Navigator Holdings - Earnings Call - Q1 2021
June 11, 2021
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 one Financial Results. We have with us Mr. David Butters, Executive Chairman Mr. Harry Deans, Chief Executive Officer Mr. Naar Nolan, Chief Financial Officer and Mr.
Oviand Lindemann, 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. I must advise you that this conference is being recorded today. And now I'll 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 our quarterly conference call. Now 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 of today's as of today's date and are 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.
Speaker 2
Now before we
Speaker 1
hand over the call to one of our to Harry and our London Team, it might be a little bit helpful to look back to where we were at the end of last year. As we entered 2021, we were full of conviction that we had reached the inflection point that we had been working on and waiting for, for the past number of years. Our export terminal was operational and the critically important storage tank had just been commissioned in mid December. Everything was good. Indeed, the operating results for December and January confirmed with an explanation point that we were about to achieve operating performance not seen since 2015.
But the February Texas freeze changed all that. Extraordinary natural events shut down the Texas and Louisiana electric grid for weeks and more importantly inflicted severe mechanical damage to the area's refining and petrochemical plants. Ethylene became scarce, prices spiked to global highs and domestic inventories depleted. No barrels moved through our terminal in March. During this period, we issued a force majeure on our terminal and our tightly scheduled ethylene vessels experienced complete disruption.
Nevertheless, we generated positive quarterly results and an improved balance sheet. January strong performance offsetting a very difficult February and March showed us Navigators underlying strength and powerful earnings potential under normalized conditions. As Harry, Niall and Orvin will shortly discuss, since the March, conditions have gradually improved, suggesting that we may still be entering into an environment more characteristic of those prevailing at the end of last year and the very beginning of this year. So now just before I pass the call over to Harry and his team, I would like you to be sure that you open up your website to Navigators site and under the Investor Presentation section refer to the supplemental information. I think that you will find to be very helpful as you follow along.
So, Henry, why don't you pick up from there, please?
Speaker 3
Thanks, David. Good morning to everybody in the call. I hope you're well and keeping safe. I'm pleased to report that Navigator Gas has performed robustly during the period and has had the best start to a year since Q1 twenty sixteen. This is our fourth profitable quarter in succession with income translating into an earnings of $05 per share.
During the period, the company achieved adjusted EBITDA of $31,000,000 representing a 22% increase in the same period in 2020. This reflects both strong operational performance by the company as well as the fruition and completion of our significant investment into the business in prior periods. The final capital contribution to our Morgans Point ethylene terminal joint venture was paid in late January, bringing our final investment in the terminal to $146,000,000 The shipping business has performed well during the period and we look forward to more growth as the macro trading environment improves. And as we have previously announced, we completed the anticipated merger of Ultragaz's fleet and business with Navigator. This transformative combination will create a fleet of 56 vessels, which will enhance our market offering and provide much needed flexibility and support to our customers.
Ultragaz's fleet of seven more than 22,000 cubic meters handysize semi refrigerated vessels, five twelve thousand ethylene vessels and six gas carriers under 10,000 cubic meters will position us to engage new clients in new markets through increased coverage and geographical reach. We anticipate that the enhanced scale and combined fleet will provide cost savings, significant synergies and efficiencies throughout the business. The additional vessels will allow us to capitalize on the structural growth of LPG and petrochemical gases being exported from the Repauno, Pembina and of course our own Morgans Point terminals, all of which are now on stream and ramping up exports. We believe these incremental volumes combined with extremely low level of Handysize newbuild activity as can be seen on Slide 15 of the supplemental pack will tighten the market, increase utilization rates and further improve TCE rates. The proposed Ultra Gas transaction is progressing well and with completion expected early in Q3 twenty twenty one on the same commercial terms as agreed on the LOI.
This combination is a cashless transaction with approximately 21,200,000.0 shares being issued in Navigator's common stock to Ultranav and the assumption of approximately $197,000,000 in the Ultragast net debt as well as its working capital. When complete, the combination will introduce another major Navigator shareholder with long standing experience in the maritime industry, which we believe will be beneficial for all our shareholders. The transaction is accretive to Navigator's standalone budget in terms of revenue, EBITDA and EPS, and we expect the combination to complete in line with our expectations, subject to concluding definitive binding agreements, Board approvals and the other customary closing conditions. We were very pleased to announce in late April that Navigator had successfully won four twelve month time charters with Mitsui, utilizing four of our semi refrigerated handysize vessels to transport ambient propane from the newly commissioned Pembina terminal in Prince Rupert, Canada to customers in Asia. This is a brand new trade route between the West Coast Of North America and Asia, which by going directly across the Pacific bypasses the need for a Panama transit, thus minimizing transit times and boosting efficiencies.
On its own, this one deal tied up over 6% of the total Handysize semi refrigerated fleet, over six percent and approximately between 1318% of the available semi refrigerated spot vessels. As discussed in a previous call, utilization rates finished 2020 strongly and they continued into January, reaching 96% before being hit by the headwinds of the Southern Freeze and the Mount Bellevue pipeline and subsequent Morgans Point Terminal Force Majeure in early February. Unsurprisingly, given these issues, utilization rates dipped to the mid-80s, with the overall fleet utilization ending the quarter at 88.2%. These shifts continued into Q2 as olefins capacity started up and The U. S.
Domestic olefins pipeline was replenished, bringing with a strong domestic demand and pricing. This also pressured an export volumes on the ethylene arbitrage. But frankly, there are plentiful supplies of the most advantaged olefin feedstock in The U. S, ethane, which coupled with olefin overcapacity and the efficient ethylene market has again ensured product is priced to move. And as we've seen recently, the ops have opened again to Europe and to Asia.
On Morgan's Point ethylene terminal has now restarted and is ramping up throughput. We expect June's export volumes to be close to those of January 2021, and we anticipate exports for the remainder of the year to be nameplate capacity of 1,000,000 tons per annum. We are looking forward to running this unit at full rates to see if we can squeeze even more than the 10% incremental capacity we've already identified out of the plant. As previously discussed, the forward order book for newbuilds now stands at around 5% with minimal vessel deliveries in 'twenty one, 'twenty two and 2023. 20% of the entire Handysize fleet is now more than 20 years old.
So there's absolutely no pressure coming from vessel supply in our growing market. At long last, you may say, the three incremental U. S. Export terminals have been completed and they're starting to export product. We estimate that these terminals, when running at full capacity, will require around 12 to 19 Handysize vessels to service them between twelve and nineteen.
These tailwinds are helped by Handysize exports, which are also ramping up at Marcus Hook even before the Mariner East 2X project is completed later in the year. It's no surprise, therefore, that we maintain a positive outlook on short and medium term TCE rates and the handysize market in general as there are a lot of factors that are starting to exert upwards pressure on rates. With incremental exports, limited new builds, improving customer sentiment and higher oil prices, it really does feel like we're on the cusp of a significant uptick in utilization and market rates. With our existing fleet of 38 vessels, our ethylene JV terminal now fully funded and fully commissioned and with the company on the verge of a merger, which will dramatically grow our presence in the specialty LPG, pet chem gas sector, Navigator Gas is poised to capitalize on these conditions. We expect that benefit when it comes to go straight onto our bottom line.
With these few remarks, I'd like to hand you over to our CFO, Niall Nolan, who will take you through our Q1 financials. Niall?
Speaker 4
Thank you, Harry, and good morning, all. The company generated net income of $2,800,000 during the first quarter twenty twenty one, which compares very favorable to the loss of $8,200,000 made in the first quarter of last year. Last year, of course, was negatively impacted by the initial market's reaction to COVID-nineteen as the world at large reacted nervously to what was about to unfold. Who would have thought that a year on, the lasting effects of the pandemic would still be impacting our lives? Having said that, the recent quarter's profit has been the best, as Harry has mentioned, since the 2016.
The total operating revenue from the vessels during the first quarter was $85,700,000 up $4,500,000 from the $81,300,000 generated during the first quarter of last year, but slightly behind the $87,400,000 generated during the previous quarter, 2020. Average charter rates during the most recent quarter were $21,950 a day or 667,008 and $30 per month, an increase from the $20,850 per day in the first quarter of last year as well as an increase from the $21,100 achieved last quarter. Utilization,
Speaker 3
however,
Speaker 4
was more challenging during the quarter. As both David and Harry mentioned, January started very strongly with utilization of 96%. But following the mechanical integrity issues with the 16 mile pipeline between the ethylene caverns at Mount Bellevue and our terminal, creating a force majeure as well as the Texas winter freeze that initially hit on February 15, the vessels we had lined up to load ethylene at the terminal at that time were unable to do so and had to suddenly find alternative employment. This affected their earnings and utilization fell to the mid-eighty percent during February and March, resulting in overall utilization of 88.2% for the first quarter. And this compared with 89% for the first quarter of last year and 91% for the 2020.
Alumapool earnings, which are derived from the current 14 vessels in the pool, are aggregated and allocated to pool participants in accordance with pool points, resulting in a net gain to the company of $1,100,000 for the quarter from the other participants' vessels in the pool. Three vessels entered drydock for their scheduled surveys during the first quarter, taking a total of seventy days. The cost of these of the two dockings that were completed during the quarter was approximately $2,700,000 In total, 14 vessels are scheduled to be dried off during 2021 for an anticipated aggregate three hundred days and an estimated total cost of $18,000,000 Following the final capital contribution towards the construction of the terminal earlier in the first quarter, drydocking costs are the only remaining planned capital expenditures for the company during 2021. Voyaging expenses decreased $1,900,000 during the quarter to $15,600,000 from $17,500,000 from the 2020. These are pass through costs reflected in revenue and the reduction results from both reduced bunker prices and bunker consumptions.
Vessel operating expenses were $27,000,000 for the first quarter, equating to $7,892 per vessel per day, which is a 1.5% decrease from the vessel OpEx incurred during the 2020. General and admin costs were $6,300,000 for the first quarter, a 3% reduction on the $6,500,000 incurred during the first quarter of last year. And the other income of $72,000 for the first quarter relates to management fees received from the other participants in our in for our management of the Luna pool. Interest costs for the first quarter were $9000000.22.3 percent less than the first quarter of last year, primarily as a result of reductions in U. S.
LIBOR. Applicable U. S. LIBOR at the 2020 prior to COVID-nineteen was 1.96%, whereas at the 2021 and as it remains the case today, U. S.
LIBOR is approximately 0.24%. Due to the issues with the terminal pipeline referred to earlier and the weather in Texas during the quarter, the share of results of the equity accounted joint venture were a loss of $600,000 for the quarter. However, as Oyvind will refer to, volumes are picking up and returning to normal. We did receive our first cash distribution of $850,000 from the JV during the quarter based on the operational performance of January 2021. Net income for the first quarter was, therefore, $2,800,000 or $05 per share compared to a loss for the 2020 of $8,200,000 or a loss per share of $0.14 Cash at March 31 stood at $85,200,000 an increase from the $59,300,000 at the December 2021.
We had a further $37,600,000 available from undrawn revolving credit facilities associated with our secured vessel loans, taking total available cash to $122,800,000 In January, we made the expected final capital distribution of $4,000,000 towards the construction of the Ethylene Terminal, taking our total contributions for the terminal to $146,500,000 which is under the budget set two years ago before construction had started, and it was delivered on time and safely, a significant success given the pandemic related challenges over the past twelve months. We drew this $4,000,000 capital contribution from the terminal credit facility during the quarter as well as a further $14,000,000 which was available for general corporate purposes, resulting in that facility becoming fully drawn at $69,000,000 On reaching construction practical completion, at the beginning of the quarter, the terminal facility was converted into a five year amortizing term loan, attracting interest at U. S. LIBOR plus 2.75%. Our total debt at March 31 stood at $849,600,000 which incorporates six bank loan facilities secured on our vessels, the terminal facility and two Norwegian bonds.
There are no maturities on any of these facilities during 2021. And with the exception of an $18,000,000 repayment in March 2022, there are no maturities on any facility until late in 2022. And with that, I'll hand you over to Oeyvind.
Speaker 2
Thank you, Niall, and good morning, everybody. If you take a look at Page eight of the supplementary presentation, the ethylene graph is quite telling on the right hand side. It shows that global ethylene prices have gone through a rollercoaster over the last six months. At year end, U. S.
Ethylene price stood at $700 a tonne, the dark blue line, and U. S. Ethylene exports reached an aggregate, I. E, from both Targa Terminal and our joint venture terminal of 100,000 tons. Nearly 80,000 tons of this was exported through our joint venture terminal.
Now, we consider a total of 100,000 tonnes per month, a normal state of operations from The U. S. Today, The U. S. Ethylene price is quoted at $670 per tonne, nearly half of what it was during its peak in April.
The U. S. Ethylene price is projecting further backwardation, I. E, reducing in the future and exports are increasing as a result of this widening arbitrage to international markets. And why is that?
Well, we are seeing the fundamentals of continued cheap ethane available in The U. S. And excess domestic production getting back up, which will move the market to a more normal state of play. And that is good for us. The export volumes are reacting positively, increasing month on month, as you can see on Page nine, illustrating the aggregate U.
S. Ethylene exports.
Speaker 3
As you can see, the
Speaker 2
exports are moving towards what we call the normal state of 100,000 tonnes per month for July. A high oil scenario further underpins the attractiveness of these derivatives produced by natural gas liquids. To put into perspective, these 100,000 tons of export of ethylene per month translates into about 16 handysize ethylene vessel demand, which from a fleet of 38 ships on the water today captures nearly half the available tonnage, which is quite extraordinary. We're also about to deliver the last of the four handysize semi refrigerated ships to the Canadian West Coast LPG project, as Harry just mentioned. The first three have already successfully loaded from this new terminal and discharged in Northeast Asia.
This is all incremental demand to our segment. Four LPG vessels are effectively removed from the spot market, supporting the rest of the fleet. In addition, it is the first structural handysize trade for LPG in the Asia region with prospects of more to follow. The Repauno Terminal in New Jersey is now operational. We loaded the first handysize cargo from this facility in April and with two subsequent cargoes in May.
This translates into incremental demand for one semi refrigerated vessel. But please note, a demand for one additional vessel may not sound so much, but in a pool of only 63 units, every new opportunity can influence the supply and demand balance in our segment.
Speaker 3
One of the short
Speaker 2
term challenges facing the general LPG export markets for all LPG ship owners is the lack of arbitrage today from The U. S. This is less impactful for the specific handysize projects that we have mentioned, but affects the shipping industry as a whole. Today, S. Propane is priced at $1 per gallon roughly compared to about $05 per gallon at the same period during 2019 and 2020.
And the inventory levels in Mt. Belvieu are lower historically by about 10,000,000 barrels today. At the same time, propane consumption has increased by 10% during the last couple of months. And the EIA is an interesting explanation. Americans have been working from home due to COVID restrictions, and many have had to heat their houses with LPG under normal circumstances, they would have gone to the offices, which generally use electricity or natural gas for heating.
Once the LPG fundamentals normalize, we expect overall LPG exports to revert back to twenty nineteen levels supporting the wider business. In conclusion though, the stars are very much aligning for our segment and for Navigator Gas. The ethylene fundamentals are working back to where they should be, creating demand for our ethylene Luna pool. The incremental demand from the handysize terminals are starting to take effect. We have a historic low order book negating any impact on the tonnage situation.
Therefore, the overall market dynamics over the next half year show many similarities to what created the handysize high of 2015. And I'm surprising myself when I say this, but back to normal is good for Navigator. Thank you very much.
Speaker 1
Leeny, you can open up the call for the question and answers now.
Speaker 0
Our first question today is from Sean Morgan from Evercore. So
Speaker 5
we talked a lot about back to normal on the call. It's kind of a bit of a theme. But back to normal, we really haven't had a lot of normal because there's been all these sort of one off disruptions that were sort of macro related and exogenous to the company. So if we look at January as maybe a good benchmark for the ethylene export terminal, what does Q2 look like in terms of kind of utilization that you see in, I guess, the quarter of kind of a normalizing quarter? And how does that compare with Q3 if we can kind of hold the rates that we've seen in June so far?
Speaker 2
Thanks, Sean. So it kind of illustrates part of the answer to your question is on Page nine. The U. S. Ethylene export graph, U.
You can see the middle sort of peak there, which we call normal operation, everything was as per standard being 100,000 tonnes exported from The U. S. During that period of December, January. So then, of course, we know what happened and you see that trough through March, April, May. So the utilization as a result didn't exceed 90%, it continued in sort of the same vein as the first quarter because of that valley as you see on that graph.
But then since then June is kicking up, as you can see picking up And then July, our expectation is back up to the $100,000 aggregate mark with roughly 80% from the joint venture terminal.
Speaker 5
And then in terms of the actual dollar contribution for the income statement, are we still kind of targeting I mean, it's been really lumpy, obviously, because of all these sort of one offs. But are we thinking maybe like $9,000,000 a quarter? Is that like a good is that still kind of a good estimate? Or was this 10% debottlenecking going to maybe bring that a little higher?
Speaker 4
Sean, yes, I mean, the terminal for Q2 is still going to be lumpy because of the reasons that both David mentioned at the outset and not even subsequently. I think from what when we're talking about normal, we're talking about from June onwards. And we have said that at that level, it would be around the 20,000,000 to $25,000,000 of EBITDA on an annualized basis. So it's about $6,000,000 per quarter. Yes.
Speaker 5
And if I can just squeeze in one macro question real quick. In terms of The U. S. Demand, I appreciate that the spreads are widening and that's going to be very advantageous. But do are you sort of contemplating a much more normal scenario for when we get back to the colder winter months and essentially like a lower domestic consumption so that, that spread can kind of be maintained through the end of the year?
Speaker 2
Yes. Think on the ethylene spread, our sort of belief is that, that's not very much it's not relating so much to seasonality because the feedstock is ethane. Now if you talk about propane, LPG, yes, there is some seasonality in The U. S. Market because traditionally, goes up in the winter for obvious reasons.
But what has caused kind of narrowing of LPG arbitrage from The U. S, not ethylene, LPG is this lack of reduction in production during the freeze, increased consumption, as I mentioned about people working from home, is quite interesting. And therefore, the arbitrage sort of shuts reduces trade of LPG. Now, we don't do our business is less LPG from The U. S.
On the spot market, we do a lot now because of the projects we have talked about, and they are projects and that's contracted and so forth, so less impact. But I think that LPG arbitrage will sort of increase again in general once the historic inventory levels get back up to where they're supposed to be, and that is ongoing.
Speaker 3
And
Speaker 0
our next question for today is from Randy Giveans from Jefferies. Randy, your line is open. Please ask your question.
Speaker 1
Okay. We might take another call if there is another one.
Speaker 0
Yes, sir. We'll move to the next question, Ben Nolan from Stifel. Please go ahead.
Speaker 6
I have a couple though. So as you laid out, especially with the addition of the Pembina volumes, now all the within the course of one months, point 13% I think you said 13% to 18% of all of the semi refrigerated vessels are sort of dedicated to that trade at the same time that the ethylene terminal is coming back online or I guess is now back online. Any color as to what you think is a reasonable assumption for utilization for you guys in the third quarter now that things are sort of where you thought they would be?
Speaker 2
Yes. I think, look, it's all positive. So if we talk about third quarter, the Pembina ships, the last one is delivering in about ten days' time. So then that is concluded. The ethylene terminal is getting back up to normal date, as we have discussed, from July onwards.
We also have potential merger happening in third quarter. So all these things should assist in a utilization rate trending positive from the second quarter and the first quarter.
Speaker 3
I mean, that's quite logical.
Speaker 2
Right. But when you say positive, I
Speaker 6
mean, are we talking mid-90s? Or what sort of if third quarter is the new run rate, what does that run rate look like, do you think?
Speaker 2
Yes. A good utilization number and quarter for us would be 90% plus. 90%
Speaker 7
plus. Okay. And then to that end,
Speaker 6
I've just been keeping an eye on the day rates, and they've been okay, but they haven't really moved. And I thought that they might with the addition of, again, the Pembina terminal in the vessels sort of being incrementally taken out of the market. Do you think that's coming? Or what is it the fact that the LPG arb isn't quite open enough and that sort of is keeping a cap on dayrates? Or what would you sort of attribute that to?
Or am I just being unreasonable?
Speaker 2
I mean, the textbook is on supply demand balance. So we remove available ships and there's no ships to replace that with. Therefore, it should be positive. Now it's not like turning on a switch and
Speaker 5
it
Speaker 2
happens overnight. Our expectation is that it is happening, but over a short period of time.
Speaker 6
Okay. So it's your anticipation that the day rates are probably moving up? Correct.
Speaker 3
They'll be moving up. Okay.
Speaker 6
And lastly is for me,
Speaker 3
I can keep going,
Speaker 6
but Randy might be in the background somewhere. As it relates to the ethylene terminal, things are kind of getting back up and running. I know pre the freeze that you guys had made mention that you were maybe talking with about potential additions to contracts and expansion and all these kind of things. Any color as to sort of whether that has recommenced or if you feel like there's incremental long term business that could be coming around the corner sometime soon?
Speaker 2
You want me to take it, David, or are
Speaker 3
you going to take it?
Speaker 1
Harry, why don't you answer that? That would be helpful.
Speaker 3
Yes. Okay. Thanks, David. Thanks for your question, Ben. Yes, we're obviously, we're anxious to get the terminal up and running to its full capacity.
And as I said in my prepared remarks, we think we've identified 10% that we can squeeze out. But we haven't really run it flat out yet. And when we run it flat out, we're semi optimistic there will be more tons available. And as we've spoken about several times in this call, the best debottleneck is a free one. We'll spend a lot of money and we want to see some return from that money and see it flow back to our bottom line.
But we're constantly in discussion with customers about expanding and we're constantly in discussion with customers about plans for the future for that terminal. But
Speaker 2
what we need
Speaker 3
to do now is actually sweat the asset and see it run reliably. Does that answer your
Speaker 2
question, Yes, it does. So
Speaker 6
is sort of the next suppose what you're saying is before we should expect to see any incremental announcements or whatever, you kind of need to get a little bit of time under your belt at full utilization and
Speaker 3
so forth? Is that That's right. Let's sweat the assets and sell it out. Now as we've talked again before in this call, the cheapest incremental ton of expansion capacity will be in our terminals. If anybody is going to put another dollar into ethylene terminals, it will be us and our joint venture partners because all the infrastructure is already there.
You've got the civils, got the jetties, you've got other infrastructure. So all things being equal, any ethylene terminal expansion will be in our terminal. It's just a matter of time.
Speaker 7
Right.
Speaker 1
Could you just imagine, Ben, since the terminal became operational over a year ago, what happened? Well, first came the pandemic that really knocked the pants off of everything, negative pricing of oil. Then came, of course, the hurricane in the summer of last, which shut down electricity and distorted pricing and availability of ethylene. And just as we were getting ramped up again, along came the Deep Freeze. Now if you're trying to plan, if you're a buyer of ethylene and particularly a long term buyer, you don't know what to look at at the moment.
It's been such a distorted market. So I think those things have to settle down a bit. And as Harry says, you first focus on debottlenecking, getting an extra 10% or 20% out of the existing capacity. And then as things settle down, negotiations on long term supply and how to get those long term supply barrels up and running and whether that's an expansion or whatever have you or a new facility, that will be the decision. But boy, it couldn't make any decision here in the last year and a half, impossible.
Right.
Speaker 3
Okay. That's fine. Well, I maybe fipped a
Speaker 6
little bit. Last question, just as a reminder, capital allocation priorities or near term debt repayment, is that fair?
Speaker 3
For the terminal?
Speaker 6
No, in general. Yes, but the company's capital allocation, I
Speaker 3
mean, we should expect you to be focused
Speaker 6
on debt repayment. Is that fair?
Speaker 3
Yes. Yes. Okay.
Speaker 7
All right.
Speaker 6
Right. I appreciate it. Thanks.
Speaker 3
Thanks, Ben. Thank you.
Speaker 0
We have had Mr. Givens come through again. Randy, your line is open. Please go ahead and ask your question.
Speaker 7
Howdy, gentlemen. Can you hear me now?
Speaker 3
We are done, Randy. Light and clear.
Speaker 7
Thanks for being united and it feels so good. Two questions from me. First, does the Ultragaz merger, does that limit any future plans for maybe expansion of the ethylene terminal? And secondly, now that you have acquired some small LPG carriers, is there any appetite for further acquisitions and consolidation on the small LPG side?
Speaker 3
Yes, the first one, let me take it, Randy. No, it doesn't. So we're completing the merger. It's a cashless merger, as you know, which is wonderful. It doesn't over leverage our balance sheet and that will give us much more opportunity.
So, there's no
Speaker 2
eitheror. And
Speaker 3
the second question on the small vessels. Randy, we're sort of looking at it. It's something that's new to us and we can't wait to actually get in because as you know, we're not likely to discuss certain things ahead of our close of the merger. So we can't wait to get in and talk more details with our new partners at Ultragaz to find out how these vessels operate and where they operate and look for other opportunities with them. We know they've been a very strong pool called the UniGas pool, which has been around for a long period of time and those guys manage those vessels very efficiently and very well.
Speaker 2
Got it. All right.
Speaker 7
And then I don't know if you answered this earlier. Clearly, I had some phone issues, but I'll ask it. Obviously, the Pembina, Repauno, great to see those both online. Were you able to quantify how many maybe handysize semi ref vessels will be employed on those projects on an annual basis? I know you show some cargoes per month in your slide deck, but seeing if you have an annual number on how many of those vessels are pulled out of the market.
Speaker 2
Yes. So Randy, excellent question. First part is easy to answer. So Pembina one, there are four ships on twelve month charters. So they will then reflect four ship demand on an annual basis.
Now they're also talking about the fifth ship. So there might be more coming from that opportunity. On the other side, on the Atlantic side, the Repaunov Terminal, so we've loaded two cargoes in May and that translated to a full employment for one ship, And that's going to The Caribbean. So if those tons goes further afield, well, they need more ships. Now, the specification or nameplate capacity of Repalma to the best of my knowledge is 20,000 barrels a day or even more.
Now in the month of May, they only did 10,000, so half. So you'd safe to say that, that terminal, once fully operational, that they got experience under their belt, should be at least two handysize ships on an annual basis. So if you combine both of them then, it will be six or seven. And that is overnight going from zero to that number in our little segment is pretty cool.
Speaker 7
Sure. Clearly impactful. I'm going throw in a third question because I think I'm at the end of the queue, which is completely my fault, sorry. You mentioned current utilization, I think high to mid 80% range continuing to climb. Is that your expectation for 2Q and 3Q now as a run rate?
And how has that higher utilization impacted some of the spot Handysize shipping rates?
Speaker 2
Utilization, as we talked about on this call, from Q1 to Q2 is pretty much
Speaker 3
straight line.
Speaker 2
So it's continuing that vein. So as you just mentioned now, I think it was Ben's question earlier in terms of third quarter. And for the reasons we discussed, those projects, ethylene ramping up and so forth, etcetera, we expect utilization for third quarter to be 90 plus.
Speaker 7
Perfect. And then in terms of impact That on
Speaker 2
should represent our normal state. So we're talking about this back to normalization.
Speaker 3
So that is definitely our expectation. So hopefully, will materialize.
Speaker 7
And is that kind
Speaker 4
of the threshold for when
Speaker 7
you really start to see rate inflection? Trying to get the impact on rates with that.
Speaker 2
Yes. Past experience, definitely. So if you go back five months to January, where we had 95% utilization, it was fantastic. We felt it and being able to push the market in the right direction in terms of freight. So by if anything, if past experience is anything to
Speaker 7
go
Speaker 2
by, once you get 90 plus, you are getting into that zone whereby you can actually move the needle.
Speaker 7
Got it. All right. Well, thanks again for the patience. And it's been a long few years, but great to see things heading in the right direction. Thank you.
Speaker 4
Thanks, Wendy.
Speaker 0
Thank you, and gentlemen. I'll now hand back to your speakers for any closing comments.
Speaker 1
Okay. Well, thank you very much for joining us this morning. And let's hope we don't have any other disruptions before our next call and look forward to that. Thank you very much.
Speaker 0
Thank you very much, sir. Ladies and gentlemen, that does conclude the call. Thank you all for joining and participating. You may now disconnect.