This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk01: Thank you for standing by, ladies and gentlemen, and welcome to the Chakos Energy Navigation Conference call on the third quarter 2021 financial results. We have with us Mr. Chakos Alapoglu, Chairman of the Board, Mr. Nicolas Chakos, President and CEO, Mr. Paul Durham, Chief Financial Officer, and Mr. George Soros, Chief Operating Officer of the company. At this time, all participants are in listen-only mode. There will be a presentation followed by a question and answer session, at which time, if you wish to ask a question, press star 1 on your telephone keypad and wait for the automated message advising your line is open. I must advise you that this conference is being recorded today. I will now pass the floor to Mr. Nicolas Bornozis, President of Capital Link, Investor Relations Advisor of Chakos Energy Navigation. Please go ahead, sir.
spk06: Thank you very much and good morning to all of our participants. I'm Nicolas Bornozis of Capital Link. Investor Relations Advisor to Tsakos Energy Navigation. This morning, the company publicly released its financial results for the third quarter, a nine-month period ended September 30, 2021. In case we do not have a copy of today's earnings release, please call us at 212-661-7566 or email us at 10... TEN at CapitalLink.com, and we will have a copy for you emailed right away. Please note that parallel to today's conference call, there is also a live audio and slide webcast, which can be accessed on the company's website on the front page at www.tunl.gr. The conference call will follow the presentation slides, so please we urge you to access the presentation slides on the company's website. Please note that the slides of the webcast presentation will be available and archived on the website of the company 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 Security 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. And at this moment, I would like to pass the floor to Mr. Taki Sarapoglu, the chairman of Tsakos Energy Navigation of TEN. Please go ahead, sir.
spk04: Thank you, Nicolas. Good morning, all. Thank you for joining our call today. Nothing much for me to say other than that we manage, as always, in a typical counter-cyclical fashion to grow the company within an extremely challenging market, probably the worst market ever, and have come out unscathed. We booked new incremental accretive business with state-of-the-art, environmentally-friendly vessels. And now we're perfectly positioned to capture the market recovery that seems to be around the corner, as indicated by the recent improvement in MR and LNG rates. Nothing else from me other than wish you all happy holidays and a happy new year. So, Nikos Tsakos, over to you. Thank you.
spk02: Thank you, Chairman, and good morning and good afternoon to all of you. Thank you for joining our call. And sorry for having our third quarter earnings so late this year. It's the fault of our good friend Nick Bournosis. For the last 15 years, we usually are in New York and we report live from New York and ringing the bell for a Greek day. This year, thanks to Omicron, we were not able, it was canceled, but our date was set anyway. But it's better late than never, as I would say. And also, we are able to give you a better overview of where things seem to be going. As our chairman said, the first nine months in significant, mainly the third quarter, were one of the worst quarters in recent memory. I think I was reading it's the worst quarter in 30 years. I'm almost old enough to remember that, since the days there in the 80s. However, we have been able to maintain a very steady course with them. Our modern fleet, our long-term relationships, our strategy of utilizing as much as possibly The resources of the fleet have given us good growth prospects, and we are in a good position to know that the fourth quarter, which is coming to an end, is going to be a significantly better quarter for us as a company because of the measures we took. We took 17 vessels that were dry docked in the first nine months, out of which half of them were prematurely dry docked in order to have the vessels ready when the market turns a corner. The signs are there. The LNG market reminds us of the container market. Finally, we will be earning our LNG which is going to be delivered in two weeks. in triple-digit figures. I think their last average was around $200,000 a day. And we are on market-related territory with our charters, which we are very happy about. Our LNGs also, the ones that are coming for charter, will be taking advantage of this just shortly after, in March and April. And, of course, the new acquisitions of our shuttle tankers together with our dual fuel ships are going to create a very solid core of growth for the company, which we are very proud of. We are seeing the product carrier market very strong here in the West right now. And we have 36 product carriers, of which one-third of them right now are taking full advantage of the spot market through our pooling arrangements with big pool partners like Cargill and Maersk and on the spot market. So I think the plan set is starting to take more and more positive direction. features, as we talk right now. And on top of this, of course, are new arrangements and new vessels that we have charted forward for dual-fuel vessels. And with this, the long-term pictures, today the International Energy Association announces that there is a very good chance, because of the lack of energy, that we will be looking at a significant contango in February 2022, very similar to what happened two years ago when the outburst of the of the virus started. If half of this is true, I think we are for a much better first quarter for sure. And with this, I will not take any more of the time, and I will ask George to give us a quick overview of what has happened in the nine months. George?
spk03: Thank you very much, Nikos. Good morning to all of you joining our call today. Let's go to the slides of our online presentation. Starting with slide three, we see that since inception in 1993, we have faced four major crises. In each time, the company, thanks to its operating model, has come out stronger. This time is no exception. While we navigate through the challenges the COVID pandemic has created, we have grown the company and prepared the company for its next phase. In September, we signed new building contracts to build four up to six dual-fuel LNG-powered Aframax tankers against long-term employment to a major oil concern. Factoring the latest orders and considering the company starts in 1993 with four modern tankers, we currently have a pro forma fleet of 71 vessels for an average annual growth of 15% in terms of deadweight tons. In slide four, we see the pro forma fleet and its current employment profile. We have a combination of vessels in fixed time charters and in flexible employment contracts. Time charters with profit sharing We took advantage of the low freight market environment to bring forward a number of scheduled special surveys repairs to have these vessels available once the freight market for tankers will rebound. Fleet modernity is also a key element to our operating model. During the year, we concluded the sale of three of our older tankers, and we replaced them with the new building order for the six dual-fuel Afromax tankers that will enhance the company's environmental footprint as these LNG dual-fuel powered vessels we see the left side that presents the all-in break-even course for the various vessel types that we operate in 10. We have a low cost base, as you can see. During the nine months of the year, the revenues generated from the time charter contracts were again sufficient to cover for the company's cash expenses, paying for the vessel operating expenses, overheads, chartering costs, and loan interest. We must also highlight the purchasing power of average for the fleet, while keeping the high fleet utilization rate quarter after quarter Slide 6, debt reduction is an integral part of the company's capital allocation strategy. Since the company's debt peak in December of 2016, we have repaid $368 million of debt and repurchased $100 million in two series of step-up prefers that we had outstanding. In addition to paying down debt... A billion in dividend payments have been distributed since the New York Stock Exchange listing in 2002. Global oil demand continues to recover. There is a slowdown as a result of the new Omicron variant. However, experts believe that the effect is going to be small, and this will mainly affect air travel and jet fuel demand of around 100,000 barrels per day. Still, the prediction is 2022, when it will return to the pre-pandemic levels of close to 100 million barrels per day. On the global oil supply front, OPEC Plus producers continue to manage supply with discipline, and global oil stocks are now 240 million barrels below the most recent five-year average. Non-OPEC production is set to increase in 2022, and in the near term we had a coordinated effort to release in total approximately 70 million barrels from the strategic petroleum reserves of the United States, China, India, South Korea, Japan, and the United Kingdom in an effort to ease energy prices, which were successful, as oil prices are now trading $10 per barrel below the levels we had at the start of almost 7.2% or 390 tankers are currently over 20 years. As the next slide shows, 2018 was one of the highest scrapping years of records, with 22 million deadweight tons removed from the market. Last year and the year To summarize, oil demands, we see that the recovery of oil demand continues. Oil supply, monthly production increases by OPEC+. Non-OPEC production is also set to rise in 2022, bringing more cargoes to the market at the time when global oil stocks are below the five-year levels, and demand is increasing towards the The order book to current fleet ratio is at historical low levels. A big part of the fleet is reaching phase-out age, pointing to a tighter supply of tankers for the next 18 to 24 months. If we look at the company, we have a modern fleet, well positioned to capture the expected recovery of the market. We continue to reduce debt. We have a strong balance sheet, strong banking relationships that will allow the company
spk05: Welcome to everybody from the London office of TACOS. So, as indicated, we are beginning to see market conditions improve. Given the market conditions up to now, we feel the quarter three net loss of $25 million to be comparatively mild and indeed a possible turning point, with the product market leading the way and at least possibly resulting in break-even and profitability in the early parts of the new year. Despite the market, our time charters, which represented half the fleet, were able to generate $66 million, and our spot vessels provided a further $65 million, bringing total revenue in quarter three to over $130 million. For the nine-month period, revenue reached over $400 million, further indicating that the sector is bouncing from the bottom of the trough. Daily TCE per vessel in quarter three averaged nearly $15,700 and $17,100 for the nine months, again exceeding average market rates in both periods. Fleet utilization in quarter three reached 90% despite nine vessels in dry dock. Prospects for the near future are promising. We are expecting soon to add two new vessels that together will provide $9 million extra revenue each quarter. That includes the LNG carrier that alone is expected to generate about $100,000 a day net income. There was some increase in total expenses in the quarter, partly due to the dry dockings and associated voyages, while rising fuel costs, which are included in voyage expenses, also increased. The increase, however, was offset by a 9% fall in operating expenses, the daily OPEX per vessel falling to $7,300, due to savings on the part of our technical managers. A large part of these expenses were covered by the revenue generated by our time charters. Finance costs fell 39% to just over $8 million as interest rates and margins were reduced, keeping our average cost of debt to only 2%. The repayment of debt by $115 million since the start of the nine-month period, including $46 million in Q3, also resulted in reduced interest. Bunker hedge gains provided a further $2 million. Despite debt repayments and CAPEX commitments, we continued to strengthen our balance sheet through the ATM program and by securing our vessel revenue and, as in the nine months, selling three vessels. In addition, we have refinanced the loans of several of our vessels at mutually beneficial terms. At the same time, we continue to consider opportunities for disposal of older vessels that may further reduce debt and free up cash to be effectively replaced by new vessels such as the Afromaxis recently ordered. And now I'll return the call back to Nikos.
spk02: Thank you all and keep safe in London. I hope you and your family are safe and I'm looking forward to see you here and thank you for your input. Well, with this I would like to open the floor for any questions. Thank you very much.
spk01: Thank you. We will now begin the question and answer session. If you wish to ask a question, please press star 1 on your telephone keypad and wait for the automated message advising your line is open. Please state your first and last name before you ask your question. If you wish to cancel your request, please press star 2. Once again, if you wish to ask a question, please press star 1 on your telephone keypad. We will now take our first question. Please go ahead. Your line is now open.
spk08: Ladies and gentlemen, it's Randy Givens from Geoffrey, Geoffrey.
spk09: Howdy, gentlemen. It's Randy Gibbons from Jefferies. How's it going?
spk10: Very well. Thank you.
spk09: Thank you, Randy.
spk10: Hey, I have two questions.
spk09: First, can you discuss the decision to put those 10 vessels on time charters? What are the terms of those time charters, durations and rates? And then is the expectation a further kind of lock-away tonnage in the near term?
spk02: Well, I will give you a very, very, I think, nice overview, and then we will have a private call because we don't want industrial espionage, you know. So, yes. Well, as you know, we are always a long-term relation company, and that's why we are weathering, you know, relatively unscratched and growing the company. You see? So we had our two VLCCs, and, you know, VLCCs are the, you know, our two largest vessels, and we charted them out based on profit-sharing arrangements with a minimum, which if you go back to George's, and I'm going to George's break-even that George portrays, covers the all-in break-even cost of those ships. If you see VLCCs, they're around the $26,000 range, even more than that, and that allows us then a significant upside in the market of 50-50s based on the index. I think that has been a decision. We, like most of the owners, were waiting for the right time to do so. We've been approached having very modern ships like ours. We've been approached to charter those ships for the last years, but of course it didn't make any sense at the rate that they were offering. And now I think we are way above average break-even, and we have an upside. So... I think that has to do. Very similar situations with four Afromaxes. Again, you can see the break-even. So that's always our goal. We cover our break-evens a little bit more. I think Afromaxes were closer to 19 as a minimum. And then a 50-50 upside on those. So I think this is day-to-day business that keeps the shop open and helps the growth of the company. So we're very happy that we had. These are all transactions that we've done on the fourth quarter. And we stopped some of the down of the third quarter. The third quarter, which was actually historically one of the lowest quarters in the history of tankers, was not the time to do so, but the fourth quarter things turned around. Got it.
spk09: Okay. And then, I guess, secondly, on the ATM, you issued 14.4 million new shares in the third quarter, another 32 million or so in the fourth quarter, I believe. On the last call, you had 15 million remaining in authorization payments.
spk02: Well, we had our board meeting, which was in November, authorized another 100 million of ATM program to top up this program. So, you know, we have this. I mean, it took us to go through the last 100 million about 10 years. So, yeah, it's not that we are spending. But as you know, we are growing the company with opportunities. And I am always someone that likes to keep very solid cash balances.
spk10: I think about $80 million. $85 million.
spk09: And then I guess conceptually here, you know, your shares are trading at a steep discount to NAV. We have at least a double-digit NAV. But yet you're issuing some dilutive shares to purchase vessels. So why is that?
spk02: Well, we are not only... I mean, we are issuing a combination of preferred, which, as you know, our preferreds are trading very well at around the 24-25. So we try to make a combination of issuing our preferreds, which are trading very, very at par. And then at good times some shares. Because we believe that the growth prospects that we are seeing, because we are in a very, very exciting part of the industry right now, very similar to when a big number of our ships had to be change from single toners to double toners. So we have to start turning our fleet into dual fuel or even hydrogen or ammonia. So we have to be liquid and ready to go. I mean, we are a growing business, as George said. We've been growing 15% since inception, and this is the business. Okay, and then I guess lastly, just on OpEx, it seemed to have fallen from 2Q to 3Q. Is that the new run rate, or was there some one-off items? Well, as you know, when things are bad, you have to start, you know, you guys that watch a lot of basketball, we start with defense. So the first thing, you know, there's not much we can do in changing the market conditions, but what we can do is, you know, be more defensive. And I'm very, you know, I'm very glad with George Saroglu and the technical managers for the results they are making down on the on the second floor, which you've been, where we run. I mean, that's the beauty of running everything within one building inside here, so we can just... And, you know, stop as many expenses as possible when we need to. And this has been done in a very difficult environment where more than $20 million in our expensive budget come from direct or indirect COVID-related burdens. I mean, we had to navigate ships to change crew at huge costs. We had at the same time to wait outside Chinese ports for two weeks for quarantines losing you know this was our lowest utilization ever which is compared to a peer group it's still very high 90% but if you go back to all the last 20 years because we had also to wait to quarantine our crew before we go for repairs so it's been a tough patch but I think the team has navigated it very well got it alright well that's it for me Merry Christmas thank you same to you
spk01: Thank you. We will now take our next question. Please go ahead. Your line is now open.
spk08: Good afternoon, Nick and Team Chaco. So this is Magnus for your HC Wayne line button. I just have a couple of questions here, starting with the... Going back to your comments on spot rates in the fourth quarter, you mentioned that they're significantly higher than 3Q. We had 3Q as one of the lowest in history. But can you give us some kind of magnitude? Are they up at least 20% in 4Q? Or what should we expect to try to get that kind of impact?
spk02: I think if I had to give a figure without the infusion or the Q1 figures, huge input from our LNGs, because the way we have structured the pricing of the LNGs, you know, we know that for the first quarter they will be earning in excess of $100,000, the way the pricing works, because it works in a retrospective manner, which I do not want to get into too many details here, I'll bore you. But I think for the rest of the fleet, I would say it's a at least 25 percent betterment, which is, I would say, more than 500 percent betterment on the LNGs, 50 percent betterment on Arafra Maxis, and then, of course, five-fold of the fourth quarter, a fivefold effect of the market on the March, where we have 12 of them directly taking advantage of the market as we speak today. I would say, if you put it, it's between 25 and 30 percent.
spk08: Okay. Very good. And you have secured a couple of time charters. in the quarter. I mean, do you have a different strategy on the products versus the crew going forward, you know, given that it seems like the products are picking up, or are you still going to focus on kind of covering your fixed cost and then 50-50 profit sharing?
spk02: On the products, as you know, I mean, utilization is very important for us, and we are not, we are participants, strategic participants in various pools. We have a very, you know, with very good names from the north, like Maersk and Cargill. And so what we do, we have full utilization of our product fleet, which is very important. And so we are never off-hire, and we get the upside of the market. So I think I am supportive of bulls, and that's what we're doing with our smaller ships.
spk08: Okay. And as far as the appetite for more time torturers... Have you seen a change here with the charters coming into the market? I mean, you seem like you've been able to secure a couple of charters, but what's the appetite for more from your side, and do you think there's more appetite from the charters?
spk02: I mean, we saw the appetite on the VLs. We saw a big appetite on Afra Maxis, and we are seeing now an appetite for Suez Maxis.
spk08: All right. Very good. Just one more question for Paul, perhaps. You mentioned that you issued both equity on the ATM and also the preferred. Can you give us a sense how many, what's the outstanding amount on the preferred by the end of 3-2, and did you issue any in the fourth quarter?
spk05: Can the Athens office answer that? Okay.
spk03: George, I think all the preferred combines, and we have three series, is, you know, a little over 15 million press.
spk08: D, E, and F. Okay, and that's at the end of C2? That's for up to now. Okay, very good. All right, that's it for me. Happy holidays, and we'll see you next week.
spk02: Thank you, same to you, and stay away from the tornadoes down there. All the best. Stay safe.
spk01: Thank you. We will now take our next question. Please go ahead. Your line is now open.
spk07: Good afternoon, gentlemen. It's Jay Minsmeier from Valley Investors Edge. I haven't talked to you in a while, but congrats on your arrival here. Hey, so I joined a little late on the call, and I heard the last gentleman asking about the ATM. I just wanted to get some details on that. You mentioned $14.4 million in the third quarter, $31.9 million thereafter. I'm curious about the split between the common and the preferred, like how much dollars in each amount, and also the average share sale price.
spk02: Well, Paul, just as George said, it's $15 million of the preferred. The remaining is on the common portfolio. for this year period. And I think we can have, you know, please call George if you need later to give you all the, you know, more details. I mean, on the actual figures, the pricing.
spk07: Okay. Are you planning to file, like, a Form 6-K or something with more financial details on that? Of course. Of course. We always file our 6-K, and I think it's going to be filed early in the year. Excellent. And then you have the one shuttle tanker. My understanding is the original new building contract included two options for those. Has there been any decision on those options?
spk02: The one... I mean, actually, you're very correct. You have a very good memory. But, I mean, we took this... The one we are building now is the second option. We had the first called the Lisboa, which we took over a couple of years ago. Then we had an option which we're building now, the Porto. And, you know, there is a third option which we're currently discussing. However... As you understand, the price, and this is something we didn't mention, the price of steel has skyrocketed. The new building prices, I mean, the value of our fleet, of our existing new building ships, is right now, it has at least a 30 percent increase. So, I mean, when, you know, so we've done the two out of the three options.
spk07: Yeah, I was curious on those options, because I imagine they're significantly in the money on those.
spk02: We took, I mean, the first vessel, we called it the Lisboa. The second is the Porto, which will be delivered, the second option, which will be delivered in June or July, according to our new building department, against a very long-term contract in Brazil.
spk07: Yeah, what's the timeline on that third option? How long do you have to exercise it, and what would the lead time be for building that ship?
spk02: We are currently negotiating it. We are negotiating for a very long contract, which I believe we might have used this side of the year.
spk07: All right. We'll look forward to that news. And then last question, just kind of general, specific on the company. Look, I mean, Zocos has been public for a very long time. You have a very impressive fleet, a long-storied management. There's been a recent trend towards reporting extremely late. I mean, it's 2.5
spk02: You missed my introduction, but I will say it again, because I apologize. And I said that the reason for our last two delays had to do with, I was joking, but it's true, with Nick Bornoz's events that we do, the Capital Inc. Because, as you know, we have not been able to travel to the United States, which the majority of our shareholder base is. So we were taking the opportunity on yesterday, the 15th of December, was the typical day of ringing the bell, and we were going to report today, so then we would spend, before everybody gets into the Christmas spirit, do a roadshow. However, all of this fell apart because of the Omicron, but our date was set because of that. So I think as we go back from March, we are going to be back to normal again. Hopefully we can travel within the time frame.
spk07: All right, we'll look forward to earlier results. Very last question. Again, appreciate your time today. Do you have a current number? I think it's 23 million. Is that still current for the common shares? Yes, it's just shy of 23 million. That's right. As of today. Okay, excellent. Thank you, gentlemen, for your time.
spk02: Thank you, guys. Thank you. All the best for the holidays.
spk04: Thank you very much, London.
spk01: We have no further questions at this time. Please continue.
spk02: Thank you very much and we wish all of you a very safe, safe holidays and hopefully early in the new year we can report better news to you. Merry Christmas, Happy New Year and Happy Holidays.
spk01: That does conclude our conference for today. Thank you for participating. You may all disconnect.
Disclaimer