Q3 2020 Teekay LNG Partners LP Earnings Call
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The event is now being recorded for and as our fourth quarter financial outlook slide in the appendix indicate.
It's.
We expect our fourth quarter results to increase from these levels.
Now that we are over three quarters through the year and and given the fixed rate nature of our business. We have good visibility to where we expect results will come out for 2020.
And we are happy to say that we.
We will still we still expect our financial results will be within the financial guidance ranges, we provided last year, albeit likely towards the lower end of the ranges.
Few weeks ago, we extended the charter on our 52% owned Merv spirit to early 2022.
With that our LNG fleet is 100% fixed through the rest of 2020 and 96% fixed for 2021.
Importantly, we expect an average LNG time charter equivalent rate of around $80000 per day for 2021.
Yes.
Despite the coated related demand shocks, we had been experiencing so far in 2020, the strong demand for LNG, particularly in Asia is having a positive impact on LNG prices.
Longer term, we and our customers believe gas in a particular LNG will be a net beneficiary as the world transitions.
Additions to a cleaner energy future.
We are building on our strong financial position with meaningful reductions in both debt and interest expense this quarter.
With the recent Norwegian bond issuance, we've had strong liquidity balance of over $430 million, which we believe to help make to kill.
G a compelling investment for current and future investors.
With a well covered dividend yield of over 8% based on the current distribution level and our position as one of the world's largest independent transports of LNG, which is poised to transition to a cleaner future AR.
Our expertise is a key component.
I wanted to shift we are very excited to be a part of.
We will finish this slide by acknowledging the excellent work of our Marine HR staff, who have made significant progress, we're leaving a substantial portion of our colleagues at sea. This.
This is no small feat given the logistical challenges challenges to coal that is brought to worldwide.
Travel we.
We still have work to do and we will not stop until everyone. Its been relieved and return to the families. But this must be done safely as it has been completed to date with no current or past cases of covert reported onboard.
We now look to slides four and five.
Which we include in nearly.
All of our corporate presentations, because we believe they set us apart from nearly every one and are you in our view to everyone else in our universe.
With the recent extension of the 52% owned marriage Spirit charter to early 2022.
We are now 100% semi fixed for 2020 and 96% fixed for 20.
2021, and we expect this percentage will increase as we approach. The next contract rollover dates for the remaining LNG carriers. We have next year with the 52% owned meetings spirit and the fully owned Creole spirit Rolling in late February.
Before turning from these.
It's important to reiterate that our take or pay contracts generally fixed to blue chip energy names or government backed projects have no unipolar unilateral provisions for a change in the terms or charter rates in each of our fixed rate contracts continues to perform as expected.
Well.
We don't currently have skewed in any direct exposure to the spot LNG market.
Its current strength still serves as a tailwind to the LNG shipping industry, which is one of the few bright spots in the shipping world today.
On slide six we have provided our views on the strength in the current spot market.
As we indicated on our last earnings call in August we are seeing some green shoots in the form of strengthening international gas prices.
Which reopened the arbitrage between buying gas and the U.S. and selling it for a higher price after deducting shipping costs in Europe and Asia.
This phenomenon has further strengthened over the past few months as can be seen in the chart to the left.
US based Henry hub gas prices have increased from $2 per million btu to over $3.
Whereas prices in Europe have increased to approximately $5 per million Btu.
And in Asia, we have seen.
Prices broach $7.
This is important because traders have stepped into the LNG carrier market charter tonnage in order to take advantage of this arbitrage.
Thereby removing vessels from the market, which leads to higher rates as can be seen in the chart on the right.
And with the Asian gas prices exceeding.
And those in Europe more vessels have been fixed to Asia, which is generally longer haul than for example, the U.S. to Europe further increasing ton mile demand.
Admittedly, we're not experts on the international pricing of LNG.
However, as we detailed to the left of the slide.
Leading many of these factors are generally season seasonal in nature, and therefore, we expect that LNG shipping rates will likely follow their seasonal pattern of declining as we enter into 2021.
Turning to slide seven.
We look at the global energy transition, which has already we've already begun out to 24.
Maybe.
The global energy mix is expected to grow through significant changes in the next two decades at the macro level and vessel top technology will evolve in the shipping sector will change as we strive to reduce our emissions, but this will take time.
It's important to note that shipping is extremely efficient as it transport.
90% of the world's goods, while only be responsible for responsible for 3% of global greenhouse gas emissions, but.
But this is not good enough as we must further reduce our emissions to meet the Paris agreement and IMO 2050 targets.
In the.
40, A's World Energy outlook for 2020, the highlight two global energy scenarios projecting out to 2014 both.
Both of which show natural gas as a key component of the future energy mix with cleaner burning natural gas as a key transition fuel complementing the growth and renewables.
Graph on the left highlights the stated policy scenario.
Which reflects currently announced policies and targets that has global energy demand growing by almost 20% to 2040 and natural gas, providing 35% of the new energy supply out to 2014.
The graph on the right side highlights to sustainable development scenario, which puts the world on track to achieve the requirements of the Paris agreement that has global energy demand declining by 10% and natural gas, making up 20% of the energy mix in 2014.
Although the fewest.
Feature energy mix is not certain we see gas continuing to be a key resource to meet global energy demand over the coming decades.
And if we look specifically at LNG demand on slide eight.
From Shell's 2020, LNG outlook gas is projected to be the fastest growing fuel source.
Tween now in 2040 and in many applications as a complement to the growth of renewable solutions. Many of which are currently unable to provide cost effective onto onto uninterrupted service.
Gas is considered to be a bridge to decarbonise future in part because gas has.
50% of the carbon output of coal and in many cases coal will be replaced by gas for the all important role of generating electricity.
And specifically within the natural gas markets LNG is predicted to dominate the growth of the global gas trade.
As this slide to the right indicates.
Hey, Jeff, which is considered to be longer haul than other areas of the world is predicted to grow nearly 75% from current levels, which underpins our long term expectation that demand for the services that we will be we provide will remain high into the long term.
I will now turn the call.
Over to Scott, who will discuss the next two slides before we conclude.
Thank you Mark on slide nine as Mark mentioned earlier this quarter, we reduced our proportionate net debt position by nearly 100 million building on the long term trend towards lower leverage and a stronger balance sheet for teekay, LNG, which benefit.
Thats all of our stakeholders.
This quarter. We have included another leverage metric net debt to total capitalization as represented by the Gray bar in the top chart.
Our net debt to cap peak in early 2019, as we are taking delivery of a number of newbuildings. During this time, however, similar to our other key metric net debt to adjusted.
EBITDA, our deleveraging picked up as these newbuildings commenced their contracts and began generating cash flow and earnings.
We'll continue to monitor both metrics and expect them to decline in the years to come and we remain on track to reach our target leverage range next year of four and a half to five and a half times on a net debt to EBITDA basis.
Looking at the bottom chart, our liquidity increase this quarter. After the successful completion of a $112 million unsecured Norwegian bond at a record low fixed coupon of 5.74%.
We have initially use these proceeds to repay our revolvers, thereby building liquidity and not impacting our de lever.
Game plan, however, looking out we have the financial flexibility to allocate capital to create shareholder value, including the ability to be opportunistic in repurchasing any of our own securities. If we see any market dislocations, whether it be our bonds preferred or common equity, which could add value for our investors.
And be accretive to our free cash flow and earnings.
We have no debt facilities maturing this year and for the two bank facilities, which mature in 2021, we have made good progress since we last spoke with you.
The $310 million Exmar LPG joint venture joint venture facility is 100% committed who we're looking.
Going to close in the next week or two and.
And we just recently launched the tango refinancing into the bank market and I'm pleased to report that we are that we are already over 50% committed and I expect we will have a fully committed facility and the next few weeks important.
Importantly, the pricing of this facility has continued to decline and we are now not far.
Apart from the pricing, we witnessed free covet after blowing out earlier this year.
While the spread we pay has largely recovered swap rates are still about 125 basis points below year ago levels and this combination leads to significant interest savings for us on this refinancing.
I would like to finish on slide 10.
And with a few comments on why we believe Teekay LNG represents a compelling investment for current and future investors first.
First we have strong and stable earnings and expect we will be within our 2020 financial guidance ranges likely towards the lower end and importantly, looking out to 2021, we expect our financial results to be largely in.
In line with the results, we expect to generate in 2020 with interest savings largely offsetting the potential for contract rollovers to be at lower rates.
Importantly, with 96% of our LNG fleet fixed for 2021 movements in rates next year, whether be LNG or LPG ethylene will have only a small impact.
Knocked on our 2021 2021 results.
For example, a 10% move in LPG or ethylene rates off of our base will only impact our total adjusted cash flow and earnings by roughly $6 million and a 10% move in LNG rates will only impact our total adjusted cash flow and earnings by 3 million.
$1 or have looked at together a 10% move in rates will only impact our fiscal year earnings by around 4%.
We continue to build on our equity value through reductions in our total debt levels and interest expense, which declined by eight and 9% respectively. This quarter on an annualized basis and as I mentioned.
The previous slide we are proactively de risking our debt maturity profile and by the end of this year I expect we will have addressed our only two maturing bank facilities and we are carrying sufficient liquidity to repay our October 2021, Nok bond should that be the optimal use of capital at that time.
And we still believe that TG TGIF.
That is attractively priced with a yield of 8.3% based on the current distribution level, which importantly is covered 2.4 times by earnings this quarter, we see that Teekay LNG is trading at roughly five times earnings and 7.8 times total adjusted cash flow, which we believe is attractive given our 10 plus year average remaining contract value.
And when compared with the trading levels of other companies today.
I would like I would now like to turn the call back to Mark to conclude thank you Scott.
Yes. This is the last time, we plan to speak on an earnings call. This year, we would like to conclude today's call by reflecting on the year we've had.
Since earlier this year.
The world at large to broader energy in equity markets and the natural gas and LNG shipping markets have all experienced volatility and bouts of uncertainty.
We're pleased that during this time that people at Teekay LNG have quietly quietly going about their business.
Our track record and focus on operational excellence.
Here remains intact, our seafarers continued to operate at the top of their game. Despite some plane into extra innings, and we continue to honor the commitments, we've made to our investors to allocate capital in a balanced manner with a focus on delevering, our balance sheet, while sustainably returning capital.
Last quarter, we were.
And suffered two as boring any EU and boring is good.
With sorry last quarter, we referred to as boring any year that foreign when foreign is good with one analysts referring to us as a Swiss watch both names I think we're happy to be called.
Thanks for your time today and operator, we are now available to take questions.
And as a reminder, if you would like to ask a question. Please press star one now.
We will take our first question from an end lineup of Clarksons Platou Securities.
Thank you.
Hi, guys good morning.
Mark you went over this a little bit and Scott also you mentioned, the sensitivities being a bit minimal for 2021.
I wanted to ask about the market as you see it currently no, especially in the context of the renewals coming up to the Creole spirit and the the methane spirit we've seen.
At rates reach 100000 today, and we're quite a bit away from where things were this past summer at the Loews.
Time charter rates haven't really responded to haven't come up with spot rates and and it's quite a bit different than last year. When we saw spot rates bottom in the summer spike in the winter with with the time charter markets following suit.
I guess.
Maybe one can you give us a sense of why you think this is the case that we havent seen the time charter market responds and then too.
Any signs that this could be changing here in the near term.
Sure I think you're paying out first of all good morning Omar.
When we talk about the LNG rates now there.
During that as you've seen as you're well aware that probably in the hundreds for the second half of December is what we're seeing get fixed at this point.
But as you say the the.
The spot rates haven't started to time charter rates ever really respond to that there have been a.
A couple let's just talk about why we're up before we talk about wide.
The time charter rates haven't gone down.
The if you look at for instance in 2018, we had prices in Asia at $7 into quickly jumped 12, and I wouldn't rule out that.
Prices can jump quickly on on on demand obviously on the other hand, it's all about the ARPU. So the Henry hub has.
While it's gone from low $2 to high $2 and it seems to be pretty pretty stable. There anytime you have a premium of more than one more than one dollar you can pull you can pull cargoes to Ti to Asia quick.
Typically so they haven't gone into Asia.
Seen some been to allergy outages bills have.
It has been replaced by some longer haul that should probably get.
Corrected there were some things over the summer that we're slowing the market down you saw lower had an impact on on on on liquefaction United States. We see no more name storms. This november that are going to impact.
Faction side, so there's a number of things.
Going for US and then even on the longer term, we've seen now that China has signed up for 21 cargos from Shinier, that's a big reversal of the trade war if things we've been seeing over the last year. So we see more maybe a resumption of China cargoes.
We see Poland not.
Not renewing their their gas has PPA with Gazprom. So there's a lot of positives both in the in the very near term and maybe to the bit longer term.
But the bottom line that we see is that over 21 and 22, the theres probably too many ships for.
Cargo. So that's one reason you've always seen us we're not we're not shy about fixing forward. We do it a lot. We do this in direct continuation we do it with we don't we don't necessarily make a call in the market. We don't take a floating rate floating rate charters for the most part because there's a lot of there's a lot of.
The tailwinds happening of course, we've all seen Pfizer on address but I think there's too many ships over the long over the next 21 and 22 and that's why we've taken.
Perhaps more conservative approach to the industry.
Thanks, Mark and Andy.
In February you've.
Got the two vessels coming up for renewal of the any sort of dialogue, you're having now and any sense of the types of term you're looking at getting is it still going to be in this in this market today, we're looking at maybe a Max of 12 month as realistic.
Yes, we are looking at.
And maybe it's too much competitive.
But we are always looking at that type of year or more if we can get it and I say this because we've had periods in the past you said they don't they don't want to go it doesn't matter what the rate is they don't want to go long term, we're not like that.
Yes, there is a good rate that's long term, we'll go ahead and take it and what we're in discussions for for those two ships is indeed.
12 months or longer if.
If we can't get a good a good rate at 12 months or longer no problem, we have enough portfolio portfolio to cover that as Scott mentioned in his prepared remarks sensitivity is something we can we can handle but but our preference.
Is longer term charters.
Stephen I think we will hopefully be able to achieve that for one if not both of these ships.
Great. Thank you and maybe just one more quick follow up for Scott in the slide deck, you went over the debt maturities into two refinancings that are hopefully well well underway now.
Of the $400 million debt maturities for 21.
After these refinancings you have a perspective, you can give us of what the amortization will be for next year.
Yes, I don't expected to change a lot really Omar.
Omar I think that we've said in the past it's on.
Totally on a total basis, including all the debt at our joint ventures. This roughly 300 million per year, and I don't see that changing.
Absent these maturities so we tried to normalize at that 300 for you.
Great. Thank you thanks, Scott Thanks, Mark.
Thank you.
Thank you.
We will take our next question from Randy given <unk> of Jefferies.
Howdy gentlemen, how's it going.
Hey, Randy good morning.
Good morning.
Let's see I guess, starting with the Nok bonds, just trying to think through the strategy. There what was the reasoning for issuing those five year.
Boots to kind of repay the revolvers, what where the interest rates on the revolvers when do they expire and you cancel them or just kind of pay off the remaining balance.
Sure. So I think the when we looked at the maturity that we had in May we did pay that one off with cash because we didnt like the terms that we are seeing.
No we didn't like the rates that we saw.
And it just it just wasn't the right time to do it the the Norwegian market, which is not out of sort.
Sort of the cobot hangover, if you will by that point and I think that we also had opportunities that were presented to us in that February March timeframe, when there's obviously the math.
James locations that we had and I think with these two yes.
Commercial banking facilities that were maturing the Nok bond our liquidity level is just at a point, where we were not able to be is.
Maybe as opportunistic as we otherwise could have been so we saw the summer proceed we saw the us.
Build markets go.
Go absolutely Crazy and then that followed often to Norway and then we decided that we were able to rebuild our liquidity at extremely competitive rate. The the treasury rates for bottoming right around the end of this summer and so 574 all in for five years, we thought that's a great price for us to go and rebuild.
Hi liquidity balance such that if we do get some market dislocations like we had obviously in some ways. When we you never want to wish that but we do think that we are now position that we could step in and look at repurchasing securities and really add some long term value. If we look at the pricing differential.
It's relatively small.
Small I.
I think that all in our revolvers are probably on the call at three three and a bit range.
So it's costing US a couple of hundred million Bucks in order to add that extra flow.
Flexibility in firepower and.
We didnt cancel any of our revolver as they are still there and.
And you can see if you look at that slide on page nine.
The one of them has a two year facility and so it rolls in 2022.
And then the other one is a longer term facility that we would look to reduce so those are the audio.
Body of work that we will have for 2021 is to roll those maturities in 2022.
Got it okay, and if you do would that then be.
Uh huh.
Kind of a use of interest rate are there to roll those revolvers, especially if you can get them at under 4% draw those down and repay yeah. Some of your preferred share some of your higher priced securities.
Definitely something that we look at and and some of that we do analyze and we can draw those down.
On in a matter of about three days, if we were to see some.
Some real opportunities and so I think what you're going to see is we're going to be patient as mark says its going to be boring, sometimes and I think right now we're sitting on the sidelines and we're going to be patient and and having that extra flexibility is one of the hallmarks that we think that is a benefit to two.
[music] investors.
Great All right and then one more question just looking at your distribution do you have any kind of growth target or anything like that for next year and maybe what are some of the drivers regarding possible distribution growth is it just rechartering your vessels specific leverage metrics or maybe a certain meal.
Yield that you're targeting.
Well, maybe I'll take a stab at this Randy and pleased to ask Scott command, but I'm not sure we're going to say much as you've seen we haven't said much.
We haven't said anything really we're going to wait till next year. This time before we give guidance for 2020 distributions as you know.
Increases in each of the past few years and sustaining that it is important to us we.
We certainly learned our lesson in 2015, its its ancient history for per lot, but not for Scott myself and others. So the board will be meeting in December and we are going to discuss status as you say it is a broader allocation this time.
And perhaps in previous years, but like we do that every quarter, we're going to we're going to we're going to do that and then we're going to come back to you for your intentions in 2021.
I think it's important to to say now and that we are not thinking of a cut in our distribution. It we're well covered.
And.
And I hopefully we can leave it at that but Scott. If you have anything further to add no I think the only word I would put in there is that any increase that we that we do talk about with the board I think we want to make sure is sustainable we do have an extremely fixed rate business. So we've got good visibility and and unlike a lot of peers.
But they are particularly in the energy space, we look at having our dividend covered by earnings. So as we said this quarter roughly 2.4 covered by earnings. So, it's obviously well well north of that on a DCF basis, but we want to make sure that we're earning our dividend and never end up in a situation, where you're here that that relationship as upside down.
So I don't think we have any any real target except for like Mark said, we'd like to have that track record of increasing it a year on year, but in terms of the magnitude at this point I think that's something we will just wait until we come back to talk to you early next year on that.
Got it okay sounds good well that's it for me thanks again.
Thank you well take.
Our next question from Ben Nolan Stifel.
Hi.
Good morning afternoon, guys.
I I wanted to come back to something I think Scott you've mentioned that the long term target on net debt to EBITDA is.
What happened.
Time, sometimes.
And then you expect to be there next year Im curious what is the what's sort of the thinking or the calculus as to why that kind of the magic number.
And is it something that <unk>.
You think about it sort of moves overtime or is that just kind of.
You'll get spot.
Yeah, I [laughter]. Thanks, Ben I think you're right, there's a probably more art than science and so sometimes it's just where it feels good you are correct I think that we all know that where we ended up at around nine times was way above anybody's comfort zone, and I'd say on the low end of <unk>.
To get into the threes or the fours is probably too low for us to be competitive so.
The four and a half to five and a half we did some work on that and.
And we revisit yearly some of that had to do with the way that the banks look at as some of that has to do with the way that cutting credit rating agencies. If we were to be covered.
What they would find to be accepted.
People and it really is something that we do believe is achievable as well without making any drastic moves over the next.
Couple of years here and then is that the target range that we have to be within I don't I don't necessarily think it has to be I think that we've got a trajectory that we're going to go into it.
Despite whatever actions we might take so.
So you know if we were to grow or if we were to go and buy back a bunch of securities or something that would have a momentary or a short term increase in our leverage above that range. So long as we had the visibility that with just simply generating cash flow, we could get back into it.
I think that that will be just fine.
And really we.
We see that.
I don't see a really changing a lot and it's something we focus on but if we see the right opportunity to invest in ourselves or elsewhere.
Then we can probably look at that as a shaded line as opposed to a firm hard.
Hard ceiling or hard floor.
Okay. So.
And just sort of from where you sit today and appreciate this tenant.
Evolve but.
As we move into next year as you begin to approach the that that pardon me the time half target sort of higher higher into that target range.
<unk>.
[noise], where do you think would be again.
Again based on today that the best use of the incremental dollars to continue to push it down closer to the four and a half range or are you seeing opportunities in the market.
Again.
I appreciate that the preferred to whatever got blown out maybe that will happen again, but.
Are you being approached by people or or.
<unk> relations there are attractive that maybe as you began to approach that range, we feel like while we were there today, we do it is.
Is that materializing at or there's still just not.
Those opportunities that you're seeing.
Yeah, maybe I'll clarify as Mark has any follow up.
Yes, no absolutely I'll see if mark has any follow ups on the asset side, but on the security side I'd say no. We're not seeing anything that is is sufficiently attractive that we want to step in and and diverged from that delivering that we've got going on and you know and then I think the first part of your question was asking or does.
Does that change.
Over time or whats the feedback then I'll tell you when we meet with a lot of our MLP investors and I think Mark we've done more phone calls this year than we've ever done in the past, a which is nice because we can do it from our living rooms, but.
The vast majority of the particular to the MLP midstream guys, we talked through that come along and say.
Say well jeez your foreign after five and a half is still looking pretty rich why don't you get that into the threes are and the low fours and so there is a fairly wide bid ask as to what people are accepting and so I think that that's we're trying to do is to thread that needle and be thoughtful and make ourselves competitive, but also don't make ourselves something that investors.
As our freighter.
Mhm and just on the asset side ups cannot you're right. We're not seeing anything this year everything it's been a little bit delayed certainly Qatar we.
Expected to to come out by now at least on a technical non.
Non commercial basis it has so.
I I think thats firmly.
We into two next year at some point, but I guess the good thing is that we wouldn't rule out potential investments next year I think that we're setting ourselves up open up.
In the future for being able to to to act when others can't the de leveraging is happening is you guys have seen and.
Yard prices are bottoming out pretty well and so I wouldn't rule it out next year, but but certainly we are not in this year.
Okay, that's great and Oh I. Appreciate you guys. It wasn't lost on you that being boring is good thing is we wrote so [laughter].
Yes.
We still that from you so thanks [laughter].
Thank you we will take our next question from Liam Burke B. Riley.
Oh, thank you.
You've laid out the different capital allocation alternatives, but looking at your fleet or potential fleet additions do you see.
The vessels out there with sufficient contract coverage should be attractive for do you have a backlog of those potential acquisitions.
So you're talking about acquisitions other people, who have long term contracts that may be attracted to us correct, yeah, yeah. Unfortunately, it well.
I should say Fortunately, we have the long term contracts for the most part in this business. So it is pretty and with an average you know remaining 10 around 10 years to find that is pretty darn difficult in the space. Unfortunately, so as you say there should be opportunities with with there could.
The opportunities with folks who have a lot of spot exposure that they may want to get rid of a jeweler too but currently the answer is no. We're not there's there's none that we're aware of that are that are available.
And would you ever websites with.
With that scarcely would you consider moving into.
Some adjacent to smaller vessels are for sort of use.
It's the time, it's possible. So if you talk about both of those adjacent Ses. We do have two small scale LNG carriers right now they are 12000 cubic meters, but we actually treat them with ethylene because there's just the small scale.
Projects take a while to develop so we see small scale projects. We haven't been up just hasn't been a part of them it would be difficult for us to Ah, we always use the phrase.
Turning to Neil with with put TGP. When these v. ships costing on average maybe $50 million compared to over $200 million.
Benji carrier, but don't rule out the space and as I say, we're in it. So first if there is a small scale LNG, we're going to we're going to take a look on the FX use another FSR use again its good adjacency for us to look at its not technically difficult. It is very much within our adjacent services.
Space issue there as we see it is that's overbuilt currently so I wouldnt and for the same reason a small scale LNG. These projects take some time to develop and so there is a fair amount of speculative orders and increasingly some roll offs, which arent don't have products for them, but if that if that market consort.
At sort itself out it's certainly something we would we would look at it.
Great. Thank you.
Thank you well take our next question.
Was it beats investment Council.
Oh good afternoon.
Hi, Scott.
I guess a question I would have is you didn't include in the slide deck. This quarter the guidance ranges for net income NPU consolidated EBITDA in total EBITDA.
Youve commented that you expect to be at the low end of the range and I understand dry docks.
We're one of the reasons, but could you highlight kind of the three reasons relative to budget why you think you'll be between the midpoint and the low end of the range for 2020 at this point.
Yeah, I think you're right. The dry docks are one of them and I think when we came out.
The guidance.
I guess this time last year, we did have some ships that were rolling in.
The early part I believe it was of 20.
And at that time.
We were seeing a pretty rosy market and to be Frank and.
Unlike marks one comments earlier were.
He was correctly, saying that the spot market today is very high and the time charter market is quite a bit lower than that if we go back a year ago, we had a high spot market and we had a fairly high time charter market. So we had some confidence that.
We would be able to.
Part of those ships on to longer term contracts at a fairly healthy rates and.
But then obviously the bottom fell out a as we all know on the earlier part of the year and we were forced to fix those ships is I'm glad that we did we got the high utilization they were in direct continuation of the existing contracts. So we didnt have a lot of utilization drain.
But ultimately they were at lower rates than we had.
Predicted when we were in November of I guess that would have been 2019.
So I think that's probably the biggest reason we've had some positive tailwinds in the in terms of lower interest rates and I think those are the really the primary reasons that I can think of NEC that there were probably on the lower end of that.
That guidance range, but I think in today's world to simply be providing that guidance like we did and to still be meeting. It is is a hallmark as far as we can tell.
Yeah, it's definitely been a solid year performance.
Now that the election here in the U.S. is pretty clear.
And there are some visibility as to.
What may happen on the tax front, what is the strategy in terms of a consideration to move to a C Corp will not be on the agenda at the December Board meeting.
Not on the agenda per se, it's something we're always looking at the I'm not sure the tax issue for us it's been the predominant one for a while but the if we can yeah I get a broader investor base, certainly something we're looking at but I. It it I wouldn't expect it this year, it's not going to happen this year.
But it's something we're always looking at.
[noise], Okay by this year, you mean 2020, but possibly 2021.
Yeah, we'll take another look it in 2021 and see how the markets are reacting as you save if there is some some some tax shifts that.
Results in an MLP has become increasingly favorable or whatever it is we'll take another look at that and then in 2021.
Okay.
And then I guess last question I would have is you've talked about or someone asked a question about acquisition opportunities.
It's actually backed off on that do you envision given that there's going to be weakness in the possibly this.
Right.
2021, and 2022 do you envision opportunities where some of your competitors may have problem.
Problems and do you anticipate possibly having opportunities to buy distressed properties.
So I do I do anticipate there's going to be some challenges more so for our competitors and then for US certainly in my opinion, but what I always say is it.
I think it doesn't necessarily create opportunities for us to acquire ships on on long term charter because there just aren't available as we've kind of discussed but.
But probably perhaps what it might do and what I'm, hoping is it we're going to be in it and not necessarily unique but.
A good position to bid when others can't so if those LNG charters for long term contracts. If they are not available. Then then after on the water ships I think we're going to be in a better position to bid for a tender so whether it's in a much guitar or whatever it is and we don't know the <unk> the.
The time period that tar or others will come out with yet.
I think we're going to be able to take advantage of of competitor weakness in that regard we get a better return for new builds that will de lever by the time, we will have de Levered and just get a better return on those.
Okay.
I guess I do have one last question is you've de leverage the balance sheet.
Scott what do you think your blended cost of capital is when you think about making capital allocation decisions, where are you with the balance sheet, where you want to be looking into 21, where do you think your cost of capital is.
Well I think if we look at it the biggest component is obviously our.
Where the debt is right now and I'd say that we were at around five and a half and all in and I think that that's going to be coming down as I talked about with some of the new facilities as well as just a lowering base rates and so.
So.
That's going to have likely the biggest impact to simply given the the levers that we're at today and so that does help to make us more competitive and also helps to make.
When we look at other acquisition opportunities and whether that's our own securities or whether that's.
Ships like Mark talks about we can be more.
Our competitive been a lot of our peers, who are not able to go out and for example, raise nok bonds in the five 574 range.
So we're trying to do everything we can to reduce that that particularly that debt cost, which will allow everything else to be a little bit more creative.
Okay, great. Thanks, so much appreciate it.
[noise].
Thank you.
We'll take our next question from Chris John Webber restarts.
Hey, guys how are you.
Hi.
Hey.
Just.
I wanted to just ask about your view on case.
Alright.
Deleveraging and.
Any other projects that are possibly.
[noise] attractive I know you guys.
He asked earlier about and.
Hi, there has been kind of pushed out but what about what about Arctic to now that that process is kind of coming together is that okay.
So that's it.
You guys is there any capacity there that you guys would be interested in participating.
No we've been saying for quarters that that's.
Not for us and there are a couple of different reasons for it number one is we have a fair amount of exposure already so we've taken a pass on on Arctic too.
We're very happy with the with the fleet, we have but we already have a fair amount and the other thing is to fleet. We have I think we got pretty good risk adjusted returns because as you know it was.
It's entirely a it was a foreign constructed in foreign owned and operated type of type of project I'm not sure that art to two will be.
In the same you might have a more local content, which might bring more risks. So we have enough right now and the stuff. We got we seek is on a risk return risk adjusted basis, what we want.
Okay. Thanks that makes sense and what about the longer term plans for the LPG fleet.
So there's two types of LPG fleets that we have one we have a considerable investment in as you say LPG liquefied petroleum gas and to a lesser extent ammonia and that's our JV with Exmar. It's been a great investment it's been a great franchise and that's something that I think we hope, we'll we'll continue to do great.
Great it's been it and so thats something were.
We like the other one is is in ethylene business. Its petrochemicals, it's a much smaller investment we have the equivalent of <unk>.
Less than a half an LNG carrier invested in that and it's not a business we intended to be in per se. It was a.
A financing, which we ended up for closing on the.
On the charter on the bareboat owner and so thats non core we've continued to keep it we've actually stopped the losses on it.
But when the opportunity comes to divest and we're in no rush and we have no panic and they have no no need.
But when the opportunity comes to divest I see that as as something we would probably be willing to out Nicole at the right price.
Okay. Thanks, and just one last quick one the there's I think two vessels.
It will be in the Tokyo.
Yes, it or.
Expirations coming up.
So good lift this year.
What are your plans there.
I am sorry to the the line was was pretty garbled.
On that one sorry about that can you repeat your question.
Yes, sure so for the sale will be in the CW Tokyo there.
Targeting.
The charter expirations are happening.
Later this year.
Their clients to renew or.
I have to working on this on the fleet specific.
[noise] basis, I don't want to say right now I want to discuss.
Yes that was exmar before we say anything about those two those ships its a lot more material to them.
Than us and so I'd prefer to just leave that to that we'll get back to you on that.
All right, Okay Thats all for me thanks, guys.
Thank you we have no further questions in queue.
Well. Thank you very much everyone and again stay safe and we look forward to updating you next quarter so take care.
Thank you, ladies and gentlemen for your participation in today's call you may now disconnect.
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