Q4 2016 Nordic American Tanker Ltd Earnings Call
Feb 07, 2017 AM EST
NAT - Nordic American Tanker Ltd
Q4 2016 Nordic American Tanker Ltd Earnings Call
Feb 07, 2017 / 01:00PM GMT
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Corporate Participants
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* Herbjorn Hansson
Nordic American Tanker Ltd - Chairman and CEO
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Conference Call Participants
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* Fotis Giannakoulis
Morgan Stanley - Analyst
* Mike Webber
Wells Fargo Securities - Analyst
* Magnus Fyhr
Seaport Global - Analyst
* Greg Lewis
Credit Suisse - Analyst
* James Young
Maxim Group - Analyst
* Mike Mauskopf
MRM Capital - Analyst
* Joseph DePaul
DePaul Capital - Analyst
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Presentation
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Operator [1]
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Good day and welcome to Q4 2016 Nordic American Tanker Earnings Conference Call.
Today's conference is being recorded.
At this time, I would like to turn the conference over to Mr. Herbjorn Hansson, Chairman and CEO please go ahead, sir.
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Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [2]
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Thank you very much, ma'am. And to all of you, thank you very much. I just would like to state that today's presentation and discussion may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. And I would just like to have that as a starting comment.
Let me then, at the beginning, start out by giving you a little overview of Nordic American Tankers, Limited. For us, it is important that we have a sustainable business strategy in both strong and weak markets. And that strategy is based on simplicity, transparency, and predictability. That strategy has been the same essentially since we started out in 1995. And I would spend a few seconds on explaining, the strategy the main element, expansion of homogeneous fleet, cash flow essentially distributed to shareholders, a strong balance sheet, close customer relationships, maintain a top-quality fleet, interest-aligned shareholders management, low cash breakeven including low G&A costs, exposure to the time charter market and to some extent, the sport market with a focus on the customers. And we leverage our industry network.
I'm sitting here in Norway together with a few friends, my number two-person, Turid, who was living in America in Houston, Texas for seven years, eight years. I'm also together with, Grosland, who was living in New York for about seven years, and myself according to my passport. I have been in America between 150 and 200 times. I have studied in America and have also a business degree from Norway.
I am very, very pleased with the work that's going on in Nordic American Tankers. I'm prepared to respond to any questions you may have. Please be critical and please be aggressive and please ask us about anything associated with this Company. I was very pleased to see yesterday, although I don't go in the market and assess the market day by day, but our investors -- the investors and our customers, they are the two most important constituencies. And our investors were very pleased yesterday with what they saw. We had another increase on the stock price of about 4%, and all the other major tanker companies were down by a percentage or two or even more.
What I would like to stress is that there is no other company out there like Nordic American Tankers. I did review the nine, as I said, dimensions of the company for you, and you should not compare us with anybody else, because there is simply nobody that has the approach and the strategy that we have.
2016 was a very good year for NAT. The results for the fourth quarter was $21,600 on a time charter basis, which was solidly higher than the third quarter, which is $16,700 and 2017 has started out very nicely. Where we have time charter equivalent of $25,000 and slightly above that.
What we do see at this time is the benefits of an increasing fleet. You may have noticed that during the last year, only during December, we added five ships from our -- to our fleet. We bought four ships from Costa Lemos, the prominent Greek ship owner, and we had a new building being delivered in early September last year, a new building from SungDong. And now we are reaping the benefits of having a large fleet.
We have the best total return, which is the same as profitability, since 1997 compared with all other the companies, shipping companies. Yet again, I remind you that this company is very different from all the others. And risk management, I would say, it's very important for a company in order to be successful in both a strong and a weak market.
Let me tell you that homogeneous fleet, we have Suezmaxes only, and the growth of the homogeneous fleet is one of the key success factors of NAT. We have now, at the end of this month, we will have 30 ships trading, and they have a huge potential -- income potential.
And we have a very, very close relationship with our customers. I mentioned the two main constituencies: that is customers and shareholders. And I'm not listening a lot to what the other companies are doing or saying. But it is quite noteworthy that there is almost no mention of the customers mentioned. The market may go up, the market may go down, or the market may stay where it is; but the most important constituency is our customers.
We should have no name-dropping here that Exxon Mobil, one of the biggest companies in the world and one of the best companies in the world, is an important customer of ours. I have personally met -- I don't know him, but I have met Rex Tillerson, who is now the Minister of Foreign Affairs in America. And we have a close relationship with Shell. We have a close relationship with British Petroleum; and also in particular, we have a close relationship with Chinese Interests.
The biggest oil companies in the world. Last year, I was personally in China together with two of my colleagues. One of them is here, Mr. Tomstad. We were in China talking to UNIPEC, which is one of the largest oil companies in the world, and talking to the Chinese oil company and also the new teapot refineries. It's very stimulating to be in China and in the Far East, and that's really where the action is.
We have about 20 ships in the Far East and about 10 on the Western side. China is very important for us and also along with India. We do a lot of business in India. And that has turned out very successfully. Our next trip to China will be in April and I will go there together with two of my colleagues and visiting our Chinese friends and strengthen the relationship with them.
And the market has been very nice to us and we enjoyed a very good relationship with big oil. Big oil is our friends. And we prioritize them to the maximum extent. We are also dealing with other companies including Glenn core and Shell and BP and Mercuria and Chevron. We also quite often go to Houston Texas, Houston Texas where Exxon have their new shipping center.
I can tell you something that you may not know, and that is we were, and I was personally involved in Lightering, which is transfer oil from the big ship coming from the Middle East to a smaller ship. And we started out in 1981 with that, when I was a senior executive in another company, and if somebody should be called professor of lightering, it should be my colleague Mr. Sissener. and myself. I was the chairman, and he was the CEO.
And we started the lightering business on a big commercial scale. Don't get me wrong here, I'm not bragging I'm just telling you the truth.
If I can mention another thing for you, we have an average fleet age of about 12 or 13 years or so and I would note that shipping technology for crude tankers has not changed very much over the last 20 years. There is only one difference 20 years ago and now that is the consumption, speed consumption methods; they are slightly different now. When you go past, you consume more oil with a 15, 17, or 20 ships then a younger ship. But except for that the technology is very much stable.
With me today here is also one of my good friends and technical director who has been living in Japan for a few years, and we started out in the early 80s ordering ships in Japan. Liquidity of the stock is essential for us in order for shareholders to buy and sell stock, whenever they wish.
And to make a long story short, I'm very, very pleased with what you are seeing. I'm very, very pleased with having all my colleagues here and I'm very pleased that so many people are joining this conference. Again, I summarize where I started, nobody has the same strategy as us. We are a very special company with a clear cut strategy that we have been following all the time. We had the highest total return that is profitability and I'm not ashamed to tell you that I like better hundred dollars than $50.
And the point we are at now I'm very, very optimistic about the future, based upon our relationship with big oil. They like us because we have 30 and now coming to 33 ships, and that is why they would like to do business with us. Let me also say that next year we will have three more ships coming, and that will necessitate an outlay of about $116 million, and we had paid about $55 million already for these three ships.
So I'm very proud and I will say modest and humble to be able to be chairman of this Company, which has served shareholders and which has served customers so well. And we're going to continue on that path and I'm very pleased that so many of you have joined us and please, ask any question, any question you have about everything associated with this Company.
Thank you, Madame, who is chairing the session, or who is managing this, and I give the word back to you.
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Questions and Answers
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Operator [1]
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Thank you.
(Operator Instructions)
Fotis Giannakoulis, Morgan Stanley.
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Fotis Giannakoulis, Morgan Stanley - Analyst [2]
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Yes, hello and thank you for this opportunity.
You know this is the first call after a very long time, that you gave after earnings, and I'm wondering if this constitutes change in strategy or a more aggressive expansion strategy? I want to focus a little bit more on your expansion plan. Last year you acquired a number of vessels if I'm not mistaken, seven new vessels, what are the plans of the Company in terms of expansion for this year, and how are you planning to finance this expansion?
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Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [3]
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Thank you for your questions, when it comes to the conference call, last time I believe we had it in 2012, according to TradeWind News, which is a reliable magazine I must say, we have always a communication challenge. We are trying to explain as well as we can, in our written reports, that unfortunately, many people don't read the reports not even the first 10 lines.
And secondly, some of them don't understand what's going on, and it's difficult to have that written dialog with somebody who doesn't understand what's going on. And that's why we wish now at this time to have this conference again, to urge to ask a lot of critical questions, or any questions if you can help you understand what we are doing, that would be great.
Coming back to your second question, Fotis, about expansion, I am hopeful that we shall be able to expand significantly. I cannot promise and say we will expand by so many ships by that date or by that date, but now we are at 33 ships, and I would say that our objective in the first phase, not this year but maybe this year or next year, maybe we should be at 40 ships. I'm not promise anybody 40 ships, but as long as we don't have expansion -- as long as we don't have ambitions, we are dead.
And I can tell you that my colleagues and myself we are indeed ambitious, on behalf of our customers, and on behalf of our shareholders. So, is 40 okay for you?
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Fotis Giannakoulis, Morgan Stanley - Analyst [4]
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Yes, that's very helpful, Herbjorn. If you will allow me to follow up on the expansion plans, I was wondering if this expansion would be potentially new building vessels, secondhand vessels, or even if you see opportunities for expansion through consolidation, combination with another entity?
And if you can comment opportunities for expansion through consolidation. We saw the offer Frontline that was rejected earlier this week, if you think that there is room in the industry to consolidate through mergers and if your company can be one of these consolidators?
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Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [5]
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Let me talk about consolidation, that is a popular word out there. You know, preferably you should consolidate with somebody who is like you and there's nobody like ourselves. I know the DHT people they are first-class people, I know very well Mr. Munthe who is heading up the thing. I did know his father, who was the most impressive academic in Norway during the 80s, Professor Munthe, and DHT is an excellent company. It's an excellent company, with a good fleet and good people.
I would like to say when it comes to consolidation, we have been thinking, I can tell you, my friends, about expanding into the VLCC business, we have been thinking about expanding into the Aframaxes business, but we have so far always come to the same conclusion, stay where you are. Do what you know best and do what you can best.
We have a saying here in this part of the world, that the holy shoemaker, shoemaker stay where you are and deal with shoes because that is what you think about. That is what your expertise is about. Where we would like to go, whether we would like to go for secondhand ships or new buildings, you know, it's a difficult question. If I should respond very bluntly, I would say, I don't know. That would be the first question and I don't know anybody who knows.
But I believe we would have an inclination about going for possibly secondhand vessels. Possibly secondhand vessels. But I'm not promising anything on that score. But there's one thing that is absolutely essential, they must be good quality vessels. They must be good quality vessels.
We are not -- and that is perhaps one of our main strengths that we have high quality vessels, low-cost vessels, one type of vessels. I'm referring again to the reaction of the markets yesterday, I would tend to indicate secondhand vessels, but it could be both. It could also be new buildings, people are chasing us every day.
I can tell you every day, even today I got a message from a broker who is coming rushing afterwards. The good thing about we are located 1 1/2 hours from Oslo, and here in this office, we have several offices, and the best thing is our confidentiality, nobody knows what we are doing. Those of you who are brokers, normally you get very frustrated when you don't know what is happening. And our confidentiality is a very good strength of this Company.
And we are very pragmatic, if I should respond very precisely, again, is that we like to make money. You know, I say it as simple as that. And it is always, we have a saying also, that you must be able to have more than thought in your head at the same time. That is a saying here in this part of the world. And I would say here we must have many thoughts in the head at the one time.
It's a question of the markets, it's a question of the ship building sector, it is a question of your customers, it is a question of your competitors, are they bankrupt and check their 11 and them have been there as you know. And there are many dimensions associated with that and I simply don't know what will happen.
But I'm not -- I focus on two things, firstly I'm focusing on expansion of this Suezmax fleet because it's a huge advantage to have ships of the same size that keep costs down, and it is a huge advantage to have a high quality fleet that we have, as reflected by vettings. Vetting is the inspection of the ships by the oil companies, and they are very impressed and we have the best vetting story in the business.
Sorry for talking too much, Fotis.
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Fotis Giannakoulis, Morgan Stanley - Analyst [6]
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That's very helpful, Herbjorn. One last question, you mentioned that you like to make money but you also like to distribute dividends and your investors like it even more.
Your dividend is right now north of 9% yield. Can you give us your outlook for the market going forward that a lot of people have concerned about that a lot of people are confused about the potential changes in regulatory regime and indicators of the new administration? Given how close you are in your customers and to the different policymakers, can you give us your outlook over the next 18 months for the Suezmax market and the potential development of your dividends?
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Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [7]
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Well, you know, I asked a friend of mine what you think about the market. And the friend of mine, very informed guy, he said, I don't have a clue, and if I did know something I wouldn't tell you. I shall not say that we're not in the guessing business. The market can go three ways. It can go up, it can go down, it can go sideways.
And if you are a nervous person, you should not be in the tanker business, then you should look for something else to do, in my view. But to be honest with you, I don't know. I know that we have had a very good start of this year, and you must remember that at these rates which we indicated in our report of $35,000 a day on an tank charter basis, where we have a low cash breakeven for the whole company of about $11,000. We make tons of money.
And that is not fully understood in the marketplace. But let me not kill any optimism here, I'm positive to the market. When I visit my colleagues, when I visit the far east, when I visit Exxon Mobil, when my colleagues are visiting Shell, I'm encouraged with what I see. So because the Company itself, you know we are in the business and we cannot exit the business, only the shareholders can exit the business, because what have a high liquidity, but I must admit that we are optimistic by nature.
And we have been around for a long while. I started out I'm almost ashamed to tell you in 1974. After graduation from Norway, and afterwards I learned a little bit more also from studies in America, but I feel good about it, Fotis, that is it. And if you are nervous, find something else to do.
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Fotis Giannakoulis, Morgan Stanley - Analyst [8]
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Thank you very much. That's been very helpful.
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Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [9]
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Thank you.
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Operator [10]
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Mike Webber, Wells Fargo.
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Mike Webber, Wells Fargo Securities - Analyst [11]
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Good morning, guys. How are you?
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Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [12]
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Doing fine, thank you, and how are you?
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Mike Webber, Wells Fargo Securities - Analyst [13]
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I am good. I am good.
Thanks for hosting the call. I wanted to backtrack a bit and just maybe get a bit more specific with some of the I guess some of the questions, specifically around the call. This the first one since 2012 and is something you guys expect to continue to do in the future?
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Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [14]
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I don't know.
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Mike Webber, Wells Fargo Securities - Analyst [15]
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Okay. In terms of the dividends, you're looking at expanding next year. That seems open ended. You've got a modest degree of leverage that you're using in part to help fund the dividends in kind of a countercyclical way. Is that dividend something you would expect to continue at or near the current level even while you are expanding?
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Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [16]
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Let me talk to you about the dividend. Last time the dividend was $0.26 and now the dividend is $0.20, but last time there was at one-time income of about $5 million or something like that associated with the conclusion of a discussion we had litigation in Dubai. So if you take away that one-time thing, the dividend last time was $0.21, so in reality, the dividend has gone down from $0.21 to $0.20.
On a more general question, we will and shall do our utmost to pay dividends all the time. Dividend is a reflection of our focus on shareholders and investors, that's extremely important for us. I cannot envisage that we should not pay dividends, you know. Of course it depends on the future market, but as it stands now, we will pay dividend.
Whether the dividend goes up or goes down, or stays where it is, it's a different question. I couldn't tell you and I don't think anyone else could tell you either, simply because we don't know what the market. To put it differently, we will now pay our new buildings, we will which is important, we may do more business and what I can promise is one thing, we will do everything we can to keep dividends, to keep the dividend.
Whether it goes up, goes down, or sideways, is a different question. But we shall pay dividends as long as I'm the Chairman of this Company, and I warn you that can be pretty long.
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Mike Webber, Wells Fargo Securities - Analyst [17]
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That makes sense and was a good answer. Just to go back again to the growth strategy, to make sure I'm clear on this, you're looking at a standing into other asset classes, but you want to stay within crude. Did I get that correct? You mentioned being the best good shoemaker staying a good shoemaker, but we're talking the difference between shoes and sandals, here, we're not talking to building a car. So would you be looking at these and avarice the secondhand market as well?
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Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [18]
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To be blunt about it, I would rate that probability as very low.
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Mike Webber, Wells Fargo Securities - Analyst [19]
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Okay.
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Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [20]
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It's very low. But you know what I say what we need yesterday, it's not the thing that you need tomorrow, but the probability is low. And therefore, we are like the shoemaker, we stay with our own business.
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Mike Webber, Wells Fargo Securities - Analyst [21]
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That's helpful.
Around M&A in the space, I know what to look at NAV but within -- humor me, within the context of the equity markets today would you pay above NAV for a public entity, where you can add scale and acquire those assets quickly, given that your currency is at such a large premium and you could make that math work in a big way, when a number of your competitors can't.
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Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [22]
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NAV has no relevance. It has absolutely no relevance, we are not the scrap dealer. When I'm talking to the senior guys of Exxon Mobil, they don't say, we don't like your NAV. NAV on the ships 17 is too low and NAV 35 is too high --
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Mike Webber, Wells Fargo Securities - Analyst [23]
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If you were going to look at a fleet, what valuation metric would you use?
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Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [24]
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I would look upon the valuation of the ship and if you can finance it with our good currency at a price that could be very advantageous, very advantageous.
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Mike Webber, Wells Fargo Securities - Analyst [25]
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Okay, so the market value of the asset less the debt on the asset right. So would you pay -- if you look at that for fleets on the market right now for public fleets, would you pay -- basically would you pay a premium, a slight premium to be able to add that scale quickly? It's a big topic in the market right now and I think you kind of know what I'm getting at. But you have a currency that is that you can use that affords you flexibility that many others don't. So I'm just curious, how much do you value the ability to add scale?
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Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [26]
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Let me reflect on it. When you go into a shop to buy a suit, you may not know the price of that suit when you get in there, but when you get in, you can start negotiating with the shopkeeper. And the point I'm making is if it is thus increase the value then we would do it. If it doesn't increase the value, we would not do it. What I do see in this business is that earnings per share don't take account of risk management.
We're talking about Lambert IRR and IRR, I was on the Board of a big company at one time, and I said I was 12 years and stepped out after I discovered that they couldn't calculate. Because they said, we can increase the IRR that needs return on equity, it's only to borrow more money, and we see how it goes when you borrow more money.
And also without going into the economics here, the left-hand side of the balance sheet, is the asset side. And the question how much money you make, and on the right-hand side, is the financing side, in this business many observers mix up the asset side and the financing side. They are two separate items, but my point is in summary, we are very pragmatic and we would prefer to buy assets instead of buying companies.
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Mike Webber, Wells Fargo Securities - Analyst [27]
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That's very helpful. But one more for me and I'll turn it over. Along those lines and you mentioned the debt and how overleveraged the space can be, your leverage is increasing modestly at times as you're paying out a dividend, even through kind of tough quarters.
And the counter cyclical nature of that policy makes sense to us to a degree. At some point there is a limit to it. How far would you push your leverage, where would that threshold be before you would not be able to do that?
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Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [28]
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We are very conservative, I've not seen a banker as conservative as we are. So I may have to ask you what you think, but you don't charter ships you know and you don't own ships you know.
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Mike Webber, Wells Fargo Securities - Analyst [29]
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Unfortunately that's true.
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Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [30]
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This is a question of judgment. It is a question of judgment. I'm going to give a speech tomorrow evening, I seldom do that, to some of the top bankers in Norway, which is called the risk management international business.
I will not give you a percentage leverage, but I have seen in 1987, the equity in the Norwegian shipping was zero. Some of the big names were bankrupt. We have seen recently that companies have come into trouble, Chapter 11. We pioneered the transportation sector in America.
When we became listed in 1995, with the help of (inaudible) brothers and with the help of DNB, the big financing institution in Norway. And we have always been careful because I've seen ship owners go bankrupt all the time. And we will grow with low level of debt. That is a starting --
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Mike Webber, Wells Fargo Securities - Analyst [31]
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There is no redline at 40%, 50% leverage is there a line to get your attention?
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Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [32]
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Low, low. I would like to have 80% equity or even more you know, depends on our pricing.
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Mike Webber, Wells Fargo Securities - Analyst [33]
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Okay.
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Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [34]
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We have followed our strategy since 1997, and that strategy has been very helpful and very effective.
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Mike Webber, Wells Fargo Securities - Analyst [35]
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That's true. That's absolutely true. I appreciate the time. I will hop back in the queue and let someone else have a chance. Thank you, guys.
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Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [36]
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Thank you.
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Operator [37]
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Magnus Fyhr, Seaport Global.
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Magnus Fyhr, Seaport Global - Analyst [38]
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Herbjorn, thanks for putting on the call. Hopefully this is something we can look forward to every quarter.
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Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [39]
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I would remind the audience that Magnus is from Sweden, and my grandfather is from Sweden. Please continue, Magnus.
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Magnus Fyhr, Seaport Global - Analyst [40]
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I don't think we are related, Herbjorn.
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Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [41]
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I don't think so.
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Magnus Fyhr, Seaport Global - Analyst [42]
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Except we are both Swedish extraction. Anyway, Herbjorn, most my questions have been answered, but a couple of things that I just want to key in on. Follow-up on Michael's question here on the debt level. You talked about being debt averse, but I just not specifically saying a level, but what's your plan for the next four ships that are coming on, is that going to be financed with debt, or how do you see financing those new ships remaining?
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Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [43]
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The first of it is coming at the end of February. We will pay $32 million for that ship, and then three more ships are coming next year, in June, September and October. And they will, we have earnings going forward in the strong market, we will accumulate a lot of cash and in a weak market it's different. We don't plan for an offering to pay for these three ships.
But I was talking to you earlier about these expansion plans, and it is important to understand that of course somehow you must pay when you expand you know. So either we have the bank help us, we have the market help us, and our overall strategy. But we will be conservative. That is an important thing to remember because I've seen in this business, that people have expanded too quickly. Ship owners have a bad tendency to go bankrupt, and I know the breed from 40 or more years back.
And we will, as I indicated earlier, I wouldn't say if we expand, but when we expand, it will be done with a low level of debt. And I indicated to you, depending upon our judgment, I like equity of 80% or even more. I've seen so many people go bankrupt, and I'm not nervous because I know for a fact that we are not going into debt trap. The problem with ship owners is that they become overly optimistic. That we have seen over and over and over again, that is when greediness exceeds intelligence.
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Magnus Fyhr, Seaport Global - Analyst [44]
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All right. Thank you.
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Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [45]
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Thanks, Magnus.
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Magnus Fyhr, Seaport Global - Analyst [46]
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Thank you for that answer. Maybe you could help me understand the focus on the Suezmax market. We've seen rates come down quite a bit here in the last couple of weeks. Do you think the relationship between VLCC and Suezmax, it's been widening quite a bit here, is that something structural or do you think this is just a temporary --?
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Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [47]
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It is not structural at all. As we say in our report the Suezmax market has been very strong this year, very strong, and now it varies almost from day to day, but our focus on customers is helping us a lot. And it is not at all structural, but of course we understand that the Suezmax can load 50% of VLCC.
And we see split of cargoes taking place in West Africa, in Angola, above all and other places. And we see it in Singapore also, Suezmax is 1 million barrel ship and the VLCCs are 2 million barrels you know. So my anticipation though is there is more risk associated with VLCC than the Suezmax, so if you have a strong heart you should go for VLCCs. We're careful people.
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Magnus Fyhr, Seaport Global - Analyst [48]
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All right, one last question, Herbjorn, and I'll let you go. The current market, let's call it 20,000 or less, at that level you generate about $1 per share in cash flow. The market outlook, I mean it's somewhat challenging I think in 2017, if rates don't improve from current levels, would you be consider financing these new buildings with all debt, up to 50%-60%, or would you address the dividend?
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Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [49]
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It depends what will be paid for the first new building. We pay for cash on hand. You know, at the end of this month you know, and you cannot answer that question because there are so many variables before that, but again, we'll see.
As Chairman of this Company I simply don't know the answers to the future because, as I said, if I did know the answer, I wouldn't told you because then any business would be easy if you know the answer to the future you know. But that's why I'm excited to live you don't know the answers. But generally speaking, we are very pragmatic and we are very clever also at changing our mind about what to do and not to do, that's important.
But my conclusion on these various questions is we wish to stick with Suezmax. I would rate probability of the VLCC is another thing. We have started out very well this year, I saw a number of reports that my friend here working in New York for a number of years, there was no mention of the customers at all, you know. And that is quite amazing in my view because the customers and the shareholders, they are the most important constituencies in our business.
But we are optimistic about all this, and we enjoy this. I had a question whether we should do it more, if you enjoyed it and we enjoyed it, then we will probably do it more. But if you say in your ordering written materials, that guy, he's stupid, we cannot listen to him. Then I will not do it more.
------------------------------
Magnus Fyhr, Seaport Global - Analyst [50]
------------------------------
If it's one recommendation I would give you is to keep this call on a quarterly basis, it's been very entertaining.
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Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [51]
------------------------------
Thank you. I like free advice. Thank you for saying so.
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Operator [52]
------------------------------
Greg Lewis, Credit Suisse.
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Greg Lewis, Credit Suisse - Analyst [53]
------------------------------
Yes, thank you, and good afternoon. Herbjorn, I would just reiterate Magnus's advice, it's been enjoyable. I guess my question is more related to the fleet. I mean you talk about expansion, just thinking about that you do have a handful or maybe a little bit more than a handful of vessels that are a little bit older, approaching the 20-year range where there can be some discrimination for those vessels in the market.
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Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [54]
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We don't see that. But if you see it in your fleet, you know please tell us, but we don't see that.
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Greg Lewis, Credit Suisse - Analyst [55]
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Hope --
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Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [56]
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That's not true.
------------------------------
Greg Lewis, Credit Suisse - Analyst [57]
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Okay. So then as we think about those older vessels that are in the 20-year range, we should expect those to go into -- so for those vessels, as we think about it, how much should we think the special survey costs on those asset should be?
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Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [58]
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As we have said repeatedly, they are almost all the same. The price of docking a ship which is 3 years is essentially the same as docking a ship which is 15 years. I have the table in front of me. Crew expenses, provisions, stores, spares, service and service repairs, safety and risk insurance, administration, because there is notion out there that older ships are more expensive. That's not true. It's not true.
And we're running the biggest fleet of them also, so we know this. And I have the piece of paper in front of me. Coming back to the question, Exxon Mobil, let's graph the Jones act ship just months or two or three ago of 38 years. 38 years. I'm not saying going on 38 years at all.
We were with Exxon, they told us several years ago, these ships last until they are 30 years of age. And I'm not saying that, it is quite obvious that we will renew our fleet. That goes without saying, but I used to being on the Board of Intertanko, the tanker owners, and my good friend Nick Tsakos, who I'm sure many of you know, he and I totally agree it is a question of quality. If the quality is right, it's the same, it doesn't matter, and if the ships nothing new with the ships, I fully understand the question of consumption of oil and all of that thing, that is fully understood.
But the thing is I spoke about shipbuilding technology, and we have been in the business and have been running ships for ages, some people say too long, you know, we must use our own judgment about that. But of course, we shall renew our fleet, everybody must do that. So I don't know if that's was an answer or not. But the notion that old ships are more expensive than new ships, that's simply not true. I have the proof in front of me here.
And dry docking costs between $1.5 million and $2 million. That is really what you're talking about. And the point I would make at 15 to 20 of dry docking is much lower than some analysts seem to tell us, you know. That is really the point and we're actually owning the ships and we operate the ships, so we're probably the one to know this. And I'm not suggesting that you suggest we are lying, but I can tell you we are not lying.
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Greg Lewis, Credit Suisse - Analyst [59]
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I'm sure you're not. Okay, guys. We're approaching up on the hour, so I thank you for the time.
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Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [60]
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Thank you.
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Operator [61]
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James Young, Maxim Group.
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James Young, Maxim Group - Analyst [62]
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Hello. Thanks for taking my call today. So a lot of the questions have already been answered, but can you give us some insight into what your plans are with the older vessels with the upcoming environmental regulations?
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Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [63]
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Let me say two things. Firstly, let me talk about the scrubbers. That's no problem whatsoever. Not at all. All our vessels are running and engines class approved to run 0.1 software high fuel oil or Marine gas oil. So when it comes to transfer, there's no issue at all.
When it comes to the other thing, which is of course we're studying is the question of ballast water treatment installations. The ballast water treatment installations, they are they wish to prevent microbes, I believe you call it, microbes are moving from one part of the world to another part of the world. And there are rules governed by IMO, the International Maritime Organization, and these rules, if they do this correctly, we will can postpone the next docking by five years I believe -- is that correct?
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James Young, Maxim Group - Analyst [64]
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By five years prior to.
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Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [65]
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Yes. We must stop the ships now and before September 9, but then we be getting five-year grace, if you wish you know. But we're looking at this question, I'm on the Board of the biggest maritime insurance company in the world, with the name of Gard and I am on the Board of SIGCO. Insurance Company, which is the center between the US Coast Guard and Gard and what we are seeing is that we can accommodate the rules that IMO is prescribing, and that the US Coast Guard is prescribing because we're fully cognizant of the fact that US is still running the world.
They say we provide for the rules and we are very not concerned, focused on keeping all the rules, also because of our name Nordic American Tankers, we have hundred thousand shareholders in America and we enjoy, if I should be a little bit immodest a good reputation in America. And I've been around with my colleagues all over the place of the West Coast and the East Coast and in Dallas and all over the place, so to be very clear, you from the Maxim Group, we are fine with these legislations activities. And we need to do a few dockings before September 9, and then when we do that we challenge our planning we do that we have a grace period of about five more years.
So and I can tell you, sir, that my experience over the years, is that all these regulations they are postponed and postponed and postponed. We had a double introduction in following the Exxon Valdez accident, in 1989, Exxon Valdez, the Exxon ship that with the ground in Puget Sound in Alaska. And that was of course introduction of the double thing and the last time a single-helm ship could trade was in 2010. So it took almost more than 20 years before the legislation was enacted to it became illegal if you wish to trade such a ship. In short, Maxim man it is soluble and we're confident on that.
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James Young, Maxim Group - Analyst [66]
------------------------------
Okay. So at what point does it make sense to I guess stop operating the older vessels? So what I want to know is what is old vessels (multiple speakers) Nordic --?
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Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [67]
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I have addressed that several times, as long as the assumption very nicely, I'm fine.
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James Young, Maxim Group - Analyst [68]
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I know you mentioned that you work with a lot of the oil majors, when you do the base processes especially with the older tonnage, are they giving market rates, comparable rates or --?
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Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [69]
------------------------------
Yes, yes. There is misunderstanding out there, that older tonnage gets lower rates, that's not true. That's not true. And it is, as I mentioned, it is the quality and there is a notion of that a low ships. You know, Shell was vetting one of our ships yesterday, and we had zero observations, zero observations, nothing. And there is a misconception that old ships spend more money than new ships. That's not true.
On the contrary, some of the new ships are the contrary, and we have a huge customer base around the world, that we serve with all those ships you know. And that is why you have such a good report. And one of our friends and my colleagues was in London just 10 days ago, and he visited some of the major oil companies in London, and they are very appreciative of what we're doing.
Because the thing is the psychology is when -- this has to do the safety of the crew, safety for the environment and safety for assets. And when they go to bed in the evening, and lay on their pillow, they must feel good they are doing business with Nordic and they are doing business with Nordic it's good. That is the summary, my good friend.
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James Young, Maxim Group - Analyst [70]
------------------------------
Okay. So in terms of I guess Suezmax sector in general for this year, it seems like there's going to be about 42 vessels delivered in the first half. And with the OPEC cut still in effect until I guess May, do you see any rate weakness leading up to that in Q1 and Q2? Rates have pulled back a little bit over the past two weeks right?
------------------------------
Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [71]
------------------------------
In our report, we said that we have made more than 25,000, and you know the market can go three ways, it goes up or goes down or stays where it is. We have even written that in our report from time to time.
And I don't know OPEC. I'm not an expert on OPEC. I don't know anybody who's an expert on OPEC you know. I know I could make a long speech on the relationship between Saudi Arabia and Iran, and I could make a long speech on Trump, and I could make a long speech on international geopolitics, but that is outside the scope of this conference. Maybe I don't know.
Maybe if somebody comes with us with a very cheap vessel, then I may be very strongly as we buy that ship you know. So as I said earlier, we are not concern because if we were concerned or nervous we wouldn't have been in this business. Then we would have done something else.
------------------------------
James Young, Maxim Group - Analyst [72]
------------------------------
Okay. So let me shift gears here, just one last question. All your vessels are South Korean built --
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Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [73]
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They are.
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James Young, Maxim Group - Analyst [74]
------------------------------
Would you look to go to China --?
------------------------------
Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [75]
------------------------------
Most of them are Korean built, about 26 I believe or something. And then we had a few from Japan. When I started out in this business commercially, then we ordered a lot of ships in Japan, and my friend Martime architect Lars sitting here. He was living in Japan, and then we moved to Korea and then now we have two ships from China I believe.
We're discussing a lot with China you know on the chartering side above all you know. And I have a very good feeling for China, they are extremely intelligent, they are extremely clever, they will solve the pollution problem there is no doubt in my mind. I was in the Far East first time in 1975, when the fog in was so just like gravy today is clean and in 10 years time China will be clean.
Asking about questions whether we should buy ships in China, I would say you would be one of the last I told. The Chinese are very clever. Let me put it like this, they are very clever.
------------------------------
James Young, Maxim Group - Analyst [76]
------------------------------
Okay. So it would be fair to say you have no qualms about building new builds in China?
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Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [77]
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I have no [qualms]?
------------------------------
James Young, Maxim Group - Analyst [78]
------------------------------
Qualms -- issues.
------------------------------
Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [79]
------------------------------
No, I don't know. They like it simple. I like it simple. I like to do business with people I've done business before. And they like what we're doing and we like what they are doing and you know. There are so many things to worry about that we try to suppress these things and take them away you know, so it's not a big issue at all you know.
So I would also like to say that it depends on terms and quality of course. One of our older ships built in China is from 1997 I believe. Perhaps one of the best ships we have. We bought it from the prestigious Anders Wilhelmsen Group in England now. They are the largest shareholder in Royal Caribbean Cruise lines you know, that ship has served us very well. Sorry about my evasive way of responding.
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James Young, Maxim Group - Analyst [80]
------------------------------
That's helpful. Thanks again for doing the call. I'll drop off here for the next in line, thanks
------------------------------
Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [81]
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Anybody else who would like to --
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Operator [82]
------------------------------
Mike Mauskopf, MRM Capital.
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Mike Mauskopf, MRM Capital - Analyst [83]
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How much have you borrowed on the $500 million credit facility?
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Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [84]
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The net debt is about $10 million per ship. The total borrowing is 450 or something 447.
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Mike Mauskopf, MRM Capital - Analyst [85]
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So you borrowed $447 million over the $500 million?
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Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [86]
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Yes, then we have $100 million in cash in the Company, so that net debt -- it's really the net debt you should look at. The debt net is about $10 million per ship. So our debt is about $300 million or so. We have the best relationship to the bankers.
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Mike Mauskopf, MRM Capital - Analyst [87]
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The three ships --?
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Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [88]
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All the time. All the time.
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Mike Mauskopf, MRM Capital - Analyst [89]
------------------------------
The three ships that are going to be done completely by the second half of 2018, how much did they cost?
------------------------------
Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [90]
------------------------------
Let me put it like this, in the mid-50s. Very advantageous.
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Mike Mauskopf, MRM Capital - Analyst [91]
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Mid-50s per ship?
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Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [92]
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Yes.
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Mike Mauskopf, MRM Capital - Analyst [93]
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Okay. So you raised $120 million on September 30, 2016, which should be paying for most of these ships, is that correct?
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Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [94]
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Yes, that is a good assumption.
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Mike Mauskopf, MRM Capital - Analyst [95]
------------------------------
Okay.
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Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [96]
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We were the only company out there who had the credibility to buy the ships. To have the offering you know, we got the offering done. First one in two years.
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Mike Mauskopf, MRM Capital - Analyst [97]
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So last question that I have is you bought with your son 100,000 shares back on August 17 at $11.16. You then bought 210,000 shares on August 30 at $10.95. Insiders and the Board of Directors bought another 534,000 shares when you did the second share okay. The stock being where it is right now, which is at $8.68, $8.70, give or take a few pennies, why wouldn't you guys have added to the position if you've been buying on the way down?
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Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [98]
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Now, are we in the black period. We are not allowed to buy anything, you know. My son is living abroad. He's a very clever guy, he's living in southern France, living in London, and --
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Mike Mauskopf, MRM Capital - Analyst [99]
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Now that you've reported earnings, you're allowed to now to buy the stock if you wanted to.
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Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [100]
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What's that?
------------------------------
Mike Mauskopf, MRM Capital - Analyst [101]
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You just reported earnings so your black out period is over.
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Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [102]
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There is one day between.
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Mike Mauskopf, MRM Capital - Analyst [103]
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It's normally I think 24 to 48 hours, isn't that correct?
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Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [104]
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48. So I may be asking you to lend me some money and then I can buy.
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Mike Mauskopf, MRM Capital - Analyst [105]
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So you don't think your stock is cheap enough to buy here, when you bought it 25% higher is my question.
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Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [106]
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Well you know, I've millions and millions and millions of dollars in investments all over the world. And of course, although I would like it not to be the case, but also my resources are limited.
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Mike Mauskopf, MRM Capital - Analyst [107]
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Okay.
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Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [108]
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If you have some money to lend me, please do. I will pay a low interest.
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Mike Mauskopf, MRM Capital - Analyst [109]
------------------------------
What I'm saying is that I've been buying stock for my clients and myself but --
------------------------------
Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [110]
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That's good. That's good. I hope so. That's good. I enjoyed your comments, sir.
------------------------------
Mike Mauskopf, MRM Capital - Analyst [111]
------------------------------
Thank you.
------------------------------
Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [112]
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You're a shareholder in a good company. And I'm very relaxed, I must say. I'm very relaxed, either it goes up or down and I see that. And you can buy lower, you can tell your friends they can by lower, but it is not right of me to sit here and say what I'm going to do. That is the gist of all of this. Okay. Anybody else wishing to --
------------------------------
Operator [113]
------------------------------
Joseph DePaul, DePaul Capital.
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Joseph DePaul, DePaul Capital - Analyst [114]
------------------------------
Yes, are you planning on scrapping any ships during the calendar year 2017?
------------------------------
Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [115]
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The answer is no.
------------------------------
Joseph DePaul, DePaul Capital - Analyst [116]
------------------------------
Thank you. That's my only question.
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Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [117]
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That's good, should we do that you believe? If I ask you?
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Joseph DePaul, DePaul Capital - Analyst [118]
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You have several ships that are approaching an age where other companies have scrapped ships.
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Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [119]
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Other companies in Chapter 11?
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Joseph DePaul, DePaul Capital - Analyst [120]
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I don't think so.
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Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [121]
------------------------------
Did you hear my comment about age and all that?
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Joseph DePaul, DePaul Capital - Analyst [122]
------------------------------
Yes, I did. There's a lot of other opinions out there, that's all I will say.
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Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [123]
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Opinions by people who don't own ships? And who don't have investments, more opinions, you should buy a ship. Then you can see what it is. So if you are suggesting we are stupid, please do that, we had the same thing since 1997, and they have said to us, your stock price is too high, and I say we can live with that. Okay sorry about I'm not going to take your advice on shipping at all. You will have to stick with stock.
------------------------------
Joseph DePaul, DePaul Capital - Analyst [124]
------------------------------
Okay. Thank you.
------------------------------
Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [125]
------------------------------
Thank you. Any more questions?
------------------------------
Operator [126]
------------------------------
There are no further questions.
------------------------------
Herbjorn Hansson, Nordic American Tanker Ltd - Chairman and CEO [127]
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Okay. That's good. I would like to say thank you very much. It was a great pleasure to have you on the phone call. If I did offend somebody that was not the intention, but I enjoyed talking to you. And if I get good feedback from this, we get good feedback, I may view this more positively on the next occasion. Thank you very much and good evening.
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Operator [128]
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That concludes today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.
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