Capital Clean Energy Carriers - Earnings Call - Q2 2025

Transcript

Speaker 1

Thank you for standing by and welcome to the Capital Clean Energy Carriers Corp. second quarter 2025 financial results conference call. We have with us Mr. Jerry Kalogiratos, Chief Executive Officer; Mr. Brian Gallagher, Executive Vice President, Investor Relations; and Mr. Nikos Tripodakis, Chief Commercial Officer. At this time, all participants are in 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 *1 on your telephone and wait for your name to be announced. I must advise you that this conference is being recorded today, July 31, 2025.

The statements in today's conference call that are not historical facts, 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, capital reserve amounts, distribution coverage, future earnings, capital allocation, as well as our expectations regarding market fundamentals and the employment of our vessels, including re-delivery dates and charter rates, may be forward-looking statements, as such 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.

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 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 over to your speakers today, Mr. Brian Gallagher. Please go ahead, sir.

Speaker 0

Thank you, Operator. Good morning or afternoon to you, wherever you are, and thank you for listening to the Capital Clean Energy Carriers Corp. Q2 2025 earnings call. As a reminder, we'll be referring to supporting slides available on our website as we go through today's presentation. To kick off with a highlight slide on slide 4, you can see that after a very busy Q1 with new contracts, traffic steps, and vessel sales, Q2 has been much more routine for the company. Net income from operations, primarily from our 15 vessels on the water, 12 LNG carriers, and 3 container vessels, coming in for the quarter at just under $30 million. From this, our ongoing fixed distribution of $0.15 per share was paid out to shareholders, meaning the company has now paid a cash dividend for every single quarter since our listing in March 2007.

Importantly, CCEC secured some financing on two of our LCO2 carriers, which we start to take delivery on next year. The company is also continuing to look at organic methods to improve the trading in our shares and offer shareholders maximum optionality for their investments. This is reflected in a Dividend Reinvestment Plan, DRIP, being offered for the first time in Q2. The results of this quarter allow investors to see what the core drivers are for the company and what they look like. This has also been overshadowed in recent quarters by other developments, such as asset sales or new contracts. As we pivot towards our stated objective and goal of an LNG and gas transportation-focused company, you can see clearly how the company is performing. Our Head of Commercial will guide us through the key company drivers and interesting sector dynamics within the LNG market later on.

I now hand over to Jerry Kalogiratos, our Chief Executive Officer, to take us through the first financial highlights.

Speaker 3

Good morning to everyone who's joined today. The window we started the second quarter of 2025 fully reflects all of the teams that have been deployed under the respective long-term charters. Unlike previous quarters, we do not have any container vessels. This is quite an indicative quarter in terms of the earnings generation of our fleet at this stage, coming up, of course, to the expansion of our asset base within the nuclear and LNG and some gas vessels that start coming from the first quarter of 2026. Almost $2.3 billion in this numeral, the dividend payout remains a core component of the company's value proposition to shareholders. Since that dividend we pay on August 8, makes this quarter the 73% of what the company has been paid.

Moving now to line 7, our cash position, which continues to provide the company with strong power, stood at a total of $357 million as of the end of the quarter. The balance sheet is strong, which is important, and we've arranged the next schedule of fees to be reviewed next year. This is a little bit more to report here. An investor will remember 80% of our housing cost rates in the second half of 2025. We'll continue to improve that on the financing of our new groups on order. We'll look a little more deeply at that on Friday. We have the group financing for two of the LCO2 carriers that will be delivered to us in 2026. The financing amount is approximately $51 million per vessel.

We provide for a decreased advance amount up to $58.7 million at the lower margin if any of the vessels secure period deployment three years or longer. We're also making progression financing of several of our new groups on order with the exception of a quarter reserve in this list. Moving on to slide 10, we have a target duration of 7.1 years across the fleet and our LNG fleet showcasing a charter backlog of three years of the same period and $2.7 billion of contract revenue. We're 180 years involved with our LNG fleet in what has become including even more active in the market and looking for that employment structure for any of them. We could look at that later on during the call. We will look to finally expand that charter book as we work towards fixing the attendant level for the remaining assets of the fleet.

Moving now to slide 11 and looking at the contracted revenue and risks in more detail. Even though it's no material change from the first quarter, but worth highlighting the counterparty diversity that our chartering cost formula offers. For example, when it comes to the capital, no single counterparty represents more than 20% of the $3 billion contracted revenue by law. This diversity provides the company with a strong framework to build our gas transportation portfolio further with a mix of existing corporate relationships and new customers. Let's say, as we say to now, a quick look at our newbuild count as proper and our expectations with regard to its financing and try to try more detail as well. As for minorities, which provide the solid buffer for the business. Our numeric program of $2.3 million per million, who have advanced by quarter length to the tune of $139 million.

This program with two vessels financing we discussed earlier, and assuming 70% debt financing will be a good use of LNG carriers and 50% of the other gas vessels, we estimate the total new debt financed from these vessels to amount to approximately $1.6 billion. That will leave us with a net equity inflow of $132 million, slightly less total that is without taking into account capital generation from our existing fleet. I would like to turn now, the floor over to our Chief Commercial Officer, Nikos Tripodakis, who will run you through a bit of the board of the plans. Before I do, I will answer your questions and let the recording begin.

Speaker 0

Thank you, Jerry, and good morning or afternoon, everybody. Q2 has shown positive signs both on the supply and on the demand side for the energy trade. Still, on the demand side, one of the most positive signs has been the significant number of new LNG SPAs signed. This has been true not only for the second quarter, but throughout the year so far, since the Trump administration took office in late January. Approximately 27 million tons of LNG have been sold under SPAs since January, with around 25 of those in Q2 alone. This complemented a historical average per quarter of around 12 million tons, indicating the scale and the pace of this new LNG signing activity.

Moreover, still on the demand side, Q2 has seen a significant uptick in mid and long-term tenders and requirements for various deliveries from 2026 all the way to 2028, with nine tenders running simultaneously at some point in Q2. In summary, the increase in LNG SPAs concluded, as well as freight requirements in Q2, indicates that demand both for LNG as a product and for LNG freight has remained very strong. Moving over to the supply side, a similar story of positive signs prevails. On the supply side, we had an order of two post-bid records, which could lead to a fast segmented rebalancing. The first one is a record pace at which vessels have been removed from the fleet in Q2 and throughout the year. The second one is a record low number of newbuild orders placed so far this year.

The combination of this record high removal and record low ordering is only a positive towards a quicker relaxing of the market. To focus on the revenue side of slide 15, which shows the total number of vessels scrapped per year, we can see that another four vessels were removed in this year. That is the total number of LNG carrier demolitions in 2025 to 10, surpassing the previous all-time high full-year record of eight vessels scrapped in 2024. There are rumors of an addition of two older LNG carriers being under advanced customs for removal. Staying on the same slide, the gap on the left is reflected with the commercial pressure on the older and lower technology comments. The diagram on the right shows the trend of increasing idle older vessels, with the percentage of idle steamships around 17%.

Given that the majority of the remaining 83% still operates under long-term charters, which are set to expire in the following years, this trend can be thought of as representing a pipeline of future vessels to be scrapped. Vessels are not really good at the scrap yard, but they're almost the limited option after a sustained period of idleness or limited time for a costly special survey count. Indeed, some analysts expect as many other older vessels to be exited in the LNG fleet each year from now until 2030. Though that number might end up being simplistic, the trend set in 2025 is very strong and set to continue. Moving now to the other major supply side development, we will look at slide 16.

As you can see, there has been only one firm order in Q2, which means the total number of orders in 2025 year to date is just four. This compares with 58 orders in the first half of 2024. To put things further in perspective, the only first half of a single year that has seen fewer orders over the past 15 years was 2020, at the peak of the global pandemic, when a universal lockdown was being put in. In terms of rebalancing a currently well-supplied market, this provides another positive data point for the energy sector. The movable fleet range for a large energy carrier now stands at just below 44%, reflecting the very rapid slowing of new energy orders, especially since October 2024.

Generally, the run rate of total orders data over the past 12 months has slowed to fewer than 20, and as the dark blue bars show, there have been several individual months where no new energy orders were made. This is an encouraging setup for the industry. Participants like ourselves, feeling the SDA development we have seen in the past six months, and also the lead time for ordering energy vessel delivery remains between three and four years. I'll now turn to our summary of slide 17. This slide graphically shows where Capital Clean Energy Carriers Corp. believes the energy market is currently positioned, and it's an updated version of the same slide we used for Q1's call. An inflection point for the energy market between supply and demand is still forecast in 2023.

In our view, there is one key trend that could potentially bring the inflection point total forward, and that is the acceleration of steel vessel removals. Moreover, there are two other trends that increase the magnitude of how undersupplied the market is beyond that inflection point, and those are the very strong energy supply growth and the absence of new energy stream orders. In any case, Capital Clean Energy Carriers Corp. is ideally positioned to benefit with open fleet positions into 2026 and 2027 to what we believe will be a strengthening market both in terms of long-term time shuttle development and industry dynamics. I will end the presentation by Jerry Kalogiratos for a summary of Q2 and the company positioning going forward. Focusing on the vessels and the future fleet on slide 14, providing opportunities to lock down for Capital Clean Energy Carriers Corp. as our direction going forward.

We continue to be opportunistic about fixing long-term deployment for four outstanding LNG carriers, and there are increasingly few available LNG newbuilds available at the time when we see growing activity in the routine industry with the development of SDA and excitement that FID is being taken, as described earlier by Nikos Tripodakis. Ten specialized gas carriers are complementary to our LNG operation and leverage the energy transition. Continuously asked at the end of the next decade, but provides optionality for Capital Clean Energy Carriers Corp. moving forward. In short, in all parts of the Capital Clean Energy Carriers Corp. fleet, we have focused and are executing on its own strategy in each specific area. Now, here is the final slide. Capital Clean Energy Carriers Corp. has continued delivering the objectives we set out, and the scale of that delivery has been particularly strong in the first half of 2025.

The unrestricted wind and sea timeline has seen overall positive development during the second quarter. The originations and extensions during Q1. Importantly, this company has and will continue to adapt and forward a well-done clean delivering in a low-limit freight cost portfolio to our customers with a level environmental footprint. Both pre- and after extensions, given the commercial requirements of our charters and the emerging regulatory environment when it comes to carbon and methane emissions. Moving forward, Capital Clean Energy Carriers Corp. is expected to control the resources and reduce pro-carbon needs that develop with regard to the home delivery, in addition to the other 10 mobile gas vessels. The company has considerable contract coverage over several years already, and strong visibility on cash flows, while we believe that we have an advantage over many of our peers in only being invested in the limited generation gas vessels.

I will now pass it back to the operator.

Speaker 1

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press *1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press *2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the * keys. Our first question will come from Alexander Bidwell with Webber Research and Advisory.

Thank you. Thank you for the time, guys. Taking a look at the coming wave of merchant capacity, could you walk us through how these increased merchant volumes may impact the carrier market in comparison to volumes tied to long-term agreements? Do these larger merchant books have a potential to drive carrier demand more than fixed SPAs?

Speaker 0

Yes, that's a good question. The main story here is that most of those contracted volumes in the SPAs we're seeing and also these projects that have been taking FID one after the other so far this year do not have secure shipping on the back of those FIDs or the SPAs. You're looking at an order book that has 16 or 17 vessels available still left all the way to 2029 and demand for approximately, under conservative assumptions, you know, one and a half vessels per MTPA, you're looking at a demand for around 300 ships. That's the number last time. Obviously, there's still yard capacity for 2029, and there is also yard capacity for 2028. Given the 50% growth in the LNG market commodity side, there is simply not enough freight to cover that 2027 or 2028 onwards. That's the thesis.

Thank you for the call. Taking a look at the multi-gas carriers and the LCO2 carriers with delivery just around the corner in 2026, how are near-term employment prospects looking, and what sort of conversations are you having around longer-term fixtures as well as LCO2 transportation?

Yeah, it's a third question. The LCO2 market is obviously a new space for us, but we have been looking at it. What we did realize recently is that it's very different from the LNG space. In the LNG space, you fix a vessel two years in advance and for much longer periods, whereas this multi-gas carrier market, whether it's CO2, LPG, or ammonia, the fixing window is much closer to the delivery timing. I would say in these markets, we expect within the next three to four months to have more concrete commercial discussions, because basically the commentary and what we've seen so far is that it's too far out to discuss these vessels on a firm basis. Both the time chartered period and the timeframe for fixing those ships is just shorter compared to LNG. Now we are seven months or six months prior to the first delivery.

Within the next quarter, we will have something to update on this.

Thank you very much. I'll turn it back over.

Speaker 1

Thank you. Our next question comes from Omar Nokta with Jefferies.

Thank you. Hey, guys, thanks for the update. I actually just want to maybe follow up on the last question on the MGCs and the CO2 carriers. Obviously, you mentioned the window gets shorter in terms of fixing. Is the plan, do you think, still to deploy them on, say, medium-term or long-term contracts, or do you think these will ultimately be destined for spot trading?

Speaker 0

Hi, Omar. It's Jerry. I think we will be quite opportunistic about the fixing of the ships, and we'll be also driven by the opportunity, of course. As far as the LCO2 carriers, we want to be mindful of positioning the vessels to get into the LCO2 business in the medium to long run. Unless it's LCO2 business, I don't think we will go for very long-term on those ships. We just want to make sure that we have potentially spot to medium term, call it up to two or three years, in order to be able to take on projects from 2028, 2029 onwards. There is also a bundle of customers, charterers that have a portfolio of products. Some of them, for example, trade LPG, gray ammonia. They are looking to take on volumes of blue ammonia and then also have LCO2 business.

This would be an ideal customer because they can take the ship for 5, 10 years, and they can trade it around their different products. This vessel is ideal. It has the ability to take on all these cargos. Now, with regard to the MGCs, slightly different, you have, let's say, a short to medium-term time charter structure and not so liquid spot market. There, we will take a view on the market. Depending on the opportunity, we might fix a shorter term, which is more likely at this point. When I say shorter term, six months to a year. We are also very focused on some longer-term opportunities that are being discussed. As Nikos said, hopefully, over the next quarter or two, we can update you on that. It might be a mix of, let's say, shorter-term charters as well as longer term.

Thanks, Jerry. That was very helpful and very detailed. Appreciate that, Carter. Maybe just kind of a bigger picture, you know, we've seen sentiment in the LNG sector here, maybe over the past week, ever since the US-EU deal, with the sentiment's gotten better. Have you, at least in terms of the equities and investor interest, seen any of that optimism thus far translate into the charter markets? Has it prompted any more discussions for charters, or is it still too early?

Yeah, this debate between the U.S. and European Union obviously is a good thing. Now, you know, it remains to be seen how exactly it will play out because we're talking about a massive increase in terms of purchases from the European Union towards from the U.S. LNG. The point is it has certainly had some ripple effect on shipping, as we have seen multiple term requirements coming out and surfacing over the past month, month and a half. We mentioned in the presentation that there are nine requirements live simultaneously in Q2. Right now, there are three, multiple of them, and some of them are from the U.S. All I can share at this stage is that we are involved in those actively. Yes, it has affected the sentiment and the demand for LNG shipping.

We expect that, you know, it will continue to do so, especially as we see more and more LNG SPAs signed from European counterparties like ENI, like the Germans and all that, which have surfaced in the news over the past two weeks. Mentioning these companies just to complement this last comment, we have seen a long-term requirement from these companies on the back of those volumes signed.

Okay, interesting. Thanks. We'll look forward to seeing how those develop. Appreciate the insights, Nikos.

Speaker 1

Again, that is *1 if you would like to ask a question. We'll go next to Liam Burke with B. Riley Securities.

Thank you. Hi, Jerry. Jerry, it looks like you have a significant first-mover advantage on the medium gas carriers and the liquid CO2. Do you anticipate any followers or any kind of growth in the order book anytime soon?

Speaker 0

The order book there is only a handful of vessels, which are vessels as well as some vessels that are on order for the Northern Lights project. There is a lot of activity in the background and a number of discussions ongoing for a number of different types of liquid CO2 carriers and different sizes, which is all very encouraging. If I had to guess, I think we will definitely see more ordering in that direction over the next 6 to 12 months, as a lot of these projects are reaching the level of maturity needed to result into orders.

Overall, I think what we see is that if you were to look at the projects that are maturing or under development today, compared to the shipping needs that this would generate, and then you look at shipyard capacity, I think that's going to be a very tight market because, as we have discussed in previous calls, these types of vessels are quite sophisticated. They have sophisticated equipment, but more importantly, the special steel that is required to build tanks to carry liquid CO2, and their processing is not readily available. There's only a limited number of subcontractors, especially in Korea, but also in China. That would mean that the capacity of shipyards to generate or to produce ships as they're required will be quite restricted.

We believe that if projects continue to mature at current volumes, we will have a bit of a tight market there in three or four years from now. Again, we're still quite a bit far away from having full visibility.

Thank you, Jerry. On the financing of the first two vessels, do you anticipate being able to finance the newbuild as they come online? Was it an easy process, or is this something where it's a newer asset and lenders are a little hesitant?

I think it was an easy process. If anything, I would say they were quite popular given their potential to trade in this part of the economy, the energy transition part of the economy. I have to stress also the fact that they have the optionality to trade in the normal hydrocarbon and gray ammonia market. These vessels have the perfect flexibility. They were quite popular with financiers. As I said in the call, I expect that we will have more news in the coming months in this direction, as well as on other new building vessels. Given the current financing market and the prospect of these vessels, as well as LNG carriers, I don't foresee any issues with the financing.

Great. Thank you, Jerry.

Thank you.

Speaker 1

Thank you. This does actually conclude our question and answer session. I would like to turn the floor back over to our CEO for closing comments.

Speaker 0

Thank you, and thank you everyone for dialing in today.

Speaker 1

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.