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Dorian LPG LTD (NYSE:LPG)
Q2 2021 Earnings Call
Nov 2, 2020, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the Dorian LPG Second Quarter 2021 Earnings Conference Call. [Operator Instructions] A question-and-answer session will follow the formal presentation. [Operator Instructions] Additionally, a live audio webcast for today's conference call is available on Dorian LPG's website, which is www.dorianlpg.com.

I would now like to turn the conference over to Ted Young, Chief Financial Officer. Thank you, Mr. Young, please go ahead.

Theodore B. Young -- Chief Financial Officer

Thank you, Doug. Good morning, everyone and thank you all for joining us for our second quarter 2021 results conference call. With me today are John Hadjipateras, Chairman, President and CEO of Dorian LPG Limited; John Lycouris, Chief Executive Officer of Dorian LPG, USA; and Tim Hansen, Chief Commercial Officer.

As a reminder, this conference call webcast and a replay of this call will be available through November 9, 2020. Many of our remarks today contain forward-looking statements based on current expectations. These statements may often be identified with words such as expect, anticipate, believe or similar indications of future expectations. Although we believe that such forward-looking statements are reasonable, we cannot assure you that any forward-looking statements will prove to be correct. These forward-looking statements are subject to known and unknown risks and uncertainties and other factors, as well as general economic conditions. Should one or more of these risks or uncertainties materialize or should underlying assumptions or estimates prove to be incorrect, actual results may vary materially from those we express today.

Additionally, let me refer you to our unaudited results for the period ended September 30, 2020 that were filed this morning on Form 10-Q. Also, please refer to our previous filings on Form 10-K, where you'll find risk factors that could cause actual results to differ materially from those forward-looking statements.

With that, I'll turn over the call to John Hadjipateras.

John Hadjipateras -- Chairman, President and Chief Executive Officer

Thank you. Good morning from John Lycouris in Athens; Tim Hansen in Copenhagen; Ted Young, Clinton Webb and myself in Stamford, Connecticut and thank you for joining us today for our financial year 2021 Q2 earnings call.

Following our AGM on Wednesday last week when two of our directors, Christina Tan and Tom Coleman were reelected and our regular quarterly Board Meeting on the same day. We expect to continue our focus on capital allocation and to pursue opportunistic share repurchases, as well as consider dividends deleveraging further and other opportunities.

I'm happy to report that our seafarers and shore staff are safe and continue to ably perform their duties. With the cooperation of our customers local and flag authorities and classification societies, we have been performing many statutory surveys remotely. In addition to the health benefit or reduced exposure digitalization and remote monitoring, enhance efficiency and reduce costs.

During the quarter our crew rotation has been successfully restored to normal levels. The industrywide crisis caused by disruption to the free movement of seafarers during the shutdowns has somewhat abated, though restrictions continue in many ports and they result in logistical challenges and increased costs.

Our last quarter's results largely reflect the poor market of the previous April to June quarter. Many analysts understandably base their forecast on the Baltic published rate. And I would like to share a word of caution about that. The Baltic Index for LPG is a daily forecast by a panel of brokers reflecting their assessment. Yes, of the rate fixed on the spot fixture within 10 to 40 days on the route Middle East to Japan. As well as the obvious and the lag effect of time elapsed between fixture and voyage completion. There are other inherent distortions, which make extrapolating from the single route published Baltic rate and unreliable forecasting tool for time charter equivalent earnings.

These include sailing speed, actual cost of bunkers, panama and other port delays, routing changes for weather, deviation for extraordinary crew changes and offer guards and of course idle time. We have communicated our opinion to the Baltic and hoped that they will open a dialogue with stakeholders with a view to making their index more useful.

US production is 10% below the all-time high in January, but nearly 14% above the year is low in May and exports are up 15% year-on-year through September 30. India's imports are up 14% year-to-date. US storage is 10% above the five year average. These are some of the factors, which together with fractionation capacity being added in the US and PDH plants being commissioned in China gave me cause for optimism. As usual on our calls you will hear an analysis of our quarterly financial from Ted and industry and market updates from John Lycouris and Jim Hansen.

Tim, over to you.

Tim Hansen -- Chief Commercial Officer

Thank you, John. US exports continue to offset declining Middle East volume last quarter, but it was not enough to generate a global growth for the quarter. Global volumes decreased by 8%, compared to '19 year-to-date, the global volumes totaled 80 million tons. There was a 2.6 year-on-year decrease. American export volumes, however have increased by 15% to 33.3 million tons year-to-date, which compares to only 28.8 million tons during the same period last year.

In the third calendar quarter US export volumes hit record levels growing 11% year-on-year to nearly 11.5 million tons, the highest level ever recorded. Over the same period of time, however Middle East volume decreased by roughly 11.5% to 9.5 million tons. Despite the initial weakness the freight market improved during this quarter. The Baltic market index of the Middle East to Japan will began the quarter of around $30 per metric tons rising steadily in early August to the low $60s per metric tons range before moderating in the middle $50s from mid-August and until the end of the quarter.

US export appeared to set the freight rate recovery into motion. American export volumes hit record levels in July at 4.3 million tons, the strongest level ever recorded by a margin of 360,000 tons. Accordingly, US VLGC liftings also peaked in July with 73 cargoes before stabilizing to an average of 65 cargoes in August and September.

Record setting US export cargoes and -- as well as weather condition added to poor congestions in Asia and India. Towards the end of the quarter there were significant delays around the world. South Korea for instance saw significant delays adding about six days or about 10% to a normal round trip voyage from Q2 2010.

Currently many of the vessels Code West extended their charters in the Far East now also place delays in the Panama Canal. In Belarus there is up to eight days delays and in Eden is about all days delays at the moment. It adds to the 10 days in the market and take out capacity.

Although, the regional Middle East liftings were down regular cargo flows in Qatar and the United Arab Emirates to India maintained a good pitching momentum. Indian demand will continue to grow. Indian imports grew by 4% year-over-year to about 4 million tons. Meantime vessels availabilities for cargoes into India diminished after 23rd of July. The Chinese-flagged and Hong Kong-flagged vessels in addition through national affiliated companies were prohibited from June business into India by the Indian government, due to the military tensions between the two countries.

The COVID-19 negatively impacted LPG demands in part of Asia during this quarter. Japan and South Korea demand represented a steep declines, due to subdued industrial demand and the Chinese LPG imports also continued to fall 8.8% year-on-year. Despite record imports in July the total 2.3 million tons and all-time records.

Program of the private banks, we're not seeing the Far East, the most of the quarter before shrinking toward the end of September. The late winter stocking and the prospect of a correlation of winter resulting from India gains however positive demand outlook heading into the first quarter. And LPG supply, US NGL production forecast continue to be revised upwards and actually volumes have outperformed expectations. Propane storage levels remains elevated, compared to the last year.

Given the continued wave of infrastructure additions completed year-to-date, US production and exports may continue to surprise to the upside, due to the increased throughput capacity. Year-to-date 1.6 million barrels per day of new high grade pipeline has been constructed to supply the 1.2 million barrels per day of new inflection capacity.

On the export capacity progress terminal expansion completed in August adding another three to four cargoes of capacity and the Lone Star NGL expansion at Elena is in scheduled for completion this quarter adding another 12 cargoes. There was no shortage of storage capacity on the US Gulf. Agreement and lifting numbers for the months of October stands at 94 cargoes. [Technical Issues]

Operator

One moment everybody. We lost Tim Hansen's line.

Theodore B. Young -- Chief Financial Officer

Operator we can go back. We can go to John Lycouris and we'll put Tim back when he comes back. Hello?

Operator

Yes. Rejoining John Lycouris?

John Hadjipateras -- Chairman, President and Chief Executive Officer

Yes. Please we'll go. We have lost Tim from -- on the phone. So we'll go to John Lycouris and then when Tim comes back we'll -- or at the end we'll put him on to finish his remarks. He was always almost done anyway. So John Lycouris.

John C. Lycouris -- Chief Executive Officer

Yes, John.

John Hadjipateras -- Chairman, President and Chief Executive Officer

The floor is yours.

John C. Lycouris -- Chief Executive Officer

Thank you, John. During this quarter, we completed drydocking and first special survey on the vessels Cougar and Cobra and expect to complete a further two vessels [Phonetic] during this quarter.

Dorian remains committed to improving environmental emissions. With the use of scrubbers, we achieved a 98% reduction in sulfur oxide emissions and 80% of particulate matter emissions, as well as black carbon emissions normally released when burning very low-sulfur fuel oil. We currently operate 10 scrubber equipped vessels, including two fitted and trading since their 2015 deliveries. All scrubbers are hybrid systems except for one vessel, so they can operate in open or closed loop depending on local ECA conditions and regulations and the port requirements. We are programing to retrofit two more vessels with scrubbers in the coming months to coincide with vessels five-year special survey and drydocking cycle.

Bunker fuel prices spreads have been volatile since March 2020. Low-sulfur fuel oil has traded from as low as 12% to more than 30% over the high-sulfur fuel oil price, which in dollar terms amounts to $30 -- from $30 to $85 per metric ton. Such volatility has largely been the result of crude oil pricing in the world market, refinery utilization and product surpluses in the markets, all impacted by COVID-19.

Once COVID-19 conditions improved and market sectors recover, we expect that fuel spreads will widen again to pre-COVID-19 level. Even though vessel scrubber retrofit were rushed to meet the IMO 2020 commencement on January 1, the installations are designed to perform for the remaining life of the vessels and cannot be judged on the very short-term during which they have been operational under extremely volatile economic and market conditions.

We are keenly following the results of LPG as fuel on the vessels currently being retrofitted and on the new building vessels as they commence commercial operations next year. Dorian has been at the forefront of this technology since 2013-'14 when many of our vessels were being constructed. We built most of our vessels to accommodate the future retrofit.

In addition, we have carried out feasibility studies and detailed retrofit lags. However the associated capex for a dual fuel retrofit amounts to more than 3 times that of a scrubber making commitment difficult. Once the number of these LPG as fuel projects are completed and pricing becomes competitive on the equipment and outfitting requirements, we hope to consider LPG as fuel and also when favorable economic conditions and LPG markets enable us too.

According to DNV GL, energy transition outlook, the world energy emissions peaked in 2020, due to the COVID-19 pandemic, avoiding 75 giga tons of CO2 emissions to 2050. The maritime fuel mix is likely to see a reduction in the usual oils increases in the usage of low-carbon fuels and natural gas, as well as electricity through batteries. Improving energy efficiency, increasing the renewables and electrification, decarbonization, carbon capture and storage are some of the solutions that are being considered.

Less than 10% of the current fleet on order is committed to alternative fuels like LNG, batteries, LPG etc. Most decisions will be formulated in the next few years as fuels and engines transition and we have the liability of alternative green and blue fuels becomes available as fuel for existing vessels with fuel cost the main consideration against greenhouse gas reduction. The close collaboration of the regulators, owners, charters and financial institutions in formulating future policy for all the stakeholders will be necessary to move industry toward carbon-neutral fuels and zero emissions.

The current VLGC fleet according to Clarksons comprises of 301 vessels and the order book currently stands at 32 vessels or about 11% of the fleet, rather manageable number we think. Two vessels are due to be delivered this year with 21 vessels expected in 2021 and nine vessels in 2022. There are currently 27 vessels in the fleet, which are 25 years or older and that number will increase to 30 vessels next year assuming that there is no scrapping. The current fleet dynamic provide a highly encouraging backdrop for the VLGC freight markets.

And with that my comments are over and I will pass it over to Ted Young, Chief Financial Officer.

Theodore B. Young -- Chief Financial Officer

Thank you, John. My comments today will focus on our financial position and liquidity, as well as our unaudited second quarter results. For the discussion of our second quarter results you may also find it useful to refer to the investor highlight slides posted this morning on our website.

At September 30, 2020, we have $145 million of free cash, since quarter-end as we previously reported, we completed the repurchase of the Captain John, which is now 100% debt free. Proforma for that principal repayment of $18.3 million our cash balance would have been $126.7 million and our debt is at $628 million. As of Friday October 30, our cash balance stood at $135 million.

Following the repayment of the Captain John lease arrangement, we have reduced our debt service costs by about $2.6 million per year. As we have previously discussed, we've made significant and favorable changes to our debt capital structure in the last six months. We refinanced the commercial tranche from our main bank facility with a lower interest margin and more flexible financial covenants entered into a 12-year floating rate sale leaseback on the crest and now have repaid some of our higher cost debt. We currently amortized less than $52 million per year, which is a significant reduction from the $64 million that was required until recently.

Following the new bank deal in the favorable interest rate environment, we took the opportunity after quarter end to blend and extend our largest swap position with the $200 million notional value. I'll get into the economics of that a little later, but it did result in a reduction of our fixed rate by nearly 85 basis points.

Turning to our second quarter chartering results. We achieved a total utilization of 97.4% for the quarter with the daily TCE -- that's TCE revenue over operating days is defined in our filings of $26,015 yielding a utilization adjusted TCE. TCE revenue per available day of about $25,330. In contrast to last quarter, this quarter saw a steady month-over-month improvements in rates and utilization. Spot TCE per available day, which reflects our portion of the net profits of the Helios Pool for the quarter was about $25,800. Also overall the Helios Pool reported a spot TCE, including COAs of approximately $24,560 per available day for the quarter.

Daily opex for the quarter was $9,613 excluding amounts expense for drydockings. It was $10,591 including those costs. Excluding drydocking the increase was largely a function of higher crewing costs driven by crude change costs and certain incentive and retention payments to our seafarers. Our time charter in expense remained stable at $4.5 million. As a reminder, we do not include time charter in costs in our vessel operating expenses.

Total G&A for the quarter was $5.9 million and cash G&A i.e., G&A excluding non-cash comp expense was about $5.5 million roughly flat with the preceding four [Phonetic] quarter. We continue to look for efficiencies in our cost structure in this challenging environment.

Our reported adjusted EBITDA for the quarter was $22.3 million. Again in contrast to the quarter ended June 30, 2020, where we made over 80% of the quarterly EBITDA in the first two months, we earned over half of our EBITDA during September reflecting the fact that the financial impact of the stronger chartering market had its first noticeable impact at the end of the quarter.

If we look at cash interest expense on debt as the sum of the line items of interest expense, excluding deferred financing fees and other loan expenses and realized gain loss on interest rate swap derivatives. On that basis, our total cash interest expense for the quarter was flat versus last quarter and $6.9 million, representing a full quarter of interest savings from the 2015 AR facility refinancing in the crest sale leaseback offset by a larger realized loss on our swaps.

As I touched on, we did a blend and extend our $200 million notional swap, which resulted in extending its maturity by three years to 2025 and reducing the fixed interest rate from 1.933% to 1.091% or about 84 basis points. We continue to benefit from our hedging policy in the favorable pricing of our Japanese financings leaving us with a current interest cost, fixed hedge and a small floating piece of 3.78%. Please remember that as reporting matter are realized and unrealized gain loss on derivatives also include the effect of our FFA portfolio. That said the calculation of EBITDA on our filings adds back only the interest on the realized gain loss, not the FFA piece.

John has already touched on our drydocking program, but we believe that our current financial position will allow us to finance whatever future drydocking schedule best supports our charters. Although, we currently hold the 60%-plus economic interest in Helios, we do not consolidate its P&L or balance sheet accounts, which has the effect of understanding our cash and working capital, thus we believe it is useful to provide some additional insight in order to give a more complete picture.

As of Friday October 30, the pool had roughly $12.5 million of cash on hand, reflecting the fact that the pool just paid a distribution a week prior. We feel that our liquidity and capital structure have positioned us well for whatever rate environment we face in the coming months and we believe that allows our company to make capital allocation decisions from a position of strength.

But the significant rate volatility caused us to curb our buyback activity, we remain committed to returning cash to shareholders and those that we saw of approximately $50 million remaining under our share buyback authorization and we also remain interested in accretive growth opportunities that meet our risk reward criteria. We will continue to be prudent in deploying cash, but our financial position allows us to act quickly and meaningful opportunities as they may arise.

With that I'll pass it back to John Hadjipateras.

John Hadjipateras -- Chairman, President and Chief Executive Officer

Thank you, Ted and [Technical Issues] we got Tim back on. But in any case, I think he was very close to the end of his comments. So he can -- he will have the opportunity to complete them with questions. So I'd like to open up for questions at this stage. Thank you.

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, at this time we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Omar Nokta with Clarksons Platou. Please proceed with your question.

Omar Nokta -- Clarksons Platou Securities -- Analyst

Hi, thank you. Hey, guys.

Theodore B. Young -- Chief Financial Officer

Hey.

Omar Nokta -- Clarksons Platou Securities -- Analyst

I just wanted to check in with you on the capital allocation as you guys just discussed. Ted you just brought it up and John in your opening comments you mentioned that you obviously slowed down the share buybacks over the past few months, which makes sense given the uncertainty with the pandemic and in overall energy picture. How are you guys doing things right now especially post the -- John you mentioned the AGM last week. Are you signaling that maybe we're at -- like a maybe a pivot point that you're looking to recharge that remaining $50 million buyback? Is that sort of on the horizon?

John Hadjipateras -- Chairman, President and Chief Executive Officer

I think that's a reasonable interpretation of my -- of our comments, yes.

Omar Nokta -- Clarksons Platou Securities -- Analyst

Okay, good. Well that's fairly clear. Maybe following up then on that. You mentioned the buyback you're evaluating dividend, you're focused on deleveraging and other opportunities, which I take are acquisition that being a focus for both you and the Board. Are you able to maybe rank those in order of preference. Maybe it sounds like buybacks at the top of the list, but maybe you can give us some -- a sense of ranking on those different elements?

John Hadjipateras -- Chairman, President and Chief Executive Officer

It's very difficult to do that right? Because it changes day by day. At the moment I think you're right, what's at the top of the list. But you know, I think that we have it on the short-term review constantly. So if there is a lot of value today, I think our stock and our peer and the whole industry is very undervalued. So you would expect that we'd be focusing on that, I think first, but not exclusively.

Omar Nokta -- Clarksons Platou Securities -- Analyst

Yes. Then OK, we'll see at the weeks and months come. Just one follow-up or one separate topic and I'll hand it over. Just on the chartering, you guys have always been partial to fix some ships on time charter. How has charter demand been here over the past couple of months especially given the stronger market of late? Are you seeing opportunities to put some ships on charter here for the medium to long-term?

John Hadjipateras -- Chairman, President and Chief Executive Officer

Little bit. Tim are you back on?

Tim Hansen -- Chief Commercial Officer

Yes. I'm back on, yes.

John Hadjipateras -- Chairman, President and Chief Executive Officer

Good. Tim, you can take that question. And also if you want to take the opportunity to complete your comments you can do that too.

Tim Hansen -- Chief Commercial Officer

Well I'm not exactly sure where we are at to provide. So, but on the time chartering side, we have seen more activity and opportunities and we have also seen rates recover from where they were like six months back. So we are looking at some opportunities at the moment to see if we can charter all the two ships as we also have a few expiring at the end of the year.

Omar Nokta -- Clarksons Platou Securities -- Analyst

Okay. Good. All right. Thanks, Tim and thanks, John for the -- for that.

John Hadjipateras -- Chairman, President and Chief Executive Officer

Thank you, Omar.

Operator

Our next question comes from the line of Sean Morgan with Evercore. Please proceed with your question.

Sean Morgan -- Evercore ISI -- Analyst

Hey, guys. This is maybe something that Tim was going to address before he got cut off. But in the press release you talked a little bit about the benefits of the ton mile expansion from the US exports and sort of the negative impact on volume demands whereas VLGCs from the curtailment of OPEC. But just talked about the spread to naphtha being positive and being a positive benefit for the fleet and the global fleet?

So if you kind of look at that as a bit of a double-edge sword, if OPEC start to pumping again and Libya comes back online and that starts to pressure naphtha. How do you sort of weigh the benefits to increase production of the Middle East with potentially a lighter spread and then also maybe some substitution from US cargoes?

John Hadjipateras -- Chairman, President and Chief Executive Officer

Tim, you want to take a shot at that?

Tim Hansen -- Chief Commercial Officer

Yes, I think again the -- if we have an increase in the Middle East, it's more positive than negative, it might affect as you say the naphtha LPG spread, but on the other hand then LPG seems to find again new users when the price of that deal go through what -- which it will eventually when more to use. So I think overall more tons in the market would be -- would still have a positive effect on LPG, whether it is partly substituting the naphtha pricing.

Sean Morgan -- Evercore ISI -- Analyst

Okay. And then was there any disruption, sort of, related with the hurricanes in petrochemical disruption that impacted you at all during the quarter, because it's just the rates were like I know we talked about how the Baltic doesn't reflect, sort of, the actualized returns that we can expect that Clarksons TCE rates or maybe a little bit higher even on a lagged basis. So I'm just wondering was there any weather related utilization impact or what, sort of, drove that?

John Hadjipateras -- Chairman, President and Chief Executive Officer

Yes, weather and COVID.

Sean Morgan -- Evercore ISI -- Analyst

COVID? Just demand, OK. All right. That's it from me. Thanks guys.

John Hadjipateras -- Chairman, President and Chief Executive Officer

Okay.

Tim Hansen -- Chief Commercial Officer

Thanks, Sean.

John Hadjipateras -- Chairman, President and Chief Executive Officer

Thank you.

Operator

There are no further questions, I would like to hand the call back to management for closing remarks.

John Hadjipateras -- Chairman, President and Chief Executive Officer

Okay, well thank you very much once again and everybody stay safe and see you next time. Bye-bye.

Operator

[Operator Closing Remarks]

Duration: 32 minutes

Call participants:

Theodore B. Young -- Chief Financial Officer

John Hadjipateras -- Chairman, President and Chief Executive Officer

Tim Hansen -- Chief Commercial Officer

John C. Lycouris -- Chief Executive Officer

Omar Nokta -- Clarksons Platou Securities -- Analyst

Sean Morgan -- Evercore ISI -- Analyst

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