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spk02: Greetings, and welcome to the Dorian LPG third quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. Additionally, a live audio webcast of 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. Please go ahead.
spk00: Thank you, John. Good morning, everyone, and thank you all for joining us for our third quarter 2022 results conference call. With me today are John Hajibatera, Chairman, President, and CEO of Dorian LPG Limited, John LaCouris, Chief Executive Officer of Dorian LPG USA, and Tim Hanson, Chief Commercial Officer. As a reminder, this conference call webcast and replay of this call will be available through February 10, 2022. 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 December 31, 2021, that were filed this morning on Form 10-Q. In addition, 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 these forward-looking statements. With that, I will turn over the call to John Hedger-Bateras.
spk08: Thank you, and good morning. John, of course, Ted, Yong, Tim, Hanson will update you with details of our financial operating and general market information after my brief remarks. I hope you and your families are keeping safe. Thanks to the hard work of our shoreside people, our operations continue largely uninterrupted. I'm pleased to report that we now have 79.9% of our seafarers fully vaccinated. Our fleet performance and technical teams are assessing various emission devices, which potentially will reduce the consumptions of our eco-fleet. And we've narrowed down our target list for potential retrofits. Since January 2020, our efforts to reduce emissions have resulted in fuel savings of over $3 million. We will shortly be posting on our website our new sustainability report, which highlights our achievements and targets. We are proud to be participating in the Getting to Zero Coalition. We saw a quick rise in the market this past quarter and managed to achieve strong rates and vessel utilization. Higher bunker prices impacted TCE. Last Friday on February 28th was the first time since September that Brent was quoted above $90 a ton. The price spread between heavy fuel oil and low sulfur fuel averaged $127 a ton over the quarter. This increased the earnings differential between non-scrubber fitted ships and expedited our return on our 12 scrubber ships. Currently, the price differential is between $150 and $200 a ton. We have a new bunkering manager now sitting with Chartering and Operations in Copenhagen, who already has made a considerable impact on sourcing the best quality and best price bunkers for our fleet. and our poor pool fleet globally this morning we announced the decision of our board of directors to authorize share buybacks of up to 100 million dollars we are continuing our focus on capital allocation creating value for our shareholders notably we also have returned capital by way of our second one dollar per share dividend which was paid in january And with our new building order and time charter dual fuel new ships in 2023, we are well positioned with fleet renewal flexibility. Thus, our overall capital allocation strategy is a balanced mix of return of capital and sensible investment in our business. I'll now pass to Ted to discuss our financial results. Thank you, Ted.
spk00: Thanks, John. In addition to discussing our financial results for the quarter, I would like to review the significant events related to capital allocation. The $1 per share irregular dividend that we paid in January represents our second and brings to $80.1 million the total dividends paid to shareholders and bringing to $309.1 million the total cash returned to shareholders since our IPO in 2014. We've done that through open market repurchases, a self-tender offer, and, of course, two dividends. Since our last report, we have completed the previously announced repurchases of the Captain John and the Captain Nicholas for a total cash of about $35 million. While we're not going to comment on press speculation about a possible sale of these vessels, these payoffs allow us to move quickly if those opportunities present themselves. In addition, we have now paid off our most expensive debt. At the end of December 2021, We completed a refinancing of the 2015-built Constellation and Commander with a group led by Bank of America. With an advance rate of 60% and an approximately 17-year age-adjusted amortization profile and a 3.78% fixed interest rate, we felt the terms were suitably attractive. The cost of the new debt is only marginally more expensive, about 70 basis points, than the debt it replaced. For modeling purposes, the new debt will add roughly $420,000 to the previous quarterly cash interest expense incurred on these two vessels. At December 31st, 2021, we had $115.8 million of free cash. As of February 2nd, our free cash balance stood at $54.8 million, reflecting the payment of the dividend and the repurchase of the Captain Nicholas, as well as a new building progress payment of $8 million. We originally expected to make that payment in our fiscal fourth quarter, the quarter ending March 31, 22, but the yard met the milestone in December. Thus, we'll have that cash flow benefit in this current quarter. With a debt balance at quarter end of $585 million, our debt to total book capitalization stood at 38.8%, which is flat with the prior quarter. Again, we have no refinancings until 2025, ample free cash, and an undrawn revolver. We expect our operating cash cost per day for the coming year to continue to be in the range of $22,000 to $23,000 a day. We are continuing to evaluate financing opportunities that are consistent with our parameters of tenor, cost, and advance rate. For the discussion of our third quarter results, you may also find it useful to refer to the investor highlight slides posted this morning on our website, where we have some additional financial information, as well as some market and ESG information. For the third quarter, we achieved a total utilization of 98.5%, which was up from 95.7% in the September quarter, with a daily TCE, that's TCE revenue over operating days as defined in our filings, of $33,508. yielding utilization-adjusted TCE, which is TCE revenue per available day, of about $33,019. Spot TCE per available day, reflecting our portion of the net results of the Helios pool, or the net profits of the Helios pool, were about $33,497. Looking at the Helios pool as a separate entity, the pool reported a spot TCE, including COAs, of roughly $33,414 per available day for the quarter. Overall in the pool, the rate was 30,408. During the quarter, we saw steady month-over-month improvement in TCE rates, reflecting the favorable trends in the market. Daily OPEX for the quarter was 9,086, excluding amounts expensed for dry dockings. It was 9,423, including those costs. Sequentially, OPEX dry docking costs were down about $100 per day, and down almost $800 per day since the quarter ended March 31, 2021. We are pleased to see a reduction in our running costs, which sequentially has been most notable in spares and stores. Within the quarter, we saw our daily OPEX, excluding dry docking costs, generally decreasing sequentially, which again is consistent with our expectation of improved OPEX as conditions slowly normalize. Our TCN cost for the quarter was $4.9 million, reflecting the delivery of the Astimos Venus during October. On a full quarter basis going forward, our TCN expense will be approximately $5.4 million. That's for the two ships, the Astimos Venus and the Future Diamond. Total G&A for the quarter was $5.9 million, and cash G&A, that's G&A excluding non-cash compensation expense, was about $5.2 million, which was down $400,000 from the previous quarter. That left us with a reported adjusted EBITDA for the quarter of $39.4 million. As you know, we look at cash interest expense on our debt as the sum of interest expense, excluding our deferred financing fees and other loan expenses, and the realized gain loss on our interest rate swap derivatives. On that basis, total cash interest expense for the quarter, excluding $900,000 associated with the repurchase of the Captain John, was $5.2 million. which was down about $300,000 from the prior quarter. The payoff of the Captain John and the Captain Nicholas will reduce our annual cash principal and interest by over $4.8 million per year or about $600 per fleet day. Taking account of the payoffs of these two vessels and the refinancing of the Constellation and the Commander, we expect to have about $5 million of cash interest expense this quarter on the new capital structure and about $1 million of amounts related to the Captain Nicholas's that will not recur in this quarter after the payoff. So, again, about $6 million of cash interest expense, of which $5 million is really the full effect of the new capital structure, and $1 million is sort of legacy amounts related to the NICLS. Following the repayment of the cap in NICLS and the refinancing of the Constellation and the Commander, we expect quarterly principal amortization of $12.9 million going forward. We continue to benefit from our hedging policy and the favorable pricing of our Japanese financing, leaving us with a current interest cost fixed hedge in a small floating piece of 3.71%. Although we currently hold roughly 80% economic interest in Helios, we do not consolidate its P&L or balance sheet accounts, which has the effect of understating somewhat our cash and working capital. Thus, we believe it's useful to provide some additional insight in order to give a more complete picture. As of Wednesday, February 2nd, 2022, the pool had roughly $28.5 million of cash on hand. As John mentioned, our board also authorized the repurchase. Again, we remain focused on looking for ways to return our capital to shareholders as flexibly as possible, as well as maintaining opportunities to capitalize on market opportunities as they present themselves. With that, I'll pass it over to Tim Hanson.
spk03: Thank you, Ted. The fourth quarter of 2021 continued many of the trends on the previous quarter. North American and gel production demonstrated robustness and Asian import demand grew. Crude oil prices continued to climb with the Brent crude oil price at about $79.6 per barrel. Global seabound LPG transport was up by about 700,000 tons compared to the transport volume in the third quarter. North American export followed the trends of the quarter prior driven primarily by high production figures. Production figures were at levels similar to the record-setting production seen in January of 2020. Continued production increases by the OPEC plus countries since August 2021 has seen export volumes grow. Fourth quarter exports were up by about 370,000 tons compared to the third quarter. Import volumes in China declined quarter-on-quarter by around 400,000 tons, but this, however, was offset by higher import volumes in India, South Korea, and Japan. Demand for VLTC shipping increased in the fourth quarter, and freight market improved quarter-on-quarter, although rising bunker prices, as mentioned, negatively impacted the time charter equivalent earnings. The BLPG-1. which is a freight market indicator for the Middle East to Asia route, averaged about $59 per ton during the fourth quarter, compared to $42 per ton during the third quarter. And the BLPG-3, which is a freight market index for U.S. Gulf to Asia, averaged about $103 per ton during fourth quarter, compared to $80.8 per ton during the third quarter. The east of Suez market saw a rally in the BLPG1, the Asia index, at the end of October on the back of the improved west-east arbitrage. Eastern players reacted to the anticipated pull of tonnage from west to the east, and the Baltic improved in the last week of October by $5. By mid-November, the BLPG1 was in the 60s, levels not seen since May of 21. The first week of December saw a slight dip in the LPG-1 as charters waited for acceptances by various Middle East exporters and delivered prices in the Far East felt in conjunction with crude oil prices. The dip in the rate, however, was short-lived with renewed correction to the market and rates reaching the mid-70s, levels not seen since January of 21. For the west of Suez market, as crude oil prices rose at the end of October, the arbitrage opened and there was considerable activity. The market was further bolstered by delays in the Far East Discharge Port, as well as delays in the Panama Canal that were reported around two weeks with a peak of 18 days by the end of November. Much of the delay at the Panama Canal can be attributed to the arrivals of vessels that had been delayed in China during the third quarter. Although freight levels didn't reach the same peaks as of December 2020, December 2021 did see a firm Western market. The draw of Western to the strengthening Middle East market was one contributing factor. The other factor was widening arbitrage supported by relatively low Mount Bellevue prices. Mount Bellevue remained supportive of the ARP during the stock draws as they occurred slower than the previous winter, partially due to warmer climate, but also due to record high production levels. And coming to the East and West markets, delays at Far East discharge port absorbed vessels capacity. Weather and port congestions were contributing factors to the delays. Rising fuel prices reported also complicated settlement of letter of credits which had to be adjusted, further adding to delays to VLDC's discharging in the Far East. Despite the negative impact on time trial earnings from rising bunkers, there are several positives for the remainder of the first quarter of 2022. The LPG demand remained firm and North America production of NGL remained strong as well. Furthermore, Middle East exporters are forecasted to maintain the posts production cost levels from the OPEC-PROS countries. Lastly, there are signs of an increased Panama congestion in the first quarter as well, increasing utilization to the worldwide UTC fleet. And with that, I will pass on to John de Kersch.
spk06: Thank you, Tim.
spk01: During the last quarter, we have seen crude oil prices rise on anticipated shortages in Europe and China due to weather and geopolitical threats. LNG cargoes have been diverted to cope with their situation, and LPG cargoes have also seen good activity in November 21. The bunker supplies have become tight, and the spread differential between low sulfur fuel oil and high sulfur fuel oil has widened. The average spread for bunker supply between the ports of Singapore, Rotterdam, Houston, and Fujairah recently stood at about $150 per metric ton, and our scrubber vessels have benefited from the relatively lower high sulfur fuel oil prices versus the very low sulfur fuel oil pricing, which rose faster in response to the crude oil price increases. For a vessel consuming 40 metric tons a day at sea, the fuel differential for the scrubber vessel can translate to roughly $6,000 a day during the sailing trip. These economics are maximized on long-haul voyages. We should also remember that the hybrid features of our scrubbers provide an additional upside for all emission control areas and sulfur emission control areas when steaming or during port stage by replacing consumption of the 0.1 medium gas oil, which has a wider spread differential than the very low sulfur fuel oil. We are also pleased to note that our original expectations continue to be validated, not only with our selection of hybrid scrubbers as opposed to open loop for our vessels, but also regarding our investment payback estimates. We are continuing to invest in our vessels' performance and energy efficiency to reduce emissions and lower our operating costs. Our new technologies advisory group considers and reviews feasibility of novel and existing solutions which could be implemented in realizing these objectives. The immediate focus is our fleet's EXI calculations and the resulting engine power limitation, which will come into effect in less than a year according to the IMO regulations on all vessels. EPL is a significant development in our view because it will affect all ships by requiring them to limit their speed based on emission levels. Thus, younger ships will be less impacted and should enjoy some trading flexibility that may not be available to older tenants absent significant capital investment. We further consider retrofitting energy-saving devices to our fleet, which improve performance and reduce power requirements, resulting in lower emissions. Given our experience with scrubbers, we also look at carbon capture and storage technologies and their potential application to the marine industry in the future. We believe that by capturing and redirecting energy dissipation towards special performance and emission improvements, we can do a better job with the energy we consume. Our immediate objectives are implementing marine technologies that already exist and which can provide immediate results while studying technological innovation and advances until they mature and become commercially available in the coming years. Our performance group are leveraging their recent collaboration with Kongsberg to progress real-time data collection and management. The objective is to monitor in real-time the vessel's performance and enable optimization of onboard engine and cargo operations while achieving completion of the voyage with lower power requirements, saving energy and reducing emissions. There have been significant regulatory updates in the last few months in the maritime sector. While the International Maritime Organization is the international governing body for global shipping, the European Union announced in July 2021 that maritime transport would be included in its EU emissions trading system. In January 2022, the EU legislator proposed several amendments to their July 2021 proposals that go beyond, in many cases, what the IMO had proposed and agreed during MEPC-77. These include proposals for a shorter phase-in period unless the IMO agrees to comparable measures with those of the EU, clarifying charter responsibility for the pollution that their trade generates, adding a new requirement of measuring methane emissions in addition to CO2. The EU has also begun to encourage other regions of the world to adopt similar emission legislation for maritime transport. Ultimately, the essence of all this for the EU is to signal that the IMO is not moving fast enough on the maritime emission regulations as other sectors and industries have done. The accelerating focus on energy efficiency will likely force owners to make hard decisions about the cost of investing in the upgrade of older tenants and on their ability to compete in the main trades. We think it is likely that several owners will find it more economical to scrap older vessels, particularly those several generations older. with a burden of high fuel consumptions, smaller cubic capacity, and less modern engines, or at least these vessels will be restricted to captive trades. For vessels that are newer, we believe that investments will be imperative, and therefore the best capitalized players will access reasonably priced capital and will be best positioned to make the necessary investment to achieve those results. Our decision to invest in scrubbers was possible because of our financial strength and has helped us generate solid results, which gives us confidence as we look forward to evaluate the next wave in marine technology advancements. At Dorian, we consider it is our clear goal to continue improving our greenhouse gas footprint, eventually reaching a zero emissions target, and we are optimistic that our fleet will be among the best positioned to meet those demands which are also those of charters, regulators, and shareholders.
spk07: And now we'll pass over to John Hedjipateras. Thanks, John. John, Mr. John, operator, maybe you can open up for questions, please.
spk02: Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 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 keys. One moment please while we poll for questions. Our first question comes from the line of Sean Morgan with Evercore ISI. You may proceed with your question.
spk05: Hey, guys. So, yeah, I think, you know, really demonstrating the commitment to return of capital. And I just wanted to clarify some things on the $100 million buyback authorization. So, you know, that's north of 20% of the total market cap, and it's probably in line with your total cash. So how aggressive – is there a time – limit on that authorization and how aggressive would you look to buy back shares? Would it be kind of just a steady purchase plan or if shares continue to sort of dip in this bear market, which is not necessarily reflecting what's happening in the rate environment for VLGCs, do you think you'd be accelerating buybacks or is it just more of a steady buyback plan?
spk08: Sean, if we're making a choice between those multiple choice questions. They would be more... Sorry, yeah, it's a lot. No, not at all. But it is a good question. And I think that where we intend... Yes, first of all, to answer your question about a time limit, there isn't a time limit. Secondly, how we execute has to take all the factors into consideration, including, obviously, earnings and price. So we see value here and we see, but we're not committed to executing in any particular timeframe. So it's difficult for me to kind of give you a clear answer on that because it's going to be subject to all the other factors. There's so much volatility everywhere now, including in the geopolitics
spk05: stock market and and our freight market so we'll well from quarter to quarter we'll be updating you no doubt okay yeah i mean that that was really what i was trying to get to so it sounds like it's not like a static program where you're buying a certain amount of shares each each quarter it could be sort of adaptive based on on what you see in the equity markets and then kind of balancing that with the rate market so that that was what i was trying to drive at um sort of inarticulately. And then regarding, you know, the new EPL limits, do you kind of see, I mean, you kind of hinted a little bit at, you know, potential for scrapping as that gets instituted. Do you think that the slow steaming will have the impact of sort of reducing, you know, effective utilization or, you know, increasing effective utilization of the fleet and maybe providing a little bit of rate benefit there as well?
spk08: Yeah, I'd like to give you maybe John, he's been spending a lot of time on this, as well as Tim, of course, so they're better poised to give you an answer. Yeah. John, you want to talk?
spk06: Yeah, of course.
spk01: Hi, Sean. Yes, I, you know, the older ships, just rule of thumb kind of thinking is those ships would have to cut their engine power to about 30-some percent, and the younger ships will have to cut their power at about 20-some percent. So just roughly, the newer ships would be able to do almost, you know, nearly to 16 knots, but the older ships would have to go down to 14.5 to 15 knots, something like that. So yes, it does do exactly what you said. The utilization is lower for older ships, and therefore they will not be, as I said in my script a few minutes ago, it means that they will have to kind of reduce themselves to captive trades rather than to long-haul trading or really active trading. Does that answer your question?
spk05: Yeah, that's helpful. And then, so I guess if people are, I know we're kind of a little ways away on ammonia technology and other sort of lower carbon technologies, but Does the IMO take into account propulsion technology to basically give you the benefit of faster steaming if you are using a lower carbon intense propulsion system than maybe a traditional ICE engine?
spk01: Yeah, the formula does provide that. It is the amount of CO2 that you emit, whether it is from the main engine or from the auxiliary engines, the generator engines. And yes, it will affect it as the formula goes. Yes, of course it would. And the more things you add to your engines to do better combustion or less CO2 emission, it would affect it. It would give you a better status and a better speed. Yes, correct.
spk07: Okay, great. Thank you. You're welcome, Sean. Anything else?
spk02: As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove that question from the queue. One moment, please, while we poll for questions. Our next question comes from the line of Brian Reynolds with UBS. You may proceed with your question.
spk04: Hi, good morning, everyone. Just to follow up on the capital allocation question, you know, alluding to the, you know, 20% of the market cap being reduced. You know, in energy land, we've kind of seen that, you know, math being thrown around where, you know, free cash flow, et cetera, can, you know, reduce, effectively make a company go private in X amount of years. Just kind of curious around your thought process around, you know, the long-term, what makes sense from a liquidity standpoint from a total unit account perspective and, you know, going forward, you know, looking ahead, just given the new IMO regulations, should we think about potential new CapEx spends or, you know, potential special distributions in the future and just how you're balancing all those three together?
spk08: We... I think I said my remarks at the end that we will continue to have a flexible attitude towards capital allocation by evaluating all the options. At the moment, there is nothing. We haven't made any plans in terms of reducing... How shall I put it? Our plan is to put the capital where we think can be most effectively rewarding to shareholders at any given time. And I think we've been quite good at doing that. And we're not going to do that at the expense of our business. We're not going to imperil our balance sheets. and we're not going to reduce the quality of service that we can provide to our customers. So we think we've intelligently positioned ourselves. We have the newest fleet so far amongst our peers, and we're intelligently positioning ourselves for the future with our commitments in 2023. And we will continue to evaluate everything, all the options as we go along.
spk07: Fair enough. That's all for me. Thanks for your time. Thank you.
spk02: We have reached the end of the question and answer session. Now I'll turn the call back over to Mr. Haja-Pateras for closing remarks.
spk08: Well, thanks, everybody, and thanks for coming and for your questions, two gentlemen, and looking forward to talking to you again next quarter.
spk07: Bye-bye.
spk02: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.
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