TEN rejuvenates fleet, keeps steady profit as it pins hopes on market normalization
Greek tanker heavyweight Tsakos Energy Navigation (TEN) has kept a steady course during the rollercoaster year of 2020, having delivered strong business results while pushing forward with fleet modernization plans.
TEN’s net income for the three-month period that ended on September 30, 2020 reached $1.4 million compared to a net loss of $9.5 million in the same quarter of 2019.
For the nine months of 2020, TEN’s net income was $56.7 million, a major rebound from $697,000 in the same period from last year.
What started off as a year of optimism for the tanker market was swiftly overturned by the outbreak of the COVID-19 pandemic crushing demand across shipping sectors.
However, TEN said that it has managed to overturn the volatility in the tanker sector into its own advantage.
During the first half of 2020 TEN sold six tankers with an average age of 14.7 years generating about $37.5 million free cash after repaying nearly $61.0 million of related debt.
Additionally, the company took delivery of four eco-design vessels, two Suezmaxes, and two Aframaxes on minimum five-year contracts to an oil major with expected TCE-basis revenues of about $200 million.
The transactions resulted in the reduction of the fleet’s average age by about three years.
The company also took the opportunity of the distressed newbuilding prices to order two specialized vessels, one DP2 shuttle tanker and one LNG carrier, which have both secured long-term charter contracts.
Finance and interest costs fell 39% to $13.5 million, due to a reduction in average debt outstanding between the two respective third quarters and a decrease in margins payable on several loans.
The company said it would maintain its uninterrupted dividend policy with a planned payment of a dividend to shareholders of $0.1250 per common share on December 22, 2020.
“During TEN’s four-decade history, the company has faced major world crises but always succeeded in navigating its way through stronger, thanks to the unwavering commitment of our seafarers and associates around the world. This will be the case again. We wish everyone to stay safe and healthy during this challenging period,” George Saroglou, COO of TEN commented.
As explained, the company has managed to safely perform crew changes despite the regulatory and logistic hurdles adding it had no infection cases so far among its crew and no impact on its operations.
“It has been a herculean task,” Saroglou said, thanking seafarers and onshore personnel for their hard work, patience, perseverance and professionalism during this unprecedented time.
“We will continue to work hard to normalize crew changes and bring seafarers safely back home to their families without disrupting the operational readiness and efficiency of the fleet. This has been and will continue to be our Number 1 priority, while the pandemic lasts and until we return to normal industry practices for crew changes.”
Moving forward the demand for energy seems to be normalizing, and the supply of new tonnage has dried up.
“The contango effect has returned and expectations for a strong market after a seasonally slow quarter are becoming more likely. China is importing sizeable quantities of crude, locked-down Asian recycling yards are coming back to business and the recent emergence of congestion at various terminals in the Far East are promising signs,” Nikolas P. Tsakos, Founder, President, and Chief Executive Officer, said during an earnings call.
Tsakos believes the dry spell in ordering is good for the market, explaining that one of the main reasons behind owners’ reluctance to order new ships is the confusion on propulsion technology right now that would fit the ever stringent environmental regulations.
“With the confusion of all the regulations that are coming out, shipowners, very rightly so, are preferring to slow steam rather than find other solutions in order to achieve their environmental targets,” he said.
The order book as of October, stands at around 7% or 348 tankers over the next three years, the lowest in almost 30 years, and at the same time, a big part of the fleet is over 15 years, to be exact, 1,350 vessels or 28% of the fleet. 360 vessels or 7.1% of the current fleet are at or above 20 years.
On the other hand, the strong freight market and the pandemic has put scrapping to a standstill, leaving many tankers older than 15 years on the market.
“The pain of the last quarter has led to finally some of the older vessels being scrapped after a very long time and we have seen 380 tankers being scrapped, a strong 7% of the tonnage, have been scrapped within this year and growing. So this gives us very good prospects going forward,” Tsakos added.
He anticipates seeing a pickup in scrapping as more environmental regulations on the horizon create an unfavorable trading environment for those vessels approaching or currently above 20 years.
So in general, I have the feeling that we are getting as close to being out of the woods as possible and that better days are ahead of us. In the meantime, we have been able to successfully navigate the difficult times,” Tsakos concluded.
For 2021, TEN expects the oil demand to grow by 5.4 million barrels per day. Full demand recovery to the pre-COVID-19 levels is deferred to late 2021 or in 2022 subject to how well the world will manage the resurgence of the pandemic, how effective the vaccines will be and how fast will they be distributed worldwide in order to allow the gradual return to normal, social and economic life.