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
Series F 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, 2018, there were 87,604,645 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, 4,600,000 Series E Preferred Shares and 6,000,000 Series F 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 every Interactive Data File required to be submitted 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 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      137  

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      141  

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, 2018. 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 (loss) income, other comprehensive (loss) income, stockholders’ equity and cash flows for the years ended December 31, 2018, 2017, and 2016, and the



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consolidated balance sheets at December 31, 2018 and 2017, 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)


     2018     2017     2016     2015     2014  

Income Statement Data


Voyage revenue

   $ 529,879     $ 529,182     $ 481,790     $ 587,715     $ 501,013  



Voyage expenses

     125,350       113,403       106,403       131,878       154,143  

Charter hire expense

     10,822       311       —         —         —    

Vessel operating expenses(1)

     181,693       173,864       146,546       142,117       146,902  

Depreciation and amortization

     146,798       139,020       113,420       105,931       102,891  

General and administrative expenses

     27,032       26,324       25,611       21,787       21,029  

Net loss (gain) on sale of vessels

     364       3,860       —         (2,078     —    

Vessels impairment charge

     65,965     8,922       —         —         —    

Operating (loss) income

     (28,145     63,478       89,810       188,080       76,048  

Other expenses (income):


Interest and finance costs, net

     76,809       56,839       35,873       30,019       43,074  

Interest and investment income

     (2,507     (1,082     (623     (234     (498

Other, net

     (1,405     (1,464     (1,935     (128     (246

Total other expenses, net

     72,897       54,293       33,315       29,657       42,330  

Net (loss) income

     (101,042     9,185       56,495       158,423       33,718  

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

     1,839       (1,573     (712     (206     (191

Net (loss) income attributable to Tsakos Energy Navigation Limited

   $ (99,203   $ 7,612     $ 55,783     $ 158,217     $ 33,527  

Effect of preferred dividends

     (33,763     (23,776     (15,875     (13,437     (8,438

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

   $ (132,966   $ (16,164   $ 39,908     $ 144,780     $ 25,089  

Per Share Data


(Loss) Earnings per share, basic

   $ (1.53   $ (0.19   $ 0.47     $ 1.69     $ 0.32  

(Loss) Earnings per share, diluted

   $ (1.53   $ (0.19   $ 0.47     $ 1.69     $ 0.32  

Weighted average number of shares, basic

     87,111,636       84,713,572       84,905,078       85,827,597       79,114,401  

Weighted average number of shares, diluted

     87,111,636       84,713,572       84,905,078       85,827,597       79,114,401  

Dividends per common share, paid

   $ 0.15     $ 0.20     $ 0.29     $ 0.24     $ 0.15  

Cash Flow Data


Net cash provided by operating activities

     73,945       170,827       170,354       234,409       106,971  

Net cash used in investing activities

     (179     (241,797     (576,075     (174,754     (254,307

Net cash (used in) provided by financing activities

     (55,913     75,870       298,488       30,910       190,013  

Balance Sheet Data (at year end)


Cash and cash equivalents

   $ 204,763     $ 189,763     $ 187,777     $ 289,676     $ 202,107  

Cash, restricted

     15,763       12,910       9,996       15,330       12,334  


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

Advances for vessels under construction

     16,161       1,650       216,531       371,238       188,954  

Vessels, net book value

     2,829,447       3,028,404       2,677,061       2,053,286       2,199,154  

Total assets

     3,205,058       3,373,636       3,277,575       2,893,166       2,692,737  

Long-term debt, including current portion

     1,595,601       1,751,869       1,753,855       1,392,563       1,411,976  

Total stockholders’ equity

     1,506,777       1,508,138       1,417,450       1,415,072       1,177,912  

Fleet Data


Average number of vessels

     64.3       62.6       52.6       49.2       49.0  

Number of vessels (at end of period)

     64.0       65.0       58.0       49.0       50.0  

Average age of fleet (in years)(2)

     8.2       7.7       7.9       8.5       7.7  

Earnings capacity days(3)

     23,460       22,850       19,244       17,970       17,895  

Off-hire days(4)

     887       755       674       376       406  

Net earnings days(5)

     22,573       22,095       18,570       17,594       17,489  

Percentage utilization(6)

     96.2     96.7     96.5     97.9     97.7

Average TCE per vessel per day(7)

   $ 18,226     $ 18,931     $ 20,412     $ 25,940     $ 19,834  

Vessel operating expenses per ship per day(8)

   $ 7,745     $ 7,688     $ 7,763     $ 7,933     $ 8,209  

Vessel overhead burden per ship per day(9)

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



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.


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


Off-hire days are days related to repairs, dry-dockings and special surveys, vessel upgrades and initial positioning after delivery of new vessels.


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.


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


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 the year ended December 31, 2018, TCE is calculated by taking voyage revenue less voyage costs divided by the number of revenue days less 378 days lost as a result of calculating revenue on a loading to discharge basis. The change in the calculation of days is due to the adoption of the new revenue recognition standard. 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):


    2018     2017     2016     2015     2014  

Voyage revenues

  $ 529,879     $ 529,182     $ 481,790     $ 587,715     $ 501,013  

Less: Voyage expenses

    (125,350     (113,403     (106,403     (131,878     (154,143

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

    —         2,500       3,660       560       —    
















Time charter equivalent revenues

    404,529       418,279       379,047       456,397       346,870  
















Net earnings days

    22,195       22,095       18,570       17,594       17,489  

Average TCE per vessel per day(7)

  $ 18,226     $ 18,931     $ 20,412     $ 25,940     $ 19,834  



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.


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.


The following table sets forth our (i) cash and cash equivalents, (ii) restricted cash and (iii) consolidated capitalization as of December 31, 2018 on:



an actual basis; and



as adjusted basis giving effect to (i) debt repayments of $50.6 million, (ii) the drawdown of $150.7 million for the refinancing of five vessels and repayment of the same amount of debt, (iii) the drawdown and the payment of $5.2 million to the shipbuilding yard for the aframax tanker Hull 5036, (iv) the payment of $15.0 million to the shipbuilding yard for the two suezmax tankers, Hull 8041 and Hull 8042, (v) the payment of $10.2 million of preferred share dividends, (vi) the declaration of $4.4 million common share dividend and (vii) the declaration of $5.7 million preferred share dividends, all of which occurred after December 31, 2018 and on or before April 11, 2019.

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, 2018 and April 11, 2019.



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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, 2018  
In thousands of U.S. Dollars   Actual     Adjustments     Adjusted  
          (Unaudited)     (Unaudited)  



Cash and cash equivalents

  $ 204,763       (85,914     118,849  

Restricted cash

    15,763       —         15,763  










Total cash

    220,526       (85,914     134,612  














Long-term secured debt obligations (including current portion)

  $ 1,607,122       (45,471     1,561,651  










Stockholders’ equity:


Preferred shares, $1.00 par value; 25,000,000 authorized and 2,000,000 Series B Preferred Shares, 2,000,000 Series C Preferred Shares, 3,424,803 Series D Preferred Shares, 4,600,000 Series E Preferred Shares and 6,000,000 Series F Preferred Shares issued and outstanding at December 31, 2018 on an actual and as adjusted basis.

    18,025       —         18,025  

Common shares, $1.00 par value; 175,000,000 shares authorized at December 31, 2018; 87,604,645 shares issued and outstanding on an actual and as adjusted basis

    87,605       —         87,605  

Additional paid-in capital

    996,833       —         996,833  

Accumulated other comprehensive loss

    (8,660     —         (8,660

Retained earnings

    400,933       (20,256     380,677  

Non-controlling interest

    12,041       —         12,041  










Total stockholders’ equity

    1,506,777       (20,256     1,486,521  










Total capitalization

  $ 3,113,899       (65,727     3,048,172  










Reasons For the Offer and Use of Proceeds

Not Applicable.

General Market Overview

World Oil Demand/Supply and the Tanker Market

All text, data and charts provided by Howe Robinson Partners

2018 was by many accounts the worst year on record for tanker shipping in the 21st century. Earnings for both the crude and products tanker markets disappointed for a third year in a row, with tonnage oversupply across the board and rising bunker prices hurting both segments. Excess OPEC crude production in Q4-18—ahead of a further 1.2 million bpd output cut agreement starting from January 2019—pushed earnings down to levels not seen since winter 2016/2017, resulting in yearly averages equal or below the 2017 levels in some cases. Despite some small pockets of positive news, especially US crude exports, the overall market picture for crude tankers was one of largely flat tonne-mile growth in 2018, as OPEC adjusted production when needed to restore some price stability in the market.

Global oil production rose by 2.5 million bpd YoY to 99.99 million bpd in 2018 as any losses from the OPEC+ group were more than offset by increases elsewhere, mostly in North America. Meanwhile, significant OECD crude stock-drawing over the past year also contributed to almost flat crude tanker tonne-miles in 2018.



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Clean petroleum products stock-draws kept up a strong pace as well, keeping product tanker trade growth at a negative deviation from its long term mean of 4-5% per year. The reversal of the 2015-2016 stockpiling dragged down cargo counts significantly in the first half of the year, and the absence of major export refinery expansions since 2015 also allowed the significantly high supply growth to catch up with ease and take a toll on owners’ earnings. Refinery throughput, however, continued to grow last year with an estimated YoY increase of 600,000 bpd in 2018, followed by a further 1.2 million bpd rise in refinery runs in 2019.

VLCC earnings (basis TD3_C) fell 18% YoY to average $19,000/day in 2018, with earnings stubbornly below $10,000/day in the first half of the year.

Suezmax earnings (basis 70% TD20 and 30% TD6) rose slightly by ~$1,000/day to $14,000/day while the Aframax Composite (basis an average of TD7, TD8, TD9, TD19 & TD17) increased by 16% YoY to $13,000/day.

In the products market, LR2 (basis TC1) earnings remained at similar levels to 2017 at $11,000/day, LR1 (basis TC5) earnings fell 10% YoY to $6,700/day while the MR Composite (basis an average of TC2/14, TC6, TC7, TC10 & TC11/4) dropped 8% YoY to average $11,000/day.

Nominal freight rates (on a $/tonne basis) in 2018 rose slightly for all sizes relative to 2017; however, rising bunker prices reduced owners’ earnings for most of the year.

Newbuilding and second-hand prices increased across the board on the back of increased steel prices and a rush by some owners to catch the bottom of the market. Ordering activity, however, was relatively muted last year with VLCCs and MRs as the only sectors in which owners showed real interest, mostly in the first half of the year. Some relief for supply growth was provided by record high scrapping activity, mostly in the crude sector, with 32 VLCCs, 21 Suezmaxes and 42 Aframaxes heading for scrap yards during the year.



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Global Oil Supply and Demand

Total World Crude Production Excluding Biofuels (Source: IEA)




World oil production rose by 2.5 million bpd YoY to 99.99 million bpd in 2018 as any losses from OPEC+ were more than offset by increases elsewhere. OPEC, along with ten non-OPEC producing countries, extended their 1.2 million bpd production cuts into the first half of 2018; however, involuntary losses from the likes of Venezuela and Angola pushed total OPEC production 150,000 bpd lower YoY to 31.91 million bpd in the first half of 2018. This led major producers within the OPEC+ group to step in and increase their output to bring compliance down to 100% (as opposed to the 140% overcompliance at the time). US sanctions re-imposition on Iran started taking a toll on total production in the second half of the year with Iran losing almost 1 million bpd since the announcement was made in May 2018, to end the year at 2.8 million bpd, the lowest level since March 2015. A rebound in Nigerian and Libyan production, increases from Saudi Arabia, Russia, the UAE and Iraq, and ever-growing US output led to supply outpacing demand by 1.07 million bpd in Q3-18, resulting in the OPEC+ group announcing a new round of 1.2 million bpd production cuts, this time excluding Iran, Venezuela and Libya, as of January 19. Saudi Arabia, the UAE and Russia alone opened the floodgates in Q4-18 to manage and pocket any revenues from the additional barrels in the market before the cuts come into place in January with their production dropping by 780,000 bpd quarter-on-quarter to 25.8 million bpd.

OPEC’s crude production fell by 580,000 bpd YoY to 32.04 million bpd in 2018 driven by countries that saw their output decreasing involuntarily through the year due to ageing fields, financial difficulties, and sanctions, among other reasons. Falling by 570,000 bpd YoY, Venezuelan output reached a historical low level in 2018 to 1.4 million bpd. As output sinks and the economy spirals deeper into crisis, it is hard to imagine a scenario under which production in the country is recovered, especially now that US sanctions have been imposed on Caracas and the political crisis deepens. US sanctions have also proved detrimental for Iranian output, which declined by 230,000 bpd YoY to 3.58 million bpd and currently stands at levels last seen in 2015.



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Since the announcement of sanctions was made, Iranian exports have collapsed below 1 million bpd and despite waivers granted to a few countries, traditional buyers in Europe, Japan and South Korea have appeared to be quite sceptical on purchasing these barrels.

Angola has also been one of last year’s underperformers as steep declines at mature fields and years’ long under-investment pushed output 150,000 bpd lower at 1.49 million bpd. However, Total’s ultra-deep Kaombo project start-up in July 2018, and an improvement in the country’s commercial terms has recently sparked some interest from international oil majors, which might revive somewhat the West African country’s oil industry in 2019.

On the bright side, Libyan and Nigerian output rebounded in 2018 with combined gains of 210,000 bpd YoY to 970,000 bpd and 1.6 million bpd, respectively, however Libya’s sustainability remains questionable as militia attacks shut in significant volumes from month to month. Saudi Arabian output stood 370,000 bpd higher YoY to 10.33 million bpd; however, it fluctuated from 9.92 million bpd in March 2018 to its historically high levels of 11.06 million bpd in November 2018 as the Kingdom was opening/closing the taps when necessary to keep oil supply on track with oil demand during the year. The UAE hit a record-high output in November 2018 at 3.33 million bpd, to average the year 2.5% higher YoY at 3 million bpd, while Iraqi production rose by 90,000 bpd to 4.56 million bpd with exports from Basrah rising to an unprecedented 3.63 million bpd in December 2018.

Total non-OPEC production rose by 2.7 million bpd YoY to 62.58 million bpd in 2018, driven by increases mostly in North America. US oil production climbed by 2.15 million bpd to average the year at 15.42 million bpd, with crude accounting for 1.6 million bpd of the total growth. Increased production and some infrastructure developments have more than doubled crude exports, which as of Nov-18 were at 2.33 million bpd. The majority of these additional barrels are heading east, contributing to the tonne-mile effect on the crude tanker market. U.S. supply growth is expected to slow down in 2019, remaining at a rather healthy 1.3 million bpd YoY, due to increasing base decline and as shale producers moderate the pace of expansion following an almost 40% drop in crude prices in Q4-18.

Canadian production rose by 7.3% YoY to 5.17 million bpd; however, oil production might decline this year as it faces record high discounts for its crude and brimming inventories. Alberta announced in early December it would mandate temporary production cuts of 325,000 bpd in Q1-19 to drawdown the excess crude in storage and 95,000 bpd for the rest of the year. For the remaining OECD countries, North Sea crude production dropped by 100,000 bpd YoY to 3.39 million bpd, while Mexican output fell by 6.7% YoY to 2.08 million bpd. Total OECD oil output was 2.27 million bpd higher YoY, while a further 1.23 million bpd increase is expected in 2019.

Non-OECD production rose only marginally YoY to 29.06 million bpd with Russia providing the only significant gains in total output. Even though Russia was part of the OPEC+ production cut agreement and its adherence to the deal had been quite strong, production set an all-time high of 11.78 million bpd in Dec-18, to average the year 170,000 bpd higher at 11.49 million bpd. Kazakhstan’s oil output set a record high level of 2.03 million bpd in Nov-18 with the year averaging at 1.93 million bpd, 5.6% higher compared to 2017, as its Tengiz, Kashagan and Karachaganak were pumping at steadily growing rates. Output in non-OECD Asia continued its downward trajectory for a third consecutive year driven by falling Chinese production that has posted losses of 40,000 bpd which are expected to deepen by a further 50,000 bpd drop in 2019. Brazilian production was quite disappointing last year, as the much-anticipated jump in output didn’t materialise with 2018 standing 40,000 bpd lower compared to 2017 at 2.7 million bpd due to delays on offshore production platforms’ start-ups. However, thanks to some FPSOs and offshore fields that started up at the end of 2018, and a number of additional offshore production facilities scheduled to come online in 2019, Brazilian output is expected to post the second biggest growth after the US this year at around 365,000 bpd.

OECD industry crude stocks have come significantly off their early 2017 peak levels, averaging 100 million bbls lower YoY at 1,087.5 million bbls in 2018, comfortably below their five-year average (although not below the pre-2015 stock-build average). Between May and September, OECD crude inventories dropped by 77 million



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bbls; however, lower oil prices and seasonal factors contributed to a 48 million bbl build in the last quarter of the year. The increase in Q4-18 was driven by stockbuilding in North America where crude inventories rose counter-seasonally to 610.9 million bbls in Nov-18 – their highest level in a year, despite refineries coming back from maintenance. High refining utilisation pushed down crude stocks during the first eight months of the year; however, higher shale oil and Canadian production have started to overwhelm capacity and stocks are currently above their five-year average. OECD Europe stocks reached their lowest level since Feb-15 in Dec-18 at 325.3 million bbls, while OECD Pacific inventories have stood below their five-year average since Mar-18.

Total OECD Crude Stocks vs. 5-Year Average (Source: IEA)




2018 global oil demand grew by 1.3 million bpd YoY, at a slower pace compared to 2017 (+1.6m bpd YoY) and below initial expectations of 1.5 million bpd YoY growth. Demand marginally outpaced supply by 100,000 bpd in Q1-18 before the market turned into oversupply for the rest of the year. World oil demand started the year strongly, supported by cold weather in Europe and the US, the start-up of petrochemical capacity in the US, and solid economic growth. As a result Q1-18 demand grew by 1.8 million bpd YoY, with OECD nations contributing 1 million bpd of the total. A significant YoY drop in European demand and a slowdown in US growth pushed world demand growth in Q2-18 at only 560,000 bpd. A 50% increase in oil prices in Q2-18 that was partly passed through to end-users and currency depreciation in some countries that amplified the impact of higher oil prices were partly responsible for the slowdown. Robust non-OECD demand growth in Q3-18 increased total demand up to 99.79 million bpd. Non-OECD Asia, supported by China and India, continued to be the main contributor to global growth accounting for 74% of the total growth in Q3-18. Global oil demand growth accelerated slightly through the end of the year to 1.4 million bpd in Q4-18. The US was the main contributor to OECD growth in the second half of the year, supported by ethane and gasoil, with OECD demand posting 420,000 bpd gains in the year. Total non-OECD demand was stronger, with growth accelerating in the second half of 2018, and is estimated to have increased by 850,000 bpd in 2018.



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Total Global Oil Demand (Source: IEA)




Crude Tanker Demand

In 2018, world crude trade experienced a 1.8% YoY fall in terms of volumes due to excessive stock-drawing, a slowdown in total oil demand growth, geopolitical turmoil, and production losses from Venezuela, Angola and Iran that offset Atlantic production increases and OPEC decision making just to name a few. In terms of tonne-miles, however, crude tanker trade saw a slight YoY increase of 0.5% amid increased Atlantic/East crude trade in the first half of the year. VLCC demand came off by 1.8% YoY with volumes falling from 21.49 million bpd in Jan-18 down to 19.22 million bpd in Sep-18 before rebounding back at 20.82 million bpd in Q4-18.

Significant increases on VLCC crude liftings from the US heading east were not enough to offset any losses from South America and West Africa. On the other hand, Suezmax trade grew by 2.3% YoY in terms of volumes, while the tonne-mile effect was much more pronounced with a YoY growth of 6.5%. The main contributor to the growth was the market share Suezmaxes gained on the long-haul Brazil/East and Libya/East trades, while additional barrels from West Africa in the first quarter of the year also supported the overall Suezmax trade in 2018.

Aframax crude volumes collapsed last year by 6.1% to an average of 11.32 million bpd compared to 12.05 million bpd in 2017 as liftings from traditional key regions including the Baltic, the Mediterranean (the “Med”) and the Caribbean towards the end of the year and increased competition from Suezmaxes in the Black Sea, South America and Libya took a toll on total Aframax crude shipments. Despite a dip in Q1-18, tonne-miles rebounded and following a strong Q4-18 they saw a 3.4% YoY increase as more NW Europe barrels made their way to the US.



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Fuel oil trade also declined last year across all sectors posting a 4.7% YoY drop in terms of volumes and a 6.2% YoY fall in terms of tonne-miles, with Aframaxes hurt the most. Falling fuel oil trade is expected to continue going forward especially as the new lower sulphur bunker regulation comes into play in less than a year from now.

Total Crude Tanker Demand Split by Vessel Size—Volumes vs. Tonne-miles (Source: Lloyds List Intelligence)





Asia/Far East imports were once again the main contributor to the tonne-mile growth in 2018. Tonne-miles rose by 6.2% YoY driven by a 13.6% quarter-on-quarter increase in Q4-18 most of which was concentrated in China. Other than the traditional MEG suppliers, Chinese imports from Russia and Brazil surged last year, while Libyan barrels made their way east in 2018 supporting longer-haul Suezmax trade. US exports to Asia stood at 1.13 million bpd in Nov-18 compared to 524,000 bpd at the beginning of the year. Despite strong buying interest for US barrels from China in the first half of year, trade war tensions between the two countries brought volumes down to zero with US crude making its way to South Korea, Japan and Taiwan instead. With the production cuts in place, exports from the Middle East dropped slightly YoY. Despite growing shipments to Asia Far East, the loss of market share in the US and the Med pushed tonne-miles ex-MEG down by 2.6% YoY, hurting primarily the VLCC sector. Flows from the Middle East were also affected by the significant drop in exports from Iran after the US announced re-imposition of sanctions on Tehran. Iranian shipments fell to 0.62 million bpd in Dec-18 compared to April’s high of 2.61 million bpd. Declining local production resulted in a fall in West African exports last year; however, exports out of Nigeria were boosted in the second half of the year. As explained above, South American exports dropped last year following a 570,000 bpd YoY fall in Venezuelan output and Brazil’s disappointing output levels; however, tonne-miles out of the region rose by 8.4% YoY in the last quarter of the year as the start-up of a few offshore platforms in Brazil pushed exports higher with the majority of these incremental barrels heading east of Suez.



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Monthly US Crude Exports By Destination (Source: Energy Information Administration)




Products Tanker Demand

Despite a 1.2% increase in global oil demand, products tanker trade disappointed for another year in 2018. Sizeable stock-drawing since mid-2016 significantly dampened trade and arbitrage movements, as major OECD regions relied less on imports to serve their energy needs. For the first half of the year, OECD products inventories were on average 25 million bbls below their five-year average at 1,414 million bbls. During Q3-18, OECD products stocks rose by 64.6 million bbls compared to Q2-18, the largest quarterly gain in three years, amid record high refinery runs in the US driven by lower crude prices and strong demand for products exports. Following a counter-seasonal reduction in gasoline US stocks due to lower prices that reduced gasoline imports to the US and an 8.2 million bbls fall in middle distillates on the back of higher demand, OECD America inventories dropped by 19 million bbls on the quarter in Q4-18. Lower diesel refinery output in Europe and a seasonal increase in kerosene consumption in Asia due to colder weather contributed to total OECD products stocks to fall again below their five-year average. The closer global product stocks are to their “normalized” historical levels, the more sensitive to arbitrage-driven movements the market becomes, with a large portion of the past years’ stock-draws expected to return to seaborne volumes in 2019 and beyond.



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Total OECD Product Stocks vs. 5-Year Average (Source: IEA)




Refining margins in 2018 were 24.7% lower YoY in NW Europe/Med, 24.5% lower YoY on the US Gulf and 28.7% lower YoY in Singapore. The impact of stock-drawing finally appeared in refinery margins in May-18 when despite a $5/bbl increase in Brent prices, product cracks persisted and margins rose.

Refining margins strengthened in NW Europe/Med during the first couple months of the second half of the year, as volatile crude prices in August eventually resulted in a lower average feedstock cost to refiners. However, Sep-18 brought an unpleasant surprise as the rapid rise in oil prices resulted in margins crashing in most of the regions to levels last seen at the start of the year even as refinery throughput was lower on the back of seasonal maintenance. The year closed with refinery margins in Singapore falling by 65% month-on-month and by 46% in NW Europe/Med despite a significant drop in Brent crude prices with global refinery throughput hitting 83.03 million bpd in Dec-18.

Following high refinery runs of 81.7 million bpd in Q4-17, Q1-18 throughput was 1 million bpd lower quarter-on-quarter to 80.7 million bpd due to unplanned outages in the US, lower than expected throughput in China and a more extensive maintenance programme in the MEG. Driven by a push in Q2-18, refinery runs closed the first half of the year on a positive note with the east of Suez dominating the growth in refining activity, as China’s 760,000 bpd YoY growth proved to be higher than total growth of 380,000 bpd, more than offsetting a 605,000 bpd decline in the Atlantic Basin.

Following a 3.2 million bpd decline between September-October, OECD throughput rose to 39.43 million bpd in Dec-18. Non-OECD throughput growth fell to just 230,000 bpd in Q4-18, significantly lower compared to the rest of the year’s 1.1 million bpd average growth. The drop came from Latin America, which posted its largest YoY decline at 630,000 bpd. Total refinery throughput has been growing consistently on a yearly basis with the IEA estimating a 0.6 million bpd YoY increase in 2018 to 82.1 million bpd. In 2019 global refinery



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throughput is expected to rise by a further 1.2 million bpd YoY to 83.3 million bpd with non-OECD countries contributing 44.4 million bpd of the total (+0.7 million bpd YoY) and OECD the remaining 38.9 million bpd (+0.5 million bpd). China is expected to be the driving force with an estimated 0.5 million bpd increase to 12.5 million bpd, followed by OECD Americas that is forecast to gain 0.3 million bpd YoY to 19.7 million bpd this year.

Refining Margins (Brent in EU, Dubai in Singapore) and Global Refinery Throughput (Source: IEA)




The lack of mega export-refinery additions over the past three years has also hurt the product tanker market; however, this trend is expected to reverse this year as 2.6 million bpd of refining capacity is scheduled to come online in 2019. Most of last year’s refinery additions came online at the end of the year, hence they are expected to ramp up production this year. Petrochina’s 260,000 bpd Anning refinery exported its first diesel cargo end-April, while a 200,000 bpd expansion at the state-owned CNOOC’s Huizhou refinery has supported gasoline exports from China. Vietnam’s 200,000 bpd Nghi Son refinery started commercial production in mid-November after months of tests and it offered its first gasoline export cargo in Sep-18 after receiving the government’s approval to start exporting oil products. Along with the 130,000 Dung Quat refinery that came online in 2009, they are expected to meet 70% of the country’s oil products demand and reduce Vietnam’s dependency on supply mainly from South Korea. The 300,000 RAPID refinery in Malaysia has started test runs after receiving its first cargo in Dec-18, while Chinese refiner Hengli’s 400,000 bpd Dalian plant started trial operations in mid-December. SOCAR inaugurated its 215,000 bpd STAR refinery in Turkey in mid-October; however, the first tanker delivery is not expected before Jun-19.

World Tanker Fleet (all numbers from 1st of January 2018 to 1st of January 2019).

After a couple years of stubbornly high fleet growth, VLCC fleet growth in 2018 came in at its lowest level in a decade at 0.8%, driven by increased removals that made 2018 the heaviest scrapping year since 2010. Despite 38 VLCC deliveries, 32 vessels were reported as scrapped with the vast majority leaving the fleet in the



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first half of the year (24 removals, as opposed to eight in the second half of 2018). Due to weak market conditions slippage averaged at 37.7%—much higher than the historical average of 25.1%. 76 VLCCs are scheduled to come into the market in 2019 with ten of them already delivered in January. Scrapping is expected to slow down this year as owners might be tempted to keep older tonnage around in anticipation of a stronger market in 2020. Despite a forecasted 5.9% fleet growth in 2019, after accounting for slippage and scrapping, 2019 might prove to be another year of low fleet growth if we effectively remove roughly 1% of the VLCC fleet due to scrubber retrofits, 25 NITC vessels which may turn to storage under sanctions, and increased removals/scrapping if this year turns out to be another poor year in terms of earnings.

The Suezmax fleet came off peak fleet growth last year. Similar to the VLCC fleet, 21 vessels that were removed from the Suezmax fleet were enough to offset 31 additions bringing the year’s growth to 2%. Excluding six cancellations, slippage for 2018 was at 35.4%, marginally lower than the historical average of 37%. We are counting 30 scheduled deliveries for 2019 with six of them already delivered in January; however, after accounting for slippage and forecasted removals, Suezmax fleet growth is expected at 3.2% in 2019.

In 2018, a total of 48 Aframaxes (including fully coated LR2s) were added to the fleet, bringing total fleet growth down to 0.6% compared to 4% in 2017 due to negative growth in the uncoated Aframax fleet. Slippage was close to the historical averages at about 31.4% as in the beginning of the year a total of 70 Aframaxes (including LR2s) were due to come into the market. 38 removals from the uncoated Aframax fleet more than offset the 26 additions, bringing fleet growth further down to 2%, while 22 deliveries in the LR2 fleet combined with only four removals brought fleet growth for their coated counterparts to 4.9%, albeit a five-year low level. Following another disappointing year in the products market and an uptick in the crude market in the second half of 2018, the clean trading LR2 fleet posted negative fleet growth for the first time since 2011 as in 2018 we saw 27 vessels switching from trading Clean Petroleum Products (CPP) to trading Dirty Petroleum Products (DPP) as opposed to seven that cleaned-up bringing the year’s switching activity down to 20 net dirty-ups, providing extra pressure on the total dirty trading Aframax fleet. A total of 65 Aframaxes are due to be delivered in 2019, out of which 39 are coated. In January we counted eight LR2 deliveries and seven uncoated Aframax additions. 2019 is expected to be a higher year in terms of fleet growth—2.3% after slippage and forecasted scrapping—however the market’s anticipation for a much stronger products market in lieu of the new lower sulphur regulation in January 2020 might decelerate the dirty-ups we have seen the past four years.

Panamax fleet growth (including fully coated LR1s) dropped to 0.9% in 2018 compared to 3.7% in 2017. 13 vessels from the originally scheduled 25 were delivered in 2018, while nine were removed. All of the 2018 additions were coated LR1s that saw their 2018 growth at 2.5%. The clean trading LR1 fleet rose by 5.4% YoY as net switching activity came down to zero last year (five dirty-ups vs five clean-ups). 19 vessels are due to be delivered this year out of which three have already come into the market, while only one of the scheduled deliveries is yet to be reported as coated. Due to the small orderbook and the relatively young LR1 fleet, fleet growth is expected slightly lower YoY at 1.9% in 2019.

The MR fleet (45k-55k dwt) grew 2.6% in 2018, a touch below the 2017 growth rate of 3.2%. A total of 52 MRs hit the water in 2018 from the originally 70 vessels that were due for delivery in the beginning of 2018 pushing the year’s slippage rate slightly lower compared to its long-term average at about 25%. In terms of scrapping, we witnessed the highest scrapping year since 2010 with 15 MRs of an average age of 23.6 years leaving the market mostly in the first half of the year (11 removals in the first half of 2018). 113 vessels are due for delivery in 2019 out of which nine have already come into the market in January. After accounting for slippage and lower scrapping activity, 2019 MR fleet growth is expected closer to its historical average at 5.4%.

From the originally scheduled 23 Handys (27k-45k dwt) a total of 14 delivered in 2018, while 29 were removed bringing total Handy fleet growth to its lowest level since 2013 at -1.7%. For 2019, 25 vessels are scheduled to hit the water with three of them already delivered. However, the quite squeezed orderbook and the current 47 vessels that are over 25 years old are expected to generate another year of low fleet growth for the Handy fleet at around 1%. As the vessel size isn’t quite the flavour of the month in terms of ordering, when combined with an ageing fleet, the Handy fleet growth is expected to remain below 2% during the next five years.



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    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     Jan-19 


  $130.0m   $146.0m   $130.0m   $100.0m   $105.0m   $100.0m   $90.0m   $92.0m   $98.0m   $93.0m   $83.0m   $82.8m   $92.2m


  $  80.5m   $  86.0m   $  90.0m   $  60.0m   $  65.0m   $  62.0m   $60.0m   $67.0m   $65.0m   $65.0m   $55.0m   $53.0m   $61.4m

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   $52.0m

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   $36.5m

2018 was a relatively muted year in terms of ordering activity as persistent low earnings, arguably lower availability of traditional finance, uncertainty over the upcoming regulations and higher steel prices have resulted in ordering focusing primarily on VLCCs and MRs, with the rest of the sectors receiving little-to-no buying interest at all.

VLCC newbuilding prices in South Korea rose by $9.4 million YoY to $92.2 million, although the $90 million threshold was only passed end-November with the year averaging at $87.5 million until then. Ordering activity was front loaded, with 34 out of the total 42 orders placed in the first half of the year. South Korea remained at the pole position with 69% of the total orders placed in the country’s shipyards. Ten orders were placed in Japan and the remaining three in China. Six VLCC orders have already been placed in the first month of 2019.

2018 was the lowest contracting year for Suezmaxes since 2013, with only eleven firm orders from a handful of owners as soon as the crude market picked up from September onwards. Before September, the Suezmax orderbook additions were close to zero, with only two orders in April. Following an ordering spree at the end of Q3-18, newbuilding prices rose by 15.8% YoY to $61.4 million. Apart from one vessel ordered in China, the rest have been contracted in South Korea yards. So far in 2019 there have been two Suezmax orders.

Aframax newbuilding South Korean prices increased by $8 million to $52 million by the end of 2018. Aframax ordering activity came off significantly in 2018 with 12 uncoated Aframax and 14 LR2 orders placed as opposed to 22 and 32 in 2017, respectively. Coated orders however might prove to be higher the closer we head to the delivery date and more information in terms of the vessels’ coating is revealed. Half of the 2018 firm orders have been concluded with South Korean yards, followed by Philippines. No Panamax/LR1 order had been reported in 2018 compared to 11 in 2017.

MR newbuilding South Korean prices rose by $2.5 million over 2018 to $36.5 million by the end of the year. 68 MR orders were placed last year with 40 of them contracted in the first half of the year when average MR newbuilding prices were at $35.1m. South Korean yards remained at the top spot with 35 orders placed, followed by China where 19 orders were placed. In January we saw four MR orders from a single buyer. For a third consecutive year, Handy ordering activity remained below ten, with only seven firm orders in 2018—six in China and one in South Korea—all of them placed in the first half of the year.

Given the past few years’ low earnings environment and aforementioned factors that continue to weigh on ordering activity, we may experience another year of low ordering activity in 2019. However, the orderbook looks relatively empty after 2019 and if 2020 proves to be a good year for vessel owners as many anticipate, combined with the need for replacement tonnage due to the fleet’s ageing profile, we might see an uptick in ordering from the start of the new decade.

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     Jan-19 


  $117.0m   $138.0m   $110.0m   $77.0m   $80.0m   $55.0m   $51.0m   $60.8m   $77.0m   $78.0m   $55.0m   $61.0m   $65.0m


  $  80.0m   $  96.0m   $  82.5m   $55.0m   $56.0m   $43.0m   $37.0m   $38.0m   $55.8m   $60.0m   $40.6m   $40.0m   $43.5m

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   $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   $26.0m



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Second-hand prices increased across all sectors YoY, driven by a rush to catch the bottom of the cycle that sparked more buying interest. However, five-year old prices did not rise as much as newbuilding prices. For a VLCC, second-hand prices rose by 6.6%, compared to 11.4% for newbuildings. The VLCC market looks quite well-supplied up to at least 2020, meaning owners with access to finance might prefer to pay the premium of a newbuild in anticipation of better market earnings against an empty orderbook for the new decade and an ageing fleet that should keep removals elevated going forward. Suezmax second-hand prices increased by 8.8% to $43.5 million, while Aframax five-year old prices remained largely unchanged as opposed to an 18.2% increase in newbuilding prices. MR second-hand prices rose by 13% to $26 million, a much stronger growth compared to the newbuildings, with the strengthening starting at the end of Q1-18.

Vessel Earnings

2018 turned out to be the one of the most disappointing years for tanker earnings in recent decades. Earnings were dragged further down for a third consecutive year by oversupply and higher bunker costs and it would have been even worse if it wasn’t for the Q4 uptick—driven by a wave of excess OPEC crude production—that led to a decent winter market for all vessel sizes.

VLCC earnings (basis TD3C round voyage) fell 18% YoY to average $19,000/day in 2018 with earnings stubbornly below $10,000/day in the first half of the year. Suezmax earnings (basis 70% TD20 and 30% TD6 round voyages) rose slightly by ~$1,000/day to $14,000/day while the Aframax Composite (basis an average of TD7, TD8, TD9, TD19 & TD17 round voyages) increased by 16% YoY to $13,000/day. In the products market, LR2 (basis TC1 round voyage) earnings remained at similar levels to 2017 at $11,000/day, LR1 (basis TC5 round voyage) earnings fell 10% YoY to $6,700/day while the MR Composite (basis an average of TC2/14, TC6, TC7, TC10 & TC11/4) dropped 8% YoY to average $11,000/day.

Oil prices – and by extension bunker prices – rose steadily up until end-October when they took a hit reaching 2017 low levels by the end of the year. Rotterdam IFO380 averaged at $401/tonne in 2018, $100/tonne higher compared to 2017. Going forward, oil prices are expected to fall with EIA forecasting Brent averaging $10/bbl lower YoY to $61/bbl and WTI to $55/bbl pushing bunker prices lower giving owners’ earnings room for improvement this year. However, with the IMO2020 regulation just months away from implementation, the price for HSFO is expected to start coming off the closer we head to the deadline as demand for the fuel will start falling. That should support owners’ earnings in Q2-Q3; however, the need to use bunker costlier compliant fuels in Q4 might put a ceiling on the earnings’ upside.



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VLCC Time Charter Equivalent Spot Market Earnings

VLCC Spot Market Earnings (Source: Howe Robinson Partners)





Starting from a low level in January, VLCC earnings stood well below $10,000/day for the first half of the year and at times below OPEX levels. The uptick in Q4 pushed the average at ~$19,000/day (basis TD3C MEG/China round voyage). The OPEC+ group’s commitments to extend their production cuts to Q1-18 along with involuntary losses from elsewhere (i.e. Venezuela, Angola) and stock-drawing in OECD nations were enough to push Q1-18 and Q2-18 earnings to their lowest quarterly levels on record since 2000 with Q1-18 averaging at ~$8,750/day and Q2-18 at $9,500/day.

On the back of OPEC’s decision to increase production in order to achieve 100% compliance on its original 1.2 million bpd, VLCC earnings rose to $14,500/day in Q3-18, while the re-imposition of US sanctions on Iran and OPEC’s decision to further cut production by 1.2 million bpd in Q1-19 generated an influx of barrels in Q4-18, pushing the market to a Q4 average last seen in 2016 at around $46,000/day.

VLCCs started 2019 quite positive; however, the market came off as quickly as expected and it would appear that this year’s demand for crude tankers could look strikingly similar to 2018 if it wasn’t for US crude exports. These are expected to be the main factor helping to absorb any tonnage growth—given OPEC+ production cuts combined with what is setting up to be a record high maintenance season ahead of IMO2020 implementation.



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Suezmax Time Charter Equivalent Spot Market Earnings

Suezmax Spot Market Earnings (Source: Howe Robinson Partners)





Suezmax earnings followed the same trajectory as VLCCs; however, the winter impact was much stronger with Q4-18 averaging at ~$34,000/day, $23,000/day higher compared to Q3-18. TD6 (Black Sea/Med) earnings averaged 42% higher YoY at ~$19,000/day, whereas TD20 (WAF/UKC) closed the year 6% lower YoY at ~$12,000/day. Despite a much more manageable fleet growth, Suezmaxes in West Africa didn’t manage to surprise on the upside with TD20 earnings setting record low levels for the most of the first half of the year.

Despite Nigeria’s production rebound to an average of 1.6 million bpd in 2018 compared to 1.53 million bpd in 2017, a 150,000 bpd YoY fall in Angolan output led to a decline in the area’s total production resulting in West African exports dropping by 1.4% YoY to 4.32m bpd. Suezmaxes ex-WAF were traded below $9,000/day in the first three quarters of 2018, while a $20,000/day increase quarter-on-quarter to $28,000/day in Q4-18 brought the year’s average above that threshold. Following the VLCC market, Suezmaxes in West Africa have already lost 50% of their early Jan-19 earnings. Suezmaxes in the Black Sea started showing signs of recovery in May-18 when earnings rose to $14,000/day from the Jan-Apr average of $5,500/day.

Suezmax liftings ex-Black Sea rose by 9.3% YoY to 1.13 million bpd in 2018 and combined with weather related delays pushed the end of year earnings to levels last seen in 2015, with Nov-Dec averaging at $60,000/day. Since then however, TD6 has dipped to an average of $22,000/day in Feb-19.



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Aframax Time Charter Equivalent Spot Market Earnings

Aframax Spot Market Earnings (Source: Howe Robinson Partners)





The Aframax Composite earnings (basis an average of TD7, TD8, TD9, TD19, TD14 and TD17) were no different to their VLCC and Suezmax counterparts and with the second half of 2018 support they posted their first yearly gains since 2015. The Aframax Composite averaged 16% higher YoY to ~$13,000/day in 2018, ranging from $5,000/day in April to $41,000/day in December. With the uncoated Aframax fleet falling by -2% YoY, the upside might have been stronger if it wasn’t for the 20 LR2 dirty-ups as soon as Aframaxes started trading at an $8,000/day premium to the LR2s in Q4-18. Apart from TD17 (Baltic/UKC), the rest of the Aframax routes were trading below $10,000/day for the first half of the year bringing the combined average to ~$8,000/day. TD7 (North Sea/UKC) earnings doubled in Q3-18 to over $14,000/day compared to $7,000/day in Q2-18 amid a 10% increase in Aframax liftings from the North Sea, while seasonal factors and an 11.3% quarter-on-quarter increase in Aframax liftings ex-Baltic pushed TD17 earnings $19,000/day higher at ~$31,000/day in Q4-18.

Libya’s return supported the Med market with TD19 earnings increasing by 22% YoY to ~$14,000/day; however, Aframaxes haven’t managed to pocket the whole benefit of the additional Libyan barrels as increased flows to the east have favoured Suezmaxes taking away market share from Aframaxes (58.3% in 2018 vs 72.6% in 2017). The Caribbean market (TD9) was quite resilient during 2018, averaging 26% higher YoY at $15,000/day; however, it remains to be seen how US sanctions on Venezuela will affect this market in 2019.

The east market didn’t experience the Q4 uptick at the same magnitude as the west, resulting in TD8 (MEG/Singapore) and TD14 (SE Asia/EC Australia) falling slightly YoY to $9,000/day and $11,500/day, respectively.



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Similar to VLCCs and Suezmaxes, the Aframax market started this year quite strongly; however, earnings have more than halved compared to early January currently trading at $16,000/day. Nevertheless, the LR2 market looks more balanced with TC1 earnings (MEG/Japan) currently trading at a $6,000/day premium to the Aframax Composite and relatively rangebound at the $22,000/day-$26,000/day level.

MR Time Charter Equivalent Spot Market Earnings

MR Spot Market Earnings (Source: Howe Robinson Partners)





Historically speaking, according to our records (since 2000) the MR Composite (basis an average of TC6, TC7, TC10 and TC2/14) has almost never averaged below $10,000/day annually—apart from 2002—and even though last year it was looking like they would have broken that floor, it turned out that the Q4-18 uptick brought 2018 MR earnings at around $11,000/day. 2018 set the historical minimum levels between May-June and end July-September, with the first week of September as the lowest week reported in terms of earnings since 2000 at below $6,000/day.

Even though it is difficult to pinpoint specific factors for the products market weakness in such a fragmented environment, we would highlight a massive 204 million bbls stockdrawing in OECD countries/Singapore between Aug-16 and May-18 as a major culprit, as well as a lack of new mega/export refinery start-ups since 2015, and of course stubbornly high fleet growth.

Fluctuations in MR earnings were driven by the west as the east markets were largely rangebound on a quarterly basis with TC7 (Singapore/EC Australia) averaging between $10,000/day in Q3-18 to $12,000/day in Q2-18 and TC10 (South Korea/WCC) between $10,000/day in Q3-18 to $13,000/day in Q4-18. In the west, TC6



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(cross-Med) posted its historical low quarterly earnings in Q3-18 at $3,000/day to average the year at $10,000/day, $2,000/day lower YoY. Atlantic basin activity saw a huge jump due to record high US gasoline exports with Q4-18 earnings 81% higher compared to Q3-18 at $14,000/day (basis TC2/14 triangulation).

MRs started 2019 above their historical levels; however, following the rest of the market’s downward trajectory they have already come off quite significantly albeit according to historical seasonality trends. With stock levels below their five-year average in the major consuming regions, 1.2 million bpd YoY growth in refinery runs, 2.2 million bpd of additional refinery capacity, of which around 45% will be export-oriented, and an increase in gasoil trade ahead of the IMO2020 implementation, the products market looks underway in its long-awaited recovery as of mid-2019.

General LNG Market Overview

2018 was certainly one of the better years in recent memory for LNG shipping because of the significant increase in short term rates and the large number of new buildings placed on order.

Although there was some consensus in early 2018 that the market was due to improve on the back of fundamentals, industry participants certainly hadn’t anticipated such a rapid increase in rates. This rise can – to some extent – be attributed to floating storage, a new feature of the LNG market that is partially driven by China and its hunger for evermore LNG. Indeed, up to 30 vessels were kept as floating storage worldwide with cargoes on board waiting to discharge, and the demand for these vessels coupled with the increase in tonne miles due to the open arbitrage, pushed up rates to a peak which had not been seen before.

Storage for LNG over a period of time—rather than straight discharge—is an unusual feature for the LNG market, and can now be considered due to the partial or full re-liquefaction (PRS or FRS) units on board the vessels, which allows the boil off to be re-liquefied and placed back into the cargo tanks. LNG carriers can therefore store LNG on board without losing much of their cargo.

New LNG production

Many new facilities were expected to start up in 2018; however, as is often the case with LNG, some of these facilities have seen their start-up delayed due to several reasons, including plant issues, floods, etc., and the full effect of which is now expected to be seen in 2019.

Nevertheless, the following four major facilities did commence operations in 2018:





   Size million TPA    Start up


   Australia    4.45    September


   Australia    5.50    June

Yamal LNG train 2

   Russia    5.50    August

Cove Point LNG

   USA    5.25    March

Whilst not in full operation, both the Sabine Pass Train 5 and the Corpus Christi train 1 were also started, although full commercial operation would not be seen until 1Q 2019.

However, we also saw the delay of the following plants which will be pushed back into 2019:





   Size million TPA    Start up

Prelude LNG

   Australia    3.5    2Q 2019

Cameron LNG

   USA    4.95    1H 2019

Elba Island LNG

   USA    6.0    1H 2019

Freeport LNG

   USA    4.2    3/4Q 2019



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Overall, LNG supply is now becoming plentiful. With production levels rising from the USA and Australia during 2018, markets became more fluid with tonne miles increasing, assisted by the ability for LNG carriers to go through the Panama Canal, something which only became a possibility with the installation of the new locks in 2016.

However, even though additional transits have been allocated to LNG, these remain difficult to obtain and although things have been improved, it may take a couple of days to obtain a transit passage without a firm booking.

Qatar’s approval to go ahead with its planned expansion of the North Field was announced in 2018 as expected, producing up to a further 30 million tonnes of LNG by 2024. This could have a dramatic impact upon the shipping markets with a further influx of tonnage to move these volumes.

Final Investment Decision (FID) was given to the LNG Canada project on the west coast of Canada together with approval for Corpus Christi train 3, which saw the first signing of contracts for export of shale gas from the USA to China. A considerable number of FIDs are due within 2019, which could add a minimum of 100 million tonnes of LNG by the middle of the next decade, and these include the vast projects in Mozambique, at least 5 additional USA shale gas projects, additional trains to existing shale gas projects in the USA; expansion plans to both PNG and Sakhalin and a further new Arctic facility. This does not include the plans for a 7th train in Nigeria.

We are in an era of continued expansion within the LNG export industry and we expect that there will be a continual demand for additional LNG carriers to meet this demand.

LNG Tanker Demand

The 2018 year began very lacklustre as the market tumbled at the beginning of the year. Rates had begun to decline at the end of 2017 and these continued to fall with the emphasis of the Chinese New Year having a full effect and knocking demand backwards. Although signs of improvement were slow to come in 2018, gradually both positioning and ballast bonus fees began to improve, indicating a rally to the market which consequently led to an increase in freight levels.



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Freight Rates for Steam/TFDE/Gas Injection (Source: Howe Robinson Partners)



The largest catalyst for market improvement in 2018 was the chartering-in by a large energy company of around 16 LNGCs for up to two-year periods. This transaction occurred whilst markets were still reasonably low for short-term charter rates and absorbed a considerable amount of tonnage which had been either on the short-term markets or were to be there due to their projects being delayed. Delivery of many of these vessels did not begin until September/October, by which time short term market rates had begun to improve.

Rates continued to climb towards the end of the year, up to an October peak of $198,000/day, although some believe this was over $200,000/day which could have been a time charter equivalent once ballast bonus and positioning had been considered.

A further significant dynamic change to the LNG market during 2018 was the ability for vessels to store LNG, rather than deliver their cargoes straight to their discharge terminal. During November 2018, up to 30 LNGCs were understood to be holding cargoes, with the majority of these based in the Far East and primarily held by portfolio players and trading houses.

However, once these cargoes had been discharged, the market quickly began to soften in the east and with the combination of the lead up to the Chinese New Year in January 2019 and the build-up of stocks within other countries, charter rates began to soften in December. Vessels coming out of dry dock in the east in early December found it difficult to obtain cargoes and this softening continued into the new year.

Going forward, LNG markets show signs of a far more volatile environment, following a 2018 year that was particularly fertile in this respect. A host of factors – including low demand, vessels being absorbed whilst market rates are low, new plants delayed and/or new plants starting up, restocking, restart of nuclear power plants, closure of coal fired generation, arbitrage or lack thereof, and finally floating storage – will come together to drive the market in the near future, with more sensitive freight rates and an upwards trajectory.



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LNG Carrier Newbuildings

2018 saw an unprecedented 62 vessels delivered during the year (of which eight were below 100,000 cubic metres), with a combined cubic capacity of just over 9.3 million cubic metres. The number of vessels delivered included a large proportion of those vessels which had been previously contracted for earlier delivery, and which had been delayed in their delivery schedule due to their projects, primarily based on shale gas projects from the USA being pushed back beyond their original completion date.

This also included 3 of the 4 new buildings contracted to a major Japanese energy company from the new JMU yard in Japan, and which had the expanded SPB containment system. The remaining three, which had originally been planned for delivery in 2017, are now likely to be delivered during 2019. Many of the deliveries were also sub-contracted to existing players, with their own projects being delayed.

Fleet Deliveries Versus Fleet Orders to 2021 (Source: Howe Robinson Partners)



2018 started quietly for new building orders with momentum building up towards the year end, as many of the independent players took stock prior to the promise of hefty rises in prices. The lowest price seen during the year were those vessels contracted at below US$ 180 million each from HHI in Korea.    These vessels each received a charter rate of US$ 63,500/day for a period of 7 years from a major French energy company.

The orders were a steady trickle throughout the year being contracted for delivery between 2020 and late 2021, and notably, many of these orders were contracted by new entrants in the LNG market with differing interests, typically ordered by major ship owners and time-chartered to energy companies and trading houses for seven-year periods around US$65,000-67,000/day.

Many owners committed to a first step into LNG shipping with new orders, and by the end of 2018 there were around 38 vessels without firm commitment for the future. Many of these owners were also holding options for 2021 delivery.



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As we have mentioned, the increased volumes in LNG anticipated through to the middle of the next decade should absorb a considerable proportion of these vessels.

As for the type of LNG carrier, either the MEGi or the XDF engine is the option of choice together with a base of a 174,000 to 180,000 cubic metres size of vessel. Containment system, in the main is the GTT MK III flex or flex plus which has replaced the potential GTT Mk V. Boil off rates today have been reduced to around the 0.075% per day and PRS (partial re-liquefaction) seems to be a standard.

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 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 2 2019, 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 2019 and June 2028. Tanker charter rates declined significantly in 2016 and 2017 and further declined through most 2018, 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 2019, 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 economic conditions, and protectionist trade measures and other 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 at times over the past decade 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 in the shipping industry. While the global economy has improved and may continue to do so, 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 exiting 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, despite



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recent relaxation of controls, our operations may be subjected to new regulations that may require us to incur new or additional compliance or other administrative costs and may require that we pay to the Greek government new taxes or other fees or that dividends we pay be subject to withholding taxes. Furthermore, the commitments by the Greek government to the nations’ creditors and potential shift in its policies may potentially lead to 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 such as those imposed by the U.S. and China, 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 at times 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 again fall to 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



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basis. Tanker markets are typically stronger in the winter months as a result of increased oil consumption in the northern hemisphere, but weaker in the summer months as a result of lower oil consumption in the northern hemisphere and refinery maintenance. As a result, revenues generated by the tankers in our fleet have historically been weaker during the fiscal quarters ended June 30 and September 30. However, there may be periods in the northern hemisphere when the expected seasonal strength does not materialize to the extent required to support sustainable profitable rates due to tanker overcapacity.

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

Historically, the marine transportation industry has been cyclical. The profitability and asset values of companies in the industry have fluctuated based on certain factors, including changes in the supply and demand of vessels. The supply of vessels generally increases with deliveries of new vessels and decreases with the scrapping of older vessels and/or the removal of vessels from the competitive fleet either for storage purposes or for utilization in offshore projects. The newbuilding order book equaled approximately 9% of the existing world tanker fleet at February 1, 2019, by number of vessels, with a significant amount of these newbuilding vessels scheduled to be delivered in 2019. 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 conflicts in Iraq, Syria and Yemen. Armed conflicts with insurgents and others continue, as well, in Libya, and political



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unrest and instability have adversely affected the infrastructure and economic stability of Venezuela, each of which is a major oil exporting country. Any such hostility or instability could seriously disrupt the production of oil or LNG and endanger their export by vessel or pipeline, which could put our vessels at serious risk and impact our operations and our revenues, expenses, profitability and cash flows in varying ways that we cannot now project with any certainty.

The increasing number of terrorist attacks throughout the world, longer-lasting wars, international incidents 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, Russia and Venezuela 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 continued 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, on August 6, 2018, the U.S. re-imposed an initial round of secondary sanctions and as of November 5, 2018, virtually all of the secondary sanctions the U.S. had suspended under the JCPOA have been re-imposed.

The U.S. government’s primary Iran sanctions have remained in place throughout recent years 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. In addition, U.S. persons continue to be broadly prohibited from engaging in transactions or dealings with the Government of Iran and Iranian financial institutions, which effectively impacts the transfer of funds to, from, or through the U.S. financial system whether denominated in U.S. dollars or any other currency.



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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. 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.

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.

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



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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.

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



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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 and remained at relatively low levels through 2018 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 2018, we derived approximately 65% of our revenues from time charters, as compared to 63% in 2017. As our current period charters on six of the vessels owned by our subsidiary companies expire in the remainder of 2019, 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.

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;



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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 2, 2019, 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), including the price of low sulfur fuel certain of our vessels may be required to use beginning in 2020. 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 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



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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, 2018 would have resulted in a payment of approximately $161.8 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.

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.



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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.

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;



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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 2018. In addition, although our subsidiaries currently own a modern fleet, with an average age of 8.5 years as of April 2, 2019, as vessels grow older, they generally decline in value.

We have a policy of considering the disposal of tankers periodically. If our subsidiaries’ tankers are sold at a time when tanker prices have fallen, the sale may be at less than the vessel’s carrying value on our financial statements, with the result that we will incur a loss.

In addition, accounting pronouncements require that we periodically review long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. An impairment charge for an asset held for use should be recognized when the estimate of undiscounted cash flows, excluding interest charges, expected to be generated by the use of the asset is less than its carrying amount. Measurement of the impairment charge is based on the fair value of the asset as provided by third parties. Such reviews may from time to time result in asset write-downs, which could adversely affect our results of operations, such as we did in the fourth quarter of 2017 and 2018 with respect to two and five of our older tankers, respectively.

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 in Philippines, Ukraine, Romania, Georgia, Latvia, Greece and Russia and sponsors various academies in the relevant regions, we cannot assure you that TCM will be successful in its efforts to recruit and retain properly skilled personnel at commercially reasonable salaries. Any failure to do so could adversely affect our ability to operate cost-effectively and our ability to increase the size of the fleet.

Labor interruptions could disrupt our operations.

Substantially all of the seafarers and land based employees of TCM are covered by industry-wide collective bargaining agreements that set basic standards. We cannot assure you that these agreements will prevent labor interruptions. In addition, like many other vessels internationally, some of our subsidiaries’ vessels operate under so-called “flags of convenience” and may be vulnerable to unionization efforts by the International Transport Federation and other similar seafarer organizations which could be disruptive to our operations. Any labor interruption or unionization effort which is disruptive to our operations could harm our financial performance.

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

As of April 2, 2019, our subsidiaries have contracts for the construction of two aframax and two suezmax crude carriers for delivery in 2019 and 2020. Our subsidiaries may also order additional newbuildings. During the course of construction of a vessel, we are typically required to make progress payments. While we typically



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have refund guarantees from banks to cover defaults by the shipyards and our construction contracts would be saleable in the event of our payment default, we can still incur economic losses in the event that we or the shipyards are unable to perform our respective obligations. Shipyards may periodically experience financial difficulties.

Delays in the delivery of these vessels, or any 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 for periods 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, 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



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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;



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.



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

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

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

Hire rates for LNG carriers may fluctuate substantially and if rates are low, as was the case in 2016 and 2017, when we are seeking a new charter, our revenues and cash flows may decline.

The significant fall in oil prices in the second half of 2014 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, led to declines in average rates for new spot and shorter-term LNG charters. Rates have recovered more recently and are expected to improve in the future. However, if LNG charter market conditions decline 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.

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;



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decreases in the consumption of oil due to increases in its price relative to other energy sources, other factors making consumption of oil less attractive or energy conservation measures;



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 declined substantially in the second half of 2014, which resulted in oil companies announcing reductions in oil production and exploration activities, including in offshore fields. Oil prices have recovered since then although volatility still exists depending on the policies of oil production countries and cartels.

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 marine fuel with low sulfur content required to comply with the 0.5% sulfur cap on marine fuels effective January 1, 2020, for vessels without scrubbers, is presently substantially more expensive compared to the currently widely used marine fuel, which, if this price differential continues, could increase our fuel costs for vessels employed in the spot market. 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 2, 2019, 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 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.



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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, 2018, our debt to capital ratio was 51.6% (debt / debt plus equity), with $1.6 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 2018, all of our cash flow derived from operations was dedicated to debt service, 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;



make capital expenditures;



repurchase or redeem common or preferred 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.



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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 15 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 increased in recent years after a long period of stability at historically low levels, and has been volatile in past years, which can affect the amount of interest payable on our debt, and which, in turn, could have an adverse effect on our earnings and cash flow. LIBOR rates were at historically low levels for an extended period of time and may continue to increase from these low levels. 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.

Uncertainty relating to the LIBOR calculation process and potential phasing out of LIBOR after 2021 may adversely affect the amounts payable under our credit facilities and our preferred shares.

On July 27, 2017, the United Kingdom Financial Conduct Authority (“FCA”), which regulates LIBOR, announced that it intends to stop persuading or compelling banks to submit rates for the calculation of LIBOR to the administrator of LIBOR after 2021 (“FCA Announcement”). The FCA Announcement indicates that the continuation of LIBOR on the current basis is not guaranteed after 2021.

Our credit facilities bear interest costs at a floating rate based on LIBOR. Uncertainties surrounding changes to the basis of which LIBOR is calculated or the phase-out of LIBOR, which may cause a sudden and prolonged increase or decrease in LIBOR, could adversely affect our operating results and financial condition, as well as our cash flows, including cash available for dividends to our shareholders. While we use interest rate swaps to reduce our exposure to interest rate risk and to hedge a portion of our outstanding indebtedness, there is no assurance that our derivative contracts will provide adequate protection against adverse changes in interest rates or that our bank counter parties will be able to perform their obligations.

If a three-month LIBOR rate is not available, the terms of our various credit facilities, and to the extent applicable, our preferred shares will require alternative determination procedures which may result in an interest and/or a dividend rate differing from expectations and could materially affect the value of the such instruments.



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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 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 2019 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



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we will not be treated as a PFIC for 2019 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 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 2018, Euro expenses accounted for approximately 31% 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, 2019, 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, Series E Preferred Shares and Series F Preferred Shares may fluctuate due to factors such as



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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 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 2018, we paid dividends on our common shares totaling $0.15 per common share, or $13.1 million. On March 29, 2019, the Company announced a common share dividend of $0.05 per common share to be paid on May 30, 2019 to holders of record as of May 24, 2019. In addition, during 2018 we paid dividends on our preferred shares totaling $31.3 million. In 2019 we have paid $10.2 million, between January 1 and April 5. A further $4.4 million in common share dividends has been declared for payment on May 30, 2019 and $5.7 million in preferred share dividends for payment on April 30, 2019. 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 prohibition of dividend distribution should there be an event of default in existence relating to any loan, as well as other relevant factors. 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, Series E and Series F Preferred Shares. We may have insufficient cash to pay dividends on or redeem our Series B, Series C, Series D, Series E and Series F 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, Series E Preferred Shares or Series F 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, Series E Preferred Shares and Series F 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 and Series F Preferred Shares is the dividend yield on



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



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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.

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 2, 2019, 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



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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. Tsakos Energy Management subcontracts the technical and operational management of our fleet to TCM. TCM was formed in February 2010 by Tsakos family interests and a German private company, the owner of the ship management company Columbia Shipmanagement Ltd., or CSM, as a joint-venture ship management company on an equal partnership basis to provide technical and operational management services to owners of vessels, primarily within the Greece-based market. TCM, which formally commenced operations on July 1, 2010, now manages the technical and operational activities of all of our 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 320 vessels and crewing services for an additional 54 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 2, 2019, 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 2, 2019, the average age of the tankers in our current operating fleet was 8.5 years, compared with the industry average of 10.8 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 $4 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 900 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. 25 of our tankers are ice-class, so may



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access ice-bound ports depending on accumulation of brash ice. We entered the LNG market with the delivery of our first LNG carrier in 2007 and took delivery of a second LNG carrier in 2016. We entered the shuttle tanker market with two DP2 suezmax shuttle tankers Rio 2016 and Brasil 2014 delivered in March and April 2013, respectively, each of which immediately entered into a 15-year time charter with Petrobras. 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 48 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 Equinor (formerly 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 2, 2019, our fleet consisted of the following 64 vessels:



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



1. Hercules

    2017       300,000       2017     time charter   November 2021     Crude

2. Ulysses

    2016       300,000       2016     CoA       Crude



1. Eurovision(3)

    2013       158,000       2014     time charter   September 2020     Crude

2. Euro

    2012       158,000       2014     spot       Crude

3. Decathlon(3)

    2012       162,710       2016     time charter   April 2020     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   March 2020   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)(10)(11)

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

12. Euronike(3)(11)

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

13. Silia T

    2002       164,286       2002     time charter   October 2019     Crude




1. Lisboa

    2017       157,000       2017     time charter   May 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



1. Bergen TS

    2017       112,108       2017     time charter   October 2022(7)   ice-class 1B   Crude

2. Stavanger TS

    2017       113,004       2017     time charter   July 2022(7)   ice-class 1B   Crude



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

3. Oslo TS

    2017       112,949       2017       time charter       May 2022(7)       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(7)         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       April 2020       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       time charter       August 2020       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       spot             ice-class 1A       Crude/Products  

20. Propontis

    2006       117,055       2006       time charter       April 2019       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(4)

    2009       74,296       2010       time charter       January 2022         Crude/Products  

6. Salamina(4)

    2009       74,251       2010       time charter       January 2022         Crude/Products  

7. Selecao(4)

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

8. Socrates(4)

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

9. Andes

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

10. Maya(6)

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

11. Inca(6)

    2003       68,439       2003       spot               Crude/Products  



1. Artemis

    2005       53,039       2006       time charter       April 2019       ice-class 1A       Products  

2. Afrodite

    2005       53,082       2006       time charter       August 2020       ice-class 1A       Products  

3. Ariadne

    2005       53,021       2006       time charter       June 2020       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 2020       ice-class 1A       Products  

6. Ajax

    2005       53,095       2006       time charter       September 2020       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 2020      






2. Neo Energy

    2007       85,602       2007       time charter       March 2021      






Total Vessels

    64       6,937,158            



Certain of the vessels are operating in the spot market under contracts of affreightment (“CoA”).


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.


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.


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.


Charterers have the option to terminate the charter party after at least 12 months with three months’ notice.



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


The charterer of each of these vessels has options to extend the term of the charter for up to seven additional years.


The charterer of each of these vessels has the option to extend the term of the charter for up to five additional years.


The charterer of each of these vessels has the option to extend the term of the charter for up to two additional years.


The charterer has the option to extend the term of this charter for up to an additional 6 months.


This vessel is chartered-in on a bare-boat basis until 2022 by a subsidiary company.

Subsidiaries of the Company took delivery of five aframax tankers in 2017 (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.

Our newbuildings under construction, as of April 2, 2019, consisted of the following:


Vessel Type

     Shipyard      Deadweight Tons      Purchase Price(1)
(in millions

of U.S. dollars)




1. HN 5033

     Q4 2019       
     115,000        51.85  

2. HN 5036

     Q1 2020       
     115,000        51.85  




1. HN 8041

     Q3 2020       
     158,000        70.43  

2. HN 8042

     Q4 2020       
     158,000        67.98  



     546,000        242.11  



Including any extra costs agreed as of April 2, 2019

Fleet Deployment

Depending on management’s view of the state of the current spot market and future prospects for the market, 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 2, 2019, the percentage of the fleet that is in employment 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 2018, 2017 and 2016 as a percentage of operating days.


     Year Ended December 31,  

Employment Basis

   2018      2017      2016  

Time Charter—fixed rate

     43%        41%        37%  

Time Charter—variable rate

     29%        29%        21%  

Period Employment at variable rates

     5%        5%        5%  

Spot Voyage

     23%        25%        37%  

Total Net Earnings Days

     22,573        22,095        18,570  



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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.

We have also secured charters from the delivery of each of our four newbuildings for periods from five to twelve years, including charterer options for extension.

Operations and Ship Management

Our operations

Management policies regarding our fleet that are formulated by our Board of Directors are executed by Tsakos Energy Management under a management contract. Tsakos Energy Management’s duties, which are performed exclusively for our benefit, include overseeing the purchase, sale and chartering of vessels, supervising day-to-day technical management of our vessels and providing strategic, financial, accounting and other services, including investor relations. Our 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. Seven vessels were sub-contracted to third-party ship managers during 2018.

The following chart illustrates the management of our fleet as of April 2, 2019:



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

Management Contract

Executive and Commercial Management

Pursuant to our management agreement with Tsakos Energy Management, our and our subsidiaries’ operations are executed and supervised by Tsakos Energy Management, based on the strategy devised by our



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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.

The monthly fee may be adjusted annually in accordance with the terms of the agreement with Tsakos Energy Navigation. if both parties agree. There has not been an adjustment to fees relating to the conventional oil tankers payable to Tsakos Energy Management since 2012. In 2018 and 2017, the monthly fees for operating conventional vessels were $27,500 and $20,400 for vessels chartered in or chartered out on a bare-boat basis or for vessels under construction and $35,000 for the DP2 shuttle tankers. In 2018 and 2017, the monthly fees for LNG carriers amounted to $36,877 and $36,350, respectively. From the above fees, in 2018 a third-party manager was paid $26,877 for the LNG carriers, $14,503 for each of the suezmax Eurochampion 2004, the aframaxes Maria Princess and Sapporo Princess, and the VLCCs Ulysses and Hercules. In 2017 and in 2016, a third-party manager was paid $26,350 and $25,833 for the LNG carriers, $14,219 and $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, from January 1, 2017 until December 31, 2017 $14,219, and since January 1, 2018 until the day it was sold, on April 11, 2018, $14,503, 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 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 $20.2 million in 2018, $19.5 million in 2017 and $16.9 million in 2016. From these amounts, Tsakos Energy Management paid a technical management fee to Tsakos Columbia Shipmanagement. For additional information about the management agreement, including the calculation of management fees, see “Item 7. Major Shareholders and Related Party Transactions” and our consolidated financial statements which are included as Item 18 to this Annual Report.

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



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



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



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

Tsakos Shipping utilizes the services of various charter brokers to solicit, research, and propose charters for our vessels. The charter brokers’ role involves researching and negotiating with different charterers and proposing charters to Tsakos Shipping for cargoes to be shipped in our vessels. Tsakos Shipping negotiates the exact terms and conditions of charters, such as delivery and re-delivery dates and arranges cargo and country exclusions, bunkers, loading and discharging conditions and demurrage. Tsakos Energy Management is required to obtain our approval for charters in excess of six months and is required to obtain the written consent of the administrative agents for the lenders under our secured credit facilities for charters in excess of thirteen months. There are frequently two or more brokers involved in fixing a vessel on a charter. Brokerage fees typically amount to 2.5% of the value of the freight revenue or time charter hire derived from the charters. A chartering commission of 1.25% is paid to Tsakos Shipping for every charter involving the vessels in the fleet. In addition, Tsakos Shipping may charge a brokerage commission on the sale of a vessel. In 2018, the Company sold the VLCC tanker Millennium and for this service, Tsakos Shipping charged a brokerage commission 0.5% of the sale price of the vessel. In 2017 and 2016, there was no such commission. The total amount paid for these chartering



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and acquisition brokerage commissions was $6.7 million in 2018, $6.5 million in 2017 and $6.0 million in 2016. 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 2018 or 2016.

Tsakos Shipping supervises the post fixture business of our vessels, including:



monitoring the daily geographic position of such vessels in order to ensure that the terms and conditions of the charters are fulfilled by us and our charterers;



collection of monies payable to us; and



resolution of disputes through arbitration and legal proceedings.

In addition, Tsakos Shipping appoints superintendents to supervise the construction of newbuildings and the loading and discharging of cargoes when necessary. Tsakos Shipping also participates in the monitoring of vessels’ operations that are under TCM management and TCM’s performance under the management contract.

General Administration. Tsakos Energy Management provides us with general administrative, office and support services necessary for our operations and the fleet, including technical and clerical personnel, communication, accounting, and data processing services.

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

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

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

Technical Management

Pursuant to a technical management agreement, Tsakos Energy Management employs 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 April 2, 2019, totaling approximately 7.8 million dwt. TCM employs full-time superintendents, technical experts and marine engineers and has expertise in inspecting second-hand vessels for purchase and sale, and in fleet maintenance and repair. They have approximately 183 employees engaged in ship management and approximately 3,654 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.



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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 subcontracted 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 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.



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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 2018.



   Year Ended
December 31, 2018

Equinor (ex-Statoil)
















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 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



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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 March 1, 2018, Form B of the Supplement to the International Oil Pollution Prevention Certificate contained in MARPOL Annex I has been amended to simplify its completion with respect to segregated ballast tanks.

MARPOL Annex IV entered into force on September 27, 2003 and requires ships engaged in international voyages and certified to carry more than 15 persons to have systems and controls in place to deal with human sewage, for governments to have port reception facilities and a requirement for survey and certification. Annex IV prohibits the discharge of sewage into the sea, except when the ship has an approved sewage treatment plant in operation or when the ship is discharging comminuted and disinfected sewage using an approved system at a distance of three nautical miles from the nearest land.

In September 1997, the IMO adopted Annex VI to MARPOL to address air pollution from ships. Annex VI came into force on May 19, 2005. It set limits on sulfur oxide and nitrogen oxide emissions from ship exhausts and prohibited deliberate emissions of ozone depleting substances, such as chlorofluorocarbons. Annex VI also included a global cap on the sulfur content of fuel oil and allowed for the designation of special areas known as Emission Control Areas (“ECAs”) where more stringent controls on sulfur emissions would apply. Annex VI has been ratified by some, but not all IMO member states. All vessels subject to Annex VI and built after May 19, 2005 must carry an International Air Pollution Prevention Certificate evidencing compliance with Annex VI. In October 2008, the Marine Environment Protection Committee (“MEPC”) of the IMO adopted amendments to Annex VI regarding particulate matter, nitrogen oxide and sulfur oxide emissions standards. These amendments, which entered into force in July 2010, seek to reduce air pollution from vessels by establishing a series of progressive standards to further limit the sulfur content in fuel oil, which would be phased in by 2020, and by 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



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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 added 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 were 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 is mandatory beginning 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 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



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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 (categorization to be carried out in accordance with the UN Globally Harmonized System of Classification and Labelling of Chemicals) 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 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



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other spaces on board vessels. The amendments came into force on July 1, 2014 and require ships of 1,600 gross tons or more, for which the building contract was placed on or after July 1, 2014 or were constructed on or after January 1, 2015 or will be delivered on or after July 1, 2018 to be constructed to reduce on-board noise and to protect personnel from noise on board ships. All of our vessels comply with existing guidelines, and our new buildings will meet the new requirements.

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 pressurization. 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 tankers constructed on or after January 1, 2017 comply with, and our new buildings will meet these requirements.

SOLAS Regulation II-2 10.10.1 and 10.10.3 have been amended and requires ships constructed on or after July 1, 2014 to be fitted with the following by July 1, 2019: a) compressed air breathing apparatus fitted with an audible alarm and a visual or other device which will alert the user before the volume of the air in the cylinder has been reduced to no less than 200 liters; b) a minimum of two two-way portable radiotelephone apparatus for each fire party for fire-fighter’s communication. The two-way portable radiotelephone apparatus must be explosion-proof or intrinsically safe. Fire parties are individuals or groups listed on the Muster List.

Performance standards for EGC (Enhanced Group Call) and NAVTEX Equipment have also been amended. Such equipment installed after July 1, 2019 must comply with SOLAS IV/7 and SOLAS IV/14.

SOLAS Regulations III/3 and III/20 have been amended with changes entering into force January 1, 2020. From this time all ships must comply with requirements for maintenance, thorough examination, operational testing, overhaul and repair of lifeboats and rescue boats, launching appliances and release gear currently contained in SOLAS Chapter III.

SOLAS Regulation V/20 makes amendments to the International Aeronautical and Maritime Search and Rescue (IAMSAR) Manual which will come into force on July 1, 2019.

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

The U.S. Comprehensive Environmental Response, Compensation, and Liability Act. The U.S. Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) applies to spills or releases of hazardous substances other than petroleum or petroleum products, whether on land or at sea.



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CERCLA imposes joint and several liability, without regard to fault, on the owner or operator of a ship, vehicle or facility from which there has been a release, and on other specified parties. Liability under CERCLA is generally limited to the greater of $300 per gross ton or $0.5 million per vessel carrying non-hazardous substances ($5.0 million for vessels carrying hazardous substances), unless the incident is caused by gross negligence, willful misconduct or a violation of certain regulations, in which case liability is unlimited.

U.S. Clean Water Act: The U.S. Clean Water Act of 1972 (“CWA”) prohibits the discharge of oil or hazardous substances in navigable waters and imposes strict liability in the form of penalties for any unauthorized discharges. The CWA also imposes substantial liability for the costs of removal, remediation and damages and complements the remedies available under OPA 90. Under U.S. Environmental Protection Agency (“EPA”) regulations, vessels must obtain CWA permits for the discharge of ballast water and other substances incidental to normal operation in U.S. territorial or inland waters. Commercial vessels greater than 79 feet in length are required to obtain coverage under the National Pollutant Discharge Elimination System (“NPDES”) Vessel General Permit (the “VGP”) to discharge ballast water and other wastewater into U.S. waters by submitting a Notice of Intent (a “NOI”). The VGP requires vessel owners and operators to comply with a range of best management practices and reporting and other requirements for a number of incidental discharge types and incorporates current U.S. Coast Guard requirements for ballast water management, as well as supplemental ballast water requirements. The EPA finalized the 2013 VGP in March 2013 which became effective in December 2013 and then expired on December 18, 2018 (although its provisions remain in force, as described below). The 2013 VGP included ballast water numeric discharge limits and best management practices for certain discharges. 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.

On December 4, 2018, the Vessel Incident Discharge Act (“VIDA”) was signed into law establishing a new framework for the regulation of vessel incidental discharges under the CWA. VIDA requires the EPA to develop performance standards for those discharges within two years of enactment and requires the U.S. Coast Guard to develop implementation, compliance, and enforcement regulations within two years of EPA’s promulgation of standards. Under VIDA, all provisions of the 2013 VGP will remain in force and effect until the U.S. Coast Guard regulations are finalized.

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.

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



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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 in respect of sulfur content of fuels. Both ECAs will be 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. On January 1 2019 the Baltic Sea and North Sea ECAs were extended to cover NOx. Regulation 13 of MARPOL Annex VI requires engines with a power output of more than 130kw installed or replaced on or after January 1 2021 to be Tier III certified if operated in the Baltic Sea and North Sea NCAs. (There is an exemption to the Tier III requirement to allow ships fitted with dual-fuel engines or only Tier II engines to be built, converted, repaired or maintained at shipyards located inside NOx ECAs.) Regulation 18.5 MARPOL Annex VI requires ships of 400GT and above to have on board a Bunker Delivery Note (BDN) which records details (as set on in Appendix V) of fuel oil delivered and used on board for combustion purposes. The BDN now includes a selection box obliging the purchaser to obtain a notification from the purchaser that fuel is intended to be used in compliance with MARPOL, if the fuel supplied exceeds the 0.5% sulfur limit.

HNS Convention. Our vessels also may become subject to the International Convention on Liability and Compensation for Damage in Connection with the Carriage of Hazardous and Noxious Substances by Sea, 1996 as amended by the Protocol to the HNS Convention, adopted in April 2010 (“HNS Convention”) if it is entered into force. The HNS Convention creates a regime of liability and compensation for damage from hazardous and noxious substances (“HNS”), including a two-tier system of compensation composed of compulsory insurance taken out by shipowners and HNS Fund which comes into play when the insurance is insufficient to satisfy a claim or does not cover the incident. To date, the HNS Convention has not been ratified by a sufficient number of countries to enter into force.

The Maritime Labour Convention. The International Labour Organization’s Maritime Labour Convention was adopted in 2006 (“MLC 2006”). The basic aims of the MLC 2006 are to ensure comprehensive worldwide protection of the rights of seafarers (the MLC 2006 is sometimes called the Seafarers’ Bill of Rights) and, to establish a level playing field for countries and ship owners committed to providing decent working and living conditions for seafarers, protecting them from unfair competition on the part of substandard ships. The MLC 2006 was ratified on August 20, 2012, and all our vessels were certified by August 2013, as required. The MLC 2006 requirements have not had, and we do not expect that the MLC 2006 requirements will have, a material effect on our operations.

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 2001 (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



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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 in 2002 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 E.U. has also adopted legislation that (1) requires member states to refuse access to their ports by certain substandard vessels, according to vessel type, flag and number of previous detentions; (2) obliges member states to inspect at least 25.0% of vessels using their ports annually and increase surveillance of vessels posing a high risk to maritime safety or the marine environment; (3) provides the E.U. with greater authority and control over classification societies, including the ability to seek to suspend or revoke the authority of negligent societies; and (4) requires member states to impose criminal sanctions for certain pollution events, such as the unauthorized discharge of tank washings. It is also considering legislation that will affect the operation of vessels and the liability of owners for oil pollution.

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. By April 30, 2019, all ships above 5,000 GT, regardless of flag, calling at EU ports must submit a verified emissions report to the European Commission and the vessel’s flag state. From June 30 2019 vessels must carry a valid Document of Compliance (DOC) confirming compliance with EU Regulation 2015/757 for the relevant reporting period. This DOC must be made available for inspection at EU ports. 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 environment and ensuring the sound management of hazardous waste. The Regulation entered into force on



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November 20, 2013, and anticipates the international ratification of the Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships 2009 (“Hong Kong Convention”). The Hong Kong Convention will enter into force 24 months after the following conditions are met: (1) not less than 15 States have concluded this Convention, (2) the combined merchant fleets of the States Parties constitute not less than 40 percent of the gross tonnage of the world’s merchant shipping, and (3) the combined maximum annual ship recycling volume of the States Parties during the preceding 10 years constitutes not less than 3% of the gross tonnage of the combined merchant shipping of the States Parties. The Hong Kong Convention has not yet been adopted by the necessary number of member states, but after Japan’s recent adoption, the current member states represent approximately 23.16% of the gross tonnage of the world’s merchant tonnage. 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 $6,263,488 plus approximately $876 for each additional gross ton over 5,000. For vessels of over 140,000 gross tons, liability is limited to approximately $124,672,576. As the Convention calculates liability in terms of IMF Special Drawing Rights, these figures are based on currency exchange rates on April 2, 2019. 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



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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 list of approved equipment can be found on the Coast Guard Maritime Information Exchange (CGMIX) web page. As of February 2019, there are 16 approved treatment systems which have obtained USCG type approval and 10 are under review. Several U.S. states, such as California, have also adopted more stringent legislation or regulations relating to the permitting and management of ballast water discharges compared to EPA regulations.

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 have to carry an approved Ballast Water Management Plan and a Ballast Water Record Book, and all ships of 400 gross tonnes and above have 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. Ships constructed before September 8, 2017 are required to comply at the first IOPP renewal survey on or after September 8, 2019. All ships must have installed a ballast water treatment system by September 8, 2024. 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. The IMO adopted the SOLAS Convention and the LL, which impose a variety of standards that regulate the design and operational features of ships. The IMO periodically revises the SOLAS Convention and LL standards. SOLAS in its successive forms is generally regarded as the most important of all international maritime laws concerning the safety of merchant ships. Certain SOLAS Convention amendments entered into force as of January 1, 2014 and addressed a range of issues including regulations regarding the carriage of dangerous goods and safe manning levels. The IMO has also adopted the STCW. As of 2018 all seafarers are required to meet the STCW standards and be fully certified in accordance with the revised STCW amendments. Flag states that have ratified SOLAS and STCW generally employ the classification societies, which have incorporated SOLAS and STCW requirements into their class rules, to undertake surveys to confirm compliance. The Polar Code brings with it numerous requirements and necessities for all ships trading in the polar regions and



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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.

Greenhouse Gases (“GHG”). In February 2005, the Kyoto Protocol to the United Nations Framework Convention on Climate Change entered into force. Although the Kyoto Protocol requires adopting countries to implement national programs to reduce emissions of greenhouse gases, emissions of greenhouse gases from international shipping are not subject to the Kyoto Protocol. No new treaty was adopted at the United Nations’ climate change conference in Cancun in December 2010. The Kyoto Protocol was extended to 2020 at the 2012 United Nations Climate Change Conference, with the hope that a new treaty would be adopted in 2015 to come into effect in 2020. There is pressure to include shipping in any new treaty. We refer to the discussion above of the regulation of greenhouse gas emissions from ocean-going vessels under the CAA and EU greenhouse gas emissions strategy. The IMO, the EU or individual countries in which we operate could pass climate control legislation or implement other regulatory initiatives to control greenhouse gas emissions from vessels that could require us to make significant financial expenditures or otherwise limit our operations. Even in 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. From January 1 2019 the Air Pollution Control (Fuel for Vessels) Regulation requires all vessels (fitted with scrubbers), irrespective of whether they are sailing or berthing, to use fuel containing 0.5% Sulphur content or less or any other fuel approved by the Director of Environment Protection.

From January 1, 2019 vessels must switch to fuel with a sulfur content not exceeding 0.5% prior to entering China’s territorial sea. From July 1, 2019 vessels other than tankers capable of receiving shore power must use shore power whilst in China’s coastal and inland ECAs (if berthing for more than 3 hours and 2 hours respectively). From January 1 2020 vessels entering Inland ECAs (Yangtze River and Xi Jiang River) must use fuel with a sulfur content not exceeding 0.1% while operating within the Inland ECA. From January 1 2022 vessels must use fuel with a sulfur content not exceeding 0.10% while operating within the Hainan Coastal ECA. Ships of over 400 GT or more calling at a port in China should report energy consumption data of last voyage to China MSA before leaving a port.

From January 1 2019 ships not fitted with scrubbers are required to burn fuel with a sulfur content not exceeding 0.5% when entering Taiwan’s international commercial port areas.

In December 2015, representatives of 195 countries met at the Paris Climate Conference (“COP 21”) and adopted a universal and legally binding climate deal commonly known as the Paris Agreement. The Paris Agreement contemplates commitments from each nation party thereto to take action to reduce greenhouse gas emissions and limit increases in global temperatures but did not include any restrictions or other measures specific to shipping emissions. 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.



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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 4, 2019, 185 of the 197 countries who were party to the COP 21 have ratified it. On June 1, 2017, the U.S. President announced that the United States intends to withdraw from the Paris Agreement. The timing and effect of such action has yet to be determined, but the Paris Agreement provides for a four-year exit process. 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.

In April 2018 the IMO’s MEPC adopted an initial strategy on the reduction of greenhouse gas (GHG) emissions from ships. The Initial Strategy aims to reduce the total GHG emissions from ships (total as at 2008) by at least 50% by 2050, while at the same time pursuing efforts towards phasing them out entirely. A Follow Up Program has been agreed, is intended to act as a three-stage planning tool in meeting the timelines identified in the Initial Strategy. As referenced above, from January 1 2019, amendments to Regulation 22A of chapter 4 of MARPOL Annex VI requires ships of 5,000 GT and above to collect consumption date for each type of fuel oil they use.

On June 29, 2017, the Global Industry Alliance (the “GIA”) was officially inaugurated. The GIA is a program, under the Global Environmental Facility-United Nations Development Program-IMO project, which supports shipping, and related industries, as they move towards a low carbon future. The GIA includes 18 members including, but not limited to, shipowners, operators, classification societies, and oil companies. In March 2019 the GIA Taskforce formalized the extension of the GIA until December 31, 2019.

Recent action by the IMO’s Maritime Safety Committee and U.S. agencies indicate that cybersecurity regulations for the maritime industry are likely to be further developed in the near future in an attempt to combat cybersecurity threats. For example, cyber-risk management systems must be incorporated by ship owners and managers by 2021. This might cause companies to cultivate additional procedures for monitoring cybersecurity, which could require additional expenses and/or capital expenditures. However, the impact of such regulations is hard to predict at this time.

Vessel Recycling Regulations: The EU has also recently adopted a regulation that seeks to facilitate the ratification of the IMO Recycling Convention and sets forth rules relating to vessel recycling and management of hazardous materials on vessels. In addition to new requirements for the recycling of vessels, the new regulation contains rules for the control and proper management of hazardous materials on vessels and prohibits or restricts the installation or use of certain hazardous materials on vessels. The new regulation applies to vessels flying the flag of an EU member state and certain of its provisions apply to vessels flying the flag of a third country calling at a port or anchorage of a member state. For example, when calling at a port or anchorage of a member state, a vessel flying the flag of a third country will be required, among other things, to have on board an inventory of hazardous materials that complies with the requirements of the new regulation and the vessel must be able to submit to the relevant authorities of that member state a copy of a statement of compliance issued by the relevant authorities of the country of the vessel’s flag verifying the inventory. The new regulation will take effect on non-EU-flagged vessels calling on EU ports of call beginning on December 31, 2020.

Trading Restrictions: The Company is aware of the restrictions applicable to it on trading with Crimea, Cuba, Iran, North Korea and Syria and, in prior periods, Sudan 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 Crimean, Cuban, Iranian, North Korean, 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.



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Between January 1, 2017 and April 2, 2019, the Company’s vessels made 5,087 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. No US companies or US Dollar payments are involved in any 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.

The Company is also aware of the less onerous restrictions on trading with other countries, including but not limited to Russia and Venezuela. It has complied with those restrictions and intends to continue to so comply in all respects.

Classification and inspection

The vessels in the fleet have been certified as being “in class” by their respective classification societies: Bureau Veritas (BV), Det Norske Veritas- Germanischer Lloyd (DNV-GL), American Bureau of Shipping (ABS), Lloyd’s Register (LR) and Nippon Kaiji Kyokai (NKK). 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 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:






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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 $9.8 million in 2018. By placing our insurance through Argosy, we believe that we achieve cost savings over the premiums we would otherwise pay to third party insurers.

Our subsidiaries are indemnified for legal liabilities incurred while operating our vessels by protection and indemnity insurance that we maintain through their membership in a P&I club. This protection and indemnity insurance covers legal liabilities and other related expenses of injury or death of crew members and other third parties, loss or damage to cargo, claims arising from collisions with other vessels, damage to other third-party property and pollution arising from oil or other substances, including wreck removal. The object of P&I clubs is to provide mutual insurance against liability to third parties incurred by P&I club members in connection with the operation of their vessels “entered into” the P&I club in accordance with and subject to the rules of the P&I club and the individual member’s terms of participation. A member’s individual P&I club premium is typically based on the aggregate 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 acceleration in the firming of rates. In addition, there has been a withdrawal of insurers from the marine space leading to a reduction of choice within the market. In the six months from September 1, 2018, there were several major marine incidents with claims exceeding $100 million, with total claims likely to



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exceed $1.5 billion. 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, 2019 saw a reduction in costs of 2.4% partly due to reduced costs of the International Group’s reinsurance programme and partly due to the Company’s own record. At March 31, 2019, 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, 2019. 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.

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 April 2, 2019, individually and in the aggregate, was not material to us.



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Item 4A.

Unresolved Staff Comments



Item 5.

Operating and Financial Review and Prospects

Company Overview

As of April 2, 2019, the fleet consisted of 64 double-hull vessels with an average age of 8.5 years, comprising of 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 DP2 shuttle tankers), seventeen aframaxes, three aframax LR2s, eleven panamax LR1s, six handymax tankers, seven handysize tankers and two LNG carriers. All vessels are owned by our subsidiaries, other than two suezmax tankers which are bareboat 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—2018

The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and the notes to those statements included elsewhere in this Annual Report. This discussion includes forward-looking statements that involve risks and uncertainties. As a result of many factors, such as those set forth under “Risk Factors” and elsewhere in this Annual Report our actual results may differ materially from those anticipated in these forward-looking statements.

The decision towards the end of 2017 to cut oil production to support oil prices, primarily by OPEC countries and a number of non-OPEC nations, had a negative impact on tanker markets in the early part of 2018, especially as most producers unexpectedly adhered closely to the designated export quotas. Nose-diving Venezuelan production exacerbated the situation. U.S. sanctions on Iran increased the chances that the market would be squeezed further. The positive effect of tight supplies was that the oil market eventually returned to an effectively balanced state. However, a balanced global oil market was not necessarily in line with every nation’s export strategy. In particular, exports from the U.S. doubled from earlier forecasts, removing concerns that tankers might be starved of adequate cargoes at a time when consumer demand was relatively buoyant.

However, concerns regarding global fleet over capacity were very real and continued to suppress rates throughout most of 2018, contributing to the worst year in terms of rates for several years, at least until the third quarter when there were signs that some level of recovery was returning due to increasing demand from refiners in India and China for U.S. crude and from the Middle East, and record OPEC and Russian production, ahead of new production cuts. Apart from growing U.S. production, it was also gratifying for the tanker industry to see more exports from Libya and Nigeria, while waivers from the U.S. government to customers of Iran also added to the injection of crude oil into the overall market. The availability of crude oil supplies and the deceleration of delivery of new tankers in 2018 finally contributed to a recovery in rates, culminating in a more impressive fourth quarter in terms of rates achieved compared to the first nine-months of the year.

Crude oil prices (Brent) continued to move upwards in early 2018 reaching, by early October, levels at over $85 per barrel, not seen for nearly four years, confirming that the 2017 producer cuts had achieved their purpose



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of re-balancing the oil market. At the very end of the year, the price fell dramatically towards $50, then in the new year started to rise again reaching $70 by the beginning of April 2019 with current predictions for the remainder of the year, to trade in the $60-70 range.

It is expected that towards the end of 2019 and moving into 2020, there will be some difficulties in adjusting to the new regulatory environment in respect of the appropriate bunker fuel required by vessels and the availability and quality of that fuel. Fortunately, the availability of crude oil from which to produce the required bunker fuels is likely to be more secure due to U.S. export strategy and the low sulphur quality of U.S. shale oil, which when refined yields more sulphur compliant bunker fuel and equally likely to offset any new attempts by OPEC to reset the price of oil by imposing new cuts. Either way, it is possible that the price struggle could lead to newer and longer routes to the benefit of tanker owners of both crude and product carriers. Possibly more significant for tanker owners, is that the number of new competing tankers will be reduced due to fewer new deliveries, high scrapping in 2018, and vessels out of service due to upgrading to meet the new regulations, or not being able to secure the appropriate bunker fuel at the required time and place.

While the outlook for crude and product carrying tankers looks promising based on supply and demand fundamentals, there remains a significant threat to the industry, and indeed the world economy, in the form of a trade war, especially between the U.S. and China, which could possibly have severe effects on the growth of the world economy. China’s production and exports have already fallen in the first quarter of 2019, although much of this is due to an intentional state-induced brake on growth. Japan also is experiencing lower growth. There are, however, positive indications that, given that the pain from falling exports is suffered by both sides, a compromise may be reached in the near future that will at least narrow the breach between the U.S. and China on trade issues.

If differences are not addressed, the consequences to world trade and growth could worsen, which in turn may hit forecasts for world oil demand and global oil supply, possibly depressing future expectations, which in turn will damage tanker prospects in the longer term. More comforting is that the U.S. economy has been strong thanks to fiscal initiatives and looks to remain strong for the foreseeable future, while Europe, apart from Italy, also continues a slow but sure recovery from its problems over the recent past.

The consequences of Brexit, especially without a deal, remain to be seen, with diverging views on the outcome, ranging from near disaster for the British economy to a new era of prosperity for the U.K. The possible real consequences are unlikely to be known until many months are passed. It is not expected that in the event of the United Kingdom leaving the European Union that such event will have any material impact on the tanker sector and even less so on our operations, even without an agreed new treaty between the U.K. and the E.U., given that there is no significant transportation of crude oil, petroleum products and LNG between the two.

A positive, but uncertain, sign for tanker owners in a capital-intensive industry is that short-term interest rate increases may slow down in 2019, possibly even falling moderately, which will give owners some respite as the new regulations oblige owners to dig deep into their pockets to pay for new equipment and vessel upgrades. However, the opposite in terms of interest rates may equally occur and longer-term rates increase with a negative impact on future investments in fleet renewal.

Our fleet achieved voyage revenues of $529.9 million in 2018, an increase of 0.1% from $529.2 million in 2017. The average size of our fleet increased in 2018 to 64.3 vessels from 62.6 vessels in 2017, and fleet utilization was 96.2% during 2018, compared to a 96.7% utilization during 2017. The market remained weak in 2018 mainly due to overcapacity in the global fleet, oil production cuts and refinery outages. However, consumer demand remained relatively strong. Our average daily time charter rate per vessel, after deducting voyage expenses, decreased to $18,226 in 2018 from $18,931 in 2017, mainly due to the difficult freight market. Operating expenses increased by 4.5% to $181.7 million in 2018 from $173.9 million in 2017 due to the addition of new vessels during 2017 which were fully operational throughout 2018.



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Depreciation and amortization totaled $146.8 million in 2018 compared to $139.0 million in 2017 due to the addition of new vessels. General and administrative expenses which include management fees and incentive awards were $27.0 million in 2018 and $26.3 million in 2017, the increase mainly due to increased management fees and other general and administrative expenses.

In 2018, the review of the carrying amounts in connection with the estimated recoverable amount for certain of the Company’s vessels as of December 31, 2018 indicated the need for a $66.0 million impairment charge. There was an operating loss of $28.1 million in 2018 compared to a gain of $63.5 million in 2017. One vessel was sold during 2018, resulting in a loss on sale of vessel of $0.4 million. Two vessels were sold at the end of 2017, resulting in a loss on sale of vessels of $3.9 million. Interest and finance costs, net increased by 35.1% in 2018 to $76.8 million, mainly due to higher interest rates. Net loss attributable to the Company was $99.2 million in 2018 compared to net income of $7.6 million in 2017. The effect of preferred dividends in 2018 was $33.8 million compared to $23.8 million in 2017. Net loss per share (basic and diluted) was $1.53 in 2018, including the effect of preferred dividends, based on 87.1 million weighted average shares outstanding (basic and diluted), compared to loss of $0.19 per share in 2017 based on 84.7 million weighted average shares outstanding (basic and diluted).

Some of the more significant developments for the Company during 2018 were:



the raising of $144.3 million net of underwriters’ discount and other expenses, with the issuance of 6.0 million Series F Cumulative Redeemable Perpetual Preferred Shares;



the sale of the VLCC Millennium;



the dry-docking of Eurovision, Maya, Inca, Brasil 2014, Socrates, Selecao, Andes, Maria Princess and Nippon Princess 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 $10.6 million in aggregate;



the payment to holders of Series F preferred shares of dividends totaling $4.8 million in aggregate; and



dividends to holders of common shares totaling $0.15 per share with total cash paid out amounting to $13.1 million.

The Company operated the following types of vessels during and at the end of 2018:


Vessel Type

    VLCC     Suezmax     Suezmax DP2
    Aframax     Panamax     Handymax

Average number of vessels

    2.0       2.3       13.0       3.0       20.0       11.0       6.0       7.0       64.3  

Number of vessels at end of year

    2.0       2.0       13.0       3.0       20.0       11.0       6.0       7.0       64.0  

Dwt at end of year (in thousands)

    178.9       600.0       2,098.9       468.4       2,213.1       799.1       318.5       260.2       6,937.1  

Percentage of total fleet (by dwt at year end)

    2.6     8.6     30.3     6.8     31.9     11.5     4.6     3.7     100.0

Average age, in years, at end of year

    6.9       2.3       10.6       4.4       6.6       10.1       13.5       12.2       8.2  

We believe that the key factors which determined our financial performance in 2018, 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;



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



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 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;



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 2019 and into 2020. 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



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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”. Where one of our subsidiaries’ vessel may also operate 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 2018, 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”).

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 48 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 from Contracts with Customers. On January 1, 2018, we adopted ASC 606 – Revenue from Contracts with Customers, using the modified retrospective method. The effect of the adoption of the new accounting standard resulted in a cumulative adjustment of $1,311 in the opening balance of the retained earnings for the fiscal year 2018, as a result of the change in the recognition method of revenues related to voyage charters and their fulfillment costs. The prior period comparative information has not been restated and continues to be reported under the accounting guidance in effect for those periods. The adoption of the new standard has changed the method of recognizing revenue over time for voyage charters from the discharge-to-discharge method to the loading-to-discharge method. Under the loading-to-discharge method the commencement date of each voyage charter shall be deemed to be upon the loading of the current cargo, decreasing the period of time for recognizing revenue for voyages.



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Accounting for Revenue and Related Expenses. 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 generated under voyage charter agreements are recognized ratably from the date of loading (Notice of Readiness to the charterer, that the vessel is available for loading) to discharge of cargo (loading-to-discharge) 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. Voyage expenses that qualify as contract fulfillment costs and are incurred by the Company from the latter of the end of the previous vessel employment, provided that the vessel is fixed, or from the date of inception of a voyage charter contract until the arrival at the loading port, are capitalized and amortized ratably over the total transit time of the voyage (loading-to-discharge). Vessel voyage expenses that do not qualify as contract fulfillment costs, 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 profit sharing 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 $390 per lightweight ton since October 1, 2012. Our estimate was based on the average demolition prices prevailing in the market during the previous ten years for which historical data were available. Since then, management has monitored scrap values, which have risen to $500 per lwt and fallen to as low as $250 per lwt in 2016, and climbed again to $450 per lwt in 2018. Given the historical volatility of scrap prices, management will continue to monitor prices going forward and where a distinctive trend is observed over a given length of time, management may consider revising the scrap price accordingly. In assessing the useful lives of vessels, we have adopted the industry-wide accepted practice of assuming a vessel has a useful life of 25 years (40 years for the LNG carriers), given that all classification society rules have been adhered to concerning survey certification and statutory regulations are followed.

Impairment. The carrying value of the 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 and vessels under construction 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 8.5 years as of April 2, 2019. The average remaining operational life is, therefore, 16.5 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, other than for the five vessels with respect to which the Company recorded an impairment charge in 2018. 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



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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 2018 average per individual vessel and vessel type 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. In addition, the Company for additional comfort performs sensitivity analyses on the key parameters of the exercise by making use of publicly available market forecasts. 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 current economic conditions stall 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.

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, 2018 and 2017, 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 impairment results would be the following:


     As of December 31, 2018      As of December 31, 2017  
     Number of
     Amount (U.S.$
     Number of
     Amount (U.S.$

5-year historical average rate

     0        0        3        43.2  

3-year historical average rate

     1        14.5        0        0  

1-year historical average rate

     23        371.8        23        349.4  



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Number of vessels the carrying value of which would not have been recovered, other than the five vessels for which we recorded an impairment as of December 31, 2018.


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. Charter rates remained relatively low during most of 2017 and 2018. Although charter rates markedly increased in late 2018, they began to decline again in early 2019 to relatively low levels and are likely to remain at low levels through the first half of 2019, which may have an adverse effect on our revenue and profitability, and future assessments of vessel impairment.

At December 31, 2018, our review of the carrying amounts of the vessels, including advances for vessels under construction in connection with the estimated recoverable amount did not indicate an impairment of their carrying values, apart from one suexmax crude carrier, two panamaxes and two handysizes, plus an advance for a construction later abandoned. For those vessels the Company concluded that an impairment charge of $66.0 million was required 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 $8.9 million was recorded in 2017 for two vessels.

At December 31, 2018, 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 $2.2 billion, compared to a total carrying value of $2.9 billion, following the impairment charge. 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 59 vessels in our fleet, whose carrying values exceeded their market values. As determined at December 31, 2018, the aggregate carrying value of these vessels was $2.6 billion, and the aggregate market value of these vessels was $1.9 billion. These vessels were:



LNG: Neo Energy, Maria Energy



VLCC: Ulysses, Hercules I



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



Aframax: Proteas, Promitheas, Propontis, Izumo Princess, Sakura Princess, Maria Princess, Nippon Princess, Ise Princess, Asahi Princess, Sapporo Princess, Uraga Princess, Elias Tsakos, Thomas Zafiras, Leontios H, Parthenon TS, 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.



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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. 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 contracts of affreightment are recognized from the date of loading (Notice of Readiness to the charterer, that the vessel is available for loading) to discharge date of cargo (loading-to-discharge). 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 profit sharing arrangements are accounted for as a variable consideration and included in the transaction price to the extent that variable amounts earned beyond an agreed fixed minimum hire are determinable at the reporting date and when there is no uncertainty associated with the variable consideration. Profit sharing revenues are calculated at an agreed percentage of the excess of the charter’s average daily income over an agreed amount. Unearned revenue represents cash received prior to the year-end for which related service has not been provided, primarily relating to charter hire paid in advance to be earned over the applicable charter period.

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 (on a loading to discharge basis) 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



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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. Commissions are expensed as incurred.

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. Voyage expenses that qualify as contract fulfillment costs and are incurred from the latter of the end of the previous vessel employment, provided that the vessel is fixed, or from the date of inception of a voyage charter contract until the arrival at the loading port, are capitalized and amortized ratably over the total transit time of the voyage (loading-to-discharge) when the relevant criteria under ASC 340-40 are met.

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, spares, stores and lubricant costs. All vessel operating expenses are expensed as incurred.

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 and for advances for vessels under construction should be recognized when indicators of impairment exist and when the estimate of undiscounted cash flows expected to be generated by the use of the asset is less than its carrying amount (the vessel’s net book value plus any unamortized deferred dry-docking charges). Measurement of the impairment loss is based on the fair value of the asset as determined by reference to available market data and considering valuations provided by third parties. An impairment loss for an asset held for sale is recognized when its fair value less cost to sell is lower than its carrying value at the date it meets the held for sale criteria. In this respect, management reviews regularly the carrying amount of the vessels in connection with the estimated recoverable amount for each of the Company’s vessels. As a result of such reviews, it was determined that an impairment charge was required in 2018 for five vessels, Byzantion, Bosporos, Selini, Salamina, Silia T and for an advance for construction (later abandoned) and in 2017 for the two oldest vessels in the fleet, Millennium and Silia T. There was no impairment charge in 2016.

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 2019, no increase has been agreed by March 31, 2019 and monthly vessel management fees remain the same as in 2018, 2017 and 2016. Accordingly, monthly fees for operating vessels will be $27,500 per owned vessel and $20,400 for chartered-in



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vessels or vessels chartered out on a bareboat basis or under construction. The monthly fee for the LNG carriers will be $36,877 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 2018 policy year, we received approximately $2.7 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, 2018 versus year ended December 31, 2017

Voyage revenues

Voyage revenues earned in 2018 and 2017 per charter category were as follows:


     2018     2017  
     U.S. $ million      % of total     U.S. $ million      % of total  

Time charter-bareboat

     —          0     3.8        1

Time charter-fixed rate

     236.6        45     222.1        42

Time charter-variable rate (profit share)

     108.5        20     106.7        20

Voyage charter-contract of affreightment

     40.7        8     38.5        7

Voyage charter-spot market

     144.1        27     158.1        30













Total voyage revenue

     529.9        100     529.2        100













Revenue from vessels amounted to $529.9 million during the year ended December 31, 2018 compared to $529.2 million during 2017, a 0.1% increase mainly due to the upturn of the market during the fourth quarter of 2018. There was an average of 64.3 vessels operating in 2018 compared to an average of 62.6 vessels in 2017, the increase relates to the delivery of the final two vessels of the recent newbuilding program in July and October 2017, respectively, which were fully operational during 2018. The increase was partially offset by the sale of the VLCC vessel Millennium in April 2018. Based on the total days that the vessels were actually employed as a percentage of the days that we owned or chartered-in the vessels, the fleet enjoyed 96.2% employment in 2018 compared to 96.7% in 2017, the lost time being mainly due to dry-dockings and long-haul repositioning voyages.

Market conditions for tankers remained weak during the first nine months of 2018, with the market recovering during the fourth quarter of 2018. Production and export cuts by leading suppliers (notably OPEC countries), in addition to U.S. re-imposition of sanctions against Iran and the economic crisis in Venezuela, led to rate volatility as the tanker market underwent a cyclical low during 2018. There was significant improvement in the market rate environment in the fourth quarter of 2018, mainly due to increased oil demand as a result of lower oil prices and adequate oil supplies, particularly from U.S. exports positively affecting market rates. The Company was well positioned during the market upturn to take advantage of the strong freight rates.



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The average time charter equivalent rate per vessel achieved for the year 2018 was $18,226 per day, down 3.7% from $18,931 per day in 2017. In 2018, our suezmax tankers suffered an average fall of 11% in average time charter equivalent rates from the previous year, mainly due to lower minimum rates on the renewal of time charters with profit sharing arrangements. The decrease in TCE rates for the conventional tankers was partially offset by the two LNG carriers, as average time charter equivalent rates for these vessels increased by 25% for the year ended December 31, 2018 compared to the corresponding period of 2017, due to time charters’ renewal with higher rates. Approximately 71% of the fleet was operating on time-charters. The revenue generated by vessels on time charters alone was enough to cover all cash expenditure relating to operating costs, commissions, finance costs and overhead costs of the whole fleet. Our panamax tankers, which were trading mostly on spot and on time charters with profit sharing arrangements, earned an average time charter equivalent rate 19% lower than in 2017.

Average daily TCE rates earned for the years ended December 31, 2018 and 2017 were:


     Year ended
December 31,
     2018      2017  
     U.S. $      U.S. $  

LNG carrier

     29,491        23,641  


     26,139        26,490  


     17,228        19,296  

DP2 shuttle

     49,401        49,654  


     18,926        18,818  


     12,896        15,932  


     12,883        14,223  


     10,706        10,909  

TCE is calculated by taking voyage revenue less voyage costs divided by the number of revenue days less 378 days lost as a result of calculating revenue on a loading to discharge basis for the year ended December 31, 2018. The change in the calculation of days is due to the adoption of the new revenue recognition standard. Time charter equivalent revenue and TCE rate are not measures of financial performance under U.S. GAAP and may not be comparable to similarly titled measures of other companies. However, TCE is a standard shipping industry performance measure used primarily to compare period-to-period changes in shipping performance despite changes in the mix of charter types (i.e. spot voyage charters, time charters and bare-boat charters) under which the vessels may be employed between the periods. The following table reflects the calculation of our TCE rates for the periods presented (amount in thousands of U.S. dollars, except for TCE rate, which is expressed in U.S. dollars, and operating days):


    Year ended December 31,  
    2018     2017  

Voyage revenues

  $ 529,879     $ 529,182  

Less: Voyage expenses

    (125,350     (113,403

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

    —         2,500  

Time charter equivalent revenues

  $ 404,529     $ 418,279  

Divided by: net earnings (operating) days

    22,195       22,095  







Average TCE per vessel per day

  $ 18,226     $ 18,931  



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Voyage expenses


     Total voyage expenses
per category
    Total voyage expenses
per category
     Year ended
December 31,
     %  increase/
    Year ended
December 31,
     %  increase/
     2018      2017            2018      2017         
     U.S.$ million      U.S.$ million            U.S.$      U.S.$         

Bunkering expenses

     70.2        56.2        24.8     10,780        8,483        27.1

Port and other expenses

     36.4        37.2        (2.2 )%      5,587        5,606        (0.4 )% 


     18.8        20.0        (5.9 )%      2,892        3,018        (4.2 )% 













Total voyage expenses

     125.4        113.4        10.5     19,259        17,107        12.6













Days on spot and Contract of Affreightment (COA) employment

             6,509        6,629        (1.8 )% 













Voyage expenses include port charges, agents’ fees, canal dues, commissions 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 $125.4 million during 2018 compared to $113.4 million in 2017, a 10.5% increase. The total operating days on spot charters and contracts of affreightment totaled 6,509 days in 2018, and 6,629 days in 2017, a 1.8% 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 constitute 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. While oil prices recovered during 2017, both crude oil and global bunker prices surged in 2018, with the price of Brent increasing on average 30.9% between the two years, although a sharp fall in oil and, consequently, bunker prices occurred at the end of the year. Overall, this resulted in a 34.8% increase in the average delivered price paid by the Company for the bunkers procured globally during 2018, and a 24.8% increase in the annual bunkering expenses of the fleet. Also, during 2018, there was a decrease of 2.2% 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 12.6% due mainly to the increase in price of oil.

Commissions in 2018 totaled $18.8 million compared to $20.0 million in 2017, a 5.9% decrease. Commissions were 3.6% of revenue from vessels in 2018 and 3.8% in 2017. The decrease in total commission charges relates mainly to time charter renewals for suezmax and handymax vessels with lower commission rates.



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Vessel operating expenses


     Operating expenses
per category
    Average daily operating
expenses per vessel
     2018      2017      %  increase/
    2018      2017      %  increase/
     U.S.$ million      U.S.$ million     U.S.$      U.S.$  

Crew expenses

     108.6        105.5        3.0     4,630        4,663        (0.7 )% 


     15.6        16.4        (4.9 )%      667        727        (8.3 )% 

Repairs and maintenance, and spares

     25.4        22.2        14.3     1,080        982        9.9 %  


     11.3        10.2        10.7     481        451        6.6


     7.3        7.1        2.9     310        313        (0.9 )% 

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

     13.5        11.4        19.1     577        502        15.3

Foreign currency losses

     0.0        1.1        (100.8 )%         50        (100.8 )% 







Total operating expenses

     181.7        173.9        4.5     7,745        7,688        0.7 %  

Earnings capacity days excluding vessel on bare-boat charter

             23,460        22,600     

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 $181.7 million in 2018, compared to $173.9 million during 2017, an increase of 4.5%, mainly due to the addition of the new aframax vessels which were acquired during 2017 and were fully operational throughout 2018.

Average operating expenses per ship per day for the fleet increased by 0.7% to $7,745 for 2018 from $7,688 in 2017, remaining relatively stable, despite the fact that the U.S. dollar weakened by approximately 4.6% over the course of 2018, impacting negatively the cost of stores, spares and services purchased in Europe. These increases were partially offset by reduced average daily vessel expenditure on insurances and lubricants as a result of cost-effective ship management by the technical managers.

Depreciation and Amortization

Depreciation and amortization charges totaled $146.8 million in 2018 compared to $139.0 million in 2017, a 5.6% increase.

Depreciation amounted to $137.0 million in 2018 compared to $131.9 million during 2017, an increase of $5.1 million, or 3.9%. The increase is due to the delivery of seven vessels to the fleet during 2017, which were fully operational throughout 2018 and is partially offset by the sale of VLCC vessel Millennium.

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 2018, amortization of deferred dry-docking costs was $9.8 million compared to $7.1 million in 2017. The specific increase relates mainly due to the dry-dock of the two DP2 shuttle tankers Rio 2016 and Brasil 2014, which required higher costs than conventional tankers.

General and administrative expenses

Management fees, including those paid to third-party managers, totaled $21.8 million during 2018, compared to $21.0 million in 2017, a 3.6% increase due to the increase of the average number of vessels for the year ended December 31, 2018 compared to 2017.

The Company pays Tsakos Energy Management fixed fees per vessel under a management agreement. The fee includes remuneration for services that cover both the management of the individual vessels and of the



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enterprise as a whole. According to the management agreement, there may be an adjustment to the fees based on certain criteria within the agreement, if both parties agree. There was no increase in management fees payable to the management company in 2018. During 2018, all the vessels in the fleet were 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 were 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 the LNG carriersNeo Energy and Maria Energy are $36,877 per month, of which $10,000 is payable to the management company and $26,877 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 $14,503 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 2018 totaled $5.1 million compared to $4.2 million in 2017, a 19.1% increase mainly due to increased consultant fees and new projects cost.

Total general and administrative expenses plus management fees paid to Tsakos Energy Management, any 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 remained at $1,152 for each of the years ended December 31, 2018 and 2017 respectively.

In October 2018, the Board of Directors approved an award of $0.2 million to the management company based on various performance criteria and taking into account cash availability and market volatility. A separate award of $0.8 million was made in 2018 to Tsakos Energy Management in relation to services provided towards a public offering in 2018, which was included as a deduction of additional paid in capital in the accompanying Consolidated Financial Statements. In June 2017, the management company was awarded with $0.6 million based on a decision made by the Board of Directors. An award of $0.6 million was also made 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 2018, the Company did not grant any stock compensation awards. 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.

Loss on sale of vessels

In April 2018, the VLCC Millennium was sold for net proceeds of $17.1 million, resulting in a net loss of $0.4 million. Two vessels, the suezmaxes Eurochampion 2004 and Euronike (both built in 2005), were sold in the fourth quarter of 2017, both 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. 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.



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Vessel impairment charge

During 2018, vessel values did not increase from those of 2017. As a result, 59 of our vessels had carrying values in excess of market values. Our fleet is for the most part young, wi