Thank you for standing by, ladies and gentlemen, and welcome to the Tsakos Energy Navigation conference call on the first quarter 2020 financial results. We have with us Mr. Takis Arapoglou, Chairman of the Board, Mr. Nikolas Tsakos, President and CEO, Mr. Paul Durham, Chief Financial Officer, and Mr. George Saroglou, Chief Operating Officer of the company. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question and answer session. 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 advise you that this conference is being recorded today, Thursday, 11th of June 2020. Now I'll pass the floor over to Mr. Nicolas Bornozis. Thank you. President of Capital Link Investor Relations, advisors of Tsakos Energy Navigation.
Please go ahead, sir.
Thank you very much. Good morning to all of our participants. I am Nicolas Bornozis of Capital Link, investor relations advisor to Tsakos Energy Navigation. This morning, the company publicly released its financial results for the first quarter of 2020. In case you do not have a copy of today's earnings release, please call us at 212-661-7566 or email us at ten@capitallink.com, T-E-N@capitallink.com. We will have a copy for you emailed 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.gr. The conference call will follow the presentation slides. 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. Please note that the slides of the webcast presentation are user-controlled. This 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 provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties, which may affect TEN's business process. At this moment, I would like to pass the floor to Mr. Takis Arapoglou, the chairman of Tsakos Energy Navigation. Mr. Arapoglou, please go ahead, sir.
Thank you, Nikolas. Good morning and good afternoon to all. I hope that you and yours are all well and staying safe and healthy. Exciting Q1 results, once more delivering consistent justification of the TEN operating model. As we've said many times in the past, a model that provides stability of earnings at all times and flexible enough to capture all market opportunities as they arise. This, coupled with best-in-class cost containment and an impeccable health and safety record, allows us to comfortably meet our obligations, reduce debts, and as you've seen, increase our originally declared dividend by 50%. All this, we believe, is gradually beginning to be reflected in our stock price, which is in any case, expected to benefit from our announced reverse split, as it will make our shares, we hope, more attractive to a much broader professional investor audience.
Once again, congratulations by all to Niko Tsakos and his team. We wish them continuation of the good markets and greater success for the rest of the year. Thank you, and over to you, Nikolas.
Thank you, Chairman. Good morning to all of you. It is really very nice, I think, to be able to be in touch with you again after 10 weeks, where we had our last earnings call. I think a lot has gone on since then. A lot of us have experienced unprecedented periods, and many of us have had a lot of, I would say, pain within the family due to the COVID virus. We had our last meeting, our last discussion on March 24th. At that time, I think, we were in the beginning of a very uphill battle as far as personal issues.
For us, other than the personal issues, very important has been the safety of the 2,000 seafarers on board the ships all over the world, that has, I have to admit, has made all of us grayer and wiser these last 10 weeks. We are happy to announce not only that we were able to operate in this unprecedented time with 97% efficiency, but also not to have, and I knock on wood because it can happen at any minute, a single case of the virus in any of our vessels. I think with that in mind, not only we had a very profitable quarter, but more importantly, a healthy and safe quarter for all.
I think going forward, we believe that TEN has been able to navigate, since the 28 years that we've been on the public markets, four very significant extraordinary crises, not crises coming out of shipping, really. We started with the Far East crisis that the older crowd around will remember between 1996 and 1997, and that was, I would say, the helter-skelter of our development and our big new building program. The company came much stronger than that. In 2001, for two years, we had the 9/11 crisis that really stopped a lot of world trade and put all of us in shock. Again, the company was able to come out of that even stronger with a significant growth.
Then, in 2009, the credit crisis, which really with the oversupply of tonnage, it was just starting to come out at the end of 2019 when we started enjoying finally a balanced market, then we were hit with COVID. Again, I believe that we have placed the company in a model that can navigate successfully and profitably this crisis, as we are proving, and we are looking at this where health is the most important part of it. It's not a financial crisis. I think it's the human factor is the most important as a new starting point in 2020 for the company to go forward. We believe that the fundamentals of our industry are very strong. We believe that this crisis could, when it turns around, we could have a V-shape recovery.
The order book for those of you around, you should remember in 2009 was about 40% of the world's fleet was on order in 2009. Less than 11% of the world's fleet is on order today. 50% of the new building capacity of 2009 has completely been eroded and has been closed down. The world is growing. In 2009, we had immediate 5% reduction of seaborne trade. The immediate seaborne trade reduction in the last couple of months was at 2%. I think we are rebounding from that. This gives us a very good chance that we are going to be seeing strong fundamentals for 2020 and forward.
What we did during this period, we took advantage of the crazy rates of March and April in the middle of long isolations and walks all over the parks, to charter our fleets instead of a one voyage for $200,000 for two years at $60,000 and $70,000, talking about VLCCs and other types of vessels. With that in mind, we have placed the company to be able to navigate again, the following quarters and years going forward efficiently. We are looking at very attractive possibilities coming from major clients, who I think we might be announcing very accretive transactions that will have a strong effect to our bottom line coming forward. We are in the final process of negotiating this.
With this overview in mind, I will ask George Saroglou to remind us what we've gone through in the last 90 and more days. Then we will be back. George?
Thank you very much, Nikolas, and good morning to you all. 2020 has so far been a year for the history books. What started in China as a local health problem ended up gradually spreading around the world, creating a global pandemic of unprecedented proportions, which almost put the whole world to a complete standstill as a result of government-mandated lockdowns, social distancing measures to contain the spread of the virus. In this global health crisis, our first priority was the health, safety, and well-being of our families, our office personnel, and the crew on board our vessels. Of equal importance was to make sure that there was no business disruption, failure, or downtime as a result of working remotely, the lockdown, and the difficulties global containment measures imposed on shipping. Both onshore and offshore personnel adapted quickly and successfully to the new reality. A big thank you to everybody.
While life, the economy, and the world is opening again, let's be on guard until COVID-19 poses no longer any threat to anybody. We are pleased to report today a very strong and profitable first quarter, one of the best quarters for TEN as a result of favorable market conditions, low oil price environment, super-contango with record land and floating storage at sea, and limited new supply of tonnage despite the unprecedented demand destruction from the global lockdown. There is a spillover effect of the strong rates into the second quarter. We are not currently at the headline record-breaking rate levels, which are not sustainable, but the freight environment and the medium to long-term outlook continues to be very positive. Let's go to the slides of our presentation.
In slide three, we see that since TEN's inception in 1993, as our CEO mentioned, we have faced four major crises. Each time, the company, thanks to its operating model, which is built to be crisis resistant, has come out growing stronger and bigger in size. From four modern vessels in 1993 to a pro forma fleet of 69 vessels today, for an average 15% annual growth in term of deadweight in the four decades we operate. In slide four, we see the pro forma fleet and its current employment profile. We have a combination of fixed time charters and flexible employment contracts, time charter with profit sharing, COAs, and spot charters that capture the market's upside.
All blue colored vessels, 30 in the slide, are on fixed rate time charters, while the red and dark red colored vessels, 39, or 60% of the fleet currently in the water, has exposure in the market's upside. We have 11 vessels opening for charter renewals during the year, with one vessel opening before the end of this quarter, nine vessels in the third quarter, and one in the fourth quarter. Slide five. The left side presents the all-in break-even cost for the various vessel types we operate in TEN. As you can see, the cost base is low.
In addition to the low shipbuilding cost, which must highlight the purchasing power of Tsakos Columbia Shipmanagement, the continuous cost control efforts by management to maintain a low OPEX average for the fleet, and the low general and administrative expenses while keeping a very high fleet utilization rate quarter after quarter, with 97% being the utilization number for the first quarter of 2020. On the right side of the slide, you see that the fixed vessels cover basically all the costs and the spot trading vessels, thanks to our financial and commercial strategy, are there to pay for the dividends. In addition, for every $1,000 increase in the spot rates, we have a positive impact of $0.08 in the annual earnings per share, based on the number of 10 vessels that currently have exposure to spot markets.
Debt reduction, as we can see in the next slide, is an integral part of the company strategy. Since the end of 2017, we have reduced debt by $282 million. We have repaid in full the $50 million preferred Series B shares in 2019, and intend to initiate at par the repayment of the $50 million Series C preferred shares during the third quarter. Net debt to capital ratio at the end of March 2020 is 46.5%. We are not just taking advantage of the strong market to pay down debt, but we continue to reward our shareholders with healthy dividends. We announce today a special dividend of $0.025 per share in addition to the fixed $0.05 per share we pay semi-annually. This $0.075 per share dividend will be paid on June 26th.
Since the company's listing in the New York Stock Exchange in 2002, we have paid back in the form of dividends $10.93, versus an IPO price of $7.50, which represents an average yield of 5.25%. On the market, black April appears to be the month where oil prices and global oil demand bottom. China is the first country where lockdown restrictions eased, and now demand appears to be coming back at the pre-COVID-19 levels. As the world gradually returns from lockdown restrictions, oil demand gradually recovers. The International Energy Agency and other market experts believe that the oil market is going to rebalance sooner than initially forecasted, thanks to the unprecedented mandated and market-related production cuts by OPEC and non-OPEC producers, and the stimulus packages by governments and central banks to restart the economies and restore consumer confidence.
The year-end demand level at about 92 million barrels per day will take us back to the 2013 oil demand levels. To pivot back to the 100 million barrels per day, the pre-COVID-19 levels, it would take us back in 2021, provided that we will not face a second global lockdown of a similar proportion. The International Monetary Fund also expects a strong recovery for global GDP in 2021, which always is positive for energy demand. Let's not forget that the oil price, as long as it lasts, besides being good for the global economy, is a blessing as it stimulates stockpiling and reduces the bunker fuel bill for shipping companies. On the supply of tonnage in slide nine, the order book currently stands at 8.3%, or 381 tankers over the next three years, which is low compared to historical levels.
We should also notice that a big part of the fleet is over 15 years. Environmental regulations could push more tankers approaching or above 20 years to go for scrapping. This figure of vessels over 20 years is currently 7% of the fleet, which more or less balances the order book of 8.3% as it stands right now. On the last slide 10, 2018 was one of the highest scrapping years of records. Last year, scrapping was lower as expected. The strong freight market and the pandemic has put scrapping to a standstill.
With more than 1,200 tankers older than 15 years, we could see a pickup in scrapping with more environmental regulations on the horizon, especially for those vessels approaching or currently above 20 years. With that, we conclude the operating part of the discussion, we move on to Paul and the financial discussion. Paul?
Thank you, George. Well, we've had a strong quarter one, ending with significant cash reserves, mainly due to voyage revenues of $180 million, helped by full employment and with only one dry docking. This was 22% higher than in the prior quarter one, and led to a doubling of operating income to $55 million, and of net income to $21 million, after non-cash bunker hedge losses, and including a $1.6 million gain on the sale of the Suezmax Silia T. Broken down, we had 46 tankers on pure time charter earning revenue of $80 million. Of these, 16 vessels had profit share arrangements that provided a further $20 million. The two LNG carriers, enjoying increased rates, together earned $10 million. Also, 17 vessels, Aframaxes, LR2s, Handysize, operated in the spot market, earning $70 million. EBITDA amounted to $90 million, a 40% increase over the prior quarter one.
In addition, free cash from vessel sales totaled $27 million. Operating expenses increased 4%, mainly due to loading of extra provisions and supplies in light of the spreading pandemic. Daily average OPEX per vessel remained at $7,900 a day. The sale and leaseback of two Suezmaxes resulted in increased charter in costs by $2.5 million. Much of this is offset by interest saved by repayment of the related loans. G&A costs increased $1 million, partly due to one-off professional fees. Otherwise, daily average G&A costs remained low, with no increase in management fees for many years. Falling oil prices led finance costs to rise to $33.6 million, of which non-cash negative bunker hedge valuations totaled $16 million. These are already reversing as oil markets rebalance. Actual loan interest fell by nearly $5 million due to reduced debt and lower interest rates.
Vessel sales led to prepayments of $37.5 million related debt. We also paid $50 million scheduled repayments in quarter one, reducing outstanding debt to $1.49 billion. For our two Suezmaxes being built, we will pay about $90 million for delivery by year-end, mostly from arranged loans. For the LNG carrier, $36 million by year-end, and $135 million next year. Indications are that quarter two will be a strong quarter. As such, we have secured a number of our vessels on charters at attractive rates, as Nikolas had mentioned, that has put us in a stronger position that even in a weakening market, we will generate a healthy cash flow to meet all our obligations. We actually believe that the market will remain strong due to positive underlying fundamentals, plus a possible demand rebound as lockdown features fade. Now I'll hand the call back to Nikolas.
Thank you, Paul, and keep on bringing us good news.
Will do.
Thank you. I think with this, we would like to open the floor for any questions that you may have. Thank you very much.
Thank you. Your first question comes from the line of Ben Nolan with Stifel.
Yeah. Hi, good morning, guys. I have a couple things. First of all, Nikolas, we're fully appreciating that the deal's not done, but you did allude to some things that you're working on. Could you maybe just characterize the kind of things that you're currently pursuing? Are we talking about new builds with long-term contracts, as we've seen you done before? Maybe the segment, just a little bit more color as to sort of where your head's at with respect to opportunities.
Yes. You're going to spoil the surprise. Mr. Saroglou was already drafting a surprise press release for next month. Yes. Similar to our strategy of long employments in specialized types of business, we are in close negotiations for up to three units that will have, of course, significant accretive double-digit locked-in returns. Well, as you said rightly, it is in our strategy to build always after your client's request and not build speculatively in our business.
Okay. That leads to another question then. I believe that the LNG carrier that's on order does not have a contract. Just curious what you're thinking about that, appreciating that there's a little time before now and then, but obviously that's a very expensive ship, and getting employment on it, I'm sure is top of mind as it respects to your strategy.
I think this is a very good point, Ben, and you know the company. We as a company have the luxury because if you look on slide four of our presentation, out of our 69 vessels, we have a very diversified fleet. We are looking at any business that makes sense in oil and gas transportation. Although we have been one of the first movers in gas, we ordered our first vessel, the very good Neo Energy back in 2004. I think so far we have not regretted it. We have not been convinced that this market really, because of all the infrastructure demands behind it, will skyrocket as our good brokers were trying to convince us when they were bringing lots of new building contracts for us to sign. On the other hand, we believe that gas is an important, integral part of our business.
Being a diversified company, we want to follow the developments. Having one vessel with another option for the fourth quarter is something that even if that market does not go as expectations, we will not feel it in our 69-vessel fleet. In the sense, we are continuing to follow developments. We have one vessel, very good performer of steam turbine. We followed with a tri-fuel technology. She's one of our best earners today, the Maria Energy. She's earning, I think, something like $75,000 a day for the next couple of years. I think that's very accretive to our bottom line. We have the new vessel, still unnamed, but which is for delivery in January 2022. I think there is a lot of time until then to play the market, see the market there.
There are people out there that are offering us business for the ship. It's nothing that will hurt one way or the other the company. It is our obligation and the board put it the way, to follow the developments in that market.
Okay. That's helpful. Lastly from me, and I'll turn it over. From a capital allocation strategy, you guys are doing a lot of things. There's a little bit of a dividend increase. You're buying back preferred. Sounds like you're in the market to go spend for growth. Can you maybe just rank order what you're thinking about? Especially given you're optimistic for the future, but I think anybody would say it's still a little bit of an unknown. How are you balancing safety versus growth opportunities and where are the best places for your dollars?
Gerber?
I think, in the pecking order, repaying the expensive pref's come first. We can, as Nikolas said, investing in ships is a question of markets and demand and prices, so you cannot rank that. This is always a priority. In terms, we have enough pref's to repay before we find something else to do. Let's put it this way.
Okay. All right. Very helpful. Appreciate it. Thank you.
Thank you.
Your next question comes from Randy Giveans with Jefferies. Randy, your line is open.
Howdy, gentlemen. How's it going?
Hi, Randy. Very well. Thank you.
So-
For the loan that is here.
I know. Hopefully in October. Question around the profit sharing. What was the amount there for the first quarter, and was that a record? Just to see some guidance for the second quarter. I know rates were pretty strong, especially in the product tankers in April, and have fallen drastically since then. If you can maybe give a little more commentary on the market as of today and where this stands.
I think the.
Yeah.
The market was very strong in the first quarter. We had at least a $20 million additional revenue from the profit sharing. This is 10%, this is significant. Of course, the market has been very strong also until now. It is expected to have this continuation of the profit sharing adding to the bottom line as long as the market stays at these levels. I think.
Yep. Then I was saying in terms of the second quarter, are you expecting something similar to that $20 million or a little more, a little less?
I think what we're expecting is perhaps might be similar, we might see a bit higher revenues from the fixed vessels because we fixed five ships going forward. I think that could be a similar profit sharing and then, hopefully, a little bit more from the spot vessels, sorry for the fixed vessels.
Got it. Okay. Turning to the dividend. I guess two questions around that. What was the thinking of raising it by the $0.025, instead of keeping it flat or instead of doubling it or whatever. How did you get to that $0.705 for the quarter? Secondly, looking at the chart on slide seven, it seems like in 2017, there were four quarterly payments of $0.05 a share for $17 million. 2018, there were three payments of $0.05 a share for $13 million. 2019, there were two payments of $0.05 a share for $9 million. Is the dividend now semi-annually, or how should we think about that?
Oh, yes. The dividend has gone semi-annual from 2018. That's why you see in 2018 the missing one quarterly payment, and then we have the semi-annual payments going forward.
Got it. Okay.
June and December.
Okay.
As to the calculation of the special dividend, it's not rocket science. We felt that because of a good market, our investors should be rewarded a bit more. This is a one-off. Our base dividend continues to be, in our minds, $0.05 a share, twice a year. Going forward, we'll see how the market develops and act accordingly.
Got it. Last question on the reverse split. Same question around methodology of thinking there for one for five instead of a smaller or larger number as you get in that low double-digit range.
Well, what we try to do is find a figure that would not completely dry up liquidity in the sense of how many shares that would be outstanding because if we have done one to 10, it would be nine million shares outstanding, would be a very small amount. We decided one to five is good. Plus hopefully having the share at $3 it will be higher than we started some time ago.
Got it. Sure. All right. Well, that's it for me. Thanks again. You all stay safe.
Your next question comes from J Mintzmyer with Value Investor's Edge.
Hi. Good afternoon, gentlemen. Thanks for taking the questions.
Thank you.
First question I had is, it sounded like the first LNG carrier has been moved to January 2020. Just confirming or 2022, just confirming that one. Second, I know you have an option for a second LNG carrier. What's the timeline on which you'd have to exercise that option or cancel that?
I think it's within the third quarter, but of course, the yards today, as you might know, I'm sure you know because you follow things very closely, they are starved for orders and they are willing to give more optionality, as we say.
Okay. Looking for the third quarter, maybe the ability to push that back, and then, of course, are you confirming this January 2022?
I think it will be a decision by the end of the year.
Okay. We'll look for more color on that. What was the agreed-upon price for that option, that second one?
It is similar to the price we have for the existing ship, but depending on market conditions, if we decide to take it, we might get a discount.
Okay. We'll have to continue to watch that. In terms of the remaining new builds, you have three more left, the two tankers and the LNG carrier. Can you remind us of the remaining CapEx and the timeline for those payments?
Paul, what are the remaining CapEx?
Right. As far as the two Aframaxes are concerned, beg your pardon, Suezmaxes that were going to be delivered towards the end of the year. We are looking at another $90 million or so that we have to pay. For the LNG carrier, we have about $36 million remaining this year, but another $135 million next year up until actual delivery.
Thank you for that. I'm tracking $90 million for the tankers, and then about $170 million for the LNG carriers. On your repurchase authorization, you started a $50 million program last quarter. It looks like in the press release, I didn't see any indications that you'd used that. Is that correct? No repurchases yet. Secondly, I think there was a little bit of discussion earlier on this, but can you confirm your priority on that? Is that mainly for preferred, or are you also considering repurchasing common at this time?
It's mainly for preferred, we have a $50 million pref that we intend to buy back as part in the third quarter. Of course, for common shares as well. The first priority is on pref.
Is that $50 million of authorization, is that in excess of the $50 million that you have reserved for the Series C?
It's in combination.
A final question for you. I know you mentioned at the start of the call that you're looking into refinancing transactions, but prior to those, so just currently as it stands, can you remind us of the amortization curve for 2020 and then the repayments for 2021 and 2022 as well?
Well, for scheduled repayments for the whole year 2020 are about $130 million. In 2021, we're looking at about $160 million, in 2022, $150 million, and 2023, about $130 million. There will, of course, be balloons, but we usually assume that the balloons will be refinanced.
Definitely makes sense. Thanks for your time today. Thanks for taking the questions.
Thank you.
Thank you.
Again, to ask a question, please press star one.
I don't think we have any more questions. Next.
Thank you. I now turn the call back over to Mr. Tsakos.
Thank you. Thank you very much. Again, as we said, we would like to thank all of you. The last 10 weeks since we last spoke have been really life changing for many of us. For sure, our main target has been to make sure that the safety of our seafarers around the world has been the most important case. So far, we have been efficient and supportive of this, and we could not have achieved that without the help of the whole organization in the dark hours of the lockdown, which we still experience in a much smaller fragment. It's been a very interesting 10 weeks since we spoke on March 24th.
The news that we are reporting today are very positive news. The most positive part of our news has been the safeguarding and the health and the safety of our seafarers all over the world around our vessels. As far as the prospects for the market, TEN is a company that has gone through four crises in the past, four crises that are extraordinary to shipping, are not shipping crises. We had quite a few of those in between. We started with a Far East crisis, where the company came out stronger. We had 9/11 with two or three years of almost significant reduction of global trade because of the event. Again, the company took the opportunity to come up out of it stronger. In 2009, the financial crisis, which really, until 2019, we were still absorbing the overbuild of that period.
As soon as we started enjoying a good market in 2019, the COVID crisis. Again, with the help of everybody, the company, we believe, is coming out stronger from that period. The fundamentals in front, ahead of us are positive. We believe that we could see a V-shaped recovery. There are signs that China, which was the first country in the lockdown, could be the first one that would drive this recovery. The OPEC reduction has some silver linings for some trades, create more ton miles in many cases. We already are seeing that India is doubling its imports since March, and it has to take imports from not the directly close OPEC countries, but for longer ton mile routes.
We're seeing China having a reduction as it opens up of about 7 million-9 million barrels a day and is looking for trades for exporting countries that provide more ton miles. We just show a lot of Chinese fixtures from the north part of Russia, from the European part of Russia. Four VLCCs were fixed from Skaw all the way to China, a lot of ton miles in that. The new buildings, as Mr. Saroglou said, they're down to 8% or 9% of the world fleet. It was 40% of the world fleet in the last crisis in 2009. This gives companies like ourselves good future fundamentals. There might be some uphill battles, but we took the opportunity to secure six of our vessels long-term during the strong market of the first quarter and the remaining quarter.
We hope when we talk to you next in September to have much better news and find everybody safe and well again. Mr. Chairman.
Well, thank you all for joining us. Let's wish Nikolas and his team a successful quarter, the second quarter, and let's hope that the market continues to be buoyant as it is, as it has been. I'm sure we'll be able to announce to you equally good results next time. Thank you all. Stay safe.
Thank you for your participation. This concludes today's conference call, and you may now disconnect.