TSAKOS ENERGY NAVIGATION LTD annual report, Q4 FY2022

Tsakos Energy Navigation Limited: FY2022 Form 20-F Summary

Business context and reporting period

Tsakos Energy Navigation Limited is a Bermuda-incorporated, NYSE-listed international marine transportation company reporting under U.S. GAAP. This Form 20-F covers the fiscal year ended December 31, 2022; the filing does not present a separate fourth-quarter income statement.

The Company operates crude oil and petroleum product tankers, LNG carriers and DP2 shuttle tankers. At December 31, 2022, the fleet comprised 66 vessels at year-end, with 65.5 vessels on average, while the fleet described as operational at April 3, 2023 comprised 58 vessels and approximately 7.2 million deadweight tons. The Company has no salaried employees and relies on Tsakos Energy Management and affiliated or third-party managers for executive, commercial and technical operations.

Key financial metrics

Metric	2022	2021	Change or comment
Voyage revenue	$860.4 million	$546.1 million	Up 57.6%
Operating income (loss)	$256.4 million	$(119.9) million	Improved primarily from stronger tanker rates and no impairment charge
Net income (loss)	$208.5 million	$(150.6) million	Returned to profitability
Net income attributable to TEN	$204.2 million	$(151.4) million	Significant year-over-year improvement
Net income attributable to common stockholders	$168.3 million	$(187.2) million	After preferred dividends and other allocations
Basic/diluted EPS	$6.02/$6.01	$(9.53)/$(9.53)	Weighted-average basic shares increased to 28.0 million
Net cash from operating activities	$288.5 million	$53.1 million	Up $235.4 million
Cash and cash equivalents	$304.4 million	$117.2 million	Restricted cash was $5.1 million
Total debt and other financial liabilities	$1.59 billion	$1.38 billion	Debt-to-capital ratio was 51.0%; net debt-to-capital was 45.6%
Total stockholders’ equity	$1.52 billion	$1.29 billion	Improved with profitability and equity issuance

Average fleet utilization increased to 94.7% from 92.6%. Average time charter equivalent revenue increased to $30,399 per vessel per day from $17,037. Vessel operating expenses increased 9.8% to $190.3 million, while depreciation and amortization declined 1.7% to $140.8 million. Interest and finance costs increased 60.2% to $50.3 million, principally because of higher interest rates and higher average debt.

At December 31, 2022, the Company reported positive working capital of $110.1 million versus negative working capital of $104.6 million at December 31, 2021. The Company was compliant with the financial covenants in all 32 loan agreements, and reported consolidated leverage of 41.9% against an original maximum covenant of 70%.

Material changes versus the prior comparable period

Tanker market conditions strengthened substantially in 2022 after historically weak conditions through much of 2021 and early 2022. Management attributed the improvement to post-pandemic oil demand recovery, disruption of Russian energy trade and longer-distance replacement flows.
Voyage revenue rose by $314.3 million, supported by higher market rates, improved utilization and fewer off-hire days.
The Company delivered three vessels: LNG carrier Tenergy, VLCC Dias I and DP2 shuttle tanker Porto. It sold aframax Proteas and panamax Inca, realizing a combined net loss on sale of $0.4 million.
No vessel impairment charge was recorded in 2022, compared with an $86.4 million impairment charge in 2021.
Operating cash flow increased sharply, but investing cash outflows also increased to $301.8 million, principally for vessel acquisitions, improvements and newbuilding payments.
Financing activities provided $195.5 million, including new debt and $43.8 million of net common-share issuance. Common shares outstanding increased to 29.5 million at year-end from 24.6 million.
Interest expense increased materially as the weighted-average debt rate rose to 3.91% from 2.02% in 2021. Most debt was floating-rate and indexed to LIBOR or SOFR.
The Company terminated its bunker swaps during 2022 and had no open bunker swap positions as of April 3, 2023. It also terminated most interest-rate swaps, leaving one principal swap outstanding at December 31, 2022, maturing in April 2023.

Liquidity, debt and capital commitments

The Company had approximately $309.4 million of cash and restricted cash at year-end, against $1.59 billion of debt and other financial liabilities. Principal debt payments after December 31, 2022 totaled $1.42 billion, including $159.6 million due in 2023, $248.2 million in 2024 and $284.9 million in 2025.

Remaining payments under seven newbuilding contracts totaled approximately $598.3 million at December 31, 2022, including $220.0 million due in 2023, $171.8 million in 2024 and $206.5 million in 2025. The Company had arranged up to $236.8 million of senior secured financing for four aframax newbuildings and was seeking financing for the DP2 shuttle tankers and suezmax tankers.

Management stated that net operating cash flow is the principal liquidity source and that the Company may also use vessel sales, borrowings and capital-market transactions. The filing states that management identified no conditions raising substantial doubt about going concern.

Guidance, outlook, commentary and unusual items

Management expects tanker fundamentals to remain supported by low newbuilding orders, an aging global fleet, limited fleet growth and continued changes in energy trade routes. These statements are forward-looking and are not guarantees of results.
As of April 3, 2023, 69% of the fleet was employed at fixed rates, including time charters with profit-sharing components. Eleven vessel charters were scheduled to expire during 2023, creating re-chartering and spot-market exposure.
Management announced an intended 2023 common dividend of $0.60 per share, split between June and December payments, subject to board discretion, cash availability, results, financing restrictions and Bermuda law.
In the first quarter of 2023, the Company sold eight vessels for an aggregate sale price of $169.5 million and expected a book gain of approximately $80 million. It also acquired two vessels for approximately $40.5 million.
COVID-19 effects had diminished by 2022, but the Company continued to identify risks from renewed outbreaks, crew availability, supply chains, repairs and charter demand.
The Ukraine conflict and related sanctions initially benefited tanker demand through trade-route disruption and longer voyages, but management cautioned that broader sanctions, retaliation, energy-demand weakness and higher operating costs could adversely affect results.
Inflation increased crew, maintenance, dry-docking, insurance and lubricant costs. The Company’s P&I insurance renewal costs increased 6.62% as of February 20, 2023.
The Company is exposed to LIBOR discontinuation and transition to SOFR or another benchmark. A 0.25 percentage-point increase in interest rates was estimated to increase annual loan interest payments by approximately $4.0 million based on year-end debt.
The Company disclosed ongoing cooperation with U.S. authorities regarding investigations into whether conduct by certain shipbrokers in Brazil-related charters violated the Foreign Corrupt Practices Act. The filing does not provide a quantified potential loss.
The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting. The critical audit matter concerned recoverability of vessels and right-of-use assets, particularly assumptions for future charter rates.

Principal risks

Highly cyclical and volatile tanker, LNG and shuttle-tanker charter rates, including exposure as time charters expire.
High leverage, floating-rate debt, refinancing needs, balloon payments and loan-to-value and other financial covenants.
Large newbuilding commitments and risks of delivery delays, cost overruns or inability to obtain financing.
Vessel-value declines that could trigger impairment charges or covenant pressure.
Dependence on charterers, including counterparty credit risk and customer concentration; ExxonMobil represented approximately 12.9% of 2022 revenue.
Fuel-price volatility for spot-market vessels, foreign-currency costs, inflation and higher insurance and maintenance expenses.
Geopolitical events, sanctions, piracy, terrorism, war-risk insurance and disruption of trade routes, including risks related to Russia and Ukraine.
Environmental and climate regulations, including EEXI, CII, ballast-water requirements, emissions rules and potential EU carbon-cost regimes.
Dependence on affiliated management companies and related-party arrangements. Related-party charges totaled $50.3 million in 2022, including $20.2 million of management fees and $10.7 million of chartering commissions.
Potential FCPA, litigation, pollution, operational, cybersecurity and insurance-coverage exposures.
Dividend uncertainty: common and preferred dividends remain subject to board approval, cash availability, financing restrictions and legal requirements.

Facts investors should verify

Whether tanker and LNG charter rates remain sufficiently strong to support the 2023 dividend objective and scheduled debt service.
The timing, financing and delivery status of the remaining newbuildings and the effect of approximately $598.3 million of contracted installments.
Refinancing progress for 2023 maturities and the effect of the LIBOR-to-SOFR transition on interest expense.
Actual proceeds, gains and debt reductions from the first-quarter 2023 vessel sales and acquisitions.
Charter coverage and renewal rates for the eleven vessels scheduled to expire during 2023.
Developments in the FCPA investigation and whether any reserve, settlement or material disclosure becomes necessary.
Vessel market values, impairment sensitivity and compliance with minimum liquidity and loan-to-value covenants.
The Company’s continuing related-party fees, management-agreement termination exposure and governance implications of affiliated ownership.