Navigator Holdings - Earnings Call - Q1 2020

Transcript

Speaker 0

Thank you for standing by, ladies and gentlemen, and welcome to the Navigator Holdings Conference Call on the First Quarter twenty twenty Financial Results. We have with us Mr. David Butters, Executive Chairman Mr. Harry Deans, Chief Executive Officer Mr. Niall Nolan, Chief Financial Officer and Mr.

Oyvind Lindemann, Chief Commercial Officer. At this time, all participants are in a listen only mode. I must advise you that this conference is being recorded today. And I now pass the floor to one of your speakers, Mr. Butters.

Please go ahead, sir.

Speaker 1

Thank you, and good morning, everyone, and welcome to Navigator's first quarter twenty twenty earnings call. As we conduct today's conference call, we'll be making various forward looking statements. These statements include, but not limited to, future expectations, plans and prospects from both a financial and operational perspective. These forward looking statements 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 forecasts.

Additional information about these factors and assumptions are included in our annual and quarterly reports filed with the Securities and Exchange Commission. Now we are a few weeks later than normal in reporting our first quarter twenty twenty results. But considering that we only filed our twenty nineteen twenty F about twenty days ago, we believe that the coordination with our new accounting team at E and Y is improving, and we will be able to progress from here. Now many of you know that for the last eighteen months or so, we have been talking about Navigators Road to 2020. We believe and still believe that during 2020, our operational fate would improve dramatically as various infrastructure projects would be completed and lead to a significant pickup in our export volumes on our specialized vessels.

Those projects are namely the Mariner East two and Mariner East two x project along the Delaware River, the completion of the Repauno, the new Repauno export terminal again on the Delaware River, our important ethylene export terminal in the joint venture with Enterprise in the Gulf Of Mexico along the Houston Ship Channel and lastly, the important West Coast Canada and British Columbia export terminal that is expected to be completed next year. Now, unfortunately, shortly after we exited 2019 and into 2020, we were hijacked by the insidious and unexpected novel coronavirus, which shut down global trade and slowed down but did not stop our voyage. Ironically, we, the victims of the hijacked, are now wearing the face masks. But our team will outline this morning why we believe and have hope that we are now back on the road, albeit somewhat delayed. To give us a better insight in all of that, we will have speaking this morning, Harry Dean, our Chief Executive Officer and Niall Nolan, our Chief Financial Officer and Oyvind Lindeman, our Chief Commercial Officer.

So why don't we have Harry begin and give us an outline of what has happened over the last quarter. Harry?

Speaker 2

Thank you, David, and good morning to everybody on the call. I hope you're all well and keeping safe. It's hard to believe that we are now entering our eleventh week of lockdown. Our offices around the world remain closed, and our business is now run remotely from numerous home offices in several countries around the globe. This is a new normal.

Remote working with all it entails has become a new modus operandi. I'm pleased to say our investment in robust information technology platforms and systems has paid off, our team to interact seamlessly with each other, our customers and our vessels. Thankfully, the COVID-nineteen pandemic shows some early signs of abating. China and several other economies, especially in Southeast Asia have reemerged from their lockdowns and have restarted manufacturing, thus providing a much needed stimulus for the global economy. North America and Europe, albeit a few months behind, are also beginning to cautiously ease the draconian lockdown measures and to talk about plans for phased opening up.

When this happens, it should jumpstart both production and consumer demand. It's indeed early days on the road to recovery. However, the gradual lifting of lockdown will benefit the global economy, which has been severely buffeted by the effects of the pandemic. In May, we have witnessed the resurgence of a healthy ethylene arbitrage to Asia with differentials doubling from record all time lows in the month. We've also seen an uptick in both propylene and butadiene export cargoes as producers attempt to balance local supply and demand with global export opportunities to maintain high cracker utilization rates.

In anticipation of the restrictions being lifted by national governments, Navigator Gas is working hard on a phased return to work plan for our onshore personnel. Now this plan is not entirely straightforward as it must respect both social distancing guidelines and other measures. So we will only return when legislation allows and when the company believes it is safe to do so. Safe, reliable and efficient operations are at the very heart of what we do as a company. Our vessels continue to safely ply their trade, traversing the world's oceans with much needed cargoes to keep the global economy ticking over.

Single handedly, seafarers have kept global trade moving and in so doing, feed, clothed and warmed humanity. This has come at some considerable personal cost as the ubiquitous travel restrictions and quarantine regulations, together with the suspension or heavy curtailment of many flight routes has forced the company and the third party managers to temporarily suspend all crew changes until it was safe and feasible to do so. I'm very pleased to report that in the last few weeks, we have carefully, with meticulous planning, managed to relieve almost three dozen crew from around 10 of our vessels. This is real progress. However, with many more crew waiting for well deserved overdue leave, this unfortunately is currently the exception rather than the rule.

Again, I want to pass on my heartfelt thanks to all our officers and crew for their professionalism, their dedication and their sheer determination to keep product flowing and people safe during the current crisis. Talking about safety, would be remiss of me if I didn't say a big, big thank you to all our in house managed vessels, which collectively have now gone well over five forty eight days without a lost time incident. To our fleet, I say, keep looking after each other. Well done and stay safe. Our teams continue to work with the flag states, the classification societies, the various inspection institutions and of course our charters to extend the validity of current inspections and certificates or to postpone or alter mandatory dry dockings and inspections as they become due.

This pragmatic approach, coupled with the additional measures our ports of call have put in place, has ensured that operations continue without any major disruptions at comparable levels to 2019. Inevitably, some routine maintenance work has had to be postponed as current restrictions have prevented qualified third party personnel from boarding the vessels. I'm very pleased to announce that our Morgan's Point joint venture ethylene terminal is now 95% sold out with another take or pay offtake agreement being signed in April. The terminal is now fully functional and throughput is ramping up with the monthly throughput expected to exceed 45,000 tons in June. With this ramp up, we expect to see improving financial returns from our terminal and see them filter through to our bottom line.

As is evidenced from the photographs in the supplemental information pack, Phase II of our terminal joint venture, which is the construction of the ethylene tank, is progressing safely, on time and on budget. From the internal tank picture, you can get some feel for the huge scale of our cathedral like ethylene storage tank. The tank is on track to be fully operational by the end of the year. Previously, we announced the Lunar Pool with Greater Gas and Pacific Gas, and that is now up and running. Drive operations began in the second quarter with all 14 vessels expected to have joined the Lunar Pool by the end of Q2.

We have high hopes for the pool, which will provide customers with increased flexibility and improved access to ethylene ready vessels. As previously discussed, as the COVID-nineteen pandemic and its economic impacts became apparent, our utilization rates dropped from those achieved in January, running at mid-eighty percent levels in February, March and April, rates last seen in mid-twenty nineteen. It's early days and too early to call it a trend, but our May utilization rates have improved and are expected to reach around the 90% level, which is very encouraging. This is testament to the increasing global economic activity as lockdown measures are eased, coupled with improving arbitrage activities and the ramping up of the throughput of our Morgan's Point export terminal. Thankfully, Handysize TCE rates are less volatile than other sectors and have been pretty resilient, with only a marginal 5% reduction in rates at the end of Q1.

As a company, we continue to reduce discretionary spend while minimizing working capital and CapEx and thus preserving cash and liquidity. In the following weeks and months, we will take further steps to increase our liquidity in the markets, more of which will be outlined by Niall in his prepared remarks. Navigator is a robust, resilient and innovative company. Our terminal is now starting to get fully into its stride.

Speaker 0

Ladies and gentlemen, please stand by whilst I reconnect your speaker.

Speaker 3

I think shall take over. Harry was on his last sentence, was just saying that Navigator Gas is a robust, resilient and innovative company, and our terminal is now starting to get fully into its stride, both operationally and financially. And our shipping business is ready and well placed to benefit from the economic upturn when it occurs. And with that, he was going to pass it over to me, but I think he was having power cut issues this morning, the challenges of working from home. So if I may proceed and say that the results of the 2020 show a headline loss of $8,500,000 So this comprises a number of differing factors.

First, this loss includes $3,700,000 of foreign exchange losses, generally as a result of COVID-nineteen, 2,500,000.0 of which relates to noncash movements on our cross currency swap associated with our NOK 600,000,000 bond and 1,200,000.0 associated with revaluation losses relating to a significant weakening of the Indonesian rupiah against the U. S. Dollar. We received Indonesian rupiah from Pertamina for the charter of three of our vessels trading in Indonesia. A significant part of these losses has reversed since March 31 after the markets have absorbed the initial shocks of COVID-nineteen.

Secondly, the quarterly results include a $3,000,000 loss associated with the initial start up operations of the ethylene terminal. And as Harry mentioned, the results for the terminal will improve during the second quarter as throughput volumes through the terminal ramp up. This leaves a loss relating to our vessels for the first quarter twenty twenty in the amount of $1,800,000 compared to a loss of $3,300,000 for the 2019. Operating revenue for the vessels was $81,300,000 for the first three months, an increase of $5,200,000 from the $76,100,000 generated during the 2019. This increase was partly as a result of vessel utilization increasing from 84.8% for the first quarter of last year to 89% for this most recent quarter, generating an additional $3,000,000 of revenue.

As Harry mentioned, January's utilization was 97.3% before COVID-nineteen negatively impacted February and March, with utilization levels reducing to around 85% for those months. Average charter rates fell back during the quarter to an average of $20,855 per day or $634,350 per month compared to $21,782 per day for the first quarter of last year. However, this first quarter twenty twenty charter rate is an increase of 3.2% from the $20,200 per day achieved 2019. During the first quarter, the company undertook only one drydocking, principally as a result of yard closures associated with the impacts of COVID-nineteen. The company has received the necessary dispensations from the relevant authorities for delaying drydockings in these unusual times.

We were planning a total of 10 dry dockings during 2020 at a provisional cost of approximately $12,200,000 but at least three of these may be pushed back into 2021 depending on the impact and longevity of the effects of COVID-nineteen. We currently have one vessel, Navigator Magellan, in dry dock in China and another scheduled for July. Vessel operating expenses were $27,400,000 for the first quarter or $7,925 per vessel per day, a decrease of 7% from the $29,500,000 or $8,618 per vessel per day incurred in the comparative period of 2019. General and admin costs increased by 25.6% to $6,000,000 for the three months ended March 2020. This increase primarily relates to uncrystallized foreign exchange losses on the revaluation of the Indonesian rupiah bank account at March 31, without which the increase in general and administrative costs would be 1%.

Since the March, the Indonesian rupiah has regained lost ground against the U. S. Dollar. And as of yesterday, this $1,200,000 loss at March 31 has reduced by about $750,000 Interest for the first quarter was $12,400,000 a $1,800,000 a 1.8% increase or $200,000 from the interest incurred in the 2019. This small increase is as a result of expensing interest relating to the ethylene terminal, whereas for the first quarter of last year, interest associated with the terminal's construction was capitalized.

However, the reduction in U. S. LIBOR and most of our debt has in a large part offset this additional interest expense. The ethylene terminal generated a loss of $3,000,000 during the quarter, which is generally associated with the initial start up of operations. The terminal began operations in December.

And as Harry mentioned and Euven will discuss later, the Ethylene terminal is now fully operational with throughput volumes ramping up. As I mentioned at the outset, COVID-nineteen related foreign exchange losses accounted for $3,700,000 The initial start up costs of the operations of the terminal cost $3,000,000 and the vessels made a loss of $1,800,000 taking the total to 8,500,000 loss for the quarter or $0.14 per share against a loss of $3,300,000 or $06 per share for the 2019. Cash stood at $51,000,000 at March 31 against a required liquidity covenant of $43,700,000 In addition, the company had a restricted cash balance of $15,200,000 providing cash collateral against the unrealized losses on its cross currency interest rate swap. The company was in compliance with all financial covenants on all its debt facilities at 03/31/2020. However, in the event that the Norwegian kroner weakens further against the U.

S. Dollar, additional cash security would be required to be deposited into the collateral account, thus providing less headroom on our liquidity maintenance covenant. That said, the exchange rate between the Norwegian kroner and the U. S. Dollar yesterday enables the cash the required cash collateral to be reduced to $9,300,000 from the March 31 requirement of $15,200,000 We are also seeking to provide additional liquidity headroom by considering the refinancing of one of our vessel loan facilities, which could provide an additional cash draw of approximately $30,000,000 and drawing down on the terminal credit facility, which could provide a further $40,000,000 We did not make any capital contributions to the export terminal joint venture during the 2020.

However, since the quarter end, we did contribute $7,500,000 to the JV and financed this contribution by an initial drawdown on the company's terminal credit facility. We've therefore now contributed an aggregate $133,000,000 of the total anticipated cost of $150,000,000 of the terminal. The terminal credit facility is in the amount of $75,000,000 And although the banks have only formally approved a total available amount of $36,000,000 thus far, we believe that as the ethylene terminal is now approximately 95% contracted, the full $75,000,000 will be available, against which we have utilized $7,000,000 and have only $17,000,000 of capital contributions to the joint venture to make over the course of the next six to twelve months. The balancing amount would increase our cash position and our liquidity covenant headroom. At March 31, total debt stood at $871,400,000 Although the company does not have any debt facilities maturing during 2020, it does have a $100,000,000 Norwegian bond maturing in February 2021, thereby requiring their liability to be moved from the long term liabilities to current liabilities in our balance sheet for the first time.

As we referred to last quarter, we had anticipated refinancing this bond with a like for like bond prior to the COVID-nineteen outbreak. However, in the event the capital markets do not sufficiently return to enable a refinancing of this bond in the coming months, we are considering alternatives, which include either an extension to the maturity or a capital raise in the form of a sale leaseback for a number of our vessels. And with that, thank you, and I will hand you over to Ivan.

Speaker 4

Thank you, Nei. The Clarksons twelve month time charter assessment for semi refrigerated vessels increased from $645,000 a month to $695,000 a month in January, reflecting an encouraging start of the year with utilization, as you've heard, at ninety seven percent. At the January, it became apparent that the COVID-nineteen was something more than a localized issue in Wuhan. The World Health Organization declared it to be an emergency of international concern on the January 30 and categorized it as on a pandemic on the March 11. Far Eastern countries went into lockdown, which was swiftly followed by the rest of the world.

As we all know, economic activity fell drastically impacting demand for shipping services. As you have heard from Harry and I, our utilization reduced to the mid-eighty percent levels for February and March and April, and the Clarksons assessment declined 5% to $665,000 a month at the end of the quarter. Anticized LPG demand remained largely unaffected as the key source of demand for this product is relatively inelastic associated with domestic usage for heating and cooking. This demand is less affected by commodity substitutes and price volatility, which in comparison influences the larger gas carriers in a more profound way. For example, when naphtha is sufficiently price competitive compared to LPG, the petrochemical industry will evaluate the cracker economics and take decisions whether or not to switch feedstocks.

Such substitution effect has been evident during the recent period with low oil price. The majority of LPG being exported from The U. S. Goes long haul on larger vessels. And fluctuations in the amount of exports, either due to price arbitrage or seasonal domestic demand, has a large impact on this very large gas carrier segment.

Handysize vessels, however, are catering for regional distribution and is only moving a fraction of the annual 40,000,000 tonne LPG exports from The U. S. During the first quarter, our vessels transported only 100,000 tonnes from The U. S. For local distribution.

And this 100,000 tonnes is only 10% of the LPG volume Navigator carried on our vessels elsewhere in the world during the same period. Not surprisingly, global petrochemical demand fell during the COVID period due to less manufacturing and less consumption. Some pockets of the industry have been doing well though, with increasing demand for food plastics for food packaging and personal protection equipment such as we see every day, face masks. Generally, European and American producers facing low domestic demand are continuously evaluating whether to reduce the operating rates at their crackers or export excess petrochemicals. Many are opting for the latter.

We noticed during the month of May, a pickup in deep sea exports of butadiene from Europe to Asia and ethylene and propylene from America to Asia on handysize vessels. Logic would dictate that the ongoing easing of lockdown regulations are slowly encouraging demand. Price arbitrage of ethylene, for example, were at an all time low in Asia during the month of April at three hundred dollars a tonne delivered, but today has now more than doubled, reaching $700 a tonne for June deliveries. This is encouraging tonnes for exports. And this ties well in with the ramping up of the Morgans Point ethylene terminal exports.

Of the Targa and Enterprise estimated first half twenty twenty ethylene exports, more than half of the volume will be handled on Navigator owned or controlled vessels. Asia demand is also pulling in propylene from The U. S. And at the time of writing, we have two of our vessels carrying this cargo from U. S.

To Asia. It is the first time that this trade has taken place in more than a decade and showing some green shoots. As a result of petrochemical demand slowly picking up, our utilization, as you heard, is regaining lost ground and we expect to reach the 90% level during the month of May. 12 out of the 19 spot vessels we have are currently employed in deep sea petrochemical voyages, and six out of the seven available handysize ethylene carriers are trading ethylene. There are currently 12 handysize ethylene vessels operating in the Luna Pool, with the two remaining ships expected to enter during the month of June.

This book creates a critical mass for us to better service our customers' needs. The petrochemical ocean going market is structured and oriented for voyage charters and spot opportunities, which creates a benefit in deploying a larger fleet to optimize and add value to the client's logistics. All in all, we are seeing green shoots in terms of ramping up of deep sea petrochemical trades, particularly for ethylene, and Handysize LPG is somewhat sheltered due to the nature of its demand and its lower reliance on U. S. LPG exports.

However, the COVID pandemic and its impact on our markets remain uncertain as to how it will affect the near term. With that, I will thank you, and I will hand you back to David.

Speaker 1

Yes. I think we can now open up the call for a Q and A period, please.

Speaker 0

Thank you very much, sir. Our first question is from Ben Nolan from Stifel. Please go ahead.

Speaker 5

Yes, good morning or afternoon. And it's good to hear those comments from Oeyvind at the end there about utilization picking up and more petchems. Sort of along those lines, I thought it was interesting that you signed the last contract for the ethylene terminal in April when really everything was super locked out. Could you maybe talk through what your customers are saying or how maybe conversations are going about potential additional contracts for future expansion or some of those kind of things about sort of the longer term outlook of customers with respect to the ethylene?

Speaker 1

Oyvind, why don't you handle that one?

Speaker 4

Yes. From the customer perspective, Ben, literally, it's a rate because of the dramatic increase of ethylene delivered price in Asia that we've seen over the last three, four weeks. So there's a run on the various ethylene terminals, which there are two of in U. S, Dubai. So at the moment, U.

S. Ethylene prices still remain very attractive, competitively attractive at around $250 a tonne or less. And people are trying to buy it at $700 plus in Asia. So this arbitrage is really encouraging spot trades. It's obviously helpful for the existing contractual customers at the terminal to realize and crystallize gains.

So literally, the terminal any available terminal space is being investigated for ethylene exports for the month of June. And that is why also Harry mentioned early that we anticipate June to be quite, as per estimates, around the 45,000, 50,000 tonnes of exports of ethylene in June. So the question is, is this the start of a bull run on ethylene for the over the summer? Time will tell, but Asia is easing up from lockdown, restarting manufacturing, demand going up or back to slowly to where it was is encouraging. So the terminal operators optimize all the available jetty space to export as much as they can.

The U. S. Have the excess volume available in the various storage caverns. It's a matter of getting it through the terminal onto the ships and off to Asia. I don't know whether that answers your question.

Speaker 5

No, that was very helpful. Go ahead there.

Speaker 1

Let me just add one thing. I think you made a very important point. Right smack in the middle of a shutdown globally, we had a customer sign up for a long term 200,000 tonnes a year, which says something. It says a hell of a lot as far as I'm concerned. But let me just step back and reflect that in January, I was in Houston talking to our counterparts on the terminal.

And the question and the conversation wasn't about when we were going to expand the terminal, but it was how. What configuration? How quickly could we do it? And the need for it. Of course, three weeks later, we're in the midst of this pandemic and all that conversation is off the table.

But the attractiveness of the expansion is still outstanding because the cost to double that size is a fraction of what the original cost simply because you don't need a lot of the extra equipment there. You don't need additional storage because the storage that's being built right now can accommodate a significant expansion, a doubling of the size. So that conversation, of course, is off the table at the moment. But I do believe that if we have any kind of resolution of this pandemic, we will see that conversation back on the table and move forward on it.

Speaker 2

That's helpful. And Ben, it's Harry here. Just from my perspective, even before we spend another zero over and above the CapEx that we've committed to the terminal, I think you've heard me say several times, we should be able to squeeze the assets a bit more. And typically, engineers love shiny things, they build excess capacity into the designs. So I'll be disappointed if we can squeeze at least another 100,000 tonnes throughput through our existing terminal with what we've got once the tank is up and running.

So I think there's an inbuilt expansion already priced into the CapEx before we have to spend more money on an additional low cost expansion.

Speaker 5

Interesting. Yes. That's So sort of following on with that, you're still under construction for the storage tank. Has all of this going on changed any of the timing there? Or could you maybe update us on when you expect the storage tanks to be operational?

Speaker 2

Yes. No, I can do that, David. Yes, we expect the storage tank to be operational towards the end of the year, sometime late November, early December. COVID hasn't affected it in any shape or form.

Speaker 5

Okay. That's good to hear. And then last, and I'll turn it over. You guys have, by my account, a handful of vessels that are coming off contracts. Some of them were shorter term, but I think there were some ethane contracts in there as well.

Given sort of the commentary that you've outlined on ethylene, is there a good appetite by to charter ships on a longer term basis right now? Or is that something that you're looking to do?

Speaker 4

Just curious there. So I mean, the our Luna pool has just been operational for a month or two months, including May. So I think we will get a lot of benefit from that in terms of critical mass and catering for the customer needs in terms of spot activities and contractor for placements and that sort of stuff associated to petrochemical cargoes. So I think we need to get that straightened out and realize benefits from the pool before we talk about consolidating further.

Speaker 5

Okay. Incidentally and I I was really thinking about some of the the midsized ethane carriers.

Speaker 4

I think

Speaker 5

one comes off contract next month. Are are those in the pool?

Speaker 4

They are not. The midsized ships are which fits the box for Navigator in terms of being the most flexible ships. So they are large. They bring economies of scale for longer voyages. They could do propylene ethylene, ethane, LPG, all those cargoes.

So in terms of whether they will play a role with the Morgan's Point ethylene terminal, I think so, for sure. They're quite large. If anybody builds up 20,000 tonnes of ethylene, it will be a world record. So let's see.

Speaker 5

Okay, great. Turn it over. Thanks, Ken.

Speaker 0

Our next question is from the line of Randy Giveans from Jefferies.

Speaker 6

So you mentioned that utilization, at start of the year, great, 97%, fell down to maybe 85% February, most of March. Now I guess we're twothree through the second quarter. So I was just trying to get a sense for utilization and kind of TCE rates compared to that first quarter just to get a trend of revenue quarter to quarter.

Speaker 4

As we talked on the call, Randy, the mid-80s utilization level continued into April. And then in May, we expect it to reach the 90% mark. It's a bit early to see what it is for June yet, but May certainly looks to break the 90% mark, which is encouraging considering where we've been and what all the havoc that this pandemic has caused.

Speaker 6

Sure. And then on the rate side?

Speaker 4

The rate the Clarkson twelve month time charter rates are at the end of third quarter, they were at 600 sorry, first quarter, dollars 665,000 a month. And I think last week, they were down at six and fifteen thousand dollars which is not a big decline considering comparing our segment to other segments. So that's where the independent brokers are setting the market to be, at least on a time charter level. So it's not we're not seeing a complete cliff time, but utilization is going up, which should be quite positive.

Speaker 6

Got it. Okay. All right. And then I guess, secondly, turning to the joint venture. Obviously, congrats on getting that 95% contracted on the valuing side.

How many cargoes have been exported from that ethylene terminal so far? And have all those gone on Navigator ships? And then secondly, it looks like the share results for the JV was a $3,000,000 loss during the first quarter. What are your expectations for maybe second quarter, third quarter kind of run rate? When do you expect that to be positive?

And by how much?

Speaker 4

So the volume question, can take. So first half estimate from January to June. Terminal is expecting to do 110,000 tonnes. There was about 40,000 tonnes, 45,000 tonnes during first quarter. And then sort of May and into June, we're looking at the remainder.

So it's a big ramp up from mid May and into June, particularly because the arbitrage also is encouraging the trade. So of that volume from the Enterprise Terminal, we've done about 52% of that on Navigatorships, so just about half.

Speaker 6

Okay.

Speaker 3

On the performance, you're right, we did have a loss of $3,000,000 for Q1. April was pretty much of the same vintage May as the volumes are ramping up and June will be fully at capacity, think, or at least pre tank capacity. So I would expect Q2 maybe around the breakeven, maybe as much as $1,000,000 loss, but that would be the extent of it. And then Q3, which is also pre tank would be or any period thereafter pre tank would be about 1,000,000 point pounds of a profit. And post tank, we've already suggested that the EBITDA would be around $25,000,000 $24,000,000 $25,000,000 which is, whatever, 6,000,000 a

Speaker 6

quarter. Perfect. Good deal. Well, hey, thanks for the color and keep up the good work. You all stay safe.

Speaker 3

Thanks, Ed.

Speaker 0

Our next question is from Sean Morgan from Evercore. Please go ahead.

Speaker 5

Hey, guys. So I was wondering, you mentioned that the deep sea petrochemical trade, especially going to the Far East, has been fairly resilient despite COVID and despite a lot of the trade issues that are going on with China. So I was wondering, if you look at some other markets like crude and even large LPG and LNG, China has been kind of shadow banning a lot of imports from U. S. Suppliers, but it seems like some of the propylene, butadiene and some of the products that you guys carry on the smaller vessels has been relatively unfazed by that.

So I was wondering if you just had any insights as to why that was. It's just stronger demand that it just supersedes any kind of trade implications? Or how would you sort of look at that?

Speaker 4

Well, the tariff situation on propylene in ethylene and ethane, you can seek to get dispensations under the people and players that based on The U. S. Are swapping and starting our vessels, they, as far as I'm aware, they have these dispensations from China. So they don't they're not facing the tariffs and therefore are equally competitive as products from elsewhere. So that is why some of the products are going from Asia from U.

S. To Asia. It's more also to do with the attractiveness of the price of U. S. Produced petrochemicals because the feedstocks are so cheap.

Therefore, with or without tariffs, they are competitive and they will move because the crackers are running at high operating margins, again, because the feedstock is relatively cheap. And for the Europeans, they are switching we talked about the substitution effect of naphtha over LPG. So that has happened in Europe, whereby more naphtha is being consumed as feedstock. And because you're doing naphtha instead of LPG, lighter feedstock, you get more heavy, so C4 products being butadiene. So suddenly, they have more butadiene than normal.

And with the lower domestic demand in Europe. Therefore, they have excess. And the guy who's going to buy it is in Asia. And Asia, I guess, is two months ahead of the European lockdown and the manufacturing processes and so forth are sort of coming back. And they are buying this excess butadiene from Europe or the propylene from The U.

S. Or the ethylene from The U. S. So that's why we've seen the utilization pick up in the month of May. But that those trades were hard to come by during February, March, April, but they seem to be slowly emerging back now.

Speaker 5

Okay, great. And that's all I have today. So I'm going go ahead and turn it over.

Speaker 0

The next is from Mike Wabow. So

Speaker 2

I wanted to dig in a

Speaker 5

little bit on contracting activity from April. Obviously, it stands out as kind of a data point that kind of runs against the grain. So without getting into too much detail, can you give us some color around the duration and the rate, for lack of a better term, on the business that you guys were able to sign in April relative to the business that underpins the initial investment?

Speaker 3

I think it's exactly the same as the previous ones.

Speaker 5

Identical in terms of the term and returnrate?

Speaker 3

Yes. Oyvind, correct me if I'm wrong, but I believe that to be the case, yes.

Speaker 2

Mike, it's very similar in terms of duration and in terms of pricing take to pay.

Speaker 5

So how should we think about that? Is that a conversation that's been going on since kind of the inception of the terminal itself? Or should we look at that as an indication that despite the volatility that if you guys were to engage in kind of new conversations around either an expansion or tapping into maybe some capacity beyond nameplate, then we would expect similar economics there? Is that a on the run market indication, or is that something that's more of a, like, a legacy price indicator from when you guys started the facility?

Speaker 2

We we have been in the the the joint venture has been in discussions with the counterparty for a while, but they didn't have to sign it. So I think it's it's good sentiment that the counterparty wanted to sign it when we're in the middle of the COVID crisis, and so confident in the for an arbitrage going forward long term. So hopefully, that answers Yes. Your question,

Speaker 5

That's a fair point and certainly positive. In terms of the notion of expanding, that's something we've heard elsewhere in the midstream space, too, around that facility specifically. David, I think you mentioned, obviously, the incremental investment wouldn't be on par with the amount of sunk cost that went into kind of getting the facility up and running in the first place. Can you give us a vague sense of scale around what kind of capital call we could be looking at if you guys were to expand that facility? And obviously, business would be good news for Navigator.

But just trying to get a sense of what because it seems like that would likely overlap with some significant refinancing activity you guys are going be doing in the next eighteen months.

Speaker 1

Sure. Harry, why don't you take that one?

Speaker 2

Yeah. No no problem, Mike. Mike, it's hard to give until you do the actual study, it's hard to give any numbers. But, typically, when you expand the facility that you already have, right, because the civils are already there, all the concrete and the reinforcing has been done, the electricals are there, the pumps are there, the jetties are there, all the infrastructure is there. It's typically a discount on what we'd normally pay for a greenfield site, and it can be anywhere between 5070% of a normal new build.

So all things being equal, once you've sweated the assets to wherever you can get the maximum capacity to, that should be the most logical investment in the industry because you've already sort of pre invested in all those civils and all the underpinning work that's required for the infrastructure, for the tank. Mhmm.

Speaker 5

Okay. So 50% to 70% seems vaguely reasonable. I'm not holding you to it, but just just the sense of scale that seemed that that that's probably the ballpark we should be thinking on a preliminary basis if and what

Speaker 2

Yeah. That's a sort of that's a sort of rough rule of thumb, Mike, that's usually used in in the chemical industry. So

Speaker 0

Our next question is from Jay Mintzmyer from Value Investor.

Speaker 7

Congrats on getting up to 95% on the take or pay. Just digging into that one first. That 95%, is that totally fixed priced? Or is it a percentage, like on a per ton basis, that fluctuates with the ethylene market?

Speaker 4

It's a fixed price. It's nothing to do with the price of the product. So if the Mont Belvieu quoted price of ethylene moves from one day to the other, that doesn't influence the price terminal fee. That has nothing to do with the product.

Speaker 7

Excellent. That's good to hear. And I heard your response to Mike Weber about a 50% to 70% sort of CapEx spend to model in there. I know you're on pause because of COVID, but if you decided, say, this fall or next winter to maybe pull the trigger and move forward with expansion, what would the time line be between the FID and actually rolling out that capacity?

Speaker 2

I'll take that one. Thanks. Good question. It's difficult to say because you'll be working in amongst a live plant, which has its own limitations, as you can imagine. And that's why the CapEx estimate is a range because it all depends on what you've already got and if you're constrained for space, etcetera, etcetera.

So it's quite difficult to say until you've actually properly worked up the project and done the proper analysis.

Speaker 7

All right. It sounds like we'll need to circle back on that one then. Maybe hopefully, we'll get some color this fall or next winter. Just looking at the cash economics at the joint venture, it looks like you had I I think you said about $9,000,000 post quarter and then about €13,000,000 or so excess CapEx left. You also mentioned you could draw down some more debt at the joint venture.

So how do we think about that in terms of net cash, right, from thirty one March into the 2020? What's the net cash call at the Navigator level?

Speaker 3

So the if I understand your question, well, there's kind of two questions. One is the facility and one is what's left to go. So we have now paid, as of today, euros 133,000,000 of the €150,000,000 expected or budget, albeit that, that budget has some contingency in there, so it may not be the full €150,000,000 But assuming it is, we've got €17,000,000 to go, which is principally the remainder on the tank, the construction of the tank. So that's it. From the facility, it's a $75,000,000 total facility, of which we've drawn down so far just $7,500,000 of that.

So if you take the 17,000,000 you take the $7,000,000 we've already drawn down and assume we'll draw down the other $17,000,000 to pay for the remaining tank, It's about 40,000,000 odd 40,000,000 to $50,000,000 where essentially we have overequitized the investment in the terminal. So we would draw down on that facility to rebalance to do a true up to rebalance those two.

Speaker 7

Okay, great. We'll have to model that one out. As far as looking at remainder of joint venture financing, it sounds like the leverage ratio is quite low in terms of EBITDA. I think you guided EBITDA of up to €25,000,000 I would speculate that you could get financing of 5x or more. Is there a possibility to expand that financing and pull some more cash back to the parent level?

Or are you just going to keep it where it's at?

Speaker 3

It is possible, but you've got to bear in mind that this is a joint venture, and there is no debt allowed within the joint venture entity itself. So each the participants, I. Ourselves and enterprise, have to finance the terminal the proportion of the terminal upstairs in their own entities. And consequently, is no security of the terminal allowed being given to any debt providers and that's a challenge. So therefore, our the debt in our case is to do with the quality of the or the existence and the quality of the offtake agreements, which is why it's proportionately being ramped up as the offtake agreements kick in.

Speaker 7

Understandable. Thanks for the color on that and congrats on getting that up and

Speaker 1

running. Thanks.

Speaker 0

There are no further questions, so I'll hand back to your speakers for today.

Speaker 1

Okay. Well, thank you very much, everyone, for joining us, and we look forward to our next meeting. Ladies

Speaker 0

and gentlemen, thank you all for joining. You may now disconnect your