Tsakos reports record rise in revenues

Tsakos reports record rise in revenues
Mr Tsakos says 2006 was a pivotal year

TSAKOS ENERGY NAVIGATION LIMITED today reported results for the full year and fourth quarter ended December 31, 2006.

Net income was $196.4 million for 2006 as compared with $161.8 million for 2005. Basic earnings per share based on average number of shares outstanding rose to $10.30 versus earnings per share of $8.18 in 2005. Net revenues (voyage revenues net of commissions and voyage expenses) were $343.15 million in 2006 as compared with $248.05 million in 2005. Income before depreciation was $255.46 million in 2006 against $197.45 million a year earlier.

Revenues from voyages were 45% higher than the prior year, while the average number of vessels increased from 26.1 in 2005 to 33.8 in 2006. The average rates earned per vessel also increased despite the softer market compared to the prior year. More specifically Suezmax, Aframax and Handysize product carrier rates achieved by our vessels rose, more than offsetting the slight drop in VLCC and Panamax rates. A change in chartering policy towards fixed employment with guaranteed minimum and profit sharing agreement in the upside of the market enabled the company to exploit the higher rates of the spot market while ensuring continuous employment and guaranteed rates on the downside. In 2006, 54% of total operating days were under time charter with either a fixed rate or profit sharing, compared to 62% in 2005. However, the number of days employed on time charter with profit sharing actually doubled between 2005 and 2006. Average TCE rates (voyage revenues less voyage expenses) rose from $28,645 per day in 2005 to $30,154 per day in 2006. Utilization of the fleet was 97.4% in 2006 compared with 96.5% in the prior year, due to lower dry-docking activity in 2006.

Operating expenses per vessel per day increased by 7% from $6,534 to $6,979 mainly reflecting, increases in lubricant prices, insurance premiums and some further weakness of the Dollar against the Euro compared to 2005. However, overhead expenses dropped by 5% from $1,217 per vessel per day in 2005 to $1,162 in 2006 due to economies of scale, the direct result of a larger fleet.

Interest and finance costs increased from $11.2 million in 2005 to $42.5 million in 2006 due to the increase in amount of loans to partly finance the new vessels delivered, as well as the increase of average interest rates by over 1%.

Capital gains from vessel sales, including the sale of the minority interest in two Panamaxes to FLOPEC of Ecuador, increased from $45.3 million in 2005 to $63.3 million in 2006, a 39.8% increase, reflecting the Company's policy to actively participate in the sale & purchase market when lucrative opportunities arise.

Fourth Quarter 2006

Net income in the fourth quarter of 2006 was $77.11 million versus $60.83 million in the like quarter of 2005. Earnings per share (basic) based on weighted average number of shares outstanding were $4.05 in the 2006 quarter versus $3.16 in the same period one year earlier. Net revenues (voyage revenues net of commissions and voyage expenses) were $93.73 million in the fourth quarter of 2006 in comparison with $77.70 million in the year earlier quarter.

The size of the fleet rose from an average of 25.3 vessels in the fourth quarter of 2005 to 37.0 vessels in the same period of 2006. Average TCE revenues earned by the vessels fell from $35,388 in the last quarter of 2005 to $29,796 in fourth quarter of 2006. The market was softer in the fourth quarter 2006 compared with the fourth quarter of 2005 as a result of the mild winter in the northern hemisphere and the high oil inventories in the USA. On a year over year basis this was offset by the unexpectedly strong market during the summer months of 2006.

Operating expenses per vessel per day increased from $7,134 to $7,811, or 9%, due to increased lubricant costs and the weakening of the Dollar against the Euro by an average of 8.5% between the two equivalent quarters which affected other operating expenses in Euro.

Interest and finance increased from $4.7 million in 2005 fourth quarter to $14.8 million in the fourth quarter of 2006 due to the increase of average loan balances and the increase of average interest rates from 4.8% to 5.6%.

In the fourth quarter of 2006 the company sold the panamax tanker Aztec realizing capital gains of $24.7 million whereas in the fourth quarter of 2005 the company sold the Handysize product carrier Dionisos and the Aframax tanker Tamyra realizing capital gains of $20.5 million.

In the same quarter, the company enhanced its strategic alliance with FLOPEC by selling 49% of its shares in a subsidiary which holds 100% of the shares in the shipowning companies of the panamax vessels Maya and Inca, realizing capital gains of $25.3 million.

"Record fourth quarter profits boosted full year net income to record levels marking the fourth consecutive year of record earnings," observed Mr. D. John Stavropoulos, Chairman of the Board. He further added "the corporate strategy of maintaining a young and growing fleet combined with the excellence of management had produced these outstanding results. The platform of today's modern and diverse fleet, the newbuildings to be added over the years, the balanced employment program, and the prospects for future demand for petroleum and its products are the basis of our optimism about the future of TEN."

    SUBSEQUENT EVENTS
    - M/T Arctic a 1A ice-class Suezmax was delivered to TEN on January 10,
      and immediately entered the spot market ex-shipyard on a repositioning
      voyage.
    - LNGC Neo Energy the Company's first LNG carrier was delivered from the
      yard on February 6 and is completing all preparatory works including
      crew familiarization in order to sail from the shipyard in South Korea
      to enter the spot market.
    - M/T Andromeda, a 1A ice class Handysize product carrier, was delivered
      to TEN on March 8 and immediately entered the spot market ex-shipyard on
      a repositioning voyage.
    - TEN commissioned two additional DNA Aframax tankers at Sumitomo Shipyard
      in Japan (the 7th and 8th sister vessels) for delivery in late 2009 and
      early 2010, respectively.
    - M/T Bregen a 1989-built Panamax tanker was delivered to her new owners
      during January. From this sale TEN will record a $5 million capital gain
      in Q1 2007.
    - The Company re-acquired the ownership of M/T Olympia, a 1999 built
      Aframax tanker, from a German KG system at a pre-agreed price of
      $31.1 million. The vessel's current market price is valued at over
      $60 million by management.

FLEET EXPANSION

2006 was another year in which TEN put its capital to use effectively. Encouraged by the healthy markets and the outlook for the industry, coupled with demand from its clients, TEN invested over $1 billion in expanding the Company's fleet. This expansion was achieved in three ways. In particular, TEN acquired fleets and individual vessels from the open market, acquired newbuilding contracts from third party owners for vessels under construction and finally, true to its roots in generic growth, placed eight new building orders (two of which in early 2007) for delivery over the next three years. TEN's fleet renewal and expansion goals are to continually increase the earnings capacity of the fleet while solidifying its foundation for the future.

This expansion was heavily weighted towards further diversifying the versatility of the fleet while further reducing the fleet's already low average age. To accelerate this reduction, TEN proceeded with selling three vessels, the handysize product tankers Libra and Crux built in 1988 and 1989, respectively, and the Aztec, a 2003-built Panamax product tanker. In addition TEN sold to Flota Petrolera Ecuatoriana (FLOPEC) of Ecuador a 49% stake in the 2003-built, Maya and Inca.

The table below highlights the new vessels and newbuildings acquired by TEN in 2006 and those delivered so far in 2007.

    Name                   Type       Dwt       Built    Delivery    Design
    Delivered in 2006
    1. La Prudencia        VLCC     298,900  Jan. 1993   Jan. 2006      -
    2. Archangel          Suezmax   162,400  Jan. 2006   Jan. 2006     1A
    3. Alaska             Suezmax   162,400  Feb. 2006   Feb. 2006     1A
    4. Proteas            Aframax   116,000  May 2006    May. 2006     1A
    5. Promitheas         Aframax   116,000  Aug. 2006   Aug. 2006     1A
    6. Propontis          Aframax   116,000  Oct. 2006   Oct. 2006     1A
    7. Aris              Handysize   53,000  Apr. 2005    May 2006     1A
    8. Ajax              Handysize   53,000  Mar. 2005    May 2006     1A
    9. Afrodite          Handysize   53,000  Aug. 2005   Apr. 2006     1A
    10. Artemis          Handysize   53,000  Aug. 2005   Apr. 2006     1A
    11. Ariadne          Handysize   53,000  Nov. 2005   Apr. 2006     1A
    12. Apollon          Handysize   53,000   May 2005    May 2006     1A
    13. Delphi           Handysize   37,432  Sep. 2004    May 2006      -
    14. Antares          Handysize   36,660   May 2006    May 2006     1A
    15. Arion            Handysize   36,660  Oct. 2006   Oct. 2006     1A
    Newbuilding Orders
    1. Byzantion         Handysize   37,340   May 2007    May 2007     1B
    2. Bosporos          Handysize   37,340  Aug. 2007   Aug. 2007     1B
    3. H/N 3003           Panamax    73,800  Nov. 2007   Nov. 2007    LR 1
    4. H/N 3004           Panamax    73,800  Nov. 2007   Nov. 2007    LR 1
    5. H/N 1342           Aframax   105,000  Nov. 2008   Nov. 2008    DNA
    6. H/N 1344           Aframax   105,000  Nov. 2008   Nov. 2008    DNA
    7. H/N 1349           Aframax   105,000   Q3 2009       TBD       DNA
    8. H/N 1350           Aframax   105,000   Q4 2009       TBD       DNA
    2007 Deliveries (YTD)
    1. Arctic             Suezmax   162,400   Hyundai    Jan. 2007     1A
    2. Neo Energy           LNG    150,000m3  Hyundai    Feb. 2007      -
    3. Andromeda         Handysize   37,340   Hyundai    Mar. 2007     1A

Mr. Nikolas P. Tsakos, President & CEO of TEN observed, "2006 was a pivotal year for our company. Not only did we increase the capacity of our fleet by over 55% but we also became one of the largest independent ice-class owners in the world which enabled us to form strategic alliances with one of the world's prime ice-class traders, Neste Oil of Finland. This, together with expanding our long-established cooperation with FLOPEC, elevated our operations to a level that will benefit both the Company and shareholders alike."

Mr. Tsakos concluded, "Our sale and purchase activity also enabled us to become an exclusively double-hull operator which, combined with a fleet age half that of the world's average, will make our vessels even more attractive to oil majors worldwide. With a fleet profile like ours and our high expectations for our newbuilding program we can only view the future with renewed confidence."

Taking into consideration the newbuildings cited above, TEN's overall newbuilding program now consists of fourteen vessels. These are:

    Name                  Type       Dwt      Yard      Delivery  Ice-Class /
                                                                    Design
    1. Antarctic         Suezmax   162,400   Hyundai   Apr. 2007      1A
    2. Aegeas           Handysize   36,660   Hyundai   Apr. 2007      1A
    3. Byzantion        Handysize   37,340   Hyundai   May 2007       1B
    4. Bosporos         Handysize   37,340   Hyundai   Aug. 2007      1B
    5. H/N 3003          Panamax    73,800   Sungdong  Nov. 2007     LR 1
    6. H/N 3004          Panamax    73,800   Sungdong  Nov. 2007     LR 1
    7. Izumo Princess    Aframax   105,000   Sumitomo  Mar. 2007      DNA
    8. Sakura Princess   Aframax   105,000   Sumitomo  Jun. 2007      DNA
    9. H/N 1342          Aframax   105,000   Sumitomo  Nov. 2008      DNA
    10. H/N 1344         Aframax   105,000   Sumitomo  Nov. 2008      DNA
    11. H/N 1349         Aframax   105,000   Sumitomo   Q3 2009       DNA
    12. H/N 1350         Aframax   105,000   Sumitomo   Q4 2009       DNA
    13. H/N tbn          Aframax   105,000   Sumitomo   Q4 2009       DNA
    14. H/N tbn          Aframax   105,000   Sumitomo   Q1 2010       DNA

The following table outlines the composition of TEN's fleet after the deliveries cited above assuming no interim disposals:

    Vessels         Proforma - Ice-Class    Existing - Ice-Class
    VLCC                3                       3          -
    SUEZMAX            10          6            9          5
    AFRAMAX            18          3           10          3
    PANAMAX             7          2            5          2
    HANDYMAX            6          6            6          6
    HANDYSIZE           8          6            5          3
    LNG                 1                       1          -
    TOTAL              53         23           39         19
    TOTAL DWT             5,641,835              4,380,495

TANKER INDUSTRY

2006 developed as a decidedly atypical year for tankers, especially as to unusual seasonal behavior for spot tanker rates exhibited by third quarter freight rates higher than fourth quarter freight rates. This was largely the result of excess inventory built up during the third quarter in the OECD countries that had to be brought back down in the fourth quarter simultaneously with a fall in US seaborne imports due to the revival of US oil and gas production following the 2005 hurricane season and increases in Canadian oil production. Mostly affected were VLCCs, with Suezmax and Aframax tankers experiencing the usual fourth quarter freight rate rally, ending the year on a high note. World oil demand growth in 2006 was a modest 1.0%. At the same time the world tanker tonnage experienced 6.1% growth reflecting a strong new-building delivery schedule and anemic retirements. Nevertheless, 2006 provided tanker operators with good revenues and profits for the fourth consecutive year.

Global economic prospects for 2007 remain generally bright with an expected soft-landing in the US, continued moderate expansion in the EU and Japan and further strong growth in developing countries, foremost China and India. World economic growth has been revised up slightly to 5.3% in 2006 and 4.6% in 2007. Developing countries excluding China are forecast to grow 5.7% in 2007 from 6.3% in 2006 more than double the OECD rate of 2.4% in 2007 and 3.1% in 2006. Despite government attempts to moderate growth, the Chinese economy is estimated to have expanded at a breakneck pace of 10.7% in 2006 followed by India where an early estimate puts growth at 9.2% for the fiscal year ending 31 March 2007. The Chinese economy is forecast to grow 9.4% in 2007, a modest slowdown, following cooling measurements imposed by the central government.

World oil demand is forecast to grow 1.5 million bpd or 1.8% over 2006 according to IEA. On the supply side, the tanker market faces a challenging task of absorbing an average annual fleet growth of approximately 8% per annum over the next 3 years leading to 2010 and IMO's MARPOL single-hull phase-out. Ton-mile requirements continue to expand and oil majors and commodity players continue to absorb tonnage on medium to long term time charters. Overall, industry dynamics should continue to support growth and consolidation opportunities for well- capitalized and well-managed tankers owners and operators.

OUTLOOK FOR TEN

The shipping markets have historically been of a cyclical nature and have, on occasion, exhibited volatile tendencies that make forecasting a challenging exercise. This combined with an ever increasing array of new regulations has raised the bar to such levels that only companies with sound fleets, strong balance sheets and experienced management teams will successfully confront the challenges of the future. TEN, having one of the most modern fleets in the world and a newbuilding program that safeguards growth and versatility, is well positioned to reap the rewards the more stringent operational environment will offer.

The shift towards double-hull tankers, expected to culminate in 2010, should provide further support in rates which despite the expected declines from recent record levels still remain buoyant compared to historical averages. TEN stands to benefit from this flight to quality with a proforma fleet of 53 double-hull vessels, with an average age well below the world average, employed in a blend of charters ranging from charters with fixed or with profit sharing rates to spot charters. The introduction of the LNG vessel Neo Energy is also expected to become a contributor to the overall earnings.

The emerging economies of China and India, the mature economies of the US and Europe and, to a degree, the advancement of oil exports from the Former Soviet Union together with other geopolitical events could influence the direction of the shipping markets. The current orderbook should not be underestimated, but its impact may be kept in check by the withdrawal of older tonnage and the expected continuation of healthy oil demand by major economies. So far, with 80% of 2007 and 61% of 2008 operating days fixed on some form of fixed employment, which should generate a minimum of $265 million and $208 million in revenues, respectively, the future for TEN continues to look bright.