Navigator Holdings Ltd (NVGS) 2014 Q3 法說會逐字稿

Thank you for standing by, ladies and gentlemen, and welcome to the Navigator Holdings Conference Call on the third-quarter 2014 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 Commercial Officer, and Mr. Tommy Hjalmas, Chief Operation 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, November 4, 2014, and I now pass the floor to one of your speakers today, Mr. Butters. Please go ahead, sir.

Thank you, Jenny. And good morning, everyone, and welcome to Navigator's third quarter earnings conference all. With me this morning as mentioned is Niall Nolan, our Chief Financial Officer, Oeyvind Lindeman, our Chief Commercial Officer, and Tommy Hjalmas who is overseeing our new building program.

Last night Navigator released its operating results for the quarter ending September 30, 2014. It was a solid quarter quite in line with our own expectations. Earnings per share of $0.43 per share represented a significant 79% uplift over the $0.24 earned in the same 2013 period. It was accomplished, by the way, on a share count that was almost 20% greater. Our third quarter earnings per share also represented a 23% improvement over this year's (inaudible).

Now Niall Nolan will delve more deeply into the numbers and Oeyvind will follow up with a market review. I would like to cover some of the factors that are driving our current and future performance.

The handysized semi-refrigerated LPG tanker market -- we define that market to be between 17,000 and 25,000 cubic meters -- that sector we operate in and we dominate it in terms of market share. And it has currently experienced a good and growing demand for the movement of both LPGs and petrochemical gases. This demand growth is coming from both our traditional international markets, and from a recent activity surrounding the export of shale gas liquids from the United States. The net result is that Navigator operated essentially at full capacity during the quarter with good and improving charter rates. We would expect this firm market to continue into the near and intermediate term. And this is precisely the kind of market that we had hoped for when we agree to acquire the 11-vessel fleet of AP Moeller Maersk some two years ago, just as importantly when we ordered an additional 9 semi-refrigerated vessels. These new vessels are just now beginning to be delivered into this strong market.

At the end of June, the first handysized ethylene-capable vessel, Navigator Atlas, was delivered. While we had full ownership of her during the quarter, she contributed only modestly to the quarter's results as she needed to be ballasted from China to the Middle East, complete her gas trials, and undergo some modest cargo runs before beginning a series of ethylene cargoes that she is currently undertaking. We expect the Atlas to have a more robust impact during the current quarter.

In mid-October we took delivery of the Navigator Europa, a similar vessel to the Navigator Atlas, but again, she will have to ballast, undergo gas, trials et cetera, before she can have a meaningful impact on earnings, but we do expect that to occur in the current quarter or the first quarter of next year.

We expect the Navigator Oberon to be delivered to us early this December, and another similar vessel by mid-January 2015. The last of the ethylene-capable vessels is expected to be delivered next April. Thereafter, the four non-ethylene semi-refrigerated vessels on order will follow and extend deliveries into 2016. We believe these vessels will be coming into a strong market and should provide a catalyst for continued quarterly improvements in charter revenues and earnings.

In addition to the previously-ordered 9 handysize and four 35,000 cubic meter ethane-capable vessels all being built in China, we have just placed an order for two 22,000 cubic meter semi-refrigerated LTG carriers from Hyundai Mipo in Korea at a price of $51 million dollars each. These vessels are expected to be delivered in the first quarter of 2017. We placed these orders against time charters with an initial term of five years, with charters option to extend the charters for an (inaudible) five years, if exercised prior to delivery. The vessels will be built with the latest maritime technologies, maximum cargo capacity and fuel efficiencies, as well as specifications unavailable on much of our existing fleet and required by our charterer. We are especially pleased with these charters since they will provide good term coverage, earnings and cash flow beginning in 2017, extending potentially out to 2027 -- or 2027.

And now I'd like to hand over the call to Niall to review the quarter's financials.

Thank you, David, and good morning. The third quarter's results for the three months ended September 30, 2014 were probably one of Navigator's strongest with charter rates continuing to climb, and Navigator's utilization back up approaching the 100% mark, and above our seven-year average. Operating revenue was up 25% compared with the third quarter of 2013 at $80.6 million. Of this $16.4 million increase, $7.4 million was as a result of the increased number of vessels in our fleet compared to the third quarter of 2013, $5.1 million resulted from an improved utilization rate, and $3.7 million from increases in charter rates, with costs in line with expectations and bank interest reduced as a consequence of prepaying $120 million against one of our bank loan facilities. Net income increased by over 100% to $23.7 million for the third quarter of 2014 compared to $11 million for the third quarter of 2013.

We operated a total of 25 vessels throughout this third quarter following Navigator Atlas's delivery on June 20. This is compared to an average of 21.4 vessels trading during the third quarter of 2013. As I just mentioned, utilization too contributed strongly to these third quarter results with average utilization for the three months to September 30, 2014 at 98.4%, giving utilization for the nine months of 2014 of 98.2%. This compares with only 90.9% for the third quarter of 2013, as we were receiving the various vessel deliveries from AP Moeller Maersk and getting them to work in our own chartering program, and 93.9% for the full nine months ended September 30, 2013.

As David mentioned, since the end of this third quarter, on October 14, a second vessel, Navigator Europa, was delivered from Jiangnan Shipyard in China, and loaded her maiden cargo in Taiwan five days later. This cargo of polymer grade propylene is currently on passage to the US to discharge at Houston. The third vessel, Navigator Oberon, is scheduled for delivery on December 5, and the final two vessels from this series are now expected to be delivered in January and April-May of next year, 2015 respectively.

We announced also, and as David has just mentioned, we recently ordered two semi-refrigerated vessels at Hyundai Mipo in South Korea to construction costs of $51 million each. These vessels are scheduled for delivery in January and March, 2017 the payment profile of which will follow the usual Korean payment terms of five time 20% over the course of the build based on the build reaching pre-defined criteria. Once delivered, they will both take up the five or ten-year time charters mentioned earlier, giving an unleveraged return of just below the mid-teens. Including those two vessels, we have an order book of 13 vessels -- three ethylene or ethane-capable handysize semi refs, four handysize semi-refs without ethylene capability, four midsize 35,000 cubic meter ethane or ethylene-capable vessels, and now these two Korean handysize vessels -- semi-ref vessels.

All vessel dry dockings for 2014 were completed during the third quarter with no further dry dockings required until 2015 during which we will need to undertake a total of eight dry dockings. As I mentioned previously, although all costs of dry dockings are predominantly capitalized and amortized over the period to the next dry docking in five years' time, we do not earn revenue for approximately 20 days per vessel while each vessel is in dock or sailing to the dock from the previous discharge port.

Voyage expenses for the third quarter increased ever so slightly from $13.6 million to $13.8 million. Voyage expenses, however -- sorry, voyage expenses such as bunkers, port costs and canal tows are essentially a pass-through, and therefore should not be interpreted as a cost increase, but only as an evolution of the product mix which allows us to benefit from the increasing rates on the spot market.

Vessel operating expenses, on the other hand, which include costs for crewing and maintaining the vessels on average amount to $7,976 per vessel per day during the three months to September 30, 2014, up 5.6% from the $7,926 per vessel per day incurred during the three months to September 30, 2013.

As with previous quarters, general and admin costs rose approximately $1 million for the three months to September 30, 2014, compared to the same period in 2013 due to the enlarged operations associated with the fleet expansion and additional costs of being a publicly-traded corporation.

Corporate expenses reduced significantly from $1.9 million incurred during the three months to September 30, 2013, to $368,000 during this year's third quarter as a result of incurring project feasibility costs associated with the evaluation of a terminal development during Q3 of last year.

Interest costs reduced by $500,000 from $7.8 million for the third quarter of 2013 to $7.3 million for the three months ended September 30, 2014 as borrowings decreased following the pre-payment of $120 million on one of our facilities on July 7 this year. I mentioned on last quarter's earnings call that this $120 million was prepaid from existing cash balances following last November's IPO, and remains available to the Company to redraw at any time for general corporate purposes. But essentially, these funds will be used for future vessel instalment payments.

EBITDA for the three months to September 30, 2014 rose 46% to $42.5 million, compared to $29.1 million generated during the third quarter of 2013, and also an increase of approximately 10% from the $38.7 million generated during the second quarter of this year.

Finally, net income rose 114.7% to $23.7 million for the three months ended September 30, 2014 compared to $11 million for the same three-month period in 2013. Earnings per share, as David mentioned, was $0.43 for this quarter, based on a diluted weighted average number of shares of 55.6 million compared to $0.24 for the third quarter of 2013 based on 46.3 million shares in issue at that time. As ever, 2013 share numbers are adjusted for the three-for-one share split that was affected in October 2013. And that $0.43 for this most recent quarter compares with $0.35 that we achieved in Q2 2014.

Turning to the balance sheet, cash at September 30, 2014 stood at $57 million, down $102 million from the $159.2 million held at the end of Q2, following the aforementioned $120 million prepayment on a bank loan, and a further $5 million paid to Jiangnan Shipyard as an instalment on one of the handysize vessels.

At September 30, 2014, we had paid a total of $97.5 million in various instalments to Jiangnan, across all of the new bills, and have a capital commitment of just under $700 million for the new build program which includes the commitments on the two most recent Korean LPG shipbuilding orders. Net debt at September 30, 2014 was $382 million, equating to a net debt-to-capitalization rate of only 30.6%. Our average cost of debt is 5.3% which includes the 9% on the $125 million Norwegian bond. This bond matures in December 2017, but has an optional redemption from December 2015, initially at 104% of par.

So all in all, generally, a stronger quarter. And with that, I thank you for your attention and turn you back to David who will open the lines for questions.

Thanks, Niall. I'd like to pass it over to Oeyvind who will give us a flavor of the current markets and the market we experienced in the last three months.

Thank you, David. Just very briefly, today 25 ships. We took two ships on delivery during the quarter. And there's (inaudible) that we maintained our opinion of 70% time charters and 30% spot has been the flavor of the month. And what is kind of new is because of the high utilization, as we've been hearing, we are operating on kind of a two-month forward-looking program. If a charter has a cargo, then we will book forward two months and that shows you the tightness of the market.

Freight rates are creeping upwards, as Niall mentioned, both on spot and time charters. During the quarter, apart from the time charters, we did 23 voyage charters, most of which are in the LPG segment, being LPG exports from the US. We carried a total of 1.5 million tons -- 1.3 million tons being LPG, 200,000 ammonia, and the remaining being petrochemicals. What is interesting is that the Navigator Aruba, once she was delivered from the yard, she immediately loaded a full cargo propylene, a petrochemical gas, from Taiwan to US showing this triangulation effect whereby US is short certain products and long on other products, predominantly being LPG. So the plan is, of course, when the Aruba arrives in the US, discharge propylene, she will be able to reload LPG. And that is the benefit of these sophisticated vessels being semi-refrigerated with or without ethylene capacity to do these kind of trades, to reduce ballast. And it goes to show that it is actually happening. So that's just a short flavor of what has been going on here in the quarter.

Thanks, Oeyvind. Now before handing over the call for a question-and-answer period, I'd like to take a moment to address a question that we have been getting since crude prices broke down. In one form or another, the question is at what price does crude corrupt or influence the slowdown and the momentum of LPG?

For Navigator, this is not a good question and reflects a lack of understanding in the nature of our business, although it may have some small relevance to the LPG shipping companies that operate larger vessels. Now let me explain. LPG shipping has often been described as supply-driven in that LPG being primarily a bi-product of some other activity such as LNG production, oil refinery, or oil and gas production, and as such, have a clearing price that will be close to the marginal cost of production which can be nearly zero. Take, for example, LNG. Typically an LNG production facility, there is about 6% to 8% of the output coming in the form of LPG. The liquid methane, or LNG, is customarily sold under the long-term contracts, and production is not really interrupted by oil price fluctuations. The LPG on the other hand is normally delivered into the spot market. Since LPG by volume is a relatively small component of the overall hydrocarbon universe, and can be used as a substitute for oil and gas as a power generation fuel or a petrochemical feedstock, it will find a clearing price. It will be sold and it will be shipped.

Looking more specifically at the impact that the lower crude prices have had on demand to the shale gas liquids, pretty much what can be said is that if the LPGs are available, they will be moved as long as the infrastructure for their delivery is in place. Unlike LNG where permits and large scale investments are required for both liquefying and gasifying the methane, LPGs are relatively easy to get into the market. Five or six years ago, there was little infrastructure in the United States in place to export liquids. Today there are three active terminals in use, all undergoing expansion, and a number of new ones under construction.

Once domestic demand is satisfied, excess LPG will find its clearing price and move into the international markets. It is probably true that some large greenfield petrochemical projects, let?s say in China, might not be built using imported shale liquids unless there were significant price discounts against locally-sourced hydrocarbons. But this is not Navigator's business. This is long haul business that would be done on very large gas carriers. But I think it's too early to judge if or to what extent crude price [volatility] might have on the BLGC market. But we see no material lessening in demand for our handysize fleet under the current depressed oil prices. And we can talk about that later. But in any event, I'd like to pass the phone back for the Q&A now, Jenny.

(Operator Instructions). Ben Nolan from Stifel.

Thank you. Good morning. I have a few questions and I'll try to -- maybe I'll circle back around if I need to. But with regard to the new vessels that you guys just ordered, was curious if you could maybe elaborate on the dynamics there. Are these vessels materially different from your existing new buildings? Also this is a new shipyard for you guys. Why was the customer interested in putting new buildings on order with contracts as opposed to something that was already available or would be available in the market? If you maybe could elaborate on that a bit.

Thanks, Ben, for the question. But responding to the charterer's interest to maintain the confidentiality of what they're trying to accomplish, so with all due respect, I'd like to pass on that -- details of that question. These are good, very much core type of vessels that we already operate, but design features distinguish them separately from other vessels, and for competitive reasons, they don't want people to know what they're pursuing. Is that fair enough?

Yes. That's fine. And I suppose I'll leave that one alone. Another real quick question, you guys obviously have the one charter and vessel that comes off contract here shortly. Any thinking as to whether or not you will -- we should be modeling to extend that or would you expect to let it go?

Sorry. Would you clarify that a bit? Because -- which vessel you're referring to, Ben.

Yes, what's it, the Maple 3, I believe, that chartered-in vessel.

The Maple 3 comes off charter in January next year, and we do not envision to extend her at any material period. So she, in our opinion, will come off.

Okay. That's helpful. And then could you maybe also, David, talk to -- and you didn't mention it much, but how things are developing on the ethane front? Either for the three unchartered vessels, or potentially larger vessels. I mean, have discussions continued to move forward? Has the falling oil prices changed the dynamic for the ethane trade at all in your opinion? Where do things stand in that respect?

Things are as bubbly as before. We are constantly and regularly in conversations, Ben, across the board, both on 35s and of course in developing a business for the very large ethane carriers.

I detect no serious pushback whatsoever on the conversations or the intensity and interest in customers focusing on importing US ethane. We just came back from Houston last week on a conference, a two-day conference, 400 delegates -- industry delegates, producers, everywhere from Marcellus to Eagle Ford who are producing ethane, and also a myriad of interested parties across the world who are interested in importing that stuff. It was a very vibrant group. We were in intense meetings, and there was a constant level of sidebar meetings with potential users. I detected absolutely no easing or lack of interest in that (inaudible) conversations. My guess is, if I were to guess that within the next six months, we will have solidified our 35s, and believe that within a year's time, and it may take that long, most of the business related to the LECs (inaudible) concluded.

But let me have (inaudible) Oeyvind comment because he and I were both in Houston and -- Oeyvind, would you characterize that the intensity as high level of interest?

Yes. I mean we were one of the sponsors of the conference, Navigator Gas, because it was the first ethane export, US ethane export conference, and we have, as David said, a myriad of meetings, and spin-off meetings from that. But I concur. Both the Europeans, now also South Americans, and also Far Eastern, Southeastern Asia as well, very keen, very interested. But these discussions, it takes time. Why? It's because of lack of infrastructure. So people need to get comfortable with US production levels of ethane, and once they're comfortable with excess of ethane or the export opportunities, and they are agreeing on the pricing formulas with the suppliers, then I think things will happen very quickly. But as David said, it will take over the next six, twelve months for most of the contracts to be done.

One thing was interesting, and I think it might help resolve any issue about where price clearance, or whether the ethane or LPG is coming out of the United States. And I think the incident or the event is right on. Last week, Sasol announced that it was going to build a 1.6 million ton ethylene cracker in Louisiana at a cost of about $8.5 billion. That's pretty significant. And it's especially significant when you look at the total market capitalization of Sasol of around $25 billion. So they're betting one-quarter of their market capitalization against an ethane feedstock ethylene plant in the United States because they believe that ethane is so cheap in the United States, and the products that it will produce will be so cost-advantaged that it can leach into the international markets at a very competitive price. Now I don't think you build plants that take four or five years and cost that kind of money that involve 2,500 welders and so on without having looked over the various hills and valleys of pricing and say where, in four, five, ten years, is the ethane market going to be in the United States. There is a great cost advantage today, and we expect it to be.

So I mean, if they're going to do that, they're going to be importing ethane because it's the same concept of cheap feedstocks feeding into a global business that's priced at a much higher rate. So I think that was very constructive and informative business.

Okay. That's helpful. And then last question from me quickly, Niall, following this most recent order, these two vessels, could you maybe give me some idea of what your capital availability is to build or fund new projects without needing any additional equity?

As before, we believe that we can finance these from existing available cash, new bank loans and cash resources over the period between now and '17.

Okay. Any idea how much in excess of even that for these two might be available for subsequent projects?

Not a lot. These along with the other 11 that we have now on the build will pretty much use up all our equity.

Okay. Very good. That does it for me. Appreciate it. Thanks, guys.

Jon Chappell from Evercore.

Thank you. Good morning, David.

Morning, Jonathan.

I want to ask a little bit more detail around one of Ben's questions, and that's regard to timing of the ethane initiatives. First on the VLECs, you'd mentioned in the conference call over the summer that over the next six months we have a pretty good idea whether you're moving forward or not with this initiative. So I just want to see, has that been pushed back at all given some of the uncertainty in the commodity price world? Are you still having conversations with the shipyards as far as the technology that will be used for the ships? Just trying to get a better idea for timing of any announcements on VLECs.

We're always thinking it's going to be tomorrow, and tomorrow keeps being pushed out. Not that we're losing any business, but it just takes more time, more processing, more reviews by various committees, et cetera, than one would expect. But again, I would emphasize that we do not see that the volatility of the crude price today is going to impact the desire and interest on the part of potential users of VLECs, primarily because we're not talking about major new construction. Greenfield ethylene plants that may, because of the size and magnitudes in say, for example, China, may require a lot of thought process. The projects that we are talking, whether they're in Europe or in the Far East, involve relatively minor modifications, principally, storage facilities and some small modifications. So you're not looking at a very high level of capital expenditures to implement. And again, to me, it's very informative and eye opening to see Sasol take a position to spend that kind of money, because they believe in the long term that ethane is going to be extremely competitive.

So it is not at all off the table by any stretch of the imagination. And I think we're getting closer. I believe, again, that most of the deal, most of the VLEC business will be up and known, the supply contracts signed, the shipping arrangements done within the next 12 months. I think if it's not done in 12 months, it probably won't get done. That's my view because the sense that the urgency is there and the momentum is there. I believe we're in discussions with everybody who's in discussion with the Enterprise with [Targa] for supplies. So we're there, we're working hard at it. I feel reasonably good. I think we have a reasonable chance, but it's still a competitive world out there.

Right. That's very helpful. And then also, I hadn't thought about the talk about the terminal until you brought up the cost -- year-over-year cost of change. Last year you had a fair amount of cost that went into the terminal idea. This year there isn't any. Should that lead us to believe that the terminal is somewhat semi-permanently on the back burner right now, or is it still something that you're looking into?

We're still looking into it, Jonathan. We do have an intellectual and emotional involvement in that concept. We have not given up attempts to be a party to development of the infrastructure that's required to move significant amounts of Marcellus, particularly liquid volume. And we're going to see where it comes through. We're not engaged, however, in major expenditures at the moment. But it's not dead.

Okay. Understood. One last quick one. The returns in your business, as Niall mentioned, with the new builds just below the mid-teens, the contract at the spot market, whatever you want to call it, about $1 million a month, those are pretty compelling returns as well. And you don't have the same volatility that the VLGCs have for all the reasons you spoke about utilization. Do you see the competitive landscape changing at all? Are there new entrants coming into the market and threatening market share or over-capacity?

It's always going to happen. That's always a threat. And we certainly face that. Any time you can make the markets provide you with a good opportunity to make the returns that we are currently making, and it appears that we will be able to continue to make over the next couple of years, that has to open up the eyes of competition who think (inaudible) that they can step in a be part of it. They may be mistaken. Handysize, semi-refrigerated market is a tough market. You have to know what you're doing. The technology and experience and know-how of operating these complicated gas ships is no small task. In fact, for the most part, we do not get long-term charters, and therefore you have to work aggressively into the spot market. That's a challenge.

We are fortunate in being able to build up a sizeable fleet so that we can utilize contract of a (inaudible) and triangulation to improve our returns. Owners of two to four vessels cannot do that. So, you know, life is full of challenges, and markets are always tough and you cannot get high returns without some degree of risk. But I think we're equipped with the talent, the right kind of fleet, and a strong balance sheet that we can meet challenges if they come. And hopefully if it presents a problem, we can turn that problem into our advantage by acquiring vessels down the road at attractive turns. We don't know. But yes, listen, the world is competitive, and we're part of it.

Understood. I appreciate your thoughts, David. Thank you.

Michael Webber from Wells Fargo.

Hey, good morning, guys. How are you? Hey, David, I wanted to follow up on the acquisition that was noted in the release, and then another question on ethane. But I guess first off, on the vessel value, you don't have a lot of great of apples to apples comps. I think the last [deal bonus for a fully-ref asset], but the price looks like it's moved up quarter-over-quarter, even month-over-month. I'm just curious. I know the vessels seem like they're built to spec. Is that elevated price a function of the asset spec or are we just seeing a significant appreciation on asset value because rates are so firm?

Tommy, if you're on the phone, you might comment. Tommy is covering -- he's in the shipyards all the time pricing vessels in Korea and China and so on. So maybe, Tommy, you could comment about what the trend is, generally, on ship pricing, and what kind of new technology is being applied to vessels that might change the price.

Yes. This is Tommy. The gas segment in new building price, there's very few shipyards that are building these kind of ships and the price we see is very, very stable. It does not follow directly the major order books of both carriers and container ships. But the pricing right now is therefore, for our type of high quality, high-end vessels, is good for us as a buyer.

Got you. Okay. I can dig in a bit more offline. I wanted to touch on the charter. So they're pre-chartered for five years, and then there's an option for five additional years. But it looks like a pretty early-dated option if you have to decide by May of '15. I'm just curious to what dynamics kind of drove that early option, and then there's maybe -- how that business came about and whether there's more business along those kind of lines of five to ten-year fixed rate for mid-sized assets kind of floating around out there right now.

Mike, we love you but we're sensitive. We're responding to charterers' requests that most of the details of the charter arrangement and ship design be kept somewhat confidential. And we have to do that. Look, it's good business, solid business returns. It's a business, and the kind of vessel that we know how to operate. It's not out of the woodwork of some unique type of features in it. So could we leave it at that and we'll be happy to --?

No. Fair enough. Just to move on to ethane for a second. I know this has kind of been picked over already. But I just kind of want to be clear, when you're thinking about the opportunities in terms of ethane exports, and you look at the level of rejection right now and the produce kind of tie in, kind of match up with those volumes, you're primarily, you're just talking EPD, target and (inaudible), and if we were to kind of aggregate those volumes, right, so you're not talking anything beyond that, or any additional level of ethane that would be impacted by lower end of year prices that would limit investment and lower rejection. So that's the opportunity set that you're referring to, correct?

Yes. There's plenty of it right now.

I'm just listening to the major producers up in the northeast, if you go on the websites or trying to get all their forecasts about range resources, Taro, Chesapeake, all the boys up there. They're showing very robust growth opportunities in the NGL production, and saying that even gas has been very, very low prices. They'll still drill for NGLs because that pays their bills. So just the northeast alone, very promising. And then you aggregate everything else that is happening in the US and you get significant volumes.

So that has attracted the likes of target resources to look into adding potential [jetty] number 6 with Galina Park using ship channel to add to their tank capacity. (Inaudible) talking about having another 100,000 barrels a day on top of what they have. Other companies as well looking to increase east coast and US coast, and therefore -- and this is a response industry, response to their potentially challenging the lack of infrastructure that's there. The volume has (inaudible) to increase, and therefore they have to have an outlet. And we, being ship owners and the terminal operators, we are responding to this.

Got you. No, that's good color. Especially around the lack of sensitivity to the falling prices. Just one more for me, David, and I'll turn it over. You mentioned a couple of times that there are kind of greenfield projects, specifically within China, and others that might be kind of a lower quality source of demand. And we've seen some VLEC orders that look like they've been placed, possibly on spec or for projects that it's tough to determine whether there's actually been any sort of longer term off-take agreement that's been signed. I guess to your knowledge, do you know if there have been VLEC tie or long-term off-take agreements signed beyond reliance at this point?

I don't know. I mean, I know there was this publicity of some vessels in -- that Hotman and Oriental. But most of that I believe was just all on subjects, I believe, because we're not involved. And the different pieces that have to be put together, of course, with the supply agreements for the ethane which I don't think that's in place now and I'm almost confident it is not. They have to get the financing involving in building the crackers. There's a lot that needs to be done. So I'm not involved. So these are speculative observations on my part.

The only firm one I know would be the Reliants. But the concept of building a major greenfield-type of ethylene plant, or a PDH as a matter of fact right now, my only observation is with the price, one might hesitate, do a little bit more studying, do a little bit more forecasting view of where crude prices, where the spread, the arbitrage would be in four, five, six, ten years from now. Right now, the spread, from everything we can understand, is sufficient to draw most of the business we're talking to, draw it out and create the projects that we're looking for. And I just raised the issue that if greenfield projects were to come out, whether that would be any different. We're not talking -- everything we have been talking about, whether in Europe, or in the Far East, they're all just supplemental ethane projects to existing facilities requiring relatively modest capital expenditures.

Right. Okay. That's very helpful. I appreciate that. Thanks, guys.

Omar Nokta from Clarkson Capital.

Hi, thank you. Hi David.

Morning. How are you, Omar?

I'm good. Thanks. I just had a couple of questions. Not much on my plate. But did want to ask with your comments about the ethylene cracker capacity in the Gulf Coast, any thinking here on the three uncontracted ethane carriers? Any maybe shift in strategy of just foregoing, sort of turning those on long-term charter and maybe just having them trade in the ethylene market on delivery? I know it's still a ways out, but just wanted to get a sense if there's any change in thinking on that front?

So I'll go back and tell you my thinking when we ordered the vessels. When we ordered the vessels six, nine months ago, we were looking at a situation where we had pretty much in line one particular customer and it turned out it was Borealis. And we knew that they were seriously discussing a long-term contract with us for ethane, from the US out of the east coast to their cracker in Sweden. But we were also discussing a number of others with existing petrochemical companies in Europe. The question is do we move forward and exercise the options we have and build those values without the contracts? The thought process we had was the following. Yes, we'd like to do long-term ethane if we can get it, and we think there is a high degree of probability that over six months, so we'll be able to tie down good long-term contracts for ethane movement, and that would be our first choice, and be our first choice because they provide steady, dependable, industrial shipping that adds nicely to the kind of business that we do in the handysize which is predominantly spot business. So that would be great. And we could obviously take that type of stream of income and apply various types of financing from it, whether it be MLP or just stand-alone debt financing, whatever have you.

If that did not work, there is a very strong likelihood that the US will produce some excess ethylene because of the expansions in the Gulf Coast are dramatic. Everyone is expanding or building greenfield ethylene plants and nothing is more dramatic than what I just mentioned is a Sasol, 1.6 million tons. Now it's going to be a lot of ethylene. Now I believe predominantly will be turning into pellets and be shipped out in the form of pellets. But not everything. There will be ethylene export for sure.

Now that will be not long-term charters on that business. Most of the ethylene will go out on spot cargoes, but there will be a regular flow of spot cargoes and I believe with the 35,000 cubic meter you'll get your fair share, if not, more than your share of those cargoes. And you'll get them at a rate that probably is a return much better than what the return you would have got on the long-term ethane, but it would be not secured long-term basis.

The last element that made me comfortable in building the 35s is that if it all failed in ethane, you didn't do that, and if ethylene did not flow out of the United States, what you would have is a very, very flexible and capable sophisticated semi-refrigerated midsize carrier that can carry propanes to butanes and any of the petrochemical gases. It would be the largest petrochemical gas vessel, and there's a business today for that, and we could make very good money today. So there was a series of things that when added up said even without a charter, I'm doing this because it's good business and the downside is nominal at best. But the preference, Omar, is to do the ethane and I'm pretty confident that we'll wrap up those within six months.

Okay.

I'm winded.

No, no. Appreciate it, David. Thanks for the color there. And then just one final question. More maybe micro-specific. Just on the Navigator Atlas, the first ethylene carrier you took delivery of this year. Have you noticed any -- it's still early, presumably, but have you noticed any change or any earnings power difference between this vessel and what you have in the existing operating fleet?

She's obviously a new ship with the latest vessel design, propulsion efficiency, so yes. I mean, she is (inaudible) in terms of running costs -- less running costs. And therefore, if the rates are equal, we will use an older vessel or the new vessel, then the time charter equivalent earning power on the newer one is better.

And do you expect -- and I'll ask Oeyvind a question myself. Would you expect ethane-capable or ethylene-capable vessels to be able to earn more money than the comparable semi-refrigerated without ethane-capable? I think that's the question, Omar, that you want to get to.

Yes. Certainly on the spot market because of these efficiencies. It doesn?t matter about if she is trading LPGs or petrochemicals. But on the long-term, we believe, yes, because (inaudible) sophistication, the lack of ethylene tonnage out there, particularly in this size, and therefore with the glut of ethylene as we discussed. And all of ethane, we believe they will find a very lucrative home.

Okay.

Okay. That's good. Thanks for the time.

Fotis Giannakoulis from Morgan Stanley.

Yes. How are you doing? Thank you. Most of my questions have been answered. But I would like to ask David, what is your view over the US exports the next couple of years? We've been hearing a lot of numbers about the export capacity reaching around 40 million tons in a couple of years. But what would be the actual exports versus export capacity that you are envisioning? And also, given the lower oil prices you implied earlier that there might be an impact on larger vessels because of the potential delay over some petrochemical plants in Asia, how will this change the route direction for the cargoes?

Okay. Well, again for us, for this -- it has no impact what's going on. I mean, to the extent that those PDH plants whatever, and I'm just theorizing. I mean, I don't know if anything will be delayed or cancelled. I just don't know. I'm theorizing, and I was trying to theorizing as to any potential impact on Navigator and I don't see it against Navigator because we don't do that business. It's an Atlantic Basin type of business and it's sophisticated a lot with one product, et cetera.

But I don't know, the numbers are always changing and I cannot tell you what today's potential capacity versus demand for the export facility is. I know that there is no let-up in interest in the people who are expanding their current term link operations. I know that there is no hesitation whatsoever in continuing building the new facilities that are being built. The amount of incremental capacity is significant that's coming out. Most of that is going to be to the benefit of very large crude carriers. It is not necessarily to our benefit although we will be a participant in just about every one of those terminals. But the real beneficiaries are the very large gas carriers. And our business is again, not so US-centric. We have a global business. We move stuff in Northwest Europe, the Far East, Latin America. The US is just one component part of a bigger mix of complicated transport of these petrochemical gases that we move. So I don't know, and I can't give you a specific number for this, but there's more than enough for us to handle and I see no -- again, what I really wanted to stress is I feel no let-up in interest or desire to continue to build and expand the export capacity because it needs to be built and benefit everyone.

And that, I think, Jenny, time is up. And I don't think we can take any more question.

I understand, sir.

And anyone has any further questions, of course, they can call us directly. And thank you for joining us today, and we look forward to meeting you back here in a few months' time.

Thank you very much indeed, Mr. Butters. And with many thanks to all our speakers today. That does conclude the conference and thank you all for participating. You may now disconnect. Thank you, gentlemen.

Thank you.

Thank you. Till we work together again. Bye bye.