Dynagas LNG Partners LP (DLNG) Q3 2015 Earnings Report, Transcript and Summary

Welcome to Dynagas LNG Partners' conference call on the Third Quarter 2015 Financial Results. We have with us Mr. Tony Lauritzen, Chief Executive Officer; and Mr. Michael Gregos, Chief Financial Officer of the Company. [Operator Instructions]. I must advise you, the conference is being recorded today, Monday, November 9, 2015. At this time, I would like to read the Safe Harbor statement. This conference call and slide presentation of the webcast contains certain forward-looking statements within the meaning of the Safe Harbor provision of the Private Security Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties which may affect Dynagas LNG Partners' business prospects and results of operations. Such risks are more fully disclosed in Dynagas LNG Partners' filings with the Securities and Exchange Commission. And, I now pass the floor to Mr. Lauritzen. Please go ahead, sir.

Morning, everyone and thank you for joining us in our third quarter and nine-months-ended September 30, 2015 earnings conference call. I'm joined today by our CFO, Michael Gregos. Today we issued a press release announcing our results for the said period. Certain non-GAAP measures will be discussed on this call. We have provided a description of those measures, as well as a discussion of why we believe this to be information to be useful in our press release. We're pleased to report the Partnership's earnings for the third quarter and nine months ended September 30, 2015. Which are in line with our expectations. In particular, we're focused on the performance of our fleet from a safety, operational and technical point of view. And, we're satisfied to report that during the said periods, our fleet did not experience any unscheduled downtime. Which we believe is reflective of the quality of our fleet and our managers' operational ability. The Partnership's results show a significant improvement, compared to the same periods in 2014. This increase was primarily attributable to the growth of our fleet in line with our strategy. Our fleet's income is produced from multi-year time charter contracts with international energy companies who pay a fixed daily rate for the chartered vessels. As the charterers also pay the majority of variable costs, such as fuel, the Partnership enjoys a steady and visible cash flow that are not indexed to oil or gas prices. With our fleet fully contracted through 2016 and 80% contracted through 2017, we intend to continue to focus our intention on further fleet growth potential, contract coverage and safe and efficient operations. As will be later discussed to this presentation, our sponsor has placed orders for further five ice classed energy carrier that has been placed on long-term contracts with Yamal LNG, an Arctic LNG project that requires ice classed LNG carriers. Four of the five existing options vessels, have also been contracted on long-term contracts with Yamal LNG. Turning to slide 3. A quarterly cash distribution for the third quarter of 2015 of $0.4225 per unit, was announced on October 23 and will be paid on November 12, 2015 to all unitholders of record as of November 5, 2015. The cash distribution is equal to an increase of 15.8% over the Partnership's minimum quarterly distribution per unit. On October 23, 2015 the Partnership further announced an initial cash distribution of $0.70 per units for Series A Preferred Units for the period from July 20 until November 12. Payable on or about November 12 to unitholders of record as of November 5, 2015. Distributions of the Series A Preferred Units will be payable quarterly on the 12th day of February, May, August and November at an equivalent $0.5625 per unit. The proceeds from the Series A Preferred are intended to partly finance the acquisition of one of the optional vessels offered by our sponsor. I will now turn the call over to Michael, who will provide you with further comments to the financial results.

Thank you, Tony. Turning to slide 4 of the presentation. It was another stable quarter in which we continued to deliver positive results. Q3 2015 adjusted EBITDA amounted to $29.1 million, an increase of 29% from the same period in 2014. For the third quarter, average daily hire, gross of commissions on a cash basis, amounted to about $80,400 per vessel. And, our average daily operating expenses amounted to about $12,200 per vessel. Our total cash flow breakeven, excluding distributions, amounted to about $40,600 per day. Adjusted net income for the third quarter, amounted to $16 million or $0.41 per common unit. Please note, that for the calculation of adjusted EPU per common unit, we have deducted the cumulative dividend on the preferred unit as of December 30. For the nine-month period ended September 30, utilization was 99% across the whole fleet. Turning to slide 5. You can see the third quarter 2015 results versus the same period for 2014. The growth in revenues and adjusted EBITDA is driven by the acquisitions of two vessels in 2014, all of which are on long-term contracts, as well as our strong underlying operating performance. Our cash balance of $116.6 million includes net proceeds from our preferred units offering in July. Moving on to slide 6. We discussed distributable cash flow. Cash available for distribution is $18.9 million for the third quarter of 2015, as compared to $16.3 million for the third quarter of 2014. For the third quarter, we will distribute on or about 12th November $15 million to our common, subordinated and GP unit holders emanating from the quarterly per-unit cash distribution of $0.4225. After taking into account the distribution of our preferred units for the period between July 20 to September 30, this gives us the coverage ratio of 1.16 times which is in line with our communicated coverage ratio target range. Moving on to slide 7. Just a few words on our capital structure and liquidity. Given cash on hand of $116.6 million and additional capacity for debt, we expect to execute our next dropdown without the issuance of any units. The Partnership maintains a healthy balance sheet, with five times debt to 12-month forward run rate EBITDA. We're currently in discussions for the debt financing of our next acquisition. Which we hope to conclude within the year. Our latest cash distribution of $0.4225 per unit which will be paid on or about November 12, represents an annualized distribution yield of 12% basis five days unit closing price. Our trading distribution yield is not reflective of the stable nature of our business and until our unit price recovers we will examine all alternatives and tools that might be used to fund transactions beyond our next dropdown. Including executing acquisitions without the issuance of equity. Moving on to slide 8. This slide outlines our cash distribution history since we went public in November 2013. The growth in our fleet has allowed us to increase our distributions to unitholders by 15.8% since our found - first cuts distribution in February 2014. We would like to remind our listeners that we're a yield and growth investment. The yield comes from our existing five LNG carriers which are employed on time charter contracts. With an average remaining duration of 4.3 years and which generate steady and predictable cash flow agnostic to commodity prices. The potential distribution growth comes from the pipeline of 10 ultramodern ice class LNG carriers our sponsor owns. All with multi-billion contracted revenue backlogs and which we have the option to acquire. Our underlying business is able to support sustainable distribution growth. And, by sustainable, we mean multiple years from recurrent cash flows with reasonable leverage. Capital markets are not always open and currently the equity markets are closed for MLPs. Since we're experiencing a dislocation between fundamentals and unit price. Over time, we expect we're going to decouple some commodity prices and return to historical correlations. So, despite the current headwinds, we do not intend to amend our cash distribution policy. Or, slow down our growth trajectory for the next year. That wraps it up from my side. I will pass the presentation over to Tony.

Thank you, Michael. Let's move on to slide 9. To summarize the Partnership's profile. The Partnership's fleet currently counts five high specification and versatile LNG carriers with an average age of about 5.9 years in an industry where expected useful economic lifetime is 35 years. Our vessels have unique features that enable them to operate as conventional LNG carriers, as well as operate in ice bound areas that are restricted for conventional vessels. We have a strong diversified customer base with leading energy companies. Namely, BG Group, Gazprom and Statoil. These charterers are leaders in their fields and only work with top-performing service providers. Our contract backlog is about $565.8 million and our average remaining charter period is about 4.3 years. Moving on to slide 10. Our fleet currently counts five energy carriers, of which, four have ice class 1A Notation. Our fleet is fully contracted in 2015, 2016 and 80% for 2017. A time we expect the LNG shipping market to be very strong due to the current ongoing construction of new LNG production plants measured against the perceived relatively insufficient order book. Combined with an existing world fleet that contains a large number of undersized and aged vessels. We have a unique fleet. It can handle conventional LNG shipping as well as operate in ice bound and sub-zero areas. This means that we're able to pursue business opportunities in two different markets, namely conventional shipping and the unique market for ice bound trade. The drivers behind several of our charters were the ice class features of our fleet as well as the operational track record in such conditions. As an extension of the ability to operate in ice bound areas, we're the only company in the world with a current capability and experience in transiting the Northern Sea route. Which we deem an important advantage, due to the ongoing development of LNG production along this route. We see a strong need going forward for vessels with ice class and winterization features. Our multi-year fleet employment profile, first-class customer base and the staggered maturity of our charterers provides solid cash flow visibility going forward. Our charterers are performing very well on their charter obligations and the vessels are utilized. The contractual relationship between our customers and the vessels are on a time charter party basis. Time charter parties are very powerful contracts where the charterer pays a fixed day rate to the owner regardless if the vessel is being used or not. And, oil and all major variable costs such as fuel costs, are for the charterer's account. Therefore, the Partnership enjoys visible and stable revenues that are unaffected by oil or gas prices. Let's move to slide 11. We had previously stated that we believe our sponsor will invest further in LNG tonnage. Which in turn improves the Partnership's growth potential. On 15th of September 2015, our sponsor announced the entering into shipbuilding contracts for five ice classed Arc-7 type LNG carriers with DSME that will be delivered in 2017 and 2019. These five vessels have been chartered for long-term charterers to the Yamal LNG project from delivery until minimum end of the year 2045. Our sponsor also chartered four of the five existing optional vessels from 2019 onwards for a minimum 15-year period. Each to the same project. This underlines the value of ice class and winterized LNG carriers. Let's move to slide 12. We intend to continue to focus, amongst other things, on equity of growth going forward. As a result of the Yamal LNG agreement, the LNG's growth potential has been transformed from good to outstanding. Our potential dropdown candidates now count 10 LNG carriers where all of the vessel have contracts in place. All dropdown candidates are high specification, ice classed and winterized. Moving on to slide 14. The current existing LNG world fleet consists of 419 vessels on the water and 136 vessels in the order book. Totaling 555 vessels as shown on the bar to the left. The average cargo size today is about 143,000 cubic meters. If we add up all the vessels in existing world fleet which size is below 139,999 cubic meters, meaning well below the average cargo size, we count about 144 vessels. Which is about 34% of the existing world fleet. The average age of these undersized vessels are about 18 years old. When we compare this, on average, old and undersized vessels of 144 units with the order book of 136 units, we note that these aged and smaller units counts a larger number of the order book. Furthermore, 87% of the order book has already been committed to charterers. This means that there are very few new buildings that may be available to facilitate the need to replace, on average, old and small tonnage. And, to carry the incremental LNG production volumes in an environment where LNG cargo production capacity is expected to grow faster than shipping capacity. Moving on to slide 15. World energy consumption has been steadily increasing over time. The largest sources of energy comes from coal, oil and gas. Since the early 1980s, gas has been the fastest-growing resource of those commodities. Going forward, we believe that coal- and oil-related consumption will be second, rated to gas, due to environmentally reasons and gas consumption will continue to grow faster than coal or oil. Based on current construction of new energy production terminals, the forward sale of new LNG, as well as FID taken on new LNG terminals, we expect the next years and to the end of the decade, to be dominated by strong LNG production growth. It is conservatively forecasted that 160 million tons of new annual incremental LNG will come to the market between now and 2020. This represents a total increase of 65% compared to 2014. As the last years have been quite static, with little new incremental LNG delivered to the market, the next years are said to be characterized by strong growth. These production figures are conservative, out of the 160 million of incremental annual production expected to be added to the market by 2020. We assume that minimum 145 million tons are already under construction. Meaning a high probability of project materialization. The source of this new LNG is I merely from Australia, Southeast Asia, North America and Russia. We continue to believe that the Far East will remain the largest buyers going forward. However, we also believe that we will see incremental demand in Southeast Asia, South America, the Middle East and Europe. We believe that there are sufficient buyers for the new LNG to be absorbed. The majority of the new LNG export volumes have sale agreements or offtake agreements in place. We believe that existing import markets will continue to increasingly rely on LNG as an energy resource. However, also believe that several new entrants will import LNG going forward and in particular, absorb uncommitted LNG. Let's move to slide 16. When we compare LNG supply to LNG shipping capacity available from now until 2020, we remain confident that the market outlook for shipping looks very favorable. The growth in LNG production, set at 65% within 2020, is estimated to outpace increase in LNG shipping capacity set at about 33% within the same period. We believe that LNG shipping is said to tighten going forward and in particular, from 2017 onwards. From 2018 onwards, we believe there will be a shortfall of shipping. It is this imbalance that will drive rate increases and that makes our vessels so desirable going forward. Additionally, the Partnership's fleet ice classed and winterized, enabling the fleet to pursue the best of two different markets. Additionally, there are several factors that may drive LNG shipping demand further. About 34% of the existing worldwide fleet may be considered a substandard specification in today's environment. Also, we may see an increase in re-exported cargos driven by price differences between markets and thereby, creating shipping distance. We may also see LNG production above nameplate production. Several LNG terminals are exporting below nameplate production and due to temporary or technical or political issues. If the Panama Canal expansion is delayed, cargoes going from the East Coast U.S. to the Far East, need to travel a much longer distance. Conventional LNG carriers' size does not permit the passing through the current Panama Canal. Actual production may also be higher than forecasted, due to additional projects and fast-paced projects such as FLNG. This will all lead to additional need for LNG carriers. The potential rechartering possibilities of part of our fleet will be in 2017, at the earliest and beyond. Which we expect to be a period of high world fleet utilization. This will be further supported by Arctic LNG coming onstream and requiring ice classed vessels which the LNG is in a great position to provide. Let's move to slide 16. We would like to conclude the presentation with why we believe our Company is valuable to investors. Our income from charterers is stable and unaffected by oil or gas prices. Our fleet is fixed on term time charter contracts with leading energy companies. Thereby creating a secure, visible and stable cash flow. Time charter agreements are very powerful contracts in which the charterers has to pay the owners a fixed day rate regardless if the vessel is used or not. And, all major variable voyage-related costs are for the charterer's account. Our fleet is operated by our associated and reputable manager, Dynagas, LTD, that has provided us with exemplary utilization rates. Our vessels are, furthermore, ice class and winterized. Which gives us the flexibility to pursue business on the conventional shipping markets, as well as on market for ice and winter trades. This is something that our peers are not able to currently offer and gives us a broader market access. And thereby, potential market fluctuation protection. We believe, in particular, these features will be in demand going forward as evidenced by our sponsor's' Yamal LNG agreements. We believe the transport for LNG has a bright future. Taking into account the ongoing construction and projection of new LNG production terminals, the composition of the existing world fleet and the order book with a grow [indiscernible] LNG productions forecasted to outpace growth in shipping capacity. We're committed to growing our fleet further. So far and since our IPO in November 2013, we have grown the distribution by 15.8% and as a result of our sponsor's Yamal LNG agreement our growth potential is substantial. We have a strong balance sheet, including a strong cash position and a mixture of secured amortizing debt and unsecured notes, supported by a large portion of fixed interest rates. Our fleetwide breakeven is low and we have no debt maturities until 2019. We have now reached the end of our third quarter 2015 presentation and I now open the floor for questions. Thank you.

[Operator Instructions]. Your first question comes Stifel from the line of Ben Nolan. Your line is now open, sir.

I have several questions. My first relates to the Yamal project and there's been a little noise in the market lately that the sponsors of the project are having a little trouble getting financing for it. First of all, if you have any update on that? As well as any update on the financing for the vessels that you guys would be involved in? And then also, I believe that there is some sort of a project sponsor guarantee that Dynagas has for those. Could you, maybe, walk through when that guarantee takes effect? Or, do - does the project have to get financing in order for that guarantee to hold up; any color on that?

Yes, Ben. So, when it comes to the financing of the terminal. Obviously, the project themselves are the best to answer that question. But, the thing that was that we're getting is that things are moving forward. And, there are detailed discussions on the financing of the plants. And so far, the plant has been, to a very large extent, equity financed. So, the results so far, as we understand, is that the terminal is 38% complete. There are 12,000 people on the ground working. And, yes, basically, the money spent today is a significant part of the total project cost. When it comes to our own financing, our sponsor's own financing of the five Ice Class carriers we can say that they are in under detailed discussion things are going well. On your third question related to guarantees, yes there are set carriers guarantees related to this project. So in particular there are guarantees that are quite substantial that would be in place until the project is up and producing.

Okay. So just to clarify the guarantees are prior to call you guys would be guaranteed for those vessels prior to the contracting up and running or subsequent to it up being up and running.

Let's say that the package of guarantees are more substantial prior to the project as in the terminal is up and producing.

Okay so even if they were delays in the startup you guys would still be paid your contracted rates?

Yes absolutely.

And then my next question actually to shift gears a little bit is I believe that for one of your vessels it is set to come off contract in a few months or sorry in a few years that energy. The ultimate back road for a renewal of that vessel is there any color on how that process is going?

We can honestly not, too much on that but we can say is that there is a requirement that is lining up nicely with that vessel obviously because when the vessel is coming or scheduled come off charter of course the cargo is still flowing. So that would be natural business for us to look at and that is an open tender that has not been closed it.

Okay. Any idea on the timing of the [indiscernible].

What we hope it will flows soon.

And then my last question relates to something I know you have talked about in the past but I did not hear come up in your compared prepared remarks is the prospect of entering the market and potentially using your Ice Class vessel as potential conversion candidate. Is that something you are still pursuing and any thoughts on what's the time frame we should think about that?

Yes it is something that we look at as a potential option. We have not decided to go forward with it but we have also not decided to stay away from it. We think that the FSRU market is interesting there are many good projects out there in a market for there are low energy prices we think low cost solution is got would be well received. But that being said we haven't made a decision yet on when to potentially go forward to go for conversion. We're also very much looking at the market for conventional shipping and very much aware that these vessel that is 150,000 cubic meters is ideal for intra-Pacific trade and has been used for that to a great extent and that is important because going forward within the next year or two we will see Australia becoming the largest producer in the world. So it is something that we feel caught we don't have to rest into either solution, the consensus is that the market will be strong going forward so we're still evaluating our options.

Your next question comes from the line of Amit Mehrotra. Your line is open.

I had a couple questions first with respect to the current environment vis-a-vis obviously the weakness in the unit price and resulting impact on the partnership's cost to capital. I understand there is no need for equity to fund the next drop-down over the next 12 months at least but have you changed your view or evolved your thoughts at all on growth with respect to IRR requirements are potentially new acquisitions given I guess maybe potentially the structural shift in the weighted average cost of capital to finance the growth if you could offer any insight on that I would appreciate it.

Well obviously have to take into account the current environment. As we mentioned in our commentary market anomalies don't last forever. And I think for the next drop as you rightly say will print much cover beyond that we have another vessel which has a charter until 2034. Which would be the next drop-down candidate. We're looking at various options on how we can make the these acquisitions as possible given where the environment is now. What they are exactly we cannot commit ourselves now but we will examine all alternatives obviously pricing is definitely one issue. The other issue is we expect some sort of a seamless support from our sponsor. Going forward in order to be able to avoid issuing devalued equities. There are many things we can look at. I think beyond the next two drops I think by that time the current dislocation which we're expensing will be in my opinion personally will be rectified.

I hope you're right, Michael. Just one follow up on that. In terms of the options. You relatively recently did the preferred and if you could just provide your view on how much capacity think the partnership has in terms of issuing additional preferred or maybe financing the drop downs beyond the two with disproportionate debt financing could you just offer some perspective on what you think the capacity additional capacity that there is in the partnership's ability to do that.

You mean additional capacity for because your question was you mentioned preferred additional capacity for what?

For financing in terms of additional this proportionate debt financing for the next acquisition or additional appetite for additional preferred equity.

Obviously the preferred market is very tough now. We're not really eating our hopes on the preferred docket at this typically stage. That could improve. Given where balance sheet is right now we do have additional capacity for debt. There is honestly a limit to how much that we can at all. Going forward. So as I said we can't commit ourselves to more now with numbers what we're going to do but obviously we would be looking at maintaining the conservative balance sheet given the situation we're expensing lineup, we would not want to leverage the company to the floor just to avoid a dilute equity issue.

Sure. One last question. Housekeeping question, the maintenance related CapEx is $3.69 per quarter, the right run rate for both the maintenance as well as the replacement reserves?

Yes, more or less.

Your next question from Morgan Stanley comes the line of Fotis Giannakoulis. Your line is open.

Tony, I want to go a little bit more on the industry you talked about the very last growth in LNG supply and the growing demand there is a lot of concerns that in the market that while supplies coming there may not be sufficient demand at least in the near-term to absorb all of this growing supply. Can you comment on that where the demand is going to come from. There are a lot of people talking about the FSRU's how much of a volume can the FSRU market absorb and new importers can absorb?

We believe that the new LNG will be absorbed from the existing traditional import markets. We think that there is room for the Far East markets in particular China to increase more. With that being said we do also believe Southeast Asia we can see growth in demand from countries such as Indonesia, Thailand, Singapore. Malaysia also. Traditionally some of them being exporters. And then we also believe that we will see more imports in Europe going forward. Then in particular a few years ahead of in time than in Spain and UK. And then we believe that there are also niche markets that can absorb some of the uncommitted energy. And definitely part of that will be from FSRU's. We know that there are about 40 FSRU projects on the drawing board. So if we caught we can make a cut Galician and find out what the total quantity that is going to into these countries but that would probably be a little bit inaccurate. So we cannot put a specific number on it but given that there are potential up to 40 for so you projects being discussed we think that might be an all-time high of projects and we think that is very positive.

Can you also comment about LNG prices how do you see that developing. We have seen the last year prices between Europe and Asia converting and if you see this conversion global prices having any impact on the LNG shipping markets and also if you can comment about the of your two vessels they're coming off in 2017. How do you envision this market being deployed. Do you think there are going to be expenses our long-term projects for them or do you see the market moving towards more short-term contracts?

Yes, so first on pricing. I think that if we have historically quite low energy prices now for the gas and we have quite a lot of supply coming, of course we do think that supply has a home. But I think in general that gas prices may stay soft for a period of time. To put it in exact price on it is probably the best company to do that. You'll probably have to ask a gas trading company or gas producer. So, but do we believe that the arbitrage opportunities between the various basins will be will come back? Well yes we do think so. We do think that from time to time we will see price differences and we have seen quite a few short term trading opportunities already. That is moved by price arbitrage. I think we'll see that. But I am not sure that that is going to drive the market. I really think that will drive the market for LNG is more the big change in infrastructure call the fact that will have 65% more additional volumes on the market. And that needs to be transported and lifted out of the producing terminals regardless of where it goes. So we believe that the market going forward would be more infrastructure driven. And your question do we believe the market is going long-term charters or short-term charters? I think it depends on little bit. To be honest. I think for the specialist [indiscernible] that is a niche market and they need particular vessels they will be there to do long-term charters. We have proven this. We have extended part of our vessel part of our partnerships fleets to a project that needed ice class carriers. I think we will be successful further in that going forward on the partnership's fleet. On the sponsor level we have definitely proved that we can conclude long-term charters. Four of the existing optional vessels were fixed for a minimum of 15 years. So I think arguably yes there is definitely a market for long-term chartering. It kind of depends a little bit on the assets in question and I do think that we will see more short-term trades going--

Michael I think the answer that Tony was very complete, I'm comfortable with that. One last question that has to do with - banks that have a lot of faculty providing financing you just announced a very exciting projects that requires very large amounts of capital these are much more expensive vessels given the ice class classification. How much debt to you think you can get on these vessels and where you stand on the financing side and what is going to be the equity the MLP will have two sign in order to buy any of these vessels?

Yes obviously few have vessels with which have contracts running until 2025 clearly you're going to get relatively high advanced ratio for the vessel given that they have such long contracts long-term contracts attached. So I can't give you a specific number, how much it's going to be. But obviously this project is given of course at the Chinese are so important for a lot of it the financing, on the project side and on the vessel side, let's say to a certain extent China centric.

So the Chinese finance from what I understand. And can we assume that the equity repair will be at least something in the region of 15% or this is something you can comment about?

It's double digits, that I can say. It obviously depends with the delivery of the vessels that are vessels have the same equity return but it's definitely double digits but I can't give you an exact number. They are obviously very attractive.

[Operator Instructions]. Your next question from Clarkson's comes from the line of Matthew Phillips. Your line is open.

Most of my questions have been addressed but I did want to ask a follow-up along the same lines as Fotis, you know the two vessels rolling off in mid-2017 are both steam driven. How do you see the market for these vessels, obviously this is around or so but not that far away but you do have options. Do you think it's likely these options are extended, if they are not extended what sort of value to see these garnering in the 2017 at market?

Well when we talk about the potential was time of free delivery, we will be in a. Where there substantial increased amounts of LNG flowing. And in particular out of the Pacific basin as we discussed a little bit earlier. And these vessels 150,000 cubic meters an extremely good for that market. Given that they are compatible with all Japanese and Chinese terminals. And have great trading history there. We feel very confident about them. And also keep in mind that one of the vessels are ice classed and winterized which we've been proven several times over and over that we're able to secure the long charters with companies that need ice class features. So that is also at the opportunity that were looking at. I think it's too early to set a number on what our expectations will be. It will be a function of where the market is at that time and various we're dealing with. And their specific need for that tonnage.

So you think in that timeframe there will still be a home within the Pacific basin that is specifically for steam driven vessels?

Yes. I do think so. Keep in mind you keep referring to steam but when you look at the building history of vessels, in the past vessel sizes of that great. These to be pretty small and that is why the vast majority of steam driven vessels they are very small between 125 and 120 cubic meters and that is an issue in the base market value cargo size our cubic meters meaning they can't lift the average size. That's an issue. So these vessels in particular when they were built they were the largest see vessels overbuilt at the time. And some of the very last once. So we do think that size is much more important, size and features a much more important than the propulsion. I think we proved that last year or the year before when we did the 13 year deal with energy where they chartered steam driven ice classed carriers vessels from us. They didn't need a very fast vessel they needed a vessel that had a turnaround speed of around 12 or 14 knots which the checklist be the steam driven vessel typically yields on actual of course you go faster by forcing energy or burning on top but for them at that point there was no real reason to actually have a DSD or more efficient propulsion type, because they didn’t need the speed.

And with bunker prices be much lower now anyway, I mean it's - Delta is not what it used to be.

Yes. It's not such a big difference anymore, basically.

Now from Bank of America Merrill Lynch we have a question from the line of Shawn Collins. Your line is now open.

I had a big picture industry question to some extent. There has been recent press speculation recently that given the currently low spot price of LNG in Asia that LNG buyers may look to break contracts with LNG suppliers given that those contracts are at higher prices. I know that the future is uncertain and it is certainly impossible to predict what LNG buyers might or might not do, I just wanted to ask you guys given your strong experience in the industry if you are aware of any LNG buyers in the past ever breaking their contracts? Thank you.

Yes we're not aware, I think on the LNG sales contracts, we're not aware of any breakage. And I think it will be a very potential shortsighted thing to do because this is energy that is required for the future. So how would call if you go out and break a contract how would you be able to get support the next time you need energy and light and heat in your homes. That's a difficult one. And when it comes to breakage of LNG shipping contracts that has been almost unheard of at a time when Enron went belly up there were some issues around a contract there but apart from that it's not something that we really have any information on or that we're much aware of. It's very, very uncommon in the energy industry.

A second industry or counterparty question. I wanted to ask about [indiscernible] in the U.S. and what you are aware of or what your expectation was for when [indiscernible] might start shipping LNG cargoes? Thank you.

Yes so obviously we must leave it up to [indiscernible] to comment on that but we as far as we understand it it's very soon and our sponsor has a vessel that has delivered to them already and trading for them. So exactly what's the date etcetera we can't give a date on behalf of [indiscernible].

And just by very last question. I wanted to ask about the new commercial LNG carrier pool that yourselves and gas log answered into I just was to ask how that is progressing along. I know that it is early but is it fully information up and running and have you taken on any spot cargo business? Thank you.

Yes it's up and running. It was up and running since October 1. The reception received from the market has been great. And the pool has done a number of deals already and far more than what was expected. Also has embarked on very, let's say, very interesting concepts with the various counterparts. We believe a pool like that is really to the benefit of all. And also to the partnership. It gives potential security. The partnership will never focus on short-term charter. The partnership always focus on long-term charters. That's overdoing and this is our main business and what we will do. But let's say that from a short period of time and we needed to let say there was a gap to bridge between two contracts, I think the pool would be an ideal for that. So I think it's a really, really good tool for all and yes we will see how it goes but the pool has been off to a flying start.

As there are no further questions I will pass the floor back to you for closing remarks

Everyone thank you for your time and for listening in on our earnings call. We look forward to speaking with you again on our next call. Thank you very much.