Q4 2022 Dorian LPG Ltd Earnings Call
Greetings and welcome to the Dorian LPG fourth quarter and full year 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 the Dorian Lpg's website, which is www dot Dorian LPG Dot com I would now like to turn this topics over to Ted Young Chief Financial Officer. Thank you. Mr. Young. Please go ahead.
Thank you Laura good morning, everyone and thank you all for joining us for our fourth quarter and full year 2022 results conference call.
With me today are John <unk>, Chairman, President and CEO of Dorian LPG Limited, John <unk>, Chief Executive Officer of Dorian LPG, USA and Jim Hanson Chief Commercial Officer as a reminder, this conference call webcast and a replay of this call will be available through June <unk> 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 uncertainties and other factors as well as general economic conditions should 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 March 31, 2022 that were filed this morning on form 8-K. In addition, please refer to our previous filings on forms 10-K, and 10-Q, where you'll find risk factors that could cause actual results to differ materially from these forward looking statements.
Please note that we expect to file our Form 10-Q10-K for the 2022 fiscal year in the near future.
Finally.
For your reference during our formal remarks, please refer to the earnings supplement that we posted this morning on our website.
With that I'll turn the call over to John <unk>.
Thanks, Ted Good morning, and thank you for joining John Ted and me to discuss our fourth quarter.
Natural year 2022 results.
The Baltic <unk> index averaged about $57 per ton for the period of January through March.
As of yesterday rates had improved to 94.8 dollars per ton.
Global exports decreased $1 7 million tons in the first four months of this year compared to the same period last year or about 5% with the middle East the main contributor to global export growth up 13% year on year.
Tim will give you more details.
The price spread between heavy fuel oil and low sulfur fuel oil is currently around $230 per ton, providing a good return on our investment in scrubbers as Jon will illustrate shortly.
Are you a bunkering manager with the chartering operations departments are making considerable impact on sourcing the best quality and best price boxes for our fleet and our pool fleet.
And it May have short term energy outlook report the EIA estimate at a U S. LPG exports will grow 6% in 'twenty to 'twenty two it expects that trend to continue with exports, increasing 15% and 2023, driven by continued production growth and lower dose.
Mastic demand.
Our outlook for the next quarter and the remainder of the year remains sanguine.
In recent weeks, Panama Canal congestion has increased waiting days, which is good for overall fleet utilization.
There are only two new building vlccs scheduled for delivery between now and the end of June three in the third quarter and seven in the fourth.
We are faced with new challenges, resulting from the invasion of Ukraine. In addition to the continuing and significant disruptions due to COVID-19.
Our Crewing operations I C. H S HQ and other departments of work comprehensively to facilitate crude changes and to ensure that our seafarers are working well together and that their families are safe eight.
80% 87 push out of our seafarers are fully vaccinated 298 out of a total of 870 were vaccinated U S ports.
Our tech performance teams are assessing solutions ranging from traditional mewas dogs combined with bus count fence to more innovative technologies like air lubrication onto the Hull and advanced battery systems.
We believe a combination of retrofitting the most promising of hardware.
The engine power limitation will shake God, the competitive earnings advantage of our eco ships and comply with new emission regulations.
John will say more about this.
We began evaluating LPG as fuel seven years ago, and 10 of our vessels were built retrofit ready.
The additional cost to walk for dual fuel for a new building is not great but to retrofit existing ships is still in our opinion uncertain.
Remaining on the subject of ESG I am pleased to note. The launch this week of the all aboard Elias.
This is an initiative under the age of the global Maritime Forum that with other industry leaders, we participated in developing.
Its purpose is to collaboratively we confront the challenges of making a sustainable maritime industry by implementing policies procedures and leadership practices, which promote diversity equity and inclusion in our businesses.
With a strong balance sheet the age profile of our fleet.
Our new building and the time charter or three dual fuel new ships delivering in 'twenty to 'twenty three Dorian LPG is well positioned with fleet renewal flexibility.
Allowing us to continue pursuing an optimal capital allocation strategy.
Including the recent recently announced $2 50 per.
Share of dividend.
Our two $1 of dividends paid in the last 12 months as well as our stock repurchases and self tender. We will have retired over $400 million to our investors since the IPO.
Our capital allocation strategy as a balanced mix of return of capital and sensible investment in our business.
Ted will tell you more Ted over to you.
Thanks, John .
My comments. This morning will focus on the recent capital allocation events, our financial position liquidity and our unaudited fourth quarter results.
Fourth quarter was very busy from a financing perspective, we completed four refinancings during the quarter for the Copernicus credits Caravelle, and chaparral and one financing subsequent to year end for the Cougar.
Four of these transactions have purchase obligations, while the chaparral financing has only a purchase option.
In addition to attractive terms and advance rates, we really liked the longer tenors and profiles that are available to us in this market with the tenders for these deals ranging from seven to 10 years.
At March 31, 2022, we reported $236 $8 million of free cash, which is roughly where our cash balance sits today.
Since March 31, we prepaid $25 million of debt under our 2015, a our facility and refinanced the cougar, which generated about $30 million in net proceeds.
We will be paying out roughly $100 million of cash next week for the dividend that we announced in early may pro forma for these transactions March 31 cash would have been $141 7 million, which is a comfortable level for us.
With a debt balance at quarter end of $670 million, our debt to total book capitalization stood at 42, 1% and our net debt to net total capitalization at 32%.
We have no refinancings until 2025 ample free cash and Undrawn revolver, and one debt free vessel. Thus, we have a significant measure of financial flexibility.
For the coming year, we expect our operating cash cost per day, that's opex G&A interest and principle to be approximately $23000 per day, excluding the outlay that we made in may for our new building.
For the discussion of our fourth quarter results. You may also find it useful to refer to the Investor highlight slide posted this morning on our website.
Before going into the detail of the quarter's results I'd like to put the strength of this quarter into context, we earn roughly a third of our EBITDA during the quarter nearly 50% of our net income. These results were achieved despite the turmoil caused by the tragedy in the Ukraine.
Turning to our fourth quarter to our chartering results, we achieved a total utilization of 89, 3% for the quarter with a daily TCE, that's TCE revenue over operating days of $43372 <unk>.
Which yields a utilization adjusted TCE or TCE revenue per available day of about 38750.
Again, we're using the definitions of operating days and available days as we define them in our filings.
Our spot TCE per available day, which reflects our portion of the net profits of the Helios pool.
Was 39147 for the quarter.
In the Helios pool overall reported a spot Tc, including Coa is of approximately 39313 per available day for the quarter.
Our daily Opex for the quarter was $9370.
<unk> increased somewhat sequentially as we experienced higher crew costs, driven mainly by travel costs and medical expenses, which is fairly understandable given the current COVID-19 environment.
Our time charter in expense for the two Tc in vessels remained stable at $5 $4 million.
Total G&A for the quarter was $7 million in cash G&A that is G&A, excluding noncash compensation expense was about $6 2 million.
G&A is skewed higher in the fourth fiscal.
Quarter or the first calendar quarter of the calendar year because of certain statutory accruals that we must make those bleed out during the year.
But it does affect the fourth quarter G&A, but.
Our reported adjusted EBITDA for this quarter was $54 $1 million, including a $3 $8 million gain on the sale of the captain Nicholas.
We look at cash interest expense.
On our debt is the sum of the line items of interest expense, excluding 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 was $6 million.
With the new financings that we've completed.
We expect quarterly cash interest expense will increase to about $6 8 million on a run rate basis that run rate wont kick in until the quarter beginning July one.
Because we only have a half a quarter with the Cougar.
We continue to benefit from our hedging policy and the favorable pricing of our Japanese financings, leaving us with a current blended interest cost of about 4%.
Although we currently hold a roughly 90% economic interest in Helios, we don't consolidated P&L or balance sheet accounts, which has the effect of understating, our cash and working capital.
Give you some additional insight around that as of May 25, 2022, the pool held roughly $13 million of cash.
The dividend of $2 50 per share that will be paid next week brings to $4 50 per share.
In dividends that we've paid in the last year. We also repurchased 50000 shares of stock following the quarter end together with our open stock market repurchases and our three out of $113 5 million self tender offer we have now returned over $400 million to our shareholders since our IPO.
The significant dividend payments in the last year underscore our board's commitment to a sensible capital allocation policy that balances market outlook operating and capital needs of the business and an appropriate level of risk tolerance, given the volatility in our sector.
With a strong freight market backdrop, we remain cautiously optimistic about our cash flow generation over the coming months with that I'll pass it over to Tim Hansen.
Thank you Chad and good day, everyone. Thanks for dialing in.
The first quarter of 222 demonstrated that VLCC fundamentals remained healthy LPG production worldwide has increased and as the Asian import demand.
It happens.
Despite volatility brought on.
An extensive period of commercial activity in China, and the Russian durations innovation, so you're pretty close.
Seaborne LPG transport for the first quarter was the highest on record for any first quarter.
About 400000 metric tons compared to the previous records in 2020.
North American exports continued to increase on the back of record setting production levels.
Middle East export volumes also show growth, particularly from the United Arab Emirates, Qatar and Saudi Arabia.
Export volumes for the first quarter are the highest since 2019. This indicates that the OPEC plus production reversals have indeed had a positive impact on the LPG transport.
Demand for Vlccs shipping during the first quarter followed the trends.
Previous first quarters, namely the generous demand is high February slow in March as a period of recovery the LPG, one index, indicating the market rate.
For the Middle East to Asia averaged about $57 per metric ton during the first quarter. This equals the time charter return.
About 31400 per day on a <unk> type non scrubber vessels.
Food and heightened time this.
This compared to $59 per metric tons or about <unk> <unk>.
40500 per day.
On a similar basis during the fourth quarter.
One.
We'd be at the G III index.
Indicating the freight from U S Gulf Asia averaged about 100 and 105 metric tons.
Dollar per metric tons during the first quarter. This equals to a time charter return of about 36700 per day.
Can scribe.
Hi, scrubber ship.
These figures exclude I think time and also excluding kind of the Panama Canal. The waiting time at palace. This compares to about $103 per metric tons or $40 45300.
Dollars per day in <unk> on a similar basis during the fourth quarter.
The east of Suez Margaret sold Q1, again, the benchmark H H, a cheaper rate holding the perm sentiment from the <unk>.
One carrying over into January .
The lunar new year period in February impacted the freight market negatively with many key far eastern players being enacted.
Increasing geopolitical tensions due to concerns about Russian troops not leaving.
From the military exercises in Belarus during that time the market sentiment in victory.
All the while longer prices continue to increase.
Time charter earnings.
Below cash breakeven levels levels. During this period after the shock of the new one Europe subsided.
There was a lot of activity in the east trade market during March to compensate for the loss in February but also to secure tonnage when many vlccs began to balanced towards the west.
Whereas the Suezmax.
Through most of January and falling towards the end of a bunch of Jamba, Josh narrowed on the back of rising prices.
The rise in Mont Belvieu prices wasn't dissipated.
Seasonal events, reflecting increased domestic demand in North America during the winter.
There's more uncertainty about the impact of new restrictions.
New Panama locks.
Being implemented in January .
What had been sort of transpired was amended charter has targeted the valence business balancing two American low potency, which can now be a cape of good hope.
This additional ton miles so the Margaret increased shipping demand January .
Sydney.
Increase in bunker prices after the commencement of the war, Ukraine eroded the conversion of Seinfeld vessel owners to balance the long way to the west Harlem.
Although the reduction then.
Longer ballast to North America reduce to ton miles.
Delays in the Panama Canal continue to absorb worldwide.
Depreciation.
The commencement of the work.
Say that the effects of the seasonal lull in February .
Activity was subdued in tier three moats much like in the East Coast Bleach.
Political tensions.
Foreseen knock on effects of doable commencement was increased fixing activity in March.
And an expansion of transatlantic voyages module was one of the busiest months for spark fixing on a record for <unk>.
<unk> 19, Congress, who made it through European discharged compared to only 11 months of 2021.
With Russian pipeline imports and smaller sized gas ships impulse from Russian soldiers no longer viable several European importing countries turned to VLCC loadings.
In North America.
<unk> been done in Germany increased like you for <unk>.
On smaller Chinese destinations in northwest Europe or.
I wish it was naphtha exports from Russia, facing restrictions and thereby raising knock surprises as their chemical players in Europe turned to LPG as a preferred feedstock.
For the previous quarter it was forecast.
First quarter of 2022 would see firm do you see demand increased north American production and middle East exports to be positive.
Egypt transpire.
That's going to look at is can also be seen on page four in our presentation. Also here you can see the increased commitment congestion independent mechanism, which we forecast it but the impact was less severe than we had anticipated.
Going forward. These trends are assumed to continue with the market had been adopted to the new normal since the stock level.
With that I will handle that.
Thank you Tim.
Last quarter's geopolitical events of war in the Ukraine, the Russian oil embargo imposition of economic sanctions and increased risk of recession to world economies have caused volatility in the world financial markets, which has resulted in a significant increase in crude oil and gas prices due to supply.
Locations and anticipated pure shortages for most of the European countries.
Since our last earnings call in early February fuel prices have jumped more than 25% currently having reached well over 30% at the end of the first quarter.
The average spread differential for bunker supply at the porch of Singapore Rotterdam Houston in Fujairah.
For low sulfur fuel oil and high sulfur fuel oil had progression really widened during that time from about $150 a ton to about 200.
Dollars per metric ton at the end of the quarter and to about $230 currently.
The loss shelf.
Marine gas oil <unk>, 1% sulfur.
Prices stand at 42% higher since our last call, indicating a shortage in the market for this kind of product.
For a vessel consuming 40 metric tons a day at sea.
Fuel differential for the scrubber vessels can translate to roughly $8000 per sailing day.
These economics are maximized on long haul voyages because vessels.
Vessels need not burning more expensive low sulfur fuel oil or marine low sulfur marine gas oil fuels at sea or in emission control areas or do you import stays when loading or discharging.
We are pleased to note that our original expectations continue to be validated not only with our selection of their hybrid multi loop scrubbers as opposed to open single loops, but also with our investment payback estimates, having paid back more than 60% of equipment capital expenditure installation costs.
We are retrofitting various energy saving devices to improve the performance and reduce the engine power requirements for our vessels, which will result in lower emissions and reduce the effect of compliance.
What's the <unk> regulations next year.
Meantime, we await the proceedings of the <unk> 78 June session to decide among under sanction alternative methods of engine power limitation that will be available two vessels for ESI compliance.
Besides the a variety of both E P L.
Non of variety, we'd be al and shaft bar limitation proposals that may prove valuable alternatives.
Regardless of the mode of EPL chosen the younger more efficient ships will generally be less impacted giving them greater trading flexibility than older tonnage.
Given our experience with scrubbers. We are also looking at carbon capture and storage technologies and their potential application to the marine industry in the future. We are discussing several potential solutions. However, our immediate objectives implementing marine technologies that already exist and which can provide immediate result.
While studying innovation technological innovation and marine applications that become available commercially and appreciable financial financially.
The close monitoring optimization of energy consumption on board our vessels.
To support our vessel performance and emission reduction initiatives.
Is ongoing our performance Department team has introduced a cool feedback module, which is an online tool that provides crew with real time professional performance indicators as well as fleet wide indicators.
This will assist guide and engage our seaboard pressure now in seeking to optimize fuel consumption and provide comparative results from sister vessels to the fleet onboard and ashore.
There have been further significant regulatory updates for the maritime sector since our last report.
We had reported on the European Union announcement in July 2021 that the maritime transport would be included in its EU emissions trading scheme system.
In January 2022, they you rig legislator had proposed several amendments to that July of 2021 proposals, which went beyond what the mall had proposed an agreed to doing their <unk> 77 meetings.
Last week, the environment public health and food Safety Committee on the U of the EU Parliament voted for a basket of amendments to accelerate the maritime sectors inclusion to the issuance trading system.
The initial three year phase in period is proposed to be revoked.
Instead shipping companies must deliver.
E U allowances 400 per cent of their inter EU voyages and.
There and 50% of their inbound and outbound E U voyage emission voyages right from 2024.
It was inbound and outbound voyages are to rise to 100%.
Emission allowances.
The scope.
This new scope will come to include other greenhouse emissions. Besides C O two such as methane and nitrous oxide oxides.
Finally, our closest proposed to allow ship owners to pass emission costs through the commercial operator of the vessel.
All of the above measures Cigna used intention to lead the race to decarbonization and outpaced the ammo and the process.
The accelerating focus on energy efficiency will likely for shareowners to make hard decisions about the cost of investing in the upgrades of older tonnage and when their ability to compete in the main trades.
We think it is likely that share owners will find it more economical to scrap older tonnage.
Particularly though general several generations older rather than be burdened with increasing stricter environmental regulations, which would penalize high fuel consumption smaller capacity and non eco engines.
For vessels that are newer we believe that investments would be imperative and therefore, the owners will exit with access to reasonably priced capital would be positioned to make the necessary investments and achieve reasonable returns our decision to invest in scrubbers was possible because of our financial strength and has helped us generate very solid results.
Which gives us confidence as we look forward and evaluate the next wave in marine technology advancements.
At Dorian our goal is to continue improving our greenhouse gas footprint eventually reaching a zero emissions targets and we are optimistic that our fleet would be among the best positioned to meet the demands of charterers regulators and shareholders.
And now I pass it over to John how would you put that.
Thank you John .
We're happy to take questions.
Laura do you want to.
Is there any questions for us please.
With the prepared remarks are completed we will now open the line for questions. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is another question queue. You May press Star two if you would like Jim We will get a question from the queue.
It happens using speaker equipment and may be necessary for you to pick up your handset before pressing the star keys, one moment, while we poll for questions.
Our first question comes from the line of Brian <unk> with UBS. You May proceed with your question.
Hi, good morning, everyone.
Curious if you can talk about the Russian invasion of Ukraine, and how it impacts the global slow of LPG, we've seen some upward revisions in the U S. LPG export expectations and expansion announcements recently and curious if you could talk about how much of that is due is just due to displacement of Russian LPG and the demand for it versus just natural organic growth that may have not been baked in before.
Sure.
I'll, let I'll, let Tim answer that but I can tell you for example that we have had we've had pro forma the voyage from the U S Gulf to.
Actually from Marcus Hook to Finland, which is something that we've never done before so that was.
Is there an indirect result of the conflict I believe but Tim can give you more details.
Yeah, Oh I don't think there was some mention people. So we did see increased activity into Europe .
And.
It looked at various Uh huh.
What they come to us.
Consumption, and especially Poland, and Ukraine, which is using in Virginia.
Coffee.
And overall, we see demand for around <unk> cargoes, a month into a into Europe . In addition to our board of Schlumberger has been going in there.
To cover this demand and this is all.
New.
New demand and in the way that it is previously commented on rails.
And trucks from from Russia, So, we just shifted into seaborne demand.
So that as I mentioned in Baxter.
Prices have been.
Been high unless you see them there on the dual prices.
Especially on the spread from from.
Hey.
Sure.
Lack of clean fuels.
Which of course, then lockdowns, which would be either expensive LPG shifting into.
Some of that space.
The crackers in Europe .
Also we have seen some LPG actually being re injected into the LNG stream in the <unk>.
Europe .
The high energy prices.
Hum.
The on demand.
So we estimate it's roughly two to four to five vlccs are monitoring them on a regular basis.
So that demand.
Great. That's super helpful. Thank you for the color and then maybe my one follow up just curious if you could talk a little bit more about the future propulsion technology. I think you talked about Huska birds, you know ended up improving your payback period.
Pulling that forward, but wondering you know looking forward is there any more consideration of deal foot fuel technology or anything else just given and then maybe just talk a little bit about the bunkering market end market, just given that we're seeing low inventories across the refined products market globally. Thanks.
Yeah, Tim Tim.
Tim will answer you the question on the Bunkering market and then.
John will give you a bit of background on the rest of your question but.
On the question of the dual fuel.
We've kept this open all the while because the economics are our change.
Changing all the time and I.
So far we're happy with it.
What we've done on the scrubber wise.
We and we feel that we.
Having the optionality and not having done you'll have your to date.
Where we're at as a positive, but we still have the optionality for that and as you know we opted for that for dual fuel on our new building as well as the three ships that were new buildings that we chartered in but yes.
Tim will tell you about the bunker market and then John will tell you a little bit about our efficiency and all that stuff.
Yeah on the Bango is hard to see this as a.
Curtis what was you mentioned the spread has widened and as I mentioned, there's a shortage of.
<unk> products are things at the moment in Singapore overseas spread up around 340 or something between them.
Willow sometime in July .
Q1, and we are seeing there.
The supply difficulties around the world.
We see that continuing for so long.
Considerable time.
As long as there.
They won't.
Ukraine has has effect, which it might be.
How long after the year.
Hopefully.
And then I think would be the high oil prices, which we will likely see going forward.
These spreads would remain on heavy crude in there and also we have seen lately.
Could you prices coming off.
Coming back into the space, where it becomes.
It becomes economical to U G suite as well or why is it still.
Less advantageous and burning heavy fuel at the moment.
Increasing its competitiveness.
Over the last couple of months.
Great I appreciate all the color today, thanks and have a day one.
As a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
One moment, while we poll for questions.
Ladies and gentlemen.
Today's question and answer session I would now like to turn this call back over to Mr. John <unk> for closing remarks.
Terrific. Thank you Laura and thank you everybody for dialing in and for questions and hope you'll have a good summer and we'll talk to you next quarter again. Thank you bye bye.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and enjoy the rest of your day.
[music].