Capital Link hosted a presentation by the senior management of TEN Ltd. (NYSE: TNP) on Thursday, January 12, 2023. During the 45-minute session, Dr. Nikolas P. Tsakos, Founder, President & CEO, Paul Durham, CFO, George Saroglou, Chief Operating Officer and Harrys Kosmatos, Corporate Development Officer, described the strong tanker market, the current state of the company’s fleet, and its dividend policy as part of Capital Link’s Company Presentation Series.
A replay of the full session of the presentation and the extensive Q&A can be accessed at:
Highlights from TEN Ltd. session at the Capital Link Presentation Series include the following:
Tsakos Energy Navigation Ltd (TNP) TEN Ltd. is one of the largest and most well-established independent energy transporters in the world. With a diverse fleet of 73 modern vessels, including both crude oil and oil-product as well as LNG transportation. This includes 7 newbuilds. TEN Ltd maintains a customer base consisting of major global energy companies.
Dr. Nikos Tsakos, CEO, stressed that TEN is focused on capitalizing not only on periods when the market is strong, but also when it lags. He stated that the company’s current strategy includes chartering its vessels in the spot market, for short term periods, when the market is very strong.
The company has “taken advantage of the difficult times” to order its first four green, dual-fuel ships, Dr. Tsakos said, with the order backed by long time charters from one of the company’s main clients.
In terms of chartering, 40 of TEN’s 66 vessels on the water, or 61%, have market exposure, or a combination of spot and time charter, along with profit sharing.
A total of 44 of 66 vessels on the water, or 67%, are in secure revenue contracts, or fixed time charters and time charters with profit sharing. “This means that TEN is capturing the positive tanker market fundamentals that prevail today, George Saroglou, COO, stated.
“We have a simple operating model—we try to have our time charter vessels generate revenue to cover the company’s cash needs, the vessel operating expenses, finance expenses, overheads, chartering costs and commissions,” explained George Saroglou.
“We let the revenue from spot rating vessels opportunistically contribute to the profitability of the company,” he continued.
George Saroglou stressed the company’s commitment to keeping operating costs low and utilization rates high. Currently, TEN’s fleet utilization sits at nearly 94%. This figure is quite high, considering that a number of dry dockings for ship surveys that have taken place.
The company is also expecting a total of six newbuilds to be delivered from 3Q23 until 2Q25. Of these new vessels, four will be dual-fuel LNG, and “represent the company’s entrance into green shipping,” Saroglou said.
TEN has traditionally been active in the S&P market focusing on fleet renewal. “We’re looking to sell 7 or 8 of our older generation ships,” Dr. Tsakos stated. “That would give us a very big capital gain and boost for the year 2023.”
Posed to Reduce Debt at “Accelerated Pace”
“Based on the positive quarterly results through the past year, it’s clear that the annual numbers will be strong,” Paul Durham, CFO stated of 2022.
In the nine-month period of 2022, the company’s net income amounted to over $100 million. This growth has resulted in healthier cash reserves for the company, which have grown by over $200 million compared to the previous year. This could help the company to reduce outstanding debt “at an accelerated pace,” Durham stated. “Already, in the past six years, outstanding debt has fallen by about $500 million…and it continues to shrink” he noted. “We still expect our revenue to grow into 2023 as the market continues to remain firm,” he said.
When asked about the company’s dividend policy, Tsakos highlighted that TEN has “never stopped paying a dividend, even in very, very difficult times when the company could “legitimately” put a stop on such payments as some of its peers did. When times are good, our policy has always been to distribute between 25 and 50% of our net income, depending on capital needs at the time, and I think we will not change that that policy”, he continued. The company is not looking at this stage, to buy back shares. Instead, Dr. Tsakos said, a preference would be for dividend increases.
Market Conditions Bullish Due to Favorable Supply, Demand Conditions
The current market is “very favorable” for tanker owners on both the supply and demand side, Harrys Kosmatos, Corporate Development Officer, said expressing his confidence, particularly in terms of demand. “Global oil demand has recovered” in the wake of the pandemic, and has even exceeded pre-pandemic levels, Harrys Kosmatos pointed out. China’s reopening will likely propel this demand even further, he noted, as the country could become, once again, a “major oil importer”.
Kosmatos argued that Russia’s invasion of the Ukraine has created “a new and possibly lasting trend” in oil markets, namely the creation of new trading patterns and the elongation of shipping routes as a result of Europe’s ban on Russian oil imports. Due to these regulations, Europe now has to import oil from further distances, particularly the US, West Africa, and the Arabian Gulf.
“The short-term voyages from Russia have been replaced by longer haul trades and the emerging “new” Russian trades, particularly to India and China as it reopens, are performed by older vessels, acquired by “non-western” entities, that up until recently competed in the international commercial arena with everybody else,” Kosmatos noted. This pattern, which effectively removes supply from the “western” markets, is a trend that TEN expects “could last for the foreseeable future,” he continued.
Additionally, the sector is facing one of the lowest orderbooks in recent memory, under 4%, while nearly 10% of the current global fleet is over 20 years old, and 24% over 15 years old. “As a result, we could be faced with a situation where some segments in the tanker market could experience negative growth. Negative growth against an increasing global oil demand…should translate to a sustainable strong market environment.” Kosmatos asserted.