Navigator Holdings Ltd (NVGS) 2015 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 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.

(Operator Instructions)

I must advise you that this conference is being recorded today. And I now pass the floor to one of your speakers, Mr. Butters. Please go ahead, sir.

Thank you, Donna. Good morning, everyone.

Welcome to Navigator's third-quarter earnings conference call. As Donna had mentioned, with us today is Niall Nolan, our Chief Financial Officer, and Oeyvind Lindeman, our Chief Commercial Officer, as well as Paul Flaherty.

Both Mr. Lindeman and Mr. Nolan will have some prepared remarks and after which we'll open the call to a Q&A period. As you will have seen from last night's earnings release, Navigator had a relatively good third quarter. Our reported $0.41 per share may not have been up to last year's $0.43, but this year's results carried the burden of the Navigator Aries, which was idle throughout the period.

You may recall the Aries was in an accident, a collision, in fact, with a container ship following its discharge from an Indonesian terminal late last June. Repairs are continuing in Singapore, the cost of which is covered by our own insurance, but we are not reporting any revenue and are running her full daily operating costs through our P&L. All in all, this has likely resulted in about a $0.05 per share penalty against our third quarter results, and will likely have a similar impact on our fourth quarter results.

We expect the repairs to be finished around January of next year and hopefully back in charter with [Kurdemeena] shortly thereafter. Our efforts will continue, however, to seek recovery of the lost revenue from the owners of the container ship that we believe caused the accident. There is, of course, no guarantee of any recovery.

The important takeaway suggested by our third-quarter results is the relative stability of our market, i.e., the handy size semi-refrigerated LPG segment. As we have emphasized in the past, our business benefits from a geographical diversification and that we are not dependent on any one geographical area or country for export volumes, nor are we dependent on any one product. We carry LPG, propane, butane; we carry ammonia and a variety of petrochemical gases.

The rates and utilization of this trade tend to be far less volatile than, say, the very large gas carriers that essentially carry propane from the US or the Mideast to the Far East. This is a large volume business and when export volumes exceed shipping capacity, rates are highly attractive, as they currently are. But when shipping capacity catches up to demand, things change.

Our business is much more different, much different. We do a captive cabotage trade in Indonesia and in Venezuela; a shuttle trade in the North Sea and the Mediterranean; and a fair amount of petrochemical gas business, especially ethylene, out of the Middle East. These businesses give us a more stable level of activity and we believe more sustainability in the long run.

Now, you would not let me leave my prepared remarks without a word on ethane prospects. In short, we have not concluded any further long-term contracts for our three new remaining 35,000 cubic meter ethane carriers currently under construction. We continue to discuss with potential shippers their plans for long-term use of the vessels, with projects they continue to evaluate. Conversations are ongoing between ourselves, the shippers, and methane suppliers, Enterprise and Sunoco Logistics.

Enterprise, as you may have seen a few days ago, announced further ethane sales out of its Morgan Point facility and expressed confidence they will sell out the plant's capacity by next spring. Sunoco Logistics is currently in open season, their Mariner East 3 project or the Mariner East 2X as they like to call it. They have expressed confidence in this project which is expected to be operational around the end of 2016 or 2017. While no specifics have been given, they expect a fair amount of ethane to be shipped on this new line.

We are in discussions with a number of potential shippers who, if successful, will need shipping capacity. Our new ethane ships should be delivered around the time the Mariner East 2 and 3 are completed. We will be ready.

In the meantime, we are currently seeing strong demand for our small handy size ethane carriers for transport of ethylene out of the Mideast, Abu Dhabi and [Rahlese] into Europe. And more importantly, ethylene out of the Gulf of Mexico specifically targets Houston terminal, to Europe and to the Far East. At the moment, there is only one terminal in the United States, and that's Targa, that's capable of loading ethylene.

Currently we have one of our vessels, the Navigator Umbrio loading a full cargo of ethylene at Targa and destined for the Far East. Following its departure, the Navigator Tritan will load. And lastly, the Navigator Europa will load near the end of December. All these cargoes are tentatively scheduled to go to the Far East, where their ethylene has been purchased or will be purchased by local petrochemical manufacturers in replacement of locally-produced ethylene.

These shipments are taking place now on our relatively small 21,000 cubic meter ethane carriers and take over two months to complete. This is obviously good business for us. This trade could not happen unless a significant spread or arbitrage exists between the ethylene costs in the United States, Targa's terminal fees, Navigator's shipping costs, including bunkers, against the locally sourced ethylene. Now, our 35,000 cubic meter ethane carriers will be able to cut the delivered cost per ton quite significantly, so we expect this US ethylene trade to continue, and this is in addition to what we may develop on the ethane exports themselves.

Lastly, I would like to mention the announcement we made early this morning regarding the ordering of a 38,000 cubic meter, fully refrigerated LPG carrier from Hyundai Mipo. While the terms are private and confidential, the new build order is against a long-term charter. The charter is with a highly respected investment grade company that will use the vessel to source material for its own operations.

We will not get delivery of the 38,000 cubic meter, fully refrigerated vessel until August of 2017, but we will begin the contract in mid-2016 utilizing one of our new 35,000 cubic meter ethane carriers as a frontrunner. We expect to utilize the ethane carrier or a substitute for about nine months to a year before converting over to the fully refrigerated vessel.

We believe this business to be highly attractive to Navigator for several reasons. Number one, the charter establishes a secure, predictable level of cash flow and accretive earnings for an extended period of time, balancing the spot business of our handy size fleet. Number two, it provides a highly attractive return on our equity investment in a low interest rate environment with a contract secured by an investment grade credit. Number three, it provides Navigator with a partner and entry into an LPG segment where we have not previously operated, and in a segment with a significant potential for expansion.

With that, I would like to hand the call over to Niall Nolan, who will walk us through the detailed results of our third-quarter financials.

Thank you, David, and good morning.

As David mentioned, Navigator had a relatively good third quarter, generating net income of $22.7 million for the three months ended September 30, 2015, which gave rise to an earnings per share of $0.41 for the quarter. However, there were a few factors affecting these results, which I will expand on in a moment.

Operating revenue for the third quarter was $78.2 million, which reflected a 3% decrease from the $80.6 million generated during the third quarter of 2014, principally as a result of the Navigator Aries and three vessels that were in drydock during the quarter. However, net revenue, that is revenue after deducting voyage costs, was $69 million for the quarter ended September 30, 2015, compared to $66.8 million for the equivalent three-month period in 2014. This increase in net revenue was a result of, first, the increased number of vessels in the fleet, with an average of 27.7 vessels during the third quarter of 2015 versus 25 vessels operated during the third quarter of 2014.

Secondly, rates rose to an average of $31,081 per day, or $945,000 per month for this third quarter against $30,400 per day for the third quarter of 2014, an increase of $681 per day. Importantly, this third quarter rate also reflects an increase from last quarter, Q2 of 2015, which was at an average rate of $30,600 per day.

Unfortunately, revenue and ultimately net income was slightly affected by the decrease in fleet utilization for the quarter, down from an average of 98.4% during Q3 of 2014 to 89.8% for the three months ended September 30, 2015. This most recent quarter's utilization was significantly influenced by Navigator Aries being in repair dock for the entire quarter following her collision in June, which alone reduced utilization by 3.8%, and it will continue to affect performance for the next two quarters, as the vessel is not expected to be back in service until around perhaps the end of February 2016.

Secondly, there were an unusually high number of vessels ballasting to take up time charters during the quarter, which collectively accounted for approximately 3% drop in utilization. And finally, September was a little challenging with a few vessels idle for short periods toward the end of the quarter, which Oeyvind will comment on in a bit later.

With respect to fleet size, we took delivery of Navigator Centauri on August 13, the first of a series of four handy size semi ref LPG carriers from Shenyang shipyard in China. As we mentioned on the previous earnings call, we completed on the sale of Navigator Mariner during the third quarter for $32.6 million cash, which generated a booked profit of $550,000.

$7.3 million of the proceeds were used to pay part of a bank loan associated with that vessel. Navigator purchased Navigator Mariner from AP Moeller-Maersk in September 2013 and during our ownership we generated $12.1 million of EBITDA in trading that vessel.

As was mentioned earlier, three vessels undertook dry dockings during the third quarter at an aggregate cost of approximately $3.6 million. Two additional dockings will be undertaken in the fourth quarter at a combined cost of approximately $3 million and it is expected that six vessels will enter dry dock during 2016, costing an expected $5.5 million in total. All dry docking costs are capitalized and amortized over the period next dry dock, which you will appreciate no revenue is earned for approximately 20 to 30 days while the vessel is in dock, is sailing to or from the dock yard.

With respect to costs, voyage expenses for the third quarter decreased by approximately $4.6 million compared to the third quarter of 2014, but this is effectively a revenue pass-through. The overall decrease is as a consequence of a combination of reductions in bunker prices, as well as a decrease in the number and cost of voyage charters. Vessel operating expenses, or OpEx, increased by 15.6% to $20.4 million for the three months to September 30, 2015, compared to $17.6 million for the same period last year, as the number of vessels in our fleet increased by 11% over that same period.

Our average daily OpEx across the fleet marginally increased by 0.5% to $8,014 per vessel for the third quarter compared to $7,976 per vessel -- vessel per day for the three months ended September 30, 2014. General and admin and corporate expenses remain at approximately 5% of net revenues for the quarter, a similar level to that incurred in the third quarter of 2014.

General and admin expenses have marginally increased over the recent months, as we commenced the process of bringing technical management of our vessels in-house, and this trend may continue into next year. Currently, technical and accruing management is outsourced to three third-party managers and their costs are included within the vessel's OpEx.

Interest costs for the third quarter were $8.3 million, up by $1 million compared to the same period as 2014 as a result of additional bank debt associated with the five new build deliveries that we have taken delivery of over the past 12 months. Net income for the three months ended September 30, 2015, was $22.7 million compared to $23.7 million for the three months ended September 30, 2014, with resultant earnings per share of $0.41, which, as David mentioned, could have been 5% higher, had Navigator -- $0.05 higher, had Navigator Aries been operating at the contractual charter rate throughout the quarter. However, EBITDA for the third quarter rose by 3.5% to $44 million, compared to $42.5 million for the three months ended September 30, 2014, notwithstanding Navigator Aries being out of service for the entire quarter and the sale of Navigator Mariner.

Turning briefly to the balance sheet, the Company maintains a strong balance sheet with cash at September 30, 2015, at $107.4 million, which was bolstered by the sale of Navigator Mariner during the quarter. Debt stood at $614.6 million on September 30, resulting in net debt of $507.3 million at that date.

As I mentioned, we took delivery of Navigator Centauri in August, our third handy size delivery in 2015. The final installment payment of Navigator Centauri represented 80% of the construction costs, with 70% of the construction costs being funded by bank debt.

Our new build order book at September 30, 2015, consisted of nine vessels, five handy sized semi ref vessels and four midsize ethane ethylene vessels, with an aggregate construction cost of $502.6 million, of which $409 million remained payable to the shipyards at that date. Following the delivery of Navigator Ceres on October 21, the remaining eight vessels will be delivered between January 2016 and March 2017. And finally, we expect to enter into a new bank loan facility by the end of this year to finance the last six new build vessels in our program, excluding the new build vessels announced earlier this morning.

With that, I'll hand you over to Oeyvind for some market comments.

Thank you.

Our fleet of 28 vessels completed 144 voyages during the quarter, carrying a total of 1.5 million metric tonnes of gases, consisting of propane, butane, ammonia and other petrochemical gases. Of the 144 voyages, 16 stem from the United States. For us, the proportion of butane of US LPG exports has been on the rise and we believe this trend is here to stay.

Handy size gas carriers regularly transport butane for European petrochemical producers and to Mediterranean and African destinations servicing domestic demand. The latter voyages to Africa are adding common miles to the segment in a meaningful way. On the US East Coast, markets through export terminals had a steady lineup of handy size vessels during the quarter. However, spot volumes were reduced from previous quarters.

It was negatively impacted due to one of the three [jesses] being upgraded for ethane capabilities, which is linked to the Mariner East 1, and also the September stockpiling of volumes in preparation for colder temperatures. I suppose the key natural gas liquids [actors] in the northeast has a mandate to prevent a repeat of low to no inventory should another polar vortex arrive.

Same tendencies were seen across the Atlantic, with buyers scaling back their inventory buildup, adopting a wait-and-see approach to better obtain clarity on pricing trends and local demand. However, the US petrochemical industry is continuing to take advantage of the abundant supply and incredible value of domestic ethane, increasing the cracker base towards a lighter feed and making liquid ethylene attractive to international markets.

There has been no letup for ethylene exports from Galena Park in the Houston ship channel to Europe and Asia. Currently, we have three of our ethylene vessels employed in the US-Asia trade, as David mentioned, which is a nice incremental piece of business for us, and we do not foresee this to cease anytime soon. This will take up additional capacity going forward.

Those were the short comments to me and I leave it to the floor.

Thank you, guys. Donna, you might use this opportunity to open up the call for question and answer.

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

(Operator Instructions)

Your first question comes from Jon Chappell from Evercore. Please go ahead.

Good morning.

Good morning.

David, first question on the rate front. Noticed in the 8-K there was a comment on the third -- on the September quarter results that said there's a relative decrease in cost and duration of voyage charters. I'm just trying to figure that out relative to the rates actually being up quarter over quarter, being up year over year. Is this more the temporary thing where there's a number of short-haul voyages, or is it something that's becoming more of a trend where the longer-haul voyages are becoming shorter and maybe the rates kind of eased into the end of the quarter?

Thank you, Jonathan. Niall or Oeyvind might have a more accurate answer on that one.

The voyage costs are a revenue pass-through. There's nothing particular to glean from this. The reduction in the voyage costs is as a consequence, as I mentioned, of reduction in bunker prices. But also, at the end of September, we probably had more vessels on time charter, or equivalently less vessels on voyage charters, than any time -- percentage-wise, any time ever before. So if all the ships are on time charter, then we would have less voyage expenses.

I understand that. I think I probably phrased my question incorrectly. It says, and I quote: A reduction in operating revenue relating to a relative decrease in the cost and duration of voyage charters. So that was actually the revenue line before voyage expenses. Just talking about a duration -- reduction in duration, that's the first time I've ever seen that in any of your filings.

Sure. Well, we have that finding all the time, but if the voyage costs are reduced, then the revenue that we -- revenue that we need to cover those additional voyage costs is also not needed to be as high.

Okay. Thank you. Another question has to do with the CapEx schedule. Niall, you said there was about $409 million still payable. Can you break that out by year? Also, what's the price of the newbuild that you announced this morning? And what are the terms of that as far as 10-10-10-70 or 5 times 20?

Okay. Well, on the first question we've got about -- well, we had at the end of September about $60 million remaining to be paid of that $409 million in 2015. The lion's share of that is now done because we paid 80%, or $35 million, on Navigator Ceres, which came out in, as I say, October 21. We then got $275 million in 2016.

Again, most of the finance -- most of the installments are biased toward delivery installments, so you would not be surprised that the lion's share of it is on the delivery of the vessels, six vessels we're due to take out next year, 2016, and the $75 million left then to be paid on the two handy-size ships from Korea in 2017.

And that's obviously exclusive of the newbuild you announced this morning?

Absolutely. I was just going to say, that excludes the newbuilds that we referred to this morning.

And how much roughly was that asset?

That --

Jonathan --

Go ahead.

I was just going to say part of the agreement with the charterer coming is that we would try to keep everything as private and confidential as possible at the request of the charterer. You can pretty well guess -- anybody can -- what a 38,000 midsize kind of fully refrigerated vessel, you know, they are running anywhere from $48 million to $55 million, depending upon specs and so on.

And that's kind -- let's leave it with that as a ballpark number for a midsize fully refrigerated vessel. The terms are typical in terms, 20-20-20-20-20. Make sure I get them all in there.

All right. Let me just ask one more strategic question. David, we highlighted, last quarter, your rates continue to just trade within a tight range, not nearly as volatile as anything else in LPG. You've seen, in the third quarter, better year over year, better quarter over quarter -- obviously, despite what's happening in the broader commodity market -- yet the stock price has almost 100% correlation with Brent oil prices and a less than 30% correlation with the actual rates that your ships are earning.

Is there any excess capital or any thought process around buying your own shares at what I would consider to be a pretty attractive price relative to the [steel] you're investing in?

Sure, Jonathan. Look, what we try to do is take our capital and maximize the use of it, pure and simple. Our objective isn't to build anything for the sake of building, to do anything without the -- without a focus on creating value. We talked about this particular vessel that we have ordered this morning. That's the kind of thing I would like to do. The return on our equity is substantial.

Our return on our book equity, for example, if you ex out the amount of money that we have under construction in progress that is not earning money -- in fact it's costing us a bit of money for interest -- our return on equity is roughly 12%. And that is about as high as any shipping company I know. You can compare it with what companies you cover.

That's attractive. That's a ballpark number that I look at and always measure against what we're going to be doing as far as investments are concerned, whether we pay it out, we buy stock, or we invest it in our existing business. In this case, it's highly attractive. The returns that we were going to get from this particular charter where we have a very, very low risk because it's an investment-grade company, is more attractive than what we would have as an alternative.

In addition, it does provide us with a steady stream of income that's independent of markets, that balances the handy-sized spot business that we have, and because of that, it should, by any investment philosophy, begin to give us a greater valuation as far as investment in the marketplace. So I look at what we can do with our money and the best use of the money, maximizing our returns, because that's what our business is all about, and I find it to be -- at the moment, with so many interesting things happening in the structural changes taking place in our segment, to be more effective than that, than simply buying stock, which is -- I agree, I think we misunderstood as a Company because we have no real impact on the price of oil.

We have no impact that we can see, any serious impact on any of the perhaps overbuilt very large gas carrier business. I tried to illustrate that this morning. But we can't fight ignorance. We can't fight market sentiment. It turns negative. What we can do is be intelligent with the use of our funds.

And, in the long run, we'll continue to create good growth for our business, strong earnings and cash flow, and ultimately great value that will be recognized in due course. And that's all we can do. That's what we have control of. And I think what we are doing with our cash makes a lot of sense as we face going forward.

Now, the important thing, too, Jonathan, is that we are in, as I mentioned, not in a cyclical upturn. LPG, particularly the handy thing, we're not going through any cycles at the moment. The oil tankers and dry bulk, they are dancing around cyclical recovery, et cetera.

What is happening in our segment, and I've stressed this before, is the structural change. We're doing businesses that we never did before. We're opening markets that never opened before, all driven by a shift to gas for oil and the development of the United States as a major export of not only the raw material of propane and butane, but in petrochemical gases.

We're building a Company that's trying to anticipate those structural changes, put ourselves in front of that change, and capture the value and earnings that will be materializing over the next few years. And that's our goal. And we will do that by establishing a steady market-oriented business in the handies and a industrial leg through these types of charters that we have announced this morning. It's a long-winded answer.

I appreciate the answer. Thank you, David. Thanks, Niall.

Thank you. Our next question comes from Ben Nolan from Stifel. Please go ahead.

Thank you. I wanted to come back to something that, David, you talked a little bit earlier and I forgot in your prepared remarks, that the number of ethylene cargoes that you're carrying out of the Gulf Coast -- and, obviously, the potential to do more of that when the new ethane carriers come online -- what we've heard is, or I think what is definitely happening is that demand for LNG has been a lot softer in Asia.

But it sounds like you guys are having no problems for carrying ethylene to Asia. Is there a disconnect between the appetite for, say, LNG relative to LPG? Are you continuing to see extremely robust business for LPG into Asia that has been uncorrelated with LNG?

Well, first of all, we don't -- normally we don't carry pure LPG, propane, or butane from the US. Those are the very large gas carriers. The ethane and ethylene is so cheap in the United States. And think about it -- what they can do, what is happening is they are taking ethane in the United States, going through a manufacturing process with the incremental cost to that ethane, packaging it, terminaling it at Targa, putting it on our vessels, and able to ship it halfway around the world in a small -- relatively small, 150,000-barrel capacity vessel to the Far East and make a profit. And we have a rough idea of what the profit is on those trades and it's pretty significant on part of the trader that's doing it.

Now, why is it happening? Because essentially ethane is being given away, so you're only having the manufacturing costs and pushing it through. Ethane is not competitive with LPG at the moment -- I mean, with LNGs because LNGs, the manufacturing costs -- to get the raw material, the manufacturing costs are so high.

So there doesn't appear to be any resistance and we're moving it from the United States. We're moving ethylene from Brazil to the Far East as well. And that's an interesting trade because you don't have, in Brazil, the cheap ethane that you do in the United States. It's a trade that's going to continue.

The economics -- if we go on our very large ethane carriers, not the very large one, but the midsize ethylene carriers that we're building, cuts the cost dramatically to move it, which we don't even have to cut. It's happening now on a small vessel. I think this is one of the most interesting phenomenons and represents what I've said before -- a structural change taking place.

There's more of this coming and really it's -- I can envision, potentially, the market in the Far East not taking ethane, but taking ethylene rather than going through the manufacturing. I don't really care. We're a winner whether it's ethylene or ethane. Our vessels carry either one interchangeably. But I'm sure it will be ethane down the road because they are not going to close down plants just to import ethylene into various countries.

I don't know if that answers the question, Ben, but it is a very powerful phenomenon that's happening that I don't believe is going to let up and then only going to develop more as the US continues to put on additional olefins plants, more and more ethylene plants are being built -- they're coming onstream in 2017, 2018. There will be significant amounts of ethylene. And I have to say that there's got to be more ethylene terminals because it's one relatively inefficient terminal based there in Galena Park.

Okay. And, out of curiosity, I know there are relatively few larger ethylene carriers. Are you guys able to earn a premium on those trades, given your capacity to carry ethylene?

Oeyvind, why don't you tell us how much we make?

Well, Ben, there are no larger ethylene-capable vessels on the water that's available for this trade at the minute, apart from ours. So, as we talked about, carrying 150,000 barrels halfway across the world is rate X and it gives us a return. And then, of course, if you double the size, almost, with our midsize ethane/ethylene carriers, then, of course, we can offer a better economies of scale to the end user of the charter, but hopefully glean more profits for ourselves as well. So everybody wins.

Okay. But currently, with the 150,000-barrel capacity, do you make more on that than you would carrying whatever butane to -- on a regional trade or something like that?

Generally it's the same. But where the value comes in is that if you have an ethylene ship, you are more versatile in terms of picking up backhauls and other things than on a standard semi-refrigerated ship. But generally the rates are the same.

Okay. That's helpful.

The other factor, Ben, is the length of the voyage. Ethylene tends to travel longer distances and, therefore, you've got that for a longer period of time, plus what Oeyvind says, the ability perhaps to bring up backhaul. We have got three vessels, as we pointed out, all sequentially going to the Far East, carrying the ethylene out of Houston. They are going to come back to the US, come back to the West. During that process -- we're going to get paid a handsome rate, whether we come back with something or not.

We're hoping, and this is where the gravy comes -- we're hoping, as we pass through Taiwan or we pass through --from the Mideast that there is a cargo of something that we can pick up and deliver to Europe or bring back to the Gulf. But we don't count on it. We bid the rate that gives us the return we want and anything on top of that is gravy. And, because of the flexibility, we can take just about any kind of product available.

Okay. That's helpful. And then, two really -- two quick ones, hopefully one. Number one is -- and I'll ask them together and you can sort of answer them together, but I know that the bonds said -- the Norwegian bonds are coming due and callable -- well, they're not coming due, but they're callable. Curious, Niall, how you think of those?

And then the second question is, with the lifting of sanctions in Iran, I know that, in the past, they've been a relatively large exporter of petrochemicals. How do you envision changes in the Iran market impacting your -- the market dynamics in your business?

I'll answer the second question. Niall, why don't you give a quick response.

On the bond, you're right. We've got a call at 104 from December 18 of this year or any time thereafter. Certainly the markets -- the debt markets, you'll appreciate, are not kind at the moment, so to refinance at anything sensible is not really available right now and is probably -- I think the combined wisdom is, is not going to be available until at least the turn of the year.

So we'll see. I mean, we're not in a rush to do anything this side of the year end. We'll have a look at it again at the new year to whether we either refinance, repay. I think some of the bond is trading actually at below 104. It was 103 and a few BPS yesterday. We're comfortably watching it, but there's no particular intention to do anything dramatic just yet.

And, Ben, Iran is an interesting place for us. As you know, we haven't been able to operate there. No one -- well, basically very few countries have been able to operate out of Iran. But Iran, above all else, is a major petrochemical producing country and historical exporter of petrochemicals. They have a vast complex in there. It's driven not by oil, but principally natural gas coming from the Paz fields.

They will be in the process -- are in the process of reinvigorating and maximizing the efficiencies of those plants and we would clearly expect some -- after sanctions are lifted, a substantial export petrochemical business coming out of that country. Now, I mentioned that we have got these series of vessels going to the Far East, delivering ethylene and the gravy comes about if we can come back.

I would love to envision that area in our return trips to be able to stop in Iran and pick up propylene or any other particular product that they have available and deliver it to Europe or wherever else it may go. So, I think for companies with the sophisticated vessels such as we have, capable of all of these products and petrochemical gases, Iran shows great promise. And it is particularly nice for us, if we can use that as a way point coming back from deliveries for the Far East.

Okay. Thanks a lot, guys.

All right.

Thank you. And your next question comes from Omar Nokta from Clarkson. Please go ahead.

Good morning, Omar.

Good morning. Hi. Actually, I was just going to ask about the newbuilding charter. Is there any -- obviously, you would be underutilizing one of -- that second ethane newbuilding. But is there any scope for compensation for you to get paid at a rate based off of the construction costs of that vessel versus the lower cost of the standard refrigerated MGC newbuild?

We do have flexibility on what we can do with -- how we can provide the frontrunner. The frontrunner is there for nine months to a year. Oeyvind, why don't you give us an idea of what alternatives might be available to us, should there be such a strong appetite for the ethane carrier?

David mentioned the flexibility of using other ships that are more in tune with that trade. So we keep our options open and when we get closer to the time, we'll decide which ship or ships to deploy. Essentially, we don't want to be in a situation where we have -- our hands are tied for the -- for our second Navigator Eclipse, should ethane or ethylene be in such a demand right at that time.

Right. Okay. I just wanted to ask that. Then just also, back to the -- back to Jon's question about the share buyback. Obviously, I asked last quarter about the potential of a dividend and you had said that there's still opportunities for growth, and sure enough this morning you've announced this newbuilding order against a long-term contract.

Is it -- as we get into next year and you look at the Company and the fleet is going to start to deliver, you're going to get the bulk of your newbuilds delivered by the end of next year. Is a dividend potentially on the table for next year, or is it still preferred not to even address that and, really, full on in growth mode?

Omar, I'm a large shareholder, so I look at it in a selfish way, just as a true investor would be selfish about what the Company should be doing. Two things. Number one, I want -- balance sheet protection is critical to any company in the shipping industry. You guys who have covered it know that well because of the consistent trouble that shipping companies get themselves into for over-expansion or doing some silly things. So, balance sheet will be a focus, always, under my watch.

Number two, we are moving towards what we believe strongly that our ethane carriers will eventually -- hopefully sooner than later -- find themselves a home in long-term charters on ethane exports from the United States. I have no issue about that. That's coming.

When that happens, combined with the kind of contracts we've entered into this morning with the long-term charter, when I take a look at what we have in our sea boot contracts with moving LPG out of Russia, and pretty fairly secure business out of Indonesia, which are essentially long-term charters, I get more comfortable that we are developing a very significant pipeline of undestructible cash flow and earnings. And when I'm comfortable with that, then I think we can be more flexible about our balance sheet and what we do, whether it be buybacks or distributions.

But in the meantime, we are seeing -- and I stress this very importantly -- some very attractive opportunities to deploy the cash in highly accretive and value-creating opportunities, as we move into a continuation of the structural change. I think we would shortchange ourselves -- shortchange you and all the investors -- if we ignored that simply to compel ourselves to walk the line with Wall Street and doing something that temporarily is in favor.

We're going to build a great value, which we're doing. And we're going to return those values to the shareholders in due course, because we are major shareholders, and the Directors of the Company and Management are by far the most significant shareholders. And we like to treat ourselves well.

(Laughter). Thanks, David. It's -- definitely understand the position you're in of trying to balance immediate needs, but also the long-term viability of the Company. That works for me. Thank you.

Thank you, Omar.

Thank you.

(Operator Instructions)

Good. Sounds like --

We have no other questions. Thank you.

Thank you, Donna. And to everyone who has joined us, thank you for taking the time out to listen to our story. And we look forward to being with you again in a few months' time. Bye now.

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