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Greetings, and welcome to the Dorian LPG Fourth Quarter 2021 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.
Thank you, Kristine. Good morning, everyone, and thank you all for joining us for our fourth quarter 2021 results conference call. With me today are John Hadjipateras, Chairman, President and CEO of Dorian LPG Limited; John Lycouris, Chief Executive Officer of Dorian LPG USA; and Tim Hansen, Chief Commercial Officer. As a reminder, this conference call webcast and a replay of this call will be available through May 26, 2021.
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 prove 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, 2021, that were filed this morning on Form 8-K. In addition, please refer to our previous filings on Forms 10-K and 10-Q where you'll find risk factors that could cause actual results to differ materially from those forward-looking statements. Finally, please note that we expect to file our full 10-K in the first week of June.
With that, I'll turn over the call to John Hadjipateras.
Thank you, Ted. Good morning from Stamford, where John, Ted and I are speaking from. Tim Hansen is calling from Copenhagen. Thank you for joining us this morning to discuss our fourth quarter and fiscal year 2021 results.
Rates made a high in January, followed by a steep drop to lows in March and have now recovered to healthy levels. Confronted by the COVID pandemic, fiscal 2021 brought considerable challenges which we navigated safely and successfully toward some major accomplishments. Thanks to the dedication and extraordinary efforts of our seafarers and shore-side staff, our ships and the company continue to operate smoothly.
Highlighting our commitment to returning shareholder capital, we completed our self-tender which we upsized from $100 million to $113 million. We have now returned over $200 million since our IPO in 2014. Our drydocking and scrubber upgrade program is nearly complete. We expect the last two ships to leave the shipyards within this month. In total, we will have installed 10 scrubber systems since summer of 2019. 12 of our 22 owned ships will be capable of operating with hybrid scrubbers enhancing their earning potential and commercial flexibility.
We contracted for delivery in first quarter 2023 a dual-fuel shallow-drafted 84,000 cubic meter state-of-the-art ship to be built by Kawasaki Heavy Industries. As with all recent VLGC newbuildings, she will be capable of burning either fuel oil or LPG. She will be financed in a Japanese lease bareboat structure.
Since we commissioned a feasibility study with the American Bureau of Shipping in 2018, we have been evaluating LPG as fuel. The prospect of LPG as fuel is an exciting one, decreasing emissions while potentially lowering overall fuel and financing costs. Vessel emissions are coming to the forefront and the International Maritime Organization is set to revise its Greenhouse Gas Strategy in 2023. Environmental awareness features increasingly prominently in the minds of shipping investors and all stakeholders and maritime economy. Eight of our ships are candidates for conversion to dual-fuel propulsion.
Looking forward, we have reason to remain optimistic. Supply concerns in the U.S. are exaggerated from our perspective. Spare infrastructure capacity is in place to facilitate both production and export growth over the near and medium-term. Many forecasters continue to revise production estimates higher, reflecting the bullish sentiment heard from U.S. producers over this earnings cycle.
OPEC+ is expected to push more tons into the market, increasing tons which will supply growing global demand especially in Asia as the market continues to grow steadily and healthily, particularly in the petrochemical sector. The fleet growth in 2022 will be the lowest since 2018. There are currently 42 ships built prior to 2000, which in some form maybe less competitive, and therefore, candidate for removal in due course. We believe that expanding trade volumes should absorb the current order book of 61 to 62 ships.
Nevertheless, it will be foolish to deny the risk which continued ordering at the recent pace could pose. We would like to believe that the bulk of it is now done. LPG supply/demand growth along with heavy maintenance of the global fleet this calendar year should continue to support healthy market conditions.
Back to you, Ted.
Thank you, John. My comments this morning will focus on our financial position and liquidity as well as our unaudited fourth quarter results. At March 30, 2021, we had $79.3 million of free cash. As of Monday, May 17, 2021, our free cash balance stood at $84.4 million. Last quarter, we had estimated up to $60 million in free cash flow before the cash outlays associated with our self-tender offer, but we actually generated $65.7 million. The slight variance, however, in the closing cash that we had indicated last quarter is mostly due to the upsizing of our self-tender offer by 997,739 shares or about $13.5 million.
With a debt balance of $602 million at quarter end, our total debt to total book capitalization stood at a very comfortable 38.9%. With no refinancings until 2025, ample free cash and undrawn revolver and one debt free vessel, thus we have a significant measure of financial flexibility. In addition, we expect our operating cash cost per day for the coming year to be approximately $21,000 per day, excluding our remaining special surveys and an outlay associated with our newbuilding.
Turning to our fourth quarter results. You may also find it useful to refer to the Investor Highlights slides posted this morning on our website. For our chartering, we achieved a total utilization of 95.3% for the quarter with the daily time charter equivalent that is time charter equivalent revenue over operating days as we define those terms in our filings of $49,474 per day, yielding a utilization adjusted TCE, that's TCE revenue over available day of about $47,155.
Our spot TCE per available day, which reflects our portion of the net profits of the Helios Pool for the quarter, was about $48,758. Also, overall, the Helios Pool as an entity reported a spot TCE, including COAs of approximately $54,278 per available day for the quarter.
Daily OpEx for the quarter just tendered was $9,819, excluding amounts expensed for drydocking. It was $10,198 including those costs. Our OpEx increased somewhat sequentially as we experienced higher costs in several categories. That said, we do expect running costs to decrease somewhat going forward. Our time chartering expense remained stable at $4.5 million. As a reminder, we do not include time chartering costs in our vessel operating expenses.
The Astomos Earth has recently redelivered, so our TCE cost going forward should be about $2.4 million for the quarter starting July 1. Our total G&A for the quarter was affected by a $4 million provision for charter dispute, excluding that total G&A was $7.1 million and cash G&A, which is G&A excluding the non-cash comp expense we booked was about $6.6 million. A large part of this sequential increase versus last quarter was driven by statutory accruals that we make at the beginning of each fiscal year. We continue to maintain a watchful eye on our G&A costs. Our reported adjusted EBITDA for the quarter was $65 million.
We view cash interest expense on our debt as the sum of the line items, interest expense, excluding deferred financing fees and other loan expenses and realized gain loss on interest rate swap derivatives. On that basis, total cash interest expense for the quarter was $5.6 million, representing a $325,000 reduction from last quarter. We continue to benefit from our hedging policy in the favorable pricing of our Japanese financings, leaving us with a current interest cost fixed hedged in a small floating piece of 3.68%.
As a reporting matter, our realized and unrealized gain/loss on derivatives also include the effect of our FFA portfolio. The calculation of EBITDA on our filings adds back only the interest on the realized gain/loss, not the FFA piece. John Lycouris will touch further on this topic, but we completed nine special surveys during the fiscal year just ended and have two more in progress, both of which we expect to complete no later than June 30, 2021.
As John Hadjipateras noted, we have entered into a Japanese financing arrangement, similar to what we have done for other vessels in our fleet, to take delivery of an 84,000 cubic meter shallow-draft dual-fuel newbuilding, which we expect to be delivered in March 2023. As with the other Japanese structures, the debt financing is already committed and we will contribute approximately $25 million of equity as part of the deal.
We funded $8 million of that during April 2021 and the remaining payments are due based on achievement of vessel construction milestones. We currently expect to make two additional payments of $8 million each in the quarter ending March 31, 2022, and the quarter ending December 31, 2022, and a final amount of roughly $1 million at delivery. We expect to meet these obligations from cash on hand.
Although, we currently hold a roughly 70% economic interest in Helios, we do not consolidate its P&L or balance sheet accounts, which has the effect of somewhat understating our cash and working capital. Thus, we believe it is used to provide some additional insight in order to give a more complete picture. As of Monday, May 17, 2021, the Pool had roughly $33.5 million of cash on hand.
Our self-tender offer resulted in the repurchase of 8,405,146 of our outstanding shares, which means that we have now repurchased nearly 30% of the shares outstanding at the time of our IPO. Cumulatively, we have returned approximately $207 million in cash to our shareholders and we remain committed to returning cash in the future. We have $47.9 million remaining under our current repurchase authorization.
We remain interested in accretive growth opportunities that meet our risk/reward criteria, but we will remain prudent in deploying cash. Our financial position does allow us to act quickly and meaningful opportunities as they may arise, including further opportunities to return cash to shareholders.
With that, I'll pass over the call to Tim Hansen.
Yes. Thank you, Ted. For the first quarter of 2021, the global seaborne LPG volumes totaled 26.5 million tons, a year-on-year decrease of only 1.7%. U.S. export remains strong and continued to outperform the forecasts. U.S. volume continued to grow counterbalancing the declines in the Middle East volumes.
During the quarter, American export volumes increased by 7.1% year-on-year to 11.8 million tons, the second highest total exports on records, only the previous quarter was higher. Volumes would likely have been higher had the U.S. Gulf not experienced extreme weather that shut just about all LPG-related infrastructure for about two weeks in February and fell directly after the Lunar New Year.
While February is generally the weakest month of the year for export volumes, February 2021 volume only totaled 2.9 million tons, marking 23 months low and 19% decrease versus February 2020. Both January and March exports were on record levels at 4.4 million and 4.5 million tons, respectively, represented 21% and 18% year-on-year of growth.
The Baltic Market Index on the Ras Tanura-Chiba route averaged 54 metric tons last quarter and was another roller-coaster quarter. The market continued the bull run from 2020 for the first decade of January, rising to $119 per metric tons on the benchmark route Ras Tanura-Chiba. This was actually the highest level since the summer of 2015. The market came to an abrupt halt after two weeks of record close of the U.S. inventory due to high exports and the cold weather in the U.S.
U.S. LPG prices rose and as a result of this and Asian weather normalizing differentiates demand moderated, while the arbitrage narrowed and buying interest reduced. Freight rates felled as buyers opted a wait and see pattern. Because of the dramatic pause in the U.S. exports, the backlog and delays at the Panama Canal reduced from around 10 days in mid-January to two days in mid-February. With the situation in the U.S. Gulf normalized the lack of delays in the Panama Canal contributed to rates unwinding as the quarter progressed.
The rates bottomed out at $29 metric tons in early March. Rates, however, came steadily back since and reaching $50 per metric tons by the end of March, as the U.S. production came back online and the Chinese importers feature into the market.
Chinese and Indian demands was the bright spot last quarter, growing 14.6% and 17.4%, respectively, compared to the same period of last year. Three Chinese PDH plants began operating in first quarter 2021, representing 1.9 million tons per year of demand. For 2021, China is estimated to have an LPG deficit of around 2 million tons and a demand increase of 6% driven by new PDH as steam cracker capacity coming online. Continued LPG penetration in India has grown demand. On February 1, the government announced plans for a 10 million additional LPG connections in the next fiscal year.
On the supply side, we continue to watch the U.S. NGL production and inventories. The promise of higher production levels that we saw in the early last quarter was largely derailed by the Texas February freeze, which shut in production for nearly two weeks. However, production normalized quickly.
As a result, first quarter production was nearly flat year-on-year, while the EIA forecast that the U.S. propane production should increase by only 1% this year and by 3% next year. We believe that the U.S. production may surprise to the upside given the dramatic increase in fractionation and pipeline capacity that was added last year.
Storage levels, while tracking below last year's levels are still within the trading five-year average, neither of which is surprising after such a heavy draw last quarter. The large degree of lower inventory levels can also be explained by the recent growth of the U.S. export capacity. Although we witnessed heavy inventory draws last quarter and especially high domestic and export-related demand, we are in the shoulder season now and inventories have already started to increase.
With the OPEC+ agreeing to increased production in the second quarter and possibly beyond, Middle East volumes should pick up as the year progresses, potentially reversing recent declines. Uranium supply, however, remains a big near-term question, although we believe that in 2021 impact is likely to be minor.
With this, I will pass on to John Lycouris to cover.
Thank you, Tim. The upgrade of the last two of our vessels with hybrid scrubbers is currently in progress, including the completion of those vessels five-year special survey requirements, and we anticipate completion of all the works in early June. By that time, Dorian will be operating a total of 12 scrubber vessels and would have completed the announced scrubber retrofit program for the retrofit of 10 hybrid scrubbers to our own fleet, which started in the summer of 2019.
During 2021 financial year, which ended in March 2021, we completed nine of our vessels five-year special surveys, which is the same number of vessels that we completed in the 2020 financial year. The completions of special surveys on a total of 18 vessels during the last two financial years along with the two vessels currently in progress completes the five-year cycle for 20 vessels in the Dorian LPG fleet.
The high-sulfur, low-sulfur bunker spreads since the beginning of the year has stood at about $100 per ton of fuel, producing an earnings advantage for our scrubber-fitted vessels. Given the recent economic trends, we anticipate that an increase in the supply and demand for oil could maintain or perhaps widen the current bunker spread not only further supporting our capital invested in hybrid scrubbers, but also improving our fleet's environmental footprint.
Hybrid scrubbers not only reduce sulfur oxides emissions to levels below 0.5 and 0.1 of the compliant marine fuel oils being used, but they also reduce particulate matter and black carbon emissions by more than 80%, neutralizing affluent water levels with caustic soda.
Depending on each country's water discharge restrictions, the hybrid scrubbers can operate either in open or in closed-loop mode, keeping in line with environmental sustainability requirements.
Dorian has been evaluating LPG dual-fuel technology since 2013 when our first newbuilding vessels were ordered and we have followed it closely since then. With a few dual-fuel LPG retrofitted vessels now entering the service in the oil fleet and the first few newbuilding dual-fuel LPG vessels delivering from the shipyards, we will revisit this upgrade for some of our vessels.
In line with our interest over to dual-fuel LPG powered engines, we have recently taken a step in that direction by contracting an 84,000 cubic meter dual-fuel LPG newbuilding vessel at Kawasaki Heavy Industries in Japan. This vessels delivery is anticipated in March 2023.
We are continuing to invest in our vessels performance and efficiency to reduce emissions and lower operating costs and improved environmental footprint is very important to Dorian LPG and we continue to explore other incremental energy efficiency technologies, including vessels power management with hybrid battery storage systems and fuel cells.
From 2023, it is mandatory for each vessel type to comply with its assigned Energy Efficiency Existing Ship Index, or EEXI value, and the vessels EEXI Technical File, which will need to be approved by the classification society. This short measure adopted by the IMO for the reduction of greenhouse gases is based on the published resolutions and guidelines of the Marine Environmental Protection Committee, the MEPC 75.
The entire fleet of existing VLGC vessels are required to meet a 30% reduction factor in their maximum continuous power rating of their main engines. Options available for the VLGC fleet are engine power limitations, energy efficiency technologies or a dual-fuel engine upgrade to LPG fuel.
Most of these available options will have a significant impact on the VLGC fleet over the next two years, while encouraging the scrapping of older vessels, increasing the order book and encouraging further capital expenditure and upgrades of the fleet towards improved efficiencies to reduce the carbon intensity and opting for dual-fuel upgrades.
Our outlook is that from a regulatory perspective, there is an urgent need to consider energy efficiency for all existing vessels and we conclude that a portion of the VLGCs fleet trading capacity will be reduced in order to address those upcoming compliance considerations.
And with that, I will pass it over to John Hadjipateras.
Thanks, John. Thank you. Operator, can we open up for questions now.
With the prepared remarks completed, we will now open the line for questions. [Operator Instructions] Thank you. Our first question comes from the line of Sean Morgan with Evercore. Please proceed with your question.
Hey, guys. So we talked a lot about adding scrubbers and the dual-fuel potential of the new order and kind of the order book ticking up a little better. And just in the context of just how rapidly investors and, I guess, regulatory authorities are starting to look at the carbon footprint, how comfortable are you that you'll be able to retrofit these vessels if the regulations kind of surrounding carbon emissions start to kind of change, because when we're talking about CapEx for equipment that's going to last decades, so just kind of how do you think about new orders in the context of just kind of changing rules regarding carbon?
Well, a lot of questions there and a lot of uncertainty, mainly because the regulations haven't really been solidified yet. So I think, at this stage, like other shipping companies, the best we can do is comply with what's insight and because of the feature of our ships being LPG carriers we have a leg up in a way in this whole equation, because we can look at LPG as fuel and it's not as complicated as it would be for containerships to go to LNG or crude carriers and bulk carriers to be powered by LNG or other fuels.
So I think we are in there. We're thinking about it all the time. We have solid plans as is evidenced by what we did on the scrubbers and we – in terms of converting the existing ships that I mentioned, we have eight of our existing ships that could be candidates. We are actively talking with providers and shipyards to see if we can – but we haven't decided to take a final step and go ahead yet. We've watched VW do this and they have first-mover advantage, and we have a second-mover advantage, we feel.
Okay. Thanks, John. And then regarding the G&A charge this quarter, it sounds like there was a contract dispute, well a charter dispute, has that been resolved? Is this a one-time charge? And should we think of this as kind of non-recurring and we expect that to reverse in the future quarter or is it sort of done and dusted now?
We've made a provision for a possible payment. That is our best estimate of what we would be required to pay if we lose. So that's it and it's not ongoing, it was a one-off relating to the delivery of the ship on a charter and we don't expect that to have an impact more than what we've provided for it at all.
But it could reverse at some point down the line or reduce…
It could reduce. We think it's a potential liability and that's why we made the provision for it. So I wouldn't count that $4 million as being accessible.
Okay. But sort of non-recurring also. All right.
Yes.
Thanks a lot.
Thank you.
Thank you, Sean.
Our next question comes from the line of Omar Nokta with Clarksons Platou. Please proceed with your question.
Thank you. Hey, guys, good morning. Generally good overview, I thought in your opening remarks. And then just maybe wanted to just dig maybe a little bit further on the newbuilding VLGC. John, in the past, when we talked about it on conference calls, you haven't really been interested in newbuildings and I'm just wondering what's changed in your eyes to make you more comfortable with this order? And also what's the appetite look like for potentially more than just this one?
I think that it speaks for itself in a way. It's one ship. We have – we're putting our toe in the water with dual-fuel. We are doing something which is a bit centric to customer needs as we perceive them and developing in terms of the Japanese market. We're taking advantage of attractive financing opportunity and I think it in no way in payrolls or inhibits our ability to continue to focus on shareholder return – on capital allocation with a bias toward returns to shareholders.
That's fair, John. Thanks.
Sorry, Omar, I missed.
Yes. I was just going to ask, I mean, clearly that makes sense and do you think there is – do you have the desire to expand that from what you see now, whether it's from your discussions with your customers or attractive financing or slot capacity, do you see an opportunity or an interest on your part to add more than just the one?
I can give you an – a non-politicians answer to that.
Okay. That's clear. And then, I guess, obviously, as you said dipping your feet into the dual-fuel a bit more, how does this kind of change or how should we think about the perspective of you adding secondhand vessels? I know you haven't been acquisitive, but generally speaking, do you think outright acquisitions of existing vessels would also happen with capital or do you prefer more like the TC-in approach that you've done here in the recent past in order to add – to increase your existing footprint?
We've taken a portfolio approach and the TC-in approach is – we find very interesting and we will continue to execute on that. And, hopefully, now by adding – we'd like to see the order book kind of stabilize here. As I said, I think it's – the prospects of it getting absorbed are good and we're confident in the expanding trade, et cetera. But we, at this stage – and I don't want to exclude anything, but at this stage we're not – we do not have the appetite for more newbuilding. And as regard to secondhand, you could see us being a seller as much as you could see us be a buyer. It depends totally on our – opportunistically on the – where we see a value and what – whether it will be accretive or not.
Okay. Yes. That speaks to your portfolio approach. One final one, just back with the newbuilding. Do you think that this is a vessel, at least from your conversations with your customers, is this a ship that you can intend to deploy on a long-term charter? Is that kind of what – I don't know if you hinted at that or is that just a general conversation that there is interest for these types of ships in the future?
Yes. Not necessarily, Omar. I think it's because of her draft, she is suitable for – to the trade, but I – we're not counting on a long-term charter. If it comes and if it's at the right price, we will be happy to do it, but we're not counting on that.
Got it. Okay. Thank you. I'll leave it at that.
Thanks, Omar.
[Operator Instructions] Our next question comes from the line of Eirik Haavaldsen with Pareto Securities. Please proceed with your question.
Yes. Hi. Just one on your three older ships then, because there's obviously a lot of talk on the dual-fuel models, but what do you see at a market for the kind of pre-eco ships like the three Captains you have post 2023? And is the ambition – I mean, the S&P market for those types of ships is, perhaps, surprisingly liquid and strong really, is that something you're looking at thoroughly then when you say you could be a seller?
As much as we're looking at everything thoroughly, yes, but not – we're not focusing on selling those three ships. But I think the values are solid and that's very encouraging. So the option of selling and as a renewal ultimately, et cetera. is there and we are examining it. But we don't have anything right now that we can report on in terms of the transaction. A couple of them are engaged in time charters and I think that to go beyond the regulatory and all that, at the moment, it's too speculative to know what – how these ships will be performing relative to the others.
Okay. But when you talked about retrofitting, those three wouldn't be in that field thinking about, retro? Okay. And the finally…
It will be…
Exactly. And when you talk about shareholder returns, you still have a preference towards buybacks rather than dividends, is that a fair assumption?
We think our self-tender was a successful and positive way to make that return. We do have the option of buybacks and we do not want to explore the possibility of doing dividends. Sorry about that. There is no way – committal one way or the other except to say that we will be – with this market continuing the way it is, we expect to be making returns.
Okay. And then finally then on the cost of the newbuild, I missed it, was it $84 million, you said?
84,000 cubic meter and we cannot tell you the price, but it's not $84 million.
Okay. Thank you.
Okay. Thanks, Eirik.
We have reached the end of the question-and-answer session. Mr. Hadjipateras, I would now like to turn the floor back over to you for closing comments.
Well, thanks to everybody for attending, and thank you for your questions. We look forward to seeing you again in three months.
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.