Tsakos Energy Navigation Ltd (TNP)

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Tsakos Energy Navigation Limited (TNP)

Q2 2013 Earnings Call

August 02, 2013 10:00 AM ET

Executives

George Saroglou - COO

Paul Durham - CFO

Nikolas Tsakos - President and CEO

Analysts

Benjamin Nolan - Stifel Nicolaus

Fotis Giannakoulis - Morgan Stanley

Urs Dur - Clarkes and Capital

Omar Nokta - Global Hunter Securities

Presentation

Operator

[Abrupt Start] George Saroglou to give us all the actions that you have been taking and give you more detail of the last 180 days specifically with your last 90 days, thank you.

George Saroglou

Thank you, Nikolas. It is my pleasure to speak with all of you today and provide with you details of the operation of another quarter. For those of you who are connected to the Internet in our website, there is an online slide presentation which format we will follow during the call.

Let’s turn on Slide number there where we see the current fleet which consist of 28 product tankers all of them in the water producing for TEN. This is one of the largest product fleets in the market operating, in a product tanker market environment that continues to improve. The company has also 19 crude carriers where we’ve seen great improvements in certain routes in all three sectors in VLCC in the TD3 and Suezmax in TD5 and Aframax in TD5 which didn’t last as we enter the seasonally weak third quarter. The company also has two LNG vessels including one in the water and one on earth.

The next slide gives us some market highlights despite new global economic outlook especially for the develop economist, global oil demand continues to grow. In July the International Energy Agency introduced its 2014 outlook which forecast demand growth of 1.2 million barrels per day over the 2013 period. We are currently about 91 million barrels per day which is an all-time high level although the market especially for crude tankers continues to have challenges and no major rate improvement is expected until the fourth quarter of the year.

The good news is that we haven’t seen any new orders for crude tankers for more than a year and in the next two years the growth in all three categories VLCC, Suezmax, Aframax is very limited. With the Aframax fleet marginally reduced during the 2013 and 2014 period. Our product tanker, in our product tanker, rates are rebounded from 4 years of historical low levels talking about the period between 2008 and 2012 and the product tanker story continues to gain traction as refinery capacity continues to deal closer to the oil reserves in particular the middle east and further away from the OECD consuming countries creating ton mile demand for all type of product tankers.

Looking at the corporate highlights, TEN successfully completed the project for the DP2 Shuttle tankers by ordering building and taking delivery on time of two high specification vessels that pass all charterer trial and approval test and begun in May and June of 2013 their 15-year time charter to Petrobras. The company pro forma fleet of 49 vessels includes 48 vessels in operation and one tri-fuel LNG vessel under construction.

The company managed to change the size of their order from 162,000 cubic liters to 174,000 cubit liters and the delivery date from the first quarter of 2015 to the first quarter of 2016. The new size reflects the expanding requirements of the main LNG charter as an end-user which management believes will make the 174,000 cubic liter size vessel. The workforce of the LNG industry going forward. Although the prospects for the LNG market are slide and the current order book appears balanced. And the bulk of the new buildings and order will be delivered in the 2014, 2015 timeframe.

Management decided to also change the delivery date to account potential start of delay in projects that are expected to be producing gas before the 2015 and 2016 period. The company also holds an auction for one more LNG vessel sister vessel to the (inaudible) to be declared later in the year. The fleet is 100% double hull, very modern, 6.6 years, 21 tankers have ice-class capabilities and 32 vessels out of the 49 vessel fleets pro forma fleet have several employments that ranges from 1 year to 15 years.

One of our 1A ice-class vessels the LR2 Propontis is currently performing the northern group sea fossils taking cargo of NASA from northern Europe to Japan. Thanks to our tank charter philosophy, we continue to operate the fleet at a very high utilization rate, 98% for the first half 2013 when the average for the tanker industry is around 85%.

Let’s move to slide number six, this slide has a main highlight of our press release 65% increase in operating income significant improvement in both second quarter and six-month 2013 net results almost that given for the half year against loss of 14.5 million in 2012. We maintain a strong balance sheet and cash reserves in way 60 million and preferred operating of beginning of the May which further strengthen the company’s growth prospects. We have introduced 9 charters, we have introduced new charters for 11 vessels in January 1, 2013 with minimum revenue approximately 135 million and this is a year that we celebrate our 20 years in the capital markets.

The next slide presents a corporate fleet as it stands right now. We focus in three market sectors, conventional bankers, which cover both, crude and product tankers, LNG and shuttle tankers. Of the four markets, LNG and offshore shuttle tankers, are potential growth areas for TEN due to the growth prospects, favorable supply demand fundamentals and barriers to entry. Within conventional tankers TEN operates both crude and product tankers. We are one of the largest and most modern product tanker fleets in the water and we are in the water now which we take advantage of a freight environment which keeps improving. We have 21 ice-class tankers. The first two great flag shuttle tankers with around 15 year time chart is the Petrobras and have one LNG in the water and one (inaudible) vessel under construction plus one option. Since 1997, the fleet was built exclusively with new building orders in Korea and Japan.

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