Q4 2020 Hoegh LNG Partners LP Earnings Call
Good morning, and welcome to Hook L. N P partners L. P fourth quarter 2020 conference call all participants will be on listen only mode should you need assistance. Please signal a conference specialist by pressing star key followed by zero debt.
For todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to the Siobhan Stifel Stoli I'm, sorry C. O. Please go ahead.
Thank you Emily and good morning, ladies and gentlemen, and welcome to Hook on LNG partners earnings call for the fourth quarter 2020.
For your convenience this webcast and presentation is available on our website.
With me today I have missed the whole of Sue Lee the CFO of the partnership.
Turning to page two.
In today's presentation I will take you through the quarter.
And then hand over the word to Mr. Xu who will take you through the financials, then I will present a market update on it.
And the summary.
You will have the opportunity to ask questions to both of US at the end of the presentation.
So turning to page three before we start please take note of the forward looking statements on page three and also the glossary on page four.
Turning to page five and the highlights.
I would like to start with some comments relating to the COVID-19 pandemic.
As of today, the partnership has not been materially impacted by the pandemic.
Hogan.
We're gonna Itchy group has taken.
Steps to mitigate risk from COVID-19, and ensure the health and safety of our crews on staff, which is highest.
This includes developing mitigating actions for crude rotations.
And I'm happy to say that safe true changes are now have now being done and are being done at an acceptable frequency for both of the search on the ratings on.
On the older vessels.
Thanks for the hard work of our people on hold of vessels and the onshore the fleet is operating as expected despite the pandemic.
All charter parties remain in full force.
And revenues of being collected in accordance with contractual terms.
I am definitely happy to report.
Net all units in the fleet at 100% availability.
But before 9 million in the quarter.
Based on a distribution of 44 cents per common unit. This resulted in the solid coverage ratio of one two in the quarter.
Turning to page six.
We are showing the overview of the partnership's fleet of modern assets.
Since the previous quarter. The patent has secured a new 12 month interim LNG see charter with Trafigura for gallant, which would commence when the current charter expires in March of this year.
The gallant is also offered for long term, especially you implements.
On several of the potential projects.
With that I would like to hand over the word to Mr. <unk>, who will take us through the financials.
Thank you. So I know you and good morning, everyone turning to page eight we have the key figures for the quarter.
It's showing the operating performance in line with the same quarter of 2019, although with the improved the distributable cash flow.
Segment EBITDA of 34 points of 9 million in the quarter. It was name of the same as in the fourth quarter of 2019.
The operating result, led to the distributable cash flow of $18 1 million and as already mentioned most of that on a solid coverage ratio in the quarter.
I would like to thank all of our seafarers on onshore staff, enabling the partnership to deliver stable results.
On the operations during these unprecedented times.
Turning to page nine.
We are showing the development of key measures over time and as you can see from the graph the operating performance remained stable.
The only exception is the second quarter of 2019, which was impacted by the drydocking on maintenance so the of gallant.
Her grace's the next vessel due for periodic survey and this will take place during the first half of 2021.
However, this will be carried out the flow and is not expected to close on a significant downtime or Ohio.
I suppose I'd like to highlight the stability of distributions from the partnership through the pandemic.
The average remaining contract stands at approximately eight years at the end of the quarter underpinning the stability in cash flows.
Turning to page 10.
We are showing the income statement in more detail.
Total revenues of $36 1 million in the quarter was about $2 4 million less than in the same period in 2019, mainly due to a reduced time charter revenue for the third talent on the rich new charter.
And that the revenues in the fourth quarter of 2019 included some elements of tax reimbursement for FSA U P. Gen lump of them.
Vessel operating expenses of 6.8 million in the quarter is down by $2 4 million from the same period in 2019.
In the fourth quarter of 2019 of the operating expenses included a provision of 3 million for land the billing tax being imposed by Indonesian authorities for the years 'twenty 15 through 2019, which explains most of the radiation.
Equity and earnings from joint ventures for the quarter was for 2 million of decreased from $6 7 million from for the same period in 2019.
Unrealized gains on derivative instruments significantly impacted the equity and earnings of joint ventures for the fourth quarter of 2020 on 2019.
Excluding these derivative items the equity in earnings of joint Ventures would have been 3 million. This quarter, an increase from $2 5 million for the same period in 2019.
Total financial expense of $5 7 million of the in the quarter is down by $1 7 million from the same quarter of 2019, mainly due to lower interest expenses debt is amortized and the variation in foreign exchange gains and losses.
Turning to page 11.
The balance sheet has not changed much since our year end 2019, the total liabilities and equity standing at just below 1 billion at the end of the quarter.
The commercial tranche of ethylene to the P. J on lump on debt facility is maturing in the fourth quarter of 'twenty or 'twenty.
Also one of the debt facilities of the joint ventures matures the same quarter.
The partnership has commenced the these refinancing processes and ease of detailed discussions with its banks on the lump on facility while the for the joint venture the process is in the planning stage.
I'll now hand, it back to Mr started to take us through the remaining sections of the presentation.
Thank you all the.
So turning to page 13 on the view of the market.
The global LNG trade rose with one of the half percent of year on year in 2020 despite.
The negative demand effects, owing to the COVID-19 pandemic. This clearly shows the resilience in global LNG demand and underpins the role of.
On the LNG in the energy transition by replacing more polluting fuels, such as colon oil products.
Asia was the only continent with noteworthy growth in LNG imports in 2020.
And China of content for around two thirds of the aggregated Asian import growth.
Despite the negative year on year development in the first quarter of.
The <unk>.
Caused by the Covid, the COVID-19 pandemic.
After the acting as the sync for the LNG spot market in the first half of the year European LNG imports declined in the second half of the year compared to 2019.
And for the year European imports ended slightly down compared to the year before.
Turning to page.
14.
We have a graph illustrates the expected development in the global LNG markets.
As you can see global demand growth for LNG is expected to continue for the long term.
Even as a slight down the route.
On the COVID-19 pandemic estimate of the demand is still expected to grow by roughly 50% in the period 2022 2013.
This again will drive demand for new Regasification capacity of.
Of which some will materialize in the form of Fsrus.
The final investment decision made the Qatar petroleum for the.
Northfield East project shows debt sophisticated market participants are continuing to invest to expand the LNG trade.
Turning to page 15, we.
Which gives an overview of the competitive situation in India for some of your market.
This picture looks more or less.
As a percentage over the last couple of years.
But since the last quarterly presentation, the Fsrus Jamba Sawtooth.
<unk> was built for a project in Indonesia has been delivered from the yard.
In January of this year, New fortress announced the acquisition of Golar LNG partners on Hydro energy transition.
These transactions will make new fortress energy, the new owner of seven out of the eight fsrus owned by the Golar LNG groups.
The FSA you LNG, Croatia, which was previously named Golar Viking has now been sold from Golar to LNG.
And then G. Let Scott in Croatia.
Turning to page 16 regarding the apparent.
All that sort of seem the hook LNG fleet are on contract.
And business development or two of these for new long term efforts of your contracts are high.
Since the last quarterly presentation. The sled has been updated with the mood.
Some FSU contract secured by the parent.
With H energy in India.
Which would be served by the big giant the the contact is for 10 years with annual break options for the client after year five.
The potential pipeline of modern acquisition candidates with the talent remains the same as in previous quarters.
Also worth mentioning hug LNG holding has initiated a new clean energy initiative.
With the goal of providing infrastructure solutions for the transportation storage and distribution of green hydrogen in pneumonia.
As well as developing floating carbon capture and storage solutions. This will support that LNG is leading industrial platform on high quality.
Modern assets will continue to drive for the energy transition will introduce future.
Turning to page 17, showing an overview.
Of the business develop productivity LNG.
LNG on level.
The parent is in advanced stages of negotiation on several potential projects.
And if everything goes according to plan this should lead to growth up into the seats for the partnership over the next year or so.
The box to the left shows the projects were Hogan of G is selected as episodes of provider.
All of these projects that have been announced previously in Australia, a a signed a memorandum of understanding to connect the port Kembla gas terminal with the eastern gas pipeline.
Part of the major gas transmission system in the state of New South Wales.
Squadron energy the sole owner of the AE is also accelerating the associate the development of an 800 megawatt dual fuel LNG.
Hydrogen power station input kembla.
Which will be fueled by gas from the port Kembla on gas terminal.
The organ and she is currently in final.
Negotiations with AE.
For Agl's project at the crib point the hearing stage.
On the environmental permit application process is completed.
And the Victorian Minister for planting is expected to make the decision regarding the E. S. By the end of March of this year.
The box in the middle is showing ongoing tenders.
Well the Hagen on G is in the final tender round for the first Gen project in the Philippines income.
In competition with two other episodes of your suppliers.
Two potential new projects are added here since the last report.
One the long term efforts of new project in Africa, and they sort of the project in Brazil.
The project in Brazil is.
For the duration of only three years.
But this is because of regulatory conditions in Brazil.
This is special for this project and does not represent a new norm in the efficacy of your market.
When it comes to contract duration.
As shown by the most recent contract done by LNG, which is for 10 years.
Finally, the box to the right, it's showing bilateral projects or projects that took of LNG is developing itself.
This includes.
One of potential project in Cyprus as the previously communicated project in the Atlantic Basin would not be served by here of LNG.
The level of business development activity is high.
Owing to the ongoing energy of the transition of LNG replace the it's more dilutive oil and coal products.
This is triggering of new LNG importers to move ahead with the plans.
To facilitate the import of natural gas.
With that I would like to turn to page 19 for the summary, what I would like to highlight the following.
For the quarter no material impact from the COVID-19 pandemic to date.
100% availability of the fleet, resulting in stable operating performance.
And the solid coverage ratio ratio in the quarter.
Strong market fundamentals and finally strong support from our parent.
We will now open for questions from the audience with that.
[laughter].
I would like to thank everybody for dialing in and taking part in the call. Thank you very much.
We will now begin the question and answer session to ask a question. Please press Star then one on your telephone keypad. If you are using a speakerphone. Please pick up the handset before pressing the keys to withdraw your question. Please press Star then two the.
First question comes from Chris Wetherbee from Citigroup. Please go ahead.
Yeah, Hey, great and thanks for taking the question, maybe we could start with the gallant and if you could give us an update on what the potential opportunities are for employment. There. So I think there's a couple of potential opportunities happening right. Now can you just give us a sense of the kind of where we stand and maybe where that.
It might go and what sort of would be what the timing is around potentially getting sort of locked in there.
Right right. Okay. Thanks for that question so.
As we just mentioned the.
Currently.
Atlanta is on the on the LNG see entering charter and we'll continue on the new one with Trafigura starting.
For March.
For 12 months.
And then for the Fsrus projects that we are.
The currently.
In the ear.
Either in the tender or in negotiations.
The timing for these are they actually all have the of start up.
Except for H energy in the.
2022 until next year.
The gallant is offered in on two of these projects at the moment.
So.
Obviously, that's on top of our list, we do believe that we have a strong.
There is a strong pipeline of projects since we have a.
Several more than we actually need on the obviously the main focus now is also to secure the long term contract for for the gallant and the that's.
That's the objective for the next few months.
Okay. Okay. That's helpful for something over the course of the next couple of months of you might ask for more clarity for the end of the Trafigura deal.
Yeah correct, Okay. Okay fantastic all right that's helpful. I appreciate it.
And then maybe one.
Sort of conceptual question as you think about that pipeline of potential debt falls with contracts. Obviously, we're kind of working for some of the tender process right now what would be the environment that you would need to see to potentially think about of dropdown into the MLP. So I don't know of it.
Yeah sort of more attractive financing opportunity for something like that but what are sort of the conditions that you would be looking for to kind of think about resuming the growth profile of the of the company.
Well I mean first the.
In terms of timing obviously the way we have done this and we will continue to do this is that the the drop downs will happen when the asset is on.
Contract and in operation not before.
And of course also the second point, which is probably the more important is.
That needs to be.
The financial conditions available both from.
From the MLP side than on the parents side the in order to.
Two for the for the numbers to work so to speak.
And with the pipeline that we have the clearly we do see that the the length of the contracts and also the the.
The.
<unk> expects the revenues from the contracts the.
Fundamental of for doing a transaction.
And.
That is something that we will evaluate very closely when when the contracts have been completed.
And the assets had been the confirmed on the contracts.
During the course of this year.
Okay.
Yeah. It was getting kind of towards the financial conditions was maybe sort of the heart of the questions for thinking about that maybe a bit more specific definitely.
Okay.
Current environment, something that would be supportive of if the other pieces, where the lineup of the current environment and you see it from a financing perspective attractive enough to be able to sort of execute on the deal do we need to see the stock price at a better place I just wanted to kind of get a sense of maybe some of the parameters around the financial condition of that you'd need to see.
But what about you want to answer.
Think of fundamentally are the the the share price of the MLP would probably have to be on at.
At least at this level or preferably up.
Touch higher than the current at the same time of course, you need to have a desktop the market thought is that.
Debt to pick up of transaction like this.
And of course, we haven't seen those transactions in the MLP market for quite the wildstar. So because there is of course of the market to that Oh, when what when we get there. So so it's a it's the let with premature, but but it's always something up.
That is a that we need to consider carefully win when we can.
Okay.
That we follow very closely of course, but the.
You know.
We have the we have the agreement between the parent and the MLP on that we fully stand behind the on both sides of it. So we'll we'll deal with that when do we get to net crossroad.
Okay, Yeah, no. That's it given the fact that we haven't seen those types of transactions, but maybe of potentially sort of firming market kind of curious to see about the timing, but that's super helpful. I. Appreciate your time, thank you very much.
Thank you.
Our next question comes from Ben Nolan from Stifel. Please go ahead.
Yeah. Thanks, So I have two questions the.
First maybe just the sort of follow on to what.
What Christmas just asking about as you'd think.
About sort of.
Yeah for let's say, the capital where available and whatnot.
How do you think about the appropriate.
Multiple of EBITDA.
On to pay for a fixed contract asset like many of them on.
Like where would you be looking at here or relative to maybe how you thought of that in the past.
Any of any changes or differences there.
Okay.
Yeah.
You know it's it's.
Is the again, a little bit premature to Harvard for me on that I think we would be looking at you know the.
Of the multiples stuck the I've seen in the past that the such as a starting point.
And then also of us look into other valuation metrics.
For for in a potential dropdown transactions, but I think the historical multiples will be a piece of the starting point.
Okay, and then Oh, Wow I am I'm forgive.
Forgive me I guess I have to but it's sort of related but the.
You you mentioned in the release that you're in the process of refinancing day Lampang later in the year.
It is the it.
Is the idea there too.
Simply refinance the existing balance or.
Would would you anticipate maybe I'm being able to get a little cash out of that or Conversely, paying a little bit more principal onto it.
Yeah. So.
As you pointed out we are in discussions with the banks on this it looks like we will.
We were able to upsize the facility of its.
It's too early to get into the details of that so none of us are but that is our aim to do.
So.
We will of course get back on on the day tends to US for you as you proceed.
Right Okay.
And then there's sort of brings the full circle a little bit the.
And hopefully or we'll.
We'll see but if you are able to get some cash out of that and then and then you've got of the proceeds from the ATM net you. It sounds like you've been active with any sense as to sort of what is your.
The.
On the liquidity for things like potential Dropdowns of member from.
From an equity perspective, how much because of the question is how much firepower do you think you have without needing.
To access the capital markets.
Okay.
I I think essentially we would need to finance the most part of the.
Transaction price, we'd dressing new equity.
Okay. So much from the sources, but the lion's share will have to come from from raising new equity.
Right Yeah, Okay, I think that I think also as we've done.
Before then I mean, we have normally split the transaction at least in two right. So.
I think when we look at this on a clear.
Clearly that is something that we would.
Probably be looking to do for for any future transaction also.
And that was it that was sort of my thinking is that you don't have to do the whole thing, but if you could even do a quarter of it or do you know the effectively you're just acquiring cash flows right. So.
Yes.
Alright.
Well that's very helpful. Thank you.
Thank you.
Again, if you have a question. Please press Star then one our next question comes from Kenn Hoekstra from Bank of America. Please go ahead.
Hey, signing and half of it.
Just the you mentioned in the release and in your discussion of the investments Youre, making in in the hydrogen and looking at ammonia potential I presume that is that at the parent level and you're waiting to see how that flows or is that going to be at the partner level.
No the initiative at the moment this is at the parent level.
Because it's it's basically at.
At the moment.
<unk>.
The business development the technical development.
Focusing on mainly two areas.
Green hydrogen on ammonia and the.
On the infrastructure.
Need it in order to bring that to market.
Where.
We also have the.
A case, where we are looking at using our existing fsrus for that purpose.
Which would mean that we could store of ammonia.
The converted.
The two hydrogen.
On the Fsrus.
Basically blend the hydrogen into the reclassified gas stream and send it to shore with debt.
This is something that is already being done I mean, the mixing of hydrogen into <unk>.
Existing pipeline networks as other than it being done.
In Europe on the very small scale same in Australia.
And so.
That of course would the when when we have proved and test the debt solution that could be applied.
All of our existing Fsrus.
So.
That's just one example, we have several other initiatives that goes with debt.
And clearly.
We will be looking at.
Playing debt.
Although solutions across the fleet, which of course would also involve the partnership.
And then just on.
Follow up would be just your thoughts on enough of rising interest rate period, which we seem to be entering one of your thoughts is that something you have you feel are.
The the partnership would have to counter with the rising distribution to sustained levels, maybe just your general thoughts on on on.
The rising interest rate environment.
Yeah. So I think for first of all on that the point when it comes to the managing of the interest cost of the partnership.
We are following.
Following the hedging policy to hedge the interest rates are at least the till the end of the existing debt facilities. So on behalf of locked in interest rates for for quite some some piece of it going forward.
I'm B R.
Looking to do that all somebody on the refinance the lump of them.
Facility.
This year so on that side, we're trying to lock in the interest rate exposure on the cost side.
On.
Although it is when it comes to the distribution, there's no not on to make changes to the in response to changes in the interest rate environment.
Yeah.
Great appreciate the quick thoughts thanks, guys.
Thank you.
Our next question comes from <unk> Khan from <unk>.
Corporate of holding Corporation. Please go ahead.
Thank you so much gentlemen, very simple question is there anything that you would believe would increase the distribution is being made within the next year or two in terms of the distribution through the hub.
Holders of the units.
Although you want on no. There's we don't see any.
And the reasons for changing the the whether that's up on down.
But thank you.
Okay.
This concludes our question and answer session I would like to turn the conference back over to Shang Stoli for closing remarks. Please go ahead.
Yes. Thank you Emily so thank you very much of everybody for calling in we appreciate your attention and we look forward to having you on the call again at the next quarter.
Thank you very much and goodbye.
This conference has now concluded. Thank you for attending today's presentation you may now disconnect.