Nordic American Tanker Ltd Shareholders, Investors and Analysts Conference Call
Sep 25, 2012 AM EDT
NAT - Nordic American Tanker Ltd
Nordic American Tanker Ltd Shareholders, Investors and Analysts Conference Call
Sep 25, 2012 / 01:00PM GMT
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Corporate Participants
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* Herbjorn Hansson
Nordic American Tanker Ltd. - Chairman, President & CEO
* Turid Sorensen
Nordic American Tanker Ltd. - CFO
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Conference Call Participants
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* Jon Chappell
Evercore Partners - Analyst
* Ben Lerner
Third Avenue Management - Analyst
* David Beard
IBERIA Capital Partners - Analyst
* Sam Sekine
ALJ Capital - Analyst
* Herman Hildan
RS Platou Markets - Analyst
* Doug Smith
- Private Investor
* Blaine Hanks
Blaine Exploration Ltd. - Analyst
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Presentation
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Herbjorn Hansson, Nordic American Tanker Ltd. - Chairman, President & CEO [1]
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Good morning to you and good afternoon to you. My name is Herbjorn Hansson. I am Chairman and CEO of the New York Stock-listed Nordic American Tankers. It is a pleasure to be able to communicate with you and I am hopeful that we shall be having a fruitful discussion.
Let me as an introduction say that we have, as is normal in this kind of events, a legal disclaimer, which is on the web. Our discussion today may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. You are familiar with that, so therefore I suggest that we continue.
What I wish to do is to give a high-level overview of our Company -- who we are and what our objectives are. I will also comment on the way forward. I am together here with a number of colleagues, notably Turid Sorensen, our Deputy Managing Director and CFO, and other members of senior management. The plan is that I shall give a presentation based upon a number of slides that some of you may see and after that presentation, we shall be glad to respond to any question and comment that you may have.
I will go to the first slide with the heading Nordic American -- a different company. How it is our approach unique? A shipping company essentially consists of three elements. If you use the textbook economic sense of the word, we say that we are -- we have ships, we have people, and we have capital.
In order to have a meaningful assessment of this Company, it is essential that all these three elements are taken into account. We cannot exclusively focus on the ships. We cannot exclusively focus on the people, or we cannot exclusively focus on the capital. All of these three elements must be seen in context in order to undertake a meaningful assessment.
Our challenge, if you wish, has always been to provide for a differentiation situation for our Company. We are a different Company than all other stock-listed companies that we know of. Some dimensions associated with these differentiations are the people, the dividend policy, the strong balance sheet, the low G&A cost or general and administrative costs, and we have one type of ship.
The management together with me today have an average experience in the tanker business, energy business, and in the field of macroeconomics -- the average experience is 26 years, spread out across our senior management.
I will then go to the next slide with the heading, risk management. Risk management is a key in any business. Why is it the key? It is a key because it is essential to understand financial risk.
Why is it important to understand financial risk? That is because the financial risk is decisive for how long and the extent to which you stay in the business. If you judge financial risk wrongly, then you may end up against the wall.
When we talk about the financial crisis, the main reason for the financial crisis was that many people in the financial world and in particular on Wall Street and in other financial environments, they did not understand risk and they did not price risk correctly. To put it a little bit rigidly, in short, to have a proper framework for analyzing financial risk is vital for long-term growth, long-term survival and long-term prosperous development.
Let me go on to the next slide with the heading a sustainable business strategy in both strong and weak markets. The business strategy is based upon simplicity, transparency, and predictability. It is very, very easy to run a business when the markets are up, when the market is strong, when the sailing is smooth, when everything is fine. It doesn't require very much professional skill, insight, and experience to maneuver a ship when the sailing is smooth.
It is when the going gets rough, it is important that you do the right things and that you are able to withstand the pressures of the market. That is really the gist of Nordic American. We have a business strategy which is very good in strong markets, when money is pouring into the Company and we are doing fine in all possible respects. But we are also strong in a weak market. Over the last couple of years, we have seen that the relative position of Nordic American has improved materially compared with other stock-listed tanker companies. That has to do with our understanding and our moves when it comes to assessment of financial risk.
Let me go through the element of our business strategy. Number one is said here on the graph profitable expansion of the fleet. That may sound as a platitude but it is not. A company can over time go three ways -- it can go upwards; it can go sidewards; it can go downwards. A company that is going sidewards or downwards is essentially going downwards.
Let me give you an example. If the fleet over time increases from 10 ships to 20 ships, that is 100%, 100%. In the same period, if the share count increases from 10 million to 15 million shares, just as an example, that is 50%. It is indeed a no-brainer to see that each share is making more money cash-wise and result-wise in any market following such an expansion process provided the rates in the marketplace are above our cash breakeven, presently in the region of $11,000 or so.
The second element of our strategy is that we have a double hull homogeneous fleet. We have Suezmax ships only. A Suezmax ship can carry 1 million barrel of oil and we can extract important cost synergies for operating one type of ships. We have many, many sister vessels and it is much easier if you wish to operate 20 smaller Mercedeses than one Mercedes, one Volvo, one Chrysler and one BMW.
I can tell you we reckon that we may save about $500 a day when we have 20 more or less identical ships, 20 -- $500 a day per ship. That turns into $1.8 million per year direct on the bottom line for 10 ships and $3.6 million for 20 ships. If you have a multiple of 10, these $3.6 million translates into a value creation for shareholders of about $36 million.
The benefits of having a homogeneous fleet, a very versatile ship -- the Suezmax ship -- the benefits have not been commonly known. But it creates synergies. I can tell you, as an example, when it comes to classifications society we have still such synergies to be extracted from there. It is much easier for a classification society to class. You know the classification society decides on the technical framework for a ship. And it is much easier for them to class 20 identical ships than each ship of a different kind, for which reason they are able to quote better prices.
The same goes for flag. If you have one flag or maybe two flags, you know national flags, that also offer benefits. The cost synergies also come from operational costs such as insurance. For instance, we have very cheap insurance premiums here because of our good track record.
The third point is that all cash flow is distributed to shareholders. We have many shareholders and all cash coming in goes to shareholders. That has been a mainstay of our strategy. I may tell you at this time -- I take that on the next point.
Then the next point is to maintain a strong balance sheet, a strong balance sheet. We have a credit line which goes until September 2013 and we are now in constructive talks with the banks to prolong that credit line a number of years, at least I believe until 2016 or 2017 as the case may be. It should be noted that Nordic American Tankers is a preferred borrower. We see that in the marketplace that the banks are very sympathetic to the way this Company is operated and run.
I mentioned in my introduction the value of risk management and the need to have a strong balance sheet. We have seen the volatility of the markets both as regards rates and as regards values. And as indicated in the introduction, many of us has been in this business for a considerable period of time, having lived with tankers and energy and oil and macroeconomics. When it comes to me, I have been here for 39 years and my senior management group being together with me today on average had 26 years.
But we do understand a need to have a strong balance sheet. Next point which is very important for us, that is point number five -- interests are aligned, shareholders and management. Those of you have read our quarterly reports will see that we emphasize that. If rates are goods, shareholders make money; dividends are good; the situation is good for management.
If rates are down and the horizon is a little bit dark, then management doesn't make any significant money at all in addition to what we have as a normal salary. I should add here also that's to operate a company, the daily operations are from out of Norway most of it and some of it from southern France but it is quite inexpensive to operate from here compared with Fifth Avenue on Manhattan.
We had a low cash breakeven level, which is in the region of $11,000 a day. It is said below here in the graph; it should be right in the regional, but that is a detail. That has to do of course with the fact that we -- our financial charges are very low because we don't have installments to be made on our debt. Our loan is a so-called bullet loan that goes all the time and there are no installments on the loan.
Next part of our strategy is exposure due to spot market rates. We have analyzed the situation since the mid-1980s and we see a persistent pattern that spot trades over time -- I'm not talking about a 90-day period of the quarter, but spot rates over time are higher than the time charter rates.
We have the lowest or very low general and administrative costs in the industry in terms of dollar per day. I will explain to you just some features. We have no legal department in this group. We are members of something called the Northern Shipowners' Defence Club, where we pay a fee of about $8000 or $7,500 a year a ship and that is a so-called mutual club where there are 20 of the most outstanding maritime lawyers in the world.
If we unluckily enough -- and touch wood we very seldom are in such a situation -- but if we need legal advice, then we go to them and we use them for instance when we order new ships. When we reserve new ship with the yards, they help us with going through the contract and other legal work. Another dimension, we have no information department. Of course not. Why should we have inexpensive information department?
We communicate actively with shareholders. We are and the [the undersigned] has been several times, as you may know, it is about 28 times were so on American television in connection with our quarterly reports explaining about Nordic American Tankers.
We wish to communicate very, very effectively with our shareholders and we are very pleased to mention to you as you can see in our materials that we filed that we have with us on our Board the previous Managing Editor of Time Inc., Jim Kelly, who used to head up Time Inc., having the responsibility for 124 magazines in America and also having the responsibility overseeing 2000 journalist. Jim is going and doing a great job in helping us to professionalize our communication.
I mentioned the IT department. We of course have no IT department. We have an arrangement with a neighboring company staying only 500 yards away to us here on the spot, five minutes after if we have trouble. So these are just examples of how we go about it.
The last part of our strategy is leverage industry network. We have a large network within the ship-owning community, the ship-building community, the ship broker community, the shipping banks all over the world. I said to you and referred to the long experience this group has and we do capitalize on that.
We have an office in southern France. We have not a presence in London at this time; we used to have it. We travel extensively. I am going to the Far East just in 10 days' time or so. We go to America, almost our home country, very, very often, road showing, visiting investors, visiting shareholders, and visiting banks. You will see here that we have the name Nordic American. We are proud of that and we also have the American flag in our logo together with the Norwegian flag.
Let me go on to talk a little bit about return. On the next graph you see the historic dividend yield. We have paid dividends for 60 consecutive quarters, starting out in 1998, calculated and based upon information from Bloomberg. You will see that the average cash yield -- that is the cash distributed compared with the average stock price -- over the same period is about 12.9 years.
You will see that the -- at this time the yield is about 8.7% or 9% were thereabouts. But the dividend yield as such it does not necessarily reflect the return precisely. In order to assess that, you will have two calculate the so-called IRR, which is the compounded side of the business. We see that our bankers, they have found out that as from when we started out October 1997 and up to the September 21 this year, our IRR or unlevered IRR, if you wish, is 10.9%, which is far above the rest of the group, including other companies, and we are far above them. This IRR is an expression of the value creation capability of the Nordic American system.
Let me go one to the next one. We have demonstrated accretive growth. Accretive growth is key element of the strategy and the fleet is growing faster than the share count over time. I am not looking at a period of 90 days or a quarter, but I am looking over time. And you see, those of you who have the presentation in front of you, that earnings and operating cash flow per share are higher after an acquisition than before, provided that the level of the spot market is above our cash breakeven. That is absolutely central in understanding our strategy.
We come to the next slide, which where we have mentioned all our 20 ships and I am hopeful it will be more in due course. They are all -- most of them are sister ships built at top Far East yards. Most of them are built in Korea, 17 of them are built in Korea I believe and a few in China. I explained earlier that considerable cost benefits that we can extract from operating homogeneous fleet.
Let me then also before concluding, let me say a little bit about this Eco ships. It is said in the marketplace that in the future ships will be much more economical than the present ships. As some of you may have seen in our recent reports to shareholders from August is that we have implemented and we are implementing a number of elements in order to save bunkers. 10 years ago, a ton of bunker cost about $200. At this time, a ton of bunker costs about $650 to $700.
We have -- can make a saving from these measures of 10% to 15% and we are implementing that program, which includes something called sliding valves. It includes propeller boss cap fin, this so-called PBCF. It includes so-called Mewis Duct, M-E-W-I-S duct. It is something called Eniram, which is dynamic trimming assistance that via computer and GPS technology, the ship gets a signal in fact from Helsinki in Finland how the trim should be, very advanced thing.
We have of course the weather data for optimal routing. We have something called [Blue Water] that is optimal cargo heating process. We have VSD adjustable speed drivers, we have online monitor -- electronic online performance monitor. We have something called a [rudder belt bolt] installed either side of rudder. We also have the Alpha Lubricators, which save us -- which saves oil and cylinder oil, as we call it.
We have -- I said earlier that we will save minimum or about 10% following these measures which we now are in process of implementing. I can inform you today that one of the top shipbuilders in the world have gone over the measures I just listed and they conclude that our saving will be between 10% and 15% per day per ship, which is a lot of money. I am very, very grateful and I am very happy to observe that our internal calculations provided by our excellent engineers that are confirmed by a top shipbuilder in the world. That gives me comfort.
So, my good friends, let me come back to this question of Eco. I see in today's Tradewinds that he, Mr. Ross Wilbur and Ross -- I don't know how much he knows about fuel economy and all of that, but he says he doesn't believe in it, essentially. He is very skeptical to it, he says. I don't know what basis he is saying that on, but I leave that aside. I tend to agree with him that the measures that we have implemented will be very effective and we see it already.
Let that be my introduction, Herbjorn Hansson here at -- today sitting in Norway, traveling the world normally. I am open to any questions you may have. Marina, the operator, she will manage the process going forward. Marina, please.
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Questions and Answers
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Operator [1]
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(Operator Instructions) Jon Chappell, Evercore Partners.
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Jon Chappell, Evercore Partners - Analyst [2]
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First question is about the pool that you have created late last year and then your decision to buy it -- the remaining part from your partner, Frontline, this year. Can you give us any information as to the cost of the purchase from Frontline? Then also why Frontline may have decided to go a separate way?
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Herbjorn Hansson, Nordic American Tanker Ltd. - Chairman, President & CEO [3]
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Let me explain in two things. The costs, you know, is about $200,000 $300,000. This is a nonprofit company where they owned 50% and when I mentioned $200,000 $300,000 that is for 100%, isn't it? Is it for 50% or 100%?
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Turid Sorensen, Nordic American Tanker Ltd. - CFO [4]
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500 (inaudible).
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Herbjorn Hansson, Nordic American Tanker Ltd. - Chairman, President & CEO [5]
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Yes, $500,000 for all of it. So you are talking small money, Jon. The second point is why now? The gist of this is that the pool will continue. The pool will continue as in the past exactly the same as in the past, but Frontline has decided to take out their ships and they -- I don't know the reason, to be honest. I don't know. But it is my understanding, as we also expressed in the press release, that it is for flexibility reasons, for flexibility reasons, nothing else.
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Jon Chappell, Evercore Partners - Analyst [6]
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Can you explain a little bit more about the performance of the pool? It seems --.
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Herbjorn Hansson, Nordic American Tanker Ltd. - Chairman, President & CEO [7]
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The pool has performed excellently, in my judgment. It has been a rough time in the marketplace, but you cannot meaningfully compare a 90-day period in one pool compared with other pools.
I think that the Frontline CEO has a good -- not a good point but an important point, where he says the weaker the market, the smaller the pool should be. But we don't have that freedom. And if the market is zero, then the pool it should be zero.
So in my best estimation it has nothing to do with the performance. But again, this is a question that Frontline may ask -- you may ask Frontline. But for us it is a much more important of course thing than for Frontline. It relates to Orion, which is our chartering department. We are talking about nine ships for Frontline and they have 40 to 50 ships and of course it is not -- it is not a very significant thing for them at all, you know, the nine Suezmaxes that they have out of the 40 to 50 ships compared with our.
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Jon Chappell, Evercore Partners - Analyst [8]
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Right. Okay, a question for Turid. The dry docking schedule for the rest of this year and next year, you have four 1997 build ships, four 1998. What is your anticipated off-hire time for him drydocking in the third and fourth quarter in 2013 and then the cost associated with that drydocking?
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Turid Sorensen, Nordic American Tanker Ltd. - CFO [9]
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We have about -- well, we have six drydockings next year. Two of them are 10-year dockings and four are 15-year dockings. We estimate that the total capital expenditure to be about $20 million.
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Jon Chappell, Evercore Partners - Analyst [10]
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And what about the second half of this year, third quarter and fourth quarter?
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Turid Sorensen, Nordic American Tanker Ltd. - CFO [11]
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The third quarter we will have four dockings and fourth quarter this year we will have two.
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Jon Chappell, Evercore Partners - Analyst [12]
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Okay, and the off-hire time associated with those?
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Turid Sorensen, Nordic American Tanker Ltd. - CFO [13]
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Well, for the third quarter about [160] days
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Herbjorn Hansson, Nordic American Tanker Ltd. - Chairman, President & CEO [14]
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So better the question, you must look upon the question in a longer perspective. You know, whether you dock three ships in a quarter or four ships or five ships or one ship is not so very important at all because that is not what we are talking about here. Remember my comment about going upwards, sidewards or downwards. If you get too focused on the next 90-days period, then you can easily be led astray.
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Jon Chappell, Evercore Partners - Analyst [15]
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Okay, well let me ask you a longer-term question then, your debt facility, $500 million, you have $250 million outstanding, it comes due in September of 2013. Asset values have weakened significantly since you signed that facility. How much flexibility do you think you have on that facility now when it comes to refinancing that? Or do you think the banks would still be able -- be willing to lend $500 million? How does that impact our growth going forward?
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Herbjorn Hansson, Nordic American Tanker Ltd. - Chairman, President & CEO [16]
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It will not impact our growth at all. We are -- if you are going to lend money to people in shipping, we are the preferred lender -- preferred borrower, I'm sorry, preferred borrower. It will not impact our growth at all. That is the easy question to that.
We have this in place now. We have about $80 million in cash and about $250 million drawn, which is we have a net drawn then of $170 million. We have ample, ample room for expansion, no question. But this again when we expand -- I'm not saying if we expand, when we expand it is a question of risk management; it is a question of risk management and balance the various considerations.
But there is one thing that the listeners to this conference can be absolutely sure about we are not going to put this company on the line, we will pursue a conservative attitude in the time to come. In the past, we have had more debt than we have now per ship. We focus on net debt per ship, which is now standing at about $5 million and it has been up to $11 million a couple of years ago. So -- but to respond very precisely these negotiations or talks as they call them up with the banks will have nothing to do with our growth. It will not inhibit our growth, not at all.
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Jon Chappell, Evercore Partners - Analyst [17]
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Okay, thank you.
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Operator [18]
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Ben Lerner, Third Avenue Management.
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Ben Lerner, Third Avenue Management - Analyst [19]
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I just want to follow up on a couple of questions that Jon was asking in terms of your revolver. The first being can you get any sense as to how large of a facility you can get in place if you extend out to 2016 or 2017?
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Herbjorn Hansson, Nordic American Tanker Ltd. - Chairman, President & CEO [20]
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Well, we have been discussing everything from $400 million to $700 million. But it's -- you know this is a matter of judgment where we will land. I mean, if we pay out we could have $700 million, but this is again a balancing act. We must balance the various considerations.
How is our balance sheet? How do we view the financial risk? How do we finance the expansion? There are a number of factors that will be decisive for that. But I say clearly as I said to you earlier the credit facility and its reorganization -- not the reorganization, its extension will not in any way inhibit our ability to expand. That is the gist of it.
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Ben Lerner, Third Avenue Management - Analyst [21]
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Can you sort of expand on that a little bit more? I mean, I guess from my perspective if you see rates to continue into levels they are right now, I see it difficult for the Company to maintain significant cash flow levels. If you continue sort of a dividend policy along the lines that you are doing right now, it would seem to me that you do need to maintain some level of credit facility availability to stay down that path.
Then following on that, if the strategy of the Company is to maintain strength of the balance sheet, how do you sort of compare those to paying a dividend in light of potentially declining credit facility availability versus maintaining ample liquidity and strong balance sheet?
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Herbjorn Hansson, Nordic American Tanker Ltd. - Chairman, President & CEO [22]
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Well, you asked several questions in one question, you know. But let me then make it clear. The credit line itself will not in any way inhibit our growth. That is point number one.
I believe I understood you or I understand you to the effect that what will happen? If the market is down for a protracted period of time, what will then happen? I would say, as you American says, it is just tough luck. We will be hanging in there for many, many, many, many years. But of course the dividend -- the dividend decisions are taken by the Board on each individual quarters. That is an independent decision of the Board.
Then again, when they analyze -- they analyze the financial risks. They analyze the risk management situation. They may have a view on the future and they will be [at ease] to talk about that also if somebody would care to ask. This is a process -- an analytical process in which several components are included.
To the best of my judgment, the availability of capital, this will not be an inhibiting factor in the development of this Company. That is really the gist of what I say. I did indicate then in the introduction to this presentation the three elements of the business -- that is the people, the capital, and the ships. I don't see any limitations at this time. There are a lots of ships out there, too many, regrettably. There is also a lot of capital if you do it correctly and if you have the confidence of the investors.
But again, I cannot -- what will happen in the future. I have been around for a little while, as have my colleagues and we have seen stormy days in the past. But we are fine. We are -- we have essentially all upside and we have a very limited downside.
There is one downside of course if you do something very stupid, if you do something very stupid but I don't believe that. We have so many good people around us. We have so many good people on the Board. We have a very strong shareholder support.
I went through with you the various elements of our strategy and anybody who can suggest any improvement to that strategy, it would be most welcome to suggest it, not necessarily on this conversation but please give us -- talk to us because we are always keen to learn. The day we don't learn anything is a bad day. But again I repeat myself a little bit. I don't see anything associated with our capital structure or anything associated with our credit line that would inhibit the growth of this Company provided we go thoughtfully forward.
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Ben Lerner, Third Avenue Management - Analyst [23]
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Okay, thank you. Just one last question. In terms of the age profile of the fleet, what do you see as an ideal average age that you like to get to over the next couple of years?
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Herbjorn Hansson, Nordic American Tanker Ltd. - Chairman, President & CEO [24]
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The only person may be who could comment meaningfully on that is the chairman. He is 64 years of age. But we have an average age of 10.6 years, which is very, very satisfactory in my judgment. We intend to keep it in that region. All this question on age has almost no relevance.
We have over the last year or so among our biggest customers, the big oil companies, we had chartered to them ships built in the 1990s and yesterday we chartered a ship built in 2011. I personally have been on board ships and we have been dealing with ships for years and the question of age is not a problem.
We must again -- I must also refer to the circle I drew. It is much more than ships. The ships must be perfect. The ships must be perfect. There is no question, and our ships are perfect. When the top oil companies in the world, and I am talking about several of them, when they charter our ships, I think that is a good sign of the quality we have.
So the age -- they have a living age lifespan of 25 years. I'm not saying that we will keep all ships for 25 years. What we see today is the notion of financial lifting, financial lifting. The oil companies require that the ships are first-class irrespective of the age, irrespective of the age. But they also see the importance of having to do with a strong financial partner. We have one cargo of oil; it is about $100 million. We have 20 ships; we have $2 billion of oil worth on our ships from time to time.
Of course, a charterer cannot risk that the people he contracts with cannot perform. They cannot afford to keep their ships in order. We keep our ship in order. I would come back to the circle I drew, the people, capital, and ships, I would much rather do a business with a good owner having a ship of 13 years or so or an owner which is not in that category having a ship of one year or two year, you know. It is when the oil companies are satisfied, we are satisfied because they are our customers.
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Ben Lerner, Third Avenue Management - Analyst [25]
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Great, thank you very much.
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Operator [26]
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David Beard, IBERIA.
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David Beard, IBERIA Capital Partners - Analyst [27]
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Good morning, and good afternoon.
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Herbjorn Hansson, Nordic American Tanker Ltd. - Chairman, President & CEO [28]
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Good morning, David. Where you come from, David?
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David Beard, IBERIA Capital Partners - Analyst [29]
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I am here in New Orleans.
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Herbjorn Hansson, Nordic American Tanker Ltd. - Chairman, President & CEO [30]
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Which firm are you coming from?
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David Beard, IBERIA Capital Partners - Analyst [31]
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IBERIA.
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Herbjorn Hansson, Nordic American Tanker Ltd. - Chairman, President & CEO [32]
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Oh, yes, yes, yes, of course, of course.
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David Beard, IBERIA Capital Partners - Analyst [33]
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Good. Maybe you could help us understand the acquisition landscape at this point and maybe just address the question that some investors bring up, why haven't you made any acquisitions yet this year? Thanks.
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Herbjorn Hansson, Nordic American Tanker Ltd. - Chairman, President & CEO [34]
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That is a good -- that is a good question. You must base yourself on knowledge, on intuition, on understanding, understanding the banks, understanding the shipping scene, understanding everything. You cannot respond precisely to the question you are asking.
Apparently we haven't done any acquisitions so far this year, and that has been a wise decision retrospectively considered, no question, in my judgment. It is a very -- I think you call it motley picture, a picture with many, many things in it and it is difficult to respond precisely. We don't know what the market will be; nobody knows. A friend of mine, I asked him, what to think about the market? And he said, I don't know anything. And if I did know something I wouldn't tell you, he said. You know, that is really the situation.
We have only one history and many, many futures. What you are saying and what you are mentioning is a very relevant question, David, very relevant question, in that it is a continuous assessment. We undertake competitor analysis, which is very important. We know the portfolios of the bank. The banks don't like the present situation. That is an important consideration.
But what will happen around next corner, it's hard to say. What we say today may not be true tomorrow. You know, many of these situations, they come very quickly and also occasionally very unexpectedly. The main thing is there will be many opportunities going forward because there is an old saying in any business, the best transactions are invariably carried through in a low market. They are normally the best transactions.
But I would like to turn the question back to you, almost what would you say? Why haven't we bought yet? I could ask my colleagues here and we have said in our reports we are in no rush. We are in no rush. There is one thing which is exceptionally important, and that is to ensure that we have the best quality, the best quality of the ships.
Let me in this connection also since the question of age was brought up, when I get these views and arguments, then it has some other uses. We meet with many oil companies all of the time. And they say well, you know, you are low echelon -- the chartering guys say only 10 years or 15s year. Then they ask them, do you mean that we should design the ships to last for 10 to 15 years? No, no, no, that was not -- that was not the intention.
Also let us talk a little bit about this intellectually, if I may. You cannot possibly have one view in a strong market and then a different view in a low market. You cannot do that. But I will respond even more precisely to you, David. We are opportunistic and we judge with our advisers and our management and our Board. We can see if the deal is good. Do we see feel good about the deal? Is the ship good quality?
We have inspected several ships in the recent past and we see that many of the ships are in good quality because that is the essential element of any ship acquisition, that is if you get a good ship. If you get a bad ship, then you have blown it. The most important thing also is the question of the steel of the ship, the steel. Because if the steel is okay, you can always fix what is inside. But if the steel is gone, the ship is gone.
So it is a careful analysis of that we undertake and if somebody came to us with a good ship at what we thought was a good price, we would probably buy it. Sorry, David, I couldn't be more precise. But we are opportunistic in the sense that if a good deal comes our way, we can move very, very quickly and we can decide quickly. We get the Board on the telephone. We have the management group and we discuss this intensely, aggressively and in-depth.
It will be interesting to see what the future will be holding. What I can indicate very clearly, this Company will expand. Will it expand tomorrow or the day after or next month, or next year? I couldn't tell you. If I did know, I wouldn't tell you. Because one of the things that have been quite interesting about our progress I would say or process, nobody knows what we are doing until we do it, because we are very careful to communicate precisely with the tanker -- with the investor market and with our shareholders.
We have a tremendous shareholders report -- support. We have 100,000 shareholders according to our man on Wall Street and we have just interestingly not received one complaint about the dividend policy. They like to receive the checks. Sorry about that. Any other questions?
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David Beard, IBERIA Capital Partners - Analyst [35]
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No, thank you.
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Herbjorn Hansson, Nordic American Tanker Ltd. - Chairman, President & CEO [36]
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Marina.
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Operator [37]
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[Daniel Sekine], ALJ Capital.
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Sam Sekine, ALJ Capital - Analyst [38]
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Hey, guys, this is Sam from ALJ. Just a couple of questions for you guys. On the ego friendly measures that you guys had for the fuel measures that you guys have taken, have all of the ships had that process done or thought how far along are you guys?
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Herbjorn Hansson, Nordic American Tanker Ltd. - Chairman, President & CEO [39]
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Only a few of them. We have included all -- we have two of them we have included 100%. That is sliding valves and Alpha Lubricators with good savings. Any other things are in process of being implemented. We see very clearly that all of these measures can be implemented below an investment of $1 million. We have indicated $800,000 in our communication with the market.
If you conservatively say $5 -- 5 tons a day, that is $3500 a day based upon the present bunker price. If you take this -- it is more than $1 million in saving here. So you had a payback time of less than a year. But we have taken the decision to implement these measures and I will not promise anything here but within a year or two, our technical director is nodding aggressively when I say within a year or two. I will say sooner or -- rather soon than late.
Because it is a practical matter how to and when to install it. But we are very, very pleased and very encouraged with the results and particularly pleased that a top shipbuilder in the world -- and I spoke to them personally. I spoke to them personally; they confirmed our hold program that I listed for you and they assigned a saving to each individual item. For us, this is a breakthrough in terms of improving the economics.
I mentioned the $500 in cost savings the other day -- the cost savings on having a homogeneous fleet and here I mentioned this saving from -- the one-time saving from the bunker consumption in connection with the Eco debate.
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Sam Sekine, ALJ Capital - Analyst [40]
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Okay. Also if you can just talk and little bit about the Suezmax, the order book and just the supply, there are people saying that there is more Suezmaxes coming on line and that is going to hurt the demand side -- the supply side. So if you can just kind of talk about margins, what you guys see going forward maybe 2013 and 2014?
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Herbjorn Hansson, Nordic American Tanker Ltd. - Chairman, President & CEO [41]
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I agree with you that there are too many Suezmaxes. There are too many VLCCs and too many Afromaxes. We don't need to spend much time on that. But let me put -- we have now, the present fleet is about 428 Suezmaxes, which would be eventually the same this year. At this end of this year a little bit more. There are 20 deliveries to come this year.
Let me put this in perspective; let me put this in perspective. If -- and this is only as an illustration, if West African production increases by 1 million barrels and if you carry all this oil to Northeast of America, that will employ on a continuous basis 40 Suezmaxes extra, 40 Suezmaxes extra. There are only on order now about 40, 50, 60 Suezmaxes.
So the balance is quite delicate; it is quite delicate. If you employ -- if you had an increase in the Middle East production going to China -- we carry a lot of oil from the Middle East, among other places, from the Sudan where there has been problems, you know -- we are talking about the same number. 1 million barrels extra from the Middle East to the Far East in Suezmaxes will take up the whole fleet.
Then the conclusion and my final response to that question is, it is a question of the world economy, of the world of economy. If the world economy is going forward satisfactorily, the balance may turn very, very quickly.
Let me just say one word about the economic scene going forward. As I mentioned to you, I am going to Korea in about 10 days' time or 12 days' time. If the world economy goes forward, we are fine. When some of us started out in the business in 1970 or the mid-1970s, we were 3.7 billion people on earth, 3.7 billion people. Now we are 7 billion people.
Everybody would like to have a cow. Everybody would like to have more wealth. Everybody would like to have better weather. Therefore, if the world economy turns around and America -- what will happen in America? Well, they are printing some money, hoping Obama is trying to win the election. In the Far East, of course, on track, on track, yes. Some weaknesses; we can debate that. Europe having problems. We have spent more money than we have for a very long time.
But the gist of your question is, if the economy comes a little bit strongly back, we shall be fine in my view. The big danger, if you wish, looming is the protectionists. In the 1970s and 1980s, we were sitting behind protectionist walls. Globalization has meant a lot to any business and in particular this business.
So I agree with you that there are too many ships now, absolutely. The prices have come down also, in some cases even may pay half the price than we did a couple of years ago. A ship which now can be had for $20 million to $25 million had a value of $80 million a few years ago, in 2008. This is very, very volatile.
When the market turns around, it will turn around very fast and it also will have to do with the investors and shareholders who are listening in today. You know, optimism tends to come very, very, very quickly. So I agree, too many ships at this time. These ships may be absorbed very quickly if the world economy turns around. I couldn't say when the world economy turns around.
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Sam Sekine, ALJ Capital - Analyst [42]
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Got it. Let's just say the economy doesn't turn around or it takes a little bit longer. What is the ability for it Nordic American to cut the daily cost let's say from $11,000 -- what do you see that going from $11,000 per day, can you guys get down to maybe even the $10,000s or even $9,000s?
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Herbjorn Hansson, Nordic American Tanker Ltd. - Chairman, President & CEO [43]
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No, I wouldn't say $9,000s. But we could possibly if we look very, very carefully, we could possibly find $500 to $1000 more possibly, possibly. Turid is nodding here; my deputy is nodding. But of course the important thing for us is to keep up the quality of the ships. We can afford to keep the quality on the ships.
Nobody can save a lot of money and become very rich. We cannot sacrifice the quality stamp that we have, the technical stamp that we have. We cannot do that. I would say on the opposites, we focus even more on it at this time because we do know that many of our friendly competitors, they don't have the money to create a ship and a ship fleet and have that ship and ship fleet in top top. But I think we may find $500 more, you know, to do that.
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Sam Sekine, ALJ Capital - Analyst [44]
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Okay, and just a question on the Orion Pool. So I know it is a pool now, but going forward in 2013, are you guys open to adding other ships or other companies into the pool or where it just be only operated by Nordic American ships?
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Herbjorn Hansson, Nordic American Tanker Ltd. - Chairman, President & CEO [45]
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The pool is our chartering departments for our ships. But if there comes a good owner with a good ship, we may let him come into the door and we would entertain discussions with them. We would not entertain discussions with bad owners. We only entertain discussions with good people.
But the answer is yes. If it is right to do at the time, not at this immediate future. We don't expect over the next few months, but I have always been a strong supporter of cooperation. Cooperation is a good thing, in my view, very good thing. It has to do with the notion of consolidation, which also Wilbur Ross is talking about in Marine Week today or Tradewinds, you know. So the answer is yes.
------------------------------
Sam Sekine, ALJ Capital - Analyst [46]
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Just last one from me. Now that Q3 is just about over, I mean you guys can comment on just how rates have trended or how you guys have done I guess in terms of -- or compared to the market?
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Herbjorn Hansson, Nordic American Tanker Ltd. - Chairman, President & CEO [47]
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We have said in our last report that Q3 will be weaker than Q2, and we will not say anything more.
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Sam Sekine, ALJ Capital - Analyst [48]
------------------------------
Okay, thank you.
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Herbjorn Hansson, Nordic American Tanker Ltd. - Chairman, President & CEO [49]
------------------------------
But again I must urge you not to over-emphasize a period of 90 days, you know. The life of the company is longer than 90 days.
Okay, Marina, anybody else wishing to comment?
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Operator [50]
------------------------------
Herman Hildan, RS Platou Markets.
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Herman Hildan, RS Platou Markets - Analyst [51]
------------------------------
You mentioned when you answered one of the questions that you have about $80 million of cash, which is down about $24 million from the end of Q2. So I am just wondering if you have been investing in call it lowering fuel consumption on your ships during the third quarter?
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Herbjorn Hansson, Nordic American Tanker Ltd. - Chairman, President & CEO [52]
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No, is it $80 million or $90 million?
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Turid Sorensen, Nordic American Tanker Ltd. - CFO [53]
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$80 million.
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Herbjorn Hansson, Nordic American Tanker Ltd. - Chairman, President & CEO [54]
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$80 million. Now we have paid dividends, which is most of it. And dockings, dockings.
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Herman Hildan, RS Platou Markets - Analyst [55]
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Could you quantify the docking cost?
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Herbjorn Hansson, Nordic American Tanker Ltd. - Chairman, President & CEO [56]
------------------------------
Well, it depends. We have the docking costs are about depending upon -- we have had 1, 2, 3, 4, 5, 6, 7, 8 dockings we will have this year and it cost us about $20 million, so it is $20 million divided by eight, $2.5 million to $3 million depending upon the situation of the ship.
But we keep our ships very well. But we cannot -- we don't waste the cash, I can assure you.
------------------------------
Herman Hildan, RS Platou Markets - Analyst [57]
------------------------------
Also I am just wondering in terms of further growth, what kind of level do you find attractive for, say, a 10.6-year-old ship? Would you be interested in buying at for example $30 million or $25 million? Where is your call it level where you think it is time to strike on fleet growth?
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Herbjorn Hansson, Nordic American Tanker Ltd. - Chairman, President & CEO [58]
------------------------------
My response is that you must strike when the iron is hot. That is really the time to strike. I couldn't possibly comment on that, as you will understand. If I did have some ideas, I couldn't tell you. But I probably have some ideas.
------------------------------
Herman Hildan, RS Platou Markets - Analyst [59]
------------------------------
Okay, I guess my last question and I know you are probably going to say the same, but do you have any internal aims in terms of how much you are going to grow your fleet in the next coming year or couple of years in this downturn?
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Herbjorn Hansson, Nordic American Tanker Ltd. - Chairman, President & CEO [60]
------------------------------
Well, I think that over the next couple of years, we must build this Company to 25 ships or 30 ships, maybe 40 ships. But five years from -- that it's about 2000 days. I don't know if you think it is okay to have 40 ships. If you can do it profitably, that is the important thing. That is the important thing.
But of course in our position we are an preferred lender -- the borrower. We are a preferred service provider. To have many ships of top quality in itself has a value. But I don't know. We had three ships a couple of years ago and now we have 20. So -- and we have grown six times.
But I would warn tell you we shouldn't have 120 ships in a few years' time. But we must grow. That is the answer to your question.
------------------------------
Herman Hildan, RS Platou Markets - Analyst [61]
------------------------------
Just I guess one more final. Do you -- if you are going to Korea, I guess you are not looking at doing newbuildings, but what kind of -- what part of the -- what kind of transaction are you looking for? Are you waiting for the banks to offer you good deals like the last Suezmax you acquired or could you say a few words of what is your strategy in terms of striking when the iron is hot first (technical difficulty)?
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Herbjorn Hansson, Nordic American Tanker Ltd. - Chairman, President & CEO [62]
------------------------------
Well, you base yourself on a presumption that we don't look at newbuildings. I'm not sure that is right. I'm not sure that is right, and that is really -- you know, again, we are considering all options all the time. That is the art of business, to be able to judge all of these things, to be able to judge the ingredients of a decision, of a decision of this nature.
You may have 10 dimensions. You have the quality of the fleet. You have the shipbuilder, maybe. You have the ship owner. You have the history of the various parties, and we don't know. We may expand not may -- we expect to expand via acquisitions, via newbuildings. We essentially have these two options, you know, because we are not building ships ourselves.
That is -- in the 1980s there was a worrying [factor that] to huge shipbuilding capacity and the Western governments kept the shipbuilders alive via subsidies. Of course there is any question mark associated with that, but I don't regard that danger as imminent now as it used to be 25 to 30 years ago. But that is my subjective assessment.
I don't know. The only prediction we will make and which we will make very, very clear, we will have good ships. We will never buy a bad ship. We inspect the ships -- for second-hand ships, we inspect them, very, very closely and accurately. Our -- really the gist of this discussions, I don't know if analysts have been the most active ones here, they don't have too many shares I believe in Nordic, but I would have liked to have many questions from shareholders. But we couldn't take questions from 100,000 shareholders; that will be too many.
But we say it like this, if people would like to be in the tanker business, this is a very, very, very good alternative. That is our perception. Then also I would say I come back to the circle of ships, of people, and of capital. You cannot only look at the ships or net added value or whatever. You must look at the people. You must look at the track record, and you must look at the capital and ability to raise capital and ability to have capital efficiency, if you wish.
------------------------------
Herman Hildan, RS Platou Markets - Analyst [63]
------------------------------
Okay, thank you very much for your time.
------------------------------
Herbjorn Hansson, Nordic American Tanker Ltd. - Chairman, President & CEO [64]
------------------------------
Pleasure. Marina, anybody else who would like to ask questions before we close the show?
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Operator [65]
------------------------------
Doug Smith, private investor.
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Doug Smith, - Private Investor [66]
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This is Doug Smith in Oklahoma City, Oklahoma. When you are purchasing these ships are you going to be using -- issuing more shares to do so?
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Herbjorn Hansson, Nordic American Tanker Ltd. - Chairman, President & CEO [67]
------------------------------
That is an assessment that we do at that time. It is -- essentially you can do it from three sources. You can take it, finance it via debt, or you can finance it via equity. These are the 2 -- but you cannot respond precisely to that question.
We will not promise not to issue stock and we will not promise to issue stock and we will not promise to promise to raise debts or not debt. We don't know the answer to that question. We cannot respond to that question. I don't know.
It is a question of an analysis that we will have to take at the time. But at this time, we have capacity to -- we have capacity to buy ships. But again, it is a question of size. But what I can assure you and I would like to say that one of our biggest shareholders, they say don't do the big transactions, the big corporate transactions. Go forward with plan in a very precise way.
I think that is important for us. We will not do the spectacular things that some people have done, some successfully and others not so successfully. But we will be predictable. We will be predictable and preserve any available capital.
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Doug Smith, - Private Investor [68]
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Okay. My next question would be, are you guys going to implement any kind of share repurchase program at any point in time?
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Herbjorn Hansson, Nordic American Tanker Ltd. - Chairman, President & CEO [69]
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We don't have -- that is not on the cards. In a way, I can tell you we don't need to have a long discussion on that. When we pay out dividends -- and we have paid out dividends even though the cash flow wouldn't warrant it -- that is the same financially as repurchasing stock, repurchasing stock.
But when you repurchase stock, then you must do the same as paying dividend. You must be able to afford it. Some people pay dividends and repurchase stock and they couldn't afford it. If you had a strong balance sheet and if your stock price is done -- they talk about net asset value -- and of course if my -- and our net asset value, which is a very imprecise measure, was down, I would be very depressed, to be honest with you, you know. We have no repurchasing programs as of yet. But I would not rule that out either. It depends on the situation going forward.
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Doug Smith, - Private Investor [70]
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Well, if your stock price is at rock bottom then -- you know, buying some shares would not be a bad idea.
My last question would be, is the Board considering any kind of insider purchasing of shares now, being that they are so low?
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Herbjorn Hansson, Nordic American Tanker Ltd. - Chairman, President & CEO [71]
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We haven't discussed that at all. The Board are very active and some -- you know, some of the Board members, they have a lot of stock, in particular two of them, including myself. But I don't ask Board members about that. That is a consideration they must do, they must do.
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Doug Smith, - Private Investor [72]
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That is right, okay. All right, that is all I have for today.
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Herbjorn Hansson, Nordic American Tanker Ltd. - Chairman, President & CEO [73]
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Marina, do we have the next question which possibly is the last one unless somebody has a burning question that I must ask? Marina, please.
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Operator [74]
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Blaine Hanks, Blaine Exploration Ltd.
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Blaine Hanks, Blaine Exploration Ltd. - Analyst [75]
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Blaine Hanks from Blaine Exploration in Bartlesville, Oklahoma.
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Herbjorn Hansson, Nordic American Tanker Ltd. - Chairman, President & CEO [76]
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Hello, I have been to Bartlesville. That is where Phillips is.
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Blaine Hanks, Blaine Exploration Ltd. - Analyst [77]
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Correct.
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Herbjorn Hansson, Nordic American Tanker Ltd. - Chairman, President & CEO [78]
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I have been staying at the Phillips Hotel and I was traveling with the Phillips bus, and I even met Mr. Phillips. Okay, Blaine, what can I do for you?
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Blaine Hanks, Blaine Exploration Ltd. - Analyst [79]
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The question I have, you have mentioned in it your correspondence regarding your contract with Exxon Mobil subsidiary, relative to current spot rates can you give an idea of what your utilization is on your boats how many are busy and what rate you are getting?
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Herbjorn Hansson, Nordic American Tanker Ltd. - Chairman, President & CEO [80]
------------------------------
There is something called cargo is king, cargo is king. In particular in the wheat market, as we see it now, it is important to have cargo. The contract you mentioned, we are very pleased with our corporation and we are dealing with other of the major oil companies as well all of the time. We are dealing with the oil companies all of the time.
I wouldn't divulge the terms of that contract at all or other contracts that we enter into, but we are very, very pleased with the fact that some of the largest companies in the world and the highest-quality companies in the world have us as a service provider, as one of the service providers. That is very, very satisfying.
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Blaine Hanks, Blaine Exploration Ltd. - Analyst [81]
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So is your contract rate better than the current spot rates?
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Herbjorn Hansson, Nordic American Tanker Ltd. - Chairman, President & CEO [82]
------------------------------
I would hope so, but I am not sure. But I cannot comment on that.
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Blaine Hanks, Blaine Exploration Ltd. - Analyst [83]
------------------------------
Okay.
------------------------------
Herbjorn Hansson, Nordic American Tanker Ltd. - Chairman, President & CEO [84]
------------------------------
What the rates are the next 14 days, that will be as it is, you know. I am concerned about the years to come and I am confident about the direction of this company.
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Blaine Hanks, Blaine Exploration Ltd. - Analyst [85]
------------------------------
Well, I appreciate your candidness.
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Herbjorn Hansson, Nordic American Tanker Ltd. - Chairman, President & CEO [86]
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Yes, today the market is very much down. When you go on Imarex, Imarex is below $10,000 a day. Imarex now, they are quoted every day and the market is down. I don't like it. I don't like when the market is down. I like it very well when the market is up.
I can also tell you I don't like the stock prices down, but I never comment on the stock price because that is not my job to comment on the stock price. Because the market is the market, period, and the financial market is the financial market.
When it comes to the question of utilization, which was brought up, we now in particular in this environment, we try to move the ships all the time. Because it is a normal experience that a ship waiting and waiting and waiting, that may be very expensive to sit waiting. That is why it is so important to have some good trends with the major oil companies to whom we lease our ships, thereby -- the important thing is to have cargo on the ships all the time.
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Blaine Hanks, Blaine Exploration Ltd. - Analyst [87]
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Yes, the issue of course is that it would appear from the spot rates that your competition is at least spending money to actually make money. Their rates they are receiving is less than the spot rates just to keep their ships busy. I presume you are in better shape than that?
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Herbjorn Hansson, Nordic American Tanker Ltd. - Chairman, President & CEO [88]
------------------------------
We are as a Company in excellent shape. There is no question of that. We are in excellent shape. What the competitors are doing, that is not our task to judge. They must do what they think is right to do. I, as a matter principle, we never comment on our competition. But we do see that there are challenges in this business. That is easily seen and that are in the headlines of the media all of the time.
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Blaine Hanks, Blaine Exploration Ltd. - Analyst [89]
------------------------------
Having worked with major companies, it would seem it your strategy to keep your ships in top-notch shape and appeal to the requirements of the major companies is a good strategy relative to your competition.
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Herbjorn Hansson, Nordic American Tanker Ltd. - Chairman, President & CEO [90]
------------------------------
Thank you very much. I think you are absolutely right. Okay, Marina.
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Operator [91]
------------------------------
We have no further questions.
------------------------------
Herbjorn Hansson, Nordic American Tanker Ltd. - Chairman, President & CEO [92]
------------------------------
Okay, then I would like to thank you very much for listening in and for asking questions. Please feel free to contact us at any time.
This is an exciting business. We go about it with a positive approach and we will hang in there and we will be conservative. That is our commitment. If you are not stupid, and I don't think we are or our Board is, we shall be making progress.
Thank you very much for listening and for commenting. Goodbye.
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Operator [93]
------------------------------
Ladies and gentlemen, that will conclude today's conference call. Thank you for your participation. You may now disconnect.
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