Q3 2024 Capital Clean Energy Carriers Corp Earnings Call
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Speaker Change: Thank you for standing by and welcome to the Capital Clean Energy Carrier Corps third quarter 2020 for Financial Results Conference call.
Speaker Change: We have with us Mr. Jerry Kaloyeratos, Chief Executive Officer, Mr. Brian Gallagher, Executive Vice President, Investor Relations, and Mr. William Bjorn, Vice President, Commercial.
Speaker Change: At this time, all participants are on a listen-only mode. There will be a presentation followed by a question and answer session, at which time if you wish to ask a question you will need to press star 1 on your telephone and wait for your name to be announced.
Speaker Change: I must advise you that this conference is being recorded today, November 8, 2024.
Speaker Change: The statements in today's conference call that are not historical facts
Speaker Change: including our expectations regarding acquisition transactions and their expected effect on us, cash generation, equity returns, and future debt levels, our ability to pursue growth opportunities, our expectations or objectives regarding future distribution amounts or unit buyback amounts,
Speaker Change: capital reserve amounts, distribution coverage, future earnings, capital allocation, as well as our expectations regarding market fundamentals and the employment of our vessels, including redelivery dates and charter rates, may be forward-looking statements as such.
Speaker Change: as defined in Section 21E of the Securities Exchange Act of 1934 as amended. These forward-looking statements involve risks and uncertainties that could cause the stated or forecasted results to be materially different from those anticipated.
Speaker Change: Unless required by law, we expressly disclaim any obligation to update or revise any of these forward-looking statements, whether because of future events, new information, a change in our views or expectations, or any other reason.
Speaker Change: to conform to actual results or otherwise. We make no prediction or statement about the performance of our common shares. I would now like to hand the call over to your speaker today, Mr. Brian Gallagher. Please go ahead, sir.
Brian Gallagher: Thank you, operator. Good morning or afternoon to whoever you are listening to the Capital Clean Energy Carriers Q3 2024 earnings call. As a reminder, we will be referring throughout the presentation to the supporting slides available on our website as we go through the presentation today.
Let's start with slide 3, the third quarter highlights.
Brian Gallagher: The third quarter of 2024 was an important and a busy quarter for the company. As you know, we've changed our name to Capital Clean Energy Carriers. This reflects our new focus on gas transportation. And we've also moved from an MLP corporate structure to a C-Corp status with its customary and transparent corporate governance.
Brian Gallagher: We continued our strategic repositioning with a sale of five containers in September.
Brian Gallagher: releasing nearly three hundred million dollars in cash. Our finance team have continued their excellent work this quarter refinancing an additional two LNG vessels and releasing another 73 million dollars of additional liquidity.
Brian Gallagher: This has also reduced further the cost of our debt and also extended their maturities to 2031.
Brian Gallagher: If we turn now to slide 4, we can see the wider progress the group has made.
Brian Gallagher: With the recent container sales, we are now left with just 3 very modern container vessels on very long term time charters, following the sale of 12 container ships in total since March.
Brian Gallagher: Indeed, since 2021, as the slide shows, the group has been very proactive in selling non-caresses.
Brian Gallagher: generating in excess of 600 million dollars in proceeds that is without taking the latest five vessel sale of containers into account. A large part of these proceeds has gone towards funding our pivot towards LNG carriers and other gas assets.
Brian Gallagher: Moreover, we continue to make progress not just strategically with our name change, but also in terms of our corporate governance, which has been reflected in a recent increase in our ranking in terms of ESG criteria and scorecards. We intend to build on these credentials going forward with our gas-focused strategy.
Brian Gallagher: We are, of course, though, very conscious of our need to focus on other objectives. We recognise that share liquidity is a key issue for current and prospective investors.
Brian Gallagher: The group has moved quickly and on a significant scale over the last 12 months to pivot to where it is operationally and strategically. We appreciate the need to continue to work hard to ensure our corporate side and our investability matches these significant changes.
Brian Gallagher: To that end, we are looking at tools that can help enhance our trading liquidity, such as putting an ATM in place, to satisfy both potential and incoming demand from investors.
Brian Gallagher: We hope that such initiatives will facilitate liquidity in the trading of our shares, and we intend to back this up with further raising of the company profile, as we have done in recent quarters. Research coverage, for instance, has doubled in the last four months, and we expect to expand our coverage going forward.
Brian Gallagher: We know and appreciate that this will take time, but we are aware that this is a necessary process to provide the group with a trading currency in the future and also progress our further strategic optionality.
Speaker Change: Part of this change is my appointment as a full-time dedicated investor relations manager. I'm excited by the challenge of delivering on the company's ambitions and I'm here to assist the investors in any way I can.
Speaker Change: I will now turn it over to our Chief Executive Gerry Calagirottis to run through the financials.
Thank you for watching!
Gerry Calagirottis: Thank you, Brian. It's good to have you on board and I'm sure our listeners are glad to hear a new voice on the call. Now, turning to the financials on slide 6.
Gerry Calagirottis: On a technical level, the sale of the 12 container vessels following the announcement of our strategic shift towards gas shipping means that we now report on these containers as discontinued operations.
Gerry Calagirottis: On a continued operation basis, the quarter was a fairly mechanical quarter, with five new LNG carriers making a full contribution to their revenue and expenses, driving operating income from continuing operations higher to $57.2 million.
from 30.5 million on the comparative quarter last year.
Gerry Calagirottis: The interest charges rose as the fleet increased in size to 40.
Gerry Calagirottis: to $40.7 million compared to $25.6 million during the same quarter last year. Net income from continuing operations rose to $15.8 million from $5 million in the comparative quarter in 2023, while the dividend was held flat at $0.15 for the quarter.
Gerry Calagirottis: Turning to slide 7, our balance sheet continues to grow with the addition of new vessels and with our asset base over 1 billion higher from the start of this year.
Gerry Calagirottis: The mix of our asset base has clearly changed in the past year, but our mix of funding has not, being 80% floating based. This has obviously turned into an advantage for the group, now with interest rates in the US and globally beginning to fall, and forecasted to move lower progressively in 2025.
Gerry Calagirottis: Our funding base would benefit with around 21 million lower interest costs for every 100 basis points move lower in rates.
Gerry Calagirottis: We expect our capital base to consolidate now for a period as we have no delivery scheduled until early 2026.
Gerry Calagirottis: Now, turning to slide 8, as mentioned in our highlights page, we have refinanced year-to-date certain of our facilities, thus improving our liquidity position by $130 million and at the same time reducing our annual debt amortization under these facilities by $4 million.
Gerry Calagirottis: Importantly, we have also improved our funding costs by 56 basis points when comparing the 9 months of 2024 to the same period last year, and taken our average floating rate margin to 190 basis points.
Gerry Calagirottis: Where does this leave the group in terms of funding for its new building commitments? Slide 9 looks at our funding sources and commitments.
Gerry Calagirottis: Out of the total CAPEX of $2.3 billion, we have already advanced $420 towards these acquisitions. Our cash at hand as of quarter end was $183 million. While we expect to generate nearly $300 million from the agreed sale of the five container vessels, less the repayment of $42 million of an outstanding seller's credit.
Gerry Calagirottis: Under conservative debt assumptions, we expect to raise more than $1.5 billion in debt, which is more than enough to cover our remaining CAPEX program and actually leave some additional liquidity on the balance sheet.
Gerry Calagirottis: This is of course without taking into account any incremental cash flow generated by the company which as you can see in the next slide is well underpinned by our existing fleet and its contracted revenues.
Gerry Calagirottis: So on slide 10 you can see our revenue backlog of $2.6 billion remaining highly diversified with no counterparty having more than 20% share. $2.3 billion of this backlog will come from our LNG assets.
Gerry Calagirottis: Our remaining started duration is over 7 years and we expect to add to this strength as we start again taking deliveries of our new builds in 2026 onwards and fixing long term employments for these assets.
Now, moving to slide 12.
Gerry Calagirottis: The current spot LNG market deserves commentary given its pronounced weakness in recent weeks.
Gerry Calagirottis: The extent of the drop in spot rates has come as a surprise, but reflects certain key factors at play, such as a lack of LNG arbitrage opportunities, limited contango and storage plays, again driven by warmer than usual weather patterns, oversupply of vessels, put simply there has been more ships available than has been required.
Gerry Calagirottis: A situation which, of course, has been further exacerbated by delays in certain LNG projects and, as a result, charters end up long shipping due to these delays and then seek employment at the spot market at any cost.
Gerry Calagirottis: All of these factors have helped create something of a perfect storm in pushing rates lower.
Speaker Change: However, it is important to stress that our company CCEC has no exposure to spot markets.
Speaker Change: We have one existing LNG vessel coming up for charter renewal in Q3 2026. And while the current market is certainly challenging in the short term, it will, if it stays at such levels, put extreme pressure on older Donuts.
Speaker Change: We look to address this on the right hand side of slide 13, illustrating that there are currently around 40 steam turbine vessels that are trading the spot market, and this number will increase to almost 100 ships by the end of 2026.
Speaker Change: Our view remains firm that these vessels will find it very difficult to compete in a market like this and will be led to exit the market either in the form of conversion to alternative uses such as FSUs or FSRUs, layups and more likely than not over time to recycling yards.
Speaker Change: Moving now to slide 13 and the longer term potential and drivers on the LNG market.
Speaker Change: Our thesis regarding the strong long-term fundamentals driving the market remain intact.
Asset prices for the latest two-stroke technologies remain firm.
Speaker Change: underpinned by limited shipyard capacity, competition from other segments, a robust long-term time-shutter market pipeline, and high volume of liquefaction projects in the medium to long term.
Speaker Change: Clearly, as the chart on slide 13 at the top right shows, there is some oversupply of vessels in the short term, and as discussed, this is a contributory factor to the current spot rates environment.
Speaker Change: However, the focus on this pressure will be on the older technology portion of the global fleet, and as the chart also makes clear, once projects come online, the market will begin to require additional shipping to manage the higher volumes.
Speaker Change: Turning now to slide 14 on the Longer Term Charter Market.
Speaker Change: While as discussed we see a challenging spot market in the short to medium term, the large increase in LNG liquefaction capacity on the back of projects that have taken FID and licensing bodes well for the long term charter market even if there are slight delays when it comes to projects.
Speaker Change: With the incoming Trump administration in the U.S., we expect more tailwinds ahead in terms of regulatory approvals, as President-elect Trump has clearly stated that his administration will support all energy projects, including LNG liquefaction projects.
Speaker Change: From the third quarter onwards we saw a corroboration of this thesis as a number of charters have come or are in the market to charter donates on a long-term basis with a focus from 2026 deliveries onwards.
Speaker Change: They are seeking to both cover additional LNG volumes that they will need to trade from these new projects, but also are looking to replace steam turbine vessels that are coming off-charter over the next three years.
Speaker Change: Almost all of these inquiries are for charter periods of 7 years to 15 years and the overwhelming majority is for more than one vessel.
Speaker Change: Hence, we remain constructive on the LNG market going forward, and we see the short-term pain in the spot charter market as a catalyst for the removal of older technology vessels, which in turn will help the market balance over the coming years as the new liquefaction capacity comes online.
Speaker Change: with potential to have even greater upside from new projects yet to take FID.
Speaker Change: But today, we intend to take advantage of the fact that we have no LNG market exposure until 2026 and take a break from our core market and Q3 commentary to focus on our liquid CO2 vessels currently under construction in Korea, as you can see on the next slide.
Speaker Change: We believe that spending some time on this sector would be interesting to our investors as it is a new segment and wanted to share a bit of what we are seeing in this nascent market.
Speaker Change: So on slide 16 you can see our other gas fleet made up of six mid-sized gas carriers and four liquid CO2 carriers.
Speaker Change: As the slide shows, these are all due for delivery within an 18-month period starting early 2026.
Speaker Change: At this point, I want to hand over to William Bjorn, our Vice President of Commercial Projects for Energy Transition, to run through this next section, and we will, of course, be happy to take questions at the end of the call on this and all other discussion points after our prepared remarks.
William, over to you.
William Bjorn: Thank you, Jerry, and thank you for inviting me to speak on this call. So, hi, everyone. Thank you for joining today's earnings call. It's a pleasure for me to present Capital Key Energy Carriers' Parenting Investment in LCO2 Vessels, as I spend most of my time on energy transition shipping, such as LCO2 and low carbon environment rates.
William Bjorn: Today the focus is going to be on the LCO2 vessels and I hope that on another call we can cover the no carbon ammonia trade in more details. So for those listening on the call I will refer to liquefied CO2 as LCO2.
William Bjorn: Let us jump on to the next slide of the presentation to understand the overall dynamics of this hedging industry as well as setting the scene and the context for the company investment. So moving to slide number 17.
William Bjorn: Starting from the top of the slide, it's evident there are several central demand drivers propelling the carbon capture industry forward. First, decarbonization in hard-to-obtain sectors.
William Bjorn: Sections like design and cement production, refineries and chemical manufacturing have increasingly focused on carbon capture and storage.
William Bjorn: These industries are constrained by CO2 emissions intrinsic to their production processes with limited realistic alternatives to decarbonize.
William Bjorn: CCS represents one of the only viable solutions to animation reduction targets.
Secondly, the abrasion of concrete blocks.
William Bjorn: So, the market for carbon credits is growing rapidly, with a surge in agreements between emitters and large corporates aiming to offset emissions.
William Bjorn: For example, Ørsted in Denmark and Microsoft recently signed an agreement for 400,000 tons of carbon removals, while Stockholm XG secured a carbon removal contract valued close to US$50 million.
William Bjorn: for 2028 to 2030. Leading corporations like Shopify, Meta, J.P. Morgan, H&M, and McKinsey Sustainability have committed to this initiative, showing proven signs of an emerging carbon dioxide removal market.
William Bjorn: E-fuels production. So the production of e-fuels such as ESAF and e-methanol requires carbon molecules to create fuels that retain carbon-based properties.
William Bjorn: Importantly, this carbon must come from green sources, such as biogenic CO2, further driving the need for carbon capture technologies and concepts.
William Bjorn: Lastly, oil and gas production via the carbon capture concept. So carbon capture technologies can significantly reduce emissions from oil and gas production as exemplified by recent initiatives under the U.S. Evasion Reduction Act.
William Bjorn: Such regulatory frameworks, including the UGS, provide substantial incentives to adopt CCDFs as a core part of UCNF paper strategies.
William Bjorn: So, collectively, these factors create a vast on-tab model for transporting CO2 via ships, which are indispensable given the limitation of pipelines.
William Bjorn: So, based on current planned volumes and net several volumes, analysts expect that the industry will reach between 40 to 90 ships by 2030, and high triple-digit numbers of ships by 2015.
William Bjorn: Next we want to slide number 18. The overall CO2 transport market aligns with the carbon capture utilization and storage ecosystem. Broadly, utilization refers to using CO2 in fuels and other products, while storage focuses on the permanent sequestration of CO2 in the underground.
William Bjorn: Here's an outline of CCUS and chain. First we see capture, so CO2 is captured at the emission source.
William Bjorn: Then secondly, CO2 is then transported via pipelines or grids to port facilities.
William Bjorn: Then CO2 was loaded onto ships for maritime transport. Ships did charge the CO2 at designated port facilities or offshore terminals. And lastly, we see that the CO2 is either used in applications such as refuels or sequestered in the underground.
William Bjorn: So the bottom line here is that much of this ecosystem depends on shipping. Without dedicated CO2 carriers, large scale CCS becomes difficult to implement.
William Bjorn: On the supply side, the current feed profile for CO2 carriers includes four older, smaller 1,500 cubic meter LCO2 ships for the food and beverage industry, two additional small test vessels,
William Bjorn: 4 7,500 cubic meters carriers were needed to this LCO2 storage project called Northern Lights and then our 4 x 22,000 cubic meter vessels on order.
William Bjorn: This limited fleet of, let's say, approximately 10 to 14 vessels highlights a major supply constraint. Looking forward, numerous CCS projects are expected to reach final investment decisions and commence operation within this decade, creating a potentially unsupported market for LCO2 carriers.
William Bjorn: Turning to slide 19, attaching a few words to our 4 times 22,000 cubic meter low-pressure CO2 motor gas carriers, currently under construction at Hyundai-Nippo, South Korea and set for delivery for about 2026.
William Bjorn: In terms of LCO2 storage technology, we offer the low-pressure, low-temperature technology, which offers lower unit break costs through increased carbon density, maximizing ship capacity utilization. These vessels are designed with flexibility in mind.
William Bjorn: Sites for both inter- and intra-regional trades and capable of handling various project requirements.
William Bjorn: Additionally, we can transfer other color types, such as R and G, along with all colors tied to grades and petrochemicals.
William Bjorn: This multi-gas capability is possible due to chain designs and cargo handling systems being similar to semi-refrigerated gas carriers.
This will also feature state-of-the-art capabilities such as...
William Bjorn: three onboard relay plans to minimize cargo loss, simultaneous motor gas cargo handling, and power and connectivity enhancements, such as increasing the output for the onboard carbon capture plans, and also AMP control power.
Speaker Change: Kerbal, bone and bone stone versus mineralisation, ice glass and neons.
Speaker Change: So these ships are truly state-of-the-art and provide CCEC with a unique asset capability in the growing market of low-carbon solutions, including CCUS, low-carbon ammonia, and other gases.
Let's turn to slide number 20.
Speaker Change: If we dive into the global CCUS market and the emerging trade, it will help us simplify the market into the following. See you soon Storage Hub.
Speaker Change: which is the end destination for CO2 to be permanently stored. Then we have CO2 for usage.
Speaker Change: which will be predominantly located in locations with access to cheap, renewable energy. For example, hydro energy in the northern Scandinavia, solar power in the Middle East or Australia, or wind energy in the South America.
Speaker Change: Lastly, the emitter's OSO coordination point, where CO2 will be captured and nucleotide.
Speaker Change: So this brings us to the three key traits of the CME market.
Speaker Change: First, the interior will be dominated by shorter voltages, whereas the APEC region will be characterized by longer voltages due to greater distances and imbalances between emissions and available storage fields. And then lastly, extra storage capacity, for example in the U.S., can lead to competitive pricing of storage to cater for inter-regional trades.
Speaker Change: The announced global targets from various agencies for carbon capture and storage.
Speaker Change: In Europe alone, projected CCS volumes for 2030 are estimated at approximately 60 to 90 million tons per annum. So even with conservative estimates on the maritime transport uptake,
Speaker Change: This translates to a demand for 20-30 LCO2 carriers in the European market alone by 2030. In the APEC region, CCS will likely be characterized by longer transport distances or higher turn miles, creating a need for larger vessels.
Speaker Change: Projections suggest demand for an additional 20 to 40 ships by 2030 in this region to accommodate both volume and distance requirements effectively.
Speaker Change: Overall, these forecast points of strong growing demand for dedicated LCO2 carriers in North Europe and the impact with vessel requirements had to increase significantly in the coming years.
Speaker Change: So this brings me to the next slide, slide number 21.
Speaker Change: Now let's roll into the macro-limb number, shaming the carbon capture, utilization, and storage industry.
Speaker Change: Recently, Morgan Stanley included CCUS as item number six in their big themes of 2024, recognizing it as one of the last viable technologies to realize climate goals.
Speaker Change: The research estimates that the total addressable market for CCS could reach 30 billion US dollars by 2030 and expand to 225 billion US dollars by 2050.
Speaker Change: These projections align closely with scenarios outlined by key research agencies, including the IEA and Wood Mackenzie, as well as insights from other energy agencies and intergovernmental organizations.
Speaker Change: It's a consensus that reinforces the importance of CCUS in a broad global strategy to defeat climate targets.
Speaker Change: However, achieving a true net-zero scenario will demand far greater CCUS capacity. On the right side of slide 21, we can see projections from IEA and Shell which indicate a need for exponential growth in CCUS capabilities to meet climate objectives.
Speaker Change: This represents a significant challenge, but also a sizable and tangible market opportunity.
Speaker Change: With that said, let us turn to slide number 22, covering the supply side, specifically the current model of the electricity, which will be critical for meeting this emerging demand.
Speaker Change: So, let's begin by examining the left graph, which illustrates the decline in the number of shipyards capable of building gas barriers.
Speaker Change: It's essential to understand that this decline impacts all gas types and vessel sizes, meaning that only a select few top-tier yards are equipped to build specialized LCO2 carriers.
Speaker Change: Adding to this challenge, we need to consider the capacity constraints of specialized suppliers and equipment manufacturers who serve multiple gas segments. For example, a major tank manufacturer in South Korea currently has the production capacity to supply tanks for only about four vessels annually.
Speaker Change: This limitation underscores the broader supply chain constraints that affect the entire sector from tanks to cargo handling equipment.
Speaker Change: Furthermore, when we consider the current shipbuilding model across all shipments, available slots are already extending out to 2028, and the enabling rate is at a historic high, but no significant slowdown in sight.
Speaker Change: This raises a crucial question, will there be sufficient building capacity to meet the rapidly growing demand for LCO2 carriers within the CGUS market, which we just reviewed?
Speaker Change: In light of these market conditions, we have particularly decided to invest into a structural float area for shipping.
Speaker Change: It is highly likely that all four of the CO2 modifications will commence their life in 2026 as LPG and ammonia carriers, but given the supply and demand dynamics, they will be very well positioned to capitalize on opportunities for the transportation of LCO2 in a potentially undersupplied market.
Speaker Change: So, that was it from my side. Thank you, and now handing back over to Kerry.
Kerry: Thank you William. I hope this was overall a useful introduction to LCO2 sipping. We will of course take questions on this following my summary remarks which I will give now.
Kerry: So, turning to the conclusion and slide 24, we have talked at length about our growth plans and fleet.
Kerry: but it is always clearer with the diagram that you see on the slide.
Kerry: Our LNG fleet on the water will be augmented by 6 new vessels, growing the core LNG fleet by 50% by Q3 2027.
Kerry: 10 mid-sized gas carriers will be on the water by that final LNG delivery, reflecting in full our pivot towards a gas transportation and solution company.
Kerry: For the moment, we still retain three containers which have long-term employment in place for the next nine years, with options to extend by a further six years beyond that.
Kerry: These vessels give us strategic optionality which we will consider going forward.
Kerry: So, that is the fleet, our investment proposition for investors and on the next slide, slide 25, we discuss the earnings power of this fleet.
Kerry: While this chart is a proforma and only illustrative, and with rather conservative assumptions behind it, described at the end of the slide deck,
Kerry: It should be evident that there is considerable earnings power from the delivered fleet, which is only 10 or so quarters away.
Kerry: The Proforma fleet in this scenario will be capable of delivering over $630 million EBITDA per year upon delivery, with adjusted free cash flow of $180 million or over $3 per share.
Kerry: To put that into context, if only 50% were distributed as a cash dividend, then on the current share price our stock would have a sustainable dividend yield between 8 to 10%, and that is without taking into account additional growth that could come from our strong liquidity position that we are building over the next year or two.
Kerry: Importantly, this platform will have a very young fleet. This is critical in the gas transportation sector where the latest shipping technology will be key to success.
Kerry: So to conclude and before we take questions, please turn to the summary slide number 26.
Kerry: In short, the platform for capital clean energy carriers will be the largest.
Kerry: LNG 2-stroke carrier fleet available to investors upon delivery, in addition to the other 10 multi-gas vessels. The platform has considerable contract coverage of over 7 years already and strong visibility on cash flows.
Kerry: We have an advantage over many of our peers in only being invested in the latest gas technology vessels with
almost all having dual fuel capabilities.
Kerry: Our growth is largely financed already, with our focus now on ensuring the investable platform listed on Nasdaq starts to have sufficient share liquidity for investors to participate.
Kerry: We appreciate this and building our profile will take time, but we are pleased and proud of the progress we have made in just 12 months and look forward to making further gains on our objectives going forward.
Speaker Change: With that, I will hand it back to the operator for Q&A. Thank you for your attention.
Speaker Change: Thank you. Ladies and gentlemen, the floor is now open for questions. If you would like to ask a question, please press star 1 on your telephone keypad. Today's first question is coming from Alexander Bidwell of Weber Research. Please go ahead.
Speaker Change: Hello? Alexander, please make sure your phone is not on mute.
Alexander Bidwell: Can you guys hear me? Yep, we can hear you. Hi.
Sorry about that, guys.
Alexander Bidwell: So, I just wanted to take a look at the LCO2 market real quick. So, looking at that potential disparity between the global fleet and the future shipping demand, how has that been influencing commercial discussions as you guys seek employment for these ships?
Alexander Bidwell: and many of the incumbents not necessarily being very experienced with shipping, they are more focused today on getting these projects across the line rather than secure shipping.
Alexander Bidwell: Some of the more advanced projects, especially those ones that have received EU funding, they have been coming to us lately.
Alexander Bidwell: as well as to other counterparties and trying to better understand the shipping markets and what it means.
Speaker Change: Finding LCO2 carriers is not going to be as easy as finding a tanker or a dry bulk vessel. William, do you agree? Any comments to that?
William Bjorn: No, I fully agree and I have no further comments on this or further questions.
Thank you.
Speaker Change: Thank you. Appreciate the color there. And a quick follow up.
Speaker Change: So, looking at that, rather, with most of these companies focused on the projects themselves and, I guess, less focused on the shipping side, are you seeing any other LPG players
Speaker Change: gas shipping players Looking into ordering lco2 vessels. Are you seeing any uptick in interest in booking some order book slots?
Speaker Change: Yeah, I think there is quite a few players looking into this segment, understanding the strong demand and supply fundamentals.
Speaker Change: We have been the only ones that follow a slightly different business model. The traditional business model which you also find in the LNG business is I'll secure the long-term employment and then I will order on the back of that. Our business model
is
building scarcity value around our new building positions.
So...
Speaker Change: You know, most of the other players and many, actually, very experienced gas players have been more following the traditional route. We have been following more closely our business model, which we have quite a bit of success in LNG shipping, as well as other parts of the business.
Speaker Change: by ordering in advance because as that demand squeeze or rather supply squeeze in this specific case comes up, you can then capture oversized returns.
Speaker Change: But definitely there is a lot of interest and a lot of movement in this business.
All right.
Thank you very much. We'll turn it back over.
Speaker Change: Thank you, Alex. Thank you. The next question is coming from Omar Nocta of Jefferies. Please go ahead.
Omar Nocta: Thank you. Good afternoon. Just a couple questions for me and maybe just kind of maybe more broadly on the LNG spot market.
Speaker Change: Well, what would you say has changed here over the past couple of months? I know you talked about it, Jerry, in your opening remarks, but...
Speaker Change: It felt like rates had been building momentum back in July and August and then just sort of all of a sudden came under a lot of pressure. And just wondering, you know, was there a trigger to cause this, you know, sell off in the spot market or has it been a culmination of things all coming together at the same time?
Speaker Change: And then, and so that's the spot market. And then any kind of spillover into the term market as you would from your vantage point.
Bye.
Speaker Change: Yeah, absolutely. I think it's more the latter. So it's more a confluence of circumstances. Actually in July we had a pretty strong market for that product.
very early in the season.
Speaker Change: But I think with the warmer temperatures, the lack of arbitrage, cargos, the delay of certain projects that is also for sure weighing on the market, and then ships being delivered,
Speaker Change: often without having captive volumes, we saw increasingly all these factors weighing on rates. And then there is also a bit of psychology, right?
Speaker Change: As we also highlighted in the prepared remarks, there's also the older ships, TFTEs, but especially steam turbine vessels, you know, continuously you see those being re-delivered and many of these vessels have been...
paid off.
and given also the unit freight economics delta.
Speaker Change: they will take any business so they have been dragging the market down and then many of the charters that do not have volumes because of project delays you know, for them shipping is a sound cost so then they will take
Speaker Change: any business that they find, and all that created a bit of an avalanche effect.
Speaker Change: You know, we see it, obviously it's never good to have a market like this, but I think it will flush out the older technology vessels.
Speaker Change: have uncommitted vessels, they will have to take a decision as to what they do. There are certain FSUs, floating storage inquiries, FSRU conversions but I think there is also talk of warm and cold layup for these vessels.
And, you know...
Depending on the market conditions...
if you
Speaker Change: have a cold lay-up of a vessel like this for more than 5-6 months, then it becomes increasingly a challenging economic decision as to whether you reactivate it and at what cost.
Speaker Change: I think that's probably the important silver lining to this market.
Speaker Change: Okay. Thanks, Jared. That gives a good sense of things. And then maybe, perhaps just kind of sticking with the fundamental backdrop of the market, or maybe just kind of switching perhaps then to...
Speaker Change: The asset values, you know, it seems that you've obviously been very busy, you've refinanced two vessels, so you've got a pretty good sense of kind of where values are. Has there been any change? We've seen values obviously have risen.
Speaker Change: quite a bit here over the past couple of years. And I'm sensing just at least looking at the two refinances and how much you've been able to extract from that. Are values still firm? And has there been any shift in LNG pricing, LNG shift pricing?
Speaker Change: Yeah, and we have had recently data points to this effect, so we have seen at least three vessels recently ordered, and between the low $250-$260 million mark, all these vessels were delivered over the last...
month or two so
Speaker Change: and in different shipyards, so we know, we have a pretty good feeling as to where new building prices are and this determines the wider, if you want, curve.
Speaker Change: for both the asset prices as well as the long-term charter market. So, yeah, I think values have been pretty steady and we expect them to remain range-bound.
Thank you.
Speaker Change: There is very limited ship-gear capacity overall, especially for larger vessels.
There are...
Speaker Change: There are charters that come from time to time to the market, as we have seen over the last few months, to take vests on a long-term basis, which then leads to inquiry for more new builds. So, I think there is...
especially if their utilization falls consistently over the coming months.
Omar Nocta: Okay, yeah, that makes sense. All right, Jerry, thank you so much. I'll turn it over. Thank you, Omar.
Speaker Change: Thank you. The next question is coming from Ben Nolan of Stiefel. Please go ahead. Hi. Hi. Hi. Hi. Hi. Hi. Hi. Hi. Hi. Hi. Hi. Hi. Hi. Hi. Hi. Hi. Hi. Hi. Hi. Hi. Hi. Hi. Hi. Hi. Hi.
Speaker Change: Yeah, hi, this is Frank Galante on for Ben. Thanks for taking our questions. I wanted to sort of double down on the demand for LNG carriers, right? Obviously, shorter term market it's rolling over pretty heavy. Is that sort of affected the sort of six?
Speaker Change: LNG carriers that are currently unchartered, has that sort of changed conversations on getting those locked up?
Thank you.
Speaker Change: So, I think what we have seen over the last quarter is that we have seen more long-term inquiries that we have seen in the first half of 2024.
Speaker Change: and mostly people coming to the market to cover new offtakes or replace older technology chips. And we had some recent data points or chatter in the market.
I think what the what we see is probably
Speaker Change: a 10% reduction in long-term charter rates compared to the peak. So we are on a 10-year deal. We are probably more in the low 90s area than in the hundreds of thousands.
that we were maybe...
twelve months ago or six months ago.
Speaker Change: But we also believe that this is probably where the market is going to stay also for charter rates quite range bound because in the end the determinant of what owners will ask is the replacement value or new build values and new build values have been pretty steady.
Speaker Change: But I think the encouraging thing is that we have seen quite a bit of new inquiries coming to the market, and some of them they were scheduled because this is when people wanted to come to the market.
Speaker Change: secure tonnage but some of them they were encouraged by the slightly lower charter rates compared to last year and they said well given
Speaker Change: the fundamentals that we see, that is long-term this market is expected to be tight, shipyard capacity is going to be tight, it's better to take coverage now rather than wait later on.
Speaker Change: So, we are quite constructive for the 2026-2027 deliveries. Of course, as I said earlier on, we like to
Speaker Change: to take our time when it comes to fixing the vessels at what we consider to be the right time. We will be, of course, looking at developments and gradually we will start getting coverage. Again, the idea is to...
Speaker Change: To secure long-term coverage for these assets at accretive rates, potentially also a portfolio of expirations. We don't want everything to expire at the same time. But hopefully we can be able to share more over the coming quarters.
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Speaker Change: Great, that's really helpful. And then sort of on the decision to split out the containers into discontinuing operations this quarter, can you talk about the rationale to do so and what that sort of implies or not to the remaining three container vessels?
Speaker Change: The discontinued operations financials will apply only to the 12 vessels sold over the last year or so or since the announcement that we will be focusing on gas assets.
Speaker Change: So you should expect the three container vessels to to stay in the continued operation
Speaker Change: financials, unless at some point we decide to divest from those assets, in which case we will then of course notify the market and they will belong then to these cops.
Speaker Change: Okay, yeah, that clarification is really helpful. Thanks for taking our questions.
Thank you, Frank.
Speaker Change: Thank you. The next question is coming from Liam Burke of B Riley Securities. Please go ahead.
Thank you. Hi, Jerry. How are you?
Speaker Change: Hi, Liam. I'm well. How are you? Good. Thank you. Could we talk about the, I mean, the demand, long-term demand for the LBG is great, but how do you feel about the timing of the delivery of the vessels and how you would charter those? I mean, are you comfortable enough? You've had enough.
inquiries on the on the counterparties.
Speaker Change: Charters starting in 2026 and into 2027, this is also coincides with
Speaker Change: when a lot of the new liquefaction projects come online. It is a liquid market and hopefully we will be able to share more over the coming quarters.
That's great.
Speaker Change: Rates are low, Omar discussed the pressure on asset values. I know that you only take assets with long-term charters attached, but do you see anything potentially outside your traditional dropdowns that might be interesting if asset values get softer?
Speaker Change: We are always open to new additions and as I said during our prepared remarks, I think we will be building up liquidity given where we stand.
Speaker Change: Vessel class where we are focused. I don't expect to see any
Speaker Change: a serious discount on asset values given where new building prices are.
Speaker Change: the overall healthiness of the long-term market. Where I think there will be pressure on asset prices is on TFTE vessels as well as steam turbine vessels. Utilization will weigh on them because of the
of the weakness in the spot market, but also
environmental regulations, especially EU, ETS and now fuel EU.
will have a big effect as increasingly...
Speaker Change: As we move, for example, in the UETS framework from 40% to 70% payment of CO2 emissions.
Cargo stems in this in this market. So
Thank you, Jerry.
Thank you, Liam.
Speaker Change: Thank you. At this time, I'd like to turn the floor back over to Mr. Kaloyuratos for closing comments.
Thank you and thank you all for joining us today.
Speaker Change: Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.