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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 2022 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, John. Good morning, everyone and thank you all for joining us for our third quarter 2022 results conference call. With me today are John Hadjipateras, Chairman President and CEO of Dorian LPG Limited; John Lycouris, Chief Executive Officer of Dorian LPG USA.; and Tim Hansen, Chief Commercial Officer. As a reminder this conference call webcast and a replay of this call will be available through February 10, 2022.
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, 2021, that were filed this morning on Form 10-Q. In addition, please refer to our previous filings on Form 10-K, where you'll find Risk Factors that could cause actual results to differ materially from those forward-looking statements.
With that, I'll turn over the call to John Hadjipateras.
Thank you, and good morning. John Lycouris, Ted Young, Tim Hansen will update you with details of our financial operating and general market information after my brief remarks. I hope you and your families are keeping safe. Thanks to the hard work of our shoreside people, our operations continue largely uninterrupted.
I'm pleased to report that we now have 79.9% of our seafarers fully vaccinated. Our fleet performance and technical teams are assessing various emission devices, which potentially will reduce the consumptions of our ECO fleet and we have narrowed down our target list for potential retrofits.
Since January 2020, our efforts to reduce emissions have resulted in fuel savings of over $3 million. We will shortly be posting on our website our new sustainability report, which highlights our achievements and targets. We are proud to be participating in the getting to zero coalition. We saw a quick rise in the market this past quarter and managed to achieve strong rates in vessel utilization. Higher bunker prices impacted TCE.
Last Friday, on February 28, was the first time since September that Brent was quoted above $90 a ton. The price spread between heavy fuel oil and low sulfur fuel averaged $127 a ton over the quarter. This increased the earnings differential between non-scrubber-fitted and expedited our return on our 12 scrubber ships. Currently the price differential is between $150 and $200 a ton.
We have a new bunkering manager now sitting with chartering and operations in Copenhagen, who already has made a considerable impact on sourcing the best quality and best price bunkers for our fleet and our pool fleet globally. This morning, we announced the decision of our Board of Directors to authorize share buybacks of up to $100 million.
We are continuing our focus on capital allocation and creating value for our shareholders. Notably, we also have returned capital by way of our second $1 per share dividend which was paid in January and with our new building order and time charter dual fuel new ships in 2023, we are well positioned with fleet renewal flexibility. Thus, our overall capital allocation strategy is a balanced mix of return of capital and sensible investment in our business.
I'll now pass to Ted to give you -- to discuss our financial results. Thank you. Ted.
Thanks, John. In addition to discussing our financial results for the quarter, I would like to review the significant events related to capital allocation. The $1 per share irregular dividend that we paid in January represents our second and brings to $80.1 million the total dividends paid to shareholders and bringing to $309.1 million the total cash returned to shareholders since our IPO in 2014. We've done that through open market repurchases a self-tender offer and of course, through dividends.
Since our last report, we have completed the previously announced repurchases of the Captain John and the Captain Nicholas for a total cash of about $35 million. While we're not going to comment on press speculation about a possible sale of these vessels, these pay-offs allow us to move quickly if those opportunities present themselves. In addition, we have now paid off our most expensive debt.
At the end of December 2021, we completed a refinancing of the 2015 built Constellation and Commander with the group led by Bank of America, with an advance rate of 60% and an approximately 17-year age adjusted amortization profile and a 3.78% fixed interest rate, we felt that the terms were suitably attractive.
The cost of the new debt is only marginally more expensive about 70 basis points than the debt it replaced. For modeling purposes, the new debt will add roughly $420,000 to the previous quarterly cash interest expense incurred on these two vessels.
At December 31 2021, we had $115.8 million of free cash. As of February 2, our free cash balance stood at $54.8 million, reflecting the payment of the dividend and the repurchase of the Captain Nicholas as well as a new building progress payment of $8 million.
We had originally expected to make that payment in our fiscal fourth quarter, the quarter ending March 31 2022 but the yard met the milestone in December. Thus, we'll have that cash flow benefit in this current quarter.
With the debt balance at quarter end of $585 million, our debt-to-total book capitalization stood at 38.8%, which is flat with the prior quarter. Again, we have no refinancing until 2025, ample free cash and an undrawn revolver. We expect our operating cash cost per day for the coming year to be -- continue to be in the range of $22,000 to $23,000 a day.
We are continuing to evaluate financing opportunities that are consistent with our parameters of tenure cost and advance rate. For the discussion of our third quarter results, you may also find it useful to refer to the investor highlight slides posted this morning on our website, where we have some additional financial information as well as some market and ESG information.
For the third quarter we achieved a total utilization of 98.5%, which was up from 95.7% in the September quarter, with a daily TCE, that's TCE revenue over operating days as defined in our filings, of $33,508, yielding utilization adjusted TCE, which is TCE revenue per available day, of about $33,019.
Spot TCE per available day, reflecting our portion of the net results of the Helios Pool or the net profits of the Helios Pool, were about $33,497. Looking at the Helios Pool as a separate entity, the pool reported a spot TCE including COAs of roughly $33,414 per available day for the quarter. Overall, in the pool, the rate was $30,408.
During the quarter, we saw steady month-over-month improvement in TCE rates, reflecting the favorable trends in the market. Daily OpEx for the quarter was $9,086, excluding amounts expensed for drydockings. It was $9,423 including those costs. Sequentially OpEx drydocking costs were down about $100 per day and down almost $800 per day since the quarter ended March 31, 2021. We are pleased to see a reduction in our running costs, which sequentially has been most notable in spares and stores.
Within the quarter, we saw our daily OpEx, excluding drydocking costs, generally decreasing sequentially, which again is consistent with our expectation of improved OpEx as conditions slowly normalized.
Our TCN cost for the quarter was $4.9 million, reflecting the delivery of the Astomos Venus during October. On a full quarter basis going forward, our TCN expense will be approximately $5.4 million. That's for the two ships the Astomos Venus and the Future Diamond.
Total G&A for the quarter was $5.9 million and cash G&A, SG&A excluding non-cash compensation expense, was about $5.2 million, which was down $400,000 from the previous quarter. That left us with a reported adjusted EBITDA for the quarter of $39.4 million.
As you know, we look at cash interest expense on our debt as the sum of interest expense excluding our deferred financing fees and other loan expenses and the realized gain loss on our interest rate swap derivatives. On that basis, total cash interest expense for the quarter, excluding $900,000 associated with the repurchase of the Captain John, was $5.2 million, which was down about $300,000 from the prior quarter.
The payoff of the Captain John and the Captain Nicholas will reduce our annual cash principal and interest by over $4.8 million per year or about $600 per fleet day. Taking account of the payoff of these two vessels and the refinancing of the Constellation and the Commander, we expect to have about $5 million of cash interest expense this quarter on the new capital structure and about $1 million of amounts related to the Captain Nicholas that will not recur in this quarter after the payoff.
So, again, about $6 million of cash interest expense, of which $5 million is really the full effect of the new capital structure and $1 million is, sort of, legacy amounts related to the Nicholas. Following the repayment of the Captain Nicholas and the refinancing of the Constellation and the Commander, we expect quarterly principal amortization of $12.9 million going forward.
We continue to benefit from our hedging policy and the favorable pricing of our Japanese financing, leaving us with a current interest cost fixed, hedge and a small floating piece of 3.71%.
Although, we currently hold roughly 80% economic interest in Helios, we do not consolidate its P&L or balance sheet accounts, which has the effect of understating somewhat our cash and working capital. Thus we believe it's useful to provide some additional insight in order to give a more complete picture.
As of Wednesday, February 2, 2022, the pool had roughly $28.5 million of cash on hand. As John mentioned, our Board also authorized the repurchase. Again, we remain focused on looking for ways to return our capital to shareholders as flexibly as possible, as well as maintaining opportunities to capitalize on market opportunities as they present themselves.
With that, I'll pass it over to Tim Hansen.
Thank you, Ted. The fourth quarter of 2021 continued many of the trends from the previous quarter. North American NGL production demonstrated robustness and Asian import demand grew crude oil prices continued to climb with the Brent crude oil price at about $79.6 per barrel. Global seaborne LPG transport was up by about 700,000 tons compared to the transport volume in the third quarter.
North American export followed the trends of the quarter prior, driven primarily by high production figures. Production figures were at level similar to the record-setting production seen in January of 2020. Continued production increases by the OPEC+ countries since August 2021 has seen export volumes grow. Fourth quarter exports were up by about 370,000 tons compared to the third quarter.
Import volumes in China declined quarter-on-quarter by around 400,000 ton, but this however was offset by higher import volumes in India, South Korea and Japan. Demand for VLGC shipping increased in the fourth quarter and freight market improved quarter-on-quarter, although rising bunker prices as mentioned negatively impacted the time charter equivalent earnings.
The BLPG1 which is a freight market indicator for the Middle East to Asia route averaged about $59 per ton during the fourth quarter compared to $42 per ton during the third quarter. And the BLPG3, which is a freight market index for US Gulf to Asia averaged at about $103 per ton during the fourth quarter compared to $80.8 per ton during the third quarter.
The East of Suez markets saw a rally in the BLPG1, the Asia index at the end of October on the back of the improved West East average. Eastern players reacted to the anticipated pull of tonnage from west to the east and the Baltic improved in the last week of October by $5. By mid-November, the BLPG1 was in the 60s levels not seen since May of 2021. The first week of December saw a slight dip in the BLPG1 as charters waited for acceptances by various Middle East exporters and delivered prices in the Far East fell in conjunction with crude oil prices.
The dip in the rate however short lived, with renewed correction to the market and rates reaching the mid-70s levels not seen since January of 2021. For the West of Suez market, as crude oil prices rose at the end of October, the arbitrage opened and there was considerable activity. The market was further bolstered by delays in the Far East discharge port, as well as delays in the Panama Canal that were reported around two weeks with a peak of 18 days by the end of November. Much of the delay at the Panama Canal can be attributed to the arrivals of vessels that had been -- that had been delayed in China during the third quarter.
Although, freight levels didn't reach the same peaks as of December 2020, December 2021 did see a firm Western market. The draw of investment to the strengthening Middle East market was one contributing factor.
The other factor was the rising arbitrage supported by relatively low Mont Belvieu prices. Mont Belvieu remained supportive of the half during the stock close as they occurred slower than the previous winter, partially due to warmer climate but also due to record high production levels.
And coming to the East and West markets delays at the price – transport of vessel capacity. Weather and port congestions were contributing factor to the delays. Rising crude oil prices reported also complicated settlement of letter of credits, which had to be adjusted, further adding to delays to VLGCs discharging in the Far East.
Despite the negative impact on time charter earnings from rising bunkers there are several positives for the remainder of the first quarter of 2022. The LPG demand remains firm and North American production of NGL remains strong as well. Furthermore, Middle East exporters are forecasted to maintain the post-production cost levels from the OPEC+ countries. Lastly, there are signs of an increased Panama congestion in the first quarter as well, increasing utilization to the worldwide VLGC fleet.
And with that, I will pass on to John Lycouris.
Thank you Tim. During the last quarter, we have seen crude oil price rise on anticipated shortages in Europe and China due to weather and geopolitical threats. LNG cargos have been diverted to cope with their situation and LPG cargos have also seen good activity in November 2021. The bunker supplies have become tight and the spread differential between low sulfur fuel oil and high sulfur fuel oil has widened. The average spread for bunker supply between the Port of Singapore, Rotterdam, Houston and Fujairah recently stood at about $150 per metric ton and our scrubber vessels have benefited from the relatively lower high sulfur fuel oil prices versus the very low sulfur fuel oil pricing, which rose faster in response to the crude oil price increases.
For a vessel consuming 40 metric tons a day at sea, the fuel differential for the scrubber vessel can translate to roughly $6,000 a day for the -- during the sailing trip. These economics are maximized on long-haul voyages. We should also remember that the hybrid features of our scrubbers provide an additional upside for all emission control areas and sulfur emission control areas when steaming or during port stays by replacing consumption of the 0.1 medium gas oil, which has a wider spread differential than the very low sulfur fuel oil.
We are also pleased to note that our original expectations continue to be validated, not only with our selection of hybrid scrubbers as opposed to open loop for our vessels but also regarding our investment payback estimates.
We are continuing to invest in our vessels performance and energy efficiency to reduce emissions and lower our operating costs. Our new technologies advisory group considers and reviews feasibility of novel and existing solutions, which could be implemented in realizing these objectives. The immediate focus is our fleet's EEXI calculations and the resulting engine power limitation, which will come into effect in less than a year according to the IMO regulations on all vessels. EPL is a significant development in our view, because it will affect all ships by requiring them to limit their speed based on emission levels. Thus, younger ships will be less impacted and should enjoy some trading flexibility that may not be available to all the tonnage absent significant capital investment.
We further consider retrofitting energy-saving devices to our fleet, which improve performance and reduce power requirements, resulting in lower emissions. Given our experience with scrubbers, we also look at carbon capture and store technologies and their potential application to the marine industry in the future. We believe that by capturing and redirecting energy dissipation towards vessel performance and emission improvements, we can do a better job with the energy we consume. Our immediate objectives are implementing marine technologies that already exist and which can provide immediate results, while studying technological innovation advances until they mature and become commercially available in the coming years.
Our performance group are leveraging their recent collaboration with Kongsberg to progress real-time data collection and management. The objective is to monitor in real-time the vessel's performance and enable optimization of onboard engine and cargo operations, while achieving completion of the voyage with lower power requirements saving energy and reducing emissions.
There have been significant regulatory updates in the last few months in the maritime sector. While the International Maritime Organization is the international governing body for global shipping, the European Union announced in July 2021 that maritime transport would be included in its EU emission trading system. In January 22 -- 2022, the EU legislator proposed several amendments to their July 2021 proposals that go beyond in many cases what the IMO had proposed and agreed during MEPC 77. These include proposals for a shorter phase-in period unless the IMO agrees to comparable measures with those of the EU, clarifying charter responsibility for the pollution that their trade generates, adding a new requirement of measuring methane emissions in addition to CO2.
The EU has also begun to encourage other regions of the world to adopt similar emission legislation for maritime transport. Ultimately, the essence of all this is for the EU is to signal that the IMO is not moving fast enough on the maritime emission regulations, as other sectors and industries have done. The accelerating focus on energy efficiency will likely force owners to make hard decisions about the cost of investing in the upgrade of all the tonnage and on their ability to compete in the main trade. We think it is likely that several owners will find it more economical to scrap all the vessel particularly those several generations older with a burden of high fuel consumptions, smaller cubic capacity and less modern engines or at least these vessels will be restricted to captive trades.
For vessels that are newer, we believe that investments will be imperative. And therefore, the best capitalized players will access reasonably priced capital and will be best positioned to make the necessary investment to achieve those results. Our decision to invest in scrubbers was possible because of our financial strength and has helped us generate solid results, which gives us confidence as we look forward to evaluate the next wave in marine technology advancements.
At Dorian, we consider it is our clear goal to continue improving our greenhouse gas footprint eventually reaching a zero emissions target and we are optimistic that our fleet will be among the best positioned to meet those demands which are also those of charters regulators and shareholders.
And now I will pass over to John Hadjipateras.
Thanks, John. Mr. John operator maybe you can open up for questions please.
[Operator Instructions] Our first question comes from the line of Sean Morgan with Evercore ISI. You may proceed with your question.
Hey guys. So I think really demonstrating the commitment to return of capital. And I just wanted to clarify some things on the $100 million buyback authorization. So that's north of 20% of the total market cap and it's probably in line with your total cash. So how aggressive? Is there a time limit on that authorization? And how aggressive would you look to buy back shares? Would it be kind of just a steady purchase plan, or if shares continue to sort of dip in this bear market which is not necessarily reflecting what's happening in the rate environment for VLGCs. Do you think you'd be accelerating buybacks, or is it just more of a steady buyback plan?
Sean, if we're making a choice between those multiple choice questions they would be more a…
Yes, it's a lot.
No not at all. But it is -- it's a good question. And I think that what -- where we intend -- yes there's -- first of all to answer your question about the time limit, there isn't a time limit. Secondly, how we execute has to take all of the factors into consideration including obviously earnings and price. So, we see value here and we see -- but we're not committed to executing in any particular timeframe.
So it's difficult for me to kind of give -- to give you a clear answer on that because it's going to be subject to all the other factors. There's so much volatility everywhere now including in geopolitics and in the stock market and our freight market. So well from quarter-to-quarter, we'll be updating you no doubt.
Okay. Yes. I mean that was really what I was trying to get to. So, it sounds like it's not like a static program where you're buying a certain amount of shares each quarter. It could be sort of adaptive based on what you see in the equity markets and then kind of balancing that with the rate market. So that was what I was trying to drive at sort of inarticulately.
And then regarding the new EPL limits, do you kind of see I mean you kind of hinted a little bit at potential for scrapping as that gets instituted. Do you think that that -- the slow steaming will have the impact to sort of reducing effective utilization or increasing effective utilization of the fleet and maybe providing a little bit of rate benefit there as well?
Yeah. I'd like to give you – I'd like to give you maybe, John, he's been spending a lot of time on this as well as Tim, of course. So they're better poised to give you an answer. Yes. John, do you want to try?
Yeah, of course. Hi, Sean. Yes I – the older ships just rule of thumb kind of thinking is those ships would have to cut their engine power to about 30-some percent and the younger ships will have to cut their power at about 20-some percent. So just roughly, the newer ships would be able to do almost nearly to 16 knots, but the older ships would have to go down to 14.5 knots to 15 knots something like that. So yes, it does do exactly what you said the utilization is lower for older ships. And therefore, they will not be as I said in my script a few minutes ago, it means that, they will have to kind of reduce themselves to captive trades rather than do long-haul trading, or really active trading. Does that answer your question?
Yeah. That's helpful. And then – so, I guess, if people are – I know, we're kind of a little ways away on ammonia technology and other sort of lower carbon technologies. But does the IMO take into account propulsion technology to basically give you the benefit of faster steaming, if you are using a lower carbon-intense propulsion system than maybe a traditional ICE engine?
Yeah. The formula does provide that. It is the amount of CO2 that you emit, whether it is from the main engine or from the auxiliary engines, the generator engines. And yes, it will affect it as the formula goes, yes of course, it would. And you can – the more things you add to your engines to do better combustion or less CO2 emission, it would affect it. It would give you a better status and a better speed yes correct.
Okay. Great. Thank you.
You’re welcome, Sean. Anything else?
[Operator Instructions] Our next question comes from the line of Brian Reynolds with UBS. You may proceed with your question.
Hi. Good morning, everyone. Just a follow-up on the capital allocation question alluding to the 20% of the market cap being reduced. In energy land, we've kind of seen that math being thrown around where free cash flow et cetera can reduce – effectively make a company go private in x amount of years. Just kind of curious around your thought process around the long-term what makes sense from a liquidity standpoint from a total account perspective? And going forward are you looking ahead just given the new IMO regulations should we think about potential new CapEx spend or potential special distributions in the future and just, how you're balancing all of those three together?
We have -- I think I said in my remarks at the end that, we have -- we will continue to have a flexible attitude towards capital allocation. We will by value -- by evaluating all the options. So at the moment there is nothing -- we haven't sort of made any plans in terms of reducing, how should I put it? Our plan is to put the capital where we think it could be most effectively rewarding to shareholders, at any given time. And I think we've been quite good at doing that.
And we're not going to do that at the expense of our business. We don't want -- we are not going to imperil our balance sheet, and we are not going to reduce the service quality of service that we can provide to our customers. So, we think we've intelligently positioned ourselves. We have the newest fleet so far amongst our peers and we're intelligently positioning ourselves for the future, with our commitments in 2023. And we will continue to evaluate everything, all the options as we go along.
Very nice. That’s all for me. Thanks for your time.
Thank you. We have reached the end of the question-and-answer session. Now I'll turn the call back over to Mr. Hadjipateras, for closing remarks.
Well, thanks everybody, and thanks for coming and for your questions, gentlemen and looking forward to talking to you again next quarter. Bye-bye.
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and have a great day.