Avance Gas Holding Ltd

OSE:AGAS

Earnings Call Analysis

Avance Gas Announces Strong Q3 and Increased Dividends Amid Wind-Down Process

Avance Gas reported a solid Q3 with a net profit of $26 million and TCE earnings of $46 million, maintaining a per-day rate of $41,900. The company declared a dividend of $3.50 per share, totaling $268 million, as a prepayment of gains from recent ship sales. The VLGC fleet's sale is anticipated to yield a $296 million gain in Q4. With no outstanding debt expected by year-end, Avance plans to distribute the bulk of its cash, including $250 million in BW shares, post-lockup in February. The company is in the process of winding down operations to return capital to shareholders.

A Strong Closing Chapter

Avance Gas is nearing the end of its operational journey with a proactive strategy focused on maximizing shareholder returns. After divesting its fleet, the company announced a substantial dividend payment of $3.50 per share, amounting to $268 million for Q3 2024. This marks an impressive ramp-up in dividends from $1.1 in 2022 to $2.15 in 2023, and firmly positions the firm to distribute capital to its investors before winding up its operations.

Financial Highlights

For the third quarter, Avance Gas reported a total freight income of $46 million, achieving a Time Charter Equivalent (TCE) of $41,900 per day, significantly exceeding cash breakeven levels. The company generated a net profit of $25.8 million or earnings per share of $0.34, attributing these results to various operational efficiencies and stable shipping rates, despite a softening market.

Growth Amid Ship Sales

In a strategic move, Avance finalized the sale of its VLGC fleet to BW LPG, expected to yield a net gain of approximately $296 million upon settlement. With four vessels already delivered and the completion of the remaining deliveries anticipated by year-end, Avance plans to distribute most of these proceeds to shareholders, enhancing liquidity and overall financial positioning.

Operational Challenges and Market Context

The company acknowledged challenges in securing vessels in a competitive market, leading to a TCE of around $28,000 per day for Q4. Spot market rates were notably low at $23,800, highlighting the dichotomy between freight earnings and softening demand. Market dynamics are influenced by high U.S. inventory levels and a robust export market, contributing to a lower domestic LPG price, which presents both hurdles and opportunities going forward.

Future Outlook

Looking ahead, Avance anticipates finalizing its wind-up process early in 2024. The firm has confirmed all vessels will be delivered and anticipates a final cash position of approximately $264 million post-dividend disbursement. Additionally, the company retains significant holdings in BW shares (valued at around $250 million) which are slated for distribution to shareholders post-lockup expiration. These actions affirm Avance Gas's commitment to returning capital and closing operations efficiently.

Conclusion: A Strategic Exit

Avance Gas's careful management of asset sales, proactive dividends, and strategic market positioning paint a picture of a company that is successfully navigating the complexities of the shipping industry as it wraps up its operations. The emphasis on shareholder value through dividends and asset realignment, alongside careful observation of market conditions, underlines the company’s strategic acumen as it prepares for its final phase.

Earnings Call Transcript 2024-Q3

[Operator]

Good day and thank you for standing by. Welcome to Avance Gas' Third Quarter 2024 Earnings Conference Call and Webcast. [Operator Instructions] And I will now hand the conference over to your speaker, Oystein Kalleklev. Please go ahead.

[Oystein Kalleklev, executive]

Okay. Thank you, and thank you, everybody, for joining our webcast today. We have some exciting news for you all, which you might already be aware of. I'm joined as usual by our CFO, Randi Navdal Bekkelund, who will run you through the financials a bit later in the presentation. Just to remind you, you can also ask questions either by the [Technical Difficulty] chat function. And we -- once we conclude the presentation, we will do some Q&A in case there are some questions to today's presentation.

Before we begin, I'm just going to remind you about our disclaimer. We will be giving some forward-looking statements and use non-GAAP measures like TCE and there are limits to how many details we can cover in this presentation. So I recommend that you read the presentation together with the earnings release, which we also published today this morning, 7:00. So let's kick off. I think one of the big highlights today is the dividend.

We've been ramping up the dividend quite a lot in the last couple of years. And for this quarter, we are prepaying some of the gains we are booking for the BW transaction. So back in 2022, we paid $1.1. We almost doubled that in 2023, $2.15 per share. And then given the sale gains we recorded in the first quarter of this year, we actually paid out the same number, $2.15 per share, $165 million in total in just one single quarter. We paid out $1.35 in Q2.

We also had some sale gains in that quarter. So altogether, for the first half of the year, we paid out $3.50 or $268 million. With all of the fleet now sold, we don't see any reason for you guys to be waiting for the money. Interest rate for dollar is not zero anymore. It's actually quite attractive returns on cash. So in contrast to when cash was cash, cash actually is king these days. So we don't see any need for you to be waiting for this money.

So we are prepaying some of the gains, and we are paying $3.50 in dividend just for Q3 alone for $268 million, which gives a payout ratio of around 10x earnings. So that's why we included the Galaxy Brain Meme showing the serotonin and dopamine levels of -- I hope, most of the Avance Gas investors. So dividends following the Fibonacci rule where you have quite a few doublings there. Okay. Let's go to the other highlights for the quarter.

In terms of Freight income, we are delivering numbers in line with guidance, discharge to discharge numbers, which is the number we focus the most on, $38,700, slightly higher on a load-to-discharge basis as rates were softening during the quarter. That resulted in a net profit for the quarter, $25.8 million or earnings per share of $0.34, which is a pretty good number given that this is a number which excludes any gains from sales. It's just pure freight income. Q4, a bit softer.

It's also been a bit more difficult for us to fix the ships. We announced the sale of the VLGC fleet to BW on August 15. And this market is very much broker-driven, which means that the brokers get the cargoes and they are calling people around. And when we are saying that we are divesting the VLGC fleet, we are not really the first guys the brokers will call, which could be an advantage in a rising market because then we would be fixing on higher numbers. But in a softening market, it entails the waiting time, and we are thus delivering TCE -- we have booked TCE numbers of around $28,000 per day for that quarter.

Keep in mind we're also delivering some ships to BW. We already delivered four ships. We have one more ship scheduled for this week and then the remaining ships scheduled for the rest of the year, prior New Year. So we are only booking about 67% of our capacity in Q4, which is okay because market has been pretty soft, but we are booking the ships and delivering them once they are discharged to BW. Then the big news today, except for the dividend maybe is the sale of the MGCs.

For those who have followed us for some time, we did a speculative order of 2 plus 2 MGCs last summer. So we did the two first ships during [ North ] shipping, and then we did two more ships in August last year. We paid about $50 million in yard installments backed by bank guarantees, and we are selling them today at $282.4 million or $70.6 million, booking a gain of around $34 million on the sale. And these ships will then be novated to Exmar, which is a big player in the MGC space. They have a big fleet on water.

They have a big order book. We really do see that they have a higher value of owning these ships that they can consolidate. Being a listed shipping company with only four ships it would not be that investable. So we found a very good owner for these ships who I'm sure going to be satisfied with the ships. The ships are ultramodern dual fuel ships with shaft generators. So they will fit very well into the portfolio of Exmar.

Once we have every -- all the paperwork in order, we will get refunded for the yard installments that we have paid, currently about $50 million. And then we will have our milestone payment once the steel cutting occurs for the fourth newbuilding, which is scheduled for April next year, where we will get $34.2 million as the last payment. And that's why we're also today announcing that we are closing down Avance Gas. It's been a fantastic journey. We have sold -- we started the year with 20 ships.

We are closing it now with zero. We sold four VLGCs in the first half of the year, 12 ships to BW and now four ships to Exmar. In terms of the BW deal, as I mentioned, things are progressing according to plan, four ships delivered. We have scheduled one more ship for delivery this week and then the remainder in December. When we announced the deal, we were expecting a profit of $315 million as the BW stock has slumped a bit. We are now at an estimate of $296 million, still a very nice profit.

And we do think that getting settlement in BW shares where we will become the second biggest shareholder with a 12.88% shareholding is attractive given where that stock is trading today, and I will cover that in more detail later in the presentation. Then again, we're declaring the dividend, $3.50 per share, $268 million, and this is to be paid on the day before Christmas, December 23. Following this payment, we expect to have pro forma cash of $264 million and then EBITDA.

So there will still be some nice dividends there for our shareholders. We intend to pay everything out in a timely and cost-efficient manner. And that's why we also are planning to close the shop, so we can avoid any more audit, legal fee, listing fees and all the costs associated by running a company. So we intend to call a Special General Meeting to reduce the capital and wind up the company and pay everything out to our shareholders. So looking then at the next slide, a summary of the transactions we have done paying out the dividend on 23rd of December 23 transactions.

We did three of those in 2022, selling off some of the older ships, generating a profit from those transactions of around $20 million. And then we have around $450 million in gains from the sale of 20 ships this year. On this slide, it's says gains $490 million. It's really that we have reduced that value by $20 million because the BW's stock has gone from the $17.25 per share, which means we think it's a fair value compared to around $13 today, but still $1.8 billion in sales for these ships with a considerable gain and then also pretty big cash release, which the shareholders are benefiting from now by us paying it out as dividend and return of capital.

Looking a bit more into detail on the recent transaction being the MGC, as mentioned, contracted $248 million contracted June and August last year. We haven't incurred much supervision cost as really the building phase is ramping up now. First ship is due for delivery Q4 next year and then Q1 and Q2 and Q4. And then we are novating these to Exmar and making a pretty good return on this investment and where we do think that these ships once we have scaled down our business activity, these ships -- it has a better home with Exmar, which is a first-class operator of these kind of assets.

Commercial guidance and performance, we are spot on what we guided. We guided 79% booked at $41,400 in August. The market softened a bit in September. So we're ending up at $38,700, slightly better on the load-to-discharge, $41,900. And then for Q4, as I mentioned, the market has been a bit soft. And for us, it's been a bit more challenging fixing out the ships given the fact that we are leaving the business. But we have booked 67% of the available days now, taking into account that we are delivering ships to BW, doing slightly better on the TC, close to 40,000 on those.

Spot has been pretty dismal, $23,800 we do expect on the spot days for this quarter. So then looking into the dividend, once again, we put Al Gore on the scissor lift in Q1 when we ramped up the dividend from $0.65 to $2.15 in one quarter, down again to $1.35 in Q2, and then we're taking the helicopter up to $3.50 on the Q3. And you do see that we are deviating a bit there in terms of dividend per share compared to earnings per share, both in Q2 and Q3. And this is really about prepaying the gains. We like the shareholders to get the money.

They belong to shareholders. They don't belong to us. So we are distributing the dividend prior to us booking these gains so that the investors can have the benefit of having the money given where interest rates are and where there are pretty good opportunities in the market, given the slump in especially shipping stocks and energy stocks these days. So once we have paid out this $268 million, what remains? We do expect to have a free cash flow in Q4 of around $20 million, giving us a pro forma cash close to the dividend, $264 million.

And then we have this 19.3 million BW shares currently valued around $250 million. We do think they look compelling at this stock price, which means that we can distribute slightly more than $0.5 billion yet to be distributed to shareholders. We will distribute most of this when we are reporting in February. The lockup on the BW stock will then have [ collapsed ]. The cash will be there. We will be debt-free at year-end.

So we will be distributing most of this money in our Q4 report in February, and then there is this residual amount of $34.2 million payable around April, which we will have to wait for paying out maybe in April, May. So with that, before handing over to Randi, just going to give a bit more picture on the biggest asset we have now together with the cash is the BW shares. As you might recall, we agreed a deal with them in -- on 15th August, selling of 12 VLGCs for $1.050 billion, where we took 69% settlement in cash or novation of debt, 31% settlement in BW shares.

And where we had to negotiate with BW, what was the fair price of those BW shares. At that time, the stock price of BW were at around $16.2. They, of course, had higher ideas, and we eventually agreed on our fair value of those stock at $17.25 per share. So looking at the assets of BW, the base case here, they have 15 dual fuel VLGCs. These are regular VLGCs upgraded, close to $15 million by having dual fuel propulsion. We peg them at around $90 million. They have some non-dual fuel ships, three of those, we peg them at [ $81 million non-Eco ] ship, pegged it at $65 million and then the Avance fleet, $1.050 billion, as mentioned, giving an average value of those ships at $88 million.

Then they have 52% ownership share in BW India. We pegged the value at $62 million. They recently sold the oldest ship of 2007 will ship at $65 million. So we do feel that value very much holding up. BW Confidence in India downstream investment, $30 million. They have a good TC book chartering some ships also with options attached to buy some of these ships, which they recently illustrated by buying BW Kizouko, 2009 built ship at $69.5 million, which is around $17 million lower than the market value.

So certainly, there is some value in the TC book, not only in chartering in ships at lower rates than you're chartering them out, but having these options attached. Last item is the product services, which they have done very well on. They had net profit for this business unit just in Q3 of $60 million, bringing the year-to-date profit for this business unit at end of Q3 at $108 million. We kind of pegged this value around $100 million, but we do expect them to make maybe $150 million on this business unit just in 2024.

So meaning that you are getting it at less than 1x price earnings. Then we need to adjust for the working capital. They have some working capital. Working capital really depends a bit in shipping. Are you doing voyage charter, you will have working capital. Are you doing time charter, you will have negative working capital. So it really depends a bit on your trading. When you're doing voyage charter instead of TC, you should usually be compensated by having to take that working capital.

So we are valuing working capital dollar-to-dollar because you can easily liquidating it by taking all your ships on TC. Then they have to pay us the cash settlement, as I mentioned, 69% of the purchase price, including the debt novation. They have very limited debt. They paid a dividend, pretty good dividend there, payable in September, which we deduct and then we put in the consensus earnings for the second half of the year because most of our shareholders, they will benefit from the earnings of BW in the second half of the year as we will be collecting stocks where we can get dividend for Q3 and Q4.

So when we're putting this together, we end up at a NAV of $2.6 billion. After we have received all our shares, we will own -- there will be 151 million shares in the company, where we own 19.3 million, giving us a 12.8% shareholding. So that's how we compile this share price of the stock of $17.25. So yesterday, the stock price was $13.2, which means that let's call it all the working capital and debt and cash, we should keep that as is.

I think the value on orders is fairly stable, which means that today, you're getting that stock at 25% discount to gross asset values. And keep in mind, the 25% discount on NAV, that's a pretty big number, but as we are actually talking about 25% discount on gross asset value, where you're not taking into account the leverage factor. So we think that, that stock is attractively priced, and we are happy to own it.

Our intention is to distribute this share to our shareholders once the lockup is elapsed, which means that in general, for Avance Gas shareholder, you will get a quarter of a BW stock for every Avance Gas share you have. which means that you will still keep some exposure to this market, and we think that we have done a good swap there, selling out of fleet, mostly spot-oriented into BW with less leverage and also more different business units, making that business a bit more diversified.

So with that, I hand it over to Randi for -- yeah, no, actually, I have one more slide here. We have a to-do list now. As I mentioned, we are planning to close down the company. A lot of people will ask us about the timeline. So we provided that timeline for you here. The dividend, as I mentioned, we declared $3.50 per share payable December 23. During December, we will also be organizing the remaining deliveries to BW so that by year-end, all the ships should be delivered to BW.

And then for every transaction, there is a 40-day lockup on each of the share settlements, which means we should have all the shares in BW free in early February. We then also intend to call a Special General Meeting with two objectives. One is to reduce the paid-in capital in order to make this tax efficient for our shareholders that they get return of the principal, meaning return of capital rather than return on capital, which depending on jurisdiction have lower tax because the return of principal for most tax jurisdictions that will be tax-free.

Then we're also planning to wind up the company in order to kind of reduce the cost, listing fees and auditors and such. We are working on closing the MGC sale, where the main item to be closed is the issuance of new refund guarantees to Exmar. And as mentioned initially, we will have a milestone payment scheduled for April for the profit element of $34.2 million.

So we will be reporting Q4 in February, paying out excess cash and the BW shares, working on the wind-up process. And then once we collect the remaining $34.2 million, hopefully around April, we will report Q1 in May, pay out this residual amount. And that's it, and that's the final voyage. And then our intention is to close the company as we have returned all the money back to where it belongs, which is with the shareholders.

So with that, I hand it over to Randi.

[Randi Bekkelund, executive]

Thank you, Oystein. Let's go to slide 11 for the key financial figures from the income statement. Well, the third quarter was a good quarter. We reported a TCE earnings of $46 million, corresponding to a TCE per day of $41,900, which is actually above or about twice our cash breakeven. And despite being $5 million lower than previous quarter, we are actually $5 million ahead of the last year's results by looking at the year-to-date figures. In TCE numbers, year-to-date, we reported $56,000 a day for '24 compared to $52,000 a day last year.

[Oystein Kalleklev, executive]

I'm not planning to pester you, but you said $5 million ahead of last year, we're $10 million.

[Randi Bekkelund, executive]

[indiscernible] Although we didn't record any gain on sale this quarter, the sale of the VLGC fleet resulted though in an accounting effect in the third quarter. We announced the transaction in August in accordance with the Accounting Standard, IFRS. The VLGC fleet was reclassified to assets held for sale from the announcement date. And as a result of that, the depreciation [ stopped ]. As I said, this is an accounting effect.

And if the VLGC fleet were depreciating following the lifetime of the vessel, the $5 million would have been allocated to the gain on sale which explains the $5 million lower depreciation for the quarter compared to previous. The operating expenses a bit high this quarter, mainly explained by timing effects in relation to spares, repairs and maintenance, resulting in an OpEx per day of $9,400, while we will come closer to $8,500 for the full year, which is more or less in line with our year-to-date OpEx.

The A&G remains at the lowest of our peers, $1,300 for the quarter. And by including the net finance expense, we reported a net profit of $26 million equal to $0.34 per share and a net profit of $233 million year-to-date, corresponding to $3.04 per share, which is the best ever result for a 9-month period. Despite including the $121 million gain on the sale of the four VLGCs in the first half of the year, we are still ahead of the last year's results by $10 million.

[Oystein Kalleklev, executive]

Okay. There you have it.

[Randi Bekkelund, executive]

Yeah. By looking into the next quarter on Slide 12, we have prepared a pro forma income statement, which is estimated nonrecurring effect following the sale of both the VLGC fleet announced in August and the MGC fleet announced today. Both sales are expected to be recorded in the fourth quarter. Book gain on sale from the VLGC fleet is expected to be $284 million presented as a separate line in the P&L.

And in accordance with IFRS accounting, settlement in BW LPG shares will initially be booked at the share price at the announcement date on August 15. And yeah, basically, it's $16.18, which calculates to the gain, $284 million. Additionally, depreciation expense stopped on the announcement date, resulting in $5 million lower depreciation in Q3, as explained and $7 million in lower depreciation in Q4, bringing the total gain on sale to $296 million.

Subsequently, and at each period end, the BW LPG shares are measured at fair value, the share price with the mark-to-market changes recognized through the P&L presented as a finance item. Based on yesterday's share price of BW, the mark-to-market effect is negative $57 million as presented in the table on the left-hand side. However, this will change as the actual effect is based the last trading day on the stock exchange before year-end.

At year-end, we don't have any debt. Basically we -- and thereby, we have terminated all the interest rate swap position. We expect a positive effect to the finance -- net finance expense of $10 million, of which $4.4 million is gain on swap terminated in October and the remaining relates to interest rate swaps terminated in the last two years, which has actually been sitting on our balance sheet and has been amortized over the maturity of the loan.

We also have some transaction cost or debt issuance costs in relation to the debt financing that need to be taken through the P&L, which will offset the gain on the swaps, negative effect of $5 million. All-in-all, we expect a positive effect to the net finance line of $5 million, which will be recorded through our P&L in Q4. Net cash proceeds from the VLGC sale, $235 million, up from the previous guidance of $217 million. This is mainly due to scheduled debt repayments.

Positive load-to-discharge effect of $5.3 million to our TCE income or earnings, corresponding to $7,000 a day. This is positive basically because we don't have any spot voyages to adjust for at the quarter end. We can jump to Slide 13 by looking at our cash movement. We started the year with a cash of $268 million. We generated $38 million in operating cash flow net of scheduled repayment of debt. We have paid $7 million in CapEx, primarily related to pre-delivery yard installments for one of our MGCs. This brings the total CapEx for the MGCs to $50 million since we acquired these vessels last year.

And the last bridge that brings us to the cash position of $193 million is the dividend payment of $103 million, equaling $1.35, which was paid in September and there's more to come. During the fourth quarter, we have, as you know, a lot of net cash proceeds from the vessel sales, which we aim to distribute as soon as possible. And we have, therefore, announced a dividend payment of $268 million. In total, we will receive $390 million in net cash proceeds from the VLGC and the MGC sale, of which almost all of it, except of $34 million is expected to be received within year-end.

Looking on Slide 14; as I mentioned already, we don't have any debt by year-end. We had $490 million in outstanding debt at the end of the third quarter. And as we have delivered four vessels so far in Q4 in November, we have already paid $155 million paid and novated $155 million of outstanding debt. And as we don't have any debt to hedge, we have also terminated the interest rate swaps in October at a gain of $4.4 million, as mentioned, bringing actually the total gain on the interest rate swaps to $11.3 million for the full year 2024, which we're pretty happy with on [indiscernible].

[Oystein Kalleklev, executive]

Yeah. I think so. We're able to terminate the swaps at the right time. We waited to October, as some of you recall, interest rates in America plummeted during August and especially September when Fed cut 50 basis points. And then we've been on this ballistic rally in interest rates since probability of a Trump election started to become high and then especially when it was the result.

So we would have made even more if we terminated in November, but still, we're pretty happy about the termination of our swaps that we waited until at least October to get a really good more profit on these swaps. Looking at the market; of course, we don't really have much market exposure. We have already booked all our ships, but it's an interesting story anyways. And I hope for a lot of our investors, they might become now BW investors.

So it's nice to also look at the market. In terms of export, export market is pretty healthy. We still have U.S. fantastic growth on the export volumes. So there's nothing wrong with the supply side here in terms of products for sure. Middle East, pretty flat. We have the OPEC holding back barrels. Iran is shipping out a lot of volumes. So we still -- we don't really see a lot of growth in this area unless OPEC changed their stance in terms of holding back barrels.

And I will come back to that because it's a bit interesting dynamic. It's not really only about Middle East volumes. It's also about who in the Middle East is producing these barrels. In terms of the import side, not surprisingly, China is ramping up a lot of PDH plants, increasing imports by 11%. And India is the second biggest market, also healthy growth, up 8% year-on-year, which is also healthy on the import side. So then you might wonder with these kind of fundamentals, why is freight so low? So we will cover that on the next slide.

So again, looking at U.S., healthy metrics, inventories on very high levels, which means production is high, inventories are high, giving a very low domestic U.S. price for LPG, giving a very high arbitrage or price difference between the American market and the main markets in Asia. So if we look at the price arbitrage, we are hovering here around $200 per tonne. We've been even higher. So it's a bit -- we have a disconnect in freight compared to product spreads.

And as you can see it here, we usually also have a seasonal effect in Q4 where that tends to be the strongest market. There's quite a few shipping segment this year experienced that Q4, which tends to be a peak market is not developing as a peak market. You only have to look into LNG and tankers for that matter, where we see Q4, which everybody thought would be the best quarter is turning out to be maybe the softest quarter of the year.

And same goes for LPG, where we have hit very low levels, but especially very low levels when compared to the price arbitrage, how much money can be made by shifting a cargo from U.S. to Asia. So where is this money ending up? So that's something we cover on the next slide, which is actually a very good analysis by RBN Energy, which is a retail shop I like quite a lot. Generally, in the past, historically, the terminaling fee for LPG in America has been around $0.06 per gallon.

And then we've been in a market with a lot of growth in U.S. exports and where freight has been able to skyrocket. And that's why also if we look at our stock price the last couple of years, it's been a fantastic journey. I just read in the Pareto Analysis today, we're giving -- where they pegged our total return in the last five years at 400%. So of course, we've been benefiting from the fact that America has been putting more barrels in the market and arbitrage has been healthy.

But this year is different. Actually, this year is different in the sense that it's a soft Q4. Despite all these issues, as Randi mentioned, we delivered actually better trading results for the 9 first months. So we are EUR 10 million ahead of last year, and last year was fantastic. But gradually, we have seen a creep up in the terminal fees. And why is that? And it's really about -- we had this growth in Panama last year. Panama transit was reduced by about 50%, 55%.

And when that happens, it's the VLGCs being pushed out of the market, container ships and to some extent, LNG ships are willing to pay more in order to get a slot in Panama, which means the VLGC was pushed out and a lot of the VLGCs had to do longer voyages going Houston to Chiba via Panama, it's a 60 days round trip. If you're going via Cape of Good Hope because Suez hasn't really been an alternative this year, you are talking 90 days.

So we had last year a situation where ton mileage on those voyages grew 50%. But with the drought over in Panama going from El Nino to La Nina and the water levels in Lake Gatun back to normal level. Transits are also back to normal level, which means that the high fleet growth experienced last year was a lot of ships for delivery last year, 40 in total. That was masked by the issues in Panama. But this year, it's become evident that there's a lot of ships in the market when Panama Canal is working in a normal manner again.

So that means that somebody else has been able to extract the super profit here. And that's been the cargo owners as evident from the product services results in BW for Q3, where they generated $60 million in that quarter. So people who have a contract to buy cargoes at a terminal fee of, let's say, $0.06 per gallon. Those are the winners and also the terminals who are able to sell spot voyages where they can actually charge a much higher terminal fee than the regular fee and where this fee has gone up from all the way up to $0.30, where we had a situation.

It's been coming down a bit now and freight has been staying stable. So today, the paradox is that both freight and the terminal fee is around $0.20 per gallon, which means a crazy thing. It's the same cost of shipping the LPG through a 100 feet pipe from the short terminal to the ship as it costs to ship that cargo from Houston to Japan, which is 11,000 nautical miles that translates to 67 million feet. So the cost of doing 100 feet versus 67 million feet is the same.

So it's really that the arbitrage has ended up with somebody else than the shipowners. It ended up with cargo owners and terminals who have had the scarce capacity this year and this not being ships. So what can we expect going forward? We're just going to look at the next slide. Deliveries of ships come up -- come down. We had a high fleet growth last year. This is normalizing now and it looks even better in '25 and '26 with fairly muted growth in shipping. So we think that will give a better balance. However, as I mentioned, the ton mileage due to the reopening of Panama Canal has really reduced demand for shipping.

And then it's been slightly less congestion also in Panama. This is also related to the fact that they changed the booking system where you have to prebook a slot and there's not really a lot of ships idling around Panama Canal waiting for a slot anymore. So it's kind of despite having less growth in number of ships coming to the market, the ton mileage effect has killed off the market and sent the super profit to the other actors in the industry.

So -- but looking forward now for '25 and '26, we really do see a period here with muted growth, very few ships for delivery in '25 and '26 before you have a new wave of the so-called very large ammonia carriers, which can also carry LPG coming from '27 and '28. However, that said, this typical ordering cycle in VLGC goes in cycle. So you have some year where you have a lot of more deliveries, which means this year has been a year with very few ships going to dry dock. That's not going to be the case next year.

Next year, dry docking is up a lot and it's even more in '26. So that will take ships out of the market and give less fleet growth. On top of that, you also have an aging fleet. 15% of the fleet is older than 20%. And this is a lot due to a lot of the older ships going into sanction trade or basically a dark trade, shipping cargoes from Iran to China. And that's why you have had very limited scrapping. A lot of the older ships ended up in that trade.

But -- and I'm coming now back to this with the Middle East because in the Flex presentation, we had some effects from [ Ergonomics 2.0 ]. It's a bit same here for LNG, it's really about deregulation and bringing a lot of more LNG, U.S. LNG to the market. For the LPG and I would say also the tanker market, it's a different dynamic, and it's really about Trump have declared he's going to be putting in a maximum pressure 2.0. So during his first four years, he had a lot more harder sanctions on Iran.

In the Biden administration, it's been a softer regulation, which has been made Iran be able to ship a lot more both crude oil, refined oil and LPG. So the big question now is the billion-dollar question you might say is how is this going to develop under the Trump administration, if he's going to put in maximum pressure of 2.0, involve reducing the number of cargoes from Iran, where Saudi would be the natural swing factor here to provide more barrels to the market being both oil, petroleum and LPG, which means that the demand for the white fleet rather than the dark fleet will increase because the ships involved in dark fleet will not be able to ship compliant products.

So that could also have a big effect on this market in '25, '26. We will know more January 20 next year once the Trump gets into the White House, how much pressure he's going to put on Iran, and that might have a big implication for the product tankers, crude tankers and also LPG. So with that, I think we conclude today's presentation. As I mentioned, numbers in line with guidance. We generated strong results, trading results for the 9 first month of the year, $112 million net profit from trading, $10 million higher than last year, which I think is a really good number given the softer market.

So we've been able to navigate the market in a good manner. Q4, a bit softer also for us because it's been harder to fix the ships once everybody knows we're leaving the industry. Then today, we are leaving also the listed environment soon with the sale of the four remaining newbuilds on the MGC side to Exmar. I think it's a deal that makes 100% industrial sense, just like the BW deal, where we're selling to one actor who can benefit from scale and scope and the same goes with Exmar, and I wish them the best of luck running these ships, which I'm sure they're going to do a terrific job on.

And so our job now is to close down the shop, return all the money to shareholders, and we're starting off today with $268 million payable for Q3, where we are prefunding some of the gains. And as mentioned, we have a process and a timeline and a to-do list for calling the General Meeting, reducing the capital, doing the windup process and trying to return the money to shareholders in a cost-efficient quick manner so you can reinvest in whatever you like.

So thank you, everybody, and I think we then conclude with our Q&A session.

[Operator]

[Operator Instructions] And at this time, we have a question coming from the line of Climent Molins with Value Investor's Edge.

[Climent Molins, analyst]

I wanted to start by delving a bit deeper into terminaling costs. Could you talk, I mean, broadly speaking, about what portion of propane exporting capacity is priced at spot? Is it a large portion of the market? And secondly, do you expect terminaling costs to remain relatively elevated compared to the $0.06 per gallon average until additional export capacity comes online?

[Oystein Kalleklev, executive]

Okay. How this generally works, it's a bit similar to LNG. It's like once you are starting an expansion project, it involves some cost. So you want to be able to finance those CapEx costs involved typically by having some offtake agreements, not like in LNG where it's 20 years or so. But you have offtake agreements where some players are subscribing to a certain volume and where they can then take those volumes FOB and where they have a fixed terminal fee.

And we've seen some tenders lately, and we are talking the $0.06 to $0.08 per gallon range for kind of agreed term deals on the terminal fees. However, you might have situations where -- the terminal have had some term deals, which have elapsed and not been renewed. And then, of course, they can price this based on the market.

And the market is really about product and tightness of shipping. So like last year, when you had like a super tight shipping market and basically sold out, then the terminals is the price taker and they need to ship that cargo and the marginal cost for them is very low. So then they might sell at a very low terminal fee. Now when shipping has been oversupplied, they're able to take out a rent from that. And it's not only the terminal fee it's also actors with a term fee. So let's say, they have been buying a certain number of barrels on a term contract.

So rather than shipping that volume, they might find out why do we do it? We can rather sell the cargo FOB and extract this super profit on the terminaling fee because the FOB price will then reflect the tightness or looseness of shipping. So I don't have the exact number on how much of the terminaling capacity in America is contracted and not contracted. But we also see that people who have contracted volumes are selling the volumes in the spot market and just taking benefit of this huge super profit on the terminaling fee.

[Climent Molins, analyst]

Makes sense. I also wanted to ask about Iran ending up utilizing the other side of the fleet. Could you provide some commentary on the number of VLGCs owned or operated currently by Iran? And secondly, on the 20-year-old plus cohort, could you talk a bit about the trades these vessels are usually employed on?

[Oystein Kalleklev, executive]

Yeah. I think last time I checked the number of ships in the dark fleet, which is basically in dark fleet in tankers, you have Venezuela, you have Iran, you have the gray fleet, which is Russia, if you don't adhere to the price cap. So in LPG, it's a bit simpler really about Iran, China. Last time I checked 54 VLGCs in that business. So basically, most of the ships above 20 years. So as I mentioned, it will be interesting to see what will happen next year, whether there will be a crackdown and some of these ships not being able to find jobs.

So most of these ships are doing this freight. Iran ship-to-ship transfer somewhere in the Middle East and then going to China. Keep in mind some of these old ships are quite old, cost a lot of money to maintain them. They're not very fuel efficient. They might have less cargo space. So if you look at the kind of unit freight cost of these ships compared to our dual fuel VLGC it's a hell of a lot more. But in this [ game ], efficiency doesn't really matter. It's about shipping this cargo and Iran being able to monetize the gas resources or oil resources.

[Climent Molins, analyst]

And final question from me. As you wind up Avance, could you give us some guidance on the costs you expect to incur?

[Oystein Kalleklev, executive]

Costs we incur on what?

[Climent Molins, analyst]

On winding up the company per se?

[Oystein Kalleklev, executive]

We're already starting laying off people, some left, some will be leaving at 1st of January once we have divested the VLGC fleet. It's really -- we need to do certain filings with the Bermuda. We need to liquidate some SPVs. Randi, she's -- what do you call it, CPA in Norway. So she is doing a lot of that work. It's really about the kind of filling out papers and liquidating.

So -- and the cost is so small that we're not even putting it in as an item because it's fairly low cost of liquidating a company. Nobody really has big -- there's no golden parachutes for anybody. We are a Norwegian company with Norwegian terms. So nobody getting golden parachutes for sure.

[Climent Molins, analyst]

Alright. Makes sense. That's all for me. Thank you for taking my questions and congratulations on the work done in Avance over the past few years.

[Operator]

And there are no further questions from the phone lines.

[Oystein Kalleklev, executive]

We do have a couple of them on the chat. I can go through some of them. Which funds will be used to pay off the loans and when? So we are already -- once we're settling and selling some of the ships, we are quite flushed on cash. As I said in the CEO statement, we are as liquid as the Seven Seas. So what we're actually doing is that we have some ships scheduled for delivery to BW. It just makes life simpler if that ship -- if we have repaid the debt prior to delivery of those ships to BW and the ship being unencumbered.

So we typically pay down the mortgages on the ships prior to them delivered to BW. And we also paid on some which are scheduled for delivery, so we can save banking costs because there is a cost associated with having a mortgage. So we're just using internal funds and trying to kind of optimize that and making sure that we are not lending too much from the banks and having that money on the cash, where just today, SOFR is today around 4.5%. On average, we have a margin on our loans of around 200 basis points. So meaning that we will get 4.5% on our cash, but we will have to pay the banks 6.5%. So we'd rather pay down as many loans as we can.

So all of these are made from our internal funds. And our internal funds are affected by the delivery situation to BW, where we typically get a certain amount for each ship delivered. We get a certain number of shares in BW and then a certain cash release for each ship delivered. How many BW shares will be divided for Avance Gas share? I think I mentioned this earlier in the presentation. It's about 77 million shares in Avance Gas. We will be receiving 19.3 million shares in BW.

So for every share you have in Avance Gas, you will be getting around a quarter of our share in BW. Is Russian dark market a significant factor in LPG? No, actually not. Russia is not really a big exporter of LPG. They use most of it internally. They do ship a bit by train, but they've never been a player in the VLGC market. So in that sense, the dark market or Russian dark market for LPG is irrelevant because it doesn't exist for the MGCs at all.

Yeah, LNG has ship oversupply concerns. What is the status in LPG? Yeah, I think we covered this. We have had too many ships this year because of the Panama improvements, improvements for the Panama Canal, not really an improvement for shipowners. Actually we like inefficiencies, and that's usually when the rate goes up. However, we do see that the market is balancing very few ships for delivery '25 and '26, more dry dockings.

And then we do see more container ships being delivered, more LNG ships being delivered. So there will be scarcest place for the VLGCs in the Panama Canal going forward. So we do think that taking the shares in BW looks like a good proposition for our shareholders. So that was pretty much it, I think, yeah. Yeah. That's it. I think we will be back then in February.

We'll then have closed the BW deal, hopefully also closed and organized all the MGC papers with the exception of the final milestone payment scheduled for April. So our plan then is to provide you with another juicy dividend and the BW shares. But yeah, until then, you have to enjoy yourself with the dividend paid out today, and we thank you all for listening in.

[Operator]

Ladies and gentlemen, this concludes today's conference. Thank you for your participation and you may now disconnect.