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HomeFinance & EconomyDorian LPG sees quarterly profit increase; orders 3 newbuildings

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Dorian LPG sees quarterly profit increase; orders 3 newbuildings

Dorian LPG Ltd., a leading owner and operator of modern very large gas carriers, reported financial results for the three months ended September 30, 2021.

Highlights for the Second Quarter Fiscal Year 2022

• Completed the sale of the Captain Markos NL, generating proceeds of $43.4 million net of commission, recognizing a gain on sale of $3.5 million.
• Paid cash dividend of $1.00 per share of our common stock to all shareholders of record as of the close of business on August 9, 2021.
• Entered into agreements to time charter-in three newbuilding dual-fuel Panamax LPG vessels with purchase options that are scheduled to be delivered in the second and third calendar quarter 2023 for a period of seven years each and to time charter-in a VLGC for one year delivered to us in October 2021.
• Revenues of $63.1 million and Time Charter Equivalent (“TCE”)(1) rate for our fleet of $30,996 for the three months ended September 30, 2021, compared to revenues of $54.7 million and TCE rate for our fleet of $26,015 for the three months ended September 30, 2020.
o Net income of $14.1 million, or $0.35 earnings per diluted share (“EPS”), and adjusted net income(1) of $9.9 million, or $0.25 adjusted earnings per diluted share (“adjusted EPS”),(1) for the three months ended September 30, 2021.
o Adjusted EBITDA(1) of $37.9 million for the three months ended September 30, 2021.
• Provided three-month notice in connection with the exercise of our repurchase option of the Captain John NP for $15.8 million in cash and application of the $25.2 million deposit.

(1)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.”

Key Recent Development

• Provided three-month notice in connection with the exercise of our repurchase option of the Captain Nicholas ML for $17.8 million in cash and application of the of $27.9 million deposit.
John C. Hadjipateras, Chairman, President and Chief Executive Officer of the Company, commented, “It is noteworthy that our commercial team has produced good results in a fair but volatile spot market this past quarter. Also, our ship management teams are close to concluding the survey cycle for the nineteen ships that we took delivery of between 2014 and 2016. Our crew situation continues to improve although there are still problem ports where crew changes are difficult or completely prohibited. I am grateful for the support of our team members at sea and the hard work of all our shore side personnel as we continue to strengthen our balance sheet and return value to our shareholders.”

Second Quarter Fiscal Year 2022 Results Summary

Net income amounted to $14.1 million, or $0.35 per diluted share, for the three months ended September 30, 2021, compared to $0.5 million, or $0.01 per diluted share, for the three months ended September 30, 2020.

Adjusted net income amounted to $9.9 million, or $0.25 per diluted share, for the three months ended September 30, 2021, compared to adjusted net loss of ($3.4) million, or ($0.07) per diluted share, for the three months ended September 30, 2020. Net income for the three months ended September 30, 2021 is adjusted to exclude a gain on disposal of vessel of $3.5 million and an unrealized gain on derivative instruments of $0.7 million. Please refer to the reconciliation of net income to adjusted net income, which appears later in this press release.

The $13.3 million increase in adjusted net income for the three months ended September 30, 2021, compared to the three months ended September 30, 2020, is primarily attributable to an increase of $8.4 million in revenues; decreases of $3.0 million in vessel operating expenses, $2.1 million in charter hire expenses, $1.1 million in interest and finance costs, $0.4 million in depreciation and amortization; a $1.2 million favorable change in realized loss on derivatives; and a $0.8 million favorable change in other gain/(loss), net; partially offset by increases of $3.5 million in general and administrative costs and $0.2 million in voyage expenses.

The TCE rate for our fleet was $30,996 for the three months ended September 30, 2021, a 19.1% increase from a TCE rate of $26,015 for the same period in the prior year, primarily driven by increased bunker costs. 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) decreased from 97.4% in the quarter ended September 30, 2020 to 95.7% in the quarter ended September 30, 2021.

Vessel operating expenses per day decreased to $9,210 for the three months ended September 30, 2021 compared to $10,591 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 $63.1 million for the three months ended September 30, 2021, an increase of $8.4 million, or 15.3%, from $54.7 million for the three months ended September 30, 2020 primarily due to an increase in average TCE rates despite a decrease in fleet utilization. Average TCE rates increased by $4,981 from $26,015 for the three months ended September 30, 2020 to $30,996 for the three months ended September 30, 2021, primarily due to a higher allocation of pool profits due to proportionately more vessels chartered into the Helios Pool by Dorian, coupled with a shift in the mix of vessels in the Helios Pool. This was partially offset by a decrease in the Baltic Exchange Liquid Petroleum Gas Index, which (expressed as U.S. dollars per metric ton) averaged $42.154 for the three months ended September 30, 2021 compared to $51.589 for the three months ended September 30, 2020, and increases in global bunker prices as the average price of very low sulfur fuel oil (expressed as U.S. dollars per metric ton) from Singapore and Fujairah increased from $337 during the three months ended September 30, 2020 to $540 during the three months ended September 30, 2021. Additionally, in the prior period, we experienced certain inefficiencies due to the positioning of several vessels before and after drydocking resulting in reduced revenues for the period.

Charter Hire Expenses

Charter hire expenses for the vessels chartered in from third parties were $2.4 million and $4.5 million for the three months ended September 30, 2021 and 2020, respectively. The decrease of $2.1 million, or 46.8%, was mainly caused by a decrease in time chartered-in days from 184 for the three months ended September 30, 2020 to 92 for the three months ended September 30, 2021, due to the redelivery of one time chartered-in vessel.

Vessel Operating Expenses

Vessel operating expenses were $18.4 million during the three months ended September 30, 2021, or $9,210 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. Vessel operating expenses per vessel per calendar day decreased by $1,381 from $10,591 for the three months ended September 30, 2020. The decrease in vessel operating expenses for the three months ended September 30, 2021, when compared with the three months ended September 30, 2020, was primarily the result of (i) decreases in operating expenses related to repairs and maintenance, spares and stores, and coolant costs of $2.9 million, or $1,378 per vessel per calendar day with the drydocking of vessels being the primary driver of these increased costs in the prior period and (ii) a reduction of calendar days for our fleet from 2,024 during the three months ended September 30, 2020 to 2,001 during the three months ended September 20, 2021, driven by the sale of the Captain Markos NL.

General and Administrative Expenses

General and administrative expenses were $9.4 million for the three months ended September 30, 2021, an increase of $3.5 million, or 58.2%, from $5.9 million for the three months ended September 30, 2020. This was primarily driven by the timing of annual cash bonuses and restricted stock grants to certain employees causing an increase of $2.4 million in cash bonuses and $0.9 million in stock-based compensation when comparing the three months ended September 30, 2021 and September 30, 2020.

Interest and Finance Costs

Interest and finance costs amounted to $5.6 million for the three months ended September 30, 2021, a decrease of $1.1 million, or 16.6%, from $6.7 million for the three months ended September 30, 2020. The decrease of $1.1 million during this period was due to (i) a decrease of $0.9 million in interest incurred on our long-term debt, primarily resulting from a reduction of average indebtedness and a reduced margin on the commercial tranche of the 2015 AR Facility due to our Security Leverage Ratio being less than 40%, and (ii) a decrease of $0.2 million in amortization of deferred financing fees and loan expenses. Average indebtedness, excluding deferred financing fees, decreased from $657.5 million for the three months ended September 30, 2020 to $587.2 million for the three months ended September 30, 2021. As of September 30, 2021, the outstanding balance of our long-term debt, net of deferred financing fees of $9.3 million, was $566.9 million.

Unrealized Gain on Derivatives

Unrealized gain on derivatives amounted to $0.7 million for the three months ended September 30, 2021, compared to $4.0 million for the three months ended September 30, 2020. The unfavorable $3.3 million difference is primarily attributable to a decrease of $2.6 million in favorable changes to our forward freight agreements (“FFAs”) and a $0.7 million decrease in favorable fair value changes to our interest rate swaps resulting from changes in forward LIBOR yield curves.

Realized Loss on Derivatives

Realized loss on derivatives was $0.9 million for the three months ended September 30, 2021 compared to $2.1 million for the three months ended September 30, 2020. The favorable $1.2 million reduction of realized loss is primarily attributable to (i) unfavorable settlements of $0.7 million on our FFA positions during the three months ended September 30, 2020 that did not recur in the three months ended September 30, 2021, and (ii) a $0.5 million reduction of realized losses on our interest rate swaps.

Gain on disposal of vessel

Gain on disposal of vessel amounted to $3.5 million for the three months ended September 30, 2021 and was attributable to the sale of the Captain Markos NL. There was no gain on disposal of vessel for the three months ended September 30, 2020.

Fleet

The following table sets forth certain information regarding our fleet as of October 29, 2021.

Market Outlook & Update

A combination of higher crude oil prices and lower U.S. exports contributed to a rise in both propane and butane prices. In the U.S., Mont Belvieu propane averaged over $1 per gallon each month, reaching an average of 76% of West Texas Intermediate (WTI) in September 2021, a price level not seen since September 2018. Monthly average prices also rose in major demand centers of Northwestern Europe and the Far East region. Propane CIF ARA rose from 59% of Brent on average in the second calendar quarter of 2021 to over 70% in the third calendar quarter 2021. A similar rise was seen in the East with CFR Japan rising from around 66% of Brent in the second calendar quarter 2021 to 78% of Brent in the third calendar quarter of 2021.

U.S. propane inventory levels remain very low and in the second calendar quarter of 2021 decreased to the lowest level during the last five years. This has kept a bullish sentiment on U.S. Mont Belvieu propane prices and has disincentivized exports to the global market. In the third calendar quarter of 2021, U.S. LPG exports fell around 440,000 tons from the previous quarter.

At the same time, additional petrochemical capacity for LPG continues to be added particularly in China where a new propane dehydrogenation (PDH) plant and steam cracker began operating reliant on seaborne imports.

With the rise in feedstock prices, LPG was seen to be less favorable for utilisation in flexible steam crackers with the propane-naphtha spread in Northwestern Europe narrowing throughout the quarter from an average of ($90) per ton in the second calendar quarter 2021 to an average of ($2) per ton in the third calendar quarter of 2021. By the end of the third calendar quarter of 2021, propane-naphtha spreads were positive in both Northwestern Europe and in the Far East region. According to NGL Strategy’s archetypal model, variable margins for the production of ethylene via steam cracking fell for both naphtha and propane in the third calendar quarter of 2021 from the previous quarter, with propane showing the largest drop due in part to the increase in feed cost. The Far East saw margins fall to just $9 per ton in August of 2021 for propane before turning negative in September of 2021.

The Baltic VLGC index averaged around $42 per metric ton in the third calendar quarter of 2021, $11 per metric ton below the performance of the Baltic Index as of the second calendar quarter of 2021.

Currently, the VLGC orderbook stands at approximately 24% of the current global fleet. An additional 74 VLGCs, equivalent to roughly 6.6 million cbm of carrying capacity, are expected to be added to the global fleet by calendar year-end 2024. The average age of the global fleet is now approximately nine to ten 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 a chemical and refinery feedstock, as a 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 the quarters ending June 30 and September 30 and relatively weaker during the quarters ending December 31 and March 31, although 12-month time charter rates tend to smooth these short-term fluctuations and recent LPG shipping market activity has not yielded the expected seasonal results. 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.

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