StealthGas Inc (GASS) 2014 Q3 法說會逐字稿

Good day and welcome to the Q3 2014 results conference call. Today's conference is being recorded.

At this time I would like to turn the conference over to Harry Vafias, President and CEO of StealthGas. Please go ahead, sir.

Thank you and good morning, everyone. Welcome to our conference call and webcast to discuss the results for the third quarter 2014.

I am Harry Vafias, CEO of StealthGas, and would like to remind you that we will be discussing forward-looking statements in today's call and presentation. Regarding the Safe Harbor language, I would like to refer you to slide number 1 of this presentation as well as to our press release and our third-quarter results.

With me today is Mr. Papantonopoulos and if you need any further information on the conference call or the presentation, please contact Stavros or myself.

Let me begin by saying this has been a very busy period for us, as always. In this quarter we took delivery of three of our newbuilding Eco vessels -- the Eco Invictus, Eco Corsair, and Eco Elysium -- and we increased our newbuilding order book by four larger semi-refrigerated 22,000 cubic meter LPG vessels, bringing the total number of Eco LPG vessels under construction remaining to be acquired to 16 in total. These larger vessels are capable of carrying a wider variety of LPG gases for longer distances than our typical ships.

Overall, I am not very pleased with our performance this quarter. We produced healthy profits, but saw a reduction in our net income. The majority of the modern vessels produced revenues in line with our expectations. However, lower heating requirements in Europe combined with numerous refinery closures in the Far East for maintenance upgrades were announced, and on top of this warmer weather in the areas we operate brought rates for the quarter indeed weaker than we anticipated.

Early in the quarter we announced a charter of three of our newbuilding vessels for 7-year contracts and the employment of five of our vessels for 1-year contracts to international trading houses. Performance this quarter was mainly affected because of the older vessels in our fleet that were trading in the spot market faced increased idle days and lower spot rates. However, taking advantage of these days, we performed concentrated maintenance routine operations that drove our costs higher, but improved the condition and performance of these ships.

Let's begin with slide number 2. As you can see, we are the leading company in the LPG small class segment. We own 43 LPG ships and 4 tankers, and with the additional vessels to be added to the fleet we intend to solidify this position and gain market share by capturing about a quarter of the global pressurized market.

Due to the increased interest in our sector, we have seen some consolidation lately and that brings our second-largest non-governmental competitor to about half our size, while overall the sector is dominated by a handful of players that are looking for further opportunities to gain market share.

We continue to focus on a young fleet that will give us operational and commercial advantages. While the current average age of our fleet is 10.7 years, below the industry average, we aim to lower it to 9.1 years after the majority of the newbuildings delivered by 2016 without, of course, calculating the potential exit of some of our older ships.

We continue to keep moderate leverage of only 36% and intend to finance the new vessels at levels around 60% to 65% loan to value. We continue to maintain the conservative charting strategy that has made this company so successful in securing a visible revenue stream with a predictable cash flow whenever it is profitable to do so. At the moment, fixed employment for our fleet stands at 85% already fixed for this year, 60% for 2015, and about 30% for 2016 with an increasing number of charters extending until 2022.

Finally, I believe we continue to manage these vessels more efficiently than any other public or private competitor and that by growing our fleet we will be able to take advantage of additional columns of scale. Our net income breakeven level per day per ship for the third quarter was $6,400, which puts us comfortably in profit-making territory. In addition, modern Eco ships from the top yards worldwide can achieve significant savings in operating expenses and fuel consumption.

Slide 3. This slide demonstrates our fleet employment profile and provides you with the earnings visibility for our fleet. In terms of charter types, out of a fleet of 47 ships we have 14 on bareboats, 28 on time charters, and 5 in the spot market.

What we did experience in the current period is a two-tier market whereby the demand for modern ships is healthy, albeit at slightly lower levels than last year, whereas there was a slackening of demand for older tonnage. We had a few older vessels in the spot market and we got mixed results with some showing steady performance while a couple of others facing increased idle time. These results were typical of the season and we hope that the market for older vessels will improve during winter as has happened the previous years.

The Company's policy is to find profitable period charters to blue chip counterparties in order to secure its future cash flow. The positive news that we secured long-term charters for two of our newbuildings vessels that entered our fleet in the third quarter and one of our newbuildings that will enter our fleet in the second quarter of 2015. The execution of these three very long charters only amplifies our belief that the good times are ahead.

For 2014, 85% of voyages are fixed, 60% for 2015 and 30% for 2016 with a number of charters extending to 2022. We continue to seek opportunities to employ our vessels on medium- and long-term charters and will try to keep the same levels of charter coverage going forward. Our relationships with the world's largest and most stable energy companies, energy traders, and industrial companies with the highest credit worthiness minimizes our counterparty risk. It is very positive that we have secured contracted revenues of about $225 million until 2022.

Slide 4. As previously mentioned, we are growing the fleet significantly over the next 2 1/2 years as we believe the market development justify a more aggressive growth strategy than we had in the past years. We now count 47 vessels in our fleet, including our 4 tankers. 10 more newbuildings will be joining by 2015 and by the end of the expansion program we will be adding another 6 vessels going to 63 ships, 57 of which will be LPG ships. We, thus, expect to cement our number one position in the small class LPG segment.

In less than two years time, StealthGas will have 24 LPG ships, all of which will be under five years of age. We will have almost doubled our fleet at the time that the LPG industry is expecting a pickup in demand. We will have at our disposal a large, high-spec, versatile eco-fleet that would command a premium in the chartering market.

The LPG industry as a whole is heading towards a new direction since the ample availability of these clean energy sources, transforming it from a niche energy alternative to a mainstream energy source.

Slide 5. As we have discussed previously, LPG is a byproduct of natural gas production and of crude oil refining. LPG emits 20% less carbon dioxide than heating oil and 50% less CO2 than coal. LPG makes cooking, heating, and generating electricity in an environmentally-friendly manner.

The table below highlights the phenomenal growth in LPG refinery output year-to-date in both the Americas and the worldwide OECD countries up to August. This growth in output is more pronounced when it is compared to other byproducts of oil and their percentage growth in output.

The main key driver behind this steady growth is firstly the appetite from emerging countries, especially for commercial or domestic use, and the increasing distance between LPG production, feed stock supplies, and the end users. Currently, residential market usage is mainly concentrated in India, China, South America, whereas Middle East and Russia mainly use LPG for their petrochemical industries.

LPG has always been a supply-driven market. It is more versatile -- it's the most versatile, clean form of energy as it is convenient, can be easily stored and transported in cylinders of various sizes to meet the needs of different types of customers. The recent sudden drop in the price of oil has major energy traders' sentiment turn and miss on the fundamental principles of shipping that shipping costs fall and the increased supply of cheap product drives demand for shipping and stocking up.

Slide 6. This slide illustrates a StealthGas hub-and-spoke model. In the backdrop of a growing export capacity in terminals held by Enterprise and Targa we have seen a concentration of interest on the VLGCs to carry large LPG cargoes on long-haul trades. However, this has excluded the fact that there will be also a need for a bigger fleet of small gas ships to service customers in the regional markets. Final destinations are likely Caribbean, Latin America, (inaudible) basin, Europe, and the Far East.

While the US is still a developing story, we believe that our fleet could benefit from increasing product supply, especially if the markets at the time are already tight. We have now increased the number of vessels operating the Latin America/US Gulf region by 60% compared to the same period of last year and about 20% of our fleet now trades in this area. We see this as a positive development since the vessels trading at this region earn higher day rates compared to other trading regions, albeit though with higher costs.

I will now hand you to Mr. Papantonopoulos for some brief comments on our quarter results, our financial position. And later we will discuss the markets and the industry outlook.

Thank you, Harry. Good morning, everyone. So let me continue the presentation with slide number 7, the financial highlights for the third quarter of 2014.

With an average of 44.4 vessels owned and operating in the third quarter compared to 40.6 last year our revenues came in at $31.2 million, higher than last year's $29.7 million. This increase was primarily due to the increased number of vessels in our fleet.

Our voyage costs increased by $1.1 million to $4 million because we had more vessels on the spot charges in 2014 period. Our running costs increased to $12.3 million from $9.9 million last year. This was primarily the result of the increase in a number of vessels operating under time charters in the 2014 period, including two vessels that were added to the fleet and two vessels that came off their bareboat charters to enter the time charters.

Other factors contributing to the increase in operating expenses were some cost overruns for some of the older vessels in our fleet and a larger portion of our fleet trading in the Latin America/Caribbean area compared to the 2013 period where operations are more demanding and more costly.

We did not have any vessels drydock during the quarter. Management and G&A costs were at similar levels to last year. There was an expected $0.7 million increase in depreciation costs due to the increased fleet size.

Interest and finance costs were $2.4 million compared to $1.9 million for the same period last year, an increase of 26%. The increase in interest and finance costs was mainly due to the increase in commitment fees relating to the future loans we procured for the vessels that are currently under construction.

Our net income for the quarter was $1.6 million compared to net income of $4.1 million last year. Compared to the same quarter last year, the average number of shares outstanding increased by 30% to 41.8 million shares from 32.1 million shares due to the offering of total of 11.4 million shares in February, May, and August 2014. Earnings per share for the third quarter of 2014 amounted to $0.04 compared to $0.13 for the third quarter of 2013.

Looking at slide number 8, our balance sheet, we can see significant changes from last year, mostly due to the net proceeds received from the following offerings. As of September 30, we maintained a healthy cash balance of $131 million including restricted cash compared to $92 million at the end of 2013. As of September 30 he had $86 million in advances for vessels under construction for 16 new eco vessels delivering by 2017 and $753 million in vessels book values. Our total assets, therefore, during the nine-month period increased from $851 million to $982 million at the end of the quarter.

In terms of liabilities, the current portion of our long-term debt, that is loan repayments scheduled over the next 12 months, marginally increased to $45.1 million from $41.2 million at the end of last year. During the nine months ended September 30, 2014, we paid about $32 million of debt so that our long-term debt stayed constant at $311 million. Our total debt as of September 30 was $356 million versus $353 million at the end of last year.

In the third quarter we took delivery of three new buildings that will be financed in the fourth quarter of 2014 adding approximately $34 million of debt. We will continue to maintain a moderate leverage over the next couple of years. By the end of 2014, when the post-delivery drawdown will have taken place, we expect to have total debt about $380 million. And by the end of 2017, when all 16 of our LPG contracted vessels will have been delivered, we project to keep debt below $0.5 billion.

Regarding the 16 eco LPG vessels remaining to be delivered, I am pleased to say that we have seen a lot of interest from our existing lenders and new ones to finance them. The lenders who have agreed are 60% to 65% LTV. We have already committed 12 out of the 16, but for the four larger vessels that deliver in 2017 we consider it is too early to commit them two years ahead of their deliveries.

Please turn to slide number 9. These are the operating highlights for the third quarter of 2014. In terms of fleet data, our fleet consists today of 47 vessels. We have an average of 44.4 vessels in the first quarter of 2014 compared to 40.6 vessels for the same period of last year. The total number of voyage days increased to 4,062 from 3,675 last year. From the 4,062 voyage days for the fleet in the third quarter of 2014, 765 were spot market days so we had a considerable increase in the number of spot days compared to last year.

In terms of our operational utilization rates, it hit 88.6%, increased from 87% last year, and that was mainly because we did not have any drydockings this year. In terms of average daily results, our average time charter equivalent rates was $8,330 per day compared to $8,817 per day for the same period of last year. The 6% decrease in the time charter equivalent rates achieved was again because we had a higher number of vessels operating in the seasonally weak summer spot market.

What was really prevalent in the summer period is a two-tier market whereby the demand for modern vessels is steady, whereas there was a slackening of demand for older tonnage. To illustrate this point, we have two lines to show average charter rates for our vessels under and over 17 years of age.

In this case, for the third quarter of this and last year our younger portion of the fleet earned almost double the rate compared to the older portion. Since we had around eight of our older vessels operating in the spot market for certain times during the third quarter our overall picture was affected.

The third newbuilding vessels -- the three newbuilding vessels we took delivery during the quarter came in the fleet late in September and their contribution was minimum. Our daily operating expenses increased to $4,689 per vessel per day compared to $4,321 per vessel per day for the same period last year.

Our total vessels operating expenses was $4,828 per vessel per day compared to $4,496 per vessel per day last year, a 7% increase. That is mainly due to the order vessels we operate in our fleet and the vessels deployed in the Latin America region where running costs are considerably higher. We are increasing our efforts to contain any increases in the operating expenses.

Even though the market was soft, we still operate comfortably above breakeven levels in terms of income and cash flows. I will now hand you to Harry Vafias, who will now discuss the markets and industry outlook.

Slide number 10. This is an important slide as it shows what differentiates our LPG sub segment from the other LPG sizes. We can see how the picture changes favorably in the smaller LPG segment where the order book is relatively much smaller to the existing fleet.

The small class segment, as defined by 1,000 to 13,000 cubic meter LPG order book, that is highlighted in this bar chart is circa 9% for the existing fleet and the majority of it is contracted by StealthGas, which is the biggest player in this market. Additionally, in the adjacent pie chart we see the age distribution of the small LPG fleet.

A key characteristic in the fleet distribution is that older ships are a significant part of the total tonnage. A lot of these older vessels cannot compete for employment with our newer fleet as they do not meet the appropriate vetting requirements and many charterers are reluctant to fix on period ships over 18 years of age.

About 25% of the fleet is older than 25 years of age and 17% of the fleet is older than 31 years of age. So there is a substantial amount of scrapping capacity in the event of a prolonged period of weak rates.

Slide 11. What we can say about the LPG market that we operate in comparison to other shipping segments is it has a small day rate volatility and very few serious pure-play established companies. Rates do not fluctuate widely and that gives downside protection. Historically rates range between $7,000 per day during the bottom of the market and $13,000 per day during the peak.

Another positive characteristic is that when the markets are becoming hot we do not expect a rush in new orders from speculative players since Japanese yards that build of those ships are now full until early 2017 and the Chinese yards that have ample capacity simply prefer not to build the ships, mainly because of the design complexities and small profit margins.

Slide 12. In this slide we are showing our remaining newbuilding program, the sizes of the ships in order and their capital requirements. We now count 47 vessels in our fleet including our tankers, 10 more newbuildings will be joining the fleet in 2015, and by the end of the program we will be adding another 6 ships reaching a total of 63 vessels, 59 of which are LPG ships.

This means $450 million in capital expenditures, of which $85 million has already been paid. That leaves approximately $365 million to be paid, of which $150 million is earmarked for 2015, $40 million for 2016, and $175 million in 2017. Out of this $365 million in total remaining CapEx we expect to receive finance proceeds of about $310 million, so we are left with only about $55 million of remaining weight equity.

We already have committed finance for 12 out of the 16 vessels. And as you can see, with a cash balance of over $160 million, including the debt proceeds from the three ships we just took delivery of, we can comfortably meet these requirements. And in fact, we can look for additional acquisitions if we want to.

Lately, we have ordered semi-ref ships that are more versatile than pressurized ships as they can cool cargo down to minus 48B0C and so they can carry a bigger variety of gases and add more commercial versatility to our fleet.

Slide 13. One large-scale US project materialized. Gas exports expected to significantly increase. We cannot predict the exact development of the future spot and time charter rates, but we can present different scenarios with the following sensitivity tables.

This slide demonstrates our fleet development over time and how out company results are affected when the time charter rates increase. 2016 will be the first full year that we will operate with a fleet of 59 vessels including newbuildings on order. In this year our company's EBITDA results can potentially grow to $150 million if the average daily time charter rates increase to our medium case scenario.

On the other hand, if we are conservative and we use an $8,000 time charter scenario, we will be generating about $66 million of EBITDA. This table excludes the four largest semi-ref ships that are on order and expect their deliveries by 2017. These vessels have comparatively a much bigger earnings power because of the larger size and flexibility in the gases they carry. They currently earn about $1 million a month, and if rates remained at similar levels in 2017, they could contribute a further $35 million of EBITDA annually.

Slide 14. I would like to conclude this presentation by saying that we remain optimistic about the core strategy of our company. But as all of you know, no one can predict the future day rates, so what will we be doing is fixing ships on short- and medium-term profitable charters, keeping our costs lower than our competitors, maintaining our G&A costs lower than our competitors, maintaining our tech management fees lower than our competitors. And this, coupled with the fact that we have lower average cost of debt than our competitors, makes our leading position difficult to beat.

Expectations on the LPG market and its future evolution has drawn the attention of significant investor interest. While we offer an attractive pricing, trading at a big discount to our peers, we still offer one of the best ways to take advantage of the future expected growth in the LPG market with our fast-expanding, quality-focused newbuilding program.

Since my family and I have co-invested side-by-side with our shareholders and banks StealthGas shares in the last two offerings, it shows that we are optimistic about the next two or three years. And with the largest and highest-quality LPG fleet worldwide, a clean balance sheet, and lots of liquidity, we look forward to the future.

We have now reached the end of our presentation. We would like to open the floor for your questions. Operator, please open the floor. Thank you.

(Operator Instructions) Jon Chapelle, Evercore.

Thank you. I want to address the seasonality issue first.

If we go back from the last several years there certainly is a dip in the third quarter versus the second quarter, but not to the magnitude that we saw this year. Where there any extraordinary events that happened in the third quarter of 2014 relative to prior years? And also, now that we are seven weeks into the fourth quarter, have you seen an uptick, and a significant one at that, in the market environment?

Yes, one by one. Firstly, if you see the last two, three years you will see that always our Q2 and Q3 was significantly softer than Q4 and Q1, except in the cases where the majority of the fleet was on period and, therefore, seasonality didn't bite because we didn't have ships in the spot market.

Speaking specifically about this summer and this Q3, I would say that, yes, the rates were lower. Not much, but lower than last Q3. Not Q2, last Q3. With Q2 were fairly similar, but we had more ships in the spot market as we said. And our older ships, do not forget, become even older thus more difficult to fix in a soft rate environment.

Going to your last question about Q4, being in Greece I have to tell you that even if we are nearly in December the weather here is at least between 20 and 23 degrees Celsius, which means that unfortunately the weather is hot and we have not seen an uptick in rates. So if that continues until Christmas then we will have to consider Q4 to be fairly similar to Q3.

Okay. Then there's a lot of blame being placed on the older ships and there's that one table that shows the older ships had half the rate as the more modern ones. You when you were talking about the industry mentioned how there's a lot of scrapping potential with the older ships in the fleet.

Are you thinking about disposing your older ships? And I know I have asked this before in the past, but it seems that they are quite a significant drag on your company-specific results and also could potentially help the industry by removing some of your older assets.

Yes, good question. As you see, there are lot of older vessels in the industry so, unfortunately, even if I scrap all of my old ships, which are about nine, that will not unfortunately change the industry fundamentals. If, however, everybody follows an example and scrapped a portion of their older fleet, then yes I think there will be a positive development.

Speaking about ourselves, the majority of our older ships are debt free, so for the remaining years they were making a profit overall. They might be losing money in the summer, but overall they were making money. And we are glad to say that even today some of our 23- or 24-year-old ships are on period, which shows that we have quite a strong commercial department to be able to find period for such old ladies.

But as you said correctly, at the end of the day money talks. And if we see that by the end of the year they do not make any profit and they do not add to the bottom line, and especially those that have special surveys coming, then we will try to sell. And if, of course, we don't find a trading buyer they will have to go for demolition.

Okay. Last question, if I can just combine two thoughts from slides 12 and 14. On 12 you only had $55 million of equity payments left, but as you mentioned about $160 million of cash, but you talked about potentially buying more ships.

In this environment, and then given these discounts that you are showing on slide 14, have you thought at all about buying back stock? Or what else do you think you can do to help narrow the significant discount that only seems to be widening every quarter?

Yes, very good question. Yes, indeed. At this point it is better off, obviously, buying stock at 45% discount to NAV than new ships at NAV. So I agree with you 100%.

The only question that we have discussed with the Board extensively is that a lot of big fans that love the Company and love the balance sheet and love the obviously amazing pricing that they can buy the stock is the liquidity of the shares. Obviously by buying back stock we are hindering that effort. However, we have discussed with the Board and if that situation continues we will have to go and take approval for a stock buyback. So we are basically on the same page.

Okay. Thanks for your thoughts, Harry.

Michael Webber, Wells Fargo.

Good morning. I wanted to first touch on the Handysize acquisition you guys made earlier in the quarter and your thoughts around entering that market and where you think your share could eventually go. Obviously when you get down to the smaller-sized LPG carriers here you've got some pretty dominant players in either market. You guys are dominant in your market and there is some larger players in that market.

Just trying to think strategically how you think about that entry and where you want to take that.

Actually, Michael, the answer is we don't know because we don't have the ships yet. We don't know what the market is going to be in 2017. We don't know what profits these ships are going to generate. At the moment, of course, they look very rosy. That's why we did it.

We went to the best yard in the world. We said, which is the best yard in the world for these 22k ships, they told us Hyundai. We went to Hyundai. We ordered four ships of the highest specification, that costs a lot of money as you know very well.

We have no immediate plans to add more unless something crazy happens in the market, so we will stick to what we have. We will be the only company that can offer short-haul and medium-haul transportation of gas to the same customers. So if somebody wants to transport gas from the States to Europe on such a sized ship and then distribute it locally, they won't have any more to go to two, three different players. They can come to us and we can do the whole door-to-door transportation with our brand-new ships.

And on top of that we believe that these lower costs that we have can easily be translated into lower costs for these 22k ships as well, so we will have a small advantage against our competitors. The short-term goal is to stick to what we have, but obviously, speaking two or three years later, we obviously cannot predict how many of these ships we are going to have. We hope that we remain focused on our core segment, which is the small class segment.

Got you. Okay, that makes sense. Just to follow up on Jon's questions around the order assets, and it does seem like those kind of catch a significant amount of the blame for the results.

You talked about potentially scrapping those and in every market the same dynamics apply where it is better if everyone goes out and scraps their older assets, but when it comes down to actual per asset economics, it is not in anyone's favor and it just generally never happens. But when you look at your fleet and you look at the six, seven assets that are up there in age, you mentioned you would take a look at the end of the year and where they stood from a special -- when their special surveys are coming due and where the economics stood.

We are pretty close to that point, so I'm just curious. One, if you can remind us which assets have special surveys coming up say in the first half of the year. And then, two, specifically you mentioned selling -- if you were to sell those assets first looking for an operator to acquire them or potentially looking to scrap them, I would imagine that scrapping them would be a better alternative for the remainder of your fleet. How do you weigh that decision?

Yes, you're right. First of all, we have one ship coming up for special survey in the first half of 2015, the Gas Crystal, which is 1990 built, the oldest ship we have. She is going to be 25 years of age. So if we don't have a charter for her or we don't see the spot market picking up, she is going to be the first candidate to go for scrap.

Trading buyers, as you can understand, is very difficult to find because A) the market for the older ships is soft and, two, there is no bank finance for older ships. So whoever wants to buy these ships has to pay cash, which is not the easy thing to do when you have to pay $3 million, $4 million, $5 million. We have some of the ships up for sale. We haven't seen any interesting proposals, so if the time comes the market is same as it is now and the special surveys is coming due, I guess that particular ship will have to go for demolition.

Got you, okay. I think that's all I've got. I appreciate the time, guys. Thanks.

Josh Nahas, Fox Hill.

I know that old ships keep coming up, but just wanted to ask a couple more questions on that and then maybe I will jump back in the queue. The EBITDA sensitivity that you give, and I do appreciate now that you have broken out the additional detail on what the older ships are earning versus the newer ships. That is helpful. In the EBITDA scenarios on slide 13, does that -- that TCE rate though, that is sort of an average across the fleet. So I wonder --.

Josh, sorry, just to interrupt you. There is a small detail in the bottom of the page, I don't know if you read it.

No.

If you have the slide in front of you, please look at the bottom of the page because it is exactly the answer to your question.

Okay, for lower -- discount for lower utilization, increased idle time. Okay. For the older ships.

Okay, so that is taking into account the older ships, okay. So you did it; that answers my question.

We have not discounted them as much as we have shown in this quarter because that was a particularly soft summer quarter, but yes there is a discount, as you see, and increased idle time for the older ships.

Okay. And so I guess they are just above operating breakeven, so on a cash basis they lost money in the quarter I guess?

You mean the older ships?

Yes, the older ships.

Generally speaking, yes. In some specific cases no, because having no debt some of them means that their breakeven is much lower than the fleet breakeven

Okay. And then in a broader question, with the older ships in terms of those are going to be harder obviously to time charter out ever, so those -- when the VLGC order book really starts to hit, do you think that is going to impact the ability or the rates at which you could potentially time charter out even your newer ships? And you might have to wait to get a bunch of ships on to charter, to get a good rate until after sort of the market absorbs some of that delivery kit?

Or just in general how you are positioning -- how you think you're going to be able to position yourself? I know that your size class is not like the VLGC, but as we've seen in the other shipping classes, there seems to be a knockdown effect regardless of class to some extent.

You are 100% correct. Our rates have no correlation with the VLGC rates. Thank, God, I have to say. Because despite the fact VLGCs today, as we all know, make a lot of money, if you look over the last 10 years, 7.5 of the 10 years that passed VLGCs were losing money and we were making a lot of money.

So there is no correlation, there is no knockdown effect. Our ships are specially designed to be 9.9 meters in length in order to go to the majority of the ports that have 100 meter LOA restriction. For every VLGC that carries a big cargo you need 7 to 9 of our ships to [lighten] it, so I guess it is good news for us.

Our chartering strategy has nothing to do with what the VLGCs are doing. As you can see, the VLGCs are booming and our rates are below the midpoint, so there is no correlation.

All right. And I guess one final question and maybe I can jump in the queue.

What do you think the impact is if there's a cold winter in the US and that increases propane prices here and somewhat lessens the arbitrage shipping used for the VLGCs? Then also any comments on what lower oil prices in the (inaudible) spread, because there's different theories out there and I just wanted to get sort of your comments on that.

For the first one, the impact is close to zero because we don't do the long-haul voyages so if there are less exports in the States for us it makes the difference. Our ships are in the hubs waiting for big ships to come. If the big ships don't come from the States, they have to come from somewhere else -- from Russia, from Saudi Arabia, from Qatar, from anywhere else that is exporting LPG. So that affects the larger ships and not the smaller ships.

For your second question, we believe that the price of oil is -- the lower price of oil is a positive thing. When generally energy sources become cheaper, people are stocking up. You see demand decreasing, you see the cost of voyage charters falling, so all these things, at least for us, are positive.

Okay. That's it for now and I will jump in the queue.

George Berman, J.P. Turner & Co.

Good afternoon. Thanks for taking my call. Couple questions. The decreasing value of the yen, does that help us? Number two, when you scrap or sell the older vessels, would you have a gain on the sale or a loss?

Excellent questions, George. Very interesting questions. The yen, not really because the majority of our contracts are US dollars. So that is your first question.

Second question, depends when we sell, of course, and at what price we sell. But because the ships have 30-year life and we are scrapping them at 24 or 25, I guess it won't be profitable sales.

Okay, thank you.

(Operator Instructions) Keith Mori, Barclays.

Question for you around the market. Rates have stayed low now for pretty much three, four quarters. How much lower do rates have to move before people really start to increase scrapping, maybe start to look at pushing out some deliveries into maybe 2016, 2017, reshuffling the order book here?

Now I cannot answer that question because every company does their own maths and has a different balance sheet. They have different pressures from their lending banks, so I cannot basically answer that.

But if the market falls another 5% to 10% close to the all-time low, I guess a lot of companies that have higher breakevens will have a problem so they will have to sell their older ships. They might have to lay up a couple of ships. They might have pressure from banks to get rid of some assets, even younger ones, to have some cash on their balance sheet. But it's a very theoretical reply, because for every company there is a different kind of equation.

For us, as we discussed, if the market stays as is we will be sending some ships for scrap or selling them in 2015. Unfortunately, Q4 until now when we are nearly, as I said, in the first of December is not panning out like last year's Q4. Rates are softer and that is where we are happy that we have so many ships on period at attractive rates, because otherwise we will have even weaker results.

That's fair. I understand the question is a little bit more academic. I guess the new ships that you are taking on, Harry -- you are taking on six next year. If rates stay low at these levels would you look at maybe contracting them a little bit shorter in tenure to capture some of the more bull market you see in the outer years? Or how should we think about or how you are thinking about those new ships coming online and contracting?

We have already fixed three of the years -- sorry, three of the ships that come next year at quite good rates actually, so we are very happy about that. So referring to the last three ships, I would agree with you, yes. If we don't find good levels for longer charters, we will have to take softer levels for shorter charters obviously, yes.

Okay. Then I just wanted -- last question here on slide 12, you walked through kind of the capital expenditure analysis. You say that 12 of the 16 ships have actually been levered here. Does that mean over the next two years we really should see minimal equity payments, given that the four ships, the 22,000, are the ones that are coming on in 2017 and that's the debt that still needs to be raised here?

If you exclude the equity payments for the four larger ships, then I would agree with you. We have close to zero, not zero but close to zero of equity payments.

Okay. And you have about $125 million in cash. You did allude to the fact that maybe you would look at putting together some new orders or pursuing some second hands I guess. How much capital do you feel you need on the balance sheet to kind of run at?

I said that we have the ability to buy ships if we want, but at the moment, as I discussed previously with your colleagues, it is better to do a share buyback at 50% discount to NAV, obviously. Being conservative we always have a -- by rule of thumb, you always have to have $1 million per ship cash. So let's say we have 60 ships, we have to have $60 million in cash, so basically we have $60 million to play with.

Okay. Thank you, Harry. I will pass it along.

(Operator Instructions) As there are no further questions in the queue at this time, I would like to hand the call back to the host for any closing remarks.

We would like to thank all of you for joining us at our conference call today and for your interest and trust in our company. We look forward to having you with us again at our next conference call for the fourth-quarter results in February. Thank you very much.