Nordic American Tanker Ltd and Nordic American Offshore Ltd Corporate Call
Jun 13, 2017 AM EDT
NAT - Nordic American Tanker Ltd
Nordic American Tanker Ltd and Nordic American Offshore Ltd Corporate Call
Jun 13, 2017 / 12:00PM GMT
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Corporate Participants
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* Herbjorn Hansson
Nordic American Tankers Limited - Chairman & CEO
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Conference Call Participants
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* Fotis Giannakoulis
Morgan Stanley - Analyst
* John Gandolfo
Clarkson Capital Markets - Analyst
* Geoffrey Scott
Scott Asset Management - Analyst
* Benjamin James
LPL Financial - Analyst
* Ole Slorer
Morgan Stanley - Analyst
* Toby Joyce
Sigma Capital - Analyst
* Bruce Swartz
Private Investor
* Steven Jacob
PKS Capital - Analyst
* Edwards Bate
Private Investor
* David Weinberg
Private Investor
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Presentation
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Operator [1]
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Good day and welcome to the conference call for shareholders and investors, covering Nordic American Tankers and Nordic American Offshore. Today's conference is being recorded. At this time, I would like to turn the conference over to Herbjorn Hansson, Chairman and CEO. Please go ahead, sir.
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Herbjorn Hansson, Nordic American Tankers Limited - Chairman & CEO [2]
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Good morning to you. This is Herbjorn Hansson of Nordic American Tankers and Nordic American Offshore. I'm very pleased that so many have joined us at this conference today, where we are going to have one session on Nordic American Tankers and one session on Nordic American Offshore. After each session, we shall be having a Q&A session. The first segment will be until about 10 to 9 US Time and then we have another half an hour or so with NAO. We wish to distinguish the two. NAT, Nordic American Tankers, owns 22.6% of NAO. And I personally and my closest family own 10% of NAO.
And today's presentation and discussion will contain forward-looking statements within the meaning of the Private Securities Litigation Act of 1995. I remind you of that fact.
And then I would like to go on and my first point will be that we have sent you three documents. The first document is the strategy of NAT and that strategy has been firmed for about 15 years, if not more, that is marked by simplicity, transparency, predictability and accretion. When it comes to Nordic American Tankers, expansion of a homogeneous fleet is important. The fact that we have only the same type of ships is very important.
Cash flow, essentially, distributed to shareholders. That is a risk management question also, simply because we need to have money to pay our obligations going forward. We have a strong balance sheet, we have a close customer relationship, we maintain a top quality fleet, interests aligned, shareholders management, low cash breakeven including low G&A costs.
We have exposure to the spot market and to the time charter market. We have time charters with Exxon, we have time charter with Shell and other members of Big Oil are chasing us. And we leverage our industry network.
I had sent you our report by the Board of May 8. We had a Board meeting, May 8, after which first quarter report was issued, where we said that the Company is in a solid financial position with a strong cash flow. I would like to remind you of some pertinent features of Nordic American Tankers.
The first quarter of 2017 was not a good period for NAT in a volatile tanker market. We have ordered three newbuildings from Samsung Shipyard in Korea. 30% of the purchase price has been paid cash and we shall pay the balance in through later. We have declared a dividend for the first quarter of $0.20; that was paid on or about June 8. So that should already be in the accounts of our investors. We had followed the same strategy for years and we have developed very good financial control mechanisms. We have essentially paid dividend for 79 consecutive quarters. We had paid about close to $50 in dividend, starting out with a stock price of $15 and paid $50 in dividend. So this has been a very good ride for those who has been with us for a long time, including myself.
A key part of our business model is focus on efficiency and low cost. We have achieved a high total return that is the same as profitability since we started out. Total return is the best measure of value creation. It is the stock price, plus the dividend reinvested in the stock. And we are at the top of the crowd in that regard.
We have a very low cash breakeven rate at about $11,500 per day, including all costs. We have also said to you what we mean that the net asset value or the steel value of the vessel is irrelevant when valuing NAT as a going concern. I would say for us, the shareholders and our customers are the most important constituencies. We will always make sure that NAT, Nordic American Tankers, is in compliance with IMO, International Maritime Organization, on ballast water treatment and on low sulphur content in bunker oil.
And I would like to note that, again, where I started, our Company is in excellent position. We have sent you an update on May 29, where we comment upon our original report. As a matter of principle, we do not comment on the stock price, which does not seem to be governed by specifics related to NAT. We focus on results. From time to time, we get questions from shareholders who are asking about the position of NAT. And our reaction is as reflected in our May 8 report by the Board of NAT, the Company is in a strong financial position. Our 33 Suezmax vessels can carry 1 million barrels of crude oil each from all ports, all around the world. A very large crude carrier, so-called VLCC, can carry 2 million barrels of oil, it's double the size and essentially they operate in a different market, with different structures, whilst there may be a certain overlapping.
And there is one extremely important point I would like to communicate to you as forcibly as I can and that is a low oil price is positive for Nordic American Tankers, simply because it does stimulate the world economy and when the world economy is stimulated, then that is good for the tanker business.
We have already indicated that the second quarter of 2017 can be expected to be lower than the first quarter of 2017, but still rates are well above cash breakeven. I would also note that my closest family, that is my son and I are among the largest shareholders in NAT, showing confidence in the Company going forward. As the say, we put the money where the mouth is and we expect to continue with that.
Over the last month, together with colleagues, I have again visited some of the largest oil companies in the world, notably in Beijing and in China. We have a close relationship with them. As a general observation, I believe that we in the West, those of us who are in the West, underestimate the strength of the Far East. That is my firm impression after visiting China three times the last year. One month ago, I was there talking to the some of the biggest oil companies in the world. The big oil companies in China are just the same size and even bigger than Big Oil here in the western world.
And as I said, our challenge is always to provide for the best service. Our clients and shareholders/investors are the two most important constituencies. I would note, when I listen to this type of a conference that the word customer is not mentioned very often. And I can assure you, after having been in this business for a little while it is hard to run a business without customers, and we do cooperate very closely with them. We have operations with ExxonMobil. The new Minister of Foreign Affairs in America, Rex Tillerson, used to be the CEO of Exxon. I believe he is an excellent man and ExxonMobil is an excellent company, as are all the big oil companies, like British Petroleum, like Shell Oil and the others.
But it does not help only to have a good customers, because to have good customers is very closely interlinked with good ships and we have high quality ships, the so-called vetting statistics, vetting statistics show that and that is rating by the oil companies of our ships and we are at the top of the industry when it comes to vetting, with an average close to 2 observations or 2.3 observations during the first couple of months of this year.
I could have gone on talking a lot to you. Let me also say that we have governmental, should I say, challenges. We have to comply with all the various rules in maritime organizations and we do that very, very well. We provide for quality. Our chartering operations are governed from out of Oslo, which is one and a half hour from where we are sitting now. And my colleagues in Oslo, they are managing this fleet under the leadership of Erik Tomstad. And it is just like running a big group of taxies from A to B and C to D, etcetera, etcetera. I personally don't get involved in each individual voyage, but I get involved when big oil is involved, I get involved when there are safety issues, I get involved when we are dealing with the Russian companies, I get involved when we are dealing with Libya and some key issues come to my table -- at the table of my colleagues, some of whom are sitting here together with me now.
So on that note, Madam, administrator, I don't think I should talk more, because I could go on talking for a very long time in this business where I had spent a good number of years and I'm prepared to talk about anything associated with NAT. And, of interest, please, I would encourage you to ask important questions, don't ask unimportant questions, because we shall not waste your time and our time here with unimportant questions. So, madam administrator, please take the floor.
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Questions and Answers
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Operator [1]
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(Operator Instructions) Fotis Giannakoulis, Morgan Stanley.
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Fotis Giannakoulis, Morgan Stanley - Analyst [2]
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First of all, I want to thank Turid for her cooperation and contribution, and wish her all the best to her new start -- I mean new contribution for the Company. Second, Herbjorn, I would like to ask you about your discussions with your customers. How do you view the market developing during the summer, if you can give us some guidance of what has happened quarter to-date, what kind of rates has your Company earned until today and what is your outlook for the third quarter?
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Herbjorn Hansson, Nordic American Tankers Limited - Chairman & CEO [3]
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Traditionally, the summer time is a little bit dull, I think, we call it, and I'm not very good at guessing the future and guessing is not my specialty. And we are in the business longer than 90 days at a time. Essentially, a company can go three ways; it can go up, it can go sideways and it can go down. And if it does go sideways or down, it does go down.
When it comes to NAT, I believe that the fact that we now have 33 ships on the table is very important. We are interested for the oil companies, because we have 33 ships. We are the biggest owner, largest owner of Suezmax ships in the world. And the fact that we have so many ships are very important. I would like to note, Fotis, that we advance the docking of three ships in the third quarter, dockings that shall be taking place before September 8, to comply with some regulations. Originally, these dockings were scheduled to take place in the fourth quarter, but now they do take place in the third quarter, simply because that is also the most "dull part of the year". But, when going forward, I'm optimistic; I'm optimistic, and when all these ships, 33, are in action, we make a lot of money. And I believe that has been underestimated that is at least my judgment. And if we had 10 ships only, we would have been of no particular interest to the major users at all. They would like to work with us for two specific reasons. We have good quality ships and we have high quality ships and they rely on us. We don't steal, we don't lie, we are the best people, I believe. We essentially have three things. We have ships, which are at the top of the scale, we have people who are at the top of the scale, and we have also money. And as you know, we always find money if you have a good project, you always find money. And in this Company, we have 100,000 shareholders and we get a lot of comments from them all the time. And my colleagues and I we are responding as well as we can. Things look fine Fotis. We have a dull period now, but still well above cash breakeven. And our specialty -- yes, please.
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Fotis Giannakoulis, Morgan Stanley - Analyst [4]
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Just to clarify, do you feel confident about paying dividends going forward, because there are some voices that they express a lot of pessimism among analysts and some investors, but do you feel confident that you will be paying dividends going forward?
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Herbjorn Hansson, Nordic American Tankers Limited - Chairman & CEO [5]
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Yes, as simple as that. We have paid dividends for 79 quarters and we will pay dividend going forward. And I will continue and we will continue and I will suggest to my Board that we shall pay dividend going forward. It has also to do with our commitment. I cannot envisage that we shall stop paying dividend. Of course, we are in a better position to pay dividend when the market is more buoyant than now, that goes without saying, but I'm very confident about paying dividend.
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Fotis Giannakoulis, Morgan Stanley - Analyst [6]
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Herbjorn, I want to ask you about you mentioning about you own only Suezmaxes. The entire fleet is very homogeneous. If you can elaborate a little bit more why Suezmaxes, what are the advantages of operating in one asset class, and now we have seen asset prices for other sectors for Aframaxes, or VLCCs, softening significantly. Do you think that there is any chance that you can take advantage of these low asset prices in the other segments, to expand there, or your plan is to stay focused on Suezmaxes?
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Herbjorn Hansson, Nordic American Tankers Limited - Chairman & CEO [7]
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We wish to stay focused on Suezmaxes and we are analyzing the cost -- level of operating a ship when you have one type of ship only and that cost difference is very big, in our experience. I have said in the past that the difference is $5 per ship per day -- $500 per ship per day. I believe it is close up to $1,000, because when you have a high class of ships with good quality, we save a lot of money -- we save a lot of money. If one ship in Fujairah has struggled with a spare part, then we have another ship in Fujairah who can furnish that. And I have seen, also to clarify another misunderstanding in the marketplace that so-called old ship is more expensive than a newer ship. That's not the case, and that is not the experience we have. I used to be on the Board of INTERTANKO, the club of tanker owners in the past, together with my good friend in Tsakos. And we said one thing matters, and that is the quality of the ships. So I'm very, very relaxed on that, I'm very relaxed on the cost level. I think, if I should be a little bit subjective, there are two very important things that we already have touched upon. And that is, firstly, the dividend. And secondly, one type of ship. And we are very conservative -- we are very conservative, because we have seen in the past that persons, countries and companies they borrow too much money. Ship owners are experts in borrowing money. And I remember many years ago, I can tell you in the region shipping, the equity was zero in 1987 or 1988 or so. And that is because people borrowed too much money. And we are very conservative. I have a lot of money, and my family, we have a lot of money in the system, you know. And those of you who know me, you know I'm not known to be wasting money. Thank you Fotis.
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Fotis Giannakoulis, Morgan Stanley - Analyst [8]
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I want to ask about your growth strategy. You have said many times that when the market goes up, you pay higher dividends, when your market goes down you buy ships. I wonder, are there opportunities for you to buy more ships in today's market. We have seen in other markets big acquisitions, for example, Scorpio with Navigator, and many of the private owners in other sectors seem to be in a very constrained liquidity position. How is the situation among the Suezmax owners and if you think that you can find good quality ships to expand your fleet?
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Herbjorn Hansson, Nordic American Tankers Limited - Chairman & CEO [9]
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We have two approaches -- well there are three. We will grow, no question, there is no question that we will grow and this is a question of risk management. We have suggestions being thrown at us every day -- every day. At least, I would say five suggestions every week, five suggestions every week that we can buy ships. And then, of course, we are being chased by the shipyards all the time. The shipyards are knocking on our door more aggressively than in the past and then it is a question of judgment. Normally, we say we must have more than one thought in our head at a time, but here in this business, we must have eight thoughts in our head at a time. And this is a matter of judgment. Then underpinning that matter is judgment and conservative attitude.
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Operator [10]
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John Gandolfo, Clarkson.
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John Gandolfo, Clarkson Capital Markets - Analyst [11]
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Just a quick one regarding NAT's recent 20-F filing, we saw that the Company is in breach and then subsequently received waivers from your lender group on one of your covenants until early 2018. I was wondering, first, if you could maybe remind us of the original security ratio on that facility?
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Herbjorn Hansson, Nordic American Tankers Limited - Chairman & CEO [12]
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We have an excellent cooperation with the banks, let that be made clear. From time to time, you may be in breach of technical operations or technical ratios. We are -- what I would say, I don't see the banks pay enough attention to the fact that we are listed on the stock exchange. Some of the banks are looking for collateral security and they seem to believe that we are a scrap dealer. There is no restrictions, no covenants at this time. And in one-year time I can assure you John that Nordic American is another company than it is today. But in short, our cooperation with the banks are excellent. We had three banks in one company and we have two in another company. And it is our clear objective to reduce the number of banks, that is our clear objective. I'm not expressing views on other companies and at least not with names, but many banks, they do the fatal mistakes, or many shipping companies do the fatal mistakes of having too many banks, because the banks must run the banks and the shipping companies must run the shipping companies.
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John Gandolfo, Clarkson Capital Markets - Analyst [13]
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And just two more off that. I was wondering how you see the restrictions with the waivers affecting any potential dividend payments coming up.
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Herbjorn Hansson, Nordic American Tankers Limited - Chairman & CEO [14]
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No, no, not at all. I have responded to your question already, not at all.
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John Gandolfo, Clarkson Capital Markets - Analyst [15]
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And then just a final last one. Do the waivers restrict NAT from current (multiple speakers)?
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Herbjorn Hansson, Nordic American Tankers Limited - Chairman & CEO [16]
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No, not at all. John Gandol of Clarksons, a world firm, I've responded to that. It does not restrict us in any way. And I know it doesn't restrict you.
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Operator [17]
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Geoffrey Scott, Scott Asset Management.
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Geoffrey Scott, Scott Asset Management - Analyst [18]
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I'd like to ask a three-part question. You have four ships from 1997 vintage, four ships from 1998, and two ships from 1999. First part, are you able to achieve the same day rates with these ships as you are with that the later vintage ships? Secondly, are there charters who will not accept these ships and only accept newer ships? And three, are there ports of call or countries who will not accept these older ships? And then I have a follow-up question please.
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Herbjorn Hansson, Nordic American Tankers Limited - Chairman & CEO [19]
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Yes, the only thing which is old here is the Chairman, you can talk about the age of the Chairman, if you wish. I accept that. But when ExxonMobil, they are telling us these ships are excellent, I shouldn't say ExxonMobil you are wrong. We have 20 ships or so in the Far East, and this talk about the age has nothing to do with reality in my view. Some brokers who don't have ships, they say that. But that's not our experience. I mean, they can say a lot of things about us, but we are not stupid. If the world had been as some people indicate, the world would have been different. We have an excellent cooperation with our customers and when the customers are satisfied, I'm satisfied. That was question number one. What was question number two?
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Geoffrey Scott, Scott Asset Management - Analyst [20]
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I'm not sure you answered the question. The question was, are you able to achieve the same day rates with these ships. And you're telling me that you're (multiple speakers).
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Herbjorn Hansson, Nordic American Tankers Limited - Chairman & CEO [21]
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Maybe, maybe not, but we make good money. And listen to what is total return. And shipping technology has not advanced very much in the last 20 years. I know this for a fact, it has not advanced very much. And this is a market-related thing, you know. When the market is stronger, they all know we have top quality ships, they know that. And they know that -- they believe then that it is better to have a younger ship. And then I must remind them, yes, but the owner is sitting in jail, does that matter -- does that matter? But you like to buy -- to charter a ship from a guy within the jail. The business is a question of people and it is a question of ships. And we are at the top of these two things. And the third one?
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Geoffrey Scott, Scott Asset Management - Analyst [22]
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The third part of that first question was, was there other ports of call or countries who will not accept these ships? And if so, then you would (multiple speakers)
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Herbjorn Hansson, Nordic American Tankers Limited - Chairman & CEO [23]
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No, the answer is no. We have never met that. You have some comments about this or about that, but we don't have that experience, Geoffrey Scott.
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Geoffrey Scott, Scott Asset Management - Analyst [24]
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Second follow-up question. We had the conference call on February 7. I'm trying to explore the timeline for the financial announcements. The conference call was on February 7, then the press release of the first quarter 2017 dividend of $0.20 on April 19. And then the May 2, 2017 announcement of the filing of the 20-F with the SEC. I don't recall any mention on the February 7 call of a default issue with the $500 million revolving credit. And I believe (multiple speakers)
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Herbjorn Hansson, Nordic American Tankers Limited - Chairman & CEO [25]
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No, it is explicitly explained in the message that you have received. NAT has a credit facility of $500 million maturing in December 2020. NAT is in compliance with the provisions under the credit facility, that is the view of the Board and that is my view. And that is clear, precise and correct.
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Geoffrey Scott, Scott Asset Management - Analyst [26]
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But the first notification was in the 20-F, was it not?
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Herbjorn Hansson, Nordic American Tankers Limited - Chairman & CEO [27]
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Now, we were in breach, I think it was in 2004 also. You know, these are technical questions, Geoffrey. These are technical questions. And you are barking at the wrong tree, but please continue that I suggest we take it offline, if you will give me a call and I can talk half an hour about this. But read our report.
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Geoffrey Scott, Scott Asset Management - Analyst [28]
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I read the report of the 20-F, and I think that was the first official notification of the default on the credit agreement.
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Herbjorn Hansson, Nordic American Tankers Limited - Chairman & CEO [29]
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Yes, but it was not a default, it's not a default. But you can always construe a situation, but read the May 8 announcement from the Board, where we say NAT is in compliance with the provisions under the credit facility.
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Geoffrey Scott, Scott Asset Management - Analyst [30]
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Let me get to my actual question. The agreement with the bank had to do with a freeze on future drawdowns. It had to do with an agreement to --
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Herbjorn Hansson, Nordic American Tankers Limited - Chairman & CEO [31]
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No, no, no. You're wrong, you're wrong, you're wrong, it has always been like that, it has always been like that. We had drawn, I think, $447 million on the credit line. And I don't have it in front of me. But you must believe me Geoffrey Scott and I will not waste my time and your time more on this. Give me a call and we can talk for half an hour, because there are many important [persons] here, who have other things to address. And read the report. If you're trying to get me up in a corner, you are wrong period, that's what I have to say.
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Geoffrey Scott, Scott Asset Management - Analyst [32]
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I am not trying to get you up in the corner, I'm trying to get an explanation.
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Herbjorn Hansson, Nordic American Tankers Limited - Chairman & CEO [33]
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I'm trying to get you up in the corner, because we cannot sit discussing, which the Board has said this okay. And I agree with that.
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Geoffrey Scott, Scott Asset Management - Analyst [34]
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What I'm trying to understand --
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Herbjorn Hansson, Nordic American Tankers Limited - Chairman & CEO [35]
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Okay, and I would suggest, madam administrator that we go to the next question.
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Operator [36]
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(inaudible), stockholder in NAT.
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Unidentified Participant [37]
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I'm curious about LNG, you know, natural gas, liquid natural gas. Do you transport any of that?
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Herbjorn Hansson, Nordic American Tankers Limited - Chairman & CEO [38]
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No, we transport crude oil only.
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Unidentified Participant [39]
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Are you planning to do any?
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Herbjorn Hansson, Nordic American Tankers Limited - Chairman & CEO [40]
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No. I must say that we do what we know best.
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Unidentified Participant [41]
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Is that different? I didn't realize it's that different?
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Herbjorn Hansson, Nordic American Tankers Limited - Chairman & CEO [42]
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It is vastly different (inaudible) and I'm very thrilled that you're a stockholder of NAT, and you are a stockholder of a good company.
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Operator [43]
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Bruce Swartz, Private Investor.
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Bruce Swartz, Private Investor [44]
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My first question is, at a time when the world seems to be turning more and more to renewable energy sources, why do you feel it's important to increase the size of your fleet? Aren't you concerned that it may become obsolete at some point, even China is increasing its number of renewable energy sources?
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Herbjorn Hansson, Nordic American Tankers Limited - Chairman & CEO [45]
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I will respond very precisely. Since Chairman Deng took over in China in 1978, we have seen what I would call an economic wonder. Hundreds of millions of people have been dragged from out of poverty in China. Chinese rural farmers, they wish to have their kids to college, they wish to buy a car, they wish to buy a TV set, and I'm absolutely sure that oil -- crude oil will be the main thing over the next 20, 30, 40 years at least in my living time. I'm absolutely confident on that Bruce, and I'm confident and I understand why you asked the question, but oil will continue to be very important. I started out in economics in oil -- crude oil, energy in 1974 and I've been told for about 43 years that we are in the wrong business and I think that crude oil will be very important going forward.
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Operator [46]
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[Steven Jacob], PKS Capital.
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Steven Jacob, PKS Capital - Analyst [47]
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My first question has to do with the newbuilds that are still in process right now. What are your remaining payments owed on those three newbuilds that are coming?
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Herbjorn Hansson, Nordic American Tankers Limited - Chairman & CEO [48]
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We have paid one of them cash and it is exactly $116 million. I can tell you $116 million -- 1-1-6 is the remaining payment on delivery. And I can tell you that in a strong market, or stronger market, this Company makes $60 million in cash. So if we get somewhere back to a stronger market, we will collect $120 million from the market only. So two quarters of a decent market, a strong market will pay for these newbuildings. But of course --
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Steven Jacob, PKS Capital - Analyst [49]
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And how will you pay for them if current rates are extended out?
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Herbjorn Hansson, Nordic American Tankers Limited - Chairman & CEO [50]
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Well, as I told you, as I told you Steve, we are not in the guessing game, but we know to maneuver, and we have maneuvered for 23 years and I think we will hang in there for another few quarters as well. I'm not concerned about that. And I would note that the tanker business is not for -- concern people. You missed all this plan. (Multiple speakers) What's that?
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Steven Jacob, PKS Capital - Analyst [51]
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Is an additional equity offering off the table or is that something (multiple speakers)?
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Herbjorn Hansson, Nordic American Tankers Limited - Chairman & CEO [52]
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I have not said anything and we will not discuss at a conference call with investors what we are going to do. We will not, and we cannot, it wouldn't be prudent, but we know how to maneuver in this business and I think we have shown that in the past.
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Steven Jacob, PKS Capital - Analyst [53]
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How many of your current vessels, of the 30 vessels you have, are in compliance with the new ballast water management standards are going into effect in three months?
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Herbjorn Hansson, Nordic American Tankers Limited - Chairman & CEO [54]
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Well, almost all of them. The new ballast water treatment that must be installed not later than the first (inaudible) renewal survey carried out after September 8. We are in no problems when it comes to IMO and ballast water treatment system. There are four systems that have now been approved. And we don't see any problems with that. And so we are in good shape on that one and we are very, very accurate and very, very detailed in complying with all the international rules, because we understand very well that we need to comply with all the rules. Some people are trying to ask us to go to Iran, and we have said no, we don't go to Iran. And it has shown that that is important. A general question is that -- general point is that we are very accurate when it comes to observing the rules, because if you breach the rules, then you are in a very exposed position.
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Operator [55]
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Benjamin James, LPL Financial.
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Benjamin James, LPL Financial - Analyst [56]
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I had a question about the dividend policy, which has come up a few times with other callers. But given that a lot of the shareholders are focusing on the dividends, can you comment about -- given the current rates what we might expect for dividends in the next quarter?
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Herbjorn Hansson, Nordic American Tankers Limited - Chairman & CEO [57]
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I would not do that on a conference call, but I had indicated clearly in the documentation that you have received, the only thing I have confirmed very positively, we shall pay dividend, but I cannot and possibly wouldn't give you a number, I cannot do that. I understand that the dividend is very important, it is a part of a more complex risk management question, and that it would take me one hour to explain everything associated with that. But you can rely on dividend.
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Benjamin James, LPL Financial - Analyst [58]
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Would you comment maybe on the type of rates that we have achieved thus far in Q2?
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Herbjorn Hansson, Nordic American Tankers Limited - Chairman & CEO [59]
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Not more than what I have said already that the second quarter in 2017 can be expected to be lower than 1Q. Rates are well above cash breakeven. That is the important thing. And we are among the largest shareholder. I'm very confident, when I have such a big chunk of stock directly owned by my closest family, you know. I show my confidence in that way.
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Benjamin James, LPL Financial - Analyst [60]
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Lastly, if you can outline a little bit about how you're geographically diversified, what are your primary routes right now?
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Herbjorn Hansson, Nordic American Tankers Limited - Chairman & CEO [61]
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We have about 20 of our ships in the Far East, I believe, and close to 10 now in the Western world. We see things changing. Just to give you an example, they have had big trouble in Venezuela and the President of Venezuela didn't like the people in the White House. And then they wouldn't sell oil to America, then they sell all to China. One of the longest routes we have is from Venezuela to China, or from the Caribbean to China, the long, long routes. We also see often a lot of oil being carried from West Africa to the Far East, that's a very important route, and we go there all the time. And the Suezmax vessel is versatile, many places, it can go many places and that is the gist of the Suezmax ship.
We are essentially all over the place. We charted a ship yesterday, taken it from the West to the East, where it will go to dock, it's very efficient and it will be docked in the Far East, very efficient. We charter it to a major oil company on a travel and it is very beneficial to us. But I must say, we don't tell people what we are doing all the time. We communicate in writing with the market, clearly, as precisely as we can, but we are very good at hiding, essentially what we are doing market-wise, because we don't like others to snap at our ideas.
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Operator [62]
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Edwards Bate, Shareholder.
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Edwards Bate, Private Investor [63]
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My question is, a lot of the aura of NAT is based on management, because you do a good job on communicating your confidence in the Company. Yet, two years ago, your family sold a significant portion of your holdings in NAT, despite the highly touted and often stated total return history of NAT. One would presume that the insiders would say, gosh, it's $16, $15, or $14 and $13, with that total return history, surely you would keep it. But, no, it was sold, which seems in retrospect (multiple speakers) wait, wait. Hello sir, please. Sir my question is --
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Herbjorn Hansson, Nordic American Tankers Limited - Chairman & CEO [64]
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What you are saying is not correct, I can explain it.
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Edwards Bate, Private Investor [65]
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Would you consider your decision to sell a good bit of your shares in the teens, could be a wise decision, despite the total return record?
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Herbjorn Hansson, Nordic American Tankers Limited - Chairman & CEO [66]
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I never gave people above 18 years of age, advice, unless they specifically ask for it. But I would say, I had to pay my personal taxes. I'm probably the biggest taxpayer in this city and from time to time, you must pay taxes and now I am up again. I bought for a $1 million or $2 million last week or the week before and I can give you an explanation of that as well. I believe in this Company, I have invested millions and millions of dollars in this Company and if that's not enough, I don't know. I'm not going to ask you how many shares you have Edwards. But if you have millions and millions of dollars, then you know I'm putting my money where my mouth is. And we are now back up again, but I must for heaven's sake, be allowed to adjust my portfolio a little bit, but now we are up again. And I bought last week or the week before, I don't have it in front of me. So I without having the numbers in front maybe, and a big chunk in our private investment company -- in this company. And don't put it in a way that we over time have reduced our holding, because that's not true.
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Operator [67]
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Bruce Swartz, Private Investor.
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Bruce Swartz, Private Investor [68]
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I did have a follow-up -- a couple of follow-up questions. But in view of what some of the previous stockholders have asked, I too saw you on television in a kind of media blitz a year or two ago and you were arguing that you did not feel that the per-share price of the stock reflected the dividend that you were paying and the focus of your attention was on rewarding the stockholders, the shareholders, and that was one of your primary missions. But then you embarked on a plan to purchase more ships. The stock is now less than half of what I paid for and probably many others and --
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Herbjorn Hansson, Nordic American Tankers Limited - Chairman & CEO [69]
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Including myself.
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Bruce Swartz, Private Investor [70]
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Okay, but we did believe you, we did believe you that when you said that your primary concern was the stockholders and that in fact the stock price did not reflect the amount of dividend you were paying. You certainly must have been aware that people based on your word, were going to go out and buy that stock, based on the actual dividend return at the time, that this would be a terrible blow to those of us who did believe you and buy the stock and now find ourselves with a tremendous drop in our equity or in this investment?
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Herbjorn Hansson, Nordic American Tankers Limited - Chairman & CEO [71]
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Yes, I understand that, I agree with you. I don't like if the stock price goes down, we are in 100% agreement. But I cannot unfortunately do anything about it. (Multiple speakers).
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Bruce Swartz, Private Investor [72]
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Yes, but that doesn't belie the fact that it seemed like your primary purpose for being interviewed on these financial shows was to argue the fact that the stock price didn't reflect the amount of the dividends. You must have been aware of the fact that if you would cut the dividend significantly, which you have done, that the stock would drop and (multiple speakers) high and dry. My final question is this. Are you going to continue to buy ships which will impact the dividend that you're able to pay, or is at some point, are you going to stop buying ships, pay them off and then return to the type of dividend that you have been paying in previous years?
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Herbjorn Hansson, Nordic American Tankers Limited - Chairman & CEO [73]
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It is a very, very important question and if I did know the answer, I would have responded. I don't know the answer. Madam administrator, we then have to close NAT and then we go over to NAO, if I may.
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Operator [74]
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Thank you very much. That will conclude the Q&A session for the first part of the call.
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Herbjorn Hansson, Nordic American Tankers Limited - Chairman & CEO [75]
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And then I would like to go on to NAO, that has essentially the same objective as NAT. NAT has 100,000 shareholders, NAO has 35,000 shareholders. We will use the same strategy, profitable expansion, a pure play on the PSV, platform supply vessels. They are small vessels going in the North Sea. All cash flow distributed to shareholders, maintain a strong balance sheet, interests aligned shareholders management, low cash breakeven level, mixed exposure to spot and TC rates, low G&A cost, leverage industry network.
We have 10 environmentally-friendly ships. They are in lay-up. We were lucky enough to strengthen the capital -- three in lay-up, three in there. And we are having new ships from [2012 to 2017], they're all built in Norway, many of them -- several of them are carrying Norwegian flag. And they are top quality fleet. We strengthened the company a month ago or two months ago with about $50 million. So now we are on a solid footing and we are the only Company with some Norwegian routes that are listed on the stock exchange in America.
And we wish to make NAO the same success as NAT. So far it has not been. I have bought and my family has bought 10% of NAO, as you know. And again, I put my money where my mouth is. And I'm optimistic on NAO. I'm most optimistic, because of the high quality fleet and I'm optimistic that users understand, when you deal with this people, you must rely on them and you must rely on the financial situation of the companies. We had a lot of engines built in America. You know Caterpillar. We have four Caterpillar engines on each ship. And they are environmentally very, very friendly ships. And what we didn't see when we bought them, we did not analyze, I should say, analyze, that the price of oil could go down. We should have done that. I take that blame that we did not analyze that the price could go down. But except for that, our analysis of the OSV, which is a small ship, going to the platforms in the North Sea, our analysis was absolutely right, and we have sent you this on the email. And if you ask me, which is a legitimate question, what do you think about the future of NAO? And then my response is, my son and I, we have bought 10% of the company over the last month or so. And that really is the response to that question.
Technically superior ships. All our NAO ships have so-called clean design notation. We are familiar with and working on this question of emissions, which are very important for us and to operate environmentally friendly. But we don't like to lose money. So, if somebody of you out there complains about losing money, I agree with you. And I will listen to whatever suggestion you have to improve. We are hopeful now that we shall manage via measures to reduce the cost level, in order at least for us to come to cash breakeven -- cash breakeven. And I'm optimistic about that as well.
And I don't think I have more to say than report what we have written in our report in early May. But I can tell you very affirmatively, we don't like to lose money, that we are hopeful that we shall improve. And I like to quote one of the top oil company people in the world, in Houston, Texas, he says the biggest room in the world is the room for improvement. So Madam administrator, I'm prepared to take questions of this session before we close the shop before 3:30 Norwegian time, which is 9:30 AM your time. Thank you.
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Operator [76]
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(Operator Instructions) Ole Slorer, Morgan Stanley.
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Ole Slorer, Morgan Stanley - Analyst [77]
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There is a lot of distress in the supply vessel markets at the moment. A number of your global competitors have been filing for Chapter 11 and there seems to also be a lot of distress in the Norwegian market that's forcing consolidation and yet you have been buying quite a lot of shares lately amidst this distress. Could you see the kind of opportunity that you envisage for Nordic American Offshore in light of the distressed environment that you are within right now?
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Herbjorn Hansson, Nordic American Tankers Limited - Chairman & CEO [78]
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The environment is indeed stressed and I say that we prefer to buy something cheaply, if the alternative is to buy it expensively. Here in Norway, there's a lot of stress, people are scratching on our door wishing to sell assets to us. We are the only company that is listed in America with some routes, I would say, or some connections to Norway. We have been told by experts in America that when you are in Chapter 11, the door is more or less closed for you, it's very difficult to get in there. Then the administrator of Chapter 11, he keeps "people away". But I would not be surprised at all if we buy more ships. I have gone on record as they refer to what I've said on the television here several years ago, but I can say what I told the financial channel here in Norway, just a month ago or two. I said that I would expect we have 10 ships now. In a year or two, or three, we would have maybe 30 ships or maybe 40 ships. We are going to expand, based on the logic that I have submitted earlier. Expansion is the gist of capitalism. If you don't expand, you're dead. And I see a lot of opportunities, I must admit, and I see a lot of right people trying to do the right thing and I'm personally very confident that we will do a good job there. We have just employed two new senior managers on our offshore side. The first one joined yesterday or the day before and we have some more people coming in. So we are "rejuvenating the organization" here, and I'm very pleased that all these -- I call them youngsters -- will join us, because then you know we are perfectly well equipped to go forward.
In summary, there are a lot of opportunities and that's why my son and I have bought 10% of the Company just recently. That is because when you have something that is worth [20] or when you have something that is worth [40], it is a longer distance from [40] to zero than from [20] to zero. And the risk is decreasing. The more difficult it is in the marketplace and whether you're right or wrong, only the future will tell you, but I'm confident. I have a good feeling for the NAO thing. We shall be able to reduce our costs and we are saving money every day. Our first objective is to get cash breakeven, which I'm hopeful we shall have this year or not very long into next year and then we take it from there. But when I went public saying we should have 30 ships or 40 ships, a lot of people are scratching on our door and I don't hide any secrets when I tell you that we know very well the top owners of platform supply vessels in this industry. We know most of them and we are following that operation very closely and NAO is in the same office, the adjacent office as we have NAT in Oslo and I'm confident about it and time will tell if I'm right, Ole.
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Ole Slorer, Morgan Stanley - Analyst [79]
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That goes for all of us, but you have, as you pointed out, a situation now where you have Chapter 11 companies all around you, you have two or three of the Norwegian companies talking about combining and merging in order to survive. You have a comparatively good financial situation, you've excellent connections with the big lenders to the supply vessel industry. So, do you think it's possible to do deals that are accretive at the NAO level? I mean, the stock is very low, although the Company is financially in better shape than most peers? You say there are people scratching on your door, but do you see people coming forward with realistic proposals. When you lost everything, I mean, what's your motive in selling, do you think?
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Herbjorn Hansson, Nordic American Tankers Limited - Chairman & CEO [80]
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Last time I discussed this was with a prominent banker yesterday evening. He called me and I believe Ole, the answer is yes, the answer is yes. We had two banks in NAO, nothing is secret about that, that is the DNB which is one of the largest financial institutions in Scandinavia, which the major shareholder is the Norwegian government having about 35% or something. And the second lender is a first-class Swedish bank with a name of SEB, which is the Wallenberg bank, Skandinaviska Enskilda Banken. And the Wallenberg bank is the most prominent bank in Scandinavia, along with DNB and Danish Institutions, and they act very constructively in our dealings.
And with the help of Morgan Stanley also, we syndicated some money, shoring up the financial situation for NAO. And now we are in a good position to grow and a good position to do something in a very intelligent way, but we cannot possibly at a conference call tell you what that is. But we know all the players in the marketplace, but I would note that if you combine the man who is blind and the man who is limping, you say, that do not necessarily create a lot of future. But I feel it's not my obligation and our obligation to comment on the exact things going forward, but we are doing fine and I am optimistic.
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Ole Slorer, Morgan Stanley - Analyst [81]
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So in summary, putting your own money in, because you see opportunities to do deals that are accretive to the Company?
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Herbjorn Hansson, Nordic American Tankers Limited - Chairman & CEO [82]
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Absolutely, no question.
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Operator [83]
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David Weinberg, Private Investor.
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David Weinberg, Private Investor [84]
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First, let me thank you for being the most enthusiastic Chairman on a conference call that I've ever heard. You seem to be enjoying yourself outrageously and it is a pleasure to listen. So I thank you for that. My first question is regarding alternate markets. The North Sea is clearly on its way out. And I'm wondering if you're looking at any other markets in Asia or the Gulf Coast of America or off of Venezuela to employ some of these boats?
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Herbjorn Hansson, Nordic American Tankers Limited - Chairman & CEO [85]
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Can I respond very precisely to that? May I respond to that David?
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David Weinberg, Private Investor [86]
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Yes, please?
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Herbjorn Hansson, Nordic American Tankers Limited - Chairman & CEO [87]
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The North Sea is not out. The North Sea is subject to politics. And if Mr. Putin and Mr. Trump and others, we have gotten the most brilliant President that France has had for 100 years, Mr. Macron. And if they can put the act together, they will start drilling up in the balance sheet again. Norway has a border together with Russia. So that is one huge potential. And also, I would say, generally speaking, the North Sea is not out at all. Other areas that you mentioned, what we are very aware about is the question of corruption. We see from time to time and we never touch it, never, never, never, in some places of the world there is a lot of corruption, which is very, very dangerous for our business. And we have discussed the possibility of working in other places. The ships we have are built here in this area. And some people claim that these are the best ships in the world, and of course the NAO ships. And, of course, it doesn't take much to understand that we are in strong agreement with that.
So, I would say, when we -- I got the specification of some ships this morning, they were built in 2005 and 2006. I happen to be on the Board of a company that bought them in the first place. And I know the ships, they are 2005, 2006 ships. And my question is also, can we retain the age profile. And I would say it's like that to respond more precisely, as we grow --
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David Weinberg, Private Investor [88]
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But in answer to my question, you're not looking at alternate markets, you are focused entirely on the North Sea?
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Herbjorn Hansson, Nordic American Tankers Limited - Chairman & CEO [89]
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No, you stopped me just in the midst of my comment. As we grow the fleet, we may expand into other areas, we may expand into other areas. And we are going to expand and I had two suggestions this morning, they were built in 2005 and 2006. But we have a very well advanced, good fleet, starting in 2012, which is the main strength. But we are indeed looking into other areas, but that must be as a part of our expansion. We did, just a few months ago, discuss with another owner. He had a lot of ships, we could buy from 10 to 16 ships for expansion into other areas. But at this time, with this fleet, we are of the view that the fleet we have at this time, the fleet is best suited for the North Sea. That is our view at this time.
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David Weinberg, Private Investor [90]
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I have another question about NAO. With what little information we get, it's very confusing as to the financing, because when the company went public, we were very proud of the fact that it was debt-free, in that you would purchase these ships with the money from going public and kept the Company debt free. And then as the stock started to fall, you used -- it appears that you used your line of credit to buy back stock at about $6.50, which has loaded up the Company with a huge amount of debt per boat. And then when the stock further fell to a dollar, you then issued $50 million worth of stock after having bought it at $6.50. And I am sure that's not how you see it. And so I would like you to explain the way -- accurately the way it actually happened?
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Herbjorn Hansson, Nordic American Tankers Limited - Chairman & CEO [91]
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I cannot say that you say it's correct at all. The thing is that we have spent $7 million for buyback of stock that decision the Board took in May 20, 2015, which expired now. $7 million we have spent to buy back stock. And I have spent a few million dollars, David, a few million dollars, owning now 10%. So that probably means that I believe in the stock, at least that is my interpretation. And I'm very hopeful that this for us will be a very good investment and for NAT. NAT is standing firmly behind NAO. NAT has 22.6% and my family and I, closest family, we have 10%. And I have nothing to complain about in that regard. I don't like the stock price. I'm exactly like you David. I like a high stock price and everybody who can help us in getting a high stock price would be fine, but as a matter of principle, I don't talk about the stock price, because that is not our obligation. But when we -- do you agree with that?
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David Weinberg, Private Investor [92]
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I agree with that. I just don't understand loading up the Company with debt going into such a downturn.
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Herbjorn Hansson, Nordic American Tankers Limited - Chairman & CEO [93]
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No, it's not true that we loaded it up with debt. But you must also remember, if you will go into details and I'm fully prepared to do that, but not waste all the people's time that is we made a lot of money on the currency. Currency, the dollar strengthened. Originally the price was about $45 million per ship and when they were delivered, the price was down to $30 million because of the strong currency and this is a little bit, I would say, mostly picture, difficult situation. We have pounds, we have Norwegian krone, we have US dollar. I could make a little speech on that as well. I shall (multiple speakers). But now I think we have only 10 minutes to go until the stock exchange opens and we are very -- madame administrator, we're very pleased that so many people would join us. There is one more. Benjamin James, you're here, are you Benjamin? No? Benjamin James. [Henry Levy] are you there?
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Operator [94]
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Henry Levy.
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Unidentified Participant [95]
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There was one article yesterday in the New York Times that talked really about conditions in the North Sea and the previous caller asked a question that really leans on what I'm asking. They talked about the conditions being so difficult and so bad that some rigs now are being taken into port and basically the best way to utilize the assets is for scrap. Can you comment a bit on -- if you're seeing any influence, any difficulties relative to NAO because of that condition existing?
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Herbjorn Hansson, Nordic American Tankers Limited - Chairman & CEO [96]
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I would say, if you are going to ask about the North Sea, you should probably ask me and not the New York Times, but that is a very subjective statement. But I see that the offshore patch is in trouble and a lot of companies, they don't have money and when you don't have money, you are in trouble. And some of the drilling rigs, and so called accommodation rigs had nothing to do, which is difficult. I've been in the offshore business since 1981, a little while at least. And we did a big mistake at the outset, but we improved during the 1980s, but I'm not so concerned about the North Sea at all, for reasons I mentioned, simply because I cannot brag about Norway, but they have a very stable political, government. And Norway has the biggest sovereign wealth funds in the world and I happen to believe that I have got one of the best prime ministers and one of the best finance ministers in the world. We are a small country, living on the outskirts of the world. I saw your previous Minister of Foreign Affairs, John Kerry, came to us yesterday. But what I dislike about Norway is that they give away all this money. They give it to Clinton Foundation and others and I'm not so enthusiastic about that. I'm not so skeptical as you are Henry on New York Times, when it comes to the North Sea. Norway is a strong place, the North Sea is a strong place and they have some challenges. In England, I think Brexit is a disaster for England, but good for European Union, but that's a different story. But I'm not so pessimistic for the North Sea, Henry.
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Herbjorn Hansson, Nordic American Tankers Limited - Chairman & CEO [97]
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[Toby Joyce], Sigma Capital.
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Toby Joyce, Sigma Capital - Analyst [98]
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Herbjorn, given your involvement in NAT and NAO, can you explain the safeguards in place to prevent conflicts of interest, be they perceived or real? (Multiple speakers)
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Herbjorn Hansson, Nordic American Tankers Limited - Chairman & CEO [99]
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We said in both the strategic documents that you have received, we have interests aligned shareholders management, that is a holy principle for us. A lot can be said about us and a lot is said too. We have independent Board members and we have never, never been accused of breaching any law, if you wish, or anything over the last 35 years, which give me some comfort. We are very well aware of what you are mentioning, Toby. And I'm highly critical to those who put money in their own pockets at the expense of shareholders. You will never see that in this Group. And that is why we have survived and grown and prospered. We go for simplicity, transparency, predictability, and accretion. And we have also, as I said, independent Board members. So that is my answer to you, Toby.
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Toby Joyce, Sigma Capital - Analyst [100]
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If you've got time, could we look back on to the -- and I'm sure it will be frustrating to you, the loan covenant. Was the point you're making that in the mind of the Board (multiple speakers).
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Herbjorn Hansson, Nordic American Tankers Limited - Chairman & CEO [101]
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We are now discussing NAO.
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Operator [102]
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As there are no further questions in the queue that will conclude today's question and answer session. I would now like to turn the call back over to Mr. Hansson for any additional or closing remarks.
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Herbjorn Hansson, Nordic American Tankers Limited - Chairman & CEO [103]
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Thank you very much and thank you all of you for joining us today, this morning. You are free to call us or to email us all the time, just about everything. I say to you, we have the best ships that is an objective fact. We have the best people that is a subjective fact, in my judgment. And we are operating in America -- in the American capital markets, and we have a lot of friends, simply because it's better to have friends than enemies. Thank you very much for joining and have a good morning. Thank you.
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Operator [104]
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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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