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Executives

Nicolas Bornozis – President, Capital Link and Investor Relation Advisor, Tsakos Energy

Nikolas Tsakos – President and CEO

John Stavropoulos – Chairman

George Saroglou – VP and COO

Paul Durham – CFO

Analysts

Urs Dür – Clarkson Capital

Gregory Lewis – Credit Suisse

David Beard – IBERIA Capital Partners

Tsakos Energy Navigation Limited (TNP) Q2 2012 Earnings Call August 3, 2012 10:00 AM ET

Operator

Good afternoon. Thank you for standing by ladies and gentlemen. And welcome to the Tsakos Energy Navigation Conference call on the Second Quarter and Six Months 2012 Financial Results. We have with us Mr. John Stavropoulos, Chairman; Mr. Nikolas Tsakos, President and CEO; Mr. Paul Durham, Chief Financial Officer; and Mr. George Saroglou, Chief Operating Officer of the company.

At this time, all participants are in a listen-only mode. There will be a presentation followed by question-and-answer session (Operator Instructions). I must advise you this conference is being recorded today, Friday, August 3, 2012.

And I now pass the floor to Mr. Nicolas Bornozis, President of Capital Link, Investor Relation Advisor of Tsakos Energy Navigation. Please go ahead, sir.

Nicolas Bornozis

Thank you very much and good morning to all of our participants. This is Nicolas Bornozis of Capital Link, Investor Relations Advisor to Tsakos Energy Navigation. The company released its financial results for the second quarter and six months of 2012. The press release has been distributed publicly and you should have received a copy of it by now. Should you not have a copy, please call us at 212-661-7566 or email us at ten@capitallink.com and we will email it to you.

Please note that parallel to today’s conference call, there is also a live audio and slide webcast which can be accessed through the company’s Web site at the front page at www.tenn.gr. The conference call will follow the presentation slides, so we urge you to access the presentation and webcast. Please note that the slides and webcast will also be available as an archive after the conference call. The slides of the webcast presentation are user controlled, so 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 contains certain forward-looking statements, within the meaning of the Safe Harbor provision of the Private Securities Litigation Reform Act of 1955. Investors are cautioned that such forward-looking statements involve risks and uncertainties, which may affect TEN’s business prospects and results of operations. Such risks are more fully disclosed in TEN’s filings with the Securities and Exchange Commission.

Ladies and gentlemen, at this point, I would like to turn the call over to Mr. Nikolas Tsakos, President and Chief Executive Officer of Tsakos Energy Navigation. Mr. Tsakos, please go ahead, sir.

Nikolas Tsakos

Yes. Good morning. Thank you for attending our half year and second quarter call. We have been discussing since the last quarter that we could foresee the measures we have taken in the company on the chartering and operational side are turning the curve towards a better performance. We are glad to announce a better performance. However, a loss is never gratifying. So we are looking forward to going back to our continuous profitability trick, as we speak.

We believe that we are taking the internal measures, the cost controls, the correct allocation of vessels in the right parts of the world where demand is stronger, we’re taking measures to enhance the company’s growth, looking at new, much more profitable segments like the offshore through our shuttle tankers and the LNG which has been a very large contributor to our bottom line, to the betterment of our bottom line.

And we believe that next year this oversupply of tonnage will start drying up. A lot of ships are being taken out of commission for scrapping. So we hope that we will be closer to profitability as we speak.

What is making us also optimistic is that we see a lot of our clients out there looking, as we have reported also today, additional interest for long-term employments with profits. And this is – the company is doing more and more with minimum profit shares arrangements that have, I think, contributed to us sustaining a difficult period and having the open up-side in case the market turns, as we hope.

So we will be discussing more of this as we go. I would like to ask our Chairman to give his wise words and then Mr. Saroglou will talk to us about the operations of the last quarter. Thank you.

John Stavropoulos

Thank you very much, Nicolas. This is John Stavropoulos. I am going to repeat much of what Nicolas said, but I am going to repeat it because I think it’s extremely important to us as shareholders. What you’ve just given us is the most encouraging report and I am looking forward to the other comments from George and Paul.

I want to applaud you, Nicolas, and your management group along with the entire Tsakos Group. Your efforts during the overall economic storm and the deep depression in shipping has kept TEN on course. Your strategies and implementation have preserved underlying shareholder value. The keys to this success have been highly developed and enhanced long-term client relationships, reflected in extending term charters. These don’t come easily. They take a lot of hard work and perseverance.

Extremely effective cost containment at operations and corporate levels with uncompromised standards of safety and customer service. I hear one of our associates almost on a daily basis, walk down the hallways and say, not a single drop. This is the kind of dedication that we have in the management group of the Tsakos Group as they want to deliver a safe and quality service to our clients and to the world that we serve.

I think even more importantly, from a financial point of view, is the renewed emphasis that you put on expansion and growth areas such as, you mentioned, LNG and other offshore support activities like these shuttle tankers. These all contribute to the development of earnings and cash flow visibility, thereby, protecting financial strength and the dividends (inaudible). As a shareholder, I want to say well done and thank you.

Nikolas Tsakos

Thank you, Chairman. George?

George Saroglou

Thank you, Nick. Thank you, Mr. Chairman. It’s my pleasure to speak with all of you today again and provide you with the details of the operations of another quarter. For those of you who are connected to the Internet and our Web site, there is an online slide presentation whose format we will follow during the call.

Please go to page number three of the online presentation. This is the snapshot of the fleet as it stands right now. We have 23 crude carriers including two vessels that we are building, two shuttle tankers, which we are going to take delivery in the first quarter and second quarter of 2013.

We have 26 product tanker. We’re one of the largest product tanker operator owners in the world. And we have three LNG. This is the pro forma fleet. Three LNG carriers, one in the water, one in order and one auction to be declared later this year.

If we look at the highlights on page number four, since 1993, as you see, we have a built a sizeable fleet and company. If we look at the macro picture, the vessel supply still the main reason why we haven’t seen a sustainable improvement in tanker freight rate in 2012, although so far the year has been much better than many have expected after the weak fourth quarter of 2011.

Demand for oil continues to be at all time high levels during this year in 2012, around 90 million barrels per day. And despite the headwinds the global economy is facing as a result of the sovereign stress in the euro zone and lower-than-expected growth in a number of emerging countries, the latest forecast for global oil demand for 2013 by the International Energy Agency is positive, supporting 1 million barrels per day increase from 2012 levels to almost 91 million barrels per day.

With geopolitical tensions in oil rich regions continuing, more extensive bank lending available to blue chip companies only, and a tanker order book that is gradually coming closer towards supply/demand equilibrium levels, it might not be long before we finally see the market downturn come to an end.

We are now in the third quarter of the year, which is typically the lowest month for energy transportation, but looking ahead to the forecast for oil demand in the fourth quarter of 2012, we see the International Energy Agency forecasting at least 1 million barrels per day higher demand than the fourth quarter of 2011, and this should bode very well for tanker demand and freight rates.

In this environment, our company then continued to focus on having a balanced and flexible chartering policy in maintaining a high fleet utilization in operating efficiencies, cost containment and selective growth. The company continues to invest in LNG, a sector in the energy transportation with favorable fundamentals and growth prospects.

TEN is also looking for opportunity in the shuttle tanker, the offshore market and other energy sector with good growth prospects as most new oil discoveries in the world are offshore discoveries and, of course, is looking for opportunities in conventional tankers.

We continue to see strong demand for our vessels from our clients. Since the beginning of 2012, we have already chartered seven vessels including our LNG Neo Energy to a four-year time charter. We have chartered our aframax Proteas to a one-year time charter with profit sharing. We have chartered three MR1s – Aris, Ajax and Didimon – to fixed time charters for five, three and two-year respectively.

And we recently announced the extension for two more years of Nippon Princess, a modern aframax, and one more year for our panamax Maya. And as we speak, we negotiate more renewals for vessels in the fleet that have chartered, but are due for renewal later in the year. From the beginning of 2011, until today, we have been able to charter and re-charter 30 vessels out of the 51 vessels that company owns on a pro-forma basis, on time charters with period employment lasting from one to 15 years.

A combination of fixed rate charters and charters with profit sharing will generate over $1.1 billion in minimum revenues from the above features. This time charter strategy has helped the company navigate safely through the clutch of previous and the current market downturn and has given TEN the ability to maintain a strong balance sheet, sustainable dividend distributions, and enough liquidity for future growth.

If we look again at the slide number four, we have a pro-forma fleet of 52 tankers, which includes 48 in operation, the two DP2 suezmax shuttle tankers under construction with expected delivery in the first and second quarter of 2013, one LNG under construction for delivery during the first quarter of 2015, and another option for another LNG for delivery during the fourth quarter of 2015.

The fleet is 100% double-hull, very modern, six year old, if you exclude the two VLCCs that are currently held for sale. And we have 21 tankers with ice class capabilities and 36 out of the 51 vessel fleet have secured employment that ranges from one to 15 years. Thanks to our time charter philosophy, we’ll continue to operate the fleet at a very high utilization rate with the current figures for the second quarter of 2012 being over 98%.

If we move at slide number five, Paul will present and give details of the financial results for the quarter, but a quick takeaway is the improvement that we see in all the metrics from the previous quarter, the first quarter of 2012, and the second quarter of 2011.

Most notably, we have registered an operating income of $10.1 million and we’ve seen also the average daily time charter equivalent rate per vessel for the quarter at 17,714 per day. And the main reason behind this improvement over the previous quarters is our LNG Neo Energy which earned nearly four times as much at the rate it was earning in the second quarter of 2011. We have announced today a dividend distribution which is payable on September 14. And during the first half of the year, we had also a shared offering.

If we go to slide number six, again, here you see a breakdown of the fleets. It’s very modern, very versatile, and the fleet has been ordered and built before new building prices started to rise to record level.

The majority of the fleet, with the exception of those two VLCCs that are held for sale, La Madrina and La Prudencia, were built in South Korean and Japanese shipyards to very high specifications. And again, I need to point out the ice class capabilities of the fleet, 21 out of the 51, which is one of the largest fleets in the world of fleet with ice class capabilities.

We have a very balanced employment strategy and we try to employ the fleets with a mix of support charters, pools, period charters with fixed rates and period charters with profit sharing arrangements.

We currently have 14 tankers trading in the spot market and this number includes the two VLCCs that are held of sale, four vessels in pooling arrangements and 32 tankers in period charters with fixed rates and profit sharing arrangements. The 32 tankers includes the 2 DP2 shuttle tankers which will begin producing when delivered to TEN during the first and second quarter of 2013.

The company’s time charter policy with preference over time charter with profit sharing has been the main reason for the company’s ability to successfully navigate through market cycles and grow in the last 19 years. The 28 new charters that we concluded from the beginning of 2011 until now have an average – with an average charter life over a little over three year provides fair bit of visibility and stability to future cash flow generation, profitability and dividend distribution.

And slide number eight puts a dollar value to the current fleet employment profile. As of today, we have fixed 68% of the available 2012 fleet operating days and 54% of the 2013 available fleet operating days. And if we assume only the minimum rates for the 32 tankers that we currently own, TEN has secured 1,226 months of forward employment or 3.1 years per vessel and $1.1 billion – a little over of $1.1 billion in minimum gross revenues.

Overall, we are optimistic for the long-term prospects of the tanker market and we continue to position the company to benefit from a sustainable recovery in freight rates when the upturn will come and we know it will come, thanks to the profit sharing elements that most of our time charters have in place.

The next slide talks about our – presents our sale and purchase track record since 2003. Vessel values right now have come to the bottom. We’re not seeing too many vessels taking – too many sales taking place, but we assure that we have vessels in the fleet that when asset price will begin to improve as the freight market will begin also to improve. That will be solved and will be replaced in order to maintain fleet modernity which is a very important part of our philosophy.

Moving to slide number ten, this shows the history of our cash dividend distribution. We announced today another $0.15 per share to be paid September 14, 2012. In total, since 2002, we have paid $9.53 in cash dividends or a little over $371 million and this compares with a listing price in our IPO of 2002 of $7.50.

For investors who are in TEN today, since the New York Stock Exchange listings have their investment fully repaid from the dividends that company has paid and currently have exposure in conventional tankers, LNG and offshore tankers at (inaudible).

And before handing out the baton to Paul to give us a little bit – the story from the financial – to give us more details on the financials, I would like one more time to highlight that we have build – we have managed during this 19 years to build a very modern fleet with very high visibility as far as the time charter strategy is concerned.

Currently, we have minimum revenues of $1.1 billion, thanks to the long-standing customer relations that we have. We have a very high liquidity, strong banking relationship and a strong balance sheet. And I think with the help of our directors and shareholders during these years, we have built a very rock solid operation that can take advantage of current market weaknesses and, hopefully, through this growth we can expand further shareholder value.

And without further ado, I’ll pass it on to Paul.

Paul Durham

Thank you, George. Well, the last quarter was, again, an improvement over the preceding quarter, thanks to a reduction in bunker costs, reduced operating expenses and the start of LNG carrier Neo Energy’s lucrative charter. Revenue after voyage expenses in quarter two was $73 million against $70 million in quarter one and $68 million in quarter two 2011.

Quarter two average daily TCE per vessel was, rounded, $17,700 compared to $17,130 in quarter one and 16,400 in quarter two 2011. Operating income was $10 million against $1 million in quarter one. For the half year, operating income was $11.1 million against $8.7 million last year excluding last year’s capital gains.

All the vessels generated positive EBITDA, apart from the non-operating VLCC La Prudencia and the product carrier, Ajax, which underwent prolong special survey and other repairs. Total EBITDA amounted to $35 million. That’s $9 million more than quarter one, of which $6 million was generated by Neo Energy. For the six months, $62 million EBITDA was achieved.

The $5.7 million net loss in quarter two was a $12 million improvement over the previous quarter two and $3 million better than quarter one.

VLCC La Madrina operated at breakeven in quarter two, but at least covered costs and generated EBITDA. La Prudencia underwent repairs to render her a more sailable and operational vessel and, therefore, incurred costs, which are potentially recoverable in the event of a sale.

Total operating expenses in quarter two were $32 million, some $3.4 million less than in quarter one due to fewer dry-dockings, cost reductions achieved by the technical managers and lower crude costs due to a weaker euro.

Daily average OpEx per vessel was US$7,505, a 4% reduction from quarter two 2011 and an almost 10% reduction from the high OpEx of quarter one, which was much due to Neo Energy’s drydock in March.

Finance cost for quarter two was $16.1 million, a 5% fall from the previous quarter two, but a $6 million increase over quarter one. The large interest swap valuation gains of quarter one will not repeat in quarter two. There was also a non-cash $1.9 million negative movement on bunker swap valuations in quarter two, but this was offset by lower bunker costs.

The interest rate swap relating to Neo Energy expired yesterday, the last payment being accounted for in quarter three. From quarter four, the vessel will operate with net income further enhanced by $13,000 a day.

In quarter two, we repaid $40 million in loans. There were no new loans in quarter two, so total outstanding loans at the end of June amounted to $1.47 billion and net debt to capital fell to 56.6%.

We have two shuttle tankers under construction. On the first, we had $75 million remaining to be paid, of which $14 million was paid in July using an equivalent amount of pre-delivery debt. We will pay another $14 million in 2012 from pre-delivery finance and the final $47 million in quarter one, 2013.

For the second shuttle, we should also pay nearly $28 million this year out of newly arranged pre-delivery financing and the remaining $47 million on delivery in quarter two next year.

We have also paid the first installment of $21 million in July for our new LNG carrier from the proceeds of the recent offering. Another $21 million will be paid in 2013, $53 million in 2014 and $115 million in quarter one 2015 on delivery.

And this concludes my comments. Now, I’ll hand the call back to Nicolas.

Nikolas Tsakos

Thank you, Paul. Well, as we said earlier, this has been a quarter where a lot of things started falling in place again with preparations we have made in the last year. The third quarter, as George said, is traditionally a slow quarter, but we expect not to have dissimilar results as we have, and also in the meantime continue to enhance our coverage of profit sharing arrangements with the major oil companies. That allows us to continue a healthy dividend distribution.

And by the fourth quarter where we expect – and the first quarter of next year, we’ll expect market conditions on the spot to be even better. We hope that we can return back to profitability. We’re really just 5% away in each category of ships in achieving such a task.

So with this, we would like to the open the floor and listen to any questions. Thank you very much.

Question-and-Answer Session

Operator

Thank you, gentlemen. We will now begin the question-and-answer session. (Operator Instruction)

From Clarkson Capital, your first question comes from Urs Dür. Please ask your question.

Urs Dür – Clarkson Capital

Hi. Good afternoon, everybody.

Nikolas Tsakos

Hello.

Urs Dür – Clarkson Capital

Hi. You’ve been developing very well on the LNG space. I was wondering if you had any further update there as to what opportunities look like right now? Are there any open slots?

And then a second level to that question, which is, if you listen to some, possibly your critics, they may say that you’re relatively new to LNG and that you may face more difficult time getting attractive charters. I tend to disagree with that, but do you face any problems being a relatively new entrant to LNG and what’s your commentary to that?

Nikolas Tsakos

Well, I have to say that from the recent influx of LNG – we made our first new building order in 2004, so that’s eight years ago.

Urs Dür – Clarkson Capital

Yeah.

Nikolas Tsakos

And we took delivery of the ship couple of years later. So it’s always nice to be considered young, but unfortunately in the LNG space we are not as young. We’ve been around operationally now for at least five years. So I would say we are not the new kid in block. And I think this what the – our charterers appreciate.

I think new are the people I would say that have entered the market in the last couple of years rather than ourselves. So I think we are considered a seasoned energy transporter. And I think our clients who are, in most of the cases, the same clients that we charter our conventional vessels to, just look at our LNG as a continuation of our company in – in the continuation of our normal business...

Urs Dür – Clarkson Capital

Sure.

Nikolas Tsakos

...in the LNG. Currently, we are looking – for your first question of opportunities – in chartering our ships. We are negotiating. There is a significant influx of business. There are some of the companies that went out and ordered ships and are facing some financial pressures are opening up some slots. As you know, being one of the largest (inaudible) and we are looking at these prompter deliveries for 2014.

However, we are looking at the way the various businesses’ trades are developing. I think 2015 and onwards is when we expect for most of them – for the booming of the market to happen, although, as you know, today one year employment is in excess or close to $150,000 a day. That’s it.

Urs Dür – Clarkson Capital

Yes. So it’s reasonable to say that you’re very actively looking at LNG assets right now and it’s not unreasonable to think that you might have positive announcements about accretive transactions over the next 12 months in LNG.

Nikolas Tsakos

In LNG and in offshore, yes. I think this is – if you include offshore, I think this is a statement. And I think we have not – we have presented that one of our goals in financing our future is a creation of a LNG offshore, specifically, in which TEN will be the major shareholder and I think that vehicle will get its own life when the time is appropriate. I think we are perhaps two to three quarters away from that, mainly because the deliveries of our offshore vessels are in the first quarter of next year and the second quarter of the next year. But I think, yes, and I think then – that vehicle will be – TEN will again be the major shareholder, a very active player in this market as TEN is in the conventional tankers.

Urs Dür – Clarkson Capital

Great. And then just switching over to clean quickly, we’ve seen some softness in rates, but – in the spot, I would say, but the term rates are still in contango, so that’s relatively encouraging. I was wondering if you had commentary on that market, when you think it might turn. I know that you have a number of panamaxes which have been say underperforming compared – not yours, but just the market itself compared to the MR space. Wondering if you could talk about the dichotomy of those spaces and how you think it develops over the next two years given the very mellow order book?

Nikolas Tsakos

Well, I think, yes, as you said, not our panamaxes because all of our panamaxes are chartered long-term. And we just renewed one of them at the minimum – at a very significant minimum rate with a profit share element to a major end user.

Urs Dür – Clarkson Capital

Yeah. Not yours. Just more talking about the broader market and how you view it?

Nikolas Tsakos

That was clear. And we expect – as George said, if you divide the fleet in two, we are one of the largest product carrier owners. And we are not, as you know, an operator who do not charter in ships. We do not have any obligations to payout charter hire the ships. We own ourselves and we operate them and this is a very simple policy that we have kept for a period of time. So we expect the products to be one of the growth part of our business also on the income side. And we are looking in today’s values opportunities in modernizing the fleet in the segment.

Urs Dür – Clarkson Capital

In the Ecospec side or the Ecospec specification?

Nikolas Tsakos

Well, the majority of our ships – that’s a very good point. The majority of our ships are very modern vessels. So they have an economical element themselves. As you’ve seen, all the major companies are taking on modern ships. We are spending money on our existing ships. And we have been very successful in reducing our consumption close to 10% to 15% on our existing ships, be it that they have been – you cannot do something like that on a 20-year old ship or even a 15-year old ship. But on a five-year ship that we own – with a small investment, you can achieve something like that.

So, yes, when the eco-design proves itself, those will be the ships that we will be looking at. But I think it needs a little bit more time to prove itself.

Urs Dür – Clarkson Capital

Great. And just a point of quick question, Paul, you mentioned 56.6% net debt to cap, is that correct?

Paul Durham

Yeah.

Urs Dür – Clarkson Capital

And in 1Q, just forgive me, just quickly, I think it was around 60% correct? So it’s a little improvement.

Paul Durham

60%. Just short of 60%, yeah.

Urs Dür – Clarkson Capital

Yeah, excellent. All right, good. Great. I just want to make sure I had that number correct. Thank you for your time, guys.

Nikolas Tsakos

Thank you.

Operator

Thank you. Now from Credit Suisse, your next question comes from Gregory Lewis. Please ask your question.

Gregory Lewis – Credit Suisse

Yeah. Thank you. Good afternoon.

Nikolas Tsakos

Hi, Greg.

Gregory Lewis – Credit Suisse

My first question is regarding the slide eight where you sort of lay out your 68% and 54% in 2012 and 2013. And I think we’ve gone over this before. But just so if you could refresh me, when we think about vessels that are in pools, what’s the sort of perceived rate you think about those vessels that you include in the secured revenues?

Nikolas Tsakos

Yes. I think now we are down to almost three vessels. There were three vessels this quarter. One we have taken out. So it’s four pool vessels and one of them has left the pool. So we have reduced, not for any specific reason – we are a big pool believers and they have served us well.

As you know, it’s not – we cannot hide it. It’s all over the news. The pool, of which we have been for a very long period of time, seems to be going through some of its own realignment, let’s say. So we are using some of the time until they realign themselves to spot the vessels ourselves. So, yes, there is – within the fixed employment because what we want to do is full utilization. And that’s why we have so high utilization of 98%, which is – this utilization is unprecedented in such a market and, in general, in shipping where utilization is usually 85%. We have – the three or four vessels are included in the fixed employment, I would say.

Gregory Lewis – Credit Suisse

Okay, great. And then just a couple other questions. The VLCC La Madrina, that was operating in the second quarter, I believe.

Nikolas Tsakos

Yeah.

Gregory Lewis – Credit Suisse

Do we sort of have an estimate of what that revenue was for the quarter?

Nikolas Tsakos

Paul, I think it was breakeven, a little bit better?

Paul Durham

Yeah, I would say it was exactly breakeven. Okay, well, let’s say, $50,000, $60,000 loss for the quarter. So was there anything around $30,000 there? Just a second. So on a TCE basis, after taking the voyage costs, it is about nearly $20,000 a day.

Gregory Lewis – Credit Suisse

Okay. And then that vessel now is, I believe, idled again?

Nikolas Tsakos

Well, the vessel, yes, you can visit here in Singapore if you fly over. But, yes, we are not – we do not understand how some of our – I do not know what – we always learn as we grow old. But I still have not understood why other owners are willing to accept negative employment, which means to pay, as we have today, $10,000 into the market. So today you have to pay $10,000 a day on top of all your expenses to a major oil company to move your ship from one place to another.

So this is like having hailing a taxi in New York City where you are located and actually asking the nice urban guy who drives the car to pay you after you arrive to your destination. So this is – I do not understand people do it. We decided not to subsidize the major oil companies from transportation. I think we’re fine to breakeven. I think we are there for transportation. So we are fine to cover our expenses and do that, but we are not there to subsidize the major oil companies for the first-class service that we provide.

And you see that a lot of our colleagues for reasons really un-understandable are doing it because I don’t think anybody is making anything of losing $10,000 a day. So, yes, the ship right now is waiting. She has already got approval. She is in very good condition. If we can see something starting with a breakeven, including our downtimes. In the meantime, she’s been inspected by a lot of buyers for an eventual sale and becoming an FSO or a storage business.

Gregory Lewis – Credit Suisse

Okay. But in thinking about the Madrina, is it something where we could maybe sit in Singapore and sort of – and maybe come back into service if we see a rate rally in the VLCC market at some point in Q4, is that how we should think about that vessel?

Nikolas Tsakos

Yes, yes. I think she is ready. She has a very good performance as a name. And as soon as we see the worst scale getting somewhere in the mid – in the 50s, in this route, it would start to make sense. Yes, she is a vessel – her next special survey is close to nine or ten months down the road. So she has quite some time to take advantage of any market or any political stability which – something happens and the rate (inaudible).

Gregory Lewis – Credit Suisse

Okay. And then just shifting gears a little bit over to the Nippon Princess, that charter was announced a couple of weeks ago, I guess, at this – or about a week ago at this point, clearly, when you sort of take a step back and you look at the day rate on that fixture, it seemed like that was above market, a pretty attractive charter. Could you sort of talk about or provide some color on how that rate came about and sort of is there any back story to that vessel earning that rate?

Nikolas Tsakos

This special business, the group has been operating in this country since – has been working since 1978 on a continuous basis with the same – in the same contract. The ships tend to change. The last ship we had there was, I think, the Regina couple of years ago. So this is a contract (inaudible) and we just renew as it goes by. So it’s a contract of 34 years. We just renewed it for another two years. So it will be a 36-year contract.

And it works similarly on a five-year average rate because it’s a long-term contract rather than what the spot market will be today. So, yes, you are correct. You could look at it that you be a couple of thousand dollars or more above the spot market, but it’s calculated on a five-year average.

Gregory Lewis – Credit Suisse

Okay. And in thinking about the operating cost on that vessel, operating with that state entity, does it tend to be more expensive to operate a vessel with them or is it about sort of – should we sort of think about the OpEx on that vessel at what about market rate?

Nikolas Tsakos

Well, I think I would – if you want to go down to the nitty-gritty, I will give you the 5% higher operating expenses, the other spot aframaxes because she is located in West Africa which is not an easy place to get groceries to buy and to repatriate crew, but that’s all. It’s nothing more than that, I would say. And if I look at your operating expenses in front, yeah, they are in line with the other vessels. Perhaps, as I said, the 5% higher just to – the purchasing of needed goods.

Gregory Lewis – Credit Suisse

Okay. Perfect, guys. Thank you for the time.

Nikolas Tsakos

Thank you.

Operator

Thank you. Now from company Iberia, you have a question from David Beard. Please ask your question, sir.

David Beard – IBERIA Capital Partners

Good morning, gentlemen.

Nikolas Tsakos

Hi, good morning.

David Beard – IBERIA Capital Partners

I have a question on the longer-term charter rates and duration. Are we still seeing longer-term charter rates in the teens per day and would you look to fix year charters or are you looking out further?

Nikolas Tsakos

If we have – if we are forced to accept a fixed rate by a very good client, then we would be looking to do the shortest period we could, six months to one year.

However, if we are there to look at a longer period, we are there and we have – we will be achieving escalations or we will be getting profit sharings. So I would say, perhaps, as long as we can get a profit sharing, which is a minimum that covers our bottom line, and then we become flexible in allowing a longer period because the market is what the market is – we have a good signature to pay our base rate and we are selling this good signature, meaning the clients, the upside. But if it’s a fixed rate, we try to do the shortest period possible.

David Beard – IBERIA Capital Partners

Okay. That’s helpful. Thank you.

Nikolas Tsakos

Thank you.

Operator

Thank you. (Operator Instructions) And I’m showing no further questions, I now hand the floor back to the speakers for closing remarks.

Nikolas Tsakos

Well, ladies and gentlemen, thank you very much for participating in our call and supporting the company. I think this quarter’s results are another example of how we differentiate ourselves because of the strategy we’ve been following. We have followed a very conservative strategy as a company.

Unfortunately, for all of us, the shareholders, the financial environment that we are operating, the shipping environment, including, of course, the tankers and the other sectors of shipping that are depressed is making our share price be at this very low levels.

However, I think 19 years of operation counts, so that the company that follows its own model can make a difference from the spot environment that other colleagues of ours are participating. Unfortunately, we are penalized – share price penalized being a small company from what is happing in the spot markets, but there is nothing we can do on that other than being big buyers of share ourselves.

The only thing we can do is maintain our company’s stated strategy, which is try to keep low-cost, asset acquisitions and long-term profitable employment. And I think the results of this quarter are an example of this and, hopefully, in the next couple of quarters we will – we can be able to report a profit as we have done for 18 years in the past.

Again, thank you for your support. And I will ask our Chairman to enjoy your summer and make sure we will be working to try to make the quarter even better. Mr. Chairman?

John Stavropoulos

Thank you, Nikolas. I think you summed it up. We look at our shares as a buying opportunity and we continue to do so. There is famous quote by a former economist, who said, the market can stay irrational longer than I can stay so. I hope that doesn’t apply in my case. Thank you.

Operator

And with many thanks to our speakers today, that does conclude our conference. Thank you for participating. You may now disconnect.

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