Thank you for standing by, ladies and gentlemen, and welcome to Tacos Energy Navigation Conference Call on the First Quarter 2021 Financial Results. Have with us Mr. Tassos Alipoglu, Chairman of the Board Mr. Nicholas Tsakos, President and CEO Mr. Paul Durham, Chief Financial Officer and Mr.
Georges 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. I must advise you that this conference is being recorded today. And now I'll pass the floor to Mr.
Nicolas Bonozis, President of Capital Link, Investor Relations Advisor of Sakos Energy Navigation. Please go ahead, sir.
Thank you very much, and good morning to all of our participants. I am Nicolas Bornoiz of Capital Link, Investor Relations Adviser to Tsakos Energy Navigation. This morning, the company publicly released its financial results for the Q1 of 2021. In case you do not have a copy of today's earnings release, please call us at 212-6617-566
or e mail us
At 10, temcapitallink.com, and we will be happy to send a copy to you right away. Please note that parallel to today's conference call, there is also a live audio and slide webcast, which can be accessed on the company's website on the front page at www.tenn. .Br. 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 calls.
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 And at this moment, I would like to pass the floor on to Mr. Arapoglou, The Chairman of Tsakos Energy Navigation.
Mr. Rapopoglou, please go ahead, sir.
Thank you, Nicolas. Good morning and good afternoon. Thank you for joining our call today. Producing a positive operating income under the present market conditions is a great feat, For which Nikos Tsakos and the team deserved congratulations once again. These results are fully in line with our industrial model and Strategy, which is to provide high quality service to our blue chip customers, while ensuring high levels of cash generation to cover Our obligations even in today's weak market.
Continuous fleet renewal, State of the art vessels, operational excellence and ample liquidity protect TEN and position it To benefit greatly from a market upturn, as we all expect. Despite the challenging market, we continue To pay common dividends in an uninterrupted way since inception, We continue to reduce debt and repay outstanding preferred issues. And lastly, The Company is increasing its focus on our ESG footprint and maintain our high governance standards, both I know are areas of increased focus by you, the shareholders. And with this, I pass on the floor to Nikos Sapos. Thank you, Nick.
Thank you, Chairman. Although it's never a pleasure to report A loss making quarter. I have to say that with the efforts from everybody in the right direction, the Q1 losses were significantly Better than the Q4 because I think this is what we are that's what logically We are comparing ourselves to the last quarter of 2020. I think we had our loss was in excess Of what the Q1 so in that way, we are going towards the right direction. As we have always been saying, the company's strategy Of protecting all our obligation with our time charter fleet and profit sharing is working once again.
We will have a positive operating performance, a small one, as Paul would say, just a couple of $1,000,000 But I think This gives us the ability to take care of all our obligations from the vessels that are on time charter and on profit shares And allows the company to maintain its growth. We are in on our 5th 3rd down cycle, as Mr. Zaroglou will show in his slides, and every time the company comes strongly out of it. What we are facing today, it's not only a challenging market, but I think it is a Structural change in our industry. And I think this is what we and the heads of our environmental and operational Committees headed by Mr.
Efthimios Mitropoulos, former Head of the IMO and his team, we are looking on talking to our clients Of what will be the shape of the future. And I think this is something we spend a lot of time, a lot of effort, And we feel very proud so far with the results that we are achieving without losing of course our eye from the bottom what we are doing day to day to make Sure. We run a tight ship. We make sure that our seafarers and personnel have been able to safely Navigate through this unprecedented COVID crisis that seems to be coming back again from all over the world. And I will, of course, make my comments further down and I will be answering questions, but I will take again this opportunity To thank the command and the officers and staff of the U.
S. Coast Guard for their immediate response To one of our seafarers COVID scare and On our good vessel, the Artemis, offshore the West Coast of the United States on its way crossing towards Korea. And I have to say that within hours from our first report to the U. S. Of course that 2 helicopters together With a bunkering fueling helicopter where aeroplane were above the waters on our vessel actually Picking up our seafarers who now is recovering in a San Francisco hospital.
I think these are things that make us proud and makes all our seafarers Feel that they belong somewhere and they're not alone in this vast ocean and in these circumstances. So again, Thank you very much to all and I think we are going to be doing a much more formal thing in approaching The right authorities going forward. And with that, I will ask George Saroglou to take us through the developments So for the last, I would say, 90 or 180 days, and we will be back to answer some questions. Thank you very much.
Thank you, Nico. Good morning to all of you joining our earnings call today. We start the call by thanking the officers and staff of the U. S. Coast Guard for their successful efforts In rescuing 1 of our seafarers 250 miles off the coast of San Francisco.
Human life is of paramount importance at sea For sure, but saving life at sea most of the times is most challenging due to the prevailing circumstances, Whether or otherwise, and events like this one make all of us very proud to belong to the international shipping community by which the U. S. Coast Guard leads by example. We navigate for over a year now through the COVID pandemic and although we see the light at the end of the tunnel, this unprecedented crisis is not over yet. Our priority continues to be the health and well-being of our crew and shore personnel to have no COVID incidents in the fleet And no disruptions of operations.
I'm pleased to report that we have managed the situation with no major incidents. And for this reason, I would like to offer once again congratulations to our seafarers and shore personnel for their resilience and professionalism During this stressful period, to thank Tacos Colombia Ship Management, our technical managers For their efforts in keeping seafarers safe and in managing crude changes in an environment where regulations and lockdown restrictions made planning a mission impossible. Our IT for making sure we operate remotely seamlessly and without disruptions and last But not least, the team of medical experts that is helping all of us almost daily with good advice in dealing with the deadly virus. The tanker market has been very weak for more than a year now. The price of oil has Oil demand is recovering from the monumental losses of last year.
And after a strong demand growth year in 2021, Experts now see a return to the pre COVID demand levels by next year. OPEC plus managed the collapsing demand diligently And with discipline and has now restored more than 40% of the initial $10,000,000 plus production cuts and plans To gradually add more barrels, which means more cargoes to a market that is thirsty for oil, as global oil stocks are now below the key 5 year average levels in all main demand areas OECD and the developing world. And of course, the supply of new tankers continues to be at historical low levels, while the global fleet is getting older and new upcoming regulations are expected to push the phase out of a big part of this aging fleet. Let us go to the slide of our presentation. In slide 3, we see that since tense inception in 1993, we have faced 4 major crisis, but each time the company, thanks to its operating model, which is built to be crisis resistant has come out stronger from 4 modern tankers in 1993, The pro form a fleet of 67 vessels for an average 15% annual growth in terms of deadweight tons in the 4 decades we operate.
In Slide 4, we see the pro form a fleet and its current employment profile. We have a combination of vessels in fixed time charters And flexible employment contracts, time chartered with profit sharing, COAs and spot trading that capture the market's upside. All dark blue color vessels, 24 in the slides, are on fixed time charter rates, while the light blue and red color vessels Well, 2 thirds of the fleet currently in the water have exposure in the market subsides. This means that TEN is well positioned to capture the positive tanker market fundamentals and expected recovery in freight rates. We took advantage of the low freight environment to bring forward a number of scheduled special surveys in order have these vessels available once the tanker market rebounds.
And since fleet modernity is a key element of our operating model, we recently concluded the sale Of 3 of our older tankers, a 2,003 built Panamax tanker and 2, 2005 built Suezmax tankers, Which we replaced with 2 new building quarters that will increase the company's exposure in 2 specialized sectors, namely in the DP2, shuttle tanker and LNG categories with both vessels coming with long term employment attached. Slide 5, the left side presents the all in breakeven cost for the U. S. Vessel tax we operate in TEN. As you can see, the cost base is low.
During the Q1 of this year, the revenue generated from the time charter contracts was again sufficient to cover the company's cash expenses, paying for the vessel operating expenses, overhead charter in cost and loan interest. In addition, we have to highlight the purchasing power of TCM and the continuous cost control effort by management to maintain a low OpEx environment for the While keeping a very high fleet utilization rate quarter after quarter, and which for this quarter despite bringing forward scheduled Dry dockings ahead of time, we achieved an overall 92% utilization. And thanks to the profit sharing element, A cornerstone of TEN's chartering strategy for every $1,000 increase in spot rates per day, we have a positive impact of 0.57 to the annual EPS based on the number of 10 vessels that currently have exposure to spot rates. Slide 6, debt reduction is an integral part is also an integral part of the company's capital allocation strategy. Since the company's debt Picked in December of 2016, we have repaid $281,000,000 of debt and repurchased $100,000,000 in 2 series of step up preferred The B and C series that we had outstanding.
Today, the net debt to capital ratio is at 50.1%. Slide 7, in addition to paying down debt and growing the Company through timely sale And newbuilding transactions, we continue to reward shareholders with dividend payments. We announced today $0.10 Per share dividend for common shareholders that would be paid on July 2021. Since the company New York Stock Exchange listing in 2002, TENT has rewarded the company's shareholders with almost $500,000,000 in dividend payments. Regarding the markets, Slide 8, it has been an unprecedented year for global oil demand because of the COVID pandemic and the measures to contain it.
In 2020, we had the 1st year of negative growth since the period of the Great Recession in 2,008, 2009. Year end demand was approximately down 8,600,000 barrels per day, below the levels of the 2019 year end demand figures or approximately 8% down. Most of the losses were in jet, aviation, fuel category as mobility and traveling Came to an almost complete standstill last year. The expectations for 2021 is for oil demand to grow back 5,400,000 barrels per day and another 3,100,000 barrels per day in 2022, reaching the pre COVID oil demand levels at year end 2022. Full demand recovery, of course, depends on how effective we are going to be in continuing to deal with the virus and its mutations.
Nearly most of the 2020 demand reductions were found in the OECD countries, mainly North America and Europe. For the NOI OECD world, even from the second half of last year, the International Energy Agency Rate demand estimates, particularly for China and the rest of the developing Asia. This year, we have seen The OECD countries rebound from the low base level in addition to the expected demand growth coming out of China and developing Asia. On the global oil supply front, OPEC plus producers continue to manage supply with discipline. Almost half of the 10,000,000 barrels Production cuts have been returned to the market.
The next OPEC meeting in 2 days will decide on production levels from August 2021. As inventories in developed countries and in developing in the developing worlds are coming down below the 5 year average levels And oil demand is expected to grow. OPEC plus will continue to grow production levels in order to meet incremental oil demand. Higher demand from the second half of the year and the release of additional barrels to the market should be the positive catalyst for tanker demand and tanker grades. Supply on Slide 9, with the oil demand recovering, Let us look at the forecast for the supply of tankers.
The order book as of May stands at around 6.6% over the next 3 years, The lowest in almost more than 20 years and at the same time, a big part of the fleet is over 15 years. 360 vessels or almost 8% are currently above 20 years. Upcoming environmental regulation Could push more tankers approaching or above 20 years to go for scrapping. And as the next slide highlights, 2018 was The highest scrapping year of recent records. Last year, scrapping was lower as expected.
However, this year, with the first Feet 6 months gone, scrapping in both absolute number of scrapped vessels and the in deadweight ton already exists the full year 2020 statistics. And with regulations coming and approximately 8% of the global fleet above 20 years, we expect the scrubbing numbers for 2021 to accelerate further. To summarize, oil demand, the recovery continues with strong growth expected in 'twenty one and 'twenty two. Oil supply, more production increases are on the horizon by both OPEC plus and other non OPEC producers. Order book supply of tankers.
The order book to current fleet ratio is at historical low level, which points to a recovering and Stronger freight market for the next between 24 months. That's balances. We have built a crisis resistant operating model. We have a modern fleet well positioned to capture the positive market developments, which are expected to start from the second half of this year. We have a strong banking relationships that will allow the company to take advantage of the opportunities that will be presented.
And lastly, looking at how other shipping sectors are faring right now, freight rates and asset prices for both containers and bulkers Are currently going through a very strong market. If past history can be guidance for the future, there is always about a 6 months Like before, there is a positive spillover effect to the lagging shipping sector and so tankers should be the next Shipping sector to enjoy a better market. With the expectation of better days ahead of us, I will ask Paul to walk us through the Q1 'twenty one financials. Paul? Yes.
Thank you, George.
Well, quarter 1 started with positive expectations Despite the difficult market and we still have such expectations as revenue was $140,000,000 And our loss in quarter 1 was only $4,800,000 which was less than feared as the loss was Successfully contained by our time charters that we're still able, as George has mentioned, still able to cover all cash expenses, Leaving a surplus of $12,000,000 while half of our fleet on spot were able to generate a further 18.5
$1,000,000 Much of our
optimism was also due to the healthy cash reserve inherited from the strong market of the past year, allowing us to meet the challenges of the current downturn. Our results were also affected by taking advantage of the market lull To advance 4 dry dockings into quarter 1, allowing the vessels to exploit a better market later in the year. However, market conditions did not allow us to benefit much from profit share arrangements in contrast to the strong prior quarter 1. Although we do expect profit share will play a major role in the eventual rebound. Daily average TCE per ship was $18,000 a satisfactory average given the large increase in bunker costs and the poor rates available in the market.
Operating expenses fell $4,000,000 due to tighter economies in light of market conditions and partly due to reversal of prior year accruals relating to crew tax. Average daily OpEx per vessel fell 6% to $7,400 To I beg your pardon, from 7,900 to 7,400, that is rounded numbers despite drydock costs and a weak dollar. G and A expenses in quarter 1 fell 10% as management also applied tighter controls on the overheads. As a result of all these factors, KEN achieved a positive operating income of $2,200,000 In addition, finance costs fell by $27,000,000 due to reduced debt by $30,000,000 and to lower interest rates and margins and to a $5,000,000 increase in bunker valuations compared to the prior quarter 1. Since the start of the year, poor rates reduced our EBITDA to $37,000,000 But we were still able to maintain adequate cash reserves while time charters in vessel sales continue to generate decent cash flow.
In fact, we recently sold 2 more Suezmaxes in a sale and leaseback deal, releasing $17,000,000 cash After repaying $27,000,000 debt, plus the Panamax, the tanker Maya releasing $4,000,000 cash After $5,000,000 debt repayment and we aim to sell more vessels as part of our fleet renewal. Also, we continue our ATM program having raised about $19,000,000 so far this year. And in effect, we believe the market will turn during the second half due to positive fundamentals, plus a possible demand rebound as lockdown measures abate and normality returns. And now I'll return the call back to Nicholas.
Paul, thank you very much and looking forward for more positive results Next time. And with that, we would like to open the floor for any questions.
Thank you very much, Our first question for today is from Randy Giveans from Jefferies. Please go ahead.
Howdy, gentlemen. How is it going?
Very good. I think it's time for you to come down to Greece again.
I agree. I agree.
Hopefully sooner rather than later. We all hope. We all hope. We're all vaccinated here with our Johnson and Johnson and Ready to mingle with our good clients and friends.
Thank you.
Good deal.
Well, I'll be there. A few questions for me. First, I guess just the most timely question. As reported in the news this morning, you're partnering with Equinor for 4 dual fuel Aframax newbuildings, can you comment on that story or maybe provide some additional details with these Equinorra assets?
Well, as you know, TEN's model depends on partnering with 1st class clients. We are in the process of discussing not only with Equinor but with other clients for the step forward. Our industry is changing. The structure of the industry is changing. We had the big change back In the 90s, when the Opa 90 changed the actual hull of the vessel, I think we are in the process of the changing of the actual Compunction of the ships right now and this is something we are discussing with clients.
There's not much details we can say, but For us, we are very proud to have the expertise of our clients together with our team in looking for the future, Even more environmentally friendly vessels out there and always with an accretive transaction in mind.
Okay. That's fair. And then with those kind of accretive transactions segueing to your LNG charters and those counterparties, Can you give a little more color on those 3 LNG contracts in terms of durations, rates,
counterparties?
Well, the start of the energy market for the last, I would say 2 quarters so far have been the LNGs. So we were very lucky and very well placed and thanks to the efforts So, of our in house team, we were able to actually deliver their vessels back to back From their previous employments to their new employments without any loss of a single day. So I think that this is very good. And when we're talking about LNGs, you know that the figures are significantly high. So that was very important.
Also passing the surveys very on budget of those vessels And they range from, I would say, an average of 2 years to a minimum then of 5 years for the other Employment with option, but takes it up to the 8 year period.
Got it. Okay. And then I guess looking at kind of just further fleet renewal efforts and maybe on the sales side, right? You've taken around or you still have around 15 tankers all around 15 years of age. So is the plan to Kind of divest those as you're building these new kind of dual fuel vessels?
Yes. I mean, this is the next that we will be phasing out these Very good quality ships. I think perhaps we must be one of the very few companies that we have maintained A very firm belief in where we build our assets and the majority of our assets have been built In places like Korea and Japan. And I think this is where we are maintaining right now our position. So, We are looking to replace those very good assets with assets that are built in sister yards.
Got it. I guess last question. 2Q is now pretty much literally complete. All the other peers give kind of quarter to date rate guidance. Can you provide that for 2Q?
And just trying to get a sense of how that compares to 1Q.
Well, Q1 was a difficult quarter, but I think as Paul very elegantly said, I think it was A modest loss managed because of the company's strategy of time charters In the vessels. So it was a much it was a significantly better quarter than the 4th quarter. And I believe that the Q2 with the help of our LNG input, which is going to be significant, It will be a better quarter than this than the one that we just imported. So, I think that's as much as I can say. And I think as George and the Chairman said, we are looking at better days ahead.
We have a strong indication from charterers that are out there looking for long Employment of vessels, the supply side is the lowest in recent memory since the early 90s. So, I think the light at the end of the tunnel is appearing slowly, but steadily.
Got it. All right. Well, that's it for me. I'll turn it over. Thank you so
much. Thank you.
Thank you. Our next question is from Magnus Firth from H. C. Wainwright. Please go ahead.
Your line is open.
Yes, good afternoon.
Just Couple of questions on
the appetite among oil companies for time charter contracts. I mean, the trading firms have been This is securing tonnage over the last couple of months. Rates are still very low. But have you seen much of a change From the old company as far as the appetite on maybe taking in more tonnage? And I don't know, how do you structure these contracts with rates still depressed?
Well, I think from what George described earlier, we actually Played defense, as you say, in the United States. So when a lot of our renewals came in, we decided not To go for our long term charters at this stage, the appetite is there. There are companies that are looking for, I would say, Low balling numbers, but we are in discussion for Anyone who is seriously on a minimum and a profit share. So there are quite a few of those businesses that we are discussing. And we are seeing signs that people have believed in the market.
We've seen companies like Frontline making investments In VLCCs, recently and not only. So I think it is a good sign and we're seeing also I mean, we are big supporters of pools. We strongly believe that pools are the best way of consolidation. It actually allows you to keep your interest on your ship, run your ship properly to maintain. I mean, as George reported or Paul reported, We were able to control our expenses, have another reduction of 6% or 7% in different circumstances, which we are proud of.
We went down from $7,900 to $7,400 in OpEx in a difficult time when COVID restrictions put a lot of Pressure on expenses. So I think we are thankful to our men and women on the ships and the offices that are being able to do so. And then through consolidation, we are able to have a better block negotiation with our clients.
All right. Thank you. And just going back to the prior questions regarding selling some of these older ships. I mean, these ships are typically the ones that will have the best rebound in asset values if the market recovers and they could generate significant cash flow as well. How do you balance that having these very well maintained ships that you know very well And keeping them and maybe capturing some of the market recovery going forward versus staying compliant with new regulations.
Well, Magnus, we are doing transactions trying to have some imagination in what we do. So One of the ways that you can achieve exactly what you described is with some sales and leaseback transactions that, as you know, are something that the company has always I believe in. So, in that sense, you are able to sell the vessel forward at a premium or a significant premium for her age, But then maintain exactly what you said, use for another 3 years. So here, trying to capture the upside. So I think you hit the nail on the head with your point.
All right. Good. Good. And just one more question. As far as the dry docking, you brought back some dry dockings in 1Q.
What refresh my memory. What's your plans now for 2Q? I'm sorry, 3Q. We're almost we're basically done with 2Q. So what can you bring forward in 3Q.
We're doing another 4Q.
We're doing another 4 bringing forward. We're doing the Thomas, the Elias. We're bringing Chips that are due early 'twenty two, we're doing them now because they are in the right location at the right time. So I think it's better To use the summer lull and have them ready as we go forward in the Q4.
So, I think you can say
another 4 ships, Another 4 ships, but I would say efficient dry dockings when they reach the right area.
And just one last question, if I may. What I mean, the cash balance dropped quite a bit. It's a little bit below your comfort level, even though it's About my comfort level. Do you guys feel comfortable with current cash decision even though it's come down a little bit?
Thanks to the efforts of our Chairman and the team here. You will find out in the Q3, it has rebounded significantly.
Very good. Thank you.
Okay. Very good.
There are no further questions that are waiting at this time. I'll hand the call back to Nicolas Takos, CEO. Please go ahead.
Well, before I ask our Chairman to say his last wise words, I would like again to restate that we are In a process of a structural change in our industry, the structural change as a company, we faced it again back the early 90s with the Open 90. At the time, within 4 years, we transformed the company from a single, single company To a fully double double company with the help of everybody. We are that was a big change In the hull design of the ship, I would say the biggest hull change since inception of shipping where you today it looks like it's a usual thing, but At the time, there was a lot of discussion about its size, safety and about how efficient and safe it would have been going forward. But it has been proved That it has reduced pollution, I'm knocking at wood, by 99.9%. And having Mr.
Mitropoulos here, who was in the forefront of those Discussions at the time, I think it was a very important move and thank you very much. The same team, Our environmental and operation team is now in discussion with our clients for the change in the engine design, which is the next step. So I think the industry took the environmental changes of the hull in the early 90s for the Opa 90 And we are in the same process and the company is there with exactly the same enthusiasm, much, much stronger company With the support of our clients in discussing with our clients over the next step. And I think one of your questions earlier about discussions with clients, yes, That's what we do. We sit around with them and we try to find what will be the shape of the future and hopefully we can do it by making some good returns in
the mean And with that, I will ask Paje.
Thank you, Nikos. All the best in the next quarters and congratulations for the proactive management that Has positioned 10 where it is ready to benefit from market recovery. Well done.
Thank you. Thank you to all.
Ladies and gentlemen, that does conclude the call for today. Thank you everyone for joining. You may now disconnect.