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spk07: Greetings and welcome to the Dorian LPG second quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. Additionally, a live audio webcast for today's conference call is available on Dorian LPG's website, which is www.dorianlpg.com. I would now like to turn the conference over to Ted Young, Chief Financial Officer. Thank you, Mr. Young.
spk04: Please go ahead. Thank you, Doug. Good morning, everyone, and thank you all for joining us for our second quarter 2021 results conference call. With me today are John Hajbataris, Chairman, President, and CEO of Dorian LPG Limited, John LaCouris, Chief Executive Officer of Dorian LPG USA, and Tim Hansen, Chief Commercial Officer. As a reminder, this conference call webcast and a replay of this call will be available through November 9, 2020. Many of our remarks today contain forward-looking statements based on current expectations. These statements may often be identified with words such as expect, anticipate, believe, or similar indications of future expectations. Although we believe that such forward-looking statements are reasonable, we cannot assure you that any forward-looking statements will prove to be correct. These forward-looking statements are subject to known and unknown risks and uncertainties and other factors, as well as general economic conditions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions or estimates prove to be incorrect, actual results may vary materially from those we expressed today. Additionally, let me refer you to our unaudited results for the period ended September 30, 2020, that were filed this morning on Form 10-Q. Also, please refer to our previous filings on Form 10-K, where you'll find risk factors that could cause actual results to differ materially from those forward-looking statements. With that, I'll turn over the call to John Hadjbateris.
spk05: Thank you. Good morning from John Lycoris in Athens, Tim Hansen in Copenhagen, Ted Young, Clay Webb, and myself in Stamford, Connecticut. And thank you for joining us today. for our financial year 2021 Q2 earnings call. Following our AGM on Wednesday last week, when two of our directors, Christina Tan and Tom Coleman, were reelected, and our regular quarterly board meeting on the same day, we expect to continue our focus on capital allocation and to pursue opportunistic share repurchases, as well as consider dividends, deleveraging further, and other opportunities. I'm happy to report that our seafarers and shore staff are safe and continue to ably perform their duties. With the cooperation of our customers, local and flag authorities, and classification societies, we've been performing many statutory surveys remotely. In addition to the health benefit of reduced exposure, digitalization and remote monitoring enhance efficiency, and reduce costs. During the quarter, our crew rotation has been successfully restored to normal levels. The industry-wide crisis caused by disruption to the free movement of seafarers during the shutdowns has somewhat abated, though restrictions continue in many ports and they result in logistical challenges and increased costs. Our last quarter's results largely reflect the poor market of the previous April to June quarter. Many analysts understandably base their forecast on the Baltic published rate, and I would like to share a word of caution about that. The Baltic index for LPG is a daily forecast by a panel of brokers reflecting their assessment, yes, of the rate fixed on the spot fixture within 10 to 40 days on the route Middle East to Japan. As well as the obvious and the lag effect of time elapsed between fixture and voyage completion, there are other inherent distortions which make extrapolating from the single route published Baltic rate an unreliable forecasting tool for time charter equivalent earnings. These include sailing speed, actual cost of bunkers, Panama and other port delays, routing changes for weather, deviation for extraordinary crew changes and or for guards, and of course idle time. We have communicated our opinion to the Baltic and hope that they will open a dialogue with stakeholders with a view to making their index more useful. U.S. production is 10% below the all-time high in January, but nearly 14% above the year's low in May, and exports are up 15% year-on-year through September 30th. India's imports are up 14% year-to-date. U.S. storage is 10% above the five-year average. These are some of the factors which, together with fractionation capacity being added in the U.S., and PDH plants being commissioned in China. Give me cause for optimism. As usual on our calls, you will hear an analysis of our quarterly financial from Ted and industry and market updates from John LaCouris and Tim Hansen. Tim, over to you.
spk00: Thank you, John. U.S. exports continued to offset declining Middle East volume last quarter, but it was not enough to generate a global growth for the quarter. Global volumes decreased by 8% compared to 19 year to date. The global volumes totaled 80 million tons. It was a 2.6 year-on-year decrease. American export volumes, however, increased by 15% to 33.3 million tons year to date, which compares to only 28.8 million tons during the same period last year. In the third calendar quarter, U.S. export volumes hit record levels growing 11% year-on-year to nearly 11.5 million tons, the highest level ever recorded. Over the same period of time, our Middle East volume decreased by roughly 11.5% to 9.5 million tons. Despite the initial weakness, the trade market improved during this quarter. The Baltic market index for the Middle East to Japan route began the quarter at around $30 per metric tons, rising steadily in early August to the low 60s per metric ton range before moderating in the middle 50s from mid-August and until the end of the quarter. U.S. export appeared to set the freight rate recovery into motion. American export volumes hit record levels in July at 4.3 million tons, the strongest level ever recorded by a margin of 360,000 tons. Accordingly, U.S. VFC liftings also peaked in July with 73 cargoes before stabilizing to an average of 65 cargoes in August and September. Record-setting U.S. export cargoes as well as weather conditions added to poor congestions in Asia and India. Towards the end of the quarter, there were significant delays around the world. South Korea, for instance, saw significant delays, adding about six days or about 10% to a normal round-trip voyage from Houston to Ulsan. Currently, many of the vessels caught with extended discharges in the Far East now also face delays in the Panama Canal. In Dallas, there's up to eight days delays, and in Layton, it's about four days delays at the moment. It adds to the 10 days in the market and take-out capacity. Although regional Middle East liftings were down, regular cargo flows from Qatar and the United Arab Emirates to India maintained a good fishing momentum. Indian demand continued to grow. Indian imports grew by 4% year over year to about 4 million tons. Meantime, vessels' availability for cargoes into India diminished after the 23rd of July. where Chinese flags and Hong Kong flag vessels, in addition to national affiliated companies, were prohibited from doing business into India by the Indian government due to the military tensions between the two countries. The COVID-19 negatively impacted LBG demands in part of Asia during this quarter. Japan and South Korea demand registered a steep decline due to subdued industrial demand, and the Chinese LBG imports also continued to fall 8.8% year-on-year. Despite record imports in July that totaled 2.3 million tons and all-time records, the program held the price advantage over NAFTA in the Far East for most of the quarter before shrinking towards the end of September. The late winter stocking and the prospect of a correlation winter resulting from the ninja paints, however, a positive demand outlook heading into the fourth quarter. On LPG supply, U.S. and gel production forecasts continue to be revised upwards, and actual volumes have outperformed expectations. Cocaine storage levels remain elevated compared to the last year. Given the continued wave of infrastructure additions completed year-to-date, U.S. production and exports may continue to surprise to the upside due to the increased throughput capacity. Year-to-date, 1.6 million barrels per day of new Y-grade pipeline has been constructed to supply the 1.2 million barrels per day of new infraction capacity. On export capacity targets, terminal expansion completed in August, adding another three to four cargoes of capacity. And the Lone Star NGL expansion at Galena is on schedule for completion this quarter, adding another 12 cargoes. There's no shortage of SPACA passengers from the U.S. Gulf. The lifting numbers for the month of October stands at 94 cargoes.
spk07: One moment, everybody. We lost Tim Hansen's line.
spk06: Operator, we can go back. We can go to... John Licoris, and we'll put Tim back on when he comes back. So, John Licoris? Yes, John. The floor is yours.
spk03: Thank you, John. During this quarter, we completed dry docking and first vessel survey on the vessels Cougar and Cobra and expect to complete a further two vessels during this quarter. Dorian remains committed to improving environmental emissions. With the use of scrubbers, we achieve a 98% reduction in sulfur oxide emissions and 80% of particulate matter emissions, as well as black carbon emissions normally released when burning very low sulfur fuel oil. We currently operate 10 scrubber-equipped vessels, including two fitted and trading since their 2015 delivery. All scrubbers are hybrid systems except for one vessel, so they can operate in open or closed loop depending on local ECA conditions and regulations and the port requirements. We are programming to retrofit two more vessels with scrubbers in the coming months to coincide with the vessels' five-year special survey and dry docking cycles. Bunker fuel prices spreads have been volatile since March 2020. Low sulfur fuel oil has traded from as low as 12% to more than 30% over the high sulfur fuel oil price, which in dollar terms amounts to $30 to $85 per metric ton. Such volatility has largely been the result of crude oil pricing in the world markets, refinery utilization, and product surpluses in the markets, all impacted by COVID-19. Once COVID-19 conditions improve and market sectors recover, we expect that fuel spreads will widen again to pre-COVID-19 levels. Even though vessels cover retrofits were rushed to meet the IMO 2020 commencement on January 1st, the installations are designed to perform for the remaining life of the vessels and cannot be judged on the very short term during which they have been operational under extremely volatile economic and market conditions. We are keenly following the results of LPGS fuel on the vessels currently being retrofitted and on the new building vessels as they commence commercial operations next year. Dorian has been at the forefront of this technology since 2013-14, when many of our vessels were being constructed. We built most of our vessels to accommodate a future retrofit. In addition, we have carried out feasibility studies and tail retrofit plans. However, the associated capex for a dual-fuel retrofit amounts to more than three times that of a scrubber, making commitment difficult. Once a number of these LPG as fuel projects are completed and pricing becomes competitive on the equipment and outfitting requirements, we hope to consider LPG as fuel and also when favorable economic conditions and LPG markets are According to DNV-GR Energy Transition Outlook, the world energy emissions peaked in 2020 due to the COVID-19 pandemic, avoiding 75 gigatons of CO2 emissions to 2050. The maritime fuel mix is likely to see a reduction in the use of oils, increases in the uses of low-carbon fuels and natural gas, as well as electricity through batteries. Improving energy efficiency, increasing renewables and electrification, decarbonization, carbon capture and storage are some of the solutions that are being considered. Less than 10% of the current fleet on order is committed to alternative fuels like LNG, batteries, LPG, et cetera. Most decisions will be formulated in the next few years as fuels and engines transition and the availability of alternative green and blue fuels becomes available as fuel for existing vessels with fuel costs the main consideration against greenhouse gas reduction. The close collaboration of the regulators, owners, charters, and financial institutions in formulating future policy for all the stakeholders will be necessary to move industry towards carbon neutral fuels and zero emissions. The current VLTC fleet, according to Clarkson's, comprises of 301 vessels, and the order book currently stands at 32 vessels, or about 11% of the fleet, a rather manageable number, we think. Two vessels are due to be delivered this year, with 21 vessels expected in 2021 and nine vessels in 2022. There are currently 27 vessels in the fleet, which are 25 years or older, and that number will increase to 30 vessels next year. assuming that there's no scrapping. The current fleet dynamic provides a highly encouraging backdrop for the VLGC freight markets. And with that, my comments are over, and I will pass it over to Ted Young, Chief Financial Officer.
spk04: Thank you, John. My comments today will focus on our financial position and liquidity, as well as our unaudited second quarter results. For the discussion of our second quarter results, you may also find it useful to refer to the investor highlight slides posted this morning on our website. At September 30, 2020, we had $145 million of free cash. Since quarter end, as we previously reported, we completed the repurchase of the Captain John, which is now 100% debt-free. Pro forma for that principal repayment of $18.3 million, our cash balance would have been $126.7 million, and our debt at $628 million. As of Friday, October 30th, our cash balance stood at $135 million. Following the repayment of the Captain John lease arrangement, we have reduced our debt service costs by about $2.6 million per year. As we have previously discussed, we have made significant and favorable changes to our debt capital structure in the last six months. We refinanced the commercial tranche of our main bank facility with a lower interest margin and more flexible financial covenants. entered into a 12-year floating rate sale lease back on the crest, and now have repaid some of our higher cost debt. We currently amortize less than $52 million per year, which is a significant reduction from the $64 million that was required until recently. Following the new bank deal and the favorable interest rate environment, we took the opportunity after quarter end to blend and extend our largest swap position with a $200 million notional value. I'll get into the economics of that a little later, but it did result in a reduction of our fixed rate by nearly 85 basis points. Turning to our second quarter chartering results, we achieved a total utilization of 97.4% for the quarter with a daily TCE, that's TCE revenue over operating days as defined in our filings, of $26,015, yielding a utilization just at TCE, TCE revenue per available day of about $25,330. In contrast to last quarter, this quarter saw steady month-over-month improvements in rates and utilization. Spot TCE per available day, which reflects our portion of the net profits of the Helios pool for the quarter, was about $25,800. Also, overall, the Helios pool reported a spot TCE, including COAs, of approximately $24,560 per available day for the quarter. Daily op-ex for the quarter was $9,613, excluding amounts expensed for dry dockings. It was $10,591, including those costs. Excluding dry docking, the increase was largely a function of higher crewing costs driven by crew change costs and certain incentive and retention payments to our seafarers. Our time charter in expense remained stable at $4.5 million. As a reminder, we do not include time charter in costs in our vessel operating expenses. Total G&A for the quarter was $5.9 million, and cash G&A, i.e. G&A excluding non-cash comp expense, was about $5.5 million, roughly flat with the preceding quarter. We continue to look for efficiencies in our cost structure in this challenging environment. Our reported adjusted EBITDA for the quarter was $22.3 million. Again, in contrast to the quarter ended June 30, 2020, where we made over 80% of the quarterly EBITDA in the first two months, We earned over half of our EBITDA during September, reflecting the fact that the financial impact of the stronger chartering market had its first noticeable impact at the end of the quarter. We view cash interest expense on debt as the sum of the line items interest expense, excluding deferred financing fees and other loan expenses, and realize gain loss on interest rate swap derivatives. On that basis, our total cash interest expense for the quarter was flat versus last quarter at $6.9 million. representing a full quarter of interest savings from the 2015 AR facility refinancing and the Crest Seal leaseback offset by a larger realized loss on our swaps. As I touched on, we did blend and extend our $200 million notional swap, which resulted in extending its maturity by three years to 2025 and reducing the fixed interest rate from 1.933% to 1.091%, or about 84 basis points. We continue to benefit from our hedging policy and the favorable pricing of our Japanese financings, leaving us with a current interest cost, fixed hedge, and a small floating piece of 3.78%. Please remember that as reporting matter, our realized and unrealized gain loss on derivatives also include the effect of our FFA portfolio. That said, the calculation of EBITDA on our filings adds back only the interest on the realized gain loss, not the FFA piece. John has already touched on our dry docking program, but we believe that our current financial position will allow us to finance whatever future dry docking schedule best supports our charters. Although we currently hold a 68-plus percent economic interest in Helios, we do not consolidate its P&L or balance sheet accounts, which has the effect of understating our cash and working capital. Thus, we believe it is useful to provide some additional insight in order to give a more complete picture. As of Friday, October 30th, the pool had roughly $12.5 million of cash on hand, reflecting the fact that the pool just paid a distribution a week prior. We feel that our liquidity and capital structure have positioned us well for whatever rate environment we face in the coming months, and we believe that allows our company to make capital allocation decisions from a position of strength. Though the significant rate volatility caused us to curb our buyback activity, we remain committed to returning cash to shareholders, And note that we still have approximately $50 million remaining under our share buyback authorization, and we also remain interested in accretive growth opportunities that meet our risk-reward criteria. We will continue to be prudent in deploying cash, but our financial position allows us to act quickly on meaningful opportunities as they may arise. With that, I'll pass it back to John Hadjibateras.
spk06: Thank you, Ted, and I'm talking to Tim back on.
spk05: But in any case, I think he was very close to the end of his comments, so he'll have the opportunity to complete them with questions. So I'd like to open up for questions at this stage. Thank you.
spk07: Thank you. Ladies and gentlemen, at this time we'll be conducting a question and answer session. If you'd like to ask your question, you may press star 1 on your telephone keypad. A confirmation tunnel will indicate your line is in the question queue. You may press star two if you would 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 key. Our first question comes from the line of Omar Nakata with Clarkson Plateau. Please proceed with your question.
spk01: Hi. Thank you. Hey, guys. I just wanted to Yeah, I just wanted to check in with you on the capital allocation, as you guys just discussed. You know, Ted, you just brought it up, and John, in your opening comments, you mentioned that you obviously slowed down the share buybacks over the past few months, which makes sense, you know, given the uncertainty with the pandemic and an overall energy picture. How are you guys doing things right now, especially post the – John, you mentioned the AGM last week. Are you signaling that maybe we're at like maybe a pivot point that you're looking to recharge, you know, that remaining $50 million buyback? Is that sort of on the horizon?
spk05: I think that's a reasonable interpretation of our comments, yes.
spk01: Okay, good. Well, that's fairly clear. Maybe following up then on that, you know, you mentioned the buyback, the evaluating dividends. You're focused on the leveraging and other opportunities, which I take are acquisitions. That being a focus for both you and the board, are you able to maybe rank those in order of preference? Maybe it sounds like buybacks are at the top of the list, but maybe you can give us a sense of ranking on those different elements.
spk05: It's very difficult to do that, right, because it changes day by day. At the moment, I think you're right about what's at the top of the list. But I think that we have it under short-term review constantly. So there's a lot of value today. I think our –
spk01: stock and our peers and and the whole industry is very undervalued so uh you would expect that we'd be focusing on that i think first but not exclusively yep good okay well we'll see as the uh you know the weeks and months come uh just one uh one follow-up or one separate topic and i'll hand it over you know just you know on the on the uh on the chartering. You guys have always been partial to fixing shifts on time charter. How has charter demand been here over the past couple of months, especially given the stronger market of late? Are you seeing opportunities to put some shifts on charter here for the medium to long term?
spk05: A little bit. Tim, are you back on? I'm back on, yes. Ah, good. Tim, you can take that question. And also, if you want to take the opportunity... To complete your comments, you could do that too.
spk00: Well, I'm not exactly sure where. Okay. But on the time-towering side, yeah, we have seen more activity and opportunities, and we have also seen rates recover from where they were like six months back. So, yeah, we are looking at some opportunities at the moment to see if we can channel out a few ships since we also have a few expiring at the end of the year.
spk01: Okay, good. All right, thanks, Tim, and thanks, John, for that. Thank you, Omar.
spk07: Our next question comes from the line of Sean Morgan with Evercore. Please proceed with your question. Thank you.
spk02: Hey, guys. This may be something that Tim was going to address before he got cut off. But, you know, in the press release, you talked a little bit about the benefits of the Tom Lyle expansion from USS Schwartz and sort of the negative impact on volume demands for VLGCs from the curtailment of OPEC. But you also talked about the spread to NAPTA being positive and being – you know, being a positive benefit for the fleet and the global fleet. So if you kind of look at that as a bit of a double-edged sword, if OPEC starts pumping again and Libya comes back online and that starts to pressure NAFTA, how do you sort of weight the benefits to, you know, increase production out of the Middle East with potentially, you know, a lighter spread and then also maybe some substitution from U.S. cargoes?
spk05: Tim, you want to take a shot at that?
spk00: Yeah, I think, again, if we have an increase in the Middle East, it's more positive than negative. It might affect, as you say, the NAFTA, the G-spread, but on the other hand, then LPG seems to find, again, new uses when the price of LPG also goes lower, which it will eventually when more is produced. So I think overall, more chunks in the market would still have a positive effect on LPG, whether it is partly substituted in the NAFTA tracking.
spk02: Okay. And then was there any disruption sort of related with the hurricanes and petrochemical disruption that impacted you at all during the quarter? Because it's just the rates were, you know, like I know we talked about how the Baltic doesn't reflect the sort of actualized returns that we can expect. But the Clarksons, you know, TCU rates were maybe a little bit higher even on a lag basis. So I'm just wondering was there any weather-related utilization impact or what sort of drove that? You have weather and COVID. COVID. Just demand. Okay. All right. That's it for me. Thanks, guys.
spk05: Okay.
spk02: Thanks, Sean.
spk05: Thank you.
spk07: If there are no further questions in the queue, I'd like to hand the call back to Matt for closing remarks.
spk05: Okay. Well, thank you very much once again. And everybody stay safe and see you next time. Bye-bye.
spk07: Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.
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