Q4 2021 Tsakos Energy Navigation Ltd Earnings Call
Yeah.
[music].
Thank you for Sunday, Bye, ladies and gentlemen, and welcome to the Chuckles Energy Navigation conference call on the fourth quarter 2021 financial results.
We have with US Mr. <unk> Chairman of the board Mr. Nikolas, Tsakos, President and CEO , Mr. Paul Durham, Chief Financial Officer, and George Sorry Hope Lou.
<unk> operating officer of the company.
At this time all participants are in a listen only mode.
So it will be a presentation followed by a question answer session at which time if you wish to ask a question. Please press star one on your telephone keypad and wait for your name to be announced.
I must advice you that bullish conference is being recorded today.
And now I pass London still has a lot of space.
President probable think Investor relations can you hear us of Chuckles energy enough.
All of this year.
Right.
That's great.
Morning.
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Yes.
Suppliers, if they weren't qualified personnel.
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So I'll put in as well.
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So simple.
That is correct.
Hello.
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Yes.
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Release.
Please go ahead.
We walked through.
661756, okay.
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Have a coffee.
Right the way we've looked at.
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Please note that.
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Slide Whatsapp.
The access to the company's website.
Page seven.
Without a doubt.
The geos.
The Goldberg Goldman blow the perfect business life.
We urge you to access the perfect business lives.
This website.
Please note that the slides of the webcast presentation will be archived.
Oh God.
The website of the company after the conference call.
Also please note that the.
The slides of the webcast presentation.
If that means that by clicking the appropriate box.
What was the previous.
At this time I'd like to read the Safe Harbor statement.
This conference call and slide presentation of the webcast.
Or any other forward looking statements within the meaning of the safe.
Harbor provision of the private Securities Litigation Reform Act with Latin America being the best.
It is our culture.
Such statements involve risks and uncertainties.
But that business prospects and results of operation.
Yeah at this moment.
I'd like to pass the floor is yours.
Oh I'm sorry.
So I'm not overboard with Cypress.
Yes.
Please go ahead Mr <unk>.
Thank you Nicholas good morning, and good afternoon to all.
Thank you for joining our call today.
The results we published today demonstrate the continued operating resilience of Sterne.
And historically very weak market they prevailed.
Throughout 2021.
And nobody thinks with Goldman.
Clearly far superior to our competition.
This allows us to continue our coincident buff with great conviction.
And propose a dividend as we have done since inception.
And then uninterrupted fashion.
We are currently experiencing very firm market conditions, which are not based on fundamentals.
This is clearly an event driven situations generated.
By both a surging post pandemic economy.
And it is inflationary and supply chain repercussions.
As well as by the admittedly quite Sad war and humanitarian disaster in the Ukraine.
Affecting the world in more ways than one.
It is still too early.
Can you say, whether the current recovery is transitory and for how long.
Or to any extent more permanent in nature.
But in any case, we consider it as a welcome bridge towards the long awaited recovery in the tanker market.
Based on on on strong industry fundamentals.
Well this has been through it's well structured the operating model.
<unk> is perfectly positioned to benefit from as it is indeed benefiting from already.
It reflected an acknowledged as you're all aware by the recent rise in the stock price.
So congratulations once again, four nikos tsakos and his team and best wishes for continued success in 2022.
And.
Thanks, again, and I know where to you when he goes cycle. Thank you.
Chairman, Thank you very much.
Good morning to all of you from a New York City, where actually we had the opportunity to be.
On the New York Stock Exchange Center.
Celebrated our 20th anniversary as a quoted company here.
Here 20 years of continuous growth as the chairman said.
And continued dividend payments.
However.
Looking back in the 'twenty to 'twenty, one which was the worst banker eighth year in a recent memory more than 30 years.
Oh, we had similar nowadays.
We started the new.
Here with enthusiasm.
Makes a transportation like other services, Florida.
Oh pepperoni until February and with the Russian invasion.
We start with the last two years every morning, we were starting by making sure how to protect our seafarers and our group and our vessels.
From the pandemic I think they thought we had a small break of a couple of people.
A couple of weeks in now where they're trying to protect the getting out of seafarers.
All the questions.
From these difficult situations space.
And then after that I assume the invasion, but as the chairman said that is a company built on a difficult situations show, we got the model.
That is able to pass through the hard goods and come out a stronger accounting. This is since inception. This is al.
Crisis, starting with the first Guy says 96.
Events fall over the 911 a M.
Of course, the Lehman crisis globally and without interruption.
The U S.
But we keep a steady hand on the way.
We navigate the waves.
Good seafarers have only become a good when they'd have to go through storms and this is what we do right now we're enjoying what we have prepared the company with a with 40 vessels.
Also about 71 on spot or broth is a setting that agents every single $1000 of spot market exposure, we increased $87 seven tenths down to our bottom line and we are experiencing the best rate since 2008 as we speak.
So although no nonetheless.
He's a he's happy with what is happening naturally as our C. O. We will pray and hope that the arthroscopy will stop us.
As possible in the World will go to a normal state.
Of course shipping.
Florida is when we have open season and open borders and we expect with the fundamentals that are out there.
It's an 8% across the board of the World are you building a replacement program with the you know maybe.
Maybe vessels.
Excuse me there 15 from the 20th anniversary and nobody is by the first time lastly, they are issued.
We enjoy it and hopefully it prosperous and peaceful couple of years going forward, but in the meantime, we have to navigate with difficult and that's what we do we feel confident to maintain our dividend and hopefully if things continue to have an increased dividend in the second half of the here and there.
With that I will ask George settled which would give us.
If we could.
Oh, well into 'twenty, one a very quick Georgia.
It's not that you would want to be mindful and talk about the future. Thank you.
Thank you Nicole and good morning to all of you joining our earnings call today, let's go through the slides of our presentation.
Starting with slide three we see that the intense since inception in 1993, we have faced for a major crisis finished now with the war and each time the companies. Thanks to each counter cyclical operating model that targets growth market loss has come out stronger.
And of course, it's not exception this time, while we navigated the company through the challenges. The Covid pandemic has created we have managed to grow and prepare the company for its next phase we.
We announced new building contracts for Ford.
Fuel LNG powered aframax tankers against long term employment to a major oil concern.
Factoring the latest orders and considering the company starting in 1993 with four modern tankers. We currently have a pro forma fleet of 71 vessels fortinet for a non U S growth of 15% it sounds like the deadweight tons.
The next slide we see the pro forma fleet as its guidance and its current employment profile, we have a combination of vessels in fixed time charters and in flexible employment contracts, which means time charters with profit sharing contracts of affreightment and spot trading vessels that capture the market upside.
Well that blue collar vessels 26 in the slides are on fixed rate time charters, while the light blue and red color vessels or about 61% of the fleet currently in the water have exposure in the markets upside.
This means that standard is well positioned to capture the positive tanker market fundamentals in fact, we already witness better spot rates as the invasion of Russia, and Ukraine, a tragic event and.
The trade dislocation that is created as fuel spot rates to higher levels.
We took advantage of the low freight market environment in the last quarter and last year to bring forward a number of scheduled a special surveys repairs to have these vessels ready once the freight market for tankers rebounds.
Out of 21 special surveys last year's 12, four vessels that were brought forward.
Please note that it may be is a key element of our operating model.
During last year, we sold three of our older tankers and as we mentioned we replace them with a new building order for four fuel aframax tankers that will enhance the company's environmental footprints as these LNG fueled powered vessels out of the first such investments in the company's carefully.
We are also building one more DP two shuttle tankers for delivery at the end of the second quarter of this year.
All remaining new buildings are coming with long term employment attached we also took delivery.
In January of our newest LNG vessel.
The vessel entered immediately a five year time charter is expected to make a contribution to our bottom line as the LNG sector is currently very strong.
Inclusive of the above charters terms minimal fixed revenue has a backlog that exceeds 1 billion.
Moving to slide five we see that the left side presents the all in breakeven cost for the various vessel types that we operate in 10.
As you can see we continue to have a low cost base.
And during the year the revenue generated from the time charter contracts was against sufficient to cover the company's gas expenses paying for the vessel Opex overheads chartering costs alone interests.
We must also highlight the purchasing power of chocolate Columbia ship management and the continuous cost control efforts by management to maintain a low opex average for the fleet, while keeping the high fleet utilization rate quarter after quarter.
Despite 21 special surveys during last year, we achieved an overall 92, 6% utilization for the fleet and.
And thanks to the profit sharing element cornerstone of term chartering strategy for every $1000 per day increase in spot rates will have a positive 70.
73 cents impact in annual EPS based on the number of 10 vessels that currently have exposure to spot rates.
That's a reduction is an integral part of the company's capital allocation as we have seen slide six.
Company's debt peaked in December of 2016.
Since then we have repaid 380 million of debt and repurchased $100 million in two series of step up preferred shares we had outstanding.
In slide seven we see that in addition to paying down debt dividend continuity is important for common shareholders and management depth.
As always paid the dividend irrespective of the market cyclicality.
About half a billion in dividend payments have been distributed as soon as the New York stock exchange listing in 2002.
The next dividend of 10 cents per share will be paid in June .
Details of the payment will be announced during the Companys first quarter 'twenty to add next quarter.
Yeah.
Slide eight global oil demand continues to recover we had $6 8 million barrels per day increase last year as a result of the vaccination rollouts and gradual return of mobility and economic activity to levels close to the pre pandemic demand all demand levels. Despite current headwinds while demand is expected to rise by.
Another 2 million barrels in 2022, which means that based on the current forecast.
We'll be at the pre pandemic oil demand levels during sometime during the second half of the year or latest by yearend.
While the global supply from OPEC, plus producers continue to manage supply with discipline.
Some countries have not been able to meet their monthly quarters and under producing.
Global oil stocks continue to fall and there are now 300 million barrels below the five year average non OPEC production set to rise in 2022.
As a result of the war in Ukraine, We had a second coordinated effort to release in total approximately another 240 million barrels from the strategic petroleum reserves.
It states.
And Oh ICD member countries for the next six months.
Therefore to lower energy prices and counterbalanced the effect the water has created in the energy markets.
With oil demand recovering, let us look at the forecast for supply of tankers on slide nine.
Their book stands at around five 6% or 285 tanker over the next three years.
The lowest it has been in normal 20 years at the same time, a big part of the fleet is over 15 years, 30% of the fleet or in excess of 1500 tankers almost 400 tankage for 7% of the fleet are currently over 20 years.
Slide 10 is the next slide shows 2018 was one of the highest scrapping years of records since with 22 million deadweight ton removed from the market last few years, we've seen acceleration of scrapping from the second half and ended with almost 15 million deadweight tons removed.
Scrap prices continued to be at very high levels.
With more environmental regulations coming discussions for alternative fuels and seven 2% of the global fleet above 20 years, we expect scrapping activity to remain high and not as a balancing factor for fleet supply growing forward.
So to summarize oil demand the recovery continues.
Oil supply we've seen more monthly production increases by OPEC non OPEC production is set to increase in 2022 bring bringing more cargoes for the market at the time in global oil stocks are below the five year levels and demand is increasing towards the pre COVID-19 levels.
Recent geopolitical events in Ukraine, and the sanctions that followed for the large numbers of Russian state oil and privately held tankage to be excluded from the market is really majors and oil traders boycotted these vessels, creating a supply of squeezing the aframax and suezmax sectors.
As rates firm, we are seeing increased activity across the tanker board.
Order book supply of tankers. The order book to current fleet ratio is at historical low levels and big part of the fleet is reaching <unk> eight is pointing to a tighter supply of tankers for the next 18 to 24 months.
And if we look generally at 10, we have a modern fleet, which is 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 allows a company to take advantage of the opportunities that could represent.
And with that I will ask Paul to walk you through the financial highlights of the fourth quarter and the year Paul.
Right.
Yes.
Oh.
Paul.
Yes.
Yes.
Yeah.
Yeah.
Yes.
Yes.
Okay.
Okay.
Lisa asked most of them.
Let's say I believe that at all.
Yeah, Hi, this is Paul.
Can you hear me.
Yes.
Okay.
[laughter].
Okay, well I'll continue from where.
We lost George.
There are several aspects to quarter four that contributed to a positive change in fortunes in the tanker market.
Including the higher ITC and a 6% increase in revenue.
Okay.
But also in quarter four.
Yes.
Management took 10 concluded base.
Based on cash flow projections that seven of its oldest vessels had incurred noncash impairment charges despite excellent condition.
Yes.
This is also to our benefit these charges totaled $86 4 million, a significant amount, but by and carrying these charges. The vessel values will more accurately reflect current fair market values. In addition, quarterly depreciation charges henceforth we will be reduced by $2 $3 million.
In each of the following quarters.
The quarter four financials were actually much in line with the three recent quarters and excluding the impairments resulted in a modest loss of just $14 $9 million.
In a difficult market there was a 6% increase as I have said and revenue.
Ted to the previous quarter, four with total revenue, reaching $139 million.
And although annual revenue dipped from the prior year.
<unk> still achieved over a half of $1 billion revenue in the year with whom is cool vessel employment strongly indicating an improving market that we now see gathering pace.
While tankers operating in the spot market has struggled to cover daily Opex average TCE was nearly $17000 per day, despite six vessels dry docking in quarter four.
Even with dry dockings and soaring bunker prices total expenses increased by a manageable, 9% after excluding current and prior year impairment.
Vessel operating expenses fell by 3% keeping daily operating expenses per ship.
<unk> thousand $900 helped by a stronger dollar.
While G&A remained at $7.2 million, our daily overhead remaining at a low $200 per vessel.
Other expenses remained relatively stable compared to the prior quarter, four including interest and finance costs remaining at about $9 million in booth fourth quarters as interest rates declined and positive bunker hedges helped provide some balance against the higher bunker costs.
Generating adequate EBITDA and preserving cash reserves over the past year and especially in recent quarters has been a challenge given market conditions, although we managed to reduce debt in the year by $113 million and ensured financing.
LNG carrier and for the forthcoming shuttle tanker and recent Aframax.
Borders.
All of these activities have put extra pressure on our liquidity.
However, thanks to our time charter strategy.
And two refinancing by our banks, we successfully managed to.
<unk> managed our operational cash flow and fully met our debt service obligations.
To date this year, we have bolstered our cash reserves to more healthy levels helped by a promising market takeoff.
Soon to be reinforced by a tanker sale, it's a prospect.
The.
Sales.
And at this point in time to finish my comments.
Go back to Nicholas.
Thank you well. Thank you Paul Thank you for giving us.
A very I would say ER.
Erosion for the future.
Our financial position, but we always maintain as you know Tennant has run with.
I get the strong balance sheet through thick and thin.
If you go.
So the last slide we're.
We're very proud, but we were very proud of our banking relationships.
The body.
Low spreads that we observed.
For all of that and when we grow the portfolio with accretive transactions and this has been done by consistency.
As we have.
Perhaps we are one of those.
Few companies in that group has never ever.
<unk> approached our banks for any historical for the negotiation I don't think this is a pretty safe in a.
A huge way.
But when we hear that spreads are going to hire people other colleagues of ours are facing difficulties.
By now all of our financial filings Department now out of London.
You know very supportive.
Associate banks to get close enough growth and in our projects.
Thank you for that book is in this.
And.
Hopefully as we go forward.
Since we have navigated the worst part of the store I think we would be able to pay more.
Dividend for our hormone shareholders also together of course with us.
That's helpful.
The market in a very big way.
And with this I would like to open the floor for any questions that we could be.
Critical to our philosophy.
Thank you.
We will now begin the question answer session. If you wish to ask a question. Please press star one on your telephone keypad and wait for you.
Wait for your name to be announced.
We want to restore your question. Please press star two.
And the first question comes from Christopher Robin.
Robinson from Jefferies. Please go ahead, Sir your line is now open.
Hello, gentlemen, and thanks for taking our questions.
Thank you and congratulations.
Thank you.
So I wanted to ask about the the ATM activity during <unk> I guess can you comment on how much was raised from the common share issuance.
And versus the preferreds and then any issuances done year to date, what remains under the ATM and what would trigger any further issuances there.
Yeah.
Well, yes for a module from directly.
Quite familiar.
20 million.
In Amman.
In the fourth quarter, and I think the majority of that.
Hum.
Common shares.
As a small part of the.
Yeah.
Part of it has gone away.
Kurt.
Right, Okay, and then any issuance has done year to date.
During 2022.
I think I can get.
Similar to insurance.
In a couple of weeks without results.
Okay.
And then.
In terms of the the four dual fuel Aframax Newbuild on order can you talk about either the contract duration against those I expected EBITDA contribution and those are still scheduled for delivery in 2023 through 2024 and can you talk about kind of the cadence of delivery there.
Yes.
Okay.
This is a.
Thank you for a portion of this.
Because.
It's a very important part of our strategy going forward.
<unk> hundred 93, when we were at almost 30 years ago, when we started.
All right.
We ended up the does that essentially.
By the beginning of 2000.
We have to have the Ww.
And that was a mess.
Double hull asleep at the time, the new legislation following we opened nine whatever to accomplish this.
When the time with more than one with the use of <unk> in the months or.
We came with a with blood before that was done.
We'll now where we're at.
They're very similar exercise over the web.
But I think why I hope so what we would like to do is buy vehicles, but this is the gateway to length of therapy to have the vast majority if not all of our vessels for the future technology.
Whereas the guidance, which right now seems to be the U S, which could be either.
That.
It would be gas or ethanol going forward.
Hi, Bill.
And the way back of our mind.
Our technical and environmental committees that are working on designs like that together.
Our long term CPR. So we look at this file.
Technical contracts.
As a start.
I'll just start with a very.
Adobe analytics.
And very experienced the end user.
Sure.
So to build those ships and start that process.
But like you said this will have a completely and we are looking at the reserves.
We looked at it at a time on that.
So we look at them on the high side.
Uh huh.
I mean, our main.
Automating always started with us in excess of 15%, but when were doing new.
High quality projects, though we wouldn't do anything between 10 and 15%.
Okay got it.
You mentioned <unk>.
Controlling opex cost inflation. So last year, you know the Opex story was negatively impacted throughout the industry from Covid related cost pressures do you see that aspect improving this year and if so where are the current cost pressures coming from in terms of expenses.
Well.
I think Thats George.
Oh sure.
We would like to sell something for all our seafarers onboard because they went through a very difficult 2021.
Okay.
Numerous months extend.
It.
Let's see service to.
To help the company.
On what disease and in such a different environment than we were.
Reduced.
<unk> expenses I think this is.
It's something that.
I'll start with this.
This operating team.
We would have to thank them because they really are what it'd be selective.
Reducing expenses in it and then a vital increased.
As you see inflation by almost.
3% over the year and that.
We also include in there.
Half a dozen at least office spaces.
Paul.
She's ready to date.
Very high rates with weird happening.
And also for this.
This location expenses in which we have actions to navigate vessels, even if the emphasis to places like the ability to change the group. So we don't have that in mind, we were able to reduce expenses.
Vascepa evidence in the management, that's our perspective.
Productivity in this format.
Going forward of course.
We are.
And inflationary.
However, looking at the weak Euro I think this balances out.
This was as you know the majority of our expenses.
It's a little bit.
Turning to Europe .
There hasn't been a weak euro and a stronger dollar.
Yes.
Sure Craig.
So I would not foresee other than the bucket of expenses.
He has been a significant part of it.
An immediate negative effect at least for the first six months.
Great. Thanks for that color there I'll hop back in the queue I appreciate the time.
Thank you.
Thank you and the next question comes from the line of Mark Nausea from IHS.
Please ask your question your line is now open.
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And the next question comes from the line of Mark Nestea, One second.
Second please.
Yes, good morning, Nick Johnson team Chalk goes can you hear me.
More and more into Houston.
Uh huh.
Good just a curious question on the.
On the Green Fleet initiative.
It sounds like you're defining the green fleet as dual fuel I mean, you do have some eco ships in your fleet, but.
It's about 42 vessels built before 2013, which you know some significant fleet replacement over the next couple of years here to have a full wholly dual fuel.
Fleet, how do you how do you from a capital allocation standpoint, how do you go about financing should we assume long term contracts or just selling old assets and replacing that with you.
Given that your stock is trading at below it maybe.
Yeah.
We hope by the time, we finish the road show to the U S. Navy I'm only joking, but thank you for the question.
Yeah.
We are doing these transactions because it sounds.
I actually think that on the table as I was talking about getting ships.
It sounds more simply it's a huge technical tasks.
And I can say that we have at least a couple about equal.
Of eco design.
Our technical team.
Environmental Committee is doing a lot to actually implement on January 23.
Yeah.
Information that will use the footprint didn't even know what all of the seats and bring them to do it much more environmentally friendly.
And one of them.
Circumstances.
To navigate our way under the legislation.
Thus.
We are facing.
Got it.
But in places our fleet, we will only do it to.
Together with the end user segments for the first part.
Got it that's.
Oh.
Technology doesn't vessels.
Make us comfortable operating that we would be able to.
That's a good thing.
So it's not so much the least.
Atlanta is what we want also to take care of with the technical risk.
Together.
Big major oil companies.
Right right.
And for the year for that.
Ecuador seem to be on the forefront of this.
Are you, having other conversations with other oil companies.
Have you seen some change here over the last year as far as an appetite for financing need through long term contracts.
Yeah. So I think we're seeing ultra European and American companies at least double that.
I think another.
Vessels four to similar companies with 72, 7% to 15 year employment profiles.
Alright, very good just one last question you know rates have been.
Very volatile here over the last month can you talk a little bit about the first quarter, what you've seen so far versus end of March.
The FERC fourth quarter.
Maybe just talk about maybe the Suezmax and Aframax is on the crude and perhaps you know.
<unk>.
Well I think for a change I think with us taking the <unk>.
Taken care of all the I would say all of the issues.
Governments and non cash items due in 2021 I think.
We will be able to service.
So a significant broker in the in the first the first quarter and if things continue that we have today and then even better profit.
For the.
For the first six months.
Of course I will.
We're sitting at the meeting.
For the beginning of the.
Second quarter, but things are.
Rates is minimal.
It's not a secret quite.
Quite significant from the ophthalmic.
The product carriers.
As much as all over there.
Regardless of the call.
The.
Of that auction prices regardless of erection.
Location.
Paul market.
It was very positive. So we believe that this could be the game changer.
You and I and.
The rest of the analysts talking less about the peer group over the last 18 months.
Right and then I mean the <unk>.
Rates have moved up here would this be a time, where the clients are the oil companies would try to lock in some vessels maybe at higher rates, but maybe just secure tonnage I mean, we'd still have some.
Some tonnage out there.
But are you seeing appetite for time charters improving.
There is a request per se.
Good luck.
First plus south citizen of course cravings.
Try not to lose the boat literally in this in this case.
They were offering.
Rates in January .
15% higher in February and.
What's even higher now and I think.
He's getting it is getting to a level.
Let's see.
Significant.
So we might look a couple of ships will have a very large portfolio.
Yeah.
Thanks Sam.
Some of the sports and some of them longer.
Perfect.
Right Alright very good.
Yeah, that's all I had thanks for taking my questions.
Thank you Elizabeth.
Thank you, Matt just remind you if you wish to ask a question. Please press star one on your telephone keypad.
We'll see.
If you have any more questions and now with us.
Our chairman will give us his closing remarks.
We want to do we show everybody up Easter from from here from New York.
And.
Looking forward.
For all of us to enjoy a peaceful holiday.
This weekend the next week.
Sure.
Please.
And hopefully, we'll be able to be reporting higher dividends and higher returns.
In our.
For she is joining our call.
Hopefully all is going to be second hopefully in a peaceful in a peaceful way and with that I will ask our chairman. Thank you set up a little for his closing remarks.
Thank you Nicolas so I have nothing nothing else to say just wish you.
Good luck and.
Safe travels and hope you have a very productive road show in New York.
Goodbye for me.
Thank you very much. Thank you sure. Thank you.
Thank you.
This concludes our conference today. Thank you for participating you may all disconnect speakers. Please standby.
Okay.
Okay.
Yeah.
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