Awilco LNG swings to profit in Q1

Awilco-LNG

Freight income for the quarter was MUSD 13.8, up from MUSD 9.6 in Q4 2017 due to full exposure to a spot market with increased activity and rates following a firm winter market. Fleet utilisation for the quarter ended at 97 %, compared to 83 % in Q4 2017. Voyage related expenses amounted to MUSD 1.4, compared to MUSD 2.3 in Q4 2017.

Operating expenses were MUSD 1.9 in the quarter, same as in Q4 2017. Administration expenses were MUSD 1.0 in Q1, down from MUSD 1.2 in Q4 2017, due to timing of expenses and provisions yearend. EBITDA for the quarter was MUSD 9.5 (MUSD 4.2 Q4 2017). Depreciation for the quarter was MUSD 3.2, same as in Q4 2017.

Net financial items were MUSD (5.3) compared to MUSD (5.5). Interest expenses on the WilForce and WilPride financial leases amounted to MUSD 5.4, down from MUSD 5.5 in Q4 2017 due to fewer days in the quarter.

Profit for the period was MUSD 1.0, compared to a loss for the period of MUSD 4.5 in Q4 2017. Statement of financial position

Book value of vessels was MUSD 361.8 as at 31 March 2018 (MUSD 363.9 Q4 2017). The decrease reflected ordinary depreciation during the quarter, offset by capitalisation of certain items. MUSD 0.4 in scheduled overhauls of the two main engines on WilForce was capitalised in the quarter, and MUSD 0.8 in long lead items were capitalised relating to both vessels’ first 5-year special survey scheduled for second half of 2018.

Total current assets were MUSD 36.5 as at 31 March 2018 (MUSD 35.7 Q4 2017), of which cash and cash equivalents were MUSD 30.1 (MUSD 29.0 Q4 2017).

Total equity as at 31 March 2018 was MUSD 128.0.

Total current liabilities were MUSD 5.1 as at 31 March 2018 (MUSD 6.4 Q4 2017). MUSD 3.9 of the current liabilities relates to the short-term portion of the WilForce and WilPride financial leases (MUSD 2.7 as at 31 December 2017).

Total non-current liabilities were MUSD 265.1 as at 31 March 2018 (MUSD 266.2 Q4 2017), of which the long-term portion of the WilForce and WilPride financial leases was MUSD 262.8 (MUSD 263.9 Q4 2017).

MARKET UPDATE
Winter in the Northern Hemisphere, coupled with coal to gas switch in China, drove gas prices towards a three year high in Europe and the Far East. The Far East gas price started the quarter at USD 10.4/MMTBU, hit a high of USD 11.0/MMBTU in January and ended Q1 at USD 7.7/MMBTU. The UK NBP price started Q1 at USD 7.9/MMBTU and closed at USD 6.9/MMBTU, while US Henry Hub opened at USD 2.8/MMBTU and closed at USD 2.7/MMBTU, staying relatively flat throughout the quarter.

The widening gas price spreads Far East vs NBP and HH created arbitrage opportunities and supported an improvement of 18 % in ton/miles in Q1 according to Poten. Of the 67 cargoes shipped from Sabine Pass in the US in Q1 2018, 68 % were delivered to Asia, compared to about 50 % in 2017. According to Fearnleys LNG the quarter started with day rates at USD 85,000 and USD 80,000 West and East of Suez respectively, which gradually declined to USD 55,000 and USD 38,000 following normal seasonal patterns heading into spring compounded by an influx of new tonnage delivering from the yards.

LNG trade is estimated to have increased by 6 % in Q1 2018 vs Q1 2017. LNG imports to China increased by 59 % in the quarter, continuing the strong growth seen in 2017. Imports to South Korea increased by 15 %.

Cove Point in the US (5.8 MTPA) and Golar LNG’s FLNG Hilli Episeyo (1.2 MTPA) were scheduled to start production in Q1 2018. Cove Point entered commercial service in early April 2018, and the first cargo from Hilli Episeyo was loaded in mid-May. Australia’s Wheatstone T2 (4.5 MTPA), Ichthys (8.9 MTPA) and Prelude FLNG (3.8 MTPA) are all expected to start up in the near future. Subsequent to the recently announced nine-month delay of Freeport T1 (4.4 MTPA) to Q3 2019, a total of 30 MTPA of new LNG production is expected to commence production in 2018, followed by 39 MTPA in 2019 and 22 MTPA in 2020 to 2021. Representing the first LNG liquefaction FID in the US since 2015, on 22 May 2018 Cheniere announced FID on Corpus Christi T3 (4.5 MTPA). CCL T3 is expected to start production in 2020/2021. According to industry analysts over 700 MTPA of new LNG production plants are in various stages of planning, and many of them have moved substantially closer to FID in the last couple of months, notably Qatargas´ 23.4 MTPA expansion as well as several US and African projects.

In Q1 2018 18 newbuildings were delivered and 17 orders were placed, of which 9 are assumed speculative. According to shipbrokers the orderbook at the end of Q1 2018 for LNG vessels above 100,000 cbm (excl. FSRU and FLNG) was 92 vessels, of which 18 are potentially available for contract. 29 further vessels are scheduled for delivery in 2018, 41 vessels in 2019, 20 in 2020 and 2 in 2021 however some delays to the delivery schedule may be expected.

ORGANISATION
The principal activity of Awilco LNG ASA and its subsidiaries is to invest in and operate LNG transportation vessels. Technical and commercial management of the fleet is performed from the Group’s office in Oslo, Norway. The Group has 7 employees. In addition, Awilco LNG purchases certain administrative and sub-management technical services from two companies in the Awilhelmsen Group; Awilhelmsen Management AS and Awilco Technical Services AS, see note 5 for further details.

VESSEL CONTRACT STATUS
Both WilForce and WilPride are trading in the spot/short term market.

OUTLOOK
The firm market established in Q4 2017 continued into Q1 2018 before activity and rates softened heading into the shoulder season with lower energy consumption in the northern hemisphere. Headline spot rates in Q1 2018 were on average 70 % higher than in Q1 2017, and in late April activity again picked up with a long list of charterers coming to the market for multi-month term business and spot rates appear to have troughed.

Moving towards winter we expect rates to strengthen in the second half of this year, and the long-term outlook for LNG shipping remains promising. Gas is affordable, abundantly available and the cleanest fossil fuel. To meet the growing demand for gas, and with the support of the current oil price environment, new LNG productions plants are expected to be sanctioned in the near future. Newbuilding activity was muted in 2017 and 2016, but recent low yard prices and the estimated unmet tonnage requirements from new production coming online over the next three years triggered 17 newbuilding orders in the first quarter of 2018. Although the orderbook of 92 vessels represents 20 % of the LNGC fleet, the 91 MTPA of new LNG production scheduled to come on stream from 2018 to 2021 is expected to require more vessels than the current available tonnage and orderbook. Still, periods of volatility and seasonality should be expected.

Awilco LNG is presently trading both ships in the spot market, is fully financed until 2020 and is thus well positioned for the improving market.

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