Navigator Holdings Ltd (NVGS) 2016 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 2016 financial results. We have with us Mr. David Butters, Chairman, President and Chief Executive Officer; Mr. Niall Nolan, Chief Financial Officer; Mr. Oeyvind Linderman, Chief Commercial Officer.

At this time, all participants are in a listen-only mode. (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, Melanie, and good morning and welcome to Navigator Gas third quarter earnings conference call. In London with me today is Niall Nolan, our Chief Financial Officer and Oeyvind Linderman, our Chief Commercial Officer. Both gentlemen will have comments on the quarter's results following my introductory remarks. Q&A will follow.

During our second quarter conference call we discussed the deteriorating LPG trade, which began earlier in that quarter. Among those factors that we mentioned were the global glad of cheap hydrocarbons, the sluggish world economy and unlimited amount of LPG exports out of the US East Coast, as Sunoco Logistics began exports of contracted ethane volumes to out of markets and pushing out LPG volumes. These factors continued to pressure our handy markets throughout the third quarter and in fact may have accelerated.

It is a tribute to our flexible vessels and our keen focus on our chartering strategy that we were able to generate a positive $30 million of EBITDA and $0.12 per share of earnings for the quarter. While we do not consider the quarter's financial results to be in anyway satisfactory, we believe progress has been made in building a commercial platform to capture and maintain a dominant position in the growing petrochemical gas market.

Navigator's transition from being an LPG dependent transporter to a broad-based shipper of LPG and petrochemical gases can be seen in the growth in our revenue generated solely by the transport of petrochemical gases in the third quarter which amounted to 45% of our overall revenue contrasted against our first quarter when petrochemical gas transport amounted to only 20%. Oeyvind Linderman will follow with a more detailed discussion on this phenomenon.

We were able to adjust to the changing market environment because of the flexibility of our handysize semi-refrigerated and ethylene capable vessels and the talented group of commercial team backed up by a superb operational staff.

Looking further ahead, we expect a difficult market for LPG transport to continue offset to varying degrees by a continuation in the growth of petrochemical gas transport. We note with particular interest the ongoing expansion taking place currently within the US in olefins manufacturing capacity, principally ethylene, by nearly a dozen companies. This expansion represents nearly a 50% increase in America's capacity to produce ethylene. The first of the major plants is expected to be operational by the middle of next year.

The great majority of this incremental capacity is expected to remain in the US and be further upgraded into polyethylene, ethylene, glycol, ethylene oxide, et cetera. We do expect, however, that producers will earmark a portion of their incremental ethylene supply for the export market, provided that sufficient infrastructure to move and store the product is built.

Critical to this potential trade is the need for a specialized ethylene terminal capable of maintaining the liquid at a minimum of minus 103 degree centigrade. While we know of no company that has yet been committed to build the required infrastructure, Enterprise Products Partners has publicly mentioned their interest in doing so on several occasions. Their decision will undoubtedly be determined on the amount and quality of the contracted commitments to utilize such a specialized facility.

Looking at it from a macro perspective, it would seem quite logical that some midstream company will opt to build the first mover -- be the first mover and build the necessary facilities to create a smooth economic outlook tor the wave of ethylene coming seeking an international market.

We believe the Navigator is now positioned in a unique and enviable place and we have gotten here not by accident. We always believe that the wealth of cheap hydrocarbons in the United States provided a great opportunity for our country not only to become energy self-sufficient but also provide the engine that would drive our manufacturing segment to much higher levels. One of the most immediate beneficiaries is the petrochemical industry.

With the timely application of new drilling technology, including hydrofracking, America discovered vast amounts of natural gas, oil and natural gas liquids. Initial assets to exploit this wealth was directed towards exporting these raw materials to international markets where they would be processed into intermediate products. But, of course, the export of raw materials to industrial nations is a third-world activity. Developing economies such as the US would naturally move eventually to upgrade and process the raw materials locally, use them locally, and export the value-added surplus to other industrial nations.

This is exactly what is happening in the US. The first wave of propane exports principally carried by very large gas carriers was an easy first step in exploiting America's new found wealth. We are now well into the second and more important step of processing these hydrocarbons, creating new jobs and local industrial activity while at the same time capitalizing on foreign appetite for upgraded processed hydrocarbon such as propylene, butadiene and of course ethylene.

We have built the fleet of technically complex vessels that can carry these products and also have built our operation and commercial staff experienced in handling these complex cargos. We must wait, however, until the petrochemical plants come on stream and adequate export infrastructure is built. To paraphrase Jim Teague, the Chief Executive Officer of Enterprise Products Partners at his last earnings conference call, the ethylene export project is gaining traction, but it is not going to go fast, but it will go. Navigator knows only too well how slowly these projects move, but we too are confident that they will move.

And now, I'd like you to cover the financial details of the last quarter.

Thank you, David and good morning. The revenue for the quarter ended September 30, 2016 of $69.7 million continue to be affected by the weak LPG market, decreasing by $2.8 million or 3.9% from revenue generated during the second quarter of this year and a reduction of $8.5 million or 10.8% from the $78.2 million generated during the three months ended September 30, 2015.

Net revenue, that is revenue less voyage expenses, decreased by 16% or $11.1 million to $57.9 million for the quarter compared to $69 million generated during the third quarter of 2015. The decrease in net revenue was primarily as a result of the reduction in charter rates. The average charter rate for the three months ended September 30, 2016 reduced to $22,975 per day or $699,000 per month from an average of $27,233 per day during the second quarter of this year and from $31,081 per day during the second quarter -- the third quarter of 2015. This has the effect of reducing net revenue by $20.8 million for this third quarter compared with the same period last year.

Vessel utilization was 88.1% for this third quarter, which is a slight reduction from the 89.8% achieved during the third quarter of 2015. But a modest improvement from the 86% achieved during the second quarter of this year.

Our fleet now stands at 33 vessels following the delivery earlier this year of two handysize semi-refrigerated LPG carriers and two mid-size ethane ethylene carriers. The average age of the fleet at September 30, 2016 was 6.6 years. The latest newbuilding to be delivered, our second mid-size 37,000 cubic meter ethane ethylene carrier, Navigator Eclipse, was delivered since the quarter end on October 8. This vessel will enter a nine-month charter later this month to act as a frontrunner for Navigator Jorf, which is expected to be delivered in July 17 and has been fixed on a 10-year charter trading in the Mediterranean.

We now have five newbuild vessels remaining in our newbuilding program, three of which will be employed on long-term charters once delivered. These newbuildings are scheduled to be delivered between January and July 2017. As I referred to on the last earnings call, we completed the seventh and final drydocking for 2016 early in the third quarter and we do not have any additional drydocking scheduled for the remainder of this year nor any drydocking scheduled for 2017. The next scheduled drydockings is therefore early in 2018 a year in which we expect to drydock seven vessels. Voyage expenses for the quarter were $11.9 million, an increase of $2.7 million from the $9.2 million incurred during the third quarter of 2015. Voyage expenses are pass-through cost caused by changes in the charter mix between time charters and voyage charters with revenue compensating for any increase or reduction. At September 30, 2016, we had 15 of our 32 vessels on time charter, three further vessels on contract of affreightment carrying ethylene from the US to China and the remaining 14 vessels trading on the spot market, transporting principally petrochemicals, but also some LPG.

Vessel operating expenses or OpEx increased by 8.6% to $22.1 million for the three months ended September 30, 2016, compared to $20.4 million for the comparative period of 2015 as a result of additional vessels joining the fleet. Our daily vessel operating expenses reduced to $7,601 per day during this quarter, taking the average for the nine months ended September 30 to just over $8,000 per day. This compares to $8,000 a day for the third quarter of 2015 and is a reduction from the $8,445 incurred during the second quarter of 2016.

During the third quarter, we submitted the final Navigator Aries insurance claim in the sum of $9.5 million relating to the June 2015 collision. The cost for the vessel's repair and therefore the claim from the insurers was $500,000 less than previously estimated. And as a consequence and rather strangely under US GAAP this $500,000 was written off in the income statement to reflect this reduction. A part payment of this claim in the sum of $4.7 million was received from the underwriters in March 2016. But as the claim has now been formally agreed by the underwriters, payment of the remaining part will be forthcoming during the fourth quarter. The claim against the vessel that collided into Navigator Aries, including a claim for [loss of part], is currently with courts and will invariably take significantly longer to conclude.

Interest costs for the quarter were $8 million, up $830,000 compared to the same period in 2015, primarily due to additional bank debt associated with four newbuild vessels delivered since September 2015.

EBITDA, as David just mentioned, was $30.4 million for the third quarter compared to $44 million for the same quarter in 2015 and net income for the three months ended September 30, 2016, was $6.5 million or an earnings per share of $0.12, compared to net income of $23.8 million for the same period in 2015 giving an earnings per share of $0.43 for the third quarter of last year.

The Company continues to generate cash from operations with approximately $20 million generated during the third quarter. The Company ended the quarter with a cash balance of $49.8 million. Total debt at September 30 stood at $697.2 million. This debt included two bank loans that are due to mature in April 17 having an aggregate balance at September 30 of $142.6 million. Since the quarter-end we've entered into a new loan facility to refinance these two loans. The new loan amount is for a total of $220 million, $185 million of which is for the refinancing of the expiring loans and provides an additional $42 million for general corporate purposes and the remaining $35 million relates to delivery finance of up to 70% of our final newbuilding Navigator Jorf.

The loan is a seven-year facility, bears interest at US LIBOR plus a margin of 2.6%, which is less than the margin of 3% and 3.375% of the two expiring loans and the new loan is secured on nine existing vessels, as well as ultimately Navigator Jorf, when she is delivered in July 17.

With respect to the Company's $125 million unsecured bond listed on Oslo Bors in Norway, this has a maturity of December 2017. The Company has an option to redeem this bond, currently at 104% falling to 102% next month. We are continuing to evaluate refinancing options which entail whether to refinance the full $125 million, a part of it, or to simply repay the bond from available cash resources in December 2017.

Finally, at September 30, 2016 our aggregate contractual commitments to the shipyards across the remaining then six newbuild vessels was $246.1 million against which bank facilities exist to provide up to $258.4 million on the delivery of these vessels. I will now hand you over to Oeyvind Linderman.

Thank you, Niall and good morning everyone. During 2013, 2014, 2015 Navigator's core positioning in owning and operating complex sophisticated gas vessels with a capability to carry all grades at varying temperature was, to a large extent, lost as the majority of our earnings was linked to booming LPG market. 85% of the cargos we carried during the last three years were propane and butane, 10% ammonia and the remaining 3% to 4% petrochemical gases. For Navigator Gas, this is now dramatically changing. The single most important shift in 2016 has been our ability to utilize and take advantage of our core positioning, our capability to switch between grades and trade lanes.

Year-to-date, the petrochemical proportion of volume carried has increased to 14% compared to the traditional 3% to 4%. This may not sound like much, but is very meaningful as it constitutes almost 40% of our total revenue. In terms of the total fleet earning days during the first quarter of this year, LPG constituted 75% with petrochemicals taking up 18%.

For this quarter, LPG dropped to 53% with petrochemical gases reaching 41% of our fleet earning days. This dramatic shift is even more evident for our spot fleet. The earning days on our spot ships were split 47% for LPG and 53% for petrochemicals during the first quarter. This quarter in comparison, the LPG proportion reduced to 13% only and petrochemical gases rose to an all-time high of 87%. Or to put it slightly differently, the 13% of LPG equates to 158 earning days or two vessels and the 87% of petrochemical gases constitutes 1,038 earning days or a total of 12 vessels. 12 is more than one-third of our entire fleet.

Our business is global. During the quarter, we loaded 14% of cargos in South America, 30% in Europe, 23% in Asia, 26% in the Middle East and 8% in the US. The most notable change to these figures during the year has been a reduction of our US involvement, principally due to the challenge with LPG arbitrage and an increase in our exposure with Middle East volume. In both these areas, we load petrochemical cargos, which bring about longer ton-mile demand.

We are very much encouraged to changing trade patterns in the petrochemical market and we spend considerable resources enabling our customers to develop and take part in these changes. There are long/short positions today for C2, C3 and C4 products needing handysize vessels for deep sea voyages and we fully expect the geographical disparity between producer and consumer to continue to evolve over the next few years. We are very excited about these developments, which as and when they materialize, should have a positive impact on our utilization earnings and particular triangulation opportunities. Thank you very much.

Melanie, you can open it to Q&A at this point. Thank you.

(Operator Instructions) Jon Chappell, Evercore.

Oeyvind, I wanted to touch base on your last comment. As the shift to petrochemicals and petrochemical gases continue, what does that mean for the overall utilization of semi-ref fleet? And also is there any change there in the rates, whether it's TC rates or whatever, that you can earn from those ships in those particular trades relative to the propane and butane trades that we become accustomed to over the last several years?

Well, we will always maintain our base of LPG time charters in the Indonesia, in Middle East, in Europe and the Caribbean, so that will remain. In the third quarter we had coverage -- time charter coverage of 44% which is slightly under the norm we've had of 50%-50%.

But going into 2017 if we include various contracts, our ambition to conclude contracts of affreightments and so forth if we include that in utilization for next year we believe that the coverage should increase. And with the increased coverage, then the theory will show that the utilization will also follow. But as Niall briefly mentioned for third quarter there was a slight nudge up in utilization and that is solely because of the petrochemical trades. [As you see] the spot fleet, which are trading in the spot market, predominantly those 12 ships were trading petrochemicals.

So then all else equal, if you're doing a petrochemical movement given some of the changing trade patterns that you've discussed in the length of haul, would that offer better utilization through triangulation opportunities and, once again, the historical propane and butane trades?

The LPG trade doesn't necessarily by itself go for any triangulation, but [today] as we've mentioned before, Jon, the LPG spot voyages, the average duration is max 10 days, and the average duration for our deep-sea petrochemical shipment can be up to three months for one cargo. So that in itself should lend itself to utilization and also the petrochemical -- the trade sometimes they go against the LPG trades and therefore offer triangulation. So, yes, it has an impact very much so.

All right. That's very helpful. David, I want to ask you a question on Eclipse [here getting into]nine month charter for that one. Now, how does that speak to, I guess, the appetite for longer-term charter still for the newbuilds? Was this something that just kind of bridges the gap until hopefully more export potential or export capacity was on line or has there been a shift now to kind of shorter-term contracts in that business and then an ability to get anything over three to five years?

This was done at the time when we were negotiating with a customer for the building of the Jorf. They wanted a long-term contract for carrying ammonia, but we're concerned that they would like to begin earlier than the expected delivery of the Jorf. And we volunteered that, look, we can cover you with one of our newbuildings, even though with a much more elaborate and sophisticated vessel, the Eclipse, which is ethane-ethylene capable. We will cover you in advance.

So, this was the time when we negotiated when the mid-sized vessel market was particularly strong. But we felt it was valuable to do that for the customer. And we did it and at this point we're quite glad we did because we got good coverage. But it doesn't necessarily say anything, Jon, about the market for this vessel. That was done probably a year ago and it's a good front-runner for the Jorf. When it comes off, it will go directly on.

Broadly speaking, has there been any change in the appetite then for the long-term contracts on the remaining ethylene carriers? (multiple speakers)

Jon, I did give the comments in my prepared remarks about what Jim Teague at Enterprise said, that someone needs a terminal to get that going. It is gaining traction somewhere. We are discussing it with a bunch of companies who are interested in it. But someone has to make that first step. Once that step is made the conclusion is simple, you've got have a vessel and the only large capable vessels for that trade are owned by Navigator. So you can assume [now is] negotiations, it's a tripod type of negotiation. We are involved with everybody. And it's at that point where I think we have to be a little cautious in talking about what it is.

But bottom line is we are confident but this is something painfully I know talking about it, it just takes a while, but I think we're coming to that point, partly because of the ethylene plants are going to be coming on stream, it's 2017, there is a need for the stuff, there is quite a spread between ethylene prices here and the far east. It is something that is compelling. But what we need is someone to step up, be prepared to build what is required so that we can efficiently and effectively load our vessels and the business will develop, and it will develop overnight and it will develop in a significant fashion. And we are right at that edge and unfortunately all the negotiations that are taking place remain confidential. But I'm pretty damn confident that by -- soon, whatever that may mean, we will be in a great position to talk about how the door is open for this massive amount of ethylene coming on that will go into the international market. And although it will likely go on the larger vessels simply because the cost per ton-mile is so much more efficient in these types of large vessels.

Very helpful. Super last -- super quick last one from a comment from the press release. David you said you expect the market softness to continue through much of next year. Just quickly, do you think it's bottomed out? I mean there was such a precipitous drop for a six-month period. Do you think that we've now hit the low on both utilization or rates and it's just going to bounce along this bottom for much of next year or is there more downside potential because of whatever reasons, delays in the new capacity or acceleration of ships being delivered, which actually seems to be slowing next year?

Yes, it feels as though we are off the bottom, okay, maybe, September or October may have been the bottom. But let me ask the man on the desk who sees everything every day, his field or even -- since we do a fair amount of spot business, it can change at any point. But it feels pretty good, it feels though the worst is behind us partly because of the growing petrochemical gas absorbing some vessels, partly because of the increased volumes. But, Oeyvind, why don't you give us -- give Jonathan a feel of what you are seeing on a daily basis today?

(inaudible) what David just mentioned, there has been a dramatic drop in the last six months both on the VLGCs across the whole gas base. So, we remain -- I think, we are bottoming out. I think, you'll see flat rates for the foreseeable future. With our statistics now and the change that we are seeing and part of -- particularly petrochemicals, there's a lot of talk about petrochemicals for next year.

So, almost our entire spot fleet is trading petrochemicals and that's the solution for Navigator and that is why we believe it's going to be flat, we bottomed out and that's the way forward for the foreseeable future. So, it's very much petrochemicals. We will take the LPG, there is very few guys talking about LPG long-term charters at the minute because the market is at its knees. But petrochemicals is a different field, it's a different horizon that we are part of.

Don't know whether that answers your question, but that's -- if you take the numbers in third quarter in terms of what we are doing, which product then that's a quite good indicator of what we will see going forward.

Okay, great. Thank you Oeyvind. Thanks David.

Ben Nolan, Stifle.

This is actually Steven Tittsworth on for Ben. Good morning. Just had a couple of quick questions. The first one is I noticed the vessel OpEx for the quarter was a little bit lower than it was the previous quarter, about $1.5 million. What was that attributable to?

I think the OpEx for the previous quarter, quarter two, at just under $8,500 a day, $8,445, was slightly inflated because of costs associated with drydockings. Albeit that the cost of drydockings are capitalized, there are works which are done at that time which run through the income statement. The nine-month rate is just over $8,000, $8,091 for the nine months, and we expect the output from the full 12 months to be around that number.

$8,000 to $9,000 per day.

Sorry. $8,000.

$8,000.

Yes, $8,091.

Okay, perfect. Thank you. And not to beat a dead horse, but you've talked in great length about moving more to the petrochemical side, which gives you higher utilization charter rates. We are wondering what type of premium are you able to command for transporting in petrochemical compared to LPG?

It's a difficult question. It's a good question, but difficult to answer because it varies so much. And we don't have particular indices which will tell you what's devoted to benchmark and so forth. It's a small market -- deep sea petrochemical is a small market. Everything is predominantly done on a spot basis, private and confidential. So we know, of course, what we are doing, but it varies a lot. Some are very high, some are very low. But the most important thing here is that with the shortfall of LPG, we are doing petrochemicals.

Okay, perfect. That's it for me. Thank you for your time.

Doug Mavrinac, Jefferies.

I just had a few follow-ups with you and on a topic that has been beaten like a dead horse now, but on a question that I still had after the beating of the dead horse. When you looked at utilization levels, and Oeyvind you clearly talked about how you've transitioned, not just in the third quarter, but really in the second quarter of moving more of your ships into the petrochemical gas market, but then in your prepared commentary you talked about what that involves? It involves moving ships away from the US and more towards the Middle East exports. And so my question on this topic is have we arrived at the utilization levels that your fleet has been fully transitioned into moving some of those exports such that when you look going forward utilization level increases would be just dependent upon more volumes or has the transition not been complete yet? So, is your fleet during the third quarter fully employed based on the transition or do you think there are more utilization level gains to come from having that fleet fully in place again in 4Q such that you can see utilization level increases without additional export volumes? Does that make sense?

Yes, it makes sense. It is quite a complex transition to do. And the answer to the question whether we have completed the journey, the answer is no. We still see more appetite, particularly going into next year. So I think what you're seeing, it's not the end of it. I think we'll maintain and as and when the opportunities come, we will probably increase that participation in the petrochemical trades. But it will never be 100% because we have a nice base of long-term LPG charters that we've been developing for some time and that would be there. But for the spot and also some term contracts in petrochemicals for next year, there is more chatter on that than we have ever seen before. So let's see whether it materializes, but the journey has not ended.

Very helpful, very helpful. Thanks for that Oeyvind. And then my second question is about the market that you guys are transitioning away from and that's the LPG market. And it's from the perspective of looking for an inflection point, looking for a change. And clearly we've seen the trend over the last couple of quarters. But I was reading recently about how the [arb] has reopened between the US and Asia. When you see things like that is that from your perspective just kind of a blip against the trend where we're continuing to see less demand or is that something where you (inaudible) the LPG trade kind of made that inflection point? So when you see re-openings of certain arbs kind of how do you think about that in terms of your strategic positioning of your fleet?

I think any widening of any arb is good for trade. So if the VLGC Baltic Index went from 20 to close to 30, it's a good thing. But now of course almost 50% increase from a low number, right, still a low number, but of course it's a positive trend. Whether it will continue, time will tell. So we take the LPG that comes, that suits our positions, our ships. But what I think is more important in the last month is we're coming into winter and we've seen a lot of activity in the North Sea for LPG handysize midsize movements. We haven't seen that for the entire year. That's the seasonality. Is that something that's going to keep, time will tell. But I think for Navigator, the winter -- coming into winter in Europe is more important than the increase on the Baltic.

Gotcha. Very helpful, Oeyvind. And then one final question, this may be more for Niall, but as it relates to the new $220 million facility that you guys have signed a couple of weeks ago, my question is twofold, one is the financing now in place for all the newbuilds? And then two, how does this -- the refinancing portion of it change your amortization schedule on the other two facilities that they replaces?

Well, the first question, yes, it does finance all of the newbuilds. We put in the facility in place in December of last year which financed six of the ships and the Navigator Jorf was the last one. So that's included in this facility. With respect to the amortization, the amortization is not dissimilar from the -- in absolute terms, it's not dissimilar from the two expiring facilities. There is a small -- there is a bit of a increase in the first two years of the facility because we've got three ships in there which are now 16 years of age. So, they get amortized quicker than all of the rest of them, but then it evens out. And as I say, it's not in absolute terms, it's not dissimilar from the two expiring facilities.

Gotcha. And the pricing is better, I think you mentioned, is that correct now?

Yes. To the margin, US LIBOR plus 2.6% rather than an average of 3.18% on the other two facilities.

Okay. Very nice, very nice. That's all I had. Thank you guys for the time.

Fotis Giannakoulis, Morgan Stanley.

This is actually Ben stepping in for Fotis. Thanks for taking the call. So, it seems a lot of my questions have already been answered, but just one left. On the supply side of the equation, can you just walk us through recent developments. I know the bulk of the larger carriers has been delivered, but they might be pressured on the mid and smaller ships on next year's deliveries. So, can you just walk us through these developments and whether you expect demolitions or increased lay-offs or idling to persist from here?

Well, because we are different, as you may know, from the very large gas carriers and our handy space, we just outlined, it is a rather robust business and decent business for us, not as profitable as it should be, but quite content with it at the moment. The newbuilding in our section -- in our sector, the handysize semi-refrigerated did have in it 13 vessels that were being built in Sinopacific shipyard that recently was announced as filing for bankruptcy. Now we are not privy to actual details, but 13 ethylene capable vessels were being built in that yard and from what we hear, not confirmed -- not all of them are confirmed, but it sounds as though none of those 13 vessels will be built. Now maybe one gets built, but it's our understanding very little activity is going on in that yard with the exception of completion of a couple of larger vessels that were well advanced prior to the filing of the bankruptcy.

That probably is the most significant event as far as newbuildings in our sector. But if you were to look and say how much graphing would take place in the handy section, I would say little. I'd say little because it's a relatively young fleet. I would say little because in spite of a poor performance in the sector, the rates being crushed over the last six months, we still can make money. So I if you were to talk about various large gas carriers then I'm not going to be speaking about that business because that is not our business.

Right. Thanks so much for the color, David.

Oyvind Hagen, Nordea.

Thanks for taking my question. I have a quick question on the backlog. I'm looking at the Q3 charter exploration overview and it seems as the Taurus, Virgo, and the Global all have lost one year of firm backlog since the Q2 overview. What's the reason behind this?

They haven't lost any (inaudible).

For example at Taurus now says that charter expiration date is April 2017 whereas in Q2 it said April 2018.

I think there was an option there or there is an option to extend, so yes, we just included term periods and not included option. We have an option in the time charter part that she is currently running at.

Okay. But you still expect that option to be exercised?

We never know the option will invariably be used again here. If the market -- the option rate is lower than the market, they would declare. If option rate is -- the market is lower, then they will renegotiate. So, time will tell. You never know. But traditionally the time charter business that we have had in LPG, traditionally is a continuous employment, i.e., 12 months, then you discuss, you renew at whatever level and then you continue. That is the historic trend in the handysize LPG market anyway.

Okay, but this is then fair to say that you see slightly lower probability now, the options being called and -- or if they will be called it will probably be at a renegotiated rate level?

Yes, I mean if the option is sometime next year, then even the customer probably isn't even thinking about it. So, usually the communication, the dialog, it's really ramped up two months, one month prior. So, I think it's a bit early to tell. It all depends.

[Pedal Jofle, Steran Le]

I know some of these questions have been touched upon already, but I just want to quickly go back on contract coverage. Obviously, it's all relative to where the spot market is, but do you see yourself adding further coverage in the near term and have you kind of changed your targeted coverage ratio going into 2017, 2018?

The core LPG charters will most likely remain. That will be LPG in the Baltic, Europe area, Indonesia, Caribbean. But you see petrochemical trades that we're doing, most of the spot fitted in petrochemicals. That point is clear. That market lends itself for a spot business. There are not that many contracts or certainly not time charter contracts in that space. So, in that regard, yes, we are doing a lot of petrochemicals, but the business is still sort of learning dealing with the deep sea the large volumes on our ships. And will it materialize into some type of contracts for some of the ships, I believe so. But generally petrochemicals are done on a spot market.

Okay, thanks. And then you mentioned briefly [sea] rates. We've seen couple of VLGC guys having sea rates that has proven to be in favor of the charter in terms that they have been extremely flexible. Can you just speak quickly about how you see that the sea rates for your vessels?

We have one sea rate today and that's with ethylene. I can't comment too much. But it's very different, which you should probably better. Our petrochemical is different than LPG and (inaudible) VLGCs. And to answer your question, no, the charters cannot nominate a two-day voyage to get out of it.

Okay. Perfect. Thank you very much.

(Operator Instructions) (inaudible)

Thanks for taking my questions. I apologize. I got disconnected. But I want to ask a follow-up question on the ethylene chartering side of things. With the recent cancellation of Sinopacific, one of the Ocean Yield vessels that was a charter out through (inaudible). Has that opened up an opportunity now with SABIC for one of your open vessels?

We've been in dialog with SABIC ever since they tendered and they are a good friend of ours, good customers of ours. We are always there to help should they need ethylene tonnage. (technical difficulty)

Okay. If there are no other questions, Melanie.

No, sir, please do continue.

Okay, well. Thank you for joining us. And I just will reflect today is an important day in the United States. I hope you have all voted. If you have voted, go out and vote again. It is very exciting time and I'm sorry I'm not there. But I will talk to you soon in a couple or three months. Thank you.

Thank you. Ladies and gentlemen, that does conclude your conference for today. Thank you all for participating. You may all disconnect and speakers please stand by.