Nordic American Tanker Ltd Shareholders, Investors and Analysts Conference Call
Jun 12, 2013 AM EDT
NAT - Nordic American Tanker Ltd
Nordic American Tanker Ltd Shareholders, Investors and Analysts Conference Call
Jun 12, 2013 / 01:00PM GMT
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Corporate Participants
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* Herbjorn Hansson
Nordic American Tanker - Chairman, CEO
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Conference Call Participants
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* Samuel Sekine
ALJ Capital Management - Analyst
* Michael Moskoff
MRM - Analyst
* Jeff Lynn Roth
Leaving it Better, LLC - Analyst
* Mark Rouskey
Diversity Financial - Analyst
* Harden Buffet
HSB Capital - Analyst
* George Gabriel
- Private Investor
* Tom Dusmet
BMO Nesbitt Burns - Analyst
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Presentation
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Operator [1]
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Good day and welcome to the Nordic American Tanker Ltd telephone conference for shareholders, investors, and analysts.
At this time I would like to turn the conference over to Mr. Herbjorn Hansson.
Please go ahead, sir.
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Herbjorn Hansson, Nordic American Tanker - Chairman, CEO [2]
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Thank you very much, operator.
My name is Herbjorn Hansson. I'm Chairman and CEO of the New York stock listed company, Nordic American Tankers. It is a pleasure to be able to communicate with you, and I am hopeful that we should be having a fruitful discussion. And not least, good morning and good afternoon.
We are a international company and we are connected from various places in the world, including Sandefjord, Norway, including Monaco, and, including other places, Oslo. And then many, many participants of course coming from America but also from Norway.
I wish to give you a high level overview of our Company, but before that there's an introduction. I would just refer to the legal disclaimer, which is on the web. And 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 I just suggest that we proceed.
We had a conference in September and now we call this conference about a month ago simply because we think it is right, in particular in these times to talk to investors, to talk to shareholders, and other interested parties, because the industry -- although there are interesting elements on the horizon, the industry is in a challenging phase of development.
In this situation we are well placed, but we think it is our obligation to talk to our friends in the industry. I wish to go through the main components of our strategy before embarking on a few pertinent aspects associated with our Company and the gist of Nordic American strategy is that we have a sustainable business strategy in both strong and weak markets.
When the market is strong, business is easy. It is when there are weak markets that business is challenging. Our strategy is marked by simplicity, transparency, and predictability. Let me go very quickly through the main dimensions as a background to my ensuing comments on the various issues.
We must, in our business, have a profitable expansion of the fleet. We do have a homogeneous fleet, only Suezmax is being able to carry 1 million barrels of oil. All cash flow coming in is distributed to shareholders.
We maintain probably the strongest balance sheet in the industry of any stock listed company. We have aligned interest, the interests of management, and the interests of shareholders are the same; low cash breakeven below $12,000 a day.
That is the point where the amount of money going into the Company and going out of the Company is at zero. We have exposure to the spot market, we have the lowest or very low general administrative costs. And we have very large industry network.
I should introduce some of my colleagues who are with me, notably Turid Sorensen, our CFO and EVP. We also have our little group of advisers here, Jan Erik Langangen, the previous chairman of Statoil with a very diversified background as both an economist and a lawyer.
Marianne Lie, who is the previous managing director of the Norwegian Ship Owners Association and the members of the shareholders board of many companies in Norway, including the Central Bank of Norway.
And then Rolf Amundsen, who is previously a banker, now working hard on the public relations and working as an advisor to the Chairman.
And then we have Jacob Ellefsen, in Monaco, dealing with investor relations, together with Alexander Hansson who is also our representative in Monaco.
I wish to give you an overview of what we have been up to in the recent past. After my overview we would be very, very pleased to respond to questions that you may have of any nature.
And I would like to review some of the commercial elements that now stand out, I would say, since we spoke last time in September last year.
I'm not saying that we're going to have these conferences as a regular thing and we just have a conference when we feel like it.
A conference going through all the numbers going through the world economy and giving lectures on this or that, these conferences are not a thing we wish to focus on.
We would like to mention to you that we have now gone in a joint venture, I would call it, over a contract or arrangement with Exxon Mobil containing the elements of a worldwide oil distribution system.
Exxon Mobil is the biggest energy group in the world. They have about 500 vessels daily in their fleet, 650 vessels daily in their fleet and, at any given point in time, they transport 3.6 million barrels.
They are huge and they are large. And we have done business with Exxon. The first time was as early as 1981 and it is an acknowledgment of the quality of our fleet that Exxon is prepared to have this contract with us.
We had a contract for the first year covering the Atlantic basin, and now the contract is of a worldwide nature. And this contract demonstrates Exxon Mobil's faith in NAT's fleet, in NAT's people, and in NAT's sound financial position.
We are hopeful that this may create work for as much as at least minimum 25% of our fleet or possibly higher. And we could be shooting for one-third of our fleet and, in particular in these times, it is important to have access to cargo.
It shows the quality of our fleet, it does also, I may submit modestly, the quality of the management and of the corporate principles associated with this Company.
And we should also remember that the major oil companies like Exxon, BP, and Shell, they have a very small fleet themselves; less than 5% of the world tanker fleet belongs to the major oil companies.
They look to each other when something is applauded and accepted to Exxon. The deal is very open that it is accepted by the other major oil companies with whom we enjoy doing business.
So the value of this Exxon agreement is very, very important for us. It is based on the spot market developments. The key is it shows quality, it shows recognition, and we get cargos in the weak market.
The second recent event I would like to mention, which was reflected in the press release recently in June 7, that is the cancellation of a purchase we had undertaken.
We did agree to buy a ship in March this year about 20th of March and delivery was scheduled by the 15th of May and then the seller requested an extension to 15th of June to which we agreed, and then more recently they requested a further extension to mid-July.
We had the right to cancel the ship and that's what I did because we had a number of plans going on and when there was uncertainty created by the non-delivery of the vessel, we simply canceled it, which was our contractual right. We had nothing to complain about when it comes to the seller who is a ship-owner of high international standing, and they have acted very professionally in this process and this has not cost us anything.
We pay a down payment of 10% about $5.5 million that is in our account as we speak, at least the bank has told us so. And the whole transaction costs are negligible. And there are many, many ships out there could be bought so this cancellation does not in any way impact our expansion plans.
I feel that also we should talk about a little bit about so-called eco-ships, eco-ships. Some of you participating on our team were involved in the ordering of the first tanker built in Davao in Korea in 1980. And there has not been very much development, if you wish, in the development of ships.
You could ask, why hasn't the notion of eco-ships come more into focus earlier? And the thing is really that we have not seen the high bunker prices in the past as we see now.
A few years ago the bunker price was $100 to $200. At this time it is $600 to $700 and the notion of eco-ships is to a large extent based upon the high bunker price.
It is indeed a risky undertaking as the tanker business is a risky undertaking; there is no denying of that. But if the price goes down to $200 again, the whole benefit of a so-called eco-ship will vanish to a large extent.
We would of course have focused on such devices for new buildings also when time is right but we wish to do things with our existing ships that we have told you about before.
When we make modifications to our existing ships the savings could be between 10% to 50%. The general picture is, for the existing ships, the savings are higher the higher the speed and the lower the speed the difference becomes smaller.
So time will tell how this will evolve but for sure what the market doesn't need now is new buildings. There are too many new buildings already. And I would note that this, the tanker business, is not a team play but it is indeed a positive impact to the general tonnage balance that we don't order the ships.
But they stress, of course, that other companies should do what they think is right and we do what we think is right.
And let me talk a little bit about risk management. I have spoken about this in the past. And we have very low debt than other tanker companies. And we are conservative, low risk people. That is really the gist. The gist of Nordic American is low risk and all upside, low risk and all upside. And we see it now that there's too much focus on earnings per share.
Earnings per share as a measurement does not take account of risk; it does not take account of risks, which is an essential element. Earnings per share has to do with return on equity, but return on equity doesn't add very much. It is too risky.
And we have seen that several of our competitors have gone to the wall because of wrong management systems. And essentially the notion is that if you borrow too much money as a person, as a company, as a country, you go to the wall, you go to the wall.
And therefore the focus on earnings per share may be very dangerous if it is incorrectly applied. The notion of cash flow is much, much more important. Over about 62 quarters we have had positive cash flow in about 58 of these quarters.
It is -- what I mean by positive cash flow is more money is going into the Company than out of the Company. And we have six quarters with negative cash flow since we started many years ago.
Let me talk a little bit about our cash situation at this time. We have a net debt today of about $3.8 million. We have drawn on our credit line $210 million, and we have cash of $63 million.
Let me -- I have spoken now about risk management, which has been a neglected science of [boat rate], of the shipping community, of the investor market. The lesson -- in my judgment there is no question. They all got it wrong and we all got it wrong, that we forgot about the risk management, and we forgot about borrowing too much money and we forgot about the debt level.
When we do a project, we always look at the bottom line. Where are we if everything goes wrong? That is the focus. If we still are in business if everything goes wrong, then we are fine. And we are fine at this time.
Let me also talk a little bit about the age of a ship and the lifetime of a ship. In a way, that has already been indirectly commented upon in the sense that we made this big contract with Exxon Mobil, which is self-explanatory.
But with a ship, it's just like a car. If you maintain it well, it will live longer than if you don't maintain it well. It is as easy as that and I am now [haste] in these views being submitted that it is 10 years, 15 years or whatever. These are, in my view, wrong statements because you must identify the philosophy you have for running a ship.
And we will -- we plan -- I am not saying that we are going to have ships until we are 25 years, but we have an operating philosophy that will have the ships last for 25 years.
Let me take two other elements which now is also important. That is, you know, I mentioned reduced vendor consumption on our existing ships. I mentioned the risk management, and I mentioned the lifespan of a ship. But all, what I'm saying, in conclusion, the first conclusion I would say is that we shall grow. We shall grow, and I'm asking myself and my colleagues where do we go from here. I've never met a person who knows the future of the tanker market.
The tanker market is a function of supply and demand. That is the gist of the tanker market. When it comes to supply, we have said that we are hopeful that the fleet of Suezmaxes hopefully will strengthen the next year in 2014 and it just went over the figures today as reported by Clarkson and reported by RS Platou, two very well recognized broker companies in the world. And we see from the numbers that there are only four ships being delivered next year; and Suezmaxes, 14 have been delivered this year and there are 20 more to come this year.
And then there are a number of ships also coming in 2015. If there will be an amount of scrapping next year we would not be surprised at all if the fleet goes down.
Let me then in summary talk about the general picture when it comes to supply and demand.
Demand to a large extent is a function of the world economy, but one should also understand that supply of tonnage is inelastic in the short term.
By this I mean that a few ships too many, rates go down and a few ships too few, rates go through the roof. And that's what we see. That is the structure of the tanker market, that you essentially have two rate levels -- that is very high level and the layered level. That is important to understand when we talk about the tanker market.
To a large extent we talk about utilization degrees. And some of us have been in situations with large oversupply in the past. During the '80s and even in the '70s it was a large oversupply. That was a different time than now, simply because at that time we had protectionistic policies.
At this time we don't have protectionistic policies to such an extent. We have a free world. Money is flowing freely. Services are flowing freely and trade is flowing freely across the borders. Therefore, the world economy is much more dynamic than in the past.
I will say that we don't like to lose money. We don't like that. Let that be very, very, very clear.
Let me also say that we don't like a low stock price. It's much better to have the high stock price than the low stock price and I say this on behalf of our shareholders and also on behalf of myself who now happens to be the biggest shareholder, and some people are complaining when the stock price is down but I don't have too many complaints when the stock price is up.
But anyhow, we are there to weather any storm that may come, and we are very, very well-positioned in what we call the Nordic American system and as I said, we have a low risk. We have a low risk and all upside. When the market comes back, this Company will be a large, large dividend payer.
That is very, very important. We will stick to an active dividend policy and I'm hopeful that we shall continue to pay dividends. It is the decision of the Board who declare the dividend and I'm hopeful that we shall be able to do that, but that is also a risk management question. We cannot pay dividends if the general financial position of the Company doesn't warrant that we do that.
Okay, I'm optimistic. It can turn very quickly and unexpectedly but we have seen in the past that quality orientation is perhaps one of the most important things associated with this Company. We have always had the belief that quality counts and we will always focus on quality.
So by that, operator, I don't have more to say at this place but I and my colleagues are prepared to respond to any question you may have. Thank you, Mr. Operator.
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Questions and Answers
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Operator [1]
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Thank you, Mr. Hansson. (Operator Instructions)
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Herbjorn Hansson, Nordic American Tanker - Chairman, CEO [2]
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We will be pleased to respond to any questions you may have, but if there are no questions, then we cannot respond.
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Operator [3]
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We can take our first question which is coming from Samuel Sekine of ALJ Capital.
Please go ahead, your line is open.
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Samuel Sekine, ALJ Capital Management - Analyst [4]
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If you guys could just talk about the ship that was -- the purchase that was canceled. Do you consider that the price of $55 million to still be a good price or do you think prices have gotten lower since?
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Herbjorn Hansson, Nordic American Tanker - Chairman, CEO [5]
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I don't think it would be right of me to comment on that. The price of a ship is an agreement between a seller and a buyer. What we should note though is that the market for ships is very illiquid. Since 2008, 2009, 2010, and 2011, there were five Suezmaxes being sold and bought every year and it depends, the price of a ship is dependent upon many things.
Would it be the bank standing behind the owner wishing to have the money? That could be one motivation. If the world economy rosy, that could be another consideration. So I cannot respond precisely to that, sir. I cannot and I would not do that even if I could.
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Samuel Sekine, ALJ Capital Management - Analyst [6]
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Got it. Maybe if you can talk about the VLCC rates. They have gone up pretty significantly in the last month or so. Is that something that you guys think will spill over into the Suezmaxes or if you can talk about just a function of why that has been and maybe Suezmaxes lagged.
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Herbjorn Hansson, Nordic American Tanker - Chairman, CEO [7]
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Let me talk a little bit about that. We have something called down trading in the tanker business. That means that the Suezmaxes, the VLCCs are grabbing market share from Suezmaxes and Suezmaxes are grabbing market shares from Aframaxes. There are more risks associated with VLCCs than with Suezmaxes.
VLCCs can only load at two places in the world if they are not lighter, that the oil is transferred from other places. Notably, the biggest loading area is the Middle East, second biggest is West Africa and therefore -- and there is higher risk associated with VLCC because the Suezmax is more versatile.
But to put it differently, if we have a protracted period of good rates for VLCCs, then it will also be beneficial for the Suezmaxes.
And if we have a long good period of good rates for Suezmaxes then vice versa and a long period with good rates for Suezmaxes, then it will spillover on the Aframaxes. But this is going up and down and as we saw last week, we saw, I think you in America call it flurry, a strong increase in rates for Aframaxes in the Caribbean.
And if you are in the loading area and there are too few ships, the rates go up and it is quite accidental, if you wish, to see, to count the ships in a loading area, how many there are, but they see some reports. They count the ships that are coming through the Middle East and the VLCCs in the next 30 days. I think that's quite a good way of looking at it. To count the big numbers, but I cannot respond more precisely than that, Sir.
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Samuel Sekine, ALJ Capital Management - Analyst [8]
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Okay. Just one last one. I couldn't really hear well; you were giving an update on the cash balance and some -- the debt. Can you give me those numbers again?
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Herbjorn Hansson, Nordic American Tanker - Chairman, CEO [9]
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We have as per the 12th of June we have cash of about $63 million. We had drawn $210 million on a credit line, and we have a net debt, total debt per ship of $3.8 million, $3.8 million.
So we are in good shape and we have the credit line as well and the market will not be very good for the second quarter, but I tell you, we said we are paying a dividend. I will not tell you the level the Board will end up on, but I do believe and foresee that a dividend will be paid also for the second quarter.
Shareholders, they love dividends. I have never met one shareholder who is critical of receiving a little check every quarter. Not at all. But again, this is as I mentioned, a risk management question. If we don't have money, we can't pay dividends.
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Samuel Sekine, ALJ Capital Management - Analyst [10]
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And one last one for me. Can you maybe just walk us through the use of the equity raise that was done? Where did the proceeds go exactly?
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Herbjorn Hansson, Nordic American Tanker - Chairman, CEO [11]
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We did have an equity raise in April. The money came on to our account the 5th of April, $102.4 million and coming back to your question about the values of ships, I don't know how in the short term this has strengthened the financial position of the Company and we are going to expand when we are going to expand. It's a different story and the resources of the Company will be used to expand.
And no question, and we did try to expand with one ship but that didn't materialize because we canceled the ship and then we might buy another ship. I'm not saying it will happen today or tomorrow or the next one, but that we are going to buy more ships there is no question on that.
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Samuel Sekine, ALJ Capital Management - Analyst [12]
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So is that $102 million at the Company on the balance sheet?
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Herbjorn Hansson, Nordic American Tanker - Chairman, CEO [13]
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What was that?
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Samuel Sekine, ALJ Capital Management - Analyst [14]
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You said you had $53 million of cash today -- is that assuming that $50 million of cash was used of the $102 million?
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Herbjorn Hansson, Nordic American Tanker - Chairman, CEO [15]
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We have $63 million of cash today in the bank, $63 million and we have drawn $210 million on our credit line which means that we have $220 million undrawn plus cash, $63 million. So we have $280 million in direct liquidity reserves and that it does not take account of the working capital.
The working capital of the Company you could put it differently. We have a net debt as we speak now of $3.8 million and that is $76 million is the total net debt of this Company, $76 million. And then when you look at the accounts, you would see that we have ample resources moving forward.
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Samuel Sekine, ALJ Capital Management - Analyst [16]
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Okay, thank you.
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Operator [17]
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(Operator Instructions). Our next question comes from Michael Moskoff of MRM. Please go ahead, your line is open.
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Michael Moskoff, MRM - Analyst [18]
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Yes, can you just tell me how much stock do you personally own after you buying [160 -- 156,000]?
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Herbjorn Hansson, Nordic American Tanker - Chairman, CEO [19]
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5.6% of the Company.
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Michael Moskoff, MRM - Analyst [20]
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And that's 5.6% of --
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Herbjorn Hansson, Nordic American Tanker - Chairman, CEO [21]
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Of the total of $56 million -- of 56 million shares. I have about 3.3 million, 3.3 million shares.
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Michael Moskoff, MRM - Analyst [22]
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Okay, I thought the shares outstanding were 54.825 million.
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Herbjorn Hansson, Nordic American Tanker - Chairman, CEO [23]
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No, it has increased. It is now 56 million.
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Michael Moskoff, MRM - Analyst [24]
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Is that after the offering?
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Herbjorn Hansson, Nordic American Tanker - Chairman, CEO [25]
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Yes.
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Michael Moskoff, MRM - Analyst [26]
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Okay.
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Herbjorn Hansson, Nordic American Tanker - Chairman, CEO [27]
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And I paid, I bought personally, 1.5 million in the offering enterprise that all the others paid.
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Michael Moskoff, MRM - Analyst [28]
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Okay, and when we talk about the dividend, it's paying right now $0.16 per quarter and obviously it fluctuates quarter to quarter. Going forward, if things stay the way they are, can we assume that the dividend will stay the way they are?
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Herbjorn Hansson, Nordic American Tanker - Chairman, CEO [29]
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Generally speaking, it depends how long horizon you have. But it seems pretty sure that we said -- firstly, it is absolutely sure that we shall have a dividend every quarter this year. Whether it is 16% or $.16 or a shade below or a shade above will depend on the future course of activities.
So it wouldn't be right of me to say it will be this or that because that is a decision that will be taken by the Board of this Company. But at every dividend you can rely on that in my view and I say this and I will tell all of my Board members that I cannot see the dividend go to zero. No. Not this year.
And then we will see next year will the market improve? The time will tell if the market will improve. And of course, we essentially in our planning we can have two perspectives. Either the world stops or the world doesn't stop. And of course, in all types of economic planning, we must assume that the world goes on, but we have a large reserve here and a large leverage in the sense that we will survive on many, many good years if we don't do anything stupid.
I don't think we shall be doing anything stupid because there is so much -- there are so many good people in this Company both on management side and on the Board side and on advisors that it's hard for me to believe that we shall do that but we are always very conservative and always very cautious and we take our job very seriously and we see how badly it can go when we look upon -- I saw yesterday or the day before a company in the Far East on the dry cargo side that went to the wall and I believe that was a dry cargo company in New York that went wrong.
The tanker market is different than the dry cargo market, but many ship owners have both dry cargo ships and tanker ships. So in a way, there is a spillover effect.
But the good thing for shareholders is that everything is transparent in Nordic American and that's a good thing for the charter and oil companies. They can see reading about this Company but if they hire ships from another company, you know they don't know their balance sheet. They don't know if they have money and we now see very often this question of financial betting that the oil company would like to simply see your accounts, who are you dealing with, and that -- we do have a competitive advantage in that regard.
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Michael Moskoff, MRM - Analyst [30]
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Thank you.
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Herbjorn Hansson, Nordic American Tanker - Chairman, CEO [31]
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You're welcome.
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Operator [32]
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Our next question comes from Jeff Lynn Roth of Leaving it Better, LLC. Please go ahead, your line is open.
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Jeff Lynn Roth, Leaving it Better, LLC - Analyst [33]
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Good morning.
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Herbjorn Hansson, Nordic American Tanker - Chairman, CEO [34]
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Good morning, sir.
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Jeff Lynn Roth, Leaving it Better, LLC - Analyst [35]
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I have an anticipation that interest rates a couple of years from now will be significantly higher than they are now. When you think about if I'm right -- when you think about interest rates being significantly higher in the near future, if I'm right, how do you see that affecting Nordic American and your competitors? How do you see the overall effect of that?
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Herbjorn Hansson, Nordic American Tanker - Chairman, CEO [36]
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For us, it will not be a big deal simply because our debt will be low. Our debt will be low and it is low for which reason it will not impact us in any very material way. I cannot see that we shall assume a big interest bill, but I do see for other companies having a lot of leverage. In addition to being financially exposed they also have operating challenges in the sense that they have to pay interest rates.
So the answer is it will improve our position and that is really the gist of the situation of this Company. We don't make money at this time which, I think, is to be regretted, but on the other hand, we are doing better than the rest of the companies in terms of a total return which is the correct measurement.
That is the dividend reinvested in the stock less the stock price. So in conclusion, Sir, whether you are right or wrong, or a little right or a little wrong on your view and interest rates, it will not have a material impact on us.
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Jeff Lynn Roth, Leaving it Better, LLC - Analyst [37]
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Thank you very much for that. Just one more, at the moment, and there are others that forecast this, but you have a great deal of experience in this industry. Two years from now, do you expect that the -- is it your expectation that the net effect on the fleet of Suezmax tankers in the industry will be lower or higher than it is now?
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Herbjorn Hansson, Nordic American Tanker - Chairman, CEO [38]
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I'm hopeful that the fleet will shrink the next two years. That would be in mid 2015 at that the fleet will shrink.
I'm hopeful, but of course there is a risk associated with that judgment. I told you that there are 20 more ships to be delivered this year. There are six next year and 14 in 2015.
I could comment on some of these ships are from Brazil and you could talk about how quote unquote reliable are the Brazil orders and some are from China and from yards which may be subsidized by the government but our hope is, of course, that it will be lower and I believe it will be lower also because of the dynamics of this industry. But let us just reflect for a second, I'm talking about 50 or 60 new ships coming this year or next year, including the 14 delivered now.
The question is then how much is that? 1 million barrels of oil going from the Middle East to the Far East is equivalent to 40 ships, 40 Suezmaxes. So if we have 1 million barrels of oil more in the Middle East towards the East, 40 ships would be absolved and therefore we see very clearly that it doesn't take very much to restore the balance.
Correctly stated as some of you have done, the Americas have decreased imports but the exports from other countries to the Far East is higher than the decreased imports. So that is one point.
The second point is also the extent to which scrapping will accelerate and we see that we have ships that are two years or three years and we have ships that are 15 years and 16 years and they are becoming more expensive to have a so-called (inaudible) survey.
We are talking between $2 million to $3 million or so for ships that are 15 to 16 years and we are talking from $2 million to $2.5 million for ships which are a little bit younger, but anyhow, the big $2 million or $3 million is a big ticket and this will be a burden for many who simply cannot afford to dock the ship and this could increase this scrapping.
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Jeff Lynn Roth, Leaving it Better, LLC - Analyst [39]
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Thank you very much. That's very helpful. Just a very brief follow-up. I think you were just starting to touch on it at the end. If the spot rates do not improve and in fact, even if they were to, for some reason, modestly deteriorate, a company which has liquidity problems shall we say, I would expect them to come not only under internal pressure but perhaps even under pressure from creditors. Is there a reasonable expectation from your point of you that creditors who are being asked to lend additionally into a troubled operation would conceivably give encouragement to scrap more ships?
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Herbjorn Hansson, Nordic American Tanker - Chairman, CEO [40]
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Absolutely. You are absolutely right. I could have said exactly the same as you said now.
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Jeff Lynn Roth, Leaving it Better, LLC - Analyst [41]
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Thank you very much for taking my questions.
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Operator [42]
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(Operator Instructions). Our next question comes from [Mark Rouskey] of [Diversity Financial]. Please go ahead, your line is open.
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Mark Rouskey, Diversity Financial - Analyst [43]
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Good morning, Mr. Hansson. How are you, sir?
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Herbjorn Hansson, Nordic American Tanker - Chairman, CEO [44]
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Fine, and yourself?
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Mark Rouskey, Diversity Financial - Analyst [45]
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I'm doing well. I have a question for you. I try to be a regular on these conference calls and I've heard you say many times in the past that one of the litmus tests for Nordic American relative to vessel acquisition is that it must be accretive to earnings and dividend paying capabilities of your Company.
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Herbjorn Hansson, Nordic American Tanker - Chairman, CEO [46]
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(Inaudible) overtime.
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Mark Rouskey, Diversity Financial - Analyst [47]
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Yes. And I do understand that you mentioned today that the importance of maintaining low debt and low leverage is important as well.
The question I have and one of the prior callers spoke about it is that given the lower interest environment and the cost of cheap capital by historical standards, I question the policy of the multiple equity offerings that the Company has done to finance vessel acquisition, even in situations where currently the share price is so depressed leaving you to have to offer so many additional shares.
So the question that I have is do you not see shareholders being diluted significantly more than what would be the cost of capital in this interest rate environment?
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Herbjorn Hansson, Nordic American Tanker - Chairman, CEO [48]
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I believe you must take account of the risk management side of it. When you borrow too comprehensively, you go to the wall and this is a balancing act. I agree with you. I agree with you. As I said previously in this conference, this focus on earnings per share does not take account of the risk management side of the business.
Because I agree with you we had already done that offering now in April and we try to buy ships which we didn't succeed but we will come back. But I agree with you we should not issue stock at low prices but we wish to have all upside and limited downside and that is always a balancing act.
We would like to issue stock at $20 but we cannot do that when the price is $10. It is perfectly valid what you are saying but I would also like to say you must analyze the risk management picture before you can draw a clear conclusion of it.
That is my view on this. You really cannot do this kind of analysis without taking the risk side, risk management side of it, because in the economic textbooks we learn at the universities and business groups that the main thing in business is to survive because if you don't survive, then you are not in business anymore because the competence, et cetera, et cetera in the organization must be preserved and that is preserved via survival.
But what you are indicating is indirectly that of course if the market is down for a very long time, I don't believe it will, but that is just my subjective assessment, then the whole industry will get into serious struggle. But we are better placed than our competitors. That is the thing that we can do as management and Board. Unfortunately although we would like to, we cannot impact what other owners, ship-owners are doing and we cannot impact the world economy.
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Mark Rouskey, Diversity Financial - Analyst [49]
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Thank you very much.
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Herbjorn Hansson, Nordic American Tanker - Chairman, CEO [50]
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Are you located in New York?
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Mark Rouskey, Diversity Financial - Analyst [51]
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I am, sir.
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Herbjorn Hansson, Nordic American Tanker - Chairman, CEO [52]
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That's good. Big Apple.
Okay, any more questions?
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Operator [53]
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Yes, our next question comes from Harden Buffet of HSB Capital. Please go ahead, Sir, your line is open.
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Harden Buffet, HSB Capital - Analyst [54]
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I appreciate the call today. I have a follow-up question, Mr. Hansson, on the balance sheet details that you provided earlier. Cash of $63 million in debt of $210 million, would you mind -- were there other changes to the non-cash kind of portion of working capital during that period as well? I'm just trying to bridge the use of proceeds from the offering in April.
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Herbjorn Hansson, Nordic American Tanker - Chairman, CEO [55]
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I don't have that in front of me. Could you give me a call after this conference? We will go through it. The only cash outlays that we have are associated with the stockings. These are the main elements of the cash outlays and I did give you the figures for docking and the non-cash elements I have fully in front of me I can see it in our last report from the 10th or 12th of May.
We will see it and we are drawing up the numbers here. We have a share-based compensation and pension costs and they are in the first quarter, $1.3 million and they should not be different now. Are you talking about non -- ?
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Harden Buffet, HSB Capital - Analyst [56]
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No. I'm talking about balance sheet items. So working capital at the end of the first quarter, I think, was around $97 million the current asset, current liabilities. Do you have an updated figure for working capital at June 10th, I think, is the date you mentioned?
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Herbjorn Hansson, Nordic American Tanker - Chairman, CEO [57]
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After this -- if you will give us a call right after this meeting, we will find it for you.
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Harden Buffet, HSB Capital - Analyst [58]
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Sure.
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Herbjorn Hansson, Nordic American Tanker - Chairman, CEO [59]
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I have the balance sheet here and the working capital. It's a little bit difficult to calculate online but there are not big differences but I should tell you when you talk about that that now we own Orion pool 100%, which is our chartering department. That is fully consolidated in our accounts as from January 1 to it.
You may recall some of you that we worked together with John Fredriksen and he had nine ships and we had 20 and he decided to leave the pool and we have an excellent relationship in all respects but I don't have your figure. If you could send an email to me I will pass it on and you will get precise answer because we don't have the work --.
We had the working capital at the end of March and we will have it at the end of June and I cannot see anything that has happened when it comes to the working capital after the end of March except for the docking costs. And if I should say something for these dockings, I think there will be no more between $7 million and $10 million in change -- difference now than it was at the end of March, I would say, but we shall confirm that to you if you will give us a call.
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Harden Buffet, HSB Capital - Analyst [60]
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Sure, no problem, thanks.
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Operator [61]
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(Operator Instructions). Our next question comes from [George Gabriel], a private investor. Please go ahead, your line is open.
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George Gabriel, - Private Investor [62]
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Yes, I just have one question. It seems to me that there is a strategy. Every time the Nordic American shareprice starts to rally there's a change in sentiment and it has a significant rally off the bottom, you guys seem to do a secondary. Is that going to be a pattern going forward? I know a lot will depend on the conditions in the tanker market, but is there any thought to allow once the stock reverses and starts to move higher not to hit it with a secondary?
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Herbjorn Hansson, Nordic American Tanker - Chairman, CEO [63]
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The answer is no. That is not what is driving the thing. We had one secondary in January of last year and we had one now. It will be a part -- if we have and we don't have any plans now -- if we have, it will be part of an expansion plan.
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George Gabriel, - Private Investor [64]
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Right. So you're thinking that those two should be good for the foreseeable future?
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Herbjorn Hansson, Nordic American Tanker - Chairman, CEO [65]
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Absolutely. No question.
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George Gabriel, - Private Investor [66]
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Okay, because both times the share price was acting a lot better and then the secondary came in and the rally was over and the share price. So that's just an observation as a former professional trader. I worked at an investment bank and I follow your stock, I own your stock and I'd love to see it sustain an uptrend at some point.
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Herbjorn Hansson, Nordic American Tanker - Chairman, CEO [67]
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I agree with you. I would love to see a higher stock price.
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George Gabriel, - Private Investor [68]
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All right, thank you.
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Herbjorn Hansson, Nordic American Tanker - Chairman, CEO [69]
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You know, let me come back to the question from before. The changes in working capital is between, I believe, between $7 million to $10 million since the end of April because one of you guys ask that question and I was looking for the best working capital.
Okay, have any more questions?
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Operator [70]
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Yes. Our next question comes from Tom Dusmet of BMO Nesbitt Burns. Please go ahead, your line is open.
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Tom Dusmet, BMO Nesbitt Burns - Analyst [71]
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Thank you very much for the call. This has been very interesting. Can you please repeat -- you did tell us quickly and I was trying to take a note -- I didn't quite catch it -- what does it actually cost to dock and survey a ship? Because you talked about older ships needing to be surveyed and I didn't know what the difference was between those two numbers. Can you please repeat that?
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Herbjorn Hansson, Nordic American Tanker - Chairman, CEO [72]
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Yes. A ship which is -- I can give you the actual number and that is 15 years or so it would be between $2.5 million and $3 million.
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Tom Dusmet, BMO Nesbitt Burns - Analyst [73]
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That's to survey it?
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Herbjorn Hansson, Nordic American Tanker - Chairman, CEO [74]
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No, then it is brought to dock and have a survey and then we change steel, we upgrade the ship, and we keep it in order and keep the quality.
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Tom Dusmet, BMO Nesbitt Burns - Analyst [75]
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Okay, so that's to drydock the ship and survey it?
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Herbjorn Hansson, Nordic American Tanker - Chairman, CEO [76]
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Yes. The survey, we are talking about small money.
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Tom Dusmet, BMO Nesbitt Burns - Analyst [77]
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Right, the dry docking is the expensive part.
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Herbjorn Hansson, Nordic American Tanker - Chairman, CEO [78]
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Yes $100,000 or something to declassification society, but the big thing is change of steel, upgrading or so, when the ship is 15 years, it's $2.5 million to $3 million. When the ship is 10 years, when you have special surveys, 10 years and 15 years, it is $2.0 million to $2.5 million.
Normally when you are in drydock, we need a lot -- not a lot, but we focus on coating, coating in the ballast tanks and also in the cargo tanks. Essentially, and I have my technical staff here together with me, but essentially, a ship which has good steel you can always fix what's inside, but the ship which has bad steel, that ship is lost and I have here details from Nordic Jupiter, 1998, Nordic Pfister 1998, Nordic Apollo 2003, Nordic Discovery 1998, Nordic Saturn 1998.
These are ships that we have surveyed recently and then we had also Nordic Hunter which is a ship that we had had since the day one. I can tell you it was my wife that was the sponsor of that ship and threw the Champagne bottle towards the ship's hull and we just had a survey and the drydock costing $2,150,000.
So the survey costs are very small. Docking costs are very expensive. We could afford it and the proof of the pudding is in the eating, I believe, and when major companies like Exxon Mobil access us, that's a good sign.
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Tom Dusmet, BMO Nesbitt Burns - Analyst [79]
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And what is the cost on an annual basis a just to park them so to speak because presumably sometimes they have to be parked and if they ship has to be parked for too long and you're under pressure, that's when you scrap it, right?
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Herbjorn Hansson, Nordic American Tanker - Chairman, CEO [80]
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No, I wouldn't. We call it later. We call it layer if we layer the ships. I don't envision that we shall be doing that in particular now but I see that others may do it but we have the so-called dry layup. That is a cold layer and you know when you have a dry layup or [hurt] layup then you have a small skeleton crew on board and when you have a cold layer you essentially close the ship it but we are not going to do that.
What there is a big -- I think you call it love or in the sense that we go very slowly, we go very slowly in the ballast legs and then we go faster during the when we have cargo on board but I spoke to an owner the other day who is financially exposed and he told me he had [take] one or two of his ships into layer.
Because occasionally rates have been so far down that it has been controversially more advantageous to layer a ship then to trade it. Nobody knows what the future is holding but I don't foresee that this will happen to us.
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Tom Dusmet, BMO Nesbitt Burns - Analyst [81]
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But is that happening to others?
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Herbjorn Hansson, Nordic American Tanker - Chairman, CEO [82]
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Yes, we have seen that. But they don't tell us. That could happen. That is one way of adjusting. The thing that they simply cannot afford to run the ships and we can afford it and it's a question what is commercially right to do and as far as we can see now it is commercially right to go on running the ships. We had first quarter 12 we have a negative $1.1 million cash wise. The third quarter we had minus three and the fourth quarter, we had minus six.
And you know we are in fact talking about quite small money for us cash because the cash is governing the way forward. Over '09, '10, '11, and '12, four years, we've had a cash deficit of $31 million, $32 million, about $40 million and when you take $40 million and divide by 20 ships, that's $2 million over four or five years, that's not a lot of money. It is not a lot when we have a cash deficit of $2 million per ship. Then we are far away from the point at which we would layer the ship.
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Tom Dusmet, BMO Nesbitt Burns - Analyst [83]
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Thank you.
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Herbjorn Hansson, Nordic American Tanker - Chairman, CEO [84]
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Pleasure.
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Operator [85]
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(Operator Instructions).
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Herbjorn Hansson, Nordic American Tanker - Chairman, CEO [86]
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So many good questions here so I believe we must have another conference tomorrow maybe. I enjoy this.
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Operator [87]
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Mr. Hansson, we have no signals for further questions at this moment.
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Herbjorn Hansson, Nordic American Tanker - Chairman, CEO [88]
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Okay, I would like my people to hang in there and I would like to thank you very much for joining the conference and please contact us and the person who spoke about this running cost -- working capital, we ask you to specifically contact us.
The Norwegian spoken congregation of my colleagues, could you hang in please? Thank you very much for joining.
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Operator [89]
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That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.
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