Navigator Holdings - Earnings Call - Q2 2020

Transcript

Speaker 0

Thank you very much, and good morning, everyone and welcome to Navigators' Second Quarter Earnings Call. As we conduct today's conference call, we will be making various forward looking statements. These statements include but not limited to future expectations, plans and prospects from both a financial and an 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. This morning's speakers will include Harry Dean shortly, Chief Executive Officer. That will be followed by Niall Nolan and Oygen Lindeman. So Harry, why don't you pick up

Speaker 1

the phone from here? Perfect. Thank you, David, and good morning to everyone on the call. I hope you're all well and safe and safe. It's now over twenty one weeks since we took the decision to close our offices and to start running our business remotely from our home offices across the globe.

Through necessity, we have become very proficient in virtual team working with town halls, meetings, and one on one catch ups all taking place over the Internet. Although we all miss the face to face interactions, we have become adept at sharing information via the many platforms at our disposal while making sure we didn't lose the human touch. There has been a lot of laughter along the way with numerous unscripted funny moments unwillingly captured on the video and audio conferences, which has helped keep morale high. Thankfully, the technology has worked exceptionally well, exceeding even the expectations of the least tech savvy employees. I wanna pay tribute to the dedication, the dogged determination, and the soundless enthusiasm of our onshore team.

Their hard work and never say never attitude has enabled our business to literally keep the lights on and to seamlessly ensure business as usual, much to the relief of our customers, our suppliers, and our seafarers. As a company, we're now about to emerge from this phase of COVID nineteen lockdown and to start to return to company offices. In light of the prevailing government's advice, we will therefore be reopening our offices from the September 1. Of course, these offices have been adapted to to adequate social distancing, and we have also implemented numerous hygiene measures to keep our colleagues safe. Our return will be a phase one with a team a team b basis with staggered working hours to both reduce risk and also to maintain social distancing.

Thankfully, key stakeholders wouldn't even notice the change as our technology will ensure our team continue to interact seamlessly with each other, our customers, and our vessels. The economic reboot following the COVID nineteen lockdown, although fragile and prone to some local setbacks, gained momentum in the quarter. Improved sentiment and business activity has continued since July and August with the North American and European economies following the lead of China and Southeast Asia by relaxing their lockdowns in an attempt to kick start demand and with its manufacturing. Offering to nickel, this will provide a much needed stimulus to the global economy. Both ethylene and propane arbitrage to Asia remains firmly open in the quarter with healthy pricing differentials, which has encouraged trade.

Excess butadiene has also continued to move from Europe to Asia as producers attempt to export surplus materials to maintain high cracker utilization rates. I'm very pleased to report the business returned to profit in Q2, albeit with some favorable tailwinds on foreign exchange and the near breakeven performance of our terminal over the quarter. The Q2 net income of $3,000,000 was our strongest performance since Q4 twenty sixteen and was the first profitable quarter for over eighteen months. There was also a pleasant turnaround from the Q1 twenty twenty results, where albeit with considerable headwinds, we posted a loss of $8,200,000 Our underlying vessel performance also improved from Q1 to Q2 by $2,500,000 resulting in a net income of $700,000 for our shipping business. As you will see in the supplementary presentation, both our Q2 net revenue and EBITDA has improved, giving us the best second quarter results for a good number of years.

Turning now to Crewely, you may recall that on the Q1 call I estimated that we had managed to relieve almost three dozen crews. Thankfully, that number has risen substantially in the last few months, and we've been able to refresh over 75% or 380 of our overdue crew members, and we've been able to get them safely home. We continue to work hard to resist the backlog and to ensure all our secrets that are yet believed to deserve and are reunited with their friends and family as quickly as is humanly possible. The ever changing local regulations together with new or reinforced travel restrictions and the constant threat of flight cancellations make this a bit of a herculean task, but we are now making real inroads into the backlog. Through all of this uncertainty, our officers and crew have continued to traverse the globe, delivering much needed cargoes and thus keeping the global economy firming.

We continue to work hand in glove with flag states and classification societies, and together we resolve the many practical inspection and dry docking challenges that have been caused by the pandemic. Finally, it appears that the vital contribution of seafarers during this pandemic is slowly starting to be recognized by governments across the globe. I'm very pleased to announce that our Mortgage Point joint venture ethylene terminal has now exported over 200,000 tons with at least another 60,000 tons expected to be moved in August. Two of the rest of months with a phenomenal volume of around 80,000 tons being exported from the terminal. This is all the more remarkable when you consider that this has been achieved without the aid of our 60,000 cubic meter tank, which is currently under construction.

It goes without saying that these volumes could not have been achieved without the close cooperation between Navigator Gas and our joint venture partner's Enterprise. Working closely together, we're able to optimize the throughput whilst ensuring that there were enough vessels at the right time and the right place to maximize the ethylene cargoes. But the creeping throughput has come improving margins, and I'm very pleased to announce that the terminal was profitable in June. It was really great to see the results of all our hard work now finally beginning to filter down to the bottom line. And among the first, our mid sized vessels to navigate the eclipse also loaded a world record quantity of 20,000 tons of ethylene from the terminal for delivery to Asia.

The terminal complex is working very well. And as you can see from the photograph from the supplemental information pack, construction of the ethylene tank is progressing safely on time and on budget, with starts as expected in q four this year. The June throughput of around 80,000 tons, which was achieved prior to this commissioning of the time, has only added to our belief that our terminal will exceed today's capacity with ease in the future. Coming now to our lunar pool, the pool was great to bake out, and Pacific Gas is now fully up and running. Live operations began in the second quarter with all 14 vessels joining the pool by the July.

The the facility formed just at the right time to enable the partners to capitalize on the growing volumes of ethylene for export from our mortgage cloud terminal. Utilization rates, which were running at mid 80% levels in February, March and April, climbed in May and June to around the 90% mark. This utilization rate has been maintained in July, no doubt thanks to the Morgan's point volume, the healthy ethylene arbitrage and a general increase in economic activity. Once again, sanitary TCE rates continue to be dramatically less volatile than other sectors and have been pretty resilient only a marginal 5% reduction in rates within the quarter. The company continues to be prudent, reducing discretionary spend, deferring expenditure where possible, whilst minimizing working capital and CapEx to preserve cash and liquidity.

This can be seen in our operating expenses, which are down in q two, three and a half percent year on year.

Speaker 2

Some of these gains, of course,

Speaker 1

will unwind over time as the increased cost of relieving the crew's got to fill the crew. Now in his prepared remarks, we'll give you an update of our refinancing progress as we seek to further increase our liquidity and strengthen our balance sheet.

Speaker 2

All in all, Tutile was

Speaker 1

a satisfying quarter for the company of many times with improving utilization and profitability. Navios States' leadership in the niche handysize shipping segment, coupled with the versatility and flexibility of our fleet, has ensured that our business has to date been able to successfully navigate the choppy conditions caused by the COVID nineteen pandemic. Our segment has not been subject to the world's swings and rates, which we have observed in other sectors. And as expected, the startup of

Speaker 3

the world's largest ethylene terminal has had

Speaker 1

an immediate impact, simulating new fuel through ethylene export volumes, which is a real win win for Navigator Gas. The onset of the terminal take or pay contract with students, together with the incremental spot business, should ensure the terminal remains profitable profitable going forward. That combined with our shipping business, which is also in great shape, will ensure the company is well placed to capitalize from increasing economic activity while the uptick occurs. With those few remarks, I'd like to hand you over to our CFO, Niall Nolan. Niall?

Thank you, Harry, and good morning.

Speaker 2

The company generated profits, as Harry mentioned, of $3,000,000 for the second quarter, which is a significant turnaround from the $8,200,000 loss incurred during the first quarter of this year and the $7,700,000 loss for the comparative 2019. This $3,000,000 quarterly profit or net income includes a $2,500,000 gain on foreign currency translation as both the Norwegian kroner and the Indonesian rupiah strengthened relative to the U. S. Dollar during the quarter, reversing some of the COVID related exchange losses incurred in the first quarter of this year. In addition, the marine export ethylene terminal at Morgan's Point in Houston generated a loss for the quarter of $200,000 being our share of the results of the export terminals on Venture.

However, with the commencement of the long term take or pay contract at the June, the terminal had a throughput during that month of approximately 80,000 tons and consequently generated a profit, although not sufficient to overcome the losses of the prior two months. It is anticipated, however, that the terminal will remain profitable for the remainder of this year. This has resulted in a profit relating to our vessels for the second quarter twenty twenty of $700,000 again, which is a marked improvement from the $1,800,000 loss generated during the first quarter. The operating revenue from the vessels was $79,900,000 for the three months, an increase of 6,300,000 from the $73,600,000 generated during the 2019. Net revenue, revenue after deducting past due voyage costs, was $65,100,000 for the second quarter versus $63,700,000 for the first quarter of this year and $57,100,000 for the 2019.

This increase was in part as a result of average charter rates increasing to $21,600 per day, up from $20,855 per day for the first quarter of this year and $19,940 per day during the comparative 2019. As we mentioned on the last earnings call associated with the first quarter's results, method utilization was increasing during the second quarter, with April still in the mid-eighty percent levels largely as a consequence of COVID-nineteen, but with the subsequent months of May and June increasing to around the ninety percent level. Consequently, the average for the three months of the second quarter was 88.3%, an increase of the 85.2 achieved during the 2019. You may have noticed a new item on our income statement this quarter with references to pool collaborative arrangements in both operating revenue of $2,600,000 and voyage costs of $2,900,000 This is the GAAP required accounting treatment for reflecting the sharing of pool revenues based on pool price. The net effect of this during the second quarter following the commencement of the pool on April 1 is that our vessels contributed $300,000 to the other participants in the Luna Pool during the quarter.

During the first six months, the company undertook only three drydockings, principally as a result of yard closures associated with the impact of COVID nineteen. However, many dry dockyards have now reopened, and we've undertaken a further three drydocking since the end of the second quarter with the third navigated grade currently in drydock. That leaves the final four vessels requiring dry docks prior to the end of this year. These dry dockings, including the splitting of ballast water treatment systems where next rigs are estimated to cost approximately $12,000,000 in aggregate as previously budgeted, but no anticipated increase as a result of yard closures or other effects of COVID-nineteen. Vessel operating expenses were $26,500,000 for the second quarter or $7,661 per vessel per day, a decrease of 3.5 from the $27,400,000 or $7,938 per day incurred in the comparative 2019.

This is a result of stringent control of costs during these challenging times, but also as a consequence of some costs being deferred until later in the year such as costs associated with crew changes due to the difficulty in arranging international flights as a result of COVID-nineteen. General and admin decreased by 13% to $4,500,000 during the three months ended 06/30/2020. This decrease largely relates to the reversal of foreign exchange losses on the revaluation of an Indonesian ruthier bank account that we incurred during the first quarter. Interest costs for the second quarter were $11,100,000 an 8.9% decrease, a $1,000,000 decrease from the $12,200,000 incurred in the 2019 and also a decrease from the interest cost of $11,500,000 incurred during the first quarter. This was a result of reductions to U.

S. LIBOR, which has now fallen from approximately 2.38% a year ago to just 0.26% in June. The share of result of equity accounted joint venture, also known as the result from the ethylene terminal, generated, as I mentioned, a small loss of $200,000 and as I mentioned at the outset, with the profit in June almost fully offsetting those losses of April and May. I also mentioned just a couple of moments ago that during this quarter, 2,500,000.0 of the $3,700,000 of COVID related foreign exchange losses incurred during the first quarter were reversed in the second quarter. And net income for the second quarter was therefore $3,000,000 And as Harry mentioned, the first quarterly profit since the 2018 and the largest profit for over three years.

At June 30, the cash stood at $53,100,000 against our maximum liquidity covenant of $43,100,000 We had a further $8,200,000 as restricted cash supporting a cross country interest rate swap relating to our Norwegian kroner bond. Although since the quarter ended, as a result of furthering strengthening of the Norwegian kroner versus the U. S. Dollar, its restricted cash has reduced to $1,100,000 as of this morning. Since the quarter end, we have entered into an agreement to amend the general credit facility to allow an early true up of $34,000,000 enabling those funds to be immediately drawn for general corporate purposes.

This followed a capital contribution of $7,500,000 to the Export Terminal joint venture during the second quarter and a further $7,500,000 since the quarter end, both fully funded by drawdowns from the credit facility. The total amount available on this credit facility based on

Speaker 1

the offtake agreements is now agreed

Speaker 2

at $69,000,000 and with $49,000,000 drawn or currently available to be drawn, this leaves $20,000,000 available to cover the remaining part of the commitment to the export terminal joint venture, which we believe to be less than $10,000,000 Once the storage tank is completed and in service by the end of this year, any remaining undrawn portion of that loan will be released for general corporate purposes. And thereafter, the loan will convert from a construction loan to a five year term loan. We are also in the process of refinancing one of our vessels' loan securities, which is anticipated to provide an additional cash draw of approximately $30,000,000 This amount coupled with the $34,000,000 immediately available from the terminal facility and the further release of restricted cash, which provide increased liquidity headroom of approximately $70,000,000 in addition to the $10,000,000 headroom at June 30. And we expect the better loan facility to be in place by the end of this third quarter. At June 30, total debt stood at approximately $860,000,000 As previously stated, the company does not have any debt maturities maturing until 2022 except

Speaker 4

for

Speaker 2

our $100,000,000 Norwegian bond maturing in February. We are currently assessing the capital markets for a potential refinance fixed bonds and are in the process of engaging with financial advisers to investigate such opportunities as well as considering alternatives in the event that the capital markets are not available or not receptive. And with that, I'll hand you

Speaker 3

over Thank you, Nayam, and good morning, everyone. The second quarter highlights the role associated with petrochemical demand. As we mentioned during last earnings call, the COVID lockdowns around the world continued from March into April with utilization hovering around the mid-eighty percent level. However, with Asian countries beginning to ease regulations starting from May onwards, we did experience a pickup in demand.

European petrochemical producers were still running their naphtha crackers during the same period, resulting in excess products such as butadiene, which were then subsequently shipped long hauls on handysize semi refrigerated ships all the way to Asia to satisfy the pickup in demand. The same fundamentals were seen for Propylene with excess production in North America finding a home across the Pacific resulting in employment of handysize pommets for deep sea voyages. At the same time, with the Hmong picking up primarily in China, Korea, Taiwan and Indonesia, the ethylene landed price in this region went from an all time low of $300 a ton in April to a more normalized level around $800 a ton going from May into June, a huge upswing. The US domestic ethylene prices remained at a competitive price point ranging between $250 to $300 per ton during the same period and therefore enabling arbitrage opportunities for ethylene export. Export of ethylene in any meaningful volume could only be facilitated with new terminal capacity.

This new capacity came in the form of our marine export terminals, started ramping up throughout mid May onwards and indeed, as you have heard, everyone's expectations when it enabled exports of approximately 80,000 tons during the month of June. 60% of all ethylene shipped from The United States Of America during the month of June, including from the target terminal, were listed on navigator controlled tonnage. During the same month, our medium sized ethylene vessel navigated an eclipse safely and successfully loaded and carried two days the largest single cargo vessel in a 20,000 tons from our terminal to receive it in Taiwan. Now, the knock on effect of the ramping up of the marine export terminal should not be ignored. Antesized ethylene vessels, which were trading in LPG or propylene arbutadiene in the past are now generally employed in the ethylene trade, thereby reducing available tonnage capacity from the semi refrigerated parts of the handysize feed.

Therefore, despite huge uncertainties and fluctuations across the world economy brought about by the pandemic, the handysize quota twelve month charter rate, as you heard from Harry, only reduced by 5% during the period to around $625,000 a month, which is vastly different compared with, for example, very large gas carriers having their quotations fallen by more than 50% during the time frame. The resilience in the handysize rates can be attributed to one simple fundamental reason and that is flexibility across all the gas cargoes The Luna Pool swung into action during the ramping up of the terminal and is a contributing factor to our increasing market share of American ethylene exports. The pool better enables us to be in the right place at the right time and offers flexibility and reliability to our customers utilizing the full platform of 14 vessels. Ethane has still a role to play US ethane remains price competitive to other feedstocks in the production of ethylene.

This is due to continued robust natural gas liquids production in North America. We reported two of our four medium sized ethane ethylene carriers have contracted additional ethane employment, meaning that ethane as part of our earnings portfolio is set to increase. Having additional vessels in ethane trade has similar positive knock on effect to the non ethylene capable segment in that the tonnage supplied for LPG and other petrochemicals is produced. For example, when one of our medium sized ethylene carriers are carrying ethane instead of ethylene, this means that the 20,000 tons of ethylene cargo will have to ship on two handysize vessels, which in turn has positive impact utilization and earnings for that segment. Going forward, we are relatively comfortable with the outlook for ethylene considering the performance of the marine export terminal during the pre tank phase, prevailing arbitrage for US ethylene, majority of demand pulled from Asia which means deep sea voyages, and a rising market share of ethylene exports from America made possible fewer additional pool levels.

A home run would be possible when the LP2 steps into the handysize pitch. What will make a real difference is the anticipated effect from project specific transitional LPG demand from Zepano and Pembina waves to ship export terminals as outlined as part of the earnings for Information Act. Incremental handysize LPG demand should have a meaningful impact on utilization and earnings to the segment in addition to what we are seeing today in the Ethylene market. And with that, I will hand over to David.

Speaker 0

Thank you, Oitman, Harry, Niall. So, LA, why don't you open up the call now to q and a, please?

Speaker 4

Okay. Great. Hey, guys. This is this is Ben. I I have a couple.

I'll could have more, but I'll I'll try to

Speaker 0

not overstate my welcome here. The

Speaker 4

my my first question, congratulations on the terminal. Obviously, it's going probably better even than it was supposed to. Good news for the cash flows, good news for the ships and good news for everything. At this point, it sounds like almost all the CapEx is done. Maybe there'll be an expansion and require then for a little bit more CapEx.

But my question really is, bigger picture, now that it's kind of out of the way, the debt refinancing looks like it should be pretty well on hand. And I know that the stated objective for you guys, you know, has been to look to marry up more of these infrastructure related, projects or developments with your shipping expertise. I'm curious, fundamentally, and and I I guess right now with everything being wrapped up, it's the perfect time to start looking at some of those longer dated development opportunities. How do

Speaker 0

you think about that? How do you what's your

Speaker 4

sort of pitch? What's your angle? Where are you in terms of being able to really bring something to bear, and and further projects like this going forward?

Speaker 0

Harry, why don't you take that one? Okay. No problem. Hi, Ben. How are you doing?

Yeah. Good.

Speaker 1

Yeah. Good. Ben, I know you said the town was all wrapped up. I I wish it was so. You know, we've got a tank still to build, as you as you thought.

It's making great progress, and it's on time and on budget. It's been done safely. And equally, as as we saw from the June numbers, we've actually been able to sweat the assets better than we thought. So for me, the best debottleneck is a three debottleneck. So we really don't know what the terminal is actually capable of until we get that tank fully up and running.

All the signs are point pointing in the the right direction, given the throughput that we might squeeze through without the tank. So, you know, I I think what

Speaker 3

all that kind of thing

Speaker 1

with that is it's a win win for everybody because you dilute your fixed cost, and the money just drops to the bottom line. So our focus at the moment is to make sure that we complete the job that we've got in hand, which is the the tank, and that we we deliver it safely on time and on budget, and we see what's under the hood in that tank. And I think there's a lot more there to give as we've proven in June. So I think that's the first thing. But in terms of the the rest of the business, it's sort of steady as she goes at the moment.

You know, now I've talked about we've got a a It's pretty pretty heavy, in the second half of the year. We know there's, you know, a lot of tailwinds or potential tailwinds that could be there. We just no one knows what's gonna happen with COVID, that it's gonna resurface again. But there's a lot of tailwinds for us as well because, as Ivan said, the terminals are starting to open, and that should be a real opportunity for us going forward.

Now in terms of new opportunities, we'll assess them in light of the other options that we have available to us, and we'll do

Speaker 4

the things that give us the best time for our thoughts going forward. Okay. But it doesn't sound like there we should be expecting there to be any major new, completely out of the blue development

Speaker 0

anytime imminent, guess. Think I that's right.

Speaker 1

That's right then.

Speaker 2

We're working we're working hard.

Speaker 1

It's like a spawn. You know, we're we're peddling hard in on these resources and looking at lots of different opportunities. But at at the moment, we're focused on what's what's in hand.

Speaker 0

Judge, you're absolutely right to raise that question then because this terminal that we have in joint venture with Enterprise isn't the end. I mean it's just an integral part of a greater hub system of exporting the important and inexpensive petrochemical hydrocarbons being generated in The United States as a result of low gas prices. This is just a small piece of that. And we have tried to partner with the people who control a lot of that hub at the moment. That is enterprise particularly.

And then global network, their network within The United States connected by every, almost every petrochemical plant, ethylene plants. And that is just the beginning. Their hub is being built up gradually but inevitably to create a greater flow of hydrocarbons, particularly petrochemical gases to the international market. This is a whole new thing that has never really gotten off the ground in the past. But it is in its beginning phase.

Our terminal is just a small part but it will be our participation will grow as that grows. But we have to clear through this pandemic and understand what this fog of virus is and understand where the economies of the world are going and where to place the ultimate hydrocarbon. So it's there, it's delicious, it's ours to have and we will get it eventually. But we have nothing at the moment that is worthy of discussion at today's conference call. Okay.

Now switching topics a little bit

Speaker 4

maybe for Logan. Obviously, you'd laid out the ethylene arbitrage. Although, I did notice that ethane prices are increasing. I believe that there is a new ethane export terminal scheduled to come online pretty soon in Texas. Ethane prices were to well, first of all, do you think that there's a risk that ethane prices were to rise materially in The United States with more being exported?

And how does that play into the dynamic for for ethylene exports out of The United States today?

Speaker 3

Yeah. It's a good question, Ben. All the forecasts and the the experts on liquid gas production, gas, liquid production in The US are predicting, forecasting excess production on that even during this time and also going forward. They have a lot of rejections going on whereby they put the ethane back into the natural gas stream. So there's a lot of excess ethane in the system.

And even with this new orbit terminal being structured and completed in

Speaker 0

q four, I think, of this year

Speaker 3

in New Zealand by Energy Transfer Partners. There's a hell of a lot of remaining at excess. The prices the price cash even after q four remains low, and if the market the local domestic market is soft, so we're thinking that the ethane price is gonna go hard, right, because of the ethane export, and you've probably seen effects of that today because it's a known property and it's a known infrastructure product. So we are pretty comfortable in that in that ethane will remain competitive. The cost curve for American Pepsi ethylene producers will remain competitive towards other areas of the world, and therefore, ethylene should remain competitive.

But you're right. You will have these monthly price adjustments that you're seeing right now on the OC leaving in The US. It's not so much about ethane. It's about some shop ins, some maintenance, unforeseen maintenance on various crackers. So instead of having you can buy ethylene at $300 a ton.

It is now $380 a ton, which is still pretty competitive to Asian prices today at $7.60. So we remain confident that ethane will be in excess. Therefore, the gas price will be competitive. Therefore, ethylene will be competitive.

Speaker 4

I'm aware that that's Okay. No. That was that was perfect, I really appreciate it. And last one for me real real quickly, and I'll turn it over. The we've seen a number of semi refrigerated vessels that have capacity to do both ethylene, LPG, obviously, and then in some cases, LNG.

I don't know that you guys have any that can do LNG, but we have seen some of those ships move into the LNG trade as there's been a real proliferation of small scale LNG. So maybe talk through how you see that playing out from a supply and demand perspective for the ships? And is that something that you guys would look potentially to become involved in?

Speaker 3

It's always good to see ethylene capable vessels that is also LNG capable going to the LNG trade because it it reduces the pool of available air to lead ships or many hand side ships. But those that number of vessels that can do natural gas as well is very limited. There's a series of eight ships controlled by. And as far as I am aware, one or two of those vessels have entered into the LNG trade. So for our for Navigator's core business, that is a good thing.

In terms of small scale LNG, that's been around for a long time, and you could probably go small scale LNG conferences every week of the year, and there's a lot of talk. Some projects are happening. Some have been implemented. It's probably going to be more of that going forward in terms of how that spoke distribution for LNG to various islands and small ports. We, being gas experts, know all petrochemical gas and how to handle gas and so forth using natural gas.

It's pretty easy and straightforward. It's pretty. It's not changing no grades. It's really a. So our expertise lends itself for that, but for the time being, we are very much focusing on more complex side of the gas, shipping and maritime business and linking that with the shore infrastructure we have.

We focus on where the the real growth is and the real potential as David mentioned in terms of being heavily involved in emerging petrochemical processing in The US and helping the export of coal to The Philippines

Speaker 4

Perfect. I appreciate it.

Speaker 5

Thank you. And your next question comes from the line of Sean Morgan from Evercore. Please go ahead.

Speaker 6

Hey, guys. So the the the ethylene or the the Morgan's Point Terminal, you guys were guiding towards, I think, 45,000 tons per month as of June, and you did 80,000. So previously, you talked, I think, about a million tons per year. So at that run rate, that's with without the the refrigeration storage capacity you talked about. So are we are we now looking at at potentially a higher eventual run rate for the for the capacity of this of this facility than what you you previously talked about?

Speaker 3

The tax so the implementation of the tank increases not the volume, but it increased the throughput, but it increases the loading base. So the jet is would be more efficient. So instead of loading a handysize today, taking the to four days, with the time to load a handysize in less than a day. So it's easier to schedule for the schedulers on the jetty, and the customers want to have the time. So, yeah, the group of volume won't change.

But you're right. But the the performance at the terminal, you can everybody's expectations. And I think that goes to what Harry has been mentioning the last two or 300 calls that, you know, we're not, you know, completely done with this terminal, and it's important look under the hood and see what is capable of. So no promises, but then the first signs are very encouraging.

Speaker 1

Okay. So as so as Ali, you know, think it's a you know, the fact that we move close to 80,000 tons is a great sign. You know, we always we've said many calls that engineers often build an excess capacity into infrastructure, and it's our job to find the right tune to play on the infrastructure to make sure that we utilize that. But that's a good sign that we're gonna exceed the 1,000,000 tons capacity. And, of course, you need things to go your way.

There's gotta be you gotta make sure there's no jetty congestion. You gotta make sure the temperature the ambient temperature is correct. But there's really positive signs that this this terminal is gonna have a increased capacity. This filled us all before. Okay.

So if you were

Speaker 6

able to do 80,000 in June, then should we think with the efficiency of loading this new storage tank that the 1,000,000 tons per annum is somewhat conservative? And also, does that have an impact on the profitability that we've talked about in the past? I think the guidance was around 25,000,000. Does does that potentially improve when you're hitting these volume levels kind of faster than you anticipated?

Speaker 1

Sean, yeah, I I like you to do it, and I did the same calculation myself. But I think you have to wait until we get the tank up and running and just see what we can do. Because you don't do it just for one month. You've gotta do it day in day out on an 80% 88 98% reliability basis. So there's great findings that this terminal will be able to put more volume through it, but let's wait until we get there and see what we can really do.

And, again, it's dependent on other things like on the temperature as well, but great signs so far that we've really hit hit that out of park to use poisonous and allergies.

Speaker 2

Okay. And then I know in the

Speaker 6

the Lunar Pool, you guys touched on in the presentation that it's really an accounting reason that you're now separating out the the revenue and the voyage cost separately. And if it started ramping in April and throughout the quarter to June, it just struck me as a little, I guess, optically weird that the voyage costs exceeded the allocation of revenues. Can you just maybe help us understand how that how that will change when it's when it's fully ramped and also if that, like, accounting anomaly is gonna persist?

Speaker 2

Let me let me try and explain that. This this is it's really depending on which of what each of the shifts are doing and based on two points, which are not dissimilar across the the fleet within the pool. But on this because the ships came in at different times during the second quarter, the pool came into action, then you you do have a bit of an anomaly coming on whereby, essentially, the the navigator ship gave $330,000 to the other pool participants. But if the charter rates on the other other pool participants' ships were higher than the navigator ships, then you would see that flow the other way. So it it can go one way or the other.

It's it's it's really the net effect that that is relevant, but it it shouldn't be significantly different either way. But you will you will get quarter by quarter slight shifts one way or the other.

Speaker 6

Okay. But that that in the pool, that'll eventually kind of work itself even out in the long run. Yeah. Okay. It's pretty

Speaker 2

small number. A in a volatile quarter, volatile in the sense that with ships coming in at different times to start up the pool, a $330,000 imbalance is is pretty pretty negligible in the scheme of things. But you're right. It will

Speaker 1

it will balance out to zero at the end of the day. And, Sean, the other

Speaker 3

thing that we've got the other

Speaker 1

thing we had in the school, I'd say, was we have to have a management fee that reduced that the spars even more, to be honest. But the the best thing about the drill is that we've got access to more ethylene vessels so we can participate in the upside. We'd like to put a single fence and send new vessels or new seal into the shipyard or in the water. So we're it still allows us to participate in that upside for for ethylene coming from our own joint venture terminals this week.

Speaker 6

Oh, okay. So that was in in part, the thinking was you can kinda ramp up your ability to to service your own terminal now that you you knew that it was coming online. Perfect. That makes sense. Thanks thanks a lot.

Gonna turn it over.

Speaker 5

Thank you. And your next question comes from Omar Nokta from Clarkson Center. Please go ahead.

Speaker 3

Hi. Hey, guys. Thank you.

Speaker 1

You you know, I was

Speaker 4

to just ask maybe about the the Lunar Pool, and you did a pretty good overview. Is the idea really to use those 14 vessels on a sort of a line to to work out of the, you know, the ethylene terminal, or will they be trading a bit more worldwide?

Speaker 3

Hi. Start. The pool will grow the vessels of

Speaker 4

the pool will grow where

Speaker 3

the money is. And right now, it's associated with ethylene and particularly with the terminal because that's suddenly, we have incremental supply of ethylene that needs tonnage. So the global footprint of the pool is there because the voyages we do in ethylene are quite long. So most of them, I think bar one, are trading or bar two are trading ethylene today. The other two are doing ethane.

So all they're doing is to relate the trade, which you need this ethylene capability for, which is great. So they're not impinging on the semi rep semi refrigerated chips, we mentioned in the in the remarks. But it's

Speaker 2

a it's a global it's a

Speaker 3

global tool. It just happens that most of the voyages sent to US. Great. Thank you.

Speaker 6

Yeah. Sorry. I no.

Speaker 4

That that that's that's helpful. The you know, obviously, it's been a while since we've seen you guys enter into, you know, long term charter. You entered into the three year TC on one of your ethane shifts. You've got another one for a year plus. Yeah.

They're both carrying ethane from your from your your filing. How do you think about potential employment opportunities for some

Speaker 1

of the other vessels? Do do you

Speaker 4

see I know you just got the three year contract, but do you see opportunities for more along these lines?

Speaker 3

I believe so because of the fact let me go to Ben's first question about the competitiveness of U. Ethane, the production of ethane there. So at an ethane conference many years ago, the presenter was alleging Epstein to the zombie, so he was neither dead nor alive. And that happens with Epstein. In theory, she's very active and people commit to long term contracts because ethane is a feedstock at the end of the day, lends itself to structured deals, not bonds.

And then it turns back to the debt form, and now it's back again. And it's relating to also what's been mentioned that there are infrastructure projects happening in The US that are coming for commissioning. And suddenly, world petrochemical or global petrochemical producers can now start to eye or see more supply coming from The US because there's more terminal capacity. So it hits and flows. There's not a spot market per se, structural move, and that's how you see you can see what happens now with with the longer term contract of one of our mid-twenty ships.

Speaker 4

Got it. Thank you. And then maybe just on on the terminal, you know, the ethylene terminal.

Speaker 1

Do you have a sense of,

Speaker 4

you know, what percentage of of that will actually be, you know, ethylene versus ethane? Is it predominantly gonna be ethylene? Is there any ethane that be coming out of the terminal?

Speaker 3

The ethane part of the terminal is not is not part of the joint thing, so that is entirely 100% enterprise. The particularity is there there is that there are two jetties, and they both the both of the jetties can load ethane and ethylene. So it it lends itself to a beautiful situation whereby ships can co load at the same place ethylene and ethane if the ship is capable. But so far, at least for the Lunar Pool and the Navigate Dragons, we have loaded full cargo ethylene, but co loading is possible.

Speaker 0

I see. Okay. Great.

Speaker 4

That that's it for me. I'll leave

Speaker 0

it there. Thank you. Thank

Speaker 5

you. And your next question comes from Randy Giveansky, Jefferies. Please go ahead.

Speaker 1

Are gentlemen? How's it going?

Speaker 0

Good. Fine. Thank you.

Speaker 4

Great. Honestly, I'd like to see the the terminal ramp is faster than expected. You said 80,000 in June. I heard

Speaker 0

you said 60,000 in August, assuming somewhere between July. I guess, how frequent are you seeing loading currently?

Speaker 4

And more importantly, following June's profitable month, what are your profit expectations for the terminal in the third quarter?

Speaker 3

So I can answer the first question on ethylene loading. So we are working with enterprise every day twenty four seven to optimize those two jetties. And our obviously, in our interest is for ethylene. So to have a ship there at every single hour of the of the day, thirty or thirty one days of the month in order to maximize the throughput. But in between, in July and August, there's been some some issues with the lightning storms in Houston, which I'm sure Randy you are very familiar with, which impact Yes.

Yes. Waste for matters, which, you know, safety first. And there's also a conditioning and other things going on with the tank and various maintenance and so forth. So it's not the volume during those two months. It's not so much that we weren't able to have a ship on the dock, but it's relating to other factors.

Speaker 4

And I'll let any of you answer the next part.

Speaker 1

Niall, do you wanna take that?

Speaker 2

Sorry. The the probability of coming going forward, I I mean, I I think it's it's going to be consistent with June. We're expecting proof, but notwithstanding what Oeyvind said, about of about 70,000 tons per month of both July and August. September is is unknown just yet. So we would expect a profit of above a million dollars per month for q three.

Speaker 4

Perfect. Alright. And then I know Omar was speaking

Speaker 1

to me some of

Speaker 4

the the charters, which were, yeah, they did sign there on the ethane side. Any updates for charters out of the ethylene terminal?

Speaker 3

On the ethylene side, we have some existing contracts. And if you read the earnings release that says the the terminal is popping up on spot cargoes. So there's a mix of firm contracts that, you know, Navigator or the Luna Pool is engaged in and also trying to follow the upside on the spot market, which, obviously, we're in a very good position to do because we have more ships to the pool. So there's there's a there's a mix there.

Speaker 4

Got it. Okay. And I guess last question, probably the biggest, about the $100,000,000 bond due in 2021. You know, you had the 34,000,000 in the amended terminal facility that increased the liquidity there. You have an upcoming refinancing for, hopefully, another $30,000,000.

So with this 54,000,000 in liquidity plus, you know, ideally, some free cash for the next six months, you think you'll have to refinance the entire 100,000,000 units unsecured bond, or are you expecting kind of a a partial refinancing of that note?

Speaker 2

I I I think given the current circumstances or the uncertainty surrounding COVID, it would be wise to keep as much liquidity headroom as we possibly can. So preference would be to to refinance the full amount, but it's given the amount of headroom, and we could have a $120,000,000 of of cash against a 40 odd million liquidity requirement,

Speaker 3

it is possible that

Speaker 2

we could have a lesser amount or refinance a lesser amount. But I think in in the current climate, we would be wise to, at at least in '46 to refinance the full amount.

Speaker 4

Got it. Okay. Well, hey. That's it for me. Alright.

Keep it going.

Speaker 0

Yeah. So we're approaching the 10:00 hour. So unless there's another question, we can wrap it up today.

Speaker 5

Do have one more question. It comes from Jay Lindstrom from Value Investments. Please go ahead.

Speaker 4

Hi. Good morning, gentlemen. Thanks for squeaking me in here. I'll make this one quick. Yeah.

So we had a good discussion just previous from Randy about the unsecured bond. We've seen in the pipeline and the energy infrastructure area interest rate costs have just plummeted, right? We've seen a lot of MLPs and such refinancing 5%, 6%, 7% unsecured debt at like 1% or 2% debt. Now I understand shipping always gets kind of discriminated against in the debt markets. But have you seen those costs coming down as of yet?

Do you think you can secure a lower interest rate cost? Any idea what the current kind of spreads are?

Speaker 2

I think the spreads are still on the slightly high side. So there is some potential cost savings, but it's not not material from where this bond is is currently at.

Speaker 4

It's unfortunate. You have, you know, one of the most exciting infrastructure assets in the Eastern Seaboard. So, hopefully, that'll that'll start to gain some attention. Final question. You've done a great job.

You have 95% take or pay on the first phase. The June performance was We're looking forward to that new tank. What does it take? Like, how many more customers lining up does it take for you to step forward onto some sort of a phase two?

Speaker 1

That's a very a very good question, Jay. Again, we we today, we don't fully understand what we can do with that asset, and we believe there's lots of room there to squeeze more out of the asset and fully utilize it for three d bottleneck. So we'll we'll take it one day at a time. But if people wanna come and knock on our door, then, of course, we'll have discussion.

Speaker 4

Alright. Hopefully, a 2021 topic. Thank you, gentlemen.

Speaker 3

Thank you. Take care.

Speaker 0

Well, thank you to all for joining us this morning, and we look forward to our third quarter conference call in a few months. Thank you again.