Q2 2020 Hoegh LNG Partners LP Earnings Call
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[music]. Thank you Keith I'm, good morning, ladies and gentlemen, and welcome to Hook LNG partners regarding quota for the second quarter Twentytwenty.
For your convenience. This webcast presentation are available on our website.
With me today.
Mr Stadium style that CEO unprecedented they're going to do you.
Mr hold off you lose the CFO of technology.
You announced a management transition for the partnership Mr. <unk> I missed a few other will take overhasty CEO and CFO of the partnership respectively.
But the fact from tomorrow 21st on August.
Turning to page two.
In todays presentation.
Well take your through the quarter.
On the word over to Mr. Sterling will take you through the market section.
After summer at the end of the presentation, you will have the opportunity to ask questions do you all three of us.
Before we start please take note that the forward looking statement on page three.
And glossary on page four.
Turning to page five into highlights and we'd like to start with some comments relating to date Corbett 19 and damage.
As of today, the partnership has not been materially impacted by they tend to make.
The Hoagland GE group has taken steps to mitigate risk from 19.
And ensure the health and safety key off our crews that stuff, which is our highest priority.
This includes developing mitigating actions for crude rotation and I'm happy to say that safe Cretaceous changes I know being done at acceptable frequency.
Both officers and great things that well that says.
Actually the hard work with deep long aren't the best <unk> onshore fleet is operating as expected despite dependent.
Or charter parties remain include of course and affect any revenues are being collected in accordance with.
Actual tariffs.
Well there, perhaps it's the reports that four units in the fleet had hundred percent availability in the quarter.
This resulted in total revenues, so 34.4 million.
And it's segment EBITDA of 36 million in the quarter.
Based on the distribution of 44 cents common units. This resulted in a solid coverage ratio of one point ttwenty four quarter.
Turning to page six we have to do more numbers through the quarter.
Which shows an improvement.
<unk> operating performance compared to the same quarter last year.
The segment EBITDA of 36 million in the quarter is.
31 million in the same quarter last year.
The improvement is explained by higher time charter revenue and lower operating expenses in the quarter.
Mainly due to this schedule five <unk> cullompton maintenance expenses relating to pick a line and PJM FSRU love pool, and the second quarter last year.
The improved operating results, let's right distributable cash flow it didn't point Sevenmillion and has already mentioned a strong coverage ratio in the quarter.
Again, I would like to thank all of our seafarers and onshore stuff and they building the partnership to deliver stable operation during these unprecedented times.
Turning to page seven yes, showing the development in key measures over time.
And as you can see from the graph the consistency and operating performance that stands out.
The only exceptionally since second quarter last year, which was impacted by the scheduled dry docking mean maintenance of culottes.
Good graces the next vessels due for periodic survey expected to take place late Twentytwenty early 2021.
However, this will be carried out float and he is not expected to cause significant downtime for.
Oh, the further like to highlight the stability in distributions from the partnership through dependent.
And with the signing off the five year subsequent chalked relating to the Cullen during the quarter.
The average remaining contract lengths stands at approximately 9.2 years into the quarter.
And the pending disability in flux.
Turning to page eight we're showing the income statement in more detail.
Total revenues of 34.4 million in the quarter, it's up from the same period last year, mainly due to 100% availability of all assets in the quarter compared to 60 days or five for her belong in the second quarter last year.
The increase is partly offset by lower revenues relating to reimbursable cost into coordinator.
Vessel operating expenses of 5.7 million in the quarter is down from the same period last year.
Mainly due to engine maintenance expenses on her Golan and PGN, especially you love boom in the second quarter loss.
Equity in earnings so John Fentress into caught the compares to equity this joint venture into same quarter last year.
However, excluding unrealized losses on derivative instruments I.
Equity in earnings of junk threat, just wouldn't have been 4.2 million into quilter compared to 3.1 million for the same quarter last year.
The increase is mainly due to higher revenues related to reimbursable cost, partially offset by higher maintenance expense in the quarter.
Total financial expense of 6.6 million in the quarter is down from the same quarter last year.
Mainly due to lower interest expense is amortized and foreign exchange gain into quarter.
Turning to page nine.
The balance sheet has not changed much since year end 29 team.
He told liabilities cynically with the standing up just below 1 billion at the end of the quarter.
One thing what worth mentioning is that in addition to the 25 million of cash on the balance sheet.
The partnership had approximately 88 million in Undrawn and amounts under that you'd revolving credit facilities at the end of quarter.
Taking the liquidity total liquidity to approximately 800 unforeseen media.
Turning to page 10, we're showing the overview off the partnership's slipped out of modern assets.
And then as already mentioned the main focus during the quarter and across the fleet has been to develop and implemented corporate 19 risk mitigating masters and it's you're safe who changed it's acceptable intervals.
In regard hip along the subsequent chalk there is no enforce the term running through July 2025.
The talk truck that became effective.
First of made this year and it's contributing but two months of earning in this quarter's results.
[noise] the vessel is operating in LNG carrier mode under seven months Charger well offered for long term for so your employment on several potential projects.
Regarding apparent hurdle and do you holdings well vessels in our fleet on contract business development activities are high.
And that's we will touch upon on the next section of the parent isn't van States yourself negotiations on several potential project.
The schedule investment decision this year.
If everything goes according to plan this should lead to growth opportunities for the partnership over the next year or so.
And with that I would like to handle it over to Mr. Stewart.
We will take us through there.
Because section healthy presentation.
Thank you. Thank you very much the huh.
Good morning, everybody.
Let me say no it's good for those who does.
<unk>.
And they very much look forward to taking over that together that I'm just a few <unk>.
The sealants and.
Let's see Oh position respectively.
So.
First on the market's section.
Slide number 12, a you will see an overview.
Of the pipeline Oh FSRU projects, that's the seventies currently involved in.
Actually please note that this is not.
An exhaustive list, but it's a list of the.
The call it.
Just in time type projects that we are currently.
We're currently have under development.
As you will see we have split.
The list of the projects into three categories from the left well we are already selected us yet so you provider.
In the middle of the elderly tenders and then on the right.
That's that's what's next meeting that Oh.
Oh, it's in direct negotiations with the clients [noise].
To note.
These projects.
All of them have stopped it oh dates.
From the 2021 to 20 to 23 most of them it 2020 too.
On the left side.
[music].
But the two projects in Australia.
I'll, probably the ones, which are the most advanced.
Where be basically are waiting for the final investment decision to.
Well the next few months.
That could also be the case for.
At least a copy of the ongoing tenders.
Especially in.
In the Philippines salad and in South America.
So overall Oh, we have at the moment.
Five efforts they used to which we are seeking long term.
So to us.
Two of these.
We are overly located to the two Australian projects, that's the U.S., but also or the got him.
That leaves three years, so used to be covered with the remaining seven projects that we haven't discussed.
That means that.
We are very comfortable with securing these contracts.
And all of these contracts except one.
We'll be eligible.
For a potential drop down to the.
To the partnership given that the all have concepts, we saw more than five years actually most of them with 10 years.
So [noise].
Oh I'm sorry.
Project.
ER, which would I will answer the pin further growth.
So you're going to page 13.
[noise] space that's it.
Have you all the how the market looks.
So looking out the graph on the left.
So the global monthly LNG trade so.
In the first half of this year actually.
The LNG demand is up 6.5%.
And if you look at the curve.
On the top names in the car for Twentytwenty.
You will see that the.
Actually turned in July and then sort of have stood up once again [noise].
No.
So the shows again, the a very strong.
Resilience of the of the LNG markets.
And that's just listed here.
In particular for example in China the.
Imports bounced back into second quarter has increased with.
20% year earlier.
I think this is a remarkable achievement.
And shows.
That's the LNG I say commodity is holding up extremely well.
There too and they have the other energy markets.
Moving to slide number 14, and a view of.
The <unk> a bit longer term on the expected.
Demand for LNG.
This is a forecast from I assess.
And you see that compared to the estimates.
Yes, just had at the start of the year the demand curve has moved to the rights.
But nevertheless, still growth in 23, D. and then.
Strong pickup in demand asked from 2021.
Leading to.
I told the man estimate that for 2024.
Although around 430 million tons Brian.
And that's up.
From roughly.
365 in Twentytwenty.
Moving on average growth dog some.
<unk> percent plus.
So here over the period.
And this demand is led by China, and the emerging markets in South and Southeast Asia.
So what's driving this growth in addition.
So the general energy transition away from coal and oil.
If it doesn't move to the next slide.
Slide 15.
And [laughter], which shows you.
How prices have developed comparing liquids.
And LNG.
And including coal.
It's clear that Uh huh.
Today LNG spot LNG is actually cheapening code.
I don't think that's ever before.
And that has a very strong effect on demand.
And obviously the price of LNG will move up and down like also going forward.
But there is a split into markets.
And.
It's obvious that the drive away.
From the particular code, but also like products.
The availability of LNG in the market going forward.
We lead that LNG prices, we've stayed very competitive in the time to come.
And that definitely bodes very well for more demand for LNG.
And obviously then there will be the need for additional import facilities.
In the formal electricity use which is what.
We provide.
<unk> complete on the.
Market section.
On slide number 16.
Is the overview of the.
Total fleet and the order book.
As you can see the order book.
It's actually very stable.
And the number of Oh companies operating in the especially you segment is also very stable.
There has been to deliveries in the quarter.
So the new this onefour sworn energy, which is for a project in India and a one to from not only us which has talked about that for so you.
To accelerate.
That makes a token c. so to see southern.
On the water.
There are four.
Her lubitz.
That's actually use on order of which two are one contract already.
And there are a full conversion is a which all our contract.
There are no new orders or.
I would have been made for ever so use.
I think it's a very manageable order book obviously.
There are so use available and that means that.
From a market point of view the competition between the companies you see you have will continue.
But we do believe that we have the assets that makes us very competitive in this market and in particular, that's what the projects that we showed previously.
[music].
That completes their pockets of usually comes back to you.
<unk>.
Yeah, I guess I don't.
Then.
Well I feared turn to page 16.
For a summary.
Alan would like to highlight the following.
At first of all the partnership has not seen any means nothing materially impacts that from the corbett knocking but they make it today.
Yeah during the quarter, there was 100% availability of fleets, resulting in stable operating performance and a solid covers race true in the quarter.
The market fundamentals.
It's our strong.
And the partnership is joining strong support from the from its parent, which he said market leader in the FSRU segment.
And with this that completes the presentation then we wouldn't like now like to open up for questions from the audience.
Yes. Thank you yeah, we will now begin the question answer session.
Well ask your question you mean press Star then one on your Touchtone phone.
If you can't speakerphone, please pick up or handset before pressing the keys.
To address your question. Please press Star then too.
At this time, we'll pause momentarily to assemble the roster.
And the first question comes from Chris Wetherbee with Citi.
Hi, This is only a month, Chris Thanks for taking my question.
So I just want to start out with a the dropdown pipeline. So slide 12 is very helpful offer.
I just wanted to disguise timing possible.
The last call you guys said he could expect to see a dropdown coming your way 2022.
I just wanted to understand if that's still your expectation.
The ongoing tender so you guys just dropped.
[noise], Yeah, I think yeah. The list we showed here showed a that several of the.
Projects have an F.I.D. this year and next year.
And that this could lead to a you know gross for the the partnership over the next day year year and a half I. Yeah by early 2022. So I don't think we have changed anything in that respect.
Got it and then just more generally and about the dropdown candidates in general.
I know you guys are described the impact of Copel 19 outbreak.
Slide 14, and I, but I was kind of wondering you know generally speaking are you still are you seeing any impact on you know project timing from open I can operate or is that.
Continued had any impact at all.
[noise] well I think it's a it's fair to say that or some other projects.
I've seen right you know slow progress over the last quarter.
Oh, there's a on the hand on the other handoff are very much follow the deleverage no timeline on that and actually.
Somebody actually moving quicker in order to take advantage of below price. So it it really depends on where it is.
Two large extent that has to do with.
With the you know bid or how do the they area or the country. It has been affected the would look doors and what have you.
I do expect that that.
These things will bounce back I'm you know we are finding ways to basically continued development get even with the even with the you know the difficulties in in logistics and and ER and the inability to opportunistically. Thanks.
Got it and just how quick question about not availability of financing for these dropdowns or so and I know you guys. It also discussing the last call about you know a.
The financing availability for the Dropdowns and what the ability is there, but I was just wondering to provide some commentary on that as well and also in the context of or de leveraging progress because I believe for you had mentioned they you'd been targeting roughly on the next year to leverage out of debt to EBITDA base. It by about half a turn sort of just wondering if you how your expectations.
Yeah, how the financing available just change the occasional de leveraging.
And if at all.
Yes, so so the and in that respect a the parent tests has financed a day dropdown candidate <unk> bank debt at the parent level and this bank that would follow the asset when dropped down to the partnership. So so what the partnership has to finance is it.
The equity portion of the of the transaction since the bank that follows and.
What's available to US. It's you know we have a common units we have the preferred units or potentially we could also.
Increase leverage likely but I I think yeah. If you look at the depressed market.
Perhaps that appeared quite well.
Through the turbines.
Obviously, we will need to see an uplift in India. The common units for what that cost of capital two years to facilitate an acquisition, but I think yeah.
Once we are at in a position to negotiate an acquisition and we would have to look at their sources available to us at that point in time.
At the same time, we are you know.
The leveraging and add the I.
At least on a net debt to EBITDA basis, or we see that the ratio is is it going down and I think for this quarter. He was below four.
Got it thank you very much taking my questions.
You're welcome.
Thank you and the next question it sounds you're almost family with Bank of America.
Great. Thanks for taking my question.
Maybe just a question P.M. Stoller I'm congrats that taking then you position and I see I, but where would you like to kind of play because your time and energy maybe in a in the first six months coming in coming into this tradition maybe.
Color on the strategic direction you'd like to take the partnership and then and why you'd you'd Ficus yard your time and energy I would be helpful.
Sure well, obviously or I should know looking at the assets in the in the partnership and under contract coverage.
Well, it's a very much.
A stable entre spread business and I think the direction.
It's it's very clear.
And the number one you know we will continue with the.
Strategy that that's been in place, which they both.
Stable dependence on the continued.
Very good performance.
In addition to that of course has had had been discussed.
Securing additional growth to would be a we'll do you envision bill, but obviously not too.
Well need to come to place when when there are.
Available dropdown candidates or from the balance, which I would say.
Look I think from my side or the prospects for that looks very good.
And then.
We do have the.
On the agenda to.
Basically improve on.
Its unless the structure.
When that well.
Thanks, Doug.
More efficient.
Going forward.
But I mean into short term I think the company has been very well run by like Stephan and are taking over Inc.
This will be Uh huh.
Mostly focused on continuing on the good good thought that we are on.
Then take them one step at the time.
That's helpful.
That's very helpful. Maybe I mean, you made an interesting comment on the on the market competition at the saw you. So maybe could you provide some a little bit more color on that.
Where you see what do you see that coming from the whether you see that that competition really significantly different from let's just say year, a guy or even six months bye.
Well in actual fact or there is very much change if you look at the.
The the ER the structure of the market the though.
There are a.
Four main players its us accelerate the golar.
VW.
And potentially.
One more coming from from Dynagas when they will have there I personally you delivered.
No.
The other efforts I use in the market.
Most of them have been ordered.
Directly for for a specific projects.
So they're not really in competition, but obviously you only need one competitor to make a competition. So [laughter] clearly the competition is still there.
But I.
If you take the each of them clearly I.
I think golar.
Hasn't shown very much interest to to add to their fleets and I don't very much that that will happen.
I swear accelerate they have oh.
Relatively.
Aging fleet of smaller capacities are older vessels, but obviously they are [noise].
No I fleet, which is very well run and operate well.
And then VW.
No no that fleet this stuff before so.
I understand that they are still.
Interested to keep growing into this market.
Which leaves US you know with at least the three or four competitors.
At the same time, and we have a larger fleet we have the.
Operations, which showed that we can operate.
In any market a in any geography, which we have done.
So I think that are going forward.
The the competitive.
Environment in this market will continue to be.
The same as it has been.
I I don't really see.
Newcomers coming in.
At least certainly not in the new builds markets.
There are some conversions that are being done for specific projects.
But clearly our focus is a very simple at the parent level and that is too.
Secured a long term contracts that we are working on us explained.
The four or five units that we have available.
And then clearly we will be back in the.
And in expansion mode after that but not all the contracts will have to be a place before any new orders are made.
In the by our company.
Right. That's really helpful. I I can only be and maybe just one more for me I know you mentioned in India excitement, but general risk of.
Kinda potteries, delivering air and the credit risk associated with these kind of body <unk> can you maybe talk to.
You guys haven't been affected by private as much but is that is that comment purely related to cope with it or is that is that I know the structural change in the market here in terms of the credit risk of kinda bodies or is that just purely quivered related.
[noise] no I think yeah, that's a covidien related.
You know expansion of the risk factors. There is nothing no particular, it's structural change we have seen a we all collecting.
Revenue according to contract in oil aren't the parties are paying according to two contract. So you know we have not seen anything there, but I think it's prudent to expand on that risk section given the uncertainty following the a pickup in 19 pandemic and that's the background.
Perfect. That's all right. Thank God.
Thank you and once again. Please press Star then one if you would like to ask your question.
And the next question comes from Ben Nolan with Stifel.
Hey, guys. Good afternoon, I, if I kinda.
In one of the things that you just mentioned assigning was the.
Possibility of looking to become or to change that financial structure to become more efficient.
And I know that it wasn't priority number one but I'm curious.
Really what you have in mind or what that might entail.
From where you are sitting at the moment.
Well I mean.
Clearly we'd have some more.
Refinancing on the horizon I believe that.
Is there is some upside there too to.
Improve.
Oh.
On that side.
The goal so.
Depending on how things developed a where the potential new dropdowns.
They could be done in the.
Well financed the maybe in a different none of them done what that's been done so far so it's basically two through two to take advantage of the changes into financial market that I saw it has happened and in particular over.
The last few months with the interest rates and what have you don't see and see what you can do to it.
Okay.
So.
It is not or.
I want to put words in your mouth, but especially now sort of the overlapping management.
It has there been any thought about maybe consolidating or rolling up the MLP back into the parent or is that not even part of the conversation.
[noise] I mean, that's not a on a priority list for the time big though.
Okay.
And then I'd just a couple more report ones the really more modeling oriented on the JV. There was a pretty good quarter as a function of reimbursements curious if that was something that we should expect going forward that a longer tail on revenue as a function of that reimbursement.
Well I think it yeah.
We have been reimbursed the cost that we had in previous parried send and ER and that's kind of smooth things out. So I think maybe a you know the reimbursement we saw this quarter it may be.
But.
Higher than ER, which on average, but a it all depends it it's it's nothing out the crosstex behalf. So yes. The when we perform work for you know our Chaucer.
And we and we incur costs, we get them reimbursed and this quarter what the bids you know it has a accumulated a bit costs that we require reimbursed from previous at Terry.
Okay.
That's helpful. And then lastly from me a with the management turnover at year end stuff and good luck to going forward.
But should we expect there to be any.
Any DNA savings or any change maybe two or just some of that cost structure.
Going forward.
Well I I mean, the I can speak on behalf of the parent than the group.
I don't know what you've seen the results for the apparent that we announced this morning, but obviously we have.
A major.
Cost saving plan in place that we implemented earlier this year and one of the factors there is definitely to reduce as DNA.
I think that talks across the group. So the answer to your question is a good we clearly expect that we would be able to root reduce administrative costs.
A significant Dick I scope to the previous quarters going forward.
I would say likely also the same thing operating cost, but that would take a little bit longer time to to show up.
Okay, that's perfect <unk> any any current like <unk> or.
Is it possible to put any numbers around sort of the cost savings that you hope to achieve.
I mean for the partnership I think we would.
Prefer to two to come back to that or.
At the later stage.
I would hesitate to give any specific percentage number that despite the time.
Okay, that's fine I understand I appreciate it and that does it for me. Thank you guys.
Thank you. Thank you.
Thank you ask question comes on Liam Burke with B. Riley FBR.
Thank you good afternoon and stuff and good luck with you on your future endeavors.
Thank you thank you [noise].
Oh.
On slide 16, we're looking at conversions, a new builds a nice look all attached to projects or would you anticipate any spec conversions in that market going forward.
No I mean really I don't think that is very likely because.
The conversions that adopted that are being done the old they've done based on the specific project them after that that's been basically contracted.
It's a big they expect to take you know cost anywhere from 60 to 100 million on top of.
Although the vessel, which you most likely killed trade afterwards, so I think it for people to take that risk.
I don't think Thats very likely.
Good and thank you and so you were.
Looking at the competitors and looking at the market.
Taking any potential spec out of there it's safe to say that you're looking at a much more orderly market.
Well, that's certainly our view and Ah obviously, a you know.
There has been orders made previously.
On the speculative basis, but we haven't.
The last one was made up you know two years ago, So I I doubt it very much or that the we will see.
And they actually.
A major numbers in that respect simply because people have understood that this market is not the shipping market and it takes time to.
Get the experience and when the contracts and.
Therefore, I think.
No.
Pure speculative orders or if any will be very far.
In between.
Thank you.
Yes, I do.
Thank you.
And as that wasn't last question I would like to return to afford a management for any closing comments.
[noise] yeah. Thank you.
What would that I would like to thank everyone for dialing in and participating at the cool.
I would also take this opportunity to do thank everyone for good Corporation during my time at the partnership.
And it would also like to wish assaying own and hold all the best in filling the CEO and CFO.
Rose prospectively going forward.
<unk>.
Thank you.
In France in South concluded. Thank you for attending today's presentation may now disconnect your lines.