Dorian LPG a leading owner and operator of modern very large gas carriers (“VLGCs”), reported its financial results for the three months ended June 30, 2023.
Key Recent Developments
Declared an irregular cash dividend totaling $40.4 million to be paid on or about September 6, 2023.
Time chartered-in a dual-fuel Panamax VLGC for seven years, with two consecutive one-year charterer’s option periods and purchase options in years seven through nine.
Fixed the interest rate on the Cougar Japanese Financing Arrangement at 6.34% effective August 2023.
Highlights for the First Quarter Fiscal Year 2024
Revenues of $111.6 million.
Time Charter Equivalent (“TCE”)(1) rate per operating day for our fleet of $51,156.
Net income of $51.7 million, or $1.28 earnings per diluted share (“EPS”), and adjusted net income(1) of $48.9 million, or $1.21 adjusted earnings per diluted share (“adjusted EPS”).
Adjusted EBITDA(1) of $74.8 million.
Declared and paid an irregular cash dividend totaling $40.4 million in May 2023.
TCE, adjusted net income, adjusted EPS and adjusted EBITDA are non-U.S. GAAP measures. Refer to the reconciliation of revenues to TCE, net income to adjusted net income, EPS to adjusted EPS and net income to adjusted EBITDA included in this press release under the heading “Financial Information.”
John C. Hadjipateras, Chairman, President and Chief Executive Officer of the Company, commented, “The first quarter results reflected a firm market, as strong demand continues to absorb new-building deliveries. Our board declared an irregular dividend, once again highlighting our commitment to disciplined capital allocation consistent with a strong balance sheet. The addition of the “Cristobal,” one of four dual-fuel ships to join our fleet, reflects a diligent approach to fleet renewal. It is appropriate to acknowledge that our fine results would not have been possible without our dedicated seafarers and our shoreside staff who strive to provide our customers the best, safe, reliable, clean and trouble free transportation service.”
First Quarter Fiscal Year 2024 Results Summary
Net income amounted to $51.7 million, or $1.28 per diluted share, for the three months ended June 30, 2023, compared to $24.8 million, or $0.62 per diluted share, for the three months ended June 30, 2022.
Adjusted net income amounted to $48.9 million, or $1.21 per diluted share, for the three months ended June 30, 2023, compared to adjusted net income of $22.4 million, or $0.56 per diluted share, for the three months ended June 30, 2022. Adjusted net income for the three months ended June 30, 2023 is calculated by adjusting net income for the same period to exclude an unrealized gain on derivative instruments of $2.9 million. Please refer to the reconciliation of net income to adjusted net income, which appears later in this press release.
The $26.5 million increase in adjusted net income for the three months ended June 30, 2023, compared to the three months ended June 30, 2022, is primarily attributable to (1) increases of $34.8 million in revenues and $1.3 million in interest income; (2) a $1.9 million favorable change in realized gain/(loss) on derivatives; and (3) decreases of $0.5 million in voyage expenses and $0.2 million in general and administrative expenses; partially offset by increases of $5.1 million in charter hire expenses, $2.7 million in vessel operating expenses, $2.4 million in interest and finance costs, and $0.9 million in depreciation and amortization; and a reduction of $0.9 million in other gains, net.
The TCE rate per operating day for our fleet was $51,156 for the three months ended June 30, 2023, a 29.2% increase from $39,608 for the same period in the prior year, driven by higher spot rates and reduced bunker prices. Please see footnote 7 to the table in “Financial Information” below for information related to how we calculate TCE. Total fleet utilization (including the utilization of our vessels deployed in the Helios Pool) increased from 95.9% during the three months ended June 30, 2022 to 98.0% during the three months ended June 30, 2023.
Vessel operating expenses per day increased to $10,383 for the three months ended June 30, 2023 compared to $9,378 in the same period in the prior year. Please see “Vessel Operating Expenses” below for more information.
Revenues
Revenues, which represent net pool revenues—related party, time charters and other revenues, net, were $111.6 million for the three months ended June 30, 2023, an increase of $34.8 million, or 45.2%, from $76.8 million for the three months ended June 30, 2022 primarily due to an increase in average TCE rates, fleet utilization, and fleet size. Average TCE rates increased by $11,548 per operating day from $39,608 for the three months ended June 30, 2022 to $51,156 for the three months ended June 30, 2023, primarily due to higher spot rates and lower bunker prices. The Baltic Exchange Liquid Petroleum Gas Index, an index published daily by the Baltic Exchange for the spot market rate for the benchmark Ras Tanura-Chiba route (expressed as U.S. dollars per metric ton), averaged $95.729 during the three months ended June 30, 2023 compared to an average of $76.175 for the three months ended June 30, 2022. The average price of very low sulfur fuel oil (expressed as U.S. dollars per metric ton) from Singapore and Fujairah decreased from $955 during the three months ended June 30, 2022, to $584 during the three months ended June 30, 2023. Our fleet utilization increased from 95.9% during the three months ended June 30, 2022 to 98.0% during the three months ended June 30, 2023. Our available days increased from 2,002 for the three months ended June 30, 2022 to 2,219 for the three months ended June 30, 2023 due to three additional vessels in our fleet.
Charter Hire Expenses
Charter hire expenses for the vessels chartered in from third parties were $10.5 million and $5.4 million for the three months ended June 30, 2023 and 2022, respectively. The increase of $5.1 million, or 95.2%, was mainly caused by an increase in the number of chartered-in days from 182 for the three months ended June 30, 2022 to 364 for the three months ended June 30, 2023, partially offset by a slight decrease in the average cost per day.
Vessel Operating Expenses
Vessel operating expenses were $19.8 million during the three months ended June 30, 2023, or $10,383 per vessel per calendar day, which is calculated by dividing vessel operating expenses by calendar days for the relevant time-period for the technically-managed vessels that were in our fleet. The increase of $2.7 million, or 16.3% from $17.1 million for the three months ended June 30, 2022 was partially due an increase in operating expenses per vessel per calendar day along with an increase of calendar days for our fleet from 1,820 during the three months ended June 30, 2022 to 1,911 during the three months ended June 30, 2023. The increase in calendar days resulted from the delivery of our dual-fuel VLGC Captain Markos in March 2023. The increase of $1,005 per vessel per calendar day, from $9,378 for the three months ended June 30, 2022 to $10,383 per vessel per calendar day for the three months ended June 30, 2023, was primarily the result of increases of $634 per vessel per calendar day for spares and stores and $369 per vessel per calendar day for repairs and maintenance. Both cost categories were driven by non-capitalizable drydock-related operating expenses totaling $274 per vessel per calendar day.
General and Administrative Expenses
General and administrative expenses were $9.2 million for the three months ended June 30, 2023, a decrease of $0.2 million, or 2.1%, from $9.4 million for the three months ended June 30, 2022. This reduction was driven by a decrease of $0.9 million in cash bonuses resulting from differences in the timing of the approvals of cash bonuses to certain employees in the periods ended June 30, 2023 and 2022. This decrease was partially offset by increases of $0.3 million in employee-related costs and benefits, $0.1 million in stock-based compensation and $0.3 million in other general and administrative expenses for the three months ended June 30, 2023.
Interest and Finance Costs
Interest and finance costs amounted to $10.4 million for the three months ended June 30, 2023, an increase of $2.4 million, or 30.7%, from $8.0 million for the three months ended June 30, 2022. The increase of $2.4 million during this period was mainly due to an increase of $3.1 million in interest incurred on our long-term debt and a reduction of $0.2 million in capitalized interest, partially offset by reductions of $0.6 million in amortization of financing costs and $0.3 million in loan expenses. The increase in interest on our long-term debt was driven by an increase in average interest rates due to rising SOFR on our floating-rate long-term debt, partially offset by a decrease in average indebtedness, excluding deferred financing fees, from $687.9 million for the three months ended June 30, 2022 to $658.2 million for the three months ended June 30, 2023. As of June 30, 2023, the outstanding balance of our long-term debt, net of deferred financing fees of $5.9 million, was $644.4 million.
Unrealized Gain on Derivatives
Unrealized gain on derivatives amounted to $2.9 million for the three months ended June 30, 2023, compared to a gain of $2.5 million for the three months ended June 30, 2022. The $0.4 million swing is attributable to favorable changes in forward SOFR yield curves partially offset by reductions in notional amounts.
Realized Gain/(Loss) on Derivatives
Realized gain on derivatives amounted to $1.8 million for the three months ended June 30, 2023, compared to a realized loss of $0.1 million for the three months ended June 30, 2022. The favorable $1.9 million difference is due to an increase in floating SOFR resulting in the realized gain on our interest rate swaps.
Market Outlook & Update
Despite additional announcements by OPEC+ to further cut crude oil production, the average Brent Oil (“Brent”) and West Texas Intermediate (“WTI”) price fell over the quarter, averaging around $3-4 per barrel less in the second calendar quarter of 2023 compared to the first calendar quarter of 2023.
Healthy LPG supply in the second calendar quarter of 2023 resulted in prices of propane dropping in all major regions. In the U.S., exports were approximately 14.4 million metric tons during the second calendar quarter of 2023. With adequate inventory levels, additional production volumes have been priced to export and propane prices fell from approximately 45% of WTI in the first calendar quarter of 2023 to an average of 34% in June 2023. Butane has followed a similar trend with limited upside for domestic demand in the U.S. resulting in butane prices also falling to below 40% of WTI by the end of the second calendar quarter of 2023.
Saudi Arabia saw exports of LPG rise in the second calendar quarter of 2023, particularly in May, resulting in posted contract prices dropping from an average of $700 per metric ton in the first calendar quarter of 2023 to $520 per metric ton in the second calendar quarter of 2023 for propane and from $712 per metric ton to $513 per metric ton for butane over the same time frame.
The lower prices of propane and butane were also observed in major importing regions of the Far East and NW Europe. In NW Europe, propane prices were seen to decline from an average of 58% of Brent in the first calendar quarter of 2023 to an average of 46% of Brent in the second calendar quarter of 2023. Eastern propane prices saw a similar decline reaching an average of 54% of Brent in the second calendar quarter of 2023. Butane prices saw a larger decline after higher prices were realized in the first calendar quarter of 2023 due to seasonal demand from gasoline blending, and with demand deteriorating since then, prices have also pulled back.
As a result of lower feedstock costs, LPG petrochemical margins significantly improved. PDH margins in the East were maintained at a similar level to those seen towards the end of the first calendar quarter of 2023 and as a consequence, Chinese imports rose throughout the second calendar quarter and are expected to be nearly 3 million metric tons higher than the first calendar quarter of 2023. Not all of the increased imported volume was consumed in petrochemical applications, with inventory and retail demand also increasing. Two new PDH plants started operations in China during the second calendar quarter of 2023, with a further five plants potentially starting over the next quarter, although delays are expected.
On average, the second calendar quarter of 2023 saw cracker margins improve for utilizing LPG as a feedstock over the previous quarter. Negative margins for naphtha in the Far East and in NW Europe have generally maintained LPG’s advantage, although consumption has not been maximized with operating rates reducing in some plants. Both olefin and polyolefin prices remain somewhat under pressure due to the continued increase in production capacity at a time of sluggish demand. Volatility is expected to continue throughout 2023.
The Baltic VLGC index strengthened further in the second calendar quarter of 2023 from an average of around $87.4 per metric ton in the first calendar quarter of 2023 to approximately $96 per metric ton in the second calendar quarter of 2023. The continuously tight VLGC supply/demand balance, the strong arbs and logistical constraints, including delays at the Panama Canal, have kept the freight rates consistently above the 5-year highs for the period.
A further 13 new VLGCs were added to the worldwide fleet during the second calendar quarter of 2023 without causing a downward freight dynamic. Panama Canal delays for the VLGC fleet in the second calendar quarter of 2023 remained in line with the first calendar quarter of 2023.
Currently, the VLGC orderbook stands at approximately 18% of the current global fleet. An additional 66 VLGCs equivalent to roughly 5.9 million cbm of carrying capacity are expected to be added to the global fleet by calendar year 2027. The average age of the global fleet is now approximately 10.5 years old.
The above market outlook update is based on information, data and estimates derived from industry sources available as of the date of this release, and there can be no assurances that such trends will continue or that anticipated developments in freight rates, export volumes, the VLGC orderbook or other market indicators will materialize. This information, data and estimates involve a number of assumptions and limitations, are subject to risks and uncertainties, and are subject to change based on various factors. You are cautioned not to give undue weight to such information, data and estimates. We have not independently verified any third-party information, verified that more recent information is not available and undertake no obligation to update this information unless legally obligated.
Seasonality
Liquefied gases are primarily used for industrial and domestic heating, as chemical and refinery feedstock, as transportation fuel and in agriculture. The LPG shipping market historically has been stronger in the spring and summer months in anticipation of increased consumption of propane and butane for heating during the winter months. In addition, unpredictable weather patterns in these months tend to disrupt vessel scheduling and the supply of certain commodities. Demand for our vessels therefore may be stronger in our quarters ending June 30 and September 30 and relatively weaker during our quarters ending December 31 and March 31, although 12-month time charter rates tend to smooth out these short-term fluctuations and recent LPG shipping market activity has not yielded the typical seasonal results. The increase in petrochemical industry buying has contributed to less marked seasonality than in the past, but there can no guarantee that this trend will continue. To the extent any of our time charters expire during the typically weaker fiscal quarters ending December 31 and March 31, it may not be possible to re-charter our vessels at similar rates. As a result, we may have to accept lower rates or experience off-hire time for our vessels, which may adversely impact our business, financial condition and operating results.
Source: Dorian LPG Ltd
