Navigator Holdings Ltd (NVGS) 2015 Q2 法說會逐字稿

Thank you for standing by, ladies and gentlemen, and welcome to the Navigator Holdings Conference Call on the Second Quarter 2015 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. Paul Flaherty, Director of Fleet and Technical Operations 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 that this conference is being recorded today.

And I'll now pass the floor to one of your speakers, Mr. Butters. Please go ahead, sir.

Thank you, Lawrence. And good morning everyone, and welcome to Navigator Holdings second quarter earnings conference call. As Lawrence mentioned, with me today in London will be Niall Nolan, our CFO; Oeyvind Lindeman, Navigator's Chief Commercial Officer; and Paul Flaherty is also with us, Director of Fleet and Technical Operations.

Now, in a moment, Niall will cover the detail of the results of Navigator's recently successful quarter. But overall, revenues were up. Operating income gained nicely and our $0.47 per share of diluted earnings represented a healthy 30% gain over the comparable period a year ago. Our immediate outlook would suggest the continuation of this trend for the remainder of the year, albeit the current quarter will be handicapped by the loss of the Navigator Aries in an accident and the sale of the Navigator Mariner.

That brings us up two recent events worthy of highlighting. The first, of course is the June 28th, when Navigator Aries was involved in a collision following its discharge in an Indonesian port. The Aries, as you may recall, was on a long-term charter with Pertamina. After exiting the port and on her way to the open sea, a passing container ship, the Leo Perdana made an abrupt sharp turn, driving her above into the side of our vessel. The force of the contact cut into the Aries howl and opened a hole in one of the cargo tanks. A fire, lasting over three hours, was put out by the crew and firefighter tugs. We were thankful that no crew member on either vessel was seriously injured and fully appreciate the skill and bravery of our officers and crew on the Aries. Shipping is dangerous profession and we should never forget that. The vessel is currently in Singapore drydock undergoing repairs. Nearly all of the repair should be covered by insurance proceeds, although we will lose the charter hire during this period. We will, of course, pursue claims against the Leo Perdana for the lost revenues, but there is no guarantee that we will be successful.

The second event worth noting occurred just yesterday when we closed on the sale of the Navigator Mariner for just under $33 million cash. The Mariner was one of the older vessels acquired from A.P. Moller a few years ago. We generated excellent cash return since we acquired that vessel. But since we will be getting delivery of two similar size new builds over the next couple of months, we thought it's prudent to make the sale. The new vessels will be higher spec and eco-design. And as you may recall, these new semi-refrigerated vessels have a contract price of around $44 million. I personally think this was a good trade and reflects our commitment to maintain a high quality, technically advanced fleet, while always focusing on capital and about capital management and a strong balance sheet. It is your capital we are managing.

Before passing the call over to Niall, it would be appropriate to mention the status of the US ethane exports. We have no definitive projects to discuss this morning other than to say we continue to have discussion surrounding the long-term use of the 35,000 cubic meter ethane carriers under construction. Our first ethane carrier is expected to be delivered about a year from now and will immediately go on a 10-year contract to Borealis. The use of the remaining three is under discussion with several charters. On paper, ethane exports from US to various global users continues to make economic sense. The issue, of course, is the uncertainty created by crude oil price volatility. We continue to believe that we will see US ethane exports and trade develop, but we will need some degree of stability in crude pricing before long-term commitments can be made. Again, and as a reminder, these 35,000 cubic meter vessels are highly versatile and sophisticated carriers of petrochemical gases. And if we had them today, we are confident, they will be fully employed in the spot market at attractive rates.

Now, I'll ask Niall to run us through the quarterly numbers.

Thank you, David and good morning. Navigator generated a net income of $26.3 million for the three months ended June 30, 2015, which was a record performance for the Company and gave rise to an earnings per share of $0.48 for the quarter or $0.47 on a fully diluted basis. This is the sixth quarterly increase in EPS since our IPO in November 2013. Revenue too was a record for the quarter at $84.1 million, principally reflecting an increase in the number of vessels operated during the quarter, but also as a result of improved charter rates.

The operating revenue for the most recent quarter of $84.1 million reflected a 10.6% increase from the $76 million generated during the second quarter of 2014, and also a significant 13.3% increase from the $74.2 million generated during the last quarter, Q1 of 2015. An increased fleet size compared to the second quarter of last year gave rise to an uplift in revenue of $9.2 million, with 28 vessels owned and operated during the three months ended June 30, 2015 compared to 24 vessels traded during the second quarter of 2014.

In addition, revenue for the most recent quarter increased by $1 million from an improvement of charter rates, which rose to an average of $930,000 per month or $30,600 per day in the three months ended June 30, 2015 from an average of $918,000 per month or $30,200 per day for the comparative three months in 2014.

The utilization rate across the 28 vessels during the second quarter was 97.7%, reflecting consistent strong demand for our handysize vessels in the transportation of LPG and petrochemicals. On April 27, we took delivery of Navigator Umbrio, a semi-ref ethylene carrier, the fifth in the series, taking our fleet size to 28 vessels at June 30, 2015. We have two further semi-ref deliveries scheduled for later this year, the first in a couple of week's time and the second in October. As David has just mentioned, we completed on the sale of Navigator Mariner yesterday, one of our older semi-ref vessels. It was sold for $32.6 million, which will generate a book profit of approximately $600,000. $7.3 million of the proceeds was used to repay part of the bank loan associated with that vessel. We purchased Navigator Mariner from A.P. Moller Maersk in September 2013 and since that time we have generated $12.1 million of EBITDA in trading that vessel.

The average age of our vessels at June 30, if you exclude the Navigator Mariner, was 6.5 years old. Navigator Aries, which is on time charter with Pertamina in Indonesia was involved in the collision, as David mentioned, with a third-party vessel on June 28; and as a consequence, the vessel had to go to dock in Singapore for repairs. Although the duration of these repairs is currently unclear, the lost revenue for Pertamina throughout the third quarter may not be recoverable.

Our new build program consist of 10 vessels, six semi-refrigerated handysize vessels, two of which are scheduled for delivery this year as I have just mentioned, two next year in 2016 and two in the early part of 2017. And additionally, we are constructing four 35,000 cubic meter ethylene carriers due for delivery in 2016 from the second quarter. Two vessels undertook scheduled dry dockings during the second quarter for their 15th year dockings. Five further vessels are scheduled to drydock before the end of this year at a total expected cost of $6.1 million. There have been six vessels scheduled for docking in 2016 at an expected cost of $5.5 million; and in 2017, where we have got a slight reprieve, only one vessel is scheduled for docking at an expected cost of approximately $800,000. As I mentioned previously, the cost of dockings are capitalized and amortized over the period until the next docking, but of course we do not earn any revenue for the 20 days to 30 days, while each vessel is in dock or is sailing into or away from the dockyard.

With respect to costs, voyage expenses decreased by approximately $1 million, although the number and duration of voyage charters were consistent with the second quarter of 2014, this reduction was predominantly as a consequence of the decline in bunker fuel costs. Vessel operating expenses, those that are crew costs, repairs and maintenance, insurance, et cetera, increased 8.5% to $19.3 million for the three months ended June 30, 2015 compared to the same period last year, as the number of vessels in our fleet increased by 15% over that same period. Our average daily operating expenses across the fleet decreased by 9.4% to $7,670 per day for the three months ended June 30, 2015 compared to $8,470 per day for the three months ended June 30, 2014. Interest costs for the three months ended June 30 were $8.1 million, up by $300,000 compared to the same period in 2014 as a result of additional bank loans associated with the five vessel deliveries we have taken over the past 12 months.

And as I've mentioned at the outset, net income for the three months ended June 30, 2015 rose by 33.8% to a record $26.3 million against $19.7 million for the three months of last year; and the resultant EPS was $0.48 this year compared to $0.36 for the second quarter of 2014. EBITDA too, for the second quarter, rose by over 23% to $47.7 million compared to $38.7 million for the three months ended June 30, 2014.

The Company continues to maintain a strong balance sheet with cash standing at $66.2 million at June 30, 2015. Total debt at that time was $607 million. Following the sale of the Navigator Mariner yesterday; on a pro forma basis, cash at June 30 would have been $91 million, debt reduced by $7 million to $600 million, and book equity would be $600,000 higher at $856 million.

During the second quarter, we made approximately $68 million -- made payments of approximately $68 million to the shipyards for the delivery of the Navigator Umbrio and installments on three other vessels. As of June 30, 2015, the total outstanding amounts committed to shipyards was $444 million, payable between now and the first quarter -- the end of the first quarter of 2017. A $278 million bank facility was put in place earlier this year, which includes the financing of the next four vessel deliveries between this month August and April of next year, and we continue to see significant interest from banks to finance our remaining six new buildings. We will be putting finance in place for those six vessels over the course of the coming months.

And with that, I'll hand you over to Oeyvind.

Thank you, Niall. As you've seen and heard, we completed our strong track record of high utilization and earnings during the quarter. Our fleet transported a total of 1.25 million tons of LPG, 145,000 tons of ammonia, and 58,000 tons of petrochemical gases across the 28 vessels. At the end of the quarter, 17 of the ships were trading under term contracts and 11 were trading in the spot market. The latter vessels were concluded for [23] voyage charters, whereof, half of these were scheduled to load from US ports.

Of interest, a couple of trends have manifested themselves during the quarter which are worth mentioning. First, US LPG inventories were steadily increasing during the three months reflecting America's increasing surplus of propane and butane. At quarter end, the inventories reached an all-time high of 80 million barrels, a 30% increase over the five-year average of 60 million barrels. Historically, the LPG buildup is steady during the summer months and peaks just prior winter. However, this year, the inventory buildup has broken new grounds with no easing insight; and we're only in the middle of the summer and still several months to go for which -- before winter kicks in. We all know that US is low on LPG, but this is yet another indicator that LPG exports for America is here today.

Second, during the last earnings call, we mentioned the attractiveness of US produced ethylene to international buyers. Ethylene has continuously been exported mainly on handysize ethylene gas carriers since the beginning of this year and we expect it to carry on into the third quarter, essentially, adding ton-miles to our segment as the receiving customers are located pretty far away in Europe and Asia, so the voyages are long. In parallel, the US produced propylene surfaced on the export market this April and as to date resulted in 15 export liftings from the US basis 4,000 tons to 6,000 tons parcel prices on smaller 8,000 cubic meter to 10,000 cubic meter gas carriers. Generally, once the market is established, we tend to see size creep in terms of quantities shipped. And therefore, we expect a portion of these tons to be moved on handysize vessels in the near future. Both these developments of ethylene and propylene production on the back of multi-billion dollar investments in US chemical infrastructure, a part of the changes taking place in America, which Navigator is and will benefit from. New markets and trade patterns are emerging for the petrochemical trades and we are excited to be able to further develop and capitalize on these changes.

Thank you.

And Lawrence, we can begin the question-and-answer session now.

Thank you. (Operator Instructions) Jon Chappell, Evercore ISI.

Good morning, Jonathan.

Good morning, David. Couple of strategy questions for you and then I'll have a final market one for Oeyvind. First on the strategy in regards to the sale of the Mariner. I also saw, in one of the shipping newspapers, that there may be another older vessel up for sale. I know you can't comment on that specifically, but seeing it's all you have, one 1998 carrier and five other 2000 built carriers, how do you think about taking advantage of that trade opportunity that you spoke about earlier as the new builds deliver?

Well, sure, Jonathan. Our basic philosophy is that we are managers of capital and the capital that we happen to be in charge of happens to be vessels, steel, in this case, that float on the water. The Mariner afforded us an opportunity to sell her with one of the oldest of the A.P. Moller vessels, yet similar, but more efficient, better design and more eco-friendly vessels coming at us in the next couple of months at very good prices. We decided to move that and make the sale particularly since that vessel was going to go into the Indonesian water, replacing an existing vessel that was being scrapped by a competitor of us who was also the buyer of the Mariner. So we took a vessel out of the market, a vessel that we earned substantial cash over the short period that we owned it, sold at nearly the price that we're going to replace her with, with a brand new better vessel and that seem to me to be a good trade, do that on a regular basis and it upgrades our fleet. Now, we do have another vessel, an 1998 vessel on that we also acquired from the A.P. Moller fleet. We have no current intentions to sell her, but should a similar type of opportunity come up, I think, we would consider it. We don't need the cash, we have, as Niall pointed out, pro forma now, we have over $90 million of cash. Our bank debt has been going down. But should something come up, good opportunity, it gives us the kind of returns that we can get with our existing fleet and then kind of new vessels that we (inaudible) we will do that. We are active managers of your money and we will continue to do that, hopefully on an intelligent basis and a profitable one.

It makes sense. Unfortunately, not my money, but I'll keep the point. The other question I want to ask about strategy was just the time charter versus spot mix. I think the last time we got probably a very detailed fleet update, as far as duration of contracts, were probably around the time of the IPO; and as I look at my model, there's a lot of early 2015 exploration. So, is there a lot of kind of rolling over of these recent explorations under one year or shorter-term time charters, how does the mix look today? And then as a second part to that question, what's the spread look like? We kind of get a good idea for what the quote-unquote spot market is, just from ship brokers, but how did the time charter rates compare to the spot market rates in the semi-ref business today?

Yes. I'll let Oeyvind cover that question, Jon.

Hi, Jon. It's a good question, it's a moving target in terms of our view on the coverage. But to the first question, our segment, the handysize gas carriers typically the charter is on a time charter, they are based on a 12-month time charter. And that kind of rolls over from year-to-year. So, it's 12-month duration and that's the standard. Right now, as you heard, 17 are on term and 11 on spot, but that changes from month-to-month. But we would like to, historically -- and our strategy is to be within the 50%, 60% kind of bandwidth in terms of coverage. Time charter today, if you read Clarkson's 12-month time charter assessment, that's about $1 million per month, and spot market in the Atlantic is higher than that. It depends -- it very much depends where the ship come from and so forth to give you an accurate TCE. But in the Atlantic basin, it's higher than the time charter, right now.

Understood. And Oeyvind, since I have you -- this is my last question. In the past, I think in the prepared remarks, there has been some commentary around this, but just to be perfectly clear, the rates that we see in those [broker] reports, $1 million that you talked about have been incredibly steady over the last 12 months to 18 months. In the meantime, obviously the oil price has been incredibly volatile and mostly down, it seems that in vacuums of information, your stock tends to be far more correlated to oil prices than it is to the actual underlying rates that your business earns. So can you just speak to, just for a couple of minutes, how the business is impacted directly or indirectly by oil prices or how it isn't?

Yes. I'll take that and Oeyvind will lend some color, if necessary. I think by now -- I first began discussing the immunity of oil pricing on our business back last November, December, discussing the fact that LPGs are pruning much of a byproduct and as long as the byproducts and some of the activity and has -- provided you have the infrastructure, the pipes, the thermal storage facilities and the vessels. The product will flow from the source, because what we'll be adjusting is the price of the commodity propane, butane. And I think by now after six, seven, eight months of operations and seeing the utilization and increased profitability, I think that thesis that we held out has some (inaudible) that we are basically immune. But I want to add one other thing, that yes we are immune to it and -- but more importantly too, as that we have seen that -- we're actually a beneficiary of lower price of oil and in a preferred sort of way. As the price of the oil has come down, the propanes and the butanes, all LPGs have come down in price as well. As a result, we are opening international market for the US LPGs that we had never seen before. People are buying it in international markets to replace locally or domestically produced LPG or raw materials sourced from crude oil. Those markets, once they open, once you have established trade routes and relationships and -- they tend to stay open. So it's creating a natural beneficiary, the lower price of oil, and it's not a negative. It may be a negative for any one trading day as a trader doesn't seem to be able to make a arbitrage connection, but we have clearly witnessed now, over a long period of time and quite a bit of volatility in crude, that we continue to run almost fill out with good rates, great profitability. And I don't expect to have that any change and I'm delighted to think that as a result of the lower pricing, we're actually opening brand new markets on a global basis that heretofore the United States export market hasn't experienced. And Oeyvind, any other comment on that?

(inaudible).

That's about it Jonathan.

All right. Thank you, David. Thanks, Oeyvind.

You're welcome.

Doug Mavrinac, Jeffries.

Thank you, operator. Good afternoon guys. I just had a few follow-ups. And the first one has to do with, I think the theme of the final question from Jon and that is when you look at oil prices, clearly, what's been affecting oil prices is increasing Middle East production levels. And so my question is, Oeyvind, and we've all been so focused on US production, US exports of liquids, but over the last couple of months, Middle East producers have been really ramping up their production of crude oil. So my question is, have we seen an increase in liquids production as well, and how is, have we seen an increase in the availability of exports and how is -- has that dynamic change potentially affecting the LPG export market?

Well, particularly in Middle East, we have not seen much change over the quarter, whether it's negative or positive in terms of LPG production. We -- right now from the Middle East we tend to do petrochemicals and the local produced petrochemicals there comes from generally LPG and ethane, at least from the sectors we load from. So, I can't really say whether there has been a big impact. However, the thesis is, of course, if you produce more crude oil, you (technical difficulty) LPG and therefore you should have more available for exports, but, yes, we haven't seen any change.

So it's, I mean it makes sense that we may eventually, but it may just be too soon to have seen it just yet?

That's right, I mean, the Indian market which is close to the Middle East that imports a lot of the LPG from Middle East, we've seen a ramp up of growth from the Indians for imports and that must be a sign of it.

Got you. And then just maybe as a follow-up on the base business itself, charter rates have been remarkably consistent, the per day cost have been remarkably consistent. So my only question is, for the balance of this year, are you guys able to provide some guidance as far as off-hire time, or drydocking days for some of your vessels and obviously the one you said that our service is going to be up, are there any other drydocking days that we should be aware of?

No. I mean, we are -- it's Niall. We are -- as I say, we have got five vessels still to go into drydock this year. That's about 20 to 30 days each. Other than that, we don't -- we're not expecting any particular downtime, say, of course for the areas which we've discussed before.

Right.

But no, everything else we're expecting utilization to be pretty much as it has been for the last 10 years.

Yes. Perfect. Thank you, Niall. And then just final question, David. At the very top, you mentioned the ethane export opportunity of the US. Clearly there is lot of volatility in crude, but my question is, and I think, I know the answer but I just wanted to be clear that even though we've seen volatility in crude prices and it may have delayed the long-term supply contracts between exporter and importer, the stuff is still coming, right? And even if it's -- we don't see much of a progress in terms of supply contracts, as long as this is coming, it will have to be moved and maybe it's more spot versus time charter, but people shouldn't assume that there is going to be no work for these vessels, there will be work, correct?

Well first of all, ethane will come.

Right.

You can talk to friends at enterprise and talk to the friends at Sunoco and the massive build-out on their facility at Marcus Hook, for example, to accommodate increases in ethane exports. It will happen.

Right.

And we fully expect that we will find our way into some of that business, it will be long-term and profitable. My point about our 35,000 cubic meter vessels is that, I would love to have those vessels uncharted in our hands today. If we have those, we would make great money. We'd make great money by hauling just the ordinary LPGs, but we are now also experiencing good contracts for moving ethylene. Modest amounts at the moment because the major expansion of ethylene capability in the Gulf Coast area is yet to begin and that won't begin until mid 2017 and 2018, but there is going to be significant amount of ethylene. That ethylene now is going to the Far East and to Europe in both 17,000 cubic meter vessels. Those are very small, handysize and they are going on our vessels 21,000 cubic meter, 22,000 cubic meter. The economics being put on a 35,000 cubic meter ethylene are dramatic. So -- and as Oeyvind pointed out, there is always a size creep and that's happening for petrochemical gases. So, no, as I said, I would love to have those vessels in our possession today, but I believe strongly that we will be drawn into long-term contracts very likely on ethane projects over the next -- sometime over the next 12 months. And I think you just have to wait and be patient. We are and we're not concerned whatsoever.

Right. Fantastic. Thanks, David; thanks, Oeyvind; and thanks, Niall.

Ben Nolan, Stifel.

Great. Thanks. Good morning, guys. Nice quarter. I have actually several questions. The first has to do with, well, actually following up on Doug's question just there. You sold some older vessels that ideally would free up some capital. It sounds like the [35s] have both potential for ethane, but also a lot of optionality for the petrochemical gases or other things. Is that something that, especially with a little bit more capital, you might reconsider placing more orders for something like that?

We will look at it. I don't like to really announce what kind of strategy we want to follow, Ben, I apologize for being kind of obtuse in the answer. But, look, we are in a position with great cash and great cash flow. This business, I think, is going to develop very nicely and I wouldn't be surprised, if we did something of that sort. But I kind of feel that though we should lock in, this is again management of our balance sheet. I would love to lock in long-term contracts on the ethane carriers before committing substantial capital to other projects.

Okay. Well, -- yes, sorry. Along those same lines actually, I was listening to the enterprise call the other day and they said that they're making very good progress in getting -- finalizing their off-take agreements for their big facility in the Gulf Coast. Is it fair to assume, on my part, that they -- given the state of the oil market right now, more than likely any incremental contracts are going to go to Europe rather than Asia or is that not necessarily the case?

The world is a big place, there is also Latin America.

Yes.

So you have European, definitely, I think we're talking to European buyers of ethane and we're talking to Latin American and we're talking to the Far East. So, all those geographical areas have different projects or various kind, remember it's just not petrochemical feed, we're also talking about potential power generation for ethane. So there are multi types of projects available all around the globe. The volatility in the price of oil has just made things a little bit slower in terms of being able to commit on long-term because ethane will be committed on the long-term basis unlike some of the other raw materials.

I think that, Oeyvind, do you have anything to add to that?

[No].

So that's really -- I think one has to be patient. I don't think anyone is walking away from ethane. And, as I said, I'm excited. I remain as fully enthusiastic about the opportunities in the structural change and the global use of US ethane as I did before. And I don't feel as though we are losing out on anything. I mean, I can't point to any project of -- that we wanted to win that we did not win because it just didn't take place. There has been a bit of a slow start. I mean the enterprises still talk about their 80% commitment already on the -- but that's been the case now for six months. So I hope that gives some kind of answer to you.

Yes, that's helpful. And then just two last quick questions. The Occidental facility in Ingleside, Texas, is that now online and am I right in thinking that that's primarily your vessels sort of targeted -- your type of vessels are targeted for that facility?

Yes, the terminal is ready to export ambient propane, which obviously hits the spot with the Navigator. However, the lease that Occidental have with NuStar, the guys who are building the pipeline, they have some two leak in that pipeline NuStar, so they need to run a pick through and make sure that everything is fine before they put product through. So if you look up NuStar, I think, they had a press announcement that the pipeline is ready.

Fourth quarter?

It's ready today, but they need to fix it. So product Occidental likely to be starting to export fourth quarter of this year.

Okay. That's helpful. And then my last question has to do with the changes in Iran. If I'm correct, Iran had historically been a decent sized exporter of LPG and then also petrochemical gases. How do you see the -- an easing of sanctions in Iran impacting your market, specifically for your types of ships, is this a big deal or maybe not so much?

Iran could be a fairly significant deal down the road. As you know, Iran's major hydrocarbon asset that they have is their natural gas. They have [extra-largest] natural gas resources in the world. Historically, they've developed that gas through developing a very strong and very sophisticated petrochemical manufacturing business. That business has been on kind of hold for the last several years. And as the sanctions has bitten in, they will focus on upgrading those facilities and they're going to focus on the export of petrochemicals as a way of currency. I think it could be as important if not more important than oil exports. I think the -- and so, yes, we're excited about that for obvious reasons, we wish them well. We hope to participate, but I think, it's interesting to note that, even if the United States were an outlier and did not approve the nuclear agreement that almost every other country will. And therefore the activity of exports given some time now it takes a little while, six months or a year to get those facilities to be sufficient, as they're capable of. But as other people do and use their vessels, even if we and the United States had sanctioned and if we, at Navigator, were not allowed to call on there. The absorption of vessels in that trade would automatically spread to our vessels with enhanced activity and utilization. So I am particularly pleased with that -- with the outcome and look forward to doing some business there as soon as possible.

Okay. Any order of magnitude in terms of how many tons of petrochemicals might be available in the market?

No, I don't personally and I don't know, if Oeyvind has a fix.

(multiple speakers) they do export some. Today, ethylene, propylene, butadiene, generally to China. So the trade is there today, but I think loosening of sanctions or lifting the sanctions will significantly increase that volume. So any incremental volume in petrochemical exports of seaborne trade has a dramatic impact on freights, why because the voyages are fairly long.

Okay, that's helpful. Thanks guys. And again nice quarter.

Omar Nokta, Clarkson Capital.

Hi. Thank you, guys. Just a couple of questions. One, just wanted to go back to the ethane charters. The MLPs have been under a significant amount of pressure here in the past several months and I was thinking for a while is that Navigator could secure some long-term charters that could be [MLP'able]. Has the market weakness changed all your way of thinking? I know it doesn't sound like it is, but just wanted to maybe ask the question of, do you see yourself at all maybe abandoning the idea of getting into long-term ethane charters and just focusing on at least currently the more lucrative spot ethylene trade? And the reason -- and I ask it just real quick, David, in the past you had said that you'd be sacrificing returns by going into the long-term ethane charters, but that you would at least have a currency for listing, and just kind of wanted to hear how you view that in this environment?

Thank you for the question. Look, I'm not so concerned in creating a vehicle -- a financing vehicle for Navigator. I look at it as, does it make good sense to create a flow of income that can be relied on [hell a lot of water] for a long period of time and attach that to a more speculative spot business that we have in our handysize vessel. To me, a balance of those two trades, long-term ethane contracts or long-term any kind of contracts, whether they just be in LPGs or propane or in ethane or in ethylene, long-term charters of significant size and length, I would like to establish no matter what. I will sacrifice for sure. Short-term income to long-term security, as a way because we have in our handysize fleet, a full exposure to the upside in rates and activity. So I want that balance, but I'm not trying to create an entity simply because of an MLP. MLP maybe one form, it is in vogue at the moment and it can capture more value at any one instant in time. But I'll take a straight deal. I'll be happy with that just in a straight sea corporation. And if we can -- if it makes sense to create that stream of income and put it into an MLP, we'll consider that. But it's -- I'm not driven by the concept of trying to create a financing vehicle, I'm concentrating on good business judgment, securing steady, dependable income stream that balances the more volatile spot business of our handy business.

Yes, that makes a lot of sense. Thanks for that, David. Also just one final question, just on the potential for returning capital to shareholders. Obviously, you're still looking at financing the new builds that come on in 2016 and 2017. What you're thinking about dividends now, especially kind of with how the stock is active, more weak here over the past few months?

Well, as I say, our principal activity in mind is managing the capital of the people who have been trusted us with. And right at the moment, we're flush with cash, there are no major projects that are going to fall into place where we're going to be required to fund, that could had changed almost instantly; but at the moment, that's the case. We're comfortable with looking at the program. We have the capital program that will wrap that up within reasonable amount of time, with bank financing on very attractive terms. As Niall pointed out, people are aggressively talking to us about funding everything that we have under construction at the moment. Dividends are nice, and I think it's one attractive way of compensating people who have entrusted their capital with us. At the moment, however, I'm seeing opportunities, potential opportunities to give us a much better return by using capital in our business. Today, we're earning something over 11%, almost 12% on our equity and that equity is being handicapped at the moment with having about $150 million of construction in progress that not only is not earning money, but is actually costing money. So our return on equity is pretty handsome. Incremental projects are even more interesting and more attractive. So if I can see enough good projects with relatively low risks associated with them, giving the kind of returns that we're achieving and hope to achieve, then I would use that internally. As soon as I feel that we have too much capital and it's imprudent to deploy and building more assets, then I think the dividends become a priority. And I think we'll make that decision here over the next 12 months. But I am not adverse for dividends. I hate to open up the door of dividends because I'll get the call every two months, three months or twice a week, when am I going to pay a dividend. But we have good opportunities right now. I'm excited about the business, I'm excited about our opportunity and the structural changes taking place in our sector that give us -- continuing to give us great opportunity with high rates of returns and as soon as I feel that it's not there, we'll deploy the capital in some other form and return it to our shareholders.

Okay. That's pretty clear for me. Thanks, David. Thanks for the time.

Thanks, Omar.

Fotis Giannakoulis, Morgan Stanley.

Yes. Hello, gentlemen and congratulations for the good quarter. I want to ask also about the same carriers. Obviously the long-term opportunity is still very attractive. But given what is going on in the oil market, are there any potential discussions about delay of the deliveries of some of the vessels until the conditions are better for long-term contracts?

On the contrary, I want them faster. And I had some (inaudible) interest in delaying it. I want them all today. This is a good market. I thought I can just explain, we're not impacted by lower price of oil. It's good business.

No, no. I definitely understand that. But I was wondering because of the long-term contract preference.

No, forgive me now. That's all I can tell you.

Okay. Thank you, David. One last question about the sale and purchase market. Obviously, you have managed to sell this vessel at a very attractive price. But I understand that there might be some owners that they might have financial difficulties from other sectors, particularly the drybulk sector. Do you see any opportunities of taking advantage of this weakness that might be in the overall shipping sector and buying some assets at attractive prices right now?

Look, I'm not interested in the business of shipping as shipping. I'm interested in the business that's taking place today in the global hydrocarbon space of a structural change, taking place particularly in the gas market and especially in the liquid gas market and in the petrochemical gas market. It is a change, a structural change that I've never seen in the past. It is affording us enormous opportunity to invest and create value unlike any time I've ever seen. I have absolutely no interest in moving beyond this little fear that we're dealing with and dealing very successfully in. We dominate it, we have a strong reputation and strong capabilities, technical and commercial. We're going to be in that space and exploit it for whenever it's worth. I don't really give a damn on what's happening in the drybulk, I don't care about the LCCs, I don't care about car carriers. I care about the structural changes and there's enormous, unique opportunity that we have and that we're exploiting. We were one of the first of the movers in this whole space and we have that advantage of the first mover and we're going to stay in this very specialized business and exploit it to maximum abilities to us that we have and the capabilities of our talent that we have around this table.

Just to clarify, I'm talking about acquisition of LPG vessels like the ones that you have, if there are opportunities to acquiring?

There are virtually no opportunities. We have -- we have been the consolidator in the LPG space, particularly the handy semi-refrigerated, the sophisticated part of the LPG space. I have no interest in very large gas carriers. I think that's too simple a business. We are in a business that's evolving. Technically, it's a very difficult business. Commercially, it's more challenging, but those challenges and those difficulties give us a huge competitive advantage and we are exploiting and exploiting very nicely. We know every vessel that we compete against. And with the exception of maybe four or five vessels that are operating in the water today, I have absolutely no interest and you can be assured that those four, five vessels we have already tried to buy. So, no, so, I guess you get the idea. We know what we're doing and we know the vessels.

Thank you very much, David. I think that in the past you had mentioned about other potential LPG related projects like storage and terminal. Is this something under development right now that you can discuss with us?

There is no immediate projects, but it is the reason we've mentioned it before because I'm talking about a business, the LPG business and particularly the complex business that we're dealing with. These structural changes don't just stop with the ships, they flow through all level of activity that we happen to have little tentacles out and we're dealing with. So that if we see an opportunity for storage or transshipment or regasification or any of these sorts of activities that are related to our principal activity of LPG transportation, we will exploit that, because we have a lot of good technical people in our organization that know what's going on. So we would be no adverse to exploring and exploiting those activities, none of which right now around the table and worthy of discussion, but is something that we're not afraid of and in fact we encourage thought process, we pick around various opportunities and try to develop opportunities in that space every day, every week, but nothing at the moment.

Thank you very much for your answers.

Okay. So we have time for probably one more question, if it's available.

Michael Webber, Wells Fargo.

David, (inaudible) ask you when you're going to pay a dividend just to get the [check log] going for you, but I --

Did I have an answer for that?

You did. I wanted to come back and talk about just the two growth avenues for a second because -- you talked a bit about the fact that the stock is not impacted or could potentially benefit from the volatility in crude, but there is an argument you made that what we're seeing in the stock is really the market re-evaluating the risk premium, you want to assign the cash to the streams in this space and whether or not they want to apply growth multiples to the space at the moment. And I guess, if I just focus on the two areas of growth and if we kind of get away from the core business, which has been incredibly stable, I think you just mentioned, I think you were kind of talking in quite about storage with Fotis just a second ago. If I think about the ethane opportunities, can you get a bit granular in terms of talking about the tendering activity right now for those assets? How many tenders and are they from single assets or multiple ships? And then --.

There are no tenders. Basically, there are no tenders, Michael.

Okay.

The projects that people talk about, that they sit with us and map out their outline, the outline of what they would like to accomplish, whether they be in terms of petrochemical feedstock, petrochemical plants ethylene or whatever have you, or they may be in terms of power generation, which is another very active source and uses of ethane. But nobody does a tend -- and these things are workable projects, development projects that a team of people on our side and a team of people on the counterparties trying to work out these types of projects. Nothing is tendered at this time. I mean --.

Okay.

That's okay. I mean, it's a different sort of thing.

Yes, maybe it's just a different nomenclature. But if I just think about, maybe quarter-over-quarter, are the odds of these assets go under period ethane contracts, are they better right now than they were three months ago, the same or worse?

I think, it's about the same.

Okay.

And it's unfortunate, I hate -- it's always around the corner. It's always where we need one more study or we're just wanting to have this thing settled, so we can go to our board or things of that sort. So I don't -- it is as active as ever, as promising as we believe that to be promising in the past. And we are as confident as ever that, that -- this business will develop and continue to develop. But again, Michael, I'm not concerned about that and we have plenty of opportunities to these vessels, no matter what.

And David, you mentioned something earlier that I thought was really interesting and like you say, you wish you had these vessels already delivered and you could be trading them spot. I'm just curious, if you'd -- specifically with these assets, can you or maybe Oeyvind, if you could talk to I guess a relative TCE or relative IRR for these assets trading in the spot market today, if they were going to carry something else. Just how we should think about that, whether they would be at a bit of a haircut to something that's specifically designed for ethane or you talked a bit about parcel side is kind of gaping up as its trades develop and that makes sense. But just, as it stands today, how should we think about the relative TCEs on those assets if they were in the spot market?

Well, I would say that you certainly -- look, we know what a handysize -- a mid-sized propane carrier would be, okay. That would be $1.1 million, $1.2 million, okay. And operating cost on those vessels would be $225,000 a month. So, call it $1 million (inaudible) just argument sake, $1 million a month net EBITDA, if you were hauling propane. And these vessels are far more sophisticated than hauling propane. So that added $12 million a year, Michael.

Yes.

Of EBITDA and I don't intend to haul propane.

Right, okay. I can drill on offline about the relative IRR, (inaudible) coming up off a much higher base in that scenario, but that's helpful. And finally around those carriers, can you talk a bit to financing and what that process looks like right now and when we would expect to see something pick up there?

Niall has been quiet here for the last few moments.

Yes, I know. We're speaking with a number of banks. They're very active and there is a lot of bank finance available for the right companies, which Navigator clearly ticks that box as far as the banks are concerned. All in -- we're looking at over the coming months. I won't say, we'll have it in place by Q3, but we will be a long way down the road by then. All-in cost at the moment is looking like -- based on current LIBOR is looking at like about 2.5%.

Got you. That's helpful. Alright guys. Thank you very much.

Okay. Lawrence, we will wrap things up then. Our time is up. We appreciated your audience today. And again, I stress that today I'm excited about our business. I think it's more promising than I've ever seen. And we'll keep an eye out on the price of oil, because I know you're more concerned about that. Thank you again for being with us.

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