Thank you for standing by, ladies and gentlemen, and welcome to the Tsakos Energy Navigation Conference Call on the Fourth Quarter 2019 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 listen-only mode. There'll be a presentation followed by a question and answer session. At which time, if you wish to ask a question, please press star and one on your telephone keypad and wait for your name to be announced. I must advise you this conference is being recorded today. Now I pass the floor to Mr. Nicolas Bornozis, 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 Bornozis of Capital Link, Investor Relations Advisor to Tsakos Energy Navigation. This morning, the company publicly released its financial results for the fourth quarter and the year ended 2019. In case you do not have a copy of today's earnings release, please call us at two one two six six one seven five six six, or email us at ten@capitallink.com and 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.ten.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 in archives on the website of the company after the conference call. Also, please note that the slides of the webcast presentation are user-controlled. 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 TEN's business prospects and results of operations. At this moment, I would like to pass the floor to Mr. Arapoglou, the Chairman of Tsakos Energy Navigation. Please go ahead, sir.
Thank you, Nicolas. Good morning, everyone. 2019 was another year where TEN proved both its defensive qualities in difficult times and its ability to respond fast when markets improve. Today, we announce a profitable last quarter of last year and a profitable overall year as a whole, which allows us, of course, to take a very sizable impairment charge, allows us to maintain our dividends, announce a buyback, and while at the same time we are renewing our fleet, expanding our relationships with blue-chip customers. All stuff that we've been doing all along, TEN has established a very sound base in its business throughout the years. Congratulations are in order for Niko Tsakos and the team, let's hope that our markets continue to be as strong as they are today for the rest of the year. That's all for me. Over to you, Niko Tsakos. Thank you.
Thank you, Mr. Chairman. First of all, I hope and we want to wish all of our locked-up friends that this ordeal will pass very fast with the least disruption to family happiness and health. I think business comes second, but of course, for us here in Greece and with 3,000 seafarers on board, we consider all of them family. Their well-being is very important as also the well-being of our vessels. It has been, as we spoke before 2019, which was really a roller coaster year with lots of ups and downs, with a very strong start, a very, I would say, depressed rate environment in the second and third quarter, a sudden boom on the fourth. It looks like a very normal year on what has happened since then. However, the company's fleet and utilization is working and taking advantage of circumstances.
The dramatic drop in the price of oil actually enhances our business. There is a lot of oil that has been moved around right now. There's a lot of inventory oil. There is a huge opportunity for the product carriers that are finally, they can actually move low sulfur economically around the world. All our ships are very much in demand. Unlike, unfortunately, or unlike other part of the transportation industries, the seaborne transportation right now, mainly the energy segment, and specifically crude and products is really booming. We expect, looking forward that we have the oil companies that know what they're doing there, the clients looking for ships for one or two years, pushing us very hard, paying very healthy accretive rates for these businesses. No one is building any supply right now. All the shipyards in the world are closed.
The last thing someone has in mind is to add supply. We are looking when we get out, and as I said, our priority is to get everybody out safe from this ordeal. As soon as we get out of that, I think we will continue to see a healthy return. It is really mind-boggling to look at the performance of our shares together with every other share. I think in our case, it really makes no sense, and that's why we have initiated a significant buyback program, and we maintain our dividend to give the signal to all that business as usual is there. Of course, the as usual has to do with business, but of course, health is more important. In this environment, as I said, things look very positive for the first quarter.
It looks that the good market will go well also in the second quarter and for the full- year. With that, I will ask George Saroglou our very own COO to sanitize his hands and give us a little bit of what's happening. George?
I just did. Thank you very much, Nikolas. Let me start also by wishing good health to everybody joining us for this call, to our seafarers and our onshore personnel, and of course, extend this to every human being out there fighting to stay well and healthy during these difficult times. We are pleased to report a profitable year as a result of a better freight market environment that started improving since the fourth quarter of 2018. Freight rates in 2019 started strong during the first quarter. We then had a softer middle and a very strong finish in the fourth quarter with freight rates hitting multiyear highs. This year, 2020, started with a strong tailwind in January before the news of the virus outbreak, initially coming out of China and then from the rest of the world, changed the positive sentiment the market had for the year.
The various containment measures that governments took to stop the virus from spreading globally affected significantly global economic activity and as a result, global oil demand. The collapse in the talks between OPEC and Russia on additional production cuts to counter the expected fall in Chinese and global oil demand and the ensuing price war between Saudi Arabia and Russia sent oil prices crashing to levels that we have not seen since 2003. With oil prices hitting multiyear lows and the oil complex into contango, stockpiling at low-level prices and oil storage in tankers helped freight rates hit again the multiyear high levels of last year. The strong market that started initially with VLCCs had a spillover effect on Suezmaxes, Aframaxes and the rest of the tanker size and types.
If we move on the first slide of our presentation, slide three, in this strong freight market, TEN is well positioned to take advantage of the market's current strength. We have 37 vessels trading in the spot market under COAs and profit-sharing arrangements. We have 16 more tankers that opened during the year. If we combine the two, up to 80% of the operating fleet could have their freight income related to the spot market. In this slide, represented in yellow, the vessels currently trading in the spot market, and in red, the vessels that opened for charter during the course of the year. Next slide four, shows how many of the 16 vessels opened during each quarter, with the majority, as you see, eight and five opening in the second and first quarter of the year.
Slide five presents the all-in breakeven cost for the various vessel types that we operate in TEN. As you can see, we have a very low cost base. In addition to the low shipbuilding cost, we must highlight the purchasing power of [Columbia] Ship management, our technical managers, the continuous cost control efforts by management in order to maintain a low OpEx average for the fleet, low general and administrative expenses, while at the same time we keep a very high fleet utilization rate quarter- after- quarter and year- after- year, again, in excess of 96% for the year. Thanks to the profit-sharing elements that a big portion of the fleet enjoys, TEN benefits further when market conditions improve like the period we have now.
Based on current market conditions and the number of vessels operating in the spot market, for every $1,000 increase in the spot market rates, we have a positive $0.06 impact in annual EPS. Debt reduction is an integral part of the company strategy, and in slide six, you see that since the end of December 2017, we have reduced debt by $218 million. In the last 12 months, the company paid back $62 million, taking down the net debt to capital ratio at the end of 2019 to below 50%. In addition, at the end of July, they fully redeemed the highly successful $50 million Series B preferred shares. Looking at the demand, as soon as the virus related lockdowns for cities, states, and countries globally ends, oil demand is expected to rebound, hopefully quickly enough to pre-virus levels.
Additional major support measures from governments and central banks remain highly likely to ensure consumer and small to medium-sized businesses survive while the containment measures last and economic activity is curtailed. China is slowly coming back as the latest news out of China suggests that the virus outbreak is slowing, if not almost over. Oil demand in China this month will rebound from the February lows. March 2020, year-over-year, will be approximately 19% down or 2.5 million barrels per day, citing a report from China National Petroleum Corporation. The low oil price environment, as long as it lasts, is stimulating stockpiling, storage at sea, and reduces the procurement cost of bunker fuel for shipping companies. If you look the way to be looked it's basically a blessing. On the supplied of tonnage, the order book at 7.5% is low compared to historical levels.
A big part of the fleet is over 15 years. Environmental regulations could push more tankers approaching for above 20 years to go for scrapping. 2018 was one of the highest scrapping years of records. Last year, scrapping was lower as expected. With more than 1,100 tankers older than 15 years, we could see a pickup in scrapping with more environmental regulations on the horizon, especially as we said for the vessels that approach or are over 20 years. The market prospects, generally speaking, are good. We expect the trend to continue as soon as the virus is behind us. With that, we conclude the operational part of our presentation. Paul will walk you through the financial highlights for the fourth quarter and the full -year. Paul?
Yeah, thank you, George. Well, at the end of what I thought was a difficult year, but as Nikolas says, it wasn't so difficult after all compared to where we are, kind of like a normal year. TEN achieved a quarter four net income close to $41 million before impairment charges of $28 million. That would compare to a $3 million net income before impairments in the prior quarter four, quite a change. The 2019 net income before impairment charges was almost $43 million. A $76 million turnaround from the previous year. Quarter four revenue totaled $175 million, a $22 million increase, much due to profit share as the tanker market was blessed with a long overdue recovery, allowing our fleet to achieve a 98% utilization. In 2019, revenue amounted to $597 million, a $68 million increase, a third of which came from profit share.
Also, accretive charter renewals were secured, including a significant increase in our LNG carrier rates. Quarter four daily TCE per vessel approached $26,000, a 20% increase. Quarter four costs per category remained at similar levels to the prior quarter four, except for voyage expenses, which fell 17%, due mainly to lower bunker costs. Total quarter four operating costs remained at about $46 million, with the same average number of vessels. While daily average OpEx per vessel remained at about $7,800, helped by a stronger dollar. Also, G&A expenses were at exactly the same number as in the previous quarter four. Quarter four finance costs were halved to $13.7 million, mainly due to improved bunker hedge gains. We aim to sell eight vessels in 2020, one of which, Silia T, was sold this February, releasing $5 million cash after paying down $11 million debt.
Two Suezmaxes were sold this January as part of a sale and leaseback deal, resulting in reduction of debt by $27 million and release of $22 million cash. As a result of these proposed disposals, the impairment charges were incurred. We took delivery of a new Aframax in January, with $26 million paid from debt and $5 million in cash. We shall take delivery of a Suezmax with charter in quarter three and another in quarter four, with payments of $110 million financed mostly with arranged bank finance. Payments of $46 million will also be made this year relating to our LNG carrier under construction and $135 million next year.
Despite new debt relating to the delivery of new vessels and refinancing of older debt in 2019 at better terms, which actually released $29 million in cash, debt was reduced by $62 million in the year, bringing total debt down to $1.54 billion and net debt to capital to 48%. Quarter four EBITDA was $90 million, a 36% increase. For the year, EBITDA was $257 million, a $66 million increase over 2018, allowing TEN to maintain a healthy cash position at the year-end. We enjoyed a spectacular recovery in the tanker market in quarter four, which lasted well into quarter one, apart from a brief dip in February.
With many vessels still operating on a healthy time charters and with good profit share, and with our spot vessels again attracting lucrative rates, we expect a strong cash flow plus freed-up cash from vessel sales to cover all obligations in quarter one, including loan repayments and prepayments totaling $100. I wish. $100 million. This concludes my comments. I'll pass the call back to Nikolas.
Thank you, Paul. I like the way you think. You're reducing the expenses and increasing the earnings. That's very good. Well, thank you very much, Paul. With that, we would like to open the floor for any questions.
Thanks. Ladies and gentlemen, we will now begin the question and answer session. As a reminder, please press star and one on your telephone keypad and wait for your name to be announced. If you wish to cancel, please press star and two. Once again, that's star and one. We will now take our first question from Randy Giveans from Jefferies. Please go ahead.
Howdy, gentlemen. How's it going?
Hi, Randy. Good. Locked up in Athens, but could be worse.
That's for sure. There are worse places to be locked up. All right. Well, a few quick questions from me. I guess looking at your new buildings on order, have we seen many delays for those? I know the delivery now is for 3Q and 4Q of this year. Have there been kind of force majeure declarations at the shipyards that are likely going to push those, or do you still expect to receive those on time later this year?
I believe that we will be, and I think Mr. Papageorgiou is in our meeting here. We believe that the first vessel is going to be delivered on schedule in the first week of September, and then the second one in the last week of October. So far on schedule from what we understand. Vassilis, are you there?
What was that last part? Sorry.
His line was cut off. Yeah.
Okay. Very good. Go ahead. Yeah, so on schedule so far.
Got it. Okay. Quickly looking at the refined products. I know you said obviously the cruise market has been robust. Floating storage, you have all these stems coming out of Saudi Arabia. Have you seen a lot of activity on the refined product side? Any for storage or on the floating storage for refined products? Is that purely just gasoline, diesel, jet fuel arb opportunities on the products tankers?
Well, I think what we're seeing right now is a lot of products movement, which we would not expect from our LR1s and sometimes LR2s. The Med-Japan clean market, the products market, is at all-time record high because prices in Europe are so low, understandably. People are replenishing the old fives. You remember there was a lot of talk that was getting very expensive to meet the 0.5 regulation. That's what I mean. Now at these prices, which are lower than heavy fuel used to be last year, much lower, people are moving. We have a lot of demand between the Med and Japan for clean. I think another thing that we are experiencing is that although the complete stoppage of movement in China has created a lot of available products from the local refineries.
We have seen an increase of more than 30% also on exports of products from China to the region. In general, there is a lot of movement. When movement is there, that's what we are there. We are the truck drivers of the sea, so we need to pick it up.
Got it. Okay. That's fair. Two quick modeling questions. Obviously, your interest expense fell dramatically. I think you said that was mainly due to bunker hedging or trades. What is your expected interest expense in the first quarter and the second quarter?
I think, Paul, please take that one. You are the one who reduces that.
Yes. I think we're looking at around $13 million a quarter.
That's in the wrong number now.
Quarter one, we're looking at. Yes, about $15 million a quarter.
Do you anticipate a reversal in Q2, just continuing as the bunkers are less profitable, the bunker hedging, or what's the Q2 guidance?
That's very possible. We'll probably get a hit in the middle of the year.
Sure.
We're probably going to go up to, who knows? Potentially $20 million each quarter.
Okay. That's fair. While we're discussing first quarter, for all intents and purposes, the first quarter is also over, right? How are you looking at 1 Q numbers? Is it safe to assume that 1 Q could be even better or should be better than the fourth quarter? Can you give some kind of guidance now that the first quarter's done?
I think that we will see, of course, a very profitable quarter. We might have some non-cash items, as Paul said. I think we have made a hedging of about 30% of our needs for 0.5, basically, going forward. I think we have 30% over the next four years. Is that right, George Saroglou?
Yeah, that's correct.
The $20 million that Paul mentions, it's not a recurring figure. It's a figure that does not compound. It's the same figure that in some quarters, depending on the price of oil, it might be higher or lower. When we say up to $20 million per quarter, it does not mean $80 million a year. It means that one quarter might be $20 million, one quarter might be $16 million. That's understandably a non-cash item. At the same time, with the two-thirds of our bunkering needs are making a killing because we are paying bunkers on the spot market much cheaper. If you exclude those non-cash items, I think we would have a very similar quarter.
Believe it or not, I think even the second quarter will also be very strong because a lot of our vessels, to give you an example, on the fourth quarter, our VLCC, the Ulysses, earned up to February $125,000 a day. N ext voyage, which is finishing in the middle of April, is earning only $40,000 a day. We're negotiating the next voyage back to close to $100,000 a day, which will carry her very much within the second and third quarter. Of course, another factor that we should not forget is that from April Fools' Day, April 1st, the new rate, huge escalation rates are happening on our LNG carriers going up to close to $75,000. In general, I think we will have a similar quarter excluding the unrealized losses on bunker hedges.
Yeah. That's understandable. All right. Last question from me. Obviously, the $50 million repurchase authorization is very encouraging to see here. You mentioned in the press release that there's been panic selling. You mentioned on the prepared remarks that obviously the sell-off has been mind-boggling, quoting you. How quickly can you implement and use that $50 million? Can we do it all tomorrow, right? Secondly, is it going to be geared toward the common units at a 50% discount to NAV, or is it going to be the preferred, which are also trading at $13, $14 for some of the Series E, F, even the D? How do you balance those two?
I think that we will do it mixed. We might give priority to the common. When I say mind-boggling, it's for the whole tanker industry. In our case, it's because we know. The company right now, we are valued almost as much as the cash that we have in the banks.
I agree.
It's very cheap. I think it's a very good investment for us to make. Also, we have our coupons. We have one coupon. We have one of our obligations that is due, and we will be buying it out by October. Our other obligations, the coupons, as you said, which are close to 9% that we are paying, people are having a double on them right now, which is a huge racketeering returns. We will mix it up, starting on the common and then doing something more organized on the preferreds.
Got it. Just the first part of that question, how quickly can you implement that? Can we do $50 million pretty soon, or is it like having to be?
I think you have to follow a part of liquidity, so it has to be done in an organized manner, but we will start it as soon as possible.
Excellent. All right. Well, I'm looking forward to the next results with some huge preferred and common units.
Very good.
All right. Hey, thanks again. You all stay healthy, and God bless out in Greece.
Thank you. All the best. Stay healthy, too.
Thank you. As a reminder, it is star and one if you would like to ask a question. We have no further questions at this time. I would like to hand the floor back to Mr. Tsakos.
Thank you. Well, again, it's encouraging to have you listening to us, listening to our story. We are in uncharted territory, but we are experts in navigating things. I think we will find the right choice going forward. As we speak right now, we expect the way we run the business so that we have a model. We have our clients. Our clients are the biggest oil companies out there, and we expect a good next one or two quarters. More importantly, for us, it's to have all of you and your families, the national families and our seafarers healthy. Thank you very much for that. Please, we'll ask our Chairman, Mr. Arapoglou, to close the call. Hello?
Hello. Thank you, Nico. Just to close by saying, look after yourselves, stay healthy, and let's hope that the markets continue the way they are today. All the best. Thank you.
Thank you.
Thank you. That does conclude our conference.
Thank you. Well done, guys. Thank you.