Thank you for standing by, ladies and gentlemen, and welcome to Tsakos Energy Navigation conference call on the first half and second quarter 2017 financial results. We have with us Mr. Efstratios-Georgios 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'll 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. Now I pass the floor to Mr. Nicolas Bornozis, President of Capital Link, investor relations advisor of Tsakos Energy Navigation. Please go ahead, sir. Mr. Bornozis, please go ahead.
Is he on mute? 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 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. 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. Efstratios-Georgios 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 two 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. With the largest ever fleet expansion program for TEN now virtually complete, we're in a superior position to capture a much larger size of any recovery. 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 TEN so successfully in challenging times, ready to capture opportunities going forward. Thank you. That's it for me, over to you, George.
Thank you very much, Mr. Chairman. The company reported today another profitable quarter and half-year results. TEN embarked since last year in the biggest fleet expansion program of its history with 15 new building vessels in total. Eight vessels were delivered last year. Since the start of 2017, TEN took delivery of six vessels, with one more expected in the last quarter of this year. All 15 ordered vessels had medium to long-term employment attached to first class charterers ranging from minimum two to maximum 12 years. For those of you who are connected to the Internet and our website, there is an online slide presentation, the format we will follow during the call. Let's turn to slide number three with the key corporate facts and highlights. We have a fleet of 65 vessels pro forma, 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 60 full pro forma fleet, on secured employment with an average time charter tenor of two and a half years. We have minimum contracted secured revenue of $1.4 billion, with potential additional revenues from profit sharing arrangements.
We have built a modern, diversified fleet covering clients' transportation requirements in crude products, shuttle, 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 2017. 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 managers.
The next slide has a snapshot of the pro forma fleet of 65 vessels. At the moment, we operate 64 in four market sectors: crude, products, shuttle tankers, and LNG. During the first half of the year, we took delivery of four Aframax tankers, one VLCC, and the company's third Suezmax tanker. 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 six lists the clients of TEN, 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 seven presents. 49 vessels out of the 65 pro forma fleet are fixed under secured revenue contracts with a combination of fixed-time charters, time charter with profit sharing, and contract of affreightment. 34 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 this strategic relationship with a major U.S. oil company for the employment of crude tankers, and we have currently five Suezmax tankers fixed with them for approximately three years and one VLCC for approximately two years, all on profit-sharing arrangements. Next slide shows the all-in break-even 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 Shipmanagement, 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 obligations. 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 away 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 forwards for the reasons we explained above. In the company, we expect to have a strong fourth quarter. 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 1990s has been around 1.1 million barrels per day. The current forecast for oil demand growth in 2017, which has recently been revised from 1.3 million barrels per day to 1.6 million 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 U.S., 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 costs and charterers' discrimination against older tonnages 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 with the first holders of record on November 9. In total, since 2002, TEN has paid $10.56 in cash dividends or approximately $453 million, 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 2017 started well but became more challenging as the months passed. Nevertheless, the half year ended with net income of $21 million or $0.13 EPS after preferred dividends. Quarter two 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 $3.6 million in quarter two. The increase in preferred dividends to $6.5 million resulted in an EPS of -$0.03. Quarter three faces similar challenges, made more difficult by extended refinery maintenance in China. We expect a favorable turn in quarter four, as George has mentioned, as refineries come online again, inventories decline, and winter factors start to generate increased revenue.
In quarter two, our vessels on time charter secured a steady cash flow covering all the fleet costs. The fleet effectively enjoyed full employment in quarter two, despite six scheduled dry dockings. Those vessels on spot in quarter two 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 six months. TEN's daily average OPEX per vessel fell 2% to $7,866 due to the efforts of our technical managers. For the six months, average OPEX was 3% down at $7,729.
Daily vessel overhead costs, that's management fees and G&A, fell to about $1,200 from $1,600 in quarter two 2016 as the fleet grew, but fees still remained fixed after five years and office costs fell. Finance costs rose to $15.9 million due to new vessel debt, reduced capitalized interest, higher interest rates, and lower swap valuations offset by lower swap income. Six-month finance costs similarly rose. EBITDA amounted to nearly $54 million in quarter two, higher than the prior quarter two, while six-month EBITDA was $115 million, also higher. All but two vessels generated positive EBITDA in the half year. Overall debt was $1.84 billion at 30th of June, and net debt to capital was 51%. The net increase in quarter two was $17 million due to the loans for two new Aframaxes offset by scheduled repayments.
With only one more Aframax to be delivered in the fourth quarter, only a further $23 million debt will be drawn and $10 million 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. Now I'll return the call to Nikos.
Thank you, Paul, and good morning to all of you. As my colleagues have already reported, the first six months have been a very productive period for TEN, although it has been a challenging period for the market as a whole. We used this period to complete or almost complete our new building program. On top of this, we have extended 22 new contracts with first class charters on our vessels, reaching our goal or even exceeding our goal of 75% of long-term utilization for the vessels. I think our record in utilization is always steady. If you follow the company for the last 10 years, we are always way above 95%.
That also takes that we had nine or 10 special surveys and dry docks undertaken in the first six months because we wanted to be ready for the challenges of the dirty water ballast that was supposed to be implemented on September the 8th, last Friday. However, with the efforts of the industry, this legislation now has been postponed, at least according to the IMO, for two more years. That was one of the reasons that 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. This way, we are seeing the rates in all segments, Aframaxes and the product carriers, in a lesser fashion, Suezmaxes and VLCCs.
The spot rates have increased. One of the reasons has been the unfortunate events and the results of the storm season in the U.S. and Storm Harvey. However, also we have seen significant increases in the Mediterranean, where we had a tripling in the rates in the last two weeks. 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 is we see this across the board. It is not only geographically across the board, so we can see the Far East market on the spot increasing together with the Mediterranean. 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.
What we are looking for then, the way we have structured the company with 75% of the fleet on, more than 75% of the fleet on long-term employments, and 25% of the fleet with profit-sharing arrangement. What means that every $1,000 increase in the spot market equates to $10 million straight to our bottom line or $0.12. This is the model we are 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 are also looking what we call the parallel market, the dry cargo market, finally going from strength to strength.
Both markets traditionally have a six-month lag between them, and we have a strong feeling that we are today six months behind where the dry cargo was sometime in the beginning of the year, which was very low. 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. We're looking forward to the remaining of the third and the majority of the fourth quarter, and going forward, as George said, also for 2018 to be a very productive and profitable period. That's why the company continues with our dividend payments and looking very positively to the future. With that, I would like to open the floor to any questions.
Thank you very much, sir. As a reminder, ladies and gentlemen, it's star 1 if you have a question. The first question is from the line of Noah Parquett 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 focused still on this industrial model where you're going to meet your customers' needs?
I think it is clear that unless we have a segment of our business which is underrepresented by type of ship, we would only look at non-speculative ordering. I think the market has been damaged significantly by a lot of speculation, and we would not want to be participating in that. I think the short answer is we will only look at the industrial model as we've done in the last 18 months by taking delivery of 15 vessels, all of them with long-term employment.
Okay. Just a follow-up. Some of your peers suggest that the recent uptick in orders has been from shipyards approaching their best customers with good offers. I assume you're one of those customers. Have you seen any reduction in that kind of pace of new building orders, or has nothing changed there?
Well, I think you are right when the crisis is there, I think you always go to your best customers, and the shipyards are under pressure. They're approaching a lot of their owners. Some of them, for their own internal reasons and for renewing their fleet, they have taken the challenge of at least signing LOIs. 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 orders. 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 could become actually a very profitable transaction if the market goes your way.
I believe that 50% of the LOIs 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. Hey, Nik, could you talk a little bit about the strategy? Clearly the company's done a great job of taking delivery of its new builds and putting those vessels on long-term contract. You 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? Are we at a point now, as we're looking ahead to 2018 and maybe even 2019, the company's just in a cash harvest mode?
Well, thank you, Greg. Clearly, we are being approached by first-class clients that would like to, I think, continue business long term. We are looking at these transactions. Our whole objective has been to be able to secure, I would say, our base, as you call it in the United States. We secure our base by having the two-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. As long as the projects that fit within this philosophy are coming out, we are looking at them. We will be spending some of our cash, I think, in the next six months for similar projects, if they appear.
Just one more from me. You mentioned, obviously the issues that have impacted the Gulf of Mexico. Just if we move a little bit west from there into Mexico and the earthquake, clearly they've had some refining issues. You guys have that business where you're actually trading on that side of the-
Exactly
North America. What has been the impact over there? If any sort of color insight you could provide into that market in and out of Mexico along that?
I think that's a very valid point because I think the first thing we have to say as an industry, and wearing my INTERTANKO hat in this case, is that there were thousands, not only of tankers, there were a couple of hundred tankers and thousands of ships in that area, and we were able, with the correct warnings and the correct navigational skills to avoid any catastrophe on any of the tankers or other vessels. I think this speaks a lot 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.
I think this is important that there were not any casualties, and we all spent day and night in our operating departments making sure that we would be able to sleep even a few hours at night. That is the one thing. Of course, disruptions have happened. A lot of our ships that are in contracts there, and that's the silver lining of this market, have enjoyed quite hefty demurrages because of the problems of the refiners and the port, they had to wait on demurrage, which I think it will be positively portrayed on our third quarter results. The disruptions now have increased the market, increased very sharply. This week is normalizing, but it's still very strong. Yes, it affected the rates, and I would say it will take a couple of months to bring the market back to where it was.
Okay, great. Thank you very much for the time, gentlemen.
Thank you.
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 follow-ups.
Thank you
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 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. I think Paul is going to have to answer this. From my side, we will not change the industrial model of building ships against contracts because of the LNG. We will not be doing a speculative ordering on the LNGs. There is enough business out there, and it's creeping out. It's not the wave of business that we see in the tankers. There is long-term business creeping out, and we will be looking at it. As far as our two ships, I think the first vessel, the Neo Energy, after she worked for eight years after she was built on a very long, very profitable charter. She has since then become a floating storage unit. Again, she's a turbine ship, and I think she has been a very successful and a cash cow for the company.
Our recent acquisition, the Maria, has also gone on a four-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. I would say that we are not at all disappointed from our LNG participation. I think the Neo Energy has been the most profitable ship in the history of TEN so far. Hopefully, the new vessel will also be as profitable going forward. Paul, what would
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? My response was, we're not going to take any action now, but clearly, a positive response to oil demand peaking is for us to diversify further. We've already put one step in that direction with our two LNG carriers. I mentioned that, look who knows, within a year or two, we may well have six pro forma LNGs, i.e., including orders. It's something we will not rule out, and we are looking into.
That makes absolute sense. That's why I asked at the end if it was a longer-term diversification. Not surprising that the media took that out of context. Thanks for that clarification. Paul, since I have you, now with the CapEx basically de minimis, just $10 million 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? Then also, Nikos had mentioned the 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 million in the remaining part of this year, about $170 in 2018, and $140 in 2019. Then it starts to come down faster to about $220. 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. Just a quick follow-up to that.
The plans are going through. The refinancings are happening, yeah.
Right. 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 two-tiered market right now where, given, one, your history and relationships in the industry, and two, the charter coverage and visible cash flows from your fleet, that your conversations with the banks are no different than they were maybe four or five years ago?
Well, I would say that now they are better than four or five years ago, and cheaper because as you remember, four or five years ago, we were just getting out of the crisis, of the Lehman crisis. That's when the banks were really much more, I would say, closed for business. I would say it's a 3-tier market. You have the companies like ourselves that I think there is a big competition and very attractive terms for doing business. You have owners that there is some lending available for them, but at a very high cost. Then, of course, you have clients that the doors are, other owners that cannot. I would say it's a 3-tier system. You have the competitive, the expensive, and the not happening sort of thing.
Yeah, that makes sense. All right. Thanks a lot, Nik. Thanks, Paul.
Thank you very much. Your next question today is from the line of Ben Nolan from Stifel. Please go ahead.
Yeah, thanks. I had a question for you, Nik, 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, there's only two LNG, and you guys have already talked a little bit about having an interest in expanding there. 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 three. I think we are, I would say, very well represented so far on the other categories of ships, which is the Suezmaxes, the Aframaxes, and the Panamax and the products. 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. I think 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 her time span before her special surveys. That will further reduce our VLCCs to two. That's something we're looking and we're discussing with our charters.
Okay, that's helpful. Then, sort of related to 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 in the strategic landscape for what ships make sense in various places? Is there anything larger scale going on that impacts what people need, do you think?
Well, I think these infrastructure projects unfortunately take quite some time to finally be completed. I think it is a positive thing in a sense. Although right now there are a lot of VLCCs and there are a lot of lightering going on. 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. I think one of the reasons to allow VLCCs in the United States on land really, alongside rather than through a lightering process, it is a positive thing and it shows that the United States is going to be a major exporter.
I mean, we started with 1 million barrels now and then a day, and it's going to become a much more powerful exporter, which is very good for the long-term business. We look at it as a positive sign going forward.
Okay. We'll just no specific opinions as to sort of the types of ships that might benefit versus those that would not?
Well, as I said, VLCCs are the ones that will benefit because you have never had really VLCCs calling alongside in the U.S. I mean, they're either SBMs or in lightering services. If you are able to get VLCC in Corpus Christi, and I hope we're all alive and well 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. As a reminder, ladies and gentlemen, it's star one if you have a question. The next one is from Fotis Giannakoulis from Morgan Stanley. Please go ahead.
Yes. Hi, gentlemen, and thank you.
Yes, Fotis.
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 six months. Can you substantiate that? How does this work? 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 VLCCs you think that they will be scrapped the next three years? What is going to be the change in the oil flows?
Well, thank you. As I said, you are the analyst, I think you should help us with this. If you look, there has always been a rule of thumb that the dry cargo market, because it usually carries the heavy infrastructure and goods, is the one that starts first, then the energy market, in order to put all these things to work, follows with a lag of six to nine months. I think we have seen this in the past, and we hope that this is the case. If you remember, just back in December to March last year, we had seen the lowest dry cargo market for a very long time, both in values. After March and April, the market started going from strength to strength. It had a small hiccup.
Remember the dry cargo market, it's going back from strength to strength as we speak. We believe that we could be in a similar scenario with the tankers. As you rightly said, the truth of the market is that right now on the VLCC side, a lot of people bit the bullet, and they got very excited by ordering a 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. We have another 50 for 2018, and I think much less in 2019. It is being normalized. We have a significant amount, I would say, of vessels, close to 150 VLCCs are the ones that are approaching the 15 years or will be 15 years, I would say.
There is heavy order book. In today's market, a lot of owners, including ourselves, cannot trade the 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, Nik. How important it is for the health of the tanker market, the return of the OPEC production? All these owners that they have been ordering speculatively VLCCs, I'm not talking obviously about your company. Have they been counting on the return of the OPEC production next year? Is this an important factor for the market for 2018?
I think this is an important factor. You are very correct. As you have seen that crude surplus globally has shrunk significantly because of the output cuts, the growth forecast has been raised from 1.5 to 1.6 barrels a day which is something. We expect to have some loosening on that side and more cargos to be in the market. I think that will take another at least six months.
Thank you, Nik. One more question about the shuttle tanker market. How do you view the opportunity there? We saw TK ordering some LNG fueled shuttle tankers very recently. Are there a lot of opportunities for additional new buildings with long-term contracts? 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. It has cost us a significant amount of money just to bring up the crew for these trades. When the business is there, usually it is an attractive long-term business, but it is 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, yeah, in the next couple of years.
For the entire market, how many of this kind of projects they are going to be required, or they will be tendered?
The tender is a slow process usually, I believe that there will be at least one dozen ships for this type of projects.
Thank you very much, Nik. Thank you, George.
Thank you.
Thank you very much. As a reminder, it's star one on your keypad if you have a question. The next question is from the line of Magnus Fyhr from Seaport Global. Please go ahead.
Yeah, 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 new building. Can you 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? Well, speculative
Your company is opening up, Nik.
What we've done with our LNG so far has been speculative ordering. Means that when we order our first LNG back in 2004, and we were one of the few companies at the time. 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 chartered it out, as I said, for 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. I think with technology having stabilized, we will be looking to repeat our orders, but against a specific project.
There is definitely competition for some of these projects. You have more traditional players out there that are focusing entirely on the LNG. Could you make the numbers work maybe at a rate that is a little bit below, and what kind of leverage would you be comfortable with? When I say below, the $75,000, $85,000 rate.
Yeah, for sure. We never use all the leverage that we offer because we like to keep our leverage, as Paul said, to around 50, now 51% for this year, this quarter. 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. In the past, you mentioned that you have five 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, we are always chasing it. It was supposed to turn around 2010, 2011, 2012, 2013. It used to be 2018. I think now there is some hope that 2018 will be a stabilizing year for the LNGs. I think 2020 looks to be now the next milestone year for the market to turn.
All right. Thank you, Nik. That is all I had.
Thank you.
Thank you very much. If there are any further questions, please press star one on your keypad now. Thank you. We have a question from the line of James Jang from Maxim Group. Please go ahead.
Hey, good afternoon, guys.
Hey.
I just had two 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 in pricing right now?
Which market are you referring to?
The crude tanker market.
Okay. Because 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, this is something that we are continually looking for. For ships that are in the water or we'll not add more overcapacity.
Okay. 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 Handysize 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 employment, of course.
Yeah. Where would you be comfortable in terms of charter cover? Do you want to maintain this similar level or are you looking to have more cover to just get through the volatility and rates that we're going to probably see until 2018, 2019?
Chairman? I have to refer 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. There's no hard and fast rule in what you're going to do.
I think we have approached, we have surpassed our goal that was always 75%. If you have clients that are there to provide good lucrative business.
It's case by case.
It's case by case. I think as the Chairman said, when we go to the board, they said they're not going to stop us because we have surpassed our 75%. 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. Jang. 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 first quarter. 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 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 our older vessels from now up to the end of the year so we can start afresh as we go forward.
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 call today. You may now all disconnect your lines.