Avance Gas Holding Ltd

OSE:AGAS

Earnings Call Analysis

Record Quarter Forecasts Amidst Fleet Optimization

The company anticipates Q4 to be its most profitable quarter since Q3 2015, with expected average spot rates between $90,000 to $100,000 per day, and a net Time Charter Equivalent (TCE) rate around $70,000 to $75,000 per day after hedging impacts. Despite some negative financial derivative impacts due to market shifts, they're projecting substantial profits well above their cash break-even of $22,000 per day. The fleet is being optimized by replacing older vessels with newer, more efficient ones, including six large dual-fuel LPG carriers and four midsized gas carriers capable of LPG and ammonia transport. Dividends have been maintained at $0.50 per share for the last four quarters, totaling $2 per share for the year.

Strong Bookings Indicate a Record Quarter Ahead

The company is set to achieve its best quarter since the third quarter of 2015, with fourth-quarter bookings significantly surpassing the third quarter, signaling impressive earnings potential ahead.

Robust Profit Margins and Asset Divestment

With a cash break-even point at approximately $22,000 per day, the firm expects to generate substantial 'super profits' in the fourth quarter and has successfully sold multiple ships at a healthy profit. Moreover, a strong interest in the sale of another ship, Venus Glory, indicates potential for further lucrative deals.

Strategic Fleet Expansion and Time Charter Contracts

The company is taking delivery of new vessels while postponing others due to shipyard backlogs. Four midsized gas carriers scheduled for 2025 and 2026 represent a strategic move into dual-capacity shipping at competitive pricing, enhancing the company's future revenue streams. Fees from existing time charter contracts and hedged positions, such as the $29 million backlog for the vessel Pampero, offer stability and predictability to future earnings.

Dividend Policy Stability

The investor-friendly approach continues with a steady dividend payout, now maintained at $0.50 per share over the past four quarters, reflecting confidence in the company's ongoing profitability and cash flow generation capabilities.

Consistent Commercial Performance

The third quarter showed a TCE rate of $55,300 despite being impacted by FFA losses. While rising interest rates led to increased net finance expenses, the company still boasts a lower net finance expense compared to industry benchmarks. Net profit achieved was $30.1 million, translating to a notable annualized return on book equity of 21%.

Future-Proofing with Positive Book Profit Expectations

A future book profit of $22 million is anticipated in the first quarter of 2024, from the delivery of the sold vessel Iris Glory. This demonstrates proactive management in optimizing the fleet and capitalizing on high market valuations.

Sound Financial Standing and Cash Flow Management

The company maintains a balanced leverage with a 49% loan to value ratio and a solid shareholders' ratio of 50%. With a disciplined approach to debt repayment and smart refinancing moves, such as the Pampero refinancing that will improve cash proceeds and lower interest margins, the company ensures a strong financial position and cash positive status in upcoming quarters.

Strategic Financial Outlook

The organization has structured its finances to safeguard a low cash break-even level while also securing long-term debt maturity, with no fleet debt maturing before 2028. This strategic financial planning positions the company to weather market volatility and invest confidently in fleet upgrades and new opportunities.

Earnings Call Transcript 2023-Q3

[Operator]

Good day, and thank you for standing by. Welcome to the Avance Gas Third Quarter 2023 Earnings Conference Call. [Operator Instructions] After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Alternatively, you may submit your question via the webcast.Please be advised that today's conference is being recorded.I would now like to hand the conference over to your speaker today, Oystein Kalleklev, CEO. Please go ahead.

[Oystein Kalleklev, executive]

Thank you, and good afternoon. And welcome to Avance Gas' third quarter earnings presentation. As mentioned, I'm Oystein Kalleklev, CEO of Avance Gas. And as usual, I will be joined by our CFO, Randi Navdal Bekkelund who will guide you through the financial a bit later in the presentation. As mentioned, you can submit questions either by the telephone conference or using the chat function and we will cover the questions at the end of the presentation.Before we begin, I would like to draw your attention to the picture on the front page. Here you can see, Sirocco, one of our VLGCs leaving the Panama Canal which we thought would be an appropriate picture for today's presentation. As you are probably aware of, Panama has experienced significant drought this year, which have reduced water levels to such low levels that the Canal Authorities have been forced to cut daily allowed transit by half in order to preserve fresh water. The reduced capacity in Panama has dramatically increased sailing distances for VLGCs and thus made the freight market super tight. We will discuss the situation in Panama and implication for VLGC freight market in more detail in the market section.In the picture here, Sirocco is going through the Cocoli Locks close to Panama City in laden condition and you can actually see both, the bridge of America and the Pacific Ocean in the horizon.So before we begin the presentation, I will just remind you the disclaimer as we will provide some forward-looking statements, use some non-IFRS measures. And of course, there are limits to completeness of detail we can provide in this webcast. So we recommend to review the earnings report together with the presentation.So Randi, let's kick off today's presentation. Q3 highlights. Our average time charter equivalent earnings or TCE for the third quarter came in at $55,300 per day for the fleet. This is on a discharge-to-discharge basis which is the basis we use for guidance. While we technically are within the TCE guidance at $55,300/day is in the high interval of $50,000, we have to admit that we were expecting that the TCE would be more like $58,000 to $59,000 per day when we made our guidance on August 30. However, on the following day, August 31, we saw the biggest-ever daily jump in the Baltic LPG 1 index. Baltic LPG 1 is the index for spot voyages from Saudi Arabia to Japan, which is the most liquid index and therefore the index we utilize for hedging freight by using forward freight agreements or FFA.In one single day, on August 31, the cost of freight for this route jumped 20% from $98.5 per metric ton to $118 per metric ton. The Baltic LPG 1 index then went on to record its strongest-ever 7-day trading results with the index shooting up by more than 50% to 151.5 points by September 8. While a booming freight market is good news for us, our results in Q3 is, however, adversely impacted by FFA, especially in September as this is the fixing window for October cargoes. Overall, average TCE for the fleet was thus reduced by $10.6 million in Q3 or $8,300 per day due to FFA hedging, and I will cover this in more detail shortly.Another effect of rapidly increasing freight rates is that we recorded a very big deviation in our earnings on a load-to-discharge basis, which is the basis for IFRS accounts compared to discharge-to-discharge basis, which is a round trip economic typically utilized by shipping industry to measure trading performance. Over time, these 2 metrics evens out, but they can deviate substantially when the market moves either up or down. For this quarter, the IFRS effect was $10.9 million and the load-to-discharge numbers, therefore, came in $8,600 lower at $46,700 per day. I will also shed some more light on this timing effect shortly.Despite these 2 timing effects, totaling $21.4 million, trading results for the quarter was very strong with a net profit of $30 million for the quarter, thereby increasing the net profit for the year to $102 million. Hence, we have already surpassed the results from last year with the best yet to come as we expect Q4 to be by far our best trading results this year. Please note that the $102 million above does not include the gain from the sale of Iris Glory. As we announced in July, we have agreed to sell Iris Glory for $60 million, and we expect to book a profit of $22 million once she is delivered to new owners. Iris Glory is currently discharging her last cargo under her 2-year time charter, and we are currently marketing her for her final spot voyage prior to delivering her to new owners.We, therefore, expect to hand over [Technical Difficulty] Is something wrong with the sound? Okay. Now -- okay, let's continue. I just got some message here from my speakerphone, but okay. Okay. We therefore expect to hand Iris Glory over to new owners once this last spot voyage has been completed. The profit from the sale will be [Technical Difficulty] Sorry, we do have some technical there. Okay. Okay. I think we just -- okay. We expect to hand Iris Glory over to the new owners once the last spot voyage has been completed. The profit from the sale will be booked when such handover occur. And we expect this to take place at the end of the year or more probably early next year depending on the timing of her final spot voyage.Of other recent events, we are pleased to have secured a new $43 million bank financing for Pampero at improved terms compared to the sale and leaseback she currently financed under. And Randi will give some more details on this in the finance part.Finally, as already mentioned, the Panama Canal congestion is of particular importance. As mentioned in the introduction, this has really fired up the freight market, and I will cover this in more detail in the market section. So with the spot freight market shooting up from September, we expect to deliver substantially stronger numbers for fourth quarter. We still have some days to book for Q4, which is okay given the spot rates currently at $130,000 to $140,000 a day. Overall, we expect the fleet to deliver a time charter equivalent earnings for the fourth quarter of $70,000 to $75,000 per day. This is on discharge-to-discharge basis and then it includes the effects from FFA hedging at current rate levels.Hence, with strong numbers, a healthy cash position, and compelling outlook, the Board has once again decided to declare a quarterly dividend of $0.50 per share, which brings the dividend of last 12 months to $2 per share which implies a running yield of about 12%.So let's review our commercial performance. This is where we'll spend most time with the analysts today given the big timing effect on our results. For the third quarter, about 64% of our fleet was allocated to spot voyages, while the remaining was allocated to term market through TC coverage. Given the strong spot market, we generated average spot earnings of $75,700 per day, slightly ahead of guidance of $71,000 per day. While the TC ships delivered average earnings of $41,700, in line with guidance of $42,000 per day. With that, we thus ended up with an average of $63,600 per day before FFA deductions. As we have hedged 2 of our spot ships by FFA in the third quarter at an average of $50,000 per day, this dragged down numbers for the fleet by about $8,300 per day to $55,300 as spot rates were significantly higher than our average hedging ratio, particularly this was true in September, as mentioned.As rates spiked from September, we haven't been able to book Q4 at substantially higher rates than Q3, and we do expect this to be, by far, the best quarter for us this year and probably the best quarter since third quarter of 2015. Achieved spot rates for Q4, we expect to end up somewhere between $90,000 to $100,000 per day on average. As the 2-year TCE for Iris and Venus Glory is coming to an end in Q4, spot exposure will be reduced to about 30% with average TCE rate of around $50,000 per day. Overall, this should give our TCE for the fleet of around $80,000 to $85,000 per day. But since we have hedged 2 ships by FFA at an average of $55,000 per day, we expect a negative revision also from FFA in Q4. Best estimate is around $10,000 per day, giving a net TCE for the fleet of around $70,000 to $75,000 per day.Keep in mind, our cash break even level is around $22,000 per day, so we will generate substantial super profits in the fourth quarter.Okay. So let's go into the timing effects a bit more in detail. First, let me explain briefly the difference between discharge-to-discharge and load-to-discharge. When we calculate freight economics in shipping, we usually use discharge-to-discharge basis. This is then the gross freight income, less voyage costs like bunkers, canal fees, and broker commission. And then we take the net voyage result and divide it by the days for our round trip, i.e., from discharge of last voyage to discharge of the current voyage. In IFRS, we do, however, apply load-to-discharge basis for spot voyages. So here, we only recognize revenue from the point in time we have cargo on board and until we discharge it. So when the market moves sharply up or down, you typically will have a lot of ships ballasting into new fixtures, which you cannot recognize income from. And that's why we have the so-called IFRS 15 timing effect. In a flat market, there would be no such effect.Our timing effect is also magnified by the fact that we utilize FFA to hedge 2 of our spot ships, as mentioned in the third and fourth quarter. Here, we calculate profit loss every single day. And when the market moved sharply up in September, as you can see from the graph, we have to recognize these losses immediately in the September P&L while we are booking the ships for voyages well into fourth quarter. Hence, we have illustrated the effect with a bridge from gross average TCE of $63,600 with deduction of FFA of about $8,300 per day and then finally, the IFRS effect of $8,600 per day. As we are starting from a high point, we do expect the IFRS 15 effect to be less or significantly less in Q4.Okay. Let's look at the fleet. What we have been doing in the last couple of years is to sell older ships and renew with newer more fuel-efficient and flexible tonnage. Last year, we sold 3 ships, all at a decent book profit, and we announced a sale this year of Iris Glory. We have recently docked the Venus Glory and she is currently completing her final voyage under her 2-year time charter. So we are marketing her for sale and have received quite a lot of interest. So we are upbeat about the prospect for divesting here also at a very healthy book profits. At the same time, we are investing in new ships. We contracted the right ships at the right time with in total 6 large dual-fuel LPG VLGCs at about $80 million each.Newbuild prices for such vessels today are at about $115 million to $120 million depending on spec. And these ships are typically not due for delivery prior to 2027. Our large dual-fuel VLGC has a cargo capacity, about 9% to 10% larger than traditional VLGCs. And they can run on LPG instead of [Technical Difficulty] And they can run on LPG instead of compliant fuel, which is not only good for the environment, but also for economics as LPG is much cheaper than compliant fuel. Last year, we took delivery of Polaris and Capella. This year, we are taking delivery of Rigel and Avior. And the 2 large ships, Castor and Pollux, which are scheduled for delivery this year, has been delayed until Q1 and Q2 next year due to a lot of work at the yard these days with all the container and LNG contracts that they have entered into.Additionally, we contracted 4 midsized gas carriers this summer for delivery in 2025 and 2026. These ships can carry both LPG and ammonia, and we contracted them at very good price points of $61.5 million each, which compares very favorable to newbuilding prices being quoted for such ships today with typical delivery into 2027. The equity for the MGCs, we are planning to release from the sale of the older ships, where we have one more ships to sell as explained.So let's look at our employment profile. As mentioned, our 2 older ships are coming off 2-year fixed TCs in Q4, and Iris Glory will be delivered to new owners in December or January. Venus Glory, as mentioned, on her final voyage under her TC. And we will trade her spot until we potentially can secure a buyer for her, where we already have some interest. We have 8 2015 eco ships. The 2 ships without a scrubber is on time charter, a variable time charter for Chinook until summer next year. And a fixed hire TC of 21 months for Pampero until she will be carrying out a 10-year special survey in Q3 of 2025. We have stated that the backlog from this time charter for Pampero is $29 million. So this gives you a rate of around $45,000 per day. The other 6 2015 eco ships, we have installed a scrubber and we are trading those ships in the spot market.One of these ships, we hedged by use of FFA last autumn at $48,000 per day for the calendar year of 2023. This is the FFA 1, as you can see at the bottom of the graph. Then we have 6 dual-fuel ships, of which 4 have now been delivered. Both Polaris and Capella went on 2 years variable TCs directly from yard with a floor and a ceiling of around $50,000 per day. The Polaris TC expires in [indiscernible] and while we may -- while we, in May, agreed to prematurely terminate the Capella variable TC. We then turned around and hedged this ship at $53,000 and $63,000, respectively, for the third and fourth quarter of this year. This hedge is noted as FFA 3 in the graph. There is some upside on the FFA numbers for Capella as we can take a bigger parcel size than a conventional size. And in case we burn LPG instead of very low sulfur oil.So this is the rationale for our 2 FFA positions for the Q3 and Q4 this year. The 2 dual-fuel ships we have taken delivery of this year, Rigel and Avior, we are trading spots, and the 2 ships for delivery next year is also open. This means we are increasing our spot exposure next year unless we find some good TCs for some of these ships. We also do have some FFA cover for next year. We have extended the scrubber hedge into Q1 at one ship for Q1 at $60,000 per day. And then we also hedged 50% of one scrubber ship for calendar year 2024 at $70,000 per day noted as FFA 2 in the graph. Lastly, we have 4 MGCs for delivery in 2025 and '26, which we are currently marketing for longer-term TCs.So last slide before handing over to you, Randi, is the dividend slide. As you can see, we have ramped up dividend in Q4 last year given the stronger results, and we have now kept the dividend at $0.50 per share for the last 4 quarters with today's declaration of $0.50 per share for the third quarter of 2023. We are paying slightly more in dividends than earnings in the third quarter as the earnings are dragged down by the timing effects I explained earlier. However, as mentioned, we do expect a rather big bounce in earnings for the fourth quarter. So we do not see any reason for not maintaining the dividend at $0.50, bringing the total to $2 per share in the last 12 months.I covered the factors for determining the dividend level in great detail in the past but as you can see, more or less green lights on all the factors, and that's why we are optimistic about the outlook also for dividend in the coming quarters.So that's it, Randi. And we do the financials.

[Randi Bekkelund, executive]

Yes. Thank you, Oystein. And let's go to Slide 9 and have a look at our income statement and key financial figures. So as already presented by Oystein, our commercial performance measured in time charter equivalent rate, our TCE rate for the quarter was $55,300 on a discharge-to-discharge basis versus the guidance in the high 50s compared to $50,800 for the second quarter. The TCE rate was impacted by forward freight agreements or FFA losses of $10.6 million or $8,300 a day for the fleet in the third quarter. The TCE rates, according to the accounting and reporting standards, IFRS, recognized revenue on a load-to-discharge basis, thereby adjustment of IFRS was negative $10.9 million or $8,600 per ship day for the third quarter as the spot market reached elevated levels by the end of the quarter, resulting in a reported TCE of $46,700 compared to $52,000 for the second quarter.Operating expense or OpEx were $10.4 million, equaling a daily average of $8,100 per ship day, approximately at the same level as the previous quarter. We continue to hold the lowest administrative and general expense compared to our industry peers despite a higher A&G for the quarter, which is explained by non-recurring expenses as a settlement of share options. For the quarter, A&G came in at $2.8 million, equaling a daily average per ship day of $2,200, whereas a normalized A&G is closer to $1,000 a day, which is as expected going forward.And that concludes an operating profit before depreciation or EBITDA of $46 million compared to $52 million in previous quarter. Depreciation is down from $12 million previous quarter to $11 million this quarter as we have reclassified Iris Glory to 2008 built VLGC following the sale previously announced in July. And consequently, the vessel is not depreciated by holding the classification as held for sale. At delivery to the new owners within January 24, we expect to generate $22 million in book profit in the first quarter of '24. Net finance expense was up $4 million from $5 million the previous quarter due to rising interest rates and higher average net debt, interest-bearing debt as we have a full quarter with financing on our recent delivery of Avance Avior in May. So despite this, we maintain a lower net finance expense compared to the floating SOFR by interest rate hedges.Currently, we have approximately 90% of the underlying interest-bearing debt is fixed at 3% on the floating leg compared to the current SOFR at 5.32%.So this concludes the net profit of $30.1 million and corresponds to an annualized return on book equity of 21%.Moving to Slide 10. You can see that 80% of our total assets currently consists of 14 VLGCs on water, which is soon to be 13 as we sold Iris Glory with delivery to the new owner within January '24. So additionally, we have a few newbuildings under construction. The VLGC Avance Castor and Avance Pollux with expected delivery in March and May '24. And also we have paid the first predelivery CapEx on our 2 first midsized gas carriers MGCs representing $18.6 million for the quarter. The MGC #3 and 4 will start capitalizing the next quarter when we will pay the first installments to the yard.Looking at the credit side, we have a balanced loan to value ratio of 49% as we have amortized interest-bearing debt while values have gone up. We have also refinanced the VLGC Pampero, which I will come back to in a few minutes. Looking at the total shareholder equity, we also maintain a relatively solid shareholders' ratio of 50%. And the total shareholder equity was $581 million at quarter end and has decreased $9 million during the quarter, which is explained by a net profit of $30.1 million being offset by dividend paid of $38.3 million for the second quarter and negative movements in other comprehensive income of $900 -- $900,000, sorry, which is explained by positive market to market movements in interest rate swaps of $1.6 million and negative market to market movements in FFA hedges of $2 million.We have a solid cash position of $146 million as of 30th of September '23, which leads us to the next slide showing the cash movements during the quarter. We started the quarter with a cash position of $192 million. And during the third quarter, we generated $42 million in cash flow from operations coming from a strong freight income exceeding our cash break level at $22,000, which was offset by a decrease in working capital items of $15 million, driven by increased prepayments, which is explained by cash deposits in relation to our FFA hedges. Further, we had $21 million in capital expenditure, of which $18.6 million relates to our 2 first MGCs scheduled for delivery in Q4 '25 and Q1 '26. And the remaining $2.4 million is dry-docking of Venus Glory.Further, we repaid $11 million in debt. And lastly, we paid yes, as already mentioned, $38 million in dividends for the second quarter and $1.8 million in settlement of share options. So this brings a total negative cash movement of $46 million and that explains the bridge from the second to the third quarter.So just to summarize the recent transactions announced in cash terms, we expect to generate in total $45 million in cash proceeds during the first quarter '24 in addition to the cash from operations where we have the sale of Iris Glory, we'll generate approximately $25 million, $5 million from the refinancing of Pampero, and $14 million coming from financing of the remaining 2 VLGCs, newbuildings at delivery.Looking at our financing structure on Slide 12. 70% of our outstanding and committed debt is bank financed with a split in term loans and flexible non-amortizing revolver credit facility, or RCF, of $113 million. Post sale of Iris Glory and refinancing of Pampero, about 80% of our committed financing will be provided by banks and the remaining 20% is sale leaseback arrangement with BoComm of $135 million, which will be drawn next year at delivery of our remaining 2 newbuildings, Avance Castor and Avance Pollux. And thereby, we will be cash positive of in total $14 million during the first and the second quarter of '24.Looking a bit into the refinancing that we've done. We have been working on improving the financing structure for the VLGC Pampero 2015 built. So we have terminated the current Chinese lease and replaced it with a bank facility. So by end of October, we received a credit approval for the refinancing of the vessel in a $43 million bank facility. And as we've already mentioned, the transaction will generate net cash proceeds of $5 million, a drawdown scheduled in March '24. And the exercise will significantly improve the current financing of the vessel, bearing a margin of 1.9% versus existing margin of 3.25%. Further, the bank facility will have adjusted profile of 20 years and it matures in January '28. And we expect to close documentation and procedures within January '24.And thereby, we will maintain our low cash break even of about $22,000 a day. And with no debt maturity before 2028 for the majority of the fleet.And with that, I give the word back to you, Oystein, for providing an update on our smoking hot LPG market.

[Oystein Kalleklev, executive]

Okay. Thanks, Randi. And we spent so much time with IFRS 15 now and FFA. So I think we will run through the market slide a bit quickly. It just gives an overview of the, the Slide 14, of the current market with other elevated freight levels. Baltic 1, as I mentioned, is the main route from Saudi Arabia to Japan. Of course, the Baltic 3 route today, Houston to Chiba, this is basically only exists on paper. This route assumes you going from Japan to Houston, both ways using the Panama Canal and having a round trip of 60 days, while today, you will mostly route your ship both ways to Suez or Suez and Cape of Good Hope, making that voyage until 90, 95 days rather than the 60 days in a perfect voyage. Still -- so the TCE $145,000 for the longest route, it will be a bit lower on paper when you're adjusting for the sailing route.The premium route continues to be Atlantic where rates are very elevated from U.S. to Flushing. But of course, you do have a bit more waiting risk on some of these shorter routes. The freight levels are supported by good arbitrage level, it's about $350 cheaper with LPG in U.S. and Japan now. So the product spread is $350 million. So even after paying $239 on freight, you still have a lot of margin for the terminals and the traders. As mentioned, the Panama Canal is clogged. Average auction fee in order to skip the queue for November is $2.6 million northbound and $2.3 million southbound which, of course, are leading a lot of the bigger ships to take longer routes rather than waiting in Panama. U.S. exports, very stellar growth, 14% year-on-year. We do get the question from time to time, why do we do see this high growth of U.S. exports when U.S. oil production are fairly flat. And I will comment on that and touch a bit upon that later in the presentation.In terms of fee import China, despite slow economic recovery following Zero-COVID, 23% growth year-on-year. So of course, the Chinese are importing a lot of cheap LPG and with a lot of new PDH plant commissioning, they have a lot of demand for U.S. LPG.So let's look at the overall market on Slide 15. As we've shown in the past, very high growth in both U.S., which is by far the biggest exporter, especially when it comes to VLGCs cargoes. And then Middle East. Despite the OPEC cuts, very strong growth. It's -- the OPEC cuts only applies to oil and there's a lot of gas producers in the Middle East, which are ramping up exports. On the import side, as I mentioned, China is up 32% from 2021, which was prior to the Zero-COVID policies. We even had growth in China in 2022 despite the Zero-COVID policies. And then we have had a big spike in import growth this year despite somewhat disappointing economic recovery. Europe as well have been importing Russian LPG by rail and on smaller-sized ships. They are buying more U.S. LPG and growth is -- volumes are up 58% from 2021.Looking into U.S. on Page 16, here, you see a very strong growth, and we will touch a bit upon why we do see this extremely strong growth from U.S. LPG exports. And the high growth in U.S. LPG production is also driving down domestic prices and inventories to a new record high, which is then facing this fantastic arbitrage to Far East markets. And today, 60% of the propane in U.S. is being exported. So this has really become a domestic -- export product for the U.S. producers.Looking into the next slide on the arbitrage, it's just the same picture. You can see how the arc goes up and down, the price difference between U.S. and Far East. And this is also, of course, then driving into what you can pay for freight. And if you look at the forward market for the arbitrage, it's very conductive, staying at $200 to $300 per tonne, which means that the freight market also expect rates to stay at high levels. We do expect the freight market to start softening from next year, but still staying at $80,000 -- $100,000 per day is very favorable compared to our cash break even as Randi shown at $22,000 per day or so.So Randi, let's look at some of the drivers for this extremely strong growth in U.S. exports. People -- 80% of the drilling in the U.S. is for oil. Nobody really drill for propane or butane. So this is driven -- the volumes are driven here by associated gas primarily. So what happens typically in these wells is that ratio of gas to oil is increasing with time. And we have some of the major basins in the U.S. here on the graph on the left-hand side. And what we do see is the gas to oil ratio is picking up. So for Permian, which is a rather new area in terms of shale, this has increased from 3.4 to 3.8 in from 2017. It doesn't sound like a lot. But given the scale of Permian drilling, this really increased the availability of associated gas. And as you can look at this graph #2, higher gas to oil ratio means more associated gas, and this is particularly true for the Permian, which associated gas production has gone up a lot. And this is associated gas close to export plants in the U.S. and also in a favorable regime in terms of regulation where there's not a lot of obstacles to building pipeline.So this has also then resulted in, as I mentioned, more associated gas. And this associated gas is saturated with NGL, natural gas liquids, which is not only propane and butane but also ethane. So the gas recovery of gas in the associated gas or what we call the gallons of NGLs produced per 1,000 cubic or GPM, this ratio is also picking up. So not only are you producing more associated gas, you're also recovering especially when you have this rapid build-out of infrastructure in U.S., everything from export plants to pipeline.So this is the main drivers why you have higher growth of NGL, natural gas liquids, than you do from crude and natural gas, which I will show on graph #19, the next. So this is a nice graph from RBN Energy, which is a very good source for information about LPG business. So if you look at the growth in crude oil in U.S., it's been a fantastic growth story since 2013. The same goes for natural gas, but they are far lower than NGL where you have more than 50% higher growth in production of NGLs than crude oil and even more so when it comes to natural gas.So if you look at the situation today on Page 20, actually, we are in a situation today where for every barrel of crude oil being produced in the U.S., you today produce half a barrel of natural gas liquids, and this consists of ethane. And then we have the main feedstock for our trade, the propane, the butane, and the isobutane, which is the LPG. And then on top of that, you have, call it, natural gasoline, which you utilize for refineries. So that means with all these drivers, you really have a much stronger growth picture for NGLs than crude.And if we look at next Slide 21, you will actually see world oil demand from 2010. So you see the picture here from '11, '14 and then you see this dark blue starting to pick up, and this is the NGLs also consisting of LPGs, which is driving world oil demand. And this is actually 36% of oil growth since 2010 is NGLs. So that's to explain why U.S. can produce a lot more growth for LPG than they can do for both natural gas and crude oil.Yes. Let's also have a look at Panama Canal. We do get a lot of questions about this these days. So of course, when they agreed to expand the canal back in 2007, this was mainly driven by container traffic. Container traffic was booming after China became member of ECO in December 2001. And in order to facilitate the container traffic, they added a third lane in Panama. You have a regular, you have the Panamax and then the Neo-Panamax opened in summer of 2016. However, this is not really an ordinary canal, where you just go through our ship's channel. This is actually more of what I would call a water escalator. So what the Panama Canal does is you take a ship from either the Atlantic or the Pacific side, and you lift it up to well above ground level, and where you end up in this lake called Gatun Lake. And then you take the elevator down again and you go to the other sites. So either from the Atlantic to the Pacific side or the other way around.In normal operation, Panama now can facilitate up to about 40 daily transits. Usually, the nameplate capacity is 36. And then of those 36, 40 daily slots, around 10 of them are for the Neo-Panamax size, the biggest ships with a beam wider than 32.5 meter but less than around 50 meters, which is most of the VLGCs, except for the Panamax size. So what has happened now is you have had a period with El Nino with drought. We have had drought caused by El Nino in the past. We had that in [indiscernible]. And then we had a double El Nino in '14, '15, '16. This was prior to the Neo-Panamax locks opening in Panama. So when you have less rainfall, you are also not able to create enough freshwater in the Gatun Lake. So in order to mitigate that, first, they implemented draft limitations. And then now we have had a sharp reduction in allowed daily transits where the daily transit will go from 36 to 40 down to 32, 28, 24, 22, 18. And by February, this will be at 18, which means that Neo-Panamax slots will go from around 10 to 5. So you're cutting the capacity in half.And of those slots, container ships are being prioritized because they have a more valuable cargo and can pay a higher fee. Second is LNG carriers, which also have a more valuable cargo than VLGC. And then VLGCs are being prioritized out of the canal and are having to find other routes or participating in auctions. So there has been a couple of special actions lately, and we have set new records in terms of the price being paid to skip the line. The recent record was $3.98 million being paid for our one-way transit northbound. And as you can see from the data points there, they have gone rapidly up from typically below $500,000 to stabilizing, as I mentioned briefly in the beginning at $2.5 million, $3 million on average. So that means the waiting time has gone up, auction price has gone up. And today, there is about 50 VLGCs taking a route via Suez and Cape of Good Hope to U.S.In the summer, June, July, this number was 10. So the numbers of VLGCs taking longer routes to U.S. from Asia has skyrocketed. And this means because sailing businesses is up. As I mentioned, 60 days, perfect voyage from U.S. to Japan. It's more like 90 days today. With all the ships taking longer routes, this means fewer ships available in the market, and it's the reason why freight rates are elevated, supported by the very high arbitrage from U.S. to Far East.So maybe look at the last slide before concluding, it's orderbook. It's a typical slide for this segment. Orderbooks has been the real scare this year. Scheduled delivery this year was 46. We said we -- actually 1 year ago, we didn't think that there will be 46 ships for delivery. We estimated around 35 to 40-ish ships for delivery this year, depending a bit on market conditions as we also have 2 of our 4 ships delayed for delivery this year until next year. We will end up probably around 40 ships because the market is so strong now that you want to get your ship out and into the spot market in order to capture these rate levels. Then the orderbook will taper off with significantly fewer deliveries in the coming quarters. So actually, the Panama congestion has come at a perfect time for the VLGC market. We have had now a year and a period with a very high growth in the fleet, which could have derailed the spot market. But given the longer sailing routes, we have had -- we stretched the fleet out so that the ton mileage effect has been mitigating the fleet growth.And we do expect the problems in Panama to endure. The rainy season is only for 2 more months. There are limitations to how much they can get the water level up again before they start consuming again. We expect this to endure as a problem well into '24, and then we will see whether there will be another El Nino or not. But regardless of that, we have to keep in mind the canal was made for container traffic. When the canal was expanded, nobody foresaw that U.S. would become the world's biggest LNG exporter and by far, the biggest LPG exporter in the world. So it's really not scaled for this kind of growth in the U.S. exports. So we do expect Panama Canal to be a headache for VLGC owners in the future. Headache in the sense that they have to take longer routes, which is generally good for the market overall, given the ton mileage effect.Also worth noting, the Dark fleet of VLGCs trading in captive trade, typically, Iran to China, that number of ships keep on going, given the export growth from Iran, and we now count 52% of the fleet being in this kind of trade and not being in the kind of international trade.So with that, I do think we can conclude today's presentation, which has been rather long. As mentioned, $55,300 on TCE numbers, impacted a bit by FFAs and then also the IFRS 15 on the load-to-discharge numbers. However, best numbers since 2015 year-to-date, $102 million already ahead of last year. And we do expect Q4 to be by far the best year -- quarter for this year. We are in the process of selling Iris Glory once we fixed her final spot voyage. We have a refinancing phase for Pampero. Panama Canal will continue to be a bottleneck for the trade. And we are guiding numbers of $70,000 to $75,000 in TCE for next quarter.And with that, we are happy to continue paying very good dividends to our shareholders, $0.50 also for Q4, bringing the total to $2 in the last 12 months.So that's it. Maybe we could do some questions then.

[Operator]

[Operator Instructions] If you wish to ask a question via the webcast, please type it into the box and click submit. Our first question comes from the line of Climent Molins from Value Investor's Edge.

[Climent Molins, analyst]

I wanted to start by asking about your Q4 guidance. I mean, after the impact that the load-to-discharge accounting had on Q3 earnings, could you give us some commentary on whether we should expect a reversal, so a positive accounting effect in Q4?

[Oystein Kalleklev, executive]

Yes. We can start with that. I think actually, if you look at some of the notes we have put in what we do expect this effect to be in Q4, so given that we are in a rising market, we don't expect this effect to be reversed in Q4. We do, however, expect effect to be significantly less than in Q3. So if in one of the notes in the presentation, we have put in that we do expect the IFRS 15 effect in Q4 to be negative by $2,000 per day. And we will first see a reversal of this effect once the market starts moving downwards. Then we will have kind of on average, a higher freight rates on the ships with loaded cargo than the ships we are booking.

[Climent Molins, analyst]

In the Slide 15, you had an interesting graph with the market share of VLGCs, MGCs, and smaller vessels. The VLGC market share has increased a bit over the past few years, and as U.S. exports continue to increase, this trend could or should continue. Could you give us some commentary on where you see that trend finishing out in the medium term?

[Oystein Kalleklev, executive]

In general, we have seen a trend towards bigger ships, the VLGCs, especially U.S., it's mostly a VLGC market. Russia, which was -- is actually a very small exporter of LPG was mostly our smaller ships, handy midsized segment. So that volume has disappeared. I think for us, it's mostly interesting in the VLGC for LPG market, and that's where we do see our competitive advantage. However, we have invested in 4 MGCs because these MGCs are both LPG and ammonia carriers. We do think that once the LPG trades start taking off, we do see more of that -- more of those cargoes being put on MGCs with a smaller cargo size than a VLGC. That's why we found those ships attractive. That said, we do have ammonia capabilities on newbuilding 5 and 6 for delivery next year. Those ships can carry ammonia as well as LPG.So -- but in general, we stay focused at our VLGC shipping company, where we do find most of the action, but we added MGCs because of their fit for also the ammonia types. And not least the good price points because of them.

[Climent Molins, analyst]

And final question for me. Actually, on the MGCs you ordered. The equity portion looks well covered with existing cash position and proceeds from the sale of the Iris Glory. But I was wondering, when should we expect financing to be announced for the vessels? And secondly, are you comfortable with your current fleet positioning or should we expect some additional acquisitions?

[Oystein Kalleklev, executive]

Yes. Financing-wise, of course, it's 2 years until delivery of the first MGC and then almost 3 years until the last one. So we have had several banks already knocking on Randi's door and offering her quite attractive financing and more attractive than the one we did for Pampero actually because this has to do also with the green credential of the ships. They make them very interesting for a lot of banks to finance those ships. However, if we were to put in place financing today for those ships, we would have to pay commitment fees to banks for up to 3 years, and we don't really see the value in locking and financing now and paying a commitment fee for such a long period. We do have the equity from the cash position and the sales we have been announcing. And we'd rather do financing once we get closer to delivery.At that time, we might also know better whether we have been able to secure long-term charters for the ships because that will also affect both the leverage we can put on and possibly also the margin in case we have a very good counterparty. So that was question #1. Question #2 was in terms of our fleet. Of course, we're always happy to new builds. We are in the middle of our newbuilding program with 2 VLGCs for delivery next year and then 4 MGCs for delivery in '25 and '26. So we have been doing some contracting in the last 2 years. But at the same time, we are also selling off older ships in order to renew the fleet. We are open to continue doing that. But prices for new ships or newbuildings now have become very elevated. The odds are packed with the orders for container ship and LNGs which is driving up the newbuilding price for VLGCs. As I mentioned, $115 million, $120 million for similar VLGCs today, which we contracted at $80 million.And if you are adding this VLAC spec, the very large ammonia carrier, you can also be paying $125 million. So we do think that it's a bit elevated and we rather then focus on taking delivery of our existing ships. If we find opportunities to add ships at attractive price points, we might do that. But that is something we are discussing with yards and the brokers all the time to see if we find some -- a good angle to do something. But right now, it's -- our focus is to take delivery of existing ship and sell the last old ship.

[Climent Molins, analyst]

Congratulations for the quarter.

[Oystein Kalleklev, executive]

Thank you. We had some chat questions as well. But maybe we have some more on audio. Let's see.

[Operator]

At this time, there are no further audio questions.

[Oystein Kalleklev, executive]

Okay. Good. Then I will just jump on some of these chat questions. Some of them are a bit long. But what are the key dates for the dividend? I think we sent out a separate press release today with key information regarding the dividend with all the dates for record date, ex-date, and payment date. So you should find them on our website unless you have them in the back of your head, Randi.

[Randi Bekkelund, executive]

Yes. The ex-dividend date is 7th of December followed by a record date, the 8th of December, and payment date is 15th of December, right ahead of the Christmas holidays.

[Oystein Kalleklev, executive]

Okay. And then we'll just pick a couple of them. Do you see a fundamental driver for why FFA rates are lower in Q2 '24 than currently despite the fact that Panama Canal restrictions increased in February? That's a good question. Yes. So actually, we are nothing near the peak kind of bottlenecks in Panama. We expect the situation in Panama to kind of become tighter and tighter and more ships having to ballast around it. So yes, you should think maybe then that the freight market should be even tighter. Freight market forward rates of FFA are however very much linked to the arbitrage. So when we have a situation where the LPG product prices are in backwardation, meaning they are lower in February than they are today, then typically, freight follows that pattern. And that's why the FFA, even though it's very strong for Q1, it's -- the FFA or the forward rate curve is also in backwardation, linking up with the product backwardation curve. So that is the main reason.And then, of course, the FFA are not always very good at predicting the future. So let's see when we get to February when we are reporting Q4. We have one long question here from Greg Miller. And he writes very good articles in FreightWaves, which I recommend to everybody to read. So maybe you can read it. I don't have my glasses with me.

[Randi Bekkelund, executive]

Yes, sure. If the upside scenario that Permian basin M&A leads to higher U.S. production even more U.S. LPG becomes available for exports, and at the same time, Panama Canal restrictions lengthen sailing distance and limit the number of VLGCs available to load the increased volumes of U.S. LPG available for export. Thereby supporting higher U.S. inventories and low U.S. LPG prices, which in turn supports arbitrage spreads. And thus VLGCs freight does mark --

[Oystein Kalleklev, executive]

Okay. I think -- yes. That's a long question. Actually, I did have a slide which I took out last night from the slide deck, which was about M&A activity in U.S. shale industry. We have had 2 big megamergers recently, both Exxon and Chevron have been buying up smaller players. So yes, we do see a trend towards consolidation on the shale side. And yes, we do think that will result in higher growth than maybe EIA is expecting. Because a lot of these smaller shale players have been kind of cut off from the financing market and they have scaled back CapEx investments because investors have been forcing on them some more capital discipline than in the past. Of course, the big oil players like Chevron and Exxon, they don't really have the same kind of pressure from their investors to cut CapEx. Actually, if something, maybe they get more pressure to invest -- increase CapEx because to kind of increase the reserve ratio.And a lot of these projects have a very good IRR. These bigger players also have access to cheaper financing. So yes, we do expect that with big mergers here, you could see increased drilling activity. And once you get the higher drilling activity, you get more associated gas. And with the buildout of infrastructure, we would probably also have a higher recovery of gas in the associated gas, which is available then for exports. So it's a long way to say that we are quite optimistic about that. I do think the merger wave in U.S. shale has just begun. I do think we will see more of it because it's also a short-cycle investment, drilling offshore oil well and getting that to production can take a decade. With these wells in the Permian, it's much shorter and a much shorter payback time, which fits better today in today's environment where a lot of governments are pushing for a pathway to net zero by 2050, then it's a lot less risky to actually drill wells with shorter lead time.So yes, that's a roundabout way to say that we do concur with your analysis in terms of the premise for the question. So I guess with that, 3:00, 1 hour. I think that is sufficient. Thank you all for listening in. Randi and I will be back in February with stronger numbers. And in the meantime, you can enjoy your dividend coming a bit late for Black Friday, but still there's a lot of good shopping opportunities. So thank you for listening in.

[Operator]

This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please stand by.