PART I
Tsakos Energy Navigation Limited is a
Bermuda company that is referred to in this Annual Report on
Form 20-F,
together with its subsidiaries, as Tsakos Energy Navigation, the Company, we, us, or
our. This report should be read in conjunction with our consolidated financial statements and the accompanying notes thereto, which are included in Item 18 to this report.
Item 1.
|
Identity of Directors, Senior Management and Advisers
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Not Applicable.
Item 2.
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Offer Statistics and Expected Timetable
|
Not Applicable.
Selected Consolidated Financial Data and Other Data
The following table presents selected consolidated financial and other data of Tsakos Energy Navigation Limited for each of the five years in the five-year period ended December 31, 2016. The table
should be read together with Item 5. Operating and Financial Review and Prospects. The selected consolidated financial data of Tsakos Energy Navigation Limited is a summary of, is derived from and is qualified by reference to, our
consolidated financial statements and notes thereto which have been prepared in accordance with U.S. generally accepted accounting principles (US GAAP).
Our audited consolidated statements of comprehensive income, other comprehensive income, stockholders equity and cash flows for the years ended December 31, 2016, 2015, and 2014, and the
consolidated balance sheets at December 31, 2016 and 2015, together with the notes thereto, are included in Item 18. Financial Statements and should be read in their entirety.
2
Selected Consolidated Financial and Other Data
(In thousands of U.S. dollars, except for share and per share amounts and fleet data)
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2016
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2015
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2014
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2013
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2012
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Income Statement Data
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Voyage revenues
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$
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481,790
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|
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$
|
587,715
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|
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$
|
501,013
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|
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$
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418,379
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|
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$
|
393,989
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Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Voyage expenses
|
|
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106,403
|
|
|
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131,878
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|
|
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154,143
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|
|
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132,999
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|
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124,012
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Vessel operating expenses(1)
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146,546
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142,117
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146,902
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131,053
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|
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133,281
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Depreciation and amortization
|
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113,420
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|
|
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105,931
|
|
|
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102,891
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|
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100,413
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99,250
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General and administrative expenses
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25,611
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21,787
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|
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21,029
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20,731
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|
|
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20,710
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Net (gain) loss on sale of vessels
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(2,078
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)
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1,879
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Vessel impairment charge
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28,290
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13,567
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Operating income
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89,810
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188,080
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76,048
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4,893
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1,290
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Other expenses (income):
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Interest and finance costs, net
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35,873
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30,019
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43,074
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40,917
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51,576
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Interest and investment income
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(623
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)
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(234
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)
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(498
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)
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(366
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)
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(1,348
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)
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Other, net
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(1,935
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)
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(128
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)
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(246
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)
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2,912
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118
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Total other expenses, net
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33,315
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29,657
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42,330
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43,463
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50,346
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Net income (loss)
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56,495
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158,423
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33,718
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(38,570
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)
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(49,056
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)
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Less: Net (income) loss attributable to
non-controlling
interest
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(712
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)
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(206
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)
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(191
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)
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1,108
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(207
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)
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Net income (loss) attributable to Tsakos Energy Navigation Limited
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$
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55,783
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$
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158,217
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$
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33,527
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$
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(37,462
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)
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$
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(49,263
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)
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Effect of preferred dividends
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(15,875
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)
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(13,437
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)
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(8,438
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)
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(3,676
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)
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Net income (loss) attributable to Tsakos Energy Navigation Limited common stockholders
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$
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39,908
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$
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144,780
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$
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25,089
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$
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(41,138
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)
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$
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(49,263
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)
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Per Share Data
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Earnings (loss) per share, basic
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$
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0.47
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$
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1.69
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$
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0.32
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$
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(0.73
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)
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$
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(0.92
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)
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Earnings (loss) per share, diluted
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$
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0.47
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$
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1.69
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$
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0.32
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$
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(0.73
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)
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$
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(0.92
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)
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Weighted average number of shares, basic
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84,905,078
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85,827,597
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79,114,401
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56,698,955
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53,301,039
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Weighted average number of shares, diluted
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84,905,078
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85,827,597
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79,114,401
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56,698,955
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53,301,039
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Dividends per common share, paid
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$
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0.29
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$
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0.24
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$
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0.15
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$
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0.15
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$
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0.50
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Cash Flow Data
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Net cash provided by operating activities
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170,354
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234,409
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106,971
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117,923
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60,862
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Net cash used in investing activities
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(576,075
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)
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(174,754
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)
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(254,307
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)
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(144,437
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)
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(42,985
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)
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Net cash provided by (used in) financing activities
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303,822
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27,914
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187,206
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44,454
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(49,288
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)
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Balance Sheet Data (at year end)
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Cash and cash equivalents
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$
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187,777
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$
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289,676
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$
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202,107
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$
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162,237
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$
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144,297
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Cash, restricted
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9,996
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15,330
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12,334
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9,527
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16,192
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Investments
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1,000
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1,000
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1,000
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1,000
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1,000
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Advances for vessels under construction
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216,531
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371,238
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188,954
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58,521
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119,484
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Vessels, net book value
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2,677,061
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2,053,286
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2,199,154
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2,173,068
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2,088,358
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Total assets
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3,277,575
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2,893,166
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2,692,737
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2,479,292
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2,446,243
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Long-term debt, including current portion
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1,753,855
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1,392,563
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1,411,976
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1,375,691
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1,437,786
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Total stockholders equity
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1.417,450
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1,415,072
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1,177,912
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997,663
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926,840
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Fleet Data
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Average number of vessels
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52.6
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49.2
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49.0
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47.5
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|
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47.9
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Number of vessels (at end of period)
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58.0
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49.0
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50.0
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48.0
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|
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46.0
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Average age of fleet (in years)(2)
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7.9
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|
|
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8.5
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|
|
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7.7
|
|
|
|
7.1
|
|
|
|
6.5
|
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Earnings capacity days(3)
|
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|
19,244
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|
|
|
17,970
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|
|
|
17,895
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|
|
|
17,339
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|
|
|
17,544
|
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Off-hire
days(4)
|
|
|
674
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|
|
|
376
|
|
|
|
406
|
|
|
|
385
|
|
|
|
889
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Net earnings days(5)
|
|
|
18,570
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|
|
|
17,594
|
|
|
|
17,489
|
|
|
|
16,954
|
|
|
|
16,655
|
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Percentage utilization(6)
|
|
|
96.5
|
%
|
|
|
97.9
|
%
|
|
|
97.7
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%
|
|
|
97.8
|
%
|
|
|
94.9
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%
|
Average TCE per vessel per day(7)
|
|
$
|
20,412
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|
|
$
|
25,940
|
|
|
$
|
19,834
|
|
|
$
|
16,957
|
|
|
$
|
16,430
|
|
Vessel operating expenses per ship per day(8)
|
|
$
|
7,763
|
|
|
$
|
7,933
|
|
|
$
|
8,209
|
|
|
$
|
7,651
|
|
|
$
|
7,756
|
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Vessel overhead burden per ship per day(9)
|
|
$
|
1,331
|
|
|
$
|
1,212
|
|
|
$
|
1,175
|
|
|
$
|
1,196
|
|
|
$
|
1,180
|
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(1)
|
Vessel operating expenses are costs that vessel owners typically bear, including crew wages and expenses, vessel supplies and spares, insurance, tonnage tax, routine
repairs and maintenance, quality and safety costs and other direct operating costs.
|
(2)
|
The average age of our fleet is the age of each vessel in each year from its delivery from the builder, weighted by the vessels deadweight tonnage
(dwt) in proportion to the total dwt of the fleet for each respective year.
|
(3)
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Earnings capacity days are the total number of days in a given period that we own or control vessels.
|
(4)
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Off-hire
days are days related to repairs,
dry-dockings
and special surveys, vessel
upgrades and initial positioning after delivery of new vessels. In 2012, excluding
La Prudencia
and
La Madrina,
which were unemployed during most of the year being held for sale,
off-hire
days
for the rest of the fleet were 337.
|
(5)
|
Net earnings days are the total number of days in any given period that we own vessels less the total number of
off-hire
days
for that period.
|
3
(6)
|
Percentage utilization represents the percentage of earnings capacity days that the vessels were actually employed, i.e., net earnings days as a percentage of earnings
capacity days. In 2012, excluding
La Prudencia
and
La Madrina,
which were unemployed during most of the year being held for sale, percentage utilization was 98%.
|
(7)
|
The shipping industry uses time charter equivalent, or TCE, to calculate revenues per vessel in dollars per day for vessels on voyage charters. The industry does this
because it does not commonly express charter rates for vessels on voyage charters in dollars per day. TCE allows vessel operators to compare the revenues of vessels that are on voyage charters with those on time charters. TCE is a
non-GAAP
measure. For vessels on voyage charters, we calculate TCE by taking revenues earned on the voyage and deducting the voyage expenses (bunker fuel, port expenses, canal dues, charter commissions) and dividing
by the actual number of voyage days. For vessels on bareboat charter, for which we do not incur either voyage or operation costs, we calculate TCE by taking revenues earned on the charter and adding a representative amount for vessel operating
expenses. TCE differs from average daily revenue earned in that TCE is based on revenues after voyage expenses and does not take into account
off-hire
days.
|
Derivation of time charter equivalent per day (amounts in thousands of U.S. dollars except for days and per day amounts):
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
Voyage revenues
|
|
$
|
481,790
|
|
|
$
|
587,715
|
|
|
$
|
501,013
|
|
|
$
|
418,379
|
|
|
$
|
393,989
|
|
Less: Voyage expenses
|
|
|
(106,403
|
)
|
|
|
(131,878
|
)
|
|
|
(154,143
|
)
|
|
|
(132,999
|
)
|
|
|
(124,012
|
)
|
Add: Representative operating expenses for bareboat charter ($10,000 daily)
|
|
|
3,660
|
|
|
|
560
|
|
|
|
|
|
|
|
2,110
|
|
|
|
3,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time charter equivalent revenues
|
|
|
379,047
|
|
|
|
456,397
|
|
|
|
346,870
|
|
|
|
287,490
|
|
|
|
273,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings days
|
|
|
18,570
|
|
|
|
17,594
|
|
|
|
17,489
|
|
|
|
16,954
|
|
|
|
16,655
|
|
Average TCE per vessel per day
|
|
$
|
20,412
|
|
|
$
|
25,940
|
|
|
$
|
19,834
|
|
|
$
|
16,957
|
|
|
$
|
16,430
|
|
(8)
|
Vessel operating expenses per ship per day represents vessel operating expenses divided by the earnings capacity days of vessels incurring operating expenses. Earnings
capacity days of vessels on bareboat or
chartered-in
have been excluded.
|
(9)
|
Vessel overhead burden per ship per day is the total of management fees, management incentive awards, stock compensation expense and general and administrative expenses
divided by the total number of earnings capacity days.
|
Ratio of Earnings to Fixed Charges and Preference
Dividends
The following table sets forth our ratio of earnings to fixed charges and preference dividends for the periods
presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2013
(2)
|
|
|
2012
(2)
|
|
Ratio of earnings to fixed charges and preference dividends
(1)
|
|
|
1.6x
|
|
|
|
4.1x
|
|
|
|
1.6x
|
|
|
|
|
|
|
|
|
|
(1)
|
For purposes of calculating the ratios of earnings to fixed charges and preference dividends (none in 2012):
|
|
|
|
earnings consist of net income (loss) before minority interest plus interest expensed and amortization of loan fees and capitalized
interest;
|
|
|
|
fixed charges represent interest expensed and capitalized, the interest portion of charter hire expense, and amortization of loan fees and
capitalized interest; and
|
|
|
|
preference dividends refers to the amount of net income (loss) that is required to pay the cash dividends on outstanding preference
securities and is computed as the amount of (x) the dividend divided by (y) the result of 1 minus the effective applicable income tax rate.
|
(2)
|
The ratio of earnings to fixed charges and preference dividends (none in 2012) for this period was less than 1.0x. The deficiency in earnings to fixed charges and
preference dividends for the year ended December 31, 2013 and 2012 was approximately $42.8 million and $49.5 million, respectively.
|
Capitalization
The following table sets forth our (i) cash and cash
equivalents, (ii) restricted cash and (iii) consolidated capitalization as of December 31, 2016 on:
|
|
|
as adjusted basis giving effect to (i) debt repayments of $68.7 million, (ii) drawdowns of $124.4 million for the acquisition of
vessels
Marathon TS, Hercules I
,
Lisboa
and
Sola TS
and the payment of
|
4
|
$174.2 million to the shipbuilding yards, (iii) $0.6 million in respect of the partial prepayment of the
pre-delivery
financing for
Hercules I
, (iv) the payment of $4.0 million of preferred share dividends, (v) $3.1 million proceeds from the sale of 550,000 common shares and 24,803 Series D preferred shares, (vi) $111.4 million of net proceeds from the
issuance and sale of 4,600,000 Series E
Fixed-to-Floating
Rate Cumulative Redeemable Perpetual Preferred Shares, (vii) $3.7 million proceeds from the termination of
four hedging interest rate swaps, (viii) $2.1 million declaration of preferred share dividends on Series B and C Preferred Shares and (ix) $4.2 million declaration of common share dividends, all of which occurred after December 31,
2016 and as of the date of this Annual Report.
|
Other than these adjustments, there has been no material
change in our capitalization from debt or equity issuances,
re-capitalization
or special dividends between December 31, 2016 and April 25, 2017.
This table should be read in conjunction with our consolidated financial statements and the notes thereto, and Item 5.
Operating and Financial Review and Prospects, included elsewhere in this Annual Report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016
|
|
In thousands of U.S. Dollars
|
|
Actual
|
|
|
Adjustments
|
|
|
Adjusted
|
|
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Cash
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
187,777
|
|
|
|
(4,701
|
)
|
|
|
183,076
|
|
Restricted cash
|
|
|
9,996
|
|
|
|
|
|
|
|
9,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash
|
|
|
197,773
|
|
|
|
(4,701
|
)
|
|
|
193,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalization
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term secured debt obligations (including current portion)
|
|
$
|
1,766,043
|
|
|
|
55,139
|
|
|
|
1,821,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred shares, $1.00 par value; 15,000,000 authorized (including 2,300,000 Series B Preferred Shares, 2,300,000 Series C
Preferred Shares and 3,910,000 Series D Preferred Shares) and 2,000,000 Series B Preferred Shares, 2,000,000 Series C Preferred Shares, 3,400,000 Series D Preferred Shares and no Series E Preferred Shares issued and outstanding at December 31,
2016 on an actual basis; 4,600,000 Series E Preferred Shares authorized on an as adjusted basis and 2,000,000 Series B Preferred Shares, 2,000,000 Series C Preferred Shares, 3,424,803 Series D Preferred Shares and 4,600,000 Series E Preferred Shares
issued and outstanding on an as adjusted basis.
|
|
|
7,400
|
|
|
|
4,625
|
|
|
|
12,025
|
|
Common shares, $1.00 par value; 185,000,000 shares authorized; 87,338,652 shares issued and 83,720,866 shares outstanding at
December 31, 2016 on an actual basis and 87,338,652 shares issued and 84,270,866 shares outstanding on an as adjusted basis
|
|
|
87,339
|
|
|
|
|
|
|
|
87,339
|
|
Additional
paid-in
capital
|
|
|
752,001
|
|
|
|
107,449
|
|
|
|
859,450
|
|
Cost of treasury stock
|
|
|
(20,173
|
)
|
|
|
3,061
|
|
|
|
(17,112
|
)
|
Accumulated other comprehensive loss
|
|
|
(4,313
|
)
|
|
|
(3,560
|
)
|
|
|
(7,873
|
)
|
Retained earnings
|
|
|
582,889
|
|
|
|
(7,139
|
)
|
|
|
575,750
|
|
Non-controlling
interest
|
|
|
12,307
|
|
|
|
|
|
|
|
12,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
1,417,450
|
|
|
|
104,436
|
|
|
|
1,521,886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
3,183,493
|
|
|
|
159,575
|
|
|
|
3,343,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
Reasons For the Offer and Use of Proceeds
Not Applicable.
General
Market OverviewWorld Oil Demand / Supply and Trade (Howe Robinson)
All of the statistical data and other
information presented in this section entitled General Market OverviewWorld Oil Demand / Supply and Trade, including the analysis of the various sectors of the oil tanker industry, has been provided by Howe Robinson Partners (UK)
Ltd (Howe Robinson). Howe Robinson has advised that the statistical data and other information contained herein are drawn from its database and other sources. In connection therewith, Howe Robinson has advised that: (a) certain
information in Howe Robinsons database is derived from estimates or subjective judgments; (b) the information in the databases of other maritime data collection agencies may differ from the information in Howe Robinsons database;
and (c) while Howe Robinson has taken reasonable care in the compilation of the statistical and other information and believes it to be accurate and correct, data compilation is subject to limited audit and validation procedures.
Hopes that the low oil price environment of 2015 would translate into a similar earnings trajectory last year dimmed come
the second quarter of 2016 as record high product stockpiles restricted refining runs growth and arbitrage trade between regions, limiting both crude and product tanker demand, whilst peak fleet growth towards the end of the year and rising bunker
prices also weighed on the tanker market. Overall,
year-on-year
refining runs grew by only 100,000 bpd in 2016 based on the International Energy Agencys (IEA)
estimatesand although this figure is somewhat skewed from the French refinery strikes that took place in Q2 2016, it is still significantly lower than the +1.83m bpd
year-on-year
gain global runs had witnessed in 2015. The low refinery demand growth hurt crude tanker demand growth to a degree, but product tanker demand was more
seriously impaired by the extremely high product stock levels in all major global refining centres (US Gulf, NW Europe, Singapore) which was the underlying reason that kept runs growth so moderate in the first place. OECD industrial product stocks
were 7% higher in 2016 than in 2015 and 14% higher than 2014contributing to some of the lowest product tanker $/tonne freight rates on record, although tanker earnings level were aided by the relatively low bunkers.
Crude tanker demand in 2016particularly for VLCCswas aided by a very strong Chinese stockbuilding activity which exceeded the
1m bpd mark in some periods. This, combined with healthy runs growth in the Far East and heavy crude production growth in the Mideast Gulf (namely from Iran as sanctions were lifted) pushed VLCC loadings to grow by 6.5% YoYthe trade between
the Mideast and the Far East became one of the only crude tanker routes to witness growth in 2016. Towards the end of 2016, OPEC and some
non-OPEC
countries agreed to cut crude output by ~1.76m bpd from
October 2016 levels for the first six months of 2017 which would soon reverse the trend set throughout 2016 of concentrating most of the demand growth for crude tankersand therefore the crude tanker fleetin the Mideast Gulf. Indeed,
following the agreement of this production cut, the oil price began to appreciate, but also the Dubai-Brent and WTI spread narrowed. It has since therefore become increasingly attractive to import crudes priced off Brent or WTI given the production
cuts taking effect in the MEG. This is expected to encourage more long-haul crude tanker demand in 2017. Already North American supplies have flowed to the Far East for the first time in recent months. Growing US production should help to widen the
WTI-Brent
spread further as well and make US crude exports even more attractive for purchase.
6
Global Oil Prices and Benchmark Differentials
Crude oil prices had reached a multi-year low in early 2016 with the recovery of
Iranian crude exports depressing prices post-sanctions. Iran has boosted production by 840,000 bpd to 3.75m bpd since the end of 2015. Supportive refining margins and outages in West Africa soon boosted oil prices, which had nearly doubled by the
start of June, even with the French refinery strikes in late May/early June restricting demand. Burgeoning supply growth from the Mideast Gulf, namely Saudi Arabia and Iran which had risen by 530,000 bpd and 720,000 bpd respectively since the start
of the year and waning refinery demand growth amid suffocating product stocks halted the march upwards in oil prices. By
mid-June,
WTI had begun to once again trade at a discount to Brent amid the declines in
West African production pressuring the latter benchmark despite US production at the time still in decline. Oil prices overall weakened further in the third quarter of 2016 during the refinery maintenance season, while OPEC leaders had by then begun
to talk of a possible cut to bring oil prices back above $50/bbl for a sustained period of time. This began to excite the market, supporting oil prices speculatively despite growth in US production resuming and stocks in the fourth quarter remaining
high. Following the decision of OPEC and 11
non-OPEC
countries to reduce output reached on the 30
th
of November, Brent oil prices have indeed managed to remain above $50/bbl. As mentioned previously, the tightening in
Mideast Gulf crude supply, particularly heavy crude supply, has led to a narrowing of the Dubai benchmark relative to other global benchmarks driving Asia to look to source more crude from the North Sea, West Africa, the US, Canada and Brazil.
7
Global Oil Supply and Demand
Oil production continued to grow into 2016, rising by ~1.17m bpd in
Q1-16
with the return of Iran to the market heightening the growth out of the Mideast Gulf. However, the wildfires in Canada along with a paring back in US supply since their high of just over 13m bpd in
Q3-15
saw a growth in global crude supply of only 0.11m bpd YoY in
Q2-16.
The unrest in Nigeria pushed quarterly production there to at least a
16-year
low of 1.25m bpd in
Q3-16,
whilst more output reductions from other
non-OPEC
players saw the first quarterly period of
implied stockdraw since 2013 albeit at a minimal
-0.17m
bpd. In
Q4-16
the tide was reversed as OPEC members boosted production by almost 0.5m bpd ahead of their
agreement to reduce output by 1.2m bpd (and
non-OPEC
members by a further 558,000 bpd) for the first
six-months
of 2017. In the nearly 12 months since lifting sanctions,
Iran had boosted production by almost 900,000 bpd to average 3.79m bpd for
Q4-16.
While other major OPEC players, namely Iraq and Saudi Arabia, were also producing at record high levels towards the end of
2016, just ahead of the cuts taking effect. Overall, OPEC production rose by 1.2m bpd year on year while
non-OPEC
production fell by
-0.79m
bpdleaving a supply
build of approximately 0.41m bpd.
As mentioned above, Iran returning to the market undoubtedly lead to a big addition of
crude supplies into the export market. There were also other OPEC members at play who had an equally heavy hand in the supply build last year. Saudi Arabian supply rose to a record monthly high of 10.65m bpd in July 2016, and for the year its output
growth averaged 300,000 bpd or nearly 1m bpd up from 2014 levels. Meanwhile, Iraqi output rose by nearly 700,000 bpd in the full year 2016 to average just above 3m bpdby the end of 2016 output was much more comfortably in the 3.15m bpd range.
Notably, Nigeria took a hit in crude production following a series of militant attacks on infrastructuremonthly Nigerian crude production fell to its lowest in August at 1.37m bpd and was overall down by 300,000 bpd
year-on-year.
Another OPEC wildcard was Libya, who staged a comeback towards the end of 2016 as production rose to 620,000 bpd from a low of 280,000 bpd in August. The final
OPEC member to take note of is Venezuela, whose output slowly receded in 2016 to 2.24m bpd, a
year-on-year
loss of approximately 200,000 bpd, in light of limited
financing, due to low oil prices, needed to support infrastructure for their heavy crude production. With the change of the year into 2017, however, the trajectory for OPEC production has made a swift change with an above 100% compliance so far to
the
six-month
1.17m bpd cutoverall members have actually cut 1.42m bpd. Saudi Arabia has gone the furthest distance, cutting
8
production by 280,000 bpd more than it is required to, marking a production level of just below 10m bpd for the first time since early 2015. As such, the reduction in Mideast Gulf supplies has
forced Asian buyers in particular to look further afield to places like the US Gulf or Brazil to fill their growing crude needs, which is promoting more long-haul trade for crude tankers. Meanwhile, OPEC players exempt from the cut, namely Nigeria
and Libya, have seen their output rise in recent months but they are unlikely to majorly impair the impact of the deal given the size of the cut.
Conversely, in 2016
non-OPEC
crude production sank by almost 800,000 bpdin stark contrast to their ~2.33m bpd build in 2015 and ~2.52m bpd build in 2014.
Leading the charge in the decline was the US where supply was down by 450,000
year-on-year
to 12.54m bpd for 2016. However, US supply has since been climbing after
hitting their output low in September at 12.2m bpdoutput is now back up to 12.48m bpd in January 2017 as the US oil industry has worked over the past couple of years to become a more lean and nimble operation, helping them bounce back quickly
at the sign of oil price strength following the announcement of an OPEC deal to cut output towards the end of last year, while the IEA expects US light tight oil production to grow by 500,000 bpd in 2017. Meanwhile, Canadian production was not
impaired
year-on-year
by the wildfires of
Q2-16,
but Mexican output sank by about 150,000 bpd in 2016 due to a lack of investment
in the country. The other large loss in
non-OPEC
supply in 2016 was Asian production. Chinese crude output, in particular, fell by approximately 200,000 bpd in 2016 which bolstered their crude import needs for
the year to the benefit of VLCC tanker demand. Chinese output remains low, at 3.92m bpd in January 2017400,000 bpd lower than at the end of 2015this is driven by low oil prices given that the countrys ageing fields have a higher
cost of operations. Having said that, the Chinese government has recently expressed a commitment to support the industry and as oil prices continue to climb this loss in Chinese supply should recover over the next couple of years. Although more
sparse, growth in
non-OPEC
supply last year came from Russia (+250,000 bpd) and Brazil (+80,000 bpd) but was not enough to offset the loss in other regions such as North America (overall
-520,000
bpd) and Asia
(-330,000
bpd) amongst other
non-OPEC
members. During the first six months of 2017, Russian supply as well as
several other
non-OPEC
member production will be under a lid as they work to adhere to their crude supply cut commitments under the joint
OPEC/non-OPEC
agreement. So
far, Russia has only cut its output by a little more than 100,000 bpd but has announced that it will meet the full 300,000 bpd commitment over the coming months. Overall
non-OPEC
compliance to the deal is
running at about 50%. Although this agreement will stunt
non-OPEC
growth somewhat in 2017,
year-on-year
non-OPEC
supply is expected to post growth, led by gains in Brazil and a resurgence in the US which already began as output rose by 230,000 bpd in the final quarter of 2016 amid higher oil prices and a more
confident financing environment.
OECD industry crude stocks drew by 38.2m bbls in 2016, with most of the draws happening in
the second half of the year after reaching a peak in May 2016. OECD European and Asian industry crude stocks both fell, by 30.9m bbls and 12.5m bbls respectively, whilst North American crude stocks have remained stubbornly high and actually slightly
grew throughout the year by 5.3m bbls. Even though 2016 witnessed some draws, OECD industry crude stocks remained 125.3m bbls higher at the end of 2016 compared to the same period two years prior. Similarly, it is believed that global crude stocks
elsewhere
(non-OECD)
also remain highthe data to verify this is difficult to come byand so the global crude market will need to see a prolonged period of undersupply in order for this overhang to
be significantly reduced. The OPEC and
non-OPEC
joint agreement to cut supply is hoped to dent this global crude surplus sitting in storage which will then in turn help to stabilise oil prices at a higher
level for a prolonged period.
Overall, in annual terms 2016 was a year where oil demand growth outpaced crude production
growth. The IEA consistently upgraded its demand growth estimations throughout the year, citing stronger than expected OECD growth in particular along with what was expected to be stronger demand in the dominating growth markets of India and China.
Overall, oil demand grew by 1.6m bpd in 2016with 0.4m bpd of this growth attributed to OECD countries and the remaining 1.2m bpd as a result of another year of strong
non-OECD
appetite. Although the IEA
recorded slightly stronger oil demand growth in 2016 than expected, it was still far below the
year-on-year
growth of 2m bpd in 2015which was in large part driven
by the exceptional oil demand growth in
Q3-15
which jumped by 2.72m bpd from
Q3-14.
In comparison,
Q3-16
demand was only up by
1.18m
9
bpd on the year as the shock of low oil prices, and hence low retail prices for consumer-centric products such as gasoline, had already reverberated through the market. However, without
considering the exceptional growth in 2015, an annual growth of 1.6m bpd is still robust and is a testament to the high demand growth environment that has been enabled by low oil prices. Global oil demand is now expected to grow by an average of
1.2m bpd each year to 2022.
In many ways, 2016 was a perfect storm for Chinese crude tanker demand. The year saw a marked
decline in domestic Chinese crude production, increased crude demand from independent refiners and an unprecedented stockbuilding appetite. Chinese stockbuilding activity in 2016 is estimated to have averaged 790,000 bpd, compared to 650,000 bpd in
2015. In the first six months of the year, stockbuilding is estimated to have averaged well above 1m bpdwhile there were only two monthly stockdraws throughout the year by
-80,000
bpd in January and
-470,000
bpd in October (figure is implied and not actual). The IEA reports that the Chinese SPR is well into Phase 3, after having filled the last Phase 2 site in Huangdao 2 in the third quarter of 2016. Currently,
the 19m bbl Zhoushan 2 and 18.9m bbl Jinzhou SPR are also being filled. However, commercial and refinery-mandated stockbuilding make up a much larger portion of stockbuilding activity than SPR filling, and as such Chinese stockbuilding has proven to
be very sensitive to oil price movements yet still highly unpredictably. It is expected that Chinese stockbuilding activity will taper in 2017 as the oil price climbs closer to levels seen in 2015.
Chinese Crude Imports and Stock Building
10
Asian oil demand growth in 2016 was the true propeller of the crude tanker market. Chinese
oil demand grew by 360,000 bpd, but seaborne import demand grew by more given the decline in domestic production as well as the entry of independent or teapot refineries into the market. Independent refiners in China began to receive
crude processing quotas and direct crude import quotas in late 2015. Prior to that, these independent refineries used predominantly fuel oil as a feedstockboth imported and domestic. However, since early 2015shortly after the first
independent refineries were awarded quotasindependent refiner demand for imported crude grew from about 300,000 bpd to around 1.3m bpd in January 2017. As it currently stands, a total of 19 independent refiners have received a combined quota
for crude oil imports of 917,000 bpd so far this year, lower than their full quotas of 1.475m bpd in 2016, but there are a potential five more independent refiners expected to receive quotas by
mid-March
whilst a second round of quotas may be awarded towards the end of
Q2-17.
At first, the independent refiners preferred to source crude in small batches and from short-haul destinations. This saw Russian flows
from Kozmino grow as an obvious choice, and the refiners relied on the larger state refiners expertise and infrastructure for longer haul crude supplies. In time, the independent refiners have branched out to form their own conglomerates and
purchase larger cargoes from long-haul destinations such as West Africa directly while some of the more established independent refiners have even signed term agreements with suppliers in the Mideast Gulf. Indian oil demand growth in 2016 was also
noteworthy at 7% or 290,000 bpd. Despite deregulated retail prices, a
government-led
infrastructure program and an increasing adoption of
two-wheel
and four-wheel
vehicles is propelling growth in the country. However, as a mostly cash-based economy the removal of high denominated bills from circulation towards the end of 2016 is expected to impair oil demand growth, and overall economic growth, in the first
few months of 2017.
GDP and Oil Demand Growth vs. Tanker Earnings
11
According to the IMF, global GDP growth in 2016 averaged 3.1% for the year. A reduction in
inventories and some recovery in manufacturing output saw advanced economies grow at a faster pace than expected, particularly in the United States and some EU countries. Meanwhile, growth in the emerging markets and developing economies was marked
by an unexpected slowdown in some countries. Growth in China was stronger than expected, supported by government policies, but annual economic growth in Latin America, notably in countries currently in recession such as Argentina and Brazil, was
slower than expected whilst despite continued sanctions activity in Russia growth was better than expected. GDP growth is expected to accelerate to 3.4% in 2017 according to the IMF, with the forecast rising for both advanced economies (from 1.6% in
2016 to 1.9% in 2017) and developing economies (from 4.1% in 2016 to 4.5% in 2017). The IMF also expects world trade volumes to double in 2017 to 3.8% and oil prices (as an average of the Brent, Dubai and WTI benchmarks) to rise by $19.90/bbl.
Crude Tanker Tonne-Miles and Select Crude Imports
12
|
|
|
|
|
|
In 2016, the crude trade from the Mideast Gulf to Asia-Pacific experienced an overwhelming growth as
Mideast Gulf producers raised production by over 6% or +1.6m bpd whilst Asia-Pacific raised refining runs by +860,000 bpd. VLCCs were the prime benefactor of this growing trade. Overall VLCC liftings were up by 6.54% in 2016 whilst
tonne-miles were up by 6%both were dragged down by lower fuel oil trade volumes and tonne-miles. Conversely, Suezmaxes experienced a nearly flat lifting volumes growth given the disruptions of Nigerian crude loadings and stiffer competition
from VLCCs for cargoes out of the Mideast Gulf. However, Suezmax tonne-miles grew by +5.6% in 2016 despite the negligible volumes growth as the traditional WAF/Europe trade was increasingly replaced by longer-haul trades such as MEG/West.
Similarly, Aframax volumes growth in 2016 was lacklustrea slight increase in crude liftings was recorded but offset by a dramatic fall in fuel oil trade, which will continue to be the long-term trend especially given the IMO 2020 0.5% sulphur
cap regulation. Aframax trade became more localised as they shouldered competition from Suezmaxes in loading areas such as the Black Sea and the MEG. Aframaxes saw liftings rise in the Baltic and Asia, but overall tonne-miles were lower in 2016 as
liftings from traditional key regions including the Med. and long-haul origins like South America fell.
Once again, China was
the most significant contributor to tonne-miles growth in 2016expressed by the growth in VLCC trade from the Mideast Gulf. Interestingly, MEG crude inflows into all the major import areas rose in 2016 as Middle Eastern output ballooned before
the agreement to reduce output took hold at the start of 2017 and as output in the west (West Africa, the US, Venezuela) and in importing countries themselves (China, US) fell. As to be expected, West African flows in 2016 falteredthere was a
stagnation in imports to China, India and the US from the region whilst there was a marked
drop-off
in West African crude flows into Europe which was in part due to the disruption in Nigeria but also due to
lower European refining runs growth in 2016. Latin American exports only witnessed growth in flows to China, although there was a dip towards the end of the
13
year as Venezuelan production began to experience difficultiesVenezuelan crude output fell from 2.34m bpd in
Q1-16
to 2.12m bpd in
Q4-16.
As previously explained, in 2017 there is expected to be a much greater emphasis on tonne-mile growth by virtue of growing long-haul trades as heavy and sour output from the Mideast Gulf, in particular, is
clipped back during the first
six-months
of the year. Already in 2017, we have seen record flows of North Sea, Black Sea and US crude cargoes to the Far East and elsewhere as the differential between Brent and
WTI-priced
crude grades compared to Dubai-priced crude grades becomes increasingly attractive for long-haul arbitrage opportunities.
US Oil Product Imports and Exports
The product tanker market in 2016 experienced what can be called an underwhelming trade environment.
High refining margins that had persisted for the most part since the 2H2014 first left major refining centres with high stocks of middle distillates in 2015, and thenwithout drawing on those high middle distillate stocksleft major
refining centres with high stocks of gasoline in 2016 as well, as refineries maximised their gasoline yield in the chase of more supportive refining margins. Low retail gasoline prices continued into 2016, and so there were expectations that
mid-year
2016 could again experience a buoyant gasoline tradealthough not to the same extent as in 2015. However, the high product stocks in middle and light distillates built up by early 2016 left the
worlds major refining hubs (US Gulf, NW Europe, Singapore) sufficiently supplied to appease local demand peaks and therefore all but eliminated the possibility for pricing signals and arbitrage trades to emerge between regions. This left
product trade very depressed for the last three quarters of 2016 in particular, with no great uptick in US product exports or imports given there was a lack of deficit in which to trade.
Refining margins in 2016 were 36% lower
year-on-year
in
NW Europe, 16% lower
year-on-year
on the US Gulf coast and 41% lower
year-on-year
in
Singapore. Refining margins in the US peaked in
Q2-16,
whilst margins in NW Europe and Singapore received last-minute strength at the very end of 2016 in lieu of winter weather and a stronger market for some
specific fuels at points (including fuel oil in Asia). The drop in refining margins lead to a very low growth in refining runs in 2016 of approximately 120,000 bpd, the lowest since 2009 when global refining runs had fell by
-1.5m
bpd. Despite the low refining runs growth, OECD industry product
14
stocks grew by 69m bbls or over 7% in 2016. Stocks have fallen by 45m bbls since reaching their peak in January 2016, but still remain 61.1m bbls higher than levels as at January 2015. A higher
Asian refinery maintenance season, which is expected to peak in early and late
Q2-17,
and changing fuel specifications in major marketsincluding China adopting 10ppm fuel standards nationwidealong
with naturally lower refining runs in a response to low refining margins is expected to help pull down global product stocks in 2017 and perhaps
re-instate
healthy and responsive product trade in time.
Product tanker demand was also hit last year by a
drop-off
in naphtha arbitrage
volumes from the west to east, this route is especially critical for LR tanker demand. It is estimated that arb naphtha from the west of Suez into Asia averaged 1.7m bpd in 2015 and fell to an average of 1.3m bpd in 2016 with the second half of 2016
witnessing very low volumes of
sub-1m
bpd. The collapse in this trade is a result of a few factors, but primarily a cheaper LPG price which led Asian petrochemical plants to switch to LPG from naphtha as their
main cracker feedstock. Other reasons include lower surplus naphtha in Europe due to lower refining runs growth last year, in addition to lower gasoline blending component import demand. Overall, this long-haul trade is expected to become
increasingly vulnerable to LPG as a competing feedstock for petrochemicals, and as east of Suez becomes more self-sufficient with its own naphtha supplies following the opening of several condensate cracking facilities towards the end of 2016 and
start of 2017.
There were few refinery additions last year in comparison to years prior, with most concentrated in the east
of Suez region. The much-delayed Paradip refinery started commercial operation of its first 100,000 bpd phase of three in early 2016. The refinery is currently operating at 90% according to its operator IOC but will ramp up to 100% in 2017/18. The
refinery is expected to mainly cater to growing domestic demand while new refineries added late in the year in the Mideast Gulf are conversely expected to add to the export market as well. The first 120,000 bpd phase of Irans 360,000 bpd
Persian Gulf Star refinery was commissioned in
Q4-16
and began exporting naphtha cargoes in early 2017, while the 146,000 bpd Ras Laffan 2 refinery launched at the end of 2016 will consume most of the ~50,000
bpd jet fuel output but will export the remainder of product output. Both Mideast Gulf refineries are
condensate-fed
from domestic sources and so will diminish east of Suez condensate supply. Further east,
South Koreas Hyundai Chemical started up a 110,000 bpd condensate splitter in Daesan in early
Q4-16
which immediately drew upon Iranian condensate supplies; South Koreas purchases of Iranian South
Pars condensate rose about 800%
year-on-year
in 2016 to 69.96m bbls. This draw on Iranian condensate has helped to free up some NITC-owned VLCCs which were acting as
supplemental storage anchored off Assaluyeh. Also in the Far East, the 260,000 bpd Yunnan refinery was further delayed as PetroChina had to attain additional certification after increasing the refinerys capacity without prior environmental
approval. The refinery is now complete, but PetroChina is waiting to finalize an agreement with Myanmar officials for the pipeline that runs from the Bay of Bengal and through Myanmar to the southern city of Anning. Finally, the notable closure of
2016 was the 155,000 bpd La Mede refinery which was shut at the end of 2016 to convert the facility into a
bio-refinery.
World Tanker Fleet
VLCC fleet growth took off in 2016, peaking at 6.9%
after relatively low growth rates in 2015 of 2.8% and in 2014 of 2.4%. Most deliveries into the fleet came at the end of the year, with 20 delivered in the 1H 2016 and 26 delivered in the 2H2016. 2016 marked the highest year for VLCC deliveries into
the fleet since 2012, but low scrapping of only 2 VLCCs in 2016 left fleet growth higher for the year. Slippage in 2016 averaged 34.2%, higher than the 2009-2015 slippage average of 27.3%, in lieu of a weaker market. 52 deliveries are currently
scheduled for 2017, with 15 already delivered and 37 remaining to be delivered. Slippage in 2017 is expected to remain elevated (although January 2017 alone saw a near-record 12 VLCC deliveries) as the market remains weak in part due to the heavy
fleet growth.
Suezmax slippage reached a very high 42% in 2016 as woes in the market during
Q3-16
in particular began to dissuade deliveries into 2017, which are scheduled at a total of 61including 9 that have delivered in the first two months of the year. A total of 25 Suezmaxes were added to
the fleet in 2016 while there were zero removals
15
from the fleet which amounted to a fleet growth of 5.8%markedly higher than a fleet growth of 1.4% in 2015 and a slight contraction of
-0.2%
in 2014.
Considering the high slippage in 2016, deliveries into the Suezmax fleet are expected to accelerate as detailed above while slippage is still expected to remain above the seven-year average of 38.3% given still weak market expectations in 2017 and
so the NB schedule will be pushed further into 2018.
In 2016, a total of 52 Aframaxes (includes fully coated LR2) were added
to the fleet, 35 of which were coated (LR2s). There was an even spread of ships delivered in the first half of the year versus the second half, while the high number of deliveries for the year translated into a relatively low slippage rate of just
under 25%markedly lower than the preceding seven-year average of 31.9%. Overall, Aframax fleet growth grew by 6.0% in 2016 however if we look solely at the LR2 that are actually trading in clean markets that fleet only grow by 3.2% as the high
number of dirty ups somewhat offset deliveries into the clean trading fleet. A total of 84 Aframaxes are scheduled to deliver in 2017, including 13 that have already delivered. The coating of these ships can be determined until fairly late in the
building process so our count of how many of those are LR2s only includes confirmed coated ships. Of the Aframaxes scheduled to deliver in 2017, 68 are coated which will spell another heavy year of LR2 deliveries which supports the expectation that
2017 will again see more LR2s dirtying up than cleaning up to offset this fleet pressure on the clean trading side.
The
Panamax fleet (includes fully coated LR1s) grew by a lower 3.9% rate in 2016 with 18 deliveries, 16 of which were coated, and 2 removals. Slippage in 2017 was 40%, which is actually below the 2009-2015 average of 45.5%, with most deliveries
happening in the first half of 2016. Conversely to the clean trading coated Aframax (LR2) fleet, the coated Panamax (LR1) grew by more than the nominal fleet at a rate of 6% as there were more clean ups than dirty ups of the coated capacity which
swelled the clean trading fleet on top of the newbuilding deliveries as the LR1 market slightly outpaced dirty Panamax earnings during the year on the whole. Scheduled deliveries for 2017 total 31, all of which are coated LR1s, and only 2 of which
have already been delivered in the first two months of 2017. Slippage may creep higher given the continued weak market for both crude and product tanker earnings in 2017 which may see a similar number of ships delivered in 2017 as last year.
A total of 84 vessels entered the MR fleet in 2016, and compared to a scheduled delivery of 96 MRs in 2016 at the start of
the year this resulted in a very low slippage rate of 12.5%significantly below the preceding seven year slippage average for the MR fleet of 30.4%. Only 3 MRs were scrapped in 2016, leaving a net addition of 81 vessels to the fleet or an
annual fleet growth rate of 6.3%. Deliveries into the MR fleet will begin to decelerate in 2017, with 70 scheduled for delivery this year followed by 38 in 2018although there may be still some room to order further. Slippage in 2017 is
expected to pick up from the very low levels of last year, but the MR fleet is expected to be protected earnings-wise given the lower fleet growth in the near-terma marked difference from the LR and crude tanker fleet growth trajectories.
In a similar vein, Handy fleet growth is decelerating with 2016 as the peak fleet growth yearalbeit at a low
2.4%since 2008. Slippage in 2016 for Handies was also quite low, at 15.5% compared to its 2009-2015 average of 28.9%, as 38 newbuilds entered the fleet. There were, however, 18 removals of Handy tankers from the fleet in 2016with an
average age of 27 yearswhich reduced the net addition to the fleet from 38 to 20. Scheduled deliveries in 2017 total a lower 35, 6 of which have already delivered, while 2018 scheduled deliveries total an even lower 15although there is
scope for some additional orders. Overall, scrapping of the fleet is expected to remain elevated given over 130 Handies are over the age of 20 years and 22 are over the age of 30 years.
16
Newbuildings
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Newbuilding Tanker Prices (South Korea)
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Jan-07
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Jan-08
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Jan-09
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Jan-10
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Jan-11
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Jan-12
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Jan-13
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Jan-14
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Jan-15
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Jan-16
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Jan-17
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VLCC
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$130.0m
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$146.0m
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n/a
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$100.0m
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$105.0m
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$100.0m
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$90.0m
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$92.0m
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$98.0m
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$93.0m
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$83.0m
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Suezmax
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$ 80.5m
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$ 86.0m
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n/a
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$ 60.0m
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$ 65.0m
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$ 62.0m
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$60.0m
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$67.0m
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$65.0m
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$65.0m
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$55.0m
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Aframax (Uncoated)
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$ 65.5m
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$ 72.0m
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n/a
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$ 51.0m
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$ 57.0m
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$ 52.0m
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$48.0m
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$53.0m
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$54.0m
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$53.0m
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$42.0m
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47k dwt (Epoxy Coated)
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$ 47.0m
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$ 51.0m
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n/a
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$ 32.0m
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$ 37.0m
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$ 34.5m
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$32.0m
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$37.0m
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$36.0m
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$35.3m
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$32.0m
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A weaker tanker market, limited financing ability and cases of shipyard distress all lent themselves as
factors to depress the S&P tanker activity in 2017. VLCC newbuild prices in South Korea fell by $10m throughout 2016 to finish at $83m, although prices dipped to $82m in September. These lower newbuild prices were not enough to trigger a rush of
orders, with a total of 16 VLCCs ordered in 2016closer to the long-term average but significantly lower than the 54 orders clocked in 2015. The majority of orders came towards the end of the year and were placed in China, Japan and South Korea
relatively evenly.
Suezmax orders in 2017 also tracked lower, totalling 18, compared to a staggering 64 orders placed in
2015. There was a rush of 10 orders in October by 4 different owners, while one owner placed an order for 4 coated Suezmaxesotherwise known as LR3s. Suezmax orders were placed mostly in South Korea, with notably a couple placed in
Spain. Suezmax NB South Korea prices also lost $10m throughout the year to finish at $55mequating to an annual loss of 15%, higher than the VLCC annual loss of 11%.
Aframax NB South Korean prices also fell by $10m, or nearly 20%, to $42m by the end of 2016. Total Aframax (coated and uncoated) orders were at just 17 in 2016, compared to 109 in 2015. All figures
includes LR2s. Of the 17 Aframaxes ordered in 2016, 8 are known to be coatedmore are likely to become coated orders once more information is received closer to delivery. Panamax orders in 2016 were not as strong as the other crude tanker
classes, there was 1 uncoated and 30 coated orders last year. In 2017 only 6 Panamaxes, all coated, were ordered as NB South Korean prices fell to $39m by the end of December from $46m at the start of 2016, a 15% fall.
MR NB South Korean prices did not fall by the same degree, weakening by 8.5% or $3m throughout the year to end at $32m. MR orders last
year totalled 27, characterised by a number of bulk orders at yards in Japan and China, predominantly. MR ordering had already began a downward trajectory since 2013 when a staggering 165 MR tankers were ordered as part of the
eco-MR
boom. It is a similar story for the Handies, whose ordering has declined each year since 2013 with 57 orders, 2014 with 47 orders and 2015 with 30 orders. In 2017, there were only 4 Handy orders.
Ordering activity in the medium term is expected to remain subdued as it was in 2016 given the continued expectations of factors that
affected the market last year, namely a weaker tanker market and limited financing ability. In periods of high fleet growth, which are preceded by years of high ordering which was witnessed in 2015, 2014 and 2013, ordering interest is typically
restrained although orders from especially more institutional players to replace ageing fleets or to address specific national needs will continue to be placed.
Second-hand Prices
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5-Year Old Tanker Prices
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Jan-07
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Jan-08
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Jan-09
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Jan-10
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Jan-11
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Jan-12
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Jan-13
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Jan-14
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Jan-15
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Jan-16
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Jan-17
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VLCC
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$117.0m
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$138.0m
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n/a
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$77.0m
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$80.0m
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$55.0m
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$51.0m
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$60.8m
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$77.0m
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$78.0m
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$55.0m
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Suezmax
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$ 80.0m
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$ 96.0m
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n/a
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$55.0m
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$56.0m
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$43.0m
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$37.0m
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$38.0m
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$55.8m
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$60.0m
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$40.6m
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Aframax (Uncoated)
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$ 65.0m
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$ 73.0m
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n/a
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$39.0m
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$41.0m
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$32.0m
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$27.0m
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$29.5m
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$42.5m
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$44.0m
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$27.0m
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47k dwt (Epoxy Coated)
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$ 47.0m
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$ 52.0m
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n/a
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$24.5m
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$26.0m
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$25.5m
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$22.0m
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$28.0m
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$26.4m
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$28.0m
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$20.0m
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Given the weaker market in 2016, there was less demand to procure a ship immediately via the secondhand
market. Secondhand
(5-year
old) tanker prices fell by more than NB prices in all markets, which is not difficult
17
to imagine given that secondhand tanker prices jumped in 2015. Throughout the year, VLCC secondhand prices fell by 29.5% to $55m, Suezmax prices fell by 30% to $42m, Aframax prices fell by 38.5%
to $27m, LR1 prices fell by 26.5% to $25m while MR prices fell by 28.5% to $20m. Most of the weakness in the second hand market took hold towards the end of the first half of the year, as most tanker earnings began to exhibit a longer term downturn
that was due to a fundamental oversupply and not just a temporary dip in the market. Therefore, as to be expected, demand for tankers to operate in the current market sunk and as such second hand prices so far in 2017 have yet to post any major
recovery.
Vessel Earnings
A more oversupplied market and slow, but steadily, climbing bunker prices lead to a
year-on-year
weakening in earnings
across the tanker market in 2016. VLCC (basis TD3 round voyage) earnings fell 37% to average just above $41,000/day for the year, Suezmax (basis TD20 round voyage) earnings fell 42% to just below $25,000/day as an average for the year whilst the
Aframax Composite (basis an average of TD7, TD8, TD9, TD11, TD14 and TD17 round voyages) fell by 43% to above $20,000/day. Overall, earnings sunk back to near 2014 levels after an exuberant 2015, but $/tonne rates were lower than in 2014 which
highlighted the importance of the low bunker costalthough bunker costs were rising they were still low in historical terms, supporting earnings levels in 2016 whilst the actual freight in $/tonne terms was sometimes at record low levels
reflecting the oversupply. This phenomenon was even more apparent in the product tanker market as some routes, notably TC1, reached a record low annual $/tonne, yet annual earnings averaged above the four years between 2010 and 2013 at $16,300/day.
The record low $/tonne was witnessed on nearly every product tanker Baltic route, including TC2, TC6, TC14 and TC5, exhibiting that product tankers were under greater pressure than their crude tanker counterparts last year. High product stocks in
all global refining centres, as explained previously, was a significant hindrance to trade especially considering that the cost of freight in product trade is a much more critical element in making the arbitrage between regions work than in crude
trade. Therefore, the arbitrage-sensitive nature of product tanker freight has the ability to depress freight even more in a poor trade environment given an already oversupplied market.
Oil prices, and as an extension bunker prices, hit their low in
mid-January.
Rotterdam IFO380
reached $105/tonne, compared to $277.50/tonne at the start of 2015 and $611.50/tonne at the start of 2014. Since the start of 2016, bunker prices have climbed up steadily with the rise in oil prices to average ~$211/tonne for the year of
2016lower than the 2015 average of ~$265/tonne. Going forward, bunker prices are expected to continue to climb with the oil price trajectory and if $/tonne remains depressed owners could see their earnings come down further as they bear the
brunt of costlier fuels. Further, with the rise in oil prices the contango also weakened throughout 2016the 12 month Brent contango has fallen from above $8/bbl at the start of 2016 to $2/bbl at the end of the year. As a result, storage
operations began to unravel freeing up more of the fleet from storage play areas such as the Mideast Gulf and Singapore. The 12m Brent spread has since dipped into negative territory, which signifies backwardation, meaning that the OPEC and
non-OPEC
joint supply cut is bearing fruit as immediate supply is beginning to appear tighter than supply in the future leading to stockdraws.
18
VLCC Time Charter Equivalent Spot Market Earnings
VLCC
The VLCC market began the year in 2016 with a very strong January, averaging over $63,000/day (basis TD3 MEG/Japan round voyage), after an exceptional fourth quarter in 2015 aided by strong Far Eastern
demand and extremely low bunker prices. Earnings then began to sink with the onset of the spring refinery maintenance season and the beginning of the influx of newbuilds into the fleet9 VLCCs delivered in the first quarter of 2016, compared to
21 for the entire year of 2015. Overall, VLCC earnings averaged $56,000/day in
Q1-16,
lower than each quarter in 2015. Earnings sunk further in the second quarter of the year as the
drop-off
in Nigerian loadings crowded the Mideast Gulf market with Suezmax competition.
Q2-16
VLCC earnings fell to just below $43,000/day, while
Q3-16
earnings fell even further to average $20,000/daythe lowest quarterly average since
Q3-13.
TD3 reached its lowest $/tonne in September of approximately $6.70/bbl
in the midst of autumn refinery maintenance and continued problems in West Africa. Earnings finally staged a recovery in the fourth quarter of last year, with TD3 TCEs rising to just below $40,000/day in October, near $50,000/day in November and to
almost $60,000/day in December. Despite 13 VLCC deliveries in
Q4-16,
and 13 prior deliveries in
Q3-16,
seasonally strong Far Eastern demand, buoyed by Chinese
stockbuilding, and a massive push in OPEC crude ahead of the production cut agreement improved the demand/supply balance in the VLCC market at the end of 2016 whilst Nigerian and Libyan supplies were also returning absorbing Suezmax and Aframaxes.
VLCC earnings have since sunk in the first quarter of 2017, as is seasonal with the onset of spring refinery maintenance affecting February fixing onwards while a reduction in Mideast Gulf loadings and heavy delivery schedule are also testing the
market balance.
19
Suezmax Time Charter Equivalent Spot Market Earnings
Suezmax
Suezmax earnings also charted down in 2016 from their high levels of 2015, which averaged over $45,000/day for TD6 (BSea/Med) and over $42,000/day for TD20 (WAF/East). However,
Q1-16
earnings remained fairly steady at an average of $35,000/day for TD6 and $33,000/day for TD20. Second quarter earnings sunk lower, which is seasonally typical, to an average of $25,000/day for TD6 and TD20.
Towards the end of the second quarter major refinery disruptions in France at first provided support for earnings as it created delays and a supply crunch in the Med. regiona traditional market for Suezmaxes coming from either West Africa or
the Mideast Gulf into Europe. This pushed earnings in June up by about $2,500/day month on month. Disruptions in Nigerian loadings began in
mid-Q1-16,
but did not reach
their peak in offline capacity until August when TD20 earnings fell near $6,000/day while TD6 earnings fell to approximately $1,500/day. August marked the lowest $/tonne on record for TD20 at just above $6/tonne whilst TD6 $/tonne sunk for the month
below $4/tonne and was the lowest since 2002. The weakness in August which was propelled by a combination of low demand, ahead of autumn Asian refinery maintenance, Nigerian disruptions and a total of 19 Suezmax YTD deliveries into the fleet
(compared to a total of 8 for the FY 2015) pushed earnings to average just under $12,000/day on TD6 and $14,000/day on TD20. Earnings staged a recovery in the last quarter of the year with a return of stability in Nigeria and a seasonally stronger
demand profile. TD6 earnings recovered to average just below $30,000/day in
Q4-16
while TD20 earnings rose to just above $25,000/day. The two benchmark Suezmax routes have since weakened since the start of
2017 as heavy Suezmax slippage in 2016 has left many ships in the orderbook for this yearso far in the first two months of 2017, 9 newbuilding Suezmaxes have deliveredwith 52 more scheduled to deliver this year of which more than
two-thirds
are due in the next four months (although continued high slippage is likely this year).
20
Aframax Time Charter Equivalent Spot Market Earnings
Aframax
The Aframax Composite (basis an average of TD7, TD8, TD9, TD11, TD14 and TD17) also weakened in 2016; Composite earnings for the year averaged just above $21,000/day compared to an average of $37,000/day
in 2015. The Aframax market was of course affected by the weakness in the larger crude tanker sectors, Suezmaxes took a greater market share in regions such as Kozmino and the Black Sea as their traditional West African market somewhat
disintegrated, but the dirty Aframax market is also influenced by the clean LR2 market which in 2016 fell markedly amid a very weak product trade environment and high deliveries of newbuild coated ships which made the fleet younger and more
competitive. The Aframax Composite remained relatively healthy in the first quarter of 2016 at $28,500/day, with the
cross-Med.
market in particular weighing down the sector. The Aframax Composite fell further
in the second quarter of the year to average $22,500/day with weakness in the East on TD8 (MEG/Singapore) and TD14 (Indonesia/Australia) dragging down the sector average. Dirty Aframax earnings experienced acute weakness in the third quarter of
2016, similar to VLCCs and Suezmaxes, as earnings halved on all the Aframax Composite routesTD7 (North Sea/UKC) fell to approximately $15,000/day, TD8 sunk to below $11,000/day, TD11 fell to just above $10,000/day and TD17 (Baltic/UKC) fell to
just over $14,000/day. Earnings staged a rebound in the fourth quarter as the Composite average recovered from approximately $12,000/day to over $22,000/day. Despite a marked migration of clean-trading LR2 earnings into the dirty trading fleet as
LR2 earnings tracked nearly 50% below Aframax earnings in the fourth quarter, the Aframax market remained elevated during the seasonally stronger period and due to the return of Libya and greater Black Sea volumes via the CPC pipeline, also amid a
strong NW European market. Aframax earnings have begun to sink again in the first quarter of 2017, pressure from the continued dirtying up of clean trading LR2s is being felt in the market while competition from the larger crude classes is also a
threat as their own supply/demand balance remains unfavourable.
21
MR Time Charter Equivalent Spot Market Earnings
MR
The MR Composite (basis an average of TC6, TC7, TC10 and TC2/14) sunk over 40% in 2016, similar to the crude tanker sectors, amid the last of three years of high deliveries into the fleet and much weaker
product trade growth. The MR Composite fell only slightly in the first quarter of 2016 compared to the last quarter of 2015, from an average of $19,500/day to just below $18,000/day, as a result of continued strength in each marketboth east
and west. During the start of 2016, refineries were still pumping at very high levels to capture a healthy gasoline margin. Pricing signals for gasoline in particular were still relatively volatile between regions providing for product trading
opportunities. However, come the second quarter of 2016 it became apparent that product stocks were more than enough in each of the main refining hubs, meaning that additional supplies from another region were rarely needed, which quickly depressed
product tanker demand and therefore product freight. The MR Composite fell to $14,500/day in
Q2-16,
a
year-on-year
fall of 50% or
$13,500/day. Earnings were lower on each of the four routes, but particularly the TC2/TC14 triangulation of which gasoline trade into the US is a major component. The MR Composite fell further in
Q3-16,
which
was the strongest quarter in 2015, to $11,000/day and stayed at that level through to the end of the year. During the third quarter of 2016, the TC2 (UKC/USAC) $/tonne fell to approximately $12.50/tonnethe lowest level since 2002while
TC14 sunk to the lowest $/tonne on record (since 2008) to near $11/tonne due to a lack of transatlantic trade as a result of sufficient stocks on either side of the Atlantic and therefore minimal, if any, arbitrage opportunities. Weakness in the MR
market was also apparent in the east, although to a less extreme degree, as a boom in Chinese product exports unexpectedly swelled the eastern market and kept excess cargoes searching for the few possible arbitrage opportunities West. The MR
Composite has slightly recovered to $12,000/day so far in the first quarter of 2017, it is still expected that product trade weakness will hamper trade this year but a lower fleet growth on MRs, whilst other fleets are growing, along with their
handle on niche trades will help to support earnings going forward.
22
The LNG Market
LNG supply growth in 2016 was less than what had been expected at the beginning of the year as a result of delays in the
start-up
and slow
build-up
of production at some new trains combined with declining output at operating plants. However, demand growth throughout the year was stronger than expected in China, India, the Middle East and Egypt which
brought the LNG market into closer balance supporting prices which ended the year close to those in
oil-indexed
long-term contracts. The improved supply/demand balance of LNG also meant that there were no
flows of distressed LNG cargoes into Europe, the market of last resort. Two trains at the Sabine Pass plant in Louisiana, the first in the lower
-48
states and the first in the ascent of US
production capacity to ~65 mtpa over the next five years, were commissioned last year with Latin America as the prime destination for most cargoes in 2016, although some headed to Asia towards the end of the year. In addition, some 27 mtpa of
regasification import capacity was added during 2016 including additions in Jamaica and Colombia for the first time. However, Japanese LNG imports continued to fall in 2016, to an estimate 81.6 mtpa from 83.6 mtpa in 2015. This trend is unlikely to
change course especially if Japans nuclear comeback goes as planned. China demonstrated significant and somewhat unexpected demand growth of 33% to 26mtpa last year, but combined with emerging demand growth in the Middle East and South Asia,
it may not be enough to prevent a bearish price environment.
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A total of approximately 300 spot fixtures are estimated to have been concluded in 2016, a marked
increase from around 190 voyages in 2015. The addition of new LNG supply trains to the market in 2016 helped to erode the overcapacity in the LNG tanker market. However, oversupply continued to plague the market in the first half of the year with
LNG freight rates remaining low at around $30,000/day despite new liquefaction trains coming online in Australia (Australia Pacific LNG) and the US (Sabine Pass). Freight improved following increased activity in August where Atlantic basin spot
rates were in excess of $40,000/day. On the supply side, only 6 LNG carriers (approximately 1% of the fleet) were ordered last yearfurther promoting a more balanced market in the future. Overall, however, inflated fleet growth over the past
few years has led to a supply glut that is expected to keep rates under pressure until 2018 when a significant expansion of US LNG supply is due to hit the market.
23
Risk Factors
Risks Related To Our Industry
The tanker industry is cyclical, resulting in charter
rates that can be volatile. Poor charter markets for crude oil carriers and product tankers may adversely affect our future revenues and earnings.
The volatility in charter rates, and in turn our revenue and earnings, is due to the historically cyclical nature of the tanker industry. The typical cycle is partly created by material changes in the
number of tankers available in the market resulting primarily from new deliveries to the market less vessels demolished or converted due to technical obsolescence and the number of vessels occupied on long-distance travel or delayed by geopolitical
events. The cycle is also impacted by material changes to the supply of and demand for oil due primarily to corrections in the price of oil and to geopolitical factors. As of April 5, 2017, over half of the vessels owned by our subsidiary
companies were employed under charters based upon prevailing market rates, and the remaining vessels were employed on time charters which, if not extended, are scheduled to expire on various dates between April 2017 and June 2028. After a strong
2015, tanker charter rates declined significantly in 2016 and, following a mild recovery in the seasonally strong fourth quarter of 2016, further declined in early 2017. If rates are low in the charter market for any significant period in 2017, it
will have an adverse effect on our revenues, profitability and cash flows. Declines in prevailing charter rates also affect the value of our vessels, which are correlated to the trends of charter rates, and could affect our ability to comply with
our loan covenants.
Disruptions in world financial markets and the resulting governmental action in the United States and in other parts
of the world could have a material adverse impact on our results of operations, financial condition, cash flows and share price.
Global financial markets and economic conditions have been disrupted and volatile in recent years and remain subject to significant vulnerabilities, such as the deterioration of fiscal balances and the
rapid accumulation of public debt, continued deleveraging in the banking sector and a limited supply of credit. While the global economy may be improving, at different rates in different parts of the world, concerns over debt levels of certain
European Union member states and poor liquidity of European banks are expected to lead to continued slow growth in most of Europe in 2017. There can be no assurance that a global recession will not return and tight credit markets will not continue
or become more severe.
In addition, the process of the UK to exit the European Union, as well as continued turmoil and
hostilities in the Middle East and North Africa or potential hostilities elsewhere in the world, could contribute to volatility in the global financial markets. These circumstances, along with the
re-pricing
of credit risk and the reduced participation of certain financial institutions from financing of the shipping industry, will likely continue to affect the availability, cost and terms of vessel financing. If financing is not available to us when it
is needed, or is available only on unfavorable terms, our business may be adversely affected, with corresponding effects on our profitability, cash flows and ability to pay dividends.
Moreover, as a result of the continuing economic crisis in Greece and the related austerity measures implemented by the Greek government,
as well as the capital controls in effect in Greece since
mid-2015,
our operations may be subjected to new regulations that may require us to incur new or additional compliance or other administrative costs
and may require that we pay to the Greek government new taxes or other fees or that dividends we pay be subject to withholding taxes. Furthermore, the commitments by the Greek government to the nations creditors and potential shift in its
policies may potentially lead to Greeces exit from the Eurozone, if not satisfied, which could affect our technical and commercial managers operations located in Greece.
The tanker industry is highly dependent upon the crude oil and petroleum products industries.
The employment of our subsidiaries vessels is driven by the availability of and demand for crude oil and petroleum products, the availability of modern tanker capacity and the scrapping, conversion
or loss of older vessels. Historically, the world oil and petroleum markets have been volatile and cyclical as a result of the many conditions and events that affect the supply, price, production and transport of oil, including:
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increases and decreases in the demand and price for crude oil and petroleum products;
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availability of crude oil and petroleum products;
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demand for crude oil and petroleum product substitutes, such as natural gas, coal, hydroelectric power and other alternate sources of energy that may,
among other things, be affected by environmental regulation;
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actions taken by OPEC and major oil producers and refiners;
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political turmoil in or around oil producing nations;
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global and regional political and economic conditions;
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developments in international trade;
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international trade sanctions;
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changes in seaborne and other transportation patterns.
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Despite turbulence in the world economy in recent years, worldwide demand for oil and oil products continues to rise. In the event that this trend falters, the production of and demand for crude oil and
petroleum products will again encounter pressure which could lead to a decrease in shipments of these products and consequently this would have an adverse impact on the employment of our vessels and the charter rates that they command. Also, if oil
prices remain at uneconomic levels for producers, it may lead to declining output. In particular, the charter rates that we earn from our vessels employed on charters related to market rates, may decline and possibly remain at low levels for a
prolonged period of time.
Our operating results are subject to seasonal fluctuations.
The tankers owned by our subsidiary companies operate in markets that have historically exhibited seasonal variations in tanker demand,
which may result in variability in our results of operations on a
quarter-by-quarter
basis. Tanker markets are typically stronger in the winter months as a result of
increased oil consumption in the northern hemisphere, but weaker in the summer months as a result of lower oil consumption in the northern hemisphere and refinery maintenance. As a result, revenues generated by the tankers in our fleet have
historically been weaker during the fiscal quarters ended June 30 and September 30. However, there may be periods in the northern hemisphere when the expected seasonal strength does not materialize to the extent required to support
sustainable profitable rates due to tanker overcapacity.
An increase in the supply of vessels without an increase in demand for such
vessels could cause charter rates to decline, which could have a material adverse effect on our revenues and profitability.
Historically, the marine transportation industry has been cyclical. The profitability and asset values of companies in the industry have
fluctuated based on certain factors, including changes in the supply and demand of vessels. The supply of vessels generally increases with deliveries of new vessels and decreases with the scrapping of older vessels and/or the removal of vessels from
the competitive fleet either for storage purposes or for utilization in offshore projects. The newbuilding order book equaled approximately 11% of the existing world tanker fleet at February 1, 2017, by number of vessels, with a significant
amount of these newbuilding vessels scheduled to be delivered in 2017. No assurance can be given that the order book will not increase further in proportion to the existing fleet. If supply increases, and demand does not match that increase, the
charter rates for our vessels could decline significantly. In addition, any decline of trade on specific long-haul trade routes will effectively increase available capacity with a detrimental impact on rates. A return to weak charter rates could
have a material adverse effect on our revenues and profitability.
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The global tanker industry is highly competitive.
We operate our fleet in a highly competitive market. Our competitors include owners of VLCC, suezmax, aframax, panamax, handymax and
handysize tankers, as well as owners in the shuttle tanker and LNG markets, which are other independent tanker companies, as well as national and independent oil companies, some of which have greater financial strength and capital resources than we
do. Competition in the tanker industry is intense and depends on price, location, size, age, condition, and the acceptability of the available tankers and their operators to potential charterers.
Acts of piracy on ocean-going vessels, although recently declining in frequency, could still adversely affect our business.
Despite a decline in the frequency of pirate attacks on seagoing vessels in the western part of the Indian Ocean, such attacks remain
prevalent off the west coast of Africa and between Malaysia and Indonesia. If piracy attacks result in regions in which our vessels are deployed being characterized by insurers as war risk zones, as the Gulf of Aden has been, or Joint
War Committee (JWC) war and strikes listed areas, premiums payable for such insurance coverage could increase significantly and such insurance coverage may be more difficult to obtain. Crew costs, including those due to employing
onboard security guards, could increase in such circumstances. In addition, while we believe the charterer remains liable for charter payments when a vessel is seized by pirates, the charterer may dispute this and withhold charter hire until
the vessel is released. A charterer may also claim that a vessel seized by pirates was not
on-hire
for a certain number of days and it is therefore entitled to cancel the charter party, a claim
that we would dispute. We may not be adequately insured to cover losses from these incidents, which could have a material adverse effect on us. In addition, hijacking as a result of an act of piracy against our vessels, or an increase in cost,
or unavailability of insurance for our vessels, could have a material adverse impact on our business, financial condition, results of operations and cash flows.
Terrorist attacks, international hostilities, economic and trade sanctions and the economic situation in the Eurozone can affect the tanker industry, which could adversely affect our business.
Major oil and gas producing countries in the Middle East have become involved militarily in the widening conflicts in
Iraq, Syria and Yemen. Armed conflicts with insurgents and others continue, as well, in Libya, another major oil exporting country. Any of these hostilities could seriously disrupt the production of oil or LNG and endanger their export by vessel or
pipeline, which could put our vessels at serious risk and impact our operations and our revenues, expenses, profitability and cash flows in varying ways that we cannot now project with any certainty.
The increasing number of terrorist attacks throughout the world, longer-lasting wars, international incidents such as that between Turkey
and Russia or international hostilities, such as in the Ukraine, Afghanistan, Iraq, Syria, Libya and Yemen, could damage the world economy and adversely affect the availability of and demand for crude oil and petroleum products and negatively affect
our investment and our customers investment decisions over an extended period of time. In addition, sanctions against oil exporting countries such as Iran, Sudan, Syria and Russia may also impact the availability of crude oil which would
increase the availability of tankers, thereby negatively impacting charter rates. We conduct our vessel operations internationally and despite undertaking various security measures, our vessels may become subject to terrorist acts and other acts of
hostility like piracy, either at port or at sea. Such actions could adversely impact our overall business, financial condition and results of operations. In addition, terrorist acts and regional hostilities around the world in recent years have led
to increases in our insurance premium rates and the implementation of special war risk premiums for certain trading routes.
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Our charterers may direct one of our vessels to call on ports located in countries that are subject to
restrictions imposed by the U.S. government, which could negatively affect the trading price of our common shares.
On
charterers instructions, our subsidiaries vessels may be requested to call on ports located in countries subject to sanctions and embargoes imposed by the U.S. government, the UN or the EU and countries identified by the U.S. government,
the UN or the EU as state sponsors of terrorism. The U.S.,
UN-
and
EU-
sanctions and embargo laws and regulations vary in their application, as they do not all apply to
the same covered persons or proscribe the same activities, and such sanctions and embargo laws and regulations may be amended or strengthened over time.
On January 16, 2016, Implementation Day for the Iran Joint Comprehensive Plan of Action (JCPOA), the United States lifted its secondary sanctions against Iran which prohibited certain
conduct by
non-U.S.
companies and individuals that occurred entirely outside of U.S. jurisdiction involving specified industry sectors in Iran, including the energy, petrochemical, automotive, financial,
banking, mining, shipbuilding and shipping sectors. By lifting the secondary sanctions against Iran, the U.S. government effectively removed U.S. imposed restraints on dealings by
non-U.S.
companies, such as
our Company, and individuals with these formerly targeted Iranian business sectors.
Non-U.S.
companies continue to be prohibited under U.S. sanctions from (i) knowingly engaging in conduct that seeks to
evade U.S. restrictions on transactions or dealings with Iran or that causes the export of goods or services from the United States to Iran, (ii) exporting, reexporting or transferring to Iran any goods, technology, or services originally
exported from the U.S. and / or subject to U.S. export jurisdiction and (iii) conducting transactions with the Iranian or Iran-related individuals and entities that remain or are placed in the future on OFACs list of Specially Designated
Nationals and Blocked Persons (SDN List), notwithstanding the lifting of secondary sanctions. The U.S. has the ability to reimpose sanctions against Iran, including if, in the future, Iran does not comply with its obligations under the nuclear
agreement.
The U.S. governments primary Iran sanctions remain largely unchanged after Implementation Day and, as a
consequence, U.S. persons continue to be broadly prohibited from engaging in transactions or dealings in or with Iran or its government. These sanctions broadly restrict U.S. persons from engaging in transactions or dealings with the Government of
Iran and Iranian financial institutions, which effectively impacts the transfer of funds to, from, or through the U.S. financial system whether denominated in US dollars or any other currency.
As a result of the lifting of U.S. secondary sanctions (and relevant EU sanctions) relating to Iran, we can anticipate that some of our
charterers may direct our vessels to carry cargoes to or from Iran. This could have various effects on us, such as affecting our reputation and our relationships with our investors and financing sources, affecting the cost of our insurance with
respect to such voyages, and potentially increase our exposure to foreign currency fluctuations. Investor perception of the value of our shares may also be adversely affected by the consequences of war, the effects of terrorism, civil unrest and
governmental actions in these and surrounding countries.
The U.S. also maintains embargoes on Cuba, North Korea, Sudan and
Syria. We can anticipate that some of our charterers may request our vessels to call on ports located in these countries. Although we believe that we are in compliance with all applicable sanctions and embargo laws and regulations, and intend to
maintain such compliance, there can be no assurance that we will be in compliance in the future, particularly as the scope of certain laws may be unclear and may be subject to changing interpretations. Any such violation could result in fines or
other penalties and could result in some investors deciding, or being required, to divest their interest, or not to invest, in us. Additionally, some investors may decide to divest their interest, or not to invest, in us simply because we do
business with companies that do lawful business in sanctioned countries. Moreover, our charterers may violate applicable sanctions and embargo laws and regulations as a result of actions that do not involve us or our vessels, and those violations
could in turn negatively affect our reputation.
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Failure to comply with the U.S. Foreign Corrupt Practices Act and other anti-bribery legislation in other
jurisdictions could result in fines, criminal penalties, contract terminations and an adverse effect on our business.
We
may operate in a number of countries throughout the world, including countries known to have a reputation for corruption. We are committed to doing business in accordance with applicable anti-corruption laws and have adopted a code of business
conduct and ethics which is consistent and in full compliance with the U.S. Foreign Corrupt Practices Act of 1977, or the FCPA. We are subject, however, to the risk that persons and entities whom we engage or their agents may take
actions that are determined to be in violation of such anti-corruption laws, including the FCPA. Any such violation could result in substantial fines, sanctions, civil and/or criminal penalties, or curtailment of operations in certain jurisdictions,
and might adversely affect our business, results of operations or financial condition. In addition, actual or alleged violations could damage our reputation and ability to do business. Furthermore, detecting, investigating, and resolving actual or
alleged violations is expensive and can consume significant time and attention of our senior management.
Efforts to take advantage of
opportunities in pursuit of our growth strategy may result in financial or commercial difficulties.
A key strategy of
management is to continue to renew and grow the fleet by pursuing the acquisition of additional vessels or fleets or companies that are complementary to our existing operations. If we seek to expand through acquisitions, we face numerous challenges,
including:
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difficulties in raising the required capital;
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depletion of existing cash resources more quickly than anticipated;
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assumption of potentially unknown material liabilities or contingent liabilities of acquired companies; and
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competition from other potential acquirers, some of which have greater financial resources.
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We cannot assure you that we will be able to integrate successfully the operations, personnel, services or vessels that we might acquire
in the future, and our failure to do so could adversely affect our profitability.
We are subject to regulation and liability under
environmental, health and safety laws that could require significant expenditures and affect our cash flows and net income.
Our business and the operation of our subsidiaries vessels are subject to extensive international, national and local environmental
and health and safety laws and regulations in the jurisdictions in which our vessels operate, as well as in the country or countries of their registration. In addition, major oil companies chartering our vessels impose, from time to time, their own
environmental and health and safety requirements. To comply with these requirements and regulations, including the new MARPOL Annex VI sulfur emission requirements instituting a global 0.5% sulphur cap on marine fuels from January 1, 2020 and
the IMO ballast water management (BWM) convention, which requires vessels to install expensive ballast water treatment systems (BWTS) before the first MARPOL renewal survey conducted after September 8, 2017 and for all
vessels to be certified in accordance with the BWM convention by September 8, 2017, we may be required to incur additional costs to meet new maintenance and inspection requirements, develop contingency plans for potential spills, and obtain
insurance coverage
These and future environmental regulations, which may become stricter, may limit our ability to do
business, increase our operating costs and/or force the early retirement of our vessels, all of which could have a material adverse effect on our financial condition and results of operations.
International, national and local laws imposing liability for oil spills are also becoming increasingly stringent. Some impose joint,
several, and in some cases, unlimited liability on owners, operators and charterers regardless of fault. We could be held liable as an owner, operator or charterer under these laws. In addition, under
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certain circumstances, we could also be held accountable under these laws for the acts or omissions of Tsakos Shipping & Trading S.A. (Tsakos Shipping), Tsakos Columbia
Shipmanagement Ltd. (TCM) or Tsakos Energy Management Limited (Tsakos Energy Management), companies that provide technical and commercial management services for our subsidiaries vessels and us, or others in the
management or operation of our subsidiaries vessels. Although we currently maintain, and plan to continue to maintain, for each of our subsidiaries vessels pollution liability coverage in the amount of $1 billion per incident
(the maximum amount available), liability for a catastrophic spill could exceed the insurance coverage we have available, and result in our having to liquidate assets to pay claims. In addition, we may be required to contribute to funds established
by regulatory authorities for the compensation of oil pollution damage or provide financial assurances for oil spill liability to regulatory authorities.
Maritime disasters and other operational risks may adversely impact our reputation, financial condition and results of operations.
The operation of ocean-going vessels has an inherent risk of maritime disaster and/or accident, environmental mishaps, cargo and property
losses or damage and business interruptions caused by, among others:
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adverse weather conditions;
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vessel off hire periods;
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political action, civil conflicts, terrorism and piracy in countries where vessel operations are conducted, vessels are registered or from which spare
parts and provisions are sourced and purchased.
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Any of these circumstances could adversely affect our
operations, result in loss of revenues or increased costs and adversely affect our profitability and our ability to perform our charters.
Our subsidiaries vessels could be arrested at the request of third parties.
Under general maritime law in many jurisdictions, crew members, tort claimants, vessel mortgagees, suppliers of goods and services and
other claimants may lien a vessel for unsatisfied debts, claims or damages. In many jurisdictions a maritime lien holder may enforce its lien by arresting a vessel through court process. In some jurisdictions, under the extended sister ship theory
of liability, a claimant may arrest not only the vessel with respect to which the claimants maritime lien has arisen, but also any associated vessel under common ownership or control. While in some jurisdictions which have adopted this
doctrine, liability for damages is limited in scope and would only extend to a company and its ship-owning subsidiaries, we cannot assure you that liability for damages caused by some other vessel determined to be under common ownership or control
with our subsidiaries vessels would not be asserted against us.
Risks Related To Our Business
Any significant future declines in the values of our vessels could affect our ability to comply with various covenants in our credit facilities unless
waived or modified by our lenders.
Our credit facilities, which are secured by mortgages on our subsidiaries
vessels, require us to maintain specified collateral coverage ratios and satisfy financial covenants, including requirements based on the market value of our vessels, such as maximum corporate leverage levels. The appraised value of a ship
fluctuates
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depending on a variety of factors including the age of the ship, its hull configuration, prevailing charter market conditions, supply and demand balance for ships and new and pending legislation.
The oversupply of tankers and depressed tanker charter market adversely affected tanker values from the middle of 2008 to late 2013, and despite the young age of our subsidiaries fleet and extensive long-term charter employment on many of the
vessels, resulted in a significant decline in the charter-free values of our vessels. Vessel values recovered from the end of 2013, but have again declined during 2016 due primarily to global fleet overcapacity and lack of financing for potential
buyers to acquire second-hand, charter free vessels. Values may remain at current levels for a prolonged period, further decline or rise. Low values may result in our inability to comply with the financial covenants under our credit facilities
which relate to our consolidated leverage and
-loan-to-asset
value collateral requirements. If we were unable to obtain waivers in case of
non-compliance,
or post additional collateral or prepay principal in the case of
loan-to-asset
value requirements, our lenders
could accelerate our indebtedness. We have paid all of our scheduled loan installments and related loan interest consistently without delay or omission and none of our lenders under our credit facilities has requested such prepayment or
additional cash collateral where non compliance has occurred.
Charters at attractive rates may not be available when our current time
charters expire.
During 2016, we derived approximately 52% of our revenues from time charters, as compared to 41% in 2015.
As our current period charters on thirteen of the vessels owned by our subsidiary companies expire in the remainder of 2017, it may not be possible to
re-charter
these vessels on a period basis at attractive
rates-if
the current softness in the tanker charter market continues. If attractive period charter opportunities are not available, we would seek to charter the vessels owned by our subsidiary companies on the spot
market, which is subject to significant fluctuations. In the event a vessel owned by one of our subsidiary companies may not find employment at economically viable rates, management may opt to lay up the vessel until such time that rates become
attractive again (an action which our subsidiary companies have never undertaken). During the period of any layup, the vessel would continue to incur expenditures such as insurance, reduced crew wages and maintenance costs.
We are dependent on the ability and willingness of our charterers to honor their commitments to us for all of our revenues and the failure of our
counterparties to meet their obligations under our charter agreements could cause us to suffer losses or otherwise adversely affect our business.
We derive a substantial portion of our revenues from the payment of charter hire by our charterers. 41 of our 62 vessels are currently employed under time charters including time charters with profit
share. We could lose a charterer or the benefits of a time charter if:
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the charterer fails to make charter payments to us because of its financial inability, disagreements with us, defaults on a payment or otherwise;
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the charterer exercises certain specific limited rights to terminate the charter;
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we do not take delivery of a newbuilding vessel we may contract for at the agreed time; or
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the charterer terminates the charter because the vessel fails to meet certain guaranteed speed and fuel consumption requirements and we are unable to
rectify the situation or otherwise reach a mutually acceptable settlement.
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If we lose a time charter, we
may be unable to
re-deploy
the related vessel on terms as favorable to us or at all. We would not receive any revenues from such a vessel while it remained unchartered, but we may be required to pay expenses
necessary to maintain the vessel in proper operating condition, insure it and service any indebtedness secured by such vessel.
If our charterers fail to meet their obligations to us or attempt to renegotiate our charter agreements, as part of a
court-led
restructuring or otherwise, we could sustain significant reductions in revenue and earnings which could have a material adverse effect on our business, financial condition, results of operations and cash
flows, as well as our ability to pay dividends, if any, in the future, and comply with the covenants in our credit facilities.
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If our exposure to the spot market increases, our revenues could suffer and our expenses could increase.
The spot market for crude oil and petroleum product tankers is highly competitive. During 2016, we modified our chartering
strategy to place more of our subsidiaries vessels on time-charter. As of April 5, 2017, 21 of the vessels owned by our subsidiary companies were employed under spot charters. If we were to increase participation in the spot market, we
may experience a lower overall utilization of our fleet through waiting time or ballast voyages, leading to a decline in operating revenue. Moreover, to the extent our vessels are employed in the spot market, both our revenue from vessels and our
operating costs, specifically our voyage expenses, will be significantly impacted by adverse movements in the cost of bunkers (fuel). See Fuel prices may adversely affect our profits. Unlike time charters in which the charterer
bears all of the bunker costs, in spot market voyages we bear the bunker charges as part of our voyage costs. As a result, while historical movements in bunker charges are factored into the prospective freight rates for spot market voyages
periodically announced by World Scale Association (London) Limited and similar organizations, increases in bunker charges in any given period could have a material adverse effect on our cash flow and results of operations for the period in which the
increase occurs. In addition, to the extent we employ our vessels pursuant to contracts of affreightment or under pooling arrangements, the rates that we earn from the charterers under those contracts may be subject to reduction based on market
conditions, which could lead to a decline in our operating revenue.
We depend on Tsakos Energy Management, Tsakos Shipping and TCM to
manage our business.
We do not have the employee infrastructure to manage our operations and have no physical assets. In
common with industry practice, our subsidiaries own the vessels in the fleet and the contracts to construct our newbuildings. We have engaged Tsakos Energy Management to perform all of our executive and management functions. Tsakos Energy Management
employees directly provide us with financial, accounting and other back-office services, including acting as our liaison with the New York Stock Exchange and the Bermuda Monetary Authority. Tsakos Energy Management, in turn, oversees and
subcontracts part of commercial management (including treasury, chartering and vessel purchase and sale functions) to Tsakos Shipping, and
day-to-day
fleet technical
management, such as vessel operations, repairs, supplies and crewing, to TCM. As a result, we depend upon the continued services provided by Tsakos Energy Management and Tsakos Energy Management depends on the continued services provided by Tsakos
Shipping and TCM.
We derive significant benefits from our relationship with Tsakos Energy Management and its affiliated
companies, including purchasing discounts to which we otherwise would not have access. We would be materially adversely affected if any of Tsakos Energy Management, Tsakos Shipping or TCM becomes unable or unwilling to continue providing services
for our benefit at the level of quality they have provided such services in the past and at comparable costs as they have charged in the past. If we were required to employ a ship management company other than Tsakos Energy Management, we cannot
offer any assurances that the terms of such management agreements would be on terms as favorable to the Company in the long term.
Tsakos
Energy Management, Tsakos Shipping and TCM are privately held companies and there is little or no publicly available information about them.
The ability of Tsakos Energy Management, Tsakos Shipping and TCM to continue providing services for our and our subsidiaries benefit will depend in part on their own financial strength.
Circumstances beyond our control could impair their financial strength and, because each of these companies is privately held, it is unlikely that information about their financial strength would become public. Any such problems affecting these
organizations could have a material adverse effect on us.
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Tsakos Energy Management has the right to terminate its management agreement with us and Tsakos Shipping
and TCM have the right to terminate their respective contracts with Tsakos Energy Management.
Tsakos Energy Management may
terminate its management agreement with us at any time upon one years notice. In addition, if even one director were to be elected to our board without having been recommended by our existing board, Tsakos Energy Management would have the
right to terminate the management agreement on 10 days notice. If Tsakos Energy Management terminates the agreement for this reason, we would be obligated to pay Tsakos Energy Management the present discounted value of all payments that
would have otherwise become due under the management agreement until June 30 in the tenth year following the date of the termination plus the average of the incentive awards previously paid to Tsakos Energy Management multiplied by 10. A
termination as of December 31, 2016 would have resulted in a payment of approximately $166.3 million. Tsakos Energy Managements contracts with Tsakos Shipping and with TCM may be terminated by either party upon six months
notice and would terminate automatically upon termination of our management agreement with Tsakos Energy Management.
Our ability to pursue
legal remedies against Tsakos Energy Management, Tsakos Shipping and TCM is very limited.
In the event Tsakos Energy
Management breaches its management agreement with us, we or our subsidiaries could bring a lawsuit against it. However, because neither we nor they are ourselves party to a contract with Tsakos Shipping or TCM, it may be difficult to sue Tsakos
Shipping and TCM for breach of their obligations under their contracts with Tsakos Energy Management, and Tsakos Energy Management may have no incentive to sue Tsakos Shipping and TCM. Tsakos Energy Management is a company with no substantial assets
and no income other than the income it derives under the management agreement with us. Therefore, it is unlikely that we or our subsidiaries would be able to obtain any meaningful recovery if we or they were to sue Tsakos Energy Management, Tsakos
Shipping or TCM on contractual grounds.
Tsakos Shipping provides chartering services to other tankers and TCM manages other tankers and
could experience conflicts of interests in performing obligations owed to us and the operators of other tankers.
In
addition to the vessels that it manages for our fleet, TCM technically manages a fleet of privately owned vessels and wishes to acquire third-party clients. These vessels are operated by the same group of TCM employees that manage our vessels, and
we are advised that its employees manage these vessels on an ownership neutral basis; that is, without regard to who owns them. It is not impossible that Tsakos Shipping, which provides chartering services for nearly all vessels
technically managed by TCM, might allocate charter or spot opportunities to other TCM managed vessels when our subsidiaries vessels are unemployed. It is also possible that TCM could in the future agree to manage more tankers that might
directly compete with the fleet.
Clients of Tsakos Shipping have acquired and may acquire additional vessels that may compete with our
fleet.
Tsakos Shipping and we have an arrangement whereby it affords us a right of first refusal on any opportunity to
purchase a tanker which is 10 years of age or younger or contract to construct a tanker that is referred to or developed by Tsakos Shipping. Were we to decline any opportunity offered to us, or if we do not have the resources or desire to accept it,
other clients of Tsakos Shipping might decide to accept the opportunity. In this context, Tsakos Shipping clients have in the past acquired modern tankers and have ordered the construction of vessels. They may acquire or order tankers in the future,
which, if we decline to buy from them, could be entered into charters in competition with our vessels. These charters and future charters of tankers by Tsakos Shipping could result in conflicts of interest between their own interests and their
obligations to us.
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Our chief executive officer has affiliations with Tsakos Energy Management, Tsakos Shipping and TCM which
could create conflicts of interest.
Nikolas Tsakos is the president, chief executive officer and a director of our company
and the director and sole shareholder of Tsakos Energy Management. Nikolas Tsakos is also the son of the founder of Tsakos Shipping. These responsibilities and relationships could create conflicts of interest that could result in our losing revenue
or business opportunities or increase our expenses.
Our commercial arrangements with Tsakos Energy Management and Argosy may not always
remain on a competitive basis.
We pay Tsakos Energy Management a management fee for its services pursuant to our
management agreement. We also place our hull and machinery insurance, increased value insurance and loss of hire insurance through Argosy Insurance Company, Guernsey, a captive insurance company affiliated with Tsakos interests. We believe that the
management fees that we pay Tsakos Energy Management compare favorably with management compensation and related costs reported by other publicly traded shipping companies and that our arrangements with Argosy are structured at
arms-length
market rates. Our board reviews publicly available data periodically in order to confirm this. However, we cannot assure you that the fees charged to us are or will continue to be as favorable to
us as those we could negotiate with third parties and our board could determine to continue transacting business with Tsakos Energy Management and Argosy even if less expensive alternatives were available from third parties.
We depend on our key personnel.
Our future success depends particularly on the continued service of Nikolas Tsakos, our president and chief executive officer and the sole shareholder of Tsakos Energy Management. The loss of
Mr. Tsakoss services or the services of any of our key personnel could have a material adverse effect on our business. We do not maintain key man life insurance on any of our executive officers.
Because the market value of our vessels may fluctuate significantly, we may incur impairment charges or losses when we sell vessels which may
adversely affect our earnings.
The fair market value of tankers may increase or decrease depending on any of the
following:
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general economic and market conditions affecting the tanker industry;
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supply and demand balance for ships within the tanker industry;
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competition from other shipping companies;
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types and sizes of vessels;
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other modes of transportation;
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governmental or other regulations;
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prevailing level of charter rates; and
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technological advances.
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The global economic downturn that commenced in 2008 resulted in a decrease in vessel values. The decrease in value accelerated during 2013 until the latter part of the year as a result of excess fleet
capacity and falling freight rates. Although valuations recovered, they have declined again in 2016 and may fall further, remain the same or start to rise again depending on market conditions. In addition, although our subsidiaries currently own a
modern fleet, with an average age of 7.4 years as of April 5, 2017, as vessels grow older, they generally decline in value.
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We have a policy of considering the disposal of tankers periodically. If our
subsidiaries tankers are sold at a time when tanker prices have fallen, the sale may be at less than the vessels carrying value on our financial statements, with the result that we will incur a loss.
In addition, accounting pronouncements require that we periodically review long-lived assets and certain identifiable intangibles for
impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. An impairment charge for an asset held for use should be recognized when the estimate of undiscounted cash flows,
excluding interest charges, expected to be generated by the use of the asset is less than its carrying amount. Measurement of the impairment charge is based on the fair value of the asset as provided by third parties. Such reviews may from time to
time result in asset write-downs, which could adversely affect our results of operations.
If TCM is unable to attract and retain skilled
crew members, our reputation and ability to operate safely and efficiently may be harmed.
Our continued success depends in
significant part on the continued services of the officers and seamen whom TCM provides to crew the vessels owned by our subsidiary companies. The market for qualified, experienced officers and seamen is extremely competitive and has grown more so
in recent periods as a result of the growth in world economies and other employment opportunities. Although TCM has a contract with a number of manning agencies and sponsors various marine academies in the Philippines, Greece and Russia, we cannot
assure you that TCM will be successful in its efforts to recruit and retain properly skilled personnel at commercially reasonable salaries. Any failure to do so could adversely affect our ability to operate cost-effectively and our ability to
increase the size of the fleet.
Labor interruptions could disrupt our operations.
Substantially all of the seafarers and land based employees of TCM are covered by industry-wide collective bargaining agreements that set
basic standards. We cannot assure you that these agreements will prevent labor interruptions. In addition, like many other vessels internationally, some of our subsidiaries vessels operate under
so-called
flags of convenience and may be vulnerable to unionization efforts by the International Transport Federation and other similar seafarer organizations which could be disruptive to our
operations. Any labor interruption or unionization effort which is disruptive to our operations could harm our financial performance.
The
contracts to build our newbuildings present certain economic and other risks.
As of April 5, 2017, our subsidiaries
have contracts for the construction of three aframax tankers for delivery in 2017. Our subsidiaries may also order additional newbuildings. During the course of construction of a vessel, we are typically required to make progress payments. While we
typically have refund guarantees from banks to cover defaults by the shipyards and our construction contracts would be saleable in the event of our payment default, we can still incur economic losses in the event that we or the shipyards are unable
to perform our respective obligations. Shipyards may periodically experience financial difficulties.
Delays in the delivery
of these vessels, or any additional newbuilding or secondhand vessels our subsidiaries may agree to acquire, could delay our receipt of revenues generated by these vessels and, to the extent we have arranged charter employment for these vessels,
could possibly result in the cancellation of those charters, and therefore adversely affect our anticipated results of operations. The delivery of newbuilding vessels could be delayed because of, among other things: work stoppages or other labor
disturbances; bankruptcy or other financial crisis of the shipyard building the vessel; hostilities or political or economic disturbances in the countries where the vessels are being built, including any escalation of tensions involving North Korea;
weather interference or catastrophic events, such as a major earthquake, tsunami or fire; our requests for changes to the original vessel specifications; requests from our customers, with whom our commercial managers arrange charters for such
vessels, to delay construction and delivery of such vessels due to weak economic conditions and shipping demand or a dispute with the shipyard building the vessel.
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Credit conditions internationally might impact our ability to raise debt financing.
Global financial markets and economic conditions have been disrupted and volatile in recent years. At times, the credit markets as well as
the debt and equity capital markets were distressed and it was difficult for many shipping companies to obtain adequate financing. The cost of available financing also increased significantly, but for leading shipping companies has since declined.
The global financial markets and economic conditions could again experience volatility and disruption in the future.
We have
traditionally financed our vessel acquisitions or constructions with our own cash (equity) and bank debt from various reputable national and international commercial banks. In relation to newbuilding contracts, the equity portion usually covers all
or part of the
pre-delivery
obligations while the debt portion covers the outstanding amount due to the shipyard on delivery. More recently, however, we have arranged
pre-delivery
bank financing to cover much of the installments due before delivery, and, therefore, we would be required to provide part of our equity at delivery. In addition, several of our existing loans
will mature over the next few years, including the current year. In the event that the related vessels are not sold, or we do not wish to use existing cash for paying the final balloon payments, then
re-financing
of the loans for an extended period beyond the maturity date will be necessary. Current and future terms and conditions of available debt financing, especially for older vessels without time
charter could be different from terms obtained in the past and could result in a higher cost of capital, if available at all. Any adverse development in the credit markets could materially alter our current and future financial and corporate
planning and growth and have a negative impact on our balance sheet.
The future performance of our subsidiaries LNG carriers depends
on continued growth in LNG production and demand for LNG and LNG shipping.
The future performance of our
subsidiaries LNG carriers will depend on continued growth in LNG production and the demand for LNG and LNG shipping. A complete LNG project includes production, liquefaction, storage,
re-gasification
and
distribution facilities, in addition to the marine transportation of LNG. Increased infrastructure investment has led to an expansion of LNG production capacity in recent years, but material delays in the construction of new liquefaction facilities
could constrain the amount of LNG available for shipping, reducing ship utilization. The rate of growth in global LNG demand has fluctuated due to several factors, including the global economic crisis and continued economic uncertainty, fluctuations
in the price of natural gas and other sources of energy, growth in natural gas production from unconventional sources in regions such as North America and the highly complex and capital intensive nature of new or expanded LNG projects, including
liquefaction projects. Growth in LNG production and demand for LNG and LNG shipping could be negatively affected by a number of factors, including:
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increases in the cost of natural gas derived from LNG relative to the cost of natural gas generally;
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increases in the production levels of
low-cost
natural gas in domestic natural gas consuming markets, which
could further depress prices for natural gas in those markets and make LNG uneconomical;
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increases in the production of natural gas in areas linked by pipelines to consuming areas, the extension of existing, or the development of new
pipeline systems in markets we may serve, or the conversion of existing
non-natural
gas pipelines to natural gas pipelines in those markets;
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decreases in the consumption of natural gas due to increases in its price, decreases in the price of alternative energy sources or other factors making
consumption of natural gas less attractive;
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any significant explosion, spill or other incident involving an LNG facility or carrier;
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infrastructure constraints such as delays in the construction of liquefaction facilities, the inability of project owners or operators to obtain
financing or governmental approvals to construct or operate LNG facilities, as well as community or political action group resistance to new LNG infrastructure due to concerns about the environment, safety and terrorism;
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labor or political unrest or military conflicts affecting existing or proposed areas of LNG production or
re-gasification;
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decreases in the price of LNG, which might decrease the expected returns relating to investments in LNG projects; or
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negative global or regional economic or political conditions, particularly in LNG consuming regions, which could reduce energy consumption or its
growth.
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Reduced demand for LNG or LNG shipping, or any reduction or limitation in LNG production capacity,
could have a material adverse effect on our ability to secure future multi-year time charters for the LNG carriers, or for any new LNG carriers our subsidiaries may acquire, which could harm our business, financial condition, results of operations
and cash flows, including cash available for dividends to our shareholders.
Demand for LNG shipping could be significantly affected by
volatile natural gas prices and the overall demand for natural gas.
Gas prices are volatile and are affected by numerous
factors beyond our control, including but not limited to the following:
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the supply and cost of crude oil and petroleum products;
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worldwide demand for natural gas;
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the cost of exploration, development, production, transportation and distribution of natural gas;
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expectations regarding future energy prices for both natural gas and other sources of energy;
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the level of worldwide LNG production and exports;
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government laws and regulations, including but not limited to environmental protection laws and regulations;
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local and international political, economic and weather conditions;
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political and military conflicts; and
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the availability and cost of alternative energy sources, including alternate sources of natural gas in gas importing and consuming countries.
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In recent years, global crude oil prices were very volatile. Any decline in oil prices can depress natural
gas prices and lead to a narrowing of the gap in pricing in different geographic regions, which can adversely affect the length of voyages in the spot LNG shipping market and the spot rates and medium term charter rates for charters which commence
in the near future. Any continued period of low oil prices could adversely affect both the competitiveness of gas as a fuel for power generation and the market price of gas, to the extent that gas prices are benchmarked to the price of crude oil.
Some production companies have announced delays or cancellations of certain previously announced LNG projects, which, unless offset by new projects coming on stream, could adversely affect demand for LNG charters over the next few years, while the
amount of tonnage available for charter is expected to increase.
An oversupply of LNG carriers may lead to a reduction in the charter hire
rates we are able to obtain when seeking charters in the future.
Driven in part by an increase in LNG production capacity
and the expectation of further future capacity, the construction and delivery of new LNG carriers has been increasing. Any future expansion of the global LNG carrier fleet that cannot be absorbed by existing or future LNG projects may have a
negative impact on charter rates, ship utilization and ship values. Such impact could be amplified if the expansion of LNG production capacity does not keep pace with fleet growth.
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Hire rates for LNG carriers may fluctuate substantially and declined significantly during 2016. If rates
remain low when we are seeking a new charter, our revenues and cash flows may decline.
The significant fall in oil prices
over the past two years has contributed to substantial declines in the price of LNG, which coupled with delays in the completion of liquefaction and regasification facilities around the world and a high order book, particularly with vessels ordered
on speculation, has led to declines in average rates for new spot and shorter-term LNG charters. Unless LNG charter market conditions improve over the next eighteen months, we may have difficulty in securing new charters at attractive rates and
durations for our two LNG carriers when their current charters expire.
We depend upon Hyundai Ocean Services to manage our LNG carrier.
Tsakos Energy Management has subcontracted all technical management of our LNG operation to Hyundai Ocean Services Co.,
Ltd (HOS) for a fee. Neither Tsakos Energy Management nor TCM has the dedicated personnel for running LNG operations nor can we guarantee that they will employ an adequate number of employees to conduct LNG operations in the future. As
such, we are currently dependent on the reliability and effectiveness of third-party managers for whom we cannot guarantee that their employees, both onshore and
at-sea
are sufficient in number or capability
for their assigned role. We also cannot assure you that we will be able to continue to receive such services from HOS on a long-term basis on acceptable terms or at all.
Our growth in shuttle tankers depends partly on continued growth in demand for offshore oil transportation, processing and storage services.
Our growth strategy includes expansion in the shuttle tanker sector. Growth in this sector depends on continued growth in world and
regional demand for these offshore services, which could be negatively affected by a number of factors, such as:
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decreases in the actual or projected price of oil, which could lead to a reduction in or termination of production of oil at certain offshore fields
our shuttle tankers will service or a reduction in exploration for or development of new offshore oil fields;
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increases in the production of oil in areas linked by pipelines to consuming areas, the extension of existing, or the development of new, pipeline
systems in markets we may serve, or the conversion of existing
non-oil
pipelines to oil pipelines in those markets;
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decreases in the consumption of oil due to increases in its price relative to other energy sources, other factors making consumption of oil less
attractive or energy conservation measures;
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availability of new, alternative energy sources;
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negative global or regional economic or political conditions, particularly in oil consuming regions, which could reduce energy consumption or its
growth; and
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fall in the price of oil leading to
cut-backs
in the offshore industry.
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Oil prices have declined substantially in the last two years, which has resulted in oil companies announcing reductions in oil production
and exploration activities, including in offshore fields.
Fuel prices may adversely affect our profits.
While we do not bear the cost of fuel (bunkers) under time and bareboat charters, fuel is the largest, expense in our shipping operations
when vessels are under spot charters. Increases in the price of fuel may, as a result, adversely affect our profitability. The price and supply of fuel is unpredictable and fluctuates based on events outside our control, including geopolitical
developments.
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If our counterparties were to fail to meet their obligations under a charter agreement we could suffer
losses or our business could be otherwise adversely affected.
As of April 5, 2017, 40 of our subsidiaries
vessels were employed under time charters and time charters with profit share. The ability and willingness of each of the counterparties to perform their obligations under their charters will depend on a number of factors that are beyond our control
and may include, among other things, general economic conditions, the condition of the oil and energy industries and of the oil and oil products shipping industry as well as the overall financial condition of the counterparties and prevailing
charter rates. There can be no assurance that some of our subsidiaries customers would not fail to pay charter hire or attempt to renegotiate charter rates and, if the charterers fail to meet their obligations or attempt to renegotiate charter
agreements, we could sustain significant losses which could have a material adverse effect on our business, financial condition, results of operations and cash flows, as well as our ability to pay dividends in the future.
The shipping industry has inherent operational risks that may not be adequately covered by our insurance.
We believe that we maintain as much insurance on the vessels in the fleet, through insurance companies, including Argosy, a related party
company, and P&I clubs, as is appropriate and consistent with industry practice. While we endeavor to be adequately insured against all known risks related to the operation of our subsidiaries ships, there remains the possibility that a
liability may not be adequately covered and we may not be able to obtain adequate insurance coverage for the fleet in the future. The insurers may also not pay particular claims. Even if our insurance coverage is adequate, we may not be able to
timely obtain a replacement vessel in the event of a loss. Our insurance policies contain deductibles for which we will be responsible and limitations and exclusions which may increase our costs or lower our revenue. In addition, some of our
insurance coverage is maintained through mutual protection and indemnity associations, and as a member of such associations we may be required to make additional payments over and above budgeted premiums if member claims exceed association reserves.
Our degree of leverage and certain restrictions in our financing agreements impose constraints on us.
We incur substantial debt to finance the acquisition of our vessels. At December 31, 2016, our debt to capital ratio was 55.5% (debt
/ debt plus equity), with $1.8 billion in debt outstanding. We are required to apply a substantial portion of our cash flow from operations to the payment of principal and interest on this debt. In 2016, 74% of our cash flow derived from
operations was dedicated to debt service, excluding any debt prepayment upon the sale of vessels, voluntary early debt prepayments and balloon payments to be refinanced. This limits the funds available for working capital, capital expenditures,
dividends and other purposes. Our degree of leverage could have important consequences for us, including the following:
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a substantial decrease in our net operating cash flows or an increase in our expenses could make it difficult for us to meet our debt service
requirements and force us to modify our operations;
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we may be more highly leveraged than our competitors, which may make it more difficult for us to expand our fleet; and
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any significant amount of leverage exposes us to increased interest rate risk and makes us vulnerable to a downturn in our business or the economy in
general.
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In addition, our financing arrangements, which we secured by mortgages on our ships, impose
operating and financial restrictions on us that restrict our ability to:
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incur additional indebtedness;
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sell the capital of our subsidiaries or other assets;
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engage in mergers and acquisitions;
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make capital expenditures;
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repurchase common shares; and
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We have a holding company structure which depends on dividends from our subsidiaries and interest income to pay our overhead expenses and otherwise fund expenditures consisting primarily of advances on
newbuilding contracts and the payment of dividends to our shareholders. As a result, restrictions contained in our financing arrangements and those of our subsidiaries on the payment of dividends may restrict our ability to fund our various
activities.
We are exposed to volatility in LIBOR and selectively enter into derivative contracts, which can result in higher than market
interest rates and charges against our income.
Over the past thirteen years we have selectively entered into derivative
contracts both for investment purposes and to hedge our overall interest expense and, more recently, our bunker expenses. Our board of directors monitors the status of our derivatives in order to assess whether such derivatives are within reasonable
limits and reasonable in light of our particular investment strategy at the time we entered into the derivative contracts.
Loans advanced under our secured credit facilities are, generally, advanced at a floating rate based on LIBOR, which has been stable and
at historically low levels in recent years, but was volatile in prior years, which can affect the amount of interest payable on our debt, and which, in turn, could have an adverse effect on our earnings and cash flow. Our financial condition could
be materially adversely affected at any time that we have not entered into interest rate hedging arrangements to hedge our interest rate exposure and the interest rates applicable to our credit facilities and any other financing arrangements we may
enter into in the future, including those we enter into to finance a portion of the amounts payable with respect to newbuildings, increase. Moreover, even if we have entered into interest rate swaps or other derivative instruments for purposes of
managing our interest rate or bunker cost exposure, our hedging strategies may not be effective and we may incur substantial loss.
We have a risk management policy and the Audit Committee oversees all our derivative transactions. It is our policy to monitor our exposure to business risk, and to manage the impact of changes in
interest rates, foreign exchange rate movements and bunker prices on earnings and cash flows through derivatives. Derivative contracts are executed when management believes that the action is not likely to significantly increase overall risk.
Entering into swaps and derivatives transactions is inherently risky and presents various possibilities for incurring significant expenses. The derivatives strategies that we employ in the future may not be successful or effective, and we could, as
a result, incur substantial additional interest costs. See Item 11. Quantitative and Qualitative Disclosures About Market Risk for a description of our current interest rate swap arrangements.
Our subsidiaries vessels may suffer damage and we may face unexpected
dry-docking
costs which could
affect our cash flow and financial condition.
If our vessels suffer damage, they may need to be repaired at a
dry-docking
facility. The costs of
dry-dock
repairs can be both substantial and unpredictable. We may have to pay
dry-docking
costs
that our insurance does not cover. This would result in decreased earnings.
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If we were to be subject to corporate income tax in jurisdictions in which we operate, our financial
results would be adversely affected.
Our income is not presently subject to taxation in Bermuda, which has no corporate
income tax. We believe that we should not be subject to tax under the laws of various countries, other than the United States, in which our subsidiaries vessels conduct activities or in which our subsidiaries customers are located.
However, our belief is based on our understanding of the tax laws of those countries, and our tax position is subject to review and possible challenge by taxing authorities and to possible changes in law or interpretation. We cannot determine in
advance the extent to which certain jurisdictions may require us to pay corporate income tax or to make payments in lieu of such tax. In addition, payments due to us from our subsidiaries customers may be subject to tax claims. As a result of
the continuing economic crisis in Greece, our operations in Greece may be subjected to new regulations that may require us to incur new or additional compliance or other administrative costs, which may include requirements that we pay to the Greek
government new taxes or other fees. In addition, China has enacted a new tax for
non-resident
international transportation enterprises engaged in the provision of services of passengers or cargo, among other
items, in and out of China using their own, chartered or leased vessels, including any stevedore, warehousing and other services connected with the transportation. The new regulation broadens the range of international transportation companies which
may find themselves liable for Chinese enterprise income tax on profits generated from international transportation services passing through Chinese ports.
If we or our subsidiaries are not entitled to exemption under Section 883 of the United States Internal Revenue Code of 1986, as amended, for any taxable year, we or our subsidiaries would be subject
for those years to a 4% United States federal income tax on our gross U.S.-source shipping revenue, without allowance for deductions, under Section 887 of the Internal Revenue Code. The imposition of such tax could have a negative effect on our
business and would result in decreased earnings available for distribution to our shareholders.
See Tax
ConsiderationsUnited States federal income tax considerations for additional information about the requirements of this exemption.
If we were treated as a passive foreign investment company, a U.S. investor in our shares would be subject to disadvantageous rules under the U.S. tax
laws.
If we were treated as a passive foreign investment company (a PFIC) in any year, our U.S. shareholders
would be subject to unfavorable U.S. federal income tax treatment. We do not believe that we will be a PFIC in 2017 or in any future year. However, PFIC classification is a factual determination made annually and we could become a PFIC if the
portion of our income derived from bareboat charters or other passive sources were to increase substantially or if the portion of our assets that produce or are held for the production of passive income were to increase substantially. Moreover, the
IRS may disagree with our position that time and voyage charters do not give rise to passive income for purposes of the PFIC rules. Accordingly, we can provide no assurance that we will not be treated as a PFIC for 2016 or for any future year.
Please see Tax ConsiderationsUnited States federal income tax considerationsPassive Foreign Investment Company Considerations herein for a description of the PFIC rules.
Distributions on shares of
non-U.S.
companies that are treated as dividends for U.S. federal
income tax purposes and are received by individuals generally will be eligible for taxation at capital gain rates if the shares with respect to which the dividends are paid are readily tradable on an established securities market in the United
States. This treatment will not be available to dividends we pay, however, if we qualify as a PFIC for the taxable year of the dividend or the preceding taxable year, or to the extent that (i) the shareholder does not satisfy a holding period
requirement that generally requires that the shareholder hold the shares on which the dividend is paid for more than 60 days during the
121-day
period that begins 60 days before the date on which the shares
become
ex-dividend
with respect to such dividend, (ii) the shareholder is under an obligation to make related payments with respect to substantially similar or related property or (iii) such dividend
is taken into account as
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investment income under Section 163(d)(4)(B) of the Internal Revenue Code. We do not believe that we qualified as a PFIC for our last taxable year and, as described above, we do not expect
to qualify as a PFIC for our current or future taxable years. Legislation has been proposed in the United States Congress which, if enacted in its current form, would likely cause dividends on our shares to be ineligible for the preferential tax
rates described above. There can be no assurance regarding whether, or in what form, such legislation will be enacted.
Because some of our
subsidiaries vessels expenses are incurred in foreign currencies, we are exposed to exchange rate risks.
The
charterers of the vessels owned by our subsidiary companies pay in U.S. dollars. While most of the expenses incurred by our managers or by us on our subsidiaries behalf are paid in U.S. dollars, certain of these expenses are in other
currencies, most notably the Euro. In 2016, Euro expenses accounted for approximately 33% of our total operating expenses, including
dry-dockings.
Declines in the value of the U.S. dollar relative to the Euro,
or the other currencies in which we incur expenses, would increase the U.S. dollar cost of paying these expenses and thus would adversely affect our results of operations.
The Tsakos Holdings Foundation and the Tsakos family can exert considerable control over us, which may limit your ability to influence our actions.
As of April 5, 2017, companies controlled by the Tsakos Holdings Foundation or affiliated with the Tsakos Group own approximately 34%
of our outstanding common shares. The Tsakos Holdings Foundation is a Liechtenstein foundation whose beneficiaries include persons and entities affiliated with the Tsakos family, charitable institutions and other unaffiliated persons and entities.
The council which controls the Tsakos Holdings Foundation consists of five members, two of whom are members of the Tsakos family. As long as the Tsakos Holdings Foundation and the Tsakos family beneficially own a significant percentage of our common
shares, each will have the power to influence the election of the members of our board of directors and the vote on substantially all other matters, including significant corporate actions.
Risks Related To Our Common and Preferred Shares
Future sales of our common shares could cause the market price of our common shares to decline.
Sales of a substantial number of our common shares in the public market, or the perception that these sales could occur, may depress the market price for our common shares. These sales could also impair
our ability to raise additional capital through the sale of our equity securities in the future. We may issue additional common shares in the future and our shareholders may elect to sell large numbers of shares held by them from time to time.
The market price of our common shares and preferred shares may be unpredictable and volatile.
The market price of our common shares and Series B Preferred Shares, Series C Preferred Shares, Series D Preferred Shares and Series
E Preferred Shares may fluctuate due to factors such as actual or anticipated fluctuations in our quarterly and annual results and those of other public companies in our industry, mergers and strategic alliances in the tanker industry, market
conditions in the tanker industry, changes in government regulation, shortfalls in our operating results from levels forecast by securities analysts, announcements concerning us or our competitors, our sales of our common shares or of additional
preferred shares, changes in prevailing interest rates and the general state of the securities market. The tanker industry has been highly unpredictable and volatile. The market for common stock and preferred stock in this industry may be equally
volatile. Therefore, we cannot assure you that you will be able to sell any of our common shares and preferred shares you may have purchased, or will purchase in the future, at a price greater than or equal to the original purchase price.
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If the market price of our common shares remains below $5.00 per share, under stock exchange
rules, our shareholders will not be able to use such shares as collateral for borrowing in margin accounts. This inability to use common shares as collateral may depress demand and certain institutional investors are restricted from investing in or
holding shares priced below $5.00, which could lead to sales of such shares creating further downward pressure on and increased volatility in the market price of our common shares.
We may not be able to pay cash dividends on our common shares or preferred shares as intended if market conditions change.
During 2016, we paid dividends on our common shares totaling $0.29 per common share, totaling $24.5 million. On March 17, 2017, the Company announced a common share dividend of $0.05 per common
share to be paid on April 28, 2017 to holders of record as of April 25, 2017. In addition, during 2016 we paid dividends on our preferred shares totaling $15.9 million and another $4.0 million in January and February 2017.
Subject to the limitations discussed below, we currently intend to continue to pay cash dividends on our common shares and preferred shares. However, there can be no assurance that we will pay dividends or as to the amount of any dividend. The
payment and the amount will be subject to the discretion of our board of directors and will depend, among other things, on restrictions in the Companies Act of 1981 of Bermuda, as amended, or the Companies Act, on our available cash balances,
anticipated cash needs, our results of operations, our financial condition, and any loan agreement restrictions binding us or our subsidiaries, including a limit on dividends exceeding 50% of our net income for any particular year, plus certain
additional amounts permitted to the extent 50% of our aggregate net income in prior years exceeded dividends paid during such years, as well as other relevant factors. Net losses that we incurred in certain of our historical periods as well as
dividends that we historically paid reduce the amount of the accumulated consolidated net income from which we are permitted to pay dividends under our loan agreements while net income in other periods increases the amount. In addition, dividends on
our common shares are subject to the priority of our dividend obligations relating to our Series B, Series C, Series D and Series E Preferred Shares. We may have insufficient cash to pay dividends on or redeem our Series B, Series C, Series D and
Series E Preferred Shares, or pay dividends on our common shares. Depending on our operating performance for a particular year, this could result in no dividend at all despite the existence of net income, or a dividend that represents a lower
percentage of our net income.
Because we are a holding company with no material assets other than the stock of our
subsidiaries, our ability to pay dividends will depend on the earnings and cash flow of our subsidiaries and their ability to pay us dividends. In addition, the financing arrangements for indebtedness we incur in connection with our newbuilding
program may further restrict our ability to pay dividends. In the event of any insolvency, bankruptcy or similar proceedings of a subsidiary, creditors of such subsidiary would generally be entitled to priority over us with respect to assets of the
affected subsidiary. Investors in our common shares, Series B Preferred Shares, Series C Preferred Shares, Series D Preferred Shares or Series E Preferred Shares may be adversely affected if we are unable to or do not pay dividends as intended.
Market interest rates may adversely affect the value of our Series B Preferred Shares, Series C Preferred Shares, Series D Preferred
Shares and Series E Preferred Shares.
One of the factors that influences the price of our Series B Preferred Shares,
Series C Preferred Shares, Series D Preferred Shares and Series E Preferred Shares is the dividend yield on these preferred shares (as a percentage of the price thereof) relative to market interest rates. An increase in market interest rates, which
are currently at low levels relative to historical rates, may lead to lower prices for our shares when valued using their dividend yields. Higher interest rates would likely increase our borrowing costs and potentially decrease funds available for
dividends. Accordingly, higher interest rates could affect the market prices of our preferred shares to decrease.
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Holders of our Preferred Shares have extremely limited voting rights.
The voting rights of holders of Series B Preferred Shares, Series C Preferred Shares, Series D Preferred Shares and Series E Preferred
Shares are extremely limited. Our common shares are the only class or series of our shares carrying full voting rights. The voting rights of holders of these preferred shares are limited to the ability, subject to certain exceptions, to elect,
voting together as a class with all other classes or series of parity securities upon which like voting rights have been conferred and are exercisable, one director if dividends for six quarterly dividend periods (whether or not consecutive) payable
thereon are in arrears and certain other limited protective voting rights described in Item 10. Additional InformationDescription of Share CapitalPreferred Shares.
Provisions in our
Bye-laws
and our management agreement with Tsakos Energy Management would make it difficult for a third party to acquire us, even if such a
transaction is beneficial to our shareholders.
Our
Bye-laws
provide for a
staggered board of directors, blank check preferred stock, super majority voting requirements and other anti-takeover provisions, including restrictions on business combinations with interested persons and limitations on the voting rights of
shareholders who acquire more than 15% of our common shares. In addition, Tsakos Energy Management would have the right to terminate our management agreement and seek liquidated damages if a board member were elected without having been approved by
the current board. These provisions could deter a third party from tendering for the purchase of some or all of our shares. These provisions may have the effect of delaying or preventing changes of control of the ownership and management of our
company.
Because we are a foreign corporation, you may not have the same rights as a shareholder in a U.S. corporation.
We are a Bermuda corporation. Our Memorandum of Association and
Bye-laws
and the Companies Act
govern our affairs. While many provisions of the Companies Act resemble provisions of the corporation laws of a number of states in the United States, Bermuda law may not as clearly establish your rights and the fiduciary responsibilities of our
directors as do statutes and judicial precedent in some U.S. jurisdictions. In addition, apart from three
non-executive
directors, our directors and officers are not resident in the United States and all or
substantially all of our assets are located outside of the United States. As a result, investors may have more difficulty in protecting their interests and enforcing judgments in the face of actions by our management, directors or controlling
shareholders than would shareholders of a corporation incorporated in a U.S. jurisdiction.
In addition, you should not assume
that courts in the country in which we are incorporated or where our assets are located would enforce judgments of U.S. courts obtained in actions against us based upon the civil liability provisions of applicable U.S. federal and state securities
laws or would enforce, in original actions, liabilities against us based on those laws.
We are a foreign private issuer under
NYSE rules, and as such we are entitled to exemption from certain NYSE corporate governance standards, and you may not have the same protections afforded to shareholders of companies that are subject to all of the NYSE corporate governance
requirements.
We are a foreign private issuer under the securities laws of the United States and the rules of
the NYSE. Under the securities laws of the United States, foreign private issuers are subject to different disclosure requirements than U.S. domiciled registrants, as well as different financial reporting requirements. Under the NYSE
rules, a foreign private issuer is subject to less stringent corporate governance requirements. Subject to certain exceptions, the rules of the NYSE permit a foreign private issuer to follow its home country practice in lieu
of the listing requirements of the NYSE, including (i) the requirement that a majority of the board of directors consist of independent directors, (ii) the requirement that the nominating/corporate governance committees be composed
entirely of independent directors and have a written charter addressing the committees
43
purpose and responsibilities, (iii) the requirement that the compensation committee be composed entirely of independent directors and have a written charter addressing the committees
purpose and responsibilities, and (iv) the requirement of an annual performance evaluation of the nominating/corporate governance and compensation committees.
Nonetheless, a majority of our directors are independent, all of the members of our compensation, nominating and corporate governance committee are independent directors, and all of our board committees
have written charters addressing their respective purposes and responsibilities.
Item 4.
|
Information on the Company
|
Tsakos Energy Navigation Limited is a leading provider of international seaborne crude oil and petroleum product transportation services.
In 2007, it also started to transport liquefied natural gas. It was incorporated in 1993 as an exempted company under the laws of Bermuda under the name Maritime Investment Fund Limited and in, 1996, was renamed MIF Limited. Our common shares were
listed in 1993 on the Oslo Stock Exchange (OSE) and the Bermuda Stock Exchange, although we
de-listed
from the OSE in March 2005 due to limited trading. The Companys shares are no longer actively traded
on the Bermuda exchange. In July 2001, the Companys name was changed to Tsakos Energy Navigation Limited to enhance our brand recognition in the tanker industry, particularly among charterers. In March 2002, we completed an initial public
offering of our common shares in the United States and our common shares began trading on the New York Stock Exchange under the ticker symbol TNP. Since incorporation, the Company has owned and operated 81 vessels and has sold 32 vessels
(of which three had been chartered back and eventually repurchased at the end of their charters. All three have since been sold again).
Our principal offices are located at 367 Syngrou Avenue, 175 64 P. Faliro, Athens, Greece. Our telephone number at this address is 011 30 210 9407710. Our website address is http://www.tenn.gr.
For additional information on the Company, see Item 5. Operating and Financial Review and Prospects.
Business Overview
As of
April 5, 2017 we operated a fleet of 57 modern crude oil and petroleum product tankers that provide world-wide marine transportation services for national, major and other independent oil companies and refiners under long, medium and short-term
charters. Our fleet also includes two LNG carriers and three suezmax shuttle tankers with advanced dynamic positioning technology (DP2), bringing our total operating fleet to 62 vessels. We have also under construction three crude aframaxes with
expected deliveries within 2017. The resulting fleet (assuming no further sales or acquisitions) would comprise 65 vessels representing approximately 7.2 million dwt.
We believe that we have established a reputation as a safe, high quality, cost efficient operator of modern and well-maintained tankers. We also believe that these attributes, together with our strategy
of proactively working towards meeting our customers chartering needs, has contributed to our ability to attract world-class energy producers as customers and to our success in obtaining charter renewals generating strong fleet utilization.
Our fleet is managed by Tsakos Energy Management, a company owned by our chief executive officer. Tsakos Energy Management
provides us with strategic advisory, financial, accounting and administrative services, while subcontracting the commercial management of our business to Tsakos Shipping. In its capacity as commercial manager, Tsakos Shipping provides various
services for our vessels, including charterer relations, obtaining insurance and vessel sale and purchase, supervising newbuilding construction and vessel financing. Until June 30, 2010, Tsakos Shipping had also provided technical and
operational management for the majority of our vessels.
44
Tsakos Energy Management subcontracts the technical and operational management of our fleet
to TCM. TCM was formed in February 2010 by Tsakos family interests and a German private company, the owner of the ship management company Columbia Shipmanagement Ltd., or CSM, as a joint-venture ship management company on an equal partnership basis
to provide technical and operational management services to owners of vessels, primarily within the Greece-based market. TCM, which formally commenced operations on July 1, 2010, now manages the technical and operational activities of all of
our vessels apart from the LNG carriers
Neo Energy
and
Maria Energy
, the VLCCs
Ulysses
and
Hercules I
, the suezmax tanker
Eurochampion 2004
and the aframax tankers
Maria Princess
and
Sapporo Princess
which are technically managed by a
non-affiliated
ship manager, and the VLCC
Millennium
which is on a bareboat charter. TCM is based in Athens, Greece. TCM and CSM cooperate in the purchase of
certain supplies and services on a combined basis. By leveraging the purchasing power of CSM, which currently provides full technical management services for 211 vessels and crewing services for an additional 87 vessels, we believe TCM is able to
procure services and supplies at lower prices than Tsakos Shipping could alone, thereby reducing overall operating expenses for us. In its capacity as technical manager, TCM manages our
day-to-day
vessel operations, including provision of supplies, maintenance and repair, and crewing. Members of the Tsakos family are involved in the decision-making
processes of Tsakos Energy Management, Tsakos Shipping and TCM.
As of April 5, 2017, our operational fleet consisted of
the following 62 vessels:
|
|
|
Number of Vessels
|
|
Vessel Type
|
|
|
3
|
|
VLCC
|
|
|
13
|
|
Suezmax
|
|
|
14
|
|
Aframax
|
|
|
3
|
|
Aframax LR2
|
|
|
11
|
|
Panamax LR1
|
|
|
6
|
|
Handymax MR2
|
|
|
7
|
|
Handysize MR1
|
|
|
2
|
|
LNG carrier
|
|
|
3
|
|
Shuttle DP2
|
|
|
Total 62
|
|
|
Twenty-two
of the operating vessels are of
ice-class
specification. This fleet diversity, which includes a number of sister ships, provides us with the capability to be one of the more versatile operators in the market. The current operating fleet totals
approximately 6.9 million dwt, all of which is double-hulled. As of April 5, 2017, the average age of the tankers in our current operating fleet was 7.4 years, compared with the industry average of 10 years.
In addition to the vessels operating in our fleet as of April 5, 2017, we have also entered into agreements for the construction of
three additional vessels with established shipyard, Daewoo-Mangalia Heavy Industries.
We believe the following factors
distinguish us from other public tanker companies:
|
|
|
Modern, high-quality, fleet.
We own a fleet of modern, versatile, high-quality tankers that are designed for enhanced safety and low
operating costs. Since inception, we have committed to investments of approximately $5.1 billion, including investments of approximately $3.8 billion in newbuilding constructions, in order to maintain and improve the quality of our fleet.
We believe that increasingly stringent environmental regulations and heightened concerns about liability for oil pollution have contributed to a significant demand for our vessels by leading oil companies, oil traders and major government oil
entities. TCM, the technical manager of our fleet, has ISO 14001 environmental certification and ISO 9001 quality certification, based in part upon audits conducted on our vessels.
|
45
|
|
|
Diversified fleet.
Our diversified fleet, which includes VLCC, suezmax, aframax, panamax, handysize, handymax tankers, LNG carriers and
DP2 shuttle tankers, allows us to better serve our customers international petroleum product and crude oil transportation needs. We had also committed a sizable part of our newbuilding and acquisition program, in the past, to
ice-class
vessels, which are vessels that can access
ice-bound
ports depending on certain thickness of ice. We have 25
ice-class
vessels, including three currently under construction. Additionally, we entered the LNG market with the delivery of our first LNG carrier in 2007 and accepted delivery of an additional LNG carrier with the latest design in 2016. We also entered the
shuttle tanker market with our first DP2 suezmax
Rio 2016
which was delivered in March 2013 and our second DP2 suezmax
Brasil 2014
which was delivered in April 2013, each of which commenced with a
15-year
time charter with Petrobras after delivery. The third DP2 suezmax shuttle tanker delivered on March 10, 2017 for charter to a European state-owned oil major.
|
|
|
|
Stability throughout industry cycles.
Historically, we have employed a high percentage of our fleet on long and medium-term employment
with fixed rates or minimum rates plus profit sharing agreements. We believe this approach has resulted in high utilization rates for our vessels, reflecting our industrial shipping model. At the same time, we maintain flexibility in our chartering
policy to allow us to take advantage of favorable rate trends through spot market employment, pools and contract of affreightment charters with periodic adjustments. Over the last five years, our overall average fleet utilization rate was 97%.
|
|
|
|
High-Quality, sophisticated clientele.
For over 40 years, Tsakos entities have maintained relationships with and achieved acceptance by
national, major and other independent oil companies and refiners. Several of the worlds major oil companies and traders, including BP, ExxonMobil, Flopec, Hyundai Merchant Marine, Petrobras, Chevron, Shell and Vitol are among the regular
customers of Tsakos Energy Navigation. With the delivery of our three remaining aframax tanker newbuildings, Statoil will become one of our largest customers.
|
|
|
|
Developing LNG and offshore shuttle tanker platform.
We believe we are well positioned to capitalize on demand for LNG sea transport as
well as offshore shuttle tanker transport because of our extensive relationships with existing customers, strong safety track record, superior technical management capabilities and financial flexibility. We already operate two LNG carriers and three
DP2 suezmax shuttle tankers, in this
high-end
market.
|
|
|
|
Significant leverage from our relationship with Tsakos Shipping and TCM.
We believe the expertise, scale and scope of TCM, which spreads
costs over a vessel base much larger than our fleet, are key components in maintaining low operating costs, efficiency, quality and safety. We leverage Tsakos Shippings reputation and longstanding relationships with leading charterers to
foster charter renewals.
|
46
As of April 5, 2017, our fleet consisted of the following 62 vessels:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vessel
|
|
Year
Built
|
|
|
Deadweight
Tons
|
|
|
Year
Acquired
|
|
|
Charter
Type
(1)
|
|
Expiration of
Charter
|
|
Hull Type
(2)
(all double hull)
|
|
Cargoes
|
VLCC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1. Hercules
(3)
|
|
|
2017
|
|
|
|
300,000
|
|
|
|
2017
|
|
|
time charter
|
|
September 2018
|
|
|
|
Crude
|
2. Ulysses
|
|
|
2016
|
|
|
|
300,000
|
|
|
|
2016
|
|
|
time charter
|
|
November 2019
|
|
|
|
Crude
|
3. Millennium
|
|
|
1998
|
|
|
|
301,171
|
|
|
|
1998
|
|
|
bareboat charter
|
|
November 2018
|
|
|
|
Crude
|
|
|
|
|
|
|
|
|
SUEZMAX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1. Eurovision
|
|
|
2013
|
|
|
|
158,000
|
|
|
|
2014
|
|
|
spot
|
|
|
|
|
|
Crude
|
2. Euro
|
|
|
2012
|
|
|
|
158,000
|
|
|
|
2014
|
|
|
time charter
|
|
July 2018
|
|
|
|
Crude
|
3. Decathlon
|
|
|
2012
|
|
|
|
162,710
|
|
|
|
2016
|
|
|
spot
|
|
|
|
|
|
Crude
|
4. Spyros K
(4)
|
|
|
2011
|
|
|
|
157,648
|
|
|
|
2011
|
|
|
time charter
|
|
May 2022
|
|
|
|
Crude
|
5. Dimitris P
(4)
|
|
|
2011
|
|
|
|
157,740
|
|
|
|
2011
|
|
|
time charter
|
|
August 2023
|
|
|
|
Crude
|
6. Pentathlon
|
|
|
2009
|
|
|
|
158,475
|
|
|
|
2015
|
|
|
spot
|
|
|
|
|
|
Crude
|
7. Arctic
|
|
|
2007
|
|
|
|
163,216
|
|
|
|
2007
|
|
|
time charter
|
|
October 2017
|
|
ice-class
1A
|
|
Crude
|
8. Antarctic
|
|
|
2007
|
|
|
|
163,216
|
|
|
|
2007
|
|
|
spot
|
|
|
|
ice-class
1A
|
|
Crude
|
9. Archangel
|
|
|
2006
|
|
|
|
163,216
|
|
|
|
2006
|
|
|
spot
|
|
|
|
ice-class 1A
|
|
Crude
|
10. Alaska
|
|
|
2006
|
|
|
|
163,250
|
|
|
|
2006
|
|
|
spot
|
|
|
|
ice-class
1A
|
|
Crude
|
11. Eurochampion 2004
(13)
|
|
|
2005
|
|
|
|
164,608
|
|
|
|
2005
|
|
|
time charter
|
|
August 2017
|
|
ice-class 1C
|
|
Crude
|
12. Euronike
(3)
|
|
|
2005
|
|
|
|
164,565
|
|
|
|
2005
|
|
|
spot
|
|
|
|
ice-class 1C
|
|
Crude
|
13. Silia T
|
|
|
2002
|
|
|
|
164,286
|
|
|
|
2002
|
|
|
time charter
|
|
June 2017
|
|
|
|
Crude
|
|
|
|
|
|
|
|
|
SUEZMAX DP2 SHUTTLE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1. Lisboa
|
|
|
2017
|
|
|
|
157,000
|
|
|
|
2017
|
|
|
time charter
|
|
March 2025
|
|
|
|
Crude/Products
|
2. Rio 2016
|
|
|
2013
|
|
|
|
155,709
|
|
|
|
2013
|
|
|
time charter
|
|
May 2028
|
|
|
|
Crude/Products
|
3. Brasil 2014
|
|
|
2013
|
|
|
|
155,721
|
|
|
|
2013
|
|
|
time charter
|
|
June 2028
|
|
|
|
Crude/Products
|
|
|
|
|
|
|
|
|
AFRAMAX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1. Marathon TS
|
|
|
2017
|
|
|
|
113,651
|
|
|
|
2017
|
|
|
time charter
|
|
February 2022
(8)
|
|
|
|
Crude
|
2. Sola TS
|
|
|
2017
|
|
|
|
112,700
|
|
|
|
2017
|
|
|
time charter
|
|
April 2022
|
|
|
|
Crude
|
3. Elias Tsakos
|
|
|
2016
|
|
|
|
113,737
|
|
|
|
2016
|
|
|
time charter
|
|
June 2023
(9)
|
|
|
|
Crude
|
4. Thomas Zafiras
|
|
|
2016
|
|
|
|
113,691
|
|
|
|
2016
|
|
|
time charter
|
|
August 2023
(9)
|
|
|
|
Crude
|
5. Leontios H
|
|
|
2016
|
|
|
|
113,611
|
|
|
|
2016
|
|
|
time charter
|
|
October 2023
(9)
|
|
|
|
Crude
|
6. Parthenon TS
|
|
|
2016
|
|
|
|
113,554
|
|
|
|
2016
|
|
|
time charter
|
|
November 2021
(8)
|
|
|
|
Crude
|
7. Sapporo Princess
|
|
|
2010
|
|
|
|
105,354
|
|
|
|
2010
|
|
|
spot
|
|
|
|
DNA
|
|
Crude
|
8. Uraga Princess
|
|
|
2010
|
|
|
|
105,344
|
|
|
|
2010
|
|
|
spot
|
|
|
|
DNA
|
|
Crude
|
9. Ise Princess
|
|
|
2009
|
|
|
|
105,361
|
|
|
|
2009
|
|
|
CoA
|
|
|
|
DNA
|
|
Crude
|
10. Asahi Princess
|
|
|
2009
|
|
|
|
105,372
|
|
|
|
2009
|
|
|
time charter
|
|
January 2018
|
|
DNA
|
|
Crude
|
11. Maria Princess
|
|
|
2008
|
|
|
|
105,346
|
|
|
|
2008
|
|
|
spot
|
|
|
|
DNA
|
|
Crude
|
12. Nippon Princess
|
|
|
2008
|
|
|
|
105,392
|
|
|
|
2008
|
|
|
CoA
|
|
|
|
DNA
|
|
Crude
|
13. Izumo Princess
|
|
|
2007
|
|
|
|
105,374
|
|
|
|
2007
|
|
|
spot
|
|
|
|
DNA
|
|
Crude
|
14. Sakura Princess
|
|
|
2007
|
|
|
|
105,365
|
|
|
|
2007
|
|
|
spot
|
|
|
|
DNA
|
|
Crude
|
15. Proteas
(7)
|
|
|
2006
|
|
|
|
117,055
|
|
|
|
2006
|
|
|
time charter
|
|
May 2018
|
|
ice-class 1A
|
|
Crude/Products
|
16. Promitheas
(7)
|
|
|
2006
|
|
|
|
117,055
|
|
|
|
2006
|
|
|
time charter
|
|
May 2018
|
|
ice-class
1A
|
|
Crude/Products
|
17. Propontis
(7)
|
|
|
2006
|
|
|
|
117,055
|
|
|
|
2006
|
|
|
time charter
|
|
May 2018
|
|
ice-class
1A
|
|
Crude
|
|
|
|
|
|
|
|
|
PANAMAX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1. Sunray
(3)
|
|
|
2016
|
|
|
|
74,039
|
|
|
|
2016
|
|
|
time charter
|
|
February 2021
(10)
|
|
|
|
Crude/Products
|
2. Sunrise
(3)
|
|
|
2016
|
|
|
|
74,043
|
|
|
|
2016
|
|
|
time charter
|
|
March 2021
(10)
|
|
|
|
Crude/Products
|
3. World Harmony
(4)
|
|
|
2009
|
|
|
|
74,200
|
|
|
|
2010
|
|
|
time charter
|
|
April 2018
(5)
|
|
|
|
Crude/Products
|
4. Chantal
(4)
|
|
|
2009
|
|
|
|
74,329
|
|
|
|
2010
|
|
|
time charter
|
|
June 2018
(5)
|
|
|
|
Crude/Products
|
5. Selini
(3)
|
|
|
2009
|
|
|
|
74,296
|
|
|
|
2010
|
|
|
time charter
|
|
October 2017
|
|
|
|
Crude/Products
|
6. Salamina
(3)
|
|
|
2009
|
|
|
|
74,251
|
|
|
|
2010
|
|
|
time charter
|
|
May 2017
|
|
|
|
Crude/Products
|
7. Selecao
|
|
|
2008
|
|
|
|
74,296
|
|
|
|
2008
|
|
|
time charter
|
|
August 2018
|
|
|
|
Crude/Products
|
8. Socrates
|
|
|
2008
|
|
|
|
74,327
|
|
|
|
2008
|
|
|
time charter
|
|
July 2018
|
|
|
|
Crude/Products
|
9. Andes
(4)
|
|
|
2003
|
|
|
|
68,439
|
|
|
|
2003
|
|
|
time charter
|
|
September 2018
|
|
|
|
Crude/Products
|
10. Maya
(4)(6)
|
|
|
2003
|
|
|
|
68,439
|
|
|
|
2003
|
|
|
time charter
|
|
January 2018
|
|
|
|
Crude/Products
|
11. Inca
(4)(6)
|
|
|
2003
|
|
|
|
68,439
|
|
|
|
2003
|
|
|
time charter
|
|
March 2018
|
|
|
|
Crude/Products
|
|
|
|
|
|
|
|
|
HANDYMAX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1. Artemis
|
|
|
2005
|
|
|
|
53,039
|
|
|
|
2006
|
|
|
time charter
|
|
December 2017
|
|
ice-class
1A
|
|
Products
|
2. Afrodite
(3)
|
|
|
2005
|
|
|
|
53,082
|
|
|
|
2006
|
|
|
time charter
|
|
August 2017
|
|
ice-class
1A
|
|
Products
|
3. Ariadne
(3)
|
|
|
2005
|
|
|
|
53,021
|
|
|
|
2006
|
|
|
time charter
|
|
August 2017
|
|
ice-class
1A
|
|
Products
|
4. Aris
|
|
|
2005
|
|
|
|
53,107
|
|
|
|
2006
|
|
|
time charter
|
|
May 2017
|
|
ice-class 1A
|
|
Products
|
5. Apollon
|
|
|
2005
|
|
|
|
53,149
|
|
|
|
2006
|
|
|
time charter
|
|
May 2017
|
|
ice-class
1A
|
|
Products
|
6. Ajax
(3)
|
|
|
2005
|
|
|
|
53,095
|
|
|
|
2006
|
|
|
time charter
|
|
August 2017
|
|
ice-class
1A
|
|
Products
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vessel
|
|
Year
Built
|
|
|
Deadweight
Tons
|
|
|
Year
Acquired
|
|
|
Charter
Type
(1)
|
|
Expiration of
Charter
|
|
Hull Type
(2)
(all double hull)
|
|
Cargoes
|
|
|
|
|
|
|
|
|
HANDYSIZE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1. Andromeda
|
|
|
2007
|
|
|
|
37,061
|
|
|
|
2007
|
|
|
spot
|
|
|
|
ice-class
1A
|
|
Products
|
2. Aegeas
|
|
|
2007
|
|
|
|
37,061
|
|
|
|
2007
|
|
|
spot
|
|
|
|
ice-class
1A
|
|
Products
|
3. Byzantion
|
|
|
2007
|
|
|
|
37,275
|
|
|
|
2007
|
|
|
spot
|
|
|
|
ice-class
1B
|
|
Products
|
4. Bosporos
|
|
|
2007
|
|
|
|
37,275
|
|
|
|
2007
|
|
|
spot
|
|
|
|
ice-class
1B
|
|
Products
|
5. Arion
|
|
|
2006
|
|
|
|
37,061
|
|
|
|
2006
|
|
|
spot
|
|
|
|
ice-class
1A
|
|
Products
|
6. Amphitrite
|
|
|
2006
|
|
|
|
37,061
|
|
|
|
2006
|
|
|
spot
|
|
|
|
ice-class
1A
|
|
Products
|
7. Didimon
|
|
|
2005
|
|
|
|
37,432
|
|
|
|
2005
|
|
|
time charter
|
|
September 2017
|
|
|
|
Products
|
|
|
|
|
|
|
|
|
LNG
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1. Maria Energy
|
|
|
2016
|
|
|
|
93,301
|
|
|
|
2016
|
|
|
time charter
|
|
March 2018
(11)
|
|
Membrane
(161,870
cbm)
|
|
LNG
|
2. Neo Energy
|
|
|
2007
|
|
|
|
85,602
|
|
|
|
2007
|
|
|
time charter
|
|
October 2018
(12)
|
|
Membrane
(150,000
cbm)
|
|
LNG
|
Total Vessels
|
|
|
62
|
|
|
|
6,899,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Certain of the vessels are operating in the spot market under contracts of affreightment (CoA).
|
(2)
|
Ice-class
classifications are based on ship resistance in brash ice channels with a minimum speed of 5 knots for the following
conditions
ice-1A:
1m brash ice,
ice-1B:
0.8m brash ice,
ice-1C:
0.6m brash ice.
DNA-
design new aframax with shorter length overall allowing greater flexibility in the Caribbean and the United States.
|
(3)
|
The charter rate for these vessels is based on a fixed minimum rate for the Company plus different levels of profit sharing above the minimum rate, determined and
settled on a calendar month basis.
|
(4)
|
These vessels are chartered under fixed and variable hire rates. The variable portion of hire is recognized to the extent the amount becomes fixed and determinable at
the reporting date. Determination is every six months.
|
(5)
|
Charterers have the option to terminate the charter party after at least 12 months with three months notice.
|
(6)
|
49% of the holding company of these vessels is held by a third party.
|
(7)
|
These three vessels are chartered to the same charterer: one for 30 months, one for 36 months and one for 42 months. It is charterers option which vessel to take
for which respective period. Although all vessels have started their charters in November, 2015, as at April 5, 2017, the charterer has not informed us as to which vessel will be employed for which period. The above expiry date shown is based
on 30 months for all three.
|
(8)
|
The charterer of each of these vessels has options to extend the term of the charter for up to seven additional years.
|
(9)
|
The charterer of each of these vessels has the option to extend the term of the charter for up to five additional years.
|
(10)
|
The charterer of each of these vessels has the option to extend the term of the charter for up to two additional years.
|
(11)
|
The charterer has the option to extend the term of this charter for up to an additional 18 months.
|
(12)
|
This charter for the use of the vessel as a floating storage unit can be extended for an additional six months by the charterer at a higher rate.
|
(13)
|
The charterer has the option to extend the term of this charter for up to an additional 6 months.
|
During 2016, the Company took delivery of two LR1 product carriers (
Sunray
and
Sunrise
) and four aframax tankers (
Elias
Tsakos
,
Thomas Zafrias
,
Leontios H
and
Parthenon TS
) from Daewoo Shipbuilding in Romania. In addition, an LNG carrier was delivered from Hyundai Heavy Industries in South Korea and one VLCC tanker (
Ulysses
) was
delivered from Hyundai Samho Heavy Industries in South Korea. As of April 5, 2017, two more Aframaxes (
Sola TS
and
Marathon TS
) were delivered from Daewoo Shipbuilding Romania, one DP2 suezmax shuttle tanker (
Lisboa
) from
Sungdong in South Korea and one VLCC tanker (
Hercules I
) from Hyundai Samho in South Korea. The newbuildings have a double hull design compliant with all classification requirements and prevailing environmental laws and regulations. Tsakos
Shipping has worked closely with the shipyards in the design of the newbuildings and will continue to work with the shipyards during the construction period. TCM provides supervisory personnel present during the construction.
48
Our newbuildings under construction, as of April 5, 2017, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vessel Type
|
|
Expected Delivery
|
|
|
Shipyard
|
|
Deadweight Tons
|
|
|
Purchase
Price
(1)
(in
millions
of U.S. dollars)
|
|
Aframaxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1. OSLO TS
|
|
|
Q2 2017
|
|
|
Daewoo Shipbuilding
|
|
|
112,700
|
|
|
|
55.3
|
|
2. STAVANGER TS
|
|
|
Q3 2017
|
|
|
Daewoo Shipbuilding
|
|
|
112,700
|
|
|
|
55.2
|
|
3. BERGEN TS
|
|
|
Q4 2017
|
|
|
Daewoo Shipbuilding
|
|
|
112,700
|
|
|
|
55.2
|
|
Total
|
|
|
|
|
|
|
|
|
338,100
|
|
|
|
165.7
|
|
(1)
|
Including extra cost agreed as of December 31, 2016.
|
As of April 5, 2017, bank financing, including
pre-delivery
installments, has been arranged for all the vessels under construction. Under the newbuilding
contracts, the purchase prices for the vessels are subject to deductions for delayed delivery, excessive fuel consumption and failure to meet specified deadweight tonnage requirements. Progress payments for the newbuildings under construction are
equal to between 40% and 55% of the purchase price of each vessel during the period of its construction. As of April 5, 2017, we have made progress payments of $65.3 million out of the total purchase price of approximately
$165.7 million (assuming no additional changes to the vessels under construction) for these three newbuildings. The remaining amount (assuming no change to the vessels to be constructed) of $100.4 million is contracted to be paid during
the remaining part of 2017, of which $70.5 million is expected to be financed with bank loans that have already been arranged.
Fleet Deployment
We aim to optimize the financial performance of our fleet
by deploying at least
two-thirds
of our vessels on either time charters or period employment with variable rates, as we took proactive steps to meet any potential impact of the expanding world fleet on freight
rates. As at March 2017, the percentage of the fleet that is in employed at fixed rates was approximately 60%. We believe that our fleet deployment strategy and flexibility provides us with the ability to benefit from increases in tanker rates while
at the same time maintaining a measure of stability through cycles in the industry. The following table details the respective employment basis of our fleet during 2016, 2015 and 2014 as a percentage of operating days.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Employment Basis
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Time Charterfixed rate
|
|
|
37%
|
|
|
|
35%
|
|
|
|
41%
|
|
Time Chartervariable rate
|
|
|
21%
|
|
|
|
19%
|
|
|
|
19%
|
|
Period Employment at variable rates
|
|
|
5%
|
|
|
|
5%
|
|
|
|
6%
|
|
Spot Voyage
|
|
|
37%
|
|
|
|
41%
|
|
|
|
34%
|
|
Total Net Earnings Days
|
|
|
18,570
|
|
|
|
17,594
|
|
|
|
17,489
|
|
Tankers operating on time charters may be chartered for several months or years whereas tankers operating
in the spot market typically are chartered for a single voyage that may last up to several weeks. Vessels on period employment at variable rates related to the market are either in a pool or operating under contract of affreightment for a specific
charterer. Tankers operating in the spot market may generate increased profit margins during improvements in tanker rates, while tankers operating on time charters generally provide more predictable cash flows. Accordingly, we actively monitor
macroeconomic trends and governmental rules and regulations that may affect tanker rates in an attempt to optimize the deployment of our fleet. Our fleet has 22 tankers currently operating on spot voyages.
We have also secured charters from delivery for each of our aframax crude oil tanker newbuildings pursuant to our strategic partnership
with Statoil for periods from five to twelve years, including options for extension.
49
Operations and Ship Management
Our operations
Management policies regarding our fleet that are formulated
by our board of directors are executed by Tsakos Energy Management under a management contract. Tsakos Energy Managements duties, which are performed exclusively for our benefit, include overseeing the purchase, sale and chartering of vessels,
supervising
day-to-day
technical management of our vessels and providing strategic, financial, accounting and other services, including investor relations. Our tanker
fleets technical management, including crewing, maintenance and repair, and voyage operations, have been subcontracted by Tsakos Energy Management to TCM. Tsakos Energy Management also engages Tsakos Shipping to arrange chartering of our
vessels, provide sales and purchase brokerage services, procure vessel insurance and arrange bank financing. Seven vessels were
sub-contracted
to third-party ship managers during 2016.
The following chart illustrates the management of our fleet:
Technical management of the LNG carriers
Neo Energy
and
Maria Energy
, the VLCCs
Hercules I
and
Ulysses
, the suezmax
Eurochampion 2004
and the aframaxes
Maria Princess
and
Sapporo Princess
, is subtracted to unaffiliated third-party ship managers.
Management Contract
Executive and Commercial Management
Pursuant to our management agreement with Tsakos Energy Management, our and our subsidiaries operations are executed and supervised
by Tsakos Energy Management, based on the strategy devised by our board of directors and subject to the approval of our board of directors as described below. In accordance with the management agreement, we pay Tsakos Energy Management monthly
management fees for its management of our vessels. There is a prorated adjustment if at each year end the Euro has appreciated by 10% or more against the Dollar since January 1, 2007. In addition, there is an increase each year by a percentage
figure reflecting 12 month Euribor, if both parties agree. In 2016 and 2015, the monthly fees for operating conventional vessels were $27,500 and $20,400 for vessels chartered out on a bare-boat basis, $35,833 for the LNG carriers, and $35,000 for
the DP2 shuttle tankers. From the above fees, a third-party manager is paid $25,833 for the LNG carriers, $13,940 for each of the suezmax
Eurochampion 2004,
the aframaxes
Maria Princess
and
Sapporo Princess
and the
VLCC
Ulysses.
Management fees for the VLCC
Millennium
were $27,500 per month of which $13,940 were payable to a third party manager until November 5, 2015 when the vessel entered a bareboat
Tsakos Energy Navigation 3 VLCC 13 Suezmax 3 Suezmax DP2 shuttles 17 Aframax 11 Panamax 6 Handymax MR 7 Handysize 2 LNG Carriers Tsakos Energy Management Executive Management Management
Subcontract Tsakos Shipping Commercial Tsakos Columbia Shipmanagers Technical
50
charter. The management fee starts to accrue for a vessel at the point a newbuilding contract is executed. To help ensure that these fees are competitive with industry standards, our management
has periodically made presentations to our board of directors in which the fees paid to Tsakos Energy Management are compared against the publicly available financial information of integrated, self-contained tanker companies. We paid Tsakos Energy
Management aggregate management fees of $16.9 million in 2016, $16.0 million in 2015 and $15.8 million in 2014. From these amounts, Tsakos Energy Management paid a technical management fee to Tsakos Columbia Shipmanagement. An
additional amount of $2.1 million was charged in fees directly by the Company to TCM for additional services it provided or arranged in relation to information technology, application of corporate governance procedures required by the Company
and seafarers training. For additional information about the management agreement, including the calculation of management fees, see Item 7. Major Shareholders and Related Party Transactions and our consolidated financial
statements which are included as Item 18 to this Annual Report.
Chartering.
Our board of directors formulates our
chartering strategy for all our vessels and Tsakos Shipping, under the supervision of Tsakos Energy Management, implements the strategy by:
|
|
|
evaluating the short, medium, and long-term opportunities available for each type of vessel;
|
|
|
|
balancing short, medium, and long-term charters in an effort to achieve optimal results for our fleet; and
|
|
|
|
positioning such vessels so that, when possible,
re-delivery
occurs at times when Tsakos Shipping expects
advantageous charter rates to be available for future employment.
|
Tsakos Shipping utilizes the services of
various charter brokers to solicit, research, and propose charters for our vessels. The charter brokers role involves researching and negotiating with different charterers and proposing charters to Tsakos Shipping for cargoes to be shipped in
our vessels. Tsakos Shipping negotiates the exact terms and conditions of charters, such as delivery and
re-delivery
dates and arranges cargo and country exclusions, bunkers, loading and discharging conditions
and demurrage. Tsakos Energy Management is required to obtain our approval for charters in excess of six months and is required to obtain the written consent of the administrative agents for the lenders under our secured credit facilities for
charters in excess of thirteen months. There are frequently two or more brokers involved in fixing a vessel on a charter. Brokerage fees typically amount to 2.5% of the value of the freight revenue or time charter hire derived from the charters. A
chartering commission of 1.25% is paid to Tsakos Shipping for every charter involving the vessels in the fleet. In addition, Tsakos Shipping may charge a brokerage commission on the sale of a vessel. In 2016, there was no such commission. In 2015
and 2014, a brokerage commission of approximately 0.5% was charged on the sale price of the vessels. The total amount paid for these chartering and acquisition brokerage commissions was $6.0 million in 2016, $7.6 million in 2015 and
$6.2 million in 2014. Tsakos Shipping may also charge a fee of $200,000 (or such other sum as may be agreed) on delivery of each newbuilding vessel in payment for the cost of design and supervision of the newbuilding by Tsakos Shipping. No such
fee was paid in 2016 or 2015. In 2014, such fees amounted to $0.2 million.
Tsakos Shipping supervises the post fixture
business of our vessels, including:
|
|
|
monitoring the daily geographic position of such vessels in order to ensure that the terms and conditions of the charters are fulfilled by us and our
charterers;
|
|
|
|
collection of monies payable to us; and
|
|
|
|
resolution of disputes through arbitration and legal proceedings.
|
In addition, Tsakos Shipping appoints superintendents to supervise the construction of newbuildings and the loading and discharging of
cargoes when necessary. Tsakos Shipping also participates in the monitoring of vessels operations that are under TCM management and TCMs performance under the management contract.
General Administration.
Tsakos Energy Management provides us with general administrative, office and support services necessary
for our operations and the fleet, including technical and clerical personnel, communication, accounting, and data processing services.
51
Sale and Purchase of Vessels.
Tsakos Energy Management advises our board of directors
when opportunities arise to purchase, including through newbuildings, or to sell any vessels. All decisions to purchase or sell vessels require the approval of our board of directors.
Any purchases or sales of vessels approved by our board of directors are arranged and completed by Tsakos Energy Management. This
involves the appointment of superintendents to inspect and take delivery of vessels and to monitor compliance with the terms and conditions of the purchase or newbuilding contracts.
In the case of a purchase of a vessel, each broker involved will receive commissions from the seller generally at the industry standard
rate of one percent of the purchase price, but subject to negotiation. In the case of a sale of a vessel, each broker involved will receive a commission generally at the industry standard rate of one percent of the sale price, but subject to
negotiation. In accordance with the management agreement, Tsakos Energy Management is entitled to charge for sale and purchase brokerage commission, but to date has not done so.
Technical Management
Pursuant to a technical management agreement, Tsakos
Energy Management employs TCM to manage the
day-to-day
aspects of vessel operations, including maintenance and repair, provisioning and crewing of the vessels in the
fleet. We benefit from the economies of scale of having our vessels managed as part of the TCM managed fleet. On occasion, TCM subcontracts the technical management and manning responsibilities of our vessels to third parties. The executive and
commercial management of our vessels, however, is not subcontracted to third parties. TCM, which is privately held, is one of the largest independent tanker managers with a total of 75 operating vessels under management (including 54 of our
subsidiaries vessels) at March 31, 2017, totaling approximately 6.8 million dwt. TCM employs full-time superintendents, technical experts and marine engineers and has expertise in inspecting second-hand vessels for purchase and sale,
and in fleet maintenance and repair. They have approximately 163 employees engaged in ship management and approximately 2,987 seafaring employees of whom approximately half are employed at sea and the remainder is on leave at any given time. Their
principal office is in Athens, Greece. The fleet managed by TCM consists mainly of tankers, but also includes feeder container vessels, dry bulk carriers and other vessels owned by affiliates and unaffiliated third parties.
Tsakos Energy Management pays TCM a fee per vessel per month for technical management of operating vessels and vessels under
construction. This fee was determined by comparison to the rates charged by other major independent vessel managers. We generally pay all monthly operating requirements of our fleet in advance.
TCM performs the technical management of the vessels under the supervision of Tsakos Energy Management. Tsakos Energy Management approves
the appointment of fleet supervisors and oversees the establishment of operating budgets and the review of actual operating expenses against budgeted amounts. Technical management of the LNG carriers
Neo Energy
and
Maria Energy
, the
VLCCs
Hercules I
and
Ulysses
, the suezmax
Eurochampion 2004
and the aframaxes
Maria Princess
and
Sapporo Princess
, is subtracted to unaffiliated third-party ship managers.
Maintenance and Repair.
Each of the vessels is
dry-docked
once every five years in
connection with special surveys and, after the vessel is fifteen years old, the vessel is
dry-docked
every two and
one-half
years after a special survey (referred to as
an intermediate survey), or as necessary to ensure the safe and efficient operation of such vessels and their compliance with applicable regulations. TCM arranges
dry-dockings
and repairs under instructions
and supervision from Tsakos Energy Management. We believe that the continuous maintenance program we conduct results in a reduction of the time periods during which our vessels are in
dry-dock.
TCM routinely employs on each vessel additional crew members whose primary responsibility is the performance of maintenance while the
vessel is in operation. Tsakos Energy Management awards and, directly or
52
through TCM, negotiates contracts with shipyards to conduct such maintenance and repair work. They seek competitive tender bids in order to minimize charges to us, subject to the location of our
vessels and any time constraints imposed by a vessels charter commitments. In addition to
dry-dockings,
TCM, where necessary, utilizes superintendents to conduct periodic physical inspections of our
vessels.
Crewing and Employees
We do not employ personnel to run our business on a
day-to-day
basis. We outsource substantially all of our executive,
commercial and technical management functions.
TCM arranges employment of captains, officers, engineers and other crew who
serve on the vessels. TCM ensures that all seamen have the qualifications and licenses required to comply with international regulations and shipping conventions and that experienced and competent personnel are employed for the vessels.
Customers
Several of
the worlds major oil companies are among our regular customers. The table below shows the approximate percentage of revenues we earned from some of our customers in 2016.
|
|
|
|
|
Customer
|
|
Year Ended
December 31, 2016
|
|
Petrobras
|
|
|
12.7
|
%
|
Shell
|
|
|
12.6
|
%
|
Eiger
|
|
|
9.0
|
%
|
Flopec
|
|
|
7.4
|
%
|
BP Shipping
|
|
|
5.8
|
%
|
Vitol
|
|
|
5.0
|
%
|
Chevron
|
|
|
4.8
|
%
|
Exxon
|
|
|
4.2
|
%
|
Litasco
|
|
|
3.7
|
%
|
HMM
|
|
|
3.6
|
%
|
Trafigura
|
|
|
3.1
|
%
|
Statoil
|
|
|
2.9
|
%
|
Socar
|
|
|
2.3
|
%
|
Glovis
|
|
|
2.2
|
%
|
PES
|
|
|
2.0
|
%
|
ST Shipping
|
|
|
1.5
|
%
|
Repsol
|
|
|
1.4
|
%
|
Irving Oil
|
|
|
0.9
|
%
|
Regulation
Our business and the operation of our vessels are materially affected by government regulation in the form of international conventions and national, state and local laws and regulations in force in the
jurisdictions in which our vessels operate, as well as in the country or countries of their registration. Because these conventions, laws, and regulations are often revised, we cannot predict the ultimate cost of complying with them or their impact
on the resale price and/or the useful lives of our vessels. Additional conventions, laws and regulations may be adopted which could limit our ability to do business or increase the cost of our doing business and which may have a material adverse
effect on our operations. Various governmental and quasi-governmental agencies require us to obtain permits, licenses, certificates, and financial assurances with respect to our operations. Subject to the discussion below and to the fact that the
kinds of permits, licenses, certificates and financial assurances required for the operation of our vessels will depend upon a number of factors, we believe that we have been and will be able to obtain all permits, licenses, certificates and
financial assurances material to the conduct of our operations.
53
The heightened environmental and quality concerns of classification societies, insurance
underwriters, regulators and charterers has led to the imposition of increased inspection and safety requirements on all vessels in the tanker market and the scrapping of older vessels throughout the industry has been accelerated.
IMO.
The International Maritime Organization (IMO) has adopted international conventions that impose liability for oil
pollution in international waters and in a signatorys territorial waters, including amendments to Annex I of the 1973 International Convention for the Prevention of Pollution from Ships (MARPOL) which set forth new and upgraded
requirements for oil pollution prevention for tankers. These regulations are effective in relation to tankers in many of the jurisdictions in which our tanker fleet operates. They provide that (1) tankers 25 years old and older must be of
double-hull construction and (2) all tankers will be subject to enhanced inspections. All of the vessels in our fleet are of double hull construction. Revised regulations, effective since September 2002, provide for increased inspection and
verification requirements and for a more aggressive
phase-out
of single-hull oil tankers, in most cases by 2015 or earlier, depending on the age of the vessel and whether the vessel complies with requirements
for protectively located segregated ballast tanks. Segregated ballast tanks use ballast water that is completely separate from the cargo oil and oil fuel system. Segregated ballast tanks are currently required by the IMO on crude oil tankers of
20,000 tons deadweight or more constructed after 1982. The regulations are intended to reduce the likelihood of oil pollution in international waters. On April 5, 2005 an amendment to MARPOL became effective, which accelerated the phase out of
single-hull tankers from 2015 to 2010 unless the relevant flag state, in a particular case, extended the date to either 2015 or the date on which the ship reaches 25 years of age after the date of its delivery, whichever is earlier. This amendment
became effective on April 5, 2005.
On January 1, 2007 Annex I of MARPOL was revised to incorporate all amendments
since the MARPOL Convention entered into force in 1983 and to clarify the requirements for new and existing tankers.
Regulation 12A of MARPOL Annex I came into force on August 1, 2007 and governs oil fuel tank protection. The requirements apply to
oil fuel tanks on all ships with an aggregate capacity of 600 cubic meters and above which are delivered on or after August 1, 2010 and all ships for which shipbuilding contracts are placed on or after August 1, 2007.
Since January 1, 2011 a new chapter 8 of Annex I on the prevention of pollution during transfer of oil cargo between oil tankers at
sea has applied to oil tankers of 150 gross tons and above. This requires any oil tanker involved in oil cargo
ship-to-ship
(STS) operations to (1) carry a plan,
approved by its flag state administration, prescribing the conduct of STS operations and (2) comply with notification requirements. Also with effect from that date, Annex I has been amended to clarify the long standing requirements for on board
management of oil residue (sludge) and with effect from August 1, 2011, the use or carriage of certain heavy oils has been banned in the Antarctic area. On January 1, 2016 Annex 1 of MARPOL was revised to include a mandatory requirement
for oil tankers to be fitted with a stability instrument. Since March 1, 2016 Annex 1 has been revised to clarify that certain heavy oils cannot be used in the Antarctic area as ballast, in addition to the prohibition on carriage in bulk and
use as fuel.
In September 1997, the IMO adopted Annex VI to MARPOL to address air pollution from ships. Annex VI came into
force on May 19, 2005. It set limits on sulfur oxide and nitrogen oxide emissions from ship exhausts and prohibited deliberate emissions of ozone depleting substances, such as chlorofluorocarbons. Annex VI also included a global cap on the
sulfur content of fuel oil and allowed for the designation of special areas known as Emission Control Areas (ECAs) where more stringent controls on sulfur emissions would apply. Annex VI has been ratified by some, but not all IMO member
states. All vessels subject to Annex VI and built after May 19, 2005 must carry an International Air Pollution Prevention Certificate evidencing compliance with Annex VI. In October 2008, the Marine Environment Protection Committee
(MEPC) of the IMO adopted amendments to Annex VI regarding particulate matter, nitrogen oxide and sulfur oxide emissions standards. These amendments, which entered into force in July 2010, seek to reduce air pollution from vessels by
establishing a series of progressive standards to further limit the sulfur content in fuel oil, which would be phased in by 2020, and by
54
establishing new tiers of nitrogen oxide emission standards for new marine diesel engines, depending on their date of installation. Additionally, more stringent emission standards could apply in
ECAs. The United States ratified the amendments in October 2008.
Amendments to Annex VI to address greenhouse gas emissions
from shipping came into force on January 1, 2013. New vessels of 400 tons or greater are required to meet minimum energy efficiency levels per capacity mile ( the Energy Efficient Design Index (EEDI)), while existing vessels were
required to implement Ship Energy Efficiency Management Plans (SEEMPs). All our vessels have SEEMPs. However, the EEDI requirements do not apply to a liquefied natural gas (LNG) carrier unless the construction contract for
the carrier is placed on or after September 1, 2015.
We have obtained International Air Pollution Prevention
certificates for all of our vessels. Implementing the requirements of Annex VI may require modifications to vessel engines or the addition of post combustion emission controls, or both, as well as the use of lower sulfur fuels, but we believe that
maintaining compliance with Annex VI will not have a significantly adverse financial impact on the operation of our vessels.
In 2001, the IMO adopted the International Convention on the Control of Harmful Anti-fouling Systems on Ships (the
Anti-fouling
Convention) which prohibits the use of organotin compound coatings to prevent the attachment of mollusks and other sea life to the hulls of vessels. The Anti-fouling Convention came into
force on September 17, 2008 and applies to vessels constructed prior to January 1, 2003 that have not been in
dry-dock
since that date. Since January 1, 2008 under the Anti-fouling Convention,
exteriors of vessels have had to be either free of the prohibited compounds, or have had coatings that act as a barrier to the leaching of the prohibited compounds applied. Vessels of over 400 gross tons engaged in international voyages must obtain
an International Anti-fouling System Certificate and must undergo a survey before the vessel is put into service or when the anti-fouling systems are altered or replaced. We have obtained Anti-fouling System Certificates for all of our vessels that
are subject to the Anti-fouling Convention and do not believe that maintaining such certificates will have an adverse financial impact on the operation of our vessels.
In addition, our LNG carriers meets IMO requirements for liquefied gas carriers. In order to operate in the navigable waters of the IMOs member states, liquefied gas carriers must have
an IMO Certificate of Fitness demonstrating compliance with construction codes for liquefied gas carriers. These codes, and similar regulations in individual member states, address fire and explosion risks posed by the transport of liquefied gases.
Collectively, these standards and regulations impose detailed requirements relating to the design and arrangement of cargo tanks, vents, and pipes; construction materials and compatibility; cargo pressure; and temperature control. Liquefied gas
carriers are also subject to international conventions that regulate pollution in international waters and a signatorys territorial waters. Under the IMO regulations, gas carriers that comply with the IMO construction certification
requirements are deemed to satisfy the requirements of Annex II of MARPOL applicable to transportation of chemicals at sea, which would otherwise apply to certain liquefied gases. With effect from January 1, 2007, the IMO revised the Annex II
regulations that restrict discharges of noxious liquid substances during cleaning or
de-ballasting
operations. The revisions include significantly lower permitted discharge levels of noxious liquid
substances for vessels constructed on or after the effective date, made possible by improvements in vessel technology. These discharge requirements apply to the Companys LNG carriers.
On January 1, 2013 new MARPOL Annex V Regulations came into force with regard to the disposal of garbage from ships at sea. These
regulations prohibit the disposal of garbage at sea other than certain defined permitted discharges or when outside one of the MARPOL Annex V special areas. The regulations do not only impact the disposal of traditional garbage but also
the disposal of harmful hold washing water and cargo residues. Products considered suitable for discharge are those not defined as harmful by the criteria set out in MARPOL Annex III and which do not contain carcinogenic, mutagenic or
reprotoxic components. We have a protocol in place to ensure that (i) garbage is disposed of in accordance with the Annex V Regulations and that the vessels in our fleet maintain records showing that any cleaning agent or additive used was not
harmful to the marine environment and (ii) the supplier provides a signed and dated statement to this effect, either as part of a
55
Material Safety data Sheet MSDS or as a stand-alone document. Annex V establishes certain areas as special areas in which, for reasons relating to their oceanographical
and ecological condition and/or their sea traffic, the adoption of special mandatory methods for the prevention of sea pollution is required. Under MARPOL, these special areas are provided with a higher level of protection than other areas of the
sea. These areas are: (i) Mediterranean Sea; (ii) Baltic Sea; (iii) Black Sea; (iv) Red Sea; (v) Gulfs area; (vi) North Sea; (vii) Antarctic sea; and (viii) Wider Caribbean region including the Gulf of Mexico
and the Caribbean Sea. Our protocol addresses these special areas and we do not consider them likely to adversely affect our ability to operate our vessels.
Tsakos Columbia Shipmanagement S.A. or TCM, our technical manager, is ISO 14001 compliant. ISO 14001 requires companies to commit to the prevention of pollution as part of the normal management cycle.
Additional or new conventions, laws and regulations may be adopted that could adversely affect our ability to manage our vessels.
In addition, the European Union and countries elsewhere have considered stricter technical and operational requirements for tankers and legislation that would affect the liability of tanker owners and
operators for oil pollution. In December 2001, the European Union adopted a legislative resolution confirming an accelerated
phase-out
schedule for single hull tankers in line with the schedule adopted by the
IMO in April 2001. Any additional laws and regulations that are adopted could limit our ability to do business or increase our costs. The results of these or potential future environmental regulations could have a material adverse effect on our
operations.
Under the current regulations, the vessels of our existing fleet will be able to operate for substantially all of
their respective economic lives. However, compliance with the new regulations regarding inspections of all vessels may adversely affect our operations. We cannot at the present time evaluate the likelihood or magnitude of any such adverse effect on
our operations due to uncertainty of interpretation of the IMO regulations.
The operation of our vessels is also affected by
the requirements set forth in the IMOs International Safety Management Code for the Safe Operation of Ships and for Pollution Prevention (ISM Code) which came into effect in relation to oil tankers in July 1998 and which was
further amended on 1 July 2010. The ISM Code requires ship owners, ship managers and bareboat (or demise) charterers to develop and maintain an extensive safety management system that includes the adoption of a safety and
environmental protection policy setting forth instructions and procedures for safe operation and describing procedures for dealing with emergencies. The failure of a shipowner, ship manager or bareboat charterer to comply with the ISM Code may
subject that party to increased liability, may decrease available insurance coverage for the affected vessels, and may result in a denial of access to, or detention in, some ports. All of our vessels are ISM Code certified.
The International Convention for the Safety of Life at Sea (SOLAS) was amended in November 2012 to incorporate mandatory
maximum noise level limits for machinery spaces, control rooms, accommodation and other spaces on board vessels. The amendments came into force on July 1, 2014 and require ships of 1,600 gross tons or more, for which the building contract was
placed on or after July 1, 2014 or were constructed on or after January 1, 2015 or will be delivered on or after July 1, 2018 to be constructed to reduce
on-board
noise and to protect personnel
from noise on board ships. All of our vessels comply with existing guidelines, and our new buildings will meet the new requirements.
The Nairobi Wreck Removal Convention 2007 (Wreck Convention) entered into force on April 14, 2015. The Wreck Convention provides a legal basis for sovereign states to remove, or have
removed, shipwrecks that may have the potential to affect adversely the safety of lives, goods and property at sea, as well as the marine and coastal environment. Further, the Wreck Convention makes ship owners financially liable for wreck removal
and require them to take out insurance or provide other financial security to cover the costs of wreck removal. All of our fleet has complied with the certification requirements stipulated by the Wreck Convention with regards to financial security.
56
OPA 90. The U.S. Oil Pollution Act of 1990 (OPA 90) established an extensive
regulatory and liability regime for the protection and cleanup of the environment from oil spills. OPA 90 affects all owners and operators whose vessels trade to the United States or its territories or possessions or whose vessels operate in United
States waters, which include the United States territorial sea and its two hundred nautical mile exclusive economic zone.
Under OPA 90, vessel owners, operators and bareboat charterers are responsible parties and are jointly, severally and
strictly liable (unless the spill results solely from the act or omission of a third party, an act of God or an act of war) for all containment and
clean-up
costs and other damages arising from discharges or
threatened discharges of oil from their vessels. Tsakos Shipping and Tsakos Energy Management would not qualify as third parties because they perform under contracts with us. These other damages are defined broadly to include
(1) natural resources damages and the costs of assessing them, (2) real and personal property damages, (3) net loss of taxes, royalties, rents, fees and other lost revenues, (4) lost profits or impairment of earning capacity due
to property or natural resources damage, (5) net cost of public services necessitated by a spill response, such as protection from fire, safety or health hazards, and (6) loss of subsistence use of natural resources. OPA 90 incorporates
limits on the liability of responsible parties for a spill. Between July 31, 2009 and December 21, 2015, liability in respect of a double-hulled tanker over 3,000 gross tons was limited to the greater of $2,000 per gross ton or $17,088,000
(subject to periodic adjustment). On December 21, 2015, these limits of liability were increased and are now the greater of $2,200 per gross ton or $18,796,800. These limits of liability would not apply if the incident was proximately caused by
violation of applicable United States federal safety, construction or operating regulations or by the responsible party (or its agents or employees or any person acting pursuant to a contractual relationship with the responsible party) or by gross
negligence or willful misconduct, or if the responsible party fails or refuses to report the incident or to cooperate and assist in connection with the oil removal activities. We continue to maintain, for each of our vessels, pollution liability
coverage in the amount of $1 billion per incident. A catastrophic spill could exceed the insurance coverage available, in which case there could be a material adverse effect on us.
Under OPA 90, with some limited exceptions, all newly built or converted tankers operating in United States waters must be built with
double-hulls, and existing vessels which do not comply with the double-hull requirement should have been phased out by December 31, 2014. All of our fleet is of double-hull construction.
OPA 90 requires owners and operators of vessels to establish and maintain with the United States Coast Guard evidence of financial
responsibility sufficient to meet their potential liabilities under OPA 90. Under the regulations, evidence of financial responsibility may be demonstrated by insurance, surety bond, letter of credit, self-insurance, guaranty or other satisfactory
evidence. Under the self-insurance provisions, the ship owner or operator must have a net worth and working capital, measured in assets located in the United States against liabilities located anywhere in the world, that exceeds the applicable
amount of financial responsibility. OPA 90 requires an owner or operator of a fleet of tankers only to demonstrate evidence of financial responsibility in an amount sufficient to cover the tanker in the fleet having the greatest maximum liability
under OPA 90.
OPA 90 specifically permits individual U.S. coastal states to impose their own liability regimes with regard to
oil pollution incidents occurring within their boundaries, and some states have enacted legislation providing for unlimited liability for oil spills.
Owners or operators of tankers operating in United States waters are required to file vessel response plans with the Coast Guard for approval, and their tankers are required to operate in compliance with
such approved plans. These response plans must, among other things, (1) address a worst case scenario and identify and ensure, through contract or other approved means, the availability of necessary private response resources to
respond to a worst case discharge, (2) describe crew training and drills, and (3) identify a qualified individual with full authority to implement removal actions. All our vessels have approved vessel response plans.
We intend to comply with all applicable Coast Guard and state regulations in the ports where our vessels call.
57
Environmental Regulation
U.S. Clean Water Act
: The U.S. Clean Water Act of 1972 (CWA) prohibits the discharge of oil or hazardous substances in navigable waters and imposes strict liability in the form of
penalties for any unauthorized discharges. The CWA also imposes substantial liability for the costs of removal, remediation and damages and complements the remedies available under OPA 90. Under U.S. Environmental Protection Agency (EPA)
regulations, vessels must obtain CWA permits for the discharge of ballast water and other substances incidental to normal operation in U.S. territorial or inland waters. This permit, the 2008 Vessel General Permit for Discharges Incidental to the
Normal Operation of Vessels, or VGP, incorporated the current U.S. Coast Guard requirements for ballast water management, as well as supplemental ballast water requirements, and included requirements applicable to 26 specific wastewater streams,
such as deck runoff, bilge water and gray water. Effective December 19, 2013, the VGP was renewed and revised. The 2013 VGP is similar to the 2009 VGP but now includes ballast water numeric discharge limits and best management practices for
certain discharges. The ballast water management requirements will be phased in, depending on the ballast water capacity, age and next
dry-docking
date of a vessel. The 2013 VGP was is the subject of a legal
challenged by the Canadian Shipowners Association in the U.S. Second Circuit Court of Appeals. The U.S. Second Circuit Court of Appeals ruled on October 5, 2015 that EPA acted arbitrarily and capriciously with respect to certain of the ballast
water provisions in the 2013 VGP. The Court remanded the issue to EPA to either justify its approach in the 2013 VGP or redraft the ballast water sections of the VGP consistent with the Courts ruling. In the meantime, the 2013 VGP will remain
in effect. On June 11, 2012 the U.S. Coast Guard and the EPA published a memorandum of understanding which provides for collaboration on the enforcement of the VGP requirements and the U.S. Coast Guard routinely include the VGP as part of its
normal Port State Control inspections. Each VGP is planned to have a 5 year life cycle and the third VGP is expected to come into effect in December 2018. We intend to comply with the VGP and the record keeping requirements and we do not believe
that the costs associated with obtaining such permits and complying with the obligations will have a material impact on our operations.
The Clean Air Act
: The U.S. Clean Air Act (CAA) requires the EPA to promulgate standards applicable to emissions of volatile organic compounds and other air contaminants. Our vessels
are subject to CAA vapor control and recovery standards for cleaning fuel tanks and conducting other operations in regulated port areas and emissions standards for
so-called
Category 3 marine
diesel engines operating in U.S. waters. On December 22, 2009 the EPA adopted final emission standards for Category 3 marine diesel engines equivalent to those adopted in the amendments to Annex VI to MARPOL. As a result, the most stringent
engine emissions and marine fuel sulfur requirements of Annex VI will apply to all vessels regardless of flag entering U.S. ports or operating in U.S. waters. The emission standards apply in two stages: near-term standards for newly-built engines,
which have applied since the beginning of 2011, and long-term standards requiring an 80% reduction in nitrogen oxides (NOx) by 2030, which has applied from the beginning of 2016, requiring the use of emission control technology. Compliance with
these standards may result in us incurring costs to install control equipment on our vessels.
In response to a request from
the United States and Canada to designate specific areas of their respective coastal waters (extending to 200 nautical miles offshore) as ECAs under the MARPOL Annex VI amendments, the IMO designated the waters off North American coasts as an ECA on
March 26, 2010. The North American ECA has been in force since August 1, 2012. In July 2011, the IMO designated the United States Caribbean ECA in the waters of Puerto Rico and the U.S. Virgin Islands, which took effect on January 1,
2014. All vessels operating in these ECAs must use fuel with a sulfur content of 0.1%. Since January 1, 2016 NOx after-treatment requirements have also applied. California has implemented a 24 nautical mile zone within which fuel must have a
sulfur content of 0.1% or less as of January 1, 2014. Currently, the California regulations run in parallel with the emissions requirements in the North American and Caribbean ECAs. Compliance with the North American and Caribbean ECA emission
requirements, as well as the possibility that more stringent emissions requirements for marine diesel engines or port operations by vessels will be adopted by the EPA or the states where we operate, could entail significant capital expenditures or
otherwise increase the costs of our operations.
The MEPC in May 2013 voted to postpone the implementation of MARPOL Annex VI
Tier III standards until 2021. However, as the MEPC subsequently agreed that Tier III standards shall apply to marine diesel
58
engines that are installed on a ship constructed on or after 1 January 2016 which operate in the North America ECA or the U.S. Caribbean Sea ECA, Tier III standards do now apply.
European Union Initiatives:
In December 2001, in response to the oil tanker
Erika
oil spill of December 1999, the European
Union adopted a legislative resolution confirming an accelerated
phase-out
schedule for single-hull tankers in line with the schedule adopted by the IMO in April 2001. Since 2010 (1) all single-hull
tankers have been banned from entering European Union ports or offshore terminals; (2) all single-hull tankers carrying heavy grades of oil have been banned from entering or leaving European Union ports or offshore terminals or anchoring in
areas under the European Unions jurisdiction; and (3) since 2005 a Condition Assessment Scheme Survey for single-hull tankers older than 15 years of age has been imposed. In September 2005, the European Union adopted legislation to
incorporate international standards for ship-source pollution into European Community law and to establish penalties for discharge of polluting substances from ships (irrespective of flag). Since April 1, 2007 Member States of the European
Union have had to ensure that illegal discharges of polluting substances, participation in and incitement to carry out such discharges are penalized as criminal offences and that sanctions can be applied against any person, including the master,
owner and/or operator of the polluting ship, found to have caused or contributed to ship-source pollution with intent, recklessly or with serious negligence (this is a lower threshold for liability than that applied by MARPOL, upon which
the ship-source pollution legislation is partly based). In the most serious cases, infringements will be regarded as criminal offences (where sanctions include imprisonment) and will carry fines of up to Euro 1.5 million. On November 23,
2005 the European Commission published its Third Maritime Safety Package, commonly referred to as the Erika III proposals, and two bills (dealing with the obligation of Member States to exchange information among themselves and to check that vessels
comply with international rules, and with the allocation of responsibility in the case of accident) were adopted in March 2007. The Treaty of Lisbon entered into force on December 1, 2009 following ratification by all 27 European Union member
states and identifies protection and improvement of the environment as an explicit objective of the European Union. The European Union adopted its Charter of Fundamental Rights at the same time, declaring high levels of environmental protection as a
fundamental right of European Union citizens. Additionally, the sinking of the
Prestige
has led to the adoption of other environmental regulations by certain European Union Member States. It is impossible to predict what legislation or
additional regulations, if any, may be promulgated by the European Union or any other country or authority.
The EU has ECAs
in place in the Baltic Sea and the North Sea and English Channel within which fuel with a sulfur content in excess of 0.1% has not been permitted since January 1, 2015. The EU Commission is currently investigating the possibility of extending
the ECA to the Mediterranean Sea and Black Sea. In addition, the EU Sulphur directive has since January 1, 2010 banned inland waterway vessels and ships berthing in EU ports from using marine fuels with a sulfur content exceeding 0.1% by mass.
The prohibition applies to use in all equipment including main and auxiliary engines and boilers. Some EU Member States also require vessels to record the times of any fuel-changeover operations in the ships logbook.
The Council of the EU has now approved the implementation of its 2013 Strategy for integrating maritime
transport emissions in the EUs greenhouse gas reduction policies and Regulation (EU) 2015/757 of the European Parliament and of the Council on the monitoring, reporting and verification of carbon dioxide emissions from maritime
transport was adopted on April 29, 2015. It obliges owners of vessels over 5,000 gross tons to monitor emissions for each ship on a per voyage and annual basis, from January 1, 2018. There are provisions for monitoring, reporting and
verifying (MRV) of carbon dioxide (CO
2
) emissions
from vessels using EU ports, to apply from January 1, 2018. Individual Member States have started to introduce
CO
2
emissions legislation for vessels. The French Transport
Code has required vessel operators to record and disclose the level of CO
2
emitted during the performance of voyages to or from a destination in France since October 1, 2013.
59
The EU has introduced the European Ship Recycling Regulation, aimed at minimizing adverse
effects on health and the environment caused by ship recycling, as well as enhancing safety, protecting the marine environment and ensuring the sound management of hazardous waste. The Regulation entered into force on December 30, 2013, and
anticipates the international ratification of the Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships 2009. By December 31, 2020, vessels flying the flag of EU Member States will be expected to maintain
detailed records of hazardous materials on board, with some materials such as asbestos being restricted or prohibited. This obligation is extended to all
non-EU
flagged vessels calling at a port or anchorage
in an EU Member State. The European Ship Recycling Regulation also requires
EU-flagged
vessels to be scrapped only in approved recycling facilities.
Other Environmental Initiatives:
Many countries have ratified and follow the liability scheme adopted by the IMO and set out in
the International Convention on Civil Liability for Oil Pollution Damage, 1969, as amended (CLC), and the International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage of 1971, as
amended (Fund Convention). The United States is not a party to these conventions. Under these conventions, a vessels registered owner is strictly liable for pollution damage caused in the territorial waters of a contracting state
by discharge of persistent oil, subject to certain complete defenses. The liability regime was increased (in limit and scope) in 1992 by the adoption of Protocols to the CLC and Fund Convention which became effective in 1996. The Fund Convention was
terminated in 2002 and the Supplementary Fund Protocol entered into force in March 2005. The liability limit in the countries that have ratified the 1992 CLC Protocol is tied to a unit of account which varies according to a basket of currencies.
Under an amendment to the Protocol that became effective on November 1, 2003, for vessels of 5,000 to 140,000 gross tons, liability is limited to approximately $6,053 million plus approximately $1,000 for each additional gross ton over
5,000. For vessels of over 140,000 gross tons, liability is limited to approximately $122 million. As the Convention calculates liability in terms of IMF Special Drawing Rights, these figures are based on currency exchange rates on
April 17, 2017. From May 1998, parties to the 1992 CLC Protocol ceased to be parties to the CLC due to a mechanism established in the 1992 Protocol for compulsory denunciation of the old regime; however, the two regimes will
co-exist
until the 1992 Protocol has been ratified by all original parties to the CLC. The right to limit liability is forfeited under the CLC where the spill is caused by the owners actual fault and under the
1992 Protocol where the spill is caused by the owners intentional or reckless conduct. The 1992 Protocol channels more of the liability to the owner by exempting other groups from this exposure. Vessels trading to states that are parties to
these conventions must provide evidence of insurance covering the liability of the owner. In jurisdictions where the CLC has not been adopted, various legislative schemes or common law govern, and liability is imposed either on the basis of fault or
in a manner similar to that convention. We believe that our protection and indemnity insurance will cover the liability under the plan adopted by IMO.
The U.S. National Invasive Species Act (NISA) was enacted in 1996 in response to growing reports of harmful organisms being released into U.S. ports through ballast water taken on by ships in
foreign ports. Under NISA, the U.S. Coast Guard adopted regulations in July 2004 establishing a national mandatory ballast water management program for all vessels equipped with ballast water tanks that enter or operate in U.S. waters. These
regulations require vessels to maintain a specific ballast water management plan. The requirements can be met by performing
mid-ocean
ballast exchange, by retaining ballast water on board the ship, or by using
environmentally sound alternative ballast water management methods approved by the U.S. Coast Guard. However,
mid-ocean
ballast exchange is mandatory for ships heading to the Great Lakes or Hudson Bay, or
vessels engaged in the foreign export of Alaskan North Slope crude oil.
Mid-ocean
ballast exchange is the primary method for compliance with the Coast Guard regulations, since holding ballast water can prevent
ships from performing cargo operations upon arrival in the U.S., and alternative methods are still under development. Vessels that are unable to conduct
mid-ocean
ballast exchange due to voyage or safety
concerns may discharge minimum amounts of ballast water (in areas other than the Great Lakes and the Hudson River), provided that they comply with record keeping requirements and document the reasons they could not follow the required ballast water
management requirements. The Coast Guard adopted allowable concentration limits for living organisms in ballast water discharges in U.S. waters, effective June 21, 2012. All newly constructed vessels must be compliant on delivery. All existing
vessels must be compliant at their first scheduled drydock after January 1, 2016 or, in
60
the case of vessels with ballast water capacity of
1,5005,000m
3
, their first scheduled drydock after
January 1, 2014. The U.S. Coast Guard must approve any ballast water management technology before it can be placed on a vessel, and a list of approved equipment can be found on the U.S. Coast Guard Maritime Information Exchange (CGMIX) web
page.
At the international level, the IMO adopted an International Convention for the Control and Management of Ships
Ballast Water and Sediments in February 2004 (the BWM Convention). The BWM Convention will enter into force on September 8, 2017. Under the BWM Convention, all ships will be required to manage their ballast water on every voyage by either
exchanging it or treating it using an approved ballast water treatment system. All ships of 400 gross tonnes and above will also have to carry an approved Ballast Water Management Plan and a Ballast Water Record Book, and to be surveyed and issued
with an International Ballast Water Management Certificate. All ships constructed after entry into force of the BWM Convention will have to be compliant on delivery. Existing ships will need to be compliant by the first International Oil Pollution
Prevention (IOPP) renewal survey of the vessel on or after September 8, 2017. The IOPP renewal survey refers to the renewal survey associated with the IOPP Certificate required under MARPOL Annex I. The BWM Convention does not apply to ships
not carrying ballast water, domestic ships, ships that only operate in waters under the jurisdiction of one party to the BWM Convention and on the high seas, warships, naval auxiliary or other ships owned or operated by a state, or permanent ballast
water in sealed tanks on ships. Furthermore, flag administrators may issue exemptions from the BWM Convention for ships engaged on occasional or
one-off
voyages between specified ports or locations, or ships
that operate exclusively between specified ports or locations, such as ferries. Regulation
D-2
of the BWM Convention outlines the standard that ballast water treatment systems must meet. The standards involve
maximum levels of certain microorganisms, such as plankton and intestinal enterococci, for given amounts of ballast water.
Due to the above developments in ballast water management regulations, the cost of compliance could increase for ocean carriers.
Compliance with these standards may result in us incurring costs to install approved ballast water treatment systems on our vessels.
In November 2014 the IMO adopted the International Code for Ships Operating in Polar Waters (the Polar Code) and related amendments to SOLAS to make it mandatory. The Polar Code comprises of
detailed requirements relating to safety, design, construction, operations, training and the prevention of environmental pollution. The Polar Code applies to all shipping and maritime operations, apart from fishing boats, ships under 500 tons and
fixed structures. The Polar Code entered into force on January 1, 2017 and applies to new ships constructed after that date. Ships constructed before January 1, 2017 will be required to meet the relevant requirements of the Polar Code by
their first intermediate or renewal survey, whichever occurs first, after January 1, 2018. Amendments have also been made to MARPOL, with entry into force dates aligned with the SOLAS amendments. The Polar Code brings with it numerous
requirements and necessities for all ships trading in the polar regions and therefore a great deal of investment will be needed to operate in this region. It is our intention to comply with the Polar Code as implemented through MARPOL and SOLAS.
MARPOL Annex I regulation 43 concerning special requirements for the use or carriage of oils in the Antarctic area to
prohibit ships from carrying heavy grade oil on board as ballast, came into force on March 1, 2016.
Although the Kyoto
Protocol to the United Nations Framework Convention on Climate Change requires adopting countries to implement national programs to reduce emissions of greenhouse gases, emissions of greenhouse gases from international shipping are not subject to
the Kyoto Protocol. No new treaty was adopted at the United Nations climate change conference in Cancun in December 2010. The Kyoto Protocol was extended to 2020 at the 2012 United Nations Climate Change Conference, with the hope that a new
treaty would be adopted in 2015 to come into effect in 2020. There is pressure to include shipping in any new treaty. We refer to the discussion above of the regulation of greenhouse gas emissions from ocean-going vessels under the CAA and EU
greenhouse gas emissions strategy. The IMO, the EU or individual countries in which we operate could pass climate control legislation or implement other regulatory initiatives to control greenhouse gas emissions from vessels that could require us to
make significant financial expenditures or otherwise limit our operations. Even in
61
the absence of climate control legislation and regulations, our business may be materially affected to the extent that climate change may result in sea level changes or more intense weather
events.
The Hong Kong Air Pollution Control (Marine Light Diesel) Regulations, which entered into force on April 1,
2014, provide that the sulfur content of marine light diesel supplied to vessels in Hong Kong must contain 0.05% sulfur content or less. The Air Pollution Control (Ocean Going Vessels) (Fuel At Berth) Regulation was tabled by Hong Kongs
Legislative Council on March 18, 2015 and came in to force on July 1, 2015. The Regulation prohibits ocean going vessels from using any fuel other than compliant fuel while at berth in Hong Kong, except during the first hour after arrival
and the last hour after departure. The shipmasters and ship owners are required to record the date and time of fuel switching and keep relevant records for three years.
In December 2015, representatives of 195 countries met at the Paris Climate Conference (COP 21) and adopted a universal and legally binding climate deal. The COP 21 agreement is expected to
come into force in 2020. The governments agreed to the goal of keeping the increase in global average temperature to below 2°C and to aim, if possible, to limit the increase to 1.5°C. Governments also agreed to reconvene every 5 years to
reassess the targets. Governments will be required to report to each other on their progress and the steps they have taken to reach their targets. The COP 21 came into force on 4 November 2016, and as at March 17, 2017 135 of the 197 countries
who were party to the COP 21 have ratified it. The shipping industry was not included in emissions controls; however, with growing pressure being placed on the IMO to implement measures to aid the objectives agreed at the COP 21, it is now uncertain
whether the agreement will in fact effect the shipping industry.
Trading Restrictions:
The Company is aware of the
restrictions applicable to it on trading with Cuba, Iran, North Korea, Sudan and Syria and it has complied with those restrictions and intends to continue to so comply in all respects. The Company has not, nor does it intend to, provide any goods,
fees or services to the referenced countries and has had no contacts with governmental entities in these countries nor does it intend to have any in the future. Its vessels are not chartered to any Cuban, Iranian, Sudanese or Syrian companies. The
voyage charter parties and all but the oldest time-charter agreements relating to the vessels in the fleet generally preclude Iran from the vessels trading unless agreed between owner and charterer after taking into account all relevant
sanctions legislation. Between January 1, 2013 and April 25, 2017,
the Companys vessels made 2,830 port calls around the world, none of which were to those countries, apart from nine visits to Marsa Bashayer, Sudan, in order to
load cargoes of Dar crude oil from the Republic of South Sudan, an independent landlocked nation, which is obliged to use a pipeline through Sudan to Marsa Bashayer to export its crude oil. Such visits, for loading South Sudan crude oil, do not
require OFAC authorization. None of the vessels the Company owns or operates or charters have provided, or are anticipated to provide, any U.S.-origin goods to these countries, or involve employees who are U.S. nationals in operations associated
with these countries. The Company has no relationships with governmental entities in those countries, nor does it charter its vessels to companies based in those countries. The Company derives its revenue directly from the charterers.
Classification and inspection
The vessels in the fleet have been certified as being in class by their respective classification societies: Bureau Veritas, Det Norske Veritas, American Bureau of Shipping, or Lloyds
Register of Shipping. Every vessels hull and machinery is classed by a classification society authorized by its flag administration. The classification society certifies that the vessel has been built and maintained in accordance
with the rules of such classification society and complies with applicable statutory rules and regulations of the country of registry of the vessel and the international conventions of which that country is a party. Each vessel is scheduled for
inspection by a surveyor of the classification society every year (the annual survey), every five years (the special survey) and every thirty months after a special survey (the intermediate survey). Vessels are required to be
dry-docked
for the special survey process, and for vessels over fifteen years of age for intermediate survey purposes, for inspection of the underwater parts of the vessel and for necessary repairs related to such
inspection. With the permission of the classification society, the actual timing of the surveys may vary by a few months from the originally scheduled date depending on the vessels position and operational obligations.
62
In addition to the classification inspections, many of our customers, including the major
oil companies, regularly inspect our vessels as a precondition to chartering voyages on these vessels or calling at their terminals. We believe that our well-maintained, high quality tonnage should provide us with a competitive advantage in the
current environment of increasing regulation and customer emphasis on quality of service, safety and protection of the environment.
TCM, our technical manager, has obtained a Document of Compliance (DOC) for its offices and Safety Management Certificates (SMC) for our vessels, as required by the ISM Code. In addition TCM has
established, implemented and maintains a documented Health, Safety, Quality, Environmental and Energy (HSQEE) management system which complies and is certified in accordance with ISO 9001 (Quality Management), ISO 14001 (Environmental protection
management), OHSAS 18001 (Occupational health& safety management) and ISO 50001 (Energy management) standards. The TCMs management system is based on the principle of continual improvement towards ensuring HSQEE excellence. The main
overall objectives are to ensure flawless operations with zero accidents and zero pollution and this is carried out by instilling and maintaining a strong safety and compliance culture, operating well-maintained ships, maintaining effective risk
management, reducing our environmental impact and increasing the energy efficiency of our operations.
Risk of loss and insurance
The operation of any ocean-going vessel carries an inherent risk of catastrophic marine disasters and property losses,
including:
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adverse weather conditions;
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In addition, the transportation of crude oil is subject to the risk of crude oil spills and business interruptions due to political
circumstances in foreign countries, hostilities, labor strikes and boycotts. Tsakos Shipping arranges insurance coverage to protect against most risks involved in the conduct of our business and we maintain environmental damage and pollution
insurance coverage. Tsakos Shipping arranges insurance covering the loss of revenue resulting from vessel
off-hire
time as a result of physical damage. We believe that our current insurance coverage is
adequate to protect against most of the risks involved in the conduct of our business. The terrorist attacks in the United States and various locations abroad and international hostilities have led to increases in our insurance premium rates and the
implementation of special war risk premiums for certain trading routes. See Item 5. Operating and Financial Review and Prospects for a description of how our insurance rates have been affected by previous events.
We have hull and machinery insurance, increased value (actual or constructive total loss) insurance and loss of hire insurance with
Argosy Insurance Company. Each of our ship owning subsidiaries is a named insured under our insurance policies with Argosy. Argosy provides the same full coverage as provided through London and Norwegian markets and reinsures most of its exposure
under the insurance it writes for us, subject to customary deductibles, with various reinsurers in the London and international reinsurance markets. These reinsurers have a minimum credit rating of
A-.
We were charged by Argosy aggregate annual premiums of $9.0 million in 2016. By placing our insurance through Argosy, we believe that we achieve cost savings over the premiums we would
otherwise pay to third party insurers.
63
Our subsidiaries are indemnified for legal liabilities incurred while operating our vessels
by protection and indemnity insurance that we maintain through their membership in a P&I club. This protection and indemnity insurance covers legal liabilities and other related expenses of injury or death of crew members and other third
parties, loss or damage to cargo, claims arising from collisions with other vessels, damage to other third party property and pollution arising from oil or other substances, including wreck removal. The object of P&I clubs is to provide mutual
insurance against liability to third parties incurred by P&I club members in connection with the operation of their vessels entered into the P&I club in accordance with and subject to the rules of the P&I club and the
individual members terms of participation. A members individual P&I club premium is typically based on the aggregate gross tonnage of the members vessels entered into the P&I club according to the risks of insuring the
vessels as determined by the P&I club. P&I club claims are paid from the aggregate premiums paid by all members, although members remain subject to calls for additional funds if the aggregate insurance claims made exceed
aggregate member premiums collected. Each P&I club enters into reinsurance arrangements with other members of the International Group of P&I Clubs in order to provide the requisite amount of liability and pollution cover and as a method of
preventing large losses in any year from being assessed directly against members of the P&I club.
World events have an
impact on insurance costs and can result in increases in premium; however, other significant drivers of premium levels are market over capacity, inadequate deductibles, inefficient claims control by the insurers and scope of cover being too wide.
Insurance premiums, having been in decline for several years with market losses having no impact on renewal costs, are now under greater scrutiny from capital providers, resulting in subtle indicators of potential firming of rates in the coming 12
to 24 months. The insurance markets maintain their list of World Wide War Risks Exclusions, as defined by the Joint War Committee in the London insurance market, and insurers are at liberty to charge increases in premium in order to provide cover
for Excluded Areas which include the Indian Ocean, Gulf of Guinea, Libya and Saudi Arabia, amongst others. These additional insurance costs represent a relatively small portion of our total insurance premiums and are, in any case, largely paid by
the Charterers. Protection & Indemnity (P&I) insurance costs are less affected by world events than H&M and more likely to be driven by maritime losses and whether there is a fall in the value of individual Clubs Free
Reserves. TENs recent P&I renewals have seen a reduction in costs of 4.75% partly due to reduced costs of the International Groups reinsurance programme and partly due to TENs own record. At March 31, 2017, the
International Group of P&I Clubs continued to provide its members with $1 billion of oil pollution liability coverage and more than $4 billion of coverage for other liabilities. P&I, Hull and Machinery and War Risk insurance
premiums are accounted for as part of operating expenses in our financial statements; accordingly, any changes in insurance premiums directly impact our operating results.
Competition
We operate in markets that are highly competitive and where no
owner controlled more than 5% of the world tanker fleet as of March 31, 2017. Ownership of tankers is divided among independent tanker owners and national and independent oil companies. Many oil companies and other oil trading companies, the
principal charterers of our fleet, also operate their own vessels and transport oil for themselves and third party charterers in direct competition with independent owners and operators. We compete for charters based on price, vessel location, size,
age, condition and acceptability of the vessel, as well as our reputation as a tanker operator and our managers reputation for meeting the standards required by charterers and port authorities. Currently we compete primarily with owners of tankers
in the ULCCs, VLCCs, suezmax, suezmax shuttle tankers, aframax, panamax, handymax and handysize class sizes, and we also compete with owners of LNG carriers.
Although we do not actively trade to a significant extent in Middle East trade routes, disruptions in those routes as a result of international hostilities, including those in Syria and Iraq, economic
sanctions, including those with respect to Iran, and terrorist attacks such as those made in various international locations (Somalia, Kenya, Yemen, Nigeria) and pirate attacks repeatedly made upon shipping in the Indian Ocean, off West Africa and
in South East Asia, may affect our business. We may face increased competition if tanker companies that trade in Middle East trade routes seek to employ their vessels in other trade routes in which we actively trade.
64
Other significant operators of multiple aframax and suezmax tankers in the Atlantic basin
that compete with us include Euronav, Teekay Shipping Corporation and Nordic American Tankers. There are also numerous smaller tanker operators in the Atlantic basin.
Employees
We have no salaried employees. See Management
ContractCrewing and Employees.
Properties
We operate out of Tsakos Energy Management offices in the building also occupied by Tsakos Shipping at Megaron Makedonia, 367 Syngrou Avenue, Athens, Greece.
Legal proceedings
We
are involved in litigation from time to time in the ordinary course of business. In our opinion, the litigation in which we were involved as of March 31, 2017, individually and in the aggregate, was not material to us.
Item 4A.
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Unresolved Staff Comments
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None.
Item 5.
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Operating and Financial Review and Prospects
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Managements Discussion and Analysis of Financial Condition and Results of Operations
Company Overview
As of
April 5, 2017, the fleet consisted of: 62 double-hull vessels, with an average age of 7.4 years, comprising 57 conventional tankers, two LNG carriers and three suezmax DP2 shuttle tankers providing world-wide marine transportation services for
national, major and other independent oil companies and refiners under long, medium and short-term charters. The current operational fleet consists of three VLCCs, sixteen suezmaxes (including three DP2 shuttle tankers), seventeen aframaxes, eleven
panamaxes, six handymaxes, seven handysize product carriers and two LNG carriers. All vessels are owned by our subsidiaries. The charter rates that we obtain for these services are determined in a highly competitive global tanker charter market. The
tankers operate in markets that have historically exhibited both cyclical and seasonal variations in demand and corresponding fluctuations in charter rates. Tanker markets are typically stronger in the winter months as a result of increased oil
consumption in the northern hemisphere. In addition, unpredictable weather conditions in the winter months in various regions around the world tend to disrupt vessel scheduling. The oil price volatility resulting from these factors has historically
led to increased oil trading activities. Changes in available vessel supply are also a contributing factor in affecting the cyclicality and overall volatility present in the tanker sector which is reflected both in charter rates and asset values.
Results from Operations2016
The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and the notes to those statements included elsewhere in this
Annual Report. This discussion includes forward-looking statements that involve risks and uncertainties. As a result of many factors, such as those set forth under Risk Factors and elsewhere in this Annual Report our actual results may
differ materially from those anticipated in these forward-looking statements.
Hopes that the low oil price environment of
2015 would translate into a similar earnings trajectory in 2016 dimmed by the second quarter of 2016 as record high product stockpiles restricted refining runs growth and arbitrage trade between regions, limiting both crude and product tanker
demand, whilst peak fleet growth towards
65
the end of the year and rising bunker prices also weighed on the tanker market. The year began with concerns about the developing world economies, particularly China. The Chinese economy was seen
slowing. Their equity markets fell sharply and this stressed financial markets in the developed worldequity and commodity.
As a result of the turmoil, crude oil prices reached multi-year lows in early 2016. The recovery of Iranian crude exports following the lifting of sanctions contributed to the lower oil prices. Outages in
Canada (short lived) and West Africa (prolonged) soon boosted oil prices, which nearly doubled by the start of June. Burgeoning supply growth from the Mideast Gulf, namely Saudi Arabia and Iran, since the start of the year and waning refinery demand
growth amid suffocating product stocks halted the upward march in oil prices. During the summer, OPEC leaders begun to discuss the possibility of production cuts to bring oil prices back above $50/bbl for a sustained period of time. This began to
excite the market, supporting oil prices speculatively despite growth in US production resuming and stocks in the fourth quarter remaining high. Following the decision of OPEC and 11
non-OPEC
countries to
reduce output reached on the 30
th
of November, Brent oil
prices have indeed managed to remain above $50/bbl.
Global oil production continued to grow into 2016. OPEC production rose
by 1.2m bpd year on year (as a result of Irans return to the market after the lifting of sanctions at the end of 2015 and record production in Iraq and Saudi Arabia countering production declines out of Libya and Nigeria).
Non-OPEC
production fell by 0.79m bpd (mainly due to declines in US shale oil, Mexico and China) leaving a supply built of approximately 0.41m bpd. OECD European and Asian industry crude stocks fell through the
year, whilst North American crude stocks have remained stubbornly high and actually slightly grew throughout 2016. Combined they remain comfortably above the
5-year
average. It is believed than
non-OECD
stocks also remain high (although the data is difficult to come by). The OPEC and
non-OPEC
joint agreement to cut supply (by 1.2m plus 0.6m bpd) respectively , is
hoped to dent this global crude surplus sitting in storage which will then in turn help to stabilize oil prices at a higher level for a prolonged period.
Overall, in annual terms 2016 was a year where oil demand growth outpaced crude production growth. The IEA consistently upgraded its demand growth estimations throughout the year, citing stronger than
expected OECD growth in particular along with what was expected to be stronger demand in the dominating growth markets of India and China. Overall, oil demand grew by 1.6m bpd in 2016with 0.4m bpd of this growth attributed to OECD countries
and the remaining 1.2m bpd as a result of another year of strong
non-OECD
appetite. Although the IEA recorded slightly stronger oil demand growth in 2016 than expected, it was still far below the
year-on-year
growth of 2m bpd in 2015. However, without considering the exceptional growth in 2015, an annual growth of 1.6m bpd is still robust and is a testament to the high
demand growth environment that has been enabled by low oil prices. Global oil demand is now expected to grow by an average of 1.2m bpd each year to 2022.
A more oversupplied market and slow, but steadily, climbing bunker prices lead to a
year-on-year
weakening in earnings
across the tanker market in 2016. Earnings returned to near 2014 levels after an exuberant 2015, but $/tonne rates were lower than in 2014 which highlighted the importance of the low bunker costalthough bunker costs were rising they were still
low in historical terms, supporting earnings levels in 2016 whilst the actual freight in $/tonne terms was sometimes at record low levels reflecting the oversupply. This phenomenon was even more apparent in the product tanker market as some routes
reached a record low annual $/tonne, yet annual earnings averaged above the four years between 2010 and 2013. Product tankers were under greater pressure than their crude tanker counterparts last year. High product stocks in all global refining
centres and lower refining margins created significant hindrance to trade especially considering that the cost of freight in product trade is a much more critical element in making the arbitrage between regions work than in crude trade. Therefore,
the arbitrage-sensitive nature of product tanker freight has the ability to depress freight even more in a poor trade environment given an already oversupplied market. The soft tanker market, restrained ship lending capacity and cases of Far Eastern
shipyards under restructuring, all lent themselves as factors to depress newbuilding ordering and values in 2016. In the medium term, ordering activity is expected to remain low given the continued expectations of the main factors (weaker tanker
market and limited financing ability) that affected the market last year to remain.
66
Our fleet achieved voyage revenues of $481.8 million in 2016, a decrease of 18.0% from
$587.7 million in 2015. The average size of our fleet increased in 2016 to 52.6 vessels from 49.2 vessels in 2015, and fleet utilization was 96.5% during 2016, compared to a 97.9% utilization during 2015. The market softened significantly in
2016 due to overcapacity in the global fleet, refinery outages, supply disruptions and high inventories. However, consumer demand was relatively strong, helped by low oil prices. Our average daily time charter rate per vessel, after deducting voyage
expenses, decreased to $20,412 in 2016 from $25,940 in 2015, mainly due to the soft freight market. Operating expenses increased by 3.1% to $146.6 million in 2016 from $142.1 million in 2015 due to the addition of new vessels.
Depreciation and amortization was $113.4 million in 2016 compared to $105.9 million in 2015 due to the addition of new
vessels. General and administrative expenses which include management fees and incentive awards were $25.6 million in 2016 and $21.8 million in 2015, the increase mainly due to the incentive award in 2016.
In 2016 and 2015, our tests did not indicate the need for an impairment charge. There was an operating gain of $89.8 million in 2016
compared to $188.1 million in 2015. There was a net accumulated gain of $2.1 million on the sale of the
Triathlon
and the
Delphi
in
2015
.
There was no vessel sale in 2016. Interest and finance costs, net
increased by 19.5% in 2016 to $35.9 million, mainly due to new debt due to the new vessels deliveries and to higher interest rates. Net income attributable to the Company was $55.8 million in 2016 compared to $158.2 million in 2015.
The effect of preferred dividends in 2016 was $15.9 million compared to $13.4 million in 2015. Net earnings per share (basic and diluted) was $0.47 in 2016, including the effect of preferred dividends, based on 84.9 million weighted
average shares outstanding (basic and diluted) compared to earnings of $1.69 per share in 2015 based on 85.8 million weighted average shares outstanding (basic and diluted).
Some of the more significant developments for the Company during 2016 were:
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the arrangement of four term loan facilities for the pre and post delivery financing of the VLCC tankers
Ulysses
and
Hercules I
and the
LNG carrier
Maria Energy
the refinancing of three matured loans;
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the
dry-docking
of
Euronike, Alaska, Archangel, Spyros K, Dimitris P, Neo Energy, Arion, Amphitrite,
Proteas, Promitheas
and
Propontis
for their mandatory special or intermediate survey;
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the payment to holders of Series B preferred shares of dividends totaling $4.0 million in aggregate;
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the payment to holders of Series C preferred shares of dividends totaling $4.4 million in aggregate;
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the payment to holders of Series D preferred shares of dividends totaling $7.4 million in aggregate;
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dividends to holders of common shares totaling $0.23 per share with total cash paid out amounting to $24.5 million; and
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the acquisition of 3,705,286 treasury shares for the total amount of $20,683 thousand.
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The Company operated the following types of vessels during and at the end of 2016:
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Vessel Type
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LNG
carrier
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VLCC
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Suezmax
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Suezmax DP2
shuttle
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Aframax
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Panamax
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Handymax
MR2
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Handysize
MR1
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Total
Fleet
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Average number of vessels
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1.8
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2.0
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13.0
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2.0
|
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14.3
|
|
|
|
11.0
|
|
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|
6.0
|
|
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|
7.0
|
|
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57.1
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Number of vessels at end of year
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2.0
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2.0
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13.0
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2.0
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15.0
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11.0
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6.0
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7.0
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58.0
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Dwt at end of year (in thousands)
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179.0
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601.0
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2,098.0
|
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|
311.0
|
|
|
|
1,649.0
|
|
|
|
799.0
|
|
|
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319.0
|
|
|
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260.0
|
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6,216.0
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Percentage of total fleet (by dwt at year end)
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2.9
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%
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9.7
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%
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33.8
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%
|
|
|
5.0
|
%
|
|
|
26.5
|
%
|
|
|
12.9
|
%
|
|
|
5.1
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%
|
|
|
4.2
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%
|
|
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100.0
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%
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Average age, in years, at end of year
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10.1
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9.5
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8.6
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3.8
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|
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6.4
|
|
|
|
8.1
|
|
|
|
11.5
|
|
|
|
10.2
|
|
|
|
7.9
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We believe that the key factors which determined our financial performance in 2016, within the given
freight rate environment in which we operated, were:
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the diversified aspect of the fleet, including purpose-built vessels to access
ice-bound
ports, carry LNG and
operate shuttle tankers between offshore installations and
on-shore
terminals, which allowed us to take advantage of all tanker sectors;
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67
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the benefits of the new vessels acquired in recent years in terms of operating efficiencies and desirability on the part of charterers;
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our balanced chartering strategy (discussed further below), which ensured a stable cash flow while allowing us to take advantage of the upside in the
freight market;
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the long-established relationships with our chartering clients and the development of new relationships with renowned
oil-majors;
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a high level of utilization for our vessels;
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the continued control over costs by our technical managers despite pressures caused by rising operating costs;
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our ability to mitigate financial costs by negotiating competitive terms with reputable banks;
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our ability to efficiently monitor the construction phase of our newbuilding program while maintaining a tight control of costs and expenses;
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our ability to manage leverage levels through cash generation and repayment/prepayment of debt;
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our ability to comply with the terms of our financing arrangements, including addressing
loan-to-value
requirements;
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our ability to reward our shareholders through cash dividends;
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our ability to raise new financing through bank debt at competitive terms despite a generally tight credit environment;
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our ability to access the capital markets and raise new financing on competitive terms; and
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the sale of vessels when attractive opportunities arise.
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We believe that the above factors will also influence our future financial performance and will play a significant role in the current world economic climate as we proceed through 2016 and into 2017. To
these may be added:
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any recovery of the product and crude oil tanker charter markets during the year;
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the delivery of more of our newbuildings with attractive charters attached;
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the appetite of oil majors to fix vessels on medium to long term charters at attractive rates; and
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our ability to build our cash reserves through operations, vessel sales and capital market products.
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Considerable economic and political uncertainty remains in the world as we enter the second quarter of 2017. The positive signs in terms
of declining unemployment, strengthening dollar, low inflation, respectable growth and returning consumer confidence, continue to emanate from the United States. Certain recent measures have been taken in Europe to regenerate growth with a
determination not to allow member states to fail or exit the Eurozone. Many developing countries still have surging economies albeit with the occasional readjustments or corrections. The fall in oil prices, although hurting a number of countries
highly dependent on oil exports, allows most other nations to reduce their expenditure on oil imports and utilize their funds on consumer or development expenditures instead. Certain issues are cause for concern, including an increased level of
violence in the Middle East, the increased tension in West-Russia relations, including due to the Ukraine situation, and the potential for disunity in the European Union due to uncontrolled immigration and the exit of the United Kingdom.
The oil price recovered during the latter part of 2016 from the multi year lows established earlier in the year. In the short to medium
term oil prices are likely to trade in the $45 to $60 price range as high global oil stocks and increasing US shale oil production will counter the effects of OPECs first half of 2017 production cuts and
68
most likely will put a ceiling in the oil price recovery. Global oil demand continues to be strong. Newbuilding deliveries for both crude and product tankers will continue to expand during the
year however there is limited fleet growth after 2017 potentially tightening the tanker markets much more quickly than most people expect. LNG carrier rates hit bottom in the first half of 2016 and slowly have moved towards levels that provide
modest returns. As supply of new LNG carriers is also slowing down and delays in the
start-up
of LNG projects come to an end we are beginning to see the start of a new
up-cycle.
Our confidence in our shuttle tanker operations is based on a combination of factors: the oil price recovery, the contribution that
off-shore
oil fields
provide to Brazil and the emergence of Petrobras, our charterer, as a stronger and more efficient corporation following its recent reorganization.
Chartering Strategy
We typically charter our subsidiaries vessels to
third parties in any of five basic types of charter. First are voyage charters or spot voyages, under which a shipowner is paid freight on the basis of moving cargo from a loading port to a discharging port at a given rate
per ton or other unit of cargo. Port charges, bunkers and other voyage expenses (in addition to normal vessel operating expenses) are the responsibility of the shipowner.
Second are time charters, under which a shipowner is paid hire on a per day basis for a given period of time. Normal vessel operating expenses, such as stores, spares, repair and maintenance,
crew wages and insurance premiums, are incurred by the shipowner, while voyage expenses, including bunkers and port charges, are the responsibility of the charterer. The time charterer decides the destination and types of cargoes to be transported,
subject to the terms of the charter. Time charters can be for periods of time ranging from one or two months to more than three years. The agreed hire may be for a fixed daily rate throughout the period or may be at a guaranteed minimum fixed daily
rate plus a share of a determined daily rate above the minimum, based on a given variable charter index or on a decision by an independent brokers panel for a defined period. Many of our charters have been renewed on this time charter with
profit share basis over the past three years. Time charters can also be evergreen, which means that they automatically renew for successive terms unless the shipowner or the charterer gives notice to the other party to terminate the
charter.
Third are bareboat charters under which the shipowner is paid a fixed amount of hire for a given period
of time. The charterer is responsible for substantially all the costs of operating the vessel including voyage expenses, vessel operating expenses,
dry-docking
costs and technical and commercial management.
Longer-term time charters and bareboat charters are sometimes known as period charters.
Fourth are
contracts of affreightment which are contracts for multiple employments that provide for periodic market related adjustments, sometimes within prescribed ranges, to the charter rates.
Fifth are pools. During 2015, one of our subsidiaries vessel also operated within a pool of similar vessels for part of
the year whereby all income (less voyage expenses) is earned on a market basis and shared between pool participants on the basis of a formula which takes into account the vessels age, size and technical features.
Our chartering strategy continues to be one of fixing the greater portion of our fleet on medium to long-term employment in order to
secure a stable income flow, but one which also ensures a satisfactory return. This strategy has enabled us to smooth the effects of the cyclical nature of the tanker industry, achieving almost optimal utilization of the fleet. In order to
capitalize on possible upturns in rates, we have chartered out several of our vessels at a fixed minimum rate plus an extra agreed percentage of an amount based on market spot or time-charter rates (profit-share).
Our Board of Directors, through its Business Development and Capital Markets Committee, formulates our chartering strategy and our
commercial manager Tsakos Energy Management implements this strategy through the Chartering Department of Tsakos Shipping. They evaluate the opportunities for each type of vessel, taking into account the strategic preference for medium and long-term
charters and ensure optimal positioning to take account of redelivery opportunities at advantageous rates.
69
The cooperation with Tsakos Shipping, which provides the fleet with chartering services,
enables us to take advantage of the long-established relationships Tsakos Shipping has built with many of the worlds major oil companies and refiners over 45 years of existence and high quality commercial and technical service.
Since July 1, 2010, through our cooperation with TCM, our technical managers, we are able to take advantage of the inherent
economies of scale associated with two large fleet operators working together and its commitment to contain running costs without jeopardizing the vessels operations. TCM provides top grade officers and crew for our vessels and first class
superintendent engineers and port captains to ensure that the vessels are in prime condition.
Critical Accounting Estimates
Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles. Our
significant accounting policies are described in Note 1 of the consolidated financial statements included elsewhere in this annual report. The application of such policies may require management to make estimates and assumptions. We believe that the
following are the more critical accounting estimates used in the preparation of our consolidated financial statements that involve a higher degree of judgment and could have a significant impact on our future consolidated results of operations and
financial position:
Revenue recognition.
Our vessels are employed under a variety of charter contracts,
including time, bareboat and voyage charters, contracts of affreightment and pool arrangements. Time and bareboat charter revenues are recorded over the term of the charter as the service is provided. Revenues from voyage charters on the spot market
or under contract of affreightment are recognized ratably from when a vessel becomes available for loading (discharge of the previous charterers cargo) to when the next charterers cargo is discharged, provided an agreed
non-cancelable
charter between the Company and the charterer is in existence, the charter rate is fixed or determinable and collectability is reasonably assured. Vessel voyage and operating expenses and charter hire
expense are expensed when incurred. The operating revenues and voyage expenses of vessels operating under a tanker pool are pooled and are allocated to the pool participants on a time charter equivalent basis, according to an agreed formula.
Revenues from variable hire arrangements are recognized to the extent the variable amounts earned beyond an agreed fixed minimum hire at the reporting date and all other revenue recognition criteria are met.
Depreciation.
We depreciate our vessels on a straight-line basis over their estimated useful lives, after considering their
estimated residual values, based on the assumed value of the scrap steel available for recycling after demolition, calculated at $300 per lightweight ton since January 1, 2008. Since steel prices were at consistently higher levels during the
last few years and were expected to remain at high levels for the following years, from October 1, 2012, scrap values are calculated at $390 per lightweight ton (lwt). Our estimate was based on the average demolition prices prevailing in the
market during the last ten years for which historical data were available. From
mid-2015,
scrap values have fallen from $390 per lwt to as low as $250 per lwt, but have more recently climbed again to $350 per
lwt. Given the historical volatility of scrap prices, management will monitor prices going forward and where a distinctive trend is observed over a given length of time, management may consider revising the scrap price accordingly. In assessing the
useful lives of vessels, we have adopted the industry-wide accepted practice of assuming a vessel has a useful life of 25 years (40 years for the LNG carriers), given that all classification society rules have been adhered to concerning survey
certification and statutory regulations are followed.
Impairment.
The carrying value of the Companys
vessels includes the original cost of the vessels plus capitalized expenses since acquisition relating to improvements and upgrading of the vessel, less accumulated depreciation. Carrying value also includes the unamortized portion of deferred
special survey and
dry-docking
costs. The carrying value of vessels usually differs from the fair market value applicable to any vessel, as market values fluctuate continuously depending on the market supply
and demand conditions for vessels, as determined primarily by prevailing freight rates and newbuilding costs.
70
The Company reviews and tests all vessels for impairment at each
quarter-end
and at any time that specific vessels may be affected by events or changes in circumstances indicate that the carrying amount of the vessel may not be recoverable, such as during severe disruptions in
global economic and market conditions, and unexpected changes in employment. A vessel to be held and used is tested for recoverability by comparing the estimate of future undiscounted net operating cash flows expected to be generated by the use of
the vessel over its remaining useful life and its eventual disposition to its carrying amount. The average age of our vessels is approximately 7.4 years as of April 5, 2017. The average remaining operational life is, therefore, 17.6 years.
Given the extensive remaining lives, we do not believe that there is a significant risk of not generating future undiscounted net operating cash flows in excess of carrying values. However, as indicated above, circumstances may change at any time
which would oblige us to reconsider the extent of risk of impairment.
Future undiscounted net operating cash flows are
determined by applying various assumptions regarding future revenues net of commissions, operating expenses, scheduled
dry-dockings
and expected
off-hire
and scrap
values. Our projections for charter revenues are based on existing charter agreements for the fixed fleet days and an estimated daily average hire rate per vessel category for the unfixed days based on the most recent ten year historical averages
publicly provided by major brokers, which, given the wide spread of annual rates between the peaks and troughs over the decade, we believe provides as fair as any other assumption that could be used in determining a rate for a long-term forecast. In
addition, we apply a 2% annual escalation in rates to take account of published long-term growth and inflation expectations in the developed world. Exclusion of such an escalation would not impact the overall impairment conclusion for each vessel
for the years 2016, 2015 and 2014.
Future operating costs are based on the 2016 average per individual vessel to which we also apply a 2% annual escalation. Residual or scrap value is based on the same scrap price used for depreciation
purposes as described above. All such estimations are inevitably subjective. Actual freight rates, industry costs and scrap prices may be volatile. As a consequence, estimations may differ considerably from actual results.
Where a vessel is deemed to be a risk, we also take into account the age, condition, specifications, marketability and likely trading
pattern of each such vessel, and apply various possible scenarios for employment of the vessel during its remaining life. We prepare cash flows for each scenario and apply a percentage possibility to each scenario to calculate a weighted average
expected cash flow for the vessel for assessing whether an impairment charge is required. The estimations also take into account regulations regarding the permissible trading of tankers depending on their structure and age.
While management, therefore, is of the opinion that the assumptions it has used in assessing whether there are grounds for impairment are
justifiable and reasonable, the possibility remains that conditions in future periods may vary significantly from current assumptions, which may result in a material impairment loss. If the current economic recovery stalls or if oil prices begin to
trend upwards again for an extended period, oil demand over an extended period of time could be negatively impacted. This will exacerbate the consequences of overcapacity in the tanker sector. In such circumstances, the possibility will increase
that both the market value of the older vessels of our fleet and the future cash flow they are likely to earn over their remaining lives will be less than their carrying value and an impairment loss will occur.
Should the carrying value of the vessel exceed its estimated undiscounted cash flows, impairment is measured based on the excess of the
carrying amount over the fair value of the asset. The fair values are determined based principally from or by corroborated observable market data. Inputs considered by management in determining the fair value include independent brokers
valuations. As vessel values are also volatile, the actual market value of a vessel may differ significantly from estimated values within a short period of time.
The Company would not record an impairment charge for any of the vessels for which the fair market value is below its carrying value unless and until the Company either determines to sell the vessel for a
loss or determines that the vessels carrying amount is not recoverable.
As noted above, we determine projected cash
flows for unfixed days using an estimated daily time charter rate based on the most recent ten year historical average rates, inflated annually by a 2.0% growth rate. We
71
consider this approach to be reasonable and appropriate. However, charter rates are subject to change based on a variety of factors that we cannot control and we note that charter rates over the
last few years have been, on average, below their historical ten year average. If as at December 31, 2016 and 2015, we were to utilize an estimated daily time charter equivalent for our vessels unfixed days based on the most recent five
year, three year or one year historical average rates for
one-year
time charters, the results would be the following:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016
|
|
|
As of December 31, 2015
|
|
|
|
Number
of
Vessels(*)
|
|
|
Amount
(U.S.$
millions)(**)
|
|
|
Number
of
Vessels(*)
|
|
|
Amount
(U.S.$
millions)(**)
|
|
5-year
historical average rate
|
|
|
2
|
|
|
|
29.4
|
|
|
|
2
|
|
|
|
22.6
|
|
3-year
historical average rate
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
1-year
historical average rate
|
|
|
2
|
|
|
|
29.4
|
|
|
|
0
|
|
|
|
0
|
|
(*)
|
Number of vessels the carrying value of which would not have been recovered.
|
(**)
|
Aggregate carrying value that would not have been recovered.
|
Although we believe that the assumptions used to evaluate potential impairment are reasonable and appropriate, such assumptions are highly subjective. There can be no assurance as to how long charter
rates and vessel values will remain at their current levels or whether they will again decline or improve by any significant degree. Although charter rates markedly increased from late 2014 and through 2015, they began to decline again in early 2016
to relatively low levels, which had an adverse effect on our revenue and profitability, and future assessments of vessel impairment.
At December 31, 2016, our review of the carrying amounts of the vessels in connection with the estimated recoverable amount did not indicate an impairment of their carrying values.
At December 31, 2016, the market value of the fleet, as determined based on management estimates and assumptions and by making use
of available market data and taking into consideration third party valuations was $2.1 billion, compared to a total carrying value of $2.7 billion. While the future cash flow expected to be generated by each of the vessels in the fleet was
comfortably in excess of its respective carrying value, there were 54 vessels in our fleet whose carrying values exceeded their market values. As determined at December 31, 2016, the aggregate carrying value of these vessels was
$2.5 billion, and the aggregate market value of these vessels was $1.9 billion. These vessels were:
|
|
|
LNG:
Neo Energy, Maria Energy
|
|
|
|
VLCC:
Millennium, Ulysses
|
|
|
|
Suezmax:
Antarctic, Arctic, Alaska, Archangel, Silia T, Spyros K, Dimitris P, Eurovision, Euro, Pentathlon, Decathlon
|
|
|
|
Aframax:
Proteas, Promitheas, Propontis, Izumo Princess, Sakura Princess, Maria Princess, Nippon Princess, Ise Princess, Asahi Princess, Sapporo
Princess, Uraga Princess, Elias Tsakos, Thomas Zafiras, Leontios H, Parthenon
TS
|
|
|
|
Panamax:
Selecao, Socrates, Andes, Maya, Inca, World Harmony, Chantal, Selini, Salamina, Sunray, Sunrise
|
|
|
|
Handymax:
Artemis, Afrodite, Ariadne, Aris, Apollon, Ajax
|
|
|
|
Handysize:
Amphitrite, Arion, Andromeda, Aegeas, Byzantion, Bosporos, Didimon
|
Allowance for doubtful accounts.
Revenue is based on contracted charter parties and although our business is with customers
whom we believe to be of the highest standard, there is always the possibility of dispute over terms and payment of freight and demurrage. In particular, disagreements may arise as to the responsibility for lost time and demurrage revenue due to the
Company as a result. As such, we periodically assess the
72
recoverability of amounts outstanding and we estimate a provision if there is a possibility of
non-recoverability,
primarily based on the aging of such
balances and any amounts in dispute. Although we believe any provision that we might record to be based on fair judgment at the time of its creation, it is possible that an amount under dispute is not ultimately recovered and the estimated provision
for doubtful recoverability is inadequate.
Amortization of deferred charges.
In accordance with Classification
Society requirements, a special survey is performed on our vessels every five years. A special survey requires a
dry-docking.
In between special surveys, a further intermediate survey takes place, for which a
dry-docking
is obligatory for vessels over fifteen years. Until December 31, 2013, for vessels reaching ten years in age, we estimated that the next
dry-docking
would be
due after two and a half years. However, according to Classification Society regulations, vessels can defer the next
dry-docking
for five years during their first fifteen years of life, instead of ten years as
previously estimated. We calculate that this change in estimate did not have a material effect in the years ending December 31, 2014, December 31, 2015 and December 31, 2016 and thereafter. During a
dry-docking,
work is undertaken to bring the vessel up to the condition required for the vessel to be given its classification certificate. The costs include the yard charges for labor, materials and services,
possible new equipment and parts where required, plus part of the participating crew costs incurred during the survey period. We defer these charges and amortize them over the period up to the vessels next scheduled
dry-docking.
Fair value of financial instruments.
Management reviews the fair
values of financial assets and liabilities included in the balance sheet on a quarterly basis as part of the process of preparing financial statements. The carrying amounts of financial assets and accounts payable are considered to approximate their
respective fair values due to the short maturity of these instruments. The fair values of long-term bank loans with variable interest rates approximate the recorded values, generally due to their variable interest rates. The present value of the
future cash flows of the portion of any long-term bank loan with a fixed interest rate is estimated and compared to its carrying amount. The fair value of the investments equates to the amounts that would be received by the Company in the event of
sale of those investments, and any shortfall from carrying value is treated as an impairment of the value of that investment. The fair value of the interest rate swap, bunker swap agreements, and bunker call options held by the Company are
determined through Level 2 of the fair value hierarchy as defined in FASB guidance and are derived principally from or corroborated by observable market data, interest rates, yield curves and other items that allow value to be determined. The
fair values of impaired vessels are determined by management through Level 2 of the fair value hierarchy based on available market data and taking into consideration third party valuations.
Basis of Presentation and General Information
Voyage revenues.
Revenues are generated from freight billings and time charters. Time and bareboat charter revenues are recorded over the term of the charter as the service is provided. Revenues
from voyage charters on the spot market or under contract of affreightment are recognized ratably from when a vessel becomes available for loading (discharge of the previous charterers cargo) to when the next charterers cargo is
discharged, provided an agreed
non-cancelable
charter between the Company and the charterer is in existence, the charter rate is fixed or determinable and collectability is reasonably assured. The operating
revenues of vessels operating under a tanker pool are pooled and are allocated to the pool participants on a time charter equivalent basis according to an agreed upon formula. Revenues from variable hire arrangements are recognized to the extent the
variable amounts earned beyond an agreed fixed minimum hire at the reporting date and all other revenue recognition criteria are met. Unearned revenue represents cash received prior to the year end and is related to revenue applicable to periods
after December 31 of each year.
Time Charter Equivalent (TCE) allows vessel operators to compare the
revenues of vessels that are on voyage charters with those on time charters. For vessels on voyage charters, we calculate TCE by taking revenues earned on the voyage and deducting the voyage costs and dividing by the actual number of net earning
days, which does not take into account
off-hire
days. For vessels on bareboat charters, for which we do not incur either voyage or operating costs, we calculate TCE by taking revenues earned on the charter and
adding a
73
representative amount for the vessels operating expenses. TCE differs from average daily revenue earned in that TCE is based on revenues after commissions less voyage expenses and does not
take into account
off-hire
days.
Commissions.
We pay commissions on all
chartering arrangements to Tsakos Shipping, as our broker, and to any other broker we employ. Each of these commissions generally amounts to 1.25% of the daily charter hire or lump sum amount payable under the charter. In addition, on some trade
routes, certain charterers may include in the charter agreement an address commission which is a payment due to the charterer, usually ranging from 1.25% to 3.75% of the daily charter hire or freight payable under the relevant charter. These
commissions, as well as changes in prevailing charter rates, will cause our commission expenses to fluctuate from period to period.
Voyage expenses.
Voyage expenses include all our costs, other than vessel operating expenses, that are related to a voyage, including charter commissions, port charges, canal dues and bunker fuel
costs. As from the first quarter of 2015, commissions on revenue are included in voyage expenses, in order to be consistent with and comparable to other reporting entities within the peer group of tanker companies.
Charter hire expense.
We hire certain vessels from third-party owners or operators for a contracted period and rate in order to
charter the vessels to our customers. These vessels may be hired when an appropriate market opportunity arises or as part of a sale and lease back transaction or on a short-term basis to cover the time-charter obligations of one of our vessels in
dry-dock.
Since December 31, 2010, the Company has not had any vessels under hire from a third-party.
Vessel operating expenses.
These expenses consist primarily of manning, hull and machinery insurance, P&I and other vessel insurance, repairs and maintenance, stores and lubricant costs.
Depreciation and Amortization of deferred charges.
We depreciate our vessels on a straight-line basis over their
estimated useful lives, after considering their estimated scrap values. Useful life is ultimately dependent on customer demand and if customers were to reject our vessels, either because of new regulations or internal specifications, then the useful
life of the vessel will require revision.
We amortize the costs of
dry-docking
and
special surveys of each of our ships over the period up to the ships next scheduled
dry-docking
(generally every 5 years for vessels aged up to 15 years and every 2.5 years thereafter). These charges are
part of the normal costs we incur in connection with the operation of our fleet
Impairment loss.
An impairment loss
for an asset held for use should be recognized when indicators of impairment exist and when the estimate of undiscounted cash flows expected to be generated by the use of the asset is less than its carrying amount (the vessels net book value
plus any unamortized deferred
dry-docking
charges). Measurement of the impairment loss is based on the fair value of the asset as determined by reference to available market data and considering valuations
provided by third parties. An impairment loss for an asset held for sale is recognized when its fair value less cost to sell is lower than its carrying value at the date it meets the held for sale criteria. In this respect, management reviews
regularly the carrying amount of the vessels in connection with the estimated recoverable amount for each of the Companys vessels. As a result of such reviews, it was determined that no impairment charge was required in 2016, 2015 or 2014,
while in 2013 and 2012 an impairment loss had been incurred with respect to the carrying values of four of the older vessels of the fleet in 2013 and the oldest vessel of the fleet in 2012.
General and administrative expenses.
These expenses consist primarily of professional fees, office supplies, investor relations,
advertising costs, directors and officers liability insurance, directors fees and reimbursement of our directors and officers travel-related expenses. As of January 1, 2015, incentive awards and management fees are
combined with general and administrative expenses under the category general and administrative expenses. Management fees are the fixed fees we pay to Tsakos Energy Management under our management agreement with them. For 2017, no increase has been
agreed by March 31, 2017 and monthly vessel management
74
fees remain the same as in 2016 and 2015. Accordingly, monthly fees for operating vessels will be $27,500 per owned vessel and $20,400 for
chartered-in
vessels or vessels chartered out on a bareboat basis or under construction. The monthly fee for the LNG carriers will be $35,833 and for the suezmax DP2 shuttle tankers will be $35,000. The fees are recorded under General and Administrative
Expenses.
Insurance claim proceeds.
In the event of an incident involving one of our vessels, where the repair
costs or loss of hire is insurable, we immediately initiate an insurance claim and account for such claim when it is determined that recovery of such costs or loss of hire is probable and collectability is reasonably assured within the terms of the
relevant policy. Depending on the complexity of the claim, we would generally expect to receive the proceeds from claims within a twelve month period. During the
2016-17
policy year, we will have received
approximately $1.5 million in net proceeds from hull and machinery and loss of hire claims arising from incidents where damage was incurred by one of our vessels. Such settlements were generally received as credit-notes from our insurer, Argosy
Insurance Company Limited, and set off against insurance premiums due to that company. Therefore, within the consolidated statements of cash flows, these proceeds are included in decreases in receivables and in decreases in accounts payable. There
is no material impact on reported earnings arising from these settlements.
Financial Analysis
(Percentage calculations are based on the actual amounts shown in the accompanying consolidated financial statements)
Year ended December 31, 2016 versus year ended December 31, 2015
Voyage revenues
Voyage revenues earned in 2016 and 2015 per charter
category were as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
U.S. $ million
|
|
|
% of total
|
|
|
U.S. $ million
|
|
|
% of total
|
|
Time charter-bareboat
|
|
|
5.5
|
|
|
|
1
|
%
|
|
|
0.8
|
|
|
|
0
|
%
|
Time charter-fixed rate
|
|
|
166.8
|
|
|
|
35
|
%
|
|
|
159.8
|
|
|
|
27
|
%
|
Time charter-variable rate (profit share)
|
|
|
76.0
|
|
|
|
16
|
%
|
|
|
80.9
|
|
|
|
14
|
%
|
Pool arrangement
|
|
|
|
|
|
|
0
|
%
|
|
|
6.6
|
|
|
|
1
|
%
|
Voyage charter-contract of affreightment
|
|
|
29.8
|
|
|
|
6
|
%
|
|
|
25.9
|
|
|
|
4
|
%
|
Voyage charter-spot market
|
|
|
203.7
|
|
|
|
42
|
%
|
|
|
313.7
|
|
|
|
54
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total voyage revenue
|
|
|
481.8
|
|
|
|
100
|
%
|
|
|
587.7
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from vessels amounted to $481.8 million during the year ended December 31, 2016
compared to $587.7 million during 2015, an 18.0% decrease. There was an average of 52.6 vessels operating in 2016 compared to an average of 49.2 vessels in 2015, the increase relating to the acquisition and delivery of nine vessels. In February
2016, the Company acquired the second-hand suezmax tanker
Decathlon
and in May 2016 took delivery of the VLCC
Ulysses
. Between June and November 2016, TEN took delivery of the first four aframax crude carriers built for charter to
Statoil, namely
Elias Tsakos
,
Thomas Zafiras
,
Leontios H
and
Parthenon
TS
. The newbuild LR1 product carriers,
Sunray
and
Sunrise
were delivered to the Company in August 2016 and September 2016,
respectively, for charter to Shell. In November 2016, the Company took delivery of the newbuild LNG carrier,
Maria Energy
. Based on the total days that the vessels were actually employed as a percentage of the days that we owned the vessels,
the fleet enjoyed 96.5% employment compared to 97.9% in the previous year, the lost time being mainly due to the eleven
dry-dockings
performed during the year, while in 2015 there were nine
dry-dockings.
Market conditions for tankers declined in 2016 following a strong 2015, and a
falsely promising start to 2016. The decrease in revenue was mostly due to soft rates encountered in the spot market and in part to the
75
unavailability of the LNG carrier
Neo Energy
, due to repositioning and
dry-docking
in preparation for its storage charter. Specifically, the soft
market was due to increased supply of vessels in the market, disruption of crude oil supplies in the Atlantic basin and a reduction of refinery output.
The average time charter equivalent rate per vessel achieved for the year 2016 was $20,412 per day, down 21.3% from $25,940 per day in 2015. Our aframax tankers, which were trading mostly on spot charters
during the year, suffered an average fall of 25% in average time charter equivalent rates from the previous year. Our suezmax tankers, which were trading mostly on spot and on time charters with profit sharing arrangements, earned an average time
charter equivalent rate 24% lower than in 2015.
Average daily TCE rates earned for the year ended December 31, 2016, and
2015 were:
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
U.S. $
|
|
|
U.S. $
|
|
LNG carrier
|
|
|
23,810
|
|
|
|
78,488
|
|
VLCC
|
|
|
28,564
|
|
|
|
45,828
|
|
Suezmax
|
|
|
24,818
|
|
|
|
32,453
|
|
DP2 shuttle
|
|
|
49,137
|
|
|
|
48,360
|
|
Aframax
|
|
|
21,425
|
|
|
|
28,479
|
|
Panamax
|
|
|
15,269
|
|
|
|
15,030
|
|
Handymax
|
|
|
15,029
|
|
|
|
15,318
|
|
Handysize
|
|
|
11,885
|
|
|
|
17,650
|
|
TCE is calculated by taking voyage revenue less voyage expenses divided by the number of operating
days. As from the first quarter of 2015, TCE rate commissions are included in voyage expenses in order to be consistent and comparable to other reporting entities within the peer group of tanker companies. Prior year data has been adjusted
accordingly.
Time charter equivalent revenue and TCE rate are not measures of financial performance under U.S. GAAP
and may not be comparable to similarly titled measures of other companies. However, TCE is a standard shipping industry performance measure used primarily to compare
period-to-period
changes in shipping performance despite changes in the mix of charter types (i.e. spot voyage charters, time charters and bare-boat charters) under
which the vessels may be employed between the periods. The following table reflects the calculation of our TCE rates for the periods presented (amount in thousands of U.S. dollars, except for TCE rate, which is expressed in U.S. dollars, and
operating days):
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Voyage revenues
|
|
$
|
481,790
|
|
|
$
|
587,715
|
|
Less: Voyage expenses
|
|
|
(106,403
|
)
|
|
|
(131,878
|
)
|
Add: Representative operating expenses for Bareboat charter ($10,000 daily)
|
|
|
3,660
|
|
|
|
560
|
|
|
|
|
|
|
|
|
|
|
Time charter equivalent revenues
|
|
$
|
379,047
|
|
|
$
|
456,397
|
|
|
|
|
|
|
|
|
|
|
Divided by: net earnings (operating) days
|
|
|
18,570
|
|
|
|
17,594
|
|
Average TCE per vessel per day
|
|
$
|
20,412
|
|
|
$
|
25,940
|
|
76
Voyage expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total voyage expenses
per category
|
|
|
Average daily voyage
expenses per vessel
|
|
|
|
Year ended
December 31,
|
|
|
% increase/
(decrease)
|
|
|
Year ended
December 31,
|
|
|
% increase/
(decrease)
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
U.S.$ million
|
|
|
U.S.$ million
|
|
|
|
|
|
U.S.$
|
|
|
U.S.$
|
|
|
|
|
Bunkering expenses
|
|
|
47.3
|
|
|
|
65.3
|
|
|
|
(27.5
|
)%
|
|
|
6,098
|
|
|
|
8,392
|
|
|
|
(27.3
|
)%
|
Port and other expenses
|
|
|
40.1
|
|
|
|
43.8
|
|
|
|
(8.6
|
)%
|
|
|
5,165
|
|
|
|
5,635
|
|
|
|
(8.3
|
)%
|
Commissions
|
|
|
19.0
|
|
|
|
22.7
|
|
|
|
(16.5
|
)%
|
|
|
2,447
|
|
|
|
2,921
|
|
|
|
(16.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total voyage expenses
|
|
|
106.4
|
|
|
|
131.8
|
|
|
|
(19.3
|
)%
|
|
|
13,710
|
|
|
|
16,948
|
|
|
|
(19.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Days on spot and Contract of Affreightment (COA) employment
|
|
|
|
7,761
|
|
|
|
7,781
|
|
|
|
(0.3
|
)%
|
Voyage expenses include port charges, agents fees, canal dues and bunker (fuel) costs relating to
spot charters or contracts of affreightment. These voyage expenses are borne by the Company unless the vessel is on time-charter or operating in a pool, in which case they are borne by the charterer or by the pool operators. As from the first
quarter of 2015, commissions on revenue are included in voyage expenses, in order to be consistent with and comparable to other reporting entities within the peer group of tanker companies. They are borne by the Company for all types of charter.
Voyage expenses were $106.4 million during 2016 compared to $131.8 million in 2015, a 19.3% decrease. The total operating days on spot charters and contracts of affreightment totaled 7,761 days in 2016, almost the same as in 2015 at 7,781
days.
Voyage expenses are highly dependent on the voyage patterns followed and size of vessels employed on spot charter or
contract of affreightment. In 2016, the decrease in voyage expenses was primarily due to a 27.5% decrease in the bunkering expenses due partly to a decrease in bunker prices of 16.3% and partly to a reduction of 5.8% in the volume of bunker
purchases, while the number of days that the vessels were operating in types of employment bearing voyage expenses were stable between 2016 and 2015, as indicated above. Also, during 2016, there was a modest decrease of 8.6% in amount of port
expenses that vessels operating on spot and COA employment bearing voyage expenses incurred. On a per relevant vessel basis the average daily voyage expense decreased by 19.1%.
Commissions in 2016 totaled $19.0 million compared to $22.7 million in 2015, a 16.5% decrease. Commissions were 3.9% of revenue
from vessels in both 2016 and 2015. The decrease in total commission charges relates mainly to the decrease in revenue.
Vessel operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
per category
|
|
|
Average daily operating
expenses per vessel
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
U.S.$ million
|
|
|
U.S.$ million
|
|
|
% increase/
(decrease)
|
|
|
U.S.$
|
|
|
U.S.$
|
|
|
% increase/
(decrease)
|
|
Crew expenses
|
|
|
85.5
|
|
|
|
79.6
|
|
|
|
7.4
|
%
|
|
|
4,528
|
|
|
|
4,447
|
|
|
|
1.8
|
%
|
Insurances
|
|
|
14.5
|
|
|
|
15.2
|
|
|
|
(4.3
|
)%
|
|
|
769
|
|
|
|
847
|
|
|
|
(9.2
|
)%
|
Repairs and maintenance, and spares
|
|
|
20.1
|
|
|
|
20.7
|
|
|
|
(3.1
|
)%
|
|
|
1,063
|
|
|
|
1,157
|
|
|
|
(8.1
|
)%
|
Stores
|
|
|
8.5
|
|
|
|
8.8
|
|
|
|
(4.1
|
)%
|
|
|
449
|
|
|
|
492
|
|
|
|
(8.8
|
)%
|
Lubricants
|
|
|
6.2
|
|
|
|
6.8
|
|
|
|
(8.9
|
)%
|
|
|
328
|
|
|
|
379
|
|
|
|
(13.5
|
)%
|
Other (quality and safety, taxes, registration fees, communications)
|
|
|
11.1
|
|
|
|
11.1
|
|
|
|
0.8
|
%
|
|
|
591
|
|
|
|
618
|
|
|
|
(4.4
|
)%
|
Foreign currency gains/(losses)
|
|
|
0.7
|
|
|
|
(0.1
|
)
|
|
|
(649
|
)%
|
|
|
35
|
|
|
|
(7
|
)
|
|
|
(621
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
146.6
|
|
|
|
142.1
|
|
|
|
3.2
|
%
|
|
|
7,763
|
|
|
|
7,933
|
|
|
|
(2.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings capacity days excluding vessel on bare-boat charter
|
|
|
|
18,878
|
|
|
|
17,914
|
|
|
|
|
|
77
Vessel operating expenses include crew costs, insurances, repairs and maintenance, spares,
stores, lubricants, quality and safety costs and other expenses such as tonnage tax, registration fees and communication costs. As from January 1, 2015, foreign currency gains or losses, previously shown as a separate line item in the
consolidated statement of comprehensive income, are included in the operating expenses line item in order to be consistent with and comparable to other reporting entities within the peer group of tanker companies. Total operating costs were
$146.6 million in 2016, compared to $142.1 million during 2015, an increase of 3.1%, primarily due to the new vessels acquired during the year, and more specifically due to increases in crew costs offset by reduced expenditure on
insurances, repairs and spares, and supplies as a result of cost-effective ship management by the technical managers. There was no significant impact from foreign exchange differences, the US$ and Euro remaining relatively stable in the year.
Average operating expenses per ship per day for the fleet decreased to $7,763 for 2016 from $7,933 in 2015. This was partly
due to the decrease in overall operating costs described above and in the additional vessels to which the overall costs are spread.
Another factor, not easily quantifiable, is that newer vessels are built to specifications that result in lower running costs.
Depreciation and Amortization
As from January 1, 2015, depreciation
and amortization of deferred
dry-docking
costs are combined in one line item in order to be consistent with and comparable to other reporting entities within the peer group of tanker companies. Prior year
comparable figures have been amended accordingly. Depreciation and amortization charges totaled $113.4 million in 2016 compared to $105.9 million in 2015, a 7.1% increase.
Depreciation amounted to $107.1 million in 2016 compared to $99.6 million during 2015, an increase of $7.5 million, or
7.6%. The increase is due to addition of nine vessels to the fleet in 2016 without any vessel disposals. In February 2016, the Company acquired the second-hand suezmax tanker
Decathlon
and in May 2016 took delivery of the VLCC
Ulysses
.
Between June and November, 2016, the Company took delivery of the first four aframax crude carriers built for charter to Statoil, namely
Elias Tsakos
,
Thomas Zafiras
,
Leontios H
and
Parthenon
TS
. In August and
September 2016 the newbuild LR1 product carriers,
Sunray
and
Sunrise
were delivered to the Company, respectively, for charter to Shell. In November, 2016, the Company took delivery of the newbuild LNG carrier,
Maria Energy
. In
2015, depreciation was reduced by the impact of the sale of the suezmax
Triathlon
and handysize product carrier
Delphi
in July 2015.
We amortize the cost of
dry-dockings
related to classification society surveys over the period to the next
dry-docking,
and
this amortization is included as part of the normal costs we incur in connection with the operation of our vessels. During 2016, amortization of deferred
dry-docking
costs was $6.3 million marginally less
than in 2015. In 2016, eleven vessels undertook
dry-docking
compared to nine vessels in 2015. However, in 2015, there was an exceptional
write-off
of $0.9 million
deferred charges relating to the product carrier
Delphi
when accounted for as held for sale at June 30, 2015.
General and
administrative expenses
As from January 1, 2015, Management fees, administrative expenses, Stock compensation expense
and Management incentive award are combined in one line item in order to be consistent with and comparable to other reporting entities within the peer group of tanker companies.
Management fees, including those paid to third-party managers, totaled $17.7 million during 2016, compared to $16.6 million in
2015, a 6.3% increase due to the addition of nine vessels as mentioned above. In 2015, total management fees were reduced by the sale of two vessels in
mid-2015.
78
The Company pays to Tsakos Energy Management fixed fees per vessel under a management
agreement. The fee includes compensation for services that cover both the management of the individual vessels and of the enterprise as a whole. According to the management agreement, there is a prorated adjustment if at the beginning of the year
the Euro has appreciated by 10% or more against the U.S. Dollar since January 1, 2007, and an increase each year by a percentage figure reflecting 12 month Euribor, if both parties agree. There was no increase in management fees payable to
the management company in 2016 and 2015. During 2016, all the vessels in the fleet have been managed by TCM, apart from the LNG carriers
Neo Energy
and
Maria Energy
, the VLCC
Ulysses
, the suezmax
Eurochampion 2004
and the
aframaxes
Maria Princess
and
Sapporo Princess
, which have been managed by third-party managers. Monthly management fees for operating conventional vessels are $27,500 per month, since January 1, 2012. The monthly fee relating to
vessels
chartered-in
or
chartered-out
on a bare-boat basis or for vessels under construction is $20,400. Management fees for
Neo Energy
and
Maria Energy
are $35,833, of which $10,000 are payable to the management company and $25,833 to the third-party manager. Management fees for the DP2 suezmax shuttle tankers are $35,000 per month. Management fees for
Eurochampion 2004, Maria Princess, Sapporo
Princess
and VLCC
Ulysses
are $27,500 per month, of which $13,940 are payable to a third party manager, and $14,219 for the aframax vessel
Sapporo Princess.
Management fees paid relating to vessels under construction are
capitalized as part of the vessels costs.
Office General and administrative expenses consist primarily of professional
fees, investor relations, office supplies, advertising costs, directors liability insurance, directors fees and reimbursement of our directors and officers travel-related expenses. Office General and administrative expenses
in 2016 totaled $4.9 million compared to $4.1 million in 2015, a 20.7% increase mainly due to increased investor relations
non-deal
road shows and events, and increased directors fees, offset
by reduced professional fees.
Total general and administrative expenses plus management fees paid to Tsakos Energy
Management, the management incentive award, any special awards, (described below under Management Incentive Award) and stock compensation expense, all together represent the overhead of the Company. On a per vessel basis, daily
overhead costs were $1,331 in 2016 compared to $1,212 in 2015, a 9.8% increase being mainly due to the 2016 management incentive award of $2.6 million and stock compensation award of $0.5 million described below (total awards in 2015
amounted to $1.1 million).
In May, 2016, the Board of Directors decided to reward the management company with an award of
$2.6 million based on various performance criteria, and taking into account cash availability and market volatility. The award is accounted for on a
straight-line
basis within the year it is determined.
In 2015, a specific award relating to the performance of 2014 amounting to $1.1 million was accounted for. There was no incentive award based on 2015 profitability accounted for within 2015. An award of $0.4 million was granted to Tsakos
Energy Management in relation to services provided towards public offerings during 2015, which was included as a deduction of additional paid in capital in the accompanying Consolidated Financial Statements.
In addition, in 2016, it was decided by the Board of Directors that a stock compensation award of 87,500 restricted stock units should be
awarded to
non-executive
directors to vest immediately, the cost of which is based on the share price of the stock on the date that the directors were notified. The total cost was $0.5 million, which is
included in General and administrative expenses. There was no similar award during 2015.
Gain on sale of vessels
There were no vessel sales during 2016. In July, 2015, the suezmax tanker
Triathlon
and product carrier
Delphi
were sold for
combined net proceeds of $42.8 million, resulting in a combined net gain of $2.1 million and freeing cash totaling $19.6 million after the prepayment of related loans.
Vessel impairment charge
During 2016, vessel values declined. As a result
54 of our vessels had carrying values in excess of market values. Apart from one VLCC, the remainder of our fleet is for the most part young, with an average age of 7.9
79
years as of December 31, 2016 and in all these cases the vessels are expected to generate considerably more cash during their remaining expected lives than their carrying values as at
December 31, 2016. The Companys cash flow tests per vessel for assessing whether an impairment charge was required did not indicate that such an impairment charge was required for any vessel of the fleet at December 31, 2016 and
2015.
Operating income
For 2016, income from vessel operations was $89.8 million compared to $188.1 million, a decrease of 52.2%.
Interest and finance costs, net
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
U.S.$ million
|
|
|
U.S.$ million
|
|
Loan interest expense
|
|
|
37.8
|
|
|
|
29.2
|
|
Interest rate swap cash settlementshedging
|
|
|
3.6
|
|
|
|
2.8
|
|
Less: Interest capitalized
|
|
|
(4.0
|
)
|
|
|
(3.4
|
)
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
37.4
|
|
|
|
28.6
|
|
Interest rate swap cash
settlementsnon-hedging
|
|
|
1.1
|
|
|
|
2.2
|
|
Bunkers
non-hedging
instruments cash settlements
|
|
|
0.1
|
|
|
|
8.8
|
|
Change in fair value of
non-hedging
bunker instruments
|
|
|
(3.6
|
)
|
|
|
(6.9
|
)
|
Change in fair value of
non-hedging
interest rate swaps
|
|
|
(1.0
|
)
|
|
|
(2.2
|
)
|
Amortization of loan expenses
|
|
|
1.8
|
|
|
|
1.3
|
|
Bank loan charges
|
|
|
0.1
|
|
|
|
0.1
|
|
Gain on the prepayment of a loan, net
|
|
|
|
|
|
|
(3.2
|
)
|
Other finance costs
|
|
|
|
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
Net total
|
|
|
35.9
|
|
|
|
30.0
|
|
|
|
|
|
|
|
|
|
|
Interest and finance costs, net, were $35.9 million for 2016 compared to $30.0 million for
2015, a 19.5% increase. Loan interest, excluding payment of swap interest, increased to $37.8 million from $29.2 million, a 29.4% increase partly due to the increase in outstanding principal amount of loans by over 10.4% as a result of the
financing of the newbuildings.
Cash settlements on both hedging and
non-hedging
interest rate swaps, based on the difference between fixed payments and variable 6 and
3-month
LIBOR, decreased to $4.7 million from $5.0 million, as two swaps expired in 2016 and two others became
effective during the period.
The average loan financing cost in 2016, including the impact of all interest rate swap cash
settlements, was 2.7% compared to 2.5% for 2015. Capitalized interest, which is based on expenditures incurred to date on vessels under construction, was $4.0 million in 2016, compared to $3.4 million in 2015, the increase being due to the
extra vessels under construction in 2016.
There was a positive movement in the fair value
(mark-to-market)
of the
non-hedging
interest rate swaps in 2016 of $1.0 million compared to a positive movement of $2.2 million in 2015.
In 2015, other finance costs include a charge of $1.3 million for finance project costs which were expensed as they would have to be
repeated if the project to which they relate actually occurs.
During 2015, the Company entered into seventeen bunker call
option agreements at different strike levels, covering the fourth quarter of 2015 and 2016 and 2017 years. The premium paid for all the call options was
80
$1.4 million. Five call options were expired as of December 31, 2015. During 2016, the Company entered into two bunker call options and paid a premium of $0.3 million. During 2016,
nine call options expired. The fair market value of the remaining five options at December 31, 2016, amounted to $1.3 million.
The changes in fair value of these bunker call options during 2016 and 2015 amounting to $1.2 million (positive) and $0.2 million (positive) respectively and have been included in Change in fair
value of
non-hedging
bunker instruments in the table above. During 2015, the Company had three bunker put options, which expired as of December 31, 2015 and the change in fair value of $2.4 million
(negative) has been included in change in fair value of
non-hedging
bunker instruments in the table above.
During 2016, the Company entered into three bunker swap agreements in order to hedge its exposure to bunker price fluctuations associated with the consumption of bunkers by vessel
Ulysses
. The
changes in fair values amounting to $2.5 million (positive) of these financial instruments have been included in Change in fair value of
non-hedging
bunker instruments in the table above. During 2015, the
Company had seven bunker swaps which expired as of December 31, 2015 and the change in fair value of $9.2 million (positive) has been included in change in fair value of
non-hedging
bunker
instruments in the table above.
Amortization of loan expenses was $1.8 million in 2016 compared to $1.3 million in
2015. Other bank charges amounted to $0.1 million in both 2016 and 2015.
Interest income
For 2016, interest income amounted to $0.6 million compared to $0.2 million in 2015. The increase is due to higher interest
rates in 2016 compared to 2015. There was no investment income or loss in either year.
Non-controlling
interest
Net income attributable to the
non-controlling
interest (49%) in the subsidiary which owns the companies owning the vessels
Maya
and
Inca
amounted to $0.7 million in 2016 and $0.2 million in 2015. The increase is due to the more favorable time-charters entered into by the vessels during the course of 2016.
Net income attributable to Tsakos Energy Navigation Limited
As a result of
the foregoing, net income attributable to Tsakos Energy Navigation Limited for 2016 was $55.8 million, or $0.47 per share basic and diluted, before taking into account the cumulative dividend of $15.9 million on our preferred shares,
versus net income of $158.2 million, or $1.69 per share basic and diluted, before taking into account the cumulative dividend of $13.4 million on our preferred shares for 2015.
Year ended December 31, 2015 versus year ended December 31, 2014
Voyage revenues
Voyage
revenues earned in 2015 and 2014 per charter category were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
2014
|
|
|
|
U.S.$ million
|
|
|
% of total
|
|
|
U.S.$ million
|
|
|
% of total
|
|
Time charter-bareboat
|
|
|
0.8
|
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
Time charter-fixed rate
|
|
|
159.8
|
|
|
|
27
|
%
|
|
|
164.0
|
|
|
|
33
|
%
|
Time charter-variable rate (profit share)
|
|
|
80.9
|
|
|
|
14
|
%
|
|
|
63.4
|
|
|
|
13
|
%
|
Pool arrangement
|
|
|
6.6
|
|
|
|
1
|
%
|
|
|
6.9
|
|
|
|
1
|
%
|
Voyage charter-contract of affreightment
|
|
|
25.9
|
|
|
|
4
|
%
|
|
|
29.7
|
|
|
|
6
|
%
|
Voyage charter-spot market
|
|
|
313.7
|
|
|
|
54
|
%
|
|
|
237.0
|
|
|
|
47
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total voyage revenue
|
|
|
587.7
|
|
|
|
100
|
%
|
|
|
501.0
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81
Revenue from vessels amounted to $587.7 million during the year ended December 31,
2015 compared to $501.0 million during the year ended December 31, 2014, a 17.3% increase. There was an average of 49.2 vessels operating in 2015 compared to an average of 49.0 vessels in 2014, the increase relating to the acquisition of
the suezmax
Pentathlon
in November 2015. Based on the total days that the vessels were actually employed as a percentage of the days that we owned the vessels, the fleet enjoyed 97.9% employment compared to 97.7% in the previous year, the
lost time being mainly due to the nine
dry-dockings
performed during the year, while in 2014 there were eight
dry-dockings.
Market conditions for tankers further improved in 2015, as a result of the falling oil price and limited vessel supply growth especially
for the crude tanker fleet. The surplus in crude oil production translated directly into higher volumes shipped around the world as refinery margins soared, demand spiked at lower prices, refinery maintenance was postponed and plants ran at
historically high utilization rates across the board. The lower oil prices spurred large scale stock building (commercial, refinery level and strategic). Major crude buyers and traders diversified their crude purchases buying from further afield
which positively influenced tonne miles and spread out the global fleet. The higher refinery utilization rates and margins also contributed to an increase in rates for product carriers. The Company had more vessel days employed on spot and period
employment with variable rates in 2015 compared to 2014, enabling the fleet to take advantage of the improved freight rates. The average time charter equivalent rate per vessel achieved for the year 2015 was higher by 30.8% at $25,940 per day
compared to $19,834 per day for the previous year. The increase is mainly due to improvement in the freight rates as a result of decreasing oil prices and the resulting increase in oil demand, a more balanced supply of vessels due to limited
ordering of new crude carriers in the preceding years, and seasonal winter factors in the beginning and end of the year. Our aframax tankers, which were trading mostly on spot charters during the year, had the highest increase in their time charter
equivalent rate by 47% over the preceding year. Our suezmax tankers, which were trading mostly on spot and on time charters with profit sharing arrangements earned a time charter equivalent rate higher by 44% over the prior year. The Companys
lone VLCC also took advantage of the spiking market capturing the prevailing high time charter rates resulting in a 127% increase of its TCE for the year over 2014.
Average daily TCE rates earned for the year ended December 31, 2015, and 2014 were:
|
|
|
|
|
|
|
|
|
|
|
Year ended
December
31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
U.S.$
|
|
|
U.S.$
|
|
LNG carrier
|
|
|
78,488
|
|
|
|
78,240
|
|
VLCC
|
|
|
45,828
|
|
|
|
20,212
|
|
Suezmax
|
|
|
32,453
|
|
|
|
22,474
|
|
DP2 shuttle
|
|
|
48,360
|
|
|
|
45,472
|
|
Aframax
|
|
|
28,479
|
|
|
|
19,355
|
|
Panamax
|
|
|
15,030
|
|
|
|
14,138
|
|
Handymax
|
|
|
15,318
|
|
|
|
14,129
|
|
Handysize
|
|
|
17,650
|
|
|
|
13,411
|
|
TCE is calculated by taking voyage revenue less voyage expenses divided by the number of operating
days. As from the first quarter of 2015, TCE rate commissions are included in voyage expenses in order to be consistent and comparable to other reporting entities within the peer group of tanker companies. Prior year data has been adjusted
accordingly.
Time charter equivalent revenue and TCE rate are not measures of financial performance under U.S. GAAP
and may not be comparable to similarly titled measures of other companies. However, TCE is a standard shipping industry performance measure used primarily to compare
period-to-period
changes in shipping performance despite changes in the mix of charter types (i.e. spot voyage charters, time charters and bare-boat
82
charters) under which the vessels may be employed between the periods. The following table reflects the calculation of our TCE rates for the periods presented (amount in thousands of U.S.
dollars, except for TCE rate, which is expressed in U.S. dollars, and operating days):
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31
|
|
|
|
2015
|
|
|
2014
|
|
Voyage revenues
|
|
$
|
587,715
|
|
|
$
|
501,013
|
|
Less: Voyage expenses
|
|
|
(131,878
|
)
|
|
|
(154,143
|
)
|
Add: Representative operating expenses for Bareboat charter ($10,000 daily)
|
|
|
560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time charter equivalent revenues
|
|
$
|
456,397
|
|
|
$
|
346,870
|
|
|
|
|
|
|
|
|
|
|
Divided by: net earnings (operating) days
|
|
|
17,594
|
|
|
|
17,489
|
|
Average TCE per vessel per day
|
|
$
|
25,940
|
|
|
$
|
19,834
|
|
Voyage expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total voyage expenses
per
category
|
|
|
Average daily voyage
expenses per
vessel
|
|
|
|
Year ended
December
31,
|
|
|
% increase/
(decrease)
|
|
|
Year ended
December 31,
|
|
|
% increase/
(decrease)
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
U.S.$ million
|
|
|
U.S.$ million
|
|
|
|
|
|
U.S.$
|
|
|
U.S.$
|
|
|
|
|
Bunkering expenses
|
|
|
65.3
|
|
|
|
93.9
|
|
|
|
(30.5
|
)%
|
|
|
8,392
|
|
|
|
14,290
|
|
|
|
(41.3
|
)%
|
Port and other expenses
|
|
|
43.8
|
|
|
|
41.4
|
|
|
|
5.8
|
%
|
|
|
5,635
|
|
|
|
6,304
|
|
|
|
(10.6
|
)%
|
Commissions
|
|
|
22.7
|
|
|
|
18.8
|
|
|
|
20.7
|
%
|
|
|
2,921
|
|
|
|
2,864
|
|
|
|
2.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total voyage expenses
|
|
|
131.8
|
|
|
|
154.1
|
|
|
|
(14.5
|
)%
|
|
|
16,948
|
|
|
|
23,458
|
|
|
|
(27.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Days on spot and Contract of Affreightment (COA) employment
|
|
|
|
7,781
|
|
|
|
6,571
|
|
|
|
18.4
|
%
|
Voyage expenses include port charges, agents fees, canal dues and bunker (fuel) costs relating to
spot charters or contract of affreightment. These voyage expenses are borne by the Company unless the vessel is on time-charter or operating in a pool, in which case they are borne by the charterer or by the pool operators. As from the first quarter
of 2015, commissions on revenue are included in voyage expenses, in order to be consistent with and comparable to other reporting entities within the peer group of tanker companies. They are borne by the Company for all types of charter. Voyage
expenses were $131.8 million during 2015 compared to $154.1 million during the prior year, a 14.5% decrease. The total operating days on spot charters and contracts of affreightment totaled 7,781 days in 2015 compared to 6,571 days in
2014. Voyage expenses are highly dependent on the voyage patterns followed and size of vessels employed on spot charter or contract of affreightment. In 2015, the decrease in voyage expenses was primarily due to a 30.5% decrease in the bunkering
expenses due to fall in the bunker prices by 45.5%, which is
off-set
by an increase of 38.5% in the volume of bunker purchases, as a result of the increased days the vessels were operating in types of
employment bearing voyage expenses. Also, during 2015, the increase in the number of days the vessels operated on spot and COA employment bearing voyage expenses resulted in an increase in port expenses. However, on a per relevant vessel basis their
average daily cost decreased by 10.6%.
Commissions in 2015 totaled $22.7 million compared to $18.8 million in 2014,
a 20.7% increase. Commissions were 3.9% of revenue from vessels in 2015 compared to 3.8% in 2014. The increase in total commission charges relates mainly to the increase in revenue and partly to the increase in the number of days our vessels
participated in spot voyages in 2015 compared to 2014.
83
Vessel operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
per category
|
|
|
Average daily operating
expenses per vessel
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
U.S.$ million
|
|
|
U.S.$ million
|
|
|
% increase/
(decrease)
|
|
|
U.S.$
|
|
|
U.S.$
|
|
|
% increase/
(decrease)
|
|
Crew expenses
|
|
|
79.6
|
|
|
|
85.7
|
|
|
|
(7.1
|
)%
|
|
|
4,447
|
|
|
|
4,788
|
|
|
|
(7.1
|
)%
|
Insurances
|
|
|
15.2
|
|
|
|
15.6
|
|
|
|
(2.6
|
)%
|
|
|
847
|
|
|
|
874
|
|
|
|
(3.1
|
)%
|
Repairs and maintenance, and spares
|
|
|
20.7
|
|
|
|
18.7
|
|
|
|
10.7
|
%
|
|
|
1,157
|
|
|
|
1,044
|
|
|
|
10.8
|
%
|
Stores
|
|
|
8.8
|
|
|
|
9.1
|
|
|
|
(3.3
|
)%
|
|
|
492
|
|
|
|
506
|
|
|
|
(2.8
|
)%
|
Lubricants
|
|
|
6.8
|
|
|
|
6.4
|
|
|
|
6.3
|
%
|
|
|
379
|
|
|
|
360
|
|
|
|
5.3
|
%
|
Other (quality and safety, taxes, registration fees, communications)
|
|
|
11.1
|
|
|
|
11.8
|
|
|
|
(5.9
|
)%
|
|
|
618
|
|
|
|
662
|
|
|
|
(6.7
|
)%
|
Foreign currency gains/(losses)
|
|
|
(0.1
|
)
|
|
|
(0.4
|
)
|
|
|
(75
|
)%
|
|
|
(7
|
)
|
|
|
(25
|
)
|
|
|
(72
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
142.1
|
|
|
|
146.9
|
|
|
|
(3.3
|
)%
|
|
|
7,933
|
|
|
|
8,209
|
|
|
|
(3.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings capacity days excluding vessel on bare boat charter
|
|
|
|
17,914
|
|
|
|
17,895
|
|
|
|
|
|
Vessel operating expenses include crew costs, insurances, repairs and maintenance, spares, stores,
lubricants, quality and safety costs and other expenses such as tonnage tax, registration fees and communication costs. As from January 1, 2015, foreign currency gains or losses, previously shown as a separate line item in the consolidated
statement of comprehensive income / (loss), are included in the operating expenses line item in order to be consistent with and comparable to other reporting entities within the peer group of tanker companies. Total operating costs were
$142.1 million during 2015, compared to $146.9 million during 2014, a decrease of 3.3%, primarily due to the appreciation of the US dollar against the Euro and the disposal of the 2002-built suezmax tanker
Triathlon
and the
2004-built handysize product carrier
Delphi
in July, which was partly offset with the acquisition of a
2009-built
suezmax tanker
Pentathlon
in November, as well as the VLCC
Millennium
entering a bare boat charter in November.
The exchange rate of the U.S. dollar against the Euro saw a 16.4% strengthening
of the dollar between 2015 and 2014. The fluctuations in the U.S. dollar/Euro exchange rate mainly impact crew costs, as most of the Companys crew expenses, relating mainly to Greek vessel officers, are paid in Euro. As a result, crew costs
decreased by 7.1%. The
dry-docking
activity in every year affects repairs and maintenance expenses as certain works performed during
dry-dockings
that do not qualify for
capitalization are expensed. In 2015, nine
dry-dockings
were performed compared to eight
dry-dockings
in 2014. Apart from the repairs performed during
dry-dockings,
many repairs which included the replacement with expensive spare parts were performed in a number of vessels during 2015 increasing the overall cost. All other categories of operating expenses remained
approximately at the same levels in 2015.
Average operating expenses per ship per day for the fleet decreased to $7,933 for
2015 from $8,209 in 2014. This was partly due to the decrease in overall operating costs described above and to the disposal of older vessels which due to their age bear higher daily operating costs which impact the average daily operating costs per
vessel of the fleet.
Depreciation and Amortization of deferred charges
As from January 1, 2015 depreciation and amortization of deferred
dry-docking
costs are
combined in one line item in order to be consistent with and comparable to other reporting entities within the peer group of tanker companies. Prior year comparable figures have been amended accordingly. Depreciation and amortization charges totaled
$105.9 million in 2015 compared to $102.9 million in 2014, a 3.0% increase.
Depreciation amounted to
$99.6 million in 2015 compared to $97.9 million during 2014, an increase of $1.7 million, or 1.7%. The increase is due to addition of the two suezmax tankers
Eurovision
and
Euro
in June
84
and July 2014 respectively and the suezmax tanker
Pentathlon
in November, 2015. The impact on depreciation of these acquisitions is offset by the sale of the suezmax
Triathlon
and
handysize product carrier
Delphi
in July 2015.
We amortize the cost of
dry-dockings
related to classification society surveys over the period to the next
dry-docking,
and this amortization is included as part of the normal costs we incur in
connection with the operation of our vessels. During 2015, amortization of deferred
dry-docking
costs was $6.3 million compared to $5.0 million in 2014, an increase of 26.0%. In 2015, nine vessels
undertook
dry-docking
compared to eight vessels in 2014. In addition, the immediate
write-off
of $0.9 million deferred charges relating to the product carrier
Delphi
when accounted for as held for sales at June 30, 2015, contributed to the increase.
General and administrative expenses
As from January 1, 2015, Management fees, administrative expenses, and Management incentive award are combined in one
line item in order to be consistent with and comparable to other reporting entities within the peer group of tanker companies.
Management fees, including those paid to third-party managers, totaled $16.6 million during 2015, compared to $16.5 million in
2014, a 0.6% increase due to the addition of the suezmaxes
Euro
and
Eurovision
in
mid-2014
and
Pentathlon
in November, 2015, offset by the sale of the two vessels in the early part of the
third quarter 2015.
The Company pays to Tsakos Energy Management fixed fees per vessel under a management agreement. The fee
includes compensation for services that cover both the management of the individual vessels and of the enterprise as a whole. According to the management agreement, there is a prorated adjustment if at the beginning of the year the Euro has
appreciated by 10% or more against the U.S. Dollar since January 1, 2007, and an increase each year by a percentage figure reflecting 12 month Euribor, if both parties agree. There was no increase in management fees payable to the
management company in 2014 and 2015. In 2015, all the vessels in the fleet have been managed by TCM, apart from the LNG carrier
Neo Energy,
the VLCC
Millennium
and the suezmax
Eurochampion 2004,
which have been managed by
third-party managers. Monthly management fees for operating conventional vessels are $27,500 per month, since January 1, 2012. The monthly fee relating to vessels
chartered-in
or
chartered-out
on a bare-boat basis or for vessels under construction is $20,400. Management fees for
Neo Energy
are $35,833, of which $10,000 are payable to the management company and $25,833 to the
third-party manager. Management fees for the DP2 suezmax shuttle tankers are $35,000 per month. Management fees for
Millennium
were $27,500 per month, of which $13,940 were payable to a third-party manager until November 5, 2015 when the
vessel entered a bare-boat charter. Management fees for
Eurochampion 2004
are $27,500 per month, of which $12,000 are payable to a third party manager. Management fees paid relating to vessels under construction are capitalized as part of the
vessels costs.
General and administrative expenses consist primarily of professional fees, investor relations, office
supplies, advertising costs, directors liability insurance, directors fees and reimbursement of our directors and officers travel-related expenses. General and administrative expenses in 2015 totaled $4.1 million
compared to $4.4 million in 2014, a 6.8% reduction mainly due to reduced listing fees.
Total general and administrative
expenses plus management fees paid to Tsakos Energy Management, the management incentive award, any special awards, (described below under Management Incentive Award) and stock compensation expense, together represent the overhead
of the Company. On a per vessel basis, daily overhead costs were $1,212 in 2015 compared to $1,175 in 2014, a 3.2% increase being mainly due to the management incentive award approved in May 2015 (none in 2014).
Management incentive award
Following the 2014 restoration of profitability, the Board of Directors decided to reward the management company with an award of $1.1 million based on various criteria included in a new management
incentive award
85
program, approved by the Board of Directors in May 2015, which is included in General and administrative expenses in the 2015 consolidated statement of comprehensive income / (loss). There was no
incentive award based on 2015 profitability accounted for within 2015. An award of $0.4 million was granted to Tsakos Energy Management in relation to services provided towards public offerings during 2015, which was included as a deduction of
additional paid in capital in the accompanying Consolidated Financial Statements.
There was no management incentive award in
2014. However, a special award totaling $0.9 million was granted to Tsakos Energy Management in relation to services provided towards public offerings during 2014, which was included as a deduction of additional paid in capital in the
accompanying Consolidated Financial Statements.
Stock compensation expense
There was no stock compensation award in 2015. In 2014 stock compensation expense amounted to $0.1 million, representing 20,000
RSUs granted and vested in July 2014. The valuation of RSUs which are granted and vested immediately is based on the share price at that date.
Gain on sale of vessels
In July, 2015, the suezmax tanker
Triathlon
and product carrier
Delphi
were sold for combined net proceeds of $42.8 million resulting in a combined net gain of $2.1 million and freeing cash totaling $19.6 million after the prepayment of related loans. There were no
vessel sales during 2014.
Vessel impairment charge
At December 31, 2015, despite the fact that vessel values have improved from their historically low levels in 2013 and 2012, 33 of our vessels had carrying values in excess of market values. Apart
from one VLCC, the remainder of our fleet is for the most part young and in all these cases the vessels are expected to generate considerably more cash during their remaining expected lives than their carrying values as at December 31, 2015.
The Companys cash flow tests per vessel for assessing whether an impairment charge was required did not indicate that such an impairment charge was required for any vessel of the fleet at December 31, 2015 and 2014.
Operating income
For
2015, income from vessel operations was $188.1 million compared to $76.0 million, an increase of 147.3%.
86
Interest and finance costs, net
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
2014
|
|
|
|
U.S.$ million
|
|
|
U.S.$ million
|
|
Loan interest expense
|
|
|
29.2
|
|
|
|
31.4
|
|
Interest rate swap cash settlementshedging
|
|
|
2.8
|
|
|
|
2.0
|
|
Less: Interest capitalized
|
|
|
(3.4
|
)
|
|
|
(2.4
|
)
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
28.6
|
|
|
|
31.0
|
|
Interest rate swap cash
settlementsnon-hedging
|
|
|
2.2
|
|
|
|
3.2
|
|
Bunkers
non-hedging
instruments cash settlements
|
|
|
8.8
|
|
|
|
2.2
|
|
Change in fair value of
non-hedging
bunker instruments
|
|
|
(6.9
|
)
|
|
|
7.0
|
|
Amortization of deferred loss on
de-designated
interest rate swap
|
|
|
0.0
|
|
|
|
0.2
|
|
Change in fair value of
non-hedging
interest rate swaps
|
|
|
(2.2
|
)
|
|
|
(2.0
|
)
|
Amortization of loan expenses
|
|
|
1.3
|
|
|
|
1.2
|
|
Bank loan charges
|
|
|
0.1
|
|
|
|
0.3
|
|
Gain on the prepayment of a loan, net
|
|
|
(3.2
|
)
|
|
|
(0.0
|
)
|
Other finance costs
|
|
|
1.3
|
|
|
|
0.0
|
|
|
|
|
|
|
|
|
|
|
Net total
|
|
|
30.0
|
|
|
|
43.1
|
|
|
|
|
|
|
|
|
|
|
Interest and finance costs, net, were $30.0 million for 2015 compared to $43.1 million for
2014, a 30.3% decrease. Loan interest, excluding payment of swap interest, decreased to $29.2 million from $31.4 million, a 7.0% decrease mainly due to the decrease in margins as a result of the expiry of the waivers in
mid-2014
and the return to compliance with loan covenants. Cash settlements on both hedging and
non-hedging
interest rate swaps, based on the difference between fixed payments
and variable
6-month
LIBOR, decreased to $5.0 million from $5.2 million, as one swap expired in 2014.
The average loan financing cost in 2015, including the impact of all interest rate swap cash settlements, was 2.5% compared to 2.6%, for 2014. Capitalized interest, which is based on expenditures incurred
to date on vessels under construction, was $3.4 million in 2015, compared to $2.4 million in 2014, the increase being due to the extra vessels under construction in 2015.
The remaining deferred loss of $0.2 million from the
de-designation
of an interest rate swap
that became ineffective in 2010 was fully amortized in 2014.
There was a positive movement in the fair value
(mark-to-market)
of the
non-hedging
interest rate swaps in 2015 of $2.2 million compared to a positive movement of
$2.0 million in 2014.
In 2015, other finance costs include a charge of $1.3 million finance project costs which
were expensed as they would have to be repeated if the project to which they relate actually occurs.
As of December 31,
2014, the Company held seven bunker swap agreements in order to cover its exposure to bunker price fluctuations associated with the consumption of bunkers by its vessels. The fair values of these financial instruments as of December 31, 2014,
were $9.2 million (negative). As of December 31, 2015 these bunker swap agreements expired.
At December 31,
2014, the Company held three bunker put option agreements in order to reduce the losses of the bunker swap agreements, which expired concurrently with the swaps agreements at the end of 2015. The value of those put options at December 31, 2014
was $2.4 million (positive). The change in their fair value during 2015 was $2.4 million (negative).
During 2015,
the Company entered into seventeen bunker call option agreements at different strike levels, covering the fourth quarter of 2015 and 2016 and 2017 years. The premium paid for all the call options was
87
$1.4 million. During 2015, five call options were expired. The fair market value of the remaining twelve options at December 31, 2015, amounted to $0.2 million.
The changes in their fair values during 2015 and 2014 amounting to $6.9 million (positive) and $7.0 million (negative)
respectively have been included in Change in fair value of
non-hedging
bunker instruments in the table above, as such agreements do not meet the hedging criteria.
Amortization of loan expenses was $1.3 million in 2015 compared to $1.2 million in 2014. Other bank charges amounted to
$0.1 million in 2015 and $0.3 million in 2014.
Interest income
For 2015, interest income amounted to $0.2 million compared to $0.5 million in 2014. The decrease is due to lower interest rates
in 2015 compared to 2014. There was no investment income or loss either years.
Non-controlling
interest
Net income attributable to the
non-controlling
interest (49%) in the
subsidiary which owns the companies owning the vessels
Maya
and
Inca
amounted to $0.2 million in 2015 and $0.2 million in 2014.
Net income attributable to Tsakos Energy Navigation Limited
As a result of
the foregoing, net income attributable to Tsakos Energy Navigation Limited for 2015 was $158.2 million, or $1.69 per share basic and diluted, before taking into account the cumulative dividend of $13.4 million on our preferred shares,
versus net income of $33.5 million, or $0.32 per share basic and diluted, before taking into account the cumulative dividend of $8.4 million on our preferred shares, for 2014.
Liquidity and Capital Resources
Our liquidity requirements relate to
servicing our debt, funding the equity portion of investments in vessels, funding working capital and controlling fluctuations in cash flow. In addition, our new building commitments, other expected capital expenditures on
dry-dockings
and vessel acquisitions, which in total equaled $587.7 million in 2016, $225.9 million in 2015 and $260.4 million in 2014, will again require us to expend cash in 2017. Net cash flow
generated by operations is our main source of liquidity. Apart from the possibility of raising further funds through the capital markets, additional sources of cash include proceeds from asset sales and borrowings, although all borrowing
arrangements to date have related to the acquisition of specific vessels.
We believe, given our current cash holdings and the
number of vessels we have on time charter, that if market conditions remain relatively stable throughout 2017, our financial resources, including the cash expected to be generated within the year, will be sufficient to meet our liquidity and working
capital needs for the next twelve months, taking into account our existing capital commitments and debt service requirements. If market conditions worsen significantly, then our cash resources may decline to a level that may put at risk our ability
to service timely our debt and capital expenditure commitments. In order to avoid such an eventuality, management would expect to be able to raise extra capital through the alternative sources described above.
Working capital
(non-restricted
net current assets) amounted to a negative $48.0 million at
December 31, 2016 compared to a positive $35.0 million at December 31, 2015. The deficit is mainly attributed to lower cash balances and loan facilities which are reaching maturity from June 2017 through September 2017 amounting to
$85.3 million. Of our $1.8 billion of debt as of December 31, 2016, $291.1 million is scheduled to be repaid in 2017, including balloon payments of $85.3 million, which we expect to refinance.
Current assets decreased to $358.3 million at December 31, 2016 from $452.2 million at December 31, 2015 mainly due
to decreased cash by $101.9 million mainly due to increased capital expenditure for the acquisition of
88
new vessels.
Non-restricted
cash balances were $187.8 million as of December 31, 2016 compared to $289.7 million as of December 31,
2015. Accounts receivable decreased to $38.3 million from $45.5 million at the end of 2015, while advances increased by $10.1 million.
Current liabilities decreased to $393.3 million at December 31, 2016 from $400.6 million at December 31, 2015, mainly due to the decrease of the current portion of long term debt by
$28.4 million.
Payables increased by $19.2 million. The current portion of financial instruments fair value
(liability) amounted to $3.6 million and $5.7 million at December 31, 2016 and 2015 respectively. The decrease is mainly due to the expiration of the bunker hedging swaps during 2015.
Net cash provided by operating activities was $170.4 million during 2016 compared to $234.4 million in the previous year, a
27.3% decrease. The decrease is mainly due to softer market rates.
Expenditures for
dry-dockings
are deducted from cash generated by operating activities. Total expenditures during 2016 on
dry-dockings
amounted to $11.6 million compared to
$8.4 million in 2015. In 2016,
dry-docking
was performed on the handysize product carriers
Amphitrite
and
Arion
, on the aframaxes
Proteas, Promitheas
and
Propontis,
on the
suezmaxes
Alaska, Archangel, Euronike, Dimitri P
and
Spyros K
and the LNG carrier
Neo Energy,
eleven vessels in total. In 2015,
dry-docking
was performed on the handymax product carriers
Aris
,
Apollon
,
Ajax
,
Afrodite
,
Artemis
and
Ariadne
, on the aframaxes
Sapporo Princess
and
Uraga
Princess
and on the suezmax
Eurochampion 2004,
nine vessels in total. Expenditure
was higher in 2016 due to the higher number of vessels that undertook
dry-docking.
Net cash used in investing activities was $576.1 million for 2016, compared to $174.8 million for 2015. In 2016, we paid
$109.6 million as yard advances for vessels under construction and $464.8 million for the acquisition of the suezmax tanker
Decathlon,
the aframax tankers
Elias Tsakos, Thomas Zafiras, Leontios H
and
Parthenon
TS
, the panamaxes
Sunray
and
Sunrise
, the VLCC
Ulysses
and the LNG carrier
Maria Energy
and $1.7 million for additions and improvements on our existing fleet. In 2015, we paid $156.6 million as yard
advances for vessels under construction and $57.9 million for the acquisition of the suezmax tanker
Pentathlon
and $3.0 million for additions and improvements on our existing fleet.
At December 31, 2016, we had under construction one DP2 shuttle tanker, five aframaxes and one VLCC with total remaining payments of
$274.3 million. As at December 31, 2016, the Company has arranged secured term bank loans for all the newbuildings under construction of up to $194.3 million in total and will pay the remaining $80.0 million with its own cash. In
addition, a portion of $4.5 million in yard installments paid for a previous shuttle tanker project and subsequently cancelled has been used against the contract price of the two LR1 panamax tankers ($1.2 million) and against the contract price
of the new shuttle tanker ($1.65 million). The remaining $1.65 million will be used against the contract price of any other vessel the Company may order from the yard in the future. The aframax tanker
Marathon TS
was delivered in the
first quarter of 2017 and the aframax tanker,
Sola TS
, was delivered in April 2017. The remaining three aframaxes are expected to be delivered at various dates between the second and the fourth quarter of 2017. The VLCC tanker
Hercules
I
and the shuttle tanker
Lisboa
were delivered in the first quarter of 2017.
In July 2015, the suezmax
Triathlon
and product carrier
Delphi
were sold for net proceeds totaling $42.8 million, generating a net gain of $2.1 million and releasing cash of $19.6 million after the prepayment of related loans. In 2016 there were
no vessel sales.
Net cash provided by financing activities in 2016 amounted to $303.8 million compared to
$27.9 million in 2015. Proceeds from new bank loans in 2016 amounted to $777.5 million compared to $227.4 million in 2015. Repayments of debt amounted to $411.6 million in 2016, which included $165.6 million balloon
repayments on the maturity of certain loans and $129.2 million prepayments on certain pre delivery financing.
89
In 2016, dividends of $0.08 per common share were paid in April, May and September 2016 and
$0.05 per common share was paid in December 2016. Total dividend payments to common shareholders in 2016 amounted to $24.5 million, compared to $20.6 million in 2015. On March 17, 2017, a dividend of $0.05 per common share, payable on
April 28, 2017 to shareholders of record as of April 25, 2017 was declared. The dividend policy of the Company is to pay a dividend on a quarterly basis. However, the payment and the amount are subject to the discretion of our board of
directors and depend, among other things, on available cash balances, anticipated cash needs, our results of operations, our financial condition, and any loan agreement restrictions binding us or our subsidiaries, as well as other relevant factors.
Dividends of $0.50 per share for the 8.00% Series B Preferred Shares, were paid each on February 1, May
2, August 1 and October 31, 2016, totaling in aggregate $4.0 million, and on January 30, 2017, totaling $1.0 million.
Dividends of $0.5547 per share for the 8.875% Series C Preferred shares was paid each on February 1, May 2, August 1 and October 31, 2016, totaling in aggregate $4.4 million and
on January 30, 2017, totaling $1.1 million.
Dividends of $0.5469 per share for the 8.75% Series D Cumulative
Redeemable Perpetual Preferred Shares, were paid on February 29, May 31, August 29, and November 28, 2016, totaling in aggregate $7.4 million, and on February 28, 2017, totaling $1.9 million.
Preferred share dividends on the Series B and C Preferred Shares will be payable quarterly in arrears on the 30th
day of January, April, July and October of each year, when, as and if declared by the Companys Board of Directors. Preferred share dividends on Series D Preferred Shares are payable quarterly in arrears on the 28
th
day of February, May, August and November of each year, when, as and
if declared by the Companys board of directors. As of December 31, 2016, the Company was in full compliance with all the original financial covenants contained within the terms of its Series B and C Preferred Shares.
In 2016, the Company repurchased 3,705,286 common shares in the open market, as treasury stock for a total amount of $20.7 million
under its $40 million
buy-back
program. The
buy-back
program has been suspended.
In February, 2017, the Company started a $40.0 million
at-the-market
program to sell common and preferred shares from
time to time. As at March 31, 2017, a total of $3.1 million has been raised, with the sale of 550,000 common shares for net proceeds of $2.5 million and 24,803 Series D Preferred Shares for net proceeds of $0.6 million.
On April 5, 2017, we issued 4,600,000 Series E
Fixed-to-Floating
Rate Cumulative Redeemable Perpetual Preferred Shares. Dividends on the Series E Preferred Shares are cumulative from the date of original issue and
will be payable quarterly in arrears on the 28th day of February, May, August and November of each year, commencing May 28, 2017, in an amount of $0.578125 per share during the fixed rate period from original issuance to, but excluding,
May 28, 2027, when, as and if declared by our Board of Directors.
From time to time and depending upon market
conditions, we may consider various capital raising alternatives to finance the strategic growth and diversification of our fleet. Any such capital raising transactions may be at the Tsakos Energy Navigation Limited or subsidiary level, to which
interests in certain vessels in our fleet and rights to receive related cash flows would be transferred, as well as other capital raising alternatives available to us at that particular time.
Investment in Fleet and Related Expenses
We operate in a capital-intensive
industry requiring extensive investment in revenue-producing assets. We continue to have an active fleet development program resulting in a fleet of modern and young vessels with an
90
average age of 7.4 years at April 5, 2017. We raise the funds for such investments in
new-buildings
mainly from borrowings and partly out of
internally generated funds and equity issuance transactions.
New-building
contracts generally provide for multiple staged payments of 10%, with the balance of the vessel purchase price paid upon delivery. In
the case of the three aframaxes, pre and post delivery financing has been arranged for part of the installment payments to the shipbuilding yard and for the last installment to the yard on delivery of the vessels. Otherwise, for the equity portion
of an investment in a newbuilding or a second-hand vessel, we generally pay from our own cash approximately 30% of the contract price. Repayment of the debt incurred to purchase the vessel is made from vessel operating cash flow, typically over two
to twelve years, compared to the vessels asset life of approximately 25 years (LNG carriers 40 years).
Debt
As is customary in our industry, we anticipate financing the majority of our commitments on the newbuildings with bank debt. Generally we
raise 70% of the vessel purchase price with bank debt for a period of between two and twelve years (while the expected life of a tanker is 25 years and an LNG carrier is 40 years). For vessels for which we have secured long-term charters with
first-class charterers, we would expect to raise up to 80% of the vessel purchase price with bank debt.
91
Summary of Loan Movements Throughout 2016 (in millions of U.S. dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan
|
|
Vessel
|
|
Balance at
January
1,
2016
|
|
|
New
Loans
|
|
|
Repaid
|
|
|
Balance at
December
31,
2016
|
|
Credit facility
|
|
Amphitrite, Izumo Princess, Aegeas
|
|
|
46.6
|
|
|
|
0
|
|
|
|
15.7
|
|
|
|
30.9
|
|
Credit facility
|
|
Millennium, Eurochampion 2004, Euronike
|
|
|
72.8
|
|
|
|
0
|
|
|
|
72.8
|
|
|
|
0
|
|
Credit facility
|
|
Archangel, Alaska, Arctic, Antarctic
|
|
|
80.7
|
|
|
|
0
|
|
|
|
10.6
|
|
|
|
70.1
|
|
Credit facility
|
|
Byzantion, Bosporos
|
|
|
47.1
|
|
|
|
0
|
|
|
|
47.1
|
|
|
|
0
|
|
Credit facility
|
|
Artemis, Afrodite, Ariadne, Ajax, Apollon, Aris, Proteas Promitheas, Propontis
|
|
|
191.0
|
|
|
|
0
|
|
|
|
20.0
|
|
|
|
171.0
|
|
10-year term loan
|
|
Arion, Andromeda
|
|
|
22.7
|
|
|
|
0
|
|
|
|
22.7
|
|
|
|
0
|
|
Credit facility
|
|
Maya, Inca
|
|
|
22.5
|
|
|
|
0
|
|
|
|
22.5
|
|
|
|
0
|
|
Credit facility
|
|
Neo Energy
|
|
|
77.5
|
|
|
|
0
|
|
|
|
5.0
|
|
|
|
72.5
|
|
10-year term loan
|
|
Maria Princess, Nippon Princess
|
|
|
49.7
|
|
|
|
0
|
|
|
|
5.5
|
|
|
|
44.2
|
|
10-year term loan
|
|
Ise Princess
|
|
|
22.3
|
|
|
|
0
|
|
|
|
2.2
|
|
|
|
20.1
|
|
8-year term loan
|
|
Asahi Princess
|
|
|
24.0
|
|
|
|
0
|
|
|
|
2.7
|
|
|
|
21.3
|
|
12-year term loan
|
|
Sapporo Princess
|
|
|
26.3
|
|
|
|
0
|
|
|
|
2.5
|
|
|
|
23.8
|
|
10-year term loan
|
|
Uraga Princess
|
|
|
24.7
|
|
|
|
0
|
|
|
|
2.6
|
|
|
|
22.1
|
|
7-year
term loan
|
|
World Harmony, Chantal
|
|
|
46.8
|
|
|
|
0
|
|
|
|
4.7
|
|
|
|
42.1
|
|
10-year
term loan
|
|
Selini
|
|
|
27.9
|
|
|
|
0
|
|
|
|
3.2
|
|
|
|
24.7
|
|
8-year
term loan
|
|
Salamina
|
|
|
29.1
|
|
|
|
0
|
|
|
|
2.6
|
|
|
|
26.5
|
|
10-year
term loan
|
|
Spyros K
|
|
|
33.6
|
|
|
|
0
|
|
|
|
3.2
|
|
|
|
30.4
|
|
9-year
term loan
|
|
Dimitris P
|
|
|
35.7
|
|
|
|
0
|
|
|
|
3.2
|
|
|
|
32.5
|
|
8-year
term loan
|
|
Rio 2016
|
|
|
62.1
|
|
|
|
16.1
|
|
|
|
4.6
|
|
|
|
73.6
|
|
8-year
term loan
|
|
Brasil 2014
|
|
|
61.3
|
|
|
|
17.2
|
|
|
|
4.9
|
|
|
|
73.6
|
|
7-year
term loan
|
|
Sakura Princess
|
|
|
15.2
|
|
|
|
0
|
|
|
|
1.6
|
|
|
|
13.6
|
|
7-year
term loan
|
|
Eurovision
|
|
|
39.2
|
|
|
|
0
|
|
|
|
2.8
|
|
|
|
36.4
|
|
6-year
term loan
|
|
Elias Tsakos, Thomas Zafiras, Leontios H, Parthenon TS, Sola TS
|
|
|
51.2
|
|
|
|
117.8
|
|
|
|
1.2
|
|
|
|
167.8
|
|
6-year
term loan
|
|
Euro
|
|
|
36.4
|
|
|
|
0
|
|
|
|
2.6
|
|
|
|
33.8
|
|
7-year
term loan
|
|
Oslo TS
|
|
|
5.2
|
|
|
|
11.4
|
|
|
|
0
|
|
|
|
16.6
|
|
6-year
term loan
|
|
Marathon TS and Bergen TS
|
|
|
15.5
|
|
|
|
16.6
|
|
|
|
0
|
|
|
|
32.1
|
|
6-year
term loan
|
|
Stavanger TS
|
|
|
5.2
|
|
|
|
11.4
|
|
|
|
0
|
|
|
|
16.6
|
|
19-month
term loan
|
|
Maria Energy
|
|
|
52.2
|
|
|
|
0
|
|
|
|
52.2
|
|
|
|
0
|
|
5-year
term loan
|
|
Sunray
|
|
|
16.4
|
|
|
|
18.8
|
|
|
|
0
|
|
|
|
35.2
|
|
7-year
term loan
|
|
Sunrise
|
|
|
11.7
|
|
|
|
23.5
|
|
|
|
0
|
|
|
|
35.2
|
|
8-year
term loan
|
|
Lisboa
|
|
|
9.8
|
|
|
|
29.4
|
|
|
|
0
|
|
|
|
39.2
|
|
6-year
term loan
|
|
Selecao, Socrates
|
|
|
46.2
|
|
|
|
0
|
|
|
|
4.6
|
|
|
|
41.6
|
|
7-year
term loan
|
|
Pentathlon
|
|
|
39.9
|
|
|
|
0
|
|
|
|
3.6
|
|
|
|
36.3
|
|
4.5-year
term loan
|
|
Silia T., Andes, Didimon, Byzantion, Bosporos
|
|
|
51.6
|
|
|
|
31.1
|
|
|
|
5.2
|
|
|
|
77.5
|
|
7-year
term loan
|
|
Decathlon
|
|
|
0
|
|
|
|
44.8
|
|
|
|
1.6
|
|
|
|
43.2
|
|
12-year
term loan
|
|
Maria Energy, Ulysses, Hercules I
|
|
|
0
|
|
|
|
251.2
|
|
|
|
0
|
|
|
|
251.2
|
|
2&5-year
term loan
|
|
Millenium, Eurochampion 2004, Euronike
|
|
|
0
|
|
|
|
60.0
|
|
|
|
0
|
|
|
|
60.0
|
|
5-year
term loan
|
|
Amphitrite, Andromeda, Arion
|
|
|
0
|
|
|
|
33.1
|
|
|
|
0.9
|
|
|
|
32.2
|
|
4-year
term loan
|
|
Maya, Inca
|
|
|
0
|
|
|
|
18.1
|
|
|
|
0
|
|
|
|
18.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
1,400.1
|
|
|
|
700.5
|
|
|
|
334.6
|
|
|
|
1,766.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a result of such financing activities, long-term debt increased in 2016 by a net amount of
$365.9 million compared to a net decrease of $18.2 million in 2015. The debt to capital (equity plus debt) ratio was 55.5% at December 31, 2016, or net of cash, 52.5%, and 49.7% at December 31, 2015 or, net of cash, 43.6%.
92
We have paid all of our scheduled loan installments and related loan and swap interest
consistently without delay or omission. As a percentage of total liabilities against total assets at fair value, our consolidated leverage (a
non-GAAP
measure) as computed in accordance with our loan
agreements at December 31, 2016 was 67.6%, below the original loan covenant maximum of 70%, which is applicable to all the above loans (except one) on a fleet and total liabilities basis. All the loan agreements also include a requirement for
the value of the vessel or vessels secured against the related loan to be at least 120% (in three cases 125%, in three other cases 110% and in one case 112%) of the outstanding associated debt at all times.
The Company continues to be fully compliant with its scheduled debt service requirements, repaying capital and paying interest promptly
in accordance with respective bank agreements without fail. As at December 31, 2016, the Company and its wholly and majority owned subsidiaries were compliant with the financial covenants in its
thirty-four
loan agreements totaling $1.8 billion, apart from the
value-to-loan
requirement in seven of its loan agreements,
due to a fall in vessel values arising from world fleet overcapacity, soft tanker markets and the difficulty that potential vessel buyers have in raising funds. Two of these loans met the requirements by January 10, 2017, following scheduled
repayments, and the remaining loans are expected to meet requirements by February 5, 2018 after scheduled repayments. An amount of $2.4 million has been reclassified within current liabilities as at December 31, 2016, in relation to
these loans. As at December 31, 2015, the Company was compliant with the value-to-loan requirements in all of its loan agreements. At December 31, 2016 and 2015, we were compliant with the leverage ratio covenant contained in all of our
bank loans. We do not expect to pay down the Companys loans in 2017 beyond the amounts that we have already classified as current liabilities. Upon an event of default, all the loan agreements, which are secured by mortgages on our vessels,
include the right of lenders to accelerate repayments. All our loan agreements and our interest rate swap agreements also contain a cross-default provision that may be triggered by a default under one of our other loans. A cross-default provision
means that a notice of default on one loan would result in a default on other agreements. Interest is usually payable at a variable rate, based on
six-month
LIBOR plus a margin. Interest rate swap instruments
currently cover approximately 11% of the outstanding debt as of March 31, 2017. The expected coverage at the end of 2017 is estimated at 11% of expected outstanding debt. We review our hedging position relating to interest on a continuous basis
and have regular discussions with banks with regards to terms for potential new instruments to hedge our interest.
Off-Balance
Sheet Arrangements
None.
Long-Term Contractual Obligations as of December 31, 2016 (in millions of U.S. dollars) were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual Obligations
|
|
Total
|
|
|
Less than
1
year
(2017)
|
|
|
1-3 years
(2018-2019)
|
|
|
3-5 years
(2020-2021)
|
|
|
More
than
5 years
(after
January
1,
2022)
|
|
Long-term debt obligations (excluding interest)
|
|
|
1,766.0
|
|
|
|
291.1
|
|
|
|
576.9
|
|
|
|
464.3
|
|
|
|
433.7
|
|
Interest on long-term debt obligations (including interest rate swap payments)(1)
|
|
|
215.0
|
|
|
|
50.0
|
|
|
|
83.4
|
|
|
|
50.4
|
|
|
|
31.2
|
|
Purchase Obligations (newbuildings)(2)
|
|
|
274.3
|
|
|
|
274.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management Fees payable to Tsakos Energy Management (based on existing fleet plus contracted future deliveries as at
December 31, 2016)
|
|
|
193.1
|
|
|
|
20.2
|
|
|
|
40.8
|
|
|
|
40.9
|
|
|
|
91.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,448.4
|
|
|
|
635.6
|
|
|
|
701.1
|
|
|
|
555.6
|
|
|
|
556.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The amounts shown above for interest obligations include contractual fixed interest obligations and interest obligations for floating rate debt as at
December 31, 2016 based on the amortization schedule for such debt
|
93
|
and the average interest rate as described in Item 11. Quantitative and Qualitative Disclosures about Market Risk. Derivative contracts and their implied average fixed rates are also
included in the calculations.
|
(2)
|
The amounts shown above for purchase obligations (newbuildings) include amounts payable based on contracts agreed with shipbuilding yards.
|
Item 6.
|
Directors, Senior Management and Employees
|
The following table sets forth, as of March 31, 2017, information for each of our directors and senior managers.
|
|
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Positions
|
|
Year First
Elected
|
|
Efstratios Georgios Arapoglou
|
|
65
|
|
Chairman of the Board
|
|
|
2010
|
|
Nikolas P. Tsakos
|
|
53
|
|
President and Chief Executive Officer, Director
|
|
|
1993
|
|
Michael G. Jolliffe
|
|
67
|
|
Vice Chairman of the Board
|
|
|
1993
|
|
George V. Saroglou
|
|
52
|
|
Vice President, Chief Operating Officer, Director
|
|
|
2001
|
|
Paul Durham
|
|
66
|
|
Chief Financial Officer
|
|
|
|
|
Vasileios Papageorgiou
|
|
70
|
|
Chief Marine Officer
|
|
|
|
|
Peter C. Nicholson
|
|
82
|
|
Director
|
|
|
1993
|
|
Francis T. Nusspickel
|
|
76
|
|
Director
|
|
|
2004
|
|
Richard L. Paniguian
|
|
67
|
|
Director
|
|
|
2008
|
|
Aristides A.N. Patrinos
|
|
69
|
|
Director
|
|
|
2006
|
|
Efthimios E. Mitropoulos
|
|
77
|
|
Director
|
|
|
2012
|
|
Maria Vassalou
|
|
51
|
|
Director
|
|
|
2016
|
|
Certain biographical information
regarding each of these individuals is set forth below.
EFSTRATIOS GEORGIOS ARAPOGLOU
CHAIRMAN OF THE BOARD
Mr. Arapoglou is a Corporate Advisor with a long international executive career in Corporate and Investment Banking, International
Capital Markets and in managing, restructuring and advising financial institutions. He was Chief Executive Officer of Commercial Banking at EFG Hermes Holding SAE Group, operating in the Middle East and Africa (2010-2013). Earlier, he was
Chairman and Chief Executive Officer of the National Bank of Greece Group (2004-2009), Chairman of the Hellenic Banks Association (2005-2009) and Managing Director of the Global Banks and Securities Industry for Citigroup (1999-2004). He
has served on several boards of publicly listed companies in Europe, the Middle East and Africa, as well as on Boards of Educational Foundations, including the Institute of Corporate Culture Affairs in Frankfurt, as Chairman. He is currently holding
the following
non-executive
board positions: Vice Chairman and member of the compensation committee of Titan Cement SA, listed on the Athens SE; board member and member of the compensation committee of EFG
Hermes Holding SAE, listed in Cairo and the London SE; board member of the audit and risk committee of Credit Libanais SAL and board member of Bank Alfalah, listed in Karachi, Pakistan, representing the International Finance Corporation (IFC) World
Bank. He is Chairman of the International Board of Advisors of Tufts University in Boston, and a member of the Business Advisory Council for the International MBA program of Athens University of Economics and Business. He has degrees in Mathematics,
Naval Architecture & Ocean Engineering and Management from Greek and British Universities.
NIKOLAS P. TSAKOS, Dr.
FOUNDER, PRESIDENT AND CHIEF EXECUTIVE OFFICER
Mr. Tsakos has been President, Chief Executive Officer and a director of the Company since inception. Mr. Tsakos is the sole shareholder of Tsakos Energy Management Limited. He has been involved
in ship
94
management since 1981 and has 36 months of seafaring experience. Mr. Tsakos served as an officer in the Hellenic Navy in 1988. Mr. Tsakos is the Chairman of the Independent Tanker
Owners Association (INTERTANKO), an Executive Committee member and a council member. He is also Chairman of the Korean Registry, Hellenic Committee (KR). Mr. Tsakos is currently a board member of the UK P&I Club, a board member of the Union
of Greek Shipowners (UGS), a member of the board of the Greek Shipping
Co-operation
Committee (GSCC) and a council member of the American Bureau of Shipping (ABS), Bureau Veritas (BV) and of the Greek
Committee of Det Norske Veritas (DNV). Mr. Tsakos is the former President of the Hellenic Marine Environment Protection Association (HELMEPA). He graduated from Columbia University in New York in 1985 with a degree in Economics and Political
Science and obtained a Masters Degree in Shipping, Trade and Finance from Londons City University Business School in 1987. In 2011, Mr. Tsakos was awarded an honorary doctorate from the City University Business School, for his
pioneering work in the equity financial markets relating to shipping companies.
MICHAEL G. JOLLIFFE
CO-FOUNDER
AND VICE CHAIRMAN
Mr. Jolliffe has been joint Managing Director and then Vice Chairman of our Board since 1993. He is a director of a number of companies in shipping, agency representation, shipbroking capital
services and mining. Mr. Jolliffe is Chief Executive Officer of Tsakos Containers Navigation LLC, a shipping company set up in joint venture between the Tsakos and Jolliffe families and Warwick Capital Partners, a London based fund manager. He
is also Chairman of the Wighams Group owning companies involved in shipbroking, agency representation and capital markets businesses. Mr. Jolliffe is also the Chairman of Papua Mining Plc, a gold and copper mining company quoted on the London
AIM. He is also Chairman of StealthGas Inc., a shipping company which is quoted on the Nasdaq Stock Exchange and which owns 49 LPG carriers, three product carriers and one crude oil tanker and has agreements to acquire four LPG carriers.
Mr. Jolliffe is also a Trustee of Honeypot Childrens Charity.
GEORGE V. SAROGLOU
CHIEF OPERATING OFFICER
Mr. Saroglou has been Chief Operating Officer of the Company since 1996. Mr. Saroglou worked for a private Greek information
technology systems integrator from 1987 until 1994. From 1995 to 1996 he was employed in the Trading Department of the Tsakos Group. He graduated from McGill University in Canada in 1987 with a Bachelors Degree in Science (Mathematics).
Mr. Saroglou is the cousin of Mr. Tsakos.
PAUL DURHAM
CHIEF FINANCIAL OFFICER
Mr. Durham joined Tsakos in 1999 and has
served as our Chief Financial Officer and Chief Accounting Officer since 2000. Mr. Durham is a Fellow of the Institute of Chartered Accountants in England & Wales. From 1989 through 1998, Mr. Durham was employed in Athens with the
Latsis Group, a shipping, refinery and banking enterprise, becoming Financial Director of Shipping in 1995. From 1983 to 1989, Mr. Durham was employed by RJR Nabisco Corporation, serving as audit manager for Europe, Asia and Africa until 1986
and then as financial controller of one of their United Kingdom food divisions. Mr. Durham worked with public accounting firms Ernst & Young (London and Paris) from 1972 to 1979 and Deloitte & Touche (Chicago and Athens) from
1979 to 1983. Mr. Durham is a graduate in Economics from the University of Exeter, England.
VASILEIOS PAPAGEORGIOU
CHIEF MARINE OFFICER
Mr. Papageorgiou is our CMO. Among all other responsibilities, he is heading the newbuilding section of our business and technically
led a large scale fleet expansion & renewal plan. For the past 13 years Mr
95
Papageorgiou has overseen the construction of more than 70 vessels of diverse type and range. He has an extended technical academic background holding Bachelor of Science degrees in Naval
Architecture and Marine Engineering and Master of Science degrees in Internal Combustion Engines and Management & Economics. Mr. Papageorgiou initiated his career 50 years ago being employed for a period of 5 years in the Greek
ship & repair yards of Skaramanga, Perama and Elefsis, being engaged in the supervision of ship repairs and newbuildings. In 1976 and for a period of 4 years he worked for Chalkis Shipyard & Carras Shipping Co attending repairs and
newbuildings in Japan and Yugoslavia. In 1980 Mr Papageorgiou joined Lloyds Register of Shipping initially as a junior Ship & Engine Surveyor in the Far East area. He was the first surveyor of Greek nationality of Lloyds
Register supervising the construction of newbuildings in Asia. Soon he was promoted to Principal Surveyor, thereafter to Senior Principal Surveyor, a position held for first time by an Engineer of Greek nationality. Successively Lloyds
Register appointed him in the post of area Managing Director for the wider region of Greece, Balkans & Middle East, again a position held for the first time by a Greek citizen. Mr. Papageorgiou is an active participant in a wide range
of technical committees.
PETER C. NICHOLSON, CBE
DIRECTOR
Mr. Nicholson is trained as a naval architect and spent the
majority of his professional career with Camper & Nicholson Limited, the world-famous yacht builder. He became Managing Director of the firm and later, Chairman. When Camper & Nicholson merged with Crest Securities to form Crest
Nicholson Plc in 1972, Mr. Nicholson became an executive director, a role he held until 1988 when he became a
non-executive
in order to pursue a wider range of business interests. Since that time, he has
been a
non-executive
director of Lloyds TSB Group Plc (from 1990 to 2000) and Chairman of Carisbrooke Shipping Plc (from 1990 to 1999). He was a director of various companies in the Marsh Group of insurance
brokers. He has served on the boards of a variety of small companies, has been active in the administration of the United Kingdom marine industry and is a trustee of the British Marine Federation. He is a Younger Brother of Trinity House. He was
Chairman of the Royal National Lifeboat Institution from 2000 to 2004. In 2010, Mr. Nicholson became a partner and chairman of a limited liability partnership, R.M.G. Wealth Management.
FRANCIS T. NUSSPICKEL
DIRECTOR
Mr. Nusspickel is a retired partner of Arthur Andersen LLP with 35 years of public accounting experience. He is a Certified Public
Accountant licensed in several U.S. states. During his years with Arthur Andersen, he served as a member of their Transportation Industry Group and was worldwide Industry Head for the Ocean Shipping segment. His responsibilities included projects
for mergers and acquisitions, fraud investigations, arbitrations and debt and equity offerings. He was President of the New York State Society of Certified Public Accountants from 1996 to 1997, a member of the AICPA Council from 1992 to 1998, and
from 2004 to 2007 was Chairman of the Professional Ethics Committee of the New York State Society of Certified Public Accountants.
RICHARD
L. PANIGUIAN, CBE
DIRECTOR
Mr. Paniguian became Chairman of C5 Holdings, a European based private equity fund specializing in cyber and big data technologies, in February 2015. Prior to that, he was Head of UK Defence and
Security Organization, or DSO, which supports UK defense and security businesses seeking to export and develop joint ventures and partnerships overseas, as well as overseas defense and security businesses seeking to invest in the UK. Previously,
Mr. Paniguian pursued a career with BP plc., where he worked for 37 years. He held a wide range of posts with BP, including, in the 1980s, as Commercial Director in the Middle East, Head of International Oil Trading in New York and Head of
Capital Markets in London. In the 1990s he completed
96
assignments as a Director of BP Europe, Chief Executive of BP Shipping and subsequently Head of Gas Development in the Middle East and Africa. In 2001 he was appointed Group Vice President
for Russia, the Caspian, Middle East and Africa, where he was responsible for developing and delivering BPs growth strategy in these regions. He played a leading role in support of the
TNK-BP
joint
venture; in delivering the Baku Tbilisi Ceyhan pipeline project; in driving for new gas exploration in Libya, Egypt and Oman and, in completing BPs first oil project in Angola. In 2007 he was appointed CBE for services to business. Between
2002 and 2007 he was Chairman of the Egyptian British Business Council, and between 2000 and 2002 President of the UK Chamber of Shipping. Mr. Paniguian has a degree in Arabic and Middle East politics and an MBA.
ARISTIDES A.N. PATRINOS, Ph.D
DIRECTOR
Dr. Patrinos is
the Chief Scientist and Director for Research of the Novim Group, a think tank based in Santa Barbara, California, USA. He is also a Distinguished Industry Professor of Mechanical and Biomolecular Engineering at New York University (currently on
leave). Since 2006 he is also affiliated with Synthetic Genomics Inc. (SGI) serving as President (2006-2011), Senior Vice President for Corporate Affairs (2011-2012) and currently as a Programs and Policy Advisor. SGI is a US-based privately held
company dedicated to developing and commercializing synthetic biology instruments, clean and renewable fuels and chemicals, sustainable food products; and novel medical applications such as synthetic vaccines and other biologics. Dr. Patrinos
also serves on the board of directors of Liberty Biosecurity LLC (since December 2016), a USA-based private DNA sequencing and analysis company focused on biodefense and other applications; and on the board of directors of Data Cubed, Inc. (since
June 2016) a NYC-based private company focused on healthcare, big data, and human decision-making. Dr. Patrinos also consults for Oak Ridge National Laboratory, the translational medicine program of the University of Pittsburgh, and the Research
Council of the State University of New York. From 1976 to 2006, Dr. Patrinos served in the U.S. Department of Energy (DOE) and several of the DOE National Laboratories and engaged in several facets of energy production and use and led key research
programs in biology and the environment. He played a leading role in the Human Genome Project and has been a central architect of the genomics revolution. He is a member of many scientific societies and is a recipient of numerous awards
and distinctions including three U.S. Presidential Rank Awards, and two Secretary of Energy Gold Medals. He holds a Diploma in Mechanical and Electrical Engineering from the National Technical University of Athens (Metsovion) and a Ph.D. in
Mechanical Engineering and Astronautical Sciences from Northwestern University. During 2016, Dr. Patrinos was Senior Adviser to USA Department of Energy Secretary Ernest Moniz.
EFTHIMIOS E. MITROPOULOS, KCMG
DIRECTOR
Mr. Mitropoulos is Secretary-General Emeritus of the International Maritime Organization (IMO), the United Nations specialized agency
responsible for the regulation of international shipping from the safety, security and environmental protection points of view. After 23 years of service at IMO (ten of which as Director of the Maritime Safety Division), he was elected
Secretary-General in 2003 and
re-elected
in 2007 for a total of the maximum time permitted of eight years. As a graduate of both Merchant and Naval Academies of Greece, he spent time at sea as a navigation
officer and twenty years as a commissioned Hellenic Coast Guard officer, retiring as a rear admiral, having represented Greece at IMO and various other international fora dealing with shipping matters over a twelve year period and having spent two
years as Harbour Master of Corfu. Between 2004 and 2012, he was Chancellor of the World Maritime University, Malmô, Sweden and Chairman of the Governing Board of the International Maritime Law Institute in Malta. He is the author of several
books on shipping, including texts on tankers, modern types of merchant ships, safety of navigation and shipping economics and policy. He is Chairman of the Board of the Maria Tsakos Public Benefit FoundationInternational Centre
for Maritime Research and Tradition and Patron of two international maritime organizations.
97
MARIA VASSALOU Ph.D
DIRECTOR
Maria Vassalou is Partner and Portfolio Manager for the PWP
Global Macro Strategy, a liquid strategy firm invested in global equities, fixed income, currencies, commodities and credit. Dr. Vassalou joined Perella Weinberg Partners in 2013 from MIO Partners, a subsidiary of McKinsey & Company,
where as a Portfolio Manager she managed a similar global macro investment strategy in a dedicated legal entity, and as Head of Asset Allocation she provided counsel on allocation for liquid assets within MIOs portfolio. Prior to joining MIO
in 2012, Dr. Vassalou was a Global Macro Portfolio Manager at SAC Capital Advisors, LP. She joined SAC in 2008 from Soros Fund Management where she was responsible for global quantitative research, as well as the development and management of
global quantitative trading strategies. Prior to her career in asset management, Dr. Vassalou was an Associate Professor of Finance at Columbia Business School which she joined in 1995. Dr. Vassalou is a Past President of the European
Finance Association and was the Chair of the 2008 European Finance Association Meetings. A Research Affiliate of the Center for Economic Policy Research (CEPR) in London for many years, Dr. Vassalou is a past member of the Academic Advisory
Board of the Vienna-based Guttmann Center of Competence in Portfolio Management. Dr. Vassalou received a Bachelor of Arts in Economics from the University of Athens and she holds a Ph.D. in Financial Economics from London Business School.
Messrs. Nicholson and Nusspickel will retire from the Board, and the Audit Committee and Corporate Governance, Nominating and
Compensation Committee, following our Annual General Meeting scheduled for June 15, 2017. At its March 16, 2017 meeting, the Corporate Governance, Nominating and Compensation Committee approved the nomination of Mr. Nicholas F.
Tommasino as an additional Director and as Chairman of the Audit Committee, replacing Mr. Nusspickel, and as a member of the Corporate Governance, Nominating and Compensation Committee. Biographical details of Mr. Tommasino, who is
standing for election at this years Annual General Meeting, are set forth below.
NICHOLAS F. TOMMASINO
NOMINEE DIRECTOR
Mr. Tommasino is a retired partner of Deloitte LLP, a global professional services firm focusing on Audit, Tax, Advisory and
Consulting services. With more than 38 years of experience, including 27 as a Partner until his retirement in 2016, he served global clients in a variety of industries including Transportation, Telecommunications, Pharmaceuticals, Agribusiness and
Hospitality. He provided services across a wide range of areas including audit, mergers and acquisitions, U.S. listings, including foreign private issuers, and regulatory and risk areas. He held a number of leadership roles from leading the New York
Audit and Advisory practice to the Northeast Practice to the entire East Sector culminating in his assuming the role of Chairman and CEO of Deloitte and Touche LLP (D&T) where he was responsible for all aspects of a multi-billion dollar,
fourteen thousand personnel, Professional Services Firm. He directed the Development and Implementation of Strategy, Operations, Talent, Quality, Governance and Cultural Cultivation at D&T. He was a Board member of D&T (Including Chairman)
and Chaired the D&T executive Committee. He serves as a Trustee and Vice President of the Madison Square Boys and Girls Club. He is also a member of the Columbus Citizens Foundation. He was an associate adjunct professor at Columbia University.
He graduated Summa Cum Laude with a BS in accounting from Manhattan College. He is a member of the New York State Society of CPAs and a member of the American Institute of CPAs.
Corporate Governance
Board of Directors
Our business is managed under the direction of the Board, in accordance with the Companies Act and our Memorandum of Association and
Bye-laws.
Members of the Board are kept informed of our business through: discussions with the Chairman of the Board, the President and Chief Executive Officer and other members of our management team; the review of
materials provided to directors; and, participation in meetings of the Board and
98
its committees. In accordance with our
Bye-laws,
the Board has specified that the number of directors will be set at no less than five nor more than
fifteen. At December 31, 2016 we had ten directors on our Board. Upon the conclusion of our 2017 Annual General Meeting, we expect our Board to be comprised of nine directors, as a result of the retirement of Messrs. Nicholson and Nusspickel
and the election of Mr. Tommasino. Under our
Bye-laws,
one third (or the number nearest one third) of the Board (with the exception of any executive director) retires by rotation each year. The
Bye-laws
require that the one third of the directors to retire by rotation be those who have been in office longest since their last appointment or
re-appointment.
The
Bye-laws
specify that where the directors to retire have been in office for an equal length of time, those to retire are to be determined by lot (unless they agree otherwise among themselves).
During the fiscal year ended December 31, 2016, the full Board held three meetings in person. Each director attended all of the
meetings of the Board in 2016. Each director attended all of the meetings of committees of which the director was a member.
Independence
of Directors
The foundation for the Companys corporate governance is the Boards policy that a substantial
majority of the members of the Board should be independent. With the exception of the two Executive Directors (Messrs. Tsakos and Saroglou) and one Non-executive Director (Mr. Jolliffe), the Board believes that each of the other incumbent
directors (Messrs. Nicholson, Nusspickel, Paniguian, Arapoglou and Mitropoulos and Drs. Patrinos and Vassalou) is independent under the standards established by the New York Stock Exchange (the NYSE) because none has a material
relationship with the Company directly or indirectly or any relationship that would interfere with the exercise of their independent judgment as directors of the Company.
The Board made its determination of independence in accordance with its Corporate Governance Guidelines, which specifies standards and a process for evaluating director independence. The Guidelines
provide that:
|
|
|
A director cannot be independent if he or she fails to meet the objective requirements as to independence under the NYSE listing standards.
|
|
|
|
If a director meets the objective NYSE standards, he or she will be deemed independent, absent unusual circumstances, if in the current year and the
past three years the director has had no related-party transaction or relationship with the Company or an interlocking relationship with another entity triggering disclosure under SEC rules.
|
|
|
|
If a director who meets the objective NYSE independence requirements either has had a disclosable transaction or relationship or the Corporate
Governance, Nominating and Compensation Committee requests that the Board consider any other circumstances in determining the directors independence, the Board will make a determination of the directors independence.
|
To promote open discussion among the independent directors, those directors met three times in 2016 in
regularly scheduled executive sessions without participation of the Companys management and will continue to do so in 2017. Mr. Paniguian currently serves as the Presiding Director for purposes of these meetings.
Documents Establishing Our Corporate Governance
The Board and the Companys management have engaged in an ongoing review of our corporate governance practices in order to oversee our compliance with the applicable corporate governance rules of the
NYSE and the SEC.
The Company has adopted a number of key documents that are the foundation of its corporate governance,
including:
|
|
|
a Code of Business Conduct and Ethics for Directors, Officers and Employees;
|
|
|
|
a Corporate Governance, Nominating and Compensation Committee Charter; and
|
|
|
|
an Audit Committee Charter.
|
99
These documents and other important information on our governance, including the
Boards Corporate Governance Guidelines, are posted in the Investor Relations section of the Tsakos Energy Navigation Limited website, and may be viewed at http://www.tenn.gr. We will also provide any of these documents in hard copy
upon the written request of a shareholder. Shareholders may direct their requests to the attention of Investor Relations, c/o George Saroglou or Paul Durham, Tsakos Energy Navigation Limited, 367 Syngrou Avenue, 175 64 P. Faliro, Athens,
Greece.
The Board has a long-standing commitment to sound and effective corporate governance practices. The Boards
Corporate Governance Guidelines address a number of important governance issues such as:
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Selection and monitoring of the performance of the Companys senior management;
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Succession planning for the Companys senior management;
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Qualifications for membership on the Board;
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Functioning of the Board, including the requirement for meetings of the independent directors; and
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Standards and procedures for determining the independence of directors.
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The Board believes that the Corporate Governance Guidelines and other governance documents meet current requirements and reflect a very
high standard of corporate governance.
Committees of the Board
The Board has established an Audit Committee, a Corporate Governance, Nominating and Compensation Committee, a Business Development and
Capital Markets Committee and an Operational, Safety and Environmental Committee.
Audit Committee
The current members of the Audit Committee are Messrs. Nicholson, Nusspickel, Paniguian, Arapoglou and Dr Vassalou each of whom is an
independent director. Mr. Nusspickel is the Chairman of the committee. The Audit Committee is governed by a written charter, which is approved and adopted annually by the Board. The Board has determined that the continuing members of the Audit
Committee meet the applicable independence requirements, and that all continuing members of the Audit Committee meet the requirement of being financially literate. The Audit Committee held three meetings in person during the fiscal year ended
December 31, 2016. The Audit Committee is appointed by the Board and is responsible for, among other matters:
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engaging the Companys external and internal auditors;
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approving in advance all audit and
non-audit
services provided by the auditors;
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approving all fees paid to the auditors;
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reviewing the qualification and independence of the Companys external auditors;
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discussing compliance with accounting standards and any proposals which the external auditors have made regarding the Companys accounting
standards with the external auditors;
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overseeing the Companys financial reporting and internal control functions;
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overseeing the Companys whistleblowers process and protection;
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overseeing general compliance with related regulatory requirements;
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overseeing the executive managements identification and assessment of risks that the Company faces and the establishment of a risk management
structure capable of addressing and mitigating those risks;
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overseeing the division of risk-related responsibilities among each of the Board committees as clearly as possible and performing a gap analysis to
confirm that the oversight of any risk is not missed;
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in conjunction with the full Board, approving the Company-wide risk management program; and
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assessing whether the Companys technical and commercial managers have effective procedures for managing risks.
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The Board of Directors has determined that Messrs. Nusspickel and Arapoglou and Dr. Vassalou, whose biographical details are
included herein, each qualifies as an audit committee financial expert as defined under current SEC regulations and each is independent in accordance with SEC rules and the listing standards of the NYSE.
Corporate Governance, Nominating and Compensation Committee
The current members of the Corporate Governance, Nominating and Compensation Committee are Messrs. Arapoglou, Nicholson, Nusspickel, Paniguian and Mitropoulos and Drs. Patrinos and Vassalou, each of whom
is an independent director. Mr. Paniguian is the Chairman of the committee. The Corporate Governance, Nominating and Compensation Committee is appointed by the Board and is responsible for:
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developing and recommending to the Board corporate governance guidelines applicable to the company and keeping such guidelines under review;
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overseeing the evaluation of Board and management;
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arranging for an annual performance evaluation of the committee and producing an annual report to the Board;
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reviewing regularly the Board structure, size and composition and making recommendations to the Board with regard to any adjustments that are deemed
necessary;
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identifying and nominating candidates for the approval of the Board to fill Board vacancies as and when they arise;
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implementing plans for succession, making recommendations to the Board for the continuation in service of an executive director and recommending
directors who are retiring by rotation to be put forward for
re-election;
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determining the compensation of the
non-executive
directors, determining and administering the Companys
long term incentive plans, including any equity based plans and grants under them; and
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producing an annual report on executive compensation as required by the SEC to be included in the Companys annual proxy statement or annual
report.
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During 2016, there were three meetings of the Corporate Governance, Nominating and Compensation
Committee.
Business Development and Capital Markets Committee
The current members of the Business Development and Capital Markets Committee are Messrs. Arapoglou, Paniguian, Jolliffe, Saroglou, Tsakos and Dr. Vassalou. Mr. Jolliffe is Chairman of the
committee. The Business Development and Capital Markets Committee was established in 2014 for the purpose of overseeing the financial policies and activities of the Company and its subsidiaries relating to the Companys capital structure and
capital raising activities. The committee reviews and approves presentations to, and communications with, shareholders, financial analysts, and potential investors and oversees the establishment and maintenance of the Companys relations with
investment banks and financial institutions, as well as the development and expansion of the Companys business, including the evaluation of strategic growth opportunities.
101
Operational, Safety and Environmental Committee
The current members of the Operational, Safety and Environmental Committee are Messrs. Jolliffe, Mitropoulos, Papageorgiou and
Dr. Patrinos. Mr. Mitropoulos is Chairman of the committee. The primary role of the Operational, Safety and Environmental Committee is to draw the attention of the Board and the Companys management to issues of concern regarding the
safety of crew and vessels and the impact of the maritime industry on the environment, to provide an update on related legislation and technological innovations, and more specifically highlight areas in which the Company itself may play a more
active role in being in the forefront of adopting operational procedures and technologies that will ensure maximum safety for crew and vessels and contribute to a better environment.
Board Compensation
We pay no cash compensation to our senior management or
to our directors who are senior managers. We have no salaried employees. For the year ended December 31, 2016, the aggregate cash compensation of all of the members of the Board was $770,000 per the following annual fee schedule which was
approved by the shareholders of the Company on May 20, 2016:
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Service on the Board$60,000
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Service on the Audit Committee$20,000
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Service on the Business Development and Capital Markets Committee$10,000
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Service on the Operational, Safety and Environmental Committee$10,000
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Service as Chairman of the Corporate Governance, Nominating and Compensation Committee$10,000
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Service as Chairman of the Operational, Safety and Environmental Committee$10,000
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Service as Chairman of the Audit Committee$30,000
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Service as Chairman of the Business Development and Capital Markets Committee$30,000
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Service as Chairman of the Board$40,000
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No fees are paid for service on the Corporate Governance, and Nominating and Compensation Committee.
We do not provide benefits for directors upon termination of their service with us.
Management Company
Tsakos Energy Management, under its management agreement with us, provides overall executive and commercial management of our affairs in
exchange for a monthly management fee. See Management and Other Fees in Item 7 for more information on the management agreement and the management fees we paid for the fiscal year ended December 31, 2016.
Management Compensation
Messrs. Tsakos, Saroglou, Durham and Papageorgiou serve as President and Chief Executive Officer, Vice President and Chief Operating
Officer, Chief Financial Officer and Chief Accounting Officer, and Chief Marine Officer, respectively. Except for Mr. Papageorgiou, who is employed by Tsakos Shipping, such individuals are employees of Tsakos Energy Management and, except for
the equity compensation discussed below, are not directly compensated by the Company.
From 2010 to 2014 the Corporate
Governance, Nominating and Compensation Committee did not establish a performance incentive program for Tsakos Energy Management. In May 2015, a management incentive award
102
program based on various performance criteria was approved by the Board of Directors, and accordingly, an award of $1.1 million was made to the management company in 2015. In May, 2016, the
Board of Directors decided to reward the management company with an award of $2.6 million based on various performance criteria, and taking into account cash availability and market volatility. The award is accounted for on a
straight-line
basis within the year it is determined. In addition, an amount of $425,000 was awarded to Tsakos Energy Management relating to services provided towards an equity offering during 2015. In 2014, awards
totaling $860,000 were awarded to Tsakos Energy Management relating to services provided towards the two equity offerings during the year ($500,000 in 2013).
Employees
Tsakos Energy Navigation Limited has no salaried employees. All
crew members are employed by the owning-company of the vessel on which they serve, except where the vessel may be on a bareboat
charter-out
,
or the vessels, or crewing of the vessels, are under
third-party management arranged by our technical managers. All owning-companies are subsidiaries of Tsakos Energy Navigation Limited. Approximately 1,701 officers and crew members served on board the vessels we own and were managed by our technical
managers as of December 31, 2016.
Share Ownership
The common shares beneficially owned by our directors and senior managers and/or companies affiliated with these individuals are disclosed in Item 7. Major Shareholders and Related Party
Transactions below.
Stock Compensation Plan
At the 2012 Annual Meeting of Shareholders, our shareholders approved a share-based incentive plan (the 2012 Plan). This plan permits us to grant share options or other share based awards to
our directors and officers, to the officers of the vessels in the fleet, and to the directors, officers and employees of our manager, Tsakos Energy Management, and our commercial manager, Tsakos Shipping.
The purpose of the 2012 Plan is to provide a means to attract, retain, motivate and reward the persons whose performing of
administrative, commercial, management, technical and maritime services are important for the Company by increasing their ownership in our Company. Awards under the 2012 Plan may include options to purchase our common shares, restricted share
awards, other share-based awards (including share appreciation rights granted separately or in tandem with other awards) or a combination thereof.
The 2012 Plan is administered by our Corporate Governance, Nominating and Compensation Committee. Such committee has the authority, among other things, to: (i) select the present or prospective
directors, officers, consultants and other personnel entitled to receive awards under the 2012 Plan; (ii) determine the form of awards, or combinations of awards; (iii) determine the number of shares covered by an award; and
(iv) determine the terms and conditions of any awards granted under the 2012 Plan, including any restrictions or limitations on transfer, any vesting schedules or the acceleration of vesting schedules and any forfeiture provision or waiver of
the same. The 2012 Plan authorizes the issuance of up to 1,000,000 common shares in the form of restricted stock units (RSUs) or options. In 2016, 87,500 RSUs were issued to the
non-executive
directors of the Company, which vested immediately. No RSUs or other awards were issued in 2015. During 2014, 20,000 RSUs were issued under this plan, which vested within 2014. During 2013, 96,000 RSUs were issued which vested.
As of December 31, 2016, there were no outstanding
(non-vested)
RSUs. Total stock
compensation expense recognized for the year ended December 31, 2016 was $0.5 million, for the year ended December 31, 2015 was $nil, for the year ended December 31, 2014 was $0.1 million.
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Item 7.
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Major Shareholders and Related Party Transactions
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It is our policy that transactions with related parties are entered into on terms no less favorable to us than would exist if these transactions were entered into with unrelated third parties on an
arms length basis. Tsakos Energy Management has undertaken to ensure that all transactions with related parties are reported to the board of directors. Under the management agreement, any such transaction or series of transactions involving
payments in excess of $100,000 and which is not in the ordinary course of business requires the prior consent of the board of directors. Transactions not involving payments in excess of $100,000 may be reported quarterly to the board of directors.
To help minimize any conflict between our interests and the interests of other companies affiliated with the Tsakos family
and the owners of other vessels managed by such companies if an opportunity to purchase a tanker which is 10 years of age or younger is referred to or developed by Tsakos Shipping, Tsakos Shipping will notify us of this opportunity and allow us a 10
business day period within which to decide whether or not to accept the opportunity before offering it to any of its affiliates or other clients.
The following table sets forth the amounts charged by related parties for services rendered (in thousands of U.S. dollars):
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2016
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2015
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2014
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Tsakos Shipping and Trading S.A. (commissions)
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5,989
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7,550
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6,189
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Tsakos Energy Management Limited (management fees)
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16,935
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16,032
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15,840
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Tsakos Columbia Shipmanagement S.A.
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2,136
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2,234
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2,091
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Argosy Insurance Company Limited
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9,036
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9,386
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9,529
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AirMania Travel S.A.
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4,866
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4,298
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4,797
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Total expenses with related parties
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38,962
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39,500
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38,446
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Management Affiliations
Nikolas P. Tsakos, our president, chief executive officer and one of our directors, is an officer, director and the sole shareholder of Tsakos Energy Management. He is also the son of the founder of
Tsakos Shipping.
George V. Saroglou, our chief operating officer and one of our directors, is a cousin of Nikolas P. Tsakos.
Management and Other Fees
We prepay or reimburse our technical manager at cost for all vessel operating expenses payable by them in their capacity as technical manager of the fleet. At December 31, 2016, outstanding advances
to TCM amounted to $6.7 million and there was an amount due to Tsakos Shipping of $0.8 million. At December 31, 2015, outstanding advances to TCM amounted to $4.2 million and there was an amount due to Tsakos Shipping of
$1.0 million.
From the management fee we pay Tsakos Energy Management, Tsakos Energy Management in turn pays a
management fee to TCM for its services as technical manager of the fleet. Under the terms of our management agreement with Tsakos Energy Management, we paid Tsakos Energy Management total management fees of $16.9 million. In 2016, an additional
amount of $2.1 million was paid in fees directly by the Company to TCM for extra services provided or arranged by TCM in relation to information technology services, application of corporate governance procedures required by the Company and
seafarers training. In 2016 and 2015, we paid Tsakos Energy Management an incentive award of $2.6 million and $1.1 million, respectively, plus $0.4 million in 2015 in relation to the Companys capital raising transactions during
the year. No incentive award was payable to Tsakos Energy Management for 2014. However, special awards totaling $0.9 million were awarded to Tsakos Energy Management in 2014 in relation to the Companys capital raising transactions in
2014.
104
Management Agreement
Our management agreement with Tsakos Energy Management was amended and restated on March 8, 2007 and has a term of ten years that renews annually. Tsakos Energy Management may terminate the
management agreement at any time upon not less than one years notice. In addition, either party may terminate the management agreement under certain circumstances, including the following:
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certain events of bankruptcy or liquidation involving either party;
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a material breach by either party; or
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a failure by Tsakos Energy Management, for a continuous period of two months, materially to perform its duties because of certain events of force
majeure.
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Moreover, following a change in control of us, which would occur if at least one director were
elected to our Board without having been recommended by our existing Board, Tsakos Energy Management may terminate the agreement on 10 business days notice. If Tsakos Energy Management terminates the agreement for this reason, then we would
immediately be obligated to pay Tsakos Energy Management the present discounted value of all of the payments that would have otherwise been due under the management agreement up until June 30 of the tenth year following the date of termination
plus the average of the incentive awards previously paid to Tsakos Energy Management multiplied by ten. Under these terms, therefore, a termination as of December 31, 2016 would have resulted in a payment of approximately $166.3 million.
Under the terms of the Management Agreement between the Company and Tsakos Energy Management, the Company may terminate the agreement only under specific circumstances, such as breach of contract by the manager and change of control in the
shareholding of the manager without the prior approval of the Companys Board of Directors.
Under the management
agreement, we pay monthly fees for Tsakos Energy Managements management of the vessels in the fleet. These fees are based on the number of ships in the fleet. The
per-ship
charges begin to accrue for a
vessel at the point that a newbuilding contract is acquired, which is 18 to 24 months before the vessel begins to earn revenue. For 2016, monthly fees for operating conventional vessels continue to be $27,500 per owned vessel and $20,400 for
chartered-in
vessels and vessels bareboat chartered out. Monthly management fees for the DP2 shuttle tankers continue to be $35,000 per vessel. Monthly management fees for the suezmax
Eurochampion 2004,
the
aframax
Maria Princess
and the
VLCC
Ulysses
were $27,500 of which $13,940 is payable to a third party manager and $14,219 for the aframax
Sapporo Princess
. The monthly fee for the LNG carriers continues to be $35,833 of
which $10,000 is payable to Tsakos Energy Management and $25,833 to a third party manager. We paid Tsakos Energy Management aggregate management fees of $16.9 million in 2016, $16.0 million in 2015 and $15.8 million in 2014.
Chartering Commissions, Sale and Purchase Commissions and Vessel
New-delivery
Fees
We pay a chartering commission to Tsakos Shipping equal to 1.25% on all freights, hires and demurrages involving our vessels. Tsakos
Shipping may also charge a brokerage commission on the sale of a vessel. There were no sales of vessel in 2016. During 2016 and 2015, a ship brokerage company affiliated with a
non-executive
member of the
Board of Directors, Michael G. Jolliffe, received $0.2 million and $0.3 million gross in commissions for brokerage services provided to the Company in relation to the charter of vessels owned by three of the Companys subsidiaries.
All such arrangements were performed in the ordinary course of the Companys business and at terms standard to industry practice. In 2016, the same company earned $0.3 million in commissions relating the acquisition of the VLCC
Ulysses
. In November 2015, the Company chartered the VLCC
Millennium
to a client company of Tsakos Shipping for a daily rate of $15,000 for a period of approximately three years. We have been charged by Tsakos Shipping chartering and
brokerage commissions aggregating $6.0 million in 2016.
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Tsakos Shipping may also charge a fee of $0.2 million (or such other sum as may be
agreed) on delivery of each newbuilding vessel in payment for the cost of design and supervision of the newbuilding by Tsakos Shipping. This amount is added to the cost of the vessels concerned and is amortized over their remaining lives. In 2014,
$0.2 million in aggregate was charged for supervision fees on the DP2 suezmax shuttle tankers
Rio 2016
and
Brasil 2014
and $0.6 million in aggregate was charged as a brokerage commission in connection with the purchase of the
suezmax tankers
Eurovision
and
Euro
. No such amounts were paid in 2016 or 2015.
Captive Insurance Policies
We pay Argosy Insurance Company, an affiliate of Tsakos family interests, premiums to provide hull and machinery, increased value and loss
of hire insurance for our vessels. In 2016, we were charged an aggregate of $9.0 million by Argosy for insurance premiums.
Travel
Services
We use AirMania Travel S.A., an affiliate of Tsakos family interests, for travel services primarily to transport
our crews to and from our vessels. In 2016, we were charged an aggregate of $4.9 million by AirMania for travel services.
Major
Shareholders
The following table sets forth certain information regarding the beneficial ownership of our outstanding
common shares as of March 31, 2017 held by:
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each person or entity that we know beneficially owns 5% or more of our common shares; and
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all our directors and officers as a group.
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Beneficial ownership is determined in accordance with the rules of the SEC. In general, a person who has or shares voting power or investment power with respect to securities is treated as a beneficial
owner of those securities. Beneficial ownership does not necessarily imply that the named person has the economic or other benefits of ownership. Under SEC rules, shares subject to options, warrants or rights currently exercisable or exercisable
within 60 days are considered as beneficially owned by the person holding those options, warrants or rights. The applicable percentage of ownership of each shareholder is based on 84,270,866 common shares outstanding on April 25, 2017.
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Name of Beneficial Owner
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Number of
Shares
Beneficially Owned
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Percentage of
Outstanding
Common Shares
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Tsakos Holdings Foundation(1)
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15,140,021
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17.97
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%
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Redmont Trading Corp.(1)
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3,560,007
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4.22
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%
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First Tsakos Investments Inc.(1)
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11,580,014
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13.74
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%
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Kelley Enterprises Inc.(1)
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7,230,007
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8.58
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%
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Marsland Holdings Limited(1)
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4,350,007
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5.16
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%
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Sea Consolidation S.A. of Panama(2)
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5,375,000
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6.38
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%
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Intermed Champion S.A. of Panama(2)
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2,615,000
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3.10
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%
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Methoni Shipping Company Limited (2)
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3,330,000
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3.95
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%
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Anemomilia Investment Company Limited(2)
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1,664,114
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1.97
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%
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All officers and directors as a group (12 persons)(3)
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691,302
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0.8
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%
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(1)
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First Tsakos Investments Inc. (First Tsakos) is the sole holder of the outstanding capital stock of Kelley Enterprises Inc.
(Kelley) and Marsland Holdings Limited (Marsland) and may be deemed to have
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shared voting and dispositive power of the common shares reported by Kelley and Marsland. Tsakos Holdings Foundation (Tsakos Holdings) is the sole holder of outstanding capital stock
of First Tsakos and Redmont Trading Corp. (Redmont) and may be deemed to have shared voting and dispositive power of the common shares reported by Kelley, Marsland and Redmont. According to a Schedule 13D/A filed on April 5, 2016 by
Tsakos Holdings, First Tsakos, Kelley, Marsland and Redmont, Tsakos Holdings is a Liechtenstein foundation whose beneficiaries include persons and entities affiliated with the Tsakos family, charitable institutions and other unaffiliated persons and
entities. The council which controls Tsakos Holdings consists of five members, two of whom are members of the Tsakos family. Under the rules of the SEC, beneficial ownership includes the power to directly or indirectly vote or dispose of securities
or to share such power. It does not necessarily imply economic ownership of the securities. Members of the Tsakos family are among the five council members of Tsakos Holdings and accordingly may be deemed to share voting and/or dispositive power
with respect to the shares owned by Tsakos Holdings and may be deemed the beneficial owners of such shares.
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(2)
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According to the Schedule 13D/A filed on April 5, 2016 by Sea Consolidation S.A. of Panama (Sea Consolidation), Intermed Champion S.A. of Panama
(Intermed), Methoni Shipping Company Limited (Methoni), Anemomilia Investment Company Limited (Anemomilia), Panayotis Tsakos and Nikolas Tsakos, as of April 5, 2016, Sea Consolidation, Intermed, Methoni,
Anemomilia and Nikolas Tsakos beneficially owned 5,375,000, 2,615,000, 3,330,000, 1,664,114 and 204,000 common shares, respectively. According to filings by Sea Consolidation and Intermed with the SEC pursuant to Section 13 of the Exchange Act,
Panayotis Tsakos is the controlling shareholder of each of Sea Consolidation, Intermed, Methoni and Anemomilia and may be deemed to indirectly beneficially own the common shares held by Sea Consolidation and Intermed as a result of his control
relationship with each entity. Panayotis Tsakos is the father of Nikolas Tsakos, our president and chief executive officer.
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(3)
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Does not include shares owned by Tsakos Holdings, First Tsakos, Kelley, Marsland, Redmont Trading Corp., Sea Consolidation, Intermed, Methoni or Anemomilia.
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Entities affiliated with Panayotis Tsakos and Nikolas Tsakos own 103,370, or 5.2%, of our outstanding Series C
Preferred Shares and 200,000, or 5.9%, of our outstanding Series D Preferred Shares as of March 31, 2017. Entities affiliated with Nikolas Tsakos own 165,573, or 8.3%, of our outstanding Series B Preferred Shares and 140,000, or 7.0%, of our
outstanding Series C Preferred Shares. Methoni owns 2,600, or 0.1%, of our outstanding Series B Preferred Shares as of March 31, 2017. Kelley owns 700, or less than 0.1%, of our outstanding Series D Preferred Shares as of March 31, 2017.
Marsland owns 1,200, or less than 0.1%, of our outstanding Series D Preferred Shares as of March 31, 2017. Entities affiliated with Nikolas Tsakos own 120,000 Series E Preferred Shares, or 2.6% of our outstanding Series E Preferred Shares as of
April 25, 2017. To our knowledge, none of the entities in the above table own any other shares, and none of our other officers or directors own 1% or more, of our Series B Preferred Shares, Series C Preferred Shares, Series D Preferred Shares
or Series E Preferred Shares as of April 25, 2017.
As of March 31, 2017, we had 22 holders of record of our common
shares. These shareholders of record include CEDEFAST which, as nominee for the Depository Trust Company, is the record holder of 84,120,166 common shares representing approximately 99.8% of our outstanding common shares. CEDEFAST is the nominee of
banks and brokers which hold shares on behalf of their customers, the beneficial owners of the shares, who may or may not be resident in the United States. However, apart from the shareholders indicated in the footnotes (1) and (2) above
and certain of the directors and officers, we believe that the majority of the remaining shareholders are resident in the United States. The Company is not aware of any arrangements the operation of which may at a subsequent date result in a change
of control of the Company.
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Item 8.
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Financial Information
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See Item 18. Financial Statements below.
Significant Changes.
No significant change has occurred since the date of the annual financial statements included in this Annual Report on Form
20-F.
Legal Proceedings.
We are involved in litigation from time to time in the ordinary course of business. In our opinion,
the litigation in which we are involved as of April 5, 2017, individually or in the aggregate, is not material to us.
Dividend Policy.
While we cannot assure you that we will do so, and subject to the limitations discussed below, we intend to pay
quarterly cash dividends on our common shares. The Board of Directors will give consideration each April to the declaration of a supplementary dividend.
On May 10, 2013, we issued 2,000,000 8% Series B Cumulative Redeemable Perpetual Preferred Shares. The holders of those shares are entitled to a quarterly dividend of $0.50 per share payable
quarterly in arrears on the 30th day of January, April, July and October each year when, as and if declared by our Board of Directors.
On September 30, 2013, we issued 2,000,000 8.875% Series C Cumulative Redeemable Perpetual Preferred Shares. The holders of those shares are entitled to a quarterly dividend of $0.55469 per share
payable quarterly in arrears on the 30th day of January, April, July and October each year when, as and if declared by our Board of Directors.
On April 22, 2015, we issued 3,400,000 8.75% Series D Cumulative Redeemable Perpetual Preferred Shares. The holders of those shares are entitled to a quarterly dividend of $0.546875 per share payable
quarterly in arrears on the 28
th
day of February, May,
August and November each year when, as and if declared by our Board of Directors.
On April 5, 2017, we issued 4,600,000
Series E
Fixed-to-Floating
Rate Cumulative Redeemable Perpetual Preferred Shares. Dividends on the Series E Preferred Shares are cumulative from the date of original
issue and will be payable quarterly in arrears on the 28th day of February, May, August and November of each year, commencing May 28, 2017, when, as and if declared by our board of directors. Dividends will be payable from cash available for
dividends (i) from and including the original issue date to, but excluding, May 28, 2027 at a fixed rate equal to 9.25% per annum of the stated liquidation preference and (ii) from and including May 28, 2027, at a floating rate
equal to three-month LIBOR plus a spread of 6.881% per annum of the stated liquidation preference. The quarterly dividend to which holders of the Series E Preferred Shares will be entitled during the fixed rate period will be $0.578125 per share,
when, as and if declared by our Board of Directors.
There can be no assurance that we will pay dividends or as to the amount
of any dividend. The payment and the amount will be subject to the discretion of our board of directors and will depend, among other things, on available cash balances, anticipated cash needs, our results of operations, our financial condition, and
any loan agreement restrictions binding us or our subsidiaries, as well as other relevant factors. For example, if we earned a capital gain on the sale of a vessel or newbuilding contract, we could determine to reinvest that gain instead of using it
to pay dividends. Depending on our operating performance for that year, this could result in no dividend at all despite the existence of net income, or a dividend that represents a lower percentage of our net income. Of course, any payment of cash
dividends could slow our ability to renew and expand our fleet, and could cause delays in the completion of our current newbuilding program.
Because we are holding a company with no material assets other than the stock of our subsidiaries, our ability to pay dividends will depend on the earnings and cash flow of our subsidiaries and their
ability to pay dividends to us.
108
Under the terms of our existing credit facilities, we are permitted to declare or pay a cash
dividend in any year as long as the amount of the dividend does not exceed 50% of our net income for that year. Net income is determined based on the audited financial statements we deliver to the banks under our credit facilities which are required
to be presented in accordance with U.S. generally accepted accounting principles. This amount can be carried forward and applied to a dividend payment in a subsequent year provided the aggregate amount of all dividends we declare and/or pay after
January 1, 1998 does not exceed 50% of our accumulated net income from January 1, 1998 up to the most recent date on which audited financial statements have been delivered under the credit facility. We anticipate incurring significant
additional indebtedness in connection with our newbuilding program, which will affect our net income and cash available to pay dividends. In addition, cash dividends can be paid only to the extent permitted by Bermuda law and our financial
covenants. See Item 10. Additional InformationDescription of Share CapitalBermuda LawDividends. See Item 3. Key InformationRisks Related to our Common and Preferred SharesWe may not be able to pay
cash dividends on our common shares or preferred shares as intended if market conditions change.
Item 9.
|
The Offer and Listing
|
Our common shares are listed on the New York Stock Exchange and the Bermuda Stock Exchange. Following a decision of our Board of
Directors, our common shares were
de-listed
from Oslo Børs on March 18, 2005. Our common shares are not actively traded on the Bermuda Stock Exchange.
Trading on the New York Stock Exchange
Since our initial public offering in the United States in March of 2002, our common shares have been listed on the New York Stock Exchange under the ticker symbol TNP. The following table
shows the high and low closing prices for our common shares during the indicated periods.
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
2012 (Annual)
|
|
$
|
8.79
|
|
|
$
|
3.19
|
|
2013 (Annual)
|
|
$
|
6.11
|
|
|
$
|
3.40
|
|
2014 (Annual)
|
|
$
|
8.35
|
|
|
$
|
4.99
|
|
2015 (Annual)
|
|
$
|
10.32
|
|
|
$
|
6.55
|
|
2016 (Annual)
|
|
$
|
7.66
|
|
|
$
|
4.01
|
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
8.22
|
|
|
$
|
6.55
|
|
Second Quarter
|
|
$
|
10.32
|
|
|
$
|
8.41
|
|
Third Quarter
|
|
$
|
10.09
|
|
|
$
|
6.85
|
|
Fourth Quarter
|
|
$
|
9.61
|
|
|
$
|
6.86
|
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
7.66
|
|
|
$
|
4.83
|
|
Second Quarter
|
|
$
|
6.51
|
|
|
$
|
4.49
|
|
Third Quarter
|
|
$
|
5.38
|
|
|
$
|
4.64
|
|
Fourth Quarter
|
|
$
|
5.24
|
|
|
$
|
4.01
|
|
October
|
|
$
|
5.14
|
|
|
$
|
4.50
|
|
November
|
|
$
|
4.82
|
|
|
$
|
4.01
|
|
December
|
|
$
|
5.24
|
|
|
$
|
4.49
|
|
2017
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
5.10
|
|
|
$
|
4.39
|
|
January
|
|
$
|
5.10
|
|
|
$
|
4.69
|
|
February
|
|
$
|
4.86
|
|
|
$
|
4.62
|
|
March
|
|
$
|
4.89
|
|
|
$
|
4.39
|
|
Second Quarter
|
|
|
|
|
|
|
|
|
April (Through April 26, 2017)
|
|
$
|
4.95
|
|
|
$
|
4.66
|
|
109
Since May 2013, our Series B Preferred Shares have been listed on the New York Stock
Exchange under the ticker symbol TNP.PB. The following table shows the high and low closing prices for our Series B Preferred Shares for the indicated period.
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
2013 (Annual)(1)
|
|
$
|
25.20
|
|
|
$
|
21.71
|
|
2014 (Annual)
|
|
$
|
25.25
|
|
|
$
|
21.81
|
|
2015 (Annual)
|
|
$
|
25.80
|
|
|
$
|
23.27
|
|
2014 (Annual)
|
|
$
|
25.83
|
|
|
$
|
21.50
|
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
25.70
|
|
|
$
|
24.20
|
|
Second Quarter
|
|
$
|
25.80
|
|
|
$
|
24.84
|
|
Third Quarter
|
|
$
|
25.35
|
|
|
$
|
23.89
|
|
Fourth Quarter
|
|
$
|
25.25
|
|
|
$
|
23.27
|
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
24.49
|
|
|
$
|
21.50
|
|
Second Quarter
|
|
$
|
25.30
|
|
|
$
|
24.00
|
|
Third Quarter
|
|
$
|
25.56
|
|
|
$
|
24.48
|
|
Fourth Quarter
|
|
$
|
25.83
|
|
|
$
|
24.60
|
|
October
|
|
$
|
25.83
|
|
|
$
|
25.25
|
|
November
|
|
$
|
25.19
|
|
|
$
|
24.60
|
|
December
|
|
$
|
25.39
|
|
|
$
|
25.05
|
|
|
|
|
2017
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
25.69
|
|
|
$
|
25.19
|
|
January
|
|
$
|
25.65
|
|
|
$
|
25.26
|
|
February
|
|
$
|
25.55
|
|
|
$
|
25.19
|
|
March
|
|
$
|
25.69
|
|
|
$
|
25.34
|
|
Second Quarter
|
|
|
|
|
|
|
|
|
April (Through April 26, 2017)
|
|
$
|
25.81
|
|
|
$
|
25.25
|
|
(1)
|
Commencing May 13, 2013.
|
110
Since October 2013, our Series C Preferred Shares have been listed on the New York Stock
Exchange under the ticker symbol TNP.PC. The following table shows the high and low closing prices for our Series C Preferred Shares for the indicated period.
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
2013 (Annual)(1)
|
|
$
|
24.20
|
|
|
$
|
21.78
|
|
2014 (Annual)
|
|
$
|
27.03
|
|
|
$
|
23.06
|
|
2015 (Annual)
|
|
$
|
26.42
|
|
|
$
|
22.91
|
|
2016 (Annual)
|
|
$
|
26.12
|
|
|
$
|
20.19
|
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
26.42
|
|
|
$
|
25.16
|
|
Second Quarter
|
|
$
|
26.34
|
|
|
$
|
25.07
|
|
Third Quarter
|
|
$
|
25.78
|
|
|
$
|
24.30
|
|
Fourth Quarter
|
|
$
|
25.15
|
|
|
$
|
22.91
|
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
24.75
|
|
|
$
|
20.19
|
|
Second Quarter
|
|
$
|
25.15
|
|
|
$
|
24.27
|
|
Third Quarter
|
|
$
|
26.12
|
|
|
$
|
24.80
|
|
Fourth Quarter
|
|
$
|
25.92
|
|
|
$
|
24.69
|
|
October
|
|
$
|
25.92
|
|
|
$
|
25.25
|
|
November
|
|
$
|
25.55
|
|
|
$
|
24.69
|
|
December
|
|
$
|
25.44
|
|
|
$
|
25.31
|
|
|
|
|
2017
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
26.01
|
|
|
$
|
24.41
|
|
January
|
|
$
|
26.01
|
|
|
$
|
25.43
|
|
February
|
|
$
|
25.72
|
|
|
$
|
25.41
|
|
March
|
|
$
|
25.86
|
|
|
$
|
25.55
|
|
Second Quarter
|
|
|
|
|
|
|
|
|
April (Through April 26, 2017)
|
|
$
|
26.01
|
|
|
$
|
25.42
|
|
(1)
|
Commencing October 3, 2013.
|
111
Since April 2015, our Series D Preferred Shares have been listed on the New York Stock
Exchange under the ticker symbol TNP.PD. The following table shows the high and low closing prices for our Series D Preferred Shares for the indicated period.
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
2015 (Annual)(1)
|
|
$
|
24.85
|
|
|
$
|
19.95
|
|
2016 (Annual)
|
|
$
|
25.00
|
|
|
$
|
16.25
|
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
Second Quarter(1)
|
|
$
|
24.85
|
|
|
$
|
22.86
|
|
Third Quarter
|
|
$
|
23.75
|
|
|
$
|
21.61
|
|
Fourth Quarter
|
|
$
|
23.50
|
|
|
$
|
19.95
|
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
22.53
|
|
|
$
|
16.25
|
|
Second Quarter
|
|
$
|
22.95
|
|
|
$
|
21.93
|
|
Third Quarter
|
|
$
|
25.00
|
|
|
$
|
22.37
|
|
Fourth Quarter
|
|
$
|
24.75
|
|
|
$
|
23.59
|
|
October
|
|
$
|
24.75
|
|
|
$
|
24.15
|
|
November
|
|
$
|
24.75
|
|
|
$
|
23.59
|
|
December
|
|
$
|
24.42
|
|
|
$
|
24.00
|
|
|
|
|
2017
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
25.10
|
|
|
$
|
24.25
|
|
January
|
|
$
|
24.96
|
|
|
$
|
24.25
|
|
February
|
|
$
|
25.10
|
|
|
$
|
24.57
|
|
March
|
|
$
|
25.10
|
|
|
$
|
24.37
|
|
Second Quarter
|
|
|
|
|
|
|
|
|
April (Through April 26, 2017)
|
|
$
|
24.98
|
|
|
$
|
24.70
|
|
(1)
|
Commencing April 24, 2015.
|
Our Series E
Fixed-to-Floating
Rate Cumulative Redeemable
Perpetual Preferred Shares began trading on the New York Stock Exchange on April 6, 2017. From that time through April 26, 2017, the highest closing price has been $25.14 per share and the lowest closing price has been $24.94 per share.
Item 10.
|
Additional Information
|
DESCRIPTION OF SHARE CAPITAL
Our authorized share capital consists of 185,000,000 common shares, par value $1.00 per share, and 15,000,000 blank check preferred shares, $1.00 par value per share. 2,300,000 shares have been designated
8.00% Series B Cumulative Redeemable Perpetual Preferred Shares as described below under Series B Preferred Shares, 2,300,000 shares have been designated 8.875% Series C Cumulative Redeemable Perpetual Preferred Shares as described
below under Series C Preferred Shares, 3,910,000 shares have been designated 8.75% Series D Cumulative Redeemable Perpetual Preferred Shares as described below under Series D Preferred Shares and 4,600,000 shares
have been designated Series E
Fixed-to-Floating
Rate Cumulative Redeemable Perpetual Preferred Shares as described below under Series E Preferred
Shares. As of April 5, 2017, there were 84,270,866 common shares, 2,000,000 8.00% Series B Cumulative Redeemable Perpetual Preferred Shares, 2,000,000 8.875% Series C Cumulative Redeemable Preferred Shares, 3,424,803 8.75% Series D
Cumulative Redeemable Perpetual Preferred Shares and 4,600,000 Series E
Fixed-to-Floating
Rate Cumulative Redeemable Perpetual Preferred Shares.
112
Common Shares
The holders of common shares are entitled to receive dividends out of assets legally available for that purpose at times and in amounts as our board of directors may from time to time determine. Each
shareholder is entitled to one vote for each common share held on all matters submitted to a vote of shareholders. Cumulative voting for the election of directors is not provided for in our Memorandum of Association or
Bye-laws,
which means that the holders of a majority of the common shares voted can elect all of the directors then standing for election. Our
Bye-laws
provide for a
staggered board of directors, with
one-third
of our
non-executive
directors being selected each year. The common shares are not entitled to preemptive rights and are not
subject to conversion or redemption. Upon the occurrence of a liquidation, dissolution or
winding-up,
the holders of common shares would be entitled to share ratably in the distribution of all of our assets
remaining available for distribution after satisfaction of all our liabilities.
Preferred Shares
Under our
Bye-laws,
our board of directors has the authority to issue preferred shares in one or
more series, and to establish the terms and preferences of the shares of each series, up to the number of preferred shares authorized under our constitutive documents as described above. Holders of each series of preferred shares will be entitled to
receive cash dividends, when, as and if declared by our board of directors out of funds legally available for dividends. Such distributions will be made before any distribution is made on any securities ranking junior in relation to preferred shares
in liquidation, including common shares.
Series B Preferred Shares
We have 2,000,000 of our 8.00% Series B Cumulative Redeemable Perpetual Preferred Shares outstanding as of April 5, 2017, which were
issued on May 10, 2013. The initial liquidation preference of the Series B Preferred Shares is $25.00 per share, subject to adjustment. The shares are redeemable by us at any time on or after July 30, 2018. The shares carry an annual
dividend rate of 8.00% per $25.00 of liquidation preference per share, subject to increase if (i) we fail to comply with certain covenants, (ii) we experience certain defaults under any of our credit facilities, (iii) four quarterly
dividends payable on the Series B Preferred Shares are in arrears or (iv) the Series B Preferred Shares are not redeemed in whole by July 30, 2019. The Series B Preferred Shares represent perpetual equity interests in us and, unlike our
indebtedness, do not give rise to a claim for payment of a principal amount at a particular date. As such, the Series B Preferred Shares rank junior to all of our indebtedness and other liabilities with respect to assets available to satisfy claims
against us. Upon any liquidation or dissolution of us, holders of the Series B Preferred Shares and any pari passu securities will generally be entitled to receive, on a pro rata basis, the liquidation preference of the Series B Preferred Shares,
or, in the case of pari passu securities, the liquidation preference of such series of pari passu securities, plus an amount equal to accumulated and unpaid dividends ratably with any pari passu securities, after satisfaction of all liabilities to
our creditors and holders of securities senior to the Series B Preferred Shares, but before any distribution is made to or set aside for the holders of junior shares, including our common shares. The Series B Preferred Shares rank pari passu with
the Series C Preferred Shares, the Series D Preferred Shares and the Series E Preferred Shares. The Series B Preferred Shares are not convertible into common shares or other of our securities, do not have exchange rights and are not entitled to any
preemptive or similar rights.
Series C Preferred Shares
We have 2,000,000 of our 8.875% Series C Cumulative Redeemable Perpetual Preferred Shares outstanding as of April 5, 2017, which were
issued on September 30, 2013. The initial liquidation preference of the Series C Preferred Shares is $25.00 per share, subject to adjustment. The shares are redeemable by us at any time on or after October 30, 2018. The shares carry an
annual dividend rate of 8.875% per $25.00 of liquidation preference per share, subject to increase if (i) we fail to comply with certain covenants, (ii) we experience certain defaults under any of our credit facilities, (iii) four
quarterly dividends payable on the Series C Preferred Shares are in
113
arrears, or (iv) the Series C Preferred Shares are not redeemed in whole by October 30, 2020. The Series C Preferred Shares represent perpetual equity interests in us and, unlike our
indebtedness, do not give rise to a claim for payment of a principal amount at a particular date. As such, the Series C Preferred Shares rank junior to all of our indebtedness and other liabilities with respect to assets available to satisfy claims
against us. Upon any liquidation or dissolution of us, holders of the Series C Preferred Shares and any pari passu securities will generally be entitled to receive, on a pro rata basis, the liquidation preference of the Series C Preferred Shares,
or, in the case of pari passu securities, the liquidation preference of such series of pari passu securities, plus an amount equal to accumulated and unpaid dividends ratably with any pari passu securities, after satisfaction of all liabilities to
our creditors and holders of securities senior to the Series C Preferred Shares, but before any distribution is made to or set aside for the holders of junior shares, including our common shares. The Series C Preferred Shares rank pari passu with
the Series B Preferred Shares, the Series D Preferred Shares and the Series E Preferred Shares. The Series C Preferred Shares are not convertible into common shares or other of our securities, do not have exchange rights and their holders are not
entitled to any preemptive or similar rights.
Series D Preferred Shares
We have 3,424,803 of our 8.75% Series D Cumulative Redeemable Perpetual Preferred Shares outstanding as of April 5, 2017, which were
issued on April 29, 2015 and in the first quarter of 2017. The initial liquidation preference of the Series D Preferred Shares is $25.00 per share, subject to adjustment. The shares are redeemable by us at any time on or after April 29,
2020. The shares carry an annual dividend rate of 8.75% per $25.00 of liquidation preference per share. The Series D Preferred Shares represent perpetual equity interests in us and, unlike our indebtedness, do not give rise to a claim for payment of
a principal amount at a particular date. As such, the Series D Preferred Shares rank junior to all of our indebtedness and other liabilities with respect to assets available to satisfy claims against us. Upon any liquidation or dissolution of us,
holders of the Series D Preferred Shares and any pari passu securities will generally be entitled to receive, on a pro rata basis, the liquidation preference of the Series D Preferred Shares, or, in the case of pari passu securities, the liquidation
preference of such series of pari passu securities, plus an amount equal to accumulated and unpaid dividends ratably with any pari passu securities, after satisfaction of all liabilities to our creditors and holders of securities senior to the
Series D Preferred Shares, but before any distribution is made to or set aside for the holders of junior shares, including our common shares. The Series D Preferred Shares rank pari passu with the Series B Preferred Shares, Series C Preferred Shares
and the Series E Preferred Shares. The Series D Preferred Shares are not convertible into common shares or other of our securities, do not have exchange rights and their holders are not entitled to any preemptive or similar rights.
Series E Preferred Shares
We had 4,600,000 of our Series E
Fixed-to-Floating
Rate Cumulative Redeemable Perpetual Preferred Shares outstanding as of
April 5, 2017, which were issued on April 5, 2017. The initial liquidation preference of the Series E Preferred Shares is $25.00 per share, subject to adjustment. The shares are redeemable by us at any time on or after May 28, 2027.
Dividends on the Series E Preferred Shares are cumulative from the date of original issue and will be payable quarterly in arrears on the 28th day of February, May, August and November of each year, commencing May 28, 2017, when, as and if
declared by our board of directors. Dividends will be payable from cash available for dividends (i) from and including the original issue date to, but excluding, May 28, 2027 at a fixed rate equal to 9.25% per annum of the stated
liquidation preference and (ii) from and including May 28, 2027, at a floating rate equal to three-month LIBOR plus a spread of 6.881% per annum of the stated liquidation preference. The Series E Preferred Shares represent perpetual equity
interests in us and, unlike our indebtedness, do not give rise to a claim for payment of a principal amount at a particular date. As such, the Series D Preferred Shares rank junior to all of our indebtedness and other liabilities with respect to
assets available to satisfy claims against us. Upon any liquidation or dissolution of us, holders of the Series E Preferred Shares and any pari passu securities will generally be entitled to receive, on a pro rata basis, the liquidation preference
of the Series E Preferred Shares, or, in the case of pari passu securities, the liquidation preference of such series of pari passu securities, plus an amount equal to accumulated and unpaid dividends ratably with any
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pari passu securities, after satisfaction of all liabilities to our creditors and holders of securities senior to the Series E Preferred Shares, but before any distribution is made to or set
aside for the holders of junior shares, including our common shares. The Series E Preferred Shares rank pari passu with the Series B Preferred Shares, Series C Preferred Shares and the Series D Preferred Shares. The Series E Preferred Shares are not
convertible into common shares or other of our securities, do not have exchange rights and their holders are not entitled to any preemptive or similar rights.
Bermuda Law
We are an exempted company organized under the Companies Act
1981 of Bermuda, as amended (the Companies Act 1981 of Bermuda). Bermuda law and our Memorandum of Association and
Bye-laws
govern the rights of our shareholders. Our objects and purposes are set
forth in paragraph 6 and the Schedule to our Memorandum of Association. Our objects and purposes include to act and to perform all the functions of a holding company in all its branches and to coordinate the policy and administration of any
subsidiary company or companies wherever incorporated or carrying on business or of any group of companies of which we or any subsidiary of ours is a member or which are in any manner controlled directly or indirectly by us. The Companies Act 1981
of Bermuda differs in some material respects from laws generally applicable to United States corporations and their shareholders. The following is a summary of the material provisions of Bermuda law and our organizational documents. You should read
the more detailed provisions of our Memorandum of Association and
Bye-laws
for provisions that may be important to you. You can obtain copies of these documents by following the directions outlined in
Available Information.
Dividends
. Under Bermuda law, a company may not pay dividends that are declared
from time to time by its board of directors or make a distribution out of contributed surplus if there are reasonable grounds for believing that the company is, or would after the payment be, unable to pay its liabilities as they become due or that
the realizable value of its assets would then be less than its liabilities.
Voting rights
. Under Bermuda law, except
as otherwise provided in the Companies Act 1981 of Bermuda or our
Bye-laws,
questions brought before a general meeting of shareholders are decided by a majority vote of common shareholders present at the
meeting. Our
Bye-laws
provide that, subject to the provisions of the Companies Act 1981 of Bermuda, any question proposed for the consideration of the shareholders will be decided in a general meeting by a
simple majority of the votes cast, on a show of hands, with each shareholder present (and each person holding proxies for any shareholder) entitled to one vote for each common share held by the common shareholder, except for special situations where
a shareholder has lost the right to vote because he has failed to comply with the terms of a notice requiring him to provide information to the company pursuant to the
Bye-laws,
or his voting rights have been
partly suspended under the
Bye-laws
as a consequence of becoming an interested person. In addition, a super-majority vote of not less than seventy-five percent (75%) of the votes cast at the meeting is
required to effect any action related to the variation of class rights and a vote of not less than eighty percent (80%) of the votes cast at the meeting is required to effect any of the following actions: removal of directors, approval of
business combinations with certain interested persons and for any alteration to the provisions of the
Bye-laws
relating to the staggered board, removal of directors and business combinations.
The Series B, Series C, Series D and Series E Preferred Shares have no voting rights except as set forth below or as
otherwise provided by Bermuda law. In the event that six quarterly dividends, whether consecutive or not, payable on Series B, Series C, Series D or Series E Preferred Shares are in arrears, the holders of Series B, Series C, Series D and/or Series
E Preferred Shares, as the case may be, will have the right, voting separately as a class together with holders of any other parity securities upon which like voting rights have been conferred and are exercisable, at the next meeting of shareholders
called for the election of directors, to elect one member of our board of directors, and the size of our board of directors will be increased as needed to accommodate such change (unless the size of our board of directors already has been increased
by reason of the election of a director by holders of parity securities upon which like voting rights have been conferred and with which the Series B,
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Series C, Series D or Series E Preferred Shares, respectively, voted as a class for the election of such director). The right of such holders of Series B, Series C, Series D or Series E Preferred
Shares, as the case may be, to elect a member of our board of directors will continue until such time as all dividends accumulated and in arrears on the Series B, Series C, Series D or Series E Preferred Shares, as the case may be, have been paid in
full, at which time such right will terminate, subject to revesting in the event of each and every subsequent failure to pay six quarterly dividends as described above. Upon any termination of the right of the holders of the Series B, Series C,
Series D and Series E Preferred Shares and any other parity securities to vote as a class for directors, the term of office of all directors then in office elected by such holders voting as a class will terminate immediately. Any directors elected
by the holders of the Series B, Series C, Series D and Series E Preferred Shares and any other parity securities shall each be entitled to one vote per director on any matter before our board of directors.
Unless we have received the affirmative vote or consent of the holders of at least
two-thirds
of
the issued and outstanding Series B, Series C, Series D and Series E Preferred Shares, respectively, each voting as a single class, we may not:
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adopt any amendment to the Memorandum of Association that adversely alters the preferences, powers or rights of Series B, Series C, Series D or Series
E Preferred Shares in any material respect;
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issue any securities ranking pari passu with the Series B, Series C, Series D and Series E Preferred Shares if the cumulative dividends payable on
outstanding Series B, Series C, Series D or Series E Preferred Shares, as applicable, are in arrears; or
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create or issue any equity securities ranking senior to the Series B, Series C, Series D and Series E Preferred Shares.
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On any matter described above in which the holders of the Series B, Series C, Series D and Series E Preferred Shares, respectively, are
entitled to vote as a class, such holders will be entitled to one vote per share. The Series B, Series C, Series D and Series E Preferred Shares held by us or any of our subsidiaries or affiliates will not be entitled to vote.
Rights in liquidation
. Under Bermuda law, in the event of liquidation or winding up of a company, after satisfaction in full of
all claims of creditors and subject to the preferential rights accorded to any series of preferred shares, the proceeds of the liquidation or winding up are distributed ratably among the holders of the companys common shares.
Meetings of shareholders
. Bermuda law provides that a special general meeting may be called by the board of directors and must be
called upon the request of shareholders holding not less than 10% of the
paid-up
capital of the company carrying the right to vote. Bermuda law also requires that shareholders be given at least five
(5) days advance notice of a general meeting but the accidental omission to give notice to, or the
non-receipt
of such notice by, any person does not invalidate the proceedings at a meeting. Under
our
Bye-laws,
we must give each shareholder at least ten (10) days notice and no more than fifty (50) days notice of the annual general meeting and of any special general meeting.
Under Bermuda law, the number of shareholders constituting a quorum at any general meeting of shareholders is determined by
the
Bye-laws
of a company. Our
Bye-laws
provide that the presence in person or by proxy of two shareholders constitutes a quorum; but if we have only one shareholder,
one shareholder present in person or by proxy shall constitute the necessary quorum.
Access to books and records and
dissemination of information
. Members of the general public have the right to inspect the public documents of a company available at the office of the Registrar of Companies in Bermuda. These documents include a companys Certificate of
Incorporation, its Memorandum of Association (including its objects and powers) and any alteration to its Memorandum of Association. The shareholders have the additional right to inspect the
Bye-laws
of the
company, minutes of general meetings and the companys audited
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financial statements, which must be presented at the annual general meeting. The register of shareholders of a company is also open to inspection by shareholders without charge and by members of
the general public without charge. A company is required to maintain its share register in Bermuda but may, subject to the provisions of Bermuda law, establish a branch register outside Bermuda. We maintain a share register in Hamilton, Bermuda. A
company is required to keep at its registered office a register of its directors and officers that is open for inspection for not less than two (2) hours each day by members of the public without charge. Bermuda law does not, however, provide a
general right for shareholders to inspect or obtain copies of any other corporate records.
Election or removal of
directors
. Under Bermuda law and our
Bye-laws,
directors are elected or appointed at the annual general meeting and serve until
re-elected
or
re-appointed
or until their successors are elected or appointed, unless they are earlier removed or resign. Our
Bye-laws
provide for a staggered board of directors, with
one-third
of the directors selected each year.
Under Bermuda law and our
Bye-laws,
a director may be removed at a special general meeting of shareholders specifically called for that purpose, provided the director is served with at least 14 days notice. The director has a right to
be heard at that meeting. Any vacancy created by the removal of a director at a special general meeting may be filled at that meeting by the election of another director in his or her place or, in the absence of any such election, by the board of
directors.
Amendment of Memorandum of Association
. Bermuda law provides that the Memorandum of Association of a
company may be amended by a resolution passed at a general meeting of shareholders of which due notice has been given. Generally, our
Bye-laws
may be amended by the directors with the approval of a majority
being not less than 75% of the votes of the shareholders in a general meeting. However, a super-majority vote is required for certain resolutions relating to the variation of class rights, the removal of directors, the approval of business
combinations with certain interested persons and for any alteration to the provisions of the
Bye-laws
relating to the staggered board, removal of directors and business combinations.
Under Bermuda law, the holders of an aggregate of no less than 20% in par value of a companys issued share capital or any class of
issued share capital have the right to apply to the Bermuda Court for an annulment of any amendment of the Memorandum of Association adopted by shareholders at any general meeting, other than an amendment which alters or reduces a companys
share capital as provided in the Companies Act 1981 of Bermuda. Where such an application is made, the amendment becomes effective only to the extent that it is confirmed by the Bermuda Court. An application for the annulment of an amendment of the
Memorandum of Association must be made within 21 days after the date on which the resolution altering the companys memorandum is passed and may be made on behalf of the persons entitled to make the application by one or more of their number as
they may appoint in writing for the purpose. Persons voting in favor of the amendment may make no such application.
Appraisal rights and shareholder suits
. Under Bermuda law, in the event of an amalgamation or merger involving a Bermuda company,
a shareholder who is not satisfied that fair value has been paid for his shares may apply to the Bermuda Court to appraise the fair value of his or her shares. The amalgamation or merger of a company with another company requires the amalgamation or
merger agreement to be approved by the board of directors and, except where the amalgamation or merger is between a holding company and one or more of its wholly owned subsidiaries or between two or more wholly owned subsidiaries, by meetings of the
holders of shares of each company and of each class of such shares.
Class actions and derivative actions are generally
not available to shareholders under Bermuda law. The Bermuda Court, however, would ordinarily be expected to permit a shareholder to commence an action in the name of a company to remedy a wrong done to the company where the act complained of is
alleged to be beyond the corporate power of the company or is illegal or would result in the violation of the companys Memorandum of Association or
Bye-laws.
Further consideration would be given by the
Bermuda Court to acts that are alleged to constitute a fraud against the minority shareholders or, for instance, where an act requires the approval of a greater percentage of the companys shareholders than that which actually approved it.
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When the affairs of a company are being conducted in a manner oppressive or prejudicial to
the interests of some part of the shareholders, one or more shareholders may apply to the Bermuda Court for an order regulating the companys conduct of affairs in the future or compelling the purchase of the shares by any shareholder, by other
shareholders or by the company.
Anti-takeover effects of provisions of our charter documents
Several provisions of our
Bye-laws
may have anti-takeover effects. These provisions are intended
to avoid costly takeover battles, lessen our vulnerability to a hostile change of control and enhance the ability of our board of directors to maximize shareholder value in connection with any unsolicited offer to acquire us. However, these
anti-takeover provisions, which are summarized below, could also discourage, delay or prevent (1) the merger or acquisition of our company by means of a tender offer, a proxy contest or otherwise, that a shareholder may consider in our best
interest and (2) the removal of incumbent officers and directors.
Classified board of directors.
Our
Bye-laws
provide for a classified board of directors with
one-third
of our directors being selected each year. This classified board provision could discourage a third party from making a tender offer for our shares or attempting to obtain control of our company. It could
also delay shareholders who do not agree with the policies of the board of directors from removing a majority of the board of directors for two years.
Transactions involving certain business combinations.
Our
Bye-laws
prohibit the consummation of any business combination involving us and any interested person, unless the transaction is approved by a vote of a majority of 80% of those present and voting at a general
meeting of our shareholders, unless:
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the ratio of (i) the aggregate amount of cash and the fair market value of other consideration to be received per share in the business
combination by holders of shares other than the interested person involved in the business combination, to (ii) the market price per share, immediately prior to the announcement of the proposed business combination, is at least as great as the
ratio of (iii) the highest per share price, which the interested person has theretofore paid in acquiring any share prior to the business combination, to (iv) the market price per share immediately prior to the initial acquisition by the
interested person of any shares;
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the aggregate amount of the cash and the fair market value of other consideration to be received per share in the business combination by holders of
shares other than the interested person involved in the business combination (i) is not less than the highest per share price paid by the interested person in acquiring any shares, and (ii) is not less than the consolidated earnings per
share of our company for our four full consecutive fiscal quarters immediately preceding the record date for solicitation of votes on the business combination multiplied by the then price/earnings multiple (if any) of the interested person as
customarily computed and reported in the financial community;
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the consideration (if any) to be received in the business combination by holders of shares other than the interested person involved shall, except to
the extent that a shareholder agrees otherwise as to all or part of the shares which the shareholder owns, be in the same form and of the same kind as the consideration paid by the interested person in acquiring shares already owned by it;
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after the interested person became an interested person and prior to the consummation of the business combination: (i) such interested person
shall have taken steps to ensure that the board includes at all times representation by continuing directors proportionate in number to the ratio that the number of shares carrying voting rights in our company from time to time owned by shareholders
who are not interested persons bears to all shares carrying voting rights in our company outstanding at the time in question (with a continuing director to occupy any resulting fractional position among the directors); (ii) the interested
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person shall not have acquired from us or any of our subsidiaries, directly or indirectly, any shares (except (x) upon conversion of convertible securities acquired by it prior to becoming
an interested person, or (y) as a result of a pro rata share dividend, share split or division or subdivision of shares, or (z) in a transaction consummated on or after June 7, 2001 and which satisfied all requirements of our
Bye-laws);
(iii) the interested person shall not have acquired any additional shares, or rights over shares, carrying voting rights or securities convertible into or exchangeable for shares, or rights over
shares, carrying voting rights except as a part of the transaction which resulted in the interested person becoming an interested person; and (iv) the interested person shall not have (x) received the benefit, directly or indirectly
(except proportionately as a shareholder), of any loans, advances, guarantees, pledges or other financial assistance or tax credits provided by us or any subsidiary of ours, or (y) made any major change in our business or equity capital
structure or entered into any contract, arrangement or understanding with us except any change, contract, arrangement or understanding as may have been approved by the favorable vote of not less than a majority of the continuing directors; and
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a proxy statement complying with the requirements of the U.S. Securities Exchange Act of 1934, as amended, shall have been mailed to all holders of
shares carrying voting rights for the purpose of soliciting approval by the shareholders of the business combination. The proxy statement shall contain at the front thereof, in a prominent place, any recommendations as to the advisability (or
inadvisability) of the business combination which the continuing directors, or any of them, may have furnished in writing and, if deemed advisable by a majority of the continuing directors, an opinion of a reputable investment banking firm as to the
adequacy (or inadequacy) of the terms of the business combination from the point of view of the holders of shares carrying voting rights other than any interested person (the investment banking firm to be selected by a majority of the continuing
directors, to be furnished with all information it reasonably requests, and to be paid a reasonable fee for its services upon receipt by us of the opinion).
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For purposes of this provision, a business combination includes mergers, consolidations, exchanges, asset sales, leases and other transactions resulting in a financial benefit to the
interested shareholder and an interested person is any person or entity that beneficially owns 15% or more of our voting shares and any person or entity affiliated with or controlling or controlled by that person or entity.
Continuing directors means directors who have been elected before June 7, 2001 or designated as continuing directors by the majority of the then continuing directors.
Consequences of becoming an interested person.
Our
Bye-laws
provide that, at any time a person acquires or becomes the beneficial owner of 15% or more of our voting shares, which we refer to as the threshold, then the person will not be entitled to
exercise voting rights for the number of common shares in excess of the threshold he holds or beneficially owns. This disability applies to any general meeting of our company as to which the record date or scheduled meeting date falls within a
period of five years from the date such person acquired beneficial ownership of a number of common shares in excess of the threshold.
The above restrictions do not apply to us, our subsidiaries or to:
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any person who on June 7, 2001 was the holder or beneficial owner of a number of shares carrying voting rights that exceeded the threshold and who
continues at all times after June 7, 2001 to hold shares in excess of the threshold; and
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any person whose acquisition of a number of shares exceeding the threshold has been approved by (1) a majority of 80% of those present and voting
at a general meeting or (2) by a resolution adopted by the continuing directors, followed by a resolution adopted by a shareholder vote in excess of 50% of the voting shares not owned by such interested person.
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Transfer agent and registrar.
Computershare Trust Company N.A. serves as transfer agent and registrar for our common shares and
our Series B Preferred Shares, Series C Preferred Shares, Series D Preferred Shares and Series E Preferred Shares.
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New York Stock Exchange listing.
Our common shares are listed on the New York Stock
Exchange under the ticker symbol TNP. Our Series B Preferred Shares, Series C Preferred Shares, Series D Preferred Shares and Series E Preferred Shares are listed on the New York Stock Exchange under the trading symbols
TNP-PB,
TNP-PC,
TNP-PD
and
TNP-PE,
respectively.
Material Contracts
See description of Management Agreement under Item 4. Information on the CompanyManagement ContractExecutive and Commercial Management. Such description is not intended to be
complete and reference is made to the contract itself, which is an exhibit to this Annual Report on
Form 20-F.
Exchange Controls
Under Bermuda law, there are currently no restrictions
on the export or import of capital, including foreign exchange controls, or restrictions that affect the remittance of dividends, interest or other payments to nonresident holders of our common shares. On July 22, 2015, Greece implemented
capital controls restricting the transfer of funds out of Greece, which restricted our use of the limited amount of cash we held in Greece at that date for the remittances overseas. Cash deposited in Greek banks after that date is not restricted for
remittances overseas.
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TAX CONSIDERATIONS
Taxation of Tsakos Energy Navigation Limited
We believe that none of our
income will be subject to tax in Bermuda, which currently has no corporate income tax, or by other countries in which we conduct activities or in which our customers are located, excluding the United States. However, this belief is based upon the
anticipated nature and conduct of our business which may change, and upon our understanding of our position under the tax laws of the various countries in which we have assets or conduct activities, which position is subject to review and possible
challenge by taxing authorities and to possible changes in law, which may have retroactive effect. The extent to which certain taxing jurisdictions may require us to pay tax or to make payments in lieu of tax cannot be determined in advance. In
addition, payments due to us from our customers may be subject to withholding tax or other tax claims in amounts that exceed the taxation that we might have anticipated based upon our current and anticipated business practices and the current tax
regime.
Bermuda tax considerations
Under current Bermuda law, we are not subject to tax on income or capital gains. Furthermore, we have obtained from the Minister of Finance of Bermuda, under the Exempted Undertakings Tax Protection Act
1966 of Bermuda, as amended (the Exempted Undertakings Act), assurance that, in the event that Bermuda enacts any legislation imposing tax computed on profits or income or computed on any capital asset, gain or appreciation, or any tax
in the nature of estate duty or inheritance tax, then the imposition of such tax will not be applicable to us or to any of our operations, or to the share capital of Tsakos Energy Navigation Limited, until March 31, 2035. This assurance does
not, however, prevent the imposition of property taxes on any company owning real property or leasehold interests in Bermuda or on any person ordinarily resident in Bermuda. We pay an annual government fee on our authorized share capital and share
premium, which for 2017 is $18,670.
Under current Bermuda law, shareholders not ordinarily resident in Bermuda will not be
subject to any income, withholding or other taxes or stamp or other duties upon the issue, transfer or sale of common shares, Series B Preferred Shares, Series C Preferred Shares, Series D Preferred Shares or Series E Preferred Shares or on any
payments made on common shares, Series B Preferred Shares, Series C Preferred Shares, Series D Preferred Shares or Series E Preferred Shares.
United States federal income tax considerations
The following summary of United States federal income tax matters is based on the Internal Revenue Code, judicial decisions, administrative pronouncements, and existing and proposed regulations issued by
the United States department of the treasury, all of which are subject to change, possibly with retroactive effect. This discussion does not address any United States local or state taxes.
The following is a summary of the material United States federal income tax considerations that apply to (1) our operations and the
operations of our vessel-operating subsidiaries and (2) the acquisition, ownership and disposition of common shares, Series B Preferred Shares, Series C Preferred Shares, Series D Preferred Shares or Series E Preferred Shares by a shareholder
that is a United States holder. This summary is based upon our beliefs and expectations concerning our past, current and anticipated activities, income and assets and those of our subsidiaries, the direct, indirect and constructive ownership of our
shares and the trading and quotation of our shares. Should any such beliefs or expectations prove to be incorrect, the conclusions described herein could be adversely affected. For purposes of this discussion, a United States holder is a beneficial
owner of common shares, Series B Preferred Shares, Series C Preferred Shares, Series D Preferred Shares or Series E Preferred Shares who or which is:
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An individual citizen or resident of the United States;
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A corporation, or other entity taxable as a corporation for United States federal income tax purposes, created or organized in or under the laws of the
United States or any of its political subdivisions; or
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An estate or trust the income of which is subject to United States federal income taxation regardless of its source.
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This summary deals only with common shares, Series B Preferred Shares, Series C Preferred Shares, Series D Preferred Shares or Series E
Preferred Shares that are held as capital assets by a United States holder, and does not address tax considerations applicable to United States holders that may be subject to special tax rules, such as:
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Dealers or traders in securities or currencies;
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Financial institutions;
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United States holders that hold common shares as a part of a straddle or conversion transaction or other arrangement involving more than one position;
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United States holders that own, or are deemed for United States tax purposes to own, ten percent or more of the total combined voting power of all
classes of our voting stock;
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A person subject to United States federal alternative minimum tax;
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A partnership or other entity classified as a partnership for United States federal income tax purposes;
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United States holders that have a principal place of business or tax home outside the United States; or
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United States holders whose functional currency is not the United States dollar.
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The discussion below is based upon the provisions of the Internal Revenue Code and regulations, administrative pronouncements and
judicial decisions as of the date of this Annual Report; any such authority may be repealed, revoked or modified, perhaps with retroactive effect, so as to result in United States federal income tax consequences different from those discussed below.
Because United States tax consequences may differ from one holder to the next, the discussion set out below does not purport
to describe all of the tax considerations that may be relevant to you and your particular situation. Accordingly, you are advised to consult your own tax advisor as to the United States federal, state, local and other tax consequences of investing
in the common shares, Series B Preferred Shares, Series C Preferred Shares, Series D Preferred Shares or Series E Preferred Shares.
Taxation of our operations
In General
Unless exempt from United States federal income taxation under the rules discussed below, a foreign corporation is subject to United
States federal income taxation in respect of any income that is derived from the use of vessels, from the hiring or leasing of vessels for use on a time, voyage or bareboat charter basis, from the participation in a pool, partnership, strategic
alliance, joint operating agreement, code sharing arrangements or other joint venture it directly or indirectly owns or participates in that generates such income, or from the performance of services directly related to those uses, which we refer to
as shipping income, to the extent that the shipping income is derived from sources within the United States. For these purposes, 50% of shipping income that is attributable to transportation that begins or ends, but that does not both
begin and end, in the United States constitutes income from sources within the United States, which we refer to as U.S.-source shipping income.
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Shipping income attributable to transportation that both begins and ends in the United
States is considered to be 100% from sources within the United States. We do not expect that we or any of our subsidiaries will engage in transportation that produces income which is considered to be 100% from sources within the United States.
Shipping income attributable to transportation exclusively between
non-United
States
ports will be considered to be 100% derived from sources outside the United States. Shipping income derived from sources outside the United States will not be subject to any United States federal income tax.
In the absence of exemption from tax under Section 883, our gross U.S.-source shipping income would be subject to a 4% tax imposed
without allowance for deductions as described below.
Exemption of Operating Income from United States Federal Income
Taxation
Under Section 883, we and our subsidiaries will be exempt from United States federal income taxation on our
U.S.-source shipping income if:
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We and the relevant subsidiary are each organized in a foreign country (the country of organization) that grants an equivalent
exemption to corporations organized in the United States; and either
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More than 50% of the value of our stock is owned, directly or indirectly, by qualified stockholders, individuals who are
(i) residents of our country of organization or of another foreign country that grants an equivalent exemption to corporations organized in the United States and (ii) satisfy certain documentation requirements,
which we refer to as the 50% Ownership Test, or
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Our common shares, Series B Preferred Shares, Series C Preferred Shares, Series D Preferred Shares and, for periods after their issuance, our Series E
Preferred Shares, are primarily and regularly traded on an established securities market in our country of organization, in another country that grants an equivalent exemption to United States corporations, or in the United
States, which we refer to as the Publicly-Traded Test.
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We believe that each of Bermuda, Greece,
Liberia, Malta, the Marshall Islands and Panama, the jurisdictions where we and our ship-owning subsidiaries are incorporated, grants an equivalent exemption to United States corporations. Therefore, we believe that we and each of our
subsidiaries will be exempt from United States federal income taxation with respect to our U.S.-source shipping income if we satisfy either the 50% Ownership Test or the Publicly-Traded Test.
Due to the widely-held nature of our stock, we will have difficulty satisfying the 50% Ownership Test. Our ability to satisfy the
Publicly-Traded Test is discussed below.
The regulations provide, in pertinent part, that stock of a foreign corporation will
be considered to be primarily traded on one or more established securities markets in a country if the number of shares of each class of stock that are traded during any taxable year on all established securities markets in that country
exceeds the number of shares in each such class that are traded during that year on established securities markets in any other single country. Our common shares, Series B Preferred Shares, Series C Preferred Shares and Series D Preferred Shares,
which were our sole classes of our issued and outstanding shares in 2016, were primarily traded on an established securities market in the United States (the New York Stock Exchange) in 2016 and we expect that will continue to be the
case in subsequent years. We also expect that our Series E Preferred Shares will be primarily traded on an established securities market in the United States (the New York Stock Exchange).
Under the regulations, our stock will be considered to be regularly traded on an established securities market if one or more
classes of our stock representing more than 50% of our outstanding shares, by total combined voting power of all classes of stock entitled to vote and total value, is listed on the market, which we
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refer to as the listing requirement. Since our common shares, Series B Preferred Shares, Series C Preferred Shares and Series D Preferred Shares, which are our sole classes of issued and
outstanding shares, were listed on the New York Stock Exchange throughout 2016, we satisfied the listing requirement for 2016. We expect that we will continue to do so, with respect to our common shares, Series B Preferred Shares, Series C Preferred
Shares and Series D Preferred Shares, for subsequent years, and that our Series E Preferred Shares also will satisfy the listing requirement.
It is further required that with respect to each class of stock relied upon to meet the listing requirement (i) such class of the stock is traded on the market, other than in minimal quantities, on
at least 60 days during the taxable year or 1/6 of the days in a short taxable year; and (ii) the aggregate number of shares of such class of stock traded on such market is at least 10% of the average number of shares of such class of stock
outstanding during such year or as appropriately adjusted in the case of a short taxable year. We believe our common shares, Series B Preferred Shares, Series C Preferred Shares and Series D Preferred Shares satisfied the trading frequency and
trading volume tests for 2016 and will also do so in subsequent years. We also expect, although there can be no assurance, that our Series E Preferred Shares will meet the trading frequency and trading volume tests. For so long as the aggregate
value of our common shares exceeds the aggregate value of our Series B Preferred Shares, Series C Preferred Shares, Series D Preferred Shares and Series E Preferred Shares, if our common shares meet
the trading frequency and trading volume
tests, our Series B Preferred Shares, Series C Preferred Shares, Series D Preferred Shares and Series E Preferred Shares do not need to meet these tests (and, if the aggregate value of our common shares and any of our Series B Preferred Shares,
Series C Preferred Shares, Series D Preferred Shares or Series E Preferred Shares meet the trading frequency and trading volume tests, the other series of our preferred shares would not need to meet these tests). Even if these tests were not
satisfied, with respect to any of our common shares, Series B Preferred Shares, Series C Preferred Shares, Series D Preferred Shares and Series E Preferred Shares, the regulations provide that the trading frequency and trading volume tests will be
deemed satisfied by a class of stock if, as we believe was the case with our common shares, Series B Preferred Shares, Series C Preferred Shares and Series D Preferred Shares in 2016 and we expect to be the case with our common shares, Series B
Preferred Shares, Series C Preferred Shares, Series D Preferred Shares and Series E Preferred Shares in subsequent years, such class of stock is traded on an established market in the United States and such class of stock is regularly quoted by
dealers making a market in such stock.
Notwithstanding the foregoing, the regulations provide, in pertinent part, that our
common shares, Series B Preferred Shares, Series C Preferred Shares, Series D Preferred Shares and Series E Preferred Shares will not be considered to be regularly traded on an established securities market for any taxable year in which
50% or more of our outstanding common shares, Series B Preferred Shares, Series C Preferred Shares, Series D Preferred Shares and Series E Preferred Shares are owned, actually or constructively under specified stock attribution rules, on more than
half the days during the taxable year by persons who each own 5% or more of our common shares, Series B Preferred Shares, Series C Preferred Shares, Series D Preferred Shares or Series E Preferred Shares, which we refer to as the 5 Percent
Override Rule. For so long as the aggregate value of our common shares exceeds the aggregate value of our Series B Preferred Shares, Series C Preferred Shares, Series D Preferred Shares or Series E Preferred Shares, if our common shares meet
the regularly traded test, our Series B Preferred Shares, Series C Preferred Shares, Series D Preferred Shares or Series E Preferred Shares do not need to meet this test.
For purposes of being able to determine the persons who own 5% or more of our stock, or 5% Stockholders, the regulations
permit us to rely on Schedule 13G and Schedule 13D filings with the SEC to identify persons who have a 5% or more beneficial interest in our common shares or, if our Series B Preferred Shares, Series C Preferred Shares, Series D Preferred
Shares or Series E Preferred Shares are then entitled to vote, our Series B Preferred Shares, Series C Preferred Shares, Series D Preferred Shares or Series E Preferred Shares. The regulations further provide that an investment company which is
registered under the Investment Company Act of 1940, as amended, will not be treated as a 5% Stockholder for such purposes. Until such time, if any, as the Series B Preferred Shares, Series C Preferred Shares, Series D Preferred Shares or Series E
Preferred Shares are entitled to vote, because Schedule 13G and Schedule 13D filings are only required for voting stock, it
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could be difficult to determine 5% Stockholders of our Series B shares, Series C Preferred Shares, Series D Preferred Shares or Series E Preferred Shares.
In the event the 5 Percent Override Rule is triggered, the regulations provide that the 5 Percent Override Rule will nevertheless not
apply if we can establish, in accordance with specified ownership certification procedures, that a sufficient portion of the common shares, Series B Preferred Shares, Series C Preferred Shares, Series D Preferred Shares or Series E Preferred Shares
within the closely-held block are owned, actually or under applicable constructive ownership rules, by qualified shareholders for purposes of Section 883 to preclude the common shares, Series B Preferred Shares, Series C Preferred Shares,
Series D Preferred Shares and Series E Preferred Shares in the closely-held block that are not so owned from constituting 50% or more of the our common shares, Series B Preferred Shares, Series C Preferred Shares, Series D Preferred Shares and
Series E Preferred Shares for more than half the number of days during the taxable year.
We do not believe that we were
subject to the 5 Percent Override Rule for 2016. Therefore, we believe that we satisfied the Publicly-Traded Test for 2016. However, there is no assurance that we will continue to satisfy the Publicly-Traded Test. If we were to be subject to the 5
Percent Override Rule for any tax year, then our ability and that of our subsidiaries to qualify for the benefits of Section 883 would depend upon our ability to establish, in accordance with specified ownership certification procedures, that a
sufficient portion of the common shares, Series B Preferred Shares, Series C Preferred Shares, Series D Preferred Shares or Series E Preferred Shares within the closely-held block are owned, actually or under applicable constructive ownership rules,
by qualified shareholders for purposes of Section 883, to preclude the common shares, Series B Preferred Shares, Series C Preferred Shares, Series D Preferred Shares or Series E Preferred Shares in the closely-held block that are not so owned
from constituting 50% or more of the common shares, Series B Preferred Shares, Series C Preferred Shares, Series D Preferred Shares or Series E Preferred Shares for more than half the number of days during the tax year. Since there can be no
assurance that we would be able to establish these requirements, there can be no assurance that we or our subsidiaries will qualify for the benefits of Section 883 for any subsequent tax year.
Taxation in Absence of Exemption
To the extent the benefits of Section 883 are unavailable, our U.S.-source shipping income, to the extent not considered to be effectively connected with the conduct of a United States
trade or business, as described below, would be subject to a 4% tax imposed by Section 887 of the Internal Revenue Code on a gross basis, without the benefit of deductions. Since under the sourcing rules described above, we do not expect that
more than 50% of our shipping income would be treated as being derived from United States sources, the maximum effective rate of United States federal income tax on our shipping income would never exceed 2% under the 4% gross basis tax regime.
To the extent the benefits of the Section 883 exemption are unavailable and our U.S.-source shipping income or that of
any of our subsidiaries is considered to be effectively connected with the conduct of a United States trade or business, as described below, any such effectively connected U.S.-source shipping income, net of applicable
deductions, would be subject to the United States federal corporate income tax currently imposed at rates of up to 35%. In addition, we or our subsidiaries may be subject to the 30% branch profits taxes on earnings effectively connected
with the conduct of such trade or business, as determined after allowance for certain adjustments, and on certain interest paid or deemed paid attributable to the conduct of its United States trade or business.
U.S.-source shipping income would be considered effectively connected with the conduct of a United States trade or
business only if:
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We or one of our subsidiaries has, or is considered to have, a fixed place of business in the United States involved in the earning of shipping income;
and
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(i) in the case of shipping income other than that derived from bareboat charters, substantially all of our or such subsidiarys U.S.-source
shipping income is attributable to regularly scheduled transportation, such as the operation of a vessel that follows a published schedule with repeated sailings at regular intervals between the same points for voyages that begin or end in the
United States and (ii) in the case of shipping income from bareboat charters, substantially all of our or such subsidiarys income from bareboat charters is attributable to a fixed place of business in the U.S.
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We do not intend that we or any of our subsidiaries will have any vessel operating to the United States on
a regularly scheduled basis. Based on the foregoing and on the expected mode of our shipping operations and other activities, we believe that none of the U.S.-source shipping income of us or our subsidiaries will be effectively connected
with the conduct of a United States trade or business.
United States Taxation of Gain on Sale of Vessels
Regardless of whether we or our subsidiaries qualify for exemption under Section 883, we and our subsidiaries will not be subject to
United States federal income taxation with respect to gain realized on a sale of a vessel, provided the sale is considered to occur outside of the United States under United States federal income tax principles. In general, a sale of a vessel will
be considered to occur outside of the United States for this purpose if title to the vessel, and risk of loss with respect to the vessel, pass to the buyer outside of the United States. It is expected that any sale of a vessel by us or our
subsidiaries will be considered to occur outside of the United States.
United States Holders
Distributions
Subject to the discussion below under Passive Foreign Investment Company Considerations, distributions that we make with respect to the common shares, Series B Preferred Shares, Series C
Preferred Shares, Series D Preferred Shares and Series E Preferred Shares, other than distributions in liquidation and distributions in redemption of stock that are treated as exchanges, will be taxed to United States holders as dividend income to
the extent that the distributions do not exceed our current and accumulated earnings and profits (as determined for United States federal income tax purposes). Distributions, if any, in excess of our current and accumulated earnings and profits will
constitute a nontaxable return of capital to a United States holder and will be applied against and reduce the United States holders tax basis in its common shares. To the extent that distributions in excess of our current and accumulated
earnings and profits exceed the tax basis of the United States holder in its common shares, Series B Preferred Shares, Series C Preferred Shares, Series D Preferred Shares and Series E Preferred Shares, the excess generally will be treated as
capital gain.
Qualifying dividends received by individuals are eligible for taxation at capital gains rates (currently 20%
for individuals not eligible for a lower rate). We are a
non-United
States corporation for U.S. federal income tax purposes. Dividends paid by a
non-United
States
corporation are eligible to be treated as qualifying dividends only if (i) the
non-United
States corporation is incorporated in a possession of the United States, (ii) the
non-United
States corporation is eligible for the benefits of a comprehensive income tax treaty with the United States or (iii) the stock with respect to which the dividends are paid is readily tradable
on an established securities market in the United States. We will not satisfy either of the conditions described in clauses (i) and (ii) of the preceding sentence. We expect that distributions on our common shares, Series B Preferred
Shares, Series C Preferred Shares, Series D Preferred Shares and Series E Preferred Shares that are treated as dividends will qualify as dividends on stock that is readily tradable on an established securities market in the United States
so long as our common shares, Series B Preferred Shares, Series C Preferred Shares, Series D Preferred Shares and Series E Preferred Shares are traded on the New York Stock Exchange. In addition, dividends paid by a
non-United
States corporation will not be treated as qualifying dividends if the
non-United
States corporation is a passive foreign investment company (a
PFIC) for the taxable year of the dividend or the prior taxable year.
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Our potential treatment as a PFIC is discussed below under the heading Passive Foreign Investment Company Considerations. A dividend will also not be treated as a qualifying
dividend to the extent that (i) the shareholder does not satisfy a holding period requirement that generally requires that the shareholder hold the shares on which the dividend is paid for more than 60 days during the
121-day
period that begins on the date which is sixty days before the date on which the shares become
ex-dividend
with respect to such dividend, (ii) the shareholder is
under an obligation to make related payments with respect to substantially similar or related property or (iii) such dividend is taken into account as investment income under Section 163(d)(4)(B) of the Internal Revenue Code. Legislation
has been previously proposed in the United States Congress which, if enacted in its proposed form, would likely cause dividends on our shares to be ineligible for the preferential tax rates described above. There can be no assurance regarding
whether, or in what form, such legislation will be enacted.
Special rules may apply to any extraordinary
dividend, generally a dividend in an amount which is equal to or in excess of ten percent (in the case of our common shares) or five percent (in the case of our Series B Preferred Shares, Series C Preferred Shares, Series D Preferred Shares or
Series E Preferred Shares) of a shareholders adjusted basis (or fair market value in certain circumstances) in such shares paid by us. In addition, extraordinary dividends include dividends received within a one year period that, in the
aggregate, equal or exceed 20% of a shareholders adjusted tax basis (or fair market value in certain circumstances). If we pay an extraordinary dividend on our common shares and such dividend is treated as qualified dividend
income, then any loss derived by a U.S. individual holder from the sale or exchange of such common shares will be treated as long-term capital loss to the extent of such dividend.
Because we are not a United States corporation, a United States holder that is a corporation (or a United States entity taxable as a
corporation) will not be entitled to claim a dividends received deduction with respect to any distributions paid by us.
Dividend income derived with respect to the common shares, Series B Preferred Shares, Series C Preferred Shares, Series D Preferred
Shares and Series E Preferred Shares generally will constitute portfolio income for purposes of the limitation on the use of passive activity losses, and, therefore, generally may not be offset by passive activity losses, and, unless treated as
qualifying dividends as described above, investment income for purposes of the limitation on the deduction of investment interest expense. Dividends that we pay will not be eligible for the dividends received deduction generally allowed to United
States corporations under Section 243 of the Internal Revenue Code.
For foreign tax credit purposes, if at least
50 percent of our stock by voting power or by value is owned, directly, indirectly or by attribution, by United States persons, then, subject to the limitation described below, a portion of the dividends that we pay in each taxable year will be
treated as U.S.-source income, depending in general upon the ratio for that taxable year of our U.S.-source earnings and profits to our total earnings and profits. The remaining portion of our dividends (or all of our dividends, if we do not meet
the 50 percent test described above) will be treated as foreign-source income and generally will be treated as passive category income or, in the case of certain types of United States holders, general category income for purposes of computing
allowable foreign tax credits for United States federal income tax purposes. However, if, in any taxable year, we have earnings and profits and less than ten percent of those earnings and profits are from United States sources, then, in general,
dividends that we pay from our earnings and profits for that taxable year will be treated entirely as foreign-source income. Where a United States holder that is an individual receives a dividend on our shares that is a qualifying dividend (as
described in the second preceding paragraph), special rules will apply that will limit the portion of such dividend that will be included in such individuals foreign source taxable income and overall taxable income for purposes of calculating
such individuals foreign tax credit limitation.
Sale or exchange
Subject to the discussion below under Passive Foreign Investment Company Considerations, upon a sale or exchange of
common shares, Series B Preferred Shares, Series C Preferred Shares, Series D Preferred
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Shares or Series E Preferred Shares to a person other than us or certain entities related to us, a United States holder will recognize gain or loss in an amount equal to the difference between
the amount realized on the sale or exchange and the United States holders adjusted tax basis in the common shares, Series B Preferred Shares, Series C Preferred Shares, Series D Preferred Shares or Series E Preferred Shares. Any gain or loss
recognized will be capital gain or loss and will be long-term capital gain or loss if the United States holder has held the common shares, Series B Preferred Shares, Series C Preferred Shares, Series D Preferred Shares or Series E Preferred Shares
for more than one year.
Gain or loss realized by a United States holder on the sale or exchange of common shares, Series B
Preferred Shares, Series C Preferred Shares, Series D Preferred Shares or Series E Preferred Shares generally will be treated as U.S.-source gain or loss for United States foreign tax credit purposes. A United States holders ability to deduct
capital losses against ordinary income is subject to certain limitations.
Passive Foreign Investment Company
Considerations
PFIC classification.
Special and adverse United States tax rules apply to a United States holder
that holds an interest in a PFIC. In general, a PFIC is any foreign corporation, if (1) 75 percent or more of the gross income of the corporation for the taxable year is passive income (the PFIC income test) or (2) the
average percentage of assets held by the corporation during the taxable year that produce passive income or that are held for the production of passive income is at least 50 percent (the PFIC asset test). In applying the PFIC income
test and the PFIC asset test, a corporation that owns, directly or indirectly, at least 25 percent by value of the stock of a second corporation must take into account its proportionate share of the second corporations income and assets.
Income we earn, or are deemed to earn, in connection with the performance of services will not constitute passive income. By contrast, rental income will generally constitute passive income (unless we are treated under certain special rules as
deriving our rental income in the active conduct of a trade or business).
If a corporation is classified as a PFIC for any
year during which a United States person is a shareholder, then the corporation generally will continue to be treated as a PFIC with respect to that shareholder in all succeeding years, regardless of whether the corporation continues to meet the
PFIC income test or the PFIC asset test, subject to elections to recognize gain that may be available to the shareholder.
There are legal uncertainties involved in determining whether the income derived from time chartering activities constitutes rental
income or income derived from the performance of services. In
Tidewater Inc. v. United States
, 565 F.2d 299 (5th Cir. 2009), the United States Court of Appeals for the Fifth Circuit held that income derived from certain time chartering
activities should be treated as rental income rather than services income for purposes of a foreign sales corporation provision of the Code. In a published guidance, however, the Internal Revenue Service (the IRS) states that it
disagrees with the holding in
Tidewater
, and specifies that time charters should be treated as service contracts. On this basis, we do not believe that we were treated as a PFIC for our most recent taxable year or that we will be treated as a
PFIC for any subsequent taxable year. This conclusion is based in part upon our beliefs regarding our past assets and income and our current projections and expectations as to our future business activity, including, in particular, our expectation
that the proportion of our income derived from bareboat charters will not materially increase. However, we have not sought, and we do not expect to seek, an IRS ruling on this matter. As a result, the IRS or a court could disagree with our position.
No assurance can be given that this result will not occur. In addition, although we intend to conduct our affairs in a manner to avoid, to the extent possible, being classified as a PFIC with respect to any taxable year, we cannot assure you that
the nature of our operations will not change in the future, or that we can avoid PFIC status in the future.
Consequences
of PFIC Status.
As discussed below, if we were to be treated as a PFIC for any taxable year, a United States holder generally would be subject to one of three different U.S. income tax regimes, depending on whether or not the United States
holder makes certain elections. Additionally, the United States holder would be required to file an annual information report with the IRS.
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Taxation of United States Holders that Make No Election.
If we are treated as a PFIC
for any taxable year during which a United States holder holds our common shares, Series B Preferred Shares, Series C Preferred Shares, Series D Preferred Shares or Series E Preferred Shares, then, subject to the discussion of the qualified electing
fund (QEF) and
mark-to-market
rules below, the United States holder will be subject to a special and adverse tax regime in respect of (1) gains realized
on the sale or other disposition of our common shares, Series B Preferred Shares, Series C Preferred Shares, Series D Preferred Shares or Series E Preferred Shares and (2) distributions on our common shares, Series B Preferred Shares, Series C
Preferred Shares, Series D Preferred Shares or Series E Preferred Shares to the extent that those distributions are treated as excess distributions. An excess distribution generally includes dividends or other distributions received from a PFIC in
any taxable year of a United States holder to the extent that the amount of those distributions exceeds 125 percent of the average distributions made by the PFIC during a specified base period (or, if shorter, the United States holders
holding period for the shares). A United States holder that is subject to the PFIC rules (1) will be required to allocate excess distributions received in respect of our common shares, Series B Preferred Shares, Series C Preferred Shares,
Series D Preferred Shares or Series E Preferred Shares and gain realized on the sale of common shares, Series B Preferred Shares, Series C Preferred Shares, Series D Preferred Shares or Series E Preferred Shares to each day during the United States
holders holding period for the common shares, (2) will be required to include in income as ordinary income the portion of the excess distribution or gain that is allocated to the current taxable year and to certain
pre-PFIC
years, and (3) will be taxable at the highest rate of taxation applicable to ordinary income for the prior years, other than
pre-PFIC
years, to which the excess
distribution or gain is allocable, without regard to the United States holders other items of income and loss for such prior taxable years (deferred tax). The deferred tax for each prior year will be increased by an interest charge
for the period from the due date for tax returns for the prior year to the due date for tax returns for the year of the excess distribution or gain, computed at the rates that apply to underpayments of tax. Pledges of PFIC shares will be treated as
dispositions for purposes of the foregoing rules. In addition, a United States holder who acquires common shares, Series B Preferred Shares, Series C Preferred Shares, Series D Preferred Shares or Series E Preferred Shares from a decedent generally
will not receive a
stepped-up
basis in the common shares, Series B Preferred Shares, Series C Preferred Shares, Series D Preferred Shares or Series E Preferred Shares. Instead, the United States holder will
have a tax basis in the common shares, Series B Preferred Shares, Series C Preferred Shares, Series D Preferred Shares or Series E Preferred Shares equal to the lower of the fair market value of the common shares, Series B Preferred Shares, Series C
Preferred Shares, Series D Preferred Shares or Series E Preferred Shares and the decedents basis.
If we are treated as
a PFIC for any taxable year during which a United States holder holds our common shares, Series B Preferred Shares, Series C Preferred Shares, Series D Preferred Shares or Series E Preferred Shares and one of our subsidiaries also qualifies as a
PFIC for such year, then such United States holder may also be subject to the PFIC rules with respect to its indirect interest in such subsidiary. No
mark-to-market
election will be available with respect to the indirect interest in the shares of such subsidiary and we currently do not intend to comply with reporting requirements necessary to permit the making of QEF elections in such circumstances.
Taxation of United States Holders that Make a QEF Election.
In some circumstances, a United States holder may avoid the
unfavorable consequences of the PFIC rules by making a QEF election with respect to us. A QEF election effectively would require an electing United States holder to include in income currently its pro rata share of our ordinary earnings and net
capital gain. However, a United States holder cannot make a QEF election with respect to us unless we comply with certain reporting requirements and we currently do not intend to provide the required information.
Taxation of United States Holders that Make a
Mark-to-Market
Election.
A United States holder that holds marketable stock in a PFIC may, in lieu of making a QEF election, avoid some of the
unfavorable consequences of the PFIC rules by electing to mark the PFIC stock to market as of the close of each taxable year. The common shares, Series B Preferred Shares, Series C Preferred Shares, Series D Preferred Shares or Series E Preferred
Shares will be treated as marketable stock for a calendar year if the common shares, Series B Preferred
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Shares, Series C Preferred Shares, Series D Preferred Shares or Series E Preferred Shares are traded on the New York Stock Exchange, in other than de minimis quantities, on at least 15 days
during each calendar quarter of the year. A United States holder that makes the
mark-to-market
election generally will be required to include in income each year as
ordinary income an amount equal to the increase in value of the common shares, Series B Preferred Shares, Series C Preferred Shares, Series D Preferred Shares or Series E Preferred Shares for that year, regardless of whether the United States holder
actually sells the common shares, Series B Preferred Shares, Series C Preferred Shares, Series D Preferred Shares or Series E Preferred Shares. The United States holder generally will be allowed a deduction for the decrease in value of the common
shares, Series B Preferred Shares, Series C Preferred Shares, Series D Preferred Shares or Series E Preferred Shares for the taxable year, to the extent of the amount of gain previously included in income under the
mark-to-market
rules, reduced by prior deductions under the
mark-to-market
rules. Any gain from the actual sale of the PFIC
stock will be treated as ordinary income, and any loss will be treated as ordinary loss to the extent of net
mark-to-market
gains previously included in income and not
reversed by prior deductions.
Other PFIC Elections
.
If a United States holder held our stock during a period
when we were treated as a PFIC, but the United States holder did not have a QEF election in effect with respect to us, then in the event that we failed to qualify as a PFIC for a subsequent taxable year, the United States holder could elect to cease
to be subject to the rules described above with respect to those shares by making a deemed sale or, in certain circumstances, a deemed dividend election with respect to our stock. If the United States holder makes a deemed
sale election, the United States holder will be treated, for purposes of applying the rules described above under the heading consequences of PFIC status, as having disposed of our stock for its fair market value on the last day of the
last taxable year for which we qualified as a PFIC (the termination date). The United States holder would increase his, her or its basis in such common stock by the amount of the gain on the deemed sale described in the preceding
sentence. Following a deemed sale election, the United States holder would not be treated, for purposes of the PFIC rules, as having owned the common stock during a period prior to the termination date when we qualified as a PFIC.
If we were treated as a controlled foreign corporation for United States federal income tax purposes for the taxable year
that included the termination date, then a United States holder could make a deemed dividend election with respect to our common stock, Series B Preferred Shares, Series C Preferred Shares, Series D Preferred Shares or Series E Preferred
Shares. If a deemed dividend election is made, the United States holder is required to include in income as a dividend his, her or its pro rata share (based on all of our stock held by the United States holder, directly or under applicable
attribution rules, on the termination date) of our post-1986 earnings and profits as of the close of the taxable year that includes the termination date (taking only earnings and profits accumulated in taxable years in which we were a PFIC into
account). The deemed dividend described in the preceding sentence is treated as an excess distribution for purposes of the rules described above under the heading consequences of PFIC status. The United States holder would increase his,
her or its basis in our stock by the amount of the deemed dividend. Following a deemed dividend election, the United States holder would not be treated, for purposes of the PFIC rules, as having owned the stock during a period prior to the
termination date when we qualified as a PFIC. For purposes of determining whether the deemed dividend election is available, we generally will be treated as a controlled foreign corporation for a taxable year when, at any time during that year,
United States persons, each of whom owns, directly or under applicable attribution rules, shares having 10% or more of the total voting power of our stock, in the aggregate own, directly or under applicable attribution rules, shares representing
more than 50% of the voting power or value of our shares.
A deemed sale or deemed dividend election must be made on the
United States holders original or amended return for the shareholders taxable year that includes the termination date and, if made on an amended return, such amended return must be filed not later than the date that is three years after
the due date of the original return for such taxable year. Special rules apply where a person is treated, for purposes of the PFIC rules, as indirectly owning our shares.
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You are urged to consult your own tax advisor regarding our possible classification as a
PFIC, as well as the potential tax consequences arising from the ownership and disposition, directly or indirectly, of interests in a PFIC.
Unearned Income Medicare Contribution Tax
Certain United States
holders that are individuals, estates or trusts are required to pay an additional 3.8% tax on, among other things, dividends on and capital gains from the sale or other disposition of stock. You are encouraged to consult your own tax advisors
regarding the effect, if any, of this tax on the ownership and disposition of our shares.
Additional Disclosure
Requirement
U.S. individuals that hold certain specified foreign financial assets with value in excess of reporting
thresholds of $50,000 or more (which include shares in a foreign corporation) are subject to U.S. return disclosure requirements (and related penalties for failure to disclose). Such U.S. individuals are required to file IRS Form 8938, listing these
assets, with their U.S. Federal income tax returns. You are encouraged to consult your own tax advisors concerning the filing of IRS Form 8938.
Information reporting and backup withholding
Payments of dividends
and sales proceeds that are made within the United States or through certain U.S.-related financial intermediaries generally are subject to information reporting and backup withholding unless (i) you are a corporation or other exempt recipient
or (ii) in the case of backup withholding, you provide a correct taxpayer identification number and certify that you are not subject to backup withholding.
The amount of any backup withholding from a payment to you will be allowed as a credit against your United States federal income tax liability and may entitle you to a refund, provided that the required
information is furnished to the Internal Revenue Service.
Available Information
We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended. In accordance with these
requirements, we file reports and other information as a foreign private issuer with the SEC. You may inspect and copy our public filings without charge at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington,
D.C. 20549. Please call the SEC at
1-800-SEC-0330
for further information about the public reference room. You may obtain copies
of all or any part of such materials from the SEC upon payment of prescribed fees. You may also inspect reports and other information regarding registrants, such as us, that file electronically with the SEC without charge at a web site maintained by
the SEC at
http://www.sec.gov
. In addition, material filed by Tsakos Energy Navigation can be inspected at the offices of the New York Stock Exchange at 20 Broad Street, New York, New York 10005.
Item 11.
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Quantitative and Qualitative Disclosures About Market Risk
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Our risk management policy.
Our policy is to continuously monitor our exposure to business risks, including the impact of changes in interest rates, currency rates, and bunker prices on earnings
and cash flows. We intend to assess these risks and, when appropriate, enter into derivative contracts with creditworthy counter parties to minimize our exposure to these risks. As part of our efforts to manage our risk, we have in the past entered
into derivative contracts for both hedging and, periodically, trading purposes.
Each of the committees of the Board of
Directors is responsible for the management of risk within their given areas. In particular, the committees are expected to:
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continuously review and assess all activities that may generate exposure to risk and ensure we are taking appropriate measures;
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131
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ensure that our policies and procedures for evaluating and managing risks are effective and do not significantly increase overall risk; and
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assess the effectiveness of derivative contracts and recommend, if necessary, the early termination of any contract.
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Our risk management policy provides for the following procedures:
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All recommendations to enter into a derivative contract must originate either from qualified officers or directors of the company or from equivalent
specialized officers of our commercial manager;
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All recommendations to enter into a derivative contract must be reviewed by a combined team of officers and advice is taken, as applicable, from
third-party sources (e.g., our bankers, other banks, bunker brokers, insurers, etc.);
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Any recommendation must be formalized into a specific proposal which defines the risks to be managed, the action to be implemented, and the benefits
and potential risks of the proposed derivative contract, which proposal shall be presented to the Risk Committee; and
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All derivative contracts must be approved by the Risk Committee and be within the overall limits set by the board of directors.
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The Audit Committee is responsible for:
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overseeing the division of risk-related responsibilities among each of the Board committees as clearly as possible and performing a gap analysis to
confirm that the oversight of any risk is not missed;
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in conjunction with the full Board, approving the Company-wide risk management program; and
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assessing whether the Companys technical and commercial managers have effective procedures for managing risks.
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Interest rate risk
The
Company is exposed to market risk from changes in interest rates, which could impact its results of operations, financial condition and cash flow. The Company manages its ratio of fixed to floating rate debt with the objective of achieving a mix
that reflects managements interest rate outlook. As of March 31, 2017 we had a notional amount of $196.6 million in effective hedging swaps. The annualized impact resulting from a 0.25% point increase in interest rates based on the
notional amount at December 31, 2016 would be an increase of approximately $0.9 million in earnings and cash flow. An increase of 0.25% in interest rates will increase our loan interest rate payments by $4.4 million based on the
outstanding amounts as of December 31, 2016 and the loans scheduled for amortization as of that date.
132
The table below provides information about our financial instruments at December 31,
2016, which are sensitive to changes in interest rates, including our debt and interest rate swaps. For debt obligations, the table presents principal cash flows and related weighted average interest rates by expected maturity dates.
Weighted-average variable rates are based on the implied forward rates in the yield curves at the reporting date. For interest rate swaps, the table presents notional amounts and weighted-average interest rates by expected contractual maturity
dates. Notional amounts are used to calculate the contractual payments to be exchanged under the contracts.
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Balance as
of
Dec. 31, 2016
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Expected
Maturities
(1)
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2017
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2018
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2019
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2020
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2021
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Thereafter
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(In millions of U.S. dollars, except percentages)
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Long-Term Debt
(5)
:
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Fixed Rate Debt
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21.6
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10.6
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8.2
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2.8
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Weighted Average Interest Rate
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5.19
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%
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5.19
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%
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5.19
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%
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5.19
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%
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5.19
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%
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Variable Rate Debt
(2)
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1,744.5
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280.5
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340.2
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225.7
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206.1
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258.3
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433.7
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Weighted Average Interest Rate
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2.65
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%
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3.19
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%
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3.83
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%
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4.23
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%
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4.44
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%
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4.30
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%
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4.72
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%
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1,766.1
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291.1
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348.4
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228.5
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206.1
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258.3
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433.7
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Interest Rate Swaps (or Derivatives):
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Interest rate swapsvariable to fixed
(3)
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Notional Amount at December 31, 2016
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346.7
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162.8
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(4)
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60.4
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53.8
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30.6
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39.1
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Average Pay Rate
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1.71
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%
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2.67
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%
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2.60
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%
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2.60
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%
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2.48
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%
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Average Receive Rate
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0.59
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%
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1.18
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%
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1.55
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%
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1.96
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%
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2.28
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%
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(1)
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These are the expected maturities based on the balances as of December 31, 2016.
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(2)
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Interest Payments on US Dollar-denominated debt and interest rate swaps are based on LIBOR.
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(3)
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As of December 31, 2016 we had $346.7 million in effecting hedging swap.
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(4)
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Due to termination of four interest rate swaps with notional amount $146.4 million as of December 31, 2016.
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Bunker price risk
The Company regularly enters into bunker swap agreements in order to hedge its exposure to bunker price fluctuations associated with the consumption of bunkers by its spot trading vessels. During 2016,
the Company entered into two call option agreements and paid a premium of $0.3 million. During 2015, the Company entered into 17 call option agreements and paid a premium on those call options of $1.4 million. During 2016, nine call options expired.
The remaining five call options covered 18,000 metric tons of bunker fuel, all of which expire at the end of 2017. The market value of these 5 call options at December 31, 2016, amounted to $1.3 million. During 2016, the Company entered into three
bunker swap agreements in order to hedge its exposure to bunker price fluctuations associated with the consumption of bunkers by vessel
Ulysses
. The fair values of these financial instruments as of December 31, 2016, were $2.5 million. We
estimate that for every $1.00 increase in the price of bunker fuel per metric ton, there would have been an annualized decrease of earnings and cash flow by $0.2 million based on our bunker consumption of 2016.
Foreign exchange rate fluctuation
The currency the international tanker industry is primarily using is the U.S. dollar. Virtually all of our revenues are in U.S. dollars and the majority of our operating costs are incurred in U.S.
dollars. We incur certain operating expenses in foreign currencies, the most significant of which are in Euros. During fiscal 2016, approximately 38% of the total of our vessel and voyage costs and overhead expenditures were denominated in Euro.
Based on 2016 Euro expenditure, therefore, we estimate that for every 1% change in the Euro/U.S. dollar rate there would be a 0.5% impact on vessel operating expenses and minimal impact on other cost categories apart from
dry-docking
which would depend on the location of the selected yard. However, we have the ability to shift our purchase of goods and services from one country to another and, thus, from one currency to another in
133
order to mitigate the effects of exchange rate fluctuations. We have a policy of continuously monitoring and managing our foreign exchange exposure. On occasion, we do directly purchase amounts
of Euro with U.S. dollars, but to date, we have not engaged in any foreign currency hedging transactions, as we do not believe we have had material risk exposure to foreign currency fluctuations.
Inflation
Although inflation has had a moderate impact on operating expenses,
dry-docking
expenses and
corporate overhead, our management does not consider inflation to be a significant risk to direct costs in the current and foreseeable economic environment. However, if inflation becomes a significant factor in the world economy, inflationary
pressures could result in increased operating and financing costs.
Item 12.
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Description of Securities Other than Equity Securities
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Not Applicable.
134
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2016, 2015 AND 2014
(Expressed in thousands of U.S. Dollars, except for share and per share data, unless otherwise stated)
1.
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Significant Accounting Policies
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(a)
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Basis of presentation and description of business:
The accompanying consolidated financial statements have been prepared in accordance with U.S. generally
accepted accounting principles (U.S. GAAP) and include the accounts of Tsakos Energy Navigation Limited (the Holding Company), and its wholly-owned and majority-owned subsidiaries (collectively, the Company). As
at December 31, 2016 and 2015, the Holding Company consolidated one (two in 2014) variable interest entity (VIE) for which it is deemed to be the primary beneficiary, i.e. it has a controlling financial interest in this entity. A
VIE is an entity that in general does not have equity investors with voting rights or that has equity investors that do not provide sufficient financial resources for the entity to support its activities. A controlling financial interest in a VIE is
present when a company has the power to direct the activities of a VIE that most significantly impact the entitys economic performance and absorbs a majority of an entitys expected losses, receives a majority of an entitys expected
residual returns, or both.
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All intercompany balances and transactions have been eliminated upon consolidation.
The Company follows the provisions of Accounting Standard Codification (ASC) 220, Comprehensive Income, which
requires separate presentation of certain transactions, which are recorded directly as components of stockholders equity. The Company presents Other Comprehensive Income in a separate statement according to ASU
2011-05.
The Company owns and operates a fleet of crude oil and product carriers and
two LNG carriers providing worldwide marine transportation services under long, medium or short-term charters.
As from
January 1, 2015, the Company has reclassified certain categories within the Consolidated statement of comprehensive income in order to be consistent and comparable to other reporting entities within the peer group of tanker companies. Prior
year data has been adjusted accordingly. Specifically, Commissions in the consolidated statements of comprehensive income of 2014 has been reclassified as Voyage expenses. Similarly, Amortization of deferred
dry-docking
costs is included within Depreciation and amortization, amounts relating to Management fees, Stock compensation expense and Management incentive award are included in General and administrative expenses,
and Foreign currency losses/(gains) are included in vessel operating expenses.
(b)
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Use of Estimates:
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect
the amounts of assets and liabilities and expenses, reported in the consolidated financial statements and the accompanying notes. Although actual results could differ from those estimates, management does not believe that such differences would be
material.
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(c)
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Comprehensive income:
The statement of comprehensive income presents the change in equity (net assets) during a period from transactions and other events
and circumstances from
non-owner
sources. It includes all changes in equity during a period except those resulting from investments by shareholders and distributions to shareholders. Reclassification
adjustments are presented out of accumulated other comprehensive (loss) on the face of the statement in which the components of other comprehensive income are presented or in the notes to the financial statements. The Company follows the provisions
of ASC 220 Comprehensive Income, and presents items of net income, items of other comprehensive income (OCI) and total comprehensive income in two separate and consecutive statements.
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(d)
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Foreign Currency Translation:
The functional currency of the Company is the U.S. Dollar because the Companys vessels operate
in international shipping markets in which the U.S. Dollar is utilized to transact
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F-9
TSAKOS ENERGY NAVIGATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
DECEMBER 31, 2016, 2015 AND 2014
(Expressed in thousands of U.S.
Dollars, except for share and per share data, unless otherwise stated)
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most business. The accounting books of the Company are also maintained in U.S. Dollars. Transactions involving other currencies during the year are converted into U.S. Dollars using the exchange
rates in effect at the time of the transactions. At the balance sheet dates, monetary assets and liabilities, which are denominated in other currencies, are translated into U.S. Dollars at the
year-end
exchange rates. Resulting gains or losses are reflected within Operating expenses in the accompanying Consolidated Statements of Comprehensive Income.
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(e)
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Cash and Cash Equivalents:
The Company classifies highly liquid investments such as time deposits and certificates of deposit and their equivalents with
original maturities of three months or less as cash and cash equivalents. Cash deposits with certain banks that may only be used for special purposes (including loan repayments) are classified as Restricted cash.
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(f)
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Accounts Receivable, Net:
Accounts receivable, net at each balance sheet date includes estimated recoveries from charterers for hire, freight and
demurrage billings and revenue earned but not yet billed, net of an allowance for doubtful accounts (nil as of December 31, 2016 and 2015). The Companys management at each balance sheet date reviews all outstanding invoices and provides
allowances for receivables deemed uncollectible primarily based on the aging of such balances and any amounts in dispute.
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(g)
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Inventories:
Inventories consist of bunkers, lubricants, victualling and stores and are stated at the lower of cost or market value. The cost is
determined primarily by the
first-in,
first-out
method.
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(h)
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Fixed Assets:
Fixed assets consist of vessels. Vessels are stated at cost, less accumulated depreciation. The cost of vessels includes the contract price
and
pre-delivery
costs incurred during the construction and delivery of new buildings, including capitalized interest, and expenses incurred upon acquisition of second-hand vessels. Subsequent expenditures for
conversions and major improvements are capitalized when they appreciably extend the life, increase the earning capacity or improve the efficiency or safety of the vessels; otherwise they are charged to expense as incurred. Expenditures for routine
repairs and maintenance are expensed as incurred.
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Depreciation is provided on the straight-line method based on
the estimated remaining economic useful lives of the vessels, less an estimated residual value based on a scrap price.
(i)
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Impairment of Vessels:
The Company reviews vessels for impairment whenever events or changes in circumstances indicate that the carrying amount of a
vessel may not be recoverable, such as during severe disruptions in global economic and market conditions. When such indicators are present, a vessel to be held and used is tested for recoverability by comparing the estimate of future undiscounted
net operating cash flows expected to be generated by the use of the vessel over its remaining useful life and its eventual disposition to its carrying amount. Net operating cash flows are determined by applying various assumptions regarding the use
or possible disposition of each vessel, future revenues net of commissions, operating expenses, scheduled
dry-dockings,
expected
off-hire
and scrap values, and taking
into account historical revenue data and published forecasts on future world economic growth and inflation. Should the carrying value of the vessel exceed its estimated future undiscounted net operating cash flows, impairment is measured based on
the excess of the carrying amount over the fair market value of the asset. The Company determines the fair value of its vessels based on management estimates and assumptions and by making use of available market data and taking into consideration
third party valuations. The review of the carrying amounts in connection with the estimated recoverable amount for certain of the Companys vessels as of December 31, 2016, December 31, 2015 and December 31, 2014 did not indicate
an impairment charge.
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F-10
TSAKOS ENERGY NAVIGATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
DECEMBER 31, 2016, 2015 AND 2014
(Expressed in thousands of U.S.
Dollars, except for share and per share data, unless otherwise stated)
(j)
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Reporting Assets held for sale:
It is the Companys policy to dispose of vessels when suitable opportunities occur and not necessarily to keep them
until the end of their useful life. Long-lived assets are classified as held for sale when all applicable criteria enumerated under ASC 360 Property, Plant, and Equipment are met and are measured at the lower of their carrying amount or
fair value less cost to sell. These assets are not depreciated once they meet the criteria to be held for sale. At December 31, 2015, the Company considered that the suezmaxes
Eurochampion 2004
and
Euronike
met the criteria to be
classified as held for sale. At December 31, 2016, the Company decided to extend the period that the vessels are classified as held for sale beyond a financial year, as the sale of vessels is considered highly probable and the vessels are
available for immediate sale in their present condition.
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(k)
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Accounting for Special Survey and
Dry-docking
Costs:
The Company follows the deferral method of accounting for
dry-docking
and special survey costs whereby actual costs incurred are reported in Deferred Charges and are amortized on a straight-line basis over the period through the date the next
dry-docking
is scheduled to become due (approximately every five years during the first fifteen years of vessels life and every two and a half years within the remaining useful life of the vessels).
Until December 31, 2013, for vessels older than ten years, the Company estimated that the next
dry-docking
would be due in two and a half years. However, according to Classification Society regulations,
vessels can defer
dry-docking
costs for five years during their first fifteen years of life, instead of ten years as previously estimated. This change in estimate does not have a material effect in the years
ended December 31, 2016 and 2015, and is not expected to have a material effect in the following years. Costs relating to routine repairs and maintenance are expensed as incurred. The unamortized portion of special survey and
dry-docking
costs for a vessel that is sold is included as part of the carrying amount of the vessel in determining the gain on sale of the vessel.
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(l)
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Loan Costs:
Costs incurred for obtaining new loans or refinancing existing loans are capitalized and included in deferred charges and amortized over the
term of the respective loan, using the effective interest rate method. Any unamortized balance of costs relating to loans repaid or refinanced as debt extinguishments is expensed in the period the repayment or extinguishment is made. Up to
December 31, 2015, these costs were included in deferred charges. On January 1, 2016, the Company adopted ASU No.
2015-03
InterestImputation of Interest
effective for the financial
statements for the fiscal year ending December 31, 2016 and interim periods within this fiscal year and thus presents deferred financing costs, net of accumulated amortization, as a reduction of long-term debt. In order to conform with the
current period presentation, the Company has reduced Deferred charges, net by $7,531 and has decreased the amount of the related current and
non-current
obligations by $1,336 and $6,195, respectively on the
consolidated balance sheet as of December 31, 2015 (see Notes 5 and 6). This reclassification has no impact on the Companys results of operations, cash flows and net assets for any period.
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(m)
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Accounting for Revenue and Expenses:
Voyage revenues are generated from freight billings and time charter hire. Time charter revenue,
including bare-boat hire, is recorded over the term of the charter as the service is provided. Revenues from voyage charters on the spot market or under contract of affreightment are recognized ratably from when a vessel becomes available for
loading (discharge of the previous charterers cargo) to when the next charterers cargo is discharged, provided an agreed
non-cancelable
charter between the Company and the charterer is in
existence, the charter rate is fixed or determinable and collectability is reasonably assured. Revenue under voyage charters will not be recognized until a charter has been agreed even if the vessel has discharged its previous cargo and is
proceeding to an anticipated port of loading. Revenues from variable hire arrangements are recognized to the extent the variable amounts earned beyond an agreed fixed minimum hire are determinable at the reporting date and all other revenue
recognition criteria are met. Revenue from hire arrangements with an escalation clause is recognized on a
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F-11
TSAKOS ENERGY NAVIGATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
DECEMBER 31, 2016, 2015 AND 2014
(Expressed in thousands of U.S.
Dollars, except for share and per share data, unless otherwise stated)
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straight-line basis over the charter term unless another systematic and rational basis is more representative of the time pattern in which the vessel is employed. Vessel voyage and operating
expenses and charter hire expense are expensed when incurred.
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Unearned revenue represents cash received
prior to the year end for which related service has not been provided, primarily relating to charter hire paid in advance to be earned over the applicable charter period. The operating revenues and voyage expenses of vessels operating under a tanker
pool are pooled and are allocated to the pool participants on a time charter equivalent basis, according to an agreed formula. Voyage revenues for 2016, 2015 and 2014 included revenues derived from significant charterers as follows (in percentages
of total voyage revenues):
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Charterer
|
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2016
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2015
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2014
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A
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13
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%
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14
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%
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19
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%
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B
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|
|
13
|
%
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|
10
|
%
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|
|
13
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%
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C
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|
|
9
|
%
|
|
|
9
|
%
|
|
|
9
|
%
|
D
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|
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7
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%
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|
8
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%
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|
5
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%
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(n)
|
Segment Reporting:
The Company does not evaluate the operating results by type of vessel or by type of charter or by type of cargo. Although operating
results may be identified by type of vessel, management, including the chief operating decision maker, reviews operating results primarily by revenue per day and operating results of the fleet. The Company operates two liquefied natural gas (LNG)
carriers which meets the quantitative thresholds used to determine reportable segments. The chief operating decision maker does not review the operating results of these vessels separately, or make any decisions about resources to be allocated to
these vessels or assess their performance separately; therefore, the LNG carriers do not constitute a separate reportable segment. The Companys vessels operate on many trade routes throughout the world and, therefore, the provision of
geographic information is considered impracticable by management. For the above reasons, the Company has determined that it operates in one reportable segment, the worldwide maritime transportation of liquid energy related products.
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(o)
|
Derivative Financial Instruments:
The Company regularly enters into interest rate swap contracts to manage its exposure to fluctuations of interest rates
associated with its specific borrowings. Also, the Company enters into bunker swap contracts and put or call options to manage its exposure to fluctuations of bunker prices associated with the consumption of bunkers by its vessels. Interest rate and
bunker price differentials paid or received under the swap agreements are recognized as part of Interest and finance costs, net. On the inception of a put or call option on bunkers an asset or liability is recognized. The subsequent changes in its
the fair value, and realized payments or receipts upon exercise of the options are recognized in the Statement of Comprehensive Income as part of the interest and finance costs, net. All derivatives are recognized in the consolidated financial
statements at their fair value. On the inception date of the derivative contract, the Company evaluates the derivative as an accounting hedge of the variability of cash flow to be paid of a forecasted transaction (cash flow hedge).
Changes in the fair value of a derivative that is qualified, designated and highly effective as a cash flow hedge are recorded in other comprehensive income/(loss) until earnings are affected by the forecasted transaction. Changes in the fair value
of undesignated derivative instruments and the ineffective portion of designated derivative instruments are reported in earnings in the period in which those fair value changes occur. Realized gains or losses on early termination of undesignated
derivative instruments are also classified in earnings in the period of termination of the respective derivative instrument.
|
F-12
TSAKOS ENERGY NAVIGATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
DECEMBER 31, 2016, 2015 AND 2014
(Expressed in thousands of U.S.
Dollars, except for share and per share data, unless otherwise stated)
The Company formally documents all relationships between hedging instruments and hedged
items, as well as the risk-management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives that are designated as cash flow hedges of the variable cash flows of a forecasted transaction to
a specific forecasted transaction. The Company also formally assesses, both at the hedges inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flow
of hedged items. When it is determined that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge, the Company discontinues hedge accounting prospectively. In accordance with ASC 815 Derivatives
and Hedging, the Company may prospectively discontinue the hedge accounting for an existing hedge if the applicable criteria are no longer met, the derivative instrument expires, is sold, terminated or exercised or if the Company removes the
designation of the respective cash flow hedge. In those circumstances, the net gain or loss remains in accumulated other comprehensive income and is reclassified into earnings in the same period or periods during which the hedged forecasted
transaction affects earnings, unless the forecasted transaction is no longer probable in which case the net gain or loss is reclassified into earnings immediately.
(p)
|
Fair Value Measurements:
The Company follows the provisions of ASC 820, Fair Value Measurements and Disclosures which defines, and provides
guidance as to the measurement of fair value. ASC 820 applies when assets or liabilities in the financial statements are to be measured at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants (Note 14). Upon issuance of guidance on the fair value option in 2007, the Company elected not to report the then existing financial assets or liabilities at fair value that were not
already reported as such.
|
(q)
|
Accounting for Leases:
Leases of assets under which substantially all the risks and rewards of ownership are effectively retained by the lessor are
classified as operating leases. Lease payments under an operating lease are recognized as an expense on a straight-line method over the lease term. The Company held no operating leases at December 31, 2016.
|
(r)
|
Stock Based Compensation:
The Company has a share based incentive plan that covers directors and officers of the Company and employees of the related
companies. Awards granted are valued at fair value and compensation cost is recognized on a straight line basis, net of estimated forfeitures, over the requisite service period of each award. The fair value of restricted stock issued to crew
members, directors and officers of the Company at the grant date is equal to the closing stock price on that date and is amortized over the applicable vesting period using the straight-line method. The fair value of restricted stock issued to
non-employees
is equal to the closing stock price at the grant date adjusted by the closing stock price at each reporting date and is amortized over the applicable performance period (Note 8).
|
Recent Accounting Pronouncements adopted:
a)
|
Going Concern:
In August 2014, FASB issued ASU No.
2014-15Presentation
of Financial StatementsGoing
Concern. ASU
2014-15
provides guidance about managements responsibility to evaluate whether there is substantial doubt about an entitys ability to continue as a going concern and to provide
related footnote disclosures. The Company has adopted the provisions of ASU
2014-05
on December 31, 2016.
|
b)
|
Consolidation:
In February 2015, the FASB issued Accounting Standards Update (ASU) No.
2015-02-Consolidation.
The amendments in this ASU affect reporting entities that are required to evaluate whether they should consolidate certain legal entities. All legal entities are subject to reevaluation
under the
|
F-13
TSAKOS ENERGY NAVIGATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
DECEMBER 31, 2016, 2015 AND 2014
(Expressed in thousands of U.S.
Dollars, except for share and per share data, unless otherwise stated)
|
revised consolidation model. On January 1, 2016, the Company adopted ASU
No. 2015-02
Consolidation (Topic 810), Amendments to the
Consolidation Analysis
effective for the fiscal year ending December 31, 2016 and interim periods within this fiscal year. The adoption of this guidance had no impact on the Companys results of operations, cash flows and net assets
for any period.
|
In April 2015, Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU or Update) No.
2015-03InterestImputation
of Interest to simplify the presentation of debt issuance costs. Previous guidance generally required entities to capitalize costs paid to third parties that are directly
related to issuing debt and that otherwise wouldnt be incurred and present those amounts separately as deferred charges (i.e., assets). However, the discount or premium resulting from the difference between the net proceeds received upon debt
issuance and the amount payable at maturity is presented as a direct deduction from or an addition to the face amount of the debt. The new guidance simplifies financial reporting by eliminating the different presentation requirements for debt
issuance costs and debt discounts or premiums. Upon adoption, an entity must apply the new guidance retrospectively to all prior periods presented in the financial statements.
On January 1, 2016, the Company adopted ASU No.
2015-03InterestImputation
of Interest effective for the financial statements for the fiscal year
ending December 31, 2016 and interim periods within this fiscal year (section l above).
d)
|
Business Combinations:
In September 2015, the FASB issued ASU
2015-16,
Business Combinations (Topic 805): Simplifying the
Accounting for Measurement-Period Adjustments. ASU
2015-16
eliminates the requirement that an acquirer in a business combination account for measurement-period adjustment during the period in which it
determines the amount of the adjustment. The guidance is effective for public business entities for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. For all other entities, it is effective for
fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. Early adoption is permitted.
|
On January 1, 2016, the Company adopted ASU
No. 2015-16
Business Combination (Topic 805), Simplifying the Accounting for Measurement-Period
Adjustments
effective for the fiscal year ending December 31, 2016 and interim periods within this fiscal year. The adoption of this guidance had no impact on the Companys results of operations, cash flows and net assets for any
period.
Recent Accounting Pronouncements not yet adopted
a)
|
Inventory (subsequent to the adoption of ASU
2015-11,
Simplifying the Measurement of Inventory):
|
In July 2015, the FASB issued ASU
No. 2015-11Inventory. ASU
2015-11
is part of FASB Simplification Initiative. Current guidance requires an entity to measure inventory at the lower of
cost or market. Market could be the replacement cost, net realizable value or net realizable value less an approximately normal profit margin. Under this Update, the entities will be required to measure inventory at the lower of cost or net
realizable value. Net realizable value is defined as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The amendments under the Update more closely align
measurement of inventory in US GAAP with the measurement of inventory in IFRS. For public entities, the amendments of this Update are effective for fiscal years beginning after December 15, 2016, including interim periods within those
fiscal years. The amendments of this Update should be applied prospectively with early application permitted. The Company does not expect the adoption of this ASU to have a material impact on Companys results of operations, financial position
or cash flows.
F-14
TSAKOS ENERGY NAVIGATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
DECEMBER 31, 2016, 2015 AND 2014
(Expressed in thousands of U.S.
Dollars, except for share and per share data, unless otherwise stated)
b)
|
Financial Instruments
: In January 2016, the FASB issued ASU No.
2016-01Financial
InstrumentsOverall (Subtopic
825-10)
which includes the requirement for all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under equity method
of accounting or those that result in consolidation of the investee). This update is effective for all entities for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. Early adoption is not permitted.
The Company has not yet determined what impact, if any, the adoption of the new standard will have on its consolidated financial position, results of operations or cash flows.
|
c)
|
Leases:
In February 2016, the FASB issued ASU
No. 2016-02,
Leases (ASC 842), which requires lessees to recognize
most leases on the balance sheet. This is expected to increase both reported assets and liabilities. The new lease standard does not substantially change lessor accounting. For public companies, the standard will be effective for the first interim
reporting period within annual periods beginning after December 15, 2018, although early adoption is permitted. Lessees and lessors will be required to apply the new standard at the beginning of the earliest period presented in the financial
statements in which they first apply the new guidance, using a modified retrospective transition method. The requirements of this standard include a significant increase in required disclosures. The Company is analyzing the impact of the adoption of
this guidance on the Companys consolidated financial statements, including assessing changes that might be necessary to information technology systems, processes and internal controls to capture new data and address changes in financial
reporting.
|
d)
|
Revenue from Contracts with Customers:
In May and April 2016, the FASB issued two Updates with respect to Topic 606: ASU
2016-10,
Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing and ASU
2016-12,
Revenue from Contracts with
Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. The amendments in these Updates do not change the core principle of the guidance in Topic 606, which is that an entity should recognize revenue to depict the transfer
of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services by applying the following steps: (1) Identify the contract(s) with a
customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as)
the entity satisfies a performance obligation. The amendments in Update
2016-10
simply clarify the following two aspects of Topic 606: (1) identifying performance obligations and (2) licensing
implementation guidance. The amendments in Update
2016-12
similarly affect only certain narrow aspects of Topic 606; namely, (1) Assessing the Collectibility Criterion in Paragraph
606-10-25-1(e)
and Accounting for Contracts That Do Not Meet the Criteria for Step 1 (Applying Paragraph
606-10-25-7),
(2) Presentation of Sales Taxes and Other Similar Taxes Collected from Customers, (3)
Noncash Consideration, (4) Contract Modifications at Transition, (5) Completed Contracts at Transition, and (6) Technical Correction. The amendments in these Updates also affect the guidance in
Accounting Standards Update
2014-09,
Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition requirements for the amendments in these Updates are the
same as the effective date and transition requirements in Topic 606 (and any other Topic amended by Update
2014-09).
Accounting Standards Update
2015-14,
Revenue
from Contracts with Customers (Topic 606): Deferral of the Effective Date, has deferred the effective date of Update
2014-09
for public business entities to annual reporting periods beginning after
December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted. The new revenue standard may be applied using either of the following transition methods: (1) a full retrospective
approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (2) a modified retrospective approach with the cumulative effect of initially
|
F-15
TSAKOS ENERGY NAVIGATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
DECEMBER 31, 2016, 2015 AND 2014
(Expressed in thousands of U.S.
Dollars, except for share and per share data, unless otherwise stated)
|
adopting the standard recognized at the date of adoption (which includes additional footnote disclosures). The Company will adopt the standard in the first quarter of 2018 and preliminarily
expect to use the modified retrospective method. However, the Company is in the process of reviewing its historical contracts to quantify the impact that the adoption of the standard will have on specific performance obligations.
|
e)
|
Financial InstrumentsCredit Losses
: In June 2016, the FASB issued ASU No.
2016-13Financial
InstrumentsCredit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU
2016-13
amends guidance on reporting credit losses for assets held at amortized cost basis and available
for sale debt securities. For public entities, the amendments of this Update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early application is permitted. The Company is
in the process of assessing the impact of the amendment of this Update on the Companys consolidated financial position and performance.
|
f)
|
Statement of Cash Flows
: In August 2016, the FASB issued ASU
No. 2016-15-
Statement of Cash Flows (Topic 230)Classification of Certain Cash Receipts and Cash Payments which addresses the following eight specific cash flow issues with the objective of reducing the existing diversity in practice: Debt prepayment or
debt extinguishment costs; settlement of
zero-coupon
debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing;
contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies (COLIs) (including bank-owned life insurance policies
(BOLIs)); distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle. ASU
2016-15
is effective for fiscal years beginning after December 15, 2017 including interim periods within that reporting period, however early adoption is permitted. The Company is currently evaluating the
provisions of this guidance and assessing its impact on its consolidated financial statements and notes disclosures.
|
g)
|
Statement of Cash Flows (Topic 230)Restricted Cash
: In November 2016, the FASB issued ASU No.
2016-18Statement
of Cash Flows (Topic 230)Restricted Cash which addresses the requirement that a statement of cash flows explain the change during the period in the total of cash, cash equivalents,
and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the
beginning-of-period
and
end-of-period
total amounts shown on the statement of cash flows. The
amendments in this Update apply to all entities that have restricted cash or restricted cash equivalents and are required to present a statement of cash flows under Topic 230. ASU
2016-18
is effective for
fiscal years beginning after December 15, 2017 including interim periods within that reporting period, however early adoption is permitted. The Company is currently evaluating the provisions of this guidance and assessing its impact on its
consolidated financial statements and notes disclosures.
|
h)
|
CompensationStock Compensation:
In March 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards
Update (ASU or Update)
No. 2016-09-
Compensation-Stock CompensationImprovements to Employee Share-Based Payment Accounting (Topic 718)
which involves several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Under the new
standard, all excess income tax benefits and deficiencies are to be recognized as income tax expense or benefit in the income statement and the tax effects of exercised or vested awards should be treated as discrete items in the reporting period in
which they occur. An entity should also
|
F-16
TSAKOS ENERGY NAVIGATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
DECEMBER 31, 2016, 2015 AND 2014
(Expressed in thousands of U.S.
Dollars, except for share and per share data, unless otherwise stated)
|
recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period. Excess Tax benefits should be classified along with other income tax cash flows as an
operating activity. In regards to forfeitures, the entity may make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. ASU
2016-09
is effective for fiscal years beginning after December 15, 2016 including interim periods within that reporting period, however early adoption is permitted. The adoption of this ASU is not expected to
have a material effect on the Companys Consolidated Financial Statements and accompanying notes.
|
2.
|
Transactions with Related Parties
|
The following amounts were charged by related parties for services rendered:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Tsakos Shipping and Trading S.A. (commissions)
|
|
|
5,989
|
|
|
|
7,550
|
|
|
|
6,189
|
|
Tsakos Energy Management Limited (management fees)
|
|
|
16,935
|
|
|
|
16,032
|
|
|
|
15,840
|
|
Tsakos Columbia Shipmanagement S.A.
|
|
|
2,136
|
|
|
|
2,234
|
|
|
|
2,091
|
|
Argosy Insurance Company Limited
|
|
|
9,036
|
|
|
|
9,386
|
|
|
|
9,529
|
|
AirMania Travel S.A.
|
|
|
4,866
|
|
|
|
4,298
|
|
|
|
4,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses with related parties
|
|
|
38,962
|
|
|
|
39,500
|
|
|
|
38,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances due from and due to related parties are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2016
|
|
|
2015
|
|
Due from related parties
|
|
|
|
|
|
|
|
|
Tsakos Columbia Shipmanagement S.A.
|
|
|
6,730
|
|
|
|
4,169
|
|
|
|
|
|
|
|
|
|
|
Total due from related parties
|
|
|
6,730
|
|
|
|
4,169
|
|
|
|
|
|
|
|
|
|
|
Due to related parties
|
|
|
|
|
|
|
|
|
Tsakos Energy Management Limited
|
|
|
417
|
|
|
|
61
|
|
Tsakos Shipping and Trading S.A.
|
|
|
759
|
|
|
|
982
|
|
Argosy Insurance Company Limited
|
|
|
4,285
|
|
|
|
410
|
|
AirMania Travel S.A.
|
|
|
431
|
|
|
|
287
|
|
|
|
|
|
|
|
|
|
|
Total due to related parties
|
|
|
5,892
|
|
|
|
1,740
|
|
|
|
|
|
|
|
|
|
|
There was also, at December 31, 2016, an amount of $552 ($776 at December 31, 2015) due to
Tsakos Shipping and Trading S.A. and $24 ($124 at December 31, 2015) due to Argosy Insurance Company Limited, included in accrued liabilities, which relate to services rendered by these related parties, but not yet invoiced.
(a)
|
Tsakos Energy Management Limited (the Management Company):
The Holding Company has a Management Agreement (Management
Agreement) with the Management Company, a Liberian corporation, to provide overall executive and commercial management of its affairs for a monthly fee. Per the Management Agreement of March 8, 2007, effective from January 1, 2008,
there is a prorated adjustment if at the beginning of each year the Euro has appreciated by 10% or more against the U.S. Dollar
|
F-17
TSAKOS ENERGY NAVIGATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
DECEMBER 31, 2016, 2015 AND 2014
(Expressed in thousands of U.S.
Dollars, except for share and per share data, unless otherwise stated)
|
since January 1, 2007. In addition, there is an increase each year by a percentage figure reflecting 12 month Euribor, if both parties agree. In 2016 and 2015, the monthly fees for operating
conventional vessels were $27.5, and $20.4 for vessels chartered out on a bare-boat basis, $35.8 for the LNG carriers, and $35.0 for the DP2 shuttle tankers. From the above fees, a third party manager is paid $25.8 for the LNG carriers, $13.9 for
each of the suezmax
Eurochampion 2004,
the aframax
Maria Princess
and the VLCC
Ulysses
and $14.2 for the aframax
Sapporo Princess
. In addition to the Management fee, the Management Agreement provides for an incentive
award to the Management Company, which is at the absolute discretion of the Holding Companys Board of Directors. In 2016 and 2015, an award of $2,575 and $1,142 was granted to the Management Company respectively and is included in the General
and Administrative expenses in the accompanying Consolidated Statement of Comprehensive income. In addition, a special award of $425 was paid to the Management Company in relation to capital raising offerings in 2015. In 2014, awards totaling $860
was made relating to two equity offerings in the year, of which $460 was paid in 2015. These awards relating to offerings have been included as a deduction of additional paid in capital in the accompanying Financial Statements.
|
The Holding Company and the Management Company have certain officers and directors in common. The President,
who is also the Chief Executive Officer and a Director of the Holding Company, is also the sole stockholder of the Management Company. The Management Company may unilaterally terminate its Management Agreement with the Holding Company at any time
upon one years notice. In addition, if even one director was elected to the Holding Companys Board of Directors without having been recommended by the existing Board, the Management Company would have the right to terminate the
Management Agreement on ten days notice, and the Holding Company would be obligated as at December 31, 2016, to pay the Management Company an amount of approximately $166,281 calculated in accordance with the terms of the Management Agreement.
Under the terms of the Management Agreement between the Holding Company and the Management Company, the Holding Company may terminate the Management Agreement only under specific circumstances, without the prior approval of the Holding
Companys Board of Directors.
Estimated future management fees payable over the next ten years under the Management
Agreement, exclusive of any incentive awards and based on existing vessels and known vessels scheduled for future delivery as at December 31, 2016, are:
|
|
|
|
|
Year
|
|
Amount
|
|
2017
|
|
|
20,165
|
|
2018
|
|
|
20,386
|
|
2019
|
|
|
20,457
|
|
2020
|
|
|
20,457
|
|
2021
|
|
|
20,457
|
|
2022 to 2026
|
|
|
91,148
|
|
|
|
|
|
|
|
|
|
193,070
|
|
|
|
|
|
|
Management fees for vessels are included in the accompanying Consolidated Statements of Comprehensive
income. Also, under the terms of the Management Agreement, the Management Company provides supervisory services for the construction of new vessels for a monthly fee of $20.4 in 2016, 2015 and 2014. These fees in total amounted to $3,016, $3,346 and
$2,224 for 2016, 2015 and 2014, respectively and are either accounted for as part of construction costs for delivered vessels or are included in Advances for vessels under construction.
F-18
TSAKOS ENERGY NAVIGATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
DECEMBER 31, 2016, 2015 AND 2014
(Expressed in thousands of U.S.
Dollars, except for share and per share data, unless otherwise stated)
(b)
|
Tsakos Columbia Shipmanagement S.A. (TCM):
The Management Company appointed TCM to provide technical management to the Companys vessels
from July 1, 2010. TCM is owned jointly and in equal part by related party interests and by a private German Group. TCM, at the consent of the Holding Company, may subcontract all or part of the technical management of any vessel to an
alternative unrelated technical manager.
|
Effective July 1, 2010, the Management Company, at its own
expense, pays technical management fees to TCM, and the Company bears and pays directly to TCM most of its operating expenses, including repairs and maintenance, provisioning and crewing of the Companys vessels, as well as certain charges
which are capitalized or deferred, including reimbursement of the costs of TCM personnel sent overseas to supervise repairs and perform inspections on the Companys vessels. The Company also pays to TCM certain fees to cover expenses relating
to internal control procedures and information technology services which are borne by TCM on behalf of the Company.
TCM has a
25% share in a manning agency, located in the Philippines, named TCM Tsakos Maritime Philippines (TMPI), which provides crew to certain of the Companys vessels. The Company has no control or ownership directly in TCM Tsakos Maritime
Philippines, nor had any direct transactions to date with the agency. However, as of December 31, 2016, TCM has made advances to TMPI as a manning agent amounting to $5.5 million, included in Advances and other.
(c)
|
Tsakos Shipping and Trading S.A. (Tsakos Shipping):
Tsakos Shipping provides chartering services for the Companys vessels by
communicating with third party brokers to solicit research and propose charters. For this service, the Company pays Tsakos Shipping a chartering commission of approximately 1.25% on all freights, hires and demurrages. Such commissions are included
in Voyage expenses in the accompanying Consolidated Statements of Comprehensive Income. Tsakos Shipping also provides sale and purchase of vessels brokerage service. In 2015, the handysize tanker
Delphi
and the suezmax tanker
Triathlon
were sold to client companies of Tsakos Shipping. For this service, Tsakos Shipping charged a brokerage commission of $215 which was 0.5% of the sale price of the vessels. Tsakos Shipping may also charge a fee of $200 (or such other sum as may be
agreed) on delivery of each
new-building
vessel in payment for the cost of design and supervision of the
new-building
by Tsakos Shipping. In 2016 and 2015, no such fee
was charged. In 2014, $200 in aggregate was charged for supervision fees on the DP2 suezmax shuttle tankers
Rio 2016
and
Brasil 2014
and $605 in total, as a brokerage commission of 0.5% on the purchase of the suezmax tankers
Eurovision
and
Euro.
In November, 2015, the Company chartered the VLCC
Millennium
to a client company of Tsakos Shipping for a daily rate of $15 for a period of approximately three years.
|
Certain members of the Tsakos family are involved in the decision-making processes of Tsakos Shipping and of the Management Company, and
are also shareholders of the Holding Company. During 2016 and 2015, a ship brokerage company affiliated with a non executive member of the Board of Directors, received $0.2 million and $0.3 million gross in commissions for brokerage
services provided to the Company in relation to the charter of vessels owned by three of the Companys subsidiaries. All such arrangements were performed in the ordinary course of the Companys business and at terms standard to industry
practice. In 2016, the same company earned $0.3 million in commission relating the acquisition of the VLCC
Ulysses
.
(d)
|
Argosy Insurance Company Limited (Argosy):
The Company places its hull and machinery insurance, increased value insurance, war risk insurance
and certain other insurance through Argosy, a captive insurance company affiliated with Tsakos Shipping.
|
(e)
|
AirMania Travel S.A. (AirMania):
Apart from third-party agents, the Company also uses an affiliated company, AirMania, for travel services.
|
F-19
TSAKOS ENERGY NAVIGATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
DECEMBER 31, 2016, 2015 AND 2014
(Expressed in thousands of U.S.
Dollars, except for share and per share data, unless otherwise stated)
At
December 31, 2016, 2015 and 2014, the Company held 125,000 common shares at a total cost of $1,000 in a private U.S. company which undertakes research into synthetic genomic processes which may have a beneficial environmental impact within the
energy and maritime industries. Management has determined that there has been no impairment to the cost of this investment since its acquisition in 2007. A Director of the Company is a former officer and currently a shareholder and a consultant of
this company. No income was received from this investment during 2016, 2015 and 2014.
Acquisitions
During 2016, the Company acquired the suezmax tanker
Decathlon
for $64,992 from a third-party, the newbuild
aframaxes
Elias Tsakos
,
Thomas Zafiras, Leontios H
and
Parthenon
for $223,291 in total, the two newbuild panamaxes
Sunray
and
Sunrise
for $101,584 in total, the newbuild VLCC
Ulysses
for $100,189 and the
newbuild LNG
Maria Energy
for $239,029. On November 5, 2015, the Company acquired the suezmax tanker
Pentathlon
for $57,926 from a third-party.
Sales
There were no vessel sales in 2016.
On July 16, 2015 and July 17, 2015, the Company sold the handysize tanker
Delphi
and the suezmax tanker
Triathlon
,
for net proceeds of $42,761 in total, realizing a total net gain of $2,078. The capital gains from the sale of vessels are separately reflected in the accompanying 2015 Consolidated Statement of Comprehensive Income. There were no sales of vessels
in 2014.
Impairment
As of December 31, 2016, the Company reviewed the carrying amount in connection with the estimated recoverable amount for each of its vessels. This review did not indicate an impairment charge of the
carrying value of the Companys vessels. As of December 31, 2015 and 2014 there were no impairment charges.
Deferred charges, consisting of
dry-docking
and special survey costs, net of accumulated
amortization, amounted to $19,506 and $15,290, at December 31, 2016 and 2015, respectively. Amortization of deferred
dry-docking
costs is included in Depreciation and amortization in the accompanying
Consolidated Statements of Comprehensive income.
F-20
TSAKOS ENERGY NAVIGATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
DECEMBER 31, 2016, 2015 AND 2014
(Expressed in thousands of U.S.
Dollars, except for share and per share data, unless otherwise stated)
|
|
|
|
|
|
|
|
|
Facility
|
|
2016
|
|
|
2015
|
|
(a) Credit Facilities
|
|
|
344,564
|
|
|
|
538,208
|
|
(b) Term Bank Loans
|
|
|
1,421,479
|
|
|
|
861,886
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,766,043
|
|
|
|
1,400,094
|
|
Less deferred finance costs, net
|
|
|
(12,188
|
)
|
|
|
(7,531
|
)
|
Total long-term debt
|
|
|
1,753,855
|
|
|
|
1,392,563
|
|
Less current portion of debt
|
|
|
(291,111
|
)
|
|
|
(319,560
|
)
|
Add deferred finance costs, current portion
|
|
|
2,976
|
|
|
|
1,336
|
|
|
|
|
|
|
|
|
|
|
Total long term portion, net of current portion and deferred finance costs
|
|
|
1,465,720
|
|
|
|
1,074,339
|
|
|
|
|
|
|
|
|
|
|
As at
December 31, 2016, the Company had four open reducing revolving credit facilities, all of which are reduced in semi-annual installments, and one open facility which has both a reducing revolving credit component and a term bank loan component,
with balloon payments due at maturity between June 2017 and April 2019. At December 31, 2016, there was no available unused amount.
Interest is payable at a rate based on LIBOR plus a margin. At December 31, 2016, interest on these facilities ranged from 1.64% to 5.19%.
Term
loan balances outstanding at December 31, 2016, amounted to $1,421,479. These bank loans are payable in U.S. Dollars in quarterly or semi-annual installments with balloon payments mainly due at maturity between July 2017 and October 2026.
Interest rates on the outstanding loans as at December 31, 2016, are based on LIBOR plus a spread.
On May 5, 2016,
the Company signed a new five-year bank loan for $77,000 relating to the
pre-
delivery financing of the VLCC
Ulysses
, with drawdown date May 12, 2016. The loan was prepaid on July 1, 2016 and
the vessel was financed by a new twelve-year loan for $76,400 signed on June 17, 2016. The loan consists of two facilities amounting to $22,920 and $53,480 respectively. The first
ten-year
facility is
repayable by twenty consecutive semi-annual installments of $573, commencing six months after the delivery of the vessel, plus a balloon of $11,460 payable with the twentieth semi-annual installment. The second twelve-year facility is repayable by
twenty-four consecutive semi-annual installments of $2,228, commencing six months after the initial drawdown.
On May 31,
2016, the Company signed a new five-year term bank loan for $33,104 related to the debt maturity of the three handysize vessels,
Amphitrite
,
Andromeda
and
Arion
. The first drawdown of $12,010 was made on June 2, 2016 for
the vessel
Amphitrite
. The second drawdown of $10,938 was made on September 8, 2016 for the vessel
Andromeda
and the third drawn of $10,156 was made on October 6, 2016 for the vessel
Arion.
The loan is repayable in ten
semi-annual installments of $2,547, commencing six months after drawdown date, plus a balloon of $7,634 payable together with the last installment.
On June 17, 2016, the Company signed a new twelve-year term bank loan for $309,824 relating to the pre and post delivery financing of the two VLCC vessels,
Ulysses
and
Hercules I
and
the LNG carrier
Maria
Energy.
The first drawdown of $18,895 was made on June 23, 2016 for the vessel
Hercules I
.
F-21
TSAKOS ENERGY NAVIGATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
DECEMBER 31, 2016, 2015 AND 2014
(Expressed in thousands of U.S.
Dollars, except for share and per share data, unless otherwise stated)
The second drawdown of $76,400 was made on July 1, 2016 for the vessel
Ulysses
and the third drawn of $155,904 was made on October 5, 2016 for the vessel
Maria Energy.
The
loan consists of the commercial facility repayable into twenty semi-annual installments with a balloon to be paid with the final repayment installment and the
non-commercial
facility repayable in twenty four
semi-annual installments.
On September 29, 2016, the Company signed a new term bank loan for $60,000 relating to the
refinancing of one of its credit facilities, which was approaching maturity, relating to the vessels
Millennium, Euronike
and
Eurochampion 2004.
The loan was drawn on September 30, 2016, and on the same date the Company repaid the
outstanding loan amounting to $68,008. The loan consists of two tranches, the first one is repayable in four semi-annual installments of $2,500 plus a balloon of $6,000 payable together with the last installment and the second one in ten semi-annual
installments of $3,100, plus a balloon of $13,000 payable together with the last installment.
On November 29, 2016, the
Company signed a new term bank loan for $18,125 relating to the refinancing of the two 2003-built LR1s,
Maya
and
Inca
. The loan is repayable in eight semi-annual installments of $1,812, plus a balloon of $3,625 at the maturity date.
On December 22, 2016, the Company signed a supplemental agreement on the loan agreement dated August 9, 2012 for
$17,173
top-up
tranche to the existing loan for the financing of the shuttle tanker
Brasil 2014
. The
top-up
tranche was drawn down on December 28, 2016 and
is repayable in nine equal semi-annual installments of $1,018, plus a balloon payment of $8,014 payable together with the last installment.
On December 29, 2016, the Company signed a supplemental agreement on the loan agreement dated January 31, 2012 for $16,100
top-up
tranche to the existing
loan for the financing of the shuttle tanker
Rio 2016
. The
top-up
tranche was drawn down on December 30, 2016 and is repayable in nine equal semi-annual installments of $767, plus a balloon payment
of $9,197 payable together with the last installment.
At December 31, 2016, interest on these term bank loans ranged from
2.37% to 4.21%.
The weighted-average interest rates on the above executed loans for the applicable periods were:
|
|
|
|
|
Year ended December 31, 2016
|
|
|
2.71
|
%
|
Year ended December 31, 2015
|
|
|
2.30
|
%
|
Year ended December 31, 2014
|
|
|
2.23
|
%
|
F-22
TSAKOS ENERGY NAVIGATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
DECEMBER 31, 2016, 2015 AND 2014
(Expressed in thousands of U.S.
Dollars, except for share and per share data, unless otherwise stated)
Loan movements for credit facilities and term loans throughout 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan
|
|
Origination
Date
|
|
|
Original
Amount
|
|
|
Balance at
January 1,
2016
|
|
|
New
Loans
|
|
|
Repaid
|
|
|
Balance at
December 31,
2016
|
|
Credit facility
1
|
|
|
2004
|
|
|
|
179,384
|
|
|
|
80,690
|
|
|
|
|
|
|
|
10,555
|
|
|
|
70,135
|
|
10-year
term loan
|
|
|
2004
|
|
|
|
71,250
|
|
|
|
22,657
|
|
|
|
|
|
|
|
22,657
|
|
|
|
|
|
Credit facility
|
|
|
2005
|
|
|
|
220,000
|
|
|
|
46,570
|
|
|
|
|
|
|
|
15,650
|
|
|
|
30,920
|
|
Credit facility
|
|
|
2005
|
|
|
|
220,000
|
|
|
|
47,127
|
|
|
|
|
|
|
|
47,127
|
|
|
|
|
|
Credit facility
|
|
|
2006
|
|
|
|
275,000
|
|
|
|
72,810
|
|
|
|
|
|
|
|
72,810
|
|
|
|
|
|
Credit facility
|
|
|
2006
|
|
|
|
371,010
|
|
|
|
191,010
|
|
|
|
|
|
|
|
20,000
|
|
|
|
171,010
|
|
Credit facility
|
|
|
2006
|
|
|
|
70,000
|
|
|
|
22,500
|
|
|
|
|
|
|
|
22,500
|
|
|
|
|
|
Credit facility
1
|
|
|
2007
|
|
|
|
120,000
|
|
|
|
77,500
|
|
|
|
|
|
|
|
5,000
|
|
|
|
72,500
|
|
10-year
term loan
|
|
|
2007
|
|
|
|
88,350
|
|
|
|
49,710
|
|
|
|
|
|
|
|
5,520
|
|
|
|
44,190
|
|
10-year
term loan
|
|
|
2009
|
|
|
|
38,600
|
|
|
|
22,344
|
|
|
|
|
|
|
|
2,234
|
|
|
|
20,110
|
|
8-year
term loan
|
|
|
2009
|
|
|
|
40,000
|
|
|
|
24,016
|
|
|
|
|
|
|
|
2,664
|
|
|
|
21,352
|
|
12 year term loan
|
|
|
2009
|
|
|
|
40,000
|
|
|
|
26,250
|
|
|
|
|
|
|
|
2,500
|
|
|
|
23,750
|
|
10-year
term loan
|
|
|
2010
|
|
|
|
39,000
|
|
|
|
24,700
|
|
|
|
|
|
|
|
2,600
|
|
|
|
22,100
|
|
7-year
term loan
|
|
|
2010
|
|
|
|
70,000
|
|
|
|
46,800
|
|
|
|
|
|
|
|
4,640
|
|
|
|
42,160
|
|
10-year
term loan
|
|
|
2010
|
|
|
|
43,924
|
|
|
|
27,835
|
|
|
|
|
|
|
|
3,218
|
|
|
|
24,617
|
|
9-year
term loan
|
|
|
2010
|
|
|
|
42,100
|
|
|
|
29,100
|
|
|
|
|
|
|
|
2,600
|
|
|
|
26,500
|
|
10-year
term loan
|
|
|
2011
|
|
|
|
48,000
|
|
|
|
33,600
|
|
|
|
|
|
|
|
3,200
|
|
|
|
30,400
|
|
9-year
term loan
|
|
|
2011
|
|
|
|
48,650
|
|
|
|
35,677
|
|
|
|
|
|
|
|
3,243
|
|
|
|
32,434
|
|
8-year
term loan
|
|
|
2011
|
|
|
|
73,600
|
|
|
|
61,333
|
|
|
|
17,173
|
|
|
|
4,906
|
|
|
|
73,600
|
|
8-year
term loan
|
|
|
2012
|
|
|
|
73,600
|
|
|
|
62,100
|
|
|
|
16,100
|
|
|
|
4,600
|
|
|
|
73,600
|
|
7-year
term loan
|
|
|
2013
|
|
|
|
18,000
|
|
|
|
15,195
|
|
|
|
|
|
|
|
1,620
|
|
|
|
13,575
|
|
7-year
term loan
|
|
|
2014
|
|
|
|
42,000
|
|
|
|
39,200
|
|
|
|
|
|
|
|
2,800
|
|
|
|
36,400
|
|
6-year
term loan
|
|
|
2014
|
|
|
|
193,239
|
|
|
|
51,220
|
|
|
|
117,806
|
|
|
|
1,200
|
|
|
|
167,826
|
|
6-year
term loan
|
|
|
2014
|
|
|
|
39,000
|
|
|
|
36,400
|
|
|
|
|
|
|
|
2,600
|
|
|
|
33,800
|
|
7-year
term loan
|
|
|
2014
|
|
|
|
40,400
|
|
|
|
5,172
|
|
|
|
11,426
|
|
|
|
|
|
|
|
16,598
|
|
6-year
term loan
|
|
|
2014
|
|
|
|
78,744
|
|
|
|
15,516
|
|
|
|
16,598
|
|
|
|
|
|
|
|
32,114
|
|
6-year
term loan
|
|
|
2014
|
|
|
|
39,954
|
|
|
|
5,172
|
|
|
|
11,426
|
|
|
|
|
|
|
|
16,598
|
|
19-month
term loan
|
|
|
2014
|
|
|
|
52,195
|
|
|
|
52,195
|
|
|
|
|
|
|
|
52,195
|
|
|
|
|
|
5-year
term loan
|
|
|
2015
|
|
|
|
35,190
|
|
|
|
16,423
|
|
|
|
18,767
|
|
|
|
|
|
|
|
35,190
|
|
7-year
term loan
|
|
|
2015
|
|
|
|
35,190
|
|
|
|
11,730
|
|
|
|
23,460
|
|
|
|
|
|
|
|
35,190
|
|
7-year
term loan
|
|
|
2015
|
|
|
|
39,900
|
|
|
|
39,900
|
|
|
|
|
|
|
|
3,627
|
|
|
|
36,273
|
|
5-year
term loan
|
|
|
2015
|
|
|
|
82,775
|
|
|
|
51,625
|
|
|
|
31,150
|
|
|
|
5,173
|
|
|
|
77,602
|
|
6-year
term loan
|
|
|
2015
|
|
|
|
46,217
|
|
|
|
46,217
|
|
|
|
|
|
|
|
4,622
|
|
|
|
41,595
|
|
8-year
term loan
|
|
|
2015
|
|
|
|
73,500
|
|
|
|
9,800
|
|
|
|
29,400
|
|
|
|
|
|
|
|
39,200
|
|
7-year
term loan
|
|
|
2015
|
|
|
|
44,800
|
|
|
|
|
|
|
|
44,800
|
|
|
|
1,600
|
|
|
|
43,200
|
|
12-year
term loan
|
|
|
2016
|
|
|
|
309,824
|
|
|
|
|
|
|
|
251,199
|
|
|
|
|
|
|
|
251,199
|
|
2&5-year
term loan
2
|
|
|
2016
|
|
|
|
60,000
|
|
|
|
|
|
|
|
60,000
|
|
|
|
|
|
|
|
60,000
|
|
5-year
term loan
|
|
|
2016
|
|
|
|
33,104
|
|
|
|
|
|
|
|
33,104
|
|
|
|
924
|
|
|
|
32,180
|
|
4-year
term loan
|
|
|
2016
|
|
|
|
18,125
|
|
|
|
|
|
|
|
18,125
|
|
|
|
|
|
|
|
18,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
1,400,094
|
|
|
|
700,534
|
|
|
|
334,585
|
|
|
|
1,766,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
This credit facility includes a fixed interest rate portion amounting to $21,577 as at December 31, 2016.
|
F-23
TSAKOS ENERGY NAVIGATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
DECEMBER 31, 2016, 2015 AND 2014
(Expressed in thousands of U.S.
Dollars, except for share and per share data, unless otherwise stated)
|
2
|
The Company contemplates selling two of its vessels (
Eurochampion 2004
and
Euronike)
secured under this term loan facility within 2017
and accordingly, an amount of approximately $44,000 is classified under current portion of long-term debt.
|
The above revolving credit facilities and term bank loans are secured by first priority mortgages on all vessels owned by our
subsidiaries, by assignments of earnings and insurances of the respectively mortgaged vessels, and by corporate guarantees of the relevant ship-owning subsidiaries.
The loan agreements include, among other covenants, covenants requiring the Company to obtain the lenders prior consent in order to incur or issue any financial indebtedness, additional borrowings,
pay dividends in an amount more than 50% of cumulative net income (as defined in the related agreements), sell vessels and assets, and change the beneficial ownership or management of the vessels. Also, the covenants require the Company to maintain
a minimum liquidity, not legally restricted, of $108,139 at December 31, 2016 and $74,110 at December 31, 2015, a minimum hull value in connection with the vessels outstanding loans and insurance coverage of the vessels against all
customary risks. Three loan agreements require the Company to maintain throughout the security period, an aggregate credit balance in a deposit account of $5,750. Two loan agreements require a monthly pro rata transfer to retention account of any
principal due but unpaid.
As at December 31, 2016, the Company and its wholly owned subsidiaries had thirty-four loan
agreements, totaling $1,766,043. The Company fulfilled its requirements in respect of the financial covenants of all the agreements in relation to the leverage ratio and all other terms and covenants, apart from the
value-to-loan
requirement in certain of its loan agreements in respect of which an amount of $2,414 has been reclassified within current liabilities at December 31, 2016. Two of these loans met the
requirements immediately after December 31, 2016, and the remaining five loans are expected to be cured by February 2018.
The Companys liquidity requirements relate primarily to servicing its debt, funding the equity portion of investments in vessels and
funding expected capital expenditure on
dry-dockings
and working capital. As of December 31, 2016 and December 31, 2015, the Companys working capital
(non-restricted
net current assets), amounted to a $(47,947) deficit and $34,984 surplus respectively.
The annual principal payments required to be made after December 31, 2016, are as follows:
|
|
|
|
|
Period/Year
|
|
Amount
|
|
2017
|
|
|
291,111
|
|
2018
|
|
|
348,426
|
|
2019
|
|
|
228,458
|
|
2020
|
|
|
206,061
|
|
2021
|
|
|
258,304
|
|
2022 and thereafter
|
|
|
433,683
|
|
|
|
|
|
|
|
|
|
1,766,043
|
|
|
|
|
|
|
F-24
TSAKOS ENERGY NAVIGATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
DECEMBER 31, 2016, 2015 AND 2014
(Expressed in thousands of U.S.
Dollars, except for share and per share data, unless otherwise stated)
7.
|
Interest and Finance Costs, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Interest expense
|
|
|
41,451
|
|
|
|
32,065
|
|
|
|
33,389
|
|
Less: Interest capitalized
|
|
|
(4,015
|
)
|
|
|
(3,430
|
)
|
|
|
(2,384
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
37,436
|
|
|
|
28,635
|
|
|
|
31,005
|
|
Interest swap cash settlements
non-hedging
|
|
|
1,086
|
|
|
|
2,201
|
|
|
|
3,231
|
|
Bunkers swap and call options cash settlements
|
|
|
(128
|
)
|
|
|
7,427
|
|
|
|
997
|
|
Bunker call options premium
|
|
|
266
|
|
|
|
1,414
|
|
|
|
1,199
|
|
Amortization of loan fees
|
|
|
1,742
|
|
|
|
1,268
|
|
|
|
1,245
|
|
Bank charges
|
|
|
143
|
|
|
|
137
|
|
|
|
240
|
|
Finance project costs expensed
|
|
|
|
|
|
|
1,261
|
|
|
|
|
|
Amortization of deferred loss on
de-designated
financial instruments
|
|
|
|
|
|
|
|
|
|
|
154
|
|
Change in fair value of
non-hedging
financial instruments
|
|
|
(4,672
|
)
|
|
|
(9,116
|
)
|
|
|
5,003
|
|
Net gain on the prepayment of a loan
|
|
|
|
|
|
|
(3,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net total
|
|
|
35,873
|
|
|
|
30,019
|
|
|
|
43,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2016, the Company was committed to nine
floating-to-fixed
interest rate swaps with major financial institutions covering notional amounts aggregating to $346,667, maturing from May 2018 through January 2023, on which it pays fixed rates averaging
2.44% and receives floating rates based on the
six-month
London interbank offered rate (LIBOR) (Note 14).
At December 31, 2016, all interest rate swap agreements were designated and qualified as cash flow hedges, in order to hedge the Companys exposure to interest rate fluctuations. The fair values
of such financial instruments as of December 31, 2016 and 2015, in aggregate amounted to $1,030 (negative) and $7,847 (negative), respectively. The net amount of cash flow hedge losses at December 31, 2016, that is estimated to be
reclassified into earnings within the next twelve months is $2,808.
At December 31, 2015, the Company held one interest
rate swap that did not meet hedge accounting criteria. As such, the changes in its fair value during the 2015 have been included in Change in fair value of
non-hedging
financial instruments, and amounted to a
gain of $2,178. This interest rate swap expired on April 10, 2016.
At December 31, 2016 and 2015, the Company held
five and twelve, respectively, call option agreements in order to hedge its exposure to bunker price fluctuations associated with the consumption of bunkers by its vessels. The value of the call options at December 31, 2016 and 2015 was $1,307
(positive) and $154 (positive), respectively.
The changes in their fair value during 2016 and 2015 amounting to $1,153
(positive) and $154 (positive) respectively have been included in Change in fair value of
non-hedging
financial instruments in the above table.
During 2016, the Company entered into three bunker swap agreements in order to hedge its exposure to bunker price fluctuations associated
with the consumption of bunkers by vessel
Ulysses
. The fair values of these financial instruments as of December 31, 2016, were $2,479 (positive).
During 2015, as part of its refinancing program, the Company repaid $46,488 to a lender for debt approaching maturity relating to the vessels
Socrates
and
Selecao
. The outstanding balance of
the loan facility at the repayment date was $49,800, leaving a total net gain of $3,208, which is included within Interest and finance costs, net in the above table.
F-25
TSAKOS ENERGY NAVIGATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
DECEMBER 31, 2016, 2015 AND 2014
(Expressed in thousands of U.S.
Dollars, except for share and per share data, unless otherwise stated)
On December 8, 2015, the Company announced the resumption of the stock repurchase program for open market purchases for its common
and/ or its preferred shares, which program was previously authorized by its Board of Directors. The Company had available up to $20.0 million from its previously authorized program and, on July 14, 2016, the Company announced the
Boards authorization of up to an additional $20 million in common and/or preferred share repurchases. As of December 31, 2016, the Company has acquired as treasury stock, 3,705,286 shares for a total amount of $20,683.
On April 8, 2016, under the Companys share-based plan the Company granted 87,500 restricted share units to
non-executive
directors out of the repurchased treasury stock, which vested immediately. A related amount of $0.5 million was accounted for as stock compensation expense within General and Administrative
expenses in the accompanying Financial Statements.
On April 22, 2015, the Company completed an offering of 3,400,000 of
its 8.75% Series D Cumulative Perpetual Preferred Shares, par value $1.00 per share, liquidation preference $25.00 per share, raising $81,784, net of underwriters discount and other expenses. Dividends on the Series D Preferred Shares are
cumulative from the date of original issue and will be payable quarterly in arrears on the 28th day of February, May, August and November of each year, commencing August 28, 2015, when, as and if declared by our board of directors. Dividends
will be payable from cash available for dividends at a rate equal to 8.75% per annum of the stated liquidation preference. At any time on or after April 29, 2020, the Series D Preferred Shares may be redeemed, in whole or in part, out of
amounts available thereof, at a redemption price of $25.00 per share plus an amount equal to all accumulated and unpaid dividends thereon to the date of redemption, whether or not declared. The Series D preferred shares are not convertible into
common shares and are not redeemable at the option of the holder.
On July 30, 2015, the Company issued 2,626,357 common
shares at a value of $9.7881 per share so as to partially finance the acquisition of two resale contracts for the construction of VLCC tankers for delivery in 2016 and 2017.
On May 30, 2014, at the annual general meeting of shareholders, the shareholders approved the amendment of the Companys Memorandum of Association in order to increase the authorized share
capital from $100,000 consisting of 85 million common shares of a par value of $1.00 each and 15 million preferred shares of a par value of $1.00 each, to $200,000, consisting of 185 million common shares of a par value of $1.00 each
and 15 million preferred shares of a par value of $1.00 each.
On April 29, 2014, the Company completed an offering
of 11,000,000 common shares, at a price of $7.30 per share, for net proceeds of $75,821. On May 22, 2014, the underwriters exercised their option to purchase 1,650,000 additional shares at the same price for net proceeds of $11,503.
On February 5, 2014, the Company completed an offering of 12,995,000 common shares, including 1,695,000 common shares issued upon the
exercise in full by the underwriters of their option to purchase additional shares, at a price of $6.65 per share, for net proceeds of $81,952.
In 2014, the Company sold 1,077,847 common shares for proceeds, net of commissions, of $7,124 under a distribution agency agreement entered into in August 2013. This agreement provides for the offer and
sale from time to time of up to 4,000,000 common shares of the Company, par value $1.00 per share, at market prices.
F-26
TSAKOS ENERGY NAVIGATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
DECEMBER 31, 2016, 2015 AND 2014
(Expressed in thousands of U.S.
Dollars, except for share and per share data, unless otherwise stated)
Under the Companys share-based incentive plan, 20,000 restricted share units
(RSUs) were granted and vested in 2014, at a fair value of $7.08 per share. There were no RSUs outstanding at the beginning or end of 2014. The total fair value of shares vested during the year ended December 31, 2014 was $142. Total
compensation expense recognized in 2014 amounted to $142.
As at December 31, 2015, under the existing share-based
incentive plan approved by the shareholders, a further 868,950 RSUs or other share-based awards may be issued in the future. During 2016, the Company granted 87,500 restricted share units to
non-executive
directors out of the repurchased treasury stock, which vested immediately. No (RSUs) were granted in 2015.
9.
|
Accumulated other comprehensive loss
|
In 2016, Accumulated other comprehensive loss decreased to $4,313 ($10,727 in 2015) due to unrealized gains from hedging financial instruments of $6,414 (loss of $437 in 2015 and $3,501 in 2014 including
$154 related to amortization of deferred loss on
de-designated
financial instruments).
10.
|
Earnings per Common Share
|
The computation of basic earnings per share is based on the weighted average number of common shares outstanding during the year. The
computation of diluted earnings per share assumes the foregoing and the exercise of all granted RSUs (Note 8) using the treasury stock method.
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Net income attributable to Tsakos Energy Navigation Limited
|
|
$
|
55,783
|
|
|
$
|
158,217
|
|
|
$
|
33,527
|
|
Preferred share dividends, Series B
|
|
|
(4,000
|
)
|
|
|
(4,000
|
)
|
|
|
(4,000
|
)
|
Preferred share dividends, Series C
|
|
|
(4,437
|
)
|
|
|
(4,437
|
)
|
|
|
(4,438
|
)
|
Preferred share dividends, Series D
|
|
|
(7,438
|
)
|
|
|
(5,000
|
)
|
|
|
|
|
Net income attributable to common share holders
|
|
|
39,908
|
|
|
|
144,780
|
|
|
|
25,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
84,905,078
|
|
|
|
85,827,597
|
|
|
|
79,114,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per common share
|
|
$
|
0.47
|
|
|
$
|
1.69
|
|
|
$
|
0.32
|
|
For 2016, 2015 and 2014 there were no
non-vested
RSUs.
11.
|
Noncontrolling Interest in Subsidiary
|
In August 2006, the Company signed an agreement with Polaris Oil Shipping Inc. (Polaris), an affiliate of one of the Companys major charterers, following which Polaris acquired 49% of Mare Success
S.A., a previously wholly-owned subsidiary of the Holding Company. Mare Success S.A. is the holding-company of two Panamanian registered companies which own respectively the vessels
Maya
and
Inca
. The agreement became effective on
November 30, 2006. Mare Success S.A. is fully consolidated in the accompanying financial statements. In the fourth quarter of 2013, Mare Success increased its
paid-in
capital by $20,408 of
F-27
TSAKOS ENERGY NAVIGATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
DECEMBER 31, 2016, 2015 AND 2014
(Expressed in thousands of U.S.
Dollars, except for share and per share data, unless otherwise stated)
which $10,408 being the 51%, was contributed by the Company and $10,000 being the 49%, by Polaris. After the recapitalization, the shareholding of Mare Success S.A. remained at 51% for the
Company and 49% for Polaris. There have been no transactions between Polaris and the Company since the incorporation of Mare Success S.A., whereas approximately 7.4% of the Companys 2016 revenue (5.5% in 2015) was generated by the charterer
affiliated to Polaris.
Under the
laws of the countries of the Companys subsidiaries incorporation and/or vessels registration (Greece, Liberia, Marshall Islands, Panama, Bahamas, Cyprus , Malta), the companies are subject to registration and tonnage taxes, which
have been included in the Vessel operating expenses.
The Company is not expected to be subject to United States Federal income
tax on its gross income from the international operations of ships. In general, foreign persons operating ships to and from the United States are subject to United States Federal income tax of 4% of their United States source gross transportation
income, which equals 50% of their gross income from transportation to or from the United States. The Company believes that it is exempt from United States Federal income tax on its United States source gross transportation income, as each
vessel-operating subsidiary is organized in a foreign country that grants an equivalent exemption to corporations organized in the United States, and derives income from the international operation of ships and satisfies the stock ownership test as
defined by the Internal Revenue Code and related regulations as a result of the Companys stock being primarily and regularly traded on an established securities market in the United States. Under the regulations, a Companys stock is
considered to be regularly traded on an established securities market if (i) one or more classes of its stock representing 50% or more of its outstanding shares, by voting power and value, is listed on the market and is traded on the market,
other than in minimal quantities, on at least 60 days during the taxable year; and (ii) the aggregate number of shares of stock traded during the taxable year is at least 10% of the average number of shares of the stock outstanding during the
taxable year. Other requirements such as the substantiation and reporting requirements under the regulations also must be satisfied to qualify for the exemption from United States Federal income tax.
13.
|
Commitments and Contingencies
|
As at December 31, 2016, the Company had under construction five aframax tankers, one shuttle tanker and one VLCC tanker.
The total contracted amount remaining to be paid for the seven vessels under construction plus the extra costs agreed as at December 31, 2016, were $274,288 due within the 2017.
At December 31, 2016, there is a prepaid amount of $1,650 under an old shipbuilding contract which was terminated in 2014, which will
be used against the contract price of future new buildings, currently being discussed between the Company and the shipyard.
In
the ordinary course of the shipping business, various claims and losses may arise from disputes with charterers, agents and other suppliers relating to the operations of the Companys vessels. Management believes that all such matters are
either adequately covered by insurance or are not expected to have a material adverse effect on the Companys results from operations or financial condition.
F-28
TSAKOS ENERGY NAVIGATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
DECEMBER 31, 2016, 2015 AND 2014
(Expressed in thousands of U.S.
Dollars, except for share and per share data, unless otherwise stated)
Charters-out
The future minimum revenues of vessels in operation at December 31, 2016, before reduction for brokerage commissions, expected to be
recognized on
non-cancelable
time charters are as follows:
|
|
|
|
|
Year
|
|
Amount
|
|
2017
|
|
|
294,564
|
|
2018
|
|
|
205,540
|
|
2019
|
|
|
157,045
|
|
2020
|
|
|
157,475
|
|
2021 to 2028
|
|
|
495,415
|
|
|
|
|
|
|
Minimum charter payments
|
|
|
1,310,039
|
|
|
|
|
|
|
These amounts do not assume any
off-hire.
14.
|
Financial Instruments
|
(a)
|
Interest rate risk:
The Company is subject to interest rate risk associated with changing interest rates with respect to its variable interest rate term
loans and credit facilities as described in Notes 6 and 7.
|
(b)
|
Concentration of credit risk:
Financial Instruments consist principally of cash, trade accounts receivable, investments, and derivatives.
|
The Company places its temporary cash investments, consisting mostly of deposits, primarily with high credit
qualified financial institutions. The Company performs periodic evaluations of the relative credit standing of those financial institutions that are considered in the Companys investment strategy. The Company limits its credit risk with
accounts receivable by performing ongoing credit evaluations of its customers financial condition and generally does not require collateral for its accounts receivable and does not have any agreements to mitigate credit risk. The Company
limits the exposure of
non-performance
by counterparties to derivative instruments by diversifying among counterparties with high credit ratings, and performing periodic evaluations of the relative credit
standing of the counterparties.
(c)
|
Fair value:
The carrying amounts reflected in the accompanying Consolidated Balance Sheet of cash and cash equivalents, restricted cash, trade
receivables and accounts payable approximate their respective fair values due to the short maturity of these instruments. The fair value of long-term bank loans with variable interest rates approximate the recorded values, generally due to their
variable interest rates. The present value of the future cash flows of the portion of one long-term bank loan with a fixed interest rate is estimated to be approximately $21,260 as compared to its carrying amount of $21,577 (Note 6). The Company
performs relevant enquiries on a periodic basis to assess the recoverability of the long-term investment and estimates that the amount presented on the accompanying Balance sheet approximates the amount that is expected to be received by the Company
in the event of sale of that investment.
|
The fair values of the one long-term bank loan with a fixed interest
rate, the interest rate swap agreements, and bunker swap agreements, put option agreements and call option agreements discussed in Note 6 above are determined through Level 2 of the fair value hierarchy as defined in FASB guidance for Fair
Value Measurements and are derived principally from or corroborated by observable market data, interest rates, yield curves and other items that allow value to be determined.
F-29
TSAKOS ENERGY NAVIGATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
DECEMBER 31, 2016, 2015 AND 2014
(Expressed in thousands of U.S.
Dollars, except for share and per share data, unless otherwise stated)
The estimated fair values of the Companys financial instruments, other than
derivatives at December 31, 2016 and 2015 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
Carrying
Amount
|
|
|
Fair Value
|
|
|
Carrying
Amount
|
|
|
Fair Value
|
|
Financial assets/(liabilities)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
187,777
|
|
|
|
187,777
|
|
|
|
289,676
|
|
|
|
289,676
|
|
Restricted cash
|
|
|
9,996
|
|
|
|
9,996
|
|
|
|
15,330
|
|
|
|
15,330
|
|
Investments
|
|
|
1,000
|
|
|
|
1,000
|
|
|
|
1,000
|
|
|
|
1,000
|
|
Debt
|
|
|
(1,766,043
|
)
|
|
|
(1,765,726
|
)
|
|
|
(1,400,094
|
)
|
|
|
(1,399,447
|
)
|
Tabular Disclosure of Derivatives Location
Derivatives are recorded in the balance sheet on a net basis by counterparty when a legal right of setoff exists. The following tables
present information with respect to the fair values of derivatives reflected in the balance sheet on a gross basis by transaction. The tables also present information with respect to gains and losses on derivative positions reflected in the
Statement of Comprehensive Income or in the Balance Sheet, as a component of Accumulated other comprehensive loss.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
|
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
Derivative
|
|
Balance Sheet Location
|
|
Fair Value
|
|
|
Fair Value
|
|
|
Fair Value
|
|
|
Fair Value
|
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
Current portion of financial instrumentsFair value
|
|
|
1.0
|
|
|
|
|
|
|
|
3,613
|
|
|
|
4,666
|
|
|
|
|
|
|
|
|
|
Financial instrumentsFair Value, net of current portion
|
|
|
3,701
|
|
|
|
|
|
|
|
1,119
|
|
|
|
3,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
|
|
3,702
|
|
|
|
|
|
|
|
4,732
|
|
|
|
7,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
|
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
Derivative
|
|
Balance Sheet Location
|
|
Fair Value
|
|
|
Fair Value
|
|
|
Fair Value
|
|
|
Fair Value
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
Current portion of financial instrumentsFair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,040
|
|
|
|
|
|
|
|
Bunker swaps
|
|
Current portion of financial instrumentsFair value
|
|
|
1,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bunker swaps
|
|
Financial instrumentsFair Value, net of current portion
|
|
|
1,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bunker call options
|
|
Current portion of financial instrumentsFair value
|
|
|
1,307
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bunker call options
|
|
Financial instrumentsFair Value, net of current portion
|
|
|
|
|
|
|
126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
|
|
3,786
|
|
|
|
154
|
|
|
|
|
|
|
|
1,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives
|
|
|
|
|
7,488
|
|
|
|
154
|
|
|
|
4,732
|
|
|
|
8,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-30
TSAKOS ENERGY NAVIGATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
DECEMBER 31, 2016, 2015 AND 2014
(Expressed in thousands of U.S.
Dollars, except for share and per share data, unless otherwise stated)
Derivatives designated as Hedging
Instruments-Net
effect on
the Statements of Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain/(Loss) Recognized in
Accumulated Other Comprehensive
Income on
Derivative (Effective Portion)
|
|
|
|
|
|
|
|
|
|
|
Derivative
|
|
|
Amount
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Interest rate swaps
|
|
|
|
|
|
|
3,015
|
|
|
|
(5,446
|
)
|
|
|
(7,042
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
3,015
|
|
|
|
(5,446
|
)
|
|
|
(7,042
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss Reclassified from
Accumulated Other Comprehensive
Loss into
Income (Effective Portion)
Location
|
|
|
|
|
|
|
|
|
|
|
Derivative
|
|
|
Amount
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Interest rate swaps
|
|
|
Depreciation expense
|
|
|
|
(156
|
)
|
|
|
(154
|
)
|
|
|
(154
|
)
|
Interest rate swaps
|
|
|
Interest and finance costs, net
|
|
|
|
(3,243
|
)
|
|
|
(2,996
|
)
|
|
|
(3,388
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
(3,399
|
|
|
|
(3,150
|
)
|
|
|
(3,542
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accumulated loss from Derivatives designated as Hedging instruments recognized in Accumulated Other
comprehensive Loss as of December 31, 2016 and 2015 was $4,314 and $10,727 respectively.
Derivatives not designated
as Hedging InstrumentsNet effect on the Statement of Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Realized and Unrealized Gain
(Loss) Recognized on Statement of
Comprehensive Income / (Loss)
Location
|
|
|
|
|
|
|
|
|
|
Derivative
|
|
|
Amount
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Interest rate swaps
|
|
Interest and finance costs, net
|
|
|
(47
|
)
|
|
|
(24
|
)
|
|
|
(1,272
|
)
|
Bunker swaps
|
|
Interest and finance costs, net
|
|
|
2,586
|
|
|
|
(1,206
|
)
|
|
|
(10,402
|
)
|
Bunker put options
|
|
Interest and finance costs, net
|
|
|
|
|
|
|
564
|
|
|
|
1,244
|
|
Bunker call options
|
|
Interest and finance costs, net
|
|
|
909
|
|
|
|
(1,260
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
3,448
|
|
|
|
(1,926
|
)
|
|
|
(10,430
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables summarize the fair values for assets and liabilities measured on a recurring basis as
of December 31, 2016 and 2015 using Level 2 inputs (significant other observable inputs):
|
|
|
|
|
|
|
|
|
Recurring measurements:
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
Interest rate swaps
|
|
|
(1,030
|
)
|
|
|
(8,887
|
)
|
Bunker swaps
|
|
|
2,479
|
|
|
|
|
|
Bunker call options
|
|
|
1,307
|
|
|
|
154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,756
|
|
|
|
(8,733
|
)
|
|
|
|
|
|
|
|
|
|
F-31
TSAKOS ENERGY NAVIGATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
DECEMBER 31, 2016, 2015 AND 2014
(Expressed in thousands of U.S.
Dollars, except for share and per share data, unless otherwise stated)
|
a)
|
On January 17, 2017, the Company drew down the amount of $42.6 million to finance the delivery of the VLCC tanker
Hercules I
on January 19, 2017.
On the same date, the Company partially prepaid $0.6 million of the
pre-delivery
financing of the vessel.
|
|
b)
|
On January 30, 2017, the Company paid a dividend of $0.50 per share for its 8.00% Series B Preferred Shares.
|
|
c)
|
On January 30, 2017, the Company paid a dividend of $0.55469 per share for its 8.875% Series C Preferred Shares.
|
|
d)
|
On February 6, 2017, the Company started a $40.0 million
at-the-market
program
to sell common and preferred shares. As at March 27, 2017, the Company raised $0.6 million from the sale of 24,803 preferred shares and $2.5 million from the sale of 550,000 common shares.
|
|
e)
|
On February 7, 2017, the Company drew down the amount of $23.3 million to finance the delivery of the aframax tanker
Marathon TS
on February 10,
2017
|
|
f)
|
On February 28, 2017, the Company paid a dividend of $0.54687 per share for its 8.75% Series D Preferred Shares.
|
|
g)
|
On March 8, 2017, the Company drew down the amount of $34.3 million to finance the delivery of the shuttle tanker
Lisboa
on March 10, 2017.
|
|
h)
|
On March 17, 2017, the Company declared a dividend of $0.05 per common share payable on April 28, 2017 to shareholders of record as of April 25, 2017.
|
F-32