Form 20-F
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Date of event requiring this shell company report

For the transition period from                to

Commission file number 001-31236




(Exact name of Registrant as specified in its charter)



Not Applicable

(Translation of Registrant’s name into English)


(Jurisdiction of incorporation or organization)

367 Syngrou Avenue

175 64 P. Faliro

Athens, Greece


(Address of principal executive offices)



Paul Durham

367 Syngrou Avenue

175 64 P. Faliro

Athens, Greece

Telephone: 011-30210-9407710


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
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

Series D Cumulative Redeemable Perpetual Preferred Shares, par value $1.00 per share


New York Stock Exchange

New York Stock Exchange

Series E Fixed-to-Floating Rate 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, 2017, there were 86,319,583 of the registrant’s Common Shares, 2,000,000 Series B Preferred Shares, 2,000,000 Series C Preferred Shares, 3,424,803 Series D Preferred Shares and 4,600,000 Series E Preferred Shares 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  ☒

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  ☒

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  ☒    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  ☒    No  ☐

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

Large accelerated filer  ☐    Accelerated filer   ☒    Non-accelerated filer  ☐    Emerging growth company  ☐

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

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


U.S. GAAP  ☒   International Financial Reporting Standards as issued by the International Accounting Standards Board ☐   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  ☒




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PART I      2  

Item 1. Identity of Directors, Senior Management and Advisers


Item 2. Offer Statistics and Expected Timetable


Item 3. Key Information


Item 4. Information on the Company


Item 4A. Unresolved Staff Comments


Item 5. Operating and Financial Review and Prospects


Item 6. Directors, Senior Management and Employees


Item 7. Major Shareholders and Related Party Transactions


Item 8. Financial Information


Item 9. The Offer and Listing


Item 10. Additional Information


Item 11. Quantitative and Qualitative Disclosures About Market Risk


Item 12. Description of Securities Other than Equity Securities

PART II      142  

Item 13. Defaults, Dividend Arrearages and Delinquencies


Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds


Item 15. Controls and Procedures


Item 16A. Audit Committee Financial Expert


Item 16B. Code of Ethics


Item 16C. Principal Accountant Fees and Services


Item 16D. Exemptions from the Listing Standards for Audit Committees


Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers


Item 16F. Change in Registrant’s Certifying Accountant


Item 16G. Corporate Governance


Item 16H. Mine Safety Disclosure

PART III      146  

Item 17. Financial Statements


Item 18. Financial Statements


Item 19. Exhibits





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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, petroleum products and LNG;



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 and willingness 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.



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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, 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.


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, 2017. The table should be read together with “Item 5. Operating and Financial Review and Prospects.” The selected consolidated financial data of Tsakos Energy Navigation Limited is a summary of, is derived from and is qualified by reference to, our consolidated financial statements and notes thereto which have been prepared in accordance with U.S. generally accepted accounting principles (“US GAAP”).

Our audited consolidated statements of comprehensive income, other comprehensive income, stockholders’ equity and cash flows for the years ended December 31, 2017, 2016, and 2015, and the consolidated balance



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sheets at December 31, 2017 and 2016, 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

(In thousands of U.S. dollars, except for share and per share amounts and fleet data)


     2017     2016     2015     2014     2013  

Income Statement Data


Voyage revenue

   $ 529,182     $ 481,790     $ 587,715     $ 501,013     $ 418,379  



Voyage expenses

     113,403       106,403       131,878       154,143       132,999  

Charter hire expense

     311       —         —         —         —    

Vessel operating expenses(1)

     173,864       146,546       142,117       146,902       131,053  

Depreciation and amortization

     139,020       113,420       105,931       102,891       100,413  

General and administrative expenses

     26,324       25,611       21,787       21,029       20,731  

Net (gain) loss on sale of vessels

     3,860       —         (2,078     —         —    

Vessels impairment charge

     8,922       —         —         —         28,290  

Operating income

     63,478       89,810       188,080       76,048       4,893  

Other expenses (income):


Interest and finance costs, net

     56,839       35,873       30,019       43,074       40,917  

Interest and investment income

     (1,082     (623     (234     (498     (366

Other, net

     (1,464     (1,935     (128     (246     2,912  

Total other expenses, net

     54,293       33,315       29,657       42,330       43,463  

Net income (loss)

     9,185       56,495       158,423       33,718       (38,570

Less: Net (income) loss attributable to non-controlling interest

     (1,573     (712     (206     (191     1,108  

Net income (loss) attributable to Tsakos Energy Navigation Limited

   $ 7,612     $ 55,783     $ 158,217     $ 33,527     $ (37,462

Effect of preferred dividends

     (23,776     (15,875     (13,437     (8,438     (3,676

Net income (loss) attributable to Tsakos Energy Navigation Limited common stockholders

   $ (16,164   $ 39,908     $ 144,780     $ 25,089     $ (41,138

Per Share Data


Earnings (loss) per share, basic

   $ (0.19   $ 0.47     $ 1.69     $ 0.32     $ (0.73

Earnings (loss) per share, diluted

   $ (0.19   $ 0.47     $ 1.69     $ 0.32     $ (0.73

Weighted average number of shares, basic

     84,713,572       84,905,078       85,827,597       79,114,401       56,698,955  

Weighted average number of shares, diluted

     84,713,572       84,905,078       85,827,597       79,114,401       56,698,955  

Dividends per common share, paid

   $ 0.20     $ 0.29     $ 0.24     $ 0.15     $ 0.15  

Cash Flow Data


Net cash provided by operating activities

     170,827       170,354       234,409       106,971       117,923  

Net cash used in investing activities

     (241,797     (576,075     (174,754     (254,307     (144,437

Net cash provided by financing activities

     72,956       303,822       27,914       187,206       44,454  

Balance Sheet Data (at year end)


Cash and cash equivalents

   $ 189,763     $ 187,777     $ 289,676     $ 202,107     $ 162,237  

Cash, restricted

     12,910       9,996       15,330       12,334       9,527  


     1,000       1,000       1,000       1,000       1,000  

Advances for vessels under construction

     1,650       216,531       371,238       188,954       58,521  

Vessels, net book value

     3,028,404       2,677,061       2,053,286       2,199,154       2,173,068  

Total assets

     3,373,636       3,277,575       2,893,166       2,692,737       2,479,292  

Long-term debt, including current portion

     1,751,869       1,753,855       1,392,563       1,411,976       1,375,691  

Total stockholders’ equity

     1,508,138       1,417,450       1,415,072       1,177,912       997,663  

Fleet Data


Average number of vessels

     62.6       52.6       49.2       49.0       47.5  

Number of vessels (at end of period)

     65.0       58.0       49.0       50.0       48.0  

Average age of fleet (in years)(2)

     7.7       7.9       8.5       7.7       7.1  

Earnings capacity days(3)

     22,850       19,244       17,970       17,895       17,339  

Off-hire days(4)

     755       674       376       406       385  

Net earnings days(5)

     22,095       18,570       17,594       17,489       16,954  

Percentage utilization(6)

     96.7     96.5     97.9     97.7     97.8

Average TCE per vessel per day(7)

   $ 18,931     $ 20,412     $ 25,940     $ 19,834     $ 16,957  

Vessel operating expenses per ship per day(8)

   $ 7,688     $ 7,763     $ 7,933     $ 8,209     $ 7,651  

Vessel overhead burden per ship per day(9)

   $ 1,152     $ 1,331     $ 1,212     $ 1,175     $ 1,196  


(1) Vessel operating expenses are costs that vessel owners typically bear, including crew wages and expenses, vessel supplies and spares, insurance, tonnage tax, routine repairs and maintenance, quality and safety costs and other direct operating costs.
(2) The average age of our fleet is the age of each vessel in each year from its delivery from the builder, weighted by the vessel’s deadweight tonnage (“dwt”) in proportion to the total dwt of the fleet for each respective year.



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(3) Earnings capacity days are the total number of days in a given period that we own or control vessels.
(4) Off-hire days are days related to repairs, dry-dockings and special surveys, vessel upgrades and initial positioning after delivery of new vessels.
(5) Net earnings days are the total number of days in any given period that we own vessels less the total number of off-hire days for that period.
(6) Percentage utilization represents the percentage of earnings capacity days that the vessels were actually employed, i.e., net earnings days as a percentage of earnings capacity days
(7) The shipping industry uses time charter equivalent, or TCE, to calculate revenues per vessel in dollars per day for vessels on voyage charters. The industry does this because it does not commonly express charter rates for vessels on voyage charters in dollars per day. TCE allows vessel operators to compare the revenues of vessels that are on voyage charters with those on time charters. TCE is a non-GAAP measure. For vessels on voyage charters, we calculate TCE by taking revenues earned on the voyage and deducting the voyage expenses (bunker fuel, port expenses, canal dues, charter commissions) and dividing by the actual number of voyage days. For vessels on bareboat charter, for which we do not incur either voyage or operation costs, we calculate TCE by taking revenues earned on the charter and adding a representative amount for vessel operating expenses. TCE differs from average daily revenue earned in that TCE is based on revenues after voyage expenses and does not take into account off-hire days.

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


    2017     2016     2015     2014     2013  

Voyage revenues

  $ 529,182     $ 481,790     $ 587,715     $ 501,013     $ 418,379  

Less: Voyage expenses

    (113,403     (106,403     (131,878     (154,143     (132,999

Add: Representative operating expenses for bareboat charter ($10,000 daily)

    2,500       3,660       560       —         2,110  
















Time charter equivalent revenues

    418,279       379,047       456,397       346,870       287,490  
















Net earnings days

    22,095       18,570       17,594       17,489       16,954  

Average TCE per vessel per day

  $ 18,931     $ 20,412     $ 25,940     $ 19,834     $ 16,957  


(8) Vessel operating expenses per ship per day represents vessel operating expenses divided by the earnings capacity days of vessels incurring operating expenses. Earnings capacity days of vessels on bareboat charters or chartered-in have been excluded.
(9) Vessel overhead burden per ship per day is the total of management fees, management incentive awards, stock compensation expense and general and administrative expenses divided by the total number of earnings capacity days.

Ratio of Earnings to Fixed Charges and Preference Dividends

The following table sets forth our ratio of earnings to fixed charges and preference dividends for the periods presented:


       2017(2)          2016          2015          2014          2013(2)     

Ratio of earnings to fixed charges and preference dividends (1)

     —          1.6x        4.1x        1.6x      —    


(1) For purposes of calculating the ratios of earnings to fixed charges and preference dividends:



“earnings” consist of net income (loss) before minority interest plus interest expensed and amortization of loan fees and capitalized interest;



“fixed charges” represent interest expensed and capitalized, the interest portion of charter hire expense, and amortization of loan fees and capitalized interest; and



“preference dividends” refers to the amount of net income (loss) that is required to pay the cash dividends on outstanding preference securities and is computed as the amount of (x) the dividend divided by (y) the result of 1 minus the effective applicable income tax rate.


(2) The ratio of earnings to fixed charges and preference dividends for this period was less than 1.0x. The deficiency in earnings to fixed charges and preference dividends for the year ended December 31, 2017 and December 31, 2013 were approximately $13.1 million and $42.8 million, respectively.


The following table sets forth our (i) cash and cash equivalents, (ii) restricted cash and (iii) consolidated capitalization as of December 31, 2017 on:



an actual basis; and



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as adjusted basis giving effect to (i) debt repayments of $53.4 million, (ii) drawdown of $162.6 million for the refinancing of eleven vessels and prepayment of $181.2 million of debt on the same vessels, (iii) the payment of $6.6 million of preferred share dividends, (iv) declaration of an aggregate of $4.3 million common share dividend, (v) declaration of an aggregate $2.1 million of preferred share dividends on Series B and C Preferred Shares, (vi) the sale of 238,797 of our common shares for net proceeds of $0.8 million and (vii) net proceeds of $17.5 million from the sale of the VLCC tanker Millennium and the related loan prepayment of $10.2 million.

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, 2017 and April 20, 2018.

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, 2017  
In thousands of U.S. Dollars   Actual     Adjustments     Adjusted  
          (Unaudited)     (Unaudited)  



Cash and cash equivalents

  $ 189,763       (72,606     117,157  

Restricted cash

    12,910       (1,807     11,103  










Total cash

    202,673       (74,413     128,260  














Long-term secured debt obligations (including current portion)

  $ 1,763,082       (82,189     1,680,893  










Stockholders’ equity:


Preferred shares, $1.00 par value; 25,000,000 authorized (including 2,300,000 Series B Preferred Shares, 2,300,000 Series C Preferred Shares, 3,910,000 Series D Preferred Shares and 4,600,000 Series E Preferred Shares) and 2,000,000 Series B Preferred Shares, 2,000,000 Series C Preferred Shares, 3,424,803 Series D Preferred Shares and 4,600,000 Series E Preferred Shares issued and outstanding at December 31, 2017 on an actual and as adjusted basis.

    12,025       —         12,025  

Common shares, $1.00 par value; 175,000,000 shares authorized; 87,338,652 shares issued on an actual and as adjusted basis and 86,319,583 shares outstanding at December 31, 2017 on an actual basis and 86,558,380 shares outstanding on an as adjusted basis

    87,339       —         87,339  

Additional paid-in capital

    857,998       —         857,998  

Cost of treasury stock

    (5,736     1,329       (4,407

Accumulated other comprehensive loss

    (5,305     —         (5,305

Retained earnings

    547,937       (13,594     534,343  

Non-controlling interest

    13,880       —         13,880  










Total stockholders’ equity

    1,508,138       (12,265     1,495,873  










Total capitalization

  $ 3,271,220       (94,454     3,176,766  










Reasons For the Offer and Use of Proceeds

Not Applicable.



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General Market Overview—World Oil Demand / Supply and the Tanker Market

All of the statistical data and other information presented in this section entitled “General Market Overview—World Oil Demand / Supply and the Tanker Market,” including the analysis of the various sectors of the oil tanker industry, has been provided by Howe Robinson Partners (UK) Ltd (“Howe Robinson”). Howe Robinson has advised that the statistical data and other information contained herein are drawn from its database and other sources. In connection therewith, Howe Robinson has advised that: (a) certain information in Howe Robinson’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 Howe Robinson’s database; and (c) while Howe Robinson has taken reasonable care in the compilation of the statistical and other information and believes it to be accurate and correct, data compilation is subject to limited audit and validation procedures.

In 2017, OPEC’s market management agreement altered trade flows, increasing voyage distances as Atlantic crude oil became attractive to Asian buyers. U.S. crude exports increased substantially and large volumes were sent east. Due to recent U.S. infrastructure plans, we expect this trade to grow.

Involuntary over compliance with OPEC prescribed targets for reduced production by Venezuela and under compliance by some Middle East Gulf (MEG) producers all helped solidify tanker demand. Product demand exceeding domestic refinery capacity in South and Central America helped increase U.S. product exports to the region. Longer haul West-East naphtha movements grew, drawing more LRs into the Atlantic Basin. Chinese product export quotas increased, with exports to destinations primarily served by the MR market. However, except for occasional rallies, overall earnings remained subdued across all markets as the increase in demand for tonnage still did not match tonnage supply and the market remains in structural oversupply.


Initially OPEC increased production during 2014-2016 in an attempt to defend their market share against an increasingly assertive shale market. The ever lowering breakeven of shale producers and their increased hedging activities ensured that oil production globally, exceeded demand. This led to two outcomes:


  1. A drop in oil prices from $99/bbl in 2014 to $43/bbl by 2016.


  2. Crude and oil product storage levels rose relentlessly, from average storage levels of 2,683m bbl in 2014 to 3,048m bbl in 2016.

Within this environment, OPEC along with ten non-OPEC nations agreed in November 2017 to limit their production with the nominal target being a return of stocks to their five year average beginning in January 2018. OPEC agreed to a cut of 1.2mb/d with non-OPEC signatories cutting 558kb/d. As a result of the cut, stocks dropped by 216m bbl to 2,850m bbl. Nigeria and Libya, although OPEC members, were exempt from the cuts due to domestic instability.

If the deal works fully and OPEC achieves its stated objective of reducing stocks to their five-year average by June, then there will be extra pressure on the group’s ability to maintain the agreement. If the agreement subsides by June, then we may see old trade routes such as increased volumes MEG-East re-emerge at the risk of longer haul WAF-East stems.

OPEC Supply

Compliance by OPEC members as a group with OPEC prescribed targets for reduced production has been strong, average compliance was 103% during 2017. However this masks over compliance by some members and under compliance by others.



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Saudi Arabia

Saudi compliance with OPEC prescribed targets for reduced production averaged 119% during 2017, the highest voluntary decline and compliance of any OPEC/Non-OPEC member. We expect compliance to remain strong and supportive of the oil prices, at least until the Saudi Aramco IPO. After initially running down domestic stocks in order to maintain exports, production compliance translated into reduced exports. Saudi Arabia has concentrated the effects of the production cut on exports to the U.S.. Saudi exports to the U.S. decreased from a monthly average of 4,522kt/month in 2016 (17.3% market share) to 3,370kt/month in 2017 (Jan-Oct) (15% market share). Consequently, crude tonne-miles (TM) fell 27% year-over-year (YoY) to average 39.42bn TM in 2017. Increased Asian demand, coupled with stronger U.S. domestic production would, we expect, result in increased displacement of Saudi exports to the U.S. in favour of the Far East. The market share of exports to the Far East increased to 52% during 2017, however in terms of TM the rise was only marginal (+1% YoY to 85bn TM). Displaced Saudi-West trade has reduced fleet efficiency and we expect, with the ramping up of West Atlantic crude production, fleet efficiency would decrease further, creating a floor in West Atlantic/East rates. Saudi refinery capacity additions reflect Saudi intentions of capturing a greater share of the value addition chain.





Iran achieved an increase in the production deal, with the agreement to cap production 90kb/d higher at 3.8mb/d. National Iranian Tanker Company (NITC) vessels storing crude oil have been wound back. The expected post sanctions boost in production capacity has not occurred (although production has increased) largely resulting from the threat of a return of sanctions from the Trump administration. The U.S. has stated that further waivers to Iranian sanctions will not be granted unless the nuclear deal is renegotiated. This represents a



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major downside risk to supply, if sanctions are reimposed and assuming Europe supports the return of sanctions, Iranian supply could quickly return to 2015 levels. In addition, Iran’s low cost reserves appear to present an attractive investment opportunity for IOCs, however the new IPC (oil exploration contract) contract, although better than the previous buyback model, still causes consternation and may delay a ramp up of Iranian production capacity. Iranian exports to Europe increased during 2017 from 435kb/d in 2016 to an average of 664kb/d last year, primarily to Italy. Market share of European exports increased (from 21% in 2016 to 32% in 2017) primarily at the cost of decreased exports to India (467kb/d in 2016 to 4.9kb/d in 2017). Crude TM demand rose by 8% YoY from 43.8bn TM in 2016 to 47.1bn TM last year with TM to South Europe and the Black Sea surging by 47% YoY to 11.3bn TM at the expense of Indian TM demand that fell by 6% YoY to 1.8bn TM.





Iraqi compliance with the OPEC agreement has been notable for its non-compliance. Average Iraqi compliance has been 45% during 2017, with January 2018 compliance at 33%. There is uncertainty around the status of exports via northern Iraq, which were halted in September 2017 after the Kurdish Regional Government (KRG) tabled and won referendum for independence from Iraq for Kurdistan. This suspended 650kb/d of production of which 600kb/d was historically exported, via Ceyhan into Europe. The Iraqi government has announced that it has reached a deal with KRG to restart Kirkuk pipeline deliveries, however this has not been confirmed by the KRG and no further details have been given.



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Southern Iraq export capacity (4.6mb/d) is running ahead of production (3.5mb/d in January 2018). The bottleneck in increasing exports appears to be the terms at which production contracts were issued and delays in installing field infrastructure. Delays in a field infrastructure development programme have seen forecast production from the southern fields decrease from 7.5mb/d to 5mb/d.

Iraq has been focusing on increasing exports to the U.S. instead of the eastern markets. Exports to the U.S. rose by an average of 745kt/month in 2017 over 2016. U.S. market share of Iraqi imports from the tracked countries increased from 12% to 16% over the same period, while TM demand rose by 26% YoY from 22.8bn TM in 2016 to 28.7bn TM.

As forecast production capacity is set to increase, and as there are no export infrastructure bottlenecks we expect exports to the U.S. to increase this year.





Venezuelan production collapsed in 2017 by 22% from 2.02mb/d at the start of 2017 to 1.61mb/d in January 2018. As a result, involuntary Venezuelan compliance increased from 22% in January 2017 to 484% in January 2018. Venezuela has been confronted with a number of problems, primarily oil backed debts, which are affecting field investment and export opportunities.

PDVSA has oil backed debts of USD 25bn, owed mainly to China and Russia. Loans have to be repaid with oil deliveries and are therefore non cash generating. The main cash generating businesses were exports to the



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U.S. and India. Exports to these two countries decreased in 2017 in favour of Russia and China. TM to India and the U.S. fell by 16% and 17% YoY to 12.6bn TM and 4bn TM, respectively, while TM to China rose by 15% YoY to 15.1bn TM. Although, after the purchase by Rosneft of the Essar refinery in Vadinar in the summer of last year, we expect an increase in the Venezuela-India trade which will still not be cash generative.

A decrease in sales to India and the U.S. has led to a lack of cash available to invest in field maintenance and has resulted in production deterioration. Production from Orinoco Heavy field, the main field remaining in substantial production requires spiking with naphtha to meet export specifications. With a decrease in cash generative oil sales, PDVSA is having difficulties purchasing naphtha, which in turn is creating volatility in its Orinoco Heavy specification. The volatility in specification made marketing more difficult creating a vicious circle.


After Venezuela, Angola is expected to post the biggest decline in production over the medium term. Angolan production has already decreased by 700kb/d during 2017. However, this year they may experience a bounce in production capacity with the 230kb/d Kaombo field expected to come online. However, of tracked countries, exports remained stable in 2017 versus 2016. West-East exports increased with exports to the Far East increasing in 2017 whilst in almost all other tracked destinations its market share decreased. However, crude TM demand rose marginally by 1% YoY to 54.3bn TM driven by a 12% YoY increase in the TM demand to China.





Nigerian liquids production increased during 2017 with reported crude production increasing from 1.43mb/d to 1.66mb/d in 2017. In November 2017, at OPEC’s extension meeting, Nigeria voluntarily agreed to extend its cap on crude production at 1.8mb/d, however, Nigerian liquids production was 2.09mb/d in January 2018.



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300-400k b/d of that is condensate production out of which 107kb/d is from the Akpo field alone and the Agbami field production is 220-250k b/d. There is no OPEC wide agreement on how to define condensate, the Nigerian Oil Minister insists some fields are condensate fields despite disagreement regarding their grade by outside analysts. Much of Nigerian condensate gets blended into the crude stream before export—making exact counting difficult. However, even after accounting for Nigerian condensate production, Nigeria managed to breach its production cap of 1.80m b/d in December. There is no reason to believe that this trend would not continue for the foreseeable future or at least until such time that OPEC agrees on an overall production cap for Nigeria whether by defining condensate or by imposing an overall liquids production cap. Increasing Nigerian production would provide support to the tanker market. Crude TM demand out of Nigeria rose by 7% YoY to 37.09bn TM.





Libya also agreed to keep its crude output below 1m b/d. Libyan production was 1m b/d in January, however, structural problems in Libya remain. The national oil company has had its budget slashed by 50%, which will impact field maintenance and, by extension, production reliability. Due to the similarity of Libyan and shale crudes, weaker Libyan production allows for increased U.S. exports. However, the opposite is also true, therefore Libya may feel less pressure to conform to the output agreement than others such as Nigeria. Additionally the pressure to conform may be less as the questions over sustainability of production are more profound. Field production or export capacity is consistently being attacked and brought offline. Most recently the Elephant field was brought offline after an attack by the parastatal Petroleum Facilities Guards (PFG), an indication of the insecurity in production sustainability.



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Non-OPEC supply


January 2018 Russian production was 11.33m b/d. Russia insisted and won approval for a mid-term review of the OPEC extension agreement in June 2018. Russia completed the second spur of the ESPO pipeline with first oil pumping through the pipeline at the start of 2018. The second ESPO spur adds an additional 300kb/d of export capacity. In order to fill the additional pipeline Russia has diverted its West Siberian sweet crude, which was previously blended into the Urals grade, to ESPO. The diversion of West Siberian crude to ESPO has led to Urals crude sulphur levels increasing, and in some cases hitting 1.8% (the maximum permitted levels) sulphur content. If this trend continues and sulphur levels increase we can expect traditional Urals destinations of Europe to decrease imports of this grade. Some buyers have already started looking for alternatives, which could increase exports from the U.S. A lack of new supply due to the OPEC/Non-OPEC deal capping production has prevented additional sweet barrels from coming onstream. The Far Eastern exports have increased by 6% while 2017 Black Sea exports have remained stable. Russian TM out of the Black Sea increased by 50% YoY while TM out of the Far Eastern Russian ports rose by 5% YoY last year following an 11% YoY fall in 2016.



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Mexican production declined by 230kb/d in 2017 to 2.1mb/d today, more than double its allotted cut of 100kb/d and is set to decline by a further 180kb/d this year. Exports to all tracked destinations fell, however the market share of exports to the U.S. increased by 4%. Driven by a strong second half of 2017, Mexican crude TM demand rose by 12% YoY to average at 17.5bn TM in 2017 while TM to the U.S. edged 14% higher YoY to 1.6bn TM.



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U.S. supply forecasts have consistently been beaten by the rise of shale. At the start of 2017 IEA predicted U.S. oil supply to be 12.84mb/d, average production in 2017 actually was 13.2mb/d-growth of 670kb/d. Currently, production in 2018 is expected to be 14.72mb/d, a further growth of 1.52mb/d during 2017. Growth is dominated by production increases in the Permian Basin.

Although breakeven prices have risen slightly and are forecast to rise this year, the main cap on Permian Basin growth is not WTI price vs breakeven, but takeaway capacity for exports. Drilled but uncompleted wells (DUCs) generally increase in times of low oil prices as producers wait for prices to rebound before increasing production. However, Permian Basin DUCs are increasing despite the above breakeven oil price. This again is due to takeaway capacity blocking a further rise in production. The IEA expects U.S. pipeline capacity to increase to 2.5mb/d this year. With the building of the Diamond pipeline (200kb/d), moving crude from Cushing, Oklahoma to Memphis, the Capline pipeline has become superfluous. The 1.2mb/d Capline pipeline currently runs south/north from St. James, Louisiana (near LOOP) to Memphis and has stated that it intends to reverse the pipeline and provide an export route for Canadian and North Dakota crude production. Although the provisional reversal date is 2022, with LOOP expected to begin bidirectional operations this year, the Capline reversal may be accelerated particularly as currently pipeline flows have fallen to 250kb/d.

Growth in production has driven growth in exports. Crude exports rose by 115% from 520kb/d in 2016 to 1.12mb/d in 2017. Exports appear to be driven by the Brent/WTI price spread, which once it reaches $4/bbl, exports spike as imports from the U.S. become cost effective when adjusted for freight. Exports increased to both China/Far East and Europe. However exports to China/Far East increased by 7.8x compared with European imports which were comparatively lower at 3.1x. As export infrastructure capacity develops in the U.S., we expect exports to move away from being solely arbitrage driven and towards a more structural trade. A number of Asian company leaders have indicated that they intend to import increasing volumes from the U.S.

The increase in exports last year led to a rally in TM demand as TM out of the U.S. surged by 340% YoY to 24.4bn TM in 2017 from 5.6bn TM in 2016. The rise was mainly driven by increased volumes to the Far East



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where TM rose to 11bn TM compared to slightly less than 1bn TM in 2016. VLCC TM demand rose to 14.1bn TM from 1.4bn TM in 2016 following the increased demand for long-haul voyages, while Suezmaxes rose to 6bn TM in 2017 compared to 1.5bn TM in 2016. Aframaxes saw the smallest YoY rise both in absolute (+1.8bn TM) and in percentage terms (+70%) as the trend of barrels heading east has substituted Aframax demand in favour of larger ships. The upcoming infrastructure developments in the U.S Gulf in order to accommodate the loading of larger ships might further reduce the Aframax market share in the U.S.





Global oil demand increased by 1.64mb/d against a forecast increase of 1.3mb/d in January 2017. 2018 global demand is set to increase further by 1.4mb/d. Low oil prices, and strong economic growth helped oil demand growth during 2017. Demand growth is focused in the East of Suez region which will make up 57% of global demand growth (0.8mb/d), of which China and India contribute 75% (0.6mb/d).


China remains the swing factor for the crude tanker demand. 2017 oil demand grew by 660 kb/d, 2018 demand is expected to increase by 360kb/d to 12.87mb/d. In 2017 China surpassed the U.S. to become the world’s largest crude importer with imports increasing to 8.48mb/d in 2017 compared to 7.68mb/d in 2016. Imports from West Africa increased as OPEC cuts took hold, due to:


  1. The decrease in available supply from the MEG (excluding Saudi Arabia)


  2. The concurrent increase in West African supply, widening the Dubai/Brent spread, which made Brent priced West African crude comparatively cheaper.

Saudi Arabia continued to follow its commercial strategy of focusing on maintaining its market share in Asia and imports from Saudi Arabia increased last year over 2016.

Russia has grown to become the largest import partner for China with imports reaching 1.21mb/d compared to imports from Saudi Arabia of 1.05mb/d in 2017. Imports from Russia will increase this year as the second ESPO spur started flowing in January 2018.



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As discussed previously, U.S. crude exports were 150kb/d in 2017 up from virtually zero the year prior. We expect U.S. crude imports to increase this year. Consequently TM demand to China surged to 7.2bn TM from 1bn TM in 2016 with the majority of the increase benefiting the VLCC sector that rose to 6.7bn TM.

Against this, domestic production decreased by 110kb/d in 2017 and is expected to be 100k b/d less this year at 3.77mb/d. Chinese SPR fill rate for the whole year is not yet known, but SPR storage is expected to continue to provide support to the market. Imports increased last year from 7.68mb/d in 2016 to 8.48m b/d in 2017. 720kb/d of refinery capacity came on-stream in 2017 (560kb/d new capacity and 182kb/d upgraded). Refineries require 21 days of stock to ensure smooth operations, 560kb/d of new capacity installed last year would have resulted in 11.8 mb of additional import demand (over actual crude demand). 200kb/d of capacity is expected to come on-stream this year which would equal 4.2m b/d of additional stock holding requirement. The 400kb/d Myanmar pipeline from Ramree to the 260kb/d Anning refinery came onstream in the second quarter of 2017. The pipeline is expected to feed additional refineries to be established in Anning.

Teapots received a quota of 91.73m T for the whole 2017, while this year Beijing issued 55% higher quotas of 142.42mT. However there is a major downside risk that teapots may not be able to reach their quotas this year as the State Administration for Taxation (SAT) is intending to introduce new taxation laws and invoicing systems which will reduce teapot profits. Initially the new laws were announced to be implemented by January 2018, then were pushed to March 1, 2018 and are now targeted for May 1, 2018. If/when the new laws are implemented then we can expect crude demand from teapots to be reduced. This would primarily impact Brazilian crude grades which teapots prefer (56% of Brazilian imports in 2017 destined for teapots).





Indian oil demand is forecast to grow by 300 kb/d this year (2018 demand 4.98 mb/d) against 2017 growth of 120 kb/d (2017 demand 4.68 mb/d).

In late 2016, India decided to remove 500 and 1,000 rupee notes from circulation overnight in a bid to crack down on black money. This impacted first half of 2017 oil demand, which increased by 110kb/d over the first half of 2016, compared with growth of 635kb/d in the first half of 2015 over the first half of 2016. Oil demand growth started recovering in the second half of 2017, however a general sales tax (GST) was introduced. Prior to



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the introduction of the GST Indian states individually established their state tax regimes which would cause delays in inter-state trade and excess paperwork, increasing the cost of trade. The GST was intended to harmonise the taxation systems across the states, however confusion regarding its implementation and product categorisation caused confusion and interstate trade to slow and resultantly oil demand growth slowed.

However, the IEA expects demand growth to return with vigour this year. Instability in many OPEC countries and increasing U.S. production has prompted Indian refiners to seek to diversify their crude import sources. Indian refiners imported increasing volumes from both West Africa and the U.S. Additionally as the Dubai benchmarked crudes (e.g. Saudi crude) increased relative to Brent benchmarked crudes, Atlantic grades became more attractive. Starting at zero imports from the U.S., India began importing in earnest from August onwards at an average of 61kb/d (August 2017 to November 2017). Imports are expected to increase further as multiple Indian refineries’ management teams have indicated.

In 2017 India added two refineries of a total capacity of 164kb/d with a 120kb/d refinery built on the South Western coast and the second refinery built inland. This year no notable refinery additions are expected, rather the growth in demand is assumed to come from increasing utilisation rates.





European oil demand increased by 360kb/d in 2017 over 2016 and is expected to increase by 160kb/d this year. 2017 oil demand growth was attributable to lower oil prices, which have firmed recently, easing demand growth this year. In particular gasoil demand increased in 2017.

The increase in demand was fed by the MEG and North Africa. MEG exports were primarily from Iran, imports from Iran increased from 435kb/d in 2016 to 798kb/d in 2017. Iranian imports now make up 7% of imports, up from 3.9% in 2016. Russian imports decreased by 31kb/d in 2017 after increasing by 245kb/d in 2016. Over the near term, we expect the downside to Russian imports to increase due to the prevailing political environment.



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U.S. crude demand increased by 130kb/d in 2017 over 2016 and is expected to increase further by 200kb/d this year to 20.02mb/d. Year on year imports remained stable at 7.8mb/d in 2017. Imports from West Africa and the MEG (excluding Saudi Arabia) increased whilst imports from the Caribbean and Saudi Arabia decreased. Almost all West African export partners increased their volumes in 2017. The main increase from the MEG was from Iraq, which increased by 192kb/d in 2017. Better Iraqi export infrastructure and a strategic decision to replace Saudi supplies has resulted in higher Iraqi exports to the U.S. Decreases from the Caribbean were from Venezuela and Colombia. Colombian exports are expected to decrease due to a falling investment in producing fields and a resurgence in guerrilla attacks.



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Products Market

China Product Market

Chinese refinery capacity increased by 560kb/d in 2017 with an additional 180kb/d of upgrading capacity installed. Chinese clean product demand was 8.2mb/d in 2017 and is expected to 8.47mb/d this year. Independent refinery quotas increased from 1.75mb/d in 2017 to 3.8mb/d this year.


Chinese gasoline demand increased in 2017 by 59kb/d over 2016 to 2.93mb/d and is expected to grow by 118kb/d in 2018 to 3.05mb/d. However exports concurrently rose from 81kt/month in 2016 (full year) to 88kt/month in 2017 (full year), the majority of the increase in exports were destined for Singapore and Malaysia, helping firm eastern MR demand. We expect gasoline exports to increase this year, primarily within the East – continuing to provide support to eastern MRs. Last year’s first six months gasoline export quota was 4.44kt compared with current year’s first six months export quota of 6.5kt. Additionally, the Chinese SAT has introduced a domestic consumption tax of ¥1.52/ltr for gasoline and an invoicing system which would accurately identify products. These factors would most likely push smaller refineries out of domestic markets to focus on exports.



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Gasoil demand increased by 86kb/d in 2017 over 2016 and is expected to increase by another 48kb/d this year to reach 3.5mb/d. Many of the factors affecting the gasoline trade also apply to the gasoil market. Similar to the gasoline market, despite rising domestic demand, gasoil exports have increased over the same time period. The largest increase in exports were to the short haul routes to South Korea, Hong Kong and Philippines. Again, similar to the gasoline market, the SAT has introduced a domestic gasoil consumption tax of ¥1.20/ltr, pushing out smaller refineries into the export market.



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Jet demand increased by 63kb/d in 2017 and is expected to increase by 35kb/d this year to 748kb/d. Jet exports to most major destinations either fell or were stable in 2017 over 2016. Total jet exports grew by 2% in 2017 compared to 9% in 2016 and 12% in 2015. As domestic Chinese jet demand increases and the U.S. continues on its path as the major product exporter, particularly in the West of Suez market, we expect Chinese jet exports growth to remain subdued.

India Products market

Indian refinery capacity increased by 164kb/d in 2017 and is expected to increase by 16kb/d this year. Major refinery capacity additions are expected to come on-stream post 2020. As the previously discussed twin shocks to the economy of GST and demonetisation dissipate, we expect Indian product demand growth to strengthen this year. Jet demand was not affected by the demonetisation shock as the majority of passenger ticket purchases are transacted through credit cards. Jet demand increased by 9% in 2017 over the previous year and is expected to continue to grow strongly this year due to increasing affordability and growing incomes.


Indian domestic demand increased by 7% in 2017 and by 12% in 2016, mainly due to an increase in passenger car sales. In addition, Indian gasoline fuel standards were tightened in 2017 to Bharat IV standard (the equivalent of Euro IV) nationwide. As a result imports increased last year by 9%, primarily from Iran which has become self-reliant in gasoline production after the start-up of the Persian Gulf Star refinery. Phase one of the refinery (120kb/d capacity) was completed in 2017 with Phase two (120kb/d) starting up in February this year. As gasoline demand is expected to continue to grow strongly this year, short haul imports could increase, helping support the MR market.



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Indian gasoil demand increased by 3.3% in 2017 compared by 5.5% on average for the two years preceding that. Previously discussed macro events affected diesel demand in 2017, second quarter diesel demand remained rangebound in 2017 as opposed to when diesel demand grew strongly over the same period. However, diesel demand is expected to return to stronger growth this year (164kb/d). In April 2017, India introduced regulations for heavy diesel trucks and buses fuel efficiency standards. Heavy truck and buses make up 60% of gasoil demand. Regulations will be implemented in two phases with phase one to be implemented beginning in April 2018 and presents some downside risk to diesel demand growth.

U.S. Product market

The U.S. has continued on its path of becoming a product exporter. U.S. refinery capacity utilisation has increased every year since 2008, reaching an average of 92% last year. The majority of exports originate from the U.S. Gulf region which has now become the largest product exporter in the world.

Gasoil and Gasoline

Little to no refinery capacity additions in South America (40kb/d addition in Argentina in 2017) coupled with rising demand helped push U.S. product exports to South & Central America to grow by 15% over 2016, albeit from a small base. Exports were driven by the fire and subsequent shutdown of the 330kb/d Salina Cruz refinery in Mexico. As a result, the average outage for South and Central America Atlantic increased from 4kb/d in 2016 to 314kb/d in 2017. However, current year outages are expected to decrease this year with Salina Cruz returning to production albeit at half capacity. As a result, current year gasoil export growth to South and Central America is not expected to be as strong as 2017. Exports to Europe have remained broadly rangebound.



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Gasoline exports grew by 9% in 2017 over the preceding year. Similar to gasoil export drivers, gasoline exports to South and Central America increased in 2017. U.S. TM demand (basis LRs) to South and Central America rose by 105.3m TM to 204.5m TM last year.





Similar to the U.S., European refinery utilisation rates also increased in 2017 to 88% as increased demand from Latin America and West Africa supported production.



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Gasoil and Gasoline

After year on year increases in gasoil imports since 2014, imports were stable in 2017. Gasoil demand is expected to increase slightly this year (34kb/d). European gasoline exports increased 3.8% in 2017 over 2016 with the market share of each destination remaining broadly stable. As exports from U.S. led to reduced European exports to West Africa, European exports to the destination declined by 14% from an average of 316kt/month to 272kt/month. Domestic gasoline demand is expected to remain stable this year and return to its long term declining trend next year.







West-East Naphtha Movements

Atlantic Basin availability of naphtha increased due to an increase in U.S. Shale production, and some European refineries switching to ethane, this led to an excess of naphtha which was exported east. As a result



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West/East naphtha exports increased by 11.5% in 2017 to 1.2MT/month. The trend is expected to continue, particularly as a heavy maintenance schedule is expected in the Middle East this year, tightening MEG naphtha supply.




World Tanker Fleet

VLCC fleet growth remained elevated in 2017 at 5.9%, however slightly lower compared to 2016 (6.6%) as, despite higher deliveries, we also experienced an uptick in scrapping. In total, fifty VLCCs came into the market, making 2017 the highest year VLCC delivery year since 2011. The delivery schedule was front loaded with 29 vessels delivered in the first half of the year (First Quarter of 2017 17 VLCCs and Second Quarter of 2017 12 VLCCs) and 21 in the second half (Third Quarter of 2017 11 VLCCs and Fourth Quarter of 2017 10 VLCCs). Nine vessels were removed from the fleet, with eight scrapped in the second half of the year. Only two vessels from the 52 originally scheduled to be delivered in 2017 slipped into 2018—slippage in 2017 was at historical low levels of 4%, significantly lower than the 2009-2016 slippage average of 27.8%. 61 VLCCs are currently scheduled to come in the market in 2018, of which five have been delivered. Slippage is expected to be high this year as the market remains weak in part due to the oversupply of tonnage. Weak spot earnings, rising steel prices and rising costs for shipowners for the installation of the ballast water treatment system are expected to lead to higher removals from the fleet this year. However, scrapping is expected to accelerate towards the end of the decade as over 30 VLCCs are turning over the age of 20 each year after 2020, which along with the uncertainty regarding the impact of sulphur regulations on bunker fuel expected to come into force in January 2020, might make the decision for the owners a bit easier.

2017 proved to be a heavy year in terms of deliveries for Suezmaxes, with 49 vessels coming into the market. The ten removed vessels were not enough to offset the heavy deliveries, bringing the year’s fleet growth to 8.5%—the highest since 2011. Excluding 19 cancellations, slippage for 2017 was at 26%, lower than the 2009-2016 slippage average of 38.4%. Deliveries are expected to remain elevated this year, with 50 Suezmaxes



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scheduled to be delivered, out of which twelve have already delivered in January and February. However, with an expected increase in removals for the reasons mentioned above, we expect fleet growth to ease off at 4.8%.

Aframax (including fully coated LR2s) fleet growth in 2017 fell to 3.9% from 4.9% in 2016, following higher removals compared to the past couple years. In the beginning of the year, there were 82 Aframaxes scheduled to be delivered, of which 61 were delivered during the year, equating to a slippage rate of 25%. 47 of the total deliveries were fully coated (LR2s). Following high LR2 deliveries and only four removals, LR2 fleet growth surged to 14.8% in 2017, the highest level since 2010. A total of 72 Aframaxes were scheduled to be delivered in 2018, eleven of which have already delivered. Of the Aframaxes scheduled to be delivered in 2018, 31 are coated. After accounting for slippage and accelerating removals, Aframax fleet growth is expected to be lower this year at 3.1%, while LR2 fleet growth is estimated at 5.1%. In 2017, we saw 24 LR2s switching to trading Dirty Petroleum Products (DPP) from trading Clean Petroleum Products (CPP), offsetting somewhat the fleet pressure on the clean trading side.

Panamax (including fully coated LR1s) fleet growth declined slightly to 3.8% in 2017 compared to 4% in 2016 with 21 deliveries, 20 of which were fully coated (LR1) and five removals. One of the Panamaxes removed was over 30 years old, the average age of the total five Panamaxes removed from the fleet last year was 23.8 years old—the average age of the fleet now stands at 10.4 years old. Slippage for 2017 stood at 57%, at the start of the year 49 Panamaxes were scheduled to hit the water and 21 were delivered. A total of 23 Panamaxes, all of which are coated LR1s, are scheduled to come in the market in 2018, five of which have delivered in the first two months of this year. Slippage is expected to ease off this year with LR1 fleet growth estimated at 3.2% and Panamax fleet growth at 4.5%. Switching of fully coated trading capacity between CPP and DPP was not as pronounced as on the LR2s, with net dirtying-up to five vessels.

In 2017, MR fleet (45k-55k dwt) growth eased off to 3.2% compared to 6.3% in 2016, as only 55 MRs were added to the fleet, while 11 vessels with an average age of 26.4 years were removed from the fleet. The 2017 slippage rate for MR deliveries was slightly lower at 22% compared with the period 2009-2016, which had an average of 29.2%. MR fleet growth is expected to rise slightly this year to 3.6% as 67 MRs are scheduled to come to the market, eight MRs have already delivered in January and February this year. Five MRs of an average age of 23.2 years have been removed from the fleet this year with ten additional expected to be removed by the end of 2018.

A total of 26 Handymaxes (27k-45k dwt) delivered in 2017 from the originally 35 scheduled to be delivered, bringing the slippage rate to 25%—slightly lower than the 2009-2016 average of 29%. 17 vessels were scrapped in 2017 with an average age of 26.8 years, hence fleet growth stood at 1.2%. 2018 deliveries are standing even lower with 20 Handys scheduled to come into the market, including four already delivered. With nine Handys already removed from the fleet since the beginning of this year, scrapping is expected to be high this year as 57 vessels (6% of the total fleet) are currently over 25 years old.



    Newbuilding Tanker Prices (South Korea)
     Jan-07     Jan-08     Jan-09     Jan-10     Jan-11     Jan-12     Jan-13     Jan-14     Jan-15     Jan-16     Jan-17     Jan-18 


  $130.0m   $146.0m   $130.0m   $100.0m   $105.0m   $100.0m   $90.0m   $92.0m   $98.0m   $93.0m   $83.0m   $82.8m


  $  80.5m   $  86.0m   $  90.0m   $  60.0m   $  65.0m   $  62.0m   $60.0m   $67.0m   $65.0m   $65.0m   $55.0m   $53.0m

Aframax (Uncoated)

  $  65.5m   $  72.0m   $  75.0m   $  51.0m   $  57.0m   $  52.0m   $48.0m   $53.0m   $54.0m   $53.0m   $42.0m   $44.0m

47k dwt (Epoxy Coated)

  $  47.0m   $  51.0m   $  48.0m   $  32.0m   $  37.0m   $  34.5m   $32.0m   $37.0m   $36.0m   $35.3m   $32.0m   $34.0m

Conditions that kept ordering activity muted during 2016 persisted in 2017. Lower earnings, limited finance availability and uncertainty over the upcoming regulations (BWM, IMO2020) could have all weighted on ordering activity. However, historically low asset values led to an increase in orders, especially for VLCCs, Aframaxes and MRs leading to an uptick in newbuilding prices after the Second Quarter of 2017. VLCC newbuilding prices in South Korea fell marginally by $200,000 to $82.8m, although prices reached levels as low



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as $79.25m in April. Attractive newbuilding prices led to a surge in ordering activity with 59 VLCC orders being placed in 2017. 69% of the total orders were placed in the first half of the year, persistently low earnings and slightly higher asset values slowed demand for new tonnage. Of the 59 orders, 46 were placed in South Korea, followed by Japan (7 orders) and China (6 orders). Six VLCCs have already been ordered in the first two months of this year by three different owners.

Despite a $2m decline in Suezmax newbuilding price to $53m, Suezmax orders remained relatively unchanged compared to 2016 with 23 orders placed by the end 2017. 14 orders were placed in the first half of 2017, with no orders placed in the Third Quarter of 2017. Similarly to VLCCs, the majority of the new tonnage was ordered in South Korean yards (14 orders), followed by Chinese (5 orders) and Japanese (4 orders). So far this year there have been no Suezmax orders.

Aframax newbuilding prices in South Korea rose by $2m in 2017 to $44m by the end of 2017. Total Aframax (coated and uncoated) orders were 54 in 2017 compared to only 17 in 2016. 14 of the total Aframaxes orders last year are known to be coated (LR2s), however coated orders might end up being higher as we approach the delivery date and more information is revealed in terms of the vessels’ coating. In 2016, eight Panamax (coated and uncoated) orders were placed, with one of them being confirmed as coated (LR1). LR1 newbuilding prices in South Korea were unchanged YoY in January 2018 at $39m. The majority of both Aframaxes and Panamaxes have been ordered in China (21 Aframaxes and 5 Panamaxes). Between January and February 2018, two Aframax orders have been placed in South Korea.

MR newbuilding prices in South Korea also increased by $2m during 2017 to $34m by the end of 2017. Total MR orders rose to 62 compared to only 25 in 2016, however MRs have long passed their peak ordering activity when over 100 MRs were ordered each year during 2012 and 2013 as part of their eco-fleet renewal. The majority of MR orders were placed in South Korea (24 orders) followed by Vietnam (21 orders). For the first two months of 2018, 11 MR orders have been placed as MRs have started the year on a positive note in terms of earnings. Handymax ordering activity continued the downward trajectory of the past four years with only four vessels ordered, all of them at Chinese yards.

Expectations are that this year will prove to be the bottom of the market in terms of earnings, some support might be provided at the end of this year and in 2019 owners might start ordering in volume again as scrapping, especially of the older tonnage, is expected to take off by the end of the decade as the fleet starts to age. Moreover, high steel prices, along with the difficulty for the older tonnage to find employment in an oversupplied market, and the cost of ballast water treatment installation that is also hovering on owners’ balance sheets may create an environment of increased scrappings followed by increased orders for replacement of the fleet.

Second-hand Prices


    5-Year Old Tanker Prices
     Jan-07     Jan-08     Jan-09     Jan-10     Jan-11     Jan-12     Jan-13     Jan-14     Jan-15     Jan-16     Jan-17     Jan-18 


  $117.0m   $138.0m   $110.0m   $77.0m   $80.0m   $55.0m   $51.0m   $60.8m   $77.0m   $78.0m   $55.0m   $61.0m


  $  80.0m   $  96.0m   $  82.5m   $55.0m   $56.0m   $43.0m   $37.0m   $38.0m   $55.8m   $60.0m   $40.6m   $40.0m

Aframax (Uncoated)

  $  65.0m   $  73.0m   $  61.0m   $39.0m   $41.0m   $32.0m   $27.0m   $29.5m   $42.5m   $44.0m   $27.0m   $30.0m

47k dwt (Epoxy Coated)

  $  47.0m   $  52.0m   $  40.0m   $24.5m   $26.0m   $25.5m   $22.0m   $28.0m   $26.4m   $28.0m   $20.0m   $23.0m

VLCC second-hand prices rose by 10% YoY to $61m, Aframax prices increased by 11% to $30m, MR prices grew by 15% to $23m while LR1 prices remained unchanged at the $25m levels. Suezmaxes fell marginally by 1% YoY to $40m.

Vessel Earnings

The tanker markets continued to be bearish in 2017 across all sectors. Oversupply of tonnage, especially for the crude sector, where four VLCCs and four Suezmaxes were delivered each month, and higher oil prices that



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led to higher bunker costs which ate into owners’ earnings led to crude tanker rates revisiting the low levels of 2013, while product tanker rates also remained subdued. VLCC (basis TD3 round voyage) earnings fell 41% YoY to average $24,000/day in 2017 with earnings reaching levels as low as $8,000/day in September. Suezmax (basis TD20 round voyage) earnings declined by 48% YoY to $13,000/day while the Aframax Composite (basis an average of TD7, TD8, TD9, TD19 & TD17 round voyages) fell by 43% YoY to $12,000/day. Freight cost hit record low levels in 2017, reflecting the oversupply of vessels. In the products market, LR2 (basis TC1 round voyage) earnings fell by 31% YoY to $11,000/day, LR1 (basis TC5 round voyage) dropped by 41% YoY to $7,000/day while the MR Composite (basis an average of TC2/14, TC6, TC7, TC10 & TC11/4) declined by 14% YoY to $12,000/day. Freight cost for the LR routes was also at record low levels with TC1 averaging $15.75/tonne and TC5 at $17.71/tonne.

Oil prices and, as a result bunker prices, recovered last year, eating into owners’ earnings. Rotterdam IFO380 averaged at $302/tonne in 2017, $91/tonne higher YoY. Based on the latest EIA forecast Brent is expected to average $62.13/bbl and WTI at $58.17/bbl, maintaining support for firmer bunkers this year. With the oil market currently in backwardation, floating storage has almost evaporated as a vessel employment option, leading to an increase in the tonnage supply as more vessels become available for trading. However, as we come closer to 2020 when the new lower sulphur regulations for bunkers will come into force, high sulphur fuel oil (HSFO) demand is expected to fall significantly, leading to an increase in demand for storage.

VLCC Time Charter Equivalent Spot Market Earnings





Despite a strong start to the year, VLCC earnings started falling after February 2017 to average the year at approximately $23,000/day (basis TD3 MEG/Japan round voyage). The heavy delivery schedule started to take



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its toll on earnings that, combined with higher bunker prices, hit levels last seen in 2013. VLCC earnings averaged approximately $32,000/day in First Quarter of 2017, marking the lowest First Quarter since 2013. Earnings eased off further as the year progressed with Second Quarter of 2017 averaging at $23,000/day and Third Quarter of 2017 at $14,000/day. The much-anticipated winter market fell short of owners’ expectations as the traditionally stronger Fourth Quarter provided some support to earnings that rose to $24,000/day. Fifty VLCCs coming into the market along with the extension of the production cut deal distorted the demand/supply balance in the VLCC market leading to the lowest $/tonne paid since 2002 as freight cost averaged approximately $8.90/tonne. VLCC earnings had a disappointing start to this year with earnings well below OPEX levels at currently approximately $5,000/day (basis TD3C MEG/China round voyage). With OPEC extending its production cuts through the end of the year and fleet growth remaining resilient, we are unlikely to see any significant recovery in rates in the near-term. However, expectations on higher scrapping, increased U.S. production, rising Chinese import requirements amid higher crude import quotas granted by the government this year might help the market recover by the end of this year or the beginning of 2019.

Suezmax Time Charter Equivalent Spot Market Earnings





Suezmax earnings in 2017 were similar to VLCCs, with TD6 (Black Sea/Med) averaging 47% lower YoY at approximately $13,500/day and TD20 (WAF/UKC) 46% lower YoY at $13,000/day. Following the OPEC/non-OPEC market management deal, higher Dubai prices increased demand for (Brent priced) West African crudes last year, with WAF crude exports to Asia-Pacific rising by 20% YoY to 1.48m bpd. Nigerian production returned last year, with output rising by 220k bpd YoY to 1.61m bpd in December, while Angolan output fell by 50k bpd YoY to 1.59m bpd as part of the OPEC cut deal. However, Suezmaxes in West Africa did not manage to



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benefit from the increased eastbound volumes as the majority ended up in VLCCs that increased their WAF market share to 49% from 42% in 2016. With 13 vessels coming into the market in the First Quarter of 2017, earnings averaged at $19,000/day for TD6 and $18,000/day for TD20. Despite the return of Forcados in May, earnings edged further down in the Second Quarter to $12,500/day to sink at $7,750/day (TD6) and $8,750/day (TD20) in the Third Quarter. Pipeline leakages in July affected loadings of Bonny Light, however production remained unaffected with August output at 1.66m bpd, the highest level since March 2016. Earnings recovered somewhat in the Fourth Quarter of 2017, driven by the seasonally stronger winter market and an ease in deliveries, with TD6 averaging $14,250/day and TD20 $13,500/day. In terms of $/tonne, both routes hit the lowest levels on record, with TD6 averaging $5.66/tonne and TD20 $9.12/tonne. 2018 to date, TD6 averaged $4,000/day and T20 $5,750/day. Despite some recovery in rates during March, fundamentals remain bearish.

Aframax Time Charter Equivalent Spot Market Earnings





The Aframax Composite earnings (basis an average of TD7, TD8, TD9, TD11, TD14 and TD17) were subdued in 2017 with average composite earnings 42% lower YoY at $12,000/day. The Aframax market was affected by the weakness in the VLCC and Suezmax markets as well as the clean LR2 market that remained subdued throughout the year, which led to 24 LR2s dirtying up in 2017. The Aframax composite fell by 43% YoY in the First Quarter of 2017 to average $16,000/day with TD17 (Baltic/UKC) only providing some support with average First Quarter of 2017 earnings at $23,750/day. The Aframax Composite dropped further in the Second Quarter of 2017 to $11,250/day with TD14 (SE Asia/EC Australia) the only Aframax route earning over $10,000/day in June. Following the weakness in the larger crude tanker sectors in the Third Quarter of 2017, the Aframax Composite edged lower to $7,500/day with the Med market (TD19) earning approximately $2,000/day



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in August. Driven by a stronger October, the Aframax Composite rose slightly in the Fourth Quarter of 2017 to $11,750/day, however December’s weakness in most of the routes weighed down the sector. The return of Libya to the market has not translated into higher earnings so far due to its unsustainability while Aframaxes have been increasingly feeling the pressure from Suezmaxes in certain regions, such as the Black Sea. The Aframax Composite remains subdued so far this year, with the majority of the routes trading below $10,000/day. On the other hand, the clean LR2 market has started the year on a positive note with TC1 currently trading at $16,500/day.

MR Time Charter Equivalent Spot Market Earnings





The MR Composite (basis an average of TC6, TC7, TC10, TC11/4 and TC2/14) posted losses of approximately $2,000/day YoY to average $12,000/day, however earnings were at their historical averages since 2009. MRs in the Far East had a better second half of 2017 ($13,750/day) compared to the first half of 2017 ($11,500/day) and managed to outperform the Atlantic markets on average. In January 2017, the Chinese government decided to keep product export quotas equal to the actual volumes exported in 2016 (38.2m tonnes). Most refineries reached their quota by the end of the Third Quarter of 2017/beginning of the Fourth Quarter of 2017, which caused a 15% YoY fall in product exports over the September to October period. However, in November, Beijing issued 5m tonnes of additional quotas in a fifth round, pushing the total quotas for the year to 43m tonnes, 12.6% higher than 2016. The additional quotas along with strong margins in the region led to higher refinery runs and consequently higher product exports. In addition, China’s ban on the use of >10ppm diesel aided stockdrawing and pushed up exports of higher sulphur grades. The West of Suez MR market (basis TC2/14) performed better in the first half of 2017 ($13,000/day) compared to the second half of 2017 ($9,750/day). Hurricane Harvey shutdown 2.4m bpd of refining capacity, in addition to which port infrastructure



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and pipelines remained offline in the USG for a prolong period of time between August and September, pushing TC2 to record high levels of $24,000/day amid increased demand for gasoline and gasoil in the U.S. However rates eased off quickly due to oversupply of tonnage in the region followed the spike in the UKC/USG trade. Following refinery shutdowns in the USG, U.S. distillates exports to Europe fell to 136k bpd in September with TC14 generating negative TCEs between September and October. The long-awaited products market recovery appears to be underway, with stocks in most major consuming regions at or below their 5-year averages and the fleet set to slow this year (2.8%). Following stronger earnings in late 2017, the MR Composite started the year on a positive note. Since then the market has come off slightly, however it remains at relatively healthy levels of approximately $13,000/day.

Risk Factors

Risks Related To Our Industry

The tanker industry is cyclical, resulting in charter rates that can be volatile. Poor charter markets for crude oil carriers and product tankers may adversely affect our future revenues and earnings.

The volatility in charter rates, and in turn our revenue and earnings, is due to the historically cyclical nature of the tanker industry. The typical cycle is partly created by material changes in the number of tankers available in the market resulting primarily from new deliveries to the market less vessels demolished or converted due to technical obsolescence and the number of vessels occupied on long-distance travel or delayed by geopolitical events. The cycle is also impacted by material changes to the supply of and demand for oil due primarily to corrections in the price of oil and to geopolitical factors. As of April 20, 2018, about half of the vessels owned by our subsidiary companies were employed under charters based upon prevailing market rates (including time charters with a profit share component), and the remaining vessels were employed on time charters which, if not extended, are scheduled to expire on various dates between April 2018 and June 2028. Tanker charter rates declined significantly in 2016 and further declined in 2017, which had an adverse effect on our revenues, profitability and cash flows. If rates continue to be low in the charter market for any significant period in 2018, it will have a further adverse effect on our revenues, profitability and cash flows. Declines in prevailing charter rates also affect the value of our vessels, which are correlated to the trends of charter rates, and could affect our ability to comply with our loan covenants.

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

Global financial markets and economic conditions have been disrupted and volatile in recent years and remain subject to significant vulnerabilities, such as the deterioration of fiscal balances and the rapid accumulation of public debt, continued deleveraging in the banking sector and a limited supply of credit. While the global economy may be improving, it remains subject to downside risk. There can be no assurance that global economic weakness or a recession will not return and that tight credit markets will not continue or become more severe.

In addition, the process of the UK to exit the European Union, as well as continued turmoil and hostilities in the Middle East or potential hostilities elsewhere in the world, could contribute to volatility in the global financial markets. These circumstances, along with the re-pricing of credit risk and the reduced participation of certain financial institutions from financing of the shipping industry, will likely continue to affect the availability, cost and terms of vessel financing. If financing is not available to us when it is needed, or is available only on unfavorable terms, our business may be adversely affected, with corresponding effects on our profitability, cash flows and ability to pay dividends.

Moreover, as a result of the continuing economic crisis in Greece and the related austerity measures implemented by the Greek government, as well as the capital controls in effect in Greece since mid-2015, our



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operations may be subjected to new regulations that may require us to incur new or additional compliance or other administrative costs and may require that we pay to the Greek government new taxes or other fees or that dividends we pay be subject to withholding taxes. Furthermore, the commitments by the Greek government to the nations’ creditors and potential shift in its policies may potentially lead to Greece’s exit from the Eurozone, if not satisfied, which could affect our technical and commercial managers’ operations located in Greece.

The implementation by the U.S. or other governments of protectionist trade measures, including tariffs or other trade restrictions, could also adversely affect the world oil and petroleum markets.

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 and price 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, worldwide demand for oil and oil products continues to rise. In the event that this trend falters, the production of and demand for crude oil and petroleum products will again encounter pressure which could lead to a decrease in shipments of these products and consequently this would have an adverse impact on the employment of our vessels and the charter rates that they command. Also, if oil prices remain at uneconomic levels for producers, it may lead to declining output. As a result of any reduction in demand or output, the charter rates that we earn from our vessels employed on charters related to market rates may decline and possibly remain at low levels for a prolonged period of time.

Our operating results are subject to seasonal fluctuations.

The tankers owned by our subsidiary companies operate in markets that have historically exhibited seasonal variations in tanker demand, which may result in variability in our results of operations on a quarter-by-quarter basis. Tanker markets are typically stronger in the winter months as a result of increased oil consumption in the northern hemisphere, but weaker in the summer months as a result of lower oil consumption in the northern



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hemisphere and refinery maintenance. As a result, revenues generated by the tankers in our fleet have historically been weaker during the fiscal quarters ended June 30 and September 30. However, there may be periods in the northern hemisphere when the expected seasonal strength does not materialize to the extent required to support sustainable profitable rates due to tanker overcapacity.

An increase in the supply of vessels without an increase in demand for such vessels could cause charter rates to decline, which could have a material adverse effect on our revenues and profitability.

Historically, the marine transportation industry has been cyclical. The profitability and asset values of companies in the industry have fluctuated based on certain factors, including changes in the supply and demand of vessels. The supply of vessels generally increases with deliveries of new vessels and decreases with the scrapping of older vessels and/or the removal of vessels from the competitive fleet either for storage purposes or for utilization in offshore projects. The newbuilding order book equaled approximately 10% of the existing world tanker fleet at February 1, 2018, by number of vessels, with a significant amount of these newbuilding vessels scheduled to be delivered in 2018. No assurance can be given that the order book will not increase further in proportion to the existing fleet. If supply increases, and demand does not match that increase, the charter rates for our vessels could decline significantly. In addition, any decline of trade on specific long-haul trade routes will effectively increase available capacity with a detrimental impact on rates. A decline in, or prolonged period of, already weak 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, which are other independent tanker companies, as well as national and independent oil companies, some of which have greater financial strength and capital resources than we do. Competition in the tanker industry is intense and depends on price, location, size, age, condition, and the acceptability of the available tankers and their operators to potential charterers.

Acts of piracy on ocean-going vessels, although recently declining in frequency, could still adversely affect our business.

Despite a decline in the frequency of pirate attacks on seagoing vessels in the western part of the Indian Ocean, such attacks remain prevalent off the west coast of Africa and between Malaysia and Indonesia. If piracy attacks result in regions in which our vessels are deployed being characterized by insurers as “war risk” zones, as the Gulf of Aden has been, or Joint War Committee (JWC) “war and strikes” listed areas, premiums payable for such insurance coverage could increase significantly and such insurance coverage may be more difficult to obtain. Crew costs, including those due to employing onboard security guards, could increase in such circumstances. In addition, while we believe the charterer remains liable for charter payments when a vessel is seized by pirates, the charterer may dispute this and withhold charter hire until the vessel is released. A charterer may also claim that a vessel seized by pirates was not “on-hire” for a certain number of days and it is therefore entitled to cancel the charter party, a claim that we would dispute. We may not be adequately insured to cover losses from these incidents, which could have a material adverse effect on us. In addition, hijacking as a result of an act of piracy against our vessels, or an increase in cost, or unavailability of insurance for our vessels, could have a material adverse impact on our business, financial condition, results of operations and cash flows.

Terrorist attacks, international hostilities, economic and trade sanctions and the economic situation in the Eurozone can affect the tanker industry, which could adversely affect our business.

Major oil and gas producing countries in the Middle East have become involved militarily in the widening conflicts in Iraq, Syria and Yemen. Armed conflicts with insurgents and others continue, as well, in Libya, another major oil exporting country. Any of these hostilities could seriously disrupt the production of oil or LNG



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and endanger their export by vessel or pipeline, which could put our vessels at serious risk and impact our operations and our revenues, expenses, profitability and cash flows in varying ways that we cannot now project with any certainty.

The increasing number of terrorist attacks throughout the world, longer-lasting wars, international incidents or international hostilities, such as in the Ukraine, Afghanistan, Iraq, Syria, Libya, Yemen and the Korean peninsula, could damage the world economy and adversely affect the availability of and demand for crude oil and petroleum products and negatively affect our investment and our customers’ investment decisions over an extended period of time. In addition, sanctions against oil exporting countries such as Iran, Sudan, Syria and Russia may also impact the availability of crude oil which would increase the availability of tankers, thereby negatively impacting charter rates. We conduct our vessel operations internationally and despite undertaking various security measures, our vessels may become subject to terrorist acts and other acts of hostility like piracy, either at port or at sea. Such actions could adversely impact our overall business, financial condition and results of operations. In addition, terrorist acts and regional hostilities around the world in recent years have led to increases in our insurance premium rates and the implementation of special “war risk” premiums for certain trading routes.

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, the UN or the EU, which could negatively affect the trading price of our common shares.

On charterers’ instructions, our subsidiaries’ vessels may be requested to call on ports located in countries subject to sanctions and embargoes imposed by the U.S. government, the UN or the EU and countries identified by the U.S. government, the UN or the EU as state sponsors of terrorism. The U.S., UN- and EU- sanctions and embargo laws and regulations vary in their application, as they do not all apply to the same covered persons or proscribe the same activities, and such sanctions and embargo laws and regulations may be amended or strengthened over time.

On January 16, 2016, “Implementation Day” for the Iran Joint Comprehensive Plan of Action (JCPOA), the United States lifted its secondary sanctions against Iran which prohibited certain conduct by non-U.S. companies and individuals that occurred entirely outside of U.S. jurisdiction involving specified industry sectors in Iran, including the energy, petrochemical, automotive, financial, banking, mining, shipbuilding and shipping sectors. By lifting the secondary sanctions against Iran, the U.S. government effectively removed U.S. imposed restraints on dealings by non-U.S. companies, such as our Company, and individuals with these formerly targeted Iranian business sectors. Non-U.S. companies continue to be prohibited under U.S. sanctions from (i) knowingly engaging in conduct that seeks to evade U.S. restrictions on transactions or dealings with Iran or that causes the export of goods or services from the United States to Iran, (ii) exporting, reexporting or transferring to Iran any goods, technology, or services originally exported from the U.S. and / or subject to U.S. export jurisdiction and (iii) conducting transactions with the Iranian or Iran-related individuals and entities that remain or are placed in the future on OFAC’s list of Specially Designated Nationals and Blocked Persons (SDN List), notwithstanding the lifting of secondary sanctions.

However, there is significant uncertainty regarding the future of the JCPOA. The U.S. has the ability to reimpose sanctions against Iran if, in the future, Iran does not comply with its obligations under the nuclear agreement. In January 2018, President Trump executed necessary waivers with respect to the JCPOA required by the Iran Nuclear Agreement Review Act in order to continue the United States’ nuclear sanctions relief to Iran provided by the JCPOA, but in a statement he indicated that he will not again waive sanctions unless the JCPOA is amended.

The U.S. government’s primary Iran sanctions remain largely unchanged after Implementation Day and, as a consequence, U.S. persons continue to be broadly prohibited from engaging in transactions or dealings in or with Iran or its government. These sanctions broadly restrict U.S. persons from engaging in transactions or dealings



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with the Government of Iran and Iranian financial institutions, which effectively impacts the transfer of funds to, from, or through the U.S. financial system whether denominated in US dollars or any other currency.

As a result of the lifting of the U.S. secondary sanctions (and relevant EU sanctions) relating to Iran, it is possible that one of our charterers may attempt to direct one of our vessels to carry cargoes to or from Iran, without our approval. If the charterer succeeded in avoiding our controls to prevent such action, this could have various effects on us, such as affecting our reputation and our relationships with our investors and financing sources, affecting the cost of our insurance with respect to such voyages, and potentially increase our exposure to foreign currency fluctuations. Investor perception of the value of our shares may also be adversely affected by the consequences of war, the effects of terrorism, civil unrest and governmental actions in these and surrounding countries.

The U.S. also maintains embargoes on Cuba, North Korea and Syria. We can anticipate that some of our charterers may request our vessels to call on ports located in these countries. Although we believe that we are in compliance with all applicable sanctions and embargo laws and regulations, and intend to maintain such compliance, there can be no assurance that we will be in compliance in the future, particularly as the scope of certain laws may be unclear and may be subject to changing interpretations. Any such violation could result in fines or other penalties and could result in some investors deciding, or being required, to divest their interest, or not to invest, in us. Additionally, some investors may decide to divest their interest, or not to invest, in us simply because we do business with companies that do lawful business in sanctioned countries. Moreover, our charterers may violate applicable sanctions and embargo laws and regulations as a result of actions that do not involve us or our vessels, and those violations could in turn negatively affect our reputation.

Failure to comply with the U.S. Foreign Corrupt Practices Act and other anti-bribery legislation in other jurisdictions could result in fines, criminal penalties, contract terminations and an adverse effect on our business.

We may operate in a number of countries throughout the world, including countries known to have a reputation for corruption. We are committed to doing business in accordance with applicable anti-corruption laws and have adopted a code of business conduct and ethics which is consistent and in full compliance with the U.S. Foreign Corrupt Practices Act of 1977, or the “FCPA”. We are subject, however, to the risk that persons and entities whom we engage or their agents may take actions that are determined to be in violation of such anti-corruption laws, including the FCPA. Any such violation could result in substantial fines, sanctions, civil and/or criminal penalties, or curtailment of operations in certain jurisdictions, and might adversely affect our business, results of operations or financial condition. In addition, actual or alleged violations could damage our reputation and ability to do business. Furthermore, detecting, investigating, and resolving actual or alleged violations is expensive and can consume significant time and attention of our senior management.

Efforts to take advantage of opportunities in pursuit of our growth strategy may result in financial or commercial difficulties.

A key strategy of management is to continue to renew and grow the fleet by pursuing the acquisition of additional vessels or fleets or companies that are complementary to our existing operations. If we seek to expand through acquisitions, we face numerous challenges, including:



difficulties in raising the required capital;



depletion of existing cash resources more quickly than anticipated;



assumption of potentially unknown material liabilities or contingent liabilities of acquired companies; and



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.



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We are subject to regulation and liability under environmental, health and safety laws that could require significant expenditures and affect our cash flows and net income.

Our business and the operation of our subsidiaries’ vessels are subject to extensive international, national and local environmental and health and safety laws and regulations in the jurisdictions in which our vessels operate, as well as in the country or countries of their registration. In addition, major oil companies chartering our vessels impose, from time to time, their own environmental and health and safety requirements. To comply with these requirements and regulations, including the new MARPOL Annex VI sulfur emission requirements instituting a global 0.5% sulfur cap on marine fuels from January 1, 2020 and the IMO ballast water management (“BWM”) convention, which requires vessels to install expensive ballast water treatment systems (“BWTS”) before the first MARPOL renewal survey conducted after September 8, 2019, for newly constructed vessels after September 8, 2017 to have a BWTS installed by delivery and for all vessels to be certified in accordance with the BWM convention by September 8, 2024, we may be required to incur additional costs to meet new maintenance and inspection requirements, develop contingency plans for potential spills, and obtain insurance coverage.

These and future environmental regulations, which may become stricter, may limit our ability to do business, increase our operating costs and/or force the early retirement of our vessels, all of which could have a material adverse effect on our financial condition and results of operations.

International, national and local laws imposing liability for oil spills are also becoming increasingly stringent. Some impose joint, several, and in some cases, unlimited liability on owners, operators and charterers regardless of fault. We could be held liable as an owner, operator or charterer under these laws. In addition, under certain circumstances, we could also be held accountable under these laws for the acts or omissions of Tsakos Shipping & Trading S.A. (“Tsakos Shipping”), Tsakos Columbia Shipmanagement Ltd. (“TCM”) or Tsakos Energy Management Limited (“Tsakos Energy Management”), companies that provide technical and commercial management services for our subsidiaries’ vessels and us, or others in the management or operation of our subsidiaries’ vessels. Although we currently maintain, and plan to continue to maintain, for each of our subsidiaries’ vessels’ pollution liability coverage in the amount of $1 billion per incident (the maximum amount available), liability for a catastrophic spill could exceed the insurance coverage we have available and result in our having to liquidate assets to pay claims. In addition, we may be required to contribute to funds established by regulatory authorities for the compensation of oil pollution damage or provide financial assurances for oil spill liability to regulatory authorities.

Maritime disasters and other operational risks may adversely impact our reputation, financial condition and results of operations.

The operation of ocean-going vessels has an inherent risk of maritime disaster and/or accident, environmental mishaps, cargo and property losses or damage and business interruptions caused by, among others:



mechanical failure;



human error;



labor strikes;



adverse weather conditions;



vessel off hire periods;



regulatory delays; and



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.



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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

Any significant future declines in the values of our vessels could affect our ability to comply with various covenants in our credit facilities unless waived or modified by our lenders.

Our credit facilities, which are secured by mortgages on our subsidiaries’ vessels, require us to maintain specified collateral coverage ratios and satisfy financial covenants, including requirements based on the market value of our vessels, such as maximum corporate leverage levels. The appraised value of a ship fluctuates depending on a variety of factors including the age of the ship, its hull configuration, prevailing charter market conditions, supply and demand balance for ships and new and pending legislation. The oversupply of tankers and depressed tanker charter market adversely affected tanker values from the middle of 2008 to late 2013, and despite the young age of our subsidiaries’ fleet and extensive long-term charter employment on many of the vessels, resulted in a significant decline in the charter-free values of our vessels. Vessel values recovered from the end of 2013, but again declined during 2016 and 2017 due primarily to global fleet overcapacity and lack of financing for potential buyers to acquire second-hand, charter free vessels. Values may remain at current levels for a prolonged period, further decline or rise. Low values may result in our inability to comply with the financial covenants under our credit facilities which relate to our consolidated leverage and loan-to-asset value collateral requirements. If we were unable to obtain waivers in case of non-compliance or post additional collateral or prepay principal in the case of loan-to-asset value requirements, our lenders could accelerate our indebtedness. We have paid all of our scheduled loan installments and related loan interest consistently without delay or omission and none of our lenders under our credit facilities has requested such prepayment or additional cash collateral where non-compliance has occurred.

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

During 2017, we derived approximately 63% of our revenues from time charters, as compared to 52% in 2016. As our current period charters on fourteen of the vessels owned by our subsidiary companies expire in the remainder of 2018, it may not be possible to re-charter these vessels on a period basis at attractive rates if the current softness in the tanker charter market continues. If attractive period charter opportunities are not available, we may seek to charter the vessels owned by our subsidiary companies on the spot market, which is subject to significant fluctuations. In the event a vessel owned by one of our subsidiary companies may not find employment at economically viable rates, management may opt to lay up the vessel until such time that rates become attractive again (an action which our subsidiary companies have never undertaken). During the period of any layup, the vessel would continue to incur expenditures such as debt service, insurance, reduced crew wages and maintenance costs.



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We are dependent on the ability and willingness of our charterers to honor their commitments to us for substantially all of our revenues and the failure of our counterparties to meet their obligations under our charter agreements could cause us to suffer losses or otherwise adversely affect our business.

We derive substantially all of our revenues from the payment of charter hire by our charterers. 46 of our 64 vessels are currently employed under time charters including time charters with profit share. We could lose a charterer or the benefits of a time charter if:



the charterer fails to make charter payments to us because of its financial inability, disagreements with us, defaults on a payment or otherwise;



the charterer exercises certain specific limited rights to terminate the charter;



we do not take delivery of a newbuilding vessel we may contract for at the agreed time; or



the charterer terminates the charter because the vessel fails to meet certain guaranteed speed and fuel consumption requirements and we are unable to rectify the situation or otherwise reach a mutually acceptable settlement.

If we lose a time charter, we may be unable to re-deploy the related vessel on terms as favorable to us or at all. We would not receive any revenues from such a vessel while it remained unchartered, but we may be required to pay expenses necessary to maintain the vessel in proper operating condition, insure it and service any indebtedness secured by such vessel.

If our charterers fail to meet their obligations to us or attempt to renegotiate our charter agreements, as part of a court-led restructuring or otherwise, we could sustain significant reductions in revenue and earnings which could have a material adverse effect on our business, financial condition, results of operations and cash flows, as well as our ability to pay dividends, if any, in the future, and comply with the covenants in our credit facilities.

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. Beginning in 2016, we modified our chartering strategy to place more of our subsidiaries’ vessels on time-charter. As of April 20, 2018, 18 of the vessels owned by our subsidiary companies were employed under spot charters. If we were to increase participation in the spot market, we may experience a lower overall utilization of our fleet through waiting time or ballast voyages, leading to a decline in operating revenue. Moreover, to the extent our vessels are employed in the spot market, both our revenue from vessels and our operating costs, specifically our voyage expenses, will be significantly impacted by adverse movements in the cost of bunkers (fuel). See “—Fuel prices may adversely affect our profits.” Unlike time charters in which the charterer bears all of the bunker costs, in spot market voyages we bear the bunker charges as part of our voyage costs. As a result, while historical movements in bunker charges are factored into the prospective freight rates for spot market voyages periodically announced by World Scale Association (London) Limited and similar organizations, increases in bunker charges in any given period could have a material adverse effect on our cash flow and results of operations for the period in which the increase occurs. In addition, to the extent we employ our vessels pursuant to contracts of affreightment or under pooling arrangements, the rates that we earn from the charterers under those contracts may be subject to reduction based on market conditions, which could lead to a decline in our operating revenue.

We depend on Tsakos Energy Management, Tsakos Shipping and TCM to manage our business.

We do not have the employee infrastructure to manage our operations and have no physical assets. In common with industry practice, our subsidiaries own the vessels in the fleet and any contracts to construct newbuildings. We have engaged Tsakos Energy Management to perform all of our executive and management functions. Tsakos Energy Management employees directly provide us with financial, accounting and other back-office services, including acting as our liaison with the New York Stock Exchange and the Bermuda Monetary



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Authority. Tsakos Energy Management, in turn, oversees and subcontracts part of commercial management (including treasury, chartering and vessel purchase and sale functions) to Tsakos Shipping, and day-to-day fleet technical management, such as vessel operations, repairs, supplies and crewing, to TCM. As a result, we depend upon the continued services provided by Tsakos Energy Management and Tsakos Energy Management depends on the continued services provided by Tsakos Shipping and TCM.

We derive significant benefits from our relationship with Tsakos Energy Management and its affiliated companies, including purchasing discounts to which we otherwise would not have access. We would be materially adversely affected if any of Tsakos Energy Management, Tsakos Shipping or TCM becomes unable or unwilling to continue providing services for our benefit at the level of quality they have provided such services in the past and at comparable costs as they have charged in the past. If we were required to employ a ship management company other than Tsakos Energy Management, Tsakos Shipping or TCM, we cannot offer any assurances that the terms of such management agreements would be on terms as favorable to the Company in the long term.

Tsakos Energy Management, Tsakos Shipping and TCM are privately held companies and there is little or no publicly available information about them.

The ability of Tsakos Energy Management, Tsakos Shipping and TCM to continue providing services for our and our subsidiaries’ benefit will depend in part on their own financial strength. Circumstances beyond our control could impair their financial strength and, because each of these companies is privately held, it is unlikely that information about their financial strength would become public. Any such problems affecting these organizations could have a material adverse effect on us.

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, 2017 would have resulted in a payment of approximately $160.7 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 with us. Therefore, it is unlikely that we or our subsidiaries would be able to obtain any meaningful recovery if we or they were to sue Tsakos Energy Management, Tsakos Shipping or TCM on contractual grounds.



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Tsakos Shipping provides chartering services to other tankers and TCM manages other tankers and could experience conflicts of interests in performing obligations owed to us and the operators of other tankers.

In addition to the vessels that it manages for our fleet, TCM technically manages a fleet of privately owned vessels and wishes to acquire third-party clients. These vessels are operated by the same group of TCM employees that manage our vessels, and we are advised that its employees manage these vessels on an “ownership neutral” basis; that is, without regard to who owns them. It is not impossible that Tsakos Shipping, which provides chartering services for nearly all vessels technically managed by TCM, might allocate charter or spot opportunities to other TCM managed vessels when our subsidiaries’ vessels are unemployed. It is also possible that TCM could in the future agree to manage more tankers that might directly compete with the fleet.

Clients of Tsakos Shipping have acquired and may acquire additional vessels that may compete with our fleet.

Tsakos Shipping and we have an arrangement whereby it affords us a right of first refusal on any opportunity to purchase a tanker which is 10 years of age or younger or contract to construct a tanker that is referred to or developed by Tsakos Shipping. Were we to decline any opportunity offered to us, or if we do not have the resources or desire to accept it, other clients of Tsakos Shipping might decide to accept the opportunity. In this context, Tsakos Shipping clients have in the past acquired modern tankers and have ordered the construction of vessels. They may acquire or order tankers in the future, which, if we decline to buy from them, could be entered into charters in competition with our vessels. These charters and future charters of tankers by Tsakos Shipping could result in conflicts of interest between their own interests and their obligations to us.

Our chief executive officer has affiliations with Tsakos Energy Management, Tsakos Shipping and TCM which could create conflicts of interest.

Nikolas Tsakos is the president, chief executive officer and a director of our company and the director and sole shareholder of Tsakos Energy Management. Nikolas Tsakos is also the son of the founder of Tsakos Shipping. These responsibilities and relationships could create conflicts of interest that could result in our losing revenue or business opportunities or increase our expenses.

Our commercial arrangements with Tsakos Energy Management and Argosy may not always remain on a competitive basis.

We pay Tsakos Energy Management a management fee for its services pursuant to our management agreement. We also place our hull and machinery insurance, increased value insurance and loss of hire insurance through Argosy Insurance Company, Guernsey, a captive insurance company affiliated with Tsakos interests. We believe that the management fees that we pay Tsakos Energy Management compare favorably with management compensation and related costs reported by other publicly traded shipping companies and that our arrangements with Argosy are structured at arm’s-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.



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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:



general economic and market conditions affecting the tanker industry;



supply and demand balance for ships within the tanker industry;



competition from other shipping companies;



types and sizes of vessels;



other modes of transportation;



cost of newbuildings;



governmental or other regulations;



prevailing level of charter rates; and



technological advances.

The global economic downturn that commenced in 2008 resulted in a decrease in vessel values. Since then valuations have fluctuated, falling whenever there was excess fleet capacity and falling freight rates, as in 2013, and recovering when tanker market conditions improved as in 2015. Valuations declined again in 2016 and remained low through 2017 and going into 2018. In addition, although our subsidiaries currently own a modern fleet, with an average age of 7.5 years as of April 20, 2018, 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, such as we did in the fourth quarter of 2017 with respect to two of our older tankers.

In addition, accounting pronouncements require that we periodically review long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. An impairment charge for an asset held for use should be recognized when the estimate of undiscounted cash flows, excluding interest charges, expected to be generated by the use of the asset is less than its carrying amount. Measurement of the impairment charge is based on the fair value of the asset as provided by third parties. Such reviews may from time to time result in asset write-downs, which could adversely affect our results of operations.

If TCM is unable to attract and retain skilled crew members, our reputation and ability to operate safely and efficiently may be harmed.

Our continued success depends in significant part on the continued services of the officers and seamen whom TCM provides to crew the vessels owned by our subsidiary companies. The market for qualified, experienced officers and seamen is extremely competitive and has grown more so in recent periods as a result of the growth in world economies and other employment opportunities. Although TCM has a contract with a number of manning agencies and sponsors various marine academies in the Philippines, Greece and Russia, we cannot assure you that TCM will be successful in its efforts to recruit and retain properly skilled personnel at commercially reasonable salaries. Any failure to do so could adversely affect our ability to operate cost-effectively and our ability to increase the size of the fleet.

Labor interruptions could disrupt our operations.

Substantially all of the seafarers and land based employees of TCM are covered by industry-wide collective bargaining agreements that set basic standards. We cannot assure you that these agreements will prevent labor



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interruptions. In addition, like many other vessels internationally, some of our subsidiaries’ vessels operate under so-called “flags of convenience” and may be vulnerable to unionization efforts by the International Transport Federation and other similar seafarer organizations which could be disruptive to our operations. Any labor interruption or unionization effort which is disruptive to our operations could harm our financial performance.

Contracts for any newbuildings we may order present certain economic and other risks.

As of April 20, 2018, the delivery of the last newbuilding we had on order was made in October 2017. However, our subsidiaries may order additional newbuildings. During the course of construction of a vessel, we are typically required to make progress payments. While we typically have refund guarantees from banks to cover defaults by the shipyards and our construction contracts would be saleable in the event of our payment default, we can still incur economic losses in the event that we or the shipyards are unable to perform our respective obligations. Shipyards may periodically experience financial difficulties.

Delays in the delivery of any newbuilding or secondhand vessels our subsidiaries may agree to acquire, could delay our receipt of revenues generated by these vessels and, to the extent we have arranged charter employment for these vessels, could possibly result in the cancellation of those charters, and therefore adversely affect our anticipated results of operations. The delivery of newbuilding vessels could be delayed because of, among other things: work stoppages or other labor disturbances; bankruptcy or other financial crisis of the shipyard building the vessel; hostilities or political or economic disturbances in the countries where the vessels are being built, including any escalation of tensions involving North Korea; weather interference or catastrophic events, such as a major earthquake, tsunami or fire; our requests for changes to the original vessel specifications; requests from our customers, with whom our commercial managers arrange charters for such vessels, to delay construction and delivery of such vessels due to weak economic conditions and shipping demand or a dispute with the shipyard building the vessel.

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

Global financial markets and economic conditions have been disrupted and volatile in recent years. At times, the credit markets as well as the debt and equity capital markets were distressed and it was difficult for many shipping companies to obtain adequate financing. The cost of available financing also increased significantly, but for leading shipping companies has since declined. The global financial markets and economic conditions could again experience volatility and disruption in the future.

We have traditionally financed our vessel acquisitions or constructions with our own cash (equity) and bank debt from various reputable national and international commercial banks. In relation to newbuilding contracts, the equity portion usually covers all or part of the pre-delivery obligations while the debt portion covers the outstanding amount due to the shipyard on delivery. More recently, however, we have arranged pre-delivery bank financing to cover much of the installments due before delivery, and, therefore, we would be required to provide the remainder of our equity investment at delivery. In addition, several of our existing loans will mature over the next few years, including the current year. In the event that the related vessels are not sold, or we do not wish to use existing cash for paying the final balloon payments, then re-financing of the loans for an extended period beyond the maturity date will be necessary. Current and future terms and conditions of available debt financing, especially for older vessels without time charter could be different from terms obtained in the past and could result in a higher cost of capital, if available at all. Any adverse development in the credit markets could materially alter our current and future financial and corporate planning and growth and have a negative impact on our balance sheet.

The future performance of our subsidiaries’ LNG carriers depends on continued growth in LNG production and demand for LNG and LNG shipping.

The future performance of our subsidiaries’ LNG carriers will depend on continued growth in LNG production and the demand for LNG and LNG shipping. A complete LNG project includes production,



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liquefaction, storage, re-gasification and distribution facilities, in addition to the marine transportation of LNG. Increased infrastructure investment has led to an expansion of LNG production capacity in recent years, but material delays in the construction of new liquefaction facilities could constrain the amount of LNG available for shipping, reducing ship utilization. The rate of growth in global LNG demand has fluctuated due to several factors, including global economic conditions and economic uncertainty, fluctuations in the price of natural gas and other sources of energy, growth in natural gas production from unconventional sources in regions such as North America and the highly complex and capital intensive nature of new or expanded LNG projects, including liquefaction projects. Growth in LNG production and demand for LNG and LNG shipping could be negatively affected by a number of factors, including:



increases in the cost of natural gas derived from LNG relative to the cost of natural gas generally;



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;



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;



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;



any significant explosion, spill or other incident involving an LNG facility or carrier;



infrastructure constraints such as delays in the construction of liquefaction facilities, the inability of project owners or operators to obtain financing or governmental approvals to construct or operate LNG facilities, as well as community or political action group resistance to new LNG infrastructure due to concerns about the environment, safety and terrorism;



labor or political unrest or military conflicts affecting existing or proposed areas of LNG production or re-gasification;



decreases in the price of LNG, which might decrease the expected returns relating to investments in LNG projects; or



negative global or regional economic or political conditions, particularly in LNG consuming regions, which could reduce energy consumption or its growth.

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:



the supply and cost of crude oil and petroleum products;



worldwide demand for natural gas;



the cost of exploration, development, production, transportation and distribution of natural gas;



expectations regarding future energy prices for both natural gas and other sources of energy;



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;



local and international political, economic and weather conditions;



political and military conflicts; and



the availability and cost of alternative energy sources, including alternate sources of natural gas in gas importing and consuming countries.

In recent years, global crude oil prices were very volatile. Any decline in oil prices can depress natural gas prices and lead to a narrowing of the gap in pricing in different geographic regions, which can adversely affect the length of voyages in the spot LNG shipping market and the spot rates and medium term charter rates for charters which commence in the near future. Any continued period of low oil prices could adversely affect both the competitiveness of gas as a fuel for power generation and the market price of gas, to the extent that gas prices are benchmarked to the price of crude oil. Some production companies have announced delays or cancellations of certain previously announced LNG projects, which, unless offset by new projects coming on stream, could adversely affect demand for LNG charters over the next few years, while the amount of tonnage available for charter is expected to increase.

An oversupply of LNG carriers may lead to a reduction in the charter hire rates we are able to obtain when seeking charters in the future.

Driven in part by an increase in LNG production capacity and the expectation of further future capacity, the construction and delivery of new LNG carriers has been increasing. Any future expansion of the global LNG carrier fleet that cannot be absorbed by existing or future LNG projects may have a negative impact on charter rates, ship utilization and ship values. Such impact could be amplified if the expansion of LNG production capacity does not keep pace with fleet growth.

Hire rates for LNG carriers may fluctuate substantially and declined significantly in 2016 and 2017. If rates remain low when we are seeking a new charter, our revenues and cash flows may decline.

The significant fall in oil prices that began in the second half of 2014 has contributed to substantial declines in the price of LNG, which coupled with delays in the completion of liquefaction and regasification facilities around the world and a high order book, particularly with vessels ordered on speculation, has led to declines in average rates for new spot and shorter-term LNG charters. Rates have started to recover more recently and are expected to improve in the future. However, if LNG charter market conditions fail to improve over the next eighteen months, we may have difficulty in securing new charters at attractive rates and durations for our two LNG carriers when their current charters expire.

We depend upon Hyundai Ocean Services to manage our subsidiaries’ LNG carriers.

Tsakos Energy Management has subcontracted all technical management of our LNG operations to Hyundai Ocean Services Co., Ltd (“HOS”) for a fee. Neither Tsakos Energy Management nor TCM has the dedicated personnel for running LNG operations nor can we guarantee that they will employ an adequate number of employees to conduct LNG operations in the future. As such, we are currently dependent on the reliability and effectiveness of third-party managers for whom we cannot guarantee that their employees, both onshore and at-sea are sufficient in number or capability for their assigned role. We also cannot assure you that we will be able to continue to receive such services from HOS on a long-term basis on acceptable terms or at all.



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Our growth in shuttle tankers depends partly on continued growth in demand for offshore oil transportation, processing and storage services.

Our growth strategy includes expansion in the shuttle tanker sector. Growth in this sector depends on continued growth in world and regional demand for these offshore services, which could be negatively affected by a number of factors, such as:



decreases in the actual or projected price of oil, which could lead to a reduction in or termination of production of oil at certain offshore fields our shuttle tankers will service or a reduction in exploration for or development of new offshore oil fields;



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;



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;



availability of new, alternative energy sources;



negative global or regional economic or political conditions, particularly in oil consuming regions, which could reduce energy consumption or its growth; and



fall in the price of oil leading to cut-backs in the offshore industry.

Oil prices have declined substantially in beginning in the second half of 2014, which has resulted in oil companies announcing reductions in oil production and exploration activities, including in offshore fields.

Fuel prices may adversely affect our profits.

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

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 20, 2018, 46 of our subsidiaries’ vessels were employed under time charters and time charters with profit share. The ability and willingness of each of the counterparties to perform their obligations under their charters will depend on a number of factors that are beyond our control and may include, among other things, general economic conditions, the condition of the oil and energy industries and of the oil and oil products shipping industry as well as the overall financial condition of the counterparties and prevailing charter rates. There can be no assurance that some of our subsidiaries’ customers would not fail to pay charter hire or attempt to renegotiate charter rates and, if the charterers fail to meet their obligations or attempt to renegotiate charter agreements, we could sustain significant losses which could have a material adverse effect on our business, financial condition, results of operations and cash flows, as well as our ability to pay dividends in the future.

The shipping industry has inherent operational risks that may not be adequately covered by our insurance.

We believe that we maintain as much insurance on the vessels in the fleet, through insurance companies, including Argosy, a related party company, and P&I clubs, as is appropriate and consistent with industry practice. While we endeavor to be adequately insured against all known risks related to the operation of our subsidiaries’ ships, there remains the possibility that a liability may not be adequately covered and we may not be



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able to obtain adequate insurance coverage for the fleet in the future. The insurers may also not pay particular claims. Even if our insurance coverage is adequate, we may not be able to obtain a replacement vessel in a timely manner in the event of a loss. Our insurance policies contain deductibles for which we will be responsible and limitations and exclusions which may increase our costs or lower our revenue. In addition, some of our insurance coverage is maintained through mutual protection and indemnity associations, and as a member of such associations we may be required to make additional payments over and above budgeted premiums if member claims make an excessive impact on association reserves.

Failure to protect our information systems against security breaches could adversely affect our business and financial results. Additionally, if these systems fail or become unavailable for any significant period of time, our business could be harmed.

The efficient operation of our business is dependent on computer hardware and software systems. Information systems are vulnerable to security breaches by computer hackers and cyber terrorists. We rely on industry-accepted security measures and technology to securely maintain confidential and proprietary information maintained on our information systems. However, these measures and technology may not adequately prevent cybersecurity breaches, the access, capture or alteration of information by criminals, the exposure or exploitation of potential security vulnerabilities, the installation of malware or ransomware, acts of vandalism, computer viruses, misplaced data or data loss. In addition, the unavailability of the information systems or the failure of these systems to perform as anticipated for any reason could disrupt our business and could result in decreased performance and increased operating costs, causing our business and results of operations to suffer. Any significant interruption or failure of our information systems or any significant breach of security could adversely affect our business and financial results, as well as our cash flows available for distribution to our shareholders

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, 2017, our debt to capital ratio was 53.9% (debt / debt plus equity), with $1.8 billion in debt outstanding. We are required to apply a substantial portion of our cash flow from operations to the payment of principal and interest on this debt. In 2017, all of our cash flow derived from operations was dedicated to debt service, excluding any debt prepayment upon the sale of vessels, voluntary early debt prepayments and balloon payments to be refinanced. This limits the funds available for working capital, capital expenditures, dividends and other purposes. Our degree of leverage could have important consequences for us, including the following:



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;



we may be more highly leveraged than our competitors, which may make it more difficult for us to expand our fleet; and



any significant amount of leverage exposes us to increased interest rate risk and makes us vulnerable to a downturn in our business or the economy in general.

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:



incur additional indebtedness;



create liens;



sell the capital of our subsidiaries or other assets;



make investments;



engage in mergers and acquisitions;



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make capital expenditures;



repurchase or redeem 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. As a result, restrictions contained in our financing arrangements and those of our subsidiaries on the payment of dividends may restrict our ability to fund our various activities.

We are exposed to volatility in LIBOR and selectively enter into derivative contracts, which can result in higher than market interest rates and charges against our income.

Over the past fourteen years we have selectively entered into derivative contracts both for investment purposes and to hedge our overall interest expense and, more recently, our bunker expenses. Our board of directors monitors the status of our derivatives in order to assess whether such derivatives are within reasonable limits and reasonable in light of our particular investment strategy at the time we entered into the derivative contracts.

Loans advanced under our secured credit facilities are, generally, advanced at a floating rate based on LIBOR, which has been stable and at historically low levels in recent years, but was volatile in prior years and has started to increase again this year, which can affect the amount of interest payable on our debt, and which, in turn, could have an adverse effect on our earnings and cash flow. Our financial condition could be materially adversely affected at any time that we have not entered into interest rate hedging arrangements to hedge our interest rate exposure and the interest rates applicable to our credit facilities and any other financing arrangements we may enter into in the future, including those we enter into to finance a portion of the amounts payable with respect to newbuildings, increase. Moreover, even if we have entered into interest rate swaps or other derivative instruments for purposes of managing our interest rate or bunker cost exposure, our hedging strategies may not be effective and we may incur substantial loss.

We have a risk management policy and the Audit Committee oversees all our derivative transactions. It is our policy to monitor our exposure to business risk, and to manage the impact of changes in interest rates, foreign exchange rate movements and bunker prices on earnings and cash flows through derivatives. Derivative contracts are executed when management believes that the action is not likely to significantly increase overall risk. Entering into swaps and derivatives transactions is inherently risky and presents various possibilities for incurring significant expenses. The derivatives strategies that we employ in the future may not be successful or effective, and we could, as a result, incur substantial additional interest costs. See “Item 11. Quantitative and Qualitative Disclosures About Market Risk” for a description of our current interest rate swap arrangements.

Our subsidiaries’ vessels may suffer damage and we may face unexpected dry-docking costs which could affect our cash flow and financial condition.

If our vessels suffer damage, they may need to be repaired at a dry-docking facility. The costs of dry-dock repairs can be both substantial and unpredictable. We may have to pay dry-docking costs that our insurance does not cover. This would result in decreased earnings.

If we were to be subject to corporate income tax in jurisdictions in which we operate, our financial results would be adversely affected.

Under current Bermuda law, there is no income, corporate or profits tax or withholding tax, capital gains tax or capital transfer tax, estate or inheritance tax payable by us or our shareholders, other than shareholders ordinarily resident in Bermuda, if any. We have received from the Minister of Finance under The Exempted



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Undertaking Tax Protection Act 1966, as amended of Bermuda, an assurance that, in the event that Bermuda enacts legislation imposing tax computed on profits, income, any capital asset, gain or appreciation, or any tax in the nature of estate duty or inheritance, then the imposition of any such tax shall not be applicable to us or to any of our operations or shares, debentures or other obligations, until March 23, 2035. We believe that we should not be subject to tax under the laws of various countries, other than the United States, in which our subsidiaries’ vessels conduct activities or in which our subsidiaries’ customers are located. However, our belief is based on our understanding of the tax laws of those countries, and our tax position is subject to review and possible challenge by taxing authorities and to possible changes in law or interpretation. We cannot determine in advance the extent to which certain jurisdictions may require us to pay corporate income tax or to make payments in lieu of such tax. In addition, payments due to us from our subsidiaries’ customers may be subject to tax claims. As a result of the continuing economic crisis in Greece, our operations in Greece may be subjected to new regulations that may require us to incur new or additional compliance or other administrative costs, which may include requirements that we pay to the Greek government new taxes or other fees. In addition, China has enacted a new tax for non-resident international transportation enterprises engaged in the provision of services of passengers or cargo, among other items, in and out of China using their own, chartered or leased vessels, including any stevedore, warehousing and other services connected with the transportation. The new regulation broadens the range of international transportation companies which may find themselves liable for Chinese enterprise income tax on profits generated from international transportation services passing through Chinese ports.

If we or our subsidiaries are not entitled to exemption under Section 883 of the United States Internal Revenue Code of 1986, as amended, for any taxable year, we or our subsidiaries would be subject for those years to a 4% United States federal income tax on our gross U.S.-source shipping revenue, without allowance for deductions, under Section 887 of the Internal Revenue Code. The imposition of such tax could have a negative effect on our business and would result in decreased earnings and cash flows available for distribution to our shareholders.

See “Item 10. Additional Information—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 shares would be subject to disadvantageous rules under the U.S. tax laws.

If we were treated as a passive foreign investment company (a “PFIC”) in any year, our U.S. shareholders would be subject to unfavorable U.S. federal income tax treatment. We do not believe that we will be a PFIC in 2018 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 2018 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 shares of non-U.S. companies that are treated as dividends for U.S. federal income tax purposes and are received by individuals generally will be eligible for taxation at capital gain rates if the shares with respect to which the dividends are paid are readily tradable on an established securities market in the United States. This treatment will not be available to dividends we pay, however, if we qualify as a PFIC for the taxable year of the dividend or the preceding taxable year, or to the extent that (i) the shareholder does not satisfy a holding period requirement that generally requires that the shareholder hold the shares on which the dividend is paid for more than 60 days during the 121-day period that begins 60 days before the date on which the shares become ex-dividend with respect to such dividend, (ii) the shareholder is under an obligation to make related payments with respect to substantially similar or related property or (iii) such dividend is taken into account as



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investment income under Section 163(d)(4)(B) of the Internal Revenue Code. We do not believe that we qualified as a PFIC for our last taxable year and, as described above, we do not expect to qualify as a PFIC for our current or future taxable years.

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 2017, Euro expenses accounted for approximately 32% of our total operating expenses, including dry-dockings. Declines in the value of the U.S. dollar relative to the Euro, or the other currencies in which we incur expenses, would increase the U.S. dollar cost of paying these expenses and thus would adversely affect our results of operations.

The Tsakos Holdings Foundation and the Tsakos family can exert considerable control over us, which may limit your ability to influence our actions.

As of April 2, 2018, companies controlled by the Tsakos Holdings Foundation or affiliated with the Tsakos Group own approximately 34.7% of our outstanding common shares. The Tsakos Holdings Foundation is a Liechtenstein foundation whose beneficiaries include persons and entities affiliated with the Tsakos family, charitable institutions and other unaffiliated persons and entities. The council which controls the Tsakos Holdings Foundation consists of five members, two of whom are members of the Tsakos family. As long as the Tsakos Holdings Foundation and the Tsakos family beneficially own a significant percentage of our common shares, each will have the power to influence the election of the members of our board of directors and the vote on substantially all other matters, including significant corporate actions.

Risks Related To Our Common and Preferred Shares

Future sales of our common shares could cause the market price of our common shares to decline.

Sales of a substantial number of our common shares in the public market, or the perception that these sales could occur, may depress the market price for our common shares. These sales could also impair our ability to raise additional capital through the sale of our equity securities in the future. We may issue additional common shares in the future and our shareholders may elect to sell large numbers of shares held by them from time to time.

The market price of our common shares and preferred shares may be unpredictable and volatile.

The market price of our common shares and Series B Preferred Shares, Series C Preferred Shares, Series D Preferred Shares and Series E Preferred Shares may fluctuate due to factors such as actual or anticipated fluctuations in our quarterly and annual results and those of other public companies in our industry, mergers and strategic alliances in the tanker industry, market conditions in the tanker industry, changes in government regulation, shortfalls in our operating results from levels forecast by securities analysts, announcements concerning us or our competitors, our sales of our common shares or of additional preferred shares, changes in prevailing interest rates and the general state of the securities market. The tanker industry has been highly unpredictable and volatile. The market for common stock and preferred stock in this industry may be equally volatile. Therefore, we cannot assure you that you will be able to sell any of our common shares and preferred shares you may have purchased, or will purchase in the future, at a price greater than or equal to the original purchase price.

If the market price of our common shares remains below $5.00 per share, under stock exchange rules, our shareholders will not be able to use such shares as collateral for borrowing in margin accounts. This inability to



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use common shares as collateral may depress demand and certain institutional investors are restricted from investing in or holding shares priced below $5.00, which could lead to sales of such shares creating further downward pressure on and increased volatility in the market price of our common shares.

We may not be able to pay cash dividends on our common shares or preferred shares as intended if market conditions change.

During 2017, we paid dividends on our common shares totaling $0.20 per common share, or $17.1 million. On March 12, 2018, the Company announced a common share dividend of $0.05 per common share to be paid on May 10, 2018 to holders of record as of May 3, 2018. In addition, during 2017 we paid dividends on our preferred shares totaling $22.8 million. In 2018 we have paid $6.6 million, between January 1 and April 20. A further $2.1 million has been declared for payment on April 30, 2018. Subject to the limitations discussed below, we currently intend to continue to pay cash dividends on our common shares and preferred shares. However, there can be no assurance that we will pay dividends or as to the amount of any dividend. The payment and the amount will be subject to the discretion of our board of directors and will depend, among other things, on restrictions in the Companies Act of 1981 of Bermuda, as amended, or the Companies Act, on our available cash balances, anticipated cash needs, our results of operations, our financial condition, and any loan agreement restrictions binding us or our subsidiaries, including a limit on dividends exceeding 50% of our net income for any particular year, plus certain additional amounts permitted to the extent 50% of our aggregate net income in prior years exceeded dividends paid during such years, as well as other relevant factors. Net losses that we incurred in certain of our historical periods as well as dividends that we historically paid reduce the amount of the accumulated consolidated net income from which we are permitted to pay dividends under our loan agreements while net income in other periods increases the amount. In addition, dividends on our common shares are subject to the priority of our dividend obligations relating to our Series B, Series C, Series D and Series E Preferred Shares. We may have insufficient cash to pay dividends on or redeem our Series B, Series C, Series D and Series E Preferred Shares, or pay dividends on our common shares. Depending on our operating performance for a particular year, this could result in no dividend at all despite the existence of net income, or a dividend that represents a lower percentage of our net income.

Because we are a holding company with no material assets other than the stock of our subsidiaries, our ability to pay dividends will depend on the earnings and cash flow of our subsidiaries and their ability to pay us dividends. In addition, the financing arrangements for indebtedness we incur in connection with our newbuilding program may further restrict our ability to pay dividends. In the event of any insolvency, bankruptcy or similar proceedings of a subsidiary, creditors of such subsidiary would generally be entitled to priority over us with respect to assets of the affected subsidiary. Investors in our common shares, Series B Preferred Shares, Series C Preferred Shares, Series D Preferred Shares or Series E Preferred Shares may be adversely affected if we are unable to or do not pay dividends as intended.

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

One of the factors that influences the price of our Series B Preferred Shares, Series C Preferred Shares, Series D Preferred Shares and Series E Preferred Shares is the dividend yield on these preferred shares (as a percentage of the price thereof) relative to market interest rates. An increase in market interest rates, which are currently at low levels relative to historical rates and have recently been increasing, may lead to lower prices for our shares when valued using their dividend yields. Higher interest rates would likely increase our borrowing costs and potentially decrease funds available for dividends. Accordingly, higher interest rates could cause the market prices of our preferred shares to decrease.

Holders of our Preferred Shares have extremely limited voting rights.

The voting rights of holders of Series B Preferred Shares, Series C Preferred Shares, Series D Preferred Shares and Series E Preferred Shares are extremely limited. Our common shares are the only class or series of



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our shares carrying full voting rights. The voting rights of holders of these preferred shares are limited to the ability, subject to certain exceptions, to elect, voting together as a class with all other classes or series of parity securities upon which like voting rights have been conferred and are exercisable, one director if dividends for six quarterly dividend periods (whether or not consecutive) payable thereon are in arrears and certain other limited protective voting rights described in “Item 10. Additional Information—Description of Share Capital—Preferred Shares.”

Provisions in our Bye-laws and our management agreement with Tsakos Energy Management would make it difficult for a third party to acquire us, even if such a transaction is beneficial to our shareholders.

Our Bye-laws provide for a staggered board of directors, blank check preferred stock, super majority voting requirements and other anti-takeover provisions, including restrictions on business combinations with interested persons and limitations on the voting rights of shareholders who acquire more than 15% of our common shares. In addition, Tsakos Energy Management would have the right to terminate our management agreement and seek liquidated damages if a board member were elected without having been approved by the current board. These provisions could deter a third party from tendering for the purchase of some or all of our shares. These provisions may have the effect of delaying or preventing changes of control of the ownership and management of our company.

Because we are a foreign corporation, you may not have the same rights as a shareholder in a U.S. corporation.

We are a Bermuda company. Our Memorandum of Association and Bye-laws and the Companies Act govern our affairs. While many provisions of the Companies Act resemble provisions of the corporation laws of a number of states in the United States, Bermuda law may not as clearly establish your rights and the fiduciary responsibilities of our directors as do statutes and judicial precedent in some U.S. jurisdictions. In addition, apart from three non-executive directors, our directors and officers are not resident in the United States and all or substantially all of our assets are located outside of the United States. As a result, investors may have more difficulty in protecting their interests and enforcing judgments in the face of actions by our management, directors or controlling shareholders than would shareholders of a corporation incorporated in a U.S. jurisdiction.

In addition, you should not assume that courts in the country in which we are incorporated or where our assets are located would enforce judgments of U.S. courts obtained in actions against us based upon the civil liability provisions of applicable U.S. federal and state securities laws or would enforce, in original actions, liabilities against us based on those laws.

We are a “foreign private issuer” under NYSE rules, and as such we are entitled to exemption from certain NYSE corporate governance standards, and you may not have the same protections afforded to shareholders of companies that are subject to all of the NYSE corporate governance requirements.

We are a “foreign private issuer” under the securities laws of the United States and the rules of the NYSE. Under the securities laws of the United States, “foreign private issuers” are subject to different disclosure requirements than U.S. domiciled registrants, as well as different financial reporting requirements. Under the NYSE rules, a “foreign private issuer” is subject to less stringent corporate governance requirements. Subject to certain exceptions, the rules of the NYSE permit a “foreign private issuer” to follow its home country practice in lieu of the listing requirements of the NYSE, including (i) the requirement that a majority of the board of directors consist of independent directors, (ii) the requirement that the nominating/corporate governance committees be composed entirely of independent directors and have a written charter addressing the committee’s purpose and responsibilities, (iii) the requirement that the compensation committee be composed entirely of independent directors and have a written charter addressing the committee’s purpose and responsibilities, and (iv) the requirement of an annual performance evaluation of the nominating/corporate governance and compensation committees.



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Nonetheless, a majority of our directors are independent, all of the members of our compensation, nominating and corporate governance committee are independent directors, and all of our board committees have written charters addressing their respective purposes and responsibilities.


Item 4. Information on the Company

Tsakos Energy Navigation Limited is a leading provider of international seaborne crude oil and petroleum product transportation services. In 2007, it also started to transport liquefied natural gas. It was incorporated in 1993 as an exempted company under the laws of Bermuda under the name Maritime Investment Fund Limited and in, 1996, was renamed MIF Limited. Our common shares were listed in 1993 on the Oslo Stock Exchange (OSE) and the Bermuda Stock Exchange, although we de-listed from the OSE in March 2005 due to limited trading. The 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 96 vessels and has sold 35 vessels (of which five had been chartered back and three of these 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

For additional information on the Company, see “Item 5. Operating and Financial Review and Prospects.”

Business Overview

As of April 20, 2018 we operated a fleet of 59 modern crude oil and petroleum product tankers (including two vessels chartered-in) that provide world-wide marine transportation services for national, major and other independent oil companies and refiners under long, medium and short-term charters. Our fleet also includes two LNG carriers and three suezmax shuttle tankers with advanced dynamic positioning technology (DP2), bringing our total operating fleet to 64 vessels. The resulting fleet (assuming no further chartered-in vessels and no sales or acquisitions) comprises 64 vessels representing approximately 6.9 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 as customers and to our success in obtaining charter renewals generating strong fleet utilization.

Our fleet is managed by Tsakos Energy Management, a company owned by our chief executive officer. Tsakos Energy Management provides us with strategic advisory, financial, accounting and administrative services, while subcontracting the commercial management of our business to Tsakos Shipping. In its capacity as commercial manager, Tsakos Shipping provides various services for our vessels, including charterer relations, obtaining insurance and vessel sale and purchase, supervising newbuilding construction and vessel financing. Until June 30, 2010, Tsakos Shipping had also provided technical and operational management for the majority of our vessels.

Tsakos Energy Management subcontracts the technical and operational management of our fleet to TCM. TCM was formed in February 2010 by Tsakos family interests and a German private company, the owner of the ship management company Columbia Shipmanagement Ltd., or CSM, as a joint-venture ship management company on an equal partnership basis to provide technical and operational management services to owners of vessels, primarily within the Greece-based market. TCM, which formally commenced operations on July 1, 2010,



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now manages the technical and operational activities of all of our operating vessels apart from the LNG carriers Neo Energy and Maria Energy, the VLCCs Ulysses and Hercules I, the suezmax tanker Eurochampion 2004 and the aframax tankers Maria Princess and Sapporo Princess which are technically managed by a non-affiliated ship manager. 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 294 vessels and crewing services for an additional 52 vessels, we believe TCM is able to procure services and supplies at lower prices than Tsakos Shipping could alone, thereby reducing overall operating expenses for us. In its capacity as technical manager, TCM manages our day-to-day vessel operations, including provision of supplies, maintenance and repair, and crewing. Members of the Tsakos family are involved in the decision-making processes of Tsakos Energy Management, Tsakos Shipping and TCM.

As of April 20, 2018, our operational fleet consisted of the following 64 vessels:


Number of Vessels


Vessel Type








   Aframax LR2


   Panamax LR1


   Handymax MR2


   Handysize MR1


   LNG carrier


   Shuttle DP2

Total 64


Twenty-five of the operating vessels are of ice-class specification. This fleet diversity, which includes a number of sister ships, provides us with the capability to be one of the more versatile operators in the market. The current operating fleet totals approximately 6.9 million dwt, all of which is double-hulled. As of April 20, 2018, the average age of the tankers in our current operating fleet was 7.5 years, compared with the industry average of 10.4 years.

We believe the following factors distinguish us from other public tanker companies:



Modern, high-quality, fleet. We own a fleet of modern, versatile, high-quality tankers that are designed for enhanced safety and low operating costs. Since inception, we have committed to investments of approximately $5.1 billion, including investments of approximately $3.8 billion in newbuilding constructions, in order to maintain and improve the quality of our fleet. We believe that increasingly stringent environmental regulations and heightened concerns about liability for oil pollution have contributed to a significant demand for our vessels by leading oil companies, oil traders and major government oil entities. TCM, the technical manager of our fleet, has ISO 14001 environmental certification and ISO 9001 quality certification, based in part upon audits conducted on our vessels.



Diversified fleet. Our diversified fleet, which includes VLCC, suezmax, aframax, panamax, handysize, handymax tankers, LNG carriers and DP2 shuttle tankers, allows us to better serve our customers’ international petroleum product and crude oil transportation needs. We had also committed a sizable part of our newbuilding and acquisition program, in the past, to ice-class vessels, which are vessels that can access ice-bound ports depending on certain thickness of ice. We have 25 ice-class vessels. Additionally, we entered the LNG market with the delivery of our first LNG carrier in 2007 and accepted delivery of an additional LNG carrier with the latest design in 2016. We also entered the shuttle tanker market with our



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first DP2 suezmax Rio 2016 which was delivered in March 2013 and our second DP2 suezmax Brasil 2014 which was delivered in April 2013, each of which commenced with a 15-year time charter with Petrobras after delivery. A third DP2 suezmax shuttle tanker, Lisboa was delivered on May 4, 2017 for charter to a European state-owned oil major.



Stability throughout industry cycles. Historically, we have employed a high percentage of our fleet on long and medium-term employment with fixed rates or minimum rates plus profit sharing agreements. We believe this approach has resulted in high utilization rates for our vessels, reflecting our industrial shipping model. At the same time, we maintain flexibility in our chartering policy to allow us to take advantage of favorable rate trends through spot market employment, pools and contract of affreightment charters with periodic adjustments. Over the last five years, our overall average fleet utilization rate was 97%.



High-Quality, sophisticated clientele. For 47 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 Statoil, BP, ExxonMobil, Flopec, Hyundai Merchant Marine, Petrobras, Chevron, Shell and Vitol are among the regular customers of Tsakos Energy Navigation.


  Developing LNG and offshore shuttle tanker platform. We believe we are well positioned to capitalize on demand for LNG sea transport as well as offshore shuttle tanker transport because of our extensive relationships with existing customers, strong safety track record, superior technical management capabilities and financial flexibility. We already operate two LNG carriers and three DP2 suezmax shuttle tankers, in these high-end markets.



Significant leverage from our relationship with Tsakos Shipping and TCM. We believe the expertise, scale and scope of TCM, which spreads costs over a vessel base much larger than our fleet, are key components in maintaining low operating costs, efficiency, quality and safety. We leverage Tsakos Shipping’s reputation and longstanding relationships with leading charterers to foster charter renewals.

As of April 20, 2018, our fleet consisted of the following 64 vessels:



  Expiration of
  Hull Type(2)
(all double  hull)



1. Hercules(3)

    2017       300,000       2017     time charter   July 2018     Crude

2. Ulysses

    2016       300,000       2016     CoA       Crude



1. Eurovision

    2013       158,000       2014     time charter   September 2020     Crude

2. Euro

    2012       158,000       2014     time charter   June 2018     Crude

3. Decathlon

    2012       162,710       2016     time charter   November 2018     Crude

4. Spyros K(4)

    2011       157,648       2011     time charter   May 2022     Crude

5. Dimitris P(4)

    2011       157,740       2011     time charter   August 2023     Crude

6. Pentathlon

    2009       158,475       2015     spot       Crude

7. Arctic(3)

    2007       163,216       2007     time charter   September 2018   ice-class 1A   Crude

8. Antarctic(3)

    2007       163,216       2007     time charter   April 2020   ice-class 1A   Crude

9. Archangel(3)

    2006       163,216       2006     time charter   May 2020   ice-class 1A   Crude

10. Alaska(3)

    2006       163,250       2006     time charter   September 2020   ice-class 1A   Crude

11. Eurochampion 2004(3)(11)(12)

    2005       164,608       2005     time charter   January 2020   ice-class 1C   Crude


    2005       164,565       2005     time charter   April 2020   ice-class 1C   Crude

13. Silia T

    2002       164,286       2002     spot       Crude




1. Lisboa

    2017       157,000       2017     time charter   March 2025     Crude/Products

2. Rio 2016

    2013       155,709       2013     time charter   May 2028     Crude/Products

3. Brasil 2014

    2013       155,721       2013     time charter   June 2028     Crude/Products



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    Expiration of
    Hull Type(2)
(all  double hull)



1.Bergen TS

    2017       112,108       2017       time charter       October 2022       ice-class 1B       Crude  

2.Stavanger TS

    2017       113,004       2017       time charter       July 2022       ice-class 1B       Crude  

3.Oslo TS

    2017       112,949       2017       time charter       May 2022       ice-class 1B       Crude  

4. Marathon TS

    2017       113,651       2017       time charter       February 2022(7)       ice-class 1B     Crude  

5. Sola TS

    2017       112,700       2017       time charter       April 2022         Crude  

6. Elias Tsakos

    2016       113,737       2016       time charter       June 2023(8)         Crude  

7. Thomas Zafiras

    2016       113,691       2016       time charter       August 2023(8)         Crude  

8. Leontios H

    2016       113,611       2016       time charter       October 2023(8)         Crude  

9. Parthenon TS

    2016       113,554       2016       time charter       November 2021(7)         Crude  

10. Sapporo Princess

    2010       105,354       2010       spot             DNA       Crude  

11. Uraga Princess

    2010       105,344       2010       spot             DNA       Crude  

12. Ise Princess

    2009       105,361       2009       CoA             DNA       Crude  

13. Asahi Princess

    2009       105,372       2009       time charter       November 2018       DNA       Crude  

14. Maria Princess

    2008       105,346       2008       spot             DNA       Crude  

15. Nippon Princess

    2008       105,392       2008       CoA             DNA       Crude  

16. Izumo Princess

    2007       105,374       2007       spot             DNA       Crude  

17. Sakura Princess

    2007       105,365       2007       CoA             DNA       Crude  

18. Proteas

    2006       117,055       2006       spot             ice-class 1A       Crude/Products  

19. Promitheas

    2006       117,055       2006       time charter       May 2018       ice-class 1A       Crude/Products  

20. Propontis

    2006       117,055       2006       time charter       May 2018       ice-class 1A       Crude  



1. Sunray(3)

    2016       74,039       2016       time charter       February 2021(9)         Crude/Products  

2. Sunrise(3)

    2016       74,043       2016       time charter       March 2021(9)         Crude/Products  

3. World Harmony(4)

    2009       74,200       2010       time charter       March 2021 (5)         Crude/Products  

4. Chantal(4)

    2009       74,329       2010       time charter       May 2021(5)         Crude/Products  

5. Selini(3)

    2009       74,296       2010       time charter       September 2018         Crude/Products  

6. Salamina(3)

    2009       74,251       2010       time charter       April 2018         Crude/Products  

7. Selecao

    2008       74,296       2008       time charter       June 2021         Crude/Products  

8. Socrates

    2008       74,327       2008       time charter       June 2021         Crude/Products  

9. Andes(4)

    2003       68,439       2003       time charter       September 2019         Crude/Products  

10. Maya(4)(6)

    2003       68,439       2003       time charter       January 2019         Crude/Products  

11. Inca(4)(6)

    2003       68,439       2003       time charter       March 2019         Crude/Products  



1. Artemis

    2005       53,039       2006       spot             ice-class 1A       Products  

2. Afrodite(3)

    2005       53,082       2006       time charter       July 2018       ice-class 1A       Products  

3. Ariadne(3)

    2005       53,021       2006       time charter       June 2018       ice-class 1A       Products  

4. Aris

    2005       53,107       2006       time charter       May 2020       ice-class 1A       Products  

5. Apollon

    2005       53,149       2006       time charter       April 2019       ice-class 1A       Products  

6. Ajax(3)

    2005       53,095       2006       time charter       September 2018       ice-class 1A       Products  



1. Andromeda

    2007       37,061       2007       spot             ice-class 1A       Products  

2. Aegeas

    2007       37,061       2007       spot             ice-class 1A       Products  

3. Byzantion

    2007       37,275       2007       spot             ice-class 1B       Products  

4. Bosporos

    2007       37,275       2007       spot             ice-class 1B       Products  

5. Arion

    2006       37,061       2006       spot             ice-class 1A       Products  

6. Amphitrite

    2006       37,061       2006       spot             ice-class 1A       Products  

7. Didimon

    2005       37,432       2005       time charter       December 2019         Products  



1. Maria Energy

    2016       93,301       2016       time charter       March 2019      






2. Neo Energy

    2007       85,602       2007       time charter       November 2018(10)      






Total Vessels

    64       6,937,158            


(1) Certain of the vessels are operating in the spot market under contracts of affreightment (“CoA”).
(2) Ice-class classifications are based on ship resistance in brash ice channels with a minimum speed of 5 knots for the following conditions ice-1A: 1m brash ice, ice-1B: 0.8m brash ice, ice-1C: 0.6m brash ice. DNA- design new aframax with shorter length overall allowing greater flexibility in the Caribbean and the United States.
(3) The charter rate for these vessels is based on a fixed minimum rate for the Company plus different levels of profit sharing above the minimum rate, determined and settled on a calendar month basis.



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(4) These vessels are chartered under fixed and variable hire rates. The variable portion of hire is recognized to the extent the amount becomes fixed and determinable at the reporting date. Determination is every six months.
(5) Charterers have the option to terminate the charter party after at least 12 months with three months’ notice.
(6) 49% of the holding company of these vessels is held by a third party.
(7) The charterer of each of these vessels has options to extend the term of the charter for up to seven additional years.
(8) The charterer of each of these vessels has the option to extend the term of the charter for up to five additional years.
(9) The charterer of each of these vessels has the option to extend the term of the charter for up to two additional years.
(10) This charter for the use of the vessel as a floating storage unit can be extended for an additional six months by the charterer at a higher rate.
(11) The charterer has the option to extend the term of this charter for up to an additional 6 months.
(12) This vessel is chartered-in on a bare-boat basis until 2022 by a subsidiary company

During 2017, the Company took delivery of five aframax tankers (Marathon TS, Sola TS, Oslo TS, Stavanger TS and Bergen TS) from Daewoo Shipbuilding in Romania. In addition, one DP2 suezmax shuttle tanker (Lisboa) was delivered from Sungdong in South Korea and one VLCC tanker (Hercules I) from Hyundai Samho in South Korea. The newbuildings have a double hull design compliant with all classification requirements and prevailing environmental laws and regulations. Tsakos Shipping worked closely with the shipyards in the design of the newbuildings and TCM provided supervisory personnel present during the construction.

Fleet Deployment

We aim to optimize the financial performance of our fleet by deploying at least two-thirds of our vessels on either time charters or period employment with variable rates, as we take proactive steps to meet any potential impact of the expanding world fleet on freight rates. As at April 20, 2018, the percentage of the fleet that is in employed at fixed rates (including time charters with a profit share component) was approximately 72%. We believe that our fleet deployment strategy and flexibility provide 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 2017, 2016 and 2015 as a percentage of operating days.


     Year Ended December 31,  

Employment Basis

   2017      2016      2015  

Time Charter—fixed rate

     41%        37%        35%  

Time Charter—variable rate

     29%        21%        19%  

Period Employment at variable rates

     5%        5%        5%  

Spot Voyage

     25%        37%        41%  

Total Net Earnings Days

     22,095        18,570        17,594  

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 18 tankers currently operating on spot voyages.

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



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performed exclusively for our benefit, include overseeing the purchase, sale and chartering of vessels, supervising day-to-day technical management of our vessels and providing strategic, financial, accounting and other services, including investor relations. Our tanker fleet’s technical management, including crewing, maintenance and repair, and voyage operations, have been subcontracted by Tsakos Energy Management to TCM. Tsakos Energy Management also engages Tsakos Shipping to arrange chartering of our vessels, provide sales and purchase brokerage services, procure vessel insurance and arrange bank financing. Eight vessels were sub-contracted to third-party ship managers during 2017.

The following chart illustrates the management of our fleet as of April 20, 2018:




Technical management of the LNG carriers Neo Energy and Maria Energy, the VLCCs Hercules I, Ulysses, the suezmax Eurochampion 2004 and the aframaxes Maria Princess and Sapporo Princess, is subtracted to unaffiliated third-party ship managers.

Management Contract

Executive and Commercial Management

Pursuant to our management agreement with Tsakos Energy Management, our and our subsidiaries’ operations are executed and supervised by Tsakos Energy Management, based on the strategy devised by our Board of Directors and subject to the approval of our Board of Directors as described below. In accordance with the management agreement, we pay Tsakos Energy Management monthly management fees for its management of our vessels. There is a prorated adjustment if at each year end the Euro has appreciated by 10% or more against the Dollar since January 1, 2007. In addition, there is an increase each year by a percentage figure reflecting 12 month Euribor, if both parties agree. In 2017 and 2016, the monthly fees for operating conventional vessels were $27,500 and $20,400 for vessels chartered out on a bare-boat basis and $35,000 for the DP2 shuttle tankers. In 2017 and 2016, the monthly fees for LNG carriers amounted to $36,350 and $35,833, respectively. From the above fees, in 2017 a third-party manager was paid $26,350 for the LNG carriers, $14,219 for each of the suezmax Eurochampion 2004, the aframaxes Maria Princess and Sapporo Princess, and the VLCCs Ulysses and Hercules. In 2016, a third-party manager was paid $25,833 for the LNG carriers, $13,940 for each of the suezmax Eurochampion 2004, the aframax Maria Princess and the VLCC Ulysses and $14,219 for the aframax Sapporo Princess. Management fees for the VLCC Millennium were $27,500 per month of which $13,940 were payable until December 31, 2016 and since January 1, 2017 $14,219, were payable to a third party manager, other than from November 5, 2015, until September 8, 2017, during which time the vessel was employed on a bareboat charter. The management fee starts to accrue for a vessel at the point a newbuilding contract is executed. To help ensure that these fees are competitive with industry standards, our management has



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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 $19.5 million in 2017, $16.9 million in 2016 and $16.0 million in 2015. From these amounts, Tsakos Energy Management paid a technical management fee to Tsakos Columbia Shipmanagement. An additional amount of $1.5 million was charged in fees directly by the Company to TCM for additional services it provided or arranged in relation to information technology, application of corporate governance procedures required by the Company and seafarers’ training. For additional information about the management agreement, including the calculation of management fees, see “Item 7. Major Shareholders and Related Party Transactions” and our consolidated financial statements which are included as Item 18 to this Annual Report.

Chartering. Our board of directors formulates our chartering strategy for all our vessels and Tsakos Shipping, under the supervision of Tsakos Energy Management, implements the strategy by:



evaluating the short, medium, and long-term opportunities available for each type of vessel;



balancing short, medium, and long-term charters in an effort to achieve optimal results for our fleet; and



positioning such vessels so that, when possible, re-delivery occurs at times when Tsakos Shipping expects advantageous charter rates to be available for future employment.

Tsakos Shipping utilizes the services of various charter brokers to solicit, research, and propose charters for our vessels. The charter brokers’ role involves researching and negotiating with different charterers and proposing charters to Tsakos Shipping for cargoes to be shipped in our vessels. Tsakos Shipping negotiates the exact terms and conditions of charters, such as delivery and re-delivery dates and arranges cargo and country exclusions, bunkers, loading and discharging conditions and demurrage. Tsakos Energy Management is required to obtain our approval for charters in excess of six months and is required to obtain the written consent of the administrative agents for the lenders under our secured credit facilities for charters in excess of thirteen months. There are frequently two or more brokers involved in fixing a vessel on a charter. Brokerage fees typically amount to 2.5% of the value of the freight revenue or time charter hire derived from the charters. A chartering commission of 1.25% is paid to Tsakos Shipping for every charter involving the vessels in the fleet. In addition, Tsakos Shipping may charge a brokerage commission on the sale of a vessel. In 2017 and 2016, there was no such commission. In 2015, a brokerage commission of approximately 0.5% was charged on the sale price of the vessels. The total amount paid for these chartering and acquisition brokerage commissions was $6.5 million in 2017, $6.0 million in 2016 and $7.6 million in 2015. 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 2017, $3.1 million in aggregate was charged for supervision fees on fifteen vessels which were delivered between May 2016 and October 2017. No such fee was paid in 2016 or 2015.

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.



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Sale and Purchase of Vessels. Tsakos Energy Management advises our board of directors when opportunities arise to purchase, including through newbuildings, or to sell any vessels. All decisions to purchase or sell vessels require the approval of our board of directors.

Any purchases or sales of vessels approved by our board of directors are arranged and completed by Tsakos Energy Management. This involves the appointment of superintendents to inspect and take delivery of vessels and to monitor compliance with the terms and conditions of the purchase or newbuilding contracts.

In the case of a purchase of a vessel, each broker involved will receive commissions from the seller generally at the industry standard rate of one percent of the purchase price, but subject to negotiation. In the case of a sale of a vessel, each broker involved will receive a commission generally at the industry standard rate of one percent of the sale price, but subject to negotiation. In accordance with the management agreement, Tsakos Energy Management is entitled to charge for sale and purchase brokerage commission, but to date has not done so.

Technical Management

Pursuant to a technical management agreement, Tsakos Energy Management employs TCM to manage the day-to-day aspects of vessel operations, including maintenance and repair, provisioning and crewing of the vessels in the fleet. We benefit from the economies of scale of having our vessels managed as part of the TCM managed fleet. On occasion, TCM subcontracts the technical management and manning responsibilities of our vessels to third parties. The executive and commercial management of our vessels, however, is not subcontracted to third parties. TCM, which is privately held, is one of the largest independent tanker managers with a total of 81 operating vessels under management (including 57 of our subsidiaries’ vessels) at March 26, 2018, totaling approximately 7.6 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 179 employees engaged in ship management and approximately 3,600 seafaring employees, of whom approximately 1,900 are employed at sea and the remainder is on leave at any given time. Their principal office is in Athens, Greece. The fleet managed by TCM consists mainly of tankers, but also includes feeder container vessels, dry bulk carriers and other vessels owned by affiliates and unaffiliated third parties.

Tsakos Energy Management pays TCM a fee per vessel per month for technical management of operating vessels and vessels under construction. This fee was determined by comparison to the rates charged by other major independent vessel managers. We generally pay all monthly operating requirements of our fleet in advance.

TCM performs the technical management of the vessels under the supervision of Tsakos Energy Management. Tsakos Energy Management approves the appointment of fleet supervisors and oversees the establishment of operating budgets and the review of actual operating expenses against budgeted amounts. Technical management of the LNG carriers Neo Energy and Maria Energy, the VLCCs Hercules I and Ulysses, the suezmax Eurochampion 2004 and the aframaxes Maria Princess and Sapporo Princess, is subtracted to unaffiliated third-party ship managers.

Maintenance and Repair. Each of the vessels is dry-docked once every five years in connection with special surveys and, after the vessel is fifteen years old, the vessel is dry-docked every two and one-half years after a special survey (referred to as an intermediate survey), or as necessary to ensure the safe and efficient operation of such vessels and their compliance with applicable regulations. TCM arranges dry-dockings and repairs under instructions and supervision from Tsakos Energy Management. We believe that the continuous maintenance program we conduct results in a reduction of the time periods during which our vessels are in dry-dock.

TCM routinely employs on each vessel additional crew members whose primary responsibility is the performance of maintenance while the vessel is in operation. Tsakos Energy Management awards and, directly or



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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 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.


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 2017.



   Year Ended
December 31, 2017















BP Shipping




















ST Shipping







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



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to the discussion below and to the fact that the kinds of permits, licenses, certificates and financial assurances required for the operation of our vessels will depend upon a number of factors, we believe that we have been and will be able to obtain all permits, licenses, certificates and financial assurances material to the conduct of our operations.

The heightened environmental and quality concerns of classification societies, insurance underwriters, regulators and charterers has led to the imposition of increased inspection and safety requirements on all vessels in the tanker market and the scrapping of older vessels throughout the industry has been accelerated.

IMO. The International Maritime Organization (“IMO”) has adopted international conventions that impose liability for oil pollution in international waters and in a signatory’s territorial waters, including amendments to Annex I of the 1973 International Convention for the Prevention of Pollution from Ships (“MARPOL”) which set forth new and upgraded requirements for oil pollution prevention for tankers. These regulations are effective in relation to tankers in many of the jurisdictions in which our tanker fleet operates. They provide that (1) tankers 25 years old and older must be of double-hull construction and (2) all tankers will be subject to enhanced inspections. All of the vessels in our fleet are of double hull construction. Revised regulations, effective since September 2002, provide for increased inspection and verification requirements and for a more aggressive phase-out of single-hull oil tankers, in most cases by 2015 or earlier, depending on the age of the vessel and whether the vessel complies with requirements for protectively located segregated ballast tanks. Segregated ballast tanks use ballast water that is completely separate from the cargo oil and oil fuel system. Segregated ballast tanks are currently required by the IMO on crude oil tankers of 20,000 tons deadweight or more constructed after 1982. The regulations are intended to reduce the likelihood of oil pollution in international waters. On April 5, 2005 an amendment to MARPOL became effective, which accelerated the phase out of single-hull tankers from 2015 to 2010 unless the relevant flag state, in a particular case, extended the date to either 2015 or the date on which the ship reaches 25 years of age after the date of its delivery, whichever is earlier. This amendment became effective on April 5, 2005.

On January 1, 2007 Annex I of MARPOL was revised to incorporate all amendments since the MARPOL Convention entered into force in 1983 and to clarify the requirements for new and existing tankers.

Regulation 12A of MARPOL Annex I came into force on August 1, 2007 and governs oil fuel tank protection. The requirements apply to oil fuel tanks on all ships with an aggregate capacity of 600 cubic meters and above which are delivered on or after August 1, 2010 and all ships for which shipbuilding contracts are placed on or after August 1, 2007.

Since January 1, 2011 a new chapter 8 of Annex I on the prevention of pollution during transfer of oil cargo between oil tankers at sea has applied to oil tankers of 150 gross tons and above. This requires any oil tanker involved in oil cargo ship-to-ship (STS) operations to (1) carry a plan, approved by its flag state administration, prescribing the conduct of STS operations and (2) comply with notification requirements. Also with effect from that date, Annex I has been amended to clarify the long standing requirements for on board management of oil residue (sludge) and with effect from August 1, 2011, the use or carriage of certain heavy oils has been banned in the Antarctic area. On January 1, 2016 Annex I of MARPOL was revised to include a mandatory requirement for oil tankers to be fitted with a stability instrument. Since March 1, 2016 Annex I has been revised to clarify that certain heavy oils cannot be used in the Antarctic area as ballast, in addition to the prohibition on carriage in bulk and use as fuel. Further, amendments to Regulation 12 of Annex I (concerning tanks for oil residues) came into effect on January 1, 2017, expanding the requirements for discharge connections and piping to ensure that oil residues are properly disposed of. Vessels constructed before January 1, 2017 must comply with such regulation not later than the first renewal survey carried out on or after January 1, 2017.

In September 1997, the IMO adopted Annex VI to MARPOL to address air pollution from ships. Annex VI came into force on May 19, 2005. It set limits on sulfur oxide and nitrogen oxide emissions from ship exhausts and prohibited deliberate emissions of ozone depleting substances, such as chlorofluorocarbons. Annex VI also



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included a global cap on the sulfur content of fuel oil and allowed for the designation of special areas known as Emission Control Areas (“ECAs”) where more stringent controls on sulfur emissions would apply. Annex VI has been ratified by some, but not all IMO member states. All vessels subject to Annex VI and built after May 19, 2005 must carry an International Air Pollution Prevention Certificate evidencing compliance with Annex VI. In October 2008, the Marine Environment Protection Committee (“MEPC”) of the IMO adopted amendments to Annex VI regarding particulate matter, nitrogen oxide and sulfur oxide emissions standards. These amendments, which entered into force in July 2010, seek to reduce air pollution from vessels by establishing a series of progressive standards to further limit the sulfur content in fuel oil, which would be phased in by 2020, and by establishing new tiers of nitrogen oxide emission standards for new marine diesel engines, depending on their date of installation. Additionally, more stringent emission standards could apply in ECAs. The United States ratified the amendments in October 2008.

Amendments to Annex VI to address greenhouse gas emissions from shipping came into force on January 1, 2013. New vessels of 400 tons or greater are required to meet minimum energy efficiency levels per capacity mile ( the Energy Efficient Design Index (“EEDI”)), while existing vessels were required to implement Ship Energy Efficiency Management Plans (“SEEMPs”). All our vessels have SEEMPs. However, the EEDI requirements do not apply to a liquefied natural gas (“LNG”) carrier unless the construction contract for the carrier is placed on or after September 1, 2015. Our LNG carriers comply with EEDI requirements.

We have obtained International Air Pollution Prevention certificates for all of our vessels. Implementing the requirements of Annex VI may require modifications to vessel engines or the addition of post combustion emission controls, or both, as well as the use of lower sulfur fuels. In April 2016, the IMO adopted an amendment to Annex VI regarding record requirements for operational compliance with NOX Tier III emission control areas and a further amendment to the NOX Technical Code 2008 to facilitate the testing of gas and dual fuel engines. This amendment entered into force on September 1, 2017. We believe that maintaining compliance with Annex VI will not have a significantly adverse financial impact on the operation of our vessels.

Further amendments to Annex VI of MARPOL were adopted by the MEPC in October 2016. Beginning on January 1, 2019, the new Regulation 22A of chapter 4 of annex VI adds a requirement for ships of 5,000 gross tons and above to collect consumption data for each type of fuel oil used as well as other specified data. This information must be submitted to the flag state which in turn must submit data to an IMO Ship Fuel Oil Consumption Database. Other regulations are amended to cater to this new requirement, including those related to certificates, surveys and port state control. The MEPC also adopted amendments to Annex VI setting the global limit for sulfur content of ships’ fuel oil to 0.50% m/m (mass by mass) as opposed to the current global limit of 3.50% m/m. The new sulfur limit will enter into effect from January 1, 2020. We do not believe compliance with such regulations will have a material effect on the operation or financial viability of our business.

In April 2016, a revised annex to the Convention on Facilitation of International Maritime Traffic (“FAL”) was adopted by the IMO. It contains revised mandatory requirements for the electronic exchange of information on cargo and crew. This electronic exchange of information will be mandatory from April 9, 2019, with a transition period of no less than 12 months. Other revised standards cover discrimination in respect to shore leave and access to shore-side facilities and updates to recommended practice in relation to stowaways. The revised annex entered into force on January 1, 2018. We comply with these regulations.

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



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International Anti-fouling System Certificate and must undergo a survey before the vessel is put into service or when the anti-fouling systems are altered or replaced. We have obtained Anti-fouling System Certificates for all of our vessels that are subject to the Anti-fouling Convention and do not believe that maintaining such certificates will have an adverse financial impact on the operation of our vessels.

In addition, our LNG carriers meet 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 discharge requirements apply to the Company’s LNG carriers. On January 1, 2013 new MARPOL Annex V Regulations came into force with regard to the disposal of garbage from ships at sea. These regulations prohibit the disposal of garbage at sea other than certain defined permitted discharges or when outside one of the MARPOL Annex V special areas. The regulations do not only impact the disposal of “traditional garbage” but also the disposal of harmful hold washing water and “cargo residues”. Products considered suitable for discharge are those not defined as harmful by the criteria set out in MARPOL Annex III and which do not contain carcinogenic, mutagenic or reprotoxic components. We have a protocol in place to ensure that (i) garbage is disposed of in accordance with the Annex V Regulations and that the vessels in our fleet maintain records showing that any cleaning agent or additive used was not harmful to the marine environment and (ii) the supplier provides a signed and dated statement to this effect, either as part of a Material Safety data Sheet “MSDS” or as a stand-alone document. Annex V establishes certain areas as “special areas” in which, for reasons relating to their oceanographical and ecological condition and/or their sea traffic, the adoption of special mandatory methods for the prevention of sea pollution is required. Under MARPOL, these special areas are provided with a higher level of protection than other areas of the sea. These areas are: (i) Mediterranean Sea; (ii) Baltic Sea; (iii) Black Sea; (iv) Red Sea; (v) Gulfs area; (vi) North Sea; (vii) Antarctic sea; and (viii) Wider Caribbean region including the Gulf of Mexico and the Caribbean Sea. Our protocol addresses these special areas and we do not consider them likely to adversely affect our ability to operate our vessels.

In October 2016, the IMO adopted amendments to Annex V which place responsibility on shippers to determine whether or not their cargo is hazardous to the marine environment and introduce a new two-part garbage record book which splits cargo residues from garbage other than cargo residues. These amendments entered into force on March 1, 2018. We have policies and procedures in place to ensure compliance with these amendments to Annex V.

Tsakos Columbia Shipmanagement S.A. or TCM, our technical manager, is ISO 14001 compliant. ISO 14001 requires companies to commit to the prevention of pollution as part of the normal management cycle. Additional or new conventions, laws and regulations may be adopted that could adversely affect our ability to manage our vessels.

In addition, the European Union and countries elsewhere have considered stricter technical and operational requirements for tankers and legislation that would affect the liability of tanker owners and operators for oil pollution. In December 2001, the European Union adopted a legislative resolution confirming an accelerated phase-out schedule for single hull tankers in line with the schedule adopted by the IMO in April 2001. Any additional laws and regulations that are adopted could limit our ability to do business or increase our costs. The



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results of these or potential future environmental regulations could have a material adverse effect on our operations.

Under the current regulations, the vessels of our existing fleet will be able to operate for substantially all of their respective economic lives. However, compliance with the new regulations regarding inspections of all vessels may adversely affect our operations. We cannot at the present time evaluate the likelihood or magnitude of any such adverse effect on our operations due to uncertainty of interpretation of the IMO regulations.

The operation of our vessels is also affected by the requirements set forth in the IMO’s International Safety Management Code for the Safe Operation of Ships and for Pollution Prevention (“ISM Code”) which came into effect in relation to oil tankers in July 1998 and which was further amended on July 1, 2010. The ISM Code requires ship owners, ship managers and bareboat (or demise) charterers to develop and maintain an extensive “safety management system” that includes the adoption of a safety and environmental protection policy setting forth instructions and procedures for safe operation and describing procedures for dealing with emergencies. The failure of a shipowner, ship manager or bareboat charterer to comply with the ISM Code may subject that party to increased liability, may decrease available insurance coverage for the affected vessels, and may result in a denial of access to, or detention in, some ports. All of our vessels are ISM Code certified.

The International Convention for the Safety of Life at Sea (“SOLAS”) was amended in November 2012 to incorporate mandatory maximum noise level limits for machinery spaces, control rooms, accommodation and other spaces on board vessels. The amendments came into force on July 1, 2014 and require ships of 1,600 gross tons or more, for which the building contract was placed on or after July 1, 2014 or were constructed on or after January 1, 2015 or will be delivered on or after July 1, 2018 to be constructed to reduce on-board noise and to protect personnel from noise on board ships. All of our vessels comply with existing guidelines.

SOLAS Regulations II-2/4.5 and II-2/11.6 have been amended to clarify the provisions relating to the secondary means of venting cargo tanks in order to ensure adequate safety against over and under pressurisation. SOLAS Regulation II-2/20 relating to the performance of ventilation systems was also amended. These changes apply to all tankers constructed on or after January 1, 2017. All of our new buildings meet the new requirements.

The International Convention on Standards of Training, Certification and Watchkeeping for Seafarers (“STCW Convention”) and its associated Code was amended in June 2010 (the “Manila Amendments”) with such amendments entering into force on January 1, 2012, with a five-year transitional period until January 1, 2017. From January 1, 2017 all of our crew STCW certificates are issued, renewed and revalidated in accordance with the provisions of the Manila Amendments.

The Nairobi Wreck Removal Convention 2007 (“Wreck Convention”) entered into force on April 14, 2015. The Wreck Convention provides a legal basis for sovereign states to remove, or have removed, shipwrecks that may have the potential to affect adversely the safety of lives, goods and property at sea, as well as the marine and coastal environment. Further, the Wreck Convention makes ship owners financially liable for wreck removal and require them to take out insurance or provide other financial security to cover the costs of wreck removal. All of our fleet has complied with the certification requirements stipulated by the Wreck Convention with regards to financial security.

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



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or an act of war) for all containment and clean-up costs and other damages arising from discharges or threatened discharges of oil from their vessels. Tsakos Shipping and Tsakos Energy Management would not qualify as “third parties” because they perform under contracts with us. These other damages are defined broadly to include (1) natural resources damages and the costs of assessing them, (2) real and personal property damages, (3) net loss of taxes, royalties, rents, fees and other lost revenues, (4) lost profits or impairment of earning capacity due to property or natural resources damage, (5) net cost of public services necessitated by a spill response, such as protection from fire, safety or health hazards, and (6) loss of subsistence use of natural resources. OPA 90 incorporates limits on the liability of responsible parties for a spill. Between July 31, 2009 and December 21, 2015, liability in respect of a double-hulled tanker over 3,000 gross tons was limited to the greater of $2,000 per gross ton or $17,088,000 (subject to periodic adjustment). On December 21, 2015, these limits of liability were increased and are now the greater of $2,200 per gross ton or $18,796,800. These limits of liability would not apply if the incident was proximately caused by violation of applicable United States federal safety, construction or operating regulations or by the responsible party (or its agents or employees or any person acting pursuant to a contractual relationship with the responsible party) or by gross negligence or willful misconduct, or if the responsible party fails or refuses to report the incident or to cooperate and assist in connection with the oil removal activities. We continue to maintain, for each of our vessels, pollution liability coverage in the amount of $1 billion per incident. A catastrophic spill could exceed the insurance coverage available, in which case there could be a material adverse effect on us.

Under OPA 90, with some limited exceptions, all newly built or converted tankers operating in United States waters must be built with double-hulls, and existing vessels which do not comply with the double-hull requirement should have been phased out by December 31, 2014. All of our fleet is of double-hull construction.

OPA 90 requires owners and operators of vessels to establish and maintain with the United States Coast Guard (the “Coast Guard”) evidence of financial responsibility sufficient to meet their potential liabilities under OPA 90. Under the regulations, evidence of financial responsibility may be demonstrated by insurance, surety bond, letter of credit, self-insurance, guaranty or other satisfactory evidence. Under the self-insurance provisions, the ship owner or operator must have a net worth and working capital, measured in assets located in the United States against liabilities located anywhere in the world, that exceeds the applicable amount of financial responsibility. OPA 90 requires an owner or operator of a fleet of tankers only to demonstrate evidence of financial responsibility in an amount sufficient to cover the tanker in the fleet having the greatest maximum liability under OPA 90.

OPA 90 specifically permits individual U.S. coastal states to impose their own liability regimes with regard to oil pollution incidents occurring within their boundaries, and some states have enacted legislation providing for unlimited liability for oil spills.

Owners or operators of tankers operating in United States waters are required to file vessel response plans with the Coast Guard for approval, and their tankers are required to operate in compliance with such approved plans. These response plans must, among other things, (1) address a “worst case” scenario and identify and ensure, through contract or other approved means, the availability of necessary private response resources to respond to a “worst case discharge,” (2) describe crew training and drills, and (3) identify a qualified individual with full authority to implement removal actions. All our vessels have approved vessel response plans.

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

Environmental Regulation

U.S. Clean Water Act: The U.S. Clean Water Act of 1972 (“CWA”) prohibits the discharge of oil or hazardous substances in navigable waters and imposes strict liability in the form of penalties for any unauthorized discharges. The CWA also imposes substantial liability for the costs of removal, remediation and



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damages and complements the remedies available under OPA 90. Under U.S. Environmental Protection Agency (“EPA”) regulations, vessels must obtain CWA permits for the discharge of ballast water and other substances incidental to normal operation in U.S. territorial or inland waters. This permit, the 2008 Vessel General Permit for Discharges Incidental to the Normal Operation of Vessels, or VGP, incorporated the current Coast Guard requirements for ballast water management, as well as supplemental ballast water requirements, and included requirements applicable to 26 specific wastewater streams, such as deck runoff, bilge water and gray water. Effective December 19, 2013, the VGP was renewed and revised. The 2013 VGP is similar to the 2009 VGP but now includes ballast water numeric discharge limits and best management practices for certain discharges. The ballast water management requirements will be phased in, depending on the ballast water capacity, age and next dry-docking date of a vessel. The 2013 VGP was challenged by the Canadian Shipowners Association in the U.S. Second Circuit Court of Appeals. The U.S. Second Circuit Court of Appeals ruled on October 5, 2015 that the EPA acted arbitrarily and capriciously with respect to certain of the ballast water provisions in the 2013 VGP. The Court remanded the issue to the EPA to either justify its approach in the 2013 VGP or redraft the ballast water sections of the VGP consistent with the Court’s ruling. In the meantime, the 2013 VGP will remain in effect. On June 11, 2012 the Coast Guard and the EPA published a memorandum of understanding which provides for collaboration on the enforcement of the VGP requirements and the Coast Guard routinely include the VGP as part of its normal Port State Control inspections. Each VGP is planned to have a 5 year life cycle and the third VGP is expected to come into effect in December 2018. We intend to comply with the VGP and the record keeping requirements and we do not believe that the costs associated with obtaining such permits and complying with the obligations will have a material impact on our operations.

The Clean Air Act: The U.S. Clean Air Act (“CAA”) requires the EPA to promulgate standards applicable to emissions of volatile organic compounds and other air contaminants. Our vessels are subject to CAA vapor control and recovery standards for cleaning fuel tanks and conducting other operations in regulated port areas and emissions standards for so-called “Category 3” marine diesel engines operating in U.S. waters. On December 22, 2009 the EPA adopted final emission standards for Category 3 marine diesel engines equivalent to those adopted in the amendments to Annex VI to MARPOL. As a result, the most stringent engine emissions and marine fuel sulfur requirements of Annex VI will apply to all vessels regardless of flag entering U.S. ports or operating in U.S. waters. The emission standards apply in two stages: near-term standards for newly-built engines, which have applied since the beginning of 2011, and long-term standards requiring an 80% reduction in nitrogen oxides (NOx) by 2030, which has applied from the beginning of 2016, requiring the use of emission control technology. Compliance with these standards may result in us incurring costs to install control equipment on our vessels.

In response to a request from the United States and Canada to designate specific areas of their respective coastal waters (extending to 200 nautical miles offshore) as ECAs under the MARPOL Annex VI amendments, the IMO designated the waters off North American coasts as an ECA on March 26, 2010. The North American ECA has been in force since August 1, 2012. In July 2011, the IMO designated the United States Caribbean ECA in the waters of Puerto Rico and the U.S. Virgin Islands, which took effect on January 1, 2014. All vessels operating in these ECAs must use fuel with a sulfur content of 0.1%. Since January 1, 2016 NOx after-treatment requirements have also applied. California has implemented a 24 nautical mile zone within which fuel must have a sulfur content of 0.1% or less as of January 1, 2014. Currently, the California regulations run in parallel with the emissions requirements in the North American and Caribbean ECAs. Compliance with the North American and Caribbean ECA emission requirements, as well as the possibility that more stringent emissions requirements for marine diesel engines or port operations by vessels will be adopted by the EPA or the states where we operate, could entail significant capital expenditures or otherwise increase the costs of our operations.

The MEPC in May 2013 voted to postpone the implementation of MARPOL Annex VI Tier III standards until 2021. However, as the MEPC subsequently agreed that Tier III standards shall apply to marine diesel engines that are installed on a ship constructed on or after January 1, 2016 which operate in the North America ECA or the U.S. Caribbean Sea ECA, Tier III standards do now apply. In July 2017, the IMO adopted additional amendments to MARPOL Annex VI to introduce the Baltic Sea and the North Sea as ECAs. Both ECAs will be



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enforced for ships constructed on or after January 1, 2021, or existing ships which replace an engine with “non-identical” engines, or install an “additional” engine.

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 ECAs in place in the Baltic Sea and the North Sea and English Channel within which fuel with a sulfur content in excess of 0.1% has not been permitted since January 1, 2015. The EU Commission is currently investigating the possibility of extending the ECA to the Mediterranean Sea and Black Sea. In addition, the EU Sulphur directive has since January 1, 2010 banned inland waterway vessels and ships berthing in EU ports from using marine fuels with a sulfur content exceeding 0.1% by mass. The prohibition applies to use in all equipment including main and auxiliary engines and boilers. Some EU Member States also require vessels to record the times of any fuel-changeover operations in the ship’s logbook.

The Council of the EU has now approved the implementation of its 2013 “Strategy for integrating maritime transport emissions in the EU’s greenhouse gas reduction policies” and “Regulation (EU) 2015/757 of the European Parliament and of the Council on the monitoring, reporting and verification of carbon dioxide emissions from maritime transport” was adopted on April 29, 2015. It obliges owners of vessels over 5,000 gross tons to monitor emissions for each ship on a per voyage and annual basis, from January 1, 2018. There are provisions for monitoring, reporting and verifying (“MRV”) of carbon dioxide (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. 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 since October 1, 2013.

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



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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 $6.6 million plus approximately $919 for each additional gross ton over 5,000. For vessels of over 140,000 gross tons, liability is limited to approximately $131 million. As the Convention calculates liability in terms of IMF Special Drawing Rights, these figures are based on currency exchange rates on April 19, 2018. 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.

The U.S. National Invasive Species Act (“NISA”) was enacted in 1996 in response to growing reports of harmful organisms being released into U.S. ports through ballast water taken on by ships in foreign ports. Under NISA, the 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 Coast Guard. However, mid-ocean ballast exchange is mandatory for ships heading to the Great Lakes or Hudson Bay, or vessels engaged in the foreign export of Alaskan North Slope crude oil. Mid-ocean ballast exchange is the primary method for compliance with the Coast Guard regulations, since holding ballast water can prevent ships from performing cargo operations upon arrival in the U.S., and alternative methods are still under development. Vessels that are unable to conduct mid-ocean ballast exchange due to voyage or safety concerns may discharge minimum amounts of ballast water (in areas other than the Great Lakes and the Hudson River), provided that they comply with record keeping requirements and document the reasons they could not follow the required ballast water management requirements. The Coast Guard adopted allowable concentration limits for living organisms in ballast water discharges in U.S. waters, effective June 21, 2012. All newly constructed vessels must be compliant on delivery. All existing vessels must be compliant at their first scheduled drydock after January 1, 2016 or, in the case of vessels with ballast water capacity of 1,500 –5,000m3, their first scheduled drydock after January 1, 2014. The Coast Guard must approve any ballast water management technology before it can be placed on a vessel, and a



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list of approved equipment can be found on the Coast Guard Maritime Information Exchange (CGMIX) web page.

At the international level, the IMO adopted an International Convention for the Control and Management of Ships’ Ballast Water and Sediments in February 2004 (the “BWM Convention”). The BWM Convention entered into force on September 8, 2017. Under the BWM Convention, all ships in international traffic are required to manage their ballast water on every voyage by either exchanging it or treating it using an approved ballast water treatment system. All ships of 400 gross tonnes and above also have to carry an approved Ballast Water Management Plan and a Ballast Water Record Book, and to be surveyed and issued with an International Ballast Water Management Certificate. All ships constructed after entry into force of the BWM Convention will have to be compliant on delivery. Existing ships are required to be compliant by their first International Oil Pollution Prevention (IOPP) renewal survey on or after September 8, 2017. The IOPP renewal survey refers to the renewal survey associated with the IOPP Certificate required under MARPOL Annex I. The BWM Convention does not apply to ships not carrying ballast water, domestic ships, ships that only operate in waters under the jurisdiction of one party to the BWM Convention and on the high seas, warships, naval auxiliary or other ships owned or operated by a state, or permanent ballast water in sealed tanks on ships. Furthermore, flag administrators may issue exemptions from the BWM Convention for ships engaged on occasional or one-off voyages between specified ports or locations, or ships that operate exclusively between specified ports or locations, such as ferries. Regulation D-2 of the BWM Convention outlines the standard that ballast water treatment systems must meet. The standards involve maximum levels of certain microorganisms, such as plankton and intestinal enterococci, for given amounts of ballast water.

Our vessels will comply with the BWM Convention in accordance with its terms, though the cost of compliance may result in us incurring costs to install approved ballast water treatment systems on our vessels.

In November 2014 the IMO adopted the International Code for Ships Operating in Polar Waters (the “Polar Code”) and related amendments to SOLAS to make it mandatory. The Polar Code comprises of detailed requirements relating to safety, design, construction, operations, training and the prevention of environmental pollution. The Polar Code applies to all shipping and maritime operations, apart from fishing boats, ships under 500 tons and fixed structures. The Polar Code entered into force on January 1, 2017 and applies to new ships constructed after that date. Ships constructed before January 1, 2017 are required to meet the relevant requirements of the Polar Code by their first intermediate or renewal survey, whichever occurs first, after January 1, 2018. Amendments have also been made to MARPOL, with entry into force dates aligned with the SOLAS amendments. The STCW Convention was also amended in November 2016 to include minimum training requirements for vessels operating in polar waters. These amendments will come into force in July 2018. The Polar Code brings with it numerous requirements and necessities for all ships trading in the polar regions and therefore a great deal of investment will be needed to operate in this region. It is our intention to comply with the Polar Code as implemented through MARPOL and SOLAS and with the applicable training requirements of the STCW Convention.

MARPOL Annex I regulation 43 concerning special requirements for the use or carriage of oils in the Antarctic area to prohibit ships from carrying heavy grade oil on board as ballast, came into force on March 1, 2016. Our vessels comply with it.

Although the Kyoto Protocol to the United Nations Framework Convention on Climate Change requires adopting countries to implement national programs to reduce emissions of greenhouse gases, emissions of greenhouse gases from international shipping are not subject to the Kyoto Protocol. No new treaty was adopted at the United Nations’ climate change conference in Cancun in December 2010. The Kyoto Protocol was extended to 2020 at the 2012 United Nations Climate Change Conference, with the hope that a new treaty would be adopted in 2015 to come into effect in 2020. There is pressure to include shipping in any new treaty. We refer to the discussion above of the regulation of greenhouse gas emissions from ocean-going vessels under the CAA and EU greenhouse gas emissions strategy. The IMO, the EU or individual countries in which we operate could pass



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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.

The Hong Kong Air Pollution Control (Marine Light Diesel) Regulations, which entered into force on April 1, 2014, provide that the sulfur content of marine light diesel supplied to vessels in Hong Kong must contain 0.05% sulfur content or less. The Air Pollution Control (Ocean Going Vessels) (Fuel At Berth) Regulation was tabled by Hong Kong’s Legislative Council on March 18, 2015 and came in to force on July 1, 2015. The Regulation prohibits ocean going vessels from using any fuel other than compliant fuel while at berth in Hong Kong, except during the first hour after arrival and the last hour before departure. Shipmasters and ship owners are required to record the date and time of fuel switching and keep relevant records for three years.

In December 2015, representatives of 195 countries met at the Paris Climate Conference (“COP 21”) and adopted a universal and legally binding climate deal. The COP 21 agreement is expected to come into force in 2020. The governments agreed to the goal of keeping the increase in global average temperature to below 2°C and to aim, if possible, to limit the increase to 1.5°C. Governments also agreed to reconvene every 5 years to reassess the targets. Governments will be required to report to each other on their progress and the steps they have taken to reach their targets. The COP 21 came into force on November 4, 2016, and as at April 19, 2018, 175 of the 197 countries who were party to the COP 21 have ratified it. The shipping industry was not included in emissions controls; however, with growing pressure being placed on the IMO to implement measures to aid the objectives agreed at the COP 21, it is now uncertain whether the agreement will in fact exclude the shipping industry.

Trading Restrictions: The Company is aware of the restrictions applicable to it on trading with Cuba, Iran, North Korea, Sudan and Syria and it has complied with those restrictions and intends to continue to so comply in all respects. The Company has not, nor does it intend to, provide any goods, fees or services to the referenced countries and has had no contacts with governmental entities in these countries nor does it intend to have any in the future. Its vessels are not chartered to any Cuban, Iranian, Sudanese or Syrian companies. The voyage charter parties and all but the oldest time-charter agreements relating to the vessels in the fleet generally preclude Iran from the vessels’ trading unless agreed between owner and charterer after taking into account all relevant sanctions legislation. Between January 1, 2016 and April 20, 2018, the Company’s vessels made 4,695 port calls around the world, none of which were to those countries.

None of the vessels the Company owns or operates or charters have provided, or are anticipated to provide, any U.S.-origin goods to these countries, or involve employees who are U.S. nationals in operations associated with these countries. The Company has no relationships with governmental entities in those countries, nor does it charter its vessels to companies based in those countries. The Company derives its revenue directly from the charterers.

Classification and inspection

The vessels in the fleet have been certified as being “in class” by their respective classification societies: Bureau Veritas, Det Norske Veritas, American Bureau of Shipping, or Lloyd’s Register of Shipping. Every vessel’s hull and machinery is “classed” by a classification society authorized by its flag administration. The classification society certifies that the vessel has been built and maintained in accordance with the rules of such classification society and complies with applicable statutory rules and regulations of the country of registry of the vessel and the international conventions of which that country is a party. Each vessel is scheduled for inspection by a surveyor of the classification society every year (the annual survey), every five years (the special survey) and every thirty months after a special survey (the intermediate survey). Vessels are required to be dry-docked for the special survey process, and for vessels over fifteen years of age for intermediate survey purposes, for inspection of the underwater parts of the vessel and for necessary repairs related to such inspection. With the



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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 or calling at their terminals. We believe that our well-maintained, high quality tonnage should provide us with a competitive advantage in the current environment of increasing regulation and customer emphasis on quality of service, safety and protection of the environment.

TCM, our technical manager, has obtained a Document of Compliance (DOC) for its offices and Safety Management Certificates (SMC) for our vessels, as required by the ISM Code. In addition, TCM has established, implemented and maintains a documented Health, Safety, Quality, Environmental and Energy (HSQEE) management system which complies and is certified in accordance with ISO 9001 (Quality Management), ISO 14001 (Environmental protection management), OHSAS 18001 (Occupational health& safety management) and ISO 50001 (Energy management) standards. The TCM’s management system is based on the principle of continual improvement towards ensuring HSQEE excellence. The main overall objectives are to ensure flawless operations with zero accidents and zero pollution and this is carried out by instilling and maintaining a strong safety and compliance culture, operating well-maintained ships, maintaining effective risk management, reducing our environmental impact and increasing the energy efficiency of our operations.

Risk of loss and insurance

The operation of any ocean-going vessel carries an inherent risk of catastrophic marine disasters and property losses, including:






adverse weather conditions;



fire and explosion;



mechanical failures;









terrorism; and




In addition, the transportation of crude oil is subject to the risk of crude oil spills and business interruptions due to political circumstances in foreign countries, hostilities, labor strikes and boycotts. Tsakos Shipping arranges insurance coverage to protect against most risks involved in the conduct of our business and we maintain environmental damage and pollution insurance coverage. Tsakos Shipping arranges insurance covering the loss of revenue resulting from vessel off-hire time as a result of physical damage. We believe that our current insurance coverage is adequate to protect against most of the risks involved in the conduct of our business. The terrorist attacks in the United States and various locations abroad and international hostilities have led to increases in our insurance premium rates and the implementation of special “war risk” premiums for certain trading routes. See “Item 5. Operating and Financial Review and Prospects” for a description of how our insurance rates have been affected by previous events. We have hull and machinery insurance, increased value (actual or constructive total loss) insurance and loss of hire insurance with Argosy Insurance Company. Each of our ship owning subsidiaries is a named insured under our insurance policies with Argosy. Argosy provides the same full coverage as provided through London and Norwegian markets and reinsures most of its exposure, subject to customary deductibles, with various reinsurers in the London and international reinsurance markets. These reinsurers have a minimum credit rating of ‘A-’. We were charged by Argosy aggregate annual premiums of $10.2 million in 2017. By placing our insurance through Argosy, we believe that we achieve cost savings over the premiums we would otherwise pay to third party insurers.



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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 gross 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. Each P&I club enters into reinsurance arrangements with other members of the International Group of P&I Clubs in order to provide the requisite amount of liability and pollution cover and as a method of preventing large losses in any year from being assessed directly against members of the P&I club.

World events have an impact on insurance costs and can result in increases in premium; however, other significant drivers of premium levels are market over capacity, inadequate deductibles, inefficient claims control by the insurers and scope of cover being too wide. Insurance premiums, having been in decline for several years with market losses having no apparent impact on renewal costs, are now under greater scrutiny from capital providers, resulting in subtle indicators of potential firming of rates in the coming 12 to 24 months. The insurance markets maintain their list of World Wide War Risks Exclusions, as defined by the Joint War Committee in the London insurance market, and insurers are at liberty to charge increases in premium in order to provide cover for Excluded Areas which include the Indian Ocean, Gulf of Guinea, Libya and Saudi Arabia, amongst others. These additional insurance costs represent a relatively small portion of our total insurance premiums and are, in any case, largely paid by the Charterers. Protection & Indemnity (P&I) insurance costs are less affected by world events than H&M and more likely to be driven by maritime losses and whether there is a fall in the value of individual Club’s Free Reserves. The Company’s P&I renewals as of February 20, 2018 saw a reduction in costs of 5.41% partly due to reduced costs of the International Group’s reinsurance programme and partly due to the Company’s own record. At March 31, 2018, the International Group of P&I Clubs continued to provide its members with $1 billion of oil pollution liability coverage and more than $4 billion of coverage for other liabilities. P&I, Hull and Machinery and War Risk insurance premiums are accounted for as part of operating expenses in our financial statements; accordingly, any changes in insurance premiums directly impact our operating results.


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, 2018. Ownership of tankers is divided among independent tanker owners and national and independent oil companies. Many oil companies and other oil trading companies, the principal charterers of our fleet, also operate their own vessels and transport oil for themselves and third-party charterers in direct competition with independent owners and operators. We compete for charters based on price, vessel location, size, age, condition and acceptability of the vessel, as well as our reputation as a tanker operator and our managers reputation for meeting the standards required by charterers and port authorities. Currently we compete primarily with owners of tankers in the ULCCs, VLCCs, suezmax, suezmax shuttle tankers, aframax, panamax, handymax and handysize class sizes, and we also compete with owners of LNG carriers.

Although we do not actively trade to a significant extent in Middle East trade routes, disruptions in those routes as a result of international hostilities, including those in Syria and Iraq, economic sanctions, including those with respect to Iran, and terrorist attacks such as those made in various international locations (Somalia, Kenya, Yemen, Nigeria) and pirate attacks repeatedly made upon shipping in the Indian Ocean, off West Africa and in South East Asia, may affect our business. We may face increased competition if tanker companies that trade in Middle East trade routes seek to employ their vessels in other trade routes in which we actively trade.



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Other significant operators of multiple aframax and suezmax tankers in the Atlantic basin that compete with us include Euronav, Teekay Shipping Corporation, Frontline, International Seaways, Inc., and Nordic American Tankers. There are also numerous smaller tanker operators in the Atlantic basin.


We have no salaried employees. See “—Management Contract—Crewing and Employees.”


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, 2018, individually and in the aggregate, was not material to us.


Item 4A. Unresolved Staff Comments



Item 5. Operating and Financial Review and Prospects

Company Overview

As of April 20, 2018, the fleet consisted of 64 double-hull vessels, with an average age of 7.5 years, comprising 59 conventional tankers, two LNG carriers and three suezmax DP2 shuttle tankers providing world-wide marine transportation services for national, major and other independent oil companies and refiners under long, medium and short-term charters. The current operational fleet consists of two VLCCs, sixteen suezmaxes (including three suezmax DP2 shuttle tankers), seventeen aframaxes, three aframax LRs, eleven panamaxes, six handymaxes, seven handysize product carriers and two LNG carriers. All vessels are owned by our subsidiaries, other than two suezmax tankers chartered-in 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—2017

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.

By the end of the first quarter of 2016, realization began to set in that the year 2016 was likely to disappoint tanker owners, as high product and crude stockpiles and lower demand for those commodities were not going to



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generate the kind of market seen in the previous year. Prospects for 2017 worsened as OPEC leaders began to discuss production cuts to bolster oil prices. As it happened, 2017 turned out to be even worse than feared as uncommon compliance in maintaining reduced production and export quotas remained throughout the year, while supply disruptions and refinery shut-downs for maintenance exacerbated the situation. Overcapacity in the global fleet, also significantly contributed to pushing rates to low levels not seen for several years.

Towards the latter part of 2017, however, there was increasing optimism that world economic growth projected for 2018 was likely to exceed 3.5%. Much of this growth was expected from Asia, especially from China, including Japan, but excluding India. Increased growth was expected for Europe, apart from the United Kingdom. However, considerable weakness remained in many parts of the world, where there was little sign of material recovery nor indication of any significant beneficial uplift in inflation. Nevertheless, compared to the poor growth witnessed in prior years, there were many signs that the economic climate globally was gradually becoming more favorable for encouraging positive economic reforms, creating an environment in which greater competitiveness and efficient management of risk could take place, leading, in turn, to increased consumer confidence and expectation of improved standards of living in most societies free from hostilities and strife.

The recovery of oil prices, which started in the latter part of 2016, rapidly took further momentum from the second half of 2017 because of the production cuts, although the cuts did result in significant drawdowns on stock, bringing some reduction in inventory levels down towards a five-year average. Oil prices increased to over $60 per barrel, and for much of 2017 stayed at these levels without creating any significant demand destruction, but clearly having an impact on bunker prices which negatively affected vessel owners and charterers, depending on type of charter. In the meantime, U.S. production has increased due to increasing prices, and U.S. exports are beginning to have some impact on trade routes, although not yet to any significant level. A degree of uncertainty also remains while OPEC cuts are still in place and while future OPEC strategy beyond 2018 is unclear. Nevertheless, the market share of U.S. exports is expected to grow in 2018. Much of these exports are directed to relatively new destinations such as India and China, contributing, in the wake of OPEC production cuts in the Middle East, to the expansion of a new U.S. to Asia crude trade route.

Crude oil prices continued to move upwards in early 2018 reaching levels at over $70, not seen for over three years, confirming that the producer cuts have achieved their purpose, but also that there exists healthy demand, and that the current prices, although likely to stifle growth in poorer oil importing countries, are not likely to lead to any significant global demand destruction. However, oil prices may receive further boosts in 2018 if sanctions on Iran are re-imposed or if oil supply is restricted in those exporting countries most vulnerable to disruption, such as Nigeria, Venezuela, Iraq and Libya. Offsetting this scenario is the expectation that, depending on the outcome of forthcoming OPEC meetings, the agreement to limit production and exports by OPEC and non-OPEC countries may end in the latter half of 2018 leading to the possibility that these countries may rapidly revert to pre-cut production levels. If this happens, and is combined with growing U.S. output, then global inventories, currently below the levels of one year ago, may build up again and prices may begin to fall again.

After a year of reduced production from OPEC countries, by an aggregate of over 200,000 bpd, global oil production is expected to grow in 2018, while current 2018 forecasts for production by non-OPEC countries, including former Soviet Union countries and the U.S., exceed 1.7 million bpd, while the IEA forecast for global oil demand growth for 2018 is1.63 million bpd, mainly based on existing and further expected positive economic data from OECD countries. The IEA recorded an oil demand growth in 2017 of 1.6 million bpd and has recently raised its forecast for oil demand growth in 2018 to 1.5 million, but believes that increases in production, especially from the U.S., may exceed this increase in demand may even lead to the US being the leading producer of crude oil by the end of 2018.

Expectations for the remainder of 2018 are somewhat muted after a painful end to 2017 during which global oil supplies were constrained and rates fell to low levels. This continued into 2018, a painful start for the year for tanker owners, especially those fully exposed to spot transactions. Despite this, there are some positive signs for



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the future, the most obvious and basic sign being that the market is unlikely to worsen much further from where it has been lately, and a period of flatness may settle in, lasting for many more months. Production cuts and overbuilding remain the most serious concerns for the crude market, but reduced ordering and higher scrappage levels, further encouraged by approaching new environmental regulations and by poor rates, restrained ship lending capacity, and cases of Far Eastern shipyards under restructuring, all contribute to restrain newbuilding ordering, which may turn the tide as far as over-capacity is concerned. Continuing production cuts by OPEC and non-OPEC countries should lead to further reduced inventories and an eventual return to a balance in the oil market. The product market is expected to see a quicker recovery, despite still relatively high inventories, as the number of deliveries of smaller product carriers declines during the year. Some modest recovery in rates has already been evident in late 2017 and in the first quarter of 2018, as new Asian refineries come on-line, several for export purposes, although vessel over-capacity still exists. In addition, LNG carrier rates improved towards the end of 2017 and into Q1 of 2018, before falling back, but strong Asian demand and the pending completion of a number of liquefaction projects are likely to generate stronger LNG carrier demand in 2018, which, combined with the lack of significant vessel orders in the recent past, has given rise to the possibility of a shortage of vessel supply within the next two years.

Our fleet achieved voyage revenues of $529.2 million in 2017, an increase of 9.8% from $481.8 million in 2016. The average size of our fleet increased in 2017 to 62.6 vessels from 52.6 vessels in 2016, and fleet utilization was 96.7% during 2017, compared to a 96.5% utilization during 2016. The market remained significantly soft in 2017 due to overcapacity in the global fleet, refinery outages, and high inventories. However, consumer demand remained relatively strong. Our average daily time charter rate per vessel, after deducting voyage expenses, decreased to $18,931 in 2017 from $20,412 in 2016, mainly due to the difficult freight market. Operating expenses increased by 18.6% to $173.9 million in 2017 from $146.6 million in 2016 due to the addition of new vessels.

Depreciation and amortization was $139.0 million in 2017 compared to $113.4 million in 2016 due to the addition of new vessels. General and administrative expenses which include management fees and incentive awards were $26.3 million in 2017 and $25.6 million in 2016, the decrease mainly due to reduced incentive awards in 2017.

In 2017, the review of the carrying amounts in connection with the estimated recoverable amount for certain of the Company’s vessels as of December 31, 2017 indicated the need for an $8.9 million impairment charge. There was an operating gain of $63.5 million in 2017 compared to $89.8 million in 2016. Two vessels were sold at the end of 2017, resulting in a loss on sale of vessels of $3.9 million. There was no vessel sale in 2016. Interest and finance costs, net increased by 58.4% in 2017 to $56.8 million, mainly due to new debt related to the new vessel deliveries and to higher interest rates. Net income attributable to the Company was $7.6 million in 2017 compared to $55.8 million in 2016. The effect of preferred dividends in 2017 was $23.8 million compared to $15.9 million in 2016. Net loss per share (basic and diluted) was $0.19 in 2017, including the effect of preferred dividends, based on 84.7 million weighted average shares outstanding (basic and diluted), compared to earnings of $0.47 per share in 2016 based on 84.9 million weighted average shares outstanding (basic and diluted).

Some of the more significant developments for the Company during 2017 were:



the deliveries of VLCC Hercules I, aframaxes Marathon TS, Sola TS, Oslo TS, Stavanger TS, Bergen TS and the DP2 shuttle tanker Lisboa.



an ATM equity offering launched, with proceeds of approximately $0.6 million from the issuance of 24,803 Series D Preferred Shares and $12.1 million from the issuance of 2,727,514 common shares as of April 20, 2018.



the arrangement of a new four-year bank loan of $122.5 million for refinancing of aframax tankers Izumo Princess, Asahi Princess, handysize product carrier Aegeas, two panamax tankers World Harmony, Chantal and two suezmax tankers Archangel, Alaska.



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the refinancing of shuttle tanker Lisboa with a loan of $85 million, of which $73.5 million repaid the previous loan.



the completion of a sale and leaseback transaction relating to the suezmaxes Eurochampion 2004 and Euronike.



the dry-docking of Andromeda, Decathlon, Izumo Princess, Aegeas, Arctic, Sakura Princess, Byzantion, Silia T, Antarctic, Euro, Bosporos and Rio 2016 for their mandatory special or intermediate survey;



the payment to holders of Series B preferred shares of dividends totaling $4.0 million in aggregate;



the payment to holders of Series C preferred shares of dividends totaling $4.4 million in aggregate;



the payment to holders of Series D preferred shares of dividends totaling $7.5 million in aggregate;



the payment to holders of Series E preferred shares of dividends totaling $6.9 million in aggregate; and



dividends to holders of common shares totaling $0.20 per share with total cash paid out amounting to $17.1 million.

The Company operated the following types of vessels during and at the end of 2017:


Vessel Type

    VLCC     Suezmax     Suezmax DP2
    Aframax     Panamax     Handymax

Average number of vessels

    2.0       3.0       13.0       2.8       17.8       11.0       6.0       7.0       62.6  

Number of vessels at end of year

    2.0       3.0       13.0       3.0       20.0       11.0       6.0       7.0       65.0  

Dwt at end of year (in thousands)

    178.9       901.2       2,098.9       468.4       2,213.1       799.1       318.5       260.2       7,238.3  

Percentage of total fleet (by dwt at year end)

    2.5     12.5     29.0     6.5     30.5     11.0     4.4     3.6     100.0

Average age, in years, at end of year

    5.9       7.3       9.6       3.4       5.6       9.1       12.5       11.2       7.7  

We believe that the key factors which determined our financial performance in 2017, within the given freight rate environment in which we operated, were:



the diversified aspect of the fleet, including purpose-built vessels to access ice-bound ports, carry LNG and operate shuttle tankers between offshore installations and on-shore terminals, which allowed us to take advantage of all tanker sectors;



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 the upside in the freight market;



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



a high level of utilization for our vessels;



the continued control over costs by our technical managers despite pressures caused by rising operating 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, which was completed in October 2017, 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 cash dividends;



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



our ability to access the capital markets and raise new financing on competitive terms; and



the sale of vessels when attractive opportunities arise.

We believe that the above factors will also influence our future financial performance and will play a significant role in the current world economic climate as we proceed through 2018 and into 2019. To these may be added:



any recovery of the product and crude oil tanker charter markets during the year;



any additional vessel acquisitions or newbuildings;



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



our ability to build our cash reserves through operations, vessel sales and capital market products.

Chartering Strategy

We typically charter our subsidiaries’ vessels to third parties in any of five basic types of charter. First are “voyage charters” or “spot voyages,” under which a shipowner is paid freight on the basis of moving cargo from a loading port to a discharging port at a given rate per ton or other unit of cargo. Port charges, bunkers and other voyage expenses (in addition to normal vessel operating expenses) are the responsibility of the shipowner.

Second are “time charters,” under which a shipowner is paid hire on a per day basis for a given period of time. Normal vessel operating expenses, such as stores, spares, repair and maintenance, crew wages and insurance premiums, are incurred by the shipowner, while voyage expenses, including bunkers and port charges, are the responsibility of the charterer. The time charterer decides the destination and types of cargoes to be transported, subject to the terms of the charter. Time charters can be for periods of time ranging from one or two months to more than three years. The agreed hire may be for a fixed daily rate throughout the period or may be at a guaranteed minimum fixed daily rate plus a share of a determined daily rate above the minimum, based on a given variable charter index or on a decision by an independent brokers’ panel for a defined period. Many of our charters have been renewed on this time charter with profit share basis over the past three years. Time charters can also be “evergreen,” which means that they automatically renew for successive terms unless the shipowner or the charterer gives notice to the other party to terminate the charter.

Third are “bareboat charters” under which the shipowner is paid a fixed amount of hire for a given period of time. The charterer is responsible for substantially all the costs of operating the vessel including voyage expenses, vessel operating expenses, dry-docking costs and technical and commercial management. Longer-term time charters and bareboat charters are sometimes known as “period charters.”

Fourth are “contracts of affreightment” which are contracts for multiple employments that provide for periodic market related adjustments, sometimes within prescribed ranges, to the charter rates.

Fifth are “pools”. During 2015, one of our subsidiaries’ vessel also operated within a pool of similar vessels for part of the year whereby all income (less voyage expenses) is earned on a market basis and shared between pool participants on the basis of a formula which takes into account the vessel’s age, size and technical features. During 2017 and 2016, none of our subsidiaries had vessels operating in a pool.

Our chartering strategy continues to be one of fixing the greater portion of our fleet on medium to long-term employment in order to secure a stable income flow, but one which also ensures a satisfactory return. This strategy has enabled us to smooth the effects of the cyclical nature of the tanker industry, achieving almost optimal utilization of the fleet. In order to capitalize on possible upturns in rates, we have chartered out several of our vessels at a fixed minimum rate plus an extra agreed percentage of an amount based on market spot or time-charter rates (“profit-share”).



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Our Board of Directors, through its Business Development and Capital Markets Committee, formulates our chartering strategy and our commercial manager Tsakos Energy Management implements this strategy through the Chartering Department of Tsakos Shipping. They evaluate the opportunities for each type of vessel, taking into account the strategic preference for medium and long-term charters and ensure optimal positioning to take account of redelivery opportunities at advantageous rates.

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 47 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 were at consistently higher levels during the last few years and were expected to remain at high levels for the following years, from October 1, 2012, scrap values are calculated at $390 per lightweight ton (lwt). Our estimate was based on the average demolition prices prevailing in the market during the last ten years for which historical data were available. From mid-2015, scrap values fell from $390 per lwt to as low as $250 per lwt, but have more recently climbed again to $450 per lwt. Given the historical volatility of scrap prices, management will monitor prices going forward and where a distinctive trend is observed over a given length of time, management may consider revising the scrap price accordingly. In assessing the useful lives of vessels, we have adopted the industry-wide accepted practice of assuming a vessel has a useful life of 25 years (40 years for the LNG carriers), given that all classification society rules have been adhered to concerning survey certification and statutory regulations are followed.



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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 is approximately 7.5 years as of April 20, 2018. The average remaining operational life is, therefore, 17.5 years. Given the extensive remaining lives, we do not believe that there is a significant risk of not generating future undiscounted net operating cash flows in excess of carrying values. However, as indicated above, circumstances may change at any time which would oblige us to reconsider the extent of risk of impairment.

Future undiscounted net operating cash flows are determined by applying various assumptions regarding future revenues net of commissions, operating expenses, scheduled dry-dockings and expected off-hire and scrap values. Our projections for charter revenues are based on existing charter agreements for the fixed fleet days and an estimated daily average hire rate per vessel category for the unfixed days based on the most recent ten year historical averages publicly provided by major brokers, which, given the wide spread of annual rates between the peaks and troughs over the decade, we believe provides as fair as any other assumption that could be used in determining a rate for a long-term forecast. In addition, we apply a 2% annual escalation in rates to take account of published long-term growth and inflation expectations in the developed world. Future operating costs are based on the 2017 average per individual vessel to which we also apply a 2% annual escalation. Residual or scrap value is based on the same scrap price used for depreciation purposes as described above. All such estimations are inevitably subjective. Actual freight rates, industry costs and scrap prices may be volatile. As a consequence, estimations may differ considerably from actual results.

Where a vessel is deemed to be a risk, we also take into account the age, condition, specifications, marketability and likely trading pattern of each such vessel, and apply various possible scenarios for employment of the vessel during its remaining life. We prepare cash flows for each scenario and apply a percentage possibility to each scenario to calculate a weighted average expected cash flow for the vessel for assessing whether an impairment charge is required. The estimations also take into account regulations regarding the permissible trading of tankers depending on their structure and age.

While management, therefore, is of the opinion that the assumptions it has used in assessing whether there are grounds for impairment are justifiable and reasonable, the possibility remains that conditions in future periods may vary significantly from current assumptions, which may result in a material impairment loss. If the current economic recovery stalls or if the upward trend in oil prices continues for an extended period, oil demand over an extended period of time could be negatively impacted. This would exacerbate the consequences of overcapacity in the tanker sector. In such circumstances, the possibility will increase that both the market value of the older vessels of our fleet and the future cash flow they are likely to earn over their remaining lives will be less than their carrying value and an impairment loss will occur.

Should the carrying value of the vessel exceed its estimated undiscounted cash flows, impairment is measured based on the excess of the carrying amount over the fair value of the asset. The fair values are determined based principally from or by corroborated observable market data. Inputs considered by management in determining the fair value include independent brokers’ valuations. As vessel values are also volatile, the actual market value of a vessel may differ significantly from estimated values within a short period of time.



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The Company would not record an impairment charge for any of the vessels for which the fair market value is below its carrying value unless and until the Company either determines to sell the vessel for a loss or determines that the vessel’s carrying amount is not recoverable.

As noted above, we determine projected cash flows for unfixed days using an estimated daily time charter rate based on the most recent ten-year historical average rates, inflated annually by a 2.0% growth rate. We consider this approach to be reasonable and appropriate. However, charter rates are subject to change based on a variety of factors that we cannot control and we note that charter rates over the last few years have been, on average, below their historical ten year average. If as at December 31, 2017 and 2016, we were to utilize an estimated daily time charter equivalent for our vessels’ unfixed days based on the most recent five year, three year or one year historical average rates for one-year time charters, the results would be the following:


     As of December 31, 2017      As of December 31, 2016  
     Number of
     Amount (U.S.$
     Number of
     Amount (U.S.$

5-year historical average rate

     3        43.2        2        29.4  

3-year historical average rate

     0        0        0        0  

1-year historical average rate

     23        349.4        2        29.4  


(*) Number of vessels the carrying value of which would not have been recovered, other than the two vessels for which we recorded an impairment as of December 31, 2017.
(**) Aggregate carrying value that would not have been recovered.

Although we believe that the assumptions used to evaluate potential impairment are reasonable and appropriate, such assumptions are highly subjective. There can be no assurance as to how long charter rates and vessel values will remain at their current levels or whether they will again decline or improve by any significant degree. Although charter rates markedly increased from late 2014 and through 2015, they began to decline again in early 2016 to relatively low levels and remained at low levels through 2017, which had an adverse effect on our revenue and profitability, and future assessments of vessel impairment.

At December 31, 2017, our review of the carrying amounts of the vessels in connection with the estimated recoverable amount did not indicate an impairment of their carrying values, apart from one VLCC and one suexmax crude carrier. The Company’s cash flow tests per vessel for assessing whether an impairment charge was required indicated that an impairment charge of $4.8 million was required for the suezmax crude carrier Silia T as at December 31, 2017, based on Level 2 inputs of the fair value hierarchy, as determined by management taking into consideration valuations from independent marine valuers. An impairment loss of $4.1 million was also recorded in 2017 for the vessel Millennium as the result of the vessel’s classification as held for sale as of December 31, 2017.

At December 31, 2017, the market value of the fleet owned by our subsidiary companies, as determined based on management estimates and assumptions and by making use of available market data and taking into consideration third party valuations was $2.4 billion, compared to a total carrying value of $3.1 billion. While the future undiscounted net operating cash flows expected to be generated by each of the vessels in the fleet was comfortably in excess of its respective carrying value, there were 60 vessels in our fleet whose carrying values exceeded their market values. As determined at December 31, 2017, the aggregate carrying value of these vessels was $2.8 billion, and the aggregate market value of these vessels was $2.1 billion. These vessels were:



LNG: Neo Energy, Maria Energy



VLCC: Millennium, Ulysses, Hercules I



Suezmax: Antarctic, Arctic, Alaska, Archangel, Silia T, Spyros K, Dimitris P, Eurovision, Euro, Pentathlon, Decathlon



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Aframax: Proteas, Promitheas, Propontis, Izumo Princess, Sakura Princess, Maria Princess, Nippon Princess, Ise Princess, Asahi Princess, Sapporo Princess, Uraga Princess, Elias Tsakos, Thomas Zafiras, Leontios H, Parthenon TS, Marathon TS, Oslo TS, Sola TS, Stavanger TS, Bergen TS



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



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



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

Allowance for doubtful accounts. Revenue is based on contracted charter parties and although our business is with customers whom we believe to be of the highest standard, there is always the possibility of dispute over terms and payment of freight and demurrage. In particular, disagreements may arise as to the responsibility for lost time and demurrage revenue due to the Company as a result. As such, we periodically assess the recoverability of amounts outstanding and we estimate a provision if there is a possibility of non-recoverability, primarily based on the aging of such balances and any amounts in dispute. Although we believe any provision that we might record to be based on fair judgment at the time of its creation, it is possible that an amount under dispute is not ultimately recovered and the estimated provision for doubtful recoverability is inadequate.

Amortization of deferred charges. In accordance with Classification Society requirements, a special survey is performed on our vessels every five years. A special survey requires a dry-docking. In between special surveys, a further intermediate survey takes place, for which a dry-docking is obligatory for vessels over fifteen years. Until December 31, 2013, for vessels reaching ten years in age, we estimated that the next dry-docking would be due after two and a half years. However, according to Classification Society regulations, vessels can defer the next dry-docking for five years during their first fifteen years of life, instead of ten years as previously estimated. We calculate that this change in estimate did not have a material effect in the year ended December 31, 2014 and thereafter. During a dry-docking, work is undertaken to bring the vessel up to the condition required for the vessel to be given its classification certificate. The costs include the yard charges for labor, materials and services, possible new equipment and parts where required, plus part of the participating crew costs incurred during the survey period. We defer these charges and amortize them over the period up to the 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 values of long-term bank loans with variable interest rates approximate the recorded values, generally due to their variable interest rates. The present value of the future cash flows of the portion of any long-term bank loan with a fixed interest rate is estimated and compared to its carrying amount. The fair value of the investments equates to the amounts that would be received by the Company in the event of sale of those investments, and any shortfall from carrying value is treated as an impairment of the value of that investment. The fair value of the interest rate swap, bunker swap agreements, and bunker call options held by the Company are determined through Level 2 of the fair value hierarchy as defined in FASB guidance and are derived principally from or corroborated by observable market data, interest rates, yield curves and other items that allow value to be determined. The fair values of impaired vessels are determined by management through Level 2 of the fair value hierarchy based on available market data and taking into consideration third party valuations.

Basis of Presentation and General Information

Voyage revenues. Revenues are generated from freight billings and time charters. Time and bareboat charter revenues are recorded over the term of the charter as the service is provided. Revenues from voyage charters on the spot market or under contract of affreightment are recognized ratably from when a vessel becomes available



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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 after commissions less voyage expenses and does not take into account off-hire days.

Commissions. We pay commissions on all chartering arrangements to Tsakos Shipping, as our broker, and to any other broker we employ. Each of these commissions generally amounts to 1.25% of the daily charter hire or lump sum amount payable under the charter. In addition, on some trade routes, certain charterers may include in the charter agreement an address commission which is a payment due to the charterer, usually ranging from 1.25% to 3.75% of the daily charter hire or freight payable under the relevant charter. These commissions, as well as changes in prevailing charter rates, will cause our commission expenses to fluctuate from period to period.

Voyage expenses. Voyage expenses include all our costs, other than vessel operating expenses, that are related to a voyage, including charter commissions, port charges, canal dues and bunker fuel costs. As from the first quarter of 2015, commissions on revenue are included in voyage expenses, in order to be consistent with and comparable to other reporting entities within the peer group of tanker companies.

Charter hire expense. We hire certain vessels from third-party owners or operators for a contracted period and rate in order to charter the vessels to our customers. These vessels may be hired when an appropriate market opportunity arises or as part of a sale and lease back transaction or on a short-term basis to cover the time-charter obligations of one of our vessels in dry-dock. Since December 31, 2010, the Company had not had any vessels under hire from a third-party, until December 2017, when two vessels were sold and chartered back to the Company for five years.

Vessel operating expenses. These expenses consist primarily of manning, hull and machinery insurance, P&I and other vessel insurance, repairs and maintenance, stores and lubricant costs.

Depreciation and Amortization of deferred charges. We depreciate our vessels on a straight-line basis over their estimated useful lives, after considering their estimated scrap values. Useful life is ultimately dependent on customer demand and if customers were to reject our vessels, either because of new regulations or internal specifications, then the useful life of the vessel will require revision.

We amortize the costs of dry-docking and special surveys of each of our ships over the period up to the ship’s next scheduled dry-docking (generally every 5 years for vessels aged up to 15 years and every 2.5 years thereafter). These charges are part of the normal costs we incur in connection with the operation of our fleet

Impairment loss. An impairment loss for an asset held for use should be recognized when indicators of impairment exist and when the estimate of undiscounted cash flows expected to be generated by the use of the asset is less than its carrying amount (the vessel’s net book value plus any unamortized deferred dry-docking



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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 that an impairment charge was required in 2017 for the two oldest vessels in the fleet, Millennium and Silia T. There was no impairment charge in 2016 or 2015.

General and administrative expenses. These expenses consist primarily of professional fees, office supplies, investor relations, advertising costs, directors’ and officers’ liability insurance, directors’ fees and reimbursement of our directors’ and officers’ travel-related expenses. As of January 1, 2015, incentive awards and management fees are combined with general and administrative expenses under the category general and administrative expenses. Management fees are the fixed fees we pay to Tsakos Energy Management under our management agreement with them. Since 2012, there has been no increase in such fees. For 2018, no increase has been agreed by March 31, 2018 and monthly vessel management fees remain the same as in 2017, 2016 and 2015. Accordingly, monthly fees for operating vessels will be $27,500 per owned vessel and $20,400 for chartered-in vessels or vessels chartered out on a bareboat basis or under construction. The monthly fee for the LNG carriers will be $36,350 and for the suezmax DP2 shuttle tankers will be $35,000. The fees are recorded under “General and Administrative Expenses.”

Insurance claim proceeds. In the event of an incident involving one of our vessels, where the repair costs or loss of hire is insurable, we immediately initiate an insurance claim and account for such claim when it is determined that recovery of such costs or loss of hire is probable and collectability is reasonably assured within the terms of the relevant policy. Depending on the complexity of the claim, we would generally expect to receive the proceeds from claims within a twelve-month period. During the 2017-18 policy year, we will have received approximately $3.75 million in net proceeds from hull and machinery and loss of hire claims arising from incidents where damage was incurred by one of our vessels in a previous policy year. Such settlements were generally received as credit-notes from our insurer, Argosy Insurance Company Limited, and set off against insurance premiums due to that company. Therefore, within the consolidated statements of cash flows, these proceeds are included in decreases in receivables and in decreases in accounts payable. There is no material impact on reported earnings arising from these settlements.

Financial Analysis

(Percentage calculations are based on the actual amounts shown in the accompanying consolidated financial statements)

Year ended December 31, 2017 versus year ended December 31, 2016

Voyage revenues

Voyage revenues earned in 2017 and 2016 per charter category were as follows:


     2017     2016  
     U.S. $ million      % of total     U.S. $ million      % of total  

Time charter-bareboat

     3.8        1     5.5        1

Time charter-fixed rate

     222.1        42     166.8        35

Time charter-variable rate (profit share)

     106.7        20     76.0        16

Voyage charter-contract of affreightment

     38.5        7     29.8        6

Voyage charter-spot market

     158.1        30     203.7        42













Total voyage revenue

     529.2        100     481.8        100















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Revenue from vessels amounted to $529.2 million during the year ended December 31, 2017 compared to $481.8 million during 2016, a 9.8% increase. There was an average of 62.6 vessels operating in 2017 compared to an average of 52.6 vessels in 2016, the increase relates to the acquisition and delivery of ten vessels between October 2016 and October 2017. In January 2017, a subsidiary of the Company took delivery of the VLCC Hercules I and in March 2017 another subsidiary of the Company took delivery of the DP2 suezmax shuttle tanker Lisboa. Between February and October 2017, subsidiaries of the Company took delivery of the remaining five aframax crude carriers built for charter to Statoil, namely Marathon TS, Sola TS, Oslo TS, Stavanger TS and Bergen TS. In the fourth quarter of 2016, the Company acquired the aframax crude carriers Leontios H and Parthenon TS and the LNG carrier Maria Energy. Based on the total days that the vessels were actually employed as a percentage of the days that we owned the vessels, the fleet enjoyed 96.7% employment in 2017 compared to 96.5% in 2016, the lost time being mainly due to the twelve dry-dockings performed during the year, while in 2016 there were eleven dry-dockings.

Market conditions for tankers continued to remain weak, with rates declining to their lowest level in several years. The decline was mostly due to soft rates encountered in the spot market as a result of increased supply of vessels in the market, production and export cuts by leading suppliers (notably OPEC countries), high crude and product inventories, and a reduction of refinery output.

The average time charter equivalent rate per vessel achieved for the year 2017 was $18,931 per day, down 7.3% from $20,412 per day in 2016. Our aframax tankers, which were trading mostly on spot charters during the year, suffered an average fall of 12% in average time charter equivalent rates from the previous year. Approximately 70% of the fleet was operating on time-charter. The revenue generated from these vessels was enough to cover all the operating expenses, commissions, finance costs and overhead costs of the whole fleet. Our suezmax tankers, which were trading mostly on spot and on time charters with profit sharing arrangements, earned an average time charter equivalent rate 22% lower than in 2016.

Average daily TCE rates earned for the years ended December 31, 2017, and 2016 were:


     Year ended
December 31,
     2017      2016  
     U.S. $      U.S. $  

LNG carrier

     23,641        23,810  


     26,490        28,564  


     19,296        24,818  

DP2 shuttle

     49,654        49,137  


     18,818        21,425  


     15,932        15,269  


     14,223        15,029  


     10,909        11,885  

TCE is calculated by taking voyage revenue less voyage expenses divided by the number of operating days Time charter equivalent revenue and TCE rate are not measures of financial performance under U.S. GAAP and may not be comparable to similarly titled measures of other companies. However, TCE is a standard shipping industry performance measure used primarily to compare period-to-period changes in shipping performance despite changes in the mix of charter types (i.e. spot voyage charters, time charters and bare-boat charters) under which the vessels may be employed between the periods. The following table reflects the calculation of our



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TCE rates for the periods presented (amount in thousands of U.S. dollars, except for TCE rate, which is expressed in U.S. dollars, and operating days):


    Year ended December 31,  
    2017     2016  

Voyage revenues

  $ 529,182     $ 481,790  

Less: Voyage expenses

    (113,403     (106,403

Add: Representative operating expenses for Bareboat charter ($10,000 daily)

    2,500       3,660  







Time charter equivalent revenues

  $ 418,279     $ 379,047  







Divided by: net earnings (operating) days

    22,095       18,570  

Average TCE per vessel per day

  $ 18,931     $ 20,412  

Voyage expenses


     Total voyage expenses
per category
    Average daily voyage
expenses per vessel
     Year ended
December 31,
     % increase/
    Year ended
December 31,
     % increase/
     2017      2016            2017      2016         
     U.S.$ million      U.S.$ million            U.S.$      U.S.$         

Bunkering expenses

     56.2        47.3        18.8     8,483        6,098        39.1

Port and other expenses

     37.2        40.1        (7.3 )%      5,606        5,165        8.5


     20.0        19.0        5.3     3,018        2,447        23.3













Total voyage expenses

     113.4        106.4        6.6     17,107        13,710        24.8













Days on spot and Contract of Affreightment (COA) employment


    6,629        7,761        (14.6 )% 

Voyage expenses include port charges, agents’ fees, canal dues and bunker (fuel) costs relating to spot charters or contracts of affreightment. These voyage expenses are borne by the Company unless the vessel is on time-charter or operating in a pool, in which case they are borne by the charterer or by the pool operators. Commissions are borne by the Company for all types of charter. Voyage expenses were $113.4 million during 2017 compared to $106.4 million in 2016, a 6.6% increase. The total operating days on spot charters and contracts of affreightment totaled 6,629 days in 2017, and in 2016 at 7,761 days, a 14.6% reduction.

Voyage expenses are highly dependent on the voyage patterns followed and size of vessels employed on spot charter or contract of affreightment. Bunkering purchases typically make the largest part of voyage expenses and therefore the usual volatility and price swings of crude oil in any given year affect bunker prices and subsequently voyage expenses. Both crude oil and global bunker prices recovered during 2017 from the multi-year lows of 2016 with the price of Brent increasing on average 21.3% between the two years and the price of our bunkers increasing by 35.8% in the same period. This resulted in a 35.8% increase in the average delivered price paid by the Company for the bunkers procured globally during 2017, and an 18.8% increase in the annual bunkering expenses of the fleet. Also, during 2017, there was a decrease of 7.3% in the amount of port expenses that vessels operating on spot and COA employment bearing voyage expenses incurred, due to reduced employment of vessels on spot and COA. On a per relevant vessel basis the average daily voyage expense increased by 24.8% due mainly to the increase in price of oil.

Commissions in 2017 totaled $20.0 million compared to $19.0 million in 2016, a 5.3% increase. Commissions were 3.8% of revenue from vessels in 2017 and 3.9% in 2016. The increase in total commission charges relates mainly to the increase in revenue and lower commissions payable on those new vessels which had pre-arranged charter terms.



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Vessel operating expenses


     Operating expenses
per category
    Average daily operating
expenses per vessel
     2017      2016            2017      2016         
     U.S.$ million      U.S.$ million      % increase/
    U.S.$      U.S.$      % increase/

Crew expenses

     105.5        85.5        23.4     4,663        4,528        3.0


     16.4        14.5        13.2     727        769        (5.5 )% 

Repairs and maintenance, and spares

     22.2        20.1        10.6     982        1,063        (7.6 )% 


     10.2        8.5        20.3     451        449        0.5


     7.1        6.2        14.3     313        328        (4.5 )% 

Other (quality and safety, taxes, registration fees, communications)

     11.4        11.1        2.7     502        591        (14.9 )% 

Foreign currency losses

     1.1        0.7        68.7     50        35        40.9













Total operating expenses

     173.9        146.6        18.6     7,688        7,763        (1 )% 













Earnings capacity days excluding vessel on bare-boat charter


    22,600        18,878     

Vessel operating expenses include crew costs, insurances, repairs and maintenance, spares, stores, lubricants, quality and safety costs and other expenses such as tonnage tax, registration fees and communication costs, as well as foreign currency gains or losses. Total operating costs were $173.9 million in 2017, compared to $146.6 million during 2016, an increase of 18.6%, almost entirely due to the operating expenses of the new vessels acquired during the year in all cost categories, including the addition of a VLCC and DP2 suezmax shuttle tanker for most of the year, both of which incur higher operating expenses than smaller conventional tankers.

Average operating expenses per ship per day for the fleet decreased to $7,688 for 2017 from $7,763 in 2016, despite the fact that the U.S. dollar weakened by approximately 9% over the course of 2017, which impacted crew costs, as most of the vessel officers are paid in Euro. Average daily crew costs per vessel also increased due to foreign crew income tax, borne by the Company. The weaker U.S. dollar also negatively affected the cost of stores, spares and services purchased in Europe. These increases were offset by reduced average daily vessel expenditure on repairs, insurances, repairs and spares as a result of cost-effective ship management by the technical managers.

Depreciation and Amortization

Depreciation and amortization charges totaled $139.0 million in 2017 compared to $113.4 million in 2016, a 22.6% increase.

Depreciation amounted to $131.9 million in 2017 compared to $107.1 million during 2016, an increase of $24.8 million, or 23.1%. The increase is due to the addition of seven vessels to the fleet in 2017 without any vessel disposals until the end of the year.

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 2017, amortization of deferred dry-docking costs was $7.1 million for 12 dry-dockings compared to $6.3 million for 11 vessels in dry-dock in 2016. The dry-dockings in 2017 included one relating to the DP2 shuttle tanker Rio 2016, which required higher costs than conventional tankers.

General and administrative expenses

Management fees, including those paid to third-party managers, totaled $21 million during 2017, compared to $17.7 million in 2016, an 18.9% increase due to the addition of seven vessels as mentioned above.



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The Company pays Tsakos Energy Management fixed fees per vessel under a management agreement. The fee includes compensation for services that cover both the management of the individual vessels and of the enterprise as a whole. According to the management agreement, there is a prorated adjustment if at the beginning of the year the Euro has appreciated by 10% or more against the U.S. Dollar since January 1, 2007, and an increase each year by a percentage figure reflecting 12-month Euribor, if both parties agree. There was no increase in management fees payable to the management company in 2017. During 2017, all the vessels in the fleet have been managed by TCM, apart from the LNG carriers Neo Energy and Maria Energy, the VLCCs Ulysses, Hercules I, Millennium, the suezmax Eurochampion 2004 and the aframaxes Maria Princess and Sapporo Princess, which have been managed by third-party managers. Monthly management fees for operating conventional vessels are $27,500 per month, since January 1, 2012. The monthly fee relating to vessels chartered-in or chartered-out on a bare-boat basis or for vessels under construction is $20,400. Management fees for Neo Energy and Maria Energy are $36,350, of which $10,000 is payable to the management company and $26,350 to the third-party manager. Management fees for the DP2 suezmax shuttle tankers are $35,000 per month. Management fees for Eurochampion 2004, Maria Princess, Sapporo Princess and VLCCs Hercules I and Ulysses are $27,500 per month, of which $14,219 is payable to a third- party manager. Management fees paid relating to vessels under construction are capitalized as part of the vessels’ costs.

Office general and administrative expenses consist primarily of professional fees, investor relations, office supplies, advertising costs, directors’ liability insurance, directors’ fees and reimbursement of our directors’ and officers’ travel-related expenses. Office general and administrative expenses in 2017 totaled $4.2 million compared to $4.9 million in 2016, a 12.6% decrease mainly due to reduced legal fees, a decrease in promotional activity, and a reduction in overall directors’ fees.

Total general and administrative expenses plus management fees paid to Tsakos Energy Management, the management incentive award, any special awards, (described below) and stock compensation expense, all together represent the overhead of the Company. On a per vessel basis, daily overhead costs were $1,152 in 2017 compared to $1,331 in 2016, a 13.4% decrease being mainly due to a reduced management incentive award as described below.

In June 2017, the Board of Directors decided to reward the management company with an award of $0.6 million based on various performance criteria and taking into account cash availability and market volatility. The award is accounted for on a straight-line basis within the year it is determined. A separate award of $0.6 million was granted in 2017 to Tsakos Energy Management in relation to services provided towards a public offering in 2017, which was included as a deduction of additional paid in capital in the accompanying Consolidated Financial Statements. In 2016, the award based on various criteria, amounted to $2.6 million determined, paid and accounted for within 2016. In 2015, a specific award relating to the performance in 2014 amounting to $1.1 million was accounted for. An award of $0.4 million was also granted to Tsakos Energy Management in relation to services provided towards public offerings during 2015, which was included as a deduction of additional paid in capital in the accompanying Consolidated Financial Statements.

In addition, in 2017, it was decided by the Board of Directors that a stock compensation award of 110,000 restricted stock units should be awarded to non-executive directors to vest immediately, the cost of which is based on the share price of the stock on the date that the directors were notified. The total cost was $0.5 million, which is included in General and administrative expenses. A similar award, amounting to 87,500 restricted stock units was made in 2016, with a cost of $0.5 million. There was no similar award during 2015.

Loss on sale of vessels

Two vessels, the suezmaxes Eurochampion 2004 and Euronike (both built 2005), were sold in the fourth quarter of 2017 to the same third party as part of sale and leaseback arrangements. The combined sales price was $65.2 million. Net proceeds after a seller’s credit of $13.0 million and costs amounted to $51.6 million. After a prepayment of related loans totaling $36.0 million, there was $15.6 million of cash available to the Company.



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There was a combined loss on the sale of the vessels totaling $3.9 million. The two vessels have been chartered back to the Company on a five-year bare-boat charter at the end of which the seller’s credit will be returned to the Company or earlier if the vessels are sold within five years. There were no vessel sales during 2016. In July 2015, the suezmax tanker Triathlon and product carrier Delphi were sold for combined net proceeds of $42.8 million, resulting in a combined net gain of $2.1 million and freeing cash totaling $19.6 million after the prepayment of related loans.

Vessel impairment charge

During 2017, vessel values failed to increase from those of 2016. As a result, 60 of our vessels had carrying values in excess of market values. Apart from one VLCC, the remainder of our fleet is for the most part young, with an average age of 7.7 years as of December 31, 2017 and in all these cases, except for one suezmax crude carrier, the vessels are expected to generate considerably more cash during their remaining expected lives than their carrying values as at December 31, 2017. The Company’s cash flow tests per vessel for assessing whether an impairment charge was required indicated that an impairment charge of $4.8 million was required for the suezmax crude carrier Silia T as at December 31, 2017, based on Level 2 inputs of the fair value hierarchy, as determined by management taking into consideration valuations from independent marine valuers. An impairment loss of $4.1 million was also recorded in 2017 for the vessel Millennium as the result of the vessel’s classification as held for sale as of December 31, 2017. There was no indication that an impairment charge was required for the vessels in the fleet at December 31, 2016 and 2015.

Operating income

For 2017, income from vessel operations was $63.5 million compared to $89.8 million in 2016, a decrease of 29.3%.

Interest and finance costs, net


     2017     2016  
     U.S.$ million     U.S.$ million  

Loan interest expense

     59.8       37.8  

Interest rate swap cash settlements—hedging

     2.5       3.6  

Less: Interest capitalized

     (0.4     (4.0







Interest expense, net

     61.9       37.4  

Interest rate swap cash receipts—hedging

     (3.7     —    

Interest rate swap cash settlements—non-hedging

     —         1.1  

Bunkers non-hedging instruments cash settlements

     (2.3     0.1  

Change in fair value of non-hedging bunker instruments

     (3.4     (3.6

Change in fair value of non-hedging interest rate swaps

     —         (1.0

Amortization of loan expenses

     4.2       1.8  

Bank loan charges

     0.1       0.1  







Net total

     56.8       35.9  







Interest and finance costs, net, were $56.8 million for 2017 compared to $35.9 million for 2016, a 58.4% increase. Loan interest, excluding payment of swap interest, increased to $59.8 million from $37.8 million, a 58.2% increase partly due to the increase in outstanding principal amount of loans by over 16.8% as a result of the financing of the newbuildings.

Cash settlements on both hedging and non-hedging interest rate swaps, based on the difference between fixed payments and variable six and three-month LIBOR, was $1.2 million positive in 2017 compared to $4.7 million negative in 2016. The decrease is mainly attributed to early termination of four interest rate swaps in early 2017, which resulted in cash receipts of $3.7 million.



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The average loan financing cost in 2017, including the impact of all interest rate swap cash settlements, was 3.4% compared to 2.7% for 2016. Capitalized interest, which is based on expenditures incurred to date on vessels under construction, was $0.4 million in 2017, compared to $4.0 million in 2016, the decrease being due to completion of the fifteen vessel newbuilding program in 2017.

In 2016, the Company held one interest rate swap that did not meet hedge accounting criteria. The specific swap expired on April 10, 2016. There was no non-hedging interest rate swap as of December 31, 2017.

During 2017, the Company entered into two call option agreements and paid a premium of $0.2 million and earned $1.2 million for those options and earned $1.3 million from nine bunker swap agreements which were entered into during the year. During 2016, the Company entered two bunker call options and paid a premium of $0.3 million and earned $0.2 million.

The changes in fair value of these bunker call options during 2017 and 2016, amounting to $1.2 million (negative) and $1.1 million (positive), respectively, have been included in Change in fair value of non-hedging bunker instruments in the table above.

During 2016, the Company entered into three bunker swap agreements in order to hedge its exposure to bunker price fluctuations associated with the consumption of bunkers by vessel Ulysses. The changes in fair value during 2017 and 2016 amounting to $0.8 million (positive) and $2.5 million (positive) of these financial instruments have been included in “Change in fair value of non-hedging bunker instruments” in the table above. During 2017, the Company entered into nine bunker swap agreements. The changes in fair value of those swaps amounted to $3.8 million (positive).

Amortization of loan expenses was $4.2 million in 2017 compared to $1.8 million in 2016 due to the new financing obtained for the new building program. Other bank charges amounted to $0.1 million in both 2017 and 2016.

Interest income

Interest income in 2017 amounted to $1.1 million compared to $0.6 million in 2016. The increase is due to higher interest rates in 2017 compared to 2016 and to larger amounts of cash held in the earlier part of 2017, following the raising of $115.0 million in a preferred stock offering.

Non-controlling interest

Net income attributable to the non-controlling interest (49%) in the subsidiary, which owns the companies owning the vessels Maya and Inca amounted to $1.6 million in 2017 and $0.7 million in 2016. The increase is due to the more favorable time-charters entered into by the vessels during the course of 2017.

Net income attributable to Tsakos Energy Navigation Limited

As a result of the foregoing, net income attributable to Tsakos Energy Navigation Limited for 2017 was $7.6 million, or a loss of $0.19 per share basic and diluted, after taking into account the cumulative dividend of $23.8 million on our preferred shares, versus net income of $55.8 million, or $0.47 per share basic and diluted, after taking into account the cumulative dividend of $15.9 million on our preferred shares for 2016.



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Year ended December 31, 2016 versus year ended December 31, 2015

Voyage revenues

Voyage revenues earned in 2016 and 2015 per charter category were as follows:


     2016     2015  
     U.S. $ million      % of total     U.S. $ million      % of total  

Time charter-bareboat

     5.5        1     0.8        0

Time charter-fixed rate

     166.8        35     159.8        27

Time charter-variable rate (profit share)

     76.0        16     80.9        14

Pool arrangement

     —          0     6.6