Dynagas LNG Partners LP (DLNG) 2022 Q3 法說會逐字稿

Thank you for standing by, ladies and gentlemen, and welcome to Dynagas LNG Partners conference call on the third quarter 2022 financial results. With us, we have Mr. Tony Lauritzen, Chief Executive Officer; and Mr. Michael Gregos, Chief Financial Officer of the company. (Operator Instructions) I must advise you that this conference is being recorded today.

Please be reminded that the company announced its results with a press release that has been publicly distributed. At this time, I would like to remind everyone that in today's presentation and conference call, Dynagas LNG Partners will be making forward-looking statements. These statements are within the meaning of the federal securities laws. This conference call and slide presentation of the webcast contains forward-looking statements within the meaning of the safe harbor provision of the Private Securities Litigation Reform Act of 1995.

The statements in today's conference call that are not historical facts including, among other things, the expected financial performance of Dynagas LNG Partners' business; Dynagas Partners LNG ability to pursue growth opportunities; Dynagas Partners LNG expectations or objectives regarding future and market charter rate expectations; and in particular, the effects of COVID-19 on the financial condition and operations of Dynagas Partners LNG and the LNG industry in general, may be forward-looking statements as such as defined in Section 21E of the Securities Exchange Act of 1934 as amended.

Matters discussed may be forward-looking statements, which are based on current management expectations that involve risks and uncertainties that may result in such expectations not being realized. I kindly draw your attention to Slide 2 of the webcast presentation, which has the full forward-looking statement, and the same statement was also included in the press release. Please take a moment to go through the whole statement and read it.

And now I pass the floor to Mr. Lauritzen. Please go ahead, sir.

Good morning, everyone, and thank you for joining us in our three months ended 30 September '22 earnings conference call. I'm joined today by our CFO, Michael Gregos. We have issued a press release announcing our results for the third period. Certain non-GAAP measures will be discussed on this call, and we have provided a description of those measures as well as a discussion of why we believe this information to be useful in our press release.

Moving on to Slide 3 of the presentation. We are pleased to report the results for the three months ended 30 September '22. All six LNG carriers in our fleet are operating under their respective long-term charters. The fleet utilization was 100% for the 10th consecutive quarter included. For the third quarter of '22, we reported net income of $7.4 million, earnings per common unit of $0.12, adjusted net income of $4.5 million, adjusted earnings per common unit of $0.04 and adjusted EBITDA of $20 million.

In terms of operational highlights related to the third quarter of '22, we successfully completed the special survey of Amur River and Ob River, including ballast water installation in accordance with current regulatory requirements.

Our thoughts goes out to everyone affected and suffering as a result of the crisis in Ukraine. We continue to closely monitor this ongoing situation, including the implications of economic sanctions, trading restrictions and other considerations that may affect our business. It is our understanding that the current U.S. and EU sanctions regime have broadly extensive LNG shipping and do not materially affect the business, operations or financial conditions of the partnership.

The partnership has one syndicated credit facility in place. One of the lenders in this credit facility was Amsterdam Trade Bank. However, following the designation of Amsterdam Trade Bank by OFAC as an SDN, the partnership, in agreement with our lenders, made a voluntary prepayment of USD 18.7 million from the $50 million restricted cash collateral, which was applied in prepayment of the entire participation of Amsterdam Trade Back to the credit facility. Consequently, Amsterdam Trade Bank is no longer a lender under the credit facility.

The partnership's counterparties by performing their obligations under their respective time charters in compliance with all applicable U.S. and EU rules and regulations. Our vessels named Clean Energy, Ob River and Amur River are on charter to previous Gazprom Marketing and Trading of Singapore, which has been renamed Securing Energy for Europe, Marketing & Trading and which onwards we'll refer to as SEFE.

On November 14, '22, it was announced that the full ownership of Securing Energy for Europe GmbH and all of its subsidiaries, including SEFE, have been transferred with immediate effect to the Republic of Germany via the Federal Ministry for Economic Affairs and Climate Action, which has taken over as 100% shareholder. Sanctions legislation is changing rapidly, and the partnership is continuously monitoring the ongoing situation.

The partnership is well positioned to take advantage of a strong market outlook for long-term charters in the Arctic Aurora opening up in Q3, Q4 '23.

I will now turn over the presentation to Michael who will provide you with further comments to the financial results.

Thank you, Tony. Moving to Slide 4. Net income for the third quarter decreased by 35% to $7.4 million compared to Q3 2021, primarily due to the special survey drydock cost of $3.5 million for the Amur River and $2.9 million to the Ob River, $7.4 million in total, and 67 scheduled off-hire days related to the drydock and the increase in interest finance costs of $2.1 million, which was partially offset by a realized and unrealized gain on our interest rate swap of $10.2 million, $2.5 million of which was realized.

Adjusted net income, which excludes realized and unrealized gains on our interest rate swap for the quarter was $4.5 million. If we add the utilized gain from our interest rate swap quarterly cash payment of $2.5 million, adjusted net income would have amounted to $7.1 million. Adjusted EBITDA for the third quarter was $20 million, a decrease of $4.8 million compared to last year, mainly attributable to the off-hire days related to the aforementioned scheduled dry docks.

So this year, we have completed the special survey and dry-docks of three steam turbine LNG carriers, including the installation of the ballast water treatment systems, which is capitalized at the total cost of a [third] special survey and dry docks of our three steam turbine LNG vessels for this year has amounted to $16.4 million with 103 days of off-hire time. $3.6 million impacted our Q1 P&L, $2.8 million in our second quarter P&L and $7.4 million has impacted our third quarter P&L, and $3.7 million relates to the installation of the ballast water treatment system, which has been capitalized.

Moving to Slide 5. At the end of September, we had $531 million debt outstanding, which was further reduced following a $19 million debt prepayment in October, following the designation of one of our lenders as an SDN. Therefore, as of today, our debt outstanding amounts to $512 million. We are seeing the benefits of our 0.41% excluding the margin fixed interest rate swap for the entire indebtedness outstanding until maturity in September 2024, with floating interest expense for the quarter of $7.2 million being offset by interest rate swap payments of $2.5 million for the quarter.

We are continuing our comprehensive deleveraging path which commenced in the first quarter of 2020, having repaid $163 million in debt, resulting in a decrease in our net leverage to 4.8x from 6.6x and an increase in book value of our equity of 33%.

Moving to Slide 6. In line with our strategy of using our contracted cash flow to reduce leverage for the quarter, we utilized 95% of our unlevered cash flow to service debt and interest rate payments. Excluding working capital changes, operating cash flow for the quarter was $16 million. Our cash balance decreased by about $2.5 million to $97.7 million primarily due to our dry docks and working capital changes.

We expect that Q4 2022 cash position to be impacted by the aforementioned $19 million debt prepayment to Amsterdam Trade Bank and the settlement of outstanding payments following the completion of our after-mentioned dry docks.

That wraps it up from my side. I will pass over the presentation to Tony.

Thank you, Michael. Let's move on to Slide 7. Our fleet currently counts six LNG carriers with an average age of about 12.3 years. The charters of our vessels are Equinor of Norway, SEFE of Singapore and Yamal Trade of Singapore. As of today, 12th of December '22, the fleet's contract backlog is about $915 million, equivalent to an average backlog of about $152 million per vessel. And the fleet's average remaining charter is about 6.2 years.

Moving on to Slide 8. Our strategy is to conclude long-term charters with reputable LNG producers. The earliest contract of due delivery for annualized six LNG carriers is in third or fourth quarter of '23 for the Arctic Aurora after with the second earliest contract due delivered in the first quarter of '26 for the Clean Energy, both subject to terms of applicable charter.

Barring unforeseen events and vessel scheduled dry-docking, our fleet is 100% deployed for the remainder of '22, 96% for the year '23 and 83% for '24 and '25. It continues to be strong demand for LNG time shipping. In particular, we believe the 150,000 to 160,000 cubic meter LNG carrier segment is ideal to supply LNG for the European FSRU market. As such, we believe the Arctic Aurora should be in a good position to benefit from a strong period market.

All the vessel in our fleet on time charter contracts, under which the charter pays major voyage-related variable costs, such as fuel, canal fees and terminal costs. Two of the vessels, namely the Lena and Yenisei River are under dry dock and OpEx cost pass-through contracts, that in general, provides protection for reasonable inflation and operating expenses.

Let's move on to Slide 9. Since September [2019] as the Q3 '22, the partnership has repaid $163 million in debt, decreased net leverage from 6.6 to 4.8x, decreased book equity value by 33% to $415 million. The partnership's deleveraging efforts should continue to build equity value on a contractual structure basis as we continue to benefit from stable long-term cash flow visibility and improved market conditions.

The Russian-Ukraine situation has shed light on the fragile European energy infrastructure and a general global underinvestment into LNG production and receiving facilities. The EU's goal to replace 50 bcm of Russian pipeline gas imports with LNG imports have to create competition for LNG supply and shipping. With the opening of Arctic Aurora in Q3, Q4 '23, we believe the partnerships will have exposure to strong shipping fundamentals.

Some Europeans countries are looking to accelerate their infrastructure development by chartering FSRUs. Germany, which currently does not have any land-based import facilities, has chartered efforts are used for long-term charters, two of which are from the private fleet of Dynagas. Post current charters, we believe the partnership has the potential to consider conversion of existing LNG carriers to FSRUs as an alternative to conventional charters. Both alternatives will be considered.

We believe the combination of the availability of the Arctic Aurora against the strong markets and the future strengthening of our balance sheet places the partnership in a favorable position. We have now reached the end of the presentation, and I'll now open the floor for questions. Thank you.

(Operator Instructions) And our first question is from the line of Ben Nolan with Stifel.

The really, the only variable out there at the moment is the Arctic Aurora, which you talked about. Any sense as to sort of -- and Tony, you said that the appetite is pretty good because it should fit pretty well with the FSRU market in Europe. Any sense as to the timing? Are charters being pretty aggressive in terms of when they're looking to lock things in? Or alternatively, how are you thinking about it? Would you rather wait until you get a little bit closer or do something sooner if it's available?

Yes. Thank you, Ben. That's a good question. Look, we see appetite from charters right now. We see several interests for the position. As you know, LNG is quite different from other shipping segments and it has a longer-term view and a further forward fixing. So I would expect that in the next quarter, that the vessel will probably be locked in for a charter.

Okay, that's helpful. And switching gears maybe. So you talked about the prepayment of debt. I assume that doesn't change anything in terms of the terms of the loan or your ability to do things with your cash, like pay dividends or whatever. For now, it's still just a lower principal amount basically, is that fair?

Yes. Yes, that's correct. Yes, we just used the funds that were for a restricted cash flow (inaudible) repay this debt and that's the only thing that changed.

Okay. And as it relates to -- yes, we're still a little ways from refinancing that facility. But I assume it comes due in mid-'24 that you probably, maybe six months from now, are going to be looking to refinance, I would guess. How do you think about the collateral value? I know that it's a pretty good time in the LNG market. Obviously, newbuildings are a whole lot more expensive. There's, I believe, a little bit of less appetite for steam turbine ships. But as you think about sort of your ability to refinance that debt and the value of the underlying assets behind it, has that changed, in your view, materially in the last year?

Yes. Thanks. Let me -- I mean, I can address the question on the steam turbine. So of course, the vessels here are locked up on time charters so they're all with Securing Energy for Europe. And as we kind of alluded to in the presentation, there is a good appetite for smaller vessels to feed the European market, too, in terms of FSRU implications.

It is difficult to apply this the new launch two strokes, 174,000 cubic meter LNG ships to perfectly match an MT FSRU and discharge all of our cargo into an equally sized FSRU. So we do see -- first of all, we do see interest of smaller ships. Now our turbine ships, they are quite large. They are 150,000 cubic, which for a vessel (inaudible). And we would just like to point out that they are timed out until '26 and '28, respectively.

Yes. No, that's a good point. And I think Ben, I mean, remember, three years ago, when we refinanced debt, we had -- it was $675 million facility. By the time this one comes up for renewal, it's going to be [$415 million]. So that's going to be less than $70 million per vessel. I mean, so I think we're in a much better position, obviously, the market fundamentals are also materially better. And obviously, we're not going to leave it for the last minute. We will start looking at the refinancing. Time passes very, very fast. It's already 2023. So I think that in the 6 months of 2023, we will be looking into refinancing.

Okay, yes. That's what I assume. I appreciate the color.

At this time, I'll turn the call over to Tony Lauritzen for closing remarks.

We would like to thank you for your time and for listening in on our earnings call. We look forward to speaking with you again on our next call. Thank you very much.

This will conclude today's conference. You may disconnect your lines at this time. We thank you for your participation.