Dynagas LNG Partners LP

Thank you for standing by, ladies and gentlemen, and welcome to Dynaglass, Dynagas LNG Partners conference call on the third quarter 2022 financial results. With us we have Mr. Tony Lauritsen, Chief Executive Officer, and Mr. Michael Gregos, Chief Financial Officer of the company. At this time, all participants are in listen-only mode. There will be a presentation followed by a question and answer session, at which time if you wish to ask a question, please press star 1 on your telephone keypad and wait for your name to be announced. I must advise you that this conference is being recorded today. Please be reminded that the company announced its results with a press release that has been publicly distributed. At this time, I would like to remind everyone that in today's presentation and conference call, Dynagas LNG Partners will be making follow-looking statements. These statements are within the meaning of the Federal Securities Law. This conference call and slide presentation of the webcast contains certain forward-looking statements within the meaning of the Safe Harbor Provision of the Private Securities Litigation Reform Act of 1995. The statements in today's conference call that are not historical facts including, among other things, the expected financial performance of Dynagas LNG Partners business, Dynagas Partners LNG ability to pursue growth opportunities, Dynagas Partners LNG expectations or objectives regarding future and market charter rate expectations, and, in particular, the effects of COVID-19 on the financial condition and operations of Dynagas Partners LNG and the LNG industry in general. may be forward-looking statements such as defined in Section 21E of the Securities Exchange Act of 1934 as amended. Matters discussed may be forward-looking statements which are based on current management expectations that involve risks and uncertainties that may result in such expectations not being realized. I kindly draw your attention to Slide 2 of the webcast presentation, which has the full forward-looking statement, and the same statement was also included in the press release. Please take a moment to go through the whole statement and read it. And now, I pass the floor to Mr. Larson. Please go ahead, sir.

Good morning, everyone, and thank you for joining us in our three-month end of 30 September 22 earnings conference call. I'm joined today by our CFO, Michael Gregos. We have issued a press release announcing our results from said period. Certain non-dub measures will be discussed on its call, and we have provided a description of those measures, as well as a discussion of why we believe it's information to be useful in our press release. Moving on to slide three of the presentation. We are pleased to report the results for the three months and the third of September 22. All 67G carriers in our fleet are operating under the respective long-term charters. The fee utilization was 100% for the 10th consecutive quarter included. For the third quarter of 22, we reported net income of 7.4 million, earnings per common unit of 12 cents, adjusted net income of 4.5 million, adjusted earnings per common unit of 4 cents, and adjusted EBVA of 20 million. In terms of operational highlights related to the third quarter of 22, We successfully completed the special service of Army River and Ob River, including ballast water installation, in accordance with current regulatory requirements. Our thoughts go out to everyone affected and suffering as a result of the crisis in Ukraine. We continue to closely monitor this ongoing situation, including the implications of economic sanctions, trading restrictions, and other considerations that may affect our business. It is outstanding that the current U.S. and EU sanctions regime have broadly extended energy shipping and do not materially affect the business, operations, or financial conditions of the partnership. The partnership has one syndicated credit facility in place. One of the lenders in this credit facility was Amsterdam Trade Bank. However, following the designation of Amsterdam Trade Bank by OFAC as an STN, the partnership, in agreement with all lenders, made a voluntary prepayment of US$18.7 million from the 50 million restricted cash collateral which was supplied in prepayment of the entire participation of Amsterdam Trade Bank to the credit facility. Consequently, Amsterdam Trade Bank is no longer a lender under the credit facility. The partnerships counterparties are performing their obligations under their respective time trials in compliance with all applicable U.S. and E.U. rules and regulations. Our vessels named Clean Energy of River and Armour River are in charge of the previous gas for marketing and trading of Singapore, which has been renamed Securing Energy for Europe Marketing and Trading, and which we onwards will refer to as CESEC. On November 14, 22, it was announced that the full ownership of Securing Energy for Europe, GMBH, and all of its subsidiaries, including CEPFET, have been transferred with immediate effect to the Federal Republic of Germany via the Federal Ministry for Economic Affairs and Finance Action, which has taken over as a 100% shareholder. Sanctions legislation is changing rapidly, and the partnership is continuously monitoring the ongoing situation. The partnership is well-proficient to take advantage of a strong market outlook for long-term charities with the Arctic Aurora opening up in Q3, Q4, 23. I will now turn over the presentation to Michael, who will provide you with further comments on the financial results. Thank you, Tony. Moving to slide four, net income for the fourth quarter decreased by 35% to 7.4 million compared to Q3 2021. primarily due to the special survey dry dirt cost of $3.5 million for the Amur River and $3.9 million for the Ob River, $7.4 million total, and 67 scheduled up-hire days related to the dry dirt and the increase in interest finance cost of $2.1 million, which was partially offset by a realized and unrealized gain in our interest rate swap of $10.2 million, $2.5 million of which was realized. Adjusted net income, which excludes realized and unrealized gains on our interest rate swap for the quarter, was $2.5 million. If we add the realized gain from our interest rate swap quarterly cash payment of $2.5 million, adjusted net income would amount to $7.1 million. Adjusted to the death of a third quarter was $20 million, a decrease of $4.8 million compared to last year, mainly attributable to the entire days related to the aforementioned scheduled dry dogs. So this year we have completed the special server and dry ducts of three steam turbine LNG carriers, including the installation of the ballast water treatment systems, which is capitalized. The total cost of the third special server and dry ducts of our three steam turbine LNG vessels for this year has amounted to $16.4 million. with 103 days of off-hire time. 3.6 million impacted our Q1 P&L, 2.8 million our second quarter P&L, and 7.4 million has impacted our third quarter P&L, and 3.7 million relates to installation of the ballast water treatment system, which has been capitalized. Moving to slide five, at the end of September, we had 531 million debt outstanding which was further reduced following a $19 million debt prepayment in October following the designation of one of our lenders as an SPM. Therefore, as of today, our debt outstanding amounts to $512 million. We are seeing the benefits of our 0.41% excluding the margin fixed interest rate swap for the entire indebtedness outstanding until maturity in September 2024. with floating interest expense for the quarter of $7.2 million being offset by interest rates repayments of $2.5 million for the quarter. We are continuing our comprehensive deleveraging path, which commenced in the first quarter of 2020, having repaid $163 million in debt. resulting in a decrease in our net leverage to 4.8 times from 6.6 times and an increase in book value of our equity of 33%. Moving to slide six, in line with our strategy of using our contracted cash flow to reduce leverage for the corporate is utilized 95% of our unlevered cash flow to service debt and interest rate payments. Excluding working capital changes, operating cash flow for the quarter was $16 million. Our cash balance decreased by about $2.5 million to $97.7 million, primarily due to our dry books and working capital changes. We expect our Q4 of 2022 cash position to be impacted by the aforementioned $19 million debt prepayment to Amsterdam Trade Bank and the settlement of outstanding payments following the completion of our aforementioned paradox. That wraps it up for my side. I will pass over the presentation to Tony. Thank you, Michael. Let's move on to slide seven. Our heat currently counts six energy carriers with an average age of about 12.3 years. The chargers of our vessels are Equinor of Norway, Cepher of Singapore, and Yamal Trade of Singapore. As of today, 12th of December, 22, the fleet's contract backlog is about 950 million, equivalent to an average backlog of about 152 million per vessel. And the fleet's average remaining charter period is about 6.2 years. Moving on to slide 8. Our strategy is to conclude long-term charters with reputable LNG producers. The earliest contract of re-delivery date for any of our six energy carriers is in the third or fourth quarter of 23 for the Arctic Aurora. With the second earliest contract of re-delivery in the first quarter of 26 for the clean energy, both subject to terms of applicable charter. By any unforeseen events and which is scheduled by Dawkins, our fleet is 100% employed for the remainder of 2022, 96% for the year 2023, and 83% for 2024 and 2025. It continues to be a strong demand for LNG term shipping. In particular, we believe the 150,000 to 160,000 cubic meter LNG carrier segment is ideal to supply LNG for the European FSIU market. As such, we believe the Arctic Arora should be in a good position to benefit from a strong period market. All the vessels in our fleet are employed on time charter contracts, under which the charter pays major roads-related variable costs, such as fuel, canal fees, and terminal costs. Two of the vessels, named the Lena and Yenisei River, are on the dry dock in OPEX cross-pasture contracts, and in general provide protection for reasonable inflation and operating expenses. Let's move on to slide 9. Since September 2019, as of Q3 2022, the partnership has repaid $163 million in debt, decreased net leverage from 6.6 to 4.8 times, increased equity value by 33% to $450 million. The partnership's deleveraging efforts should continue to build equity value on a contractually structured basis, as we continue to benefit from stable long-term cash flow visibility and improved market conditions. The Russian-Ukraine situation has shed light on a fragile European energy infrastructure and a general global underinvestment into energy production and receiving facilities. The EU's goal to replace 50 BCM and Russian pipeline gas imports with LNG imports has increased competition for LNG supply and shipping. With the opening of the Arctic Aurora in Q3-Q4-23, we believe the partnerships will have exposure to strong shipping fundamentals. Some European countries are looking to accelerate their infrastructure development by chartering FSIUs. Germany, which currently does not have any land-based import facilities, has chartered FSIUs for long-term charters, two of which are from the private fleet of Banagas. Post-current charters, we believe the partnership has the potential to consider conversion of existing energy carriers to FSIUs as an alternative to conventional charters. Both alternatives will be considered. We believe the combination of the availability of the Arctic Aurora against a strong market and the future strengthening of our balance sheet places the partnership in a favorable position. We have now reached the end of the presentation and I now open the floor for questions. Thank you.

Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question today, you may press star 1 from your telephone keypad, and the confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Thank you. And our first question is from the line of Ben Nolan with Stiefel. Pleasure to see you with your questions.

Hey, Tony, Michael, hope you guys are well. So really the only variable out there at the moment is the Arctic Aurora, which you talked about. Any sense as to sort of, and Tony, you said that the appetite's pretty good because it should fit pretty well with the FSRU market in Europe. Any sense as to timing our charters, you know, being pretty aggressive in terms of when they're looking to lock things in? Or alternatively, how are you thinking about it? Would you rather wait until you get a little bit closer or do something sooner if it's available?

Yeah, thank you, Brad. That's a good question. Look, we see... We see, you know, several interests for the position. As you know, LNG is quite different from other shipping segments, and it, you know, has a longer-term view and a further forward fixing. So I would expect that, you know, that in the next quarter that the vessel will probably be locked in for a charter.

That's helpful. And switching gears maybe, so you talked about the prepayment of debt. I assume that doesn't change anything in terms of the terms of the loan or your ability to do things with your cash, like pay dividends or whatever. For now, it's still just a lower principal amount, basically. Is that fair?

Yeah, yeah, yeah, Ben, that's correct. Yeah, we just used the funds that were for a restricted cash collateral account, so we paid this debt, and that's the only thing that changed.

Okay, and as it relates to, yeah, we're still a little ways from refinancing that facility, but I assume if it comes due in mid-24 that you probably, maybe six months from now, are going to be looking to refinance it, I would guess. How do you think about the collateral value? I know that it's a pretty good time in the LNG market. Obviously, new buildings are a whole lot more expensive. There's, I believe, a little bit of less appetite for steam turbine ships. But as you think about sort of your ability to refinance that debt and the value of the underlying assets behind it, has that changed in your view materially in the last, I don't know, year?

Let me, I mean, I can address the question on the steam turbine. So, of course, the vessels here are locked up on time charters. So, you know, they're all with, you know, securing energy for Europe. And as we kind of alluded to in the presentation, you know, there is, you know, there is good appetite for smaller vessels to feed the, you know, the European market, too, in terms of, you know, FSRU implications. It is difficult to, you know, to apply this, you know, this new large two-stroke, 174,000 cubic meter LNG ships to perfectly match, you know, an empty FSRU and discharge all of that cargo into, you know, into an equally sized FSRU. So, So, well, you know, we do see, first of all, we do see, you know, interest for smaller ships. Now, you know, our turbine ships, they are quite large. They are 150,000 cubic, which for a vessel that size is a big ship. And we would just like to point out that, you know, they are. Yeah, no, that's the point. And I think, Ben, I mean, remember, you know, three years ago when we refinanced, there was debt. We had, you know, it was a $675 million facility. By the time this one comes up for renewal, it's going to be $415 million. So that's going to be less than $70 million per vessel. I mean, so I think we're in a much better position, obviously. You know, the market fundamentals are also materially better than them. And, you know, obviously, we're not going to leave it for the last minute. we will start looking at the refinancing. You know, time passes very, very fast. It's already 2023, so I think within six months of 2023, you know, we will be looking into refinancing. Okay. Yeah, that's what I assumed. I appreciate the call.

Thanks, guys. Thank you. Thank you. Thank you. At this time, I'll turn the call over to Tony Larson for closing remarks.

We would like to thank you for your time and for listening in on our earnings call. We look forward to speaking with you again on our next call. Thank you very much.

This will conclude today's conference. May this connect your lines at this time. We thank you for your participation.