Dynagas LNG Partners LP

Thank you for standing by. Ladies and gentlemen, and welcome to DynaGas LNG Partners Conference Call on the Third Quarter 2023 Financial Results. We have with us Mr. Tony Lauritsen, Chief Executive Officer, and Mr. Michael Gregos, Chief Financial Officer of the company. At this time, all participants are in a 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 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 L&D 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 contains certain forward-looking statements within the meaning of a 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 the 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 which 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. Luritzen. Please go ahead, sir.

Good morning, everyone, and thank you for joining us in our three-month and the 30th September 23 earnings conference call. I'm joined today by our CFO, Michael Greggos. We have issued a press release announcing our results for the said period. Certain known gap measures will be discussed in this call, and 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 to slide three of the presentation. We today present the results for the three-month period ending on September 30, 2023. We are pleased to announce that all six LNG carriers in our fleet are operating under long-term charges with esteemed international gas companies. For the third quarter of 23, we reported net income of $1.4 million and a loss per common unit of $0.04. Our adjusted net income stood at $3.1 million, translating to adjusted earnings per common unit of $0.01. Furthermore, our adjusted EBITDA for the same period reached $20.4 million. From an operational perspective, it was a busy period during which we completed the scheduled dry docks of the Yenisei River, Lena River, and Arctic Aurora, including installation of ballast water treatment equipment in accordance with current regulations. Also, the Arctic Aurora was delivered to her new time charter party agreement with Equinor ASA in September 2023. The vessel has been continuously uncharted with Equinor since she was delivered from her builders in 2013. I will now turn the presentation over to Michael, who will provide you with further comments to the financial results. Thank you, Tony.

Turning to slide four, net income for the third quarter decreased by $6 million, or 81%, to $1.4 million compared to $7.4 million in Q3 2022, primarily due to the decrease in the unrealized gain on our interest rate swap of $13 million, and the increase of $2.2 million in loan interest, which were partially offset by the increase in the realized gain on our swap transaction of $3.9 million. Net income for this quarter was also impacted by the scheduled five-year special survey dry docks of the Arctic Aurora, Lena River, and Yenisei River, which commenced and were completed within the third quarter and resulted in an increase of $9.8 million in dry docking and special survey costs, which was, however, offset by the fact that under the time-chartered contracts for two of our LNG carriers, the time-chargers pay for the special survey and dry bulk costs on a pass-through basis. Therefore, out of the total dry bulk and special survey costs of $17.3 million for the quarter, $11.6 million was reimbursed from the time charters to the company, and which has been reported in a separate line item in the P&L statement, revenues from contracts with customers. In addition, the three aforementioned vessels, which were dry docked, remained on hire for 56 days out of the total 110 dry dock days for the quarter, as per the provisions of their respective time charter parties. Similarly, although we experienced an increase in OPEX of $3.6 million versus the same period last year, $3 million of this increase relates to two LNG carriers which are contracted on an OPEX pass-through basis, meaning that for these two LNG carriers, there was a corresponding increase of $3 million in voyage revenues. It is noteworthy to point that compared to Q3 2022, Voyage revenues increased by 23.7% from $29.9 to $37 million, mainly attributable to the increase of $2.7 million due to the deferred revenue amortization relating to the new time chart of party agreement with Equinor for the employment of the Arctic Aurora, which commenced in September 2023, and the higher available days. Adjusted EBITDA for the third quarter was relatively stable at $20.4 million. TCE for the quarter amounted to close to $72,000 per day. The elevated TCE relative to four-hour quarters is mainly due to the increase in variable revenues of the two LNG carriers contracted on an OPEX pass-through basis, as explained before, as well as to the aforementioned non-cash straight-line deferred revenue amortization, which is reconciled with actual cash revenue receipts in the cash flow statement. OPEX for the first quarter amounted to $19,200 per day, with a per-vessel cash break even for the quarter of $50,200 per day, excluding distributions to preferred unit holders and including the realized gain from the interest rate swap. Adjusted net income for the quarter... for the third quarter of 2023 amounted to $3.1 million compared to $4.5 million same time last year, the decrease being mainly attributable to the aforementioned increase in interest and finance costs as a result of the higher interest expense paid under the floating leg of our credit facility. Adjusted net income excludes cash receipts and unrealized gains on our interest rates wall. If we included this quarter's realized gain from our interest rate swap of $6.5 million, as can be seen in the cash flow statement, adjusted net income would have amounted to $9.6 million or $0.18 per common unit instead of $0.01. Moving to slide four. As of the end of September 2023, we had $432 million debt outstanding under our current credit facility. We are continuing our comprehensive deleveraging path, which commenced in the first quarter of 2020, resulting in a decrease in our net leverage to 4.1 times and a steady increase in the book value of our equity, which today stands at $441 million. In this quarter, we generated $21 million in operating cash flow. Turning to slide six, our cash balance for the quarter increased from $52.9 million at the end of the previous quarter to $64.9 million, and our credit metrics continue to improve. It should be noted, however, that current liabilities in this quarter increased by $10.3 million due to the increase in payables mainly associated with the three vessels dry docks and which are expected to decrease in the next quarters. With respect to our debt maturity in September 2024, we are currently in discussions for the refinancing of our current credit facility, which we hope to sign, close, and fund within the first quarter of 2024. That wraps it up to my side.

Thank you, Michael. Let's move on to slide seven of the presentation. At present, our fleet consists of six energy carriers with an average age of approximately 13.3 years. Our current chargers include gas companies such as Equinor of Norway, Cessna and Yamal Trade of Singapore, as well as Rio Grande LLC, a subsidiary of Next Decade for the forward-chartered vessels Clean Energy and Arctic Aurora. As of 7 December 2023, the fleet's contracted backlog amounts to approximately $1.16 billion, equating to an average backlog of about $193 million per vessel. Furthermore, the fleet enjoys an average remaining charter period of approximately 7.2 years. We are confident that our charter profile is strong and positions our partnership for stable income in the years to come. Moving on to slide 8. Our commercial strategy is securing long-term channels with gas companies. We have built up a solid contract in backlog, and by no unforeseen events, we have no contractual vessel availability until 2028, when the clean energy of Anamo River will be available. The next availability after this is the Arctic Aurora, which will come up for a Rio Grande LNG contract in 2033. followed by Yenisei and Lena River in 2034, provided that chart-risk expansion options are not exercised. According to Farnley's, current liquefaction capacity is approximately 473 million tons per annum, with another 205 million tons per annum of additional LNG liquefaction capacity already FID'd and under construction for startup prior to 2030. This represents a total increase in energy liquefaction capacity of about 40%. Approximately 40% of this expansion will come from U.S. export projects, 25% from Qatar, and the remaining 35% will be split between various projects, including Russia, Africa, Australia, Canada, and Mexico. Additionally, there are a number of expansion projects in the U.S., Gulf, Mexico, and elsewhere at different stages of taking FIB. The current LNG carrier fleet counts about 630 vessels. The order book stands at 46% excluding slot reservations made for Qatar Phase II and for Mozambique LNG, and 56% if we assume that those slot reservations will materialize. It is interesting to note that only 23 vessels of the order book are not committed to a time charger. Although the increase in the fleet capacity is well above the increase in liquefaction capacity, we believe that older and smaller vessels, in particular vessels under 140,000 cubes, representing about 17% of the global LNG carrier fleet, will be phased out. In any case, we see that from time to time, what we see that from time to time in the industry is that LNG carriers under constructions are delivered on time, while LNG trains under constructions are delayed. Therefore, we have engineered our charter portfolio so that we are fully employed throughout 2027 in order to eliminate our exposure to any potential market uncertainty during part of this period. Moving on to slide nine, The partnership has demonstrated its commitment to its debt reduction strategy. Since December 2019 until end of September 23, we successfully repaid $242 million in debt, significantly lowering the net leverage from 6.6 times to 4.1 times. Additionally, the partnership has achieved a 42% increase in book equity value, standing at $441 million as per 30 September 23. Looking ahead, we are confident that the partnership's ongoing efforts to reduce debt will further augment equity value through stable long-term cash flow visibility. We firmly believe the LNG plays a pivotal role in building a future with reduced emissions. The demand for LNG is projected to continue as the world progressively shifts away from coal and other pollutant fossil fuels in favor of cleaner energy sources. Natural gas has a relatively low emission profile when combusted, and other key drivers of natural gas is its ability to generate power swiftly and effectively as and when needed, and the existence of a well-developed global infrastructure facilitating its production, transportation, storage, and consumption. Considering these promising developments and facts, we maintain a positive outlook on the long-term prospects of energy shipping. Thank you for your attention. We have now concluded the presentation and invite you to ask any questions you may have. Thank you.

Thank you. Once again, if you'd like to ask a question, please press star 1 on your telephone keypad. A 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. Our first question comes from the line of Ben Nolan with Stiefel. Please proceed with your question.

Hi, thanks, Tony Michael. I really just have one as it relates to refinancing of the debt. It's been something I know that you guys have been working on for quite a while, and I appreciate that it sounds like it's a one-cue type of event. I guess my question is, has the hole been something on your side, or maybe is it a little bit more challenging to get banks to underwrite with the Yamal vessels in there? Any color as to sort of why it's taken so long?

No, I don't think that challenging is the right word. We're trying to find... The optimal, there is demand for financing our vessels, so I wouldn't say there's a holdup. We've been working on it for some time, and it looks like we're going for a conclusion.

Okay, so the Yamal stuff isn't really a factor or a problem?

Well, I mean, listen, if you look at our whole fleet, we have a strong contract backlog, if you look at it in its totality. So there aren't that many interesting LNG projects out there in the market to be financed by banks. So all I can tell you is that there is demand for what we have to offer. It also has to be something that fits our needs, you know. Sure.

All right. I appreciate it. Thank you.

Thank you. There are no other questions at this time. I'll turn the floor back to Mr. Lurtson for any final comments.

We appreciate your time and your attentiveness. Thank you for your participation and look forward to connecting with you again on our next call. Thank you very much.

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.