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spk07: Thank you for standing by, ladies and gentlemen, and welcome to Socos Energy Navigation Conference call on the third quarter 2023 financial results. We have with us Mr. Takis Arapoglou, Chairman of the Board, Dr. Nicholas Sokos, President and CEO, Mr. Paul Durham, Chief Financial Officer, and Mr. George Saraglou, Chief Operating Officer of the company. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session, at which time, if you would like to ask a question, please press star 1 on your telephone keypad and wait for your name to be announced. I must advise you that this conference call is being recorded today. I will now pass the floor to Mr. Nicholas Bornozis, president of Capital Link, investor relations advisor of SACOS Energy Navigation.
spk05: Please go ahead, sir. Thank you very much, and good morning to all of our participants. I am Nicolas Bornois of Capitalink, Investor Relations Advisor to Chakos Energy Navigation. This morning, the company publicly released its financial results for the nine months and third quarter ended September 30, 2023. In case you 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.TEN.gr. The conference call will follow the presentation slide, 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 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. And at this moment, I would like to pass the floor to Mr. Arapoglou, the chairman of Sarkos Energy Navigation. Mr. Rapoglou, please go ahead, sir.
spk06: MR. Thank you, Nicholas. Good morning and good afternoon to all, and thank you for joining our third-quarter results call today. Congratulations once again to Nikos Sarkos and management for yet another set of excellent results. Ten is, once again, perfectly positioned to benefit from a buoyant market, a very strong market, despite a short slowdown earlier on. Typically, you have seen us gearing up, raising capital in weak markets in a counter-cyclical way to invest and position ourselves for better markets. And when better markets arrive, we generate healthy equity, we leverage sell all the tonnage, repay obligations, and invest for sustained growth in best-in-class state-of-the-art vessels. This model, successfully tested several times now, coupled with superior operating performance and efficiencies, which you are familiar with, allows us to be able to maintain our unbroken record of paying dividends to reward our investors and to grow in a balanced and sustainable way. So, once again, congratulations to Nikos Tsakos and his team. That's it for me for now, and I pass the floor to our CEO, Nikos Tsakos. Thank you.
spk04: Well, thank you, Chairman. Good morning to all of you and good afternoon to those on this side of the globe. The nine-month 2023 has been a very, I would say, interesting year for our business, a year of development, a year of growth and renewing our fleet. Looking at our results for the nine months, they are very strong, very impressive. We have been able to produce so far, and the year is not over, Paul, in excess of $8, $8.20 per share of net income. And I think we must be one of the few companies that we would be... trading at twice net income. If we continue this way, hopefully we will be able to have a much better multiple very soon. The traditional third quarter, the traditional weaker third quarter, was exactly the same this year. And we had the, if you take, if you exclude the I-8 vessels which we renewed our fleet with earlier in the year, we have the exact same results as we had a year ago. with a time chart average both for the third quarter of 22 and this year of approximately averaging over the nine-month period and the third quarter period around the $31,000 per day mark. So I think the reduction in actual net income from quarter to quarter is actually the eight vessels missing. And I would say, as Paul will come, an increase of interest rates that we are seeing in the market. However, soon after the end of the third quarter, the market has turned in a stronger than expected way. We are seeing the, right now, spot market rates for every type of ship. This is the first time that every single type of vessel is earning approximately between $60,000 and $80,000 a day on the spot market. And we are very well diversified in position of fleet. We have, I would say, almost 50% vessels on the spot or spot-related and 50% vessels at very high. fixed employment. We took advantage of the strong market on the beginning of the year, and we either rechartered or renewed or agreed new charters on 26 of our vessels with an average of two and a half years, all of them in excess of 50 percent higher than their previous earnings in that respect. So looking forward we expect that the remaining of the year is going to be strong. And that's why we have also at the same time increased our dividend. And hopefully, being the major shareholders here, we will have a very similar situation going forward for the remaining of the year and for 2024. The prospects in the market are good. Still a very small new building order book, one of the smallest orders. I've seen in my career over 30 years. And on top of that, a lot of challenges in our business that make the environmental issues that are coming ahead will require a lot of perhaps slow speeding, changing of routes. of going forward. At the same time, we're seeing issues that we don't, other than the geopolitical issues, we're seeing global warming taking its toll in the Panama Canal and restrictions being placed, more vessels choosing. to rather navigate around the caves rather than using the Panama Canal, which further increases the ton miles. So in general, we are expecting a positive environment for the near future. And with that, I would like to ask Mr. Saroglu to give us a little bit more details.
spk03: Thank you, Nikos. Good morning to all of you joining our earnings call today. 2023, as you know, is the year we celebrate our 30th anniversary as a public company. And this morning we report the unnoticed financial results for the third quarter, the nine months of 2023. We have experienced, as Mr. Tsakos said, the usual seasonal summer lull, but since September the market rebounded. And as we speak, we continue to enjoy a strong freight market as a result of robust global oil demand growth positive tanker market fundamentals, and changes in trade routes and growth in ton-mile demand. What started last year, we continue to see it. We experience the largest change in trade flows to ongoing crude and oil product movements as a result of Western sanctions on Russian seaborne oil. And as these changes appear to be permanent, because before the war in Ukraine, Europe was the biggest client of Russian oil. But as the war continues, Russian oil was replaced with oil from the United States of America, from West Africa, Guyana, Brazil, and the Middle East, creating positive ton-mile multiplier effects for tanker demand and freight rates. At the same time, tanker new buildings continue to enjoy low single-digit growth numbers, with new orders being less than 7% of the existing fleet. Many yards report availability from 2026 onwards. Global oil demand continues to grow, boosted by the post-COVID global recovery and more recently by strong summer air travel and increased oil used in power generation and surging petrochemical activity, mainly in China. The latest November forecast from the International Energy Agency has revised global oil demand growth for 2023 from 2.2 to 2.4 million barrels per day. And as we are a month and a half before the end of the year, this demand growth figure suggests that we will reach an all-time high for global oil demand in 2023 of 102 million barrels per day. There are also global headwinds, like the high inflation, the tightening of global financial conditions. We might end up with higher interest rates for longer. The war in Ukraine, the war in Gaza, and the OPEC-plus production cuts and voluntary cuts by Saudi Arabia on top of the initial production cuts, the voluntary cuts by Saudi Arabia and Russia until the end of the year and possibly into the first quarter of next year. However, the global economy is expected to continue growing in 2023. The forecast is for 3% growth and 2.9% in 2024. And oil demand is expected to continue growing in 2024, next year. This view is shared by both OPEC and the International Energy Agency, two main oil market prognosticators. Venezuela got a six-month production and international oil markets, while Latin America, Guyana, Brazil, and Suriname expand their oil production as they continue to develop offshore oil fields. And having growth in the Atlantic Basin is very good, because most of this oil is not just going to Europe, but also to Asia, and this has a multiplying effect on ton-mile growth. And as we said also, tanker fundamentals continue to favor a strong tanker market for the next two or three years. The company took delivery in September and recently in October of the company's first two dual-fuel Aframax tankers that opened a new chapter for TEN, being the first two LNG-powered conventional tankers in a new building order of four that TEN operates for a significant European oil concern against long-term charters. If we move to the slides of the presentation, starting with slide three, we see that since inception, we have faced five major crises, and each time the company came out stronger, thanks to its operating model. Recently, we came out of the COVID pandemic, and we continue to navigate the challenges created by the geopolitical war in Ukraine and elsewhere. The fundamentals, very low tanker order book, the aging fleet, and post-COVID oil demand recovery, even without the tragic wars, were positive for the tanker industry. The Western sanction and price cap imposed on Russian seaborne oil as a result of the war served as an additional catalyst to propel freight rates higher, as long as established trade routes were disrupted and voyage distances elongated. U.S. crude oil exports have gone up from averaging about 3.8 million barrels per day last year to about 4.8 million barrels per day now. In slide four, we see the company's fleet growth and capital market access since inception. We raise capital for growth, not at the top of the market, but at times when asset prices are usually low. In the slide, In this slide, the numbers in the blue boxes present the company's common share offerings, and in red, the series of preferred share offerings since the company's New York Stock Exchange listing. The first three preferred series C and D, plus a privately placed preferred instrument of 35 million initial par value have been fully redempt as we speak, saving the company an excess of 18 million per year of coupon payments for all these retired preferred series. In the next slide we see the fleet and its current fleet employment. We have an operational fleet of 60 vessels. Thirty-one out of the 60 vessels, or 52 percent of the fleet in the water, has market exposure, a combination of spot and time charters with profit sharings. Forty-six out of the 60 vessels, or 77 percent, are in secured contracts, fixed time charters, and time charters with profit sharing. This means that TEN is well positioned to continue capturing the positive tanker market fundamentals. Any divestment of any generation vessels, as we have done in the first quarter of the year, with the six 2005-built EMRs and the 2006-built handy-sized product tankers, will be replaced and have been replaced with modern, eco-friendly, greener vessels. TEM has currently a new building program of eight tankers, consisting of two shuttle tankers for delivery during 2025, two remaining dual LNG-powered Afra Maxxes for delivery during the first quarter of 2024, two eco-friendly scrubber-fitted Suez Maxxes for delivery also in 2025, and two scrubber-fitted MR tankers for delivery in early 2026. Except of the two Suez Maxxes that will be delivered after two years and the two MR tankers, the rest of the company new buildings have been fixed forward, Slide 6 presents the company's current and long-term clients. As you see, we have a blue-chip customer base consisting of four major global energy companies, refineries, commodity traders, with Equinor currently topping the list as our largest charterer with 11 vessels and two new buildings all on long-term time charters. The left side of slide 7 presents the all-in break-even course for the various vessel types we operate in 10. Our operating model is simple. We try to have our time-chartered vessels generate revenue to cover the company's cash expenses, paying for the vessel operating expenses, finance expenses, overhead, chartering costs and commissions. And we let the revenue from the spot-trading vessels contribute to the profitability of the company. Fleet utilization for the nine months amounted to 95.6%, which is a very strong number. And thanks to the profit-sharing element for every $1,000 per day increase in spot rates, it has a positive 18 cents impact in annual EPS based on the number of 10 vessels that currently have exposure to spot rates. Debt reduction is an integral part of the company's capital allocation strategy. The company debt picked in December of 2016. Since then, we have repaid 355 million of debt and redeemed 211 million in three series of preferred shares, plus a privately placed preferred instrument. In slide number nine, we see the historical performance of the company since 2004. I would like to highlight the revenue growth as the fleet increased during this period, The changes in EBITDA as the company navigated the ups and downs of the shipping market in this 20-year period, the bottom-line profitability and the strong cash reserves that we have maintained. Last year was a record year for the financial performance of 10. We expect an equally strong performance for 2023. In addition to paying down debt, dividend continuity is important for common shareholders and management. has always paid a dividend irrespective of the market cycle. Our dividend policy is semiannual. Following the June 2023 and October 2023 payments, the latter being a special dividend, as we previously announced, we will pay a dividend of 30 cents per common share on December 20 to holders of record as of December 14, 2023. This distribution reflects the second regular semi-annual payment in 2023, in line with 10th semi-annual dividend policy. Overall, for 2023, the total dividend distribution of $1 per common share is four times the 25 cents per common share distributed to the company's shareholders in 2022. Following this year's Last dividend payment in December, the company would have distributed in excess of 528 million to its common shareholder since the New York Stock Exchange listing in 2002. And if we add the dividends paid to the holders of the company's preferred shares since 2013, the year the first Series B was issued, then 10 has returned in excess of 800 million to both common and preferred shareholders of the company. Global oil demand continues to grow. Despite financial and geopolitical headwinds, the International Energy Agency expects global oil demand to grow by approximately 2.4 million barrels per day, reaching 102 million barrels per day, a record number in 2023. Most of the growth is coming from the Asia-Pacific region, mainly China. On the supply side, most of the growth this year is coming from non-OPEC-plus countries, Brazil, the United States of America, Guyana, Canada, Mexico, Norway. As global oil demand continues to grow, let's look at the forecast for the supply of tankers. The order book of October 23 stands at 356 tankers over the next three years, or 6.7%, which is one of the lowest numbers in the last 20 years. At the same time, a big part of the fleet, almost 40%, is over 15 years. And 661 tankers, or 12.4%, is currently over 20 years. The next slide shows the scrapping activity since 2018. For this year, scrapping is low, but with upcoming regulations and industry, In the first phases of decarbonization, and more than 12.4% of the fleet over 20 years, we believe that scrapping is going to pick up. Overall, all these factors point to a very balanced tanker supply market for the next few years. And with that, I will ask Paul to walk you through the financial highlights of the nine months of the year. Paul? Thank you, George.
spk02: Hi, all. I'll just add a few words relating to the nine months ending in September in a year that has enjoyed considerable success for TEN and which continues to enjoy strong rates as the new year approaches. Net income for the nine-month period amounted to $272 million. while operating income for the nine years increased by 160 percent. EBITDA amounted to approximately $370 million adjusted, a significant increase by 90 percent. The average daily TCE for the nine months was over $37,000, up from $27,000. in the prior nine-month period, a substantial increase compared to the prior year period, helped by profit share arrangements providing nearly $60 million in the nine months and with almost every vessel fully employed, apart from seven in dry dock. Voyage revenues amounted to nearly $700 million, a 13 percent increase over the prior year. Our overhead expenses per day per vessel continue to remain stable at only $1.6 million. Total finance costs in the nine-month period amounted to $73 million, an aberration due to interest rate hikes and to inflationary causes. Finally, our debt to capital was about 49 percent, a comfortable ratio partially helped by scheduled loan repayments of $140 million and redeemed preferred shares totaling over $100 million. Our new buildings are on target to meet delivery, and related financing has now been covered. Our current optimism relates partly to the forthcoming months, and it is supported by our significant cash reserves and a promising global decline in inflation. And now I'll give the phone back to Nikos.
spk04: Well, thank you for your good news, and it's good that everything is adding up in a positive way. I think as it was mentioned from our president and our CFO, the current... The spot market is, I would say, at the all-time strong high in all segments. So it's a surprising situation where both the smaller clean trading vessels together with anything between Suezmax, Versys, and Aframax are earning between $60,000 to $80,000 a day on the spot. And, of course, this gives us a lot of comfort with our profit arrangements and our 50% spot exposure. So having right now 35 vessels in spot-related markets, as George said, it's almost 20 cents. Every $1,000, it's 20 cents to our bottom line. The result up to now of $8.18, I think, is very, very positive. And very soon this will be reflecting to a surprise. And of course it will give us more confidence to continue our dividend distributions. Looking back this year, we have already, other than the $30 million of dividend, that will be paid in excess of $100 million, $108 million has been paid back to our preferred... buying back our preferred shares, and that... immediately brings to a bottom line a saving of $9 million for next year. So, overall, we have returned more than, in this period of time, more than $140 million back to our preferred and common shareholders. And, of course, we maintain a very strong balance sheet that allows us to look at the possibilities of expanding our fleet with modern tonnage. We showed eight vessels. We have eight vessels coming, already took delivery of two, so out of our ten environmental-friendly new building. The prospects going forward, as our president said, we have a very low order book, increasing demand, a growing gray fleet that goes, you know, anywhere between 250 to 300 vessels that are not participating in the day-to-day market with the major oil companies, new legislation that is coming up that is making slow steaming and restrictions on traveling or navigation. positive in increasing tonne miles and of course natural limitations like Panama Canal restrictions that are making many owners taking more tonne miles and trading around the Cape. So in view for sure I think the fourth quarter this year is going to be our 30th year is going to be another record year like last year was. And the prospects, at least for the next couple of years, considering the limited new building supply, are positive. And with that, I would like to open the floor in case anybody would like to ask some specific questions.
spk07: Thank you. We will now be conducting a question-and-answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants, use your speaker equipment. It may be necessary to pick up your hands up before pressing the star key. One moment, please, while we pull for questions. Thank you. Our first question is from Sharif L. McRobbie with BTIG. Please proceed with your question.
spk00: The first question, earlier this week we saw some VLCCs go on multi-year time charters at above historical average rates, and obviously you've been active in the charter market, so I'm wondering if you're seeing much interest from charterers for three-year plus contracts, or is the opportunity there pretty thin?
spk04: I would say as we are speaking, my phone actually is ringing with charters and I'm not getting messages from our chartering department or from our London office in Singapore getting offers of this sort. There is a lot of appetite right now for three to five years on modern tonnage. We have our two shoes, Maxis, that are being built for next year. They're big contenders of very strong interest for those ships. So, yes, you're right. There is an appetite. There is an expectation from major oil companies that we're going to be seeing stronger rates. And I think what happened as the seasonal third quarter, which is the weakest quarter, came to an end, as George said, we have seen a very strong market demand. in all categories of ships. Usually, I mean, the clean started going about a month ago. The clean market started getting strong. And I think now the dirty market, when I say the larger ships, are following up in a big way. So, yes, you are right. There is a lot of demand for three- to five-year employment for good quality operators and relatively modern tonnage.
spk00: And then on the clean side, a few Middle Eastern refineries have been ramping capacity or are going to start ramping capacity this year and next. Has that started to shift trade flows for product tankers, or are you not seeing a shift in volumes there yet?
spk04: We are seeing the larger capacity Far Eastern refineries filling those gaps. And that's why perhaps you have seen the LR2s, which are not usually Far Eastern traders, earning very hefty rates bringing refineries either to Europe or even to refineries in the Middle East.
spk07: That's helpful. Thanks for taking my questions. Thank you. Thank you. Our next question is from Omar Noxa with Jeffrey. Please proceed with your question. Thank you. Hey, guys, just a couple for me. You know, perhaps just as a follow-up to the initial discussion on the time charters, I wanted to sort of ask about fleet deployment from here. I know in the release you mentioned chargers being more active, looking for long-term chargers, which, you know, Nick, you just highlighted again. But clearly there's a, you know, with long-term contractors, there's a sign of conviction that this market's going to be elevated for some time. So in terms of how you deploy your fleet from here, you mentioned having the 35 ships on the spot market. But I guess as you think about this as we move into 24 and onwards, how do you want to deploy the fleet? Do you want to stay as spot exposed as you are currently? Do you want to shift more towards index linked? Or do you prefer perhaps to secure long-term chargers at fixed rates, at elevated fixed rates?
spk04: Well, it has to do with case by case, by the quality. If we have a new charter of any quality with whom we do not have a very long relationship, we might consider doing a longer employment. But currently we are resisting long-term business on our existing fleet because, as you said, the market is quite good and I think we have a very good buffer on the ships that we have right now, the 33 ships that are on time charter. And, I mean, we're always looking at pulling and profit-sharing arrangements, which we encourage.
spk07: Okay, thank you. And then, you know, just perhaps a little bit more random, but just looking at your fleet list, there's the Lisboa Suez Max, and if I recall, that's a shuttle tanker. It rolls off charter in the first half of 2025, so it's still a bit away, call it, say, a year or a year plus. But we just want to know, in terms of how you think about that vessel in particular, do you think that that ship will continue operating as a shuttle tanker, or do you see it trading as a conventional Suez Max once that contract is,
spk04: Well, as we speak today and we have a big part of our team looking at the markets, the South American markets are not only, I think there's a big appetite for shuttle tankers to continue their business as shuttle tankers. However, the ships we have built and operate perhaps as efficiently and as profitably as Suez Maxis. But I believe that the ship will continue trading at this very demanding shuttle market that are growing right now.
spk07: And then just a final one for me is that on the two MRs that you ordered recently, those deliver in 2026, but they're scheduled to. I just wanted to ask, do you have options that came with those orders? And then is there any detail you can give in terms of when you need to exercise those or what delivery timeframes we would be looking at if you did exercise them?
spk04: I mean, we have options for those ships, and we have options for in the first half of next year of dual-fuel versions of those ships also. So, you know, this is what our technical department is analyzing together with our clients.
spk07: Okay. And delivery time frame, because if I recall, when you placed those orders, those at 26 that you still get delivered in 26 if you were to... Later part of 26 if someone is interested for a later part of 26.
spk04: Yeah.
spk07: Okay, good. Well, thank you, sir. That's it for me. I'll turn it over. Thank you. Thank you. Our next question is from Clement Mullins with Value Investors Edge. Please proceed with your question.
spk01: Good morning or afternoon. Thanks for taking my questions. I wanted to start by asking about your fleet renewal efforts. You've been clear on your intention to continue to sell older vessels and reinvest proceeds on modern tonnage. However, there haven't been that many transactions on the echo side of the fleet. Do you expect liquidity to increase going forward? And secondly, how do you think about the trade-off between high asset pricing and the need to renew the fleet?
spk04: Well, that's a very, very good question because what you usually say in shipping is that you should not be selling at the same time that you are buying. And so I think your point is... It's very well-timed. However, we are a client-driven organization. We're more of an industrial play owner. We've sold at least eight vessels since the beginning of the year at very hefty prices. And then we decided instead of... of buying vessels in the spot market to order our future with a very modern ship. So, I mean, as long as we are able to have good employment cover for the vessels that we will be buying, that will have very good returns going forward and amortize those ships. We will still continue with this model, selling older vessels at this market and looking at good quality perhaps dual fuel or other vessels with short employment. that will, first of all, reduce significantly our rates profile, which is already young, and reduce our footprint.
spk01: That's helpful. Thank you. I also wanted to ask about operating expenses on a per-day basis, which increased quite a bit quarter over quarter. As we think about the run rate going forward, should we expect them to trend to closer to 9%. And secondly, could you give us some commentary on what were the biggest drivers behind the increase?
spk04: Yes. And Paul can take you more into details, but I will give you the basic idea. First of all is that we are right now running a fleet of much larger vessels. So, I mean, that has... Last year's fleet, we had our vessels were eight vessels of the handy size that brought our daily operating expenses lower. This year we had the dry dockings of our larger ships in in Portugal. And, of course, we are running a fleet of much larger vessels. So the average naturally will go higher, but it will normalize, I think, within the year.
spk01: Makes sense. That's all for me. Thank you for taking my questions. Thank you.
spk07: Thank you. There are no further questions at this time. I will hand the floor back over to Dr. Nicholas Sakos for a closing comment.
spk04: Well, first of all, thank you. Thank you very much for asking. I know you're all very, very busy wrapping up for a very exciting and hopefully peaceful family Thanksgiving. And thank you for taking the time to be with us today. We're looking forward to report Even better results and a very exciting full year sometime early in the first quarter. We are happy to have a Christmas holiday dividend for everybody in December that our president has said on the 20th of December. And with that, I will ask also our chairman, Taiki, for your closing remarks. And I wish everybody a very happy Thanksgiving.
spk06: Thank you. Thank you, Nico. As you said, in view of the continued buoyant market, we expect to have very strong results for the year and equally strong results going forward. I hope that all these good prospects described today will soon be reflected in our surprise. And best wishes for a happy Thanksgiving to all. Thank you. Thank you. Thank you very much.
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