would not order a ship unless it's [indiscernible] actual explain to us what type of ship they would like to order which means what type of [indiscernible], what type of size. I mean, right now the dust has not settled in technology. I mean, the dry fuels, which we have – we're going to be taking delivery of one of the highest quality built dry fuels with amazing performance equal to the MEG engines are – much better and much more tested in some technologies, but somehow charters might even go back steam, other charters would like to – we have charters talking to us about most designs and ships, so it is – we will only – we will not order anything unless it is specifically instructed by a charter what to order.

All right. That’s good to hear. That’s all from me. Thanks.

Thank you.

And your next question comes from the line of Amit Marathe [ph]. Please ask your question.

Hi, thanks so much. I just have a quick one, may be from my own education. And it's regarding the age profile of the fleet and really sort of the tipping point, if there is one in the crude tanker market that a ship needs to go for scrap, and the reason I ask that, I mean if I just look at the VLCC fleet that's on the water today, only 1.5% of that, of the ships are 21 years and older and I can compare that to over 6% of the K-sized fleet that's at that age. So, obviously, there's a practical reason for scrapping older tonnage. And that makes sense to me. But the question is if we look over the next three or so years, over 4% of the VLCC fleet will basically come of age. So there's obviously, a good story here. And I just wanted to understand it better maybe from a technical standpoint of how difficult is it for older crew tanker tonnage to actually trade in the spot market and what would the market need to be like to maybe offset the extra costs associated with trading older tonnage? Thanks.

Well, I mean, if you look at how many vessels I think we have it also on the presentations are currently over 15 years, I mean, we have 128 VLCCs and the current order book at about 119 vessel, 120 vessels. And we don't say that all of them immediately will go to scrap. I mean, scrap levels for tankers because of the market being very strong in the last two years has been minimal. But on the other hand, if rates soften and this softening remains for, let's say, a period of three, four quarters, then people, when they have vessels that are due to go for the next special survey, you know, they would have to think over if they are going to pass a vessel that will be 20 years old or approaching 20 years old. Also, the new regulations with the water balanced system and everything will make all these things a little bit more expensive for them to pass the survey. And let's not forget that in a market environment where we have many options, younger options, you have oil majors who are lowering the age bar. And so if, let's say, in previous cycles we had people that we're willing to take vessels up to 20 years, not for sport, but for period employment, now you see that 15 years is the barrier. So for all these reasons, we expect that in the next two, three, four years, we are going to see a significant part of the older tonnage exiting are going to places that will be just reserved for the face of the older vessels.

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

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

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

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

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

Yes. Give or take. Yes.

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

Thank you.

Thank you.

Thank you. And your next question comes from the line of Gregory Lewis of Credit Suisse. Please ask your question.

Hi, guys. How you doing? I realized the call has run a little bit late here. So really just a quick one for me on the industry. I can see – it seems in the last week we've seen a pickup in aframax rates in the Caribbean. And it looks like that might of coincided with a lack of imports into the U.S., the DOE numbers were down pretty sharply yesterday. Is there anything – is there any insights that you have on that? And what’s kind of going on in that market, which maybe helped as picked up aframax is there a shift in trading? Is it congestion? Any sort of color you could provide on that would be pretty helpful.

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

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

Okay, guys. Thanks for the time.

Thank you.

Thank you. And your last question comes from the line of Mark Suarez of McQuilling Holdings. Please ask your question.

Thanks guys. Thanks for taking my question. I'll also keep it quick here. I know – it’s been a long call. But just to go back on opportunities. I know that we – you talked about strategic opportunities on the newbuilds. I know you guys have done a pretty good job in all the industries. But I'm wondering if you have seen any newer interest on the secondhand market particularly on this year’s 5-year, let's say, VLCCs and suezmax? I know you talked about having a pecking order in terms of buybacks and dividends. But have you seen any sort of interest pickup in that area in the secondhand on the 5-year to 10-year, let's say, VLCCs, suezmax sort of like the same [indiscernible] with the suezmax recently?

Yes. Hi. We are seeing right now the only interest that actually is out or the only sale [indiscernible] out in the market are sales countries that are in sourced, I would say, situation by banks. So we see owners that my own three or four tankers, and then they have a fleet of 5 or 10 dry cargo ships, they are in the stressed situation. So it's been a while since we have seen such a quite environment on the secondhand market. I have to say that the summer is not the best period, but we're waiting to see how it will develop now in the autumn.

Got you. And then real quick on the second – on the suezmaxes, I know, I know they are currently on spot and I know Nik that you mentioned that you want to increase your secure available days from 60 to a target of maybe 70%. I'm wondering the strategy here will be to at some point lock in those suezmaxes and time charters and what sort of duration and type of employment are you looking for? You mentioned profit sharing, something you all want to see, 50%-50% above the current level. Is that something you can attain for those two suezmax?

Yes. I think right now, the customers are not on the spot, but we have as we speak charter is offering for them for at least one year's employment. We could fix them today. But we would like to get into October closer to the winter season to be able to get a better aim. But yes, a 50-50 split will be also our policy.

Okay. Well, I appreciate it guys. Thanks for the color.

Thank you. There were no further questions at this time. Sirs, please continue.

Thank you very much for being so interested in TEN and hopefully, you will also be interested in the TEN stock, which we believe the company move in its new phase. It will be a very good opportunity. And we are here, very busy in both operational and commercial fronts, looking for an exciting autumn, the remaining of the third and fourth quarter. And looking forward, the team is arriving in New York over the weekend. And they would be participating and doing a lot of one-on-ones and presentations during that period of time. I think that there is also a big event in Boston on the 15th, so the team will be presenting. So for those of you who did not get bored by our presentation already, we will have the TEN team in New York for the next 2 weeks. Thank you very much for your interest.

Thank you. Ladies and gentlemen that does conclude our conference for today. Thank you for participating. You may now disconnect.