Q1 2020 Earnings Call
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At this time I'd like turn the conference calls over to stepping in for C. O CFO. Sir. Please go ahead.
Thank you Jamie.
Good morning, ladies and gentlemen, and welcome to.
We've got new partners to bring <unk> for the first quarter Twentytwenty.
For your convenience this webcast.
Presentation are available on our website.
[music].
Before we start please take it how tough the forward looking statement on the pitch to.
Glossary on page three.
Turning to page four and highlights.
I would like to stop at some comments relating to the Corbett 19 situation.
As of today the partnership.
And.
The they're going to de group.
Experience you limiting impact somebody Corbett 19 pandemic.
The group has taken steps to mitigate raised from that and then make as back to ensure that help.
But to your spot crews and stuff.
Which is our highest priority.
We are continuously monitoring the situation and always prepared as possible to address any changes to the situations that might impact.
As of today.
The group has experienced no known cases, so Corbett Nike infection among.
Newpark first or step.
The only direct effect on exploration has been delayed seemed crude changes.
Which have limited financial impact.
However, this titration, it's improving that group.
Hey, good to conduct crude changes on several of its vessels in recent weeks.
Including one up that that's that's for the partnership.
Additional crude changes are being prepared for the weeks ahead.
The technical availability off the group's feet has not been affected by the current endemic.
For charter parties remain brute force and revenues are being collected.
In accordance with contractual terms.
No go into the financial.
And thanks to the hard work the far crude and stuff.
Hi, I'm happy to report that well units in the partnership's sleep <unk> percent availability the courtship.
This resulted in total revenue so 36.7 million.
Segment, EBIT, Gail 36.1 million.
And a coverage ratio of 1.2 times during the quarter.
The partnership distributed 44 cents per common unit for the quarter.
Furthermore, during the quarter the partnership's exercise the option to talk the group along two big LNG.
Subsequent charter has no big time.
Five U curve expiring or July 31st quarter 25.
The chart, you're right, it's 90% the previous chalk trade 40 gig.
Turning to page five.
We are putting more numbers to the quarter.
Which shows a stable underlying operating performance compared to the same quarter last year.
Excluding unrealized losses on derivative instruments and foreign exchange.
Segment, EBITDA was 36.1 million, both the first quarter 2020 and 29.
Limited partner interest in that just net income was 13.6 billion in the quarter slight just wanted to first quarter 29.
The improvement is mainly due to one more calendar date in the quarter due to the leap year.
Lower operating expenses.
Our tax it partly offset by higher net financial excess.
I'm happy to report.
Despite the Colby lighting pandemic.
She was delivered strong operating performance and a strong distribution coverage for my long term contracts in the culture.
Turning to page six yes, showing the development of key met just overtime.
As you can see for these graphs the consistency stats out.
Underpinning the distribution made for the quarter.
And with execution of the five year oxy relating to hook along.
We have further and sure the long term stability of the partnership cash flows.
And with approximately 9.2 years, so average remaining duration are far contract portfolio.
The partnership is well positioned to continue providing predictable distribution.
Turning to page seven yes, showing the income statement in more detail.
Total revenues.
The quarter, it's up from the same paired last year.
Mainly due to the extra trading day in the quarter.
Vessel operating expenses of 5.5 million the quarter itself for the same paired last year.
Mainly due to lower used to spare parts and external services into quarter.
Greetings and losses jump that just 10 million in the quarter compares to equity in earnings of 300000 in the same quarter last year.
Excluding unrealized losses on derivative instruments the equity in earnings have talked watch it would have been 1.7 million in the quarter.
Compared to 2.9 billion for the same quarter last year.
The decrease primarily relates to higher Chaucer project cost in the quarter.
The majority of which are expected to qualify for reimbursements from the Chaucer in future parents.
Both the Florida.
Thank you for natural expense of 6.9 million in the quarter.
He is up from the same quarter last year.
Mainly due to a gain on extinguishment in the first what last year.
Interest expenses were down into quarter compared to the same quarter last year.
Texas Sports 900000 in the quarter, which itself.
Same quarter last year, mainly due to reduction of tax rate Didnt show.
Turning to page eight.
The balance sheets, that's not change much since year end points you Nike.
The total liabilities and equity standing at just below 1 billion during the quarter.
One thing worth mentioning is that in addition to the cash on the balance sheet.
Apartments, you've had approximately 95 million.
Drawn amounts under the two revolving credit facilities.
Taking total liquidity to approximately 823 million at the end of the quarter.
Turning to page nine we're showing the partnership assets.
All of which upgraded according to contract during the quarter as already mentioned.
In regards to hook it up the subsequent charter is now imports as mentioned the tariff running through July 31st 20 to 25.
Charts racing is 90% the previous chalk direct subject to certain adjustments boy did all incremental cost.
As previously announced fiberglass.
<unk> parents have secured an interim time charter for hook, along in LNG carrier mode for a period of around seven months from mid 20 Twond.
This shift the unit is considered for several of the potential long term assets or your project that Herc LNG is working on which I'll come back to later in the presentation.
In regards.
That's still a capex and the boiler Claire.
The settlement agreement has now been tied at the first installment has made the remaining to be paid later this year.
Indemnification payments from Hegh LNG relating to the first Testament installment has written consent.
[noise] turning to page 10.
Yes, showing the overview of the business development activities.
That they're going to de lever.
And I'm happy to report that this nice becoming increasingly busy.
During the quarter given that you were selected that's a preferred beautiful too that's short pitches for one additional FSRU project.
The box that shows the projects, where they're going to GE has the preferred bidder status.
We have previously announced the two projects in Australia.
But now there are two additional projects on the list both located in Latin America.
With a scheduled stoppage in the 2021 to 2023 type for.
In terms of targets for their shred It project.
He has now received approval for its application to modify existing development concept for.
What can block terminal.
Thank you as project and create point the environmental permit process is ongoing and expected to be completed by the end up yeah.
[noise] the box in the middle East showing ongoing tender. So that's one of them. We're glad he has been shortlisted during the quarter what service located in Latin America.
Finally, the box at the right is showing bilateral projects.
Lets et cetera, LNG is developing itself.
This includes the project on the European side effect, let the basic being developed by Google Andy what potential project in Cyprus.
This they've opened up the based business development type shows that activity in the FSRU market is high.
The way we see it this is driven by the low price of LNG.
This is triggering LNG import this to move ahead with their faster to facilitate imports of natural gas.
And this high activities ongoing despite the Corbett 19.
[noise] turning to page 11, and the LNG markets the first quarter Twentytwenty.
The LNG market grew by 13%.
Europe continues to be the main driver of growth. However demand from Asia also remained strong.
India, and South Korea, where the main growth markets the quarter.
You take India as an example, the import continues to increase driven not only by the low price of LNG.
I want to buy the country's need for continued fuel switching to deal with the Felicia.
Finally, what's clearly impacted by the corporate Nike epidemic in the first quarter. However, it's now showing solid coming back and increasing its LNG imports.
[noise] turning to page fault.
Crafts illustrating the expected development in the global LNG markets.
If you look at the graph to the left this shows the forecasted LNG demand both prior to and after the Cobiz Nike condemns.
And that's you can see demand growth is expected to continue despite the today.
But the best this year than estimated previously.
For picking up again in 2021.
After which is expected to be aligned good supplier for cost.
Both the demand is expected to be only moderately lower in the years ahead and reach approximately 430 million tons to point to point before.
The graph to the right shows where they've reduced demand growth is expected to result in reduced supply growth.
And that's you can see from this crap U.S. export dyslexic did you see most of it.
Why is that well simply because most export agreement a flexible.
Allowing buys to reduce the offtake.
You had exports are not tied to a particular gas reservoir, it's sourced from the whole upstream market. So it's easier for U.S. export is to make adjustments.
That is not the case elsewhere in the world, which is why we expected to see this picture.
Turning to page 14.
And the competitive situation this picture looks more or less that's presented over the last couple of years.
We have not added any new building orders since the previous quarter, even though there had been reports of a new billing water by him well.
However, we understand that this is conditional have definitely not included it into this.
I have we have included conversion with the captive market when it relates incur project in El Salvador, and one for a project like for Africa.
Whatever what we're going to Gee. This means that the company competitive situation has not changed from the previous quarter, the Mark where we are.
And with that I would like to or trying to pick said 60.
14.
And the summary, and open up for questions from the audience.
Ladies and gentlemen at this time, if he would like to ask a question. Please press star and then one using a touchtone telephones. So.
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Our first question today comes from Ben Nolan from Stifel. Please go ahead with your question.
Great. Thank you.
Good morning <unk>.
I I had a few questions, but the first relates to the commentary in the earnings release about the possibility or or the need to refinance.
The lampung.
Next year or just making sure that was more a that the the commentary and it was more of just an abundance of caution or rather than you know.
Some porcine challenge with respect to that need to refinance that vessel corrected it it should be relatively used to refinance yes.
Hi, Ben.
Yes that had sudden.
And then.
That's a long term financing.
Involving yeah.
The age from from South Korea, and commercial crash on top of that.
And the commercial trashes is maturing or next year.
It's a about $15 million or so and.
Has always been part of the black your to refinance that in 2021, but the facility as such including the you see a tranche is it's not helpful refinancing, it's the commercial tranche of the facility.
Okay, and and you wouldn't foresee any.
John or wouldn't have any concern over the ability to recognize that correct.
No I don't basis.
As vessels, but the long term contract with a strong counterparty that has performed.
So this is say you know this is a good coverage contract coverage.
Oh put that that's the so I see no problem is that okay.
And then another thing I was going to ask that we've heard a little bit and this whole cobot environment and given the challenges.
Crude changes and so forth it there maybe a little.
Creep and the operating expenses this is cruise might be.
I think crews that have overstayed their their contracts might have to be paid a little bit more that's something that you might would expect in the mid second quarter, maybe the third quarter.
Yes, it's a we haven't really that's a risk we haven't really seen that so far.
Do you know that's that's a risk where you could have overlapping crusade thing, but so far that has not really being a problem.
And we so I wouldn't.
See that that's a material.
Race, but it's potentially that could be something some minor cost.
Okay perfect.
And then and then lastly, just on a from a macro perspective.
You in the in the latter slides there you kind of walk through the the projects and also.
The competitive landscape and obviously there has been a few project awards for conversion vessels.
Although the you know port for you guys here. The purpose built vessels that that's where you're I guess the stocking horse in several Latin American project has there been any change or switch at all and the cadence between.
Between their desire to maybe use a.
I converted Dassault, maybe a little bit a cheaper lower in converted vessel versus something that is purpose built with our throughput.
Capacity.
In any.
Any thing you've noticed there.
No I wouldn't say I think this room for both I think what we see has said that exit activity in the business development side, It's high and we see that there is some more and more projects you know moving forward.
And that's project so for you bid and and conversions. So I wouldn't say that there has been you know.
Shifting precedence, but it's it's it's a market where they fruitful for both type of FSRU switch we have seen.
Alright, great I'll I'll turn it over thank you.
Our next question comes from Chris Wetherbee from Citi. Please go with your question.
Hey, great. Thanks for taking the question <unk>, maybe a conceptual one here to a degree so lots of interesting activity that you highlight on on the.
Slide 10.
There were to see some incremental uptake activity at the parent level what would it take for maybe the resumption of have dropped down activity into.
Yeah, Youre vehicle well what are the circumstances that you would need to see.
To do that or is that something that could could happen. If you get a long term contracts signed at the parent that could happen sort of your financing available I guess I wanted to make sure I understood, yes sort of the moving parts around kind of getting back into that.
Direction for the company.
Yeah.
Well, so [laughter] de at the parent has has assets that is available for the crop dawn and they just need to secure the long term employment.
And Thislife shows that there is high activity in serving securing the long term employment. So that's good.
And so that's kind of one trigger of approach.
But another another trip.
Let me we need to see is then you know that financing of such growth now if you look at the the timing I. Most project. We are working on day had or the parent is working on has.
Startup of pretends to stock up from and 21 through 2023 so.
Say that.
The timing of when we could expect to see a dropdown coming our way would you know 20 to 22.
And I think we would have to wait and considering the financing option at that point in time.
We would have to see how the equity market is both for the common and preferred and we will also see how much we have de leveraged by that because we are de leveraging the.
The partnership bad and if the equity market should not be available then potentially that could be a group for leveraging al but that's an assessment, we will have to make that point in time.
But anyway. The point is is for the parent to secure the long term employment coffee assets. So that it has something to offer to us.
Okay, and then financing would be the secondary got component that that's helpful.
On the topic of de leveraging can you can you give us a sense of maybe what do you feel like you can accomplish a through 2020 and then maybe if we're if we're talking about potentially a 2022 timeline for the question that we just talked about what would be the potential opportunities de leverage over the course of the next two years. So say 20 2020 2021 point.
21.
So I think there.
It will be along the same line since we have done previously we have.
Now secured the long term stability of health Castro Wallich's, our assets, including hook alone.
And so that we will allocate you know the cash flow too.
To a debt repayment and dividend distributions and we have in the past seen a steady you know de leveraging and we expect that trend to be continuing through twentytwenty and and 2021.
When we then do a dropdown, we we should expect to see leveraged precisely because there were on the debt to EBITDA basis, the debt that follows fit the asset when it's being dropped on from the parents, it's probably going to be higher.
Same debt amount as it has been the case in previous drop down, but probably lower EBITDA follow ups that that says so I'd say, it's an increasingly can be leveraged in terms of debt to EBITDA.
But they dropped off.
Okay, but just assuming that the all the contracts perform.
As expected.
How much cash flow above the distribution do you think you're generating 2020.
So it's not going to change from for what we have seen in the past its going to be the same.
Free cash flow that we can test for that we can use for de leveraging purpose as we see on that on a quarter like like like this quarter and we have seen to pass so there won't be any changes to that compared to what we have seen in the past.
Okay. Okay. That's very helpful. Thanks, very much for the time I appreciate it.
Our next question comes from Ken Hoexter from Bank of America Merrill Lynch. Please go ahead with your question.
Hi, Stephen I think.
Good morning, and good afternoon, maybe just to wrap up on the prior one I think Chris was just looking can you give just a kind of I don't know.
Debt to EBITDA level, or what what fat reduction in the freak I know you keep saying it's going to be the same.
But just maybe an absolute number of what you're looking in terms of debt reduction in the year at.
Hello.
And ladies and gentlemen, the speaker line has dropped please remain patient well we attempt to reconnect.
[music].
Thank you I'm, sorry, what dropping out here something technically what happened.
After the a question of de leverage the we have that at the moment Department ship has a <unk> debt to EBITDA ill.
On a proportionate basis up around.
4.2 times.
And I think we could expect to see a de leveraging of around 7.5 times you know.
And I never basis based on the cash flow that we are generating.
Hi, voluntary that's very helpful. That's great.
I still have an awful lot and you can hear me right.
Yes, I can.
Okay wonderful so thanks for that so just on the on the gallon I guess now I just want to stand with some of the new projects that you're talking about with hog is there any incentive for them to permanently place the gallon in those projects is that.
Or whether they be looking solely at new build their conversion for those projects or could you look for a extension on on the tie up of the gallon aside from just putting it to the parents.
Uh Huh [laughter] the Uh huh.
The parent has had its is incentivized to make sure that.
He partnership has long term stability and it's it's cash flows and.
Is the offering hook alignment on several projects where that unit is best suited to compare to do is available and well suited.
So when the parents then secures long term employment direct third party for.
Hook along.
The parent will benefit from that through getting off to hook themself and also through is stabilizing with securing the long term cash flow for the partnership. So so I think they are.
You know shooting, both alternatives and securing <unk> acid or employment, when you assets and for local aren't in Paraguay.
And then I guess, maybe just a follow up on that right in the chart or in the release you talked about the outlook.
90% of late payable subject to adjustments for avoided or incremental costs, which can reduce revenues is there anything you can quantify there or is that just.
Outside of the realm, then the parent covers but you're still looks I just want to understand what the exposure is by that that that kind of sense.
No it's.
The Formula is that's when we then enter into.
You long term FSRU contracts.
To the extent, that's it's some of operating expenses and taxes relating to.
That's contract exceeds 22000 per day that would result in an increase in the.
Day rate that the parent to is paying us.
And it during the period of time Wendy.
Unit is operating in carry mode. It will save.
Taxes that we previously had in in a Egypt equivalent to approximately 4000, a day and that will then reduce reach we have reduced higher for 4000. During the period of time then the vessel is operating in Korea.
That's the the the limits here 4004 carry mode, and then actually as long as total cost exceed 22000 in FSRU mode. It will lead to an increase in the day rates.
And just to.
Confirmed there you said.
They kept the parent is incentivized for for long term stability nothing other than just the stability of the of H. MLP is there other incentivization that they have in guaranteeing youre youre stability.
Other than the dividends, they receive and and the continuation of that.
No they have a the dividend and India, Doris and the stability of the partnership's cash flow that's their incentive for for.
For securing the employment.
Okay.
Thanks, Stephanie Great I appreciate it congrats on the stability and and good luck. Thank you.
Thank you.
Our next question comes from Liam Burke from B. Riley FBR. Please go ahead with your question.
Thank you good afternoon and stuff.
Hi, good afternoon.
Oh stuff when you mentioned in the.
Please press release.
General risk in terms of Ah the ability of the counterparties to be able to deliver or is this covert Don king related or is this just a general caution about the overall.
So are you market for the time.
Yeah, I think it's a it's a general statement, we have had for some time and we have relation to cope with 19 a.
All our assets have been performed according to contract and all our clients have been you know delivering their obligations and there has been no no discussions around or any change to the time charters. So so we see that our clients.
Have you know to formed a their obligation. So we don't see any necessary I mean, it hill increased risk associates to the counterparty.
But it's a it's a general statement that we make you know you know documentation.
Okay, and the army operating expense side I know it wasn't a material change, but you did have lower year over year expenses I know you highlighted the potential of cope with 19, increasing them but.
What are what kept expenses so low in the first quarter.
So we had some we had.
Lower spare parts and external service external services in that where the two main components of driving the reduction.
Great. Thank you. So it's correct, we have compared to the same quarter last year, we could see I in fact, a reduction in operating expenses, which is good.
Thank you.
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Our next question comes from Craig cannot from Palm Beach Capital. Please go ahead with your question.
Oh, Hey, Stephan it looks like a really good job in a very difficult environment I'm looking at your cash flows.
I see that you've had your really only negative that I could find in the whole financials was unrealized loss on derivatives.
Is there anything else that you know you can tell us that might negatively impact cash flows in your ability to continue to pay this steady dividend or for the next couple of quarters or so that you know maybe not jumping out at us.
Yeah. This is the script. This this quarter was a good quarter is you know good operating performance and no extra ordinary item. So same anyway. So it wasn't very good quarter.
I think we have a you know highlighted are the main risk S.S., we see them.
And.
In terms of false you know.
The classical counterparty risks and ER and impact some Corbett 19, so far we have not been materially impacted by who will be 19, but.
The situation is on there and it can move the change quickly we are.
You know we are doing as much as we can to prepare for you know adverse development and implemented measures to mitigate that.
But I think covey 19 is a it situation that is difficult for everyone and we are putting a lot of you know time and resources in mitigating the risk associated with that so I think maybe that's the biggest a you know risk here isn't meant.
The quarters ahead of where we don't really know what the consequences of the pandemic how that will payouts.
<unk>.
And so.
It looks like you know other than this unrealized loss on derivatives everything's pretty much. The same it just continues to go you've got these nine year.
Contracts so.
It looks like a very steady business or to.
Stay invested in and they continue to grow the investment.
I'm looking at you know your opportunities in Australia, and Asia, which sounds like you know obviously everything takes a long time, but that's a that looks pretty exciting what's going on you know in Europe. You said that a you know that that business is going quite well too is there some.
Good growth opportunities there.
Yeah, we see that you know Europe has been a growth market for LNG and are they have actually been they know driving.
Much of the demand Oh last 12 months.
That's very interesting Europe has previously a taking the as most of its Oh is taking most of its gas from pipeline, but the fact that a LNG is going to Europe is it's interesting.
So I think that is that there's lot of opportunities that follows that.
Well there might be needed more.
Points for importing LNG so.
So Europe isn't it has its offerings home opportunities we mentioned a this project in Cyprus and we also have one bilateral projects that we're working on.
Your p. inside of a where we are looking at some bilaterally developing that's watch it. So you know your it's it's a place where there are some opportunities are available in the years.
Okay, Okay, Thanks, Jeff and great job.
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And ladies and gentlemen at this time and showing no additional questions I'd like to turn the conference call at her for any closing remarks.
Okay. Thank you Oh, just like to thank everyone for for dialing in and listening and we're asking questions and thank you for for the session today. Thank you.
Ladies and gentlemen, with that will conclude today's conference call with you. Thank you for attending you may now disconnect your lines.