Q2 2023 Dorian LPG Ltd Earnings Call

Greetings and welcome to the Dorian LPG second quarter 'twenty to 'twenty three 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 for todays 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 Vikram good morning, everyone and thank you all for joining us for our second quarter 2023 results conference call today.

On the line today with me are John How's it been terrorists chairman President and CEO of Dorian LPG Limited, Jon Litt chorus, Chief Executive Officer of Dorian LPG, USA, and Tim Hansen, our Chief commercial officer.

As a reminder, this conference call webcast and a replay of this call will be available through November nine 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 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 September 32022. They were filed this morning on Form 10-Q and.

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 those forward looking statements.

Finally, you may like to refer to the Investor highlights slide posted this morning on our website as we go through our remarks. This morning with that I'll turn it over the call to John Hazard terrorists.

Thanks Ted.

Thank you for joining us.

Ted and John are in Alberta, Tim and I are in Houston.

I will give a brief introduction.

And then opened immediately for questions when you can get Uganda access.

My colleagues directly.

Including our recent dollar dividend declared on October 27, we will have returned.

Nearly $500 million to shareholders since our IPO.

Our board is focused on returns to shareholders, while retaining commercial flexibility and ensuring a strong balance sheet.

We've often been asked why we call our dividend irregular route.

To distinguish it from extraordinary and a regular dividend.

That term, but it's not our events. It was more often used in the past and Ted can elaborate on its history.

We use it because we consider it a more accurate way for a shipping company to describe the prospects for future dividends.

Our board prioritizes returns to shareholders consistent with a strong balance sheet and value creation.

We are confident in our sectors relevance in the energy mix and doing our part in the supply chain and returns over the lifetime of our assets, but we acknowledge that even in the best of times volatility makes it impossible to make reliable medium term predictions of the freight margins.

Yeah.

The TCE achieved for calendar quarter.

Was $36858 and our Opex 9541 cash G&A was 5.8 million, our cash interest expense 6.4 million down from $6 5 million, reflecting favorable hedges and fixed rate debt.

Ted will answer more questions on any questions on the.

Financials.

Our shoreside teams will continue with their hard work to ensure the safety and well being of our shiga like staff, including our Ukrainian and Russian seafarers ended up families. Many of the face of extraordinary challenges.

Difficulties in <unk> linked crude changes continue sure.

China remains an available as a location to perform crude changes overall however, the number of ports that allow pool changes has increased in comparison to the previous year.

LPG export and import demand increased in the third quarter of 'twenty two.

Exports are up 5.4% year over year with support from Canada, and the Middle East North American production continuing to increase.

A relatively quiet market over the summer and into fall put some pressure on freight rates.

By the summer doldrums, often seen across Tankless.

The OBL, Jay Z market kept a steady floor above cash breakeven level and the recovery was swift.

This indicates a well balanced market supported by strong underlying fundamentals.

The heavy fuel oil low sulfur oil spread is currently about $260 per ton in Houston down from 320 at the close of last quarter we.

We have managed the volatility in bunker prices well and this has contributed to our strong earnings this quarter.

Yeah.

Tim and John will answer any questions regarding our view of the freight and product markets going forward and meantime here are some highlights.

Despite lower than expected propane demand in China for all its been production in 'twenty to 'twenty two is forecasted to go up.

About 4.7 million tonnes more of incremental M. P G consumption compared to 'twenty to 'twenty one.

This was achieved in spite of only six out of 10.

As expected new PTH plants coming online this year.

LNG spiking in Japan, and South Korea is expected to increase LPG production over the winter.

South Korea is expected to import about 800000 metric tons of LPG. Additionally to counter the high LNG prices.

Meanwhile, Japan is imported 43% more year on year during the first half was 22 four city gas consumption.

Similarly in Europe .

The there there is we have seen some substitution of LNG.

L. P G four LNG north European substitution with seaborne volumes from the U S continues to add.

About four vlccs of months.

Despite the fact that more LNG ships are going to Europe , rather than through the came out to Asia. The Panama Canal has remained congested, adding on average more than 10 days to avoid both south and north bound.

Up from five in the last quarter and while the B L. D. C. Order book next year, a significant increased export volumes, coupled with canal congestion and the fleet slowed down will likely.

Help absorb most of the new tonnage.

Our outlook for the calendar year.

For the final quarter is positive estimates for U S exports point to further growth in 'twenty three 'twenty four and.

And it's October short term energy outlook. The E. I, a estimated that U S. LPG exports will grow 8% in 'twenty, two and 11.3 and 23.

Up 1% and one 3% from July estimate U S. LPG production now is estimated to grow by six 1% in 'twenty two.

Four 8% in 'twenty three.

The 'twenty to 'twenty three I am more emission regulations E X I N G. III will come into effect in January 23, and well established strict all wasn't imitation of carbon intensity eliminate limits to be complied with annually from then on.

Our performance on new technology team have been diligently preparing our fleet and shore side operations for these regulations, including retrofitting energy saving devices, and developing and harnessing new software to manage fuel consumptions.

As Ted said, you can see more on our Investor highlights and also asks what we're here for any questions that you may want to Hum Oscar and thank you again.

Vikram I'll give it back to you.

Thank you.

With the prepared remarks completed we will now open the line for questions.

If you'd like to ask a question. Please press star one on your telephone keypad.

A confirmation tone will indicate your line is in the question queue.

You May press Star two weeks I would like to remove your question from the queue.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

One moment, please while we poll for questions to ask question, Ladies and gentlemen, Please press star one now.

We have our first question is from the lineup on the Doctor with Jefferies. Please go ahead.

Thank you Hi, John Hi, Ted.

<unk>.

Yeah I'm honestly.

Yeah, I'm not just another solid quarter and are you know another irregular one dollar dividend yeah I wanted to just ask a bit obviously, the market's really strengthens here over the past several weeks and I just wanted to get a sense from U S.

Think about how how things have developed here in <unk>.

And when we think about the $1 dividend that you just announced do you based on off of the financials from this past quarter.

And how that ended or wasn't a bit of looking forward as well and I'm just simply asking so that maybe we get a sense of perhaps what you're thinking in terms of the next quarter can considering it seems likely that you're going to have a record result in the fourth quarter, our calendar fourth quarter.

And so just wanted to get a sense from you. How you approach that one dollar a regular dividend for this quarter given that earnings were lower than that and there werent any sort of capital gains that came in for you to pay out so just kind of.

Bunch of words out of my mouth, but just wanted to get a sense from you. How you came out with all at all or and then what can we expect going forward.

Fair question Omar.

I'll, let somebody else answer on our.

Question as it relates to what we see in the market in the next quarter. Obviously, the current quarter will be very good and and we didnt have that visibility when when our board made the decision for the dividend so generally.

Well no generally invariably we do not count our chickens before they're hatched, but there.

You cannot buy it.

Take everything into consideration each time. This is why why we don't call. It regular it's not formulaic. It's based on the judgment of our board each quarter to decide what we can how best to deploy our capital.

And our cash reserves.

Okay, that's pretty clear yeah.

Alright, sorry, Jonathan.

Yes.

Well, it's going to invite our attempt to give you a sense of where market is now and how.

How we see it in the next few weeks.

Yes of course.

We had the board meeting.

I'm just trying to earn the dividend the market has just gone one way, which is which is often very fast and.

And we see this for D C.

Coming period through to maintain the firmness in also.

To the first quarter for well into the first quarter was 23 one.

Turning to street.

Corner.

As we see.

The demand in Europe and are due to the unfortunate when you train.

This is helping all of our markets and also now we're seeing the Panama disease as John was mentioning earlier.

Going up to 228 are now at the moment and so there's this creates a boarder for distress.

Distraction in the market and a lot of inefficiencies.

Inefficiencies in the market.

I'll show, a better trading environment for the for the traders.

So we believe that our democracy state for.

At least for me.

Sure Rich.

Okay. Thank you yeah.

I guess, maybe just a bit more I guess.

Bigger picture, how do you think about the fleet.

Fleet deployment at the moment.

Yeah as we go into these next several months looks to be very strong, but there are a good amount of deliveries coming in next year, how do you think about that.

And then also I noticed you.

You exercised an option to charter in a vessel for an additional two years, but then also extended.

An existing contract for two years that you have out or was that done on a like for like basis or are they completely sort of separate from each other.

Yeah, I would say there are separate from each other there are extension of the chartering bus or a rate that was done in 2018. When we did the charter parties. So that rate is just very different from from today's market.

And you can say.

The extension of the time charter out.

Sure.

One of our key customers, which rich and.

Troy I have good relationship with them.

Is that right that wasn't in line with today's a term market.

So we would.

We do take some some coverage in the market, but in general we believe that.

That in 'twenty, three but even with the high amount of her new buildings coming in with the increase of production in the U S and with the delays we're seeing in that production.

They're mainly going to the east there's just a long long haul.

And then an additional of the slow down up there.

All right you have to feed the beast with the regulations and the Ci compliance that we will have two words chicken to account holder or something.

Well first of January this this will happen a significant impact on the.

On the fleet.

And the demand for our ambitions so in.

<unk> mind, the market looks are okay, let's run industry and Ria.

We are down to two or to take more.

You can see.

Acids and known on time charter I wish you the right to opportunities but of course also we do try to keep her.

Uh huh.

Ships out on Ontario, much Ralph I'm a bit.

A bit of a balanced or.

Okay.

But when you see.

Okay.

Oh, you know opinion D D.

The production shutdowns.

So Dallas will be able to absorb further there.

For ships coming into the market.

So we do see the 'twenty three sort of question.

Got it.

Okay. Thanks for that color I can remember and also John Thank you.

I'll see you guys.

Thanks Omar.

Yep.

Thank you.

Okay and if you have a question. Please press Star then one to ask a question.

We have a next question from the line of Brian went also with UBS. Please go ahead.

Hey, good morning, John and Ted.

Maybe to start off just wanted to talk a little bit more about the spiking opportunities for L. P. G.

Maybe on the upside demand of the equation. You know you talked about you know demand that you're seeing potentially from from Korea, and Japan in terms of spiking curious if you could just put it maybe in perspective of like a percentage uplift relative year over year, all things equal like what is the potential uplift in terms of overall like seaborne L. P.

Cargoes being lifted this summer or this winter from potential LPG spiking. Thanks.

Yeah.

Thanks, Tim.

Address that a little bit in the in the written remarks in the prepared remarks, but.

We calculated that and ships pardon, yes, it would be the CAGR has been through.

So Europe I would say, it's about the whole deals lifting so our months of in the round trip for U S to Europe is about a month. So you can say.

So that's a box.

Four ships equivalent.

And for Japan and Korea.

Of course, the seasonal thing, especially for Japan are filling up pretty well.

But the winter so that will tail off later in the.

And the you know when you get into this spring at some point once you get through the winter and they're stockpiling.

But you can also say that that a lot of these of course are more social mentioned by John that that PTH demand an earn in.

That has not been.

He is not at its full capacity. So some of it is replacing these these demands.

But this additional seaborne or a requirement for this and also what we see is as the consumption from Ukraine in Poland and all of the countries that will supply overland from.

From Russia and ambitious also replaced by deals are going into their starches and cause harm and in other places and then shipped on smaller ships into into Poland. So that is also a new demand.

That's about it.

<unk> months that'd be she going into two comp of that at the moment. So.

So that will definitely be a new new users and new demands are happening.

Yeah.

Great really appreciate that color. So you maybe talked about four cargoes for the up the spiking up left and then two cargoes going to Europe .

Wanted to touch on the chemical demand aspect of it you know what are you seeing you've highlighted previously a lot of your P. J.

Capacity coming online over the next few years may take a while for that capacity to fill in you know how many you know cargoes are you how do you see that the man filling up over the next few years do you really need to see an economic recovery and are you seen any early green shoots given the potential for a China reopening.

Potentially over the next couple of months. Thanks.

Yeah, I think so.

You say yourself, China is a difficult one to two rigs.

They wait when when they go away from the policies of the zero tolerance on the Covid for one.

But these these plants are coming in there they are running.

That reduced our rates. So we are still seeing the consumption grow but not as rapidly as we had hoped but there's definitely a big.

Potential upside once once China gets it's.

It's either a control over the COVID-19 or the regulations on on that.

And I think.

LPG doesn't seem to be as hard hit on the even even though you'll have a buildup of economic slowdown and so on that says there are some other products such as salaries of general demand for.

Plastics producer so we.

We see this as a go intermediate a.

Drop them that that will that will go away in a in a future that we will see more.

Demand from the <unk> plant.

But it can take.

It's hard to say what the Chinese holiday.

Take before they come back.

Great totally I understand and I appreciate the color.

Maybe just as a quick last follow up you talked about some.

Some congestion in the Panama Canal like we've seen in the past few years.

Curious if you have any updated comments around or views around the potential LPG pipeline that could span the Panama canal any updated views there on whether you're seeing some traction out honest that happening.

And then you know I guess, just just beyond that do you see that as a pet.

Potential solution towards that towards the congestion or do you think it's really not maybe not worth the time and spend thanks.

Yeah, I think there's nothing really new on the pipeline, but when we looked at it in the in the past.

The volume that it could handle in the locations, where it's not a game changer, but I would say I'm sure would you would be able to maybe.

Solve the problem for sure.

Yes, Ashish, but again you would have the.

The short haul on the one side and the storage issues in there and the meeting did they cancel on the other side so that the.

It shows the capacity was not something that'd be shown wassa.

That's a game changer, but I don't have any reason to update on the progress of the park.

Okay.

I'll leave it there thanks for taking the time and enjoy the rest of your morning. Thanks.

Thank you. Thank you very much.

Yeah.

Thank you ladies.

Ladies and gentlemen.

Includes a question and answer session and I'd like to turn the call back over to John <unk>, Chairman and CEO for closing remarks, I'll, let you Sir.

Thank you very much so.

So thank you all for joining us.

Wishing you a good holiday season coming up.

Look forward to speaking to you again next.

Next quarter.

Thanks Bye bye.

Thank you.

Ladies and gentlemen. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.

Yeah.

[music].

Yeah.

[music].