Avance Gas Holding Ltd

Thank you, and good afternoon, and welcome to Avanska's third quarter earnings presentation. As mentioned, I'm Øystein Kjelleklev, CEO of Avanska, and as usual, I will be joined by our CFO, Randi Navdal-Bekkelund, who will guide you through the financial a bit later in the presentation. As mentioned, you can submit questions either by the telephone conference or using the chat function, and we will cover the questions at the end of the presentation. Before we begin, I would like to draw your attention to the picture on the front page. Here you can see Sirocco, one of our VLGCs, leaving the Panama Canal, which we thought would be an appropriate picture for today's presentation. As you are probably aware of, Panama has experienced significant drought this year, which have reduced water levels to such low levels that the canal authorities have been forced to cut daily allowed transit by half in order to preserve fresh water. The reduced capacity in Panama has dramatically increased sailing distances for VLGCs, and thus made the freight market super tight. We will discuss the situation in Panama and implication for VLGC freight market in more detail in the market section. In the picture here, Sirocco is going through the Coccoli Locks, close to Panama City in laden condition, and you can actually see both the Bridge of Americas and the Pacific Ocean in the horizon. So, before we begin the presentation, I will just remind you The disclaimer, as we will provide some forward-looking statements, use some non-IFRS measures, and of course, there are limits to completeness of detail we can provide in this webcast. So we recommend to review the earnings support together with the presentation. So Randy, let's kick off today's presentation. Q3 highlights. Our average time charter equivalent earnings, or TCE, for the third quarter came in at $55,300 per day for the fleet. This is on a discharge to discharge basis, which is the basis we use for our guidance. While we technically are within the TCE guidance at 55, 300 a day is in the high interval of 50,000, we have to admit that we were expecting that the TCE would be more like 58 to $59,000 per day when we made our guidance on August 30th. However, on the following day, August 31, We saw the biggest ever daily jump in the Baltic LPG-1 index. Baltic LPG-1 is the index for spot voyages from Saudi Arabia to Japan, which is the most liquid index, and therefore the index we utilize for hedging freight by using forward freight agreement, or FFA. In one single day on August 31st, the cost of freight for this route jumped 20% from $98.5 per metric ton to $118 per metric ton. The Baltic LPG-1 index then went on to record its strongest ever seven-day trading results, with the index shooting up by more than 50% to 151.5 points by September 8th. While a booming freight market is good news for us, our results in Q3 is, however, adversely impacted by FFA, especially in September, as this is the fixing window for October cargoes. Overall, average TCE for the fleet was thus reduced by 10.6 million in Q3, or $8,300 per day due to FFA hedging, and I will cover this in more detail shortly. Another effect of rapidly increasing freight rate is that we recorded a very big deviation in our earnings on a low-to-discharge basis, which is the basis for IFRS accounts, compared to discharge-to-discharge basis. which is one type of economics typically used by shipping industries to measure trading performance. Over time, these two metrics even out, but they can deviate substantially when the market moves either up or down. For this quarter, the IFRS effect was 10.9 million, and the low to discharge numbers therefore came in $8,600 lower at $46,700 per day. I will also shed some more light on this timing effect shortly. Despite these two timing effects, totaling 21.4 million, trading results for the quarter was very strong with a net profit of 30 million for the quarter, thereby increasing the net profit for the year to 102 million. Hence, we have already surpassed the results from last year with the best yet to come, as we expect Q4 to be by far our best trading results this year. Please note that the 102 million above does not include the gain from the sale of Iris Glory. As we announced in July, we have agreed to sell Iris Glory for 60 million, and we expect to book a profit of 22 million once she is delivered to new owners. Iris Glory is currently discharging her last cargo under her two-year time shutter, and we are currently marketing her for a final spot voyage prior to delivering her to new owners.

We therefore expect to handle... Is something wrong with the sound?

Okay, let's continue. I just got some message here from my speakerphone. We therefore expect to hand Iris Glory over to new owners once this last spot voyage has been completed.

The profit from the sale will be

Sorry, we do have some technical glitches there. Okay. Okay, I think we just, okay. We expect to hand Iris Gloria over to the new owners once the last spot voyage has been completed. The profit from the sale will be booked when such handover occurs, and we expect this to take place at the end of the year, or more probably early next year, depending on the timing of our final spot voyage. Of other recent events, we are pleased to have secured a new $43 million bank financing for Pampero at improved terms compared to the sale and leaseback she currently financed under. And Randi will give some more details on this in the finance part. Finally, as already mentioned, the Panama Canal congestion is of particular importance. As mentioned in the introduction, this has really fired up the freight market, and I will cover this in more detail in the market section. So with the spot freight market shooting up from September, we expect to deliver substantially stronger numbers for fourth quarter. We still have some days to book for Q4, which is OK given the spot rates currently at $130,000 to $140,000 a day. Overall, we expect the fleet to deliver a time charter equivalent earnings for the fourth quarter of $70,000 to $75,000 per day. This is on discharge-to-discharge basis, and then includes the effects from FFA hedging at current rate levels. Hence, with strong numbers, a healthy cash position, and compelling outlook, the board has once again decided to declare a quarterly dividend of 50 cents per share, which brings the dividend last 12 months to $2 per share, which implies a running yield of about 12%. So, let's review our commercial performance report. This is where we spend most time with the analysts today, given the big timing effect on our results. For the third quarter, about 64% of our fleet was allocated to spot voyages, while the remaining was allocated to term market through TC coverage. Given the strong spot market, we generated average spot earnings of $75,700 per day, slightly ahead of guidance of $71,000 per day. while the TC ships delivered average earnings of $41,700 in line with guidance of $42,000 per day. We thus ended up with an average of $63,600 per day before FFA deductions. As we have hedged two of our sports ships by FFA in the third quarter at an average of $50,000 per day, this dragged down numbers for the fleet by about $8,300 per day to $55,300 as spot rates were significantly higher than our average hedging rates. Particularly, this was true in September, as mentioned. As rates spiked from September, we have been able to book Q4 at substantially higher rates than Q3, and we do expect this to be by far the best quarter for us this year, and probably the best quarter since third quarter of 2015. Achieved spot rates for Q4, we expect to end up somewhere between $90,000 to $100,000 per day on average. As the two-year TCE for Iris and Venus Glory is coming to an end in Q4, spot exposure will be reduced to about 30%, with average TCE rate of around $50,000 per day. Overall, this should give our TCE for the fleet of around $80,000 to $85,000 per day, but since we have hedged two ships by FFA at an average of $55,000 per day. We expect a negative revision also from FFA in Q4. Best estimate around $10,000 per day, giving a net TCE for the fleet of around $70,000 to $75,000 per day. Keep in mind our cash break-even level is around $22,000 per day, so we will generate substantial super profits in the fourth quarter. Okay, so let's go into the timing effects a bit more in detail. First, let me explain briefly the difference between discharge to discharge and load to discharge. When we calculate freight economics in shipping, we usually use discharge to discharge basis. This is then the gross freight income, less voyage costs like bunkers, canal fees and commission. And then we take the net voyage result and divide it by the days for our own trip, i.e. from discharge of last voyage, to discharge of the current voyage. In IFRS, we do, however, apply a load to discharge basis for spot voyages. So here we only recognize revenue from the point in time we have cargo on board and until we discharge it. So when the market moves sharply up or down, you typically will have a lot of ships ballasting into new fixtures, which you cannot recognize income from. And that's why we have this so-called IFRS 15 timing effect. In a flat market, there would be no such effect. Our timing effect is also magnified by the fact that we utilize FFA to hedge two of our spot ships as mentioned in the third and fourth quarter. Here we calculate profit loss every single day. And when the market moves sharply up in September, as you can see from the graph, we have to recognize these losses immediately in the September P&L while we are booking the ships for voyages well into fourth quarter. Hence, we have illustrated the effect with a bridge from gross average TCE of 63,600 with deduction of FFA of about $8,300 per day, and then finally the IFRS effect of $8,600 per day. As we are starting from a high point, we do expect the IFRS 15 effect to be significantly less in Q4. Okay, let's look at the fleet. What we have been doing the last couple of years is to sell older ships and renew with newer, more fuel-efficient and flexible tonnage. Last year, we sold three ships, all at a decent book profit, and we announced a sale this year of Iris Glory. We have recently docked Venus Glory, and she is currently completing her final voyage under a two-year time charter. So we are marketing her for sale and have received quite a lot of interest. So we are upbeat about the prospect for divesting her also at a very healthy book profit. At the same time, we are investing in new ships. We contracted the right ships at the right time with in total six large dual fuel LPG VLGCs at about $80 million each. New build prices for such vessels today are at about $115-$220 million depending on spec. and these ships are typically not due for delivery prior to 2027. A large dual fuel VGC has a cargo capacity about 9 to 10 percent larger than traditional VGCs, and they can run on LPG instead of compliant fuel, which is not only good for the environment but also for economics as LPG is much cheaper than compliant fuel. Last year, we took delivery of Polaris and Capella. This year, we are taking delivery of Rigel and Avior. And the two last ships, Castor and Pollux, which are scheduled for delivery this year, have been delayed until Q1 and Q2 next year due to a lot of work at the yard these days with all the container and LNG contracts they have entered into. Additionally, we contracted four midsize gas carriers this summer for delivery in 2025 and 2026. These ships can carry both LPG and ammonia, and we contracted them at a very good price point of 61.5 million each, which compares very favourable to new building prices being quoted for such ships today, with typical delivery into 2027. The equity for the MGCs we are planning to release from the sale of the older ships, where we have one more ship to sell at Spain. So, let's look at our employment profile. As mentioned, our two older ships are coming off two-year fixed TCs in Q4, and Iris Glory will be delivered to new owners in December or January. Venus Glory, as mentioned, on her final voyage under TC, and we will trade her spot until we potentially can secure a buyer for her, where we already have some interest. We have eight 2015 eco-ships. The two ships without a scrubber is on time charter, a variable time charter for Chinook until summer next year, and a fixed higher CC of 21 months for Papero until she will be carrying out a 10-year special survey in Q3 2025. We have stated that the backlog from this time charter for Papero is 29 million, so this gives you a rate of around $45,000 per day. The other six 2015 eco-ships we have installed a scrubber, and we are trading those ships in the spot market. One of these ships we hedged by use of FFA last autumn at $48,000 per day for the calendar year of 2023. This is the FFA1, as you can see at the bottom of the graph. Then we have six dual-fuel ships, of which four have now been delivered. Both Polaris and Capella went on two years variable TCs directly from Yard with a flood and a ceiling of around $50,000 per day. The Polaris TC expires in January while we in May agreed to prematurely terminate the Capella variable TC. We then turn around and hedge this ship at $53,000 and $63,000 respectively for the third and fourth quarter of this year. This hedge is noted as FFA3 in the graph. There is some upside on the FFA numbers for Capella, as we can take a bigger parcel size than a conventional size, and in case we burn LPG instead of very low sulfur oil. So this is the rationale for our two FFA positions for the Q3 and Q4 this year. The two dual fuel ships we have taken delivery of this year, Rigel and Avior, we are trading spots. And the two ships for delivery next year is also open. This means we are increasing our spot exposure next year, unless we find some good TCs for some of these ships. We also do have some FFA cover for next year. We have extended the scrubber hedge into Q1 at one ship for Q1 at $60,000 per day. And then we also hedged 50% of one ship. Scrubbership for calendar year 2024 at $70,000 per day, noted as FFA2 in the graph. Lastly, we have four MGCs for delivery in 2025 and 2026, which we are currently marketing for longer term PC. So last slide before handing over to you, Randi, is the dividend slide. As you can see, we have ramped up dividend in Q4 last year, given the stronger results. and we have now kept the dividend at 50 cents per share for the last four quarters, with today's declaration of 50 cents per share for the third quarter of 2023. We are paying slightly more in dividend than earnings in the third quarter, as the earnings are dragged down by the timing effects I explained earlier. However, as mentioned, we do expect a rather big bounce in earnings for the fourth quarter, so we do not see any reason for not maintaining the dividend at 50 cents, bringing the total to $2 per share the last 12 months. I covered the factors for determining the dividend level in great detail in the past, but as you can see, more or less green lights on all the factors. And that's why we are optimistic about the outlook also for dividend in the coming quarters. So that's it around this, and we do the financials.

Yes, thank you, Asim. And let's go to slide nine. and have a look at our income statement and key financial figures. So as already presented by ASIN, our commercial performance measured in fine charter equivalent rate or TCE rate for the quarter was 55,300 on a discharge to discharge basis versus the guidance in the high 50s and compares to 50,800 for the second quarter. The TCE rate was impacted by forward freight agreements or SSA losses of 10.6 million or $8,300 a day for the fleet in the third quarter. The TCE rate, according to the accounting and reporting standards IFRS, recognized revenue on a low to discharge basis. Thereby, adjustment of IFRS was negative 10.9 million or $8,600 per ship day for the third quarter. as the spot market reached elevated levels by the end of the quarter, resulting in a reported TCE of 46,700 compared to 52,000 for the second quarter. Operating expense, or OPEX, were 10.4 million, equaling a daily average of 8,100 per ship day, approximately at the same level as the previous quarter. We continue to hold the lowest administrative and general expense compared to our industry peers, despite a higher AMG for the quarter, which is explained by non-recurring expenses as settlement of share options. For the quarter, AMG came in at 2.8 million, equalling a daily average per shift day of 2,200. Whereas a normalized A&G is closer to $1,000 a day, which is expected going forward. And that concludes an operating profit before depreciation or EBITDA of 46 million compared to 52 million in previous quarter. Depreciation is done from 12 million previous quarter to 11 million this quarter. as we have reclassified Iris Glory, the 2008 build we'll see, following the sale previously announced in July. Consequently, the vessel is not depreciated while holding the classification as held for sale. As delivery to the new owners within January 24, we expect to generate 22 million in book profit in the first quarter of 24. Net finance expense was up 4 million from five previous quarter due to rising interest rates and higher average net debt, interest-bearing debt, as we have a full quarter with financing on our recent delivery of Avans Aviod in May. So despite this, we maintain a lower net finance expense compared to the floating SOFR by interest rate hedges. Currently, we have approximately 90% of the underlying interest bearing debt is fixed at 3% on the floating leg compared to the current sulfur at 5.32%. So this concludes the net profit of 30.1 million and corresponds to an annualized return on book equity of 21%. Moving to slide 10, you can see that 80% of our total assets currently consists of 14 VLGCs on water, which is soon to be 13 as we sold Iris Glory with delivery to the new owner within January 24. Additionally, we have a few new buildings under construction. The VLGC Avans Kastod and Avans Pollux with expected delivery in March and May 24. and also we have paid the first pre-delivery capex on our two first mid-size gas carriers, MGCs representing 18.6 million for the quarter. The MGC number three and four will start capitalized the next quarter when we will pay the first installment to the yard. Looking at the credit side, we have a balanced loan-to-value ratio of 49%, as we have amortized interest-bearing debt while values have gone up. We have also refinanced the VGC Pampero, which I will come back to in a few minutes. Looking at the total shareholder equity, we also maintain a relatively solid shareholder's ratio of 50%. and the total shareholder equity was 581 million at quarter end and has decreased 9 million during the quarter, which is explained by a net profit of 30.1 million being offset by dividend paid of 38.3 million for the second quarter and negative movements in other comprehensive income of 900 dollars, 900k, sorry, which is explained by positive market-to-market movements in interest rate swaps of 1.6 million, and negative market-to-market movements in SFA hedges of 2 million. We have a solid cash position of 146 million as of 30th of September 23, which leads us to the next slide showing the cash movements during the quarter. We started the quarter with a cash position of 192 million. And during the third quarter, we generated 42 million in cash flow from operations, coming from a strong freight income exceeding our cash break level at 22,000, which was offset by a decrease in working capital items of 15 million, driven by increased prepayments, which is explained by cash deposits in relation to our SFA hedges. Further, we had 21 million in capital expenditure, of which 18.6 million relates to our two first MGCs scheduled for delivery in Q4-25 and Q1-26. And the remaining 2.4 million is dry docking of Venus Gloria. Further, we repaid 11 million in debt. And lastly, we paid, as already mentioned, 38 million in dividend for the second quarter. and 1.8 million in settlement of share options. So this brings a total negative cash movement of 46 million and explains the bridge from the second to the third quarter. So just to summarize the recent transactions announced in cash terms, we expect to generate in total 45 million in cash proceeds during the first quarter 24, in addition to the cash from operations. where we have the sale of Iris Glory will generate approximately 25 million, 5 million from the refinancing of Pompero, and 14 million coming from financing of the remaining two VLGC new buildings at delivery. Looking at our financing structure on slide 12, 70% of our outstanding and committed debt is bank finance with a split in term loans and flexible non-armortizing revolver credit facility or RCS of 113 million. Post sale of Iris Glory and refinancing of Pantero, about 80% of our committed financing will be provided by banks and the remaining 20% is sale leaseback arrangement with Bokom. Anna-Maria Makhlouf, of hundred and 35 million, which will be drawn next year at the delivery of our remaining two new buildings, Avant Castor and Avant Pollux, and thereby we will be cash positive of in total 14 million during the first and the second quarter 24. Looking a bit into the refinancing that we've done, we have been working on improving the financing structure for the VLGC Pantero 2015 build. So we have terminated the current Chinese lease and replaced it with a bank facility. So by end October, we received a credit approval for the refinancing of the vessel in a 43 million bank facility. And as already mentioned, the transaction will generate a net cash proceeds of 5 million, a drawdown schedule in March 24. And the exercise will significantly improve the current financing of the vessel. bearing a margin of 1.9% versus existing margin of 3.25%. Further, the bank facility will have adjusted profile of 20 years and matures in January 28. And we expect to close documentation and procedures within January 24. And thereby, we will maintain our low cash break even of about $22,000 a day and we know that maturity before 2028 for the majority of switch. And with that, I give the word back to you, Asim, for providing an update on our smoking hot LPG markets.

Okay, thanks, Randi. I've spent so much time with IFRS 15 now and FFA, so I think we will run through the market slide a bit quickly. This just gives an overview of the current market with... rather elevated freight levels. Baltic One, as I mentioned, the main route from Saudi Arabia to Japan. Of course, the Baltic Three route today, Houston-Chiba, this basically only exists on paper. This route assumes you're going from Japan to Houston both ways using the Panama Canal and having a round trip of 60 days, while today you will mostly travel Route your ship both ways to Suez or Suez and Cape of Good Hope, making that voyage until 90, 95 days rather than the 60 days in a perfect voyage. Still, so the TC, 145,000 for the longest route. It will be a bit lower on paper when you're adjusting for the sailing route. The premium route continues to be Atlantic, where rates are very elevated from US to Flushing. But of course, you do have a bit more weighting risk on some of these shorter routes. The freight levels are supported by a good arbitrage level, about $350 cheaper with LPG in the US than Japan now. So the product spread is $350. So even after paying $239 on freight, you still have a lot of margin for the terminals and the traders. As mentioned, the Panama Canal is clogged. Average auction fee in order to skip the queue for November is 2.6 million northbound and 2.3 million southbound, which, of course, are leading a lot of the bigger ships to take longer routes rather than waiting in Panama. U.S. exports, very stellar growth, 14% year on year. We do get the question from time to time, why do we do see this high growth of U.S. exports when U.S. oil production are fairly flat? And I will come into that and touch a bit upon that later in the presentation. In terms of imports, China, despite slow economic recovery following zero COVID, 23% growth year on year. So, of course, the Chinese are importing a lot of cheap LPG and with a lot of new PDH plants commissioning, they have a lot of demand for US LPG. So let's look at the overall market on slide 15. As we've shown in the past, very high growth in both U.S., which is by far the biggest exporter, especially when it comes to villages' cargoes. And then Middle East, despite the OPEC cuts, very strong growth. OPEC cuts only applies to oil, and there's a lot of gas produced in the Middle East, which are ramping up On the import side, as I mentioned, China is up 32% from 2021, which was prior to the zero COVID policies. We even had growth in China in 2022, despite the zero COVID policies. And then we have had a big spike in import growth this year, despite somewhat disappointing economic recovery. Europe as well have been importing Russian LPG by rail and on smaller size ships. They are buying more US LPG and volumes are up 58% from 2021. Looking into US on page 16 here, you see very strong growth. And we will touch upon why we do see this extremely strong growth from US LPG exports. And the high growth in US LPG production is also driving down domestic prices. inventories to new record high, which is then creating this fantastic arbitrage to Far East markets. Today, 60% of the propane in the US is being exported, so this has really become an export product for the US producers. Looking into the next slide on the arbitrage, it's just the same picture. You can see how the ARB goes up and down, the price difference between US and Far East. And this is also, of course, then driving into what you can pay for freight. And if you look at the forward market for the arbitrage, it's very conductive, staying at $200 to $300 per ton, which means that the freight market also expects rates to stay at high levels. We do expect the freight market to start softening from next year, but still staying at $80,000 to $100,000 per day is very favorable compared to our cash break even as a condition that $22,000 per day or so. So on there, let's look at some of the drivers for this extremely strong growth in the US exports. You know, people, you know, 80% of the drilling in the US is for oil. Nobody really drill for propane or butane. So this is driven, the volumes are driven here by associated gas primarily. So what happens typically in these wells? is that the ratio of gas to oil is increasing with time. And we have some of the major basins in the U.S. here on the graph on the left-hand side. And what we do see is the gas to oil ratio is picking up. So for Permian, which is a rather new area in terms of shale, this has increased from 3.4 to 3.8 from 2017. It doesn't sound like a lot, but given the scale of Permian drilling, this really increased the availability of associated gas. And as you can look at this graph number two, higher gas to oil ratio means more associated gas. And this is particularly true for the Permian, which associated gas production has gone up a lot. And this is associated gas close to export plants in the US and also in a favorable regime in terms of regulation where there's not a lot of obstacles to building pipelines. So this has also then resulted in, as I mentioned, more associated gas, and this associated gas is saturated with NGLs, natural gas liquids, which is not only propane and butane, but also ethane. So the gas recovery of gas in the associated gas, or what we call the gallons of NGL produced per thousand cubic, or DPM, this This ratio is also picking up. So not only are you producing more associated gas, you're also recovering, especially when you have this rapid build-out of infrastructure in the US, everything from export plants to pipelines. So this is the main drivers why you have higher growth of NGLs. natural gas liquids than you do from crude and natural gas, which I will show on graph number 19 the next. So this is a nice graph from RBN Energy, which is a very good source for information about LPG business. So if you look at the growth in crude oil in the US, it's been a fantastic growth story since 2013. The same goes for natural gas, but they are far lower than NGLs. where you have more than 50% higher growth in production of NGLs than crude oil, and even more so when it comes to natural gas. So if you look at the situation today on page 20, actually we are in a situation here today where for every barrel of crude oil being produced in the U.S., you today produce half a barrel of natural gas liquid, and this consists of ethane, And then we have the main feedstock for our trade, the propane, the butane, and the isobutane, which is the LPG. And then on top of that, you have, call it natural gasoline, which you utilize for refineries. So that means with all these drivers, you really have a much stronger growth picture for NGLs than crude. And if we look at next slide, 21, you will actually see world oil demand from 2010 to So you see the picture here from 11, 14, and then you see this dark blue starting to pick up. And this is the NGLs, also consisting of LPGs, which is driving world oil demand. And this is actually 36% of oil growth since 2010 is NGLs. So that explains why US can produce a lot more growth for LPG than they can do for both natural gas and crude oil. Let's also have a look at the Panama Canal. We do get a lot of questions about this these days. So, of course, when they agreed to expand the canal back in 2007, This was mainly driven by container traffic. Container traffic was booming after China became a member of ETO in December 2001. And in order to facilitate the container traffic, they added a third lane in Panama. You have a regular, you have the Panamax, and then the new Panamax opened in summer of 2016. This is not really an ordinary canal where you just go through a ship's channel. This is actually more what I would call a water escalator. So what the Panama Canal does is you take a ship from either the Atlantic or the Pacific side, and you lift it up to well above ground level. where you end up in this lake called the Gatun Lake. And then you take the elevator down again and you go to the other side. So either from the Atlantic to the Pacific side or the other way around. In normal operation, Panama Canal can facilitate up to about 40 daily transits. Usually the nameplate capacity is 36. And then of those 36, 40 daily slots, Around 10 of them are for the new Panamax size, the bigger ships, with a beam wider than 32.5 meters, but less than around 50 meters, which is most of the VLGCs, except for the Panamax size. So what has happened now is you have had a period with El Nino, with Duat. We have had Duat caused by El Nino in the past. We had that in 2020. And then we had the double El Nino in 2020. This was prior to the new Panama locks opening in Panama. So when you have less rainfall, you are also not able to create enough fresh water in the Gatun Lake. So in order to mitigate that, first they implemented draft limitations, and then now we have had a sharp reduction in allowed daily transit. where the daily transit will go from 36 to 40, down to 32, 28, 24, 22, 18. And by February, this will be at 18, which means that new Panamax slots will go from around 10 to 5. So you're cutting the capacity in half. And of those slots, container ships are being prioritized because they have a more valuable cargo and can pay a higher fee. Second, it's LNG carriers, which also have a more valuable cargo than VLGC. And then wheel disease are being prioritized out of the canal and are having to find other routes or participating in auctions. So there have been a couple of special auctions lately, and we have set new records in terms of the price being paid to skip the line. The recent record was 3.98 million being paid for a one-way transit northbound. And as you can see from the data points there, they have gone rapidly up from... typically below $500,000 to stabilizing, as I mentioned briefly in the beginning, at $2.5 million, $3 million on average. So that means the waiting time has gone up, auction prices have gone up, and today there is about 50 VLGCs taking a route via Suez or Cape of Good Hope to the U.S. In the summer, June, July, this number was 10. So the numbers of VLGCs taking longer routes to U.S. from Asia have skyrocketed. And this means because sailing distances is up. As I mentioned, 60 days perfect voyage from U.S. to Japan. It's more like 90 days today. With all the ships taking longer routes, this means fewer ships available in the market. And it's the reason why freight rates are elevated, supported by the very high arbitrage from U.S. to Far East. So maybe look at the last slide before concluding. It's the order book. It's a typical slide for this segment. Order book's been the real scare this year. Scheduled delivery this year was 46. We said we... Actually, one year ago, we didn't think that there will be 46 ships for delivery. We estimated around 35 to 40 ships for delivery this year, depending a bit on market conditions. As we also had... two of our four ships delayed for delivery this year until next year. We will end up probably around 40 ships because the market is so strong now that you want to get your ship out and into the spot market in order to capture these rate levels. Then the order book will taper off with significantly fewer deliveries in the coming quarters. So actually, the Panama congestion has come at the perfect time for the VGC market. We have had now a year and a period with a very high growth in the fleet, which could have derailed the spot market. But given the longer sailing routes, we stressed the fleet out so that the ton mileage effect has been reduced. mitigating the fleet growth. And we do expect the problems in Panama to endure. The raining season is only for two more months. There are limitations to how much they can get the water leveled up again before they start consuming again. We do expect this to endure as a problem well into 2024, and then we will see whether there will be another El Nino or not. But regardless of that, we have to keep in mind the canal was made for container traffic. When the canal was expanded, nobody foresaw that U.S. would become the world's biggest LNG exporter and by far the biggest LPG exporter in the world. So it's really not scaled for this kind of growth in the U.S. exports. So we do expect Panama Canal to be a headache for VGC owners in the future, a headache in the sense that they have to take longer routes, which is generally good for the market overall, given the pond mileage effect. Also worth noting, the dark fleet of VLGCs trading in captive trade, typically Iran to China, that number of ships keep on growing, given the export growth from Iran. And we now count 52% of the fleet being in this kind of trade and not being in the kind of international trade. So with that, I do think we can conclude today's presentation, which has been rather long. As mentioned, 55,300 on TCE numbers, you know, impacted a bit by by FFAs and then also the IFRS 15 on the load to discharge numbers. However, best number since 2015 year to date, 102 million, already ahead of last year. And we do expect QFOP to be by far the best quarter for this year. We are in the process of selling Iris Glory once we fix the final spot voyage. We have a refinancing phase for Pampero. Panama Canal will continue to be a bottleneck for the trade. And we are guiding numbers of 70,000 to 75,000 in TCE for next quarter. And with that, we are happy to continue paying very good dividends to our shareholders. 50 cents also for Q4, bringing the total to $2 the last 12 months. So that's it. Maybe we could do some questions then.

Thank you. As a reminder to ask a question you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question please press star 1 and 1 again. If you wish to ask a question via the webcast please type it into the box and click submit.

We'll now go to our first question. Please stand by. Our first question comes from the line of Clement Mullins from Value Investors Edge.

Please go ahead.

Hi, Oristan and Randy. Thank you for taking my questions.

Hi, good to have you here.

I wanted to start by asking about your Q4 guidance. I mean, after the impact that the low-to-discharge accounting had on Q3 earnings, could you give us some commentary on whether we should expect a reversal, so a positive accounting effect in Q4?

Yeah, we can start with that. I think actually if you look at some of the notes we have put in what we do expect this effect to be in Q4, So, you know, given that we are in a rising market, we don't expect this effect to be reversed in Q4. We do, however, expect effects to be significantly less than in Q3. So if in one of the notes in the presentation, we have put in that we do expect the IFRS 15 effect in Q4 to be negative by $2,000 per day. And we will first see a reversal of this effect once the market starts moving downwards. Then we will have kind of, on average, higher freight rates on the ships with loaded cargo than the ships we are booking.

Makes sense. Thanks for the call. In the slide 15, you had an interesting graph with the market share of VLGCs, MGCs, and smaller vessels. The VLGC market share has increased a bit over the past few years, and as U.S. exports continue to increase, this trend could or should continue. Could you give us some commentary on where you see that trend finishing out in the medium term?

Generally, we have seen a trend towards bigger ships, VLGCs, especially U.S. It's mostly a VLGC market. Russia, which is actually a very small exporter of LPG, was mostly smaller ships, handy midsize segments. So that volume has disappeared. I think for us, it's mostly interesting in the VLGC for the LPG market. And that's where we do see our competitive advantage. However, we have invested in four MGCs. because these MGCs are both LPG and ammonia carriers. We do think that once the LPG trades are taking off, we do see more of those cargoes being put on MGCs with a smaller cargo size than our VLGC. That's why we found those ships attractive. That said, we do have ammonia capabilities on new building five and six for delivery next year. Those ships can carry ammonia as well as LPG. But in general, we stay focused as a VLC shipping company where we do find most of the action. But we added MGCs because of their fit for also the ammonia. And not least the good price point we got at them.

Makes sense. Thanks for the call, Laura. And final question for me, actually on the MGCs you ordered. The equity portion looks well covered with the existing cash position and proceeds from the sale of the Iris Glory. But I was wondering when should we expect financing to be announced for the vessels? And secondly, are you comfortable with your current fleet positioning or should we expect some additional acquisitions?

Yeah, financing-wise, of course, it's two years until delivery of the first MGC and then almost three years until the last one. So we have had several banks already knocking on Randi's door and offering her quite attractive financing, more attractive than the one we did for Pampero, actually, because this has to do also with the green credential of these ships. They make them very interesting for a lot of banks to finance those ships. However, if we were to put in place financing today for those ships, we would have to pay commitment fee to banks for up to three years. And we don't really see the value in locking in financing now and paying commitment fee for such a long period. We do have the equity from the cash position and the sales we have been announcing. And we rather do financing once we get closer to delivery. At that time, we might also know better whether we have been able to secure long-term charters for the ships, because that will also affect both the leverage we can put on and possibly also the margin in case we have a very good counterparty. So that was question number one. Question number two was in terms of our fleet. Of course, we're always happy to... new builds. We are in the middle of a new building program with two VLGCs for delivery next year and then four MGCs for delivery in 2025 and 2026. So we have been doing some contracting the last two years. But at the same time, we are also selling off older ships in order to renew the fleet. We are open to continue doing that, but prices for new ships or new buildings now have become very elevated. The yards are packed with orders for container ships and LNGs. which is driving up the new billing price for wheeled disease. As I mentioned, 150 and 120 million for similar wheeled disease today, which we contracted at 80. And if you are adding this VLAC spec, the very large ammonia carrier, you can also be paying 125 million. So we do think that it's a bit elevated and we rather than focus on taking delivery of existing ships. If we find opportunities to add ships that's attractive We might do that, but that is something we are discussing with jobs and the brokers all the time to see if we find a good angle to do something. But right now, the focus is to make delivery of existing ship and sell the last old ship.

Thanks for the call, that's all from me. Thank you for taking my questions and congratulations for the quarter.

Thank you. We had some chat questions as well, but maybe we have some more on audio. Let's see.

At this time, there are no further audio questions.

Okay, good. Then I will just jump on some of these chat questions. Some of them are a bit long, but there is. What are the key dates for the dividend? I think we sent out a separate press release today with key information regarding the dividend, with all the dates for record date, exit date, and payment date. So you should find them on our website, unless you have them in the back of your head, Randi?

Yeah, the exit date is the 7th of December, followed by a record date, the 8th of December, and payment date is 15th of December. right ahead of the Christmas holiday.

Yeah. Okay. And then we just pick a couple of ads. Do you see a fundamental driver for why FFA rates are lower in Q2 2024 than currently, despite the fact that Panama Canal restrictions increase in February? That's a good question. Yeah. So actually, we are nothing near the peak kind of bottlenecks in Panama. We expect the situation in Panama to kind of become tighter and tighter and more ships having to ballast around it. So, yeah, you should think maybe then that the freight market should be even tighter. Freight market forward rates or FFAs are, however, very much linked to the arbitrage. So when we have a situation where the LPG product prices are in backwardation, meaning they are lower in February than they are today, then typically freight follows that pattern. And that's why the FFA, even though it's very strong for Q1, the FFA or the forward rate curve is also in backwardation, linking up with the product backwardation curve. So that is the main reason. And then, of course, the FFA are not always very good at predicting the future. So let's see when we get to February and we are reporting Q4. We have one long question here from Greg Miller. And he writes very good articles in Freight Faves, which I recommend to everybody to read. So maybe you can read it. I don't have my glasses with me.

Yeah, sure. It's the upside scenario that Permian-Basin M&A leads to higher US production. Even more US LPG becomes available for exports. And at the same time, Panama Canal restrictions lengthen sailing distance and limit the number of VLGCs available to load the increased volumes of U.S. LPG available for export, thereby supporting high U.S. inventories and low U.S. LPG prices, which in turn supports arbitrage spreads? And that's VLGC phrase.

Okay, I think that's a long question. Actually, I did have a slide which I took out last night from the slide deck, which was about M&A activity in US shale industry. We have had two big mega mergers recently. Both Exxon and Chevron have been buying off smaller players. So yes, we do see a trend towards consolidation on the shale side. And yes, we do think that will result in higher growth than maybe EIA is expecting because a lot of these smaller shale players have been kind of cut off from the financing market and they have scaled back CapEx investments because investors have been forcing on them some more capital discipline than in the past. Of course, the big oil players like Chevron and Exxon, they don't really have the same kind of pressure from their investors to cut capex. Actually, it's something maybe they get more pressure to invest, increase capex because to kind of increase the reserve ratio. And, you know, a lot of these projects have a very good IRR. These bigger players also have access to cheaper financing. So So yes, we do expect that with big mergers here, you could see increased drilling activity. And once you get the higher drilling activity, you get more associated gas. And with the build out of infrastructure, you will probably also have a higher recovery of gas in the associated gas, which is available then for exports. So it's a long way to say that we are quite optimistic about that. I do think the merger wave in the U.S. shale has just begun. I do think we will see more of it because it's also a short cycle investment. Drilling offshore oil well and getting that to production can take a decade. With these wells in the Permian, it's much shorter and a much shorter payback time, which fits better today in today's environment where where a lot of governments are pushing for a pathway to net zero by 2015, then it's a lot less risky to actually drill wells with shorter lead time. So yes, that's a roundabout way to say that we do concur with your analysis in terms of the premise for the question.

So I guess with that,

Three o'clock, one hour. I think that is sufficient. Thank you all for listening in. Randy and I will be back in February with stronger numbers. And in the meantime, you can enjoy your dividend coming a bit late for Black Friday. But still, there are a lot of good shopping opportunities. So thank you for listening in.

This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers please stand by.