Q3 2022 Dorian LPG Ltd Earnings Call
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Greetings and welcome to the Dorian LPG third quarter 2022 earnings conference call.
At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. Additionally, a live audio webcast of today's conference call is available on Dorian Lpg's website, which is www dot Dorian LPG dotcom.
I would now like to turn the conference over to Ted Young Chief Financial Officer. Thank you. Mr. Young. Please go ahead.
Thank you John Good morning, everyone and thank you all for joining us for our third quarter 2022 results conference call with.
With me today are John <unk>, Chairman, President and CEO of Dorian LPG Limited, John Lewis, Chief Executive Officer of Dorian, LPG, USA, and Tim Hansen, Chief Commercial officer.
As a reminder, this conference call webcast a replay of this call will be available through February 10 2022.
Many of our remarks today contain forward looking statements based on current expectations. These statements may often be identified with words, such as expect anticipate believe or similar indications of future expectations.
Although we believe that such forward looking statements are reasonable we cannot assure you that any forward looking statements will prove to be correct.
These forward looking statements are subject to known and unknown risks and uncertainties and other factors as well as general economic conditions.
One or more of these risks or uncertainties materialize or should underlying assumptions or estimates prove to be incorrect actual results may vary materially from those we express today.
Additionally, let me refer you to our unaudited results for the period ended December 31, 2021 that were filed this morning on Form 10-Q . In addition, please refer to our previous filings on Form 10-K , where you'll find risk factors that could cause actual results to differ materially from these forward looking statements.
That I will turn over the call to John Heck of a terrorist.
Thank you and good morning.
John of course, Ted Young Tam Hudson well.
Update to you with details of our.
Non fuel operating and.
General market.
Information after my brief remarks.
I Hope you and your families are keeping safe.
Thanks to the hard work of our shoreside people our operations continue largely uninterrupted.
Okay.
I'm pleased to report that we now have 79, 9% of our seafarers fully vaccinated.
Our fleet performance and technical teams are assessing various emission devices, which potentially will reduce the consumptions are about equal sleep.
And we have narrowed down our target list for potential retrofits.
Since January 2020, our efforts to reduce emissions have resulted in fuel savings of over $3 million.
We will shortly be posting on our website, our new sustainability report, which highlights our achievements and targets we.
We are proud to be participating in the getting to zero coalition.
We saw a quick rise in the market this past quarter and managed to achieve strong rates and vessel utilization.
Higher bunker prices impacted T C last Friday.
On February 28 was the first time since September the Brent was quoted above $90 a ton.
The price spread between heavy fuel oil and low sulfur fuel averaged $127 a ton over the quarter.
This increased the earnings differential between non scrubber fitted ship and expedited our return on.
Our 12 scrubber ships currently the price differential is between a 150 and $200 a ton.
We have been your bank Bunkering manager now sitting with chartering and operations in Copenhagen, who already has made a considerable impact on sourcing the best quality and best price buckets were asleep.
And our poor pool fleet globally. This morning, we announced the decision of our board of directors authorized share buyback of up to $100 million.
We're continuing our focus on capital allocation and creating value for our shareholders.
Notably we also have retired capital by way of our second one dollar per share dividend, which was paid in January .
And with our new building order at time charter dual fuel new shifts in 'twenty to 'twenty, three we are well positioned with fleet renewal flexibility.
Thus, our overall capital allocation strategy is a balanced mix of return of capital and sensible investment.
Business.
I'll now pass to Ted to give you.
To discuss.
The natural results Hi, Ted.
Thanks, John .
In addition to discussing our financial results for the quarter I would like to review the significant significant events related to capital allocation.
The $1 per share a regular dividend that we paid in January represents our second and brings to $80 1 million of the total dividends paid to shareholders and bringing to $309 $1 million. The total cash returned to shareholders since our IPO in 2014, we've done that through open market repurchases a self tender offer.
And of course to dividend.
Since our last report we have completed the previously announced repurchases of the Captain John and the Captain Nicholas for total cash of about $35 million.
Well, we're not going to comment on press speculation about a possible sale of these vessels. These payoffs allow us to move quickly if those opportunities present themselves. In addition, we've now paid off our most expensive debt.
At the end of December 2021 we completed a refinancing of the 2015 build constellation commander with a group led by Bank of America.
An advance rate of 60% and approximately 17 year age adjusted amortization profile and a 3.78% fixed interest rate. We felt that the terms were suitably attractive the cost of the new debt is only marginally more expensive about about 70 basis points than the debt it replaced for modeling purposes. The.
That will add roughly $420000 for the previous quarterly cash interest expense incurred on the <unk> on these two vessels.
At December 31st 2021, we had $115 8 million of free cash as.
As of February 2nd our free cash balance stood at $54 8 million, reflecting the payment of the dividend and the repurchase of the captain Nicholas as well as the new building progress payment of $8 million. We had originally expected to make that payment in our fiscal fourth quarter the quarter ending March 31, 'twenty two but the yard met the milestone in December .
Thus, we'll have that cash flow benefit in this quarter current quarter.
With a debt balance of at quarter end of $585 million, our debt to total book capitalization stood at 38, 8%, which is flat with the prior quarter.
Again, we have no refinancings until 2025 ample free cash and an undrawn revolver.
We expect our operating cash cost per day for the coming year to be continue to be in the range of 22 to $23000 a day.
We are continuing to evaluate financing opportunities that are consistent with our parameters of tender cost in advance rate.
For a discussion of our third quarter results. You may also find it useful to refer to the investor highlight slides posted this morning on our website, where we have some.
Additional financial information as well as some market and ESG information.
For the third quarter, we achieved a total utilization of 98, 5%, which was up from 95, 7% in the September quarter with a daily TCE. That's TCE revenue over operating days as defined in our filings of 33005 O eight yielding utilization adjusted TCE, which is.
TCE revenue per available day of about $33019.
Spot TCE per available day, reflecting our portion of the net results of the Helios pool or the net profits of the Helios pool were about 33 or 497.
Looking at the Helios pool as a separate entity the pool reported a spot T C, including piece a C O as of roughly 33000 and for 2014.
For available day for the quarter.
Overall in the pool the rate was 30004 O eight.
During the quarter, we saw steady month over month improvement in T. C E rates, reflecting the favorable trends in the market.
Daily Opex for the quarter was 9086, excluding amounts expensed for dry dockings. It was 9004 twenty-three including those costs.
Sequentially Opex drydocking costs are down about $100 per day and down almost $800 per day since the quarter ended March 31 2021.
We were pleased to see a reduction in our running costs, which sequentially has been most notable in spares and stores.
Within the quarter, we saw our daily Opex, excluding dry docking cost generally decreasing sequentially, which again is consistent with our expectation of improved opex as conditions slowly normalize.
Our D C and costs for the quarter was $4 9 million, reflecting the delivery of that as the most venous during October .
Full quarter basis going forward.
R. T C inexpensively, approximately $5 $4 million, that's where the two ships. He asked most of the units in the future Diamond.
Total G&A for the quarter was $5 $9 million in cash G&A as G&A, excluding noncash compensation expense was about $5 $2 million, which was down 400000 from the previous quarter.
That left us with their.
Ported adjusted EBITDA for the quarter of $39.4 million.
As you know we look at cash interest expense on our debt is the sum of interest expense, excluding our deferred financing fees and other loan expenses and the realized gain loss on our interest rate swap derivatives on that basis total cash interest expense for the quarter.
Excluding $900000 associated with the repurchase of the Captain John was $5 $2 million, which was down about 300000 from the prior quarter.
The pay off of the Captain John the Captain Nicholas will reduce our annual cash principal and interest by over $4.8 million.
Per year or about $600 per fleet day.
Taking account of the payoff of these two vessels and the refinancing of the constellation the commander, we expect to have about $5 million of cash interest expense. This quarter on the new capital structure and about 1 million of amounts related to the captain Nicholas that will not recur in this quarter. After the payoff so again about 6 million.
And cash interest expense of which $5 million is really the full effect of the new capital structure and $1 million.
Sort of legacy amounts related to the necklace.
Following the repayment of the captain Nicholas and the refinancing of the constellation and the commander, we expect quarterly principal amortization of $12 $9 million going forward.
We continue to benefit from our hedging policy and the favorable pricing of our Japanese financing, leaving us with a current interest cost fixed hedged and a small floating piece of 371%.
Although we currently hold roughly 80% economic interest in Helios, we do not consolidate its P&L or balance sheet accounts, which has the effect of understating somewhat our cash and working capital.
We believe it is useful to provide some additional insight into ore in order to give a more complete picture as of Wednesday February 2nd 2022 the pool had roughly 28 and a half million dollars of cash on hand.
As John mentioned, our board also authorized the repurchase.
Again, we remain focused on looking for ways to return capital to shareholders flexibly as possible as well as maintaining opportunities to capitalize on market opportunities as they present themselves.
With that I'll pass it over to Ted Hanson.
Yeah.
Thank you Chad.
The first quarter of 'twenty or 'twenty. One continued many of the trends from the previous quarter, North American NGL production demonstrated robustness and Asian import demand grew crude oil prices continued to climb with the Brent crude oil price.
79, and $6 per barrel global seaborne LPG transport was up by about 700000 tons compared to the transport volume in the third quarter.
North American export followed the trends of the quarter prior driven primarily by high production figures production figures were at levels similar to the record setting production seen in January of 2020.
Continued production increases by the OPEC plus countries since August or so.
2021 has seen the export volumes grow both board exports were up by about 370000 tons compared to the third quarter.
Import volumes in China declined quarter on quarter by around 400000 tons, but this however was offset by higher import volumes in India, South Korea, and Japan and Japan.
The demand from your G shipping increased in the fourth quarter and freight market improved quarter on quarter, although rising bunker prices as mentioned negatively impacted the time charter.
And do things.
The Bill could you one <unk>, which is a great market indicators for the middle East to Asia Oops averaged about $59 per ton during the fourth quarter compared to $42 per ton during the third quarter and the <unk> three which is a freight market index for U S Gulf to Asia beverage.
$103 per ton during the fourth quarter compared to $88 a ton during the third quarter.
The east of Suez Margaret someone rally in the LPG 180.
<unk>.
Asia Index at the end of October on the back of the improved west to East arbitrage East Eastern players reacted to the anticipated a pool of Chinese from west to the east and the bolt chicken proved in the last week October five as all of us.
In mid November .
Could you one was in the sixties levels not seen since since may.
'twenty one.
First week of December so a slight dip in the <unk> because he wanted his childhood waited for acceptances.
By various middle East takes Cordish.
Prices in the far east so in conjunction with crude oil prices.
The dividend rate, however, shortlived with renewed the correction to the market and rates, reaching the mid seventies levels not seen since January of 'twenty one.
But for the rest of Singlish Margaret as crude oil prices rose at the end of October the arbitrage opened and there was considerable really activity there.
The market was further bolstered by delays in the far east discharge ports as well as delays in the Panama Canal. They were reported around two weeks with a peak of 18 days by the end of the window.
Much of the delay at the Panama Canal can be attributed to the arrivals from vessels that had been that had been delayed in China during the third quarter.
Although freight levels didn't reach the same peaks December 'twenty to 'twenty, two simple 21 did see affirmed western market.
Listen to the strengthening middle East market was one contributing factor the other factor was.
Widening albatross supported by relatively low Mont belvieu prices.
Mount Belvieu remains supportive of the off doing the stock Roche.
As they occur it's lower than the previous winter.
Partially due to global climate, but also due to record high production levels.
Yeah.
And comments from the east and West market delays. That's all you see starts pulled up so.
Basically the rest of this capacity.
Or congestion well contributing factor that's exactly.
Rising fuel prices reported.
So complicated settlement.
It's which had to be adjusted.
Adding two delays to EOG she's discharging in the far east.
Despite the negative impact on.
On time charter earnings from it.
Rising bonkers there are several positives for the remainder of the first quarter 'twenty to 'twenty three.
Turning to the.
The LPG demand remain very north American production of NGL remained strong as well. Furthermore, middle east exports are forecast to maintain the posts.
Production costs.
Production cost levels from the OPEC plus countries.
Lastly, there are signs of increased Panama congestion in the first quarter as well increasing utilization to the worldwide you just see feet.
And with that I will pass on to John to Krish.
Thank you Tim.
During the last quarter, we have seen crude oil prices rise on anticipated shortages in Europe , and China due to weather and geopolitical threats.
G cargoes have been diverted to cope with the situation and LPG cargoes have also seen good activity.
But 'twenty one.
The bunker suppliers have become tight and the spread differential between low sulfur fuel oil and high sulfur fuel oil has widened.
The average spreads for bunker supply between the ports of Singapore, Rotterdam, Houston, and Fujairah recently stood at about $150 per metric ton and our scrubber vessels had benefited from the relatively lower high sulfur fuel oil prices versus the very low sulfur fuel oil pricing.
Which rose faster in response to the crude oil price increases.
Or is that still contributing 40 metric tons a day at sea the fuel differential for the scrubber vessel can translate to roughly $6000 a day.
Oh no.
For the during the sailing trip.
Economics have maximized the long haul voyages.
We should also remember that the hybrid features about scrubbers provided an additional upside for all emission control areas and south for emission control areas, when steaming or doing port stage by replacing consumption all of that 0.1.
Medium gas oil, which has a wider spread differential than.
The very low sulfur fuel oil.
We are also pleased to note that our original expectations continue to be validated not only with our selection of hybrid scrubbers as opposed to open loop for our vessels, but also regarding our investment payback estimates.
We are continuing to invest in our vessels performance and energy efficiency to reduce emissions and lower our operating costs.
Our new technology Advisory group consideration, we've used visibility of novel and existing solutions, which could be implemented in realizing these objectives.
The immediate focus is our fleets E site calculations.
The resulting engine power limitation, which will come into effect in less than a year. According to the I am more regulations on all vessels.
E. P. L is a significant development in our view because it will affect all ships by requiring them to limit their speed based on emission levels. That's younger ships will be less impacted and should enjoy some trading flexibility that may not be available to older tonnage absence.
Significant capital investments.
We further consider retrofitting energy saving devices to our fleet with improved performance and reduce power requirements, resulting in lower emissions.
Given our experience with scrubbers, we also looked at carbon capture and storage technologies and their potential application into the marine industry in the future.
We believe that by capturing and redirecting energy dissipation towards special performance and emission improvements, we can do a better job with the energy we consume.
Our immediate objectives are implementing marine technologies that already exist and which can provide immediate results, while studying technological innovation and advances until they mature become commercially available in the coming years.
Our performance group are leveraging the recent collaborations with Kongsberg.
To progress real time data collection and management.
The objective is to monitor in real time, the vessel's performance and enable optimization of onboard engine and cargo operations, while achieving completion of their voyage with lower power requirements saving energy and reducing emissions.
There have been significant regulatory updates in the last few months in the maritime sector.
While the international Maritime organization, there's danger national governing body for global shipping.
The European Union announced in July 2021 that Maritime transport would be included in the EU emissions trading system.
In January 'twenty, two 2022 the EU legislator proposed several amendments to their July 2021 proposes that go beyond in many cases, what the I M. O had proposed an agreed.
During MVP seat to 77.
These include proposals for a sort of phase in period, unless the I am agrees to comparable measures with those of the U K.
Clarifying charter responsibility for the pollution of their trip that their trade generates.
Adding a new requirement of measuring methane emissions in addition to shield two.
<unk> has also begun to encourage other regions of the world to adopt similar emission legislation for maritime transport.
Ultimately the access of all this is split as you is to signal that the I am always not moving fast enough on the maritime emission regulations as other sectors and industries have done.
The accelerating focus on energy efficiency will likely force owners to make hard decisions about the cost of investing in the upgrade of older tonnage and on their ability to compete in the main trades.
We think it is likely that as have our owners will find it more economical to scrap older vessels, particularly those several generations older where the burden of high fuel consumptions molecule big capacity and less modern engine or at or at least these vessels will be restricted to captive trades.
For vessels that are newer we believe that the investments will be imperative and therefore, the best capitalized players will access.
Reasonably price capital and will be best positioned to make the necessary investment to achieve those results.
Our decision to invest in scrubbers was possible because of our financial strength and has helped us generate solid results, which gives us confidence as we look forward to evaluate the next wave in marine technology advancements.
At Dorian we consider that it is our clear goal to continue improving our greenhouse gas footprint eventually reaching a zero emissions target and we are optimistic that our fleet would be about the miss the best position to meet those demands which are all shut the doors of charterers regulators or shareholders.
And now I will pass over to John Hayes, you put tariffs.
Thanks, John .
John Mr. John Operator, maybe you can open up for questions. Please.
Thank you.
He would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue. You May Press Star two if you would like to remove your question from the queue.
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Ma'am, please while we poll for questions.
Our first question comes from the line of Sean Morgan with Evercore ISI. You May proceed with your question.
Hey, guys. So I think I'm really demonstrating the commitment to return of capital and I just wanted to have.
Clarify some things on the $100 million buyback authorization. So you know that's that's north of 20% of the total market cap and probably.
Probably in line with your total cash so how how aggressive is there a is there a time.
Limit on that authorization and how aggressive would you look to to buy back shares it would it be kind of just a steady.
Purchase plan, our shares continue to sort of dip in this bear market, which not necessarily reflecting what's happening in the rate environment for Vlccs do you think you'd be accelerating buybacks or is it just more of a steady buyback plan.
Yeah.
Sure.
If you if we're making a choice between those.
Bold choice questions.
It would be alright, yeah, that's a lot.
No not at all.
It is.
It's a good question and I think that what where we are intent yesterday.
So answering your question about a time limit there isn't a time limit secondly, how we execute has to take all the all the factors into consideration, including obviously earnings and price. So we see value here and we see it.
But we're not committed to executing in any particular timeframe. So.
Difficult for me to kind of give it to give you a.
A clear answer on that because it's going to be subject to all the other factors. There's so much volatility everywhere now.
Including and the geopolitics and the stock market.
Great market so.
Well well from quarter to quarter.
We'll be updating you in no doubt.
Okay. Yeah, I mean that was really what I was trying to get to it. So it sounds like it's not like a static program, we were buying a certain amount of shares each each quarter. It could be sort of adapted based on on what you see in the equity markets and then kind of balancing that with the right market. So that that was what I was trying to drive that sort.
And Articulately.
And then regarding the new E. P. L limits do you do you kind of see I mean, you've kind of hinted a little bit of it.
Scrapping as that gets instituted.
Do you think that that the slow steaming will will have the impact of sort of reducing.
Active utilization are you increasing the effective utilization of the fleet and maybe providing a little bit of rate benefit there as well.
Yeah.
Yeah.
I'd like to give you I'd like to give you maybe John he's been spending a lot of time on.
As well as Tamara of course, so that they're better poised to give you an answer yeah.
John you want it.
Yeah, Yeah of course, Hi, Shawn.
Yes, I you know the.
The older ships.
Just.
Rule of thumb kind of.
Thinking is there.
Those ships.
Would you have to cut.
Cut their engine power to about 30 some percent and.
The younger ships will have to cut their power at about 20 some percent so just roughly.
The the the newest ships would be able to do almost you know.
Nearly to 16 nods, but the oldest ships would have to go down to you know.
14, and a half to 15, not something like that so yes. It does do exactly what you said that utilization is is lower for older ships and therefore, they will not be as I said.
In my in my script.
A few minutes ago. It it means that they will have to kind of juice himself to captive trades, rather than do a long hole trading or really active trading.
Does that answer your question.
Yeah. That's that's helpful. And then so I guess if people are I know, we're kind of a little ways away on the ammonia technology and other sort of lower carbon technologies, but did.
The IMF taking into account propulsion technology to basically give you the benefit of faster seeming. If you are using a lower carbon intense a propulsion system than maybe a traditional ice engine.
Yeah, the formula does provide that it.
It is the amount of C O two that you're a niche.
Whether it is from the main engine or from the auxiliary engines are the generator engines and yes. It will affect it as the Formula goes yes of course, you would and and you can the more things you add.
To your engine.
To do a better combustion or less C O two.
Mission It would affect it would give you a better established and a better speeds, yes correct.
Okay, great. Thank you.
Youre welcome John .
Anything else.
Yeah.
As a reminder, if you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue. You May Press Star two if you would like to remove that question from the Q1.
One moment, please while we poll for questions.
Yeah.
Yeah.
Our next.
Comes from the line of Brian Reynolds with UBS you May proceed with your question.
Hi, Good morning, everyone, just a follow up on the capital allocation question.
Alluding to that you know, 20% of the market cap being reduced.
And then as you land, we've kind of seen that you know.
No math being thrown around where your free cash flow et cetera, I can.
Reduce effectively make a make a company go private and X amount of years, just kind of curious on your thought process around you know the long term, what's what's what makes sense from a liquidity standpoint.
From a total unit count perspective.
Now going forward I you know looking ahead, just given the new IMO regulations should we think about potential new capex spends or you know potential special distributions in the future and just how you're balancing all those three together.
We have but I think I said in my remarks at the end that we have.
We will continue to have a flexible attitude towards capital allocation we will.
By value.
Oh.
Evaluating all the auctions at the mall.
There is.
Nothing.
We haven't sort of meda any plans in terms of reducing them.
Yeah.
How shall I put it.
Our plan is to two two.
To put the capital where we think it can be most effective most rewarding to shareholders at any given time.
And I think we've been quite good at doing that and we're not going to do that at the expense.
Our business, we don't want we're not going to impair our balance sheet and we're not going to reduce.
The.
Service quality of service that we can provide to our customers. So we think we've intelligently positioned ourselves.
We have oh.
[noise] asleep, so far amongst our peers and where.
Gently positioning ourselves for the future with her.
<unk> mentioned 2023.
And we will continue.
Continue to evaluate everything wont be options as we go along.
Fair enough that's all for me thanks for your time.
Thank you we have reached the end of the question and answer session now knocks on the call back over to Mr. Hudspeth terrorists for closing remarks.
Well, thanks, everybody and thanks for coming and for your questions two gentlemen, and looking forward to talking to you again next quarter.
Bye bye.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a great day.
Yeah.
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