You for standing by, ladies and gentlemen, and welcome to Tsakos Energy Navigation Conference Call on the First Half and Second Quarter twenty seventeen Financial Results. We have with us Mr. Takis Arapoglou, Chairman of the Board Mr. Nicholas 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. I must advise you that this conference is being recorded today. And now I'll pass the floor to Mr.
Nicholas Bommozis, President of Capital Link, Investor Relations Advisor of Tsakos Energy Navigation. Please go ahead, sir. Mr. Bonoises, please go ahead.
Is he on mute?
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. Penn. Gr. The conference call will follow the presentation slides. So please we urge you to access our presentation and webcast.
Please note that the slides of the webcast will be available as an archive on the company's website 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 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. Ladies and gentlemen, at this point, I would like to turn over the call to Mr. Takis Arapoglou, the Chairman of the Board of Tsakos Energy Navigation. Mr. Arapoglou, please go ahead, sir.
Thank you, Nicolas. Hello and good morning to everyone. TEN continues its steady and profitable path through challenging markets. Our strategy for nearly 2 years now to gradually lock in the majority of our fleet into accretive time charters together with profit sharing arrangements is protecting us against weaker markets and will allow us to benefit from any potential recovery. In addition, with the largest ever fleet expansion program for 10 now virtually complete.
We're in a superior position to capture a much larger size of any recovery. In this environment, we continue to focus on efficiencies, resulting in further reducing operating expenses, increasing fleet utilization and continue to increase our list of blue chip customers. Once again, congratulations to management for navigating Tensor successfully in challenging times, ready to capture opportunities going forward. Thank you. That's it for me and over to you, George.
Thank you very much, Mr. Chairman. The company reported today another profitable quarter and half year results. 10 embarked since last year in the biggest fleet expansion program of its history with 15 newbuilding vessels in total. 8 vessels were delivered last year.
Since the start of 2017, TEN took delivery of 6 vessels with 1 more expected in the last quarter of this year. All 15 ordered vessels had medium to long term employment attached to 1st class charterers ranging from minimum 2 to maximum 12 years.
For those of you
who are connected to the Internet and our website, there is an online slide presentation with format we will follow during the call. Let's turn to Slide number 3 with the key corporate facts and highlights. We have a fleet of 65 vessels pro form a, 64 currently in operation and 25 vessels have ice class capability. The average age of the fleet is 7.6 years versus 10.1 years for the world tanker fleet. We have the company with a balanced fleet employment strategy that takes advantage of market peaks with profit sharing arrangements.
We initiated another strategic relationships with a major end user for the employment of crude tankers. We have placed 22 new long time charters since the start of the year and currently have 48 vessels in a 64 vessel operating fleet or 49 if we take the full pro form a fleet on secured employment with an average time charter tenure of 2.5 years. We have minimum contracted secured revenue of $1,400,000,000 with potential additional revenues from profit sharing arrangements.
We
have built a modern diversified fleet covering clients' transportation requirements in crude products, shuttles and LNG and we have become the carrier of choice of the top oil majors commodity traders and refiners. We have very high efficiency with consistent very high fleet utilization approximately 97% for the first half of twenty seventeen. We have built through the years a strong operating tanker company with a very healthy financial position, excellent banking relationships and we have performed extremely well as far as the debt service is concerned in good and in bad markets. The next slide has the main financial highlights of our press release which Paul will present in more details. I would like to just highlight the profitability, the company's strong financial position and continuous cost control and reduction in daily operating expenses with the help of the company's technical manager.
The next slide is a snapshot of the pro form a fleet of 65 vessels. At the moment we operate 64 in 4 market sectors, crude, products, shuttle tankers and LNG. During the first half of the year, we took delivery of 4 Aframax tankers, 1 VLCC and the company's 3rd Suezmax shuttle tankers. We expect one more Aframax tanker to be delivered in the next quarter, also fully financed and fixed on long term time charter. The last vessel delivery will complete the company's current new building program.
The new additions in the fleet are already making an impact to the company's financial performance. Slide 6 lists the clients of 10 all blue chip names with whom the company is doing repeat business over the year, thanks to the quality of service, fleet modernity and the safety record of the enterprise fleet. We have strong secured coverage with upside potential as Slide 7 presents, 49 vessels out of the 65 pro form a fleet are fixed under secured revenue contracts with a combination of fixed time charters, time charter with profit sharing and contract of affreightments. LP4 vessels are market related charters including spot, which at the end of the day secures the company ability to immediately capture the market's upside. The revenues expected from the fleet with secured employment is expected to cover the company's annual obligations.
We initiated strategic relationships with a major U. S. Oil company for the employment of crude tankers, and we have currently 5 Suezmax tankers fixed with them for approximately 3 years and one VLCC for approximately 2 years, all on profit sharing arrangements. Next slide shows the all in breakeven of the fleet for the various vessel types that we operate in TEN. As you can see the cost base is low.
In addition to the low shipbuilding cost we must highlight the purchasing power of our technical manager, Tsakos Columbia Ship Management and the stringent cost control by management in order to maintain a low OpEx average for the fleet, while keeping a very high fleet utilization quarter after quarter. We can call it almost full employment. 75% of the fleet is on secured revenue contracts and these revenues are expected as we said to cover all the company's annual obligation. Plus with those vessels that have the profit sharing arrangements we can also always capture the market's upside every time it happens. Since the beginning of September, we are seeing life back into the freight market as we gradually move our way from the summer months and approach the winter period which is typically the strongest period for tanker demand.
We are also seeing charters to continue having a strong appetite to fix vessels forward for the reasons we explained above. In the company, we expect to have a strong Q4. The next slide shows a little bit about the market. Global oil demand continues to grow above the past trend levels. The average oil demand growth since the early 90s has been around 1,100,000 barrels per day.
The current forecast for oil demand growth in 2017 which has recently been revised from 1,300,000 barrels per day to 1,600,000 barrels per day, a strong growth number above trend line. We are seeing improving economic conditions in OECD countries and the low oil price environment continues to support strong demand, especially in the United States consumer demand, in Europe and in China consumer demand and stockpiling for strategic reserves as well as India. The tanker order book is coming down. We should also note that a big part of the existing tanker fleet is over 15 years. The implementation of new environmental regulations with high compliance cost and charters discrimination against older tonnage could lead to an increase in scrapping.
Today, we have announced another dividend payment of $0.05 per share to be paid on November 15 to the 3rd quarters of record on November 9. In total since 2000 and 2010 has paid $10.56 in cash dividends or approximately $453,000,000 and this compares with a listing price in our IPO of $7.50 The average yield since the IPO is $5.25 per annum. That concludes the operational part of our presentation. Paul will walk you through the financial highlights for the first half of the year. Paul?
Thank you, George. The first half of twenty seventeen started well, but became more challenging as the months passed. Nevertheless, the half year ended with net income of $21,000,000 or $0.13 EPS after preferred dividends. Quarter 2 was affected by a number of factors which impacted all the industry. Besides reduced seasonal demand, it was hit by high crude inventories, oil supply cuts and excess vessel capacity.
Nevertheless, we had a positive bottom line of $3,600,000 in quarter 2. The increase in preferred dividends to $6,500,000 resulted in an EPS of minus 0 point 0 $3 Quarter 3 faces similar challenges made more difficult by extended refinery maintenance in China. However, we expect a favorable turn in quarter 4, as George has mentioned, as refineries come online again. Inventories decline and winter factors start to generate increased revenue. In quarter 2, our vessels on time charter secured a steady cash flow covering all the fleet costs.
The fleet effectively enjoyed full employment in quarter 2, despite 6 scheduled dry dockings. However, those vessels on spot in quarter 2 could not achieve the rates secured in the prior year period. Nevertheless, overall rates achieved by the fleet were respectable given the challenges. For the most part, they were above breakeven with the overall average daily rounded TCE rate at over $19,000 now $20,000 in the 6 months. TEN's daily average OpEx per vessel fell 2% to $7,866 due to the efforts of our technical managers.
For the 6 months, average OpEx was 3% down at $7,729 Daily vessel overhead costs, that's management fees and G and A, fell to about $1200 from $1600 in Q2 2016 as the fleet grew, but fees still remain fixed after 5 years and office costs fell. Finance costs rose to $15,900,000 due to new vessel debt, reduced capitalized interest, higher interest rates and lower swap valuations offset by lower swap interest. 6 month finance costs similarly rose. EBITDA amounted to nearly $54,000,000 in quarter 2, higher than the prior quarter 2, while 6 month EBITDA was $115,000,000 also higher. All but two vessels generated positive EBITDA in the half year.
Overall debt was $1,840,000,000 at 30th June and net debt to capital was 51%. The net increase in quarter 2 was $17,000,000 due to the loans for 2 new Aframaxes offset by scheduled repayments. With only one more Aframax to be delivered in the Q4, only a further $23,000,000 debt will be drawn and $10,000,000 contributed from our own cash. Our balance sheet remains strong with ample cash With asset values stabilizing and with secure cash flow generated by our time charters, we believe we are in a good position to meet any further challenges and to consider any opportunities that may arise.
And
now I'll return the call to Nikos. Thank you, Warren.
Good morning to all of you. As my colleagues have already reported, the 1st 6 months have been a very productive period for TEN, although it has been a challenging period for the market as a whole. We use this period to complete or almost complete our new building program. And on top of this, we have extended 22 new contracts with 1st class charters on our vessels, reaching our goal or even exceeding our goal of 75% of long term utilization for the vessels. And I think our record in utilization is always steady.
If you follow the company for the last 10 years, we're always way above 95% and that also takes that we had 9 or 10 special surveys and dry docks undertaken in the 1st 6 months, because we wanted to be ready for the challenges of the dirty water ballast that was supposed to be implemented on September 8, last Friday. However, with the efforts of the industry, this legislations now has been postponed, at least according to the IMO, for 2 more years. So that was one of the reasons that the Q3 the second and third quarter has been used for taking advantage of the lower market and taking the ships out of service. However, as we came back from the August lull, the market started showing signs of the spot market, signs of significant life. And this way, we are seeing the rates in all segments, Aframaxes and the product carriers in a large old fashion, Suezmaxes and VLCCs.
The spot rates have increased and that had one of the reasons has been the unfortunate events of and the results of the storm season in the United States and storm Harvey. However, also we have seen significant increases in the Mediterranean, where we had a tripling in the rates in the last 2 weeks. So the science is that we are getting out of a much slower period and the pulse is back in the market. What is also interesting Mediterranean And of course, the U. S.
Gulf, where a lot of damage has been done and there were quite a lot of delays of vessels as they come out of the storm season. So, what we are looking for TEN, the way we have structured the company with 75% of the fleet on more than 75% of the fleet on long term employments out of and 25% of the fleet with profit sharing arrangement. What means that every $1,000 increase on this in the spot market equates to $10,000,000 straight to our bottom line or $0.12 in share. So I mean this is the model we're working. From today's low spot rates every $1,000 increase in any of the segments we participate has a very substantial result to our bottom line.
On the other hand, we're also looking what we call the parallel market, the dry cargo market going finally going from strength to strength in both markets traditionally have a 6 month lag between them and we have a strong feeling that we are today 6 months behind where the glycol was sometime in the beginning of the year, which was very low. So with that in mind, we are optimistic. We have set the company to be able to sustain the storms, but also take advantage of the upside. The company is producing significant cash as we are going forward. And so we're looking forward to the remainder of the 3rd and the majority of the 4th quarter and going forward, as George said, also for 2018 to be a very productive and profitable period.
And that's why the company continues with our dividend payments and looking very positively into the future. And with that, I would like to open the floor to any questions.
Thank you very much, sir. The first question is from the line of Noah Parquette from JPMorgan. Please go ahead.
Thanks. Sorry. I just wanted to get a sense, you guys are sitting pretty with your liquidity situation. In terms of new orders or new vessel deliveries that you would look at, would you consider vessels on spec or are you kind of focused still on this industrial model where you're going to meet your customers' needs?
I think it is clearly that unless we have a segment of our business, which is underrepresented by type of ship, we would only look at we will only look at non speculative ordering. And I think the market has been damaged significantly by a lot of speculation. And we would not want to be participating in that. So I think the short answer is that we will only look at employment.
Okay. And then I just
a follow-up. Some of your peers suggest that the recent uptick in horses have been from shipyards approaching their best customers with good offers. Have you I assume you're one of those customers. Have you seen any reduction in that kind of pace of newbuilding orders? Or has nothing changed there?
Well, I think you are right. When the prices are or when the crisis is there, I think you always go to your best customers and the shipyards are under pressure. So they're approaching a lot of their owners. Some of them for their own internal reasons and for renewing their fleet, they have taken into the challenge of at least signing LOIs, because what we're seeing out there is we see a lot of letters of intent being signed, but I would believe that not more than 50% of those letters of intent are going to materialize in order. So it does not really cost you that much if you are a good client to sign a couple of letters of intent with options.
It will become actually a very, very profitable transaction if the market goes away. So I think there's a 50% chance that or what, believe that 50% of the LOAs we've seen will not materialize as orders.
Okay, great. That's all I have. Thank you. Thank you.
Thank you very much. The next question is from Gregory Lewis from Credit Suisse. Please go ahead.
Hey, yes. Thank you and good afternoon everybody. Hi, Nick. Could you talk a little bit about the strategy? I mean, clearly, the company has done a great job of taking the layer of its new builds and putting those vessels on long term contract.
And you kind of alluded to the fact that you're looking to focus more on the industrial side of shipping. As we think about it in the go forward in the near and the medium term, is there something where Tsakos is actually out in the market looking to really drive incremental industrial type projects at the company? Or are we at a point now as we're looking ahead to 2018 and maybe even 2019, the company is just in kind of a cash harvest mode?
Well, thank you, Greg. And clearly, we are being approached by 1st class clients that would like to, I think, continue business long term. So we are looking at these transactions. Our whole objective has been to be able to secure, I would say, our base, as you call in the United States, we secure our base by having the 2 thirds of the fleet plus the profit sharing paying for all the expenses and then the 25% remaining together with the profit shares paying for our dividend and our shareholders reward. So as long as the projects that fit within this philosophy are coming out, we are looking at them.
So we will be spending some of our cash, I think, in the next 6 months for similar projects if they appear.
Okay, okay, great. And then just one more for me. You mentioned, obviously, the issues that have impacted the Gulf of Mexico. But just if we move a little bit west from there into Mexico in the earthquake, clearly, we've had some refining issues. You guys have that business where you're actually trading on that side of the North America.
What has been the impact over there? What's going if any sort of color or insight you can provide into that market in and out of Mexico along that?
Yes. I think that's a very valid point because I think the first thing we have to say as an industry and wearing my intertanker hat in this case is that there were 1,000, not only of tankers, there were a couple of 100 tankers and thousands of ships in that area. And we were able with correct warnings and the correct navigational skills to avoid any catastrophe on any of the tankers or other vessels. So I think this speaks a lot of about the operational capacity of the industry. It's not easy.
As you know, land mass is much smaller part. The sea mass is a much bigger part that was affected there at that period. So I think this is important that there were not any casualties and we were all spend day and night in our operating departments making sure that we will be able to sleep even a few hours at night. So that is the one thing. Of course, disruptions have happened.
A lot of our ships that are in contracts there I mean that's the silver lining of this market, have enjoyed quite hefty demarriages because they were not able because of the problems of the refiners and the portfolio, they were not able to they had to wait on demarriage, which I think it will be positively portrayed on our Q3 results. And the disruptions now have increased the market increased very sharply. This week is normalizing, but it's still very strong. So, yes, it affected the rates and I would say it will take a couple of months to shed it to bring the market back to where it was.
Okay, great. Hey, thank you very much for the time, gentlemen, and have a nice weekend.
Thank you. Same to you.
Thank you very much, Mr. Lewis. The next question is from Jon Chappell from Evercore. Please go ahead.
Thank you. Good afternoon. Just a couple of follow ons to hi, Nick. Just following up to both Noah and Greg's questions regarding both strategy and speculative orders. I read in a presentation earlier this week, I think Paul had made some comments about potentially increasing your share in the LNG market.
Now the LNG market seems to be shifting a little bit more to spot from long term time charter and the 15 plus year charters of yesteryear seem to be gone. How do you think about how you would approach that market? Two ships today, obviously far short of scale. Those haven't worked out fantastically. If you were to get an LNG, would it have to be on the back of a charter?
Or is this kind of a bigger theme that you think that gas is going to continue to take market share from oil and you need to be diversified with your fleet?
Thank you. Well, I think Paul is going to have to answer this, but from my side, we will not change the industrial model of building ships against contracts because of the LNG. So we will not be doing a speculative ordering on the LNGs, but there is enough business out there and it's creeping out. I mean, it's not the wave of business that we see in the tankers, but there is long term business creeping out and we will be looking at it. As far as our 2 ships, I think the first vessel, the No Energy after she worked for 8 years after she was built on a very long, very profitable charter.
She has since then become a floating storage unit. Again, so she's a turbine ship and I think she been a very successful and cash cow for the company. Our recent acquisition of the Maria has also gone on a 4 year time charter with options to one of the major companies, not at the level we were envisioning when we ordered her, but getting there. So, I would say that we are not at all disappointed disappointed from our LNG participation. I think the Neo Energy has been the most profitable ship in the history of 10 so far.
And hopefully, the new vessel will also be as profitable going forward. But Paul, what would
Yes. I think my comments were made in context of a question put that if oil demand peaks in 10 years' time, what action are we prepared to take now? And my response was, well, we're not going to take any action now, but clearly, a positive response to oil demand peaking is for us to diversify further and we've already put one step in that direction with our 2 LNG carriers. And I mentioned that, look, who knows, within a year or 2, we may well have 6 pro form a LNGs, I. E.
Including orders. It's something we will not rule out and we are looking into.
That makes absolute sense. And that's why I asked at the end if it was kind of a longer term diversification and not surprising that the media took that out of context. So thanks for that clarification. Paul, since I have you now with the CapEx basically de minimis, just $10,000,000 more of cash by the end of the year and a pretty heavy debt load. Can you just remind us what the debt amortization schedule looks like?
And then also, Nikos had mentioned pretty strong cash flow of the fleet. Will the primary use of cash in the foreseeable future be used to delever the balance sheet?
It will play an important role, yes. If we assume that our balloons which are coming up are going to be refinanced, then the ordinary scheduled repayments amount to about $100,000,000 in the remaining part of this year, about $170,000,000 in 2018 and $140,000,000 in 2019 and then starts to come down faster to about 220. But bear in mind that we do have major refinancings to do over the next couple of years. So the actual real pattern hasn't been clearly defined yet over the next few years.
Okay. And then just a quick follow-up
to that. The refinancing is happening, yes.
Right. And I just wanted to ask about that too. We've heard a lot of commentary about difficult financing in the industry. It certainly hasn't seemed to stop a lot of players from ordering VLCCs. Is it a 2 tiered market right now where, given 1, your history and relationships in the industry and 2, the charter coverage and visible cash flows from your fleet that your conversations with the banks are no different than they were maybe 4, 5 years
ago? Well, I would say that now they are better than 4, 5 years ago and cheaper because as you remember 4, 5 years ago, we were just getting out of the crisis of the Lehman crisis. And that's when the banks were really much more,
I would say, closed for business.
I would say it's a 3 tier market. So, you have the companies like ourselves that I think there is a big competition of and very attractive terms for doing business. You have owners that there is some lending available for them, but at a very high cost. And then, of course, you have clients that the doors are other owners that cannot. So I would say it's a 3 tier system.
So you have the competitively expensive and the not happening sort of thing.
Yes, makes sense. All right. Thanks a lot, Nick. Thanks, Paul.
Thank you very much. Your next question today is from the line of Ben Nolan from Stifel. Please go ahead.
Yes, thanks. So I had a question for you Nick that in response to Noah's question, you said that one of the areas that you might would focus on are things that are underrepresented in the current fleet, obviously, with only 2 LNG and you guys have already talked a little bit about having an interest in expanding there. But what else would you categorize as underrepresented in your fleet as it stands today?
Well, as it stands today, if you look at our fleet list, I think LNGs, and you're very correct on that, shuttle tankers and VLCCs. These are the 3. I mean, I think we have we are, I would say, very well represented so far on the other categories of ships, which is the Suezmaxes, the Aframaxes and Panamax and the products. And however, we are looking, I think, as it was put in the press release, we are looking to divest some of our first generation vessels. So I think we have our oldest vessel, which is a VLCC, the Millennium, I think this is one of the ships that we are looking to divest.
She's coming to the end of year or time span before the specials are raised. That will further reduce our VLCC VLCC-two-two. So that's something we're looking and we're discussing
with our charters. Okay. That's helpful. And then sort of related Greg's question, although I guess on the other side of the Gulf of Mexico, it sounds like now the port of Corpus Christi is going to be dredging to enable VLCCs to call on there. Obviously, the Gulf Coast has historically been a very prime trading area for Aframaxes in particular, but also Suezmaxes.
Are you seeing any changes sort of in the strategic landscape for sort of what chips make sense in various places? And is there anything more larger scale going on that impacts what people need, do you think?
Well, as I think these infrastructure projects unfortunately take quite some time to finally be completed. But I think it is a positive thing in a sense. But although right now there's a lot of there are a lot of VLCCs and there's a lot of lightering going on. And of course, lightering is something that we support because it takes tonnage out of the market, mainly on the Aframax side. We cannot turn a blind eye to the United States that is really increasing its exports.
And I think one of the reasons to allow VLCCs in the United States on land really, I mean, alongside rather than through a lighting process, It is a positive thing and it shows that the United States is going to be a major exporter. And then we started with 1,000,000 barrels now and then a day and it's going to become a much more powerful exporter, which is very, very good for the long term business. So, I mean, we look at it as a positive sign going forward.
Okay. And would you know specific opinions as to sort of the types of ships that might benefit versus those that would not?
Well, as I said, you have VLCCs are the ones that will benefit because you have never had really VLCCs falling alongside in the United States. I mean, they're either SBMs or in lighter incentives. So if you are able to get VLCC in Corpus Christi, I hope we're all alive and away to see this happen. It will be really a very positive development for the VLCCs.
Okay, perfect. All right. That does it for me. I appreciate it.
Thank you.
Thank you very much. The next one is from Fotis Iannopoulos from Morgan Stanley. Please go ahead.
Yes, guys, gentlemen, and thank you. Nick, you made an interesting comment about the fact that the dry bulk market and the tanker market, they move close to each other with a time lag of around 6 months. Can you substantiate that? And how does this work? And also if you can give us your outlook about the supply demand balance for the crude tanker market, we see around 98 VLCCs on order.
How many of them how many VLCCs you think that they will be scrapped the next 3 years? And what is going to be the change in the oil flows?
Well, thank you. Well, as I said, the it is if you look at it, if you are the analyst, I think you should help us with this. But if you look, there has always been a rule of thumb in the dry cargo market and because it usually carries the infrastructure, heavy infrastructure of goods is the one that starts first. And then the energy market in order to put all these things to work follows with a lag of 6 to 9 months. And I think, I mean, we have seen this in the past.
And we hope that this is the case. If you remember just back in December or December to March
last year, we
had seen the lowest dry cargo market for a very, very, very long time and for both in values And then in the after March April, the market started going from strength to strength. It had a small hiccup, the number of the dry cargo market and it's going back from strength to strength as we speak. So we believe that we could be in the similar scenario with the tankers. As you rightly said, the truth of the market is right now on the VLGC side, a lot of people hit the bullet and they got very excited by ordering significant amount of vessels. However, we are seeing these vessels getting delivered and that's why we're seeing a weak market today.
I think we still have close to 15 VLCCs to absorb within this year. And then we have another 50 for 2018 and I think much less in 2019. So it is getting it is being normalized and we have a significant amount, I would say, of vessels, I would up close to 150 VLCCs have been other ones that are approaching the 15 years or will be 15 years, I would say. So there is heavy order book, but in today's market, a lot of owners, including ourselves, cannot trade the older it is not economical to trade ships, for sure ships that are going to be 20 years. No one in his right mind will pass a special survey for a 20 year old ship today VLCC, I mean.
Thank you, Nick. How important it is for the health of the tanker market, the return of the OpEx production, all these owners that they have been ordering speculatively VLCCs, and I'm not talking about obviously about your company. Have they been counting on the return of the OpEx production next year? Is this an important factor for the market for 2018?
Yes, I think that is that was this is an important factor. You're very correct. I mean, as you have seen that the crude surplus globally has shrunk significantly because of the output cuts. And the growth forecast has been raised from 1.5 to 1.6 values a day, which is not it is something. So, we expect to have some loosening on that side and more coverage to be in the market.
But I think that will take another at least 6 runs.
Thank you, Nick. One more question about the shuttle tanker market. How do you view the opportunities there? We saw PKE ordering some LNG fueled shuttle tankers very recently. Are there a lot of opportunities for additional newbuildings with long term contracts?
And what is the competition out there? How many players they can compete for these projects?
Well, I think it is a market for companies that have put the effort and the investment into human resources and still to do this. We are one of these companies. I think there are a handful of companies that are doing the same business. It is operationally a very difficult business. I mean, it has cost us a significant amount of money just to bring up the crew, the crews for these trades.
And when the business is there, usually it is an attractive long term business, but it is a high risk operational wise.
Are we talking for a couple of vessels the next couple of years or 10 vessels? Do you have any sense of how big this opportunity is in this market?
We as a company, we're looking for a couple of those ships in the next couple of years.
And for the entire market, how many ships do you think that how many of these kind of projects they are going to be required or they will be tendered?
From I mean, it is the tender is a slow process usually, but I believe that there will be at least 1 dozen ships for this type of projects.
Thank you very much, Mick. Thank you, George.
Thank you.
Thank you very much. The next question is from the line of Magnus Fear from Seaport Global. Please go ahead.
Yes, good morning.
Hi, Magnus. Hi.
Just one follow-up question on the LNG, a lot of focus there. You mentioned that you would not do any speculative newbuilding. Can you kind of elaborate a little bit what you define as speculative and what kind of returns would you require for long term contracts?
You want us to give all our secrets out. I mean, this is a well, speculatively something. You're probably jumping in
on Nick.
What we've done with our LNG so far has been speculative ordering, which means that when we order our first LNG back in 2004 and we were on one of the few companies at the time and we felt that this market is a market that we have to have a footprint in and we ordered the vessel on the way we charter here out as I said to for many, many years. The same happened with our newest acquisition. As technology changes, we again felt that we cannot be left behind and we wanted the youngest technology, the best design of ship, again without employment. Now, I think with technology having stabilized, we will be looking to repeat our orders, but against a specific project.
And I
mean there is definitely competition for some of these projects. I mean you have more traditional players out there that are focusing entirely on the LNG. I mean, could you make the numbers work maybe at a rate that it's a little bit below? And what kind of leverage would you be comfortable with? When I say below, you kind of did $75,000 $85,000 rate?
Yes, for sure. I think I mean, we never use all the leverages that we offer because we like to keep unleveraged, as Paul said, around 50% up 51% for this year, this quarter. So, we would not like to overextend the leverage, but some of these projects, other companies could leverage them up to 80%. This is not our strategy.
Right. And I mean, in the past, you mentioned that you have like to have about 5 ships by 2020. I know you probably have to order them pretty soon if you're going to be there. What's your current view with the market maybe a little bit slower to recover than we had expected?
The LNG market is we are always chasing it. It was supposed to turn around 2010, 2011, 2020. Now it's it used to be 2018. I think now there is some hope that 2018 will be a stabilizing year for the LNGs. So I think 2020 looks to be now the next milestone year for the market to turn.
All right. Thank you, Nick. That's all I had.
Thank you.
Thank you very much. We have a question from the line of James Jang from Maxim Group. Please go ahead.
Hey, good afternoon, guys. I just had 2 quick ones. One is, if you view the market to start an upturn in, I guess, the tail end of 2018 going into 2019, would you look at any distressed assets without charters just to take advantage of the arbitrage and pricing right now?
Which market are you referring to?
The crude tanker market. Okay.
We went all the way to LNGs for a long time. It's good to be back to crude. Thanks.
Yes, I
think as long as the ships are in the water as long as the ships are in the water, this is something that we are continually looking for. But for ships that are in the water or will not add more overcapacity.
Okay.
And the announcement with the strategic alliance with the U. S. Oil major, is there any further opportunities there to, I guess, charter in other types of vessels besides crude like on the Handys, perhaps or any of the other product tankers?
The answer is yes. There are a lot of opportunities with not the same companies, but similar companies for other strategic alliances also on other types of ships as you mentioned. There is a lot of this going around for the owners that have the appetite for long term environment of course.
And so I mean, where would you be comfortable in terms of charter cover? Do you want to maintain this type of similar level? Or are you looking to kind of have more cover to just get through the get through the volatility and rates that we're going to probably see until 2018, 2019?
Chairman? I have to give to our Chairman here.
It's no rocket science. I guess it's case by case. It depends on the opportunity, on the needs of the customer, on the vessels that are available. So there is no hard and fast rule in what you're going to do.
I think we have approached. I mean, we have surpassed our goal that was always 75%. But if you have clients that are there to provide good look at the business,
it's case by case.
Case by case. So I think as the Chairman said, this is when we go to
the Board, they said they're
not going to stop us because we have surpassed up 75%. It is and as long as we keep this profit sharing arrangement that allows us to participate on the upside, I think we're satisfied with that.
Okay, great. Thank you for that. Have a good one, guys.
Thank you.
Thank you very much, Mr. Zhang. There are no further questions. I shall hand the call back to you, sir.
Well, thank you very much for your interest in our company. As I said, it has been a very exciting year so far by completing the Herculean task of taking delivery and chartering long term and of course competitively financing 15 vessels, 14 vessels, one more to go in the Q1. And we hope that 2018, well, the remaining of this year, but again, 2018, the company will be at where exactly we had planned it to be, fully operational with 100% of the new vessels in the water and will significantly increase our returns. In the meantime, we will be we have ships held for sale, our older vessels, and we will be also renewing the fleet by selling some of those vessels and our aim is to sell all the vessels from now up to the end of the year, so we can start afresh as we go forward. So this is where we are and thank you very much and looking forward to see you in New York in the beginning of October when the company will be doing a roadshow.
Thank you very much, sir. That does conclude the conference for today. You may now all disconnect your lines.