Dynagas LNG Partners Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
December 8, 2023

There are 3 speakers on the call.

Operator

Ladies and gentlemen, and welcome to Dynagas LNG Partners Conference Call on the Q3 2023 Financial Results. We have with us Mr. Tony Lauritzen, Chief Executive Officer and Mr. Michael Gregos, Chief Financial Officer of the company. At this time, all participants are in a listen only mode.

Operator

There will be a presentation followed by a question and answer session. I must advise that this conference is being recorded today. Please be reminded that the company announced its results with a press release that has been publicly distributed. At this time, I would like to remind everyone that in today's presentation and conference call, Dynagas LNG Partners will be making forward looking statements. These statements are within the meaning of the federal securities laws.

Operator

This conference call and slide presentation of the webcast contains certain forward looking statements within the meaning of the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. The statements in today's conference call that are not historical facts including among other things the expected financial performance of Dynagas LNG Partners Business Dynagas Partners LNG ability to to growth opportunities, Dynagas Partners LNG expectations or objectives regarding future and market charter rate Expectations and in particular the effects of COVID-nineteen on the financial condition and operations of Dynagas Partners LNG and the LNG Industry in general, maybe forward looking statements such as defined in the Section 21E of the Securities Change Act of 1934 as amended. Matters discussed may be forward looking statements, which are based on current management expectations that involve risks and uncertainties that may result in such expectations not being realized. I kindly draw your attention to slide 2 of the webcast presentation, which has the full forward looking statement and the same statement, which was also included in the press release. Please take a moment to go through the whole statement and read it.

Operator

And now I pass the floor to Mr. Lauritzen. Please go ahead, sir.

Speaker 1

Good morning, everyone, and thank you for joining us in our 3 months ended 30 September 2023 earnings conference call. I'm joined today by our CFO, Michael Gregos. We have issued a press release announcing our results for the said period. Certain non GAAP measures will be discussed in this call And we have provided a description of those measures as well as a discussion of why we believe this information to be useful in our press release. Let's move to slide 3 of the presentation.

Speaker 1

We today present the results for the 3 month period ending on September 30, 2023. We are pleased to announce that all 6 7 gs carriers in our fleet were operating under long term charters with esteemed international gas companies. For the Q3 of 2020, we reported net income of $1,400,000 and a loss per common unit of $0.04 Our adjusted net income stood at €3,100,000 translating to adjusted earnings per common unit of €0.01 Furthermore, our adjusted EBITDA for the same period reached $20,400,000 From an operational perspective, it was a busy period during which we Completed the scheduled drydocks of the Yenisei River, Lena River and Arctic Aurora including installation of ballast water treatment equipment in accordance with Congratulations. Also the Arctic Aurora was delivered to her new time charter party agreement with Equinor ASA in September 2023. Ivessel has been continuously on track with Equinor since she was delivered from Her Builders in 2013.

Speaker 1

I will now turn the presentation over to Michael, who will For the Q3 decreased by $6,000,000 or 81 percent to $1,400,000 compared to 7 $400,000 in Q3 2022, primarily due to the decrease in the unrealized gain on our interest rate swap of $13,000,000 and the increase of $2,200,000 in loan interest, which were partially set by the increase in the realized gain on our swap transaction of $3,900,000 Net income for this Quarter was also impacted by the scheduled 5 year special survey dry docks of the Arctic Aurora, Lena River and Genesee River, which commenced and were completed within the Q3 and resulted in an increase of $9,800,000 in dry docking and special survey costs, which was however offset by the fact that under the time charter contracts for 2 of our LNG carriers, The time charter is paid for the special survey and drydock costs on a pass through basis. Therefore, out of the total drydocking special survey cost of $17,300,000 for the quarter, $11,600,000 was reimbursed from the time charters to the company and which has been reported in a separate Line item in the P and L statement, revenues from contracts with customers. In addition, The 3 aforementioned vessels which were drydocked remained on hire for 56 days Out of the total 110 dry dock days for the quarter as per the provisions of their respective time charter parties.

Speaker 1

Similarly, although we experienced an increase in OpEx of $3,600,000 versus the same period last year, $3,000,000 of this increase relates to 2 LNG carriers, which were contracted on an OpEx pass through basis, meaning that for these 2 LNG carriers there was a corresponding increase of $3,000,000 employed revenues. It is noteworthy to point that compared to Q3 2022, Boyd's revenues increased by 23.7% from $29,900,000 to $37,000,000 mainly attributable to the increase of 2,700,000 Due to the deferred revenue amortization relating to the new time charter party agreement with Equinor for the employment of the Arctic Aurora, which commenced in September 2023 and the higher available days. Adjusted EBITDA for the 3rd Quarter was relatively stable at $20,400,000 TCE for the quarter amounted to close to $72,000 per day. The elevated TCE relative to prior quarters is mainly due to the increase in variable revenues of the 2 LNG carriers Contracted on an OpEx part through basis as explained before as well as the aforementioned non cash Straight line deferred revenue amortization, which is reconciled with actual cash revenue received in the cash flow statement. OpEx for the Q1 amounted to $19,200 per day with a per vessel cash for the quarter of $50,200 per day excluding distributions to preferred unitholders and including the realized gains from the interest rate swap.

Speaker 1

Adjusted net income for the quarter For the Q3 of 2023 amounted to CAD3.1 million compared to CAD4.5 million same time last year, The decrease being mainly attributable to the aforementioned increase in interest and finance costs as a result of the higher interest expense paid Under the floating leg of our credit facility, adjusted net income excludes cash receipts It's an unrealized gain on our interest rate swap. If we include that this quarter's realized gain from our interest rate swap of 6,500,000 As can be seen in the cash flow statement, adjusted net income would have amounted to $9,600,000 or $0.18 per common unit instead of $0.01 Moving to slide 4. As of the end of September 2023, we had 4 $132,000,000 debt outstanding under our current credit facility. We are continuing our comprehensive deleveraging path, We've commenced in the Q1 of 2020 resulting in a decrease in our net leverage to 4.1 times And a steady increase in the book value of our equity, which today stands at $441,000,000 In this quarter, we generated $21,000,000 in operating cash flow. Turning to slide 6.

Speaker 1

Our cash balance for the quarter increased from $52,900,000 at the end of the previous quarter to $64,900,000 and our credit metrics continue to improve. It should be noted however that Current liabilities in this quarter increased by $10,300,000 due to the increase in payables mainly associated with the 3 vessel dry docks and which are expected to decrease in the next quarters. With To our debt maturity in September 2024, we are currently in discussions for the refinancing of our current credit facility, which we hope to sign, close and fund within the Q1 of 2024. That wraps it up from my side. Thank you, Michael.

Speaker 1

Let's move on to slide 7 of the presentation. So at Pressings are free to consist of 6 70 gs carriers with an average age of approximately 13.3 years. Our current channels include gas companies such as North of Norway, Saxony, Yamal Trade in Singapore as well as Rio Grande LLC, a subsidiary of NextDecade for the forward chartered vessels Clean Energy and As of 7 December of 2023, the fleet's contract backlog amounts to approximately €1,160,000,000 equating to an average backlog of about $193,000,000 per vessel. Furthermore, the fleet enjoys an average remaining charter period of approximately 7 We are confident that our charter profile is strong and positions our partnership for stable income in the years to come. Moving on to slide 8.

Speaker 1

Our commercial strategy is securing long term charters with gas companies. We have built up a solid contracted backlog and by no unforeseen events, we have no contractual vessel availability until 2028 When the clean energy of Amur River will be available. The next availability after this is the Arctic Aurora, which will come off a Rio Grande LNG contract in 2,033 followed by Yenise and Lena River in 2,034 provided that Chartres' extension options are not exercised. According to Faranhush, current liquefaction capacity is approximately 473,000,000 pounds per annum With another 205,000,000 tons per annum of additional LNG liquefaction capacity already FID ed and under construction for start of prior to 2,030. This represents a total increase in energy liquefaction capacity of about 40%.

Speaker 1

Approximately 40% of this expansion will come from U. S. For the projects, 25 percent is from Qatar and the remaining 35% will be split between various projects including Russia, Africa, Australia, Canada and Mexico. Additionally, there are a number of expansion projects in the U. S.

Speaker 1

Gulf from Mexico and elsewhere at different stages of taking I would. The current LNG carrier fleet counts about 630 vessels. The order book stands at 46% excluding swap reservations made for Qatar Phase 2 in Komofembeek LNG and 56% if we assume that those swap reservations will materialize. It is interesting to note that only 23 vessels of the order book are not committed to the time charter. Although the increase in the fleet Capacity is well above the increase in the pro fraction capacity.

Speaker 1

We believe that older and smaller vessels in particular vessels under 140,000 cubes representing about 17% of the global LNG carrier fleet will be phased out. In any case, we see that from time to time What we see that comes out of time in the industry is that LNG carriers under constructions are delivered on time, while LNG trains under constructions are delayed. Therefore, we have engineered our charter portfolio so that we are fully employed throughout 2027 in order to eliminate our posted any potential market uncertainty during part of this period. Moving on to slide 9. The partnership has demonstrated its commitment to its debt reduction strategy.

Speaker 1

Since December 2019 until end of September 23, We successfully repaid $242,000,000 in debt, significantly lowering the net leverage from 6.6 times to 4.1 times. Additionally, the partnership has achieved a 42% increase in book equity value, starting at $441,000,000 as per February September 23. Looking ahead, we are confident that the partnership's ongoing efforts to reduce debt with further augment equity value through stable long term cash flow visibility. We firmly believe the LNG plays a pivotal role in building a future with reduced emissions. The demand for LNG is projected to continue as the world Progressive shifts away from coal and other quality fossil fuels in favor of cleaner energy sources.

Speaker 1

Natural gas has a relatively low emission profile than combustion And other key drivers of natural gas is its ability to generate power swiftly and effectively as and when needed and the existence of a well developed global infrastructure facilitating its production, transportation, storage and consumption. Considering these promising developments and facts, we maintain a positive outlook on the long term prospects of energy shipping. Thank you for your attention. We have now concluded the presentation and would like you to ask any questions you may have. Thank you.

Operator

Our first question comes from the line of Ben Nolan with Stifel. Please proceed with your question.

Speaker 2

Hi. Thanks, Tony and Michael. I really just have one. The as it relates To refinancing of the debt, it's been something I know that you guys have been working on for quite a while. And I appreciate that.

Speaker 2

It sounds like it's 1Q type of dividend. I guess my question is, What's is this been is the whole have been something on your side? Or maybe is it a little bit more challenging to get banks to underwrite With the Yamal vessels in there, any color as to sort of what the why it's taking so long?

Speaker 1

No. I don't think that challenging is the right word. We're trying to find The Opti law, there is demand for financing our vessels. So I don't I wouldn't say there's a holdup. We've been working on it for some time.

Speaker 1

And it looks like we're going for a conclusion.

Speaker 2

Okay. So the Yamal stuff isn't really a factor or a problem?

Speaker 1

Well, I mean listen our we have a if you look at our whole fleet, we have a strong contract backlog If you look at it in its totality, so there aren't that many interesting LNG projects Out there in the market to be financed by banks. So all I can tell you is that there is demand So, what we have to offer. It also has to be something that fits our needs.

Speaker 2

Sure. All right. I appreciate it. Thank you.

Operator

Thank you. There are no other questions at this time. I'll turn the floor back to Mr. Lorton for any final comments.

Speaker 1

We appreciate your time and your attentiveness. Thank you for your participation. I look forward to connecting with you again on our next call. Thank you very much.

Operator

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.

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Key Takeaways

  • Dynagas reported Q3 net income of $1.4M and adjusted EBITDA of $20.4M, with a TCE of ~$72k/day driven by pass-through OpEx contracts and deferred revenue amortization.
  • All six vessels operate on long-term charters (avg. remaining 7+ years) with esteemed gas majors, underpinned by a ~$1.16B contract backlog and no scheduled availability until 2028.
  • Completed scheduled drydocks on three LNG carriers (Arctic Aurora, Lena River, Yenisei River) including ballast water treatment installations; Arctic Aurora commenced a new charter with Equinor ASA.
  • The partnership has deleveraged aggressively, reducing net leverage to 4.1x after repaying $242M since 2019, holds $132M in credit facility debt, and expects to refinance its Sept 2024 maturities in Q1 2024.
  • Management maintains a positive long-term outlook for LNG shipping amid global liquefaction capacity expansion, phase-out of older vessels, and sustained demand for cleaner energy.
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Earnings Conference Call
Dynagas LNG Partners Q3 2023
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