Edgar Filing: TSAKOS ENERGY NAVIGATION LTD

Form 20-F

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F

¨	REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2013

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

¨	SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report

For the transition period from to

Commission file number 001-31236

TSAKOS ENERGY NAVIGATION LIMITED

(Exact name of Registrant as specified in its charter)

Not Applicable

(Translation of Registrant’s name into English)

Bermuda

(Jurisdiction of incorporation or organization)

367 Syngrou Avenue

175 64 P. Faliro

Athens, Greece

011-30210-9407710

(Address of principal executive offices)

Paul Durham

367 Syngrou Avenue

175 64 P. Faliro

Athens, Greece

Telephone: 011-30210-9407710

E-mail: ten@tenn.gr

Facsimile: 011-30210-9407716

(Name, Address, Telephone Number, E-mail and Facsimile Number of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:


Title of each class		Name of each exchange on which registered
Common Shares, par value $1.00 per share		New York Stock Exchange
Preferred share purchase rights		New York Stock Exchange
Series B Cumulative Redeemable Perpetual Preferred Shares, par value $1.00 per share		New York Stock Exchange
Series C Cumulative Redeemable Perpetual Preferred Shares, par value $1.00 per share		New York Stock Exchange

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

As of December 31, 2013, there were 57,969,448 of the registrant’s Common Shares, 2,000,000 Series B Preferred Shares and 2,000,000 Series C Preferred Shares outstanding.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ¨ No x

Note—Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ¨ Accelerated filer x Non-accelerated filer ¨

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:


U.S. GAAP x		International Financial Reporting Standards ¨		Other ¨

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ¨ Item 18 ¨

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

TABLE OF CONTENTS


	Page
FORWARD-LOOKING INFORMATION		1
PART I		2
Item 1. Identity of Directors, Senior Management and Advisers		2
Item 2. Offer Statistics and Expected Timetable		2
Item 3. Key Information		2
Item 4. Information on the Company		26
Item 4A. Unresolved Staff Comments		46
Item 5. Operating and Financial Review and Prospects		47
Item 6. Directors, Senior Management and Employees		91
Item 7. Major Shareholders and Related Party Transactions		101
Item 8. Financial Information		104
Item 9. The Offer and Listing		105
Item 10. Additional Information		107
Item 11. Quantitative and Qualitative Disclosures About Market Risk		124
Item 12. Description of Securities Other than Equity Securities		126
PART II		127
Item 13. Defaults, Dividend Arrearages and Delinquencies		127
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds		127
Item 15. Controls and Procedures		127
Item 16A. Audit Committee Financial Expert		128
Item 16B. Code of Ethics		128
Item 16C. Principal Accountant Fees and Services		128
Item 16D. Exemptions from the Listing Standards for Audit Committees		129
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers		129
Item 16F. Change in Registrant’s Certifying Accountant		129
Item 16G. Corporate Governance		129
Item 16H. Mine Safety Disclosure		129
PART III		130
Item 17. Financial Statements		130
Item 18. Financial Statements		130
Item 19. Exhibits		130

FORWARD-LOOKING INFORMATION

All statements in this Annual Report on Form 20-F that are not statements of historical fact are “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995. The disclosure and analysis set forth in this Annual Report on Form 20-F includes assumptions, expectations, projections, intentions and beliefs about future events in a number of places, particularly in relation to our operations, cash flows, financial position, plans, strategies, business prospects, changes and trends in our business and the markets in which we operate. These statements are intended as forward-looking statements. In some cases, predictive, future-tense or forward-looking words such as “believe”, “intend”, “anticipate”, “estimate”, “project”, “forecast”, “plan”, “potential”, “may”, “should” and “expect” and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements.

Forward-looking statements include, but are not limited to, such matters as:

•

future operating or financial results and future revenues and expenses;

•

future, pending or recent business and vessel acquisitions, business strategy, areas of possible expansion and expected capital spending and our ability to fund such expenditure;

•

operating expenses including the availability of key employees, crew, length and number of off-hire days, dry-docking requirements and fuel and insurance costs;

•

general market conditions and shipping industry trends, including charter rates, vessel values and factors affecting supply and demand of crude oil and petroleum products;

•

our financial condition and liquidity, including our ability to make required payments under our credit facilities, comply with our loan covenants and obtain additional financing in the future to fund capital expenditures, acquisitions and other corporate activities;

•

the overall health and condition of the U.S. and global financial markets, including the value of the U.S. dollar relative to other currencies;

•

the carrying value of our vessels and the potential for any asset impairments;

•

our expectations about the time that it may take to construct and deliver new vessels or the useful lives of our vessels;

•

our continued ability to enter into period time charters with our customers and secure profitable employment for our vessels in the spot market;

•

the ability of our counterparties including our charterers and shipyards to honor their contractual obligations;

•

our expectations relating to dividend payments and ability to make such payments;

•

our ability to leverage to our advantage the relationships and reputation of Tsakos Columbia Shipmanagement within the shipping industry;

•

our anticipated general and administrative expenses;

•

environmental and regulatory conditions, including changes in laws and regulations or actions taken by regulatory authorities;

•

risks inherent in vessel operation, including terrorism, piracy and discharge of pollutants;

•

potential liability from future litigation;

•

global and regional political conditions;

•

tanker, product carrier and LNG carrier supply and demand; and

•

other factors discussed in the “Risk Factors” described in Item 3. of this Annual Report on Form 20-F.

We caution that the forward-looking statements included in this Annual Report on Form 20-F represent our estimates and assumptions only as of the date of this Annual Report on Form 20-F and are not intended to give any assurance as to future results. These forward-looking statements are not statements of historical fact and represent only our management’s belief as of the date hereof, and involve risks and uncertainties that could cause actual results to differ materially and inversely from expectations expressed in or indicated by the forward-looking statements. Assumptions, expectations, projections, intentions and beliefs about future events may, and often do, vary from actual results and these differences can be material. There are a variety of factors, many of which are beyond our control, which affect our operations, performance, business strategy and results and could cause actual reported results and performance to differ materially from the performance and expectations expressed in these forward-looking statements. These factors include, but are not limited to, supply and demand for crude oil carriers and product tankers and LNG carriers, charter rates and vessel values, supply and demand for crude oil and petroleum products and liquefied natural gas, accidents, collisions and spills, environmental and other government regulation, the availability of debt financing, fluctuation of currency exchange and interest rates and the other risks and uncertainties that are outlined in this Annual Report on Form 20-F. As a result, the forward-looking events discussed in this Annual Report on Form 20-F might not occur and our actual results may differ materially from those anticipated in the forward-looking statements. Accordingly, you should not unduly rely on any forward-looking statements.

We undertake no obligation to update or revise any forward-looking statements contained in this Annual Report on Form 20-F, whether as a result of new information, future events, a change in our views or expectations or otherwise. New factors emerge from time to time, and it is not possible for us to predict all of these factors. Further, we cannot assess the impact of each such factor on our business or the extent to which any factor, or combination of factors, may cause actual results to be materially different from those contained in any forward-looking statement.

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

Not Applicable.

Item 2.

Offer Statistics and Expected Timetable

Not Applicable.

Item 3.

Key Information

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, 2013. 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 operations, comprehensive income/(loss), stockholders’ equity and cash flows for the years ended December 31, 2013, 2012, and 2011, and the consolidated balance sheets at December 31, 2013 and 2012, together with the notes thereto, are included in “Item 18. Financial Statements” and should be read in their entirety.

Selected Consolidated Financial and Other Data

(Dollars in thousands, except for share and per share amounts and fleet data)


	2013			2012			2011			2010			2009
Income Statement Data
Voyage revenues	$	418,379		$	393,989		$	395,162		$	408,006		$	444,926
Expenses
Commissions		16,019			12,215			14,290			13,837			16,086
Voyage expenses		116,980			111,797			127,156			85,813			77,224
Charter hire expense		—			—			—			1,905			—
Vessel operating expenses(1)		130,760			133,251			129,884			126,022			144,586
Depreciation		95,349			94,340			101,050			92,889			94,279
Amortization of deferred dry-docking costs		5,064			4,910			4,878			4,553			7,243
Management fees		15,896			15,887			15,598			14,143			13,273
General and administrative expenses		4,366			4,093			4,292			3,627			4,069
Management incentive award		—			—			—			425			—
Stock compensation expense		469			730			820			1,068			1,087
Foreign currency losses (gains)		293			30			458			(378	)		730
Net loss (gain) on sale of vessels		—			1,879			(5,001	)		(19,670	)		(5,122	)
Vessel impairment charge		28,290			13,567			39,434			3,077			19,066
Operating income (loss)		4,893			1,290			(37,697	)		80,695			72,405
Other expenses (income):
Interest and finance costs, net		40,917			51,576			53,571			62,283			45,877
Interest and investment income		(366	)		(1,348	)		(2,715	)		(2,626	)		(3,572	)
Other, net		2,912			118			397			3			(75	)
Total other expenses (income), net		43,463			50,346			51,253			59,660			42,230
Net (loss) income		(38,570	)		(49,056	)		(88,950	)		21,035			30,175
Less: Net (income) loss attributable to non-controlling interest		1,108			(207	)		(546	)		(1,267	)		(1,490	)
Net (loss) income attributable to Tsakos Energy Navigation Limited.	$	(37,462	)	$	(49,263	)	$	(89,496	)	$	19,768		$	28,685
Effect of preferred dividends		(3,676	)		—			—			—			—
Net income attributable to Tsakos Energy Navigation Limited common stockholders	$	(41,138	)	$	(49,263	)	$	(89,496	)	$	19,768		$	28,685
Per Share Data
Earnings (loss) per share, basic	$	(0.73	)	$	(0.92	)	$	(1.94	)	$	0.50		$	0.78
Earnings (loss) per share, diluted	$	(0.73	)	$	(0.92	)	$	(1.94	)	$	0.50		$	0.77
Weighted average number of shares, basic		56,698,955			53,301,039			46,118,534			39,235,601			36,940,198
Weighted average number of shares, diluted		56,698,955			53,301,039			46,118,534			39,601,678			37,200,187
Dividends per common share, paid	$	0.15		$	0.50		$	0.60		$	0.60		$	1.15
Cash Flow Data
Net cash provided by operating activities		117,923			60,862			45,587			83,327			117,161
Net cash used in investing activities		(144,437	)		(42,985	)		(69,187	)		(240,115	)		(75,568	)
Net cash provided by (used in) financing activities		44,454			(49,288	)		(77,329	)		137,244			(57,581	)
Balance Sheet Data (at year end)
Cash and cash equivalents	$	162,237		$	144,297		$	175,708		$	276,637		$	296,181
Cash, restricted		9,527			16,192			5,984			6,291			6,818
Investments		1,000			1,000			1,000			1,000			1,000
Advances for vessels under construction		58,521			119,484			37,636			81,882			49,213
Vessels, net book value		2,173,068			2,088,358			2,194,360			2,235,065			2,009,965
Total assets		2,483,899			2,450,884			2,535,337			2,702,260			2,549,720
Long-term debt, including current portion		1,380,298			1,442,427			1,515,663			1,562,467			1,502,574
Total stockholders’ equity		997,663			926,840			919,158			1,019,930			914,327
Fleet Data
Average number of vessels(2)		47.5			47.9			47.8			46.1			46.6
Number of vessels (at end of period)(2)		48.0			46.0			48.0			48.0			47.0
Average age of fleet (in years)(3)		7.1			6.5			7.0			6.8			6.8
Earnings capacity days(4)		17,339			17,544			17,431			16,836			17,021
Off-hire days(5)		385			889			502			400			390
Net earnings days(6)		16,954			16,655			16,929			16,436			16,631
Percentage utilization(7)		97.8	%		94.9	%		97.1	%		97.6	%		97.7	%
Average TCE per vessel per day(8)	$	17,902		$	17,163		$	16,047		$	19,825		$	22,329
Vessel operating expenses per ship per day(9)	$	7,634		$	7,755		$	7,606		$	7,647		$	8,677
Vessel overhead burden per ship per day(10)	$	1,196		$	1,180		$	1,188		$	1,144		$	1,083

(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)	Includes chartered in vessels for 2010.

(3)	The average age of our fleet is the age of each vessel in each year from its delivery from the builder, weighted by the vessel’s deadweight tonnage (“dwt”) in proportion to the total dwt of the fleet for each respective year.

(4)	Earnings capacity days are the total number of days in a given period that we own or control vessels.

(5)

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.

(6)	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.

(7)

Percentage utilization represents the percentage of earnings capacity days that the vessels were actually employed, i.e., earnings capacity days less off-hire 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%.

(8)

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 costs 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 before commissions and does not take into account off-hire days.

Derivation of time charter equivalent per day (amounts in thousands except for days and per day amounts):


	2013			2012			2011			2010			2009
Voyage revenues	$	418,379		$	393,989		$	395,162		$	408,006		$	444,926
Less: Voyage expenses		(116,980	)		(111,797	)		(127,156	)		(85,813	)		(77,224	)
Add: Representative operating expenses for bareboat charter ($10,000 daily)		2,110			3,660			3,650			3,650			3,650

Time charter equivalent revenues		303,509			285,852			271,656			325,843			371,352

Net earnings days		16,954			16,655			16,929			16,436			16,631
Average TCE per vessel per day	$	17,902		$	17,163		$	16,047		$	19,825		$	22,329

(9)	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.

(10)	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.

Capitalization

The following table sets forth our (i) cash and cash equivalents, (ii) restricted cash and (iii) consolidated capitalization as of December 31, 2013 on:

•

an actual basis; and

•

as adjusted basis giving effect to (i) debt repayments of $37.9 million, (ii) the payment of newbuilding installments of $46.3 million, (iii) the payment of $2.5 million of preferred share dividends, (iv) the issuance of 1,077,847 common shares for net proceeds of $7.2 million under our distribution agency agreement and (v) the issuance of 12,995,000 common shares for net proceeds of $82.7 million under an offering completed on February 5, 2014.

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, 2013 and April 10, 2014.

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, 2013
In thousands of U.S. Dollars	Actual			Adjustments			Adjusted
				(Unaudited)			(Unaudited)
Cash
Cash and cash equivalents	$	162,237			3,137		$	165,374
Restricted cash		9,527			0			9,527

Total cash		171,764			3,137			174,901

Capitalization
Debt:
Long-term secured debt obligations (including current portion)	$	1,380,298			(37,933	)	$	1,342,365

Stockholders’ equity:
Preferred shares, $1.00 par value; 15,000,000 authorized and 2,000,000 Series B Preferred Shares and 2,000,000 Series C Preferred Shares issued and outstanding at December 31, 2013 on an actual and as adjusted basis		4,000			0			4,000
Common shares, $1.00 par value; 85,000,000 shares authorized; 57,969,448 shares issued and outstanding at December 31, 2013 and 72,042,295 on an as adjusted basis		57,969			14,073			72,042
Additional paid-in capital		500,737			75,774			576,511
Accumulated other comprehensive loss		(6,789	)		0			(6,789	)
Retained earnings		430,548			(2,479	)		428,069
Non-controlling interest		11,198			0			11,198

Total stockholders’ equity		997,663			87,368			1,085,031

Total capitalization	$	2,377,961			49,435		$	2,427,396

Reasons For the Offer and Use of Proceeds

Not Applicable.

Risk Factors

Risks Related To Our Industry

The charter markets for crude oil carriers and product tankers have deteriorated significantly since the summer of 2008, which could affect our future revenues, earnings and profitability.

After reaching highs during the summer of 2008, charter rates for crude oil carriers and product tankers fell dramatically thereafter. While the rates occasionally improved in certain sectors for a limited period between 2009 and 2012, generally they remained significantly below the levels that contributed to our increasing revenues and profitability through 2008. A further significant decline occurred during 2011 and 2012 to low levels, and, apart from possible temporary seasonal or regional rate spikes, charter rates remained at historically low levels throughout most of 2013.

As of April 10, 2014, 19 of the vessels owned by our subsidiary companies were employed under spot charters that are scheduled to expire in April 2014 and 28 of the vessels were employed on time charters, which, if not extended, are scheduled to expire during the period between May 2014 and June 2028. In addition, nine of our subsidiaries’ vessels have profit sharing provisions in their time charters that are based upon prevailing

market rates and one vessel is employed in a pool arrangement at variable rates. If low rates in the charter market return and continue for any significant period in 2014, it will affect the charter revenue we will receive from these vessels, which could have an adverse effect on our revenues, profitability and cash flows. The decline in prevailing charter rates also affects the value of our vessels, which follows the trends of charter rates and earnings on our charters.

Disruptions in world financial markets and the resulting governmental action in the United States and in other parts of the world could have a further material adverse impact on our results of operations, financial condition, cash flows and share price.

Global financial markets and economic conditions have been severely 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 there are some indications that the global economy is improving, concerns over debt levels of certain other European Union member states and poor liquidity of European banks and attempts to find appropriate solutions are expected to lead to slow growth in most of Europe in 2014. We cannot provide any assurance that the global recession will not return and tight credit markets will not continue or become more severe.

We face risks attendant to changes in economic environments, changes in interest rates, and instability in the banking, commodities and securities markets around the world, among other geopolitical factors. Major market disruptions and the current adverse changes in market conditions and regulatory climate in the United States and worldwide may adversely affect our business or impair our ability to borrow amounts under our credit facilities or any future financial arrangements. However, these recent and developing economic, geopolitical and governmental factors, together with the concurrent decline in charter rates and vessel values, could have a material adverse effect on our results of operations, financial condition, cash flows or share price.

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:

•

increases and decreases in the demand for crude oil and petroleum products;

•

availability of crude oil and petroleum products;

•

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;

•

actions taken by OPEC and major oil producers and refiners;

•

political turmoil in or around oil producing nations;

•

global and regional political and economic conditions;

•

developments in international trade;

•

international trade sanctions;

•

environmental factors;

•

natural catastrophes;

•

terrorist acts;

•

weather; and

•

changes in seaborne and other transportation patterns.

Despite turbulence in the world economy in recent years, there has been some rebound in worldwide demand for oil and oil products, which industry observers forecast will continue. In the event that this rebound 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. In particular, the charter rates that we earn from our vessels employed on spot charters, under pool arrangements and contracts of affreightment, and on time-charters with profit-share may remain at low levels for a prolonged period of time or further decline.

Charter hire rates are cyclical and volatile.

The crude oil and petroleum products shipping industry is cyclical with attendant volatility in charter hire rates and profitability. After reaching highs in mid-2008, charter hire rates for oil product carriers have remained poor with some short periods of relative respite. In addition, hire and spot rates for large crude carriers remained low since the middle of 2010, often resulting in rates well below break-even. The charter rates for 29 of the vessels owned by our subsidiary companies are on variable basis or include a variable element and the time charters (whether fixed or partly variable) for seven of the vessels owned by our subsidiary companies may expire within six months if not extended. As a result, we will be exposed to changes in the charter rates which could affect our earnings and the value of our vessels at any given time.

Because the factors affecting the supply and demand for vessels are outside of our control and are unpredictable, the nature, timing, direction and degree of changes in industry conditions are also unpredictable.

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, such as in the winter of 2011/2012, 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 12% of the existing world tanker fleet as of March 31, 2014 and, although the order book has substantially declined over the past eighteen months as vessels have been delivered, no assurance can be given that the order book will not begin to increase again 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. Continued weakness or a further decline in charter rates could have a material adverse effect on our revenues and profitability.

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,

who are other independent tanker companies, as well as national and independent oil companies, some of whom 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.

Since 2009, the frequency of pirate attacks on seagoing vessels has remained high, particularly in the western part of the Indian Ocean, despite a recent decline, and increasingly off the west coast of Africa. 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 and economic and trade sanctions can affect the tanker industry, which could adversely affect our business.

An attack like that of September 11, 2001 in the United States, longer-lasting wars or international hostilities, such as in Afghanistan, Iraq, Syria and Libya, or continued turmoil and hostilities in the Middle East or North Africa or potential hostilities between North and South Korea, or between China and Japan, or between Ukraine and Russia, 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 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.

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, contrary to our charter-terms and contrary to standing instructions to our technical managers and vessels’ officers, our subsidiaries’ vessels may 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. In 2010, the United States enacted the Comprehensive Iran Sanctions Accountability and Divestment Act, or “CISADA,” which expanded the scope of the Iran Sanctions Act of 1996. Among other things, CISADA expands the application of the prohibitions to non-U.S. companies, such as our company, and

introduces limits on the ability of companies and persons to do business or trade with Iran when such activities relate to the investment, supply or export of refined petroleum or petroleum products. In addition, in October 2012, President Obama issued an executive order implementing the Iran Threat Reduction and Syria Human Rights Act of 2012 (the “ITRA”) which extends the application of all U.S. laws and regulations relating to Iran to non-U.S. companies controlled by U.S. companies or persons as if they were themselves U.S. companies or persons, expands categories of sanctionable activities, adds additional forms of potential sanctions and imposes certain related reporting obligations with respect to activities of SEC registrants and their affiliates. The ITRA also includes a provision requiring the President of the United States to impose five or more sanctions from Section 6(a) of the Iran Sanctions Act, as amended, on a person the President determines is controlling beneficial owner of, or otherwise owns, operates or controls or insures a vessel that was used to transport crude oil from Iran to another country and (1) if the person is a controlling beneficial owner of the vessel, the person had actual knowledge the vessel was so used or (2) if the person otherwise owns, operates, controls, or insures the vessel, the person knew or should have known the vessel was so used. Such a person could be subject to a variety of sanctions, including exclusion from U.S. capital markets, exclusion from financial transactions subject to U.S. jurisdiction, and exclusion of that person’s vessels from U.S. ports for up to two years. Finally, in January 2013, the U.S. enacted the Iran Freedom and Counter-Proliferation Act of 2012 (the “IFCPA”) which expanded the scope of U.S. sanctions on any person that is part of Iran’s energy, shipping or shipbuilding sector and operators of ports in Iran, and imposes penalties on any person who facilitates or otherwise knowingly provides significant financial, material or other support to these entities.

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 the Company and negatively affect our reputation and investor perception of the value of our common stock.

Taking advantage of attractive 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 greater 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.

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. We have incurred significant expenses in order to comply with these regulations and requirements, including the costs of ship modifications and changes in operating procedures, additional maintenance and inspection requirements, contingency arrangements for potential spills, insurance coverage and full implementation of the new security-on-vessels requirements.

Because environmental regulations may become stricter, future regulations 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 certain circumstances, we could also be held accountable under these laws for the acts or omissions of Tsakos Shipping & Trading (“Tsakos Shipping”), Tsakos Columbia Shipmanagement (“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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mechanical failure;

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human error;

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labor strikes;

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adverse weather conditions;

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vessel off hire periods;

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regulatory delays; and

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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.

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 claimant’s 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

The current low tanker values and any future declines in these values 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 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 have adversely affected tanker values since the middle of 2008, and despite the young age of our subsidiaries’ fleet and extensive long-term charter employment on many of the vessels, has resulted in a significant decline in the charter-free values of the vessels. Vessel values have recovered to a certain degree since the end of 2013 and may remain at current low levels for a prolonged period, decline further or rise. 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. For all of the loans which contain a corporate leverage requirement, the lenders have agreed to increase the leverage ceiling, and for ten loans with loan-to-asset value shortfalls we and the relevant lenders have agreed to lower required loan-to-asset values, in both cases until July 1, 2014, when such covenants revert to original requirements, unless the relevant lenders agree to extend the waivers. There is one further loan, with an outstanding balance of $34.3 million where loan-to-value non-compliance existed at December 31, 2013, but for which a waiver was not sought. In respect of this loan, an amount of $5.9 million has been reclassified as a current liability.

Although the recovery in values had contributed to our compliance with original corporate leverage requirements and with most of the loan-to-asset value requirements as at December 31, 2013, if we are unable to comply with the financial and other covenants under our credit facilities either before or after certain covenant requirements step up on July 1, 2014, including by repaying outstanding debt or posting additional collateral in the case of loan-to-asset value covenants, and are unable to agree to an extension of the covenant relief in the existing waivers, our lenders could accelerate our indebtedness. Because of the cross-default provisions in our loan agreements, any such default could in turn lead to additional defaults under our other loan agreements and the consequent acceleration of the related indebtedness.

Charters at attractive rates may not be available when our current time charters expire.

During 2013, we derived approximately 52% of our revenues from time charters, as compared to 50% in 2012. As our current period charters on nine of the vessels owned by our subsidiary companies expire in the remainder of 2014, it may not be possible to re-charter these vessels on a period basis at attractive rates given the currently depressed state of the charter market. 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 has been at low levels for some time and 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. During the period of layup, the vessel will continue to incur expenditures such as insurance, reduced crew wages and maintenance costs.

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. As a result of any increased 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 more significantly impacted by increases 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 increases in bunker charges are factored into the prospective freight rates for spot market voyages periodically announced by WorldScale 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. 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 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 Stock Exchange. 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 the 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 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 more beneficial 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.

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 year’s 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, 2013 would have resulted in a payment of approximately $145.3 million. Tsakos Energy Management’s 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. 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 the other tankers.

In addition to the vessels that it manages for the fleet, TCM technically manages a fleet of privately owned vessels and seeks to acquire new 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 possible that Tsakos Shipping, which provides chartering service 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, or could allocate more lucrative opportunities to its other vessels. It is also possible that TCM could in the future agree to manage more tankers that directly compete with the fleet.

Clients of Tsakos Shipping have acquired and may acquire further 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.

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, Bermuda, 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. Tsakos’s 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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cost of newbuildings;

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governmental or other regulations;

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prevailing level of charter rates; and

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technological advances.

The global economic downturn that commenced in 2008 has 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. In addition, although our subsidiaries currently own a modern fleet, with an average age of 7.3 years as of March 31, 2014, as vessels grow older, they generally decline in value.

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 vessel’s 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 that could adversely affect 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 provide 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, some of our subsidiaries’ vessels operate under 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 purchase our newbuildings present certain economic and other risks.

As of April 10, 2014, our subsidiaries have a contract to construct a newbuilding LNG carrier, to be delivered in 2016 and contracts to build nine aframax crude carriers. A shuttle tanker newbuilding had also been previously ordered, but the contract is being renegotiated with the shuttle tanker being cancelled and two alternative vessels being considered instead. 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 periodically experience financial difficulties.

Delays in the delivery of these vessels, or any additional newbuilding or secondhand vessels our subsidiaries may agree to acquire, would 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 recent tensions involving North Korea; weather interference or catastrophic event, 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 and a dispute with the shipyard building the vessel.

Credit conditions internationally might impact our ability to raise debt financing.

We have traditionally financed our vessel acquisitions with cash (equity) and bank debt from various reputable national and international commercial banks. In relation to newbuilding contracts, the equity portion covers all or part of the pre-delivery obligations while the debt portion covers the outstanding amount due to the shipyard on delivery. Current and future terms and conditions could be different from terms obtained in the past and could result in higher cost of capital, if available at all. Any adverse development in that respect could materially alter our current and future financial planning and growth and have a potentially negative impact on our balance sheet.

We may not be able to finance the construction of the vessels our subsidiaries have on order.

We have not finalized financing arrangements to fund the balance of the purchase price due for financing the LNG carrier on order with delivery expected in 2016, or for the nine aframax crude carriers recently ordered or for other orders under negotiation. We cannot assure you that we will be able to obtain additional financing for these newbuildings on terms that are favorable to us or at all.

If we were unable to finance further installments for the newbuildings we have on order, an alternative would be to use the available cash holdings of the Company or, if we should lack adequate cash, to attempt to sell the uncompleted vessels to a buyer who would assume the remainder of the contractual obligations. The amount we would receive from the buyer would depend on market circumstances and could result in a deficit over the advances we had paid to the date of sale plus capitalized costs. Alternatively, we may default on the contract, in which case the builder would sell the vessel and refund our advances less any amounts the builder would deduct to cover all of its own costs. We would be obliged to cover any deficiency arising in such circumstances.

Apart from the delay in receiving the refund of advances and the possible payment of any deficiencies, the direct effect on our operations of not acquiring the vessel would be to forego any revenues and related vessel operating cash flows.

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. While global LNG demand has continued to rise, the rate of its growth 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, the continued acceleration 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. Continued 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 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.

The existing LNG carrier is on charter until March 2016 and a replacement charter has not yet been arranged for it, nor for the LNG carrier newbuilding with expected delivery in 2016. 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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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.

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, the market supply of LNG carriers has been increasing as a result of the construction of new ships. During the period from 2005 to 2010, the global fleet of LNG carriers grew by an average of 15% per year due to the construction and delivery of new LNG carriers. Although the global newbuilding order book dropped steeply in 2009 and 2010, 114 orders for newbuilding LNG carriers were placed between 2012 and the first quarter of 2014. The newbuilding order book of almost 112 ships as of December 31, 2013 amounts to 29% of global LNG carrier fleet capacity, with the majority of the newbuildings scheduled for delivery in 2015 and 2016. This and any future expansion of the global LNG carrier fleet may have a negative impact on charter hire rates, ship utilization and ship values, which impact could be amplified if the expansion of LNG production capacity does not keep pace with fleet growth.

Our effectiveness in obtaining accretive charters for our existing LNG carrier at the end of its existing charter or for newbuilding LNG carriers will be determined by the reliability and experience of third-party technical managers.

We have subcontracted all technical management aspects of our LNG operation to Hyundai Merchant Marine (“HMM”) 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 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 adequate in their assigned role. We cannot guarantee the quality of their services or the longevity of the management contract.

Our growth 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 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; and

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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.

Fuel prices may adversely affect our profits.

While we do not bear the cost of fuel (bunkers) under time and bareboat charters, fuel is a significant, if not the largest, expense in our shipping operations when vessels are under spot charter. Changes in the price of fuel may adversely affect our profitability. The price and supply of fuel is unpredictable and fluctuates based on events outside our control, including geopolitical developments.

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 10, 2014, 28 of our subsidiaries’ vessels were employed under time charters. 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.

We may not have adequate insurance.

In the event of a casualty to a vessel or other catastrophic event, we will rely on our insurance to pay the insured value of the vessel or the damages incurred. 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. However, we cannot assure you that this insurance will remain available at reasonable rates, and we cannot assure you that the insurance we are able to obtain will cover all

foreseen liabilities that we may incur, particularly those involving oil spills and catastrophic environmental damage. In addition, we may not be able to insure certain types of losses, including loss of hire, for which insurance coverage may become unavailable.

We are subject to funding calls by our protection and indemnity clubs, and our clubs may not have enough resources to cover claims made against them.

Our subsidiaries are indemnified for legal liabilities incurred while operating their vessels through membership in P&I clubs. P&I clubs are mutual insurance clubs whose members must contribute to cover losses sustained by other club members. The objective of a P&I club is to provide mutual insurance based on the aggregate tonnage of a member’s vessels entered into the club. Claims are paid through the aggregate premiums of all members of the club, although members remain subject to calls for additional funds if the aggregate premiums are insufficient to cover claims submitted to the club. Claims submitted to the club may include those incurred by members of the club, as well as claims submitted to the club from other P&I clubs with which our subsidiaries’ P&I clubs have entered into interclub agreements. We cannot assure you that the P&I clubs to which our subsidiaries belong will remain viable or that we will not become subject to additional funding calls which could adversely affect our profitability.

The insolvency or financial deterioration of any of our insurers or reinsurers would negatively affect our ability to recover claims for covered losses on our vessels.

We have placed our hull and machinery, increased value and loss of hire insurance with Argosy, a captive insurance company affiliated with Tsakos family interests. Argosy reinsures the insurance it underwrites for us with various reinsurers, however, the coverage deductibles of the reinsurance policies periodically exceed the coverage deductibles of the insurance policies Argosy underwrites for us. Argosy, therefore, would be liable with respect to the difference between those deductibles in the event of a claim by us to which the deductibles apply. Although these reinsurers have a minimum credit rating of A, we do not have the ability to independently determine our insurers’ and reinsurers’ creditworthiness or their ability to pay on any claims that we may have as a result of a loss. In the event of insolvency or other financial deterioration of our insurer or its reinsurers, we cannot assure you that we would be able to recover on any claims we suffer.

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, 2013, our debt to capital ratio was 58.0% (debt / debt plus equity), with $1.38 billion in debt outstanding. We are required to apply a substantial portion of our cash flow from operations, before interest payments, to the payment of principal and interest on this debt. In connection with obtaining waivers from our lenders of non-compliance with certain financial covenants, we have agreed to certain increases in the margin to LIBOR payable under the applicable loans. See “Item 5. Operating and Financial Review and Prospects – Debt.” In 2013, all of our cash flow derived from operations plus an amount from existing cash resources was dedicated to debt service, excluding any debt prepayment upon the sale of vessels. 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 generally.

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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create liens;

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sell the capital of our subsidiaries or other assets;

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make investments;

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engage in mergers and acquisitions;

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make capital expenditures;

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repurchase common shares; and

•

pay cash dividends.

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.

In the past twelve 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 is regularly informed of 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, 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. 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 a risk committee to oversee 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 how our current interest rate swap arrangements have been impacted by recent events.

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.

If we were to be subject to 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 we conduct activities or in which our 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 tax or to make payments in lieu of tax. In addition, payments due to us from our customers may be subject to tax claims.

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 stockholders.

See “Tax Considerations—United 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 common 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, U.S. holders of our common shares would be subject to unfavorable U.S. federal income tax treatment. We do not believe that we will be a PFIC in 2014 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 2014 or for any future year. Please see “Tax Considerations—United States federal income tax considerations—Passive Foreign Investment Company Considerations” herein for a description of the PFIC rules.

Distributions on the common 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 common 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 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 2013, Euro expenses accounted for approximately 54% of our total operating expenses. 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 10, 2014, companies controlled by the Tsakos Holdings Foundation or affiliated with the Tsakos Group own approximately 30% 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.

The Public Company Accounting Oversight Board (PCAOB) is currently unable to inspect the audit work and practices of auditors operating in Greece, including our auditor.

Auditors of U.S. public companies are required by law to undergo periodic Public Company Accounting Oversight Board (PCAOB) inspections that assess their compliance with U.S. law and professional standards in connection with performance of audits of financial statements filed with the SEC. Certain EU countries do not permit the PCAOB to conduct inspections of accounting firms established and operating in EU countries, even if they are part of major international firms. Accordingly, unlike for most U.S. public companies, the PCAOB is prevented from evaluating our auditor’s performance of audits and its quality control procedures, and, unlike the shareholders of most U.S. public companies, our shareholders are deprived of the possible benefits of such inspections.

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.

Our Series B and Series C Preferred Shares are subordinate to our debt and your interests could be diluted by the issuance of additional preferred shares, including additional Series B or Series C Preferred Shares, and by other transactions.

Our Series B and Series C Preferred Shares are subordinate to all of our existing and future indebtedness. As of December 31, 2013, we had outstanding indebtedness of approximately $1.38 billion. Our Series B and Series C Preferred Shares rank pari passu with each other and any other class or series of capital stock subsequently established that is not expressly subordinated or senior thereto as to the payment of dividends amounts payable upon liquidation or reorganization. If less than all dividends payable with respect to the Series B and C Preferred Shares and any parity securities are paid, any partial payment shall be made pro rata with respect to shares of Series B and Series C Preferred Shares and any other parity securities entitled to a dividend payment at such time in proportion to the aggregate amounts remaining due in respect of such shares at such time. The issuance of additional preferred shares on a parity with or senior to our Series B and Series C Preferred Shares would dilute the interests of the holders of our Series B and Series C Preferred Shares, and any issuance of preferred shares senior to our Series B and Series C Preferred Shares or of additional indebtedness could affect our ability to pay dividends on, redeem or pay the liquidation preference on our Series B and Series C Preferred Shares. Other than the increase in the dividend that may occur in a circumstance described under “Item 10. Additional Information—Description of Share Capital—Preferred Shares”, none of the provisions relating to our Series B and Series C Preferred Shares contain any provisions affording the holders of our Series B and Series C Preferred Shares protection in the event of a highly leveraged or other transaction, including a merger or the sale, lease or conveyance of all or substantially all our assets or business, which might adversely affect the holders of our Series B and Series C Preferred Shares, so long as the rights of our Series B and Series C Preferred Shares are not directly materially and adversely affected.

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 and Series C 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 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.

If the market price of our common shares falls to and 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.

During 2013, we paid dividends on our common shares totaling $0.15 per common share. In March, 2014, the Company announced a common share dividend of $0.05 per common share to be paid on May 22, 2014 to holders of record as of May 19, 2014. In addition, during 2013 we paid dividends on our preferred shares totaling $1.9 million and another $2.5 million in January 2014. 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 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 net income for any

particular year, plus certain additional amounts permitted to the extent 50% of 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 and Series C Preferred Shares. We may have insufficient cash to pay dividends on or satisfy our redemption obligations under the terms of our Series B and Series C Preferred Shares. 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.

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 may be adversely affected if we are unable to or do not pay dividends as intended.

The terms of the Series B and Series C Preferred Shares do not restrict our ability to engage in certain transactions, including spinoffs, transfers of assets or the formation of a master limited partnership, joint venture or other entity that may involve issuance of interests to third-parties in a substantial portion of our assets.

Although the terms of the Series B and Series C Preferred Shares contain restrictions on our ability to dilute the value of the Series B and Series C Preferred Shares by issuing additional securities ranking senior or pari passu thereto, we may engage in other transactions that will result in a transfer of value to third parties. We may elect to sell one or more of our vessels or vessel-owning subsidiaries, conduct a spinoff of such vessels or subsidiaries, or contribute such vessels or vessel-owning subsidiaries to a joint venture, master limited partnership or other entity on terms with which holders of our preferred shares do not agree or that are not in the best interests of the holders of Series B and Series C Preferred Shares. Any such transfer may reduce our asset base and our rights to cash flows related to the transferred assets. If we contribute assets to a joint venture or master limited partnership, the joint venture or master limited partnership may be owned by or issue equity securities to public or private investors, thereby reducing our percentage interest in such assets and in the related cash flows.

Market interest rates may adversely affect the value of our Series B and Series C Preferred Shares.

One of the factors that influences the price of our Series B and C Preferred Shares is the dividend yield on the Series B and Series C 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 prospective purchasers of our Series B and Series C Preferred Shares to expect a higher dividend yield and higher interest rates would likely increase our borrowing costs and potentially decrease funds available for distribution. Accordingly, higher market interest rates could cause the market price of our Series B or Series C Preferred Shares to decrease.

Holders of Series B and Series C Preferred Shares have extremely limited voting rights.

The voting rights of holders of Series B and Series C Preferred Shares will be extremely limited. Our common shares are the only class or series of our shares carrying full voting rights. Holders of Series B and Series C Preferred Shares will have no voting rights other than 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 Information—Description of Share Capital—Preferred Shares.”

Our ability to pay dividends on and to redeem or purchase our Series B and Series C Preferred Shares is limited by the requirements of Bermuda law and covenants in our loan agreements.

Bermuda law provides that we may pay dividends on the Series B and Series C Preferred Shares only to the extent that assets are legally available for such purposes. Dividends and distributions may only be paid or made if we can meet the solvency tests in the Companies Act. In addition, under Bermuda law we may not pay dividends on Series B and Series C Preferred Shares 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.

Under Bermuda law, we may redeem or purchase the Series B and Series C Preferred Shares subject to the following limitations. Amounts paid for such redemption or purchase in excess of the $1.00 par value of the shares may only come from the proceeds of a new issue of shares made for the purpose of the redemption or purchase, out of share premium or out of funds that would otherwise be available for dividends or distributions. The $1.00 par value of the redeemed or repurchased Series B or Series C Preferred Shares may be paid out of the capital paid up on such shares or funds that would otherwise be available for dividends or distributions. A redemption or repurchase is not lawful if there are reasonable grounds for believing that we are, or thereafter would be, unable to pay our liabilities as they become due.

Provisions in our Bye-laws, our management agreement with Tsakos Energy Management and our shareholder rights plan 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. Furthermore, our shareholder rights plan authorizes issuance to existing shareholders of substantial numbers of preferred share rights and common shares in the event a third party seeks to acquire control of a substantial block of our common shares. 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, even if such transactions would have significant benefits to our shareholders.

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 1981 of Bermuda, as amended (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 one non-executive director, 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.

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. In 1996, Maritime Investment Fund Limited 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 Company’s shares are no longer actively traded on the Bermuda exchange. In July 2001, the Company’s 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 77 vessels and has sold 28 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

Tsakos Energy Navigation Limited is a leading provider of international seaborne petroleum product and crude oil transportation services and, as of April 10, 2014, operated a fleet of 45 modern petroleum product tankers and crude oil carriers 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 one 2007-built Liquefied Natural Gas (“LNG”) carrier and two 2013-built shuttle suezmax tankers with advanced dynamic positioning technology (DP2), bringing our total operating fleet to 48 vessels. We have also under construction a 174,000 cbm LNG carrier with expected delivery in 2016 and nine crude aframaxes with expected deliveries in 2016 and 2017. The resulting fleet (assuming no further sales or acquisitions) would comprise 58 vessels representing approximately 5.9 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 charterers as customers and to our success in obtaining charter renewals generating strong fleet utilization.

Our fleet is managed by Tsakos Energy Management Limited, or Tsakos Energy Management, an affiliate 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 & Trading, S.A., or Tsakos Shipping. In its capacity as commercial manager, Tsakos Shipping manages vessel purchases and sales and identifies and negotiates charter opportunities for our fleet. Until June 30, 2010, Tsakos Shipping also provided technical and operational management for the majority of our vessels.

Tsakos Energy Management subcontracts the technical and operational management of our fleet to Tsakos Columbia Shipmanagement S.A., or 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 carrier Neo Energy, the VLCC Millennium and the Suezmax tanker Eurochampion 2004, which are technically managed by a non-affiliated ship manager. 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 over 170 vessels and crewing services for an additional 143 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.

Tsakos Shipping continues to provide commercial management services for our vessels, which include chartering, charterer relations, obtaining insurance and vessel sale and purchase, supervising newbuilding construction and vessel financing.

As of April 10, 2014, our fleet consisted of the following 48 vessels:


Number of Vessels		Vessel Type

1		VLCC

10		Suezmax

8		Aframax

3		Aframax LR2

9		Panamax LR1

6		Handymax MR2

8		Handysize MR1

1		LNG carrier

2		Shuttle DP2

Total 48

Twenty-one of the operating vessels are of ice-class specification. This fleet diversity, which includes a number of sister ships, provides us with the opportunity to be one of the more versatile operators in the market. The current fleet totals approximately 4.8 million dwt, all of which is double-hulled. As of March 31, 2014, the average age of the tankers in our current operating fleet was 7.3 years, compared with the industry average of 9.0 years.

In addition to the vessels operating in our fleet as of April 10, 2014, we have also entered into certain agreements for additional vessels with established shipyards, Daewoo-Mangalia Heavy Industries, Hyundai Heavy Industries and Sungdong Shipbuilding.

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 $3.7 billion, including investments of approximately $3.5 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.

•

Diversified fleet. Our diversified fleet, which includes VLCC, suezmax, aframax, panamax, handysize, handymax tankers, one LNG carrier, and the two 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 21 ice-class vessels. Additionally, we entered the LNG market with the delivery of our first LNG carrier in 2007 and have contracted for the construction of at least one additional LNG carrier newbuilding. 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 have commenced 15-year time charter with Petrobras.

•

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. 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 world’s major oil companies and traders, including Petrobras, BP, ExxonMobil, Flopec, Hyundai Merchant Marine, BG, ST Shipping, Shell and Lukoil are among the regular customers of Tsakos Energy Navigation, in particular.

•

Developing LNG and offshore shuttle tanker platform. We believe we are well positioned to capitalize on rising demand for LNG sea transport and 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 one LNG carrier and two newly-built DP2 suezmax shuttle tankers.

•

Entering offshore sector. With the delivery of two suezmax DP2 shuttle tankers in March and April 2013, which operate on long-term charters with one of the largest developers of offshore oil fields, we have made a presence in a shipping sector previously dominated by only a small handful of shipping companies. It is our intention to seek other opportunities in servicing the offshore oil exploration and production industry, building on the well established relationships with existing oil major customers which are exploiting the rich deposits of sub-marine oil fields.

•

Significant leverage from our relationship with Tsakos Shipping and TCM. We believe the expertise, scale and scope of TCM are key components in maintaining low operating costs, efficiency, quality and safety. We leverage Tsakos Shipping’s reputation and longstanding relationships with leading charterers to foster charter renewals. In addition, we believe that TCM has the ability to spread costs over a larger vessel base than that previously of Tsakos Shipping, thereby capturing even greater economies of scale that may lead to additional cost savings for us.

As of April 10, 2014, our fleet consisted of the following 48 vessels:


Vessel	Year Built		Deadweight Tons		Year Acquired		Charter Type⁽¹⁾	Expiration of Charter	Hull Type⁽²⁾ (all double hull)
VLCC
1. Millennium		1998		301,171		1998	time charter	December 2014

SUEZMAX
1. Silia T⁽³⁾		2002		164,286		2002	time charter	August 2015
2. Triathlon		2002		164,445		2002	spot	—
3. Eurochampion 2004		2005		164,608		2005	spot	—	ice-class 1C
4. Euronike⁽³⁾		2005		164,565		2005	time charter	September 2014	ice-class 1C
5. Archangel		2006		163,216		2006	spot	—	ice-class 1A
6. Alaska		2006		163,250		2006	time charter	September 2014	ice-class 1A
7. Arctic		2007		163,216		2007	spot	—	ice-class 1A
8. Antarctic		2007		163,216		2007	spot	—	ice-class 1A
9. Spyros K⁽⁴⁾		2011		157,740		2011	time charter	May 2022
10. Dimitris P⁽⁴⁾		2011		157,648		2011	time charter	August 2023

SUEZMAX DP2 SHUTTLE
1. Rio 2016		2013		157,000		2013	time charter	May 2028
2. Brasil 2014		2013		157,000		2013	time charter	June 2028

AFRAMAX
1. Proteas		2006		117,055		2006	spot	—	ice-class 1A
2. Promitheas		2006		117,055		2006	spot	—	ice-class 1A
3. Propontis		2006		117,055		2006	time charter	March 2015	ice-class 1A
4. Izumo Princess		2007		105,374		2007	spot	—	DNA
5. Sakura Princess		2007		105,365		2007	pool	—	DNA
6. Maria Princess		2008		105,346		2008	spot	—	DNA
7. Nippon Princess		2008		105,392		2008	time charter	July 2014	DNA
8. Ise Princess		2009		105,361		2009	spot	—	DNA
9. Asahi Princess		2009		105,372		2009	spot	—	DNA
10. Sapporo Princess		2010		105,354		2010	spot	—	DNA
11. Uraga Princess		2010		105,344		2010	spot	—	DNA

PANAMAX
1. Andes⁽⁵⁾		2003		68,439		2003	time charter	November 2016
2. Maya⁽⁵⁾⁽⁶⁾		2003		68,439		2003	time charter	September 2016
3. Inca⁽⁵⁾⁽⁶⁾		2003		68,439		2003	time charter	May 2016
4. Selecao		2008		74,296		2008	time charter	August 2014
5. Socrates		2008		74,327		2008	time charter	July 2014
6. World Harmony⁽⁵⁾		2009		74,200		2010	time charter	April 2016
7. Chantal⁽⁵⁾		2009		74,329		2010	time charter	June 2016
8. Selini⁽³⁾		2009		74,296		2010	time charter	April 2015
9. Salamina⁽³⁾		2009		74,251		2010	time charter	April 2015

HANDYMAX
1. Artemis		2005		53,039		2006	time charter	November 2014	ice-class 1A
2. Afrodite⁽⁷⁾		2005		53,082		2006	time charter	June 2015	ice-class 1A
3. Ariadne⁽³⁾		2005		53,021		2006	time charter	May 2014	ice-class 1A
4. Aris		2005		53,107		2006	time charter	May 2017	ice-class 1A
5. Apollon⁽⁷⁾		2005		53,149		2006	time charter	July 2015	ice-class 1A
6. Ajax		2005		53,095		2006	time charter	May 2015	ice-class 1A


Vessel	Year Built		Deadweight Tons		Year Acquired		Charter Type⁽¹⁾	Expiration of Charter	Hull Type⁽²⁾ (all double hull)
HANDYSIZE
1. Didimon		2005		37,432		2005	time charter	June 2014
2. Arion		2006		37,061		2006	spot	—	ice-class 1A
3. Delphi		2004		37,432		2006	time charter	February 2015
4. Amphitrite		2006		37,061		2006	spot	—	ice-class 1A
5. Andromeda		2007		37,061		2007	spot	—	ice-class 1A
6. Aegeas		2007		37,061		2007	spot	—	ice-class 1A
7. Byzantion		2007		37,275		2007	spot	—	ice-class 1B
8. Bosporos		2007		37,275		2007	spot	—	ice-class 1B

LNG
1. Neo Energy		2007		85,602		2007	time charter	March 2016	Membrane
*Total Vessels*		48		4,786,911

(1)	Certain of the vessels are operating in the spot market under contracts of affreightment.

(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 a three months notice.

(6)	49% of the holding company of these vessels is held by a third party.

(7)	The charter-rate for the second year provides for a potential increase above the minimum rate based on the fair market one-year charter-rate determined at the end of the first year.

On December 10, 2013, the Company signed contracts for the construction of five aframax tankers with Daewoo Shipbuilding and four additional aframax tankers with the same yard signed on February 26, 2014. On March 21, 2011, the Company ordered two suezmax DP2 shuttle tankers from Sungdong Shipbuilding in South Korea. We took delivery of the first suezmax DP2 tanker Rio 2016 on March 11, 2013, and the second one, Brasil 2014 on April 23, 2013. In addition, an LNG carrier has been ordered from Hyundai Heavy Industries (see below). 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 Sungdong shipyard and Hyundai Heavy Industries in South Korea in the design of the newbuildings and continues to work with the shipyard during the construction period. TCM provides supervisory personnel present during the construction. A further shuttle tanker had been ordered from Sungdong, but the contract is being renegotiated with the shuttle tanker being cancelled and two alternative vessels being considered instead. A first installment of $4.5 million had been paid in the first quarter of 2013 and this amount will be set against the installments of whatever new constructions are decided.

Our newbuildings under construction as of April 10, 2014, consisted of the following:

Vessel Type

Expected Delivery

Shipyard

Deadweight
Tons

Purchase
Price⁽¹⁾
(in millions
of U.S.
dollars)

Aframaxes

1. Hull 5010

Q2 2016

Daewoo
Shipbuilding

112,700

51.2

2. Hull 5011

Q2 2016

Daewoo
Shipbuilding

112,700

51.2

3. Hull 5012

Q3 2016

Daewoo
Shipbuilding

112,700

51.2

4. Hull 5013

Q4 2016

Daewoo
Shipbuilding

112,700

51.2

5. Hull 5014

Q1 2017

Daewoo
Shipbuilding

112,700

51.2

6. Hull 5015

Q1 2017

Daewoo
Shipbuilding

112,700

51.7

7. Hull 5016

Q2 2017

Daewoo
Shipbuilding

112,700

51.7

8. Hull 5017

Q2 2017

Daewoo
Shipbuilding

112,700

51.7

9. Hull 5018

Q3 2017

Daewoo
Shipbuilding

112,700

51.7

Total Aframaxes

1,014,300

462.8

LNG Carrier

1. Hull HN2612⁽¹⁾

Q1 2016

Hyundai
Heavy
Industries

93,600

222.6

Total LNG Carrier

93,600

222.6

(1)	Including extra cost agreed as of December 31, 2013.

As of April 10, 2014, negotiations are in progress to obtain bank financing for all the vessels listed above. The Company anticipates being able to secure adequate financing within 2014.

Under the newbuilding contracts, the purchase prices for the ships are subject to deductions for delayed delivery, excessive fuel consumption and failure to meet specified deadweight tonnage requirements. We make progress payments equal to between 30% and 50% of the purchase price of each vessel during the period of its construction. As of April 10, 2014, we had made progress payments of $98.4 million out of the total purchase price of approximately $685.4 million (assuming no changes to the vessels to be constructed) for these newbuildings. Of the remaining amount (assuming no change to the vessels to be constructed), a further $77.7 million is contracted to be paid during 2014.

Fleet Deployment

We strive 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. In the past two years, this proportion has been over 68% as we took proactive steps to meet any potential impact of the expanding world fleet on freight rates. The remainder of the fleet is in the spot market. We believe that our fleet deployment strategy 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 2013, 2012 and 2011 as a percentage of operating days.


	Year Ended December 31,
Employment Basis	2013			2012			2011
Time Charter—fixed rate		40	%		30	%		21	%
Time Charter—variable rate		24	%		32	%		39	%
Period Employment at variable rates		4	%		11	%		15	%
Spot Voyage		32	%		27	%		25	%
Total Net Earnings Days		16,954			16,655			16,929

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 19 tankers currently operating on spot voyages.

We have also secured charters 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.

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 Management’s 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 fleet’s technical management, including crewing, maintenance and repair, and voyage operations, has been subcontracted by Tsakos Energy Management to Tsakos Columbia Shipmanagement. 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. Three vessels were sub-contracted to third-party ship managers during all of 2013.

The following chart illustrates the management of our fleet:

LOGO

Technical management of the VLCC, the LNG carrier and one suezmax vessel is subcontracted to unaffiliated third parties.

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. For 2013 monthly fees for operating vessels were $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 carrier, Neo Energy, and the two DP2 shuttle tankers, Rio 2016 and Brasil 2014 was $35,000. 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 $15.5 million in 2013, $15.6 million in 2012 and $15.3 million in 2011. From these amounts, Tsakos Energy Management paid a technical management fee to Tsakos Columbia Shipmanagement. 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 2013, 2012 and 2011 this commission was approximately 1% of the sale price of a vessel. The total amount paid for these chartering and sale brokerage commissions was $5.2 million in 2013, $5.3 million in 2012 and $5.5 million in 2011. 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. In 2011, $2.8 million was charged for fourteen vessels delivered between 2007 and September 2011. This amount was added to the cost of the vessels concerned and is being amortized over the remaining life of the vessels. No fee was paid in 2013 and 2012.

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 TCM’s 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.

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 Tsakos Columbia Shipmanagement, or 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 64 operating vessels under management (including 45 of our subsidiaries’ vessels) at March 31, 2014, totaling approximately 5.7 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 132 employees engaged in ship management and approximately 2,500 seafaring employees of whom 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 carrier Neo Energy and the VLCC Millennium is provided by non-affiliated 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 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 vessel’s 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 the 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 world’s 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 2013.


Customer	Year Ended December 31, 2013
Petrobras		21.3	%
Shell		10.6	%
Flopec		8.3	%
BG (Methane)		7.0	%
STLLC		6.8	%
Clearlake		6.1	%
HMM		5.8	%
BP Shipping		3.5	%
ST Shipping		3.4	%
Litasco		3.1	%
IOOC		2.0	%
OMV		2.0	%
TOR		1.7	%
SUN		1.4	%
CSSA		1.4	%
Irving Oil		1.4	%

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 the 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.

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 negotiated international conventions that impose liability for oil pollution in international waters and in a signatory’s territorial waters. In March 1992, the IMO adopted 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 provide that (1) tankers 25 years old and older must be of double-hull construction or of a mid-deck design with double side construction (with some exceptions for tankers between 25 and 30 years old), and (2) all tankers will be subject to enhanced inspections. All of the vessels in our fleet are of double hull construction.

Current regulations under Annex I of MARPOL provide for inspection and verification requirements and for an 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, which have increased the number of tankers that are scrapped, are intended to reduce the likelihood of oil pollution in international waters.

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.

In 2013 the MEPC adopted a resolution amending the MARPOL Annex I Condition Assessment Scheme (CAS). These amendments, which are expected to become effective on October 1, 2014, revise references to the inspections of bulk carriers and tankers to be consistent with the 2011 International Code on the Enhanced Programme of Inspections during Surveys of Bulk Carriers and Oil Tankers, or ESP Code, which provides for enhanced inspection programs, when it becomes mandatory.

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 sets limits on sulfur oxide and nitrogen oxide emissions from ship exhausts and prohibits deliberate emissions of ozone depleting substances, such as chlorofluorocarbons. Annex VI also includes a global cap on the sulfur content of fuel oil and allows for special areas to be established with more stringent controls on sulfur emissions. 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. 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. In April 2008, the Marine Environment Protection Committee (“MEPC”) of the IMO approved proposed amendments to Annex VI regarding particulate matter, nitrogen oxide and sulfur oxide emissions standards. These amendments were adopted by the MEPC in October 2008 and entered into force in July 2010. They 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 establishing new tiers of nitrogen oxide emission standards for new marine diesel engines, depending on their date of installation. Additionally, more stringent fuel sulfur content requirements apply in coastal areas designated as Emission Control Areas (“ECAs”), such as the Baltic Sea, the North Sea, certain coastal areas of North America, and the United States Caribbean Sea. The United States ratified the amendments in October 2008.

In July 2011 the IMO adopted amendments to Annex VI to make mandatory technical and operational measures for energy efficiency for ships of 400 gross tons or more. Effective January 1, 2013, all new ships must utilize the Energy Efficiency Design Index, and all ships must develop and implement Ship Energy Efficiency Plans..

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 ship’s logbook.

The Hong Kong Environmental Protection Department announced on July 17, 2013 that it will introduce legislation, to be implemented in 2015, requiring vessels to burn low sulfur fuel oil whilst berthing in Hong Kong waters. This has followed the voluntary “Fair Winds Charter” of 2011. Currently, the Hong Kong Air Pollution Control (Marine Light Fuel) Regulations, which enters into force on April 1, 2014, provides that the sulfur content of marine light diesel supplied to vessels in Hong Kong must contain 0.05% sulfur content or less.

We have obtained International Air Pollution Prevention certificates for all of our vessels and believe that maintaining compliance with Annex VI will not have an adverse financial impact on the operation of our vessels. However, if additional ECAs are approved by the IMO or other new or more stringent requirements relating to emissions from marine diesel engines or port operations by vessels are adopted by the IMO or the countries where we operate, compliance with these requirements could entail significant capital expenditures or otherwise increase the cost of our operations.

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, the Company’s liquefied natural gas (“LNG”) carrier meets IMO requirements for liquefied gas carriers. In order to operate in the navigable waters of the IMO’s 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 signatory’s 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 new discharge levels apply to the Company’s LNG carrier. In 2012 the Marine Environment Protection Committee (MEPC) of IMO adopted a resolution amending the International Code for the Construction and Equipment of Ships carrying Dangerous Chemicals in Bulk, or the IBC Code. These amendments, which are expected to enter into force in June 2014, pertain to revised international certificates of fitness for the carriage of dangerous chemicals in bulk. The provisions of the IBC Code are mandatory MARPOL and the International Convention for the Safety of Life at Sea, or SOLAS.

On 1 January 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 impact 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. A

protocol has been put into place to ensure that (i) garbage is disposed of in accordance with the regulations and that the vessels in the 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 Material Safety data Sheet “MSDS” or as a stand-alone document.

Tsakos Columbia Shipmanagement S.A. or TCM, the 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 affect 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 IMO’s International 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 shipowners, 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.

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. Since July 31, 2009, liability in respect of a double-hulled tanker over 3,000 gross tons has been limited to the greater of $2,000 per gross ton or $17,088,000 (subject to periodic adjustment). 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.

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 must be phased out by December 31, 2014. Currently, 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. In October 2008 the Coast Guard adopted amendments to the financial responsibility regulations to require – with effect from January 15, 2009 – evidence of financial responsibility in an amount equal to or greater than the statutory limitation of liability from time to time. 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.

The Coast Guard’s regulations concerning certificates of financial responsibility provide, in accordance with OPA 90, that claimants may bring suit directly against an insurer or guarantor that furnishes certificates of financial responsibility. If an insurer or guarantor is sued directly, it is prohibited from asserting any contractual defense that it may have had against the responsible party and is limited to asserting those defenses available to the responsible party and the defense that the incident was caused by the willful misconduct of the responsible party. Some organizations, which had typically provided certificates of financial responsibility under pre-OPA 90 laws, including the major protection and indemnity organizations, have declined to furnish evidence of insurance for vessel owners and operators if they have been subject to direct actions or required to waive insurance policy defenses. We have certificates of financial responsibility in place for our vessels, where required.

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.

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.

We and our subsidiaries intend to comply with all applicable Coast Guard and state regulations in the ports where their vessels call.

Environmental Regulation

U.S. Clean Water Act: The U.S. Clean Water Act of 1972 (“CWA”) prohibits the discharge of oil and or hazardous or other substances in navigable waters unless authorized by permit or exempted by regulation 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 EPA the new rules, which took effect February 6, 2009, we are required to obtain a CWA permit regulating and authorizing ballast water and other such normal discharges incident to the normal operation of vessels if we operate within the three mile territorial waters or inland waters of the United States. This permit, which the EPA has designated as the Vessel General Permit for Discharges Incidental to the Normal Operation of Vessels, or VGP, incorporates the current U.S. Coast Guard requirements for ballast water management, as well as supplemental ballast water requirements, and includes requirements applicable to 26 specific wastewater streams, such as deck runoff, bilge water and gray water. 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 it is expected that the U.S. Coast Guard will include the VGP as part of its normal Port State Control inspections. On March 28, 2013, the EPA re-issued the VGP for a further five years, effective from December 19, 2013. The 2013 VGP operates in a similar manner to the previous VGP, with the addition of ballast water numeric discharge limits—which will be fully phased in by January 1, 2016—and more stringent effluent limits and best management practices for certain other discharges. 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.

U.S. National Invasive Species Act (“NISA”): 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 U.S. Coast Guard published its final rules for the Standards for Living Organisms in Ship’s Ballast Water Discharged in U.S. Waters which came into force on June 21, 2012 and established standards for allowable concentration of living organisms in ballast water discharged from ships in U.S. waters. The rules applied immediately to vessels built on or after December 1, 2013 and will be phased in fully by January 1, 2016 for older vessels according to ballast water capacity.

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 subsidiaries’ 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. The marine diesel engine emission standards are currently limited to new engines beginning with the 2004 model year. In November 2007, the EPA announced its intention to proceed with development of more stringent standards for emissions of particulate matter, sulfur oxides, and nitrogen oxides and other related provisions for new Category 3 marine diesel engines. On December 22, 2009, the EPA announced 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 will apply from the beginning of 2016. Compliance with these standards may result in us incurring costs to install control equipment on our vessels.

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 Union’s 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 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 vessel’s 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 $7 million plus $980 for each additional gross ton over 5,000. For vessels of over 140,000 gross tons, liability is limited to approximately $139.4 million. As the Convention calculates liability in terms of IMF Special Drawing Rights, these figures are based on currency exchange rates

on April 11, 2013. 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 owner’s actual fault and under the 1992 Protocol where the spill is caused by the owner’s 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.

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 Convention’s implementing regulations call for a phased introduction of mandatory ballast water exchange requirements, to be replaced in time with mandatory concentration limits. The BWM Convention will not enter into force until 12 months after it has been adopted by 30 states, the combined merchant fleets of which represent not less than 35% of the gross tonnage of the world’s merchant shipping. As of February 28, 2014 the BWM Convention had not been adopted by a sufficient number of states to enter into force. Many of the implementation dates in the BWM Convention have already passed, and, as a result, on 4 December 2013 the IMO Assembly adopted a resolution postponing the application of the BWM Convention requirements to those vessels which were built before the entry into force date. Those vessels must comply with the BWM Convention standards by the time of their first MARPOL International Oil Pollution Prevention renewal survey after the entry into force date.

When mid-ocean ballast exchange or ballast water treatment requirements become mandatory throughout the United States or at the international level, the cost of compliance could increase for ocean carriers. Although we do not believe that the costs of compliance with a mandatory mid-ocean ballast exchange would be material, it is difficult to predict the overall impact of such a requirement on our operations.

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. However, agreements were signed extending the deadline to decide on whether or not to extend the validity of the Kyoto Protocol, and requiring developed countries to raise the level of their emission reductions whilst helping poor countries to do the same. It is not yet clear what the repercussions of the Cancun conference are for shipping but there remains pressure to include shipping in any new treaty. The EU is currently considering legislation to implement its 2013 “Strategy for integrating maritime transport emissions in the EU’s greenhouse gas reduction policies”. The intention is to formulate a system for monitoring, reporting and verifying (“MRV”) carbon dioxide (CO2) emissions from vessels using EU ports, to apply from January 1, 2018. Individual Member States have started to introduce CO2 emissions legislation for vessels. In France, in particular, from October 1, 2013 the French Transport Code has required vessel operators to record and disclose the level of CO2 emitted during the performance of voyages to or from a destination in France. In the United States, the EPA has issued a finding that greenhouse gases endanger the public health and safety and has adopted regulations to limit greenhouse gases from certain mobile sources and proposed regulations to limit greenhouse gas emissions from certain large stationary sources. Although the mobile source emissions regulations do not apply to greenhouse gas emissions from vessels, EPA is considering proposals from the California Attorney General and environmental groups to regulate greenhouse gas emissions from ocean-going vessels. 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 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.

Trading Restrictions: The Company is aware of the restrictions applicable to it on trading with Cuba, Iran, 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, directly 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 March 31, 2014, the Company’s vessels made nearly 2,500 port calls around the world, none of which were to those countries. In 2012 there were no calls to Iran, Syria, Sudan and Cuba. 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, Korean Register, Lloyd’s Register of Shipping or Nippon Kaiji Kyokai. Every vessel’s hull and machinery is “classed” by a classification society authorized by its country of registry. 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 rules and regulations of the country of registry of the vessel and the international conventions of which that country is a member. 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 ten 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 vessel’s position and operational obligations.

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. 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.

TCM, our technical manager, has a document of compliance with the ISO 9000 standards of total quality management. ISO 9000 is a series of international standards for quality systems that includes ISO 9002, the standard most commonly used in the shipping industry. Our technical manager has also completed the implementation of the ISM Code. Our technical manager has obtained documents of compliance for our offices and safety management certificates for our vessels, as required by the IMO. Our technical manager has also received ISO 14001 certification.

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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collision;

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adverse weather conditions;

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fire and explosion;

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mechanical failures;

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negligence;

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war;

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terrorism; and

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piracy.

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. 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 recent events.

We have hull and machinery insurance, increased value (total loss 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 underwriters and reinsures most of its exposure under the insurance it writes for us, subject to customary deductibles, with various reinsurers in the London, French, Norwegian and U.S. reinsurance markets. These reinsurers have a minimum credit rating of A. We were charged by Argosy aggregate premiums of $9.1 million in 2013. By placing our insurance through Argosy, we believe that we achieve cost savings over the premiums we would otherwise pay to third party insurers.

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 member’s terms of participation. A member’s individual P&I club premium is typically based on the aggregate tonnage of the member’s 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. P&I clubs enter into reinsurance agreements with other P&I clubs and with third party underwriters 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. Despite recent expensive years for insurance claims due to a number of global catastrophe losses, insurance renewals, and more recently huge maritime losses such as the total loss of the Costa Concordia off the Italian coast and the eventual removal of its wreck, have been relatively benign. It is expected that the impact on Hull & Machinery Insurance renewals for 2014-2015 policy year will also remain mild due mainly to the available capital at underwriters’ disposal that plays an important role in determining the level of future insurance premiums. 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 Club’s Free Reserves. Recent P&I renewals have seen only a modest increase in rates, at 2.7%, far less than expected and the increase of 10% for 2013. At March 31, 2014, 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 cover for other liabilities. P&I, Hull and Machinery and War Risk insurance premiums are accounted for as part of operation 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, 2014. 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 Tsakos Shipping’s reputation as a manager. 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 Afghanistan and Iraq, economic sanctions, including those with respect to Iran, and terrorist attacks such as those made against the United States in September 2001 and various international locations since then 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.

Other significant operators of multiple aframax and suezmax tankers in the Atlantic basin that compete with us include Overseas Shipholding Group Inc., Teekay Shipping Corporation and General Maritime Corporation. There are also numerous smaller tanker operators in the Atlantic basin.

Employees

We have no salaried employees. See “—Management Contract—Crewing 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, 2013, individually and in the aggregate, was not material to us.

Item 4A.

Unresolved Staff Comments

None.

Item 5.

Operating and Financial Review and Prospects

General Market Overview—World Oil Demand / Supply and Trade (ICAP)

All of the statistical data and other information presented in this section entitled “General Market Overview—World Oil Demand / Supply and Trade,” including the analysis of the various sectors of the oil tanker industry, has been provided by ICAP Shipping (“ICAP”). ICAP has advised that the statistical data and other information contained herein are drawn from its database and other sources. In connection therewith, ICAP has advised that: (a) certain information in ICAP’s 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 ICAP’s database; and (c) while ICAP 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.

General Market Overview

(All text, data and charts provided by ICAP Shipping )

World Oil Demand/Supply and the Tanker Market

The disconnect between key global crude oil benchmarks Brent and West Texas Intermediate (WTI) continued all throughout 2013, with the two mapping independent paths, ranging from a discount of the latter to Brent of over $23.00 per barrel (/bbl) in February to near-zero in July. The discount increased back to $20.00/bbl towards the end of the year and averaged around $11.00/bbl for the whole of 2013. Brent futures remained within a defined price range of $100/bbl-$120/bbl for most of the year, although on a yearly average basis prices declined by $2.98/bbl. West Texas Intermediate (WTI) was much more volatile but on average prices rose by $3.90/bbl year-on-year.

The highs of the year for Brent were recorded early on in February as positive macroeconomic developments in China and the US—which had just avoided the fiscal cliff—helped to restore confidence. A risk premium was sustained on prices by geopolitical events, starting with the 16^th January terrorist attack in Algeria’s Amenas gas facility, Israel air strikes into Syria and continued sanctions against Iran with supply disruptions in Libya, Yemen, Iraq, Sudan and Nigeria also coming into play later in the year. All these overshadowed an otherwise “well supplied market” based on the frequent assurances by OPEC whose spare capacity had already climbed back to a safer 4.5m barrels per day (bpd) in early 2013. Brent bottomed out in mid-April but only stayed below the $100/bbl mark for one week.

In the United States, the remaining 250,000 bpd of capacity of the reversed Seaway pipeline came online in January 2013 (the first 150,000 bpd had already started up in late 2012), however, storage bottlenecks at the Jones Creek end terminal forced a reduction in volumes carried from Cushing, Oklahoma to the US Gulf on the pipeline to around 200,000 bpd–300,000 bpd. Combined with lower US refinery utilization due to maintenance in the first quarter this pushed the Brent-WTI spread to its yearly highs of -$23.00/bbl in February, as crude from both the US and Canada was piling up in storage at the benchmark’s delivery point. Conditions changed quite dramatically in the second half of the year with upward momentum on oil prices sparked initially by the political upheaval in Egypt and the ousting of President Morsi by the army on 3^rd July that revived past concerns of a closure or disruption of the Suez Canal and/or of the 2.4m bpd SUMED pipeline. In the meantime, the Seaway pipeline ramped up capacity to its full 400,000 bpd and US refinery runs increased steadily, drawing down on stocks and narrowing the Brent-WTI spread to its three and a half-year low.

US crude production increased by a staggering 990,000 bpd last year, which the International Energy Agency (IEA) cited as “one of the largest annual gains on record for any country”. Even though this was coupled with an increase in domestic refinery runs by 500,000 bpd to eight-year highs, there are doubts as to how much more crude production growth upcoming infrastructure (pipelines, crude-by-rail, storage, new refineries and adjustments to the crude slate of existing refineries) can sustain before the US is required to relax or altogether reverse the current crude export ban (note that Alaskan crude and exports to Canada are already exempt from the

ban and have therefore been rising). Meanwhile, with rail still being the only means of transportation of domestic shale oil to some refining centers near the US coasts, its high cost (estimated between $14/bbl—$18/bbl) can at times render imported crude competitive again, a situation we saw occur during the summer months of 2013, as the price of domestic crude was approaching global benchmarks due to the ramp up of the Seaway pipeline. We may see this more often in 2014 as the addition of 1.15m bpd of pipeline capacity moving shale oil into the US Gulf should narrow the average discount of domestic crude to foreign crude further. The IEA estimates that North American liquids supply will record a 1.2m bpd increase this year with the US crude output alone forecast to grow by 780,000 bpd year-on-year.

The Brent-Dubai differential, an important indicator of volumes of West African crude loading for eastern destinations, increased again to just short of $6.00/bbl as Libyan production had dropped to near-zero levels by September 2013, having remarkably previously almost fully recovered to pre-civil war levels, exceeding at a time 1.4m bpd. Attacks by militias had been preventing a full recovery earlier in the year, but it was only after protesters demonstrating for labor issues shut down the 130,000 bpd El Feel oilfield in the southwest in late-May that the country’s production fell into a downward spiral with both oil fields and oil terminals shutting down and production dropping to as low as 150,000 bpd at some point in September. The loss of Libyan production adds a premium to Brent-based light sweet grades such as West African crude which prompts buyers in the east to turn to the cheaper Middle East Gulf crude to fulfill their requirements, knocking off tonne-miles. Early in 2014 there were some signs of a resolve of the issues in Libya with production reaching up to 750,000 bpd however this was short-lived and the situation in Libya remains precarious.

Global Oil Prices in 2013 and Key Differentials

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On a global level, crude supply increased by 605,000 bpd to 91.57m bpd in 2013. Non-OPEC growth averaged 1.35m bpd, more than offsetting the 860,000 bpd decline in OPEC crude production to 30.44m bpd which was due primarily to the loss of Libyan supply and continued sanctions against Iran. Non-OPEC total liquids supply is forecast to grow by 1.7m bpd in 2014 according to the IEA.

OPEC production peaked in the second quarter of 2013 at 31.1m bpd before Libyan supply losses begun to erode total volumes that bottomed out in November. Swing producer Saudi Arabia saw its production decline by 110,000 bpd on average in 2013 to 9.40m bpd despite the start up of its 900,000 bpd offshore heavy oil Manifa field in April. The kingdom is investing heavily in new production capacity to replace maturing fields over the next few years although new refining capacity is also being developed that will absorb some of the domestic crude and naturally reduce exports via its Red Sea and Middle East Gulf terminals. Iranian production dropped by a further 320,000 bpd to an average of 2.68m bpd. The relaxation of US and European sanctions pertaining to the transportation of Iranian oil in early 2014 helped to marginally increase crude exports as the remaining Iranian crude buyers (China, India, Japan and South Korea) had previously been unable to secure transportation for the full volumes that they were allowed to import under their secured US exemptions. Until the time of writing however, the crude export ban remains in place and exported volumes are still not allowed to increase further, therefore the impact has been limited. In West Africa, Nigerian supplies were down by 150,000 bpd to 1.95m bpd, crippled by the perennial issues of sabotage and oil theft whilst technical issues at Angolan fields also pushed production lower year-on-year by 60,000 bpd to 1.72m bpd.

Iraqi production growth helped offset some of these declines even though the year ended with a less-than-expected average increase of 130,000 bpd to 3.08m bpd. The shortfall was due to work undertaken on the country’s southern export infrastructure in the second half of last year and the continued dispute between Baghdad and the Kurdistan Regional Government (KRG) in the north. Iraq recorded staggering supply growth as soon as bottlenecks were cleared and work finished in the south hitting a 35-year high of 3.62m bpd in February 2014. Crude oil exports for the same month averaged 2.8m bpd, 89.6% of which were from Basrah, as dual-loading started up at two of the single point moorings (SPMs) with the third one expected to be completed in 2014. The export target for 2014 is set at 3.4m bpd, including 400,000 bpd from the KRG which would imply production levels of 4.00m bpd.

As far as energy reforms in 2013 go, Mexico made by far the most decisive move with the government passing a bill in December opening up the country’s upstream, midstream and downstream sectors to private and foreign investors ending a 75-year monopoly by Pemex. Mexico supplied 2.89m bpd of crude in 2013 which is forecast to stay very much the same in 2014, however, with the US now buying less sweet crude the country is looking for new buyers and export outlets for its Olmeca crude (39.3 API with 0.8pc sulphur). Olmeca makes up around one third of Mexico’s total production but previously only accounted for less than 6% of its exports as it was almost exclusively sold to the US. Europe, India and China are also target buyers for Mexican crude with one Pacific Coast terminal that had been shut in 2008, the Salina Cruz, re-opening to service exports of Isthmus and Maya crude in the future.

Canada is also progressing with its plans for new crude export outlets for its Alberta crude, in order to reduce its dependency on the US as a transit route and buyer. The US government has been delaying the approval of the Keystone XL pipeline which would connect Canadian crude with the recently inaugurated 700,000 bpd Gulf Coast pipeline to the US Gulf due to opposition by environmental and political groups. In December 2013,

the 525,000 bpd Northern Gateway pipeline from Alberta to the west coast of Canada received conditional approval, although there are many hurdles still before final approval. Otherwise, Canada is also progressing with its 1.1m bpd Energy East pipeline to the East Coast of Canada and expanding rail capacity as well to feed its own refineries there and to export the crude via a new deep water terminal. Canadian supply is set to grow to 4.5m bpd by 2025 according to the Canadian Association of Petroleum Producers.

Russian crude exports to the east have been rising even though production as a whole has only been marginally increasing by 150,000 bpd in 2013 and is expected to increase by another 90,000 bpd (IEA) in 2014. Eastern Siberia—Pacific Ocean pipeline volumes to the Pacific terminal of Kozmino will rise by 430,000 bpd by 2020 for export and to feed two new refineries of a combined 240,000 bpd capacity and one 490,000 bpd petrochemical complex. Capacity of the ESPO spur into China increased by 800,000 tons (16,000 bpd) in 2013 and is expected to increase by a further 600,000 tons (12,000 bpd) this year bringing the total up to around 313,000 bpd. Future plans include an expansion to 600,000 bpd from 2018. China’s Sinopec entered a new 10-year deal with Rosneft last October for a further 200,000 bpd of supply starting in 2014 some of which will come via pipeline, however, some will have to come on ships perhaps even from as further afield as the Baltic or the Black Sea due to infrastructure constraints in the east. The Kazakhstan-China pipeline that started operating in July 2006 with a capacity of 14m tons per year is also expected to be expanded to 20m tons per year (400,000 bpd) in 2014. The Kazakh crude will mainly be used as feedstock for the Dushanzhi refinery and to fill the Phase 2 Strategic Petroleum Storage in the Xinjiang province. Finally, the Kashagan field in the Caspian Sea was first inaugurated in July 2013 for a first phase of 180,000 bpd within a year and then 370,000 bpd, whilst Phase 2 would increase capacity to 1m bpd. However, production has been hit by several delays since first oil.

Global oil demand grew by 1.27m bpd in 2013 to 91.33m bpd with this year expected by the IEA to record an even stronger +1.35m bpd growth. This is on the back of the International Monetary Fund’s latest estimates that put global GDP growth at 3.7% in 2014, up from 3.0% in 2013. Demand in non-OECD economies expanded by around 1.19m bpd while the OECD saw a slight increase as well of 80,000 bpd after two consecutive years of declines. Oil demand growth in the United States famously exceeded that of China last year at 396,000 bpd against 278,000 bpd respectively, although this is expected to reverse in 2014 with growth seen at +96,000 bpd and +344,000 bpd respectively.

OECD stocks dropped sharply towards the end of 2013 with the fourth quarter recording a 1.5m bpd decline, the steepest quarterly decline since the fourth quarter of 1999. According to the IEA, the deficit to five-year average levels widened to 103m barrels, the first time the 100m barrel level was crossed since mid-2004. The actual level for commercial inventories also touched a five-year low at 2,559m barrels in December. The main drop was recorded in December due to exceptionally harsh weather conditions in the US. For the whole year, inventories grew by an average of 0.2m bpd as build-ups during the first and third quarters helped to offset the losses of the second and fourth quarters. The decline continued counter seasonally into January 2014 – the US Department of Energy offered 5m barrels of crude from the US Strategic Petroleum Reserve in March to test the system for delivering emergency supplies.

Global GDP Growth (IMF January 2014)

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Global Oil Supply and Demand

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The loss of US crude imports in favor of domestic crude over the last year has meant that other Atlantic crudes have increasingly been heading east, strongly impacting tonne miles and generating new trades. One example of a new trade is that of the Mexican Olmeca crude being sold to Europe as mentioned earlier. Also, Alaskan crude which used to be almost exclusively sold to the US West Coast (USWC) is also now looking for buyers in Asia-Pacific as new crude-by-rail capacity is feeding shale oil into the USWC refineries instead, replacing imports. Furthermore, the 85,000 bpd Flint Hills refinery in Alaska is shutting down in the second quarter of 2014, leaving more Alaskan crude available for export later in the year. Alaskan crude is not subject to the US crude export ban. Meanwhile, growing crude supplies from the East Coast of Canada and from Latin America and West Africa (WAF) continue to head east, significantly boosting tonne-miles for the crude sector. For the time being refiners in the US Gulf previously configured to burn heavy crude from Latin America cannot outright use shale oil as feedstock which has sustained imports from the Middle East Gulf (MEG) at high levels for blending. This compares to a drop of imports from West Africa to the US to 570,000 bpd in 2013 from 800,000 bpd in 2012 and 1.27m bpd in 2011. West African imports revived somewhat during the summer of 2013—when the pricing differential favored imported crude—to around 700,000 bpd but dropped off to 350,000 bpd in the fourth quarter and to as low as 150,000 bpd in early 2014.

So far, the US has not reversed or in any way altered the 1970s crude export ban despite the rapidly growing production of its Light Tight Oil (LTO). In order to cope, refiners have been increasing utilization rates to over 90% whilst some new processing capacity is planned to come online. These are mainly condensate splitters, otherwise known as “pop-up” refineries, built to process shale oil into exportable products. Storage capacity is also expanding around the US Gulf to accommodate the crude influx. Going forward, the debate continues on how the US will tackle future bottlenecks with some options available to choose from: the first is for more refineries to be re-configured for lighter feedstocks. However, this would be expensive and would require some offline time. This would also make the refineries heavily reliant on domestic LTO production growth which is risky as many analysts expect this to peak in the next few years. The second option would be to push existing refineries’ utilization rates even higher, however, that may not be adequate for long. Opening more new refineries is also likely—albeit slower—plus those new plants would have to compete in the already oversupplied global refining market. In view of all this, it is likely that the US will at least partially allow for exports of its crude, whether all types or only of the condensate-like shale oil, within the next couple of years.

With US buying disappearing, West African loadings to Asia rose to a record high of 2.08m bpd in December of which 1.3m bpd was destined for China. China continues to lead tonne-mile demand, supported by its expanding refining capacity and its continued drive to diversify away from the Middle East Gulf for its crude needs. China’s crude production remained stagnant at 4.18m bpd last year and is forecast to increase only marginally by 80,000 bpd in 2014.

At the same time, China has plans to add up to 720,000 bpd of refining capacity in 2014. For years China has had aggressive refining capacity expansion plans and although the country has added over 2.6m bpd of capacity since 2009, this still falls well short of original plans. The reason for the consecutive delays of some projects is the government’s unwillingness to open up product exports, leaving expansions heavily dependent on domestic demand growing. With domestic demand growth slowing down and at least some of the planned new refining capacity coming online, this has left China oversupplied with products pressuring refinery utilization rates lower. The impact of new refining capacity on crude imports has therefore been less than what the headline addition would suggest. Last year, China added 690,000 bpd of nominal refining capacity yet crude oil imports only increased by an average of 230,000 bpd to a yearly average of 5.66m bpd and domestic demand grew by 278,000 bpd. Given Chinese domestic demand growth is expected to increase by 340,000 bpd in 2014 it would be reasonable to expect crude import growth to be around the same levels or perhaps reaching up to 400,000 bpd given the government’s recent initiative to push product export quotas higher to record—yet nowhere near high enough—levels.

In April 2013, The National Development and Reform Commission (NDRC) in China announced long-awaited pricing reforms, which shortened the adjustment period for oil prices from 22 to 10 business days, and

scrapped a trigger point of 4% variation in the country’s crude basket benchmark price, which improved refining margins and encouraged the stronger capacity additions. China is also upgrading the quality of its domestic fuels to National IV standards (similar to EURO IV) gradually throughout 2014. The quality of gasoline will change from January onwards and for diesel this will take place at the end of the year. National V standards will be imposed for both gasoline and diesel in 2018 as China fights its pollution issues—another argument that has been used against the additions of all of the planned refineries. With fuel quality rising to match other major consuming regions this could facilitate product exports if the government permits it. Finally, the much discussed Phase 2 of China’s Strategic Petroleum Reserve seems to be progressing again this year after an inactive year in 2013, although the relevant storage sites being built are not expected to start receiving crude before earliest the end of the year or as of early 2015.

India is also seeing its crude long haul crude imports increase, particularly since sanctions were imposed on Iran, one of its key suppliers. India has been looking for supplies from further afield more favorably in recent years. Even though import volume growth has slowed down to an increase of 130,000 bpd in 2013 versus an annual average increase of just over 500,000 bpd in 2012, Latin America accounted for the bulk of that growth with 120,000 bpd, whilst more crude is expected to be sourced from North America as well in the future. A further 350,000 bpd of refining capacity is expected to come on stream in India in 2014 which should prompt more crude imports. Contrary to China, India has large private refiners who are free to sell their products to the international market. Indian refinery runs peaked early on in 2013 to just shy of 4.8m bpd but ended the year at just over 4.4m bpd.

US, India and China Crude Imports by Selected Sources

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Crude Tanker Tonne-Miles and Growth since 2000

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Last year also marked an increase in arbitrage volumes of fuel oil moving from west to east, supporting crude tankers. These trades are expected to continue this year as bunker demand east of Suez increases with trade in/out of the region whilst the Chinese independent (“teapot”) refiners are still dependent on fuel oil imports for feedstock. Thirdly, Japan will still use fuel oil for its power generation needs as no nuclear capacity restarts have been announced for this year. With the Caribbean region becoming an Emissions Control Area (ECA) in 2014 and the relevant sulphur regulations tightening in 2015, demand for bunker fuel in the west may decline in favor of gasoil, opening up more arbitrage opportunities for the dirty product to head east.

Moving on to the products sector, the US Gulf has by now established itself as an aggressive competitor for Atlantic product import business. Refiners have boosted their crude runs to absorb the rising domestic crude supplies and exploit the feedstock’s discount to other global grades. Distillate exports have led export growth peaking at almost 1.4m bpd in July 2013 and remaining well above 1m bpd for the average of last year. Product exports are expected to continue to grow strongly this year as domestic demand growth slows down and refiners will need to boost utilization rates further to absorb more domestic crude coming down the coast on new pipelines. In the meantime, gasoline imports have been declining last year with more gasoline now available from domestic refiners and the transport sector moving towards cleaner fuels pushing demand down. This led to the erosion of the traditional UK Continent to US Atlantic Coast (USAC) gasoline trade and European refiners looking for replacement buyers in Latin America and West Africa, now in competition with the US refiners.

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European refinery margins have also been squeezed by new capacity coming online east of Suez in the Middle East Gulf. This competition intensifies even more in 2014 with 1m bpd of capacity additions expected by the end of the year, some of which will be targeting product exports primarily into Europe. With many refineries in Europe requiring high quality/high price crude for feedstock, more than 2.5m bpd of capacity was forced to shut down since 2009 as they could not compete. Furthermore, the average refining utilization rate declined to 75.6% in 2013 from 78.4% in 2012. Even though only a couple of refineries have announced they will be shutting down this year, utilization rates are expected to continue to fall gradually to the expense of crude imports but to the benefit of product imports into Europe as the economy returns to positive growth.

In the east of Suez product market, Australia saw the Clyde refinery shut down in 2013 for conversion into a product terminal, whilst the Kurnell refinery is due to shut down this year, also for conversion. A third refinery was also recently sold to a trading company who has so far announced it will keep operations going. With the loss of this capacity and more closures possibly to come later, Australia is raising its product import requirements going forward. Most of the increase will be supplied by surrounding areas, mainly Singapore and some by South Korea. However, after the completion of the terminal conversions which will allow for larger product tankers to call, imports may be sourced from as far away as India and the Middle East Gulf.

Product imports are also expected to continue to grow into Latin America and West Africa as both regions are seeing demand increasing whilst refining capacity remains stagnant. Both the Atlantic exporters in the US Gulf and Europe and the eastern suppliers in the Middle East Gulf and India will be competing for shares in these trades. North Africa however saw throughputs hit a record high of 610,000 bpd in December 2013, as the new 335,000 bpd Skikda refinery was completed in Algeria.

Another new refinery which was completed in Tuapse in the Black Sea last year triggered a significant increase in naphtha volumes heading east. The growing arbitrage trade from west to the east was supported by the increase in the price of LPG in Asia against a decline in naphtha prices in both US and Europe due to declining demand and more naphtha remaining in surplus. Naphtha imports into South Korea increased by 24% or 240,000 bpd last year. Growth is expected to slow down this year although the arbitrage should stay mostly open.

World Tanker Fleet

VLCC fleet growth declined sharply in 2013 to 2% year-on-year from the previous 6.0% recorded in 2012. Last year saw the addition of 30 vessels whilst removals accelerated to 18 vessels leaving net growth at 12 vessels. At the beginning of last year there were 47 deliveries scheduled for 2013, implying a slippage rate of 17 vessels or 36.2%, the highest slippage rate since 2009 for the sector. Of the vessels removed, 12 were sent to scrap with an average age of 18.4 years marking the lowest average on record for the sector. This has sparked debate whether the lifespan of VLCCs will steadily decline with some even placing it at 15 years in the future, particularly after new regulations (Ballast Water Treatment, ECA regulations etc.) add onto the cost side for the existing fleet and new fuel efficient vessels come in. Market conditions will be key for this—as the market is expected to remain well supplied, charterers will continue to prefer the most modern tonnage for their cargoes. Not every charterer however places restrictions on age at 15 years, many still accept older but well maintained VLCCs. Even if the lifespan did decline gradually, there is enough room for more ordering to take place to offset much of the impact of heavier than expected removals. More likely, the lifespan of the vessels will gradually decline to around 20 years and scrapping will stay much more modest over the next few years. At the start of 2014 there are 33 VLCCs listed for delivery this year. Applying the average slippage of the last five years for the sector of 27.7%, this would mean an addition of 24 VLCCs this year versus expected removals of 12 vessels, leaving net fleet growth at par with last year’s 12 vessels or 2.0%.

The Suezmax fleet also saw a drop in fleet growth to 2.9% last year from 6.1% in 2012 as only 17 vessels were delivered versus an originally scheduled 40, implying a very strong slippage rate of 57.5%. Removals were slow with only five vessels scrapped. With very little ordering so far for the sector, fleet growth will continue to decline this year to 0.9% or a net growth of only four vessels even though 20 vessels are scheduled for delivery. This net addition of 12 vessels in 2013 is significantly lower than the 24-vessel net growth of 2012. The average slippage rate for the last five years stands at 37.7% whilst many of the vessels still in the orderbook may not come at all due to heavy delays at some of the yards.

The Aframax fleet shrunk in 2013 due to continued heavy scrapping. In the beginning of last year there were 33 vessels scheduled to be delivered during the year of which only 17 were finally delivered (48.5% slippage). This low rate against the removal of 21 vessels left net fleet growth at minus four vessels indicating a fleet reduction of -0.4%. Negative fleet growth is expected to continue in 2014. The year starts with a scheduled 31 vessels to be delivered although applying the five-year average slippage rate of 28.4% this drops to an expected 22 vessels. Removals should continue to be strong with 30 vessels expected to exit the market by the end of the year keeping fleet growth in negative territory at minus eight vessels, or -0.9%. The dirty side of the fully coated fleet benefited from a large number of vessels switching to Clean Petroleum Product (CPP) trades early last year, when the clean side was enjoying significantly higher earnings. Despite the downward correction of the clean side earnings by the end of 2013 and the very strong dirty side earnings since the beginning of 2014 so far only few vessels have switched back to dirty cargoes, perhaps in expectation that future prospects still favor vessels remaining on clean trades.

Panamax fleet growth followed a similar trend declining to 1.0% in 2013 from 2.0% in 2012. Only 12 vessels were delivered last year most of which were fully coated whilst eight vessels were removed, putting net growth at four vessels. In the beginning of 2013 scheduled deliveries stood at 27 vessels bringing the slippage rate for last year at a very high 55.5%. For this year only 13 vessels are scheduled to be delivered, once again most of which will be fully coated. The average slippage rate for the last five years is at 35.9% which means an addition of eight vessels is expected by the end of the year against removals of seven vessels. Net fleet growth is thus forecast at only one vessel or 0.2%.

The MR products tanker fleet (45,000 dwt – 55,000 dwt) saw fleet growth accelerate in 2013 due to the heavy ordering that began in 2011 and a very high slippage rate in 2012. In the beginning of the year 107 vessels were due to be delivered of which only 79 finally came in (29.2% slippage). As the market still enjoyed relatively healthy returns and the average age of the fleet is very young, scrapping remained subdued with only four vessels removed. Net growth was thus 75 vessels in 2013 compared to only 40 in 2012 although still much

lower than the peak of 122 vessels in 2009. This year we start with 119 vessels scheduled to be delivered which come down to 80 after accounting for slippage of 32.9%, as per the average of the last five years. We expect to see a more active year for scrapping in 2014 although the forecast is still at only 10 vessels. Net growth is therefore expected at a slightly less 70 vessels or 6.5% compared to last year’s 7.5%.

The Handy products tanker fleet (27,000 dwt – 45,000 dwt) continues to record negative fleet growth primarily due to the removal of remaining non-double hull tonnage and low ordering activity in the past. Last year, only nine vessels were delivered versus the originally scheduled 22, whilst 26 vessels were removed. This year deliveries accelerate a little to 18 against an original list of 28 after accounting for five year average slippage rate of 34.5%. Removals should also accelerate with 40 vessels expected to head to the scrap yards during 2014. Net fleet growth is therefore seen negative at -22 vessels versus last year’s -17 (-2.6% and -1.9% respectively). This year will be the fifth consecutive year of negative growth for the segment.

Newbuildings

Newbuilding Tanker Prices (South Korea)

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

VLCC

$79.0m

$120.0m

$122.0m

$130.0m

$146.0m

n/a

$100.0m

$105.0m

$100.0m

$90.0m

$92.0m

Suezmax

$53.0m

$ 74.0m

$ 73.0m

$ 80.5m

$ 86.0m

n/a

$ 60.0m

$ 65.0m

$ 62.0m

$60.0m

$67.0m

Aframax (Uncoated)

$44.5m

$ 62.5m

$ 61.0m

$ 65.5m

$ 72.0m

n/a

$ 51.0m

$ 57.0m

$ 52.0m

$48.0m

$53.0m

$34.0m

$ 41.0m

$ 43.5m

$ 47.0m

$ 51.0m

n/a

$ 32.0m

$ 37.0m

$ 34.5m

$32.0m

$37.0m

Price assessments were suspended in late 2008 and early 2009 due to a lack of liquidity in the tanker sale and purchase markets

Ordering activity was moderate on the VLCC sector during the low market of the first three quarters of 2013. However, sentiment changed rapidly after the market spiked in November with over 20 orders placed in that month alone. The year ended with a total of 51 confirmed orders for VLCCs, with deliveries mainly in 2016 and 2017. This compares to 52 orders placed back in 2010 when the market was last enjoying a recovery. Since the beginning of 2014 the sustained high markets have attracted another 24 orders which brings the current orderbook at 97 vessels against a current fleet of 615 vessels. Despite earlier fears of large-scale ordering from China this did not materialize, with only around a third of the current orderbook controlled by Chinese interests (private and state). The remaining orders are held by other independent owners, some budgeting on future prospects and some taking a more short term asset play view as prices have been driven upwards by renewed ordering activity and by the spot market. In fact, at the time of writing prices for a newbuilding VLCC in South Korea are quoted at the levels of $100m, which already provides a healthy return to early movers.

Suezmax ordering slowed to near-zero levels in 2013 on the back of the slow market. Only four conventional vessels were ordered during the year plus one shuttle tanker. Despite a significant recovery in freight rates towards the end of the year no ordering was placed, contrary to what we saw in the VLCC sector. Five orders have been placed already this year however. The Suezmaxes have had to expand into new trades and into trades where they compete with VLCCs and Aframaxes as their traditional West Africa to USAC market almost disappeared due to the US shale oil. This is now the least ordered sector in the over-27,000 dwt tankers since the beginning of 2013, which by consequence makes it attractive. Despite the lack of orders, yards’ ideas on newbuilding prices have increased to the highest of the post-crisis years starting the year at $67m. Despite this, as many of the vessels in the orderbook of 30 vessels are “in doubt” due to delays in yards and financing issues, some rightly or wrongly view this sector as the focus for this year.

Ordering activity in the Aframax sector focused on the fully coated side with 60 firm LR2 orders and seven uncoated vessels contracted. Prices have therefore moved up with the estimate for an uncoated vessel at South Korean yards increasing to $53m by January this year from $48m in January 2013. The coating specification of the vessels on order could change, although it is generally seen as a relatively cheap option to hold in order to be

able to trade the vessel in the CPP trades as prospects for long haul trades open up in the next few years. A coated vessel can still trade in dirty trades although it would require cleaning before it switched back into a clean cargo and would need to find a charterer to accept its dirty history – for a discount. In early March 2014, 98 Aframax vessels were on order in total against a fleet of 882. Of these, 66 are specified as fully coated.

Following the 106 confirmed MR orders placed in 2012, 2013 set a new record for the sector with 166 vessels contracted. This drove prices significantly higher to $37m from a low of $32m, as quality yards saw their slots fill up. At the moment, deliveries for new orders are well into late-2016 but mostly going into 2017. The incentive for ordering MRs changed dramatically over the last few years. The trend begun in 2011 against expectations of US refinery closures, however, this has since changed due to the exploitation of US shale oil reserves. Refineries survived and in fact the US now contributes as an important product exporter with most of the trade ex-US Gulf moving on MR tankers. Owners then looked at the offered eco design which reduces fuel consumption as a means of obtaining a competitive advantage. With the MRs being the workhorse of the products market these vessels can provide a more predictable cash flow, being less volatile compared to some of their larger cousins. Demand prospects remain relatively positive whilst the sector has rewarded investors with asset appreciation in the past, so we expect interest in the sector to continue albeit at a slower pace this year.

Shipbuilding capacity, at least that of the yards that the tanker industry favors, appears to be very thin until 2016 and yards are now enjoying their newly improved negotiating power. South Korean yards dominated the market in 2013 with 221 firm orders placed in the over-27,000 dwt conventional tanker sectors with China in second place at 83 vessels out of a total of 360 orders recorded. Japanese yards remain too expensive for many international owners. Orderbooks however still look rather empty from 2018 onwards. A large percentage of the current tanker orderbook is held by non-traditional players that have found shipping yields attractive. Bank finance is still available for core clients with long standing relationships with the banks. Despite the recent correction upwards, newbuilding prices overall are still near historical lows in real terms and therefore ordering is not expected to dry up this year. Even though prices are expected to continue to rise this year, spot market forecasts do not allow for a very steep increase.

Second-hand Prices

5-Year Old Tanker Prices

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

VLCC

$72.0m

$110.0m

$120.0m

$117.0m

$138.0m

n/a

$77.0m

$80.0m

$55.0m

$51.0m

$60.8m

Suezmax

$49.5m

$ 75.0m

$ 76.0m

$ 80.0m

$ 96.0m

n/a

$55.0m

$56.0m

$43.0m

$37.0m

$38.0m

Aframax (Uncoated)

$39.0m

$ 59.0m

$ 65.0m

$ 73.0m

n/a

$39.0m

$41.0m

$32.0m

$27.0m

$29.5m

$30.0m

$ 40.0m

$ 47.0m

$ 52.0m

n/a

$24.5m

$26.0m

$25.5m

$22.0m

$28.0m

Price assessments were suspended in late 2008 and early 2009 due to a lack of liquidity in the tanker sale and purchase markets

Second-hand prices increased across all sectors year-on-year, driven by a rush to catch the bottom of the cycle that sparked more buying interest. In some cases, five-year old prices did not quite rise as fast as newbuilding prices as some prefer to pay the premium in order to get a more fuel efficient vessel. For a VLCC, secondhand prices rose by 19.2%, compared to 11.1% for newbuildings (considering the last done at $100m). The steeper growth in secondhand prices reflects the prospects for the sector over the next two-year window of very low fleet growth. Suezmax secondhand prices only increased by 2.7% even though the price of a newbuilding came up by 11.6%. Here secondhand prices remained very near the lowest of the post-crisis era due to very low investment interest. Aframax five-year old prices rose by 9.2% mirroring the growth in the newbuilding price. MR secondhand prices rose by 27.2% compared to the 15.6% growth in the newbuilding price.

Vessel earnings

The crude tanker market saw a weak first three quarters in 2013 led by stock-drawing and refinery expansion delays. Falling imports into the US, whilst not necessarily negative in the long term had impacted the market due to limited growth in other major consuming regions. During the first three quarters of the year, TD3 (Tanker route MEG-Japan for crude oil) TCE averaged $7,310/day (basis design speed and round voyage) with no one expecting the magnitude of the freight rate recovery that came in the fourth quarter.

Consistent strong volumes to the east in the second half of 2013 gradually worked through the backlog of VLCCs in the Middle East Gulf until the tonnage availability was reduced enough to bolster sentiment and trigger the spike in freight rates. The volumes and sentiment persisted throughout December and activity rolled into the Suezmax sector as well. Even though eastern buying of long haul crude eased in January 2014, the resulting higher European imports from West Africa supported the Suezmaxes which returned the favor to the VLCCs. The Aframaxes in the meantime experienced the “perfect storm” of weather delays and other disruptions in January, solidifying owners’ bullish stance.

The improving supply/demand balance will support an overall improvement in the sector’s average earnings this year and raise the market floor, with the VLCCs leading the way for the Suezmaxes and the Aframaxes that are better set to exploit regional opportunities. Furthermore, we expect to see more short-term tonnage shortage windows throughout the year as the balance tightens overall which can raise the market ceiling to truly unpredictable levels. It is important to remember however that the market will continue to be oversupplied and will probably revert back to the sustainable average – which is likely to be higher than last year’s. Slow steaming and scrapping remain within owners’ control in the meantime, and need to continue in order to hold on to any positive momentum.

In the products sector, strong additions to the MR fleet and the switching of fully coated LR vessels to trade into CPP drove the market down since the highs of the beginning of 2013. Having said that, the changing CPP trade landscape and the addition of new exporters and importers has been setting the ground for longer haul trades to develop, whilst triangulation of the smaller vessels is now much more feasible improving utilization rates. This does not always transpire on benchmark round voyage earnings reports as the effect of triangulation fails to be captured.

VLCC Time Charter Equivalent Spot Market Earnings

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VLCC

Benchmark VLCC spot earnings started the year with a counter seasonal low, burdened by oversupply and lower volumes that crushed owners’ sentiment. The average earnings for a round voyage TD3 (265,000 tons from Middle East Gulf to Japan) stood at only $3,800/day for normal speeding in Q1, the lowest first quarter since at least 2000. Despite a slight improvement in fundamentals throughout Q2 and Q3, average earnings only rose to $9,900/day and $8,100/day in Q2 and Q3 respectively for normal speeds. These equate to $11,900/day, $16,900/day and $15,000/day for Q1, Q2 and Q3 respectively calculated at slower speeds.

Since the summer, Chinese crude demand accelerated as new refining capacity was attracting more long haul crude from West Africa for test runs and state refiners were filling up new commercial storage capacity of a total of 75m barrels gradually until the end of the year. Imports rose from an average of 5.59m bpd in the first half of last year to an average of 5.86m bpd in the second half and reached an all time high of 6.63m bpd by January 2014. Much of that is thought to have gone into commercial storage and is expected to be drawn down gradually—this volatility in imports from China has been strongly correlated with freight for the VLCC sector.

Combined with the impact of accelerated removals and slower deliveries in the second half of the year, November started with a shortage of available tonnage which prompted owners to raise their rate ideas. The fourth quarter finally averaged a hefty $38,600/day (normal speed) or $41,600/day in slow steaming terms. The yearly average thus just about managed to end the year flat at around $15,000/day for normal speed or at $21,000/day for slow steaming. The market had stayed strong early in 2014 although we expect it to cool off. Nevertheless, the supply/demand balance is improving this year raising the earnings’ floor for the sector to more sustainable levels.

Furthermore, similar short-term shortages could drive freight rate averages to unpredictable highs, as long as owners maintain slow operating speeds and keep up scrapping activity.

Suezmax Time Charter Equivalent Spot Market Earnings

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Suezmax

The Suezmax composite (basis 70% West Africa/US Atlantic Coast and 30% Black Sea/Med.) traded along very low levels during the first three quarters of the year, similarly to the VLCCs. Quarterly averages for normal speed came at $8,900/day in Q1 ($10,900/day for slow steaming), $6,500/day in Q2 ($8,500/day), $6,300/day in Q3 ($8,300/day) and $16,800/day in Q4 ($19,600/day). Even though the market was dragged up by the VLCC strength in the fourth quarter, the year ended lower than 2012 with the normal speed earnings averaging $10,000/day and slow steaming earnings averaging $11,000/day. Suezmaxes finally did see earnings spike in January 2014, due to increased buying of West African crude by Europe, as China was reducing loadings ahead of the Chinese New Year holiday.

Suezmaxes have been seeing their traditional trade from West Africa to the US gradually disappear to a mere 150,000 bpd by early 2014 because of shale oil, from an average of 1.27m bpd back in 2011. The sector has therefore become heavily dependent on European crude imports although refinery runs there have also been declining to the sub-10m bpd level. More Suezmaxes are therefore competing with the VLCCs for eastern share

going forward, particularly to India although they do maintain an advantage over fuel oil shipments west to east and for some shorter haul trades, often competing however with Aframaxes for the latter.

Aframax Time Charter Equivalent Spot Market Earnings

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Aframax

The Aframax composite (a straight average of six worldwide voyages) started with a disappointing Q1 with earnings averaging $9,500/day. The first quarter is typically strongly affected by weather delays and earnings spike. The market stayed at the sub-$10,000/day levels in Q2 and Q3 before it entered its next winter season in Q4 and earnings rose slightly to $13,800/day under normal speed or $17,200/day under slow steaming. Heavy delays around most of the areas that Aframaxes operate in finally came in Q1 2014 whilst the Suezmaxes and VLCC sectors were also enjoying a rally. As a result, the Aframax composite topped $60,000/day in January basis normal speed. The sector’s best performing routes in 2013 have been the weather-sensitive 100,000 ton Baltic to UK Continent (TD17) and the 70,000 ton Caribs to US Gulf (TD9) which remained relatively strong throughout most of the year attracting Suezmaxes to enter the trade as well.

The annual average for 2013 was therefore $10,000/day basis normal speed, or $13,000/day basis slow steaming marking a 25% increase year-on-year, the strongest yearly growth for the crude sector despite the fact that the Aframax composite was the least volatile throughout the year, compared to the Suezmax composite and TD3 (VLCCs).

MR Time Charter Equivalent Spot Market Earnings

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The MR composite (a straight average of six worldwide voyages) started the year on a high, hitting the highest monthly average earnings in January since 2009. This was on the back of stronger exports from the US Gulf and increased activity and delays east of Suez due to refinery closures in Australia. Ever since however, the net addition of 75 vessels took its toll and average earnings corrected down. Nevertheless, the sector still managed to see year-on-year growth in earnings of 27.2% which was also a strong argument towards more orders being placed throughout the year. The quarterly earnings were at $17,800/day in Q1, $15,500/day in Q2, $12,200/day in Q3 and $11,300/day in Q4 basis design speed. For this sector the differential between design speed and slow speed in earnings is very small. For the total of the year, the composite averaged $14,000/day, up from $11,000/day.

The sector’s ability to absorb the net addition of 423 vessels over the last six years has been truly remarkable. Some support has come from the shrinking Handy fleet whilst more MRs are being built with an IMO 2 or 3 capacity and have therefore been involved also in chemical and vegoil trades. With increasing volumes and triangulation opportunities to look forward to, owners will have more opportunities to outperform the benchmarks in the future, however, this will also mean that ballast legs for the fleet as a whole will decline which would otherwise be keeping some vessels out of the market.

LNG Market

Last year, several unforeseen events have affected both demand and supply for LNG. Firstly on the demand side, Japan maintained most of its nuclear reactors shut and eventually closed down its last operating reactor in

September. As a consequence, Japanese demand for LNG rose to 87.49m tons, even higher than the 2012 record figure of 87.31m tons, which was already 11% higher than in 2011. In November, South Korea also faced nuclear outages and increased its LNG imports. On the supply side, Nigeria made headlines a couple of times, as did Angola LNG – although for opposite reasons. Angola LNG shipped its first cargo in June after a year and a half of delays whereas Nigeria LNG exports were halted a couple of times over the course of the year as force majeure had been declared on Africa’s largest natural gas export terminal and a tax dispute later forced exports to be suspended again. Rates remained below the $100,000 per day ceiling for 140,000 cubic metre (cbm) vessels and hit a bottom in June below $90,000 per day. The cold weather in the Far East and relatively few production outages in the beginning of the year turned out to be positive factors for LNG demand and vessels’ employment. The market remained rather quiet for the rest of the year with some downward pressure on rates due to the production disruptions mentioned earlier.

Figure 1: Japan LNG imports

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Since the inception of the market, approximately 50 years ago, liquefaction capacity has expanded significantly in the early producing countries while other regions such as West Africa and the Caribbean later joined the club. To a large extent, the Asia Pacific market is still mainly driven by Japan, South Korea and Taiwan, while Malaysia and Indonesia have brought online regasification capacity despite the fact that Malaysia has historically been an LNG exporter. LNG prices in Asia Pacific have historically been higher than in the Atlantic basin because of limited alternatives available. Indeed, buyers in the Atlantic basin have usually been European countries that relied on LNG to add to their pipeline gas imports from the Former Soviet Union. On the sell side, Algeria played a major role in supplying those markets as a first mover in the sector. Furthermore, while pricing in Asia Pacific has traditionally been linked to crude imports and the famous Japanese Crude Cocktail, pricing in the Atlantic basin reflected more closely traditional regional gas pricing.

Figure 2: Deliveries of LNG tankers by size

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Although liquefaction capacity expansion was limited in 2013, the picture looks different for 2013 and 2015 with the giant 15 million tons annually (mta) Gorgon Project, thought to hold more than 2.2bn barrels of oil equivalent, projected to deliver first gas towards the end of this year, the Queensland Curtis project scheduled to come online in the third quarter of this year and the Gladstone project planned for 2015, all three in Australia. The substantial PNG LNG project – with a capacity of 6.6 mta – in Papua New Guinea is expected to deliver first gas this year too. If everything goes as planned, 2014 will see more liquefaction capacity additions than each of the four previous years.

Interesting developments have taken place in the US as well. Since shale oil output started rising a couple of years ago, companies gradually started to show an interest in exporting LNG out of the US. As a result, a few new approvals have been granted last year, allowing for total exports of roughly 6.4 billion cubic feet per day (Bcf/d) of natural gas to non Free-Trade-Agreement countries. However, the US regulatory body made it clear that the potential economic impact of each application for an export authorization would be assessed, making it unlikely to see the number of approvals granted surge substantially in the future.

Figure 3: LNG Fleet Age Profile (No. of vessels)

LOGO

With regards to the LNG tanker fleet, 42 vessels totaling slightly more than 3 million dwt and a gas capacity of 6 million cubic feet (mcf) have been ordered in 2013. The orderbook now comprises 112 vessels of which 30 are scheduled to be delivered in 2014 and 39 in 2015 while 19 ships have been delivered in 2013 totaling a gas capacity of more than 2.5 mcf. Despite the increased ordering activity that started around 2011, vessel prices remain around the same level as they did in 2009 at approximately $200 million for a 147,000 cbm vessel. The degree of concentration in the sector remains high with a handful of owners dominating the orderbook.

Company Overview

As of April 10, 2014 the fleet consisted of 45 double-hull tankers with an average age of 7.3 years, one LNG carrier and two 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 fleet consists of one VLCC, twelve suezmaxes including the two DP2 shuttle tankers delivered in March and April 2013, respectively, eleven aframaxes, nine panamaxes, six handymaxes, eight handysizes and one LNG carrier. 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 Operations—2013

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.

The world economy maintained elements of uncertainty throughout 2013, particularly in the West, albeit with glimpses of hope emanating from the US. The national debt and deficit problems of Europe coupled with the extreme austerity measures required in several countries particularly in the European South, continued to cause considerable concern, further threatening global financial stability. In such an environment, expected demand for oil was adversely affected and eventually exhibited a meager growth. As per the International Energy Agency (“IEA”), 2013 global oil demand grew by 1.4% from 2012, translating to 91.3 mbpd in 2013 vs. 90.0 mbpd in 2012.

Demand in Europe actually fell, but was offset by increasing demand in the Asia/Pacific region, primarily China and India. While demand for oil was demonstrating low growth, the ongoing supply of crude-carrying vessels continued to negatively affect the tanker market for most of 2013 despite a material reduction in the newbuilding orderbook compared to 2012.

As a result of all these factors, overall global fleet utilization remained soft, freight rates for the crude carriers lingered at low levels, until December 2013, and valuations of vessels remained weak with a positive reversal towards the ends of the year following the spike in charter rates. Product carrier rates experienced some noticeable uplift due to a more favorable vessel supply situation, the export of middle-distillates (gasoline and diesel) from the United States to Europe and an increase in the ton-mile demand due to the closure of certain refineries in Europe.

The fleet achieved voyage revenues of $418.4 million in 2013, an increase of 6.2% from $394.0 million in 2012. The average size of the fleet decreased in 2013 to 47.5 vessels from 47.9 vessels in 2012, and fleet utilization increased from 94.9% to 97.8% over the same period. In 2012 utilization excluding the VLCCs La Prudencia and La Madrina which were being held for sale and unemployed was 98.0%. The oversupply of vessels which continued in 2013 resulted in a soft market which kept rates at historically very low levels, with signs of improvement only towards the end of the year. Our average daily time charter rate per vessel after deducting voyage expenses, increased to $17,902 from $17,163 in 2012, mainly due to the introduction of the two DP2 shuttle tankers and the LNG carrier. Voyage expenses increased, as a result of the increase in the

number of days the fleet operated on spot and contract of affreightment, bearing voyage expenses. The price of bunkers (fuel) fell by 8.6% between 2012 and 2013, which offset the increase in the volume of bunkers consumed. Operating expenses decreased by 1.9% to $130.8 million, proportionately with the decrease of the average daily costs per vessel by 1.6% due to decreased repairs and maintenance expenses offset by increased crew cuts. The weakening of the US Dollar against the Euro by 3.3% resulted in increased crew costs as our officers, are generally paid in Euro. However, better pricing obtained by our new technical managers for purchases of spares, stores and lubricants derived from actions taken since 2009 helped lower operating expenses.

Depreciation was $95.3 million in 2013 compared to $94.3 million in 2012 due to the addition of the two DP2 shuttle tankers, offset by the change in our estimate for scrap value per light weight ton (LWT) from $300 per ton to $390 per ton, effective October 1, 2012 which affected positively depreciation expense by $3.8 million in 2013. Management fees totaled $15.9 million for both 2013 and 2012. General and administrative expenses were $4.4 million during 2013 compared to $4.1 million during 2012.

There were no vessel sales in 2013 while in 2012 , two vessels were sold at a net loss of $1.9 million. In 2013 there was an impairment charge of $28.3 million relating to the suezmaxes Silia T and Triathlon, the handysize Delphi and the VLCC Millennium., while in 2012 there was an impairment charge of $13.6 million relating to the VLCC Millennium. There was an operating gain of $4.9 million in 2013, compared to an operating gain of $1.3 million in 2012, including impairment charges in both years. Interest and finance costs, net decreased by 20.7% in 2013 to $40.9 million, due mainly to the expiration of seven swaps in the later part of 2012 and another two in 2013, Net loss attributable to us was $37.5 million compared to $49.3 million loss in 2012. The effect of preferred dividends that accrue for 2013 was $3.7 million. Diluted losses per share were $0.73 in 2013, including the effect of preferred dividends, based on 56.7 million diluted weighted average shares outstanding compared to $0.92 in 2012 based on 53.3 million diluted weighted average shares outstanding.

Some of the more significant developments for the Company during 2013 were:

•

the strategic cooperation with a major Norwegian charterer for the construction and chartering of initially five newbuilding aframaxes with options for the construction and chartering of four more aframaxes exercised in March 2014.;

•

the dry-docking of Selecao, Triathlon, Maya, Inca, Andes, Selini and Maria Princess for their mandatory special or intermediate survey;

•

commencement of 15-year employment for two DP2 shuttle tankers;

•

the issuance of 2,000,000 8.000% Series B cumulative redeemable perpetual preferred shares for $50 million, gross;

•

the issuance of 2,000,000 8.875% Series C cumulative redeemable perpetual preferred shares for $50 million, gross;

•

the payment to holders of Series B preferred shares of dividends totaling $1.9 million in aggregate;

•

the issuance of 1,430,211 common shares raising $7.4 million through an at-the-market offering ; and

•

dividends to holders of common stock totaling $0.15 per share with total cash paid out amounting to $8.5 million.

The Company operated the following types of vessels during, and at the end of 2013:


Vessel Type	LNG carrier			VLCC			Suezmax			Suezmax DP2 shuttle			Aframax			Panamax			Handymax MR2			Handysize MR1			Total Fleet
Average number of vessels		1.0			1.0			10.0			1.5			11.0			9.0			6.0			8.0			47.5
Number of vessels at end of year		1.0			1.0			10.0			2.0			11.0			9.0			6.0			8.0			48.0
Dwt at end of year (in thousands)		86.0			301.0			1,626.0			311.0			1,194.0			651.0			318.0			298.0			4,786.0
Percentage of total fleet		1.8	%		6.3	%		34.0	%		6.5	%		24.9	%		13.6	%		6.7	%		6.2	%		100.0	%
Average age, in years, at end of year		6.9			15.3			7.5			0.8			5.7			6.9			8.5			7.5			7.1

We believe that the key factors which determined our financial performance in 2013, within the given freight rate environment in which we operated, were:

•

the diversified aspect of the fleet, including our acquisition in recent years of purpose-built vessels to access ice-bound ports and carry LNG (liquefied natural gas), which allowed us to take advantage of all tanker sectors;

•

the benefits of the new vessels acquired in recent years in terms of operating efficiencies and desirability on the part of charterers;

•

our balanced chartering strategy (discussed further below) which ensured a stable cash flow while allowing us to take advantage of any upside in the freight market;

•

the long-established relationships with our chartering clients and the development of new relationships with renowned oil-majors;

•

the continued control over costs by our technical managers despite pressures caused by rising operating and fuel costs;

•

our ability to mitigate financial costs by negotiating competitive terms with reputable banks;

•

our ability to efficiently monitor the construction phase of our newbuilding program while maintaining a tight control of costs and expenses;

•

our ability to manage leverage levels through cash generation and repayment/prepayment of debt;

•

our ability to comply with the terms of our financing arrangements, including addressing loan-to-value requirements;

•

our ability to reward our shareholders through a dividend policy;

•

our ability to raise new financing through bank debt at competitive terms despite the current tight credit environment;

•

our ability to raise new financing through equity issuances at competitive terms despite the current tight credit environment; and

•

the sale of vessels when attractive opportunities arise.

We believe that the above factors will also be those that will be behind our future financial performance and will play an especially significant role in the current world economic climate as we proceed through 2014 and into 2015. To these may be added:

•

the sustainability of the recovery of the product charter market during the year and possibly for the crude charter market by the beginning of next;

•

the securing of a high level of utilization for our vessels;

•

the appetite by oil majors to fix vessels on medium to long term charters at economic rates; and

•

our ability to buildup our cash reserves through operations, vessel sales and possibly equity issuance.

Considerable economic and political uncertainty remains in the world as we enter the second quarter of 2014. There are positive signs emanating from the U.S. in terms of the economy and assuming the country’s ability to absorb without social disruptions government spending cuts particularly in an environment of growing consumer confidence. Recent measures in Europe to stabilize the financial condition of certain countries, particularly in the South, have also provided some confidence that feared dangers like sovereign debt defaults and the collapse of the Euro, seem today to be under control, or at least policies and instruments are in place to minimize any potential impact should such dangers resurface. Many of the developing countries still have surging economies albeit with the occasional readjustments or corrections Two significant dampers to expectations for the near future are elevated oil prices and potential instability in US-Russia relations due to the

Crimea debacle. The combination of rising demand for oil and supply limitations (including fear of future limitations) could lead to higher prices which could lead to GDP growth inhibitions and therefore be detrimental to tanker demand. A conflict in the Arabian/Persian Gulf, while possibly resulting in a variation from current tanker trading routes which may or may not be beneficial for the tanker sector, would likely lead to higher oil prices.

We believe it likely, therefore, that 2014 will be a year that could see occasional spikes in rates particularly for crude tankers as we experienced in January 2014. There is reserved optimism for the tanker sector that in 2014 on average, we should see some healthy sustainability in rates which have bounced off the trough seen over the last few years, particularly for crude tankers. On the product trade there is optimism as the current supply/demand fundamentals seem relatively balanced. In addition, new or upgraded refineries in the Middle East and Asia, including China, are forecast to support the expansion of new and longer trade routes for product carriers. LNG carriers are also expected to continue to enjoy a healthy year, albeit with lower rates than a year ago, given the current demand for natural gas and number of available liquefied natural gas carriers. A further related area which may enjoy respectable returns is in the off-shore support area, which would include storage and shuttle services to off-shore production units. The new fields off Brazil and West Africa are becoming increasingly attractive for development, especially in the light of supply constraints from existing sources and rising oil prices.

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”. At various stages during 2013, three of our subsidiaries’ vessels also operated within a pool of similar vessels 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 vessel’s 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 on a basis related to market rates for either spot or time charter.

Our Board of Directors, through its Chartering 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.

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 world’s major oil companies and refiners over 40 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 charterer’s cargo) to when the next charterer’s 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 have increased significantly during the last few years and are expected to be in high levels for the coming years, from October 1, 2012, scrap values are calculated at $390 per lightweight ton. Our estimate was based on the average demolition prices prevailing in the market during the last ten years for which historical data were available. The effect of this change in accounting estimate was to decrease net loss for the year ended December 31, 2013 by $3.8 million or $0.07 per weighted average number of shares, both basic and diluted. While there remains overcapacity within the tanker sector and scrap prices remain at these levels we would expect scrapping to remain a viable alternative to trading older vessels. We also expect commodity prices to remain at buoyant levels as the economic recovery continues to gather pace. 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 carrier), given that all classification society rules have been adhered to concerning survey certification and statutory regulations are followed.

Impairment. The carrying value of the Company’s 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.

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, excluding the impaired vessels discussed below, is approximately five years. The average remaining operational life is, therefore, twenty years. Given the extensive remaining life, we do not believe that a significant risk of impairment currently exists, again excluding the impaired vessels. 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 2013, 2012 and 2011. Future operating costs are based on the 2013 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 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 new 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 continue to trend upwards, 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 broker’s 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.

During the latter part of 2013, the overcapacity in the crude tanker sector kept vessel values at historically low levels. For four of our oldest vessels, the VLCC Millennium, the suezmaxes Silia T and Triathlon, and the handysize Delphi, the expectations of employment at viable rates, or their sale at a profit was very low. We performed cash flow tests taking into account various possible scenarios such as keeping the vessels until the end of their useful economic life or selling them at various stages. None of these scenarios resulted in cash flow which would exceed the carrying value of the vessels. As a consequence, their carrying value has been written down to their fair market value, resulting in a total impairment loss of $28.3 million.

At December 31, 2012 the weak market and the expiry of the long term profitable bare boat time charter of the VLCC Millennium, led to an impairment loss of $13.6 million. At December 31, 2011 the tanker market was also exceptionally weak and an impairment loss of $39.4 million was incurred on the VLCCs La Madrina and La Prudencia, which both were classified as held for sale. At December 31, 2013, 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 $1.8 billion, compared to a total carrying value of $2.2 billion. While the future cash flow expected to be generated by all the vessels of the fleet, apart from Silia T, Triathlon, Delphi and Millennium, was comfortably in excess of their carrying value, there were 35 further vessels in our fleet whose aggregate carrying value and market value as determined at December 31, 2013 were of $1.5 billion and $1.1 billion, respectively. These vessels were:

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Suezmax: Spyros K, Dimitris P

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Aframax: Proteas, Promitheas, Propontis, Izumo Princess, Sakura Princess, Maria Princess, Nippon Princess, Ise Princess, Asahi Princess, Sapporo Princess, Uraga Princess

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Panamax: Selecao, Socrates, Andes, Maya, Inca, World Harmony, Chantal, Selini, Salamina

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Handymax: Artemis, Afrodite, Ariadne, Aris, Apollon, Ajax

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Handysize: Didimon, Amphitrite, Arion, Andromeda, Aegeas, Byzantion, Bosporos

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 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 ten years. 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 vessel’s 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 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 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 and bunker swap agreements 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 charterer’s cargo) to when the next charterer’s 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 representative amount for the vessels’ operating expenses. TCE differs from average daily revenue earned in that TCE is based on revenues before 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 port charges, canal dues and bunker fuel costs.

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. During 2010, we sold the Decathlon while it was on time-charter

and in order to fulfill our obligations under that time-charter we chartered the vessel back on market terms from the buyers for 103 days under its new name Nordic Passat. Another vessel was chartered-in during 2010 to cover for the product carrier Didimon while it was in dry-dock. As of December 31, 2013, 2012, 2011 and 2010, the Company had no vessel 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.

Management fees. These are the fixed fees we pay to Tsakos Energy Management under our management agreement with them. For 2014 no increase has been agreed by March 31, 2014 and management fees remain the same as in 2013. Accordingly, monthly fees for operating vessels will be $27,500 per owned vessel and $20,400 for chartered-in vessels or chartered out on a bareboat basis or under construction. The monthly fee for the LNG carrier and the suezmax DP2 shuttle tankers will be $35,000.

Depreciation. We depreciate our vessels on a straight-line basis over their estimated useful lives, after considering their estimated scrap values. Since steel prices have increased significantly during the last few years and are expected to be in high levels for the coming years, effective October 1, 2012, our estimate for scrap values was increased from $300 to $390 per lightweight ton. This change in estimation resulted in positive impact of $3.8 million to our 2013 financial results. In assessing the useful lives of vessels, we have estimated them to be 25 years (40 years for the LNG carrier), which is in line with the industry wide accepted practice, assuming that all classification society rules have been adhered to concerning survey certification and statutory regulations are followed. 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.

Amortization of deferred charges. We amortize the costs of dry-docking and special surveys of each of our ships over the period up to the ship’s next scheduled dry-docking (generally every 5 years for vessels aged up to 10 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 vessel’s 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 Company’s vessels. As a result of such reviews it was determined in 2013, 2012 and 2011 that an impairment loss had been incurred with respect to the carrying values of four of the older vessels of the fleet in 2013, the oldest vessel of the fleet in 2012, and two older vessels in 2011.

General and administrative expenses. These expenses consist primarily of professional fees, office supplies, investor relations, advertising costs, directors’ liability insurance, and reimbursement of our directors’ and officers’ travel-related 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 2013, we received approximately $5.2 million in

net proceeds from hull and machinery and loss of hire claims arising from incidents with or damage incurred on our vessels. Such settlements were generally received as credit-notes from our insurers, Argosy Insurance Company Limited, and used as a 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, 2013 versus year ended December 31, 2012

Voyage revenues

Voyage revenues earned in 2013 and 2012 per charter category were as follows:


	2013					2012
	$ million		*% of total*			$ million		*% of total*
Time charter-bareboat		5.4		1	%		9.3		2	%
Time charter-fixed rate		143.8		34	%		95.9		24	%
Time charter-variable rate (profit share)		70.5		17	%		93.6		24	%
Pool arrangement		5.3		1	%		20.4		5	%
Voyage charter-contract of affreightment		7.0		2	%		0.0		0	%
Voyage charter-spot market		186.4		45	%		174.8		45	%

Total voyage revenue		418.4		100	%		394.0		100	%

Revenue from vessels was $418.4 million during the year ended December 31, 2013 compared to $394.0 million during the year ended December 31, 2012, a 6.2% increase. There was an average of 47.5 vessels in 2013 compared to an average of 47.9 vessels in 2012. In December 2012, the two VLCCs La Madrina and La Prudencia, which were held for sale at December 31, 2011, were sold. Based on the total days that the vessels were actually employed as a percentage of the days that we owned or controlled the vessels, the fleet had 97.8% employment compared to 94.9% in the previous year, the lost time being mainly due to the seven drydockings performed during the year, while in 2012 there were ten drydockings plus the fact that the two VLCCs La Madrina and La Prudencia, held for sale were off hire for most days of 2012.

Market conditions continued to be poor in 2013, primarily as a result of excess available capacity within the tanker sector. Towards the end of the year there was some improvement in the crude market but the real benefits were seen in the first quarter of 2014. We had more vessels employed on time charters with fixed rates, with fewer vessels on employment with time charter with variable rates or in pools than in 2012. The average time charter equivalent rate per vessel achieved for the year 2013 was higher by 4.3% at $17,902 per day compared to $17,163 per day for the previous year. The increase is mainly due to the introduction of the two suezmax DP2 shuttle tankers during 2013, which entered their long time employment and due to a higher average rate for the LNG carrier, Neo Energy. In addition, the smaller handysize and handymax product tankers saw improved rates in 2013 compared to 2012. Panamax tankers, which had the same employment mix for both years achieved lower TCE rates in 2013 as five of the nine panamaxes underwent dry-docking during 2013 losing operating days and incurring higher repair and maintenance expenses. Suezmax tankers achieved a 7% lower average daily TCE, as two out of the ten suezmaxes were employed on spot charters, while during 2012 all suezmaxes were under time charters with fixed and variable rates. The aframaxes achieved a slightly lower TCE compared to the prior year, while our remaining VLCC, Millennium, completed its bareboat charter and entered a profitable time charter.

Commissions

Commissions during 2013 amounted to $16.0 million compared to $12.2 million in 2012, a 31.1% increase. Commissions were 3.8% of revenue from vessels in 2013 compared to 3.1% in 2012. The increase in commission charges relates to increased commissions in time charters signed in 2013, as well as to a reversal of accumulated accrued commissions in 2012.

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)
	2013		2012					2013		2012
	U.S.$ million		U.S.$ million					U.S.$		U.S.$
Bunkering expenses		77.1		78.3		(1.6	)%		13,578		17,298		(21.5	)%
Port and other expenses		39.9		33.5		19.3	%		7,035		7,387		(4.8	)%

Total voyage expenses		117.0		111.8		4.6	%		20,613		24,685		(16.5	)%

Days on spot and Contract of Affreightment (COA) employment									5,675		4,529		25.3	%

Voyage expenses include port charges, agents’ fees, canal dues and bunker (fuel) costs relating to spot charters or contract of affreightment. Voyage expenses were $117.0 million during 2013 compared to $111.8 million during the prior year, a 4.6% increase. The total operating days on spot charter and contract of affreightment totaled 5,675 days in 2013 compared to 4,529 days in 2012. Voyage expenses are highly dependent on the voyage patterns followed and size of vessels employed on spot charter or contract of affreightment. In 2013, the increase in voyage expenses was primarily due to a 25.3% increase in the days the vessels operated on spot and COA employment bearing voyage expenses, resulting in an increase of 21.5% in the volume of bunkers consumed, offset by a 8.6% decrease in bunker prices paid between the two years. The increase in the number of days the vessels operated on spot and COA employment bearing voyage expenses also resulted in an increase in port expenses. However, port and other expenses vary between different ports, so overall voyage expenses were also affected by which ports the vessels visited.

Vessel operating expenses


	Operating expenses per category							Average daily operating expenses per vessel
	2013		2012					2013		2012
	U.S.$ million		U.S.$ million		% increase/ (decrease)			U.S.$		U.S.$		% increase/ (decrease)
Crew expenses		78.9		74.8		5.5	%		4,610		4,356		5.8	%
Insurances		14.4		15.5		(7.0	)%		839		898		(6.6	)%
Repairs and maintenance, and spares		14.6		19.8		(26.3	)%		853		1,154		(26.1	)%
Stores		7.9		6.9		14.0	%		460		403		14.3	%
Lubricants		5.7		6.1		(6.1	)%		332		353		(5.9	)%
Other (quality and safety, taxes, registration fees, communications)		9.3		10.2		(9.0	)%		540		591		(8.7	)%

Total operating expenses		130.8		133.3		(1.9	)%		7,634		7,755		(1.6	)%

Earnings capacity days excluding vessel on bare-boat charter									17,128		17,178

decreased insurance costs by $1.1 million, partially offset by increases in crew costs by $4.1 million. Crew costs increased as a result of higher bonuses paid to seafarers and to higher training costs and travelling expenses relating to the commencement of the operations of our two DP2 shuttle tankers in Brazil. In addition, the weakening of the US Dollar against the Euro by 3.3% in 2013 affected the increase in our crew costs as most of our officers are paid in Euro. 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 2013, seven dry-dockings were performed compared to ten, including the first dry-docking of the LNG carrier, Neo Energy, in 2012 which itself negatively affected the 2012 operating expenses by almost $1.3 million. Insurances decreased by $1.1 million mainly due to the decrease in insured values of the vessels. Other operating expenses were lower by 9.0% in 2013 compared to 2012 mainly due to decreased use of armed guards, as a result of trading routes followed, offset by increased vessels tonnage taxes due to new Greek legislation. All other categories of operating expenses remained approximately at the same levels in 2013 due to the efforts of our technical managers and the effective cost control and monitoring performed. As a percentage of voyage revenues, vessel operating expenses were 31.3% in 2013 and 33.8% in 2012.

Operating expenses per ship per day for the fleet decreased to $7,634 for 2013 from $7,755 in 2012. This was mostly due to the decrease in operating costs as earnings capacity days remained almost at the same levels between the two years. Approximately 54% of operating expenses (29% of total costs) incurred are in Euro, mainly relating to vessel officers (an increase of approximately $2.3 million in our crew costs is due to the weakening of the US dollar by 3.3% during 2013). The weakening of the US dollar against the Euro during 2013 negatively affected operating expenses, three of the scheduled dry-dockings being performed in Euro zone countries. However, despite the negative effect of the exchange rate, total operating expenses were lower in 2013 for the reasons described above. The creation of TCM in 2010, between Tsakos Shipping and Columbia Shipmanagement Ltd., continued to result in increased purchasing power based on the combined fleets managed by Tsakos Shipping and Columbia. This provided considerable savings in the purchase of stores, spares and lubricants both in 2013 and 2012.

Depreciation

Depreciation was $95.3 million during 2013 compared to $94.3 million during 2012, an increase of $1.0 million, or 1.1%. The addition of the two suezmax DP2 shuttle tankers Rio 2016 and Brasil 2014 in March and April 2013 respectively, increased the depreciation expense by $5.2 million, offset by the increase of the scrap rate per light weight ton from $0.30 to $0.39 since the fourth quarter of 2012, which reduced the depreciation expense by $3.8 million for the vessels that existed for both years.

Amortization

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 2013, amortization of deferred dry-docking costs was $5.1 million compared to $4.9 million during 2012, an increase of 3.1%. In 2013, seven vessels performed dry-docking compared to ten vessels in 2012.

Management fees

The Company pays to Tsakos Energy Management fixed fees per vessel under a management agreement between the companies. 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 amended management agreement (from January 2007), 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.

As a consequence, from January 1, 2012, vessel monthly fees for operating vessels increased to $27,500 from the $27,000 fee payable in 2011, and for vessels chartered out, vessels on a bare-boat basis and for vessels under construction the monthly fee increased to $20,400 from $20,000 payable in 2011. On April 1, 2012, the monthly fee for the LNG carrier increased from $32,000 payable since the beginning of 2011 to $35,000, of which $10,000 is paid to the management company and $25,000 to a third party manager. Monthly management fees for the suezmax DP2 shuttle tankers have been agreed at $35,000 per vessel. Since the expiry of the bareboat charter of the VLCC Millennium on July 30, 2013, management fees for this vessel are $27,500 per month, of which $13,700 are payable to a third party manager. Management fees for the suezmax Eurochampion 2004 are $27,500 per month, of which, effective September 22, 2013, $12,000 are payable to a third party manager. No fee increase has yet been agreed for 2014.

Management fees totaled $15.9 million during both years ended December 31, 2013, and 2012 as there were no increases in the management fees and the average number of fleet vessels between the two periods remained almost unchanged. Total fees include fees paid directly to the third-party ship manager in the case of the LNG carrier, the suezmax Eurochampion 2004 and the VLCC Millennium. Fees paid relating to vessels under construction are capitalized as part of the vessels’ costs.

General and administrative expenses

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 were $4.4 million during 2013 compared to $4.1 million during 2012, an increase of 6.7%. This increase is mainly due to expenditure on potential growth projects in 2013.

Total general and administrative expenses plus management fees paid to Tsakos Energy Management, the incentive award and stock compensation expense, together represent the overhead of the Company. On a per vessel basis, daily overhead costs were $1,196 in 2013 compared to $1,180 in 2012, the increase being mainly due to the increases in general and administrative expenses described above, offset by a decrease in the stock compensation expense.

Management incentive award

There was no management incentive award in 2013 and 2012. However, special awards totaling $0.5 million were paid to the Management Company in relation to capital raising offerings during 2013. These awards have been included as a deduction of additional paid in capital in the accompanying Consolidated Financial Statements.

Stock compensation expense

In 2013 stock compensation expense of $0.5 million represents the cost of the 96,000 Restricted Share Units (RSUs) granted to non executive Directors of the Company on October 11, 2013, which vested immediately. In 2012, stock compensation expense amounted to $0.7 million which represented the amortization expense of 84,500 RSUs granted in prior periods and vested in the second quarter of 2012 and the cost of 150,000 RSUs granted and vested on December 31, 2012. Almost half of the RSUs which vested in 2012 had been issued to staff of the commercial and technical managers who are considered as non-employees. In the case of RSUs issued to non-employees, amortization is based on the share price on vesting date with quarterly adjustments depending on the share price until vesting, whereas in the case of employees and Directors, amortization is based on the share price at grant date. The valuation of RSUs which are granted and vested immediately is based on the share price at that date.

Gain (loss) on sale of vessels

There were no vessel sales during 2013. During 2012, we sold the VLCCs La Madrina and La Prudencia, which were held for sale at December 31, 2011, for net proceeds of $19.9 million and $20.3 million respectively, resulting in a net loss of $0.8 million and $1.1 million respectively.

Vessel impairment charge

In 2013 there was an impairment charge of $28.3 million in total, relating to the 1998 built VLCC Millennium, the 2002 built suezmaxes Silia T and Triathlon and the 2004 built handysize product carrier Delphi. In 2012 there was an impairment charge of $13.6 million relating to the VLCC Millennium. The negative market forces existing since 2009 impacted the ability to charter older vessels at accretive rates. In the case of the impaired vessels, the total weighted average cash flow expected to be generated over the future remaining lives of the vessels under various possible scenarios, including sale of vessels in line with our modern fleet strategy, was less than the current carrying values of the vessels in our books and consequently the amount of carrying value in excess of the fair market value of these vessels was written-off as an impairment charge in 2013 and 2012, respectively. The market was poor during 2013, but with signs of improvement towards the end of the year. However, because of oversupply of crude carriers, expectations for alternative employment at rates that would ensure cash flows in excess of its carrying values were reduced and the most probable scenario of selling those vessels resulted in inadequate cash flow. As a consequence, at December 31, 2013, the carrying value of the suezmaxes Silia T and Triathlon has been reduced to their fair market value of $26.8 million each, the VLCC Millennium has been reduced to $25.0 million, and the handysize Delphi has been reduced to $16.8 million. However, those vessels were not classified as held for sale as they did not meet the criteria for held for sale classification at December 31, 2013.

At December 31, 2013, as vessel values were at historically low levels, apart from the four vessels that were impaired, 35 of our vessels had carrying values in excess of market values. Apart from the four vessels mentioned above, which are the oldest in our fleet, 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 the carrying values as at December 31, 2013.

Operating loss/income

For 2013, income from vessel operations was $4.9 million including an impairment charge of $28.3 million compared to $1.3 million, including a loss on the sale of two vessels amounting to $1.9 million and an impairment charge of $13.6 million for 2012.

Interest and finance costs, net


	2013			2012
	$ million			$ million
Loan interest expense		35.8			28.2
Accrued interest on hedging swaps reclassified from AOCI		(0.5	)		1.0
Interest rate swap cash settlements—hedging		6.4			20.5
Less: Interest capitalized		(1.9	)		(1.8	)

Interest expense, net		39.8			47.9
Interest rate swap cash settlements—non-hedging		5.0			8.0
Bunkers swap cash settlements		(0.2	)		(2.4	)
Change in fair value of non-hedging bunker swaps		(0.1	)		1.7
Amortization of deferred loss on de-designated interest rate swap		0.9			1.5
Expense of portion of accumulated negative valuation of de-designated interest rate swap		—			0.7
Change in fair value of non-hedging interest rate swaps		(6.0	)		(7.0	)
Amortization of loan expenses		1.1			1.0
Bank loan charges		0.4			0.2

Net total		40.9			51.6

Interest and finance costs, net, were $40.9 million for 2013 compared to $51.6 million for 2012, a 20.7% decrease. Loan interest, excluding payment of swap interest, increased to $35.8 million from $28.2 million, a 27.0% increase partly due to temporary increases in margins arising from covenant waivers, expected to reverse for the most part in mid-2014, and to higher margins on new loans than on repaid debt. Total weighted average bank loans outstanding were approximately $1,422 million for 2013 compared to $1,487 million for 2012. However, 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 $11.4 million from $28.5 million as two swaps expired in 2013 and seven swaps expired in the second part of 2012. The average loan financing cost in 2013, including the impact of all interest rate swap cash settlements, was 3.24% compared to 3.75%, for 2012. Capitalized interest, which is based on expenditure incurred to date on vessels under construction, was $1.9 million in 2013, compared to $1.8 million in 2012, relating to similar amount of pre-delivery average yard installments for vessels under construction for both periods.

There was a positive movement in the fair value (mark-to-market) of the non-hedging interest rate swaps in 2013 of $6.0 million compared to a positive movement of $7.0 million in 2012.

Amortization of the deferred loss on de-designation of an interest rate swap that became ineffective in 2010 amounted to $0.9 million in 2013 and $1.5 million in 2012. The decrease is due to the sale of one vessel and the repayment of the corresponding portion of the loan previously hedged by the swap in the fourth quarter of 2012 and as a result, a part of the accumulated negative valuation relating to this swap amounting to $0.7 million was transferred from other comprehensive loss to statement of operations and the remaining amortization was reduced accordingly.

Since 2009, the Company has entered into swap arrangements relating to bunker (fuel) costs, which do not qualify as hedging instruments. In 2013, the Company received $0.2 million on such swaps in realized gains compared to $2.4 million in 2012. However, unrealized mark-to-market valuation gains were $0.1 million in 2013, compared to $1.7 million losses in 2012.

Amortization of loan expenses was $1.1 million in 2013 compared to $1.0 million in 2012. Other bank charges amounted to $0.4 million in 2013 and $0.2 million in 2012.

Interest and investment income

For 2013, interest and investment income amounted to $0.4 million compared to $1.3 million in 2012. In both years, apart from $0.1 million realized loss on sale of marketable securities, the remaining income related to bank deposit interest. The decrease is due to lower average cash balances in 2013 compared with 2012, the rates on cash deposits being at the same levels for both periods.

Non-controlling interest

Net loss attributable to non-controlling interest (49%) shareholding of the subsidiary which owns the companies owning the vessels Maya and Inca amounted to $1.1 million in 2013 compared to $0.2 million income in 2012. The decrease is attributable to higher finance costs as a result of the waivers obtained for its loan, as well as increased repairs and maintenance expenses during the scheduled special surveys of the vessels which were performed in 2013.

Net loss attributable to Tsakos Energy Navigation Limited

As a result of the foregoing, net loss attributable to Tsakos Energy Navigation Limited for 2013 was $37.5 million, or $0.73 per share basic and diluted, taking into account the cumulative dividend of $3.7 million on our preferred shares, versus a net loss of $49.3 million, or $0.92 per share basic and diluted, for 2012.

Year ended December 31, 2012 versus year ended December 31, 2011

Voyage revenues

Voyage revenues earned in 2012 and 2011 per charter category were as follows:


	2012					2011
	$ million		*% of total*			$ million		*% of total*
Time charter-bareboat		9.3		2	%		9.3		2	%
Time charter-fixed rate		95.9		24	%		67.0		17	%
Time charter-variable rate (profit share)		93.6		24	%		123.4		32	%
Pool arrangement		20.4		5	%		23.6		6	%
Voyage charter-contract of affreightment		0.0		0	%		13.0		3	%
Voyage charter-spot market		174.8		45	%		158.9		40	%

Total voyage revenue		394.0		100	%		395.2		100	%

Revenue from vessels was $394.0 million during the year ended December 31, 2012 compared to $395.2 million during the year ended December 31, 2011, a 0.3% decrease. There was an average of 47.9 vessels in 2012 compared to an average of 47.8 vessels in 2011. In December 2012, the two VLCCs La Madrina and La Prudencia, which were held for sale at December 31, 2011, were sold. Based on the total days that the vessels were actually employed as a percentage of the days that we owned or controlled the vessels, the fleet had 94.9% employment compared to 97.1% in the previous year, the lost time being mainly off-hire of the two VLCCs La Madrina and La Prudencia, which were held for sale, and due to dry-docking activity. Ten vessels undertook dry-docking in 2012 and seven vessels undertook dry-docking in 2011 (discussed further below). The utilization rate achieved, excluding the VLCCs La Madrina and La Prudencia, was 98.0% in 2012.

Market conditions continued to be poor in 2012, primarily as a result of excess available capacity within the tanker sector. In addition, bunker prices were higher by 5.5% in 2012 compared to 2011, negatively impacting spot charter profitability. However, we had more vessels employed on time charters with fixed rates, a change from period employment or time charter with variable rates. The average time charter equivalent rate per vessel achieved for the year 2012 was higher by 7.0% at $17,163 per day compared to $16,047 per day for the previous year. The increase is mainly due to the LNG carrier, Neo Energy which entered into a new charter agreement in 2012 at more than double the previous rate it was earning. In addition, Aframax crude carriers and the smaller Handysize and Handymax product tankers saw improved rates in 2012 compared to 2011. Panamax tankers, which had the same employment mix for both years achieved similar TCE rates in both years. Suezmax tankers achieved a 10% lower TCE being employed more on time charters with fixed rates in 2012 as opposed to time charters with variable rates in 2011. The VLCCs La Prudencia and La Madrina were unemployed for the most part of 2012, being available for inspections from potential buyers until their sale in December 2012, while in 2011 they were trading in the spot market earning a low TCE rate partly due to high bunker prices. Our third VLCC, Millennium, was under bareboat charter for both years.

Commissions

Commissions during 2012 amounted to $12.2 million compared to $14.3 million in 2011, a 14.7% decrease. Commissions were 3.1% of revenue from vessels in 2012 compared to 3.6% in 2011. The decrease in commission charges relates to accumulated commissions accrued on freights earned by several of our vessels in prior years, which was reversed following a legal decision to the effect that no further amounts were due to the charterer in question, and also due to changes in employment on several vessels, where commission rates were lower.

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)
	2012		2011					2012		2011
	U.S.$ million		U.S.$ million					U.S.$		U.S.$
Bunkering expenses		78.3		91.5		(14.4	)%		17,298		20,079		(13.9	)%
Port and other expenses		33.5		35.7		(6.2	)%		7,387		7,830		(5.7	)%

Total voyage expenses		111.8		127.2		(12.1	)%		24,685		27,909		(11.6	)%

Days on spot and Contract of Affreightment (COA) employment									4,529		4,556		(0.6	)%

Voyage expenses include all our costs, other than vessel operating expenses and commissions that are related to a voyage, including port charges, agents’ fees, canal dues and bunker (fuel) costs. Voyage expenses were $111.8 million during 2012 compared to $127.2 million during the prior year, a 12.1% decrease. The total operating days on spot charter and contract of affreightment totaled 4,529 days in 2012 compared to 4,556 days in 2011. Voyage expenses are highly dependent on the voyage patterns followed and size of vessels employed on spot charter or contract of affreightment. In 2012, the decrease in voyage expenses was due to a 24.5% decrease in the volume of bunkers consumed, as in 2011 the two VLCCs La Prudencia and La Madrina were trading in the spot market, performing long repositioning voyages and consuming high bunker quantities. The decrease in volume is partially off-set by an increase in bunker prices by 5.5% between the two years.

Charter hire expense

There was no charter hire expense in 2012 and 2011.

Vessel operating expenses


	Operating expenses per category							Average daily operating expenses per vessel
	2012		2011					2012		2011
	U.S.$ million		U.S.$ million		% increase/ (decrease)			U.S.$		U.S.$		% increase/ (decrease)
Crew expenses		74.8		76.4		(2.1	)%		4,356		4,478		(2.7	)%
Insurances		15.5		15.2		1.7	%		898		891		0.8	%
Repairs and maintenance, and spares		19.8		15.2		30.7	%		1,154		888		29.9	%
Stores		6.9		6.7		3.7	%		403		391		3.0	%
Lubricants		6.1		6.1		(0.7	)%		353		358		(1.3	)%
Other (quality and safety, taxes, registration fees, communications)		10.2		10.3		(0.9	)%		591		600		(1.6	)%

Total operating expenses		133.3		129.9		2.6	%		7,755		7,606		1.9	%

Earnings capacity days excluding vessel on bare-boat charter									17,178		17,066

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. Total operating costs were $133.3 million during 2012, compared to $129.9 million during 2011, an increase of 2.6%, primarily due to increased repairs and maintenance expenses as a result of works performed during dry-dockings that did not qualify for capitalization. In 2012 ten dry-dockings were performed, including the first dry-docking of our LNG carrier, Neo Energy, which itself negatively affected operating expenses by almost $1.3 million, compared to only seven dry-dockings in 2011. All other categories of operating expenses remained at the same levels in 2012 due to the efforts of our technical managers and the effective cost control and monitoring performed. As a percentage of voyage revenues, vessel operating expenses were 33.8% in 2012, and 32.9% in 2011.

Operating expenses per ship per day for the fleet increased to $7,755 for 2012 from $7,606 in 2011. This was mostly due to the slight increase in operating expenses as earnings capacity days remained almost at the same levels between the two years. Approximately 53% of operating expenses (30% of total costs) incurred are in Euro, mainly relating to vessel officers (a decrease of approximately $4.4 million due to the strengthening of the US dollar by 7.7% during 2012). The strengthening of the US dollar against the Euro during 2012 positively affected operating expenses, offsetting the increased repairs and maintenance requirements of 2012, as many of the repairs were performed in Euro zone countries. The creation of TCM in 2010, which took over the technical management of the fleet, and the cooperation which existed between Tsakos Shipping and Columbia Shipmanagement Ltd. prior to July 1, 2010, the formal start date of TCM, resulted in increased purchasing power based on the combined fleets managed by Tsakos Shipping and Columbia. This provided considerable savings in the purchase of stores, spares and lubricants both in 2012 and 2011.

Depreciation

Depreciation was $94.3 million during 2012 compared to $101.1 million during 2011, a decrease of $6.7 million, or 6.6%. This was due to the VLCCs La Madrina and La Prudencia which were accounted for as held for sale at the end of 2011, and therefore bore no depreciation expense in 2012, and by the change of the scrap value in the calculation of depreciation expense from October 1, 2012, which resulted in a decrease of $0.9 million in the fourth quarter of 2012, offset by the addition of the suezmax tankers Spyros K and Dimitris P, in the second and third quarter of 2011, respectively.

Amortization

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. In 2012, ten vessels performed dry-docking and in 2011 seven vessels. There was an additional amortization charge of $1.0 million for the ten vessels which performed dry-docking in 2012. However, there was no further amortization in 2012 of the unamortized cost of La Madrina and La Prudencia as from the end of 2011 these vessels were accounted for as held for sale. In 2011, amortization cost for those two vessels was $1.2 million. As a result, the amortization of deferred dry-docking charges was $4.9 million in both 2011 and 2012.

Management fees

The Company pays to Tsakos Energy Management fixed fees per vessel under a management agreement between the companies. The fee pays for services that cover both the management of the individual vessels and of the enterprise as a whole. According to the amended management agreement (from January 2007), there is a prorated adjustment if at 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.

Management fees totaled $15.9 million during the year ended December 31, 2012, compared to $15.6 million for the year ended December 31, 2011, a 1.9% increase over the year ended December 31, 2011 due to increased management fees. Total fees include fees paid directly to the third-party ship manager in the case of the LNG carrier. Fees paid relating to vessels under construction are capitalized as part of the vessels’ costs.

General and administrative expenses

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 were $4.1 million during 2012 compared to $4.3 million during 2011, a decrease of 4.6 %. In 2012, general and administrative expenses were lower mainly due to decreased investor relationship expenses, general office expenses and advertising costs, offset by increased professional fees, and director’s liability insurance.

Total general and administrative expenses plus management fees paid to Tsakos Energy Management, the incentive award and stock compensation expense, together represent the overhead of the Company. On a per vessel basis, daily overhead costs were $1,180 in 2012 compared to $1,188 in 2011, the decrease being mainly due to the decreases in general and administrative expenses described above, offset by the increase in management fees. There was no incentive award in 2012 or 2011, and stock compensation expense described below, remained at the same levels.

Management incentive award

There was no management incentive award in 2012 and 2011.

Stock compensation expense

The compensation expense in 2012 of $0.7 million represents the 2012 portion of the total amortization of the value of restricted share units (“RSUs”). In 2011, an amount of $0.8 million was amortized. At the beginning of 2012, there were 84,500 RSUs granted, which vested in June 2012. A further 150,000 RSUs were awarded on December 31, 2012 and vested immediately. Almost half of the RSUs granted and vested had been issued to staff of the commercial and technical managers who are considered as non-employees. In the case of RSUs issued to non-employees, amortization is based on the share price on vesting date with quarterly adjustments depending on the share price until vesting, whereas in the case of employees, amortization is based on the share price at grant date. The 150,000 RSUs which granted and vested on December 31, 2012 where valued using the share price at that date.

Gain (loss) on sale of vessels

During 2012, we sold the VLCCs La Madrina and La Prudencia, which were held for sale at December 31, 2011, for net proceeds of $19.9 million and $20.3 million respectively resulting in a net loss of $0.8 million and $1.1 million respectively. During 2011, we sold the aframax tanker Opal Queen, which was held for sale at December 31, 2010, for net proceeds of $32.8 million resulting in a gain of $5.8 million and the aframax tanker Vergina II for net proceeds of $9.7 million resulting in a loss of $0.8 million.

Vessel impairment charge

In 2012 there was an impairment charge of $13.6 million relating to the 1998 built VLCC Millennium. An impairment charge relating to the 1993 built VLCC La Prudencia and the 1994 built VLCC La Madrina totaled $39.4 million in 2011. The negative market forces existing since 2009 impacted the ability to charter older vessels at accretive rates. In the case of these three vessels, the total weighted average cash flow expected to be generated over the future remaining lives of the vessels under various possible scenarios, was less than the current carrying values of the vessels in our books and consequently the amount of carrying value in excess of the fair market value of these vessels was written-off as an impairment charge in 2012 and 2011 respectively. The poor market for crude carriers continued through much of 2012 and, especially in the fourth quarter when the expected usual seasonal uplift in rates did not occur because of the large increase in the supply of larger crude tankers which surpassed the demand for sea-transported crude oil. Millennium has been employed on a long-term profitable bare boat time charter which was due to expire in September 2013 and which had been expected to be

extended. In March 2013, we were unexpectedly informed that the charterers would not extend the charter. Expectations for alternative employment at rates which will ensure cash flows in excess of its carrying value are very low and other alternatives such as selling the vessel would result in minimal or even negative cash flow depending on timing of any sale. As a consequence, the carrying value of Millennium has been reduced to its fair market value of $28.6 million at December 31, 2012, but it was not classified as held for sale as it did not met the criteria for held for sale classification. At December 31, 2011, La Prudencia and La Madrina were classified as held for sale and their carrying values were reduced to their fair value less cost to sell.

At December 31, 2012, as vessel values continued to decline in the year, 39 of our vessels had carrying values in excess of market values. Apart from the one VLCC mentioned above, 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 the carrying values as at December 31, 2012.

Operating loss/income

For 2012, income from vessel operations was $1.3 million, including loss on the sale of two vessels amounting to $1.9 million and impairment charge of $13.6 million, compared to a loss from vessel operations of $37.7 million for 2011, including an impairment charge of $39.4 million and net gains on the sale of vessels amounting to $5.0 million.

Interest and finance costs, net


	2012			2011
	$ million			$ million
Loan interest expense		28.2			25.9
Accrued interest on hedging swaps reclassified from AOCI		1.0			—
Interest rate swap cash settlements—hedging		20.5			25.8
Less: Interest capitalized		(1.8	)		(2.5	)

Interest expense, net		47.9			49.2
Interest rate swap cash settlements—non-hedging		8.0			9.0
Bunkers swap cash settlements		(2.4	)		(6.4	)
Change in fair value of non-hedging bunker swaps		1.7			2.1
Amortization of deferred loss on de-designated interest rate swap		1.5			1.5
Expense of portion of accumulated negative valuation of de-designated interest rate swap		0.7			0.5
Change in fair value of non-hedging interest rate swaps		(7.0	)		(3.6	)
Amortization of loan expenses		1.0			1.0
Bank loan charges		0.2			0.3

Net total		51.6			53.6

Interest and finance costs, net were $51.6 million for 2012 compared to $53.6 million for 2011, a 3.7% decrease. Loan interest, excluding payment of swap interest, increased to $28.2 million from $25.9 million, a 9.2% increase. Total weighted average bank loans outstanding were approximately $1,487 million for 2012 compared to $1,539 million for 2011. However, 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 $28.5 million from $34.8 million as seven swaps expired in the second part of 2012. The average loan financing cost in 2012, including the impact of all interest rate swap cash settlements, was 3.75% compared to 3.89%, for 2011. Capitalized interest in 2012 was $1.8 million, compared to $2.5 million in 2011. In 2012, there were two vessels under construction for the whole year and one LNG carrier under construction for half of the year, while in 2011 there were four vessels under construction and average accumulated installments were higher by $2.2 million in 2011.

There was a positive movement in the fair value (mark-to-market) of the non-hedging interest rate swaps in 2012 of $7.0 million compared to a positive movement of $3.6 million in 2011. During 2010, the panamax tankers the Hesnes and the Victory III were sold. As a consequence, the interest rate swap relating to the loan which included the part financing of these vessels became ineligible for special hedge accounting and was de-designated. As a result, a part of the accumulated negative valuation relating to this swap amounting to $0.8 million was transferred from other comprehensive income/(loss) to the statement of operations in 2010. In addition, the remaining part of the accumulated negative valuation relating to this interest rate swap is being amortized to earnings over the term of the original hedge. In both 2012 and 2011, $1.5 million was amortized. A further lump-sum of $0.7 million was transferred from the unamortized negative valuation directly to the statement of operations on sale of La Madrina in 2012, while $0.5 million were expensed in 2011 on sale of the aframax tanker Vergina II.

Since 2009, the Company has entered into swap arrangements relating to bunker (fuel) costs, which do not qualify as hedging instruments. In 2012, the Company received $2.4 million on these swaps in realized gains compared to $6.4 million in 2011. However, unrealized mark-to-market valuation losses were $1.7 million in 2012 and $2.1 million in 2011.

Amortization of loan expenses was $1.0 million in both 2012 and 2011. Other loan charges, including commitment fees, amounted to $0.2 million in 2012 and $0.3 million in 2011.

Interest and investment income

For 2012, interest and investment income amounted to $1.3 million compared to $2.7 million in 2011. In both years, the income related to bank deposit interest. The decrease is due to lower average cash balances in 2012 compared with 2011, the rates on cash deposits being at the same levels for both periods.

Non-controlling interest

The amount earned by the non-controlling interest (49%) shareholding of the subsidiary which owns the companies owning the vessels Maya and Inca was $0.2 million in 2012 compared to $0.5 million in 2011. Although revenue earned and operating expenses was at the same levels in 2012 and 2011, the difference was due to increased interest and finance costs in 2012 as a result of a waiver obtained at the end of 2011 from its lending bank relating to the then non-compliance with the leverage ratio required by its loan agreement.

Net loss/income

As a result of the foregoing, the net loss for 2012 was $49.3 million or $0.92 per diluted share versus a net loss of $89.5 million or $1.94 per diluted share for 2011.

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 newbuilding commitments, other expected capital expenditure on dry-dockings and vessel acquisitions, which in total equaled $151.7 million in 2013, $91.9 million in 2012 and $113.8 million in 2011, will again require us to expend cash in 2014 and in future years. Net cash flow generated by operations is our main source of liquidity. Apart from the possibility of issuing further equity, additional sources of cash include proceeds from asset sales and borrowings, although all borrowing arrangements to date have specifically related to the acquisition of 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 2014, our financial resources, including the cash expected to be generated within the year, will be sufficient to meet our liquidity and working capital needs through

January 1, 2015, 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 $5.3 million at December 31, 2013 compared to a negative $51.1 million at December 31, 2012. Current assets increased to $232.5 million at December 31, 2013 from $224.0 million at December 31, 2012 mainly due to increased cash in non-restricted cash holdings by $17.9 million due to the two preferred stock issues in May and September 2013 and the ATM program under which the Company raised $47.0 million, $47.3 million and $7.0 million, respectively. Restricted cash balances dropped by $6.7 million due to the release of restricted amounts following the sale of the VLCC La Madrina at the end of 2012 and an early payment of a loan installment. Current liabilities decreased to $228.3 million at December 31, 2013 from $258.9 million at December 31, 2012, mainly due to the decrease of the current portion of long term debt by $60.3 million. At December 31, 2013 the amount that we would be required to pay to satisfy the value-to-loan shortfall contained in our loan agreements, reclassified to short term liabilities, has been reduced to $5.9 million from $24.3 million at December 31, 2012. The current portion of financial instruments has decreased by $7.2 million in 2013 as seven swaps expired during the latter part of 2012 and another two expired in 2013.

Net cash provided by operating activities was $117.9 million during 2013 compared to $60.9 million in the previous year, a 93.8% increase. The increase is mainly due to the increase in revenue (net of voyage expenses) generated by operations as described in the section on voyage revenue above, and due to more effective management of payables and receivables. Expenditure for dry-dockings is deducted from cash generated by operating activities. Total expenditure during 2013 on dry-dockings amounted to $5.7 million compared to $7.6 million in 2012. In 2013, dry-docking work was performed on the panamaxes Maya, Inca, Andes, Selecao and Selini, on the aframax Maria Princess and on the suezmax Triathlon, seven vessels in total. In 2012, dry-docking work was performed on the suezmaxes Silia T, Arctic and Antarctic, the aframaxes Sakura Princess and Izumo Princess, the panamax Socrates, the handysizes Aegeas, Bosporos and Byzantion and the LNG Neo Energy, ten vessels in total. Expenditure was lower in 2013 due to the lower number of vessels that undertook dry-docking and also due to the high cost of the LNG carrier Neo Energy dry-docking in 2012.

Net cash used in investing activities was $144.4 million for the year 2013, compared to $43.0 million for 2012. In 2013 we paid $37.2 million as yard advances for vessels under construction and $105.8 million as the final installments for the acquisition of the newbuilding suezmax DP2 shuttle tankers Rio 2016 and Brasil 2014. We also paid $3.1 million for additions and improvements on our existing fleet. In 2012, $81.8 million was paid as yard installments for vessels under construction and $2.5 million for improvements on existing vessels. At December 31, 2013, we had under construction one LNG carrier and five aframaxes with total remaining payments totaling $426.5 million, all of which we expect to be covered by new debt or additional sources of debt, as described above. In addition, a contract we had for construction of a shuttle tanker has been cancelled and we are currently in discussion with the shipyard regarding the possible substitution of two alternative vessels at delivery dates to be determined. The LNG carrier is expected to be delivered in the first quarter of 2016 and the aframaxes are expected to be delivered at various dates between the second quarter of 2016 and the first quarter of 2017. Since December 31, 2013, we have contracted for four additional aframax crude oil tanker newbuildings for an aggregate purchase price of $206.8 million, with scheduled deliveries between the first and third quarters of 2017.

In 2013 there were no vessel sales. In 2012, net sale proceeds from the sale of the VLCCs La Madrina and La Prudencia amounted to $40.2 million in total.

Net cash provided by financing activities in 2013 amounted to $44.5 million compared to net cash used in financing activities of $49.3 million in 2012. Proceeds from new bank loans in 2013 amounted to $110.0 million compared to $83.6 million in the previous year. Scheduled repayments of debt amounted to $145.3 million in 2013, compared to $125.1 million of repayments in 2012. Another $26.8 million was paid in 2013 as the balloon payment on a loan facility, used for the financing of the aframax tanker Sakura Princess and other vessels sold in prior periods. This balloon was refinanced by an $18.0 million new loan included in the total proceeds from new bank loans. In 2012, $23.6 million of debt was prepaid as a result of vessel sales and $8.1 million was repaid in relation to a loan to the joint-venture subsidiary. On May 2, 2013, the Company completed an offering of 2,000,000 of its 8% Series B cumulative redeemable perpetual preferred shares, par value $1.00 per share and liquidation preference $25.00 per share. The net proceeds from the sale of these shares, after deducting underwriting discounts and expenses were $47.0 million. On August 8, 2013 the Company entered into a distribution agency agreement with a leading investment bank as manager, providing 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. As of December 31, 2013 the Company sold 1,430,211 common shares under this agreement for net proceeds of $7.0 million. On September 30, 2013, the Company completed an offering of 2,000,000 of its 8.875% Series C cumulative redeemable perpetual preferred shares, par value $1.00 per share and liquidation preference $25.00 per share. The net proceeds from the sale of these shares, after deducting underwriting discounts and expenses were $47.3 million. On April 18, 2012, the Company completed an offering of 10,000,000 common shares at a price of $6.50 per share. The net proceeds from the sale of these common shares in the offering, after deducting underwriting discounts and estimated expenses relating to the offering, was $62.3 million. Since December 31, 2013, the Company has issued an additional 1,077,847 common shares under the distribution agency agreement for net proceeds of $7.2 million and completed a public offering of 12,995,000 common shares for net proceeds of $82.7 million on February 5, 2014.

In 2013, dividends of $0.05 per common share were paid in June, September and December. Total dividend payments to common stockholders in 2013, amounted to $8.5 million. In 2012, total dividends amounted to $0.50 per common share and payments totaled $26.6 million. 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.

In 2013, a dividend of $0.44 and $0.50 per preferred share was paid to holders of our Series B preferred shares on July 30, 2013 and on October 30, 2013 respectively, totaling to $1.9 million. 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 Company’s 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, and may include the formation of a master limited partnership partly owned by other persons, 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. As discussed previously in the section “Our Fleet,” we continue to have an active fleet development program resulting in a fleet of modern and young vessels with an average age of 7.3 years at March 31, 2014. 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 5% to 10%, with the balance of the vessel purchase price paid upon delivery. In the case of the DP2 shuttle tankers,

delivered in March and April 2013, pre-delivery financing had been arranged for part of the installment payments to the shipbuilding yard and on delivery the remainder of the financing was received to cover the final installments. 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 seven to twelve years, compared to the vessel’s asset life of approximately 25 years (LNG carrier 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 seven 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. Negotiations for debt financing for the LNG carrier with expected delivery in 2016, are currently in progress.

Summary of Loan Movements Throughout 2013 (in $ millions):


Loan	Vessel	Balance at January 1, 2013		New Loans		Repaid		Balance at December 31, 2013
Credit facility	Sakura Princess		34.9		0		34.9		0
Credit facility	Silia T, Andes, Didimon, Amphitrite, Izumo Princess, Aegeas		134.2		0		13.1		121.1
Credit facility	Millennium, Triathlon, Eurochampion 2004, Euronike		125.1		0		11.8		113.3
Credit facility	Archangel, Alaska, Arctic, Antarctic		112.4		0		10.6		101.8
Credit facility	Delphi, La Prudencia, Byzantion, Bosporos		92.6		0		27.0		65.6
Credit facility	Artemis, Afrodite, Ariadne, Ajax, Apollon, Aris, Proteas Promitheas, Propontis		251.0		0		20.0		231.0
10-year term loan	Arion, Andromeda		32.0		0		3.1		28.9
Credit facility	Maya, Inca		35.6		0		4.4		31.2
Credit facility	Neo Energy		92.5		0		5.0		87.5
10-year term loan	Maria Princess, Nippon Princess		66.3		0		5.5		60.8
Credit facility	Selecao, Socrates		61.3		0		4.6		56.7
10-year term loan	Ise Princess		29.0		0		2.2		26.8
10-year term loan	Asahi Princess		30.3		0		2.9		27.4
12-year term loan	Sapporo Princess		33.8		0		2.5		31.3
10-year term loan	Uraga Princess		32.5		0		2.6		29.9
7-year term loan	World Harmony, Chantal		60.7		0		4.6		56.1
10-year term loan	Selini		37.5		0		3.2		34.3
8-year term loan	Salamina		36.9		0		2.6		34.3
10-year term loan	Spyros K		43.2		0		3.2		40.0
9-year term loan	Dimitris P		45.4		0		3.2		42.2
8-year term loan	Rio 2016		27.6		46.0		2.3		71.3
8-year term loan	Brasil 2014		27.6		46.0		2.5		71.1
7-year term loan	Sakura Princess		0		18.0		0.3		17.7