Thank you for standing by, ladies and gentlemen, and welcome to Tsakos Energy Navigation conference call on the second 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 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 1 on your telephone keypad and wait for your name to be announced. I must advise you that this conference is being recorded today. Now I pass the floor to Mr. Nicolas Bornozis, President of Capital Link, Investor Relation 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 second quarter and six-month period of 2019. 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 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.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 in archives on the website of the company after the conference call. 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 contains 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. Such risks are more fully disclosed in TEN's filings with the Securities and Exchange Commission.
Now, I will turn the floor over to Mr. Takis Arapoglou, the Chairman of the Board of Tsakos Energy Navigation. Mr. Arapoglou, please go ahead, sir.
Thank you, Nicolas. Good morning, everyone. Thank you for joining our call today. I would say a very positive performance. One of perhaps only two positive performances in the sector, if I'm not mistaken, with over 40% increase in EBITDA year-over-year to $120 million. At the same time, TEN reduced debt by $140 million, repaid the $50 million PREF, continued to pay dividends of all kinds, and maintained a very healthy cash position while continuously improving operational excellence. TEN continues to invest in growing the fleet in a measured way as per our stated strategy, both in the conventional tanker sector as well as in LNG. The latter being in the core of our strategy going forward, as we've said many times.
On behalf of the board of TEN, once again, congratulations to Nikolas Tsakos and the team, not only for the results, but also for positioning the company so well for an upturn in the market as expected. Thanks again, Niko, and over to you.
Thank you, Chairman. We are glad that we are able to maintain our profitability in a challenging environment. We're very glad that our, as you kindly said, TEN is consistently one of the very few companies in our peer group that maintains profitability regardless of the cycles. We are looking at an environment that is promising, and we are preparing the company with that in mind. However, we continue to maintain our policy of chartering our vessels and building vessels against long-term accretive employments that ensure a very strong utilization. We are at 97% utilization in a challenging market for the first six months, and this has not changed even last year when the market was even poorer than it is today. The future looks promising. A lot of disruptions will be happening in the next couple of quarters and seasonality will help.
Already the futures market also indicates that we're going to be seeing a much healthier 2020 and the remaining of 2019. As we speak today, we have 32 of our vessels on fixed employments, 20 of our vessels in fixed and profit-sharing arrangements, including Contract of Affreightment, and 16 vessels in the spot market. I think this mix has enabled us for the first six months.
To outperform the market by about 10% on the six-monthly basis, but even stronger in the last quarter where the market was weaker, about 38%. This gives us confidence that when the market will be growing and going further, the company will be able to profit and increase the bottom line even further, which hopefully at some stage will have to be reflected on our share price. What we are doing right now, we are in the final concluding a very large, one of the largest new building programs with first-class long-term employment on every single vessel that any tanker company had. We have already taken delivery of 16 vessels.
We have reduced debt by more than a quarter of a billion dollars in the last 18 months, which means that the company throws a lot of cash flow to maintain, repaying a dividend, and also reducing our debt and allows us income and allows us liquidity for growth. In the last month, we have, as we stated before, increased exposure on the LNG sector and again, talking about state-of-the-art vessels with long-term employments. So we are positioning the company in a situation ready to take advantage of the market that we expect to be much stronger in the second half of the year and 2020. I think with this, I will ask Mr. Saroglou to give us a much more detailed analysis of where we've been in the last six months.
Thank you very much, Nikos. Good morning to you all. We are very pleased to report a profitable second quarter and first six months of 2019 operations as a result of a better freight market environment that started during the fourth quarter of 2018. As we said, we are one of the very few companies in the peer group, if not the only one, that reported profitable operations in the first six months of the year. The recovery in both the tanker and LNG markets helped the company to re-charter the two LNG vessels in the fleet at much higher accretive rates above the average all-in break even for both vessels. We continue to charter and re-charter 13 vessels so far since the start of the year, taking advantage of the appetite by oil majors and the company's clients to fix vessels forward.
The last three years, the company built 20 vessels, including the one Option 1 LNG order we announced today against long-term industrial business. TEN is in the final stages of this 19-vessel growth program undertaken at competitive levels during the low levels of the previous cycle. Of these, 16 ships have been successfully delivered, financed, and employed on long-term accretive charters to first-class end users. Within this year, in 2020, the remaining four vessels are fully financed and chartered to an oil major concern for a minimum of five years will complete the company's current expansion and secure revenues going forward. On the LNG new building front, we have ordered one Option 1, 174,000 cubic meter vessel for delivery in 2021. With this order, the company's LNG proforma fleet rises to four vessels. We expect for this, including the option.
We expect for this vessel to follow the same employment path as the other two vessels and be employed on time charters with major international natural gas and trading companies. Already discussions have started to be in place, and we hope and expect to announce, as time progresses, similar charters like the ones that we have on our other two LNG vessels. During the first half of the year, we concluded a deal with a major end user for four vessels, and we have expanded a strategic relationship with a national oil concern by selling them two vessels. Moving to the online presentation on slide three, we see the company's versatile and modern fleet spanning across all vessel types and sizes include product tankers and specialized categories like LNG and shuttle tankers.
Thanks to the company's employment strategy that has a bias towards medium to long-term time charters with a combination of fixed rates, profit sharing and min-max rates, TEN is able to outperform the average spot market indices. Slide four. The left side presents the all-in break-even cost for the various vessel types that we operate in the company. As you can see, the cost base is low. In addition to the low ship building cost, we must highlight the purchasing power of TCM and the continuous cost control efforts by management to maintain a low OpEx for the fleet. In the first half of the year, OpEx is down 3%, low general and administrative expenses while keeping a very high fleet utilization quarter after quarter. Again, almost 97% for both the second quarter and the first half of the year, which we believe qualifies as full employment.
TEN's flexible chartering strategy ensures that most of the times, the company outperforms the spot market, and this helps the company maintain an impeccable debt service record and meet all our obligations irrespective of where we are in the market cycle. Thanks to the profit-sharing element that is a big portion of the fleet, TEN benefits further when market conditions improve further, as we expect the market to do going forward. Based on the current conditions and the number of vessels operating in the spot market and in time charters with profit sharing, for every $1,000 increase in spot market rates, We have a positive $0.06 impact on annual EPS. Debt reduction is an integral part of the company's strategy. Debt fixed at around $1.7 billion at the end of 2017.
In the last 18 months, we have reduced the company's debt by $221 million, taking down the net debt to capital ratio at the end of the second quarter of 2019, at below 50%. At the end of July, the company fully redeemed the highly successful $50 million Series B preferred shares. Despite the headwind from the U.S.-China trade war and its potential spillover effects to the rest of the world, global oil demand continues to grow. The latest forecast from the International Energy Agency calls for 1.1 million barrels per day oil demand growth this year and 1.3 next year. The USA is now the biggest crude oil producer, and U.S. crude oil exports continue to grow.
This, combined with geopolitical tensions, supply disruptions, the U.S.-led sanctions against Venezuela and Iran, and OPEC production cuts are positive for ton-miles and global fleet utilization as substitute barrels travel longer distances to reach importers, refiners, and consumers. We had a longer than usual refinery maintenance season in the first half of 2019 as global refineries were preparing for IMO 2020 low sulfur fuel oil switch. Global refinery throughputs are picking up and expected to require another, on average, 1 million barrels per day of more crude oil than they did in the first half of the year. On the supply of ton, the order book is at 7.7%, and this is a low number compared to historical levels.
A big part of the fleet is over 15 years, and environmental regulations, starting with retrofitting water ballast treatment systems and scrubbers to comply with IMO 2020 create delays as scrubber retrofitting takes longer than initially forecasted, while shipyard works at full capacity to meet retrofitting requirements, which could keep longer a big part of the global fleet in shipyards rather than trading, and this could push more tankers approaching for about 20 years to go for scrapping. Last year was one of the highest scrapping years of records. This year, scrapping as expected, is lower. With more than 1,000 tankers older than 15 years and costly environmental regulations, we could see a pickup in scrapping, especially for those vessels approaching for about 20 years. The graph on the right side of the slide is a forecast from Fearnleys, the well-known shipbroker from Norway.
As you can see, VLCC rates are expected to trend higher and reach multiyear highs going forward. We are also very positive about the market prospects and expect a strong market for all vessel categories. In this environment, we believe that the company's fleet is well-positioned to capture any market opportunity that will be presented. That concludes the operational part of our presentation. Paul will walk you through the financial highlights for the second quarter and first half. Paul?
Thank you, George. After a profitable quarter one, TEN continued on a profitable path in quarter two, despite difficulties arising from refinery disruptions, fleet overcapacity, OPEC cuts , and of course, seasonal factors. Nevertheless, TEN was able to generate a net income of $300,000, a considerably better result from that loss of over $9 million in the prior quarter two. For the half year, there was net income of $11.5 million compared to $21.5 million loss in the first six months of 2018, a $33 million positive reversal. The profit was mainly due to an increased revenue by 16% in quarter two and half year over the prior periods, partly due to new accretive time charters, including those of the LNG carriers. Increased long-haul voyages helped our spot vessels to earn freight at an average 30% more than in the prior quarter two.
Daily TC per vessel in quarter two and six months averaged over $20,000, well above average market rates due to our time charters, again generated enough to pay operating overheads and finance cash costs. Operating income increased fivefold from the prior quarter two to reach $19 million, despite some increase in OpEx due to timing and higher maintenance and spares offset by a stronger dollar. Otherwise, average daily OpEx per vessel stayed well under $8,000, while other expenses remained stable or fell from those of the prior quarter two. Finance costs were up by $6.5 million in quarter two, mainly due to bunker hedge losses and negative non-cash movements and valuations. Loan interest remained stable, with interest rate increases being offset by a substantial $142 million reduction in outstanding debt in the past year.
In quarter two itself, net debt was reduced by $52 million, leaving cash balances of $193 million at the end of the half year, with our net debt to capital at 48%. EBITDA in quarter two amounted to $56 million, 33% higher than in the prior quarter two, and $120 million for the six months, a 43% increase. On top of the significant reduction in outstanding loans, we also redeemed the Series B preferred stock in July with $50 million returned to stockholders. All in all, we are pleased with the results for the first six months, given the difficult market. We remain optimistic for the rest of 2019 and beyond based on low inventories, completed refinery maintenance, high U.S. oil exports, and reduced tanker deliveries.
Recognizing that we are approaching a period of probable disruption that may reduce the availability of tankers that in turn will have a positive effect on returns. Now I'll hand the call back to Nikolas.
Thank you, Paul, for another quarter of positive news. We are, as I said, glad being one of the very few in our peer group, if not the only one that is positive this quarter and for the first six months. We were able to achieve this by tight control on the actual assets, maintaining operating expenses and utilization at very high rates. Our chartering strategy gives us the ability to outperform the spot market significantly. The first six months, we had a 36% outperformance of the spot market that has enabled the company to be profitable. Our VLCCs performed significantly better than the spot market in the first six months. The same with our Suezmaxes, Aframax, Panamax. In every single sector that we participate, we have outperformed the market significantly with a total average of 36% in that role.
A very important part of our business has to do with reducing debt. I think as Mr. Saroglou said, George said, reducing debt and repaying our initial [gimmick preferred] was one of the highlights of the first six months, and we are still realizing a very strong liquidity. Also interest rates reduction is very positive for our business. Just to put it in perspective, every 1% reduction in interest rate is almost $15 million straight down to our bottom line. That's a very significant number going forward. On the growth side, our long-term strategic relationships are maintained. Our operational excellence is appreciated by the end users, that they would rather do business with companies with a long-term, solid profile like ourselves.
Four vessels with a strategic relationship to a U.S. major oil company with very long employments starting this quarter and going Well, I guess starting next or fourth quarter and one vessel every quarter following. Of course, then the expansion on the LNG sector continues. A lot of accreted business in the backlog as we speak, which gives us a very positive feeling that the market is expected to go from strength to strength, at least in the medium to near future. With this, I would like to open the floor for any questions that you may have.
Thank you very much, sir. Ladies and gentlemen, as a reminder, if you have questions, please press star one on your telephone keypad and wait for your name to be announced. Again, that's star one for any questions. Thank you. Okay, our first question for today is from J Mintzmyer from Value Investor's Edge.
Hi. Good morning, gentlemen. Congratulations on the LNG order.
Thank you.
Yeah. I'm looking at the timing of your installment payments for, you have 2 Aframax, 2 Suezmaxes, and 1 option 1 LNG. Is that correct? What is the timing of those installments, both for the rest of 2019, 2020, and then 2021?
Well, to date, we've paid for the four vessels. $25 million we've paid already out of our pocket. We expect to pay another $55 million from our pocket in the remainder of the year. I beg your pardon, $5 million in the remainder of the year. Drawdowns we shall have from our banks. They're providing pre-financing, pre-delivery financing. Drawdowns will amount to $45 million at the end of the year. Future drawdowns within the year, we have $26 million. Going into 2020, we have a further $122 million, and that's being provided by the delivery dates.
I think actually from equity, it's another $5 million for the vessels.
In addition to the $25 already paid.
In addition to the 25 already paid. Thank you.
Okay. I'm hearing $5 million additional equity for the rest of the year. What's the amount you anticipate? I know all the finance is probably not wrapped up yet, especially for the LNG carriers. What's the amount of equity that you anticipate spending in 2020 and then 2021 for those vessels?
I think the finances wrap up for all the other vessels. There's a queue of financiers for the LNGs. We expect perhaps another $40 million of equity between 2020 and 2021 for the LNG carriers.
Wrapping up on that, what's the target leverage for those vessels? It sounds to me like it's in the 70%, 80% range. Is that about right?
We try to be conservative. As you know, we have a conservative balance sheet, and we'd rather keep it closer to 70% rather than the 80%.
Excellent. Thank you. The other question I have similar is on your debt facilities. I know you've targeted refinancing the balloons, you plan to pay down your regular amortization payments. Can you remind me what the remaining amortization payments are for the rest of 2019, also for 2020, and scheduled for 2021?
You have the balance sheet.
All right. Our scheduled repayments for the remainder of 2019 are $84 million. Do you want the future years as well? Is that? Okay. For the remainder of this year, we have scheduled $84 million to pay.
Do you have the numbers available for 2020 or 2021 yet?
Yes, John. 2020, we have $166 million. These are scheduled payments, not balloons. Going into 2021, we have $141 million. If we're going into 2022, we've got another $128 million.
Excellent. Thanks for the color on that. Then final question from me. We talked a little bit about scrubbers in the call and how those are adding some delays. I know previous calls you mentioned that there might be some customers that would pay for the scrubbers as part of their charters. Has there been any deals made on that? How many of your fleets are tied up on scrubbers?
Well, as I said, we will have about eight vessels, including the new builds with the scrubbers, all of them paid by the charterers for the time that we will retrofit them and the cost.
Fantastic. No CapEx expected for the scrubbers. Is that correct?
No CapEx at all. The opposite, we will be earning money sitting at the yard while this is happening. Actually, it will be more profitable because we will not have any OpEx also.
Excellent. Thank you very much, gentlemen.
Thank you.
As a reminder, ladies and gentlemen, it's star 1 if you have any questions. The next one is from Randy Giveans from Jefferies. Please go ahead.
Good morning, gentlemen. This is Chris Robertson on for Randy. Thanks for taking our questions.
Hi, Chris.
Hi. Nikolas mentioned operating expense control and the utilization rate that was strong in the quarter. Looks like you were able to achieve close to a 97% utilization rate. Do you expect similar results for the remainder of the year? Will any IMO 2020 preparations cut into that? Any disruptions there regarding the changeover in fuels?
Well, if you go back to, I would say even to the last five or 10 years history, you see we average well above the 95%. 85% is the industry average. 97% we expect to be a very constant number. As I said in the previous answer, the reason we would maintain this is because the time we will be taking for the scrubber installations are going to be paid, so there will be no downtime. It will be paid by the charterers. Yes, we expect to maintain, because of the chartering profile we have, to maintain the same high utilization going forward.
Got you. Can you talk a little bit about the operational plans to make the changeover in fuels?
We have a big team that can say much more things than I do, but they are away from the speaker right now. I think we are preparing, please intervene. We are preparing the ships during the passage in order cleaning the tanks, we do not have any off hire. If we have any scheduled delays, if we have any scheduled repairs, these repairs are going to be used at the same time to clean the tanks for the low sulfur. We do not really expect any major delays in what we will be doing in the preparation. Having 70% of the fleet with long-term employment, it helps very much because we have the cooperation of the charterers because they are actually the owners of the products that we burn.
Got you. With regards to the reduction in the vessel OpEx, was that fairly low-hanging fruit? What additional steps could the technical managers take in coming quarters to maybe drive that down further?
I think for us, first of all, we are running a fleet at utilization of 97%. At the same time, we have on average the lowest, at least from the tanker owners, OpEx and G&A expenses in the industry. We have a vertical operations. Actually whatever happens on a ship, it does not happen in India or somewhere else. It happens within the premises that we all operate where the company is headquartered. That's why we would like to also appreciate the efforts of our seafarers and our ship managers that are cooperating so closely with the commercial department to try and keep operating expenses even lower. I think what will help a little bit more will be a stronger dollar, which we should not exclude.
Got you. Last question from me. Regarding the Aframax tankers, are any of the crude tankers operating in the product tanker trade? What trade do you think will benefit more in the lead up to IMO implementation? Any update on the lightering activity in the U.S. or Latin American markets with your Aframax tankers?
Well, that's a very good question, and I think if we can go to page of our clip, you will see that we have right now, the three of our vessels, which are the Proteas, Prometheus, Propontis , that our Aframax is trading clean right now. I would say it's a market which is getting a lot of positive news because of the different dislocations of high and low sulfur crudes. We have three of those ships trading on the Aframax in the clean trade. It's a very good question, which we believe that initially perhaps the product market might get an early start in the positive environment because of the dislocations of the various refineries. In order for refineries to produce the right product, they would have to find the right crudes. I think the crude market then will follow suit.
I want to give you a very quick example because I'm sure you are all the U.S. refineries, because you are used to actually crack heavier crudes, are better prepared for producing low sulfur than the, let's call them, the Western European refineries. We might see products coming from the United States to Europe, low sulfur products. Also we might see lighter crudes that will have to be used to mix with the heavier crudes that we have, the Russian crudes, which are heavier. The crude market I think will have an advantage of longer term. I think the whole segment will have a dislocation and disruption that will be positive for supply.
Got you. Appreciate the time.
Thank you very much. Gentlemen, there are no further questions waiting. I'll hand the call back to you for closing remarks. Thank you.
Thank you, Chairman.
Well, as Nikos Tsakos said earlier, we remain optimistic going forward. Totally focused on strategy, which has been paying off the way it has been executed. In October, we have a new strategy meeting. We will review as appropriate and, of course, let you know of any changes in the next results call. Thank you very much from me. Over to you, Niko.
Thank you, chairman. I think looking forward to meet face-to-face with our shareholders. We have a big week in London next week with the London International Shipping Week. I think the Capital Link event with a lot of chance to see our European investors or whoever from the United States is in London. In October, we have the LNG conference in Houston, which coincides with, again, the various events, Capital Link event in New York, where the team will be there. In the meantime, we hope to be able to maintain and be able to give you good news in November when we report our nine months results and hopefully come up with even better results going forward. Again, thank you for your support and looking forward to a healthy second half of the year. Thank you.
Thank you very much, ladies and gentlemen. That concludes our conference call today. Thank you all for participating. You may now disconnect your lines.