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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Greetings and welcome to the Dorian LPG Third Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. Additionally, a live audio webcast of today's conference call is available on Dorian LPG's website, which is www.dorianlpg.com.
I would now like to turn the conference over to Ted Young, Chief Financial Officer. Thank you, Mr. Young, please go ahead.
Thank you Michele, and good morning everyone. Thanks to everyone for joining us for our third quarter 2020 results conference call. With me today are John Hadjipateras, Chairman, President and CEO of Dorian LPG Limited; and John Lycouris, Chief Executive of Dorian LPG USA.
As reminder, this conference call webcast and a replay of this call will be available through February 12, 2020. Many of our remarks today contain forward-looking statements based on current expectations. These statements may often be identified with words such as expect, anticipate, believe, or similar indications of future expectations. Although we believe that such forward-looking statements are reasonable, we cannot assure you that any forward-looking statements will prove to be correct.
These forward-looking statements are subject to known and unknown risks and uncertainties and other factors, as well as general economic conditions. Should one or more of these risks or uncertainties materialize or should underlying assumptions or estimates prove to be incorrect, actual results may vary materially from those we express today.
Additionally, let me refer you to our unaudited results for the period ended December 31, 2019 that we filed this morning on Form10-Q. In addition, please refer to our previous filings on Form 10-K and Form 10-Q where you'll find risk factors that could cause actual results to differ materially from these forward-looking statements.
With that, I'll turn over the call to John Hadjipateras.
Good morning, and thank you for joining our third quarter earnings call.
Today I am happy to announce that based upon its assessment that this is a best use of our excess cash at this time, our Board of Directors has doubled the stock repurchase authority to 100 million. Funded by strong cash flow the increased authorization allows us to capitalize upon the disconnect between the intrinsic value of the company and our stock market valuation.
Since the original authorization last August, we have repurchased 1,397,662 shares at an average price of 12 dollars and 33.7 cents. Management and the Board continue to evaluate other options of enhancing shareholder value including paying dividends, prepaying debt and acquisitions. Ted will be giving you the detailed breakdown of our TCE and utilization numbers shortly.
It is important to note that on a traditional definition, freight and higher less voyage cost over available days, the Helios TCE per available day was 50,141 per day, including earnings from several time charters which were booked at the end of 2018 and in early 2019 at sub 30,000 per day levels, most of which expire as we speak.
Our scrubber retro freight program added some logistical complexity. Positioning of ships can result in certain inefficiencies, such as waiting time, suboptimal rates and additional bunker costs. When considering the effects of these challenges and a TCE achieved in the Helios Pool, we consider our chartering performance quite solid.
In addition to our own fleet, we have since April of last year had a ship on time charter at an attractive rate. And as announced in our earnings release, we took delivery this week of a new building [all panama strip], fitted with a hybrid scrubber.
Global seaborne LPG trade continues to grow increasing by 14% in 2019, to a record of 109 million metric tons. While the U.S. and Middle East exported roughly the same amount in 2019, it appears that annual U.S. export volumes will surpass the Middle East for the first time in 2020. Already during the last three quarters of calendar 2019, the U.S. exported 500,000 metric tons and five VLGC liftings on average, more per month than the Middle East.
Our outlook for the coming calendar year remains optimistic. The Coronavirus is of course a potential headwind. IMO 2020 has strengthened the market position of Dorian's fleet. They increased bunker prices of enhanced value proposition of our young and fuel efficient eco ships. As a cost differential between high sulfur and low sulfur fuel continues, we have made competitively positioned with seven scrubber equipped ships at present. And in the coming months, more than half our fleet 12 ships total will be scrubber equipped.
Ted over to you.
Thanks.
My comments today will focus on our unaudited third quarter results and our remaining dry-dockings. For the discussion of our third quarter results, you also may find it useful to refer to the investor highlights slides posted this morning on our website.
Beginning with our chartering results, we achieved the total utilization of 98.4% for the quarter with the daily TCE which is TCE revenue over operating days as defined in our filings of $43,410 yielding utilization adjusted TCE or TCE per available day of about $42,728.
Our spot TCE which reflects our portion of the net profits of the Helios Pool per available day for the quarter was 43,949. I'd like to point out that the results are net of the administrative costs the pool and the time charters and of five ships at floating Baltic rates and the results as John already mentioned our actual TCE achieved in the pool is higher than this level.
To just elaborate on the difference between the 44,755 per day that I just mentioned - pardon me, the 43,949 that I just mentioned and the 51,141 that John mentioned, the 51,141 is the average rate achieved in our pool. And that is the one that is most comparable and analogous to what our competitors reports and indeed the Baltic benchmark.
Turning to OpEx, our daily OpEx for the quarter was $8,413 excluding amounts expensed for dry-docking. It was 9,452, including those costs. OpEx per day excluding the dry-docking related costs was roughly flat compared to last quarter's 8,403 per day again, which also excluded limited amount of dry-docking costs.
Total G&A for the quarter was 5 million and cash G&A, which is G&A excluding non-cash compensation expense was about 4.4 million. This level is generally consistent with our expectations.
Our reported adjusted EBITDA for the quarter was 59.9 million was a significant increase from the 35 million excluding costs related to the unsolicited BW LPG Proposal recorded during the same quarter last fiscal year. The strong rate environment and lower G&A kind is most of the improvement.
We look at the cash interest expense on our debt is the sum of the line items of interest expense excluding deferred financing fees and loan expenses and realized gain loss and derivatives. On that basis total cash interest expense for the quarter was $7.4 million, which was down about 200,000 from the prior quarter, largely due to continued debt paydown. We continue to benefit from our hedging policy and the favorable pricing of our Japanese financings, leaving us with a current interest costs fixed hedged in a small floating piece of about 4.3%.
For the quarter, we had cash outlays for capital costs associated with dry-dockings of approximately $10.2 million or $4,835 per fleet day. Fleet day is calendar days plus time charter in-days as those terms are used in our filings. Combined with amounts expensed during the quarter our total dry-docking cash outlay was roughly $12.2 million.
We also managed to repurchase 8.6 million of stock during the quarter and an additional 2.3 million since the end of the quarter. In total, we've now repurchased $17.1 million equal to about 1.4 million shares, which was nearly 2.5% of the shares outstanding prior to the announcement of the buyback.
Our cash flow and liquidity remained strong. Since quarter end through February 3, 2020, our restricted and unrestricted cash is up to around 106 million. Although we hold an 80 plus percent economic interest in Helios, we do not consolidate its balance sheet accounts, which has the effect of understating our cash and working capital. Thus we believe it is useful to provide some additional detail in order to give a more complete picture.
As of Monday, February 3, the pool had roughly $30 million of cash on hand. John Lycouris will comment in a bit more detail about our dry-docking plans. But delays in China coronavirus related another has extended our dry-docking program for the remaining five ships. We now expect to have a program completed by early May and the remaining cash outlays were estimated $18.5 million over the next three quarters that is the quarter ending March 31 and the subsequent to.
With up to $12 million incurred or outlayed in the quarter ending March 31, given the uncertainties caused by the coronavirus outbreak there could be some movement in the schedule. Upon completion of the program 12 to 23 vessels in our fleet will be able to profit from the expected fuel price differential between VLSFO and low sulfur fuel oil.
Since the beginning of the year, the TCE per day premium for scrubber- equipped VLGCs has ranged from $10,000 to $20,000 per day, which supports our investment thesis in the scrubbers. With a solid market backdrop and a strong balance sheet, we maintain a constructive view on our business and expect to continue to be able to generate solid cash on cash return for our shareholders.
With that, I'll pass it over to John Lycouris.
Thank you, Ted.
The U.S. NGL export growth is expected to continue in 2020 with a series of export capacity additions Enterprise Targa and Energy Transfer Terminal so we are planning expansion starting in late 2019 and continuing into late 2020 or early 2021. These NGL infrastructure developments are expected to reach the operating terminal limits we have seen during 2019 with export and fractionation capacity able to meet the increasing supply of products to 2021 and beyond.
During the last quarter, we saw 194 VLGC lifted from the U.S. and October has set a new record. It was actually 70 liftings in October. Most likely the completion of the Enterprise Products Terminal expansion and the Ship Channel contributed to that record as with six VLGC liftings of about 300,000 metric tons from the U.S. to India.
The U.S. propane inventories remain at the higher end of their five-year range at 82.9 million barrels last week, 37.8% higher than the same time last year. As the global LPG supplies continue to grow, we can expect more downward pressure on global prices, which will encourage LPG cracking over naphtha for the Northwest Europe and Far East petrochemical industries.
The arbitrage between the Middle East propane and butane benchmark pricing for February versus the Mt. Belvieu spot stands at about $300 per metric ton and $215 per metric ton respectively. This arbitrage is exacerbated by the U.S. China tariff dispute, which has resulted in significant cover swapping in Northeast Asia, maintaining China LPG price at a premium.
Perhaps the Phase One trade deal recently signed between U.S. and China will change trade for all the NGL products in the coming months, as they are all included in the list of products which China has committed to import from the United States. In such a case, we are likely to see LPG prices return to normal levels and Chinese LPG prices set closer to the Far East index.
According to Clarkson’s the VLGC fleet order book stands currently at about 15% or about 42 vessels with 40 vessels in the fleet over 20 years of age. We expect the increase compliance and operating costs will drive older less efficient vessels to demolition.
Dorian LPG currently operates seven scrubber-fitted vessels as John mentioned, which five were fitted in the last five months within a period of 33 days including completion of their special survey and dry-docking and ballast water treatment installation in two of them. Our hybrids scrubber retrofit program continues with two vessels currently being retrofitted.
During my recent visit to the Far East, the issues of congestion and manpower and material shortages were discussed with the shipyards. Now further impacted by the coronavirus epidemic resulting to the voluntary extension of the Chinese New Year Spring Festival holiday to early next week.
One of our vessels while being retrofitted in China has been impacted by this extension of the Chinese New Year holidays. And - we have delayed - it has delayed the works completion beyond our expectations. We have three more vessels planned for scrubber retrofit and dry docking in the next few months, which we expect to complete timely subject to the coronavirus of course.
During January 2020, we saw shortages in price volatility in many areas for the new compliant fuels, the very low sulfur fuel oil resulting in a wide price differentials versus the high sulfur fuel oil. All Dorian LPG vessels that were not scrubber fitted transitions on the average by the end of December two very low sulfur fuel oil without any issue. We expect pricing differentials between the two fuels to remain around the 200 metric ton per month in the coming year and that our scrubber eco vessels will continue to earn significant time charter equivalent over non-scrubber eco and modern VLGC vessels.
Thank you, I will pass it over now to John.
Thank you, John. Michelle, we can go to question.
[Operator Instructions] Our first question comes from the line of Omar Nokta with Clarksons Platou Securities. Please proceed with your question.
Hi there, yes just wanted maybe just to touch on maybe John Lycouris, your last comments about the vessel that's in the yard in China, and how you're expecting to see delays beyond what you had anticipated? Is that sort of like an open-ended delay or is it more - it's adding a couple weeks to be expected timeframe?
Omar as I said, subject to the coronavirus epidemic, we expect that it will finish in the next two weeks. It’s still has not recommenced operations and work because this extension has gone on to the 9th of February. So, we expect that completion will happen. However, there has been no work whatsoever for now two weeks.
Yes to give you a picture Omar, the ship is kind of lock down right and nobody goes on, the crew cannot go off, there is nobody in the shipyard and like John said 9th of February, they're supposed to come back to work. Once that date comes, we'll know whether what's happening and how quickly it’s going to happen I mean, when they work, they work very efficiently. We haven’t had many complaints with the work - that we've been doing in China.
Most of our work so far has been done in Singapore there we were very satisfied. But in China, not quite the same, but it’s still moving fine until the Chinese New Year and the coronavirus on top of it.
So it's more like a function of both events happening simultaneously?
Yes, more to the second now, because the Chinese New Year was supposed to have finished already. So we're now - the extension has been because of the coronavirus.
And do you think that maybe, as you think about the next three scrubber installation, does that maybe cause you to rejigger the timeframe on that and maybe just keep the ship trading for a bit longer and then reassessing this cover down the line?
Yes - I don't know, but I don't remember which of them are all three for Chinese yards John do you remember.
Yes.
They're all Chinese yards yes. Well, one of the things we might look at doing is doing them in another non-Chinese yard, but it's an open question. We rejigged already a little bit the dates partly because of the trading returns that we could have. So if we see difficulties in the yards coming up, continuing and the trading returns are like they are now we would probably keep the ships trading until we can see an opportunity to have a definitive timeframe for doing the retrofit.
Yes.
I think - we’ll be doing like John said, we are averaging about 35 days, which I think probably is a good industry, how many.
33, less than 33 - that’s pretty decent and relative to what we've been hearing.
Maybe just switching slight gears, still sticking with the yards but?
Omar I’m sorry to interrupt you, I have to say that these are hybrid scrubbers, which is a lot more involved.
Yes right.
I'm sorry to interrupt. Yes.
So that's even more impressive 33 days. And then just maybe thinking about, the fleet capacity obviously there hasn't been much ordering. There has been a handful of orders recently, I think [indiscernible] was most recently ordered in December, a couple of VLGC. And John I remember - as I recall in the last earnings call, you were travelling and I had asked about new buildings and it was a word you didn't like to hear.
How do you think just with the way the markets been shaping up and how it's been countered seasonally much stronger than expected and looking ahead and yes there's some uncertainty near term with coronavirus and whatnot. How do you think about the new building market for Dorian as it stands today?
Tim and I were in Korea recently, Tim Hansen, our Chief Commercial Officer, we were in Korea in January and you know this, I have to say the yards are keen to build. But the interest they're seeing, including from us is tempered still by the uncertainties and whatever we seen ordered has been, except for events, it has been against chartering inquiries.
And so, I don't see - I would like to think there's not going to be a speculative wave of new buildings, and certainly, we're not going to be doing anything that would that would be reckless in terms of adding numbers to the fleet. We think the fleet - is fairly well balanced and in our own plans, we could - we're not excluding the possibility of doing something, but if it is, if we do it will be, the sort of proportions that you would - it would not really affect the overall balance of demand and supply.
Our next question comes from the line of Michael Webber with Webber Research & Advisory. Please proceed with your question.
It's actually Chris on from Mike how is everyone? So thank you for all the color and the impact that you're seeing on the coronavirus throughout the markets and I guess I was seeing COGs are down in some other sectors around 50% in China and wanted to see the impact setting on Chinese propane and butane input. Do you see it is similar are you guys seeing this?
We haven't actually seen something that impacts I mean, we have a ship discharging in China as we speak. And we haven't seen anything very significant to say that there's - about port calls not yet. But frankly, I'd expect that we would. I’d expect that we would. I mean actually, we've got Tim Hansen on the line he may be able to give you more up to date information on that. But Tim do you have anything?
No, I don't think the reason that we haven't seen anything yet is that the - their holidays the Chinese are basically - they are reducing impose over their holidays because they know all ports will kind of stopped working. So we might see once they return after the holidays and import starts they can have some delays, but yet so far we haven't seen anything.
All right, okay thank you. And I guess - like a follow on to that is like have you seen or expect any sort of knock on effect for Chinese PDH plant coming online?
Was the question is whether we've seen anything new with the PDH plant delays, any delays?
Yes.
No. But it's a good question. I mean ultimately, that would be another thing that would be affected depending on how - I mean I think we together with the rest of the world are looking for a V shape recovery at some point. But it's - unfortunately it’s a play that is still in on stage and we won't know.
And I guess, something little topical and you guys cover this a bit around the volatility of field spread. But I know you guys have done work with LPG as a managed field, I want to see again if any details or updates last call?
Yes well, we do have - we continue our assessment and trying to see if we can bring the participants in a project like that which will be the engine manufacturers, the engineering companies, the shipyards and all that to a point where we think the prices are more affordable. But so far, we've been making progress but we're still - our position is still to wait and see how our friends do with the first four ships that they're retrofitting this quarter.
Our next question comes from the line of Sean Morgan with Evercore. Please proceed with your question.
So in light of the disruption you guys are seeing now with coronavirus in China at the yards for the scrubbers, a couple questions, sort of in that bin. The estimated quarterly cash outlays, is that taking into account that everyone is back to work on February 9 or should we expect that March 31st quarter cash outlay of 11 might get pushed back into the following quarter.
Ted will answer you.
I mean at this point of space as people going back to work as John indicated, because that's our best guess. We put it together and even if it splits a couple weeks it shouldn't have a material impact on the timing. As John and John both said it's still a bit of a wild card, right? If there's further slow-downs because of the coronavirus outbreak they can move things around further.
And then back in 2018, you guys had talked about an MOU with Hyundai to undertake the examining retrofitting the [indiscernible] that was just touched on. But could that be done in a Korean yard or is there possibility to do that in the lieu of I guess additional scrubbers if there's really material delays and kind of in light of what you're seeing in terms of the fuel spread between low sulfur and high sulfur fuel?
Well we had earmarked the ships that would not be fitted with scrubbers to be candidates for the LPG modification. So I think we are still there and also regarding where it could be done yes, it could be done in Korea or in a Chinese shipyard.
Our next question comes from the line of [indiscernible]. Please proceed with your questions.
Just flushing a bit on the three year a bit older vessel the capital first on ECA. How do you see the earnings differential developing in last year, months and quarters? And then looking a bit further ahead how do you see strategically these vessels, what option do you see and would you consider divesting them if you're able to do in a strong market trend?
Since I don't want to answer that question - we can but we don't at the moment have any ships to sort of put aside for sale. I mean the ships are performing very well. And we're happy to have them in this market. So I think that probably is the best answer I can give you.
And in terms of earnings differential SG&A based on fuel consumption?
Well, only what you know, the eco ships are more economical, and I think we've given those numbers, the differentials obviously change with the price of fuel oil, and so on an overall basis, while the prices have gone up then eco ships greater advantage through the three captains, but the captains, we kind of try to schedule them on shorter voyages and do it where the impact of the higher fuel costs would be mitigated.
[Operator Instructions] Our next question comes from the line of Thomas [indiscernible] with Arctic Securities. Please proceed with your question.
Good morning, gentlemen. I just had a general question with the reference to the paragraph where you discussed the market and the seasonality. I'm not quite sure the wording here, how I should see this, but when you say that the activity has not yielded expected seasonal results. I read this as it's better than what you expect from this quarter. Is this correct?
Correct.
Thank you. There are no further questions at this time. I'd like to turn the call back over to Mr. Hadjipateras for any closing remark.
Thank you, Michelle. Thank you everyone for joining and we look forward to next quarter and onward and better. Thank you. Bye, bye.
Thank you. This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.