TEN

Business Context and Reporting Period

Company: Tsakos Energy Navigation Ltd. (TNP)
Filing Type: Form 20-F (Annual Report)
Reporting Period: Fiscal Year Ended December 31, 2010
Business Overview: A Bermuda-based holding company operating a fleet of modern crude oil carriers, petroleum product tankers, and one LNG carrier. The company provides worldwide marine transportation services under long, medium, and short-term charters. As of December 31, 2010, the fleet consisted of 48 vessels (47 operating, 1 held for sale) with an average age of 6.8 years.

Key Financial Metrics (Year Ended Dec 31, 2010)

Note: All figures are in thousands of U.S. Dollars unless otherwise noted.

Material Changes vs. Prior Period

• Revenue Decline: Voyage revenues decreased 8.3% to $408.0 million, primarily due to a decline in Time Charter Equivalent (TCE) rates ($19,825/day in 2010 vs. $22,329/day in 2009) caused by market oversupply and high inventory levels.
• Profitability: Net income attributable to shareholders dropped 31.1% to $19.8 million. This was driven by lower revenues and a 35.8% increase in interest and finance costs (to $62.3 million) due to negative movements on non-hedging interest rate and bunker swaps.
• Cost Management: Vessel operating expenses decreased 12.8% to $126.0 million, aided by cost-saving measures from the new technical manager (Tsakos Columbia Shipmanagement) and a stronger U.S. dollar against the Euro.
• Asset Sales: The company sold five vessels in 2010, realizing a net gain of $19.7 million, compared to a gain of $5.1 million from one vessel sale in 2009.
• Impairment: A vessel impairment charge of $3.1 million was recorded for the Vergina II, compared to $19.1 million in 2009.

Guidance, Outlook, and Risks

Management Commentary & Outlook: Management anticipates 2011 to be challenging due to global economic uncertainty and fleet overcapacity. However, they cite positive signs including the recovery of Western economies, growth in developing nations (China, India), and rising oil demand. The company aims to maintain high fleet utilization (62% of 2011 days fixed as of March 31, 2011) and continue its dividend policy of paying 25-50% of net income.

Key Risks & Contingencies:

• Market Volatility: Significant exposure to cyclical charter rates; 12 vessels were on spot charters expiring by May 2011, and 14 on time charters expiring between May and November 2011.
• Geopolitical Events: Risks associated with the earthquake/tsunami in Japan (March 2011) and civil unrest in Libya, which could disrupt trade patterns and demand.
• Financing: The company has not yet secured bank financing for the remaining obligations on four newbuildings (approx. $40 million outstanding for two Suezmaxes and two DP2 shuttle tankers).
• Related Party Dependence: Heavy reliance on Tsakos Energy Management for executive functions and Tsakos Columbia Shipmanagement for technical operations. Termination of the management agreement could trigger a $134 million penalty.

Investor Verification Checklist

• Charter Expirations: Verify the re-chartering status of the 12 spot vessels and 14 time-chartered vessels expiring in 2011 to assess revenue stability.
• Newbuilding Financing: Confirm the status of financing negotiations for the four vessels under construction, as failure to secure funding could impact liquidity or force asset sales.
• Swap Valuations: Review the fair value of non-hedging interest rate and bunker swaps, as mark-to-market losses significantly impacted 2010 net income.
• Dividend Sustainability: Assess whether the 2011 dividend policy (25-50% of net income) is sustainable given the projected lower earnings environment and debt service requirements.
• Related Party Fees: Monitor the impact of increased management fees (raised to $27,000/vessel/month in July 2010) on future operating margins.