Navigator Holdings Ltd (NVGS) 2013 Q4 法說會逐字稿

Welcome to the Navigator Holdings conference call on the fourth quarter and fiscal year 2013 financial results. We have with us Mr. David Butters, Chairman, President and Chief Executive Officer; Mr. Niall Nolan, Chief Financial Officer; Mr. Oeyvind Lindeman, Chief Operational Officer, and Mr. Tommy Hjalmas, Chief Operating Officer, of the Company. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session.

(Operator Instructions)

I must advise you the conference is being recorded today, Tuesday, March 18, 2014, and I'll now pass the floor to Mr. Butters. Please go ahead, sir.

Thank you, Donna. I'd like to welcome everyone to the first earnings conference call for Navigator Gas. I particularly welcome all our new shareholders who joined us through our November IPO. My brief introductory comments will be followed by a commentary on the fourth quarter operating results by Niall Nolan, Chief Financial Officer, after which we'll open the call to a question-and-answer period. Both Oeyvind Lindeman, our Chief Commercial Officer, and Tommy Hjalmas, our Chief Operating Officer, will be available for the Q&A period.

Now, we finished the year in excellent shape and upon reflection, 2013, particularly a good year for us and with considerable accomplishment and growth. We successfully integrated into our fleet the 11 AP Moller Maersk vessels and agreed to acquire at the end of the prior year a fleet, by the way, often underestimated by financial investors. By the end of the year, we owned 23 handysized vessels and had one additional chartered in vessel under our control.

We organized an international banking syndicate, successfully placing 13.8 million shares with a broad diverse group of investors. The proceeds for the Company, net of all expenses, amounted to approximately $156 million. Now, I understand that the Magazine Marine Money voted us the IPO [deal of the year]. I don't know if we can take that to the bank, but I'd rather have it than not.

We also concluded agreements to construct 10 new vessels including a 35,000 cubic meter ethane carrier, which upon its delivery in mid-2016, would be the largest of its kind in the water. And we further hold options for three additional 35,000 carriers.

We continue to believe that the US is on the verge of becoming a major exporter of ethane and important petrochemical feedstock to any number of European and Far Eastern ethylene manufacturers. At this time, we have no firm charter contracts on these vessels, but we are in active conversations regarding their long-term use.

Now, the first vessel in our existing 10 ship newbuild program. The Navigator Atlas, a 21,000 cubic meter semi-refrigerated, ethylene-capable gas carrier is expected to be delivered late next month, with further deliveries in that program at intervals of between two and three months until the April 2016 date when our last vessel, the 35,000 cubic meter ethane carrier is delivered. At this point in our newbuild construction program, it appears that everything is on schedule and on budget.

Now, two events occurred during the quarter that are worthy of mention that have somewhat of a negative impact on our results. The first was an engine room fire on the Navigator Capricorn as she was loading a cargo of butane in the Baltic Sea. Unfortunately, no one was injured in that fire but the vessel was out of service for repairs and although the cost of the repairs are covered by insurance, we lost 47 revenue days which are not covered by insurance. Again, we are very thankful that no crew member suffered any serious injury in that accident.

The second untimely event was the balancing of the Navigator Leo, one of our two ice-class vessels from Ulsan in South Korea (inaudible) north of St. Petersburg, Russia, where she was to commence a 10-year time charter for SIBUR, a Russian LPG producer. We had planned to return cargo on the vessel upon discharge in Ulsan, but a two-week delay caused by port congestion resulted in our losing the return cargo and having to quickly ballast empty for 41 days through the Suez Canal all the way back to Russia to meet the December laycan.

She, now, along with her sister vessel, the Navigator Libra, is on -- are on 10-year time charters with Sibur. While the first event is a pure accident, possibly caused by human error, the second event that occurred is probably self-inflicted, in that we might have (inaudible) other vessel knowing that the Navigator Leo was going to a time charter halfway around the world shortly after its planned discharge.

But both events show the uncertainty and unpredictability of shipping, especially measured in short, incremental time periods. And with that, I would now like to pass the conference over to Niall, who will review the actual financial performance of the Company during the last quarter and for the full year 2013. So Niall could you --

Thank you, David and good morning to everybody. The past -- as David mentioned, the past year for Navigator was one which saw a marked increase in our level of activity in operations as the fleet grew from 12 handysized gas carriers on January 1, 2013, to 24 vessels in the water at December 31, 12 months later, and that number remains correct today.

For reference, we define handysized gas carriers as those vessels between 15,000 and 25,000 cubic meters, or cbm. In addition, as you will invariably be aware, we completed our initial public offering in November last year with the issuance of 13.8 million shares.

And finally, we have placed 10 newbuilding orders as David mentioned, five 21,000 cubic meter ethylene carriers, four 22,000 cubic meter semi-refrigerated gas carriers, and the one 35,000 cubic meter ethylene carrier, which has LNG propulsion. These vessels are scheduled to join the fleet between next month, April 2014, and April 2016.

With the large increase in the number of vessels joining the fleet during 2013, as a consequence of taking on the 11 vessels from AP Moeller, revenue increased to $238 million, up from $147 million a year earlier. And whilst the majority of this increase was as a result of fleet growth, some of it related to improving charter rates, which increased to an average of just under $860,000 a month, or $28,262 per day during 2013, from approximately $780,000 a month a year earlier in 2012, that being $25,600 per day.

Our vessel utilization reduced from a very high level in 2012 of 99.5% to a lower, but nonetheless respectable 92.9% during 2013 and this reduction was primarily as a result of taking on the 11 vessels from AP Moller Maersk, often in more remote discharge ports and having to sell them to our initial load ports and get them into our chartering program. This had, in a way, a double whammy effect of both decreasing the utilization factor as they were not earning income during the ballast leg to the initial load ports but also it reduced the headline charter rates as we incurred voyage charts -- voyage costs, primarily bunkers and canal tolls in getting these vessels into position.

However, in Q4, as David has already mentioned, we have the two separate instances which reduced utilization. First, a fire on the Capricorn for 47 days which had an effect -- on our potential effect of reducing the potential revenue by $1.3 million based on the average charter rate for 2013, and secondly, with the Navigator Leo having to ballast for 41 days back from Ulsan in South Korea through the Indian Ocean Suez Canal and up to Northern Russia to take on that 12-year charter.

So not only did we not earn income for that 41 days where it was ballasting, but we also incurred $770,000 of costs in sailing to Northern Russia, principally in fuel but also the Suez Canal tolls, which for a Navigator type vessel, costs $150,000 per pass. The principal reason, as David mentioned, on the need to ballast the vessel was that, in part, it was delayed in Korea by 35 days, and that gave us a little opportunity to find alternative cargoes to help on the ballast leg back.

Combined, these two issues reduced utilization by 4 percentage points on Q4 alone, or 1.25% over the full year. Voyage expenses, which increased from $28 million in 2012 to $49 million in 2013, our costs incurred in carrying out voyage charters principally comprising of fuel and bunkers, and canal tolls, and are therefore a factor of the [switch] between time charters and voyage charters. And the increase in voyage expenses are compensated by increased revenue.

Vessel operating expenses, on the other hand, are costs that we incur in running the vessels, being principally crew costs but also repairs and maintenance, insurance and so on. And the average cost per day for one of our vessels during 2013 was $800 -- $8,115, which is up 2.5% from the previous year at $7,916.

Other corporate expenses increased to $3.5 million during 2013, significantly up from the $1.4 million incurred in 2012. However, the majority of this increase, $1.7 million in total, related to project feasibility costs expensed in the third quarter, and these were associated with the evaluation of a terminal development opportunity.

Interest cost rose dramatically from [$8.7 million] in 2013, as debt increased from an average $240 million in 2012 to $575 million at December 31, 2013, principally as a consequence of the $470 million we paid for AP Moller for their handysize fleet of gas carriers.

However, net debt at December 2013 was $380 million following the receipt of proceeds from our initial public offering. And with the exception of our $125 million Norwegian bond, which has an interest rate attached of 9%, our interest charges range between US LIBOR plus 3% and 3.5%. The bond is a five-year -- was a five-year instrument and has initial pull option at the expiry of year two, which is in December of 2015.

EBITDA for the 12 months through December 31, 2013 was $106.8 million, $30 million of which was generated in Q4, despite the approximately $3 million to $4 million reduced effect from the two vessel issues that we both mentioned earlier. This $107 million EBITDA for 2013 compared to $64 million generated in 2012.

Earnings per share for the year to December 2013 was $0.89 based on a weighted average number of 46 million shares compared to $0.82 a year earlier based on a reduced 37 million shares in issue for that previous year. Both of these share numbers take into consideration the 3-for-1 stock split that was effective on October 29, 2013.

Looking now briefly at the balance sheet, the most significant change reflected the initial public offering and the proceeds from it in the sum of $172 million gross, or $156 million after costs. Of course, the acquisition of the 11 AP Moller vessels played its part on the balance sheet, which were delivered between February and October 2013, and the related bank debt that we took on as a consequence of that.

The balance sheet remains very strong and robust, and is important to the Company and to the Board that it remains so, with net debt at $380 million at December 31, 2013, our total debt at $575 million at that date and that equates to a debt to capitalization of 43%. Our total assets increased from $832 million at December 2012 to $1.3 billion at December 2013. We have 10 newbuildings on order at an aggregate contract price of $502 million, the majority of which is payable on delivery.

At December 31, 2013, we had paid a total of $58 million to the shipyard with a total of $190 million to be paid over the coming year as four of the vessels become -- get delivered. Finance is already in place for these initial four vessels at the level of 60% loan to value or construction price.

And finally, the number of shares -- of common shares in issue at December 31, 2013 was 55,326,765, and that number remains correct today. And with that, I will hand you back to our CEO, David Butters.

Thank you, Niall. And Donna, I think now it's appropriate that you open up the conference call to questions and answers.

Thank you very much. We will now being the question-and-answer session.

(Operator Instructions)

Michael Webber, Wells Fargo.

So just a couple questions. I wanted to start with utilization and move on to some new business. But around the utilization impact on Q4, the fire and then the deadhead, certainly seems like it's non-continuing. But can you maybe talk a bit about any bleed through into the first quarter and then what you expect to be the normal run rate through the remainder of the year?

Sure. Maybe Oeyvind can give us a feel, if at all, that has run into the first quarter.

Yes, our target is to be above 95%. And that's been kind of our historic seven-year average, and that's our target. And we are aiming to beat that for our first quarter. And so far, it looks okay.

Okay. So no bleed through in the first quarter that would cause you to miss your target, your internal target and then that's the runway we should use for the remainder of the year?

Based on our seven-year average, that's -- I would kind of use that, yes.

Okay. That's very helpful.

Michael, a little color on that. As you know, with the extreme cold that we had in the United States and the drawdown of propane, both because of the farmer issue during the late fall and then the real cold weather in December, January, you had pretty much of a slowdown in the exports of propane, both in the East Coast and in the Gulf of Mexico. But we were able to offset that with imports.

And so the combination of being able to lose those revenues going out but the ability to bring propane into the United States, principally into Newington, New Hampshire, and Providence, Rhode Island, completely offset those lost exits. We're back with an arbitrage and plenty of propane. And we're back with a normal type of distribution at the moment, with exports reaching what we would have expected them to be.

Okay. So we've already moved that to the normal freighting patterns at this point?

That's correct.

Okay. Great. That's very helpful. And David, I wanted to talk a bit about ethane. I know you get a lot of questions about this and it's still a market that's developing but maybe if we back up and just look at it on a big picture basis, how big do you think that market could end up being?

And then within that trade, we heard about LEGC side, ethane carriers, it seems like an awful large parcel size. Can you talk about where you think the optimum vessel size is for that trade? Now obviously, you've already acquired one but maybe how you see those parcel sizes trending and where you think that the ideal vessel size ends up landing within that ethane trade?

Sure, Michael. I'll try to do that. First, there is an awful lot of conversation going on at the moment. Conversations are being taken place by ultimate users of ethane producers of ethylene, with not only producers of the ethane and the operating mode of -- in the Marcellus and so on but also with the terminal operators.

And they range in every score from European producers to far Eastern producers. The spread that we're talking about remains quite significant, the difference between the ethane price in the United States and NAFTA prices in Europe and NAFTA prices in the Far East and of course, ethane prices, whether they be in Europe or in the Far East.

So we know there are plenty of conversations. We know that ethane rejection is significant. It's difficult to get a precise number, but it may be close to 300,000 barrels a day of ethane being rejected today, which is enormous.

Now, a lot of that is going to wind up ultimately in the domestic market for ethylene production. But a lot of that is going to be produced [and sent into] international markets.

The size -- so I'm not sure, but it could be in the hundreds of thousands of barrels of ethane to be exported over a period of time. And okay, so what kind of vessels? It will depend on, A, where they are going.

Now, clearly if they're going to Europe, you have the potential of very large gas carriers, as you've heard [EXPOT] proclaim that they would like to build. Those large ones can be efficient, can be cost effective, but they also carry with it certain obstacles or problems. [Port] size is one and storage and [receiving terminal is another issue].

Storage is not a simple item. Storage for ethane is expensive because of the boiling point of that and the kind of storage that you need.

So if you have a very large gas carrier, you do have to consider incremental cost associated with added storage. We, in talking with a number of potential customers, feel that the 35,000 certainly can meet a substantial amount of demand and usage within the European space.

In moving to the [Far East] -- going to be moving ethane to the Far East, well, you want to maybe rethink that because of the cost tonnage. Now, there are no very large gas ethane carriers. They do require some difficulties in adjustments. And we will see if that segment develops.

But I think and bottom line, I think there's going to be room for a number of different types of vessels. Volume is significant. Now, I can't tell you when it's all going to begin. I think one has to look very closely and follow the events surrounding Sunoco Logistics, open season, what their Mariner East 2 pipeline that they have announced and in the process.

The Mariner East 1 is designed for both propane and ethane, ethane to begin in the second half of -- the first half of 2016. Mariner East 2, they're still in the open season. That is to close within a week or two weeks, we understand.

We understand also that the delays are all about the expansion of the pipeline to accommodate even more product. And while there's no detail yet as to what products they're going to put in, our suspicion is there is significant amount of ethane to be carried on that pipeline and nominated by producers to be put on that pipeline.

I think following the outcome of that open season, we will -- which could be within the next two, three weeks, we will have a better fix on it. This is a whole new program that's being developed. A whole new export, and a lot of things have to get in place.

First, the producer and the buyer of the product have to work out long-term pricing arrangements. Pretty much, that has been done now. There is accepted formula for it.

They secondly have to find transportation from the field to the terminal site, whether that be on the East Coast or in the Gulf of Mexico, and a number of companies are working on those mechanics. The only one that's really far advanced, of course, is Sunoco Logistics' Marcus Hook facility.

Lastly, they have to -- well, two other things, they have to work, particularly the Europeans, in the design and reconstruction of their ethylene facilities to accommodate ethane and the change from NAFTA. That is being done, we know. And lastly, they have to put in place the waterborne transportation. And they are in discussions with these people at the moment.

Nothing has been firmed up, but we are very hopeful that within the next three months or so, we will have been able to tie down some type of transportation for these 35 that we are contemplating and 35 that we are actually building. I don't know if that's helpful.

It's still developing, and but I'm -- we have the strongest belief that there's going to be a serious market. It will not be the size of LNG. It's not possible to beat the size of LNG. But it does have the elements, the elements of long-term contracts, of the element of being raw material for something bigger.

Yes. It certainly seems like it's pretty MLP friendly. Just one more and I'll throw it over. Just a follow-up on that. In terms of thinking about ethane exports from other markets, other places on the East Coast and we hear a lot more about Europe than Asia.

But if you just had to put a ballpark number on it in terms of what inning we're in terms of securing, seeing the first secured offtake agreement to Europe versus an offtake agreement to Asia, what innings are the various negotiations in, not necessarily with you but maybe just industry-wide? Where would you put that?

I would put it on -- in second base if -- that's appropriate. I would put it certainly on second base. We're off of first base. We know that technically, it can be done.

We know there's plenty of reserves to be sold. We know that there's a pricing mechanism that is acceptable to the producers of the ethane in the Marcellus and Eagle Ford and the rest of them. So that is done. Pipeline in connection to terminals is what is moving very rapidly right now.

Now, but bear in mind, Michael, in the case of [enos], it is already planning substantial volumes to commence in early 2016 at Marcus Hook, so Marcus Hook is well advanced as far as the ability and technical capabilities of moving ethane through that facility. That's going to happen. And it's on schedule as far as everything we know.

Got you.

So it's going to be copied in the Gulf of Mexico. I know Enterprise is keen about it. Target has the ability to do it very easily. It will come out of both the Gulf of Mexico and on the East Coast.

Got you. (multiple speakers)

I think when I see and hear about it, I'm convinced that the Marcus Hook alone could be an ethane export facility and not even bother with propane or butane. That's how significant volumes we're hearing about in the Marcellus can be available for export.

All right. That's interesting. All right. Thank you, David. I appreciate it. That's all I've got. I appreciate the time.

Darren Hicks, Evercore.

Your vessel operating costs in the fourth quarter were a bit higher than our expectations. Were there some unique costs, perhaps with the Capricorn, that you expect to be contained in the fourth quarter? And what should we expect to be the run rate going forward for the fully refrigerated, semi-refrigerated and the ethane carriers as well?

Tommy, maybe you can handle that question.

Yes, hi, this is Tommy from Navigator Gas. The operating cost varies across the shift types and the age of the vessels, and also with the complexity of the vessels. We were -- the more modern or the new ships are running at a lower number, which is around the $7,000 per day mark up to the older ethylene ships, up towards the $9,000 a day mark.

The majority on that is crew costs; 60% over of the running costs of the daily OpEx is crew. And we are using the formula crew where the majority is Eastern Europe crew, Polish or Latvia, and the [ratings] are Filipino.

If our ships are in a niche market and of a complexity that we cannot go with any other mix of crew, and that's basically the answer on your question. Regarding the Capricorn, there is not necessarily any costs which have been put in the numbers for Q4 on the operating cost more than using the time for some additional repairs and services while the ship was off service.

Okay. Thank you. And we're also trying to get comfortable with your forward contract coverage. Are you able to provide us with an update on that? Not sure if you disclosed any specific contract expiration dates or not. I haven't seen anything because it appears you may have secured some additional charters during the quarter. Is that correct?

Sure. Maybe Oeyvind?

In terms of pure availability of coverage, fourth quarter average was 60% TCE coverage. And then at the end of a snapshot, 31st December, 17 out of the 24 ships were on time charters, taking that up to 70%. But going forward, we have an internal target about 70%, plus or minus, so we are comfortable with that going forward as well.

Okay. Great.

Darren (multiple speakers) -- sorry, it's Niall. All of the details of the explorations of the charters are in the 20-F.

Okay. Great. I'll reference that. Thank you very much.

Ben Nolan, Stifel.

My -- I wanted to follow on a little bit with respect to Mike's questions, just in a different vein. I know that you guys, in the past, have looked at participating in a more active way and potentially on the terminal side. Any update on where that is? Is that still something that you foresee potentially branching into or has there been any progress in that regard?

Thanks, Ben, for that question. Again, I would say that the key to -- but first, absolutely, we're interested in that. We're quite interested in guarding our base, becoming more of a logistics player, (inaudible) being involved with our clients and our customers to accommodate the kind of infrastructure and logistic changes that's taking place in the industry.

And we have a lot of technical capabilities and know-how and financial ability to be a participant. Now, from that interest, to get there is a long road. And I think one of the keys that we're looking at is, is the production or the logistics of moving more liquids from the Marcellus to the East Coast.

Again, I would think that we would be looking at how active the Marcus Hooks facility is going to be in the sense of Mariner East 2. When that is completed, what kind of products will be coming out there? How congestion is that whole quarter going to be?

If it is as I expected, going to be very crowded and productive, there need to be more outlets, more pipelines to the East, more terminals to be built, more facilities to be operated. We are talking to people at the moment in how we can be -- how we can facilitate all that change. Again, nothing is tangible, but it's a keen interest development that we're watching very carefully.

Okay. That's helpful. And then as it relates to what that maybe could translate into on the shipping side, if you did -- if there were a terminal of in approximate size of what we see out of some of these, what type of shipping capacity would be needed to service that type of facility?

Maybe Oeyvind would have a better feel of the actual size and volumes of vessels that would be required. Let's assume -- are you talking principally on the East Coast?

Sure. Yes. I would say that probably is for -- and going probably to Europe rather than Asia initially.

Sure. There's plenty of volumes of a new -- as we all know, plenty of new terminals and expansion of existing terminals taking place in the Gulf of Mexico. Clearly, we all know that.

But Oeyvind, give us an idea of roughly what would happen if a new facility along the East Coast with the capacity of $60,000 to $100,000? Remember, markets are probably -- I shouldn't speak, but because it's a Sunoco Logistics operation. 200,000 barrels, 225,000 barrels a day throughput through Marcus Hook would be a pretty significant operation.

Right. And so that would -- how much (multiple speakers) --

And by the way, they're operating nothing -- well, I shouldn't say -- they're very small amounts coming out there now, because the first Mariner East 1 isn't expected to be completed until midyear this year. So Oeyvind, maybe you could follow-up with what I --

Yes. I think just, if you're talking about barrels, US East Coast is, of course, nearer Europe and the Mediterranean consuming markets compared to US Gulf. The only existing export terminal in US East Coast today, as David referred to, is Marcus Hook.

And if you're talking 200,000 barrels, 300,000 barrels a day throughput, you're talking big numbers. Just as a reference, our ships, handygas carriers, we carry 150,000 barrels per cargo per shipment. [VSGC] is about 500,000.

You're talking to introduce efficiency on these terminal projects on the East Coast, you're talking handygas carriers and upwards, in my opinion, going to Europe, going to even to Caribbean, competing with the US Gulf exports for Caribbean markets, South America and then, of course, the larger ships will then head off to Asia, the longer distances.

So I think the cutoff point is below 15,000 cube to 100,000-barrel shipments, and then you go up from there. It all depends on port restrictions on the receiving side. European ports, some of them cannot accept larger ships and so forth. Draft issues, length of row, but it's a host of different factors that will influence the ship size and the exports corresponding to those.

And then on the -- if you have a greenfield or terminal on the East Coast, you're talking about new terminals, it's hugely expensive to introduce chilling -- fully-functioned chilling capacity. So with our ship size, the ships, you can essentially just hook up to the pipe and lower ambient propane and then we become the larger ships so it all depends on the infrastructure, both sides of the pond.

Okay. So just backing into it, if they were, call it, a 100,000-barrel per day ethane export facility sourcing to Europe and it was done on handysize vessels, it might take as many as 20 ships to service that baseline cargo?

Yes. Around voyage then from Marcus Hook to Europe and back is about 20, 22 days. You can factor that in and so you probably get up to the number, you are a bit less than the number you quoted. However, of course, size matters, as David Butters was talking to with Mark Webber on the larger size, the midsize, we're building the 35,000 cube.

I mean, then of course, you've reduced the number of ships needed again. So but I mean it will be heavy traffic on that vein. At least that's our opinion and expectation on the Atlantic -- across the Atlantic, whatever ship size that is. But again, as David said, it is limited by infrastructure onshore.

Okay. That's perfect. And then my last question actually relates to more the market as it stands today. Could you maybe break out what your current split is between carrying traditional LPG versus petchems and how much is the -- are the petrochemical gases contributing to the demand for your assets now and the first quarter thus far?

Yes. At least for fourth quarter and last year, we shipped in total 4.1 million tons of liquid cargoes in total. And that's up by 1.5 million from 2012. Of that, we shipped last year, 325,000 tons of petrochemicals, which is then 8% of the total volume we carried last year.

However, on the revenue side, because typically petrochemicals are longer voyages, transcontinental because we on the largest ships typically doing that, going from transatlantic and over to Asia and so forth. So in terms of revenue, last year, petrochemical, that's 8% in total number of volume, translated 30% of headline revenue compared to -- and then the rest being LPG and minority ammonia, so that's the split we've seen.

But the bread and butter is still remains LPG for consuming markets in terms of energy and petrochemical feedstock. But petrochemicals, as you see on the revenue side, is usually important to us. And that is driven by demand arbitrage across the whole spectrum of products, ethane, we can introduce now. Ethylene, propylene, butadiene, 234, C3, C4 product.

Okay. In that same dynamic, would you say is still in place now in the first quarter?

It varies a lot from quarter to quarter. Just 31st December, we have three ships, also 24 carrying petrochemicals at that time and then one ammonia and the rest in LPG. So we -- I mean, it does fluctuate so it's a bit difficult to say but it is usually important to us.

Okay. That's helpful. Thank you very much, guys.

Omar Nokta, Global Hunter.

The commentary you guys are providing has been very helpful. Just had a couple of quick follow-ups. Regarding some of the ships that roll off charter here, in the short term, you mentioning going up to maybe 70% coverage, in the release, you show that as of year end, the semi-refs vessels are fixed at about $910,000 a month and the fully-refs are at $800,000 a month. Can we expect those types of rates going forward for some of these near-term rollovers or can you give me a sense of where you think that market is currently?

Oeyvind?

I mean, we -- the market growth from the various ship brokers, from Fearnleys, Clarksons, from Gibsons, and so forth that indicates the performance within the segment which also indicates our performance. So our time charter market is short term, as we talked -- as it's 12 months typically.

And they do roll and in a tight market, we expect to get stronger rates. Just a side note, today all the fully-refrigerated ships that we do own, the six, our internal target was to get those ships on time charters. That is now done on a very healthy respectable levels. Why?

It's because those are less flexible in terms of carrying petrochemicals, changing grades, going into LPG and petrochemical trade, so at least that is done and we are pleased with having achieved that. But you're right, in a tighter market, you'd expect the rates to go up.

Okay. That's (multiple speakers) --

And maybe Omar -- kind of what's the current rate leading edge type rate is today in that market.

Yes. Today, the time charter assessment is about $950,000 for a semi-refrigerated 12-month time charter.

Okay. That's definitely higher. Okay, that's helpful. And just on the comments you made about the fully-refs having been secured on charter, I noticed that a couple of them seems that either rolled off at the end of last year, or early this year based off of the table in your filings? Are those -- you're saying those have been extended. Would that be for 12 months basically?

That's the benchmark in our segment. It's typically 12 months. Sometimes it's six plus six, six months up and six, typically 12 months, yes. However, coverage going into 2014 is higher than the coverage going into 2013 from 2012, so we're pretty confident and comfortable.

Okay. Thank you. And just finally, I know, you, David, you mentioned that the newbuilding, the Navigator Atlas that delivers next month, that hasn't been fixed on contract as of yet? Can you give a sense of what you guys are thinking about doing with that shift? Is it that -- do you intend to put that in the spot market from the get-go or are you seeking maybe something along that six months, 12-months type of charter?

I think Oeyvind is working on that now and maybe you can describe where you think that is.

The intention is she's an ethylene carrier or ethylene capable. The expectation and the plan for her is to go into a contract carrying ethylene from the Middle East to Europe. But in order to get her in position because we take delivery in Shanghai, and there is currently and are open for propylene going from Asia to Europe, so I mean, in the short term, we will try to optimize, reducing ballast.

We are indicating on these propylene cargoes from Taiwan, from Korea, to Europe; they are short at the moment. So we'll see whether that flies, but the plan for 2014 for the outlet is to enter this contract that we do already have ethylene from Middle East to Europe.

Okay. Great. Thanks for the help.

Fotis Giannakoulis, Morgan Stanley.

I want to ask you if you can give us a brief update of the LPG freight market and describe us shortly how the seasonality works? And what kind of rates do you see in the market during first quarter? And also, if you can comment about the two 10-year contracts that you signed? And how do these rates compare with the current market given the longer duration of these structures?

Sure. I will answer the question on the two -- I will let Oeyvind give you a flavor of what the current market is. On the two charters with Sibur, they're 10-year charters that we entered into about a year-and-half ago. I think the rate is $780,000 a month. Could you verify that for me, Oeyvind? Seven --

Thereabouts. We tend not to give out individual charter rates, David. And we're bound to confidentiality on that one.

Good. That's why I gave that kind of answer, but why we did that was very simple. These vessels were being built by a third party. And they were being built as ice-class vessels needed for this Russian petrochemical company, Sibur.

We took delivery of -- we were taking delivery of that. And we were approached by Sibur to charter them on the long-term basis. My view was if we did not charter them to Sibur and they were ice-class, then they would have to go out and build those two vessels independently.

And that would add to the fleet, the overall fleet in the handysize vessels and that's something we didn't want. By tying them down on a long-term basis, we prevented that from happening. In addition, it was right around the time when we were negotiating with AP Moller-Maersk for their acquisition in the tune of $500 million for their fleet.

The ability to tie down two vessels long term, secured with a good financial credit, was highly appealing. And that would give us more of the ability to finance the acquisition of the AP Moller fleet. So it's a strategic and very timely move on our part that did two things for us.

It prevented any additional vessels coming in because they didn't have to go out and build ice class, and we provided the platform financing the AP Moller vessels. Oeyvind, why don't you talk about the flavor of the current market and particularly the shifting that is taking place with the cold weather?

Yes, so Fotis, as David, initially mentioned about this reversal of trades, the US typically fundamentally is long LPG. And they were pricing thereafter to sell to create the market to find buyers and then you have this freak Arctic Vortex, several of them, in fact, in the north and mid-continent, reversing the whole trade flow.

Certainly, it was attractive for European importers to export it back to the US, and that created strong demand for shipping. Typically, the handysize cargo, or the quantity that we can deliver was attractive for the US importers because nobody wanted to be left.

So once that changed, the reversal again, nobody wanted to be left with too much inventory for tax. So the freight market was driven up on the spot side going transatlantic reversal propane trade. We did a few -- we did four or five of these spot trades. However, some of our time charter ships also went over there.

So I think for Navigator, I think we, on our ships, on our tonnage, we imported 75% of all the propane that went back into the States and that was lucrative and that was healthy. In general, as I mentioned, the broker assessments on time charters was hovering around $950,000 spot market can fluctuate plus or minus of that depending on trade and opportunity and the time of the day.

But you mentioned that you wanted to shed some light -- for us to shed some light on seasonality. Seasonality is not such a great factor anymore in LPG. It used to be that the winter, a lot of activities; summer, a little bit lackluster. Today, there is so much LPG out there that needs to be moved so it doesn't really matter.

And also in propane is kind of the master product in the winter time because people use it for energy, for heating, but in the summer, we're getting requests now for butane shipments. So butane will take over from propane in the summer. So the seasonality, I would say, is being eroded. And it's even keel on the LPG trade.

Thank you. That's very helpful. Can you also give us a brief update of ethane projects that they are currently under development? As far as I understand, the only contract that has been signed is these fourth set of Locks vessels for the [Locks] but we have heard about the Grangemouth project. Is this something that you are discussing or are there any other projects that you might find as potential source of long-term charters?

I'm going to let Oeyvind answer the question, but let me just make an introductory comment that for this, we are, of course, actively involved in discussions with a number of potential ethylene manufacturers, conversion, and the importation of ethane. And we, of course, respect the confidentiality of those organizations. And they are critical because of their competitive nature (inaudible) producers of ethylene.

But Oeyvind will try to give you so we can't -- have to be somewhat cautious. Please appreciate that.

I fully understand and thank you.

Oeyvind, you might give us an idea of Grangemouth, for example, as a limitation of what kind of vessel can get in there and --?

David spent some time initially to talk about ethane and our view on those developments. However, you mentioned, Fotis, you mentioned Grangemouth and Leman. For Leman, as an ethane -- or ethylene cracker, in Grangemouth, north Scotland, or close to Edinburgh. That cracker importing terminal is situated inside a lot.

Physical limitations, so ever gas, we're building a 27,000 cubic ship. That is the largest in terms of beam that can enter that particular unique port.

Now, we talk about our own 35,000 or midsize ship, that ship can access all other ports in Europe and Mediterranean. The interested parties we talk to are quite keen to learn about the freight economics, the advantages that we can provide in terms of not only that particular ship type, but also our ability to provide a back-up contingency plan if something goes wrong with that ship creating that floating pipeline.

Because we, as you know, we have 10, 21,000, 22,000 cube ethylene ships, the largest fleet out there that can carry ethane. So because of that positioning that we do have and our interest in developing ethane shipping ethane, and our strong balance sheet, we are part of, as David said, numerous dialogues with producers, suppliers of ethane, both in Europe and also in Asia.

Thank you very much. One last question. It's more on your capital structure. You have a very strong balance sheet and obviously, you have some traction with long-term contracts that you can raise a lot of debt.

And the market is booming right now. How are you planning to utilize this cash? I'm talking about apart from further newbuildings. It seems that the secondhand market is very shallow. Are you thinking of potentially buying back stock or giving dividends to shareholders at some point?

Fotis, we just had an IPO. Look, I've never been in a situation with so much potential opportunity. The whole infrastructure logistics, gas, of liquids, is changing, particularly in the United States. All the infrastructure is in an upheaval. And that's why it's taking so long, for example, to move ethane out of the country even though the demand is there and the pricing is there. With a strong balance sheet, with an intellectual and emotional interest in all of these developments in the infrastructure changes, I certainly want to -- and I would hope to find opportunities to expand our business in a broader logistical way.

The first objective, clearly, is to protect our market. Our market is the handysize business, where we dominate right now. We have a strong, very strong position in that. We are going to protect that but we're also -- and there are very few vessel that we could acquire that are in the water today. Just maybe three would be of interest.

So expansion within our own sphere at the moment is limited. Our interest in other sizes is limited with the exception of this industrial type shipping that ethane is. And that's -- will be built upon long-term contracts when we get there. And the infrastructure plays because of pipelines, terminals, those things are up for grabs.

And the people with the interest, with the capability, the know-how and knowledge of handling gases and gas liquids are going to be the players of this. So for the foreseeable future, we're going to keep that balance sheet, keep it strong, and as I look out, that cash position of close to $200 million shouldn't change if we do nothing further. That cash position will stay around.

Now, if we can't find anything, if there is nothing that we can do unusual and exciting and very profitable, then we will consider dividends, or depending on the price, stock buybacks. But because we totally have an interest in shareholders, I mean, there are some large shareholders, including myself, who are interested in the stock and in part of the Company.

And if we can't find intelligent uses of something and give it back to our shareholders in one form or another, but I'm hopeful that we do find some exciting profitable opportunities. And we're working on it, that, I can promise you.

Thank you, David. I appreciate your time.

Anyway, Donna, I'm -- unfortunately, we've run into our hour. And I think we could take one last question if that's available.

Andrew Casella, Imperial Capital.

Most of my questions have been answered but I just had a quick follow-up on the 35,000 cubic carriers you're building. If you could remind us of the economics from a newbuild price and now that you've had some chance to shop that asset around, what kind of return profile you think you could get as far as the rate is concerned on that ship?

Tommy, you might give us an idea of what -- I'm not sure what is confidential or not on that type of vessel, but why don't you give us a rundown of the --

Yes, Andrew, this is Tommy. This is one of the most complex ships in the water which is being built. It's being built with a few LNG propulsion. I believe the question is more kind of cash on cash we're expecting from it. Newbuildings generally would give you 8% to 12% and I think we're in the upper range of that on this particular ship.

I think we're well beyond that, Tommy, but --

Yes. So -- but I didn't read out was that a question if you needed more information on the type of the vessel or --?

No. I just wanted to have you remind us on what's the new build cost of vessel, I think it was $75 million to $80 million, the cash on cash return? And then just what are the expectations for daily vessel OpEx on the vessel?

The normal LPG ethylene carrier today would go $50 million to $55 million. The $35 million would be a premium of, or I can say around about $80 million plus for such a ship.

And the daily vessel operating expense is similar to your consolidated number?

The first three or four years is not dissimilar to the operating costs we have for our existing ships. So around about $7,500 to $8,000 a day.

Got it. Thanks. That's all I had.

I think the best example of the type of business that we think ethane will evolve around, if you look at our GasLog, because that's a public company with good reporting, very clear on what they're doing and returns and so on, that's the kind of business that's secured by long-term contracts and industrial high-cost vessels in unique position, look at that type of company. That's kind of a role model for ethane.

Got it. Thanks.

Okay. Well, thank you, Donna, and you can wrap it up. And I am very happy that you all joined us on this first -- which will be many more earnings conference calls.

Thank you very much. That does conclude our conference for today. Thank you for participating. You may all disconnect.