Dynagas LNG Partners LP (DLNG) Q3 2016 Earnings Report, Transcript and Summary

Thank you for standing by, ladies and gentlemen, and welcome to the Dynagas LNG Partners Conference Call on the Third Quarter 2016 Financial Results. We have with us Mr. Tony Lauritzen, Chief Executive Officer; and Mr. Michael Gregos, Chief Financial Officer of the Company. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions] I must advise you that this conference is being recorded today. At this time, I would like to read the Safe Harbor statement. This conference call and the slide presentation of the webcast contains certain forward-looking statements within the meaning of the Safe Harbor provision of the Private Securities 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 now I pass the floor to Mr. Lauritzen. Please go ahead, sir.

Good morning, everyone, and thank you for joining us in our third quarter ended 30 September 2016 earnings conference call. I’m joined today by our CFO, Michael Gregos. We have 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 information to be useful in our press release. We are pleased to report the Partnership’s earnings for the third quarter 2016, in particular, were focused on the performance of our fleet from its safety, operational and technical point of view. And we are satisfied to report that during the period, our fleet again reported a 100% utilization, which we believe is reflective of the quality of our fleet and our managers’ operational ability. The third quarter ended 30 September 2016 was a very strong quarter for the partnership. Our fleet’s income is produced from multiyear time charted 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 flows that are not indexed to oil or gas prices. Turning to Slide 2. A quarterly cash distribution for the third quarter of 2016 of $0.4225 per common and subordinated unit was paid on October 18, to all unit holders of record as of October 11, 2016. The cash distribution is equal to an increase of 15.8% of the Partnership’s minimum quarterly distribution per unit. The Partnership paid on November 12, a cash distribution of $0.56 and a quarter per unit of its Series A preferred units for the period from August 12, to November 11, 2016 to all unit holders of records as of November 5, 2016. Distribution on the Series A preferred units will be payable quarterly on the 12th day of February, May, August and November an equivalent of $0.56 and a quarter per unit, provided the same is declared by the Partnership’s Board of Directors. We have stated will be focused on obtaining additional vessel contract coverage as disclosed we have entered into a new long-term charter agreement with Gazprom for the clean energy with the firm time of 7 years and nine months. We also agreed with Gazprom to amend the existing time charters for Yenisei River and the Lena River; while the Yenisei River and the Lena River charter amendments resulted in the reduction of contract of revenues by approximately 18 million. The overall effect of the new long-term employments of these three vessels is expected to results in additional contract coverage and in increased in our combined contract backlog by approximately 150 million resulting in a total 1.6 billion in contracted backlog. With our fleets fully contracted through 2016 and 89% contracted through 2017 and within estimated fleet wide average remaining contracts duration of 11 years we intend to continue to focus on obtaining additional contracts coverage in 2017 in particular and managing our operating expenses. I will now turn over the presentation to Michael, who will provide you with further comments to the financial results.

Thank you, Tony. Turning to Slide 3 of the presentation, it was another quarter in which we continued to deliver positive financial results. Q3 2016 adjusted EBITDA amounted to $35.4 million, which was a significant increase of 22% across the quarters, as a result of the effect of the acquisition of our sixth LNG carrier, the Lena River in late 2014 and the lower than expected vessel operating expenses. For the quarter, we owned an average number of six vessels versus five vessels in Q3 2015, and our fleet averaged charter hire gross of commissions on a cash basis amounted to about $81,300 per day per vessel. Our average operating expenses amounted to about $12,200 per day per vessel, which was significantly below our expectations due to seasonal factors. Our total cash flow break-even, excluding cash distributions amounted to about $45,000 per day per vessel. Adjusted net income for the first quarter amounted to $19.1 million or $0.49 per common unit after taking into account the Series A preferred units interest on the Partnership’s net income, which was an increase of 20% over the corresponding quarter last year. On Slide 4, you can see the third quarter 2016 selected operational and financial data results versus the same period of 2015, the key takeaway is that our financial performance for the quarter was significantly enhanced following the Lena River acquisition with its related time charter. Moving on to Slide five to discuss distributable cash flow and our coverage ratio, cash available for distribution is 23 million for the third quarter as compared to 19 million for the third quarter of 2015 for the reasons mentioned above. When we declared distributions to preferred unit holders cash available for distributions to common subordinated and GP unit holders amounts to 21.3 million for the quarter which results in a very solid coverage ratio with respect to our common and subordinated unit holders, holders of 1.42 times and which are significantly higher than our target coverage ratio. Going forward in the medium term given that we will be dry-docking our three steam turbine vessels in 2017 and the clean energy will be trading in the short-term market until she delivers into the Gazprom contract we expect that the coverage ratio will slightly decline. Moving on to Slide 6, just a few words on our capital structure and liquidity as of September 30th we had about 84 million in cash on hand and total liquidity of about a 114 million including undrawn amounts from our revolving credit facility with our sponsors. As of September 30th, we had 730 million in total debt, which suggests a net debt to Q3 2016 EBITDA on an annualized basis to 4.6 times. We believe our leverage is supported by a significant contract backlog going forward and we are encouraged the MLP public equity issuance has resumed albeit for select offerings, so when the time is right we will seek to combine future growth with deleveraging of our balance sheet. Slide 7 shows our total principal and balloon payments per annum. We do not have any near term maturities since our first maturity is our 250 million unsecured note which matures in October 2019 and thereafter our two secured facilities which mature in late 2020, 2021 respectively. Given our 1.6 billion contract backlog, we do not anticipate any difficulties in refinancing our unsecured note in late 2019 especially given that by that time the two Yamal time charters will have either commenced or be very close to commencing. Slide 8 outlines our cash distribution history since we went public in November 2013, since our IPO we have paid total cash distributions to common unit holders of about $4.67 per unit and have grow our total cash distributions by about 16%. We can significantly pay our cash distributions to our unit holders solely from our existing fleet contract of cash flow, which is significant. We believe that business fundamentals and balance sheet strength are more important contributor MLPs than distribution growth under the current environment. In the medium to longer term, our cash distribution payout policy going forward will be a function of a number of factors being mainly our ability to resume our fleet growth through the dropdown of the vessels owned by our sponsor with long-term contracts attached. However, future dropdowns are also a function of our cost of capital, we continue to believe that our 12% cash distribution yield does not reflect our contract backlog and makes it challenging to issue equity as a means to partly fund future growth. However, as follow on market access has returned, we will seek today's capital if we can raise capital at an attractive cost. That wraps it up from my side. I will pass the presentation over to Tony.

Thank you, Michael. So let’s move to Slide 9 to summarize the partnerships profile. The Partnership’s fleet currently counts six high specification and versatile LNG carriers with an average age of about 6.3 years in an industry where expected useful economic lifetime is 35 years. We have a diversified customer base with energy companies, namely Shell, Gazprom, Statoil, and Yamal LNG. Our contract backlog is about $1.61 billion and our average remaining charter period is about 11 years, which compares well to our peers. Moving on to Slide 10. Five out of the six vessels in our fleet have ice Class 1A notation. Our fleet is fully contracted in 2016 and 89% in 2017, the time we expect the LNG shipping markets have tightened due to the current ongoing construction and ramping up of new LNG production plans. We have a unique fleet, it can handle conventional LNG shipping as well as operating ice bound in subzero areas. This means we are able to, and have been successful in pursuing business opportunities in two different markets, namely conventional shipping and a unique market for ice bound trade. As an extension of the ability to operate in ice bound areas, we are the only company in the world with the current capability and experience in transiting LNG carriers via the northern sea route, which we deem an important advantage due to the ongoing development of LNG production along this route. The contractual relationship between our customers and the vessels are on a time charter party basis. Under a time charter party, the charterer pays a fixed day rate to the owner regardless if the vessel is being used or not and all major variable costs, such as fuel costs are for the charterer’s account. Therefore and coupled with our multi-year employment profile, the Partnership enjoys visible and stable revenues that are not directly affected by oil or gas prices. Going forward, we will be focused on securing further contract coverage and particular in 2017. Let’s move to Slide 11. Our potential drop-down candidates count nine LNG carriers; all of those vessels have contracts in place amounting to multibillion-dollar contract backlog. They are high specification ice class and winterized. Four of the vessels are Arc-4 type, 162,000 cubic meters and delivered from the yard. The remaining five are Arc-7 type, 172,000 cubic meters and currently under construction at DSME in Korea for delivery in 2017 and 2019. These last five vessels are 49% owned by our sponsor and 25.5% each by Sinotrans and China LNG shipping. Let’s move to Slide 13. In summary, the market is in a place where are substantial volumes of additional LNG expected to be produced in the near-term to medium-term. The word LNG carrier fleet is characterized by few vessels to carry those incremental volumes in the long-term and there are many old technology vessels. Also, there has been a slowdown in the ordering of LNG carriers with marginal activity since Q3 2015. Also, floating re-gasification projects appear to create a demand for unsold LNG. The current existing LNG world fleet and the order book totals about 528vessels, as shown on bar to the left on the graph. The order book is about 28% of the world fleet. About 34% of the world fleet is below 140,000 cubic meters, which we would define in general as too small vessels. The site is also below the average cargo site and the average age of these vessels is about 22 years. At some point, we expect that most of the undersized and aged vessels will fade out of the market and be replaced with larger and younger tonnage. Furthermore, 92% of the order book has already been committed to forward charters. This means that there are very few new buildings that may be available to facilitate the need to replace on average undersized and aged tonnage and to carry expected incremental LNG production. According to the order book, most new builds will be delivered during the period 2017 and 2018, which is also a period we expect significant additional energy production. We have seen a slowdown in ordering activity of energy carriers, to our knowledge, there has only been recorded five orders since Q3 215, there are only very few yards in the world that has the experience and capability to build LNG carriers. And if one were to order today our guess is that the yards would be able to offer tonnage for delivery 2019 at the earliest. Let's move to Slide 14. Gas used to be referred to as an alternative fuel. In 1990 the gas market was about 56% of the oil market, today the gas market is about 74% of the oil market, and by the end of 2035 this number is expected to have increased to 90%. The LNG market is the fastest growing sub-segment within the gas industry. More and more countries are dependent on energy as an energy resource. In 1990 there were nine LNG trading routes, today that number has increased to 232. Let's move to Slide 15, we are now in a period dominated by strong LNG production growth. It is conservatively forecasted that about a 120 million tons of new annual incremental LNG will come to the market between now and 2020. This represents a total increase of 50% compared to 2015. We assume that the vast majority of new LNGs coming from terminals already under construction meaning a high probability of project materialization. The source of this new energy is primarily from Australia, North America, South East Asia and Russia. We continue to believe that the Far East will remain large buyers going forward, however growth may also come from European markets. We also believe we will continue to see the development of new niche markets in areas such as South Asia, Middle East and South America. 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 off take agreements in place and we believe that the existing import markets will continue to increasingly rely on LNG as a price competitive and clean energy resource. Let's move to Slide 16, supplementing to existing and new buyers of LNG via land-based terminals there are new buyers of LNG through fast pace floating re-gasification terminals. The growth in floating re-gasification is expected to continue to grow steadily making up 16.6% of the total re-gas capacity by end 2020. This is important as these projects will be buyers of existing and we believe in particular unsold and remarketed LNG. Let’s move to Slide 17. As projected, the industry is now in a period of strong growth in incremental LNG production and trade. In the first nine months of 2016 global LNG trade was up 8% compared to the same period in 2015. As expected in particular Australia and to some extent the U.S. have been the largest incremental producer so far and are expected to add a significant volumes going forward. When we compare LNG supply to LNG shipping capacity available from now and forward, we remain confident that the market outlook for shipping looks favorable in the long-term. In the period prior to that, we believe that the short-term market in general may create competition to the long-term market until sufficient LNG supply is outpacing LNG shipping capacity. The growth in LNG production set at 55% within 2020 is estimated to outpace increasing LNG shipping capacity set at 29% within the same period. The majority of the new LNG will be delivered already within 2019, meaning we should expect the period ramping up to that point and subsequent years to result in healthy shipping markets. Additionally, the Partnership’s fleet is ice classed and winterized, enabling the flexibility to pursue the best of two different markets, which has proven to be a strong advantage so far. We have now reached the end of the presentation, and I now open the floor for questions.

Thank you, ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Michael Weber [Wells Fargo]. Please ask your question.

Hey good morning guys. How are you? All right I just wanted to start off with the some market question and then move to kind of cost to capital, but the deal you all struck mid quarter and I guess [Indiscernible] certainly got a fair amount of attention. Just within the context of being an older asset on a term basis. There was some existing business you guys had there, but how should we think about that rate. Do you think that that rate is indicative of where slightly older steam assets will be employed at for the better part of the next year to 18 months? Or do you view that as kind of the stepping stone and it was slightly a firmer market and then geographically do you think that that area, I'm assuming that as it going in the [Indiscernible] ends up being almost a destination of choice for some of those better older steam [Indiscernible] given the parcel sizes and the need for lower cost?

Well, thank you very much. The rationale behind committing that vessel on the term charter at a somewhat discounted rate to what we already have average lines in the fleet was in particular due to that is the single vessel that we have in our fleet that is not ice classed and winterized. So we didn’t have the ability to pursue let's say this other niche market that we tend to do and kind of see what offers the best charter. So yes the question is this in indicative of all turbines vessels of that size going forward that’s an extremely difficult question. It was good enough rate for us to do the deal and we felt that it was not so easy for that vessels that didn’t have this unique features to get this long-term charters. An alternative would have been to convert into re-gas, which would have cost a lower capital or another alternative could have been to shorter charters at a time so 12 months and 12 months and 12 months et cetera. But we just kind of felt that it an almost eight year charter was on the table it made a lot of sense for us to conclude that with the charter that we have a lot of confidence in our a lot business towards.

Okay that’s helpful. And we are going to seeing a total [Indiscernible] asset a long time, so coming out from a relatively constructive angle there. I guess the second part of that question before the cost to capital. Just the idea that and maybe this can almost come from your vantage point, we are working closely with [indiscernible] but the idea that kind of the older end of the asset curve now potentially shifting towards either western Africa or Australia has been have that the most likely source of employment just given that and that the drive for lower FOB prices or landed prices for gas. Do you think you end up seeing more older assets kind of higher concentration of this slightly over all your assets within West Africa or especially Australia versus US?

It's difficult to say I mean certainly vessels that are on long-term charters within the specific basin so typically Australian trade et cetera basin they tend on average to be slightly older. And I think maybe the reason for that is as mainly that Japan being a major import market is in that basin and its controlling a lot of these long-term charters that have aged, that those vessels have aged by now. So I think that’s a lot of the reason, the reason is not that it tends to be less focused on quality or age of vessels et cetera. So I think also that distance is important to keep in mind. So yes let me be clean energy is great for example I mean intra basin trades because those trades wouldn't be that long of a distance, so the cargo size would need to be so big and since the distance is not so long that the total consumption impact is less than on a long route. So look I do think that in particular, the pacific basin is a good home for slightly older ladies and gents and then I think west coast Africa maybe also will be a potentially good home given the potentially shorter routes as well.

Okay. One more from me and I'll turn it over. You mentioned the equity markets easing back open for marine NLPs, I'm just curious what sort of yield threshold do you look at in terms of where your cost of capital needs to be, on the equity side to really facilitate accretion for dropdowns on a long-term basis. Obviously you have come in here, but we are not quite down, certainly not down to kind of the old normal, I'm just curious where you think your yield needs to be there to comfortably grow.

Yes, I think you know it's hard to pinpoint an exact number but you know in an ideal world I think we will be looking somewhere around 8%, [indiscernible] to make sense for us to raise the capital. But that's just a number that you know it could be plus or minus, I think that's a ballpark figure yes.

Okay that's helpful. I'll turn it over, but thanks for the time guys.

Thank you.

Thank you, the next question comes from the line of Ben Nolan [Stifel, Nicolaus]. Please ask your question.

Yes, thanks. I have several, but I'll follow on with sort of Mike's last question there, when I think through the impact of the new adjusted rates on the two vessels as well as the new contract rate on the clean energy. Obviously your distribution coverage ratio comes down a little bit and the margin gets tighter obviously that can be offset by dropdown into additional vessel. I'm just trying to think through what is the catalyst I mean, are you willing to be flexible on your cost of capital or maybe to dropdown multiple in order to do choose the cash flows and make sure that the distribution is well covered.

No you are right. I mean that's a very good question. Yes at the end of the day I think a drop will have to take place. I know that you have on your mind what happens if our let’s say cash distribution yield doesn't recover, I think at that particular point we are going to have to sit down and think something has to give at the end of the day. As you say, we do know that our sponsor is very supportive and I'm sure that we will find a way to make a drop that is accretive, I just can't get a bit more specific right now on how would we do that.

Okay, but at the end of the day I guess the answer at the back of the book is that you are completely supportive of the distributions and so whatever it takes to make sure that those remain intact as what will happen. I mean is that a fair way of thinking about it?

Yes, yes, that's right.

Okay, so my next question relates to the FSRU and obviously you guys chose to put the clean energy on contract as a carrier as an FSRU. Is that still an area that you are looking to be involved and you know is it simply a matter of this is just a bit more expedient and less capital intensive were there a market for conversion into an FSRU in something that you've actually execute on and just chose not to.

Thank you. Yes, I think there is a market for FSRUs clearly and I think you can execute on that. It's just that we were in a position where this opportunity came up and I said we when new accounts upon that very well, we hope that were comfortable with it so it's just seems like a low cost easy to implement solution of that we should go for. When it comes to are we still looking at FSRU as an organization yes, absolutely the fact that we did this deal it doesn’t mean that we think that the FSRU market is less robust. We think FSRU market has a great future.

Okay, and then last from me and I'll turn it over. Tony you talked about the fleet of older steam powered ships that would be becoming but more absolute and less desirable generally speaking I know many of those vessels are on longstanding contracts and my understanding is a fair number that it is going to be rolling off their existing contracts over the next several years. And theoretically as you pointed out to be replaced by newer or more modern assets. I'm just trying to see if it's possible or if you might have a way to quantify how much of that and when it happens, I mean are we talking about two to three four ships a year is it more meaningful in terms of that contract role off?

Yes, that's a very detail question. I can't give you specific number on how many vessels rolls of existing contracts per annum, but we if sometimes since we do the analysis but it is pretty significant I remember that. And if you look at just let say the next five years or so how many vessels will be rolling off existing contracts, it was sufficient to make an impact. And then the question that is while assuming the cargo is still flowing what does the charter do? Do they reach out of that vessel or do they charter in more modern more efficient maybe a larger vessel and I think it's very, very important to also mention that these vessels that we are talking about on averages is about 22 years old. It's a significant part of the existing world fleet and although the average the average size of those vessels are pretty smaller I think it's around 135,000 to 136,000 cubic meters or so that doesn’t mean it's all bad. I mean some of these vessels can be used for some specific trades and as some of these vessels are actually in a very good condition et cetera. But it's just the reality is that the if there is an alternative it would be very difficult to find a home for around 140 or so vessels that are below 140,000 cubic meters. So yes we think by going forward that will have a pretty good impacts.

Okay, and maybe just lastly. If you were to handicap of that 141 vessels how many will not be around by the turn of the decade just to throw number against the wall, what would you imagine that would be?

I don’t dare to throw a number like that against the wall because I will be upsetting people here. Yes, I’m not going to put a number to you, but I’m just saying that I think there are too many old vessels around. Too many small vessels is the right way to put it.

Fair enough. All right, thanks a lot Tony and Michael.

Thank you. The next question comes from the line of Fotis Giannakoulis [Morgan Stanley]. Please ask your question.

Yes, hi gentlemen, thank you. Tony I want to ask you about the demand for LNG, in one of your slides the gross this year has been 8%. However, we have seen much more volume coming going forward, how do you use this demand developing and how do you view the LNG prices moving during 2017, 2018 when most of the volume will have been developed? Mike you can also comment how important it is the pricing on LNG for the shipping markets?

Well thank you, Fotis. Well so we think about that in terms of demand for the LNG that’s a very god question, because we always talk about production and obviously there needs to be a buyer as well for a healthy market. So we know that a substantial part of the incremental LNG that is under construction and being produced by now, but some of it being produced now. A lot of that has a home already, but then you are talking about well how much of the LNG would actually go to that buyer and how much will be remarketed. And that’s very difficult to put a number on, but we think that there will be fair amount of remarketed as LNG going forward. And in terms of demand, well what we have always seen lately is that we have seen a lot more demand from let's say niche buyers, which hadn’t predicted before, a lot of spots cargos and short-term cargoes goes in particulars to these niche markets. These niche markets tends to be countries that maybe has a bit more difficult to putting up a strong credit support, so maybe they don’t put buy 10 years of LNG, maybe they buy spot cargos, a couple of the time or several at a time. And that is something that we are definitely seeing. So this new imports destinations typically through FSRUs and let's say with less strong buyers. That is something that we are seeing. When it comes to the price of LNG, well our feeling is that the price of LNG will remain under pressure for some time I mean simply if the price of LNG is low today while logic says that it shouldn’t be too much higher when you have 50% more of it. Of course we have a lot of new buyers et cetera, but I think that it's fair to assume that the gas prices coming from LNG will be pretty competitive. But that on the positive side is also facilitating trade and new buyers that other focused on price.

And Tony in terms of a pricing floor, do you have an idea what will drive the price, this volumes up will be resold and potentially might have to go the European spot market. What will be pricing mechanism, is it going to be that Russian gas price that will set the floor, is it going to be the U.S. price and the margin of U.S. producers. And also how do you view the possibility and some of the bears in this market they talk about U.S. volume being sharp, do you think that this is something that you accounting your base case.

I mean let's say the price et cetera or the floor of the LNG is also difficult to say, if that would be you know U.S. pricing or that is Russian volumes from pipelines. I think in general it's just a when there is a lot of gas many producers that will have an impact on the price. When it comes to U.S. volumes, if that will be shut in, I don't think so, I think it's healthy for commodity prices to be competitive. Of course within a reasonable let's say pricing, but I think what is important is that of the U.S. gas, you know most of that if not even all is spoken for. So I see it very difficult for that to be shut in.

And given the growth projections that you and the other industry participants have going forward, but at some point I assume after 2020 the market would look quite tight. At what point do you think that there are going to be more buyers, long-term buyers willing to step in to try to secure post 2020 volume under a long-term off take. And in other words when do you think that we should start seeing new [FIBs] (Ph) and how many FIBs do you project that we are going to see the next two-three years.

Well thank you, FIBs we will see in the next two to three years is impossible for us to put a number on. I do think that I just say I mean what we are seeing now is that we are seeing general adaptation to LNG and gas being used more and more let's say worldwide. As we pointed out in the presentation in 1990 there were only nine LNG trading routes, last year there were 232, so basically what we are seeing is a lot of worldwide investments into LNG infrastructure. So obviously it's important to have that infrastructure in place and so that the LNG can be utilized broadly and I think that's basically the industry has come a very long way in facilitating that there is still some distance to go. But just looking at what is happening in their market and the industry is changing, how many new countries are importing LNG through land base or now in particular floating re-gas solutions. I think that's it shouldn’t take too long until we see long-term buying again if that is within a year from now or within three years from now we don’t really know, but certainly it's a the long-term buying is going to come back.

And then if you allow me one last question about your Cool Pool you have a pioneered of the Cool Pool in the pooling arrangement in the LNG market. And there are some articles talking about having find some counter to retreatment this is something really new in the LNG market. Can you describe to us what kind of employment opportunities you can create through the Cool Pool and then how does this impact your bottom line?

Well first of all the partnership is not involved in the Cool Pool so it wouldn’t affect that bottom line. But I mean we have been very well received, the Cool Pool has been very well received in the market we have done certain innovative structures with some counter parties. We can't say too much about it but have certainly yielded a lot of volumes and within this first year of operation to Pool is close to 96 fixtures. Given that one year of total fixtures, total fixtures in the market is probably 300, 90 is a pretty good chunk of that. So the I guess the greater advantage of the pool really is that it's a mechanism and it's a tool that is very beneficial for the owners in it and it's beneficial for the charters, because we are able to address very quickly the let's say the more and more complex chartering structures that counterparts are looking for. If we go back a decade or so there were pretty much no spot fixtures and well there are very few spots cargos and certainly very few spot LNG fixtures to support that spot cargo. Now what you are seeing is probably around 25% of all cargos are probably traded spots that hasn’t translated into 25% of all shipping been done spot and quite far from it actually, but we are seeing a year-on-year increase in the number of spot fixtures, which is pretty impressive. And the pool is really the only tool out there that is big enough and able enough to capture this in a meaningful way. And what the tool can do is for example fix vessels with forwards delivery, is not a problem and we can fix a string of cargos with forward delivery and what we can do to trade the fleets around that. Because the fleet in the pool is made up of very similar vessels to have very similar size, very similar proportion, it’s from owners with good experience that tick all the boxes meaning that the charter are more or less in difference to which of those owners are lifting that cargo. So instead of locking in a ship for a specific forward cargo we just say we will lift that cargo with one of our vessels. And that has turned out to be an instrument and a tool that is very good for where the market is heading.

Thank you very much Tony.

Thank you, the next question comes from the line of [Randy Gibbons] (Ph). Please ask your question.

Thank you, and good morning guys. One quick modeling question and one chartering question. So you mentioned the upcoming dry-dockings in 2017, so first should we see assume about 30 days for each of these and which quarters do you expect this to happen?

Yes. We expect one dry-dock in Q1 of next year and the other two to take place around June, July. And it's about the duration is about 20 days.

And then lastly, so now that the Clean energy is on that long term charter so your only vessels out coverage after 2018, Arctic Aurora, so first by when would the offshore expansion have to be exercised and then if not exercised what are you planning for chartering that vessel after the current charter expansion.

Which one you mean the Arctic Aurora?

Correct.

So on the Arctic Aurora the options have expired, so there are currently no options on that. So that is a vessel that would be potentially open into 2018 and we feel very confident about the market at that time and we believe it’s a great vessel, extremely versatile that is iced class and winterized and can trade re-gas as competitive as a conventional vessel as well. So we are not in an urgent mood to do something on that vessel.

Sure, just few years there. So all right, well that’s all I got. Thank you so much.

Thank you. The next question comes from the line of Gregory Lewis [Credit Suisse]. Please ask your question.

Thank you and good morning its Joe Nelson on for Greg today. One quick one for me I guess and maybe a bit of a two part. You guys called out the limited new build ordering this year and creating yards and sales they are having their own stress. What kind of pricing pressure for new builds are you guys seeing? And then as its corollary today have you seen a kind of weakness in new build pricing kind of maybe spark some tendering activity from some of these projects that are on development that may not have secured their vessel requirements yet.

Yes, so, look it's true that the Korean yards are under pressure, I mean, as we understand that. Now at least there are some good solutions in place to handle the future for the yard, so that's comforting. LNG carriers are always competing with other tonnage as well, because none of these yards are only building LNG carriers, so we are very much competing against for example normal tanker market, offshore market, dry-bulk and other things. So basically it seems in general the shipping market has been pretty bad and it's gone through a tough time, we haven't seen a lot of competing orders in the other segments on those yards that are building LNG carriers. So it is true that there is some pressure on LNG new builds and we don't know if that's a temporary pressure or that is something that will come off at some point when they secured a couple of orders. But yes, I think that some of the yards would be happy to let's say receive some orders even if that is at some competitive pricing. If that translates into more competitive charter rates for the projects, I think that was your question. Well that's yet to be seen, because often the project themselves they don't quickly or slowly depending on what the ship building industry is doing. They just kind of move in the pace that they are comfortable with I think. So I don't think we should necessarily expect that lower ship building prices or lower temporary ship building prices would lead to a broader let's say competitive chartering markets for projects.

Great. Thanks very much guys.

Welcome.

Thank you. There are no further questions at this time. [Operator Instructions], there are no further questions at this time, please continue.

So thank you to everyone for listening in on our call. We are looking forward to talking to you next time. Thank you very much.