Navigator Holdings Ltd.

Thank you very much, and good morning everyone, and welcome to Navigator's second quarter earnings call. As we conduct today's conference call, we will be making various forward-looking statements. These statements include, but not limited to, future expectations, plans, and prospects from both a financial and an operational perspective. These forward-looking statements are based on management assumptions Forecasts and Expectations as of today's date and are as such subject to material risks and uncertainties. Actual results may differ significantly from our forward-looking information and financial forecasts. Additional information about these factors and assumptions are included in our annual and quarterly reports filed with the Securities and Exchange Commissions. This morning's speakers will include Harry Dean Shonley, Chief Executive Officer. That will be followed by Niall Noland and Oeyvind Lindeman. So Harry, why don't you pick up the phone from here.

Perfect. Thank you, David, and good morning to everyone on the call. I hope you're all well, as you can see. It's now over 21 weeks since we took the decision to close our offices. and to start running our business remotely from our home offices across the globe. Through necessity, we have become very proficient in virtual team working with town halls, meetings and one-on-one catch-ups all taking place over the internet. Although we all miss the face-to-face interaction, we have become adept at sharing information via the many platforms at our disposal while making sure we didn't lose the human touch. There has been a lot of laughter along the way, with numerous unscripted funny moments unwittingly captured on the video and audio conferences, which has helped keep morale high. Thankfully, the technology has worked exceptionally well, exceeding even the expectations of the least tech-savvy employees. I want to pay tribute to the dedication, the dogged determination, and the boundless enthusiasm of our onshore team. Their hard work and Never Say Never Attitude has enabled our business to literally keep the lights on and to seamlessly ensure business as usual, much to the relief of our customers, our suppliers and our seatfarers. As a company, we're now about to emerge from this phase of the COVID-19 lockdown and to start to return to our company offices. In light with the prevailing government's advice, we will therefore be reopening our offices from the 1st of September. Of course these offices have been adapted to ensure adequate social distancing and we have also implemented numerous hygiene measures to keep our colleagues safe. Our return will be a phase one with a team A team B basis with staggered working hours to both reduce risk and also to maintain social distancing. Thankfully our key stakeholders weren't even noticed the change. and our technology will ensure our teams continue to interact seamlessly with each other, our customers and our vessels. The economic reboot following the COVID-19 lockdown, although fragile and prone to some local setbacks, gained momentum in the quarter. Improved sentiment and business activity has continued into July and August. with the North American and European economies following the lead of China and Southeast Asia by relaxing their lockdowns in an attempt to catch that demand and with its manufacturing. All thanks to NICO, this will provide a much needed stimulus for the global economy. Both ethylene and propion arbitrage to Asia remain firmly open in the quarter with healthy pricing differentials which has encouraged trade. XFU Design has also continued to move from Europe to Asia as producers attempt to export surplus material to maintain high cracker utilization rates. I am very pleased to report the business returns to profit in Q2, albeit with some favourable tailwinds on foreign exchange and the near break-even performance of our terminal over the quarter. The Q2 net income of $3 million was our strongest performance since Q4 2016 and was the first profitable quarter for over 18 months. It was also a pleasant turnaround from the Q1 2020 result, where, albeit with considerable headwinds, we posted a loss of $8.2 million. Our underlying vessel performance also improved from Q1 to Q2 by $2.5 million, resulting in a net As you will see in the supplementary presentation, both our Q2 net revenue and EBITDA has improved, giving us the best second quarter results for a good number of years. Turning now to crew leave, you may recall that on the Q1 call I intimated that we had managed to relieve almost three dozen crews. Thankfully that number has risen substantially in the last few months. and we've been able to refresh over 75% or 380 of our overdue crew members and we've been able to get them safely home. We continue to work hard to reduce the backlog and to ensure all our seafarers get the leave they deserve and are reunited with their friends and family as quickly as is humanly possible. The ever-changing local regulations together with new or re-imposed travel restrictions and the constant threat of flight cancellations make this a bit of a Herculean task but we are now making real inroads into the backlog. Throughout all of this uncertainty our officers and crew have continued to traverse the globe delivering much needed cargoes and thus keeping the global economy turning. We continue to work hand in glove with flag states and classification societies as together we resolve the many practical inspection and dry docking challenges that have been caused by the pandemic. Finally, it appears that the vital contribution of seafarers during this pandemic is slowly starting to be recognised by governments across the globe. I'm very pleased to announce that our Morgan's Point adventure F-Wing terminal has now exported over 200,000 tonnes with at least another 60,000 tonnes expected to be moved in August. June was a record month with a phenomenal volume of around 80,000 tonnes being exported from the terminal. This is all the more remarkable when you consider that this has been achieved without the aid of our 60,000 cubic metre tank which is currently under construction. It goes without saying that these volumes could not have been achieved without the close cooperation between Navigator Gas and our joint venture partner Enterprise. Working closely together, we were able to optimise the throughput whilst ensuring that there were enough vessels at the right time and the right place to maximise the effluent cargoes. With increasing throughput has come improving margins and I'm very pleased to announce that the terminal was profitable in June. It was really great to see the results of all our hard work now finally beginning to filter down to the bottom line. And amongst the first, a mid-sized vessel, the Navigator Eclipse, also loaded a world record quantity of 20,000 tonnes of ethylene from the terminal for delivery to Asia. The terminal complex is working very well and as you can see from the photographs in the supplemental information pack, construction of the ethylene tank is progressing safely, on time and on budget, where staff have expected in Q4 this year. The June throughput of around 80,000 tonnes, which was achieved prior to the commissioning of the tank, has only added to our belief that our terminal will exceed the nameplate capacity with ease in the future. Coming now to our lunar fuel, the fuel with Greater Bay Gas and Pacific Gas is now fully up and running. Live operations began in the second quarter, with all 14 vessels joining the fuel by the end of July. The fuel has been formed just at the right time, to enable the partners to capitalise on the growing volumes of ethylene for export from our Morgan's Point Terminal. Utilisation rates, which were running at mid 80% levels in February, March and April, climbed in May and June to around the 90% mark. This utilisation rate has been maintained in July, no doubt thanks to the Morgan's Point volumes, the healthy ethylene arbitrage and a general increase in economic activity. Once again, Andy's IPT rate continues to be dramatically less volatile than other sectors and have been pretty resilient with only a marginal 5% reduction in rates within the quarter. The company continues to be prudent, reducing discretionary spend, deferring expenditure where possible whilst minimising working capital and capex to preserve cash and liquidity. This can be seen in our operating expenses which are down in Q2 3.5% year-on-year. Some of these gains of course will wind over time as the increased cost of relieving the crew starts to filter through. Now in this prepared remarks we'll give you an update of our refinancing progress as we seek to further increase our liquidity and strengthen our balance sheet. All in all Q2 was a satisfying quarter for the company on many fronts with improving utilisation and profitability. Navigators' leadership in the niche, handy sized shipping segment, coupled with the versatility and flexibility of our fleet, has ensured that our business has, to date, been able to successfully navigate the choppy conditions caused by the COVID-19 pandemic. Our segment has not been subject to the world's swings in rates, which we have observed in other sectors. And as expected, The start-up of the world's largest ethylene terminal has had an immediate impact, stimulating new fuel-through-ethylene export volumes, which is a real win-win for Navigator Gas. The onset of the terminal take-a-day contracts in June, together with incremental sports business, should ensure the terminal remains profitable going forward. That, combined with our shipping business, which is also in great shape, will ensure the company is well-placed to capitalize from increasing economic activity when the uptick occurs. With those few remarks, I'd like to hand you over to our CFO, Niall Nolan. Niall?

Thank you, Harry, and good morning. The company generated profits, as Harry mentioned, of $3 million for the second quarter, which is a significant turnaround from the $8.2 million lost incurred during the first quarter of this year. and the $7.7 million loss for the comparative second quarter of 2019. This $3 million quarterly profit, or net income, includes the $2.5 million gain on foreign currency translations of both the Norwegian kroner and the Indonesian rupiah, for instance, relative to the US dollar during the quarter, reversing some of the COVID-related exchange losses incurred in the first quarter of this year. In addition, the Marine Exports Ethylene Terminal at Morgans Point in Houston generated a loss for the quarter of $200,000, being our share of the results of the export terminal joint venture. However, with the commencement of the long-term take-up whole contract at the beginning of June, the terminal had a throughput during that month of approximately 80,000 tons and consequently generated a profit, although not sufficient to overcome the losses of the prior two months. It is anticipated, however, that the terminal will remain profitable for the remainder of this year. This then resulted in a profit relating to our vessels for the second quarter 2020 of $700,000, again, which is a marked improvement from the $1.8 million loss generated during the first quarter. The operating revenue from the vessels was $79.9 million for the three months, an increase of $6.3 million. from the $73.6 million generated during the second quarter of 2019. Net revenue, revenue after deducting pass-through voyage costs, was $65.1 million for the second quarter versus $63.7 million for the first quarter of this year and $57.1 million for the second quarter of 2019. This increase was in part as a result of average charter rates increasing to $21,600 per day, up from $20,855 per day for the first quarter of this year, and $19,940 per day during the comparative second quarter of 2019. As we mentioned on the last earnings call associated with the first quarter's results, that the utilization was increasing during the second quarter. with April still in the mid 80% levels largely as a consequence of COVID-19 but with this subsequent month of May and June increasing to around the 90% levels. Consequently, the average for the three months of the second quarter was 88.3%, an increase of the 85.2% achieved during the second quarter of 2019. You may have noticed a new item on our income statement this quarter with references to pool collaborative arrangements in both operating revenue of £2.6 million and voyage costs of £2.9 million. This is the gap required accounting treatment for reflecting the sharing of pool revenue based on pool points. The net effect of this during the second quarter following the commencement of the pool on April 1st is that our vessels contributed $300,000 and the other participants in the Luna pool during the quarter. During the first six months, the company undertook only three dry dockings, principally as a result of yard closures associated with the impact of COVID-19. However, many dockyards have now reopened and we've undertaken a further three dry dockings since the end of the second quarter, with the third navigated grave currently in dry dock. That leaves the final four vessels requiring dry docks prior to the end of this year. These dry dockings, including the fitting of ballast water treatment systems where net straight, are estimated to cost approximately $12 million in exit as previously budgeted, but no anticipated increase as a result of yard closures or other effects of COVID-19. Vessel operating expenses were $26.5 million for the second quarter or $7,661 per vessel per day, a decrease of 3.5% from the $27.4 million or $7,938 per day incurred in the comparative second quarter of 2019. This is a result of stringent control of costs during these challenging times, but also as a consequence of some costs being deferred until later in the year, such as costs associated with crew changes due to the difficulty in arranging international flights as a result of COVID-19. General and admin costs decreased by 13% to $4.5 million during the three months ended June 3, 2020. This decrease largely relates to the reversal of foreign exchange losses and the revaluation of an Indonesian rupiah bank account Thank you very much. which have now fallen from approximately 2.38% a year ago to just 0.26% in June this year. The share of results of equity accounted joint venture, also known as the results from the Ethylene Terminal, generated, as I mentioned, a small loss of $200,000. And as I mentioned at the outset, with the profit in June almost fully offsetting those losses of April and May. I also mentioned a couple of moments ago that during the quarter, $2.5 million of the $3.7 million of COVID-related foreign exchange losses incurred during the first quarter were reversed in the second quarter. Net income for the second quarter was therefore $3 million, and as Harry mentioned, the first quarterly profit since the third quarter of 2018, and the largest profit for over three years. At June 30th, the cash stood at $53.1 million, against our maximum liquidity covenant of $43.1 million. We had a further $8.2 million as restricted cash, supporting a cross-currency interest rate swap relating to our Norwegian kroner bond. Although since the quarter ends, as a result of further strengthening of the Norwegian kroner versus the US dollar, This restricted tax has reduced to $1.1 million as of this morning. Since the quarter-end, we have entered into an agreement to amend the Terminal Questions Authority to allow an early throw-up of $34 million, enabling those funds to be immediately drawn for general corporate purposes. This followed a capital contribution of $7.5 million to the Export Terminal Joint Venture during the second quarter, and a further $7.5 million since the quarter end, both fully funded by drawdowns from the Credit Facility. The total amount available on the Credit Facility based on the off-take agreements is now agreed at $69 million and with $49 million drawn or currently available to be drawn, this leaves $20 million available to cover the remaining capital commitments to the Export Terminal Joint Venture, which we believe to be less than $10 million. Once the storage tank is completed and in service by the end of this year, any remaining undrawn portion of that loan will be released for general corporate purposes. Thereafter, the loan will convert from a construction loan to a five-year term loan. We are also in the process of refinancing one of our vessel loan facilities, which is anticipated to provide an additional cash draw of approximately $30 million This amount, coupled with the $34 million immediately available from the terminal facility and the further relief of the restricted cash, will provide increased liquidity headroom of approximately $70 million in addition to the $10 million headroom at June 30th. And we expect the vessel loan facility to be inflate by the end of this third quarter. At June 30th, total debt stood at approximately $860 million. As previously stated, the company does not have any debt facilities maturing until 2022, except for our $100 million Norwegian bond maturing in February of next year. We are currently assessing the capital markets for a potential refinance of this bond and are in the process of engaging financial advisors to investigate such opportunities, as well as considering alternatives in the event that capital markets are not available or not receptive. and with that, I'll hand you over to Oeyvind.

Thank you, Niall, and good morning, everyone. The second quarter highlights the role associated with petrochemical demand. As we mentioned during last earnings call, the COVID lockdowns around the world continued from March into April, with utilization hovering around the mid 80% level. However, with Asian countries beginning to ease regulations starting from May onwards, We did experience a pickup in demand. European petrochemical producers were still running their NAFTA trackers during the same period, resulting in excess products such as butadiene, which were then subsequently shipped long-haul on hand-designed semi-refrigerated ships all the way to Asia to satisfy the pickup in demand. The same fundamentals were seen for propolis, with excess production in North America Finding a home across the Pacific, resulting in employment of hand-designed tonnage for deep-sea voyages. At the same time, with demand picking up primarily in China, Korea, Taiwan, and Indonesia, the ethylene landed price in this region went from an all-time low of $300 a ton in April to a more normalized level around $800 a ton going from May into June. The U.S. domestic ethylene prices remained at a competitive price point, ranging between $250 to $300 a ton during the same period, and therefore enabling arbitrage opportunities for ethylene exports. Export of ethylene in any meaningful volume could only be facilitated with new terminal capacities. This new capacity came in the form of our Marine Export Terminal. It started ramping up throughout from mid-May onwards and beat, as you have heard, everyone's expectations when it enabled exports of approximately 80,000 tons during the month of June. 60% of all ethylene shipped from the United States of America during the month of June, including from the target terminal, were lifted on navigator-controlled tonnage. During the same month, our medium-sized ethylene vessel navigator clipped safely and successfully loaded and carried two dates, the largest single cargo ethylene of 20,000 tons, from our terminal to receivers in Taiwan. Now, the knock-on effect of the ramping up of the marine export thermo should not be ignored. Handicized ethylene vessels, which were trading in LPG or propylene or butadiene in the past, are now generally employed in the ethylene trade, thereby reducing available tonnage capacity from the semi-refrigerated parts of the handicized fleet. Therefore, despite huge uncertainties and fluctuations across the world economy brought about by the pandemic, the Handicap's quote-to-12-month charter rate, as you've heard from Harry, only reduced by 5% during the period to around $625,000 a month, which is vastly different compared with, for example, very large gas carriers, having their quotations fallen by more than 60% during the same time frame. The resilience in the hand-designed rate can be attributed to one simple fundamental reason, and that is flexibility across all the gas cargoes, being LPG, petrochemicals, and ammonia. The LunaPool swung into action during the ramping up of the terminal and is a contributing factor to our increasing market share of American ethylene exports. The pool better enables us to be in the right place at the right time, offering flexibility and reliability to our customers utilizing the pool platform of 14 vessels. Ethane has still a role to play for Navigator, as US ethane remains price competitive to other feedstocks in the production of ethylene. This is due to continued robust natural gas liquid production in North America. We reported two of our four medium-sized ethane-ethylene carriers have contracted additional ethane employment, meaning that ethane, as part of our earnings portfolio, is set to increase. Having additional vessels in ethane trade has similar positive knock-on effects to the non-ethylene capable segment, in that the tonnage supply for LPG and other petrochemicals is reduced. For example, When one of our medium-sized ethylene carriers are carrying ethane instead of ethylene, it means that the 20,000 pounds of ethylene cargo will have to ship on two handy-sized vessels, which in turn has positive impacts to utilization and earnings for that segment. Going forward, we are relatively comfortable with the outlook for ethylene, considering the performance of the Marine Export Terminal during the pre-tank phase, and the prevailing arbitrage for U.S. ethylene. Majority of the mantle stems from Asia, which means deep sea voyages, and our rising market share of ethylene exports from America made possible through additional pool vessels. A home run would be possible when the LPC steps into the hand-designed pitch. What will make a real difference is the anticipated effect from project specifics. Additional LPG demand from Serpano and Sembina, rail to ship export terminals, as outlined as part of the Earnings for Information Pack. Incremental hand-designed LPG demand should have a meaningful impact on utilization and earnings to the segment, in addition to what we have seen to die today in the Italy market. And with that, I will hand over to David.

Thank you, Oeyvind, Harry, and Niall. So, L.A., why don't you open up the call now to a Q&A, please.

Thank you. Once again, ladies and gentlemen, if you would like to ask a question, you can press star and 1 on your telephone keypad, and you just need to wait to hear your name announced. And if you'd like to answer, you can press star and 0. Star and 1 to ask a question. and your first question comes from the line of Ben Merlin from Speakful. Please go ahead.

Your line is now open. Hi, Ben. Okay, great. Hey, guys. This is Ben. I have a couple. I could have more but I'll try to not overstay my welcome here. My first question, congratulations on the terminal. Obviously, it's Thank you for joining us. has been to look to marry up more of these infrastructure related projects or development with your shipping expertise. I'm curious, fundamentally, and I guess right now with everything being wrapped up, it's the perfect time to start looking at some of those longer dated development opportunities. How do you think about that? How do you What's your sort of pitch? What's your angle? Where are you in terms of being able to really bring something to bear and further projects like this going forward?

Harry, why don't you take that one?

Okay, no problem. Hi, Ben. How are you doing? Yeah, good. Yeah, good. Ben, I know you said the table's all wrapped up. I wish it was so. We've got a tank filled to build, as you saw. It's making great progress and it's on time and on budget. It's been done safely. And equally, as we saw from the June numbers, we've actually been able to sweat the assets better than we thought. So for me, the best B bottle neck is a 3B bottle neck. So we really don't know what this terminal is actually capable of until we Thank you for joining us today. and that we deliver it safely on time and on budget and we see what's under the hood in that tank and I think there's a lot more there to give as we've proven in June so I think that's the first thing but in terms of the rest of the business it's sort of steady as she goes at the moment you know Niall talked about we've got a dry docking schedule it's pretty heavy in the second half of the year we know there's and a lot of tailwinds or potential tailwinds that could be there. No one knows what's going to happen with COVID and if it's going to resurface again. But there's a lot of tailwinds for it as well because, as Ivan said, the terminals are starting to open and that should be a real opportunity for us going forward. Now, in terms of new opportunities, we'll assess them in light of the other options that we have available to us and we'll do the things that give us the best time for our VATs.

Okay, but it doesn't sound like we should be expecting there to be any major new, completely out of the blue development anytime eminently, I'm guessing.

I think that's right. That's right, Ben. We're working hard. It's like a swan. We're peddling hard on the surface and looking at lots of different opportunities, but at the moment we're focusing on what's in hand.

But you're absolutely right to raise that question, Ben, because this terminal that we have in joint venture with Enterprise isn't the end. I mean, it's just an integral part of a greater hub system of exporting the important and inexpensive petrochemical hydrocarbons being generated in the United States as a result of low gas prices. This is just a small piece of that. And we have tried to partner with the people who control a lot of that hub at the moment, that is enterprise particularly, and then global network, well, their network within the United States connected by almost every petrochemical plant, especially ethylene plants, And that is just the beginning. Their hub is being built up gradually, but inevitably to create a greater flow of hydrocarbons, particularly petrochemical gases, to the international market. This is a whole new thing that has never really gotten off the ground in the past, but it is in its beginning phase. Our terminal is just a small part But our participation will grow as that grows. But we have to clear through this pandemic and understand what this fog of virus is and understand where the economies of the world are going and where to place the ultimate hydrocarbon. So it's there. It's delicious. It's ours to have. And we will get it eventually. But we have nothing at the moment. that is worthy of discussion at today's conference call.

Okay. Now, switching topics a little bit, maybe, for Oeyvind. Obviously, you laid out the ethane arbitrage, although I did notice that ethane prices are increasing. I believe that there is a new ethane export terminal scheduled to come online pretty soon in Texas. If ethane prices were to, well first of all, do you think that there's a risk that ethane prices were to rise materially in the United States as more is being exported, and how does that play into the dynamic for ethylene exports out of the United States today?

Yeah, it's a good question, Ben. All the forecasts and the experts on liquid gas production are predicting forecasting excess production on that even during this time and also going forward.

They have a lot of rejections going on whereby they're putting the ethane back into the natural gas streams.

So there's a lot of excess ethane in the system. And even with this new orbital terminal, The terminal being constructed and completed as Q4, I think, of this year in New Zealand by Energy Transfer Partners. There's a hell of a lot of remaining excess headpains. So if prices, the price forecast even after Q4 remains low, and if the market, the local domestic market, stops, and we're thinking that the headpain price is going to go high because of the headpain exports, and you've probably seen effects of that today because it's a known quantity and it's a known infrastructure project. So we are pretty comfortable in that ethylene will remain competitive. The cost for American ethylene producers will remain competitive towards other areas of the world and therefore ethylene should remain competitive. But you're right, you will have these monthly Price adjustments as you're seeing right now on ethylene in the U.S. It's not so much about ethane, it's about some shoppings, some maintenance, unforeseen maintenance on various crackers. So instead of having, you can buy ethylene at $300 a ton, it is now $380 a ton, which is still pretty competitive to Asian prices today at $760. So We remain confident that Ed Payne will be in excess, therefore the gas price will be competitive, therefore Ed Tilley will be competitive.

I don't know whether that's okay.

No, that was perfect and I appreciate it. Last one for me, real quickly. We've seen a number of Semi-refrigerated vessels that have capacity to do both ethylene, LPG, obviously, and then in some cases, LNG. I don't know that you guys have any that can do LNG, but we have seen some of those ships move into the LNG trade as there's been a real proliferation of small-scale LNG. Maybe talk through how you see that playing out from a supply and demand perspective for the ships, and is that something that you guys would look potentially to become involved in?

It's always good to see ethylene capable vessels that is also LNG capable go into the LNG trade because it reduces the pool of available ethylene ships or any high energy ships. But that number of vessels that can do natural gas as well is very limited. There's a series of eight ships controlled by INEOS. and as far as I am aware, one or two of those vessels are entering into the LNG trade. So for our, for Navigate's core business, that is a good trade. In terms of small-scale LNG, that's been around for a long time and could probably go small-scale LNG conferences every week of the year and there's a lot of talk Some projects are happening, some have been implemented. There's probably going to be more of that going forward in terms of hub and spoke distribution for LNG to various islands and small ports. We, being gas experts, know all kinds of chemical gases, how to handle that and so forth. We think natural gas is pretty easy and straightforward. It's truly refrigerated. There's no changing of grades. It's really a bus service, so our expertise lends itself for that, but for the time being, we are very much focusing on the more complex side of the gas shipping and maritime business and linking that with the shore infrastructure we have to focus on where the real growth is and the real potential, as David mentioned, in terms of being heavily involved in emerging petrochemical processing in the U.S. and helping the export of culture to the world.

Perfect. I appreciate it all. Thanks. Thank you.

And your next question comes from the line of Sean Morgan from Peppercore.

Please go ahead. Hey, guys. So the Morgan Point Terminal, you guys were guiding towards, I think, 45,000 Thank you for joining us.

The implementation of the tank increases not the volume but it increases the loading space so the jetty will be more efficient so instead of loading a handy size today taking three to four days with the tank you load a handy size in less than a day so it's easier to schedule for the schedulers on the jetty and the customers once we have the tank so again the throughput warning won't change but you're right that the performance at the terminal and everybody's expectations and I think that goes to what Harry has been mentioning the last two or three hunting shows that you know we're not John Reay, Oeyvind Lindeman, Randall Giveans

engineers often build in excess capacity into infrastructure and it's our job to find the right tunes to play in the infrastructure to make sure that we utilise that but there's a good sign that we're going to exceed the 1 million tonnes capacity and of course you need things to go your way, you've got to make sure there's no jetty congestion, you've got to make sure the ambient temperature is correct But there's really positive signs that this terminal is going to have an increased capacity. This fills us all with hope.

Okay. So if you were able to do 80,000 in June, then should we think with the efficiency of loading that this new storage tank, that the one million tons per annum is somewhat conservative? And also, does that have an impact on profitability? that we talked about in the past, I think the guidance is around 25 million. Does that potentially improve when you're hitting these volume levels kind of faster than you anticipated?

Sean, yeah, I like what you're doing and I do the same calculation myself. But I think you have to wait until we get the tank up and running and just see what we can do. Because you don't do it just for one month. you've got to do it day in day out on a 98% reliability basis so there's great signs that this terminal will be able to put more volume through it but let's wait until we get there and see what we can really do and again it's dependent on other things like ambient temperature as well but great signs so far that we'll be able to hit it out of the park to use Oeyvind's analogy

Okay. And then I know in the Luna pool you guys touched on in the presentation that it's really an accounting reason that you're now separating out the revenue and the voyage costs separately. And if it started ramping in April and, you know, throughout the quarter to June, it just struck me as a little... I guess optically weird that the voyage cost exceeded the allocation of revenue. So can you just maybe help us understand how that will change when it's fully ramped and also if that accounting anomaly is going to persist?

Let me try and explain that. It's really dependent on what each of the shifts are doing and based on pool points which are not dissimilar across the fleet within the pool. But because the ship came in at different times during this second quarter, the pool came into action, then you do have a bit of an anomaly coming on whereby essentially the navigator ship gave $330,000 to the other pool participants. But if the charter rates on the other and other pool participant ships were higher than the navigator ships, then you would see that flow the other way. So it can go one way or the other. It's really the net effect that is relevant. But it shouldn't be significantly different either way. But you will get quarter by quarter slight shifts one way or the other.

Okay. But in the pool, that will eventually kind of

It's a pretty small number in a volatile quarter, volatile in the sense that you have ships coming in at different times to start up the pool. A $330,000 imbalance is pretty negligible in the scheme of things, but you're right, it'll balance out to zero at the end of the day.

And Sean, the other thing we had in the pool was we actually had a management fee that reduced that disparity even more, to be honest. But the best thing about the pool is that we've got access to more effluent vessels so we can participate in the upside without putting a single fence into a new vessel or new steel into the shipyard or in the water. So it still allows us to participate in that upside for Etlin coming from our own Joint Venture Terminal, which is sweet.

Oh, okay. So that was in part the thinking was you can kind of ramp up your ability to service your own terminal now that you knew that it was coming online. That makes sense. Thanks a lot. I'm going to turn it over.

Thank you, and your next question comes from Omar Noxa from Platinum Stato. Please go ahead.

Hey guys, thank you. You know, I was actually going to just ask maybe about the lunar pool, and you gave a pretty good overview. Is the idea really to use those 14 vessels on a sort of a line to work out of the Essling terminal, or will they be trading a bit more worldwide?

I don't know. The vessels of the pool will go where the money is, and right now it's associated with ethylene, and particularly with the terminal, because suddenly we have an incremental supply of ethylene that needs college. So the global footprint of the pool is there, because the voyages we do in ethylene are quite long. So most of them, I think, are one. and Bartu are trading ethylene today. The other two are doing ethane. So all are doing these two related trades which you need this ethylene capability for, which is great. So they're not impinging on the semi-refrigerated ships which we mentioned in the remarks. But it's a global pool. It just happens that most of the voyages spend in the U.S.

Great, thank you. Sorry, that's helpful. Obviously, it's been a while since we've seen you guys enter into long-term charter, and you entered into the three-year TC on one of your ethane shifts. You've got another one for a year plus. They're both carrying ethane from your filing. How do you think about potential employment opportunities for some of the other vessels? Do you see I know you just got through your contract, but do you see opportunities for more along these lines?

I believe so. Because of the fact, I mean, it goes to Ben's question about the competitiveness of U.S. S-10, the production of S-10 there. So, at an S-10 conference many years ago, The presenter was alleging Ed Payne to the zombie, so he was neither dead nor alive. And that happens with Ed Payne. In theory, it's very active, and people commit to long-term contracts because Ed Payne is a feedstock at the end of the day, lends itself to structured deals, not stocks. And then it turns back to the dead form, and now it's back again. And it's relating to also what's been mentioned that there are infrastructure projects happening in the U.S. that are coming for commissioning and suddenly world petrochemical or global petrochemical producers can now start to eye or see more supply coming from the U.S. because there's more terminal capacity. So it hits and flows. There's not a spot market per se, structural move and that's how you see what happened now with a longer term contract on one of our midsize ships.

Got it, thank you. And maybe just on the terminal, the Ethylene terminal, do you have a sense of what percentage of that will actually be Ethylene versus Ethane? Is it predominantly going to be Ethylene? Is there any Ethane that will be coming out of the terminal?

The ethylene part of the terminal is not part of the joint venture. That is entirely 100% enterprise. The particularity is that there are two jetties and both of the jetties can load ethylene and ethylene. So it lends itself to a beautiful situation whereby ships can co-load at the same place ethylene and ethylene if the ship is capable. But so far, at least for the Lunar Pools and the Navigator Kits, we have loaded full cargo at T-Legions, but co-loading is possible.

I see. Okay, great. That's it for me. I'll leave it there. Thank you.

Thank you, and your next question comes from Randall Giveans in Jefferson.

Please go ahead. Howdy, gentlemen. How's it going? Good time. Thank you. Great. I'd like to see the terminal ramping faster than expected. You said 80,000 in June. I heard you said 60,000 in August. There's still somewhere in between July. I guess how frequent are you seeing loading currently, and more importantly, following June's profitable month? What are your profit expectations for the terminal in the third quarter?

So I can answer the first question on ethylene loading. So we are working with Enterprise every day, 24-7, to optimize those two jetties. And obviously our interest is for ethylene. So to have a ship there at every single hour of the day, 30 or 31 days of the month, in order to maximize the throughput. So, in between, in July and August, there's been some issues with the lightning storms in Houston, which I'm sure, Randy, you are very familiar with, which impact...

Yes, yes.

...raceful matters, which, you know, safety first. There's also conditioning and other things going on with the tank and the various maintenance and so forth. So, it's not the volume during those two months. This is so much that... We weren't able to have a ship on the dock, but it's in relation to other factors.

And I'll let any of you answer the next part.

Niall, do you want to take that? Sorry, but the, uh, propositions are going forward. I think it's going to be consistent with June. We're expecting, true but notwithstanding what Oeyvind said, about 70,000 tons per month of both July and August. September is unknown just yet. So we would expect a profit of above a million dollars per month for Q3. Perfect.

All right. And then Omar was and some of the charters which are yet to be signed. On the Ethylene side, any updates for charters out of the Ethylene terminal?

On the Ethylene side, we have some existing contracts and if you read the earnings release that the terminal is popping up on spot cargo. So there's a mix between firm contracts that Navigator of the Luna Pool is engaged in and also trying to follow the upside on the stock market which obviously we're in a very good position to do because we have more ships to the pool. So there is a mix there. Got it.

Okay. I think that's the last question probably the biggest about the $100 million bond due in 2021.

You know, you had the $34 million in the amended terminal facility that increased the liquidity there.

You have an upcoming refinancing for hopefully another $30 million. So with this $54 million in liquidity plus, you know, ideally some free cash within this month, do you think you'll have to refinance the entire $100 million in your unsecured bond, or are you expecting kind of a partial refinancing of that note?

I think given the current circumstances or the uncertainty surrounding COVID, it would be wise to keep as much liquidity headroom as we possibly can. So preference would be to refinance the full amount, but it's given the amount of headroom and we could have $120 million of cash against a 40-odd million liquidity requirement. It is possible that we could have a lesser amount, refinance a lesser amount, but I think in the current climate we would be wise to, at least in the first instance, to refinance the full amount.

Got it. Okay. All right. That's it for me. Keep it going. Yeah. So we're approaching the 10 o'clock hour, so unless there's another question, we can wrap it up today, Alan.

We do have one more question. It comes from Jamie Smith from Bayou Investors. Please go ahead.

Good morning, gentlemen. Thanks for squeaking me in here. I'll make this one quick. So we had a good discussion just previous from Randy about the unsecured bond. We've seen in the pipeline and the energy infrastructure area Interest rate costs have just plummeted, right? We've seen a lot of MLPs and such refinancing 5%, 6%, 7% unsecured debt at like 1% or 2% debt. Now, I understand shipping always gets kind of discriminated against in the debt markets, but have you seen those costs coming down as of yet, and do you think you can secure a lower interest rate cost? Any idea what the current kind of spreads are?

I think the spreads are still on the slightly high side, so there is some potential cost saving, but it's not material from where this bond is currently at.

That's unfortunate. You have one of the most exciting infrastructure assets in the Eastern Seaboard, so hopefully that'll start to gain some attention. You've done a great job. You have 95% taker pay on the first phase. The June performance was excellent. We're looking forward to that new tank. What does it take? How many more customers lining up does it take for you to step forward onto some sort of a phase two?

That's a very good question, Jay. Again, today we don't fully understand what we can do with that asset, and we believe there's lots of room there to squeeze more out of the asset and fully utilize it with 3D bottlenecks. So we're taking one day at a time, but if you ever want to come and knock on our door, then of course you'll have to discuss it with us.

Alright, hopefully a 2021 topic. Thank you gentlemen. Thank you.

Well, thank you all for joining us this morning, and we look forward to our third quarter conference call in a few months. Thank you again.