Thank you for standing by, ladies and gentlemen, and welcome to Tsakos Energy Navigation conference call on the first quarter 2016 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'll be a presentation followed by a question and answer session. At which time, if you wish to ask a question, you'll need to press star one on your telephone keypad. I must advise you that the conference is being recorded today. I now 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. This is Nicolas Bornozis of Capital Link, investor relations advisor to Tsakos Energy Navigation. This morning, the company publicly released its financial results for the first quarter of 2016. 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, T-E-N, @capitallink.com and we will email a copy to you right away. Please note that parallel to today's conference call, there is also a live audio and slide webcast which can be accessed on the company's website on the front page at www.ten.gr. The conference call will follow the presentation slides, so please, we urge you to access our presentation on the webcast. Please note that the slides of the webcast presentation 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, contains certain forward-looking statements within the meaning of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties, which may affect TEN's business 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 the call over to Mr. Takis Arapoglou, the Chairman of the Board of Tsakos Energy Navigation. Mr. Arapoglou, please go ahead, sir.
Thank you, Nikolas. Good morning, everyone. Another quarter of healthy revenues and profitability. As we continue to shift our ship employment policy towards longer term charters to lock in high, longer returns and offset market cyclicality, we are creating a strong and sustainable revenue flow. This will be further boosted by the additional accretive revenue from our record new building program in the forthcoming months, expected to contribute $100 million in EBITDA. I'd also like here to highlight and congratulate management and our anchor shareholder for their effective and continued focus on expenses. Operating expenses for the quarter declined despite the addition of one extra vessel during the quarter, mainly due to outstanding technical management. Against very challenging surroundings in the shipping landscape right now, TEN is clearly a rare, outstanding success. Once again, congratulations to the team and we all look forward to more good news going forward.
Over to you now, Nico Tsakos.
Thank you, Chairman. Good morning to everybody. We have the great pleasure to have here not only our chairman, but our honorary chairman and our deputy chairman, Mr. Jolliffe and Mr. Stavropoulos. It's very nice to host all of you today on our results, on our first quarter results. Again, we are looking at a market that is comfortable, it is positive. For the companies who are playing in the upper tier of the Premier League, to put it in football terms, I think ample business is there to be taken also for long term. This has been a quarter where the market has been very supportive. We have seen some cyclicality on the rates in the market.
Our results actually were affected more because we decided to be preemptive and take out some of our larger ships, our Suezmaxes, to complete the dry dockings and special surveys in order to fulfill some regularity obligations that we have to do before the end of the second quarter, in the first quarter. Our results are still positive, but as Paul would say, they would have been much more positive if we had not taken some off hire. Of course, I think because of our very high utilization, which ranges between 99%-100%, usually, 95.5% still is much higher than the market usual, than the norm. However, for us, this 95.5% makes all the difference that you will talk about.
Right.
Looking forward, the second quarter has started positively. As the chairman mentioned, the first of our 15 deliveries, we had the pleasure to see this beautiful vessel, the [resale], being taken delivery at Hyundai. She has been chartered at a very accretive spot rate right now with significant chances to have a very accretive long-term charter going forward when the time is right. Before I take more of your time, I will ask our COO, George Saroglou, to give us a quick story of what happened up to now. Paul will continue with the financials, and I will be back with the team to answer any questions. Again, thank you for your support, and we're looking for another exciting period of growth going forward. This is our biggest period of growth.
With 15 ships, we're going to be adding to our already quite high EBITDA, another $100 million in the next five or six quarters. We're very excited. George? Thank you.
Thank you, Nikos. We reported today another profitable quarter following strong performance in a tanker market that remains robust following three weak years, 2010 to 2013. The operating performance year to date and the organic growth that is coming as a result of the company's new building program that gets delivered, we believe will produce another profitable year in 2016. 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 operating highlights. In early February, we took delivery of a 2012-built Suezmax tanker, sister vessel to a 2009-built Suezmax we took delivery late last year. Both vessels, upon delivery, started operating in the spot market, taking advantage of a strong freight market environment.
In May, we also took delivery of our new building VLCC Ulysses, which immediately entered into a short-term time charter before waiting for this to be committed to a longer period charter. This year marks the busiest growth year since 2007 for the company, with nine new building vessels expected to enter the fleet. With the exception of the LNG vessel Maria Energy, all other new building vessels have committed long-term charters at accretive rates. During the first quarter of 2016, TEN operated on average 49.6 vessels. On a pro forma basis, we have a fleet of 65 vessels, excluding the option for a fourth shuttle tanker. Thanks to the modernity of the fleet and the balanced employment strategy, we continue to operate the fleet at a very high utilization rate. 95.3% for the quarter, which is almost full utilization considering that this number incorporates three scheduled dry dockings.
As you know, all vessels in the fleet have to periodically undergo scheduled repairs. We would also like to highlight that in order to capture the healthy rates that are currently available for time charter business as a result of a sustained strong spot market, TEN has gradually fixed more vessels on time charters with or without profit sharing or renewed terminating charters at higher rates. Five Panamax tankers had their charters extended for two more years between minimum $18,500 and maximum $28,500 per day, with a starting rate for the first six months at $22,000 per day. The increase in the five vessels' combined annual revenue compensates for the low income the Neo Energy is expected to have during 2016, competing in a challenging LNG market after completing a very successful four-year time charter.
The Neo Energy trading in the spot market is now fixed on up to 2 months at a rate that produces positive EBITDA. With the company's new building vessels that will gradually enter the fleet during the year, we expect the annual contracted coverage of the fleet to go to 70%. The low oil price environment continues to impact the crude sector and then in a very positive way. World oil demand continues to be strong. For 2016, the International Energy Agency expects oil demand growth to be 1.2 million barrels per day. However, demand during the first quarter of 2016 has been stronger at 1.4 million barrels per day, thanks to stronger than forecasted demand from India and China. Despite the spike in the price of oil since February, at $50, the price of oil is still 50% below the average Brent price for 2014.
The low oil price continues to stimulate demand and encourages strategic and commercial stockpiling. On the supply side, OPEC produces at record levels, reaching 33.2 million barrels per day neighbor. After the lifting of sanctions, Iran has returned to the pre-sanction production levels of about 3.5 million barrels per day. Iraqi production is also at record levels at 4.3 million barrels per day. Production outside OPEC continues to decline. U.S. crude oil production has fallen as a result of the lower price of oil, and the slowdown in production has so far a positive impact on U.S. crude oil imports. Supply of oil is expected to remain at elevated levels going forward, and this is positive for tanker demand and tanker earnings. Fleet growth is manageable. The order book for the next two-plus years currently stands at 15.6%.
However, 12% of the fleet is currently over 15 years, and natural fleet replacement should gradually reduce the effect of the new tonnage in the market. Main shipyards in the Far East are in financial distress, which could lead to restructuring and capacity cuts. In addition, lack of access to capital has resulted in very few orders so far in 2016. If this trend continue, global fleet growth will be low after the current order delivers in 2016 and 2017. Overall, we expect 2016 to be another strong year for crude tankers, thanks to the growing global oil demand, high supply of oil, relatively low oil price, and moderate fleet growth. Slide number four has the main financial highlights of our press release, which Paul will present in more detail.
I would like to highlight the strong profitability for the quarter, and more particularly, net income of $25.4 million, EBITDA of $60 million, and very strong cash reserves of $276 million. The next slide is the fleet, and we see here a pro forma fleet of 65 vessels, which currently includes 51 vessels in operation and the new building program, which, out of the 15 vessels, 12 are already in very long and accretive time charter business and are fixed on employment with minimum 5-year duration, excluding any optional periods. When the effect of the full new building program into the fleet will add the company's EBITDA approximately another $100 million. Predominantly, the fleet is engaged, as you see, in crude oil transportation. There is sizable number of vessels engaged in transporting products, while five vessels are specialized vessels covering the LNG and the offshore shuttle tanker sector.
The fleet is very modern, with the average age of the operating fleet at 8.5 years, versus almost 10 years for the world tanker fleet. We are a very low-cost base operator, as you see on the next slide, as most of the fleet has been built and acquired before the rise of new building prices. The freight market has been strong and is expected to remain strong during the year, as the relative low oil price environment stimulates demand for stockpiling, especially from oil importing countries, and additional energy spending from consumers in both developed and developing economies. We continue the balanced employment strategy of the corporate fleet through a mix of spot charters, COAs and pooling arrangements, and period charters with fixed rates and minimum rates that have profit-sharing arrangements. This is the next slide, the employment slide.
31 vessels in the operating fleet are in secured employment, including 9 vessels on profit sharing arrangements covering 60% of the 2016 operating days. The average charter per vessel today is 2.4 years. 29 vessels, including the 9 on profit sharing, are on flexible employment, whose earnings are affected by the spot market. As you can see, for every $1,000 increase in the spot rates, the annual effect for TEN is an increase of $0.08 in EPS. In the secured employment charters, we have the long-term time charter of the new building vessels that will enter the fleet later in the year in 2017, from where TEN expects a minimum revenue backlog of $1.5 billion and an additional annualized EBITDA of $100 million.
On the oil demand, just to highlight a few things again, 2016, oil demand is expected to grow at least by 1.2 million barrels per day, which is closer to the long-term trend. Although we have been pleasantly surprised by the demand numbers in the fourth quarter, which have come higher at 1.4 million barrels per day. The global economy, despite headwinds in some regions, continues to grow, and the lower oil prices are supporting strong demand, especially in high-consuming countries like the U.S. and developing economies like China and India. This supply-driven drop in the price of oil benefits the tanker market because we have rising volumes, longer distances, and manageable fleet growth for crude tankers, and all these factors expect to play favorably for us in 2016 and beyond. The next slide is basically the history of our cash distributions.
We have increased the dividend distribution in 2016 from $0.08 to $0.08 per quarter, which is a 33% increase, and we paid in total $0.24 per share in 2015, while this year we will pay $0.32 per share. The first dividend for 2016 was paid on April 7th. The next dividend, which we announced today, is scheduled for August 10th. We have 2 more dividend payments in October and December at dates that will be announced during the course of the year. The company likes to reward shareholders with sustainable and growing dividends. In total, since 2002, TEN has paid $10.28 in cash dividends or approximately $430 million, and this compares with a listing price in our IPO of $7.50. The average yield, if one goes back to 2002, is five and a quarter.
In addition to the dividend distribution, the company has a $20 million buyback program in place that so far has repurchased 2.2 million common shares at an all-in cost of $5.84. The next slide has the most recent NAV calculation and the analysts that cover TEN.
The vision of the management of the company is to continue growing TEN responsibly, at the same time, have the reality being reflected in the company share price. At the same time, believing in the company's value and the business in which we operate, management continue to increase their holdings in the company as the relating filings indicate. That concludes the operational part of our presentation. Paul will walk you through the financial highlights for the first Q. Paul?
Thank you, George. Well, TEN had a good quarter in line with our expectations, which could have more closely matched the prior year's excellent first quarter, except for a number of factors that either were unavoidable or were deliberate to secure future benefits. As a result, net income was $25.4 million in quarter one. It was down $12 million against quarter one 2015, due mainly to a fall in net revenue. Firstly, the lucrative time charter of our LNG carrier ended halfway through the quarter, reducing our net revenue in quarter one by nearly $4 million compared to previous quarters. This may affect most of 2016, although we are now picking up short-term charters as mentioned. Secondly, scheduled dry dockings of three Suezmaxes were advanced to undergo necessary and beneficial regulatory upgrading, which lost us 120 days earnings equivalent to over $3 million.
Dry docking days lost in the prior quarter one were minimal. A further one million reduction from quarter one 2015 was due to the sale of two ships in 2015, offset by strong revenue from the two new Suezmaxes, although one only started operations in mid-quarter. There was some softening of the spot market, which affected certain of our vessels, some of our Aframaxes and Handysize product carriers compared to last year's quarter one. Of course, our elderly VLCC did not repeat the very rewarding storage charter of last year. All this contributed to a reduction of $3 million to $4 million revenue compared to quarter one 2015. Operating expenses, in particular, crew costs, fell by $1 million, mainly due to a stronger U.S. dollar versus the euro and tighter control by the technical managers as mentioned by the Chairman. Daily OpEx per vessel fell to below $7,900.
That is to levels we were achieving half a decade ago. Finance costs were down $500,000 to $7.9 million, mainly because of a non-recurring expense in last year's quarter 1. A small increase in loan interest was offset by a more benign impact of bunker hedges than we had expected. EBITDA totaled $60 million, down from the prior quarter 1, but all vessels actually earned positive EBITDA in quarter 1, even those vessels undergoing dry docking in the quarter. In quarter 1, $76 million debt was repaid, including $47 million as prepayment on a maturing loan. $101 million new debt was drawn, of which $31 million refinanced the expired loans. $25 million was predelivery financing relating to new buildings, and $45 million was for part financing the acquisition of the Suezmax Decathlon.
As at the end of quarter 1, we had $1.42 billion debt outstanding and net debt to capital was under 45%. Our all-in Q1 cost of debt still remained at a modest 2.5%. With current cash of $270 million at an expected healthy year in earnings plus potential proceeds from vessel sales, and with oil prices expected to continue benefiting voyage costs and encouraging demand, we are confident of meeting all our operational, new building, dividend, share buyback, and debt service obligations through 2017. This confidence will grow with delivery of our new vessels from June to year-end with accretive charters attached. A contribution which will do much to balance any LNG carrier lost time. This concludes my comments, and now I will hand the call back to Nikos.
Thank you, Paul, and thank you for the good news, and hopefully they will get even better as we go into the year and our deliveries will come to build more and more profitability and more EBITDA. We are very excited. As I said, 2016 is the most pivotal year of growth in the company for many, many years. We are looking to continue, of course, and grow our dividend policy, which is something that we have. We are one of the very few companies in the cyclical market that since inception, we have maintained a dividend, and hopefully it will go from strength to strength. The market environment we are facing, it is a comfortable market environment. We can see that there is more uncertainty and less focus than we had a year ago. Whereas the VLCC rates have stayed very strong, very similar to a year ago.
I think we are seeing a 20%-25% decrease in the other segments of the market, perhaps excluding the smaller sizes where have always been a traditional less fluctuation in this market. We are seeing the LNG segment hitting bottom sometime in the first quarter. We have signs there that although this market is starting to get some steam, we are seeing the trains and the projects starting to arrive. We are seeing the U.S. exports becoming more a reality in this respect. We are seeing more gas coming, furthermore, to come out of Australia. I think this is a market that will have to absorb, I would say, 40-50 vessels that are out there.
When this happens, I think it will happen within 2016, the market will be very strong, and that's where we want to position our timing and grow the company in that respect. We are looking at an exciting year. We have $100 million of EBITDA already, additional EBITDA from our existing vessels. With this in mind, we would like to open the floor to any questions. Nikos, are you there? Jenny?
Yes. Hello, sir.
Hi, Jenny. I think we would like to open the floor for any questions.
That's perfect. Thank you very much. As a gentle reminder, please press star one on your telephone keypad and wait for your name to be announced. That's star and one to ask a question. From Deutsche Bank, you have a question from the line of Jason Crescenzo, and I hope I've pronounced your name correctly, sir.
Yes, you pronounced it correctly. Hi, guys. Thanks for taking the question. It was recently reported you fixed the VLCC Ulysses on an attractive time charter. While I understand you may not be able to comment on the specifics, could you just give a high-level overview or outlook of how you see the VLCC time charter market evolving?
Yes. Thank you. Well, as I said, this is a market that has kept the very strong, the VLCC market also on the spot. I think as we speak, since we started this call I even saw that the market, which is waking up in your part of the world after your memorial, the weekend, is becoming even stronger. We closed at Worldscale 56, the farthest routes, or we have ships on subjects at around 62.5, which starts touching the $50,000, $55,000 times charter equivalent. I think there is liquidity, there is strength in this market. Her first maiden voyage is a very accretive voyage, way above anything you can get today on time charter. A time charter you can get for a long period of time, something starting with a four.
We have a lot of offers for first-class end users, as we always use. I think, most probably we will be looking to do something like that.
Very good. Thank you for that. Just one last one. Regarding the timing or parameters of potential asset sales, could you just give a little more color on that?
Well, I think we have always announced that we are always looking to keep the fleet young. We have quite a nice mix of vessels there. Our first-generation vessels, which are all built in the best yards around outside, there's always an appetite for them. Right now, there is an uncertainty, mainly due to the lack of bank financing for second-hand tonnage. There are negotiations going on, but there's nothing, I think, firm that we could announce as we speak today.
I got you. Just if I could follow up, just some guidance concerning the potential age of assets you would be looking to sell and/or I know you said there wasn't anything in timing, but anything in the pipeline coming up soon?
Yeah, I think we hope to be able before the end of the third quarter to announce the sales of our ships which are 10 years or older.
Very good. That's it for me. Thanks a lot for the time, guys.
Thank you.
Thank you very much indeed. From Stifel, you have a question from the line of Ben Nolan, and your line is now open, sir.
Hi. Yes, this is actually Steven Titsworth on for Ben Nolan. I had a couple of questions. First is centering around the Korean shipyard news. Recently there's been a lot of talk about STX going through financial difficulties, very troubled. In your view, do you believe there could be a material contraction in shipyard capacity over the next coming years?
I think we are seeing a very serious contraction of new building capacity. I think it was time. We saw this starting in China. If for us old enough to remember 10 years ago what was happening, I think as you know, we have Posidonia coming here in Greece next week, and I hope as many of you will come and visit us. We have the company's opening party here, open house party on the seventh and eighth, and we would like to see as many of you and come kick the tires, see our training centers, meet some of our captains and the people who run actually the ships. 10 years ago at the similar event, we were, I would say, harassed by Chinese shipyards of all sizes and sorts, of all types of ship, of people. I think this is something that does not exist anymore.
Right now, we are seeing that this has now been moved to the more traditional shipyards, the big shipyards of Japan and Korea. I think we are going to see shrinkage in this. It comes because of the damage that has been caused by the offshore industry, number one, and of course, the overcapacity that has flooded the market in dry cargo containers. I think although we feel very close to the shipyards, I think for the long-term survival and profitability of our business, the less of new building capacity out there, the better it is.
Perfect. My last question just centers around your share repurchase program. I know you purchased $2.2 million so far. It looks like you have about $7 million left over, just based on what you've spent. Have you thought about upsizing that share repurchase program or continuing at the current pace or perhaps maybe even focusing more on paying down debt instead?
Yes. I think this is a very fair question. Yeah, I think we will be increasing it. The board has taken the decision to increase it. However, we have to understand that we buy and operate ships. We are a shipowner. It's not our business to buy and cancel shares. We are not an investment banker.
Right.
I think our main business, if we want to reward our shareholders, we're going to do it through dividends and through reducing our debt. These are our first. If we have remaining cash, of course, an investment in our shares is a very good investment right now.
Perfect. That does it for me. Thank you for your time.
Thank you.
Thank you very much indeed, sir. Your next question from JP Morgan comes from the line of Noah Parquett, your line is open, sir.
Thanks for taking my questions. I wanted to ask, you just finished up the financing for your new build program. There's a lot of talk about a lack of financing out there. Can you talk a little bit about how those discussions went? What your takeaway is, in terms of availability of finance to maybe other owners?
I think that there is adequate finance for companies that have a long-term strategy, that have a majority of a fleet that is a strategic fleet with our relationships. As you know, we're starting taking over nine Aframaxes with very long time charters to Saudi Aramco, one of the largest oil producers in the world. I think for deals like this for us and the remaining of our peer group, I would say a dozen companies out there is adequate finance. There are banks giving competitive terms for this business. If you go to the other side of the equation, I think for new startups, for people who are looking to buy a second-hand ship, I think there's really nothing more than 50% of finance, in case you can even get that. Of course, there's no finance for speculative new buildings.
It's Niko, if I can add to this. Needless to say, that banks all over the world are finding it more difficult to lend, in view of the economic situation, in view of the heavier capital requirements that they have. It's not just shipping that they're hesitant. It's a phenomenon that most of the world banks are going through right now, that are more picky and have more limited capital to lend.
Okay. Are you still seeing import-export banks kind of filling the void there, or has that come down, too?
I think very selectively themselves. They will only do something like that if there is a major owner. As I said, what makes us comfortable, there's no new buildings are being ordered, neither in, of course, dry cargo containers, but also in tankers right now. I think that makes us more comfortable for going forward that the bubble we all had to face the burst of in 2008 and 2009 is not there.
Okay. I just wanted to ask, can you give an update on your kind of employment strategy for the LNG vessels? The Neo Energy is not earning anything right now, just to confirm, right?
No, the Neo Energy, well, it's earning, but it's not earning anything to write home about.
Okay. It's basically in the spot market now.
I think it's on the spot market. I think in this market it is very important to get, as we say, the propeller moving and to get the steel cold, to have a cool down ship. I think this is what most of the ships on the spot market are doing. We have been very lucky after almost nine years of very profitable employment, to be immune from the spot market, which we are facing today, where we have beefed up our operations. We have signed a joint venture with one of the largest LNG technical managers and Tsakos Shipping and Trading for running the ship in-house, and we're very proud and excited about this new development. We're beefing up also on the commercial side, and we are actually optimistic that this market will be turning later this year to levels that will be accretive again.
Okay. When you're looking at the FSRUs, is it fair to say that that would apply to your older vessel and then your view on the LNG market itself, you expect to improve this year, so you would look for regular employment for your new build? Is that a fair assessment?
There is employment we could secure today at a very accretive rate in 18 months down the road. I mean, we could fix the Maria today for delivery 2019, beginning 2019, end of 2018, at very accretive rates.
Okay.
Of course, you have to find something to do in the meantime. For a company like ours that is well-diversified in the energy segment, we have two out of 65 vessels in that part of the business. I think it is a good luxury problem to have how to get to do with the Maria Energy.
Okay, that's really helpful. I just wanted to ask about the Suezmaxes you dry docked. Are there any other ships that have that type of dry docking that needs to happen in the next couple of quarters, or is that all done now?
Hi, this is George. We have a couple of vessels this quarter, then one more around the end of the fourth quarter.
Okay. All right. Thanks. Go ahead.
Thank you.
Thank you very much indeed. Your next question from Wells Fargo comes from the line of Michael Webber. Your line is now open, sir.
Good afternoon, gentlemen. This is Donald stepping in for Mike. How are you?
Hi. Very well. Thank you.
There have been a couple of recent transactions on the crude tanker side that suggest new build levels may be back to decade lows. While I understand that the bulk of your cash is focused on your current CapEx and general corporate purposes, are you seeing more aggressive inquiry from yards for future new build activity? Is this starting to look attractive to you?
Yes. I mean, as my role as the current chairman of Intertanko, I think we will not do any speculative new building orders because I think by putting more supply in the market, it will do us bad long term. However, if there are, as we did previously a year or more ago with the two VLCC resales against share price, we will look at resales of course, when they become interesting. I think we are not there as a company. There are enough vessels out there right now to service our clients, and for us to earn a respectable return, that we do not need to go out in the market and order ships even if the vessels keep on dropping in value, as you said.
Got it. My next question is just sort of a follow-up on sort of your previous comments on financing. I guess if we step back and think about 12 months ago, certainly owners were able to go out to banks and get 70%-80% financing. I mean, is that constrained? Is it very difficult right now to get any financing above 60%, or has it even moved lower for some of the small and less liquid owners?
I think, first of all, smaller owners cannot get finance for a vessel that they will buy on a speculative basis. I think 50% is the 70% of the past right now. That's where a bank will start you with 50% rather within 70%, which you will lend up to. Of course, if you have a good reputation and if you have a project with employment, you might be able to get something better. As I said, there are a dozen companies out there in our peer group on the energy segment that compete for that upper scale of finance.
All right. Appreciate the call, guys, enjoy Posidonia next week.
Thank you. Hope to see you there.
Thank you very much indeed, sir. From Morgan Stanley, your next question comes from the line of Fotis Giannakoulis, your line is now open, sir.
Hi, this is actually Ben stepping in for Fotis. I just had one question relating to floating storage in the oil macro. Several sources recently have written about increased floating storage and its relation to potentially growing global inventories, I just wanted some color from you guys on how much of this you think may still be contango-driven and what sort of effect it has both on the broader oil macro climate and tanker rates.
I mean, we have seen that the price of oil has dropped from $114 all the way down to $25, $26, from the summer of 2014 until January of this year. In the last three months has gradually gone back to the $50 level. The contango has been there for a short period of time last year. We have seen charterers asking from owners the option when they have a regular time charter to also include storage as part of their overall, let's say, use of the vessel. I think most of the times, owners have given this option.
Even if the contango was not there the full time to support the economics of the trade, the combination of trading the vessel, moving cargoes, and partially storing it for a period of time, taking advantage of the change in the market that we have seen since February, seems to be working.
Okay. Thank you so much, guys.
Thank you.
Thank you very much indeed. Now from UBS Securities, you have a question from the line of Spiro Dounis. Your line is open, sir.
Morning, gentlemen. Thanks for taking the question. Paul, maybe this one's for you. Obviously, leverage levels look pretty good right now. I think you guys have some of the lowest in terms of net debt. Just wondering if you can give us a sense, maybe the pro forma leverage, what that looks like when you get full delivery of the fleet? Are we talking about balance sheet leverage or covenant leverage?
Yeah. Balance sheet would be great.
Yeah. I think it's at an all-time low now, so inevitably with the new debt that's coming on, it will start to creep up. In the past, we've had net debt to capital as high as 65%. I don't think we'll go that high, but certainly yes, we could go 55%-60%.
We find that's very manageable. It was manageable in the past, and we believe it will be manageable in the future. We've never had problems with our banks. Our relationships are so good due to our perfect debt service that even if it approached breaking covenants, we would not have a problem with the banks. We're not likely even to get to that kind of situation. We feel fairly comfortable with the situation that could potentially arise over the next year or so, 50%-55%.
Okay. Perfect. Yeah. That makes sense. Just I guess in terms of use of cash going forward, I think we talked about dividends and maybe share buybacks. I was just wondering on the preferred front, you've got a few series of preferreds there carrying a pretty decent coupon. Just wondering how you're looking at those, in relation to buying back those as opposed to something else.
I think this is a priority that we have. Our first preferred, I think, matures in 2018, and we would like to be able to refinance it with our cash after we finish with our new building program. It fits very well. We're finishing our existing new building program in the middle of next year. I think that will give us enough time to refinance it with our cash flows.
Got it. Okay. Last one, just on the FSRU. Just wondering if you think that maybe putting that vessel in for conversion before a contract to maybe sweeten the deal or get a leg up in the tendering process makes sense, or is that just something that's maybe a little too risky?
The head of our new building department, I think, just jumped out of the window after you said that. I think the vessels that we're building, and specifically the Maria, is an ideal vessel for an FSRU. I don't think right now we will be going through investing $50 million, $60 million in doing this on a speculation. We have good leads on doing it against long-term business.
Perfect. That's it from me. Thanks, guys.
Thank you.
Thank you very much indeed. Once again, if you wish to ask a question, please press star one and wait for your name to be announced. Thank you. We've had a question come through from McQuilling Partners. You have a question from the line of Mark Suarez. Your line is open, sir.
Hi, guys. Thanks for taking my question. Just to go back on the employment strategy here. I know you mentioned your strategy of maybe going into period charters. How do you see the two VLCCs that you have right now? I know that you have one for delivery. What's your strategy there in terms of time charter arrangements, and how do you look at profit sharing as you move forward?
Well, hi, how are you? As you know, profit sharing is for us the preferred way of doing business. We believe it's a win-win situation both for the charterers and for the owners. I think this is where we prioritize when we talk to a major charterer owner. I think, of course, the quality of the charterer and [inaudible] is very important for us. As long as we have a good quality charterer coming up with a profit-sharing arrangement, I think this is something we prioritize. Yeah, you are correct. It's closer to our mentality, to our strategy, and it has worked for us in the past. We are looking and hopefully, before the summer holidays, we will announce some of these types of businesses.
Okay. Maybe we could take a step back, in looking at your overall capital deployment, you've done a pretty good job in your sources, your uses of cash. Now moving forward, now that you have your newbuilds coming in, you have a pretty clear roadmap in terms of newbuild growth and employment strategy. How do you view any excess cash going forward in terms of newbuild resales? I think you mentioned that that's not really in your cards, but what about any secondhand opportunities, distressed assets that you could maybe put under quality long-term time charters moving forward? Is that something you guys are looking into here?
We are looking very seriously into something like this. I did not exclude newbuilding resales. Those ships were going to be built by someone, if they are going to be built, we'd rather buy them than leave them in the market to somebody else if they make financial sense. Resales is something we look at. What I think we do not look is in speculative newbuildings, of course, but we are looking at distressed fleets. I think this is something we have done in the past, and this is something we will be using our resources for it going forward.
Okay. If you have-
Many banks are approaching us with this type of deals because a lot of owners have mixed fleets. We're not one of those owners. They have mixed fleets, and they are tend to be in a crisis, as they say, some of the jewels of the house in order to go forward.
Right. That was going to be my follow-up question. You mentioned the banks coming to you with these opportunities. Do you see that more on the crude tanker side, on some of the larger size vessels or on the product side? What's your sense?
I think mixed. It's funny you ask this because I guess we're looking, as you know, at the mixed fleets coming out. I think they have a good flavor of products, of big sizes. They have a combination of crude and product. I think that makes sense. That fits very well in our fleet profile, which I think we have there in the presentation, which we are the most diversified energy mover out there.
Yeah, great. I appreciate the color, like always. Thanks for your time.
Thank you.
Thank you very much indeed. Your next question from Seaport Global comes from the line of Magnus Fyhr. Your line is open, sir.
Hi, guys. Just one last question. If you can maybe elaborate a little bit on your strategy for LNG going forward. You're both looking at FSRUs and also regular LNG. What do you think as far as buying ships, either new builds or consolidate some of the existing supply going forward against long-term contracts? I suppose you won't buy anything on speculation.
Hi, Magnus. Are you talking mainly on the gas side?
Yes.
I think, yes. This is a business that we are using. As I said, we have been immune from the crisis over the past in the market. We were lucky to have the Neo Energy, one of the best quality ships out there operating profitably during a difficult time. This has given us time to beef up our expertise on the operating side. We're doing it in-house. Also on the commercial side, we're increasing this significantly. We will be looking at situations that if a major oil company or another end user would like to part from one of their assets with a long or long-ish, because what is long in LNG now, it's not as long as it used to be, but still five years or seven years employment, it's not 20 years, we would be there to do this.
As long at the same time use our existing vessels in that employment, in that deal. We are looking to beef up the LNG segment.
I think you mentioned that you think the market's going to firm up here in 2016, 2017. What do you see the size of the fleet here in three years? I know you mentioned maybe five ships before 2020. Is that still kind of a goal, or has that changed at all with the weakness that we're seeing in the market?
Well, no. I think as a minimum, would be to double the size to have four vessels. I think we are also in a wait-and-see situation right now because as jokingly we have discussed in the past, this industry changes quicker than the iPhone technology. By the time you get LNG, LNGs appears, and then you have to compete with Galaxy and the Androids. It is a technology that changes quicker than other technologies. Unless there is a long-term employment, we don't want to invest in something that might not be a long-term vessel with a long-term use.
Okay, great. Thanks for clarifying.
Thank you.
Thank you very much indeed. Once again, it's star one to ask a question.
Okay, Jenny.
There appear to be no further requests, sir, so I shall pass the floor back to Mr. Nikolas Tsakos for closing remarks.
Well, I will ask our chairman to do the closing remarks. I would again, want to thank all of you for your questions. I think it shows that there is interest for our company, and hopefully, we can see the interest also reflecting on our share price very soon. The company is going from strength to strength. It has always been built on a very conservative long-term process. I think our view is we're not looking to try to impress our shareholders for the next quarter, but we're taking decisions for the next generations to come. I think this is our logo here, and we try to adhere to it as much as possible. That's why we have reached the stage that 2016 and 2017 would be years of extraordinary growth for us.
Almost 30% increase of our EBITDA with another $100 million, regardless of market conditions, because most of it is a fixed business. Focusing on specialized segments, which include shuttle tankers and long-term strategic projects with profit share. We are looking at a market which is right now, as we speak, is well-balanced. We might have to absorb some oversupply of tonnages going forward for the remainder of 2016 and 2017. I think the market has the legs to be able to go through this. We're going to maintain and increase our dividend and looking forward to welcome as many as possible of you in the next weeks at Poseidonia. After myself, I would like to ask our chairman, Mr. Arapoglou, for a closing statement. Thank you very much.
Thank you, Nico. I just once again want to highlight that TEN always announces a clear plan of actions, and it executes exactly what it commits to do. There are no surprises. If there are surprises, there are positive surprises. It continues to grow, according to plan, generating accretive business. It is a most diversified tanker transport business, and all this together continues not to justify its share price. I believe that gradually, the market will be convinced of the hidden value, and this will soon be reflected on the stock price. Thank you. Thank you, and have a nice afternoon.
Thank you very much indeed, sir.
Thank you, Jenny.
With many thanks to all our speakers today, that concludes the conference. Thank you for participating. You may now disconnect. Thank you so much, gentlemen.
Thank you. Thank you, Jenny.
All the very best to you. Bye-bye.