Q3 2021 Tsakos Energy Navigation Ltd Earnings Call
For standing by ladies and gentlemen, and welcome to the Chico's energy.
Conference call on the first quarter of 2021 financial results, we have with this message.
Chairman of the board Mr. Nikolas, Tsakos, President and CEO, Mr. Paul Durham, Chief Financial Officer, and Mr. George Sutton Chief operating officer of the company.
Time, all participants are in listen only mode. There will be a presentation followed by a question and answer session at which time if you wish to ask a question Joseph saw one on your telephone keypad and wait for the automated message advisors. Your line is open I must advise you that this conference is being recorded today I will now pass the floor to listen you go to school movies.
Residents of capital link Investor Relations advisor of Chuckled Energy Navigation. Please go ahead Sir.
Thank you very much and good morning to all of our participants I'm Nicolas Board notional capital link Investor Relations advisor to Tsakos energy navigation.
This morning, the company publicly released its financial results for the third.
Third quarter and nine months period ended September 32021.
We do not have a copy of today's earnings release, please call us at two.
You want to.
617566 or email us at <unk>.
G N at capital link Dot Com, and we will have a coffee before you email driving waste.
Please note that bothered to today's conference call. There is also a live audio and slide webcast.
Which can be accessed on the company's website on the front page at Www dot.
And those three are the.
The conference call will follow the presentation slides. So please we urge you to access the presentation slides on the company's website.
Please note that the slides of the webcast presentation will be available and archived on the website of the company. 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 appropriate 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.
<unk> conference call and slide presentation of the webcast contains certain forward looking statements within the meaning of the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Listeners are cautioned that such forward looking statements involve risks and uncertainties, which may affect the business prospects and results of operations and now at this moment I would like to pass the floor to Mr. Starting to set up a little bit of chocolate and it's an obligation of them. Please go ahead Sir.
Thank you Nicolas and good morning all.
Thank you for joining our call today.
Nothing much to say other than that we we manage it as always.
Typical counter cyclical fashion too.
To grow the company within an extremely challenging market, probably the worst market ever.
And have come out unscathed, we booked new incremental accretive business with state of the art environmentally friendly vessels.
And now we're perfectly positioned to capture the market recovery.
It seems to be around the corner as indicated by.
The recent improvement in EMR and LNG rates.
Nothing else for me.
Other than a wish you all happy holidays, and happy new year.
Niko tsakos or where do you think you.
Thank you chairman.
Good morning, and good afternoon.
To all of you. Thank you for joining.
And surely for having our third quarter earnings so late this year.
Sort of a good for Nyx LIBOR nauseous.
For the last 15 years, we usually are in New York.
We report live from New York and ringing the Bell for a great day.
This year, thanks to two omicron, we were not able to look at Wisconsin, but our data in.
In a way but.
It's better.
The good better late than ever as I would say I'm not sure. We are able to give you a bit of a better overview of where things seem to be going.
As our chairman said there the first nine months and significant mainly the third quarter was one of the worst quarters in recent memory, but I think I was there anything into the worst quarter in 30 years.
And I'm wondering what's the old enough to remember that.
It seems these days there are supposed to be in the Apis. However.
However, we have been able to maintain a very steady quota share with them.
Our modern fleet, our long term relationships.
Our Uh huh strategy.
Our strategy of utilizing as much is supposed to be the resources of the fleets have given us.
Good good good growth prospects.
And we are in a good position to know the fourth quarter, which is coming.
Coming to an end is going to be a significantly better.
A quarter for us as a company from because of the measures we took.
We took a 17 vessels were dry.
Dry docked in the first nine months out of which half of them were pretty.
Prematurely that I adopt in over two hours.
To have the vessels ready.
When the market the dose importantly.
The signs are there.
LNG market.
Reminds us of the container market. Finally, we are learning and we will be earning around LNG, which is going to be delivered in two weeks.
In the triple digit figures I think the last average was around $200000 a day and we are on market related territory without charters, which we're very happy.
About our LNG is also.
The ones that are coming up for charter would be taking advantage of this just the shortly after in March and April.
And of course, the new acquisitions or shuttle tankers together with al do you want to fill the ships are going to create a very solid quarter of growth for the company, which we're very proud of.
We're very proud of.
And we are seeing the product got it to market.
Very strong here in the west right now.
And we have 36 product carriers of which one third of them right now are taking full advantage of the spot market through our tolling arrangements with big partners like Cargill, and MRSA and <unk>.
On the spot market, so I think.
The the plan set are you starting to taking more and more positive.
Features as well as we talk.
Right now and on top of this of course.
New arrangements and the new vessels that we have a chart that forward for dual fuel.
<unk> vessels.
And.
With this the long term picture as of today, we have the International Energy Association analysis that there is a very good chance because of the lack of energy that we will be looking at the significant contango in February 2022 very similar to what happened two years ago, where they wouldn't be outburst of the.
[laughter] over the virus started.
If this is if this is true I think we are for a much better first quarter for sure and with this I will not take any more of the time and I will ask George to give us a quick overview of what is happening in the nine months.
George Thank you very much Nicolas and good morning to all of you joining our call today, let's go through the slides so far online presentation.
Starting with slide three we see that the intense since inception in 1993, we have faced for a major crisis and each time the company. Thanks to its operating model has come out stronger.
This time is no exception.
While we navigate through the challenges the Covid pandemic has created we have grown the company and prepare the company for its next phase in September we signed new building contracts to build.
For up to six dual fuel LNG powered aframax tankers against long term employment to a major oil confer.
Factoring the latest orders and considering the company start to 1993 with far more than tankers. We currently have a pro forma fleet of 71 vessels for an average annual growth of 15% in terms of deadweight tons.
Yeah.
In slide four we see the pro forma fleet and its current employment profile.
A combination of vessels in fixed time charters and in flexible employment contracts.
Time charters.
Time charters with profit sharing contracts of affreightment and spot trading vessels that capture the market's upside all dark blue color vessels 24 in the slides are on fixed rate time charters, while the light blue and red color vessels or 63% of the fleet currently in the water have exposure in the markets.
Site this.
This means that <unk> is well positioned to capture the positive tanker market fundamentals and the expected recovery in freight rates and in fact in product tankers, we have seen the recovery starting this quarter and we expect this to be shown in our results for the fourth quarter of 'twenty one.
We took advantage of the low freight market environment to bring forward. The number of scheduled special surveys repairs to have these vessels available once the freight market for tankers worried about.
Fleet modernity, Israel tricky element to our operating model during the year. We concluded the sale of three of our older tankers and we replace them with the new building order for the 60 or fuel Aframax tankers that will enhance the company's environmental footprint as these LNG dual fuel powered vessels are the first such investments in the <unk>.
Company's carefully.
In addition, we are building one more DP two shuttle tanker and one LNG carrier all six new buildings are coming with long term employment attached.
U S. LNG vessel will enter the market in mid January and will significantly contribute to our bottom line as the LNG sector is currently very strong as our COO has also mentioned.
On slide number five we see the left side that presents the all in breakeven costs for the various vessel types that we operate and then we have a low cost base as you can see during the nine months of the year. The revenues generated from the time charter contracts were against sufficient to cover for the company's <unk> expenses.
<unk> bank for the vessel operating expenses overheads chartering cost and loan interest.
Well here I should also highlight the purchasing power of chocolate Columbia ship management, our technical managers and the continuous cost control efforts by management to maintain a low opex average for the fleet, while keeping the hype.
Fleet utilization rate quarter after quarter.
Quarter after quarter, despite scheduled and forward a broad dry dockings of 17 vessels during the year, we achieved an ROE of over 91% utilization for the fleet.
And thanks to the profit sharing element, which is a corner store.
<unk> strategy for every $1000 increase in spot rates will have a positive 40 said 40 48 cents impact in annual EPS based on the number of vessels are currently have exposure to spot rates.
Slide six debt reduction is an integral part of the company's capital allocation strategy.
Since the company's debt peak in December of 2016, we have repaid $368 million of debt and repurchased $100 million in two series of step up profess that we had outstanding.
In addition to paying down debt dividend distributions are important for our common shareholders and for the management team.
<unk> has always paid the dividend irrespective of the market cyclicality about half a billion dollars in dividend payments have been distributed since the New York stock exchange listing in 2002.
Global oil demand continues to recover that as a slowdown as a result of the new underground variant. However, exited believed that the effect is going to be small and this will mainly affect air travel and jet fuel demand will fall.
Around 100000 barrels per day.
Till the prediction is that oil demand will increase by five 5 million barrels per day in 2020, and another $3 3 million barrels per day in 'twenty two.
And it will return to the pre pandemic level of close to 100 million barrels per day.
On the global oil supply front OPEC plus producers continue to manage supply with discipline and global oil stocks are now 240 million barrels below the most recent five year of its.
Non OPEC production is set to increase in 2022 and in the near term we had a coordinated effort to release in total approximately 70 million barrels from the strategic petroleum reserves with the United States, China, India, South Korea, Japan, and the United The United Kingdom.
Therefore to use energy prices, which were successful as oil prices are now trading $10 per butler barrel below the levels. We had at the start of November.
With oil demand recovering let us look in slide nine at the forecast for the supply of tankers. The order book stands at around six 6% or 340 tankers over the next three years the lowest it has been in more than 20 years at the same time, a big part of the fleet almost 30 per.
<unk> is over 15 years.
And.
Almost seven 2% or 390 tankers are currently over 20 years.
Yeah.
As the next slide shows 2018 was one of the highest scrapping years of record with 22 million deadweight ton removed from the market.
Last year and the year before as expected scrapping was lower.
Strong August and September this year and with scrapping prices at very high levels in excess of $600 per ton, we have so far seen 170 vessels or pinpoint.
<unk> 3 million deadweight ton exit the global fleet.
With more environmental regulations coming discussion for alternative fuels and seven 2% of the global fleet over 20 years, we expect scrapping activity to remain high and a balancing act for fleet supply going forward.
To summarize oil demand, we see that the recovery of oil demand continues.
Oil supply.
Monthly production increases by OPEC plus <unk>.
Non OPEC production is also shipped horizon 2022, bringing more cargoes to the market at the time when global oil stocks are below their five year levels and demand is increasing towards the pre COVID-19 levels.
Order book supply of tankers. The order book to current fleet ratio is at historical low levels.
Big part of the fleet is reaching phase out eight H pointing to a tight tighter supply of tankers for the next 18 to 24 months.
If we look at the company, we have a modern fleet well positioned to capture the expected recovery of the market.
We continue to reduce debt, we have a strong balance sheet strong banking relationships that will allow the company to take advantage of the opportunities that will be presented.
With the expectation of better days ahead, I will ask Paul to walk you through the financial highlights of the third quarter and nine months of the year Paul.
Welcome to everybody from the London office of Texas.
So as indicated we are beginning to see market conditions improve.
Given the market conditions up to now we feel that quarter, three net loss of $25 million to be comparatively mild and indeed possible turning point with the product market, leading the way and at least possibly resulting in breakeven and profitability.
Part of the new year.
Despite the market are time charters, which represented half the fleet, we're able to generate $66 million.
Spot vessels provided a further $65 million, bringing total revenue in quarter three to over $130 million.
For the nine month period revenue reached over $400 million further indicating that the sector is bouncing from the bottom of the trough.
Daily TCE per vessel in quarter three averaged near.
Nearly $15700 and $17100 for the nine months again exceeding average market rates in both periods.
Fleet utilization in quarter, three reached 90% despite nine vessels in dry dock.
Prospects for the near future are promising we are expecting soon to add two new vessels that together to provide $9 million extra revenue each quarter.
It includes the LNG carrier that alone is expected to generate about $100000 a day net income.
There was some increase in total expenses in the quarter, partly due to the dry dockings and associated voyages.
Well rising fuel costs, which are included in the voyage expenses also increased.
The increase however was offset by a 9% fall in operating expenses the daily Opex per vessel.
Willing to $7300 due to savings on the part of our technical managers.
A large part of these expenses were covered by the revenue generated by our time charters.
Finance costs fell 39% to just over $8 million as interest rates and margins were reduced keeping our average cost of debt to only 2%.
The repayment of debt by $115 million since the start of the nine month period.
Including $46 million in quarter three.
<unk> resulted in reduced interest.
Bunker hedge gains provided a further $2 million.
Despite debt repayment and Capex commitments, we continue to strengthen our balance sheet through the ATM program and by securing a vessel revenue and that's in the nine months selling three vessels.
In addition, we have refinanced the loons of several of our vessels at mutually beneficial terms.
At the same time, we continue to consider opportunities for disposal of older vessels that may further reduce debt and free and free up cash to be effectively replaced by new vessels such as the Aframax is recently ordered.
And now I'll return the call back to Nicholas.
Thank you, Paul and keep safe and London.
Okay.
I Hope you and your family are safe and are looking.
Looking forward to to show you here and thank you for your input.
Well.
With this I would like to open the floor for any questions. Thank you very much.
Thank you we will now begin the question and answer session.
If you wish to ask a question. Please press star one.
Thank you.
Your line is open.
Okay.
Good question.
Take care.
Thanks.
Once again, if you wish to ask a question. Please press star one.
Thank you Pat.
Yeah.
We will now take our first question. Please go ahead. Your line is now open.
Yeah.
The government is Randy given from Jefferies.
Hi, Randy.
Yeah.
Howdy gentlemen, it's Randy given some Jefferies how's it going.
Very well. Thank you. Thank you Randy.
Okay.
I guess two questions first can you discuss the decision to put those 10 vessels on time charters are what are the terms of those time charter durations and rate and then is the expectation of further kind of lock away tonnage.
In the near term.
Well I will give you a very very I think a nice overview and then we would have a private call because we don't want industrial espionage the announcement.
Yes, well.
As you know we are always.
Long term, our relation and company and Thats why we are weathering.
Read aloud scratch.
And growing the company.
So we had two vlccs we emphasis.
On the <unk>.
Our two largest vessels and we turn to the mouth don't know based on profit sharing arrangements with the minimum which if you go back to Georges and good Georgia the breakeven the George portrays.
Covers.
The all in breakeven cost over those ships <unk> vlccs or around the $26000 rates even more than that.
Allows us.
Then a significant.
Syed.
The 50 50.
Based on the index I think that has been a decision we'd like most of the owners were waiting for the right time to do so we had.
Been approach, having very modern ships like ours, we've been approached to charter those ships for the last years, but of course, it didn't make any sense of that the rates that we're offering now I think we are in a way above average breakeven and we have an upside. So I think that has to do very similar situations with Florida from axis.
Again, you can see the breakeven so that's always our goal with covenant breakeven is a little bit more I think aframax is closer to <unk>.
19 as a minimum.
And our 50 50 upside on those so I think this is.
This is day to day business that keeps the shop open.
Held for the growth of the company. So we're very happy with.
That we had and these are all transactions.
We've done on the fourth quarter.
And.
We stopped the.
Some of the downloads of the third quarter, the third quarter, which is actually historically one of the lowest quarters in that.
The history of tankers four is not the time to do so, but the fourth quarter things turned around.
Got it Okay and then.
Then I guess secondly on the ATM you issued $14 4 million new shares in the third quarter, another $32 million of show up in the fourth quarter I believe.
On the last call you had 15 million remaining in authorization. So I was just curious how that 32 million came about and what is the current remaining authorization.
Well.
Our board meeting which was.
Remember our authorized another $100 million of APM program.
Stop this program. So we have resubmitted it took us to go through the loss of 100 million about 10 years. So yeah.
It's not that we are spending but as you know we are growing the company with opportunities.
I am always someone that likes to keep a very solid cash balances.
And how much is your current remaining authorization.
I think about $80 million.
$85 million.
85.
Alright, and then I guess conceptually here you know your shares are trading at a steep discount to NAV, we have at least a double digit NAV, but yet you're issuing some dilutive shares to purchase vessels. So why is that.
We are not only I mean, we are issuing a combination of preferred to which as you know our preferreds are trading very well at around the 'twenty four 'twenty five.
So we try to make a combination of issuing our preferreds, which are trading very ready at par.
And then Oh at.
Good times or something some some shares.
Because we believe in that.
The growth prospects that we are seeing isn't there because we are in a very very exciting part of all over the industry right now.
Very similar to when a big number of our ships had to be changed from single to double donors. So we'd have to start turning now flip into dual fuel or even hydrogen or or ammonia. So you know we have to be liquid and ready to go I mean, we are a growing business as John said, we've been growing 15%.
Since our since inception.
This is a business.
Okay, and then I guess lastly, just on the Opex it seemed to have fallen from <unk> to <unk> is that the new run rate or was there. Some one off items that you expect to have increased here in the fourth quarter.
Well as you know when things are Bob do you have to start as you guys are towards a lot of basketball, we start with defense. So the first thing there is not much we can do in terms in the market conditions by doing what we can do is be more defense and <unk>.
I'm ready I'm very glad with the jaws are all of the technical managers for the results they are making down on the on the on the second floor, which you've been with us.
The beauty of running everything within one building.
Here, so we can adjust.
Right.
<unk> expenses as possible when we know we need to win in.
This has been done in a very difficult environment, where more than $20 million in our expensive budget from come.
Come from direct or indirect COVID-19 related and burdens, we have to navigate ships to change grew at huge course, we had the same time to wait outside the Chinese ports for two weeks for current <unk> solutions. This was our lowest utilization lever which is <unk>.
Turning to our peer group is still very high at 90%, but if you go back to the last one two years because we had also to wait current in our call before we will go for the parents.
It's been a tough.
Parts of it but I think the team has navigated that very well.
Yeah.
Got it that's it for me Merry Christmas.
Same to you.
Yeah.
Yeah.
Thank you we will now take our next question. Please go ahead. Your line is now open.
Yes, good afternoon, Nick and team Chacko, sorry, this is legacy H C Wainwright.
Hello.
Couple of questions here, starting with the.
Going back to your comments.
For the fourth quarter, you mentioned that there are significantly higher than <unk>.
In history, but can.
Can you give us some kind of a magnitude.
At least 20% in <unk> or what should we expect.
Get it.
In fact I think.
If I had to give a figure without <unk>.
The infusion of the Q1.
Huge input from our LNG is because.
Because the way we have structured the pricing of the LNG is a we know that for the first quarter, they will be earning in excess of a $100000.
The way the pricing works because it works.
Respective monitors, which I do not want to get into too many details here on volume.
But I think for the rest of the fleet is I would say it's a.
At least 25% betterment.
Which is a I would say.
More than 500% betterment onvia lenses.
50% betterment on an Aframax is.
And then of course <unk>.
Fivefold.
Half of the fourth quarter of 500 fold the effect of the over the market.
Only a modest what do we have 12 of them directly.
<unk> taken advantage of the market as we speak today.
I would say if you if you if you put it at between 35% to 30% covenants.
Okay very good.
Secured a couple of time charters in the quarter I mean, do you have a different strategy here on the products versus the career going forward.
Given that it seems like the products are picking up or are you still going to focus on kind of covering your your fixed cost and then 50 50 profit sharing.
On the products as you know I mean utilization is very important for us and we are not we are a participant strategic hub.
Participants in value was bullish.
Very good.
With the very good news from the north like Maersk and target and if so what do we do we have full utilization.
Overall product fleet, which is very important and we will get.
We are never or fire and we'd get the upside of the over the market. So anything I'm supportive of bullets and Thats what were doing with our smaller ships.
Okay, and then as far as the appetite.
For more time charter.
Do you see.
It changed here with.
The quarters coming into the market or I mean, you seem like you've been able to secure a couple of charters, but what's your appetite for more from your side or do you think there's more appetite from.
<unk> did.
I'm not really sure we saw the appetite on the Vms, We show a big appetite on Aframax isn't we are seeing now.
<unk> for Suezmax is.
Alright very good.
One more question for Paul perhaps.
Excellent.
Both equity on the ATM and also the preferred can you give us a sense.
How many what's the outstanding amount on the preferreds.
And did you see any in the fourth quarter.
Okay.
Hello.
And ask yourself this answer that.
George.
I think all the preferred combined and we have three series.
A little over 15 million perhaps.
Ian.
Okay.
And then <unk>.
That's what I do know.
Okay very good alright, that's it for me.
Happy holidays, and we'll see you on analyst day stay stay away from the tornadoes down there.
Hello.
<unk>.
Okay.
Okay.
Thank you.
We will now take our next question. Please go ahead. Your line is now open.
Hey, good afternoon, gentlemen, it's Jason's Meyer from value Investor's edge I haven't talked to you in a while but congratulating vital here.
Yeah, So I joined a little late on the call and I heard the last gentleman asking about the ATM I just wanted to get some details on that you mentioned $14 4 million in the third quarter $31 9 million thereafter.
I'm curious about the split between the common and the preferred like how much dollars each amount and also the average share sale price.
Paul.
Definitely as George said, it's a $15 million of the preferred or the remaining is on the Goldman for for this year.
And I think we can have.
<unk> called George if you need the later to give you a little.
Most of the data on the actual figures.
The price.
Okay are you planning to file our form 6K or something with more financial details on that of course, we always slide six Gabe I think that's going to be filed early in the year.
Excellent and then you have the one shuttle tanker my understanding is the original new building contracts included two options for those out there has there been any decision on those options.
The one.
Actually.
You are very correct to have a very good memory, but I mean, we took this.
One we are building now is the second option we had.
We had the first of all the loose bar, which we took over a couple of years ago, but then we had an option which were building now the portal.
There is there is a third adoption, which were currently discussing however.
As you understand the price and this is something we didn't mention that.
Price of steel has skyrocketed with new building prices I mean, the value of our fleet over what existing new building ships is right now it has at least a 30% increase.
So when you know so we've done we've done the two out of the three options.
Yeah, well I was curious I'm not those options because I imagine they're significantly in the money on those.
Right.
We took the first vessel will call it loose bar. The second one is the portal, which will deliver the second option, which will be delivered.
In June or June or July.
New billing department against the very long term contract in Brazil.
Yeah, what's the timeline on that third option, how long do you have to exercise it and what would the lead time be for building that chip.
We are currently negotiating at the we are negotiating for a very long contract.
I believe we might have news this side of the year.
I will look forward to that news and then last question just kind of general specific on the company like I mean soccer has been public for a very long time, you have a very impressive fleet, our long storied management.
There's been a recent trend towards reporting extremely late I mean, it's it's two and a half months.
Financial missed you missed my introduction, but I wouldn't say it again, because I apologize.
I said that the reason for the large two delayed had to do with our.
Our Georgia, but its true with Nic board noisy events that we do the capital link because as you know we have not been able to travel to the United States, which are the majority of our shareholder base is so we do we were taking the opportunity.
Non yesterday, the 15th of December, whereas a typical day of ringing the bell and we were going to report today. So then we would spend before to where everybody gets.
Into the Christmas Spirit during our road show. However, all of this fell apart because of the omicron in there, but our data was shipped because of that so I think as we go back from March we are going to be.
Back to normal again, hopefully we can travel within the timeframe.
Alright, well with parts you are earlier in Salisbury last question again I appreciate your time today.
Have a current number I think it is at $23 million is that still correct for the common shares.
Yes.
Just shy of $23 million Thats right as of today. Okay excellent. Thank you. Thank you gentlemen for your time guys. Thank you all the best for the holidays.
Thank you very much from London.
Okay.
We have no further questions at this time please continue.
Thank you very much and we wish all of you a very safe stay safe holidays, and hopefully early in the new year. We can report a better news to you Merry Christmas happy New year's unhappy happy holidays.
That does conclude our conference for today. Thank you for participating you may all disconnect.
Please continue to standby.
Vince will begin shortly.
Okay.
Okay.