Dynagas LNG Partners LP

Thank you for standing by. Ladies and gentlemen, and welcome to the Dynacast LNG Partners conference call on the fourth quarter of 2022 financial results. With us today is Mr. Tony Laritzen, Chief Executive Officer, and Mr. Michael Kregos, 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 today's presentation and conference call, Dynagas LNG Partners will be making forward-looking statements. These statements are within the meaning of the federal securities laws. This conference call and slide presentation of the webcast contain certain forward-looking statements within the meaning of the safe harbor provision of the Private Securities Litigation Reform Act of 1995. 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 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 two 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. Lauritsen. Please go ahead, sir.

Good morning, everyone, and thank you for joining us in our three-month and the 31st of December 2022 earnings conference call. I'm joined today by our CFO, Michael Gregorius. We have issued a press release announcing our results for the said period. Certain non-GAAP measures will be discussed in this call. We have provided a description of those measures as well as a discussion of why we believe this information to be useful in our press release. Let's move on to slide three of the presentation. We are pleased to report the results for the three months and the 31st, December 22. All six energy carriers in our fleet are operating under their respective long-term charges with international gas companies. The fleet's utilization was 100% for the 11th consecutive quarter included, which is a testament to the fleet's performance. For the first quarter of 2022, we reported net income of $11.6 million, earnings per common unit of $0.24, adjusted net income of $7 million, adjusted earnings per common unit of $0.11, and adjusted EBVA of $23.6 million. For the third year of 2022, We reported net income of $54 million, earnings per common unit of $1.15, adjusted net income of $30.6 million, adjusted earnings per common unit of $0.52, and adjusted EBBA of $89.5 million. Our thoughts go out to everyone affected and continues to suffer 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 our understanding that the current U.S. and EU sanctions regime have broadly exempted 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 OPAC as an SDN, the partnership, in agreement with all lenders, made a voluntary prepayment of $18.7 million from the $15 million restricted cash collateral, which was applied 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. On the back of a very strong energy market, we entered into a new, approximately three-year time charted contract agreement with Equinor for the employment of our energy carrier, Arctic Aurora, with expected delivery in September 23. I will now turn the presentation over to Michael, who will provide you with further comment to the financial results. Thank you, Tony. Turning to slide four, net income for the fourth quarter decreased by 31% to $11.6 million compared to Q4-21. primarily due to a decrease in the unrealized gain on our interest rate swap transaction of $8.1 million, which was partially offset due to changes in the realized gain on our interest rate swap, and due to an increase of $3.2 million in interest and finance costs, which in practice were offset with an interest rate swap cash receipt of $4.3 million, as can be seen in the cash flow statement. For the fourth quarter, we had a gain on debt extinguishment of $2.1 million following the voluntary repayment of one of our lenders in our syndicated loan facility. Adjusted net income for the fourth quarter amounted to $7 million compared to $11.3 million same time last year, the decrease being attributable to the increase in interest and finance costs as a result of the higher interest expense paid under our credit facility. For consistency purposes with prior quarters, adjusted net income excludes cash receipts and unrealized gains in our interest rate swap and, of course, the gain in the debt extinguishment. If we add this quarter's realized gain from our interest rate swap of $4.3 million, adjusted net income would have amounted to $11.3 million, or 23 cents per common unit instead of 11 cents. Adjusted to be back to the fourth quarter was relatively stable at $23.6 million as compared to $24.7 million last year. Time-target equivalents for the quarter amounted to $62,200 per day, with OPEX at $14,000 per day, and the per-vessel cash break-even for the quarter was $47,900 per day, excluding distribution to preferred unit holders and the aforementioned voluntary repayments. Turning to slide five, as of in December, we had 500 million debt outstanding, which is 100% hedged until Q3 24. We are continuing our comprehensive deleveraging path, which commenced in the first quarter of 2020, resulting in a decrease in our net leverage to 4.7 times from 6.6 times and a steady increase in our book value of equity, which today stands at $424 million. Operating cash flow for the quarter was $14.4 million, and free cash flow after COPEX installation of the ballast water treatment systems on our steam LNG carriers amounted to $11.3 million. Again, please be reminded that this excludes the $4.3 million in realized swap gains. For the third year, we generated $57 million in operating cash flow and close to $54 million in free cash flow, equivalent to free cash flow of about 1.45 per common unit. Moving to slide six, our cash balance for the quarter was reduced by $17.8 million to $80 million, primarily as a result of the aforementioned $18.7 million voluntary prepayment, which was funded from the restricted cash collateral account. We have three dry brooks for 2023, which are expected in the third quarter of 2023. However, two of our LNG carriers are on OPEX and dry brook pass-through time charters, with a dry brook allowance of 21 days, under which vessels remain on hire during dry brooks. That wraps it up for my slide. I will pass the presentation over to Tony. Thank you, Michael. Let's move on to slide 73. Our fleet currently has six 7G carriers with an average age of about 12.6 years. The current charters of our vessels are Equinor of Norway, Cepsa of Singapore, and Yamal Trade of Singapore. As of today, March 23, the fleet's contracted backlog is about $1 billion, equivalent to an average backlog of about $166 million per vessel, and the fleet's average remaining charter period is about 6.4 years. Moving on to slide eight. Our strategy is to conclude long-time charters with energy producers. On the back of a strong energy market, we entered into a new time charter party agreement with Ekronov for the employment of our energy carrier Arctic Aurora with expected delivery in approximately September 23. The new time charter period is about three years, adding about $116.5 million to the partnership's existing contracted revenue backlog. We are very pleased with the new charter and appreciate that Equinox has employed the vessel since her delivery from the ship the other 2.13. The earliest contract-degree delivery date for any of our six energy carriers is in the first quarter of 26 for the clean energy, subject to the terms of the applicable charter. Bar any unproceeded events and the rest of scheduled dry dockings, our fleet is 100% employed until and including 2025. Following the disruption of natural gas pipeline delivery from Russia to Europe, the price for natural gas reached record levels and extreme volatility during 2022. The drop in Russian pipeline supply to Europe was offset by energy imports, demand destruction, and luckily a warm winter. During 2022, European energy imports rose by approximately 60 percent, which made the which made Europe by far the largest energy importer globally. This was possible as China was on the lock-down, which led to a reduction in demand as well as new energy supply coming from the United States. Exiting 2022, the natural gas prices have contracted to healthier levels, but currently it is more supportive of the consumer's economic sustainability. That being said, we expect that gas prices will be volatile going forward, and prices will be strongly affected by competition between Europe, which is expected to remain a major and dominant importer of energy, and the Far East, driven by resurgent international demand. Going forward, we believe that energy importers will continue to buy long-term energy in order to manage their energy security needs and pricing volatility, which in turn will support new energy projects reaching successful FIDs. 2022 saw record levels with a total of 47 SPH being found for about 63.5 million pounds per annum. On the back of a strong European demand, we believe that the 150,000 to 150,000 cubic meters LNG carrier segment is ideal to supply LNG to the land-based and FSIU import terminals in Europe. This is in particular relevant for the FSIUs, which typically have less flexibility to manage the importation of large cargo sizes due to their limited supply. a land-based terminal. In light of the above, we believe there will be strong demand for our fleet going forward, and we would need to light the healthy market to continue to developing forward opportunities for our fleet. Let me run to slide nine. The partnership has remained committed to its strategy of reducing debt and has since December 2019, until Q4 2022 included, successfully repaid $175 million in debt, reducing its net leverage from 6.6 times to 4.7 times. Moreover, it has increased its book equity value by 35%, now standing at $423.9 million. Going forward, we believe the partnership's continued efforts to be leveraged with further enhanced equity value through stable long-term cash flow visibility. We believe that energy is a critical ingredient to a future with lower emissions. Demand for energy is expected to continue to grow as a transitional wave from coal and other fossil fuels in favor of cleaner energy sources continues. Long-term energy shipping rates remain robust. The rates are driven by long-term demand for energy shipping, which is underpinned by long-term SPAs from buyers that are in the need to manage their energy security and price volatility. Consequently, we believe that the outlook for energy shipping remains positive. We have now reached the end of the presentation, and we now open the floor for questions. Thank you.

Thank you. If you'd like to ask a question at this time, please 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. We have a question coming from the line of Ben Nolan with Stiefel. Please proceed with your question.

Thank you. Hey, Michael, Tony, can you guys hear me okay? Yeah. Okay, great. Hey, so I have a couple. The first relates to sort of how you're thinking about maybe the timing and the availability of refinancing the loan that's been in place for a while now, and you've prepaid in some cases. But does the increase in interest rate environment, maybe potentially even lately, some disruptions in the debt financing market, does that change at all how you're thinking about when it's possible or when it's prudent to think about a new credit facility?

Well, I think that, you know, the crisis that has been going on has been recently happened in the past couple of weeks, so we don't really know what the effect will be. We've had some preliminary discussions prior to what went on with Silicon Valley Bank, and, you know, we got the impression that the markets are wide open despite the increase in interest rates. And, you know, what we are seeing is that there's a lot of demand for quality projects. And, you know, what we have, you know, we can provide something which is in short supply in the shipping credit market, which is a quality project. So, as we have said in the previous quarter, we do want to be proactive and, you know, arrange this refinancing, you know, well before the maturity in September 24. We haven't had any, you know, any news that anything has changed. You know, we think that, you know, we will be able to get pretty good terms on this refinancing. And, you know, we'll just have to see what the impact of the crisis will be. But, you know, my personal opinion is that it will not be really going to impact, you know, our markets given, you know, the LNG market is the fundamentals of search firm.

Right. Okay. And then I just did want to follow up for modeling purposes. You said that there's three vessels that are scheduled for dry dock in the third quarter, two of which are covered under the terms of the contract for 21 days. How long do you anticipate each of these dry docks lasting is a reasonable assumption, would you think?

20 to 30 days is a reasonable assumption. Okay.

That's helpful. And then lastly for me, this is just maybe more strategic. You know, we've seen a number of other LNG-focused MLPs go private or are trading at about a third of your common book value of equity, and that's sort of despite, you know, adding on to your contract coverage at good rates, deleveraging the balance sheet, improving the risk profile of the partnership, et cetera. At any point, does it just make sense to no longer be public?

Yeah, Ivan, look, I can say that there's been no discussion on a tech private level. So, no, that is not a consideration. Okay.

All right. That does it for my questions. I appreciate it, guys. Thank you very much, Ivan.

Thank you. At this time, I'll turn it over to the CEO, Tony Luritsyn, for closing remarks.

Okay, thank you, everyone. 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. You may disconnect your lines at this time. Thank you for your participation.