Navigator Holdings Ltd (NVGS) 2016 Q4 法說會逐字稿

Thank you for standing by, ladies and gentlemen. Welcome to the Navigator Holdings conference call on the fourth 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 Lindeman, Chief Commercial Officer.

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

Thank you and good morning and welcome to Navigator's fourth quarter and year end earnings conference call. As usual, we have today with us Niall Nolan, who will cover the financial aspects of the quarter, as well as Oeyvind Linesman, who will cover the operational aspects.

Last night we reported about fourth quarter and full year results. About $0.14 per share reported was marginally better than the $0.12 reported in the third quarter, but was dismally behind the $0.48 per share we achieved in the fourth quarter of 2015. For the full year Navigator earned $0.81, somewhat less than half of the $1.76 per share we achieved in 2015.

2016 was especially disappointing in that it broke a long continuous string of increased earnings. When we began the year we fully expected to continue that trend. We determined to get back on track, although 2017 may be another challenging year especially in the first half. If we were to point to one single comfort for the softness in the LPC market and recognizing there are always more than one cause from an abrupt market change, we would have to point to oil and the price collapse experience in last year's first quarter. The business was fine until late in the first quarter when oil dropped below $40 a barrel.

With low oil prices, the price albetroge of US propane disappeared, hurting the very large gas carrier segment, which was already suffering from a growing over supply of new tonnage. The result in rate collapse for the very large gas carriers have a knock on effect on the fully refrigerated mid-sized vessels and they, in turn, aid into our own business. We experienced lower than normal utilization throughout the summer, but we believe we reached the low point this past October. Since October, we have had improved utilization but no significant improvement in rates.

So the question becomes ,how is Navigator able to maintain reasonable profitability with just about all of the LP shipping players reporting losses. The answer of course lies in the complexity and flexibility of our fleet, our semi-refrigerated vessels and in the complex nature of our trading. Here, there are two points to be made. First, we are not dependent on any one geographical area or trade patent for our business. And like very large gas carriers whose business model is a shuttle service between ]the United States, gulf or the Mideast to the far east, Navigator operates in a variety of markets such as; a [carbatoage] business in Indonesia, a [carbatage] business in Venezuela and long-term contracts to move LPG from Russia to Europe, there is a ship-to-ship transfer operation in the Caribbean, and regular trends Mediterranean trade.

While we do move some LPG volumes out of the US east coast and the gulf coast and some from the Mideast, we are far less impacted by traders, albatroge spreads at any one given period of time. A second distinction is the flexibility to move our vessels in and out of the petrochemical gas trade. Propylene, butadine, ethylene, requires specialized handling and are more technologically challenging to trade and transport. However, these trades generate premium rates and tend to be longer haul voyages. This has been a good business for us and a natural foil to the weakening LPG markets. By 2016, the LPG trade struggled. Our petrochemical revenue rose to 40% of our business. And in the last years' fourth quarter petrochemical gas trade was actually 52% of our revenue. Clearly we have adjusted and adapted to the softness in the LPG trade.

Now, to show how we have adapted to the shipping markets, consider that in 2015, petrochemical business -- our petrochemical business represented just 14% of our overall revenue. That was in 2015. By 2016, as the LPG trade struggled, our petrochemical revenue rose to 40% of our business. And in the last year's fourth quarter, petrochemical gas trade was actually 52% of our revenue. Clearly, we have adjusted and adapted to the softness in the LPG trade.

Now, as we look out over the next 18 month to 2 years, we are extremely pleased and excited about our prospects and the unique position we have placed ourselves. Navigator's preeminent position and the ownership of high specification, LPG and petrochemical gas carriers should, over time, produce strong results or our shareholders. In the meantime there are a number of factors or events that should give us short term momentum to offset some of the immediate headwinds that we are experiencing. In chronological order, they are; number one, in January of this year ,we commenced a long term charter with Borealis on the Navigator Aurora, a 35,000 cubic meter ethane carrier.

During the same quarter, we'll also be taking delivery of two additional ice class semi-refrigerated vessels that will go on long term charter with [Seboo]. When they deliver, we will have for ice class handys, moving LPG from Seboo's east Luga terminal north of St. Petersburg, to various terminals in Europe.

Number two, this coming April, Enterprise product partners is expected to open its propylene manufacturing unit in Mt. Belvieu, Texas. Once completed, Enterprise plans to pipe the liquid to its terminal on the Houston ship channel for sale to the export market. Enterprise has recently modified one of its [bursts] to handle handy-sized vessels and has dedicated this berth for propylene exports. In January, Navigator loaded a full cargo, approximately 150,000 barrels of propylene to be shipped to the far east, but it was sourced from third parties. Significantly, this was the largest propylene cargo export out of the United States in recent memory. But it is a trend we expect to grow rapidly -- but the buildout in the US petrochemical industry.

Number three, by August we will receive our new building, the Navigator Jos, a fully refrigerated mid-sized ammonia carrier. The vessel will immediately go on long term charter with OCP, a Moroccan based leader in phosphates and derivatives.

Number four, as mentioned in our press release, we have entered into a long term contract with Braskem for two of our original 22,000 cubic meter ethylene carriers. The vessel will transport ethane from Enterprise's Morgan's Point ethane terminal to Braskem's Brazilian [Kraca]. The two charters are related to the recent long term supply contract that Brakem entered into with Enterprise and is expected to commence late this year or early in 2018. These contracts are, of course, independent to the recent petrochemical contract of [Afraitmen] that we recently entered into with Braskem that Oeyvind will shortly discuss.

Number five, Sunoco Logistics recently announced that it has received final EPA clearance from the Pennsylvania authorities to commence construction of their Mariner East two projects, including approval of the additional Mariner East Two segment. This is a significant event and I'm surprised that it was not a greater investor reaction to this announcement. Apparently, Sunoco Logistics operates the ME1, a 70,000 barrel of day pipeline, half of which is dedicated to carry ethane for a captive trade. The balance is LPG, it will add a minimum of 275,000 barrels a day and more likely 350,000. A further 200,000 barrels a day is a real possibility.

The Mariner East pipeline system will transport propane, butane and ethane. The pipeline will extend from the Utica basin in Eastern Ohio through Pennsylvania, and terminus at Marcus Hook at Delaware river. There are four berths at Marcus Hook, with one dedicated to ethane. Why we would expect much of the LPG to be loaded on large fully-refrigerated vessels, our handy vessels are quite competitive on the shorter European trade where port restrictions and limited storage hamper the use of the larger vessels. Importantly, Sunoco expects this pipeline complex to be operational late this year.

Number six, while nothing has been committed to date, several companies continue to express interest in the possibility of construction of a purpose-built ethane export terminal. With a significant expansion of ethane manufacturing capacity currently being underaken in the United States, it would seem logical that sooner or later someone will move on this project which will -- which we believe will add to a significant degree to our success as we are the owner of the largest ethylene tonnage.

And finally, I'd like to recognize and congrat our former director, Wilbur Ross, for his appointment to the Secretary of Commerce. Wilbur has been a strong supporter of Navigator and his good counsel will be missed. Now I'd like to pass the conversation over to Niall Nolan who will cover the financial results.

Thank you, David, and good morning. The revenue for the three months ended December 31, 2016 was $75 million, which was an increase from the third quarter of 2016, but a $3.2 million or a 4.1% reduction relative to the fourth quarter of 2015. Net revenue, arguably the more important measure, being revenue less voyage expenses, with $61.5 million, an increase of 6.3% from last quarter but 14.9% or $10.8 million reduction and the $72.3 million generated in the fourth quarter of 2015. This decrease in net revenue was primarily as a result of a reduction in average daily charger rates.

Charger rates for three months ended December 31st, 2016, were similar though those for the third quarter at $22,800 per day or $690,000 per month, compared to an average of just over $30,000 a day or $920,000 a month for the fourth quarter of 2015. This had the effect of reducing net revenue for this quarter by $21.1 million compared to the same period of 2015.

Vessel utilization was 89.5% for the fourth quarter. As David mentioned, a slight improvement from the third quarter, which was 88.1%, but a reduction from the 92.8% achieved in the fourth quarter of 2015. And this had the effect of reducing net revenues for 2016, compared to the fourth quarter 2015 by $2.2 million. As David again mentioned, we do see utilization continuing to nudge up in recent months.

During the fourth quarter, we had average of 31.6 vessels in operation, compared to an average of 28.8 vessels during the fourth quarter of 2015. This increase in vessel numbers contributed $12.5 million to net revenue for the quarter. At the end of December, our fleet stood at 33 vessels on the water, following the delivery of four vessels during 2016.

We had an additional five vessels in our new build program at the year end, two of which have been delivered in January 2017. Navigator Nova, who went on a two year time charger following hard delivery, and Navigator Luga, which was pre-chartered for five years to [Seaber] from delivery. The remaining three new builds are scheduled to be delivered between April and July of this year, two of which are also subject to long term chargers. The average age of our fleet at December 31, 2016 was 6.7 years.

As I referred to previously, all eight dry dockings undertaken in 2016 were completed earlier in 2016, and there are no dry dockings scheduled for 2017, with seven vessels due for dry docking for 2018.

Voyage expenses for the fourth quarter were $13.9 million, an increase of $7.6 million from the $6.3 million incurred during the fourth quarter of 2015. However, as voyage expenses are a pass-through cost caused by changes in the charter mix between time charters and voyage charters, with revenue compensating for these costs and the increase or reduction is a mute point.

December 31, 2016, we had 17 of our 33 vessels on time charter, three vessels on contractor for freighment, continue to carry ethylene from the US to China, and the remaining 13 vessels were trading on the spot market, primarily transporting petrochemicals.

Vessel operating expenses increased by 6.9% to $22.6 million for the three months ended December 31st, 2016, compared to $21.2 million for the comparative period of 2015 as a result of the additional vessels joining our fleet. Daily vessel operating expenses reduced to $7,465 per day during the quarter. Taking the average for the 12 months ended December 31, 2016, to $7,925 a day. And this compares to $7,988 a day for the fourth quarter of 2015 and $7,779 for the 12 months ended December 31, 2015.

General, admin and covered expenses have increased to $3.7 million for the three months ended December 31, 2016 against $3.2 million for the fourth quarter of 2015, as we have created a team and structure to take management in-house. And initial four of our vessels are now technically managed in house with five or six vessels planned to be taken into in house technical management over the course of 2017.

Technical and crewing management is currently outsourced to three third party managers for the majority of our vessels. And their management costs are included in the vessels operating expenses.

Interest for the quarter was $9 million, up by $1.8 million compared to the same period in 2015. Primarily due to additional bank debt associated with the four new build deliveries since 2015, but also due to some upward movement in the three month US LIBOR rate.

EBITDA was $33.8 million for the quarter and $140.2 million for the full year 2016, compared to $45.6 million and $182 million respectively for the comparative periods of 2015. Net income for the three months ended December 31, 2016 was $7.6 million, or an earnings per share of $0.14 compared to net income of $23.8 or $0.43 for the same period in 2015. And full year earnings for 2016 was $44.6 million or $0.81 per share.

The company's balance sheet remains robust with a cash balance of $57.3 million at December 31st 2016.

During the fourth quarter, we entered into a seven year $220 million bank loan facility for the purpose of refinancing two loans in the amount of $130 million that were due to mature in April 2017. And to provide delivery finance for our final new building, Navigator Jorf, of $35 million or 70% of the purchase price, as well as an additional $55 million for general purposes. This loan bears interest at US LIBOR plus a margin of 260 basis points. And including this $130 million drawn on this will loan, total debt at December 31st, 2016 stood at $754 million.

Since the year end, we have issued a new $100 million unsecured bond in Norway at a fixed rate at 7.75% with maturity of February 2021. The purpose of the bond was to fund, together with cash on hand, the repayment of the company's $125 million 2012, unsecured bond that has a maturity of December 2017. The company exercised an option earlier this year to redeem this bond in full at a redemption premium of 2% or $2.5 million and this premium will be recognized and expensed in Q1 2017.

Finally, the aggregate contractual commitments to the ship yards across are now remaining three new buildings is currently $90.5 million, against which bank facilities exist to provide up to $122 million against these deliveries, giving us a net carbon flow of approximately $30 million as we have already made installment payments to the yard over and above the equity payments required. With that I'll hand you over to Oeyvind.

Thank you, Niall, and good morning, everyone. Navigator gas has proactively changed our (inaudible) portfolio during 2016 by migrating away from the traditional sole dependency of propanes and butanes to a much more dynamic mix of deep sea petrochemical trades combined with short fee, LPG movements. In other words, we are increasingly utilizing the flexibility inherent in our assets. I'll give you a few data points to illustrate this transformation.

More than half of our revenues during fourth quarter 2016 stems from petrochemical trade compared to 20% in the first quarter of the same year. More than 40% of our total fleet earning days came from petrochemical contractsduring fourth quarter compared to 18% only during the first quarter of 2016. 85% of our stopped earning days during the fourth quarter of 2016 came from petrochemical contracts compared to 53% during the first quarter. Even the petrochemical proportion of our $600 million US dollar forward books, is more than one-third, which is something quite new to us. Interestingly, however, our time charter earning days for the fully year of 2016 was 87% for LPG and 11% for ammonia and only 2% for petrochemicals. This is a complete opposite to what is happening on the stop charter arena.

Structural petrochemical term contracts have historically been non-existent. This is something we have been working on to change. Over the last year we have been cooperating closely with petrochemical producers, traders and end users to see how we can unlock structural flow of petrochemical gases against term contracts. I think as for the first time in the segment, Navigator Gas has a total of three term contract, or contracts with afreighment) for petrochemical gases going to 2017, with additional ones in the pipeline.

The main reason we have been successful in making this shift at the supply chain is that of strategic focus, it is impossible to service such contracts with only a handful of ships. Our large fleet can more easily accommodate the very hard degree of flexibility and uncertainty required to support these emerging trades. The contract covers the full spectrum of petrochemical gases including ethylene, propylene and butidine that will be shipped from US gulf, from South America and from Europe with the main outlets being located in southeast and far east Asia. However, we do not anticipate that all of our vessels are to trade with petrochemical gases and we will be influenced by LPG supply and demand dynamics.

At least in the near term, the LPG shipping market will continue to be challenged across all size segments, mainly due to the tonnage supply side of things. It is also worth noting that petrochemical markets are fragile and finely tuned and does not take much for the rate environment to react against any changes to the common supply situation. With that, we'll open the floor.

Operator, we'll open the floor now for any questions that the group may have.

Thank you. (Operator Instructions). First question comes from the line of Mike Webber from Wells Fargo. Please go ahead.

Good morning, gentlemen.

Good morning.

This is [Dylan Bogman] stepping in for Mike. Thanks for taking my question. We saw some improvements in the [heady-size] carry utilization in Q4 on the back of stronger US petchem volumes. Can you talk a bit as to what was driving those firmer volumes and whether that momentum has persisted to date in Q1?

Well, I think both quarter nudging on 90%. So we are getting back up to above 90% where we like to be and closer to our historic average. If we can't beat the 90% we will be disappointed here. So early signs of 2017 underpins that assessment.

Interesting, thank you. Has that firm utilization begun to translate to firmer rates yet? Ar rates still sort of flat from call it year-end 2016 levels?

It's more or less a sideways movement. Of course we're encouraged by slightly higher utilization, but time will tell whether that will translate into higher earnings.

Great. Thank you and then just one follow-up on the charter market. I certainly think the prospect of longer term structural pet chem charters are interesting. Can you talk to any fundamental changes in the bid for charters across the segments relative to say the bottom of the market in October? Is that market more liquid and have durations begun to stretch?

Well, I eluded to Rome wasn't built in a day, and we have been working very hard with many of these guys to structurally place some of these supplies and trade lanes on the contractual basis. So it's been a long journey, but finally we see some fruit on that from our labor.

I think for the 2017, we see more of the pet chem trades locked up on a contractual basis, which we encourage. (audio cut out) -- participate in that, as I mentioned, you need viable fleet to service all those uncertainties elating to the petrochemical cargos and trade lanes. I mean, it is very different than running LPG contracts. But anyways, we are working on that to add additional strings to the bow.

Thank you for that color and congrats on what is a stronger quarter.

Thank you.

Thank you. Your next question comes from the line of Ben Nolan of Stifel. Please go ahead.

Good morning, David and Niall and Oeyvind. The first question that I have is if you might be able to give a little more color around those Braskem contracts? When exactly do they start and any color on the day rates at all or duration on this?

Well, Ben, for competitive reasons, we have agreed with Braskem to disclose details of that kind. Unfortunately we are unable to disclose.

But the timing is geared to the commencement of the purchase and supply contract that Braskem has with Enterprise which is pretty much the end of this year, give or take a couple of months.

Okay. And maybe another way to think about that is -- obviously you guys have been pretty active in the pet chem side. There's much more limited fleet of ethylene capable vessels and these would fit in that category. Is there a meaningful delta in the day rates that you can earn on an ethylene capable vessel today relative to just a traditional semi refrigerated ship?

There are certainly rate differentials between the bulk standard, fully-refrigerated LPG movement, regional movement versus deep sea petrochemical, particularly ethylene. But that varies a lot from trade to trade and week to week, so it's difficult to put a number on it unfortunately. But there are -- I mean, LPG is generally struggling today which you can see from all the various ship sizes. So it doesn't take much to beat that to be honest with you.

Okay. And then, I guess lastly, just to follow-up a little bit on the pet chem conversation that obviously you have a substantial shift in your product mix over the course of the last year. I was curious where -- obviously it's been a little growth, but I don't think it's been that much relative to your growth. Where have you captured share from? And ultimately, I think it's really interesting that you're doing these contracts with a freightment. Is that something that you might consider even chartering in other ships in order to have a larger fleet to be able to be more competitive in winning those types of contracts?

Well, I think -- I mean, we have the largest fleet, so we are able to service them, but of course, if there is a time and need to do something, then perhaps. But I don't see that being likely any time soon. We have, by this summer, a fleet of 38 ships and of course there is a different complexity of each one. But I think we're comfortable in servicing what we have and adding on some more ships. But the market share you're talking about an absolute supply growth. Clearly something is happening in the US which we've been talking about for a while whereby they're moving from exporting raw feed stock to processed gases. But that takes time but the real increase is the duration of the voyages, so the dislocation between the producer and the user. And I mentioned that some of the projects that we are working on are in the far east and south east Asia and of course there's a long duration to ship that from west to east versus what we have historically seen from the middle to east. You can just imagine that those miles are increasing. And that's where we have seen the growth for the contracts that we do.

Okay.

It's fundamentally been the concept of exports of petrochemicals have been the development of raw materials. Third world trade is moving raw materials, propane or whatever to producing nations, producing markets. The United States has discovered this enormous amount of hydrocarbons through hydrofracking and other methods of technology, creating a wealth of petrochemicals here that are cheaper than anywhere else. The first stage of all of that is export of the raw materials. But that's a very crude way of creating value.

What is happening is petrochemical companies, oil companies are converting those raw materials into upper grade products, propane, propylene and ethylene and further petrochemicals, and those are the things that in the future will be exploited at the expense of the raw material. If look around the world that has happened in other places. That happened in Iran in the late 1970s and early 80s where they built up a massive complex of petrochemicals because they had enormous amount of natural gas in the field and the best way to exploit that was not to export that natural gas in the form of LNG, but upgrade it into various petrochemicals.

That's been in hiatus with the war on Iraq and sanctions so on but that's coming back in a significant way. And we he hope we'll be in a position to participate in that. It's also happening in the Mideast. If you look at Saudi Arabia they're drilling more natural gas -- in more use of drilling equipment to drill natural gas than they are for oil. Why? Because it's feeding their growing petrochemical complex in that country. They clearly are building that massive base of petrochemicals to be exploited and exported out of their country. The United States, with the wealth of natural gas, is doing the same thing. We're building an enormous base of capacity that's been going on now for the last four years. The amount of ethylene, for example, new capacity is approximately 50% more than what we have right now.

So it's a trend we anticipated. The movement of petrochemical gases in a variety of forms at the expense of the raw material. So we're in that trend which is slow but inevitable and we've tried to grow our fleet and capabilities anticipating that in the future, that's the business to be in. We got the dominant position today. We got the complex group of vessels and different sizes. We got a team of engineers and operational people. We feel very comfortable as this business develops, we're going to be right square if the mainstream of it. So it's a slow process. It's inevitable and happening. And if you doubt it, take a look at what Enterprise is doing with their propylene plant in the Houston ship channel. They're anticipating -- that is where we're going.

Right. I totally agree with that. Really what he was asking, was that what was driving 2016? So is it really the beginning of that fundamental structural change? Or were you capturing share from the 15,000 cubic meter vessels? It sounds like it really is the beginning of that structural change rather than a market share shift.

I think it is a structural change. Petrochemicals are complex and they shift and trade and it's difficult to lay out a simple story of what's happening. Part of what is happening, for example, in the case of Brazil, we're doing a fair amount of petrochemical exports for them and number of ships moving propylene and ethylene out of Brazil to the far east, and part of the reason is the slowdown in the economy of Brazil. So they have surplus. It's available, and we have the vessels and we're moving. And dislocations in the far east which there are shortages of certain types of petrochemicals we're moving where people have surplus.

So it's a very -- it's not an easy definable business that's so neat that we can explain, such as crude oil coming out of the Mideast.That is a very simple story. Or propane coming out of the US. We like that complexity because it gives us an edge because we're right in the middle of it with the biggest fleet of that type of vessel that can carry it, and we have communications with all the producers and the consumers. That gives us a huge advantage and we want to keep it and exploit it and not lose any share.

Okay. Very helpful. I apologize. I do have one more. With this Ethylene contract, do you think we're pretty much done with new Ethylene export contracts for the moment or is there some still conversations ongoing?

It's interesting, the Mariner East -- really I'm just really surprised that people haven't picked up the significance of that line. In that line, that huge amount of product coming through by the end of this year, there is a lot of potential Ethylene to be shipped on that. In Marcus Hook, they have the chiller and the facilities to export it. So my guess -- and it's just a guess because we don't have anything specific to talk about -- but availability is there now with this line coming through. And I would be pretty surprised if the Sunoco and the producers in the Marcellus and Utic aren't in serious discussions with potential consumers of Ethylene in relatively short order. If you believe the estimate, this line will be operational at the end of the third quarter of this year.

Okay. Sounds good. I'll turn it over. Thanks a lot, guys.

Thank you. Your next question comes from the line of [Fortus Giannculus] of Morgan Stanley. Please go ahead.

Hey, guys. This is Ben stepping in for Fortus. Can you just provide a little more color on US LPG export economics? It seems that the propane spread has recently narrowed to Asia and Europe on the back of falling US prices. But propane prices still appear at relatively high levels relative to NAFTA. I'm just curious on how you see this progressing moving forward? And what needs to happen for the LPG trade to come back meaningfully and drive rates higher from here?

That is a question that you should be asking the owners and operators of the very large gas carriers because they are the most sensitive to that business. We are far less sensitive and don't really focus on those economics. We just respond and we've been responding with the petrochemical side as you know. But is that helpful?

Okay. It does impact your business to some extent. Do you think just in terms of the general trade, when these prices are this high level relative to NAFTA, is that the primary driver? Is the crude oil environment something that you're watching closely?

No, it is not.

No matter what it is, we'll never be able to compete with the very large carrier owners from anywhere in the US to the far east. Where we do play and we have played a traditional role is the smaller ports in the Caribbean and ship to ship discharge and also to west coast Africa and small port and shallow port and Europe. So if you look at 2016, yes, we were doing a lot of that during the first quarter and then it went away. But we have seen in the late year we have seen the pick up. In the third quarter, almost nothing from Navigator gas for LPG to the US. But there was an uptick in the fourth quarter and that goes a little bit into the first quarter. Navigator, there is a moment with US exports today, but less than it used to be. It's interesting to see what happens with this Marinier East do and the impact that will have. Of course, the majority of the volume will go on big ships across Pacific and that is not our business.

Sure. I guess a little bit more relevant to your business today. So you spoke earlier about the potential for ethylene export facility to come online. I'm curious on the potential here what sort of impact it could have? And maybe you're not sure on this because there is a lot of uncertainty. But what timing surrounds a project like this. Is this a 2019 or 2020 development or something?

So, the reality is that it would take at least two years to build -- probably two years or just under that to build the 50,000 barrel a day ethylene terminal. It's all about refrigeration and power and that's it. But it's a two year project to have a specialized purpose-built. Right now out of the United States, there is only one terminal capable of moving ethylene out and that's at [Taga]. It's underpowered and takes two weeks to load one of our handy-sized vessels. The purpose built vessel terminal at a 50,000 level and I'm not sure what size the potential builders will create, but if you assume 50,000, that would require something on the order of 14,000 of our 35,000, if it all went to the far east. We don't think it will all go to the far east but that could happen.

Now, recognizing, too, that most of the propylene in the United States that gets manufactured will stay in the United States to create propyleneoxide, propylne and polyethylene and glycols. 50,000 is not a big number, but it has profound significant impact on our business particularly since we have the largest fleet uncomited ethylene carriers. So for us it could be significant.The timing of anyone committing, I'm not sure. These things take study. We'll well aware of a lot of interest in the quantifiers of ethylene and there are suppliers of the ethylene and missing ingredient is the terminal. And sooner or later, in my opinion that gets done.

All right. Thank you so much. I'll turn it back.

Thank you. (Operator Instructions). Next question comes from the line of James Jang of Maxim Group. Please go ahead.

Hi, James.

James, your line is open. Are you muted?

Good morning, guys. Sorry about that. Most my questions have been answered. But in terms of the LPG trade with -- seems like the US production, especially on the crude side is going to increase in 2017. Do you see that becoming more of a factor for you guys in 2017 especially with trade to China?

Any crude that goes through refineries the by-product will be 6-8% LPG. Or if you have more fracking and so fourth, you have more NGLs which translate more to ethylene so more production in the US on one dimension will have a positive effect on supply and then potentially (inaudible). Not so much.

All right. Have you seen a lot of cargos being shipped I guess to China in Q4 or any inquires for more cargo?

Cargoes of what, James?

Of propane?

Yes. The very large gas carriers are the principal care carrier of that product. And the volumes there have been pretty hefty. So it's still flowing to China to be consumed principally by petrochemical companies in their PDH plants. And that is expected to continue. We believe there will be some of the far east consumers of ethylene searching for US supplies of ethylene, not of propane. It will be looking for propylene as well as propane. I mean, we just did, as I mentioned, the largest cargo of propylene in a long while going to the far east. I think that's the trend in 3 or 4 years that will be significant.

All right. Thank you. Thanks for that. That's all I have.

Thank you, James.

(Operator Instructions) No further questions at this time.

Terrific. Thank you all for joining us. Look forward to the next conference call in a few months' time

Thank you that does conclude our conference today. Thank you for participating and you may all disconnect.