Navigator Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 23, 2023

There are 8 speakers on the call.

Operator

Recording in progress.

Speaker 1

I must advise you today that this conference is being recorded. Now as we conduct today's presentation, we will be making various forward looking statements. These statements include, but are not limited to, the future expectations, Plans and prospects from both a financial and operational perspective and are based on management assumptions, forecasts and expectations as of today's date and are as such subject to material risks and uncertainties. Actual results may differ significantly from our forward looking information and financial results. Additional information about these factors and assumptions are included in our annual and quarterly reports filed with the Securities and Exchange Commission.

Speaker 1

With that, I now pass the floor to Mads Peter Zacco, the company's Chief Executive Officer. Please go ahead, Mads.

Speaker 2

Thank you. Good morning and thanks a lot for taking part in our earnings call today. I'll start off by providing a Brief overview of our Q1 results and then hand it over to Niall, Oeyvind and Randy for more color on our results and recent events. Our Q1 result came in stronger than the previous quarters with revenues at $136,000,000 Adjusted EBITDA just below $70,000,000 and net income of $19,000,000 The result was mainly driven by higher charter rates and higher Our balance sheet is robust with cash of $191,000,000 at the end of Q1. Net debt increased slightly due to the financing that we raised for the secondhand vessel acquisitions that we made in the quarter.

Speaker 2

The initial $50,000,000 share purchase program has been completed and a further $25,000,000 authorized As part of our new return of capital program, so this is opening up for both dividends and further share buybacks. Commercially, our utilization was very high, just over 96% compared to our guidance of 95% And the 94% that we reached in Q4 2022. Terminal throughput ran above nameplate capacity right above 250,000 tonnes. As previously announced, we grew our vessel capacity through the acquisition of 5 efficient modern secondhand vessels, Vessels that we commercially managed for the past few years. The takeover was completed faster than originally planned, A strong effort and result created by our team.

Speaker 2

Expansion of our ethylene export terminal at Morgans Point has started. This flex train will allow for up to 2,000,000 tonnes of additional export capacity. The CapEx for Navigator share is expected to be around $125,000,000 and to be completed by the end of next year. Outlook continues to look good. Q2 utilization is expected to hover around 90%.

Speaker 2

It's below Q1, but it's high in a historical context. Time charter rates are robust and boding well for earnings in Q2. The terminal throughput in Q2 is expected to remain strong around 265,000 tonnes and the ethylene is in high demand in Both Europe and Asia. This current robust demand for seaborne gas transport is well complemented by a modest handysize order book And also an aging global fleet of gas tankers. With this brief overview, I'll just hand it over to Niall for a more

Speaker 3

Thank you, Mads, and good morning. The quarterly net income of $18,800,000 and the adjusted EBITDA of $69,000,000 as we show on Slide 6 here Are the highest quarterly results for many years, in fact, since the Q1 of 2016, and we expect that trajectory to continue. This improvement in results was positively impacted by increased total operating revenues, which were $136,000,000 for the quarter, $16,200,000 greater than the $119,800,000 for the comparative Q1 of last year, but also importantly a 10 point 3% increase from the $123,300,000 revenue achieved during the last quarter, Q4 of 2022. The quarter on quarter increase was as a result of increases in charter rates, which rose to $25,620 per day From $22,933 per day for the Q1 of last year. This quarter's average charter rate There was also $2,000 a day increased from the $23,600.21 achieved during the last quarter.

Speaker 3

In addition to increases in charter rates, utilization also increased during the quarter to 96.2% compared to 89.6 5% for the comparative quarter of last year and an increase of 2% from the strong 94.1% achieved in Q4 of Our Greater Bay joint venture, which is 60% owned by us, acquired Three additional vessels during the 1st 3 months of this year. The 2nd 17,000 cubic meter 2018 built ethylene capable Gas carrier, Navigator Solar on the January 17, and 22,000 cubic meter 2019 built Ethylene carriers Navigator Castor and Navigator Equator on March 24th March 27th respectively. This also increased vessel available days, which contributed to an increase in revenue during the quarter. And the joint venture acquired its 5th and for now final vessel on April 13, a further 22,000 cubic meter 2019 built ethylene carrier named Navigator Vega. We had 2 vessels in dry dock for the scheduled service during the Q1.

Speaker 3

And these were in dry dock for a total of 30 days And cost $3,300,000 For the remainder of 2023, it is expected that 7 vessels will enter drydock At a total budgeted cost of $8,600,000 The operating revenue from the Luna Pool was $7,200,000 for the quarter, Representing our share of the other participants' net revenues with voyage expenses from the Luna Pool of $5,000,000 representing The other participants' share of our net revenues from the pool. Consequently, the other participants' vessels contributed 2,200,000 dollars to us during the quarter. But following the acquisition of the 5th vessel by the Greater Bay Joint Venture last month, Which was owned by the other participant in the loan approval. Going forward, the revenue from these vessels will become fully consolidated into our financial statements And will not feature as revenue as operating revenues or voyage expenses from the Lunapool collaborative arrangements. Voyager expenses decreased by $3,600,000 or 17.2 percent during the Q1 to $17,200,000 which have the effect of reducing revenue by the same amount as voyage expenses are passed through costs.

Speaker 3

Our vessel operating expenses increased by 9.5 percent to $41,700,000 for the Q1 compared to the Q1 of last year, Which resulted in vessel operating expenses per vessel per day increasing quarter on quarter by 9.4% To $8,580 per day. However, this was a reduction from the $9,058 per day encouraged during the Q4 of last year as we continue to focus on our vessel operating costs. Depreciation of our vessels increased slightly by $500,000 or 1.6 percent as the additional Greater Bay joint venture vessels joined the fleet. Depreciation for 2023 is expected to be approximately $132,000,000 following the Acquisition of these Greater Bay vessels and we depreciate our vessels to their scrap or recycling value on their 25th anniversary. Other income, which is $96,000 relates to management fees earned from the other participants, The other participant for our management of the Luna Pool, we will not receive these 3rd party management fees going forward as the 5 vessels to which they relate Have been purchased and will be fully consolidated as I mentioned.

Speaker 3

There was an unrealized loss on our derivative instruments of $4,500,000 during the Q1 as the fair value of our fixed interest rate swaps reduced. This compares to a $15,200,000 gain for the Q1 of last year as a consequence of Then expected future spike in interest rates following the initial Russian invasion of Ukraine. Interest expense for the Q1 was $13,300,000 compared to $11,000,000 for the Q1 of 2022 as a result of further rises in interest rates On that proportion of our debt that is subject to floating rates. We have fixed interest rates or have entered into interest rate swaps For 45.1 percent of our debt at the end of March, at LIBOR, our software levels That are fixed at rates between 0.36% and 2.07%. The tax charge for the quarter was $1,200,000 which predominantly relates to both cash and deferred taxes on our share of the profits From the ethylene export terminal and our share of profits from the terminal was $5,100,000 for the quarter, Down from $6,500,000 for the comparative Q1 of last year as a result of the throughput of 250,731 tonnes Compared to 267,100 tonnes during the Q1 of last year as well as some reduced charges per tonne as some of the charges are correlated To U.

Speaker 3

S. Domestic natural gas crisis, net profit net income for the Q1 was CAD18,800,000 or CAD0.25 per share. However, adjusting for the non realized losses on the derivative instruments, Adjusted net income was $23,000,000 giving an earnings per share of $0.30 per share. On Slide 7, the balance sheet shows remains very strong with an increased cash balance of $190,900,000 at March 31 against the minimum liquidity covenant on our bank loans and credit agreements of $50,000,000 This cash balance is after the purchase of 2,600,000 shares of common stock For a total of $33,600,000 or an average price of $0.1273 The strong cash balance will be utilized for capital redistribution, our ethylene terminal expansion project and also we keep The market under review for accretive secondhand vessel acquisitions. At March 31, our debt stood at just over $1,000,000,000 an increase of $141,800,000 since December 31, principally as a result of drawdowns on the loan We also Executed a new $200,000,000 secured term loan on March 20, refinancing 10 vessels previously secured across 2 secured term loans that were due to mature later this year.

Speaker 3

The new loan is for a term of 6 years, Maturing in 2029 and interest on it is at software plus a margin of 2.1 percent And the loan was fully drawn down on March 28. Following the entering into these two loans, The company now has no loan maturities until 2025 as shown on Slide 8. We outlined the estimated cash breakeven for 2023 on Slide 9 At $19,470 per day, this low level relative to the charter rate market Enables us to generate positive EBITDA throughout the full shipping cycle. In the box on the right hand side of Slide 9, We provide our daily OpEx expectations for 2023 across the differing vessel size segments ranging from $7,500 per day For the smaller vessels to $10,100 per day for the larger more complex ethylene vessels. We also provide a range for the expected Annual expense of G and A costs, depreciation and interest expense.

Speaker 3

On Slide 10, we outline our historical EBITDA Showing a step up over the last 6 quarters and a further step up this quarter, a trajectory as I mentioned at the outset that we expect to continue at least in the Near term. On the right hand side of that Slide 10, we show our historic 2022 EBITDA bar. Next to it, we have the last 12 months bar, which incorporates the last quarter and an annualized EBITDA based on the first quarter's results. In addition, the EBITDA bars to the right of those show the effects of an increase on EBITDA We're charter rates to increase by increments of $1,000 per day. And finally, Before I hand over to Ivan, and this is my last earnings call as CFO of Navigator, I would like to say thank you For listening to my Irish tones over the past decade since the company's IPO in November 2013, and I wish you, the company And my successor, the very best for the future.

Speaker 3

And with that, over to you, Ozan.

Speaker 4

Thank you, Niall, and good morning, Paul. If you move to the next slide, please. So we'll usually start off with the U. S. Natural gas liquids production.

Speaker 4

NGL Gas liquids production is constituted of ethane and LPG being the major commodities of that. And as you can see on the graph on the left hand side, it's increasing during the Q1 of this year. LPG exports rose in the same time period, helped by the increased production, but also by declining U. S. Domestic consumption, creating an export oriented environment benefiting all gas carrier segments.

Speaker 4

More specifically for the Handysize segment, looking at the graph in the middle, it is the first time that we can show 3 months in a row where we, on the hand side, have exported more than 100,000 tonnes each month. Increasing natural gas liquids production combined with limited incremental domestic consumption of Ethane reinforces the competitiveness of U. S. Ethane for ethylene production. Ethane continues to be in excess supply And reinjection continues in a big way.

Speaker 4

The yellow line in the first graph on Page 13 Illustrate this point. Ethane is becoming cheaper and cheaper ethane typically translates to cheaper ethylene Production and therefore cheaper U. S. Ethylene pricing. The recent ethylene price is shown by the gray line.

Speaker 4

The price differential to international markets remain with the possibility to purchase ethylene in the U. S. For $400 a tonne, if consumers in Europe and Asia Pacific buying at $900 a tonne, Leaving a delta sufficient to cover terminal fees as well as freight transportation. During the end of Q4 last year, the majority of U. S.

Speaker 4

Ethylene exports were shipped to Europe. This is shown by the gray line in the middle graph. However, recently, alongside a slight Rejuvenation in particular of the Chinese economy, we have seen an increase in ethylene being shipped across the Pacific. This is shown by the yellow line. About 65% of U.

Speaker 4

S. Ethylene is today exported across the Pacific, which is a positive Change from last quarter due to the longer distances needed to discharge to reach discharge ports compared to Europe. The ethylene export terminal has consistently been exporting our main base capacity since September And Randy will give some more details regarding the exciting expansion project shortly. In addition to ethylene, U. S.

Speaker 4

Ethane exports are also showing a rising trend trajectory. Ethane handling, which requires an ethylene capable vessel, provides a handysize provides handysize We have on previous earnings call discussed in detail the impact of the war in Ukraine on international ammonia flows. With the normalization of natural gas prices, European producers have restarted their production, Causing a reduction in European ammonia seaborne imports. The change in seaborne import is shown on the first graph on Page 14. Having said that, there are other positive trends worth noting about the future of the ammonia markets.

Speaker 4

In the middle graph, we can see that during the last 12 months, Horizontal North American Ammonia Exports Showing the light blue line is on the rise. We believe that U. S. Ammonia production and exports over the next few years We've become an extremely positive demand driver for the gas carrier market and in particular the Handysize segment. Despite the reduction in European ammonia in porcelain to hand sized vessels, we still maintain A fair proportion of our vessels in ammonia.

Speaker 4

On Page 15, we see that the ammonia Proportion of our charter portfolio has declined a little over the last quarter. However, it's still maintaining about 20% of our earnings base. Q1 utilization of 96% was pretty robust. All 3 of our markets Credit is a nice environment for us, strong LPG demand during the winter months, strong petrochemical exports from the U. S.

Speaker 4

And continued ammonia demand. Looking ahead, the Q2 has historically been impacted by seasonality. This year, needless to say. However, one important point to note to highlight for this year is that utilization rate has declined less compared to comparable periods in the past. In addition, The average rate for our earnings days is higher so far compared to the Q1, which indicates market fundamentals On Slide 16, we can see the general rate environment Has improved slightly across all the gas carrier segments, including the handysize over the last period.

Speaker 4

On the next slide, we're still showing the final positive dynamic, which we like to remind people The Handysize segment has a very modest order book. Considering the pressure on supply chain At the various shipyards, we have a clear visibility of the tonnage situation within our segment for the next 3 years, which is fairly important. Randy will take over from here, giving an exciting rundown of the latest developments from ShiftShort to return of capital policy. Over to you, Randy.

Operator

Thank you, Oeyvind. So following up on several announcements we made in recent months, we want to provide additional details on updated developments regarding many of those announcements. So yes, starting on Slide 19, our fleet renewal program continues to be implemented as we sell our oldest vessels and replace them with modern secondhand tonnage. Starting with the sale, on May 2, 2023, we sold our oldest vessel, Navigator Orion, A 2000 built, 22,000 cubic meter LPG carrier to a third party for $20,900,000 That leaves us with only 3 of our original vessels built in 2000 and we continue to engage buyers who are showing interest to acquire those older assets. On the acquisition side, as a reminder, in September of 2022, Navigator Holdings announced that we entered into a joint venture agreement with Greater Bay to acquire 5 ethylene capable vessels.

Operator

Now following this announcement, our new joint venture owns 60% by us and 40% by Greater Bank, As a reminder, the total cost was $233,000,000 65 percent of which has been financed by the $151,300,000 bank loan with 60% of the remaining costs, about $49,000,000 paid from available cash. So as a result of all of this S and P activity, our current fleet Consists of 56 vessels with an average age of only 9.9 years and an average size of 21,000 and 32 Cubic Meters. Now to the good part, we are pleased to announce our new return of capital policy on Slide 20. So in October of 2022, we announced the Board's authorization for a share repurchase program of up to $50,000,000 of NVGS common stock. And between December May, we repurchased 3,800,000 shares at an average price of $13.12 for a total of $50,000,000 Subsequently, the Board has authorized a new Share repurchase program of up to $25,000,000 of NVGS shares of common stock as part of a new return of capital policy.

Operator

Furthermore, for the first time ever, Navigator Gas is announcing a dividend payout. Starting in the Q2 of this year, we will pay a fixed Quarterly cash dividend of $0.05 per share, likely payable in late August, with additional return of capital to equal at least 25% of net income. As for that percentage payout, we aim to balance redistribution of capital and growth and believe that that 25% level supports both of these goals. Now returning capital to shareholders is new to Navigator, but something we see as a requirement for a shareholder focused company. For payout examples, as you can see in the table below, we plan to pay a fixed $0.05 quarterly cash dividend regardless of earnings and whenever quarterly adjusted EPS is greater than $0.20 per share, Additional capital will be returned via a larger dividend and or share buybacks depending on share price.

Operator

Now finishing on Slide 21, as Oeyvind alluded to earlier. Last quarter, we announced additional details for the expansion of our ethylene export terminal under the existing fifty-fifty joint venture with Enterprise Products Partners Over at Morgan's Point, we have agreed to a capital project to increase that export capacity from approximately 1,000,000 tonnes per year to at least 1,550,000 tons and up to 3,200,000 tons per year by converting An existing ethane refrigeration train to also refrigerate ethylene. So looking at the yellow box in the bottom right, We are modifying the train closest to the storage tank and are using some of the adjacent land for additional equipment such as chillers and compressors. Importantly, the ethylene refrigeration capacity is set to triple from 125 tons per hour currently to 3 75 tons per hour Post expansion, providing substantial optionality and flexibility in terms of loading the storage tank and the timing of exports. The total capital contribution required from us to the joint venture for this project is expected to be around $125,000,000 The majority of which will be paid next year in 2024.

Operator

And the company expects to fund using a combination of cash on hand and additional debt financing. Long lead items have already been ordered and construction is underway and expected to be completed by the Q4 of 2024. As you can see on the bottom left chart, the terminal continues to run at or above nameplate capacity And current and limited spot cargo availability is leading new customers to discuss multiyear offtake contracts. So we do expect to contract the majority of the all take volumes prior to the project completion next year. With that, I'll now turn it back over to Mads for closing remarks.

Speaker 2

Thanks a lot, Randy. And if you'll go to, yes, 2022. Navigators is on a good path right now. Our Earnings are trending in the right direction with robust utilization and gradually higher charter rates. Both are supported by the high utilization of our of our ethylene export facility at Morgans Point with more to come once the expansion is complete by end 2024.

Speaker 2

The balance sheet is in its best shape ever with appropriate levels of net debt and a recently refinanced loan portfolio giving a long runway until next This gives us capacity for further growth, balancing growth with redistribution of capital through the Dividends and further share buybacks as outlined in our new return of capital policy. Our work on positioning Navigator for the

Speaker 4

By the end of June,

Speaker 2

Nain will step down as CFO after almost 19 years in the position. I'd like to take this opportunity to say a deep felt thank you to NILE for having taken Navigator from a small 5 vessels gas tanker company in a difficult financial position to where we are today as a global leader in the Handysize segment with a large modern fleet, Complemented by our infrastructure assets with a strong organization and a highly recognized brand in our industry. Thank you, Niall. You'll be solely missed by colleagues, and I'm sure that also analysts and investors will miss your safe pair of hands when it comes to managing our financials. With that, I'll hand it back to you, Randy.

Operator

Thank you, Mats. Operator, we'll now open the lines for some Q and A.

Speaker 5

Okay. Sorry. Hey, guys. It's Omar Nakda from Jefferies. Can you hear me?

Speaker 2

We can.

Speaker 5

Okay. Great. Well, yes, Niall, first off, yes, also congratulations from my side. I'll miss working with you. It's been a pleasure.

Speaker 5

Yes, I wish you the best of luck in the next Chapter, but definitely you're leaving Navigator on a very solid footing.

Speaker 3

Thank you, Omar.

Speaker 5

Yes. And I guess broadly, first off, I guess to the team, congrats on a very strong results. And clearly, We'd say as we look at just the numbers as they've kind of evolved here, there's been a step change, I would say, in Navigator's earnings power, at least relative to what we've been seeing in prior years. But things definitely here in the past couple of quarters look like they've kind of stepped up to a new threshold. And wanted to ask and Oeyvind, you spent a good amount of time talking about the market.

Speaker 5

But just wanted to ask maybe just kind of holistically, what do you think has been driving This overall improvement in your earnings power, is it the market? Is it a shift in how you've been deploying your fleet? Is it the terminal giving you some additional insight? Is there a way that you can just maybe calibrate to us what's been driving this overall improvement?

Speaker 2

I think from our perspective, it's a little bit of all. Clearly, the global economy has recovered Well, after the COVID meltdown and we've seen also now that China is coming back and I think that's Great contrast to what you saw during the middle part of last year. I think there's a part of the Supply demand picture also that plays into this. For a number of years, there's really been no additions To the handysize fleet or the smaller gas tanker vessels, we've seen gradually growing production of Most of the commodities that we're transporting, the production out of North America has gradually grown and the global Handysize fleet has just not followed suit. But I'll invite my colleagues to add to this.

Speaker 4

One of the important factors is consistent performance of ethylene exports from the U. S. And that has taken quite a few of our ethylene ships, which were doing other non ethylene cargoes Higher of this. So this consistency and also sort of uneven even trade between Europe and China, it's helpful. And that's another one.

Speaker 4

And then the other development is, of course, ammonia. Ammonia is quite sticky now. So I made a little commentary about despite Europe Importing less seaborne ammonia. Our charter parties remain or the market demand for our ammonia service transport services It's quite sticky. So that is a new thing that we haven't seen before.

Speaker 4

So those two factors in particular are keeping the fundamentals quite strong, Omar.

Speaker 2

Yes. But I think what you mentioned, Omar, about the export facility in Morgans Point, It is, of course, an important contributor making sure that there is supply pushed on ethylene from North America, which has to go Long distance and that of course has ensured that what our ships were built to do, transport ethylene is now happening. So that's of course a very important one. And I think also one of the reasons why we are reasonably constructive on the future with this Additional capacity that's going to come on stream by the end of next year.

Speaker 5

Thank you. That's a very good overview. Just a follow-up, Randy, in his comments or your comments, sorry, about the terminal and being able to you're feeling confident of being able to secure A lot of the offtake capacity ahead of completion of the project. Just in terms of kind of what we're seeing then in the shipping markets, is there that same type of Maybe thirst, call it, for chartering because we have seen obviously a stronger market, rates have continued to evolve higher. How has the time charter market developed for the ethylene carriers that are available?

Speaker 5

Is it still more of a short term spot approach? Or are you able to now Are you seeing interest to secure for 2 or 3 years at a time?

Speaker 4

So I think we mentioned this before, Omar, And it still remains the same, whereby petrochemical commodity trading transportation is generally voyage charter based, so short term of nature. However, the ethylene consumers, particularly in parties, are getting To be familiar with the consistency of U. S. Exports. So this is a new factor.

Speaker 4

So they are getting more familiar with pricing, with the contractual types and so forth. So I think that the What we'll see in the future is, it's going to be a little bit more time charter based than just voyage charter spot. But it's a journey and it's not there yet.

Operator

And one thing we are seeing currently is forward fixing, so a little further in advance, right. So vessels being fixed instead of 2, 3, 4 weeks in advance, maybe 6, 8, 10 weeks in advance.

Speaker 5

Okay. Yes, thanks. So that clearly speaks to the at least the pace of the market. Great. All right.

Speaker 5

Well, I'll leave it there. Congrats again, guys. And Niall, I'll be seeing you.

Speaker 4

You too.

Speaker 1

Thanks again, Omar. All right, operator, we're open for the next question.

Speaker 6

All right. Is it I guess I'm not the operator, but

Speaker 4

can you guys hear me?

Operator

Howdy, Ben. We can hear you.

Speaker 6

All right. Hi, guys. I appreciate it. I have just a couple. Well, 3.

Speaker 6

But, the first, I wanted to follow-up a little bit just on the state of the market, especially the utilization. It's been a long time since we've seen High-90s utilization and appreciate that 2Q is normally a little bit lower. But one of the things that had been a little bit My understanding is one of the things that had been an issue was that, for a lot of the ethylene that was going to the Far East, Charter is new that you were those ships are going to be coming back to the Gulf Coast to refill and so they were Not chartering during the ballast voyage and the laden voyage was much higher rate, It was having an impact on utilization. So, has that changed? Are we now seeing Contracts for both the ballast and Leyden portions of the trip?

Speaker 4

Ben, the holy grail is, of course, triangulation. At some Instances we are able to reload propylene from Asia, if you're talking about Asian destination. However, that hasn't happened for some time. It occurred last year. So the ethylene voyages that We're doing from Houston, Morgan's point to Asia Pacific consumers, they are generally based on Rand well, they are Based on man Boyle's economics.

Speaker 4

So whether they are in Laden or Ballast, the earnings are decent. However, the utilization is the timing of when those contracts are fixed that impacts utilization, not necessarily the earnings. But to add on to what Randy was talking about, the earlier the charters or our customers' contract, The better it is in terms of utilization because what we're seeing today is that some of the voyages that are And route laden to say China before they are discharged they are concluded from other voyage. And therefore, you have 100 percent utilization on those things. So what dragged down Our team lies a couple of percentage points on utilization was that we have some issues on technical issues on a couple of the boats and etcetera, Which they were unavailable to be employed and therefore there was a penalty there, nothing to do with the market per se.

Speaker 6

Okay. But going forward, we should assume utilization, seasonally adjusted low to Mid, maybe even upper 90s and periods of strength, that's the new normal, is that fair?

Speaker 4

I mean, regarding to around 90 Then for the Q2, what I mentioned, which is interesting is that despite utilization bit lower, The average rate so far in the second quarter are higher than the first quarter.

Speaker 2

So I think that's a good point you're making here, Ben, that it's not normal to run at close to 97% There will inevitably be times when we have a vessel for sale, which is then it needs to sit idle while that process is unfolding or There are some technical issues with the ship or 2 and so on. So during the normal course of business, we would probably often say that if we can Hit around 90% or a little bit above, we are very pleased with that.

Speaker 6

Okay. And then just sort of sticking with the state of the market, Your ethylene terminal is running pretty close to full capacity. I think the ethane terminals generally are running pretty close to full capacity. Are we at a sort of an ethylene ethane plateau So until some of the expansion projects start to hit next year or is there a little bit more that can be squeezed out, do you think?

Speaker 4

On the ethane side, Ben, I know for a fact that both MarketPoint and Marcus Hook And needle and they have their capacity, at least for Handysize. So Handysize ethane cargo is quite small in the sort of After the availability spend, so we depending on the naphtha price and the competitiveness of ethane, We do see ethane spot cargoes, which are outside the term contracts at those terminals, and they do pop up. So For hand designed spot opportunities, there are capacity for ethane.

Speaker 6

Okay. And but ethylene is pretty much fully utilized. Ethylene is

Speaker 4

pretty much fully in the fleet capacity. Yes, Morgan's point, there's 2 handiest sized cargoes that target terminal generally every month, but that is the max capacity, you're correct, Correct.

Speaker 6

Okay. Okay. And then lastly for me, maybe this one's for you, Randy. I mean, I am increasingly having inbounds from Infrastructure company is asking me for references about you guys. Can you maybe fill me in a little bit on sort of what incremental Development looks like for new projects outside of the ethylene Terminal, I mean, I'm hearing a lot on ammonia projects.

Speaker 6

Where are you sitting with respect to how you're viewing Incremental infrastructure development on the Navigator level.

Operator

Sure. Hopefully, you're getting some positive recommendations there. But yes, we're Certainly interested and frankly betting blue ammonia, green ammonia out of the U. S. Gulf, looking at some other CO2 transportation projects, Some terminals in and around Europe, as well as obviously on the export side here in the U.

Operator

S. Gulf. So all of that is on the table and certainly projects that we are Actively looking at it.

Speaker 2

Yes. And here, maybe you could say that we are very comfortable with the Structure of the joint venture with Enterprise, where we have the joint venture on the port part of it, the infrastructure between the ship and The pipeline system they're operating and those would be natural places to search For further joint venture opportunities, find something that where we have something to add and something that can bring synergies to our vessel operations. So We're still a shipping company. We expect to continue to be a shipping company, but finding ways where we can optimize the supply chain and where we can See the synergies between the ship side and the land side. We are certainly looking for that.

Speaker 6

Right. Understood. I guess just to Clarify a little bit, in terms of this process, How far maybe put it in baseball analogy, like are some of these getting sort of into the middle or later innings with respect to opportunities or is it just a whole lot of early innings type work that you're doing right now?

Operator

Yes. With our affinity for the Astros, I would say somewhere in the 3rd inning, right? The first pitch has certainly already been thrown out, where we have some NDAs in place and Some other kind of agreements and paperwork, but yes, it's hard to say. It's still a multiyear process, right? These especially blue ammonia, green ammonia, and we're talking 2027 maybe, later.

Operator

But in terms of our participation in that, we expect something in the next 12 to 18 months in terms of an announcement and making some capital contributions and those things.

Speaker 6

Perfect. I appreciate it and thanks for all the color guys. And Niall, I'll miss having another Nolan around. So good luck to you.

Operator

Thank you, Jarvis. My e mail and I typed Noble in a lot of different companies.

Speaker 1

Thanks, Ben. All right, operator, next question please.

Speaker 7

Hey guys. Niall, I think the Gaelic would be what, Sloanelet. So Yes. And good luck to you in your next role or whatever you pursue after this. It's been nice working with you.

Speaker 4

Thanks, Steve.

Speaker 7

And so I'll try to come up with a couple after I think Ben went through quite a few, but just to sort of expound On the grain ammonia questions, are you guys seeing any sort of inbound from any of the I know that there's some hydrogen hub activity, which is being funded by the federal government in kind of The scenario where you're already sort of active on the export side. And also do you see that sort of developing as A handysize trade or do you think that it would kind of follow the path of like LNG where the scale of U. S. Exports It starts to hit levels where you would essentially grow that ammonia fleet into say a larger class of vessels.

Operator

Yes, all good questions there. I think especially when you're looking at hydrogen or certainly green ammonia, I think the scale starting will be a lot smaller obviously than methane or LNG now. So we do think the handysize, especially going Over into European ports, right, where they're handy, they can get in and out of anywhere basically. So we do think the handysize trade for those ships makes a lot of sense. Now, we do expect larger vessels to especially move ammonia, green ammonia, blue ammonia west through the Panama Canal or to the Far East rather.

Operator

So we think that will naturally come. But for what the some of the projects that we're looking at, the handysize vessels make a lot of sense, just in terms of Smaller storage is needed, right? And then again, you can fit into multiple more ports with our size ships.

Speaker 7

Okay. And then as we kind of look at the chart, I guess we'll stay on the ammonia theme on Page 15. You see the rates are rolling off a little bit, still definitely elevated kind of versus historical. Is some of that maybe Some of the dislocation from Ukraine's trade getting kind of normalized in the market or what do you attribute that to because you said the volumes are very sticky?

Speaker 4

Yes. The Sean, the volumes are trade we still have the issue with Ukraine And exports being shot. So the market hasn't recovered from that. So there's still some untraditional Movement of ammonia, which is benefiting us. So my commentary earlier was really about the normalization of natural gas prices.

Speaker 4

So many of the European producers, ammonia producers stopped producing when natural gas prices were extremely high During the last 12 months. Now they are producing again. So they're satisfying some of their own demand, but the Ukraine situation is not resolved. So many of the ammonia charters that we have, we expect to continue. Remember, Only 12 months ago, we had 3, 4 ships in the morning and now we have 9.

Speaker 4

And this is the stickiness seems to be I'm surprised that It is a sticky, meaning that the charter parties are being renewed and we are getting more inbound interest for additional ammonia. So the ammonia story is not vanishing or going away, which is good for us.

Speaker 7

Okay. All right. Thanks. Thanks, Oeyvind and Randy and everyone. Thank you.

Operator

Thanks, John. Okay. With that, I believe that Wraps up our Q and A. So I just want to thank you again for dialing in. Obviously, if you have any other additional questions or follow ups, feel free to reach out

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Earnings Conference Call
Navigator Q1 2023
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