Tsakos Energy Navigation Limited (NYSE: TNP) reported results (unaudited) for the second quarter and first half of 2009.
Revenues, net of voyage expenses and commissions, were $88.60 million in the second quarter of 2009 compared to $146.64 million in the comparable 2008 period reflecting the lower freight rate environment. TEN deployed on average 46.0 vessels versus 44.0 vessels in the prior year quarter. Fleet utilization remained high at 97.8% as compared with 97.4% in the second quarter of 2008. The average daily time charter equivalent rate per day, per vessel was $22,890 down from $39,512 in the 2008 quarter. Vessel operating costs were $8,514 per ship, per day, down 14% from $9,898 primarily due to lower crew costs, a result of a stronger US dollar against the Euro, and reduced repair expenditure given fewer vessel dry dockings, although higher insurance costs were incurred. Depreciation and dry-docking amortization costs rose to $25.06 million from $22.03 million. Management fees increased in line with the larger fleet size and the 2009 fee increase, while expenses were 20% down, partly as a result of a stronger US dollar. Stock compensation amortization was considerably reduced due to fewer grants outstanding and a lower share price.
Interest and finance costs net of interest income fell to $4.91 million from $9.08 million reflecting the reduction in interest rates, positive movements in interest rate swap valuations and positive movements in bunker swaps of $3.0 million included in interest and finance costs. Interest income was $1.13 million in the quarter compared to $1.82 million in the prior year quarter. Net income in the 2009 period was $18.77 million versus $69.21 million in the second quarter of 2008. Diluted earnings per share were $0.51 versus $1.82 in the second quarter of 2008.
FIRST HALF RESULTS
Revenues, net of voyage expenses and commissions, were $194.74 million in the first six months of 2009, down from $262.31 million in the 2008 period reflecting the lower freight rate environment. TEN operated on average 46.0 vessels as compared with 43.6 a year earlier. TCE per vessel, per day decreased to $25,187 from $35,354 while operating expenses declined to $8,932 from $9,439. General and administrative expenses increased to $2.36 million from $2.11 million in the same period last year. Management fees rose in line with fleet expansion and contractual fee increases. Interest and finance costs, net of interest income, decreased to $18.69 million from $30.73 million in the first half of 2008 due to reduced interest rates, positive interest rate swap valuations and a positive impact of bunker swap movements. Depreciation and drydocking amortization costs rose to $49.85 million from $44.01 million as a result of fleet expansion. G&A expenses were slightly increased over the previous first half year, but stock compensation expenses decreased to $0.19 million from $3.09 million.
Net income in the first half of 2009 reached $43.23 million compared to net income of $134.34 million in the corresponding 2008 period which included a gain on vessel sale of $34.6 million. Diluted earnings per share for the first half of 2009 were $1.16, while diluted earnings per share for the first six months of 2008 were $3.52.
“The rebound from the financial panic and the ensuing collapse of economies around the world has been and will be tedious. The impact on oil demand has been a severe drag on the tanker industry,” observed D. John Stavropoulos, Chairman of the Board. He added, “The ability to operate profitably in such an environment verifies TEN’s strategies and policies.”
In early July, the 2007-built suezmax tanker Arctic was fixed on a three-year time charter to a major South American oil company with a fixed minimum daily rate and a 50:50 profit share to a maximum pre-agreed level. Assuming only the minimum rate, this charter is expected to generate at least $25 million in gross revenues.
In late July, the 2006-built aframax product tanker Promitheas entered a time charter, up to six months, at a fixed rate to a major international oil trading company. The vessel was operating in the spot market. On July 17 TEN took delivery of the Ise Princess, the fifth DNA-design aframax tanker in a series of eight from Sumitomo Heavy Industries in Japan. Upon delivery, the vessel entered an up to four month redelivery time charter to the Mid-Atlantic basin.
In late July 2009 TEN signed contracts for the construction of two suezmax tankers at the Sungdong shipyard in South Korea for delivery in the third quarter of 2011 for a price well below the highs established in 2008. The vessels are expected to be financed by a combination of bank debt and cash equity.
FLEET STRATEGY & OUTLOOK
In the second quarter, the turmoil and uncertainty prevailing in the global economy continued to impact the shipping markets. In this context, rates experienced prolonged downward pressures with welcome short-term lifts. The reduction in global oil demand and the effect of above average global oil inventories contributed to this softness.
In this world of uncertainty, TEN produced again results that validate its prudent strategy in terms of fleet deployment and operations and highlight its healthy financial foundation. As a result of this strategy, the Company’s cash reserves rose to $309 million in the second quarter of 2009, an increase from last year. Cash preservation especially in times of global economic uncertainty has become the Company’s cornerstone as it not only safeguards TEN from prolonged market pressures, should they occur, but also provides it with significant fire power to take advantage of opportunities that might arise either in the second hand or newbuilding market. Looking ahead, signs of recovery in our markets will eventually occur as the world economies gradually start to rebound, as many analyst and market commentators predict. On the chartering front, such evidence starts to become apparent as charterers are beginning to reevaluate longer term time charters.
TEN will continue to explore all available options for the chartering of its vessels and will strive to further increase the fixed employment of the fleet going forward. As of the third quarter 2009, TEN had 66% of remaining operating days under fixed employment and 44% for 2010. Without taking into consideration the potential additional revenues from profit-sharing arrangements in place and assuming only the minimum rates for the remaining operating days in 2009, TEN expects to earn at least $128 million in incremental gross revenues. For 2010, based on the same assumptions, the minimum gross revenue already secured is estimated at $170 million.
“In the challenging environment of this second quarter TEN proved resilient to market pressures and the quality of our fleet continued to be in high demand from major oil companies as evidenced by our recent charters,” Mr. Nikolas P. Tsakos President & CEO of TEN stated. “With expected improvements in the world economy during 2010, global oil demand should begin to show signs of recovery and our modern, versatile fleet, including our two recent newbuilding orders, will be well positioned to take advantage of the improvements. Our objective remains to operate the fleet with the highest possible utilization rate, efficiently, cost effectively and profitably,” Mr. Tsakos concluded.