Thank you for standing by, ladies and gentlemen, and welcome to the Tsakos Energy Navigation Conference Call on the 3rd Quarter 9 Months 2020 Financial Results. We have with us Mr. Takis Arapoglou, Chairman of the Board Mr. Nicholas Takis, President and CEO Mr. Paul Durham, Chief Financial Officer and Mr.
George Soroglou, Chief Operating Officer of the company. At this time, all participants are in a listen only mode. I must advise you that this conference is being recorded today. And now I pass the floor to Mr. Nicholas Bornoises, President of Capital Link, Investor Relations Advisor of Tsakos Energy Navigation.
Please go ahead, sir.
Thank you very much, and good morning to all of our participants. I am Nicolas Bornoides of Capital Link, Investor Relations Advisor to Tsakos Energy Navigation. This morning, the company publicly released its financial results for the 9 months and Q3 ended September 30, 2020. In case we do not have a copy of today's earnings release, please call us at 212-66175 66 or e mail us at 10tencapitallink.com and we will have a copy e mailed to you right away. Please note that prior to today's conference call, there is also a live audio and slides webcast, which can be accessed 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 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 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 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. And at this moment, I would like to pass the floor on to Mr. Arappoglu, the Chairman of Tsakos Energy Navigation. Mr.
Arapoglou, please go ahead, sir.
Thank you, Nicolas. Good morning and good afternoon to all. Thank you for joining us on our call today reporting 3rd quarter 9 month results. As you've seen, a more than double increase year on year in operating income and positive quarterly results in such a weak market, while paying off all our obligations, replacing all the tonnage with new accretive business, maintaining our comfortable cash position, redeeming recently a preferred issue and maintaining a healthy dividend, always demonstrates alertness and flexibility by our management and fully validates our strategy and positioning in the market that you've been hearing all along. These attributes will certainly allow us to benefit from the anticipating gradual recovery in the market so that we can continue offering our shareholders value going forward.
Thank you from my side. Happy Thanksgiving to all. And I'll now pass the floor to Nikos Tsakos, who deserves, together with his management, once again, congratulations. Thank you. Nikolas, the floor is yours.
Thank you, Chairman, and good morning to all of our participants. It has been as described in the press release, a very, very strange, I would say, in painful years on personal basis for many of us. However, in the meantime, we have been able to maintain a steady course in taking 10. One step further to its goal, which is the full appreciation of its shareholders' value and the Company's growing business. As the Chairman was kind enough to mention, with the help of all on board, our seafarers, our technical management team, the whole Tsakos organization, we have been able to maintain and I'm presented high utilization in very difficult times, operational difficult times.
And the last quarter, the Q3, which seasonally is a slow quarter, was actually also influenced by operational barriers to doing business as usual caused by the pandemic. In the meantime, TEN was able to achieve its goals regardless of the circumstances. The most important part of it has been the modernization of the fleet. In the 1st 9 months, we have sold 6 of our older ladies, as we say, and we have replaced them with a significant 4 economically designed and environmentally designed vessels, all of them with accretive businesses. This has been, I think, also in our bottom line, we have been able to maintain our very high utilization, reduce debt, reduce our preferred obligations and prepare the company going forward in a much more normalized environment.
We are seeing around us significant signs in the other segments of the shipping business that go in parallel or with the time lag. We're seeing that the dry cargo market has turned the corner and going from strength to strength. We're seeing a very strong recovery from a very, very low starting point of the container sector. And in the last since November, we are seeing similar signs of recovery in our business. So with this introduction, we are looking in going forward in an environment where the supply, which is usually what hurts our business, is very, very normalized.
We have the lowest supply in the last 30 years and also a very significant scrapping. We finally the pain of the last quarter has led to finally some of the older VLCCs being scrapped after a very long time and we are already have seen 380 tankers being scrapped, a strong 7% of the tonnage out there being scrapped within this year and growing. So this group gives us a very, very good prospects going forward. The company has maintained its uninterrupted dividend payout and having a strong balance rate and a strong cash position, we're looking at better times going ahead. I will ask George Saroglio to give you a detailed analysis of the last 3 9 months, and then we will be available, all of us, to answer any questions.
Thank you. Thank you, Nikos. Good morning to all of you joining our earnings call. We report today a profitable Q3 9 months of 2020 operation. It has been a rollercoaster year for the tanker industry and the world because of the COVID-nineteen pandemic and its economic, social and health related repercussions.
We continue to successfully navigate the logistic and regulatory challenges of COVID-nineteen with no impact to our operations so far. Thank God. The shipping industry, because of the pandemic, the lockdowns, border closures and reduced airline capacity, has experienced significant challenges with crew changes. We have safely performed crew changes, but the problems with restrictions and logistics remain as different parts of the world navigate through the 2nd wave of the pandemic. We anticipated the 2nd wave and planned all crew changes before it arrived with no stoppages or disruption in our operations, no cases of contaminations for the sign on crew on board our vessels and in full support of our charterers trade requirements 20 fourseven.
It has been a Herculean task. I want to take the opportunity to thank one more time and tell how proud we are for all our seafarers and onshore personnel for their hard work, patience, perseverance and professionalism during this unprecedented time. We will continue to work hard to normalize crew changes and bring Seafarer safely back home to their families without disrupting the operational readiness and efficiency of the fleet. This has been and will continue to be our number one priority while the pandemic lasts and until we return to normal industry practices for crude changes. Let us now go to the slides of our presentation.
In Slide 3, we see that since TEN's inception in 1993, we have faced 4 major crisis: the Far Eastern crisis in 1999, the nineeleven crisis, the credit crisis of the credit recession in 2,008, 2009 and currently the COVID-nineteen pandemic. But each time, the company, thanks to its operating model, which is built to be crisis resistant, has come out stronger. From 4 modern vessels in 1993 to a pro form a fleet of 50 vessels for an average 15% annual growth in terms of deadweight tons in the 4 decades we operate. This time has not been an exception. Since the start of the year, we sold 6 tankers with an average age of 14.7 years and replaced them with new building orders for 4 eco design conventional tankers plus 1 option 1 shuttle tankers.
Last week, we reported the delivery of the last vessel in this 4 series newbuilding program, consisting of 2 Suezmaxes and 2 Aframaxes in South Korea that can move with minimum 5 year contracts to an oil major that's expected to generate approximately $200,000,000 during the minimum hire period. The company continues its current growth program with the construction of 2 vessels in the specialized shipping sectors, namely DP2 Shuttle Tankers and LNG, both with long term employment. 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 charters with profit sharing, contract of affrainments and spot trading that capture the market's upside. All dark blue color vessels, 23 in the slide, are on fixed rate time charters, while the light blue and red color vessels currently in the water have exposure in the market's upside.
Approximately 55% of the fleet is in secured contents. On the next slide, we see the breakeven cost for the various vessel types we operate. As you can see, we have a forced base that is very low. In addition to the low shipbuilding cost, we must highlight the purchasing power of Sacros Colombia Ship Management, the continuous cost control efforts by management to maintain a low OpEx average for the fleet and the low general administrative expenses, while keeping a very high fleet utilization rate quarter after quarter in excess of 95% for the 1st 9 months of 2020. We should highlight again the high utilization number for the fleet as we navigate through the pandemic.
Thanks to the profit sharing element that a big portion of the fleet enjoy, then benefits further when market conditions are strong like the freight market we have witnessed during the first half of the year. As demand for oil continues to recover from the lows of the Q2 and oil inventories continue to fall, we expect the freight market to recover from the current levels. Every $1,000 per day increase in spot rates has a positive $0.59 impact in annual EPS based on the number of 10 vessels that currently have spot exposure. Slide 6, debt repayment and reduction is an integral part of the company's capital allocation strategy. Since the end of 2016, when the company's debt peaked, we have reduced debt by $262,000,000 In addition, we have repaid $100,000,000 of preferred shares by retiring $50,000,000 Series B in July 2019 and the $50,000,000 Series C preferred shares in October 2020.
Net debt to cap ratio at the end of September is at 46.5%. In addition to paying down debt, growing the company through timely sale and purchase newbuilding acquisitions, we continue to reward shareholders with dividend payments. We announced today a 0.125 dollars per share dividend for common shareholders that will be paid on December 22. The full year dividend is $0.50 for the common shareholders if we add the June 26 payment and then December 22 upcoming distribution and factor the reverse stock split of July 1. Since our New York Stock Exchange listing in 2002, the company has paid dividends without interruption and has distributed almost $500,000,000 to common shareholders for an average yield of 5.25%.
In addition, the company has an active share buyback program and has repurchased a little over 5% of its common shares outstanding. So besides debt repayments, cash dividends and buybacks of common and preferred shares are 3 main pillars of the company's capital allocation with fleet growth and renewal the 4th pillar. It has been an unprecedented year for global oil demand because of the COVID 19 pandemic and the measures to contain it. 2020 will be the 1st year of negative growth since the period of the Great Recession in 2000 and 8, 2009. Year end demand will be approximately 8,800,000 barrels per day below the levels of the 2019 year end demand or approximately down 8%.
Most of the losses are in jet aviation fuel. The expectations for 2021 are for oil demand to grow by 5 point 4,000,000 barrels per day. Oil demand recovery to the pre COVID-nineteen levels is referred to late 2021 or in 2022, subject to how well the world will manage the resurgence of the pandemic, how effective the 2 vaccines are and the other vaccines that are being developed, and how quickly they will be approved and distributed worldwide in order to allow the gradual return to normal social and economic life. Nearly all these massive reductions are found in OECD countries. For the non OECD world, the International Energy Agency has raised demand estimates, mainly due to improved demand expectations in China and India.
Non OECD countries continue to be the growth engine for oil demand. On the global oil supply front, OPEC plus producers eased production cuts by 2,000,000 barrels per day from August. There is an additional 7,700,000 barrels per day of shut in production that OPEC plus plans to gradually restore over the next 16 months. Compliance with these cuts continues to be very high, almost 100%. The return of Libya in the oil markets following the recent ceasefire to the civil war and the quick increase in production from 100,000 barrels per day back in August and prior to the cease fire to 1,000,000 barrels per day currently, we most probably lead OPEC plus producers in their upcoming meeting on December 1 to agree to relax production cuts by another 2,000,000 barrels per day at the end of the Q1 of 2021.
With oil inventories, especially in OECD countries continuing to draw, the expected growth in global oil demand in 2021 together with OPEC plants further oil production increases should be very positive for tanker demand and tanker rates. Slide number 9, with oil demand expected to grow over the next year, let us look at the forecast for the supply of tankers. The order book as of October stands at around 7% or 348 tankers over the next 3 years, the lowest in almost 30 years, and at the same time, a big part of the fleet is over 15 years. To be exact, 13 50 vessels or 28% of the fleet. 360 vessels or 7.1% of the current fleet are at or above 20 years.
Upcoming environmental regulations could push more tankers approaching or above 20 years to go for scrapping. As the next slide shows, 2018 was one of the highest scrapping years of records. Last year's scrapping was lower as expected. The strong freight market and the pandemic has put scrapping to a standstill. But with so many tankers older than 15 years, we could see a pickup in scrapping as more environmental regulation on the horizon, especially create an unfavorable trading environment those vessels approaching or currently above 20 years.
To summarize, demand for oil on the demand for oil, the recovery continues with strong growth expected in 2021 with the speed of this demand recovery related and affected by COVID-nineteen developments. On the supply of oil, production increases are on the horizon in 2021 by both OPEC plus producers and other non OPEC producers. We should note that despite the fall in U. S. Production, U.
S. Crude oil exports continue to be strong at approximately 3,000,000 barrels per day, with most of these exports destined to long term destinations, including Asia. Vessel supply. The order book to current fleet ratio is at historical low levels, which implies at minimum a balanced market for the next 18 to 24 months. And finally, TEN's balance sheet, we have a modern fleet, a strong balance sheet, strong cash reserves and strong banking relationships that will allow the company to take advantage of the opportunities that will be presented.
With the expectations of better days ahead, we conclude the operational part of our presentation. Paul will walk you through the financial highlights for the Q3 9 months. Paul? Thank you, George.
So as expected, on top of seasonal factors, quarter 3 results were impacted by pandemic lockdowns, low oil demand and the continuous draw on oil inventories globally. Nevertheless, quarter 3 operating income was $15,000,000 and net income, $1,400,000 While in the 9 months, operating income reached $117,000,000 double that of the prior quarter 3, with net income of $54,000,000 In a weak market, revenue in quarter 3 was still up 9% to $143,000,000 including $4,000,000 profit share and 21% up in the 9 months. 10 had 2 vessels drydocked in quarter 3 and 3 in the 9 months and still achieved 93% utilization in quarter 3, 95% employment in the 9 months. Daily TCE per vessel in quarter 3 averaged nearly $21,000 and over $25,000 for the 9 months, again exceeding average market rates. Time charters generated $86,000,000 in quarter 3, enough to cover most expenses in the quarter, while vessels operating mainly in the spot market generated a further $57,000,000 before voyage expenses.
Total OpEx stayed at $45,000,000 and average daily OpEx per vessel increased to just $7,900 due to extra drydock costs and a weaker dollar, but remained at about $7,700 for
the 9
months. EBITDA in quarter 3 amounted to $48,000,000 just 2% up from the prior quarter 3 due to the more difficult market, while 9 month EBITDA increased by 40% to $230,000,000 Quarter 3 finance costs totaled $13,500,000 down from the $22,000,000 in the prior quarter 3 due to reduced loan interest, our cost of debt falling from over 4% to about 2% due to LIBOR lower LIBOR and margins. Also, average outstanding debt fell by about $79,000,000 since prior quarter 3. There was also a $4,000,000 positive turnaround in bunker hedge valuations since the prior quarter 3. In quarter 3, total net debt did increase by $34,000,000 mainly due to the delivery installment for the new Suezmax, but much of this has already been offset by repayments in quarter 4.
In fact, we are expecting total net debt in this year to have decreased by about $90,000,000 by the year end. Part of this decrease was due to the sale of 6 tankers earlier in the year, which in itself reduced debt by $61,000,000 and released $38,000,000 cash, at the same time bringing the average age down. In addition to loan reductions, we also had the recent $50,000,000 redemption of preferred stock paid from our strengthened cash reserves. Due to our increased cash in the year and the time charter strategy, we still remain in a comfortable liquidity position with our cash approaching the levels we had at the beginning of the year. We now have just 2 vessels being built, an LNG carrier with delivery in a year and a shuttle tanker with $237,000,000 remaining to be paid for these 2 vessels.
And we are in process of finalizing pre delivery finance for both vessels at competitive terms. At the same time, we have 3 vessels under consideration for sale that are expected to free more cash after repayment of related debt. Finally, while several market observers focus on a tanker recovery in 2022, we are more confident in a return to normality within a shorter time frame, assuming a reduction in new vessel deliveries and successful COVID vaccinations releasing pent up demand. And now, I'll give the call back to Nikolas.
Thank you, Paul. And I think as very well said by you and George, we have been able to tame the turbulent waters of most of 2020 and place the company in the right track for being able to take advantage of what is going forward. With 40% of our fleet right now on the spot market and a significant part of our profit sharing arrangements being able to take advantage of the higher market, We expect that as the beginning of the year finds the world in a bit more normalized state, both politically, but also health wise, we are seeing the signs of stronger movements. I mean, we have seen already significant hardening in the last month of the trade that was Atlantic trade on the product side. We're seeing the highest U.
S. Imports registered in products since 2016. And I think that's a very strong signal, and we're seeing the majority of our MRs and LRs trading in that part of the world. And we're seeing a slow increase in the demand, of course, with crude, basically supported from a strong appetite of exports coming from Libya, which has been very slow in the past and now it's increasing its output by about 1,000,000 plus barrels a day trying to become the major force of exports in the Med and competing very strongly with the Russian exports. So we are seeing normalization and we are seeing trade happening much more than it that we were reporting back a quarter ago.
The signs are good. The supply is non existent. I think this is something that I have not seen. I have always been speaking and talking about actually putting and asking people and my colleagues through my position in Tertanko some years ago and in other Florida to stop ordering, it seems like if you ask too many times, someone listens to you, but I'm sure I'm not the reason, but the confusion on propulsion technology right now has created the lowest supply in tankers and vessels in general for a generation. So I mean, as we speak today, we see about 8 we have a fleet of 8.30 VLs in the water, some of them in storage, of which 220 are in excess of 15 years of age and only 75 vessels being built.
So that's less than 9% on the VLs. And it's a very similar situation across the board as we speak forward. I think that would show that with the confusion of all the regulations that are coming out, Shipon has very rightly so are preferring to slow steam rather than find other solutions in order to achieve their targets, their environmental targets, their emission targets that are being set as recently as last week by the IMO. So in general, I think I have the feeling that unless something really unless we get a third severe way and I'm knocking on wood of the virus hitting us anytime after Christmas but we are getting as close of being out of the woods as possible and better days are ahead of us. In the meantime, we have been able to successfully navigate the difficult times.
And with that, I would like to open the floor for any questions. Thank you.
Thank you. Thank you. We will take our first question. Please go ahead. Your line is open.
It's Randy Giveans at Jefferies. How are you?
Hello, Randy. Very well. Thank you.
Great, great. I'm doing well. So I guess a couple of questions. Can you provide maybe a little more color on that decision to repurchase the Series C preferreds? Do you plan on continuing to kind of look at repurchasing other preferreds?
And then also, obviously, your cash balance is robust. You don't really have many more new buildings. Your share price is at a steep discount to NAV. Any appetite for common share repurchases?
Yes. I think, as I said, our first obligation has been to repurchase actually within a bit more than a year. Within the last 18 months, we have spent $100,000,000 of our hard earned cash to repurchase the 2 step up perpetuals. So that was our obligation. As George mentioned, we keep on we have bought back since May 5% of the company, which is a significant amount.
So there is buying. We have set targets, but it's buying also from the common. And now and of course, maintaining our dividend. So it is a balanced priority to reduce expensive paper that is out there. That is our first priority.
Our dividend is also significant to continue this 5.25%. I think it is, I think, a significant achievement that in almost 20 years now, we have averaged 5.25 dividend yield. I think today, we are closer to 7% with the last payment. So I think in a world where in an environment where you have negative returns in many cases to have a dividend like that, it's positive. So I think that's how we look at it.
Expensive paper has to be redeemed first, dividend second and of course common support to our common shares.
Great. All right. Yes, that sounds like a prudent strategy there. Now looking at your fleet, I've heard some differing reports. So can you just give an update on that LNG newbuilding option?
It looks like you did not exercise that for later next year. And then on the shuttle tanker orders, it looks like you placed 1 firm order. When do you have to decide on the additional 2 shuttle tankers?
Well, as you, I'm sure follow as close as we do, right now because of all the issues I mentioned before, which many of the commercial, economical and technical issues, you have very low demand for new buildings, which means the CPRs are offering quite attractive propositions for people. So I don't think we have lost anything. I mean, it was our choice not to take our options at the time, because we believe the way things have gone that we will get ships that will be technologically more advanced going forward and perhaps at a lesser price. There are no people queuing to take those options. I think we are in the front of the queue, as they say.
Got it. That's fair. And then I guess last question on multiple calls in prior weeks. We've heard some of the crude players. We've heard from some of the product kind of product carrier only players.
Which market are you more bullish on? Obviously, you have both crude tankers and refined product tankers. So do you kind of favor 1 over the other here in the next few months?
First of all, I have to say that we are glad that we are diversified within the energy segment. This has been our strategy and policy going back to the family's foundings many, many, many decades before. So we are client driven. We do not I would say, we do not have an opinion in actually following something stronger. I believe we are light on the VLCCs on the crude.
So this is something that we are looking positive going forward. But both segments move within perhaps a quarter or 6 months lag between themselves. We have seen already a movement, as I mentioned earlier, on the product. So our product carriers are taking advantage of that. And we hope that the crude will follow.
There is less storage than it used to be sometime a year or 6 months ago, which means there is less oil being stored. So more oil will be demanded, less oil being inventoried. Yes.
That makes sense. All right. Well, that's it for me. Looks like the market is liking your responses today. So keep it up.
Happy Thanksgiving.
Thank you. Same to you.
Thank There are currently no further questions, sir. I'll hand back to you for closing remarks.
Well, once again, thank you all. Great call. Unfortunately, not many questions, but then the stock price shows that you're all happy. And we hope that our next call early next year will be even more successful than this one today. So happy Thanksgiving to everyone.
Nico, would like to say closing words?
Well, I hope the next presentation has not I do not have to do it through a mask, which makes it a little blurry, but we wish everybody a very happy Thanksgiving and a very safe conclusion of this very strange year. And as the Chairman said, early next year, hopefully, we will be able to talk about much more exciting and better things and a better and healthier visibility going forward. Thank you for your support. And as I said, I think that we are out of the worst part and moving to better times. Thank you very much.
Stay safe. Happy Thanksgiving. Bye.
Thank you. That does conclude our conference for today. Thank you for participating. You may all disconnect.