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Dorian LPG LTD (LPG) Q4 2019 Earnings Call Transcript

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Dorian LPG LTD (NYSE: LPG)
Q4 2019 Earnings Call
May. 23, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings and welcome to the Dorian LPG Fourth Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. Additionally, a live audio webcast of today's conference call is available on Dorian LPG's website, which is www.dorianlpg.com.

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

Theodore B. Young -- Chief Financial Officer.

Thank you, Melissa. And good morning everyone. Thank you all for joining us for our fourth quarter 2019 results conference call. With me today. John Hadjipateras, Chairman, President and CEO of during LPG limited, and John Lycouris, Chief Executive Officer of Dorian LPG USA. As a reminder this conference call webcast and a replay of this call will be available through May 30th, 2019.

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

Additionally, let me refer you to our unaudited results for the period ended March 31, 2019, that were filed this morning on Form 8-K. In addition, please refer to our previous filings on Form 10-K and Form 10-Q, where you'll find risk factors that could cause actual results to differ materially from those forward-looking statements\

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

John Hadjipateras -- Chairman, Chief Executive Officer and President

Thanks, Ted. Good morning from Stanford, Connecticut, and welcome to our financial year 2019 fourth quarter earnings call. As we have done in the past, I will give you a brief report and introduce Ted to go over the numbers for the quarter, followed by John, who will talk about the developments in the market and our fleet, then we'll take questions.

On this day in 2014, the Baltic rate was $80. In 2015, on this day, it was $111. They then followed three long miserable years. It was $30, 12 months ago, and it has been trending up since, but not wholly without volatility. From the $30 in May 2018, we went to $48 in October and dropped to a low of $24 in February of this year, before making the recent high of $65 in April. Yesterday, we closed at $59.5, a sturdy time charter equivalent of $45,500 per day. This volatility negatively impacted the financial results of the quarter we are reporting. And we expect it will positively reflect in the current quarter's results when we report them.

Seaborne LPG exports year-to-date have increased 17%, totaling 34.5 million tons. Export capacity is forecast to grow considerably in each of the next two years. New fractionation is planned in the US through 2020, amounting to 1.6 million barrels a day, and export capacity through 2020 is expected to increase by 11 to 12 VLGC cargoes per month. Demand forecast remains strong as well driven by new PDH plants scheduled to start in Asia and planned expansions of Korea's cracking capacity. The Indian government has also forecast demand for LPG to grow 11% to 12% per annum over the next five years. LPG is a clean and portable fuel. It produces five times less NOx than diesel. It is nontoxic and noncorrosive. Up to 3.7 million deaths annually, according to the WPGA (ph), are attributed to ambient air pollution. LPG can and should be making inroads in transport, residential and electricity generation.

The world VLGC fleet now comprises 277 ships, 35 of which, or 12%, are over 20 years old. The order book remained stable at just over 13% of the fleet. Five vessels have been delivered this year. Our ECO fleet and readiness to fit exhaust gas cleaning systems are experienced with operating two ships already fitted with these systems. Our customer focus and pool operation should keep us at a competitive advantage. We continue to consider potential conversion to dual fuel capability. And while the economic viability is yet to be proven, we are nevertheless convinced by the promise of LPG over alternative fuels, including LNG. LPG has excellent clean handling properties, low emissions, no methane slip and lower installation and life cycle costs. Finally, before putting Ted and John on, I would like to reiterate what I also said on our last call that our balance sheet remains strong. We have the lowest debt to new building parity value and debt to total cap among our quoted VLGC peers. Our debt is 90% interest rate-hedged, and our current interest rate cost is less than 4.3% per annum.

Ted?

Theodore B. Young -- Chief Financial Officer.

Thanks. My comments today will focus on our unaudited fourth quarter results. Also, please note that we expect to file our Form 10-K next week.

Beginning with our chartering results, we achieved total utilization of 90.2% for the quarter, with a time charter equivalent per day -- time charter equivalent, again, is our time charter equivalent revenue over operating days as further defined in our filings, of $18,883 a day, which yielded utilization adjusted TCE, or TCE per available day, of $17,032. Our spot TCE per operating day for the quarter was $16,550, with utilization of 88.5%. I'd also point out that our spot results were net of the administrative costs of the pool, and as a result, our actual time charter equivalent is higher than this level.

Daily OpEx for the quarter was $8,104, which compared to last quarter's $8,287 per day. The quarter-over-quarter trend is, of course, favorable, and our technical management team continues to keep a sharp eye on cost. Total G&A for the quarter was $5.7 million, and cash G&A, i.e, G&A excluding non-cash compensation expense, was about $4.4 million. This level is broadly consistent with last quarter's.

Note, by the way, that our G&A excludes the professional and legal fees related to BW LPG's unsolicited proposal, which we have separately reported.

Our reported adjusted EBITDA for the quarter was $14.1 million, which is a decline from the third quarter and reflects the more challenging rate environment that we faced in the quarter just ended.

We look at cash interest expense as the sum of the line items interest expense, excluding deferred financing fees and other loan expenses, and realized gain loss on derivatives. On that basis, total cash interest expense for the quarter was $7.8 million, which was down about $200,000 from the prior quarter, largely due to continued debt pay-down.

As John points out, in excess of 90% of our debt is either fixed or hedged, and we currently enjoy a financing rate of around 4.3%, which we believe is quite competitive. Excluding costs related to the BW proposal, we continued to maintain cash cost per day of approximately $23,000, including lower prime charter.

Turning briefly to the full year, we reported a full year TCE per operating day of $21,746, which was fairly flat with the prior year. OpEx per day was $8,329, an increase over last year due to the dry docking this financial year and some other cost increases in various categories. EBITDA again excluding the BW proposal costs for the year just ended with $74.4 million, which was flat with a $74.5 million record for fiscal year 2018.

For the coming fiscal year, we expect scrubber and dry docking related capital expenditures of roughly $15.5 million. We break that down as follows by quarter: $2.8 million expected in Q1, which will be the quarter ending June 30th; $6.5 million in the quarter ending September 30th; $5.1 million in the December ending quarter; and $3.5 million in our fiscal fourth quarter.

We currently plan to dry dock five vessels and install scrubbers on two of those five during calendar '20. Sorry. We're going to dry dock five vessels, we will install scrubbers on all of them and we're also going to install ballast water treatment systems on two of those five. In terms of timing, we expect to dry dock two vessels in July this year 2019, two in August and one in September.

In addition $15.5 million capital cost, we will incur some non-capitalized expenses as well. While we normally complete special surveys in 10 to 14 days, the installation of the scrubbers can add up to approximately two weeks to the process, meaning that we could be off hire for up to 25, 30 days for each vessel. However, our technical team continues to evaluate ways to reduce time in dry dock such as by completing certain work while at sea.

Given the strong rate outlook, we currently anticipate funding these investments from cash flow, but we are continuing to evaluate several financing possibilities. These make economic sense for shareholders. We will look to execute on them.

We remain comfortable with our current and forecast liquidity levels given our current or constructive market yield. On May 31st, 2019, the restrictions on payment of dividends and stock buybacks from our May 2017 bank amendment will lapse. While we have made no plans to repurchase stock or pay a dividend, capital allocation is a top priority for our management and our Board. We are pleased to have this additional flexibility available for our shareholders again.

With that, I'll pass it over to John Lycouris.

John Lycouris -- Chief Executive Officer, Dorian LPG LLC

Thank you, Ted. The US LPG exports April year-to-date have grown 21% year-on-year to 11.9 million tonnes, while Middle East exports have grown 6% year-to-year to 13 million tonnes. US exports exceeded historical highs this April, increasing 39% year-on-year to 68 VLGC cargoes versus 49 VLGC cargoes for the same time last year. Propane inventories in the US continue at the higher end of their five-year range. The 2019 US supply forecast have been revised higher with the completion of the Shin Oak pipeline and the scheduled third quarter '19 completion of the Grand Prix pipeline, both will be carrying Permian Y-grade volumes to Mont Belvieu.

With so much feedstock flowing to the Gulf Coast, Enterprise has now moved forward its estimated completion of their frac 10 unit to the fourth quarter of 2019 from first quarter '20 previously. In total, for PADD 3, we estimate that an additional 270,000 barrels per day of fractionation capacity will be added in 2019 and another 1.35 million barrels per day planned for 2020. Given this increased supply, significant export volumes of LPG appear to be materializing.

AltaGas Ridley Island in British Columbia is an LPG export terminal, which has just recently completed its outfitting and building, and is currently loading their first VLGC bond for the Far East. We expect to see 2 VLGC cargoes per month out of Ridley this year and likely to go to three or four cargoes next year per month. In 2017, 24% of all the US exports were delivered to China. With the imposition of the US-China tariffs, all export to China effectively stopped, and equivalent volumes were instead lifted from the Middle East, thus bolstering the Saudi CP-posted prices in the process versus the Mont Belvieu LPG prices. A significant arbitrage developed between the two primary supply regions, resulting in US LPG becoming very price-competitive.

For countries like India and Indonesia, this meant substantial reduction of liftings from the Middle East, and US-sourced cargoes were in high demand. Two out of seven US-sourced VLGCs booked for Indian discharge most likely exacerbated by the US non-renewal of the Iranian sanction waivers and highlighting the desire of importing countries to diversify their source of LPG supply. In view of the general elections, the Indian government accelerated their massive subsidy program by adding LPG connections to 10 million users within the first quarter of 2019, resulting in a 10.2% year-on-year demand increase. Indonesia followed a similar trajectory in LPG demand during the first quarter of 2019 from new cylinder -- LPG cylinder subsidies on account of their upcoming elections in their country. The reduction of lifting from Middle East was again taken up by US sourced LPG cargoes.

Shipping delays in the Houston ship channel have also boosted Mariner East pipeline volumes out of Marcus Hook terminal to around 8 VLGC vessels per month during March and April. When we visited one of our vessels loading at the Marcus Hook terminal last week, we witnessed first hand a 36-hour turnaround in loading a full VLGC cargo in our vessel when in the past it would have taken four days and we were highly impressed by the terminal's efficiency of operations and the significant refrigerated propane storage tank farm, likely to be the largest in the East Coast of the United States.

Finally, to recap, Dorian LPG designed and diligently prepared its fleet with a view to capitalize on the IMO 2020 regulations. We have been operating scrubbers in our fleet since 2015, gaining experience and knowledge in real-time scrubber equipment operations. Many of our vessels were built scrubber-ready. Retrofitting commenced during calendar 2019. Our hybrid scrubbers enable our vessels to operate in all portion of the world either in open or closed loop, in fresh or salt waters and will uniquely position our fleet to operate with maximum flexibility. Thank you.

And with that, I'll pass it over to John Hadjipateras.

John Hadjipateras -- Chairman, Chief Executive Officer and President

Thanks John. Melissa, you want to turn it over to questions please.

Questions and Answers:

Operator

Thank you, gentlemen. At this time we'll be conducting a question and answer session. (Operator Instructions) Our first question comes from the line of Noah Parquette with JP Morgan. Please proceed with your question.

Noah Parquette -- JP Morgan -- Analyst

Hi, good morning thanks. I want to ask maybe, Ted, as you guys -- obviously, rates have improved quite a bit, so more cash flow hopefully coming. You mentioned you're OK with the capital structure, but are there other things that you want to do in terms of repaying debt or reversing the capital leases or are you comfortable with just natural deleveraging where you're at now and then focus on other things?

Theodore B. Young -- Chief Financial Officer.

I think that we're not focusing yet on what to do with the excess capital with the excess, but as always I think we'd look at what would be creating the best shareholder value. I think we don't look at our leases as being burdensome at all, and I don't want signal something that we haven't decided yet. But if we were to deleverage it might be more first the bank obligations and then leases. And otherwise, it's a problem we look forward to having to think about.

Noah Parquette -- JP Morgan -- Analyst

Okay. That makes sense. And I don't want to ask -- you guys gave great color on the market and the reason for the (inaudible) the tariffs. I mean, what would you think would happen assuming an agreement is reached where the tariffs do go away? And it might be a little far-fetched. But I just would love to hear your thoughts on how that would affect the market on any reversals you've seen?

John Hadjipateras -- Chairman, Chief Executive Officer and President

I can't give you a three letter word. Wow. That's what I think.

John Lycouris -- Chief Executive Officer, Dorian LPG LLC

I would say business as usual.

John Hadjipateras -- Chairman, Chief Executive Officer and President

Yeah. As you know that it hasn't really impacted the ton mile equation, but the dark cloud over the uncertainty, et cetera, is something that we fear for the future of the world economy and its potential impact on everything, including our trade. So if that was removed, I think it would be a very big positive all around for everyone.

Noah Parquette -- JP Morgan -- Analyst

Okay. That's all I have. Thank you.

Theodore B. Young -- Chief Financial Officer.

Thank you, Noah.

Operator

Thank you. Our next question comes from the line of Michael Webber with Wells Fargo. Please proceed with your question.

Michael Webber -- Wells Fargo -- Analyst

Hi. Good morning, guys. How are you?

Theodore B. Young -- Chief Financial Officer.

Hi, Mike.

John Hadjipateras -- Chairman, Chief Executive Officer and President

Mike himself.

Michael Webber -- Wells Fargo -- Analyst

Yes. Thanks. Good to hear from you. The first question is it's actually just really high level and pretty straightforward. We can all map out how different US export facilities are coming online and being the bottlenecks. And it's a bit of a crystal ball question, but when you look at that and you look at the dynamics that we've got in play now from a ton mile perspective, is there a particular inflection point that you see coming with any particular phasing in of a facility and/or patch of time where you think, OK, this seems like this is where we're going to hit a critical point from a utilization perspective and you can start to see rates really gap?

Theodore B. Young -- Chief Financial Officer.

Really gap upwards, you mean, right?

Michael Webber -- Wells Fargo -- Analyst

Yeah.

Theodore B. Young -- Chief Financial Officer.

Since you defined your question as high level, I let Lycouris answer it.

Michael Webber -- Wells Fargo -- Analyst

You can get as granular as you want. I just figured it can be high level, but by all means, you can do it through all day. Go ahead.

John Lycouris -- Chief Executive Officer, Dorian LPG LLC

Well, Mike, the issue is the Houston ship channel. But if as you see the facilities are being expanded not only the Houston ship channel and improved but also in other places like Nederland and Freeport Texas and Marcus Hook, and the West Coast of the United States, I think, we will be able to have better utilization of the vessels which is good news for all of us because that means that we will be able to move more product out. So in general terms I think that the way we've done it for the last five years with increased capacity coming on line and being able to deal with it, I think we will continue to do it. I do not see it jump up or some kind of unusual movement in the market.

John Hadjipateras -- Chairman, Chief Executive Officer and President

And I think it's obvious that we do -- we are closer to equilibrium right. I mean these spikes tell you that there is a kind of -- that the demand/supply balance is closer to equilibrium. Now, the fact that it can drop as much as it does it shows -- it tells you that we're not there yet, but I think we're definitely moving in the right direction.

Michael Webber -- Wells Fargo -- Analyst

Would agree and that makes sense, and that leads me to the follow up to that question. If I think about the top half of the cycle and finding an inflection point where you do see rates kind of gap up and you go back to a period like 2014, 2015, it would seem like we probably still need to see a couple of new export facilities built in the US, kind of new construction, which seems like we're getting closer to that point, getting a nameplate and then starting to tack a little bit on to that. I guess the question is do you think that's probably valid? And then, to the extent that you're having conversations with your customers, do you think that's something we would look likely see in the next couple of years?

John Hadjipateras -- Chairman, Chief Executive Officer and President

Hard to tell. I was down in Houston last week, and I met with one of the terminal operators there. And they have a pretty solid expansion plan, but I don't think they want to get ahead of themselves. So they're not really sort of leapfrogging. They're going one step at a time. That's my sense.

Michael Webber -- Wells Fargo -- Analyst

Okay. That's helpful. It's a tough question to answer so I appreciate you swinging at it. Ted, one modeling question for you, and you might have mentioned this in your prepared remarks and I missed it, but in terms of the legal expenses from BW, should we expect any of that to bleed into Q2, or is that done?

Theodore B. Young -- Chief Financial Officer.

No it should be done. Look we booked the vast, vast, vast majority of it in Q3 and we booked like $2,200 something this past quarter and that should be the end of it.

Michael Webber -- Wells Fargo -- Analyst

Okay. I apologize by doing this a bit out of sequence, but if I just jump back to the market and maybe just thinking about supply disruptions from a tonnage perspective. You guys laid out your plan for dry docking, scrubber installations and ballast water treatment. As you look at the rest of the LPG space to the extent that you can get a sense of what your competitors are planning, how do you think that scrubber adoption throughout the rest of the space? How should we think about the cadence of vessels kind of going out of the market over the next 12 to 18 months going into dry dock?

John Hadjipateras -- Chairman, Chief Executive Officer and President

We are all looking at each other here.

Theodore B. Young -- Chief Financial Officer.

I mean, look, obviously, all the 2015 builds are going to be coming up pretty fast. I mean 2014 was not a huge year of deliveries, but beginning in 2015, all of those 15 builds are going to -- by and large, are going to have to go into dock, so it could be a big number.

Michael Webber -- Wells Fargo -- Analyst

Got you. Okay. All right. I can follow up off line. Thanks guys.

John Hadjipateras -- Chairman, Chief Executive Officer and President

Thanks, Mike.

Operator

Thank you. (Operator Instructions) Our next question comes from line of Peder Jarlsby with Fearnley Securities. Please proceed with your question.

Peder Jarlsby -- Fearnley Securities -- Analyst

Good morning, guys.

Theodore B. Young -- Chief Financial Officer.

Hi, Peder.

John Lycouris -- Chief Executive Officer, Dorian LPG LLC

Hi, Peder.

John Hadjipateras -- Chairman, Chief Executive Officer and President

Peder, good morning. Or afternoon to you.

Peder Jarlsby -- Fearnley Securities -- Analyst

Yeah. Afternoon, that's right. Just from the time charter, I noticed that you had roughly $0.25 million slightly less on chartering costs and roughly 10 days charter in. Is it fair to assume that all-in costs for that is $23,000, $24,000 a day or have I missed something?

Theodore B. Young -- Chief Financial Officer.

Not far off.

Peder Jarlsby -- Fearnley Securities -- Analyst

It seems like a good rate.

John Hadjipateras -- Chairman, Chief Executive Officer and President

Yes. Not far off.

Peder Jarlsby -- Fearnley Securities -- Analyst

And I guess his deal was concluded slightly ahead of the market taking off. What do you think you would have to pay for a similar deal now?

Theodore B. Young -- Chief Financial Officer.

I don't know. I mean because of this volatility it's sort of -- it goes up week to week. But I don't think we could repeat that deal today.

Peder Jarlsby -- Fearnley Securities -- Analyst

That's fair. And just one question -- sorry, one market-related question for John. We've spoken a lot about the oil price linked to the Asian propane prices in the past and as we kind of move forward do you think that Asian propane will continue to be priced off oil or do you see other pricing dynamics emerge as more of the quality incremental demand coming from non-flexible feedstock or petchems?

John Lycouris -- Chief Executive Officer, Dorian LPG LLC

I think it's probably more related to the products out of the PDH plants and it is related to -- more to the petrochemical rather than the oil price. I think we have disengaged from that, but we are certainly tied with Middle East pricing and that affects the business just like naphtha does, but naphtha is pretty far away now. If it becomes more competitive there's always the opportunity for naphtha to get a bigger market share. But it's very difficult to make changes in the mix of feedstock to these petrochemical facilities unless there is a long-term trend and I do not see a long-term trend here. I see a long-term trend for the LPG to be significant in volume to be able to command a good attractive price versus naphtha.

Peder Jarlsby -- Fearnley Securities -- Analyst

I guess a lot of investors are kind of looking at these days is IMO 2020 and what's going to happen with potentially a lot of naphtha coming into the market next year. And I don't know if you have any views on how that could potentially impact the markets.

John Lycouris -- Chief Executive Officer, Dorian LPG LLC

Peder, this is a crystal ball question and I really -- everybody has their own opinion about things. It's not worth even speculating about it. Whatever I say is just my opinion versus yours or somebody else's. So I'd rather leave it alone and try to prepare ourselves for every eventuality. And that's the way we see it.

Peder Jarlsby -- Fearnley Securities -- Analyst

All right. Perfect. That's all for me. Thank you guys.

John Lycouris -- Chief Executive Officer, Dorian LPG LLC

Thanks, Peder. Great.

John Hadjipateras -- Chairman, Chief Executive Officer and President

Thank you, Peder.

Operator

Thank you ladies and gentlemen. (Operator Instruction) Mr. Hadjipateras, there are no further questions at this time, I'll turn the floor back to you for any final comment.

John Hadjipateras -- Chairman, Chief Executive Officer and President

Thank you, Melissa. And thank you all. And look forward to -- we wish you a happy summer. And we look forward to the next call and hopefully, continuing improvements in the market. Thank you and bye-bye.

Operator

Thank you, ladies and gentlemen. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Duration: 29 minutes

Call participants:

Theodore B. Young -- Chief Financial Officer.

John Hadjipateras -- Chairman, Chief Executive Officer and President

John Lycouris -- Chief Executive Officer, Dorian LPG LLC

Noah Parquette -- JP Morgan -- Analyst

Michael Webber -- Wells Fargo -- Analyst

Peder Jarlsby -- Fearnley Securities -- Analyst

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This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

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