Dynagas LNG Partners LP (DLNG) Q1 2017 Earnings Report, Transcript and Summary

Thank you for standing by, ladies and gentlemen, and welcome to Dynagas LNG Partners Conference Call on the First Quarter 2017 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. At this time, I would like to read the Safe Harbor statement. This conference call and slide presentation of the webcast contain 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's 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.

Good morning, everyone, and thank you for joining us in our first quarter ended March 31, 2017 earnings conference call. I am 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 please report the Partnership's earnings for the first quarter of 2017. In particular, we are focused on the performance of our fleet from a safety operational and technical point of view, and we are satisfied to report that during the period our fleet performed at 99% utilization which we believe is reflective of the quality of our fleet and our managers' operational ability. The earnings for the financial quarter ended March 31, 2017 were within our expectations. Part of our strategic plan has been to enter into longer term charters for the employment of the vessels in our fleet. In general, long-term charters are priced at day rates below shorter term contracts. Our revenues are derived from the employment of our vessels on a fixed multi-year charter contract. The revenues we earn under those charter contracts are earned on a fixed day rate basis and not linked in any way to commodity price fluctuations. The Partnerships earnings for the first quarter of 2017 were as expected below that of the first quarter of 2016 following our decision to reduce to charter hire on two vessels, the Yenisei River and the Lena River in the short to medium-term with effect from November 2016 in exchange for a long-term charter on the clean energy with a term from July 2018 through March 2026. The transactions increased our contracted backlog on a net basis. With our fleet 86% contracted through 2017 and 75% contracted through 2018 and 2019, and with an estimated fleet wide average remaining contract duration of 10.5 years, we intend to continue to focus on obtaining additional contract coverage, particularly in second half of 2017 and 2018 and managing our operating expenses and continuing the safe operations of our fleets. Turning to Slide 2, on May 18, 2017 the Partnership successfully closed its $480 million Term Loan B transaction. The net proceeds of the Term Loan B which has a term of six years and a secured buy among other things to six LNG carriers in our fleet were used to repay in full our then outstanding secured debt with our commercial bank lenders. This refinancing provides the Partnership with additional debt and with additional flexibility and is expected to increase net cash flow and extend the maturity of our secured debt from 2020 and 2021 to 2023. A quarterly cash distribution for the first quarter of 2017 of $0.42 in a quarter per common unit was paid on April 20 to all unit holders of record as of April 21, 2017. The cash distribution is equal to an increase of 15.8% of the Partnership's minimum quarterly distribution per unit. The Partnership paid on May 12, 2017, a cash distribution of $0.5625 per unit of its Series A Preferred units for the period from February 12, 2017 to May 12, 2017 to all unit holders of record, as of May 5, 2017. Distributions on the Series A Preferred units will be payable quarterly on the 12th day of February, May, August, and November, at an equivalent of $0.5625 per unit, provided the same is declared by the Partnership's Board of Directors. As the Partnership has in place two long-term charters with Yamal and LNG, we believe it wouldn't be appropriate to communicate that we have been informed the project development is going very well with first LNG production assumed for October 2017. The first of three trains is 91% complete as of March 31, 2019. I will now turn the presentation over 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 good quarter during which we continued to deliver positive financial results. As Tony mentioned, our revenues, EBITDA and distributable cash flow were driven by the transaction we announced in October of last year in which we secured long-term employment on the clean energy in exchange for an adjustment of the charter higher rate on two of our LNG carriers as part of a package deal with gas from which was accrete to 12 contract backlog. For the quarter, we generated distributable cash flow of $18.6 million, a decrease of 18% from the first quarter of 2016, and our fleet average charter hire gross of commissions on the cash basis amounted to about $76,700 per day per vessel. We continue to operate at solid utilization levels with very competitive vessel operating expenses. Our average operating expenses amounted to about $12,350 per day per vessel, which coupled with 99% utilization for the quarter showcases the operational capabilities of our manager, Dynagas Ltd. Our total cash flow breakeven excluding cash distributions, amounted to about $47,000 per day per vessel. Going forward, we expect lower cash breakeven rates following our recently completed Term Loan B which we will talk about. Moving onto Slide 4 to discuss distributable cash flow and our coverage ratio; for the first quarter of 2017 our common unit coverage ratio was 1.13 times. However, going forward we do expect our coverage ratio to sequentially decrease over the next couple of quarters as three of our steam turbine LNG carriers underwent or will complete their special survey and dry-dock in the second and third quarter and the Clean Energy is trading in the spot market until she is delivered into a 8-year Gazprom contract in about July 2018. On a longer term basis, our coverage ratio will reflect not only our special survey and dry-docks in 2017 and 2018 but also our lower long-term run rate EBITDA as some of our vessels will love [ph] their existing time charter to their new longer term contract with lower time charter rates. Our distribution remains supported by our significantly increased contract backlog and our recently completed Term Loan B which improved the Partnerships net cash flow due to its lower repayment profile. The evolution of our long-term run rate EBITDA reflects our strategic decision to increase contract lengths, the visibility and sustainability of our long-term EBITDA and eliminate or minimize newer risk at the cost of modestly lowering our EBITDA and distributable cash flow. Moving on to Slide 5 to discuss our recently concluded institutional Term Loan B which enables us to extend the maturity of our senior secured debt simplify our capital structure by consolidating all our vessels under this Term Loan B with no relaxed governance, and more importantly, optimizes our debt service costs through this facility is much lower mandatory amortization thereby improving our net cash flow and liquidity. As a summary, we entered into a six-year $480 million senior secured term loan, the proceeds of which were utilized to apply all of our existing secured indebtedness with commercial ship lending banks with the remaining proceeds utilized to pay fees and for general corporate purposes. Following the refinancing, this new Term Loan B will be the only outstanding secured debt instrument in our capital structure with a maturity until 2023. The Term Loan B is priced at LIBOR plus 450 basis points and has mandatory principal repayment of 1% around them significantly improving our cash flow and ensuring sustainability of our current cash distribution. To showcase the significant cash savings from this refinancing, if we compare the debt service payments of our previous secured loan with this Term Loan B for the 12-month forward period from March 31, 2017; we estimate debt service cash savings of about $20 million for this 12-month period only. In addition, we will have lower principal payments in the amount of $108 million from the day till the closing of the Term Loan B upto Q1 2021 which was the maturity of our previous secured debt prior to this refinancing. Moving onto Slide 6, this slide shows our debt maturity profile before and after the Term Loan B and as you can see, we now have in place a longer duration couple of structure eliminating near term maturities of our previous secured debt which prior to this refinancing matured two to three years earlier. In addition, principal payments have been reduced from $32.5 million per annum to $4.8 million per annum leading to the $108 million unless principal payments mentioned in the previous slides. As we stand today, we do not have any near-term maturities since your first maturity is our $250 million unsecured note which matures in October 2019, given our contract length which runs significantly beyond the maturity date of our secured and unsecured debt. We do not anticipate any difficulties refinancing our unsecured and secured debt. Moving onto Slide 7, except for the Term Loan B as I mentioned before we have outstanding at $250 million unsecured note and a perpetual $75 million 9% preferred security which we can redeem our discretion at par from 2020 onwards. As of today, our total debt represents 55% of our total capitalization. As of March 31, prior to the refinancing we had about $76 million in cash-on-hand and $714 million in total debt and total available liquidity of $106 million resulting in a net debt to EBITDA of about 4.7 times. We believe our leverage and supported by a significant contract backlog going forward. To form of the Term Loan B transaction, our net debt to last 12 months EBITDA is about 4.8 times. Moving onto Slide 8, since we went public in 2013, we have paid $193 million in cash distributions to our unit holders on $247 million on distributable cash flow. During that time our common unit holders have received total cash distributions amounting to $5.5 per unit. We maintain our position, the dropdowns for the sake of increasing distributions at unattractive costs of equity will not increase shareholder value in the longer-term. Key takeaways from my side is that balance sheet protection is our top priority and any growth through dropdowns will be effective to combined deleveraging and improved operating cash flow and distribution coverage. That wraps it up from my side. I will pass the presentation over to Tony.

Thank you, Michael. Let's move onto Slide 9 to summarize the Partnerships profile. Our fleet currently counts six high specification and versatile LNG carriers with an average age of about 6.8 years in an industry where expected useful economic lifetime is 35 years. We have a diversified customer base with substantial energy companies, namely Gazprom, Statoil and Yamal LNG; which the later has a joint venture between Total, CNPC, Novotech and the Silk Road Fund [ph]. Our contracted backlog amounts to about $1.52 billion, and our average remaining charter period is about 10.5 years, which compares very well to our peers. Our vessels have also served in the past to customers such as [indiscernible] and several other major oil and gas companies. We therefore have a large customer base that we're able to contract with. Moving on to slide 10; our fleet of energy carriers are largely fixed on long-term charters with strong and recruitable energy companies and we have a low availability going forward. Drivers for the employment were the characteristics of the vessels including its highest class notations and our organizations high quality track record. The contractual relationship between our customers and the vessels are on a time charter park, under a time charter parked the charter pays a fixed day rate to the owner regardless if the vessel is being used or not and all major variable cost such as fuel cost up from the charter is accounted. There are also no early termination rights for convenience for the charter, 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. We also have minimal capital requirements which provides significant free cash flows. Compared to other shipping segments, LNG shipping is highly industrial segment where owners and charters work very closely together and mutual performance is key. Charters typically probably the vessel for its trade for long periods of time. In April 2017, the Clean Energy became available for employment at which time we entered into two consecutive short-term charters to employ the vessels through the end of August 2017. Following the exploration of these charters, we expect to enter into additional charters for the client energy, prior to her delivery to prompt in July 2018. The short-term market is tightening and we believe that market will be stronger by the time she again becomes available for a limited period of time. We then entered a limited number of discussions on the available that we in 2018 given that we believed the market is on an improving feed. Let's move to Slide 11; our sponsor Dynagas Holding owns the feet of 9 LNG carriers which are all on long-term contracts. Four of those LNG carriers are fully owned and trading; one of those carriers, namely the Clean Office is charted to [indiscernible] until 2022 and will thereafter deliver to Yamal LNG for a 15-year charter. The three sister vessels, clean planet, clean horizon and clean vision are currently employed in the cool tool and LNG pooled joint venture equally owned by Dynagas, Gaslock [ph] Angola which is also the world's largest provider of short-term tonnage. From 2019, these three vessels will deliver to young Marlin [ph] and Jay for mainly, for minimum employment each. The five large seven LNG carriers are 49% owner by our sponsor and 25.5% each by Sino Trends [ph] and China Energy Shipping, two state-owned Chinese entities. These vessels are under construction in Korea and a charter to Yamal LNG for between 26 and 28-year contract each. All vessels on the water and in the order book are fully financed and funded. All nine vessels have contract in place amounting to a total $8.1 billion as a backlog. These optional vessels are dropdown candidates to the Partnerships. Let's move to Slide 12, we have a unique fleet; five out of the six vessels in our fleet has Ice Class 1A notation. It can handle conventional LNG shipping as well as operate in ice bound and sub-zero areas. This means that 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. The initial capital expenditure for an ice-class vessel is somewhat more expensive than a conventional carrier; however, the operating costs between our ice-class type carriers and conventional carriers are very similar. The Company together with our sponsor has a market share of 82% for vessels with ARC IV or equivalent ice class notation. There are only two other LNG carriers in the world with equivalent notation which to our knowledge, unchartered out on a long-term contract. We view the ability to trade in ice-bound areas as an important advantage due to the current and ongoing construction of LNG producing terminals within ice-bound areas. Our fleet is regularly trading in ice-bound areas and we are the only company with actual track record in transiting LNG carriers through the Northern Sea route which gives the tremendous advantage; given their large gap located in the middle of this route that are being developed for export by the end of this year. We also expect further projects to be developed in that area. Sort of to that our fleet is optimized for terminal compatibility which is of significant importance in a market that is changing from a fixed route trade to worldwide trade; the fleet consist of groups of sister vessels that provides for overall relatively better economics and efficiencies. Let's move to Slide 14 for an industry update. In short, the market is in a place where there are substantial volumes of additional LNG expected to be produced in the near to medium-term. The world LNG carrier fleet is too small to carry those additional volumes in the long-term and there are too many small and old technology vessels. Also there has been a slowdown in the ordering of LNG carriers with marginal ordering activities since Q3 2015 and floating reclassification projects creates accelerated demand for available LNG. The current LNG world fleet and the order book including FSRU and FSRU totals about 574 vessels. The order book accounting 115 vessels is about 25% of the world fleet. As much as 32% of the world's fleet is on average 22 years old. More importantly, these vessels are small with an average cargo size of about 135,000 cubic meters; this is well below the average cargo size. We expect that most of these undersized and aged vessels will fade out of the market and be replaced with larger and younger tonnage. As seen on the graph on the upper right side, almost all vessels build prior to 2006 are small turbine driven vessels. Furthermore, 82% of the order book of 115 vessels has already been committed for employment; this means that there are very few new buildings that maybe available to replace on average undersized and aged tonnage and to carry expected incremental LNG production. According to the order, most new builds will be delivered during the period through '17 and through '18 which is also a period we expect significant additional LNG production. We have seen a slowdown in ordering of activity of LNG carriers, they are only very few yards in the world that has experienced a capability to build such vessels and if one were to order today, our guess is that yards would be able to offer tonnage for delivery in late 2019 at the very earliest. Let's move to Slide 15. We are now in a period with strong growth in LNG production. It is conservatively forecasted that about 146 million tons of new annual LNG will come to the market between now and 2021; this means the total increase of 55% compared to 2016 production. It is also assumed that project output on existing terminals may increase going forward adding additional supplier. We assume that the majority of the new LNG is coming from terminals already under construction meeting a high probability of project materialization. The source of this new LNG is primarily from Australia, North America, Southeast Asia and Russia. It is likely that the Far East will remain the largest buyers going forward; however, the largest incremental demand growth may come from new and from European and Asia Pacific markets. We believe we will continue to see the emergence of new and niche markets in areas such as South Asia, Middle East and South America where large volumes will be imported by FSRU. We also believe that there are sufficient buyers for the new LNG to be absorbed. The majority of the new LNG export volumes have sales agreements or off-take agreements in place. We believe that existing import markets will continue to increasingly rely on LNG as a price competitive and clean energy resource. Let's move to Slide 16. In the first quarter of 2017, LNG production was up 13% from the comparable period of 2016. As expected in particular Australia and the U.S. have been the largest incremental producer so far and are expected to add significant further volumes going forward. The trend is expected to continue in the second half of 2017 with existing trends ramping up capacity and new projects being added. In March 2017, the industry saw the world's first cargo being produced by a floating LNG terminal, namely the PS LNG Sato [ph] which gives confidence to floating LNG production technology. Angola LNG produced 13 cargos in Q1 2017 compared to 12 cargos for the full year of 2016. Sabine Pass LNG train 3 produced its first cargo in early 2017 and is now ready for commercial operations. Let's move to Slide 17. With the U.S. projected to become one of the world's largest exporters of LNG, it is worthwhile to analyze where those volumes have been shipped so far. Sabine Pass produced 96 cargos between February 2016 and March 2017, 22% of the volumes went to South America, 21% to Central America including the Carribs, 17% to Europe including Turkey, 20% to the Far East, 14% to the Middle East and 7% to India. Initial analysis indicates that Sabine Pass requires 1.77 vessels for every million ton LNG produced. At full production, Sabine Pass is expected to produce 27 million tons per annum over six trains; this means that one would require about 48 vessels fully utilized per annum to serve this terminal alone. If we conservatively estimate that the U.S. exports will produce about 69 million tons of LNG per annum within 2021, the U.S. volumes may require about 122 vessels alone which is equivalent to about 27% of the current world fleet. Let's move to Slide 18. Gas, coal and oil are by far the largest sources of energy today. Due to its environmentally friendly properties, gas is expected to outperform growth in both coal and oil. LNG is the fastest growing sub-segment of the gas industry because it provides flexibility as opposed to a rigid pipeline network. Since 1990, the number of countries importing LNG has grown from 9 to 36 and the number of exporters has grown from 8 to 19. Also from the year 2000 until 2017, infrastructure costing close to $1 trillion has been constructed. The changes in the industry is evident in the way that LNG has traded. In the year 2000, there were only 43 country to country trading routes. By 2016, this number had increased to 255 and when we analyzed to trade on a port to port basis, the number increases to 616. Now this is exactly why our fleet has been designed for optimal terminal compatibility and versatility. Let's move to Slide 19. LNG is becoming an increasingly important energy resource due to its environmentally friendly properties, it's competitive pricing and availability. We experience new import markets emerging in particular via floating regasification terminals which we term FSRU imports that allows for quick market access. In 2016, 22 million tons equivalent to 8% of the worldwide production were exported to new markets and the majority of those volumes were discharged into FSRU terminals. Although most incremental demand going forward will come from LAN based terminals, the FSRU landscape is interesting because it develops very quickly and is accelerating LNG demand growth. The FSRU market has grown steadily over the past years. In 2016 floating regas made up 15% of the total regas capacity; this number is expected to increase to 21% within 2021 which does not include more than 40 proposed FSRU projects. In December 2016, Columbia joined the FSRU industry followed by Turkey in January 2017. This year FSRU projects are expected to come online in Ghana, Russia, Pakistan and Brazil. In summary, 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 productions at 55% within 2021 is estimated to outpace increase in LNG shipping capacity set at 25% within the same period. A large portion of the new LNG will be delivered already within 2019 meaning we should expect a period ramping up to that and subsequent years to result in an improved and increasingly healthy shipping market. Additionally the Partnership's fleet is largely ice classes and winterized enabling the flexibility to pursue the best of two different markets which have 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.

Thank you very much indeed. And you have a few questions in the queue sir. From Wells Fargo your first question comes from Hillary and I hope I pronounce this correctly Cacanando from Wells Fargo. Please go ahead Hillary.

Hi, thanks for taking my question. I guess this question may be more appropriate for Dynagas Ltd, but I was wondering if you could talk a little bit about what's going with Qatar and if there could be any potential impact on The Cool Pool from the band - from Qatar investors entering the ports and various post that are in Arab regions?

Well, you know thank you very much for the question and yes indeed. This is a question that to be honest is not so relevant for the partnership at least not in the immediate term. What we've seen in general that's result on Monday when Saudi Arabia, UAE, Egypt, Bahrain, Yemen severe diplomatic and trade ties with Qatar this we think will have some consequences. It's difficult to say what those consequences are at this early point in time. But the reality is that in the last 12 months or so Qatar sent about 72 cargos to Egypt and 15 cargos to the UAE. It is yet to be seen if Qatar can now send and cargos to these countries. But if they cannot send cargos to these countries well then logically they should need to send those cargos elsewhere unlikely those elsewhere locations will be much further away. And on the same note, you know these 2 countries and Egypt and UAE they need to source their cargos from elsewhere which is also much further away. That could be United States. It could be Australia, could be other places. So basically, I think that it will potentially result in increased ton miles as we call it. As you also alluded to there are some complications in where can you idle your vessels before loading in Qatar and that is something that is being assessed at the moment.

Okay. Thank you for that, that's very helpful. And then just another question on Arctic Aurora, I guess that charter expires in July 2018 and I was wondering other than Yamal, could you talk about any other viable Arctic projects that vessel could potentially be marketed to? I know there was talk Arctic LNG too moving forward. There is, I think there is - train 3 expansion, but I just wasn't sure if those projects were delayed or if they are on target for I guess later start up in the early 2020?

Thank you very much for the question. Yes, so the Arctic Aurora has the flexibility to trade as the conventional LNG carrier as efficient and competitive as any other conventional LNG carrier or she can serve ice bound trades. Yes, a company like Yamal LNG could be a user of a vessel like that in order to lift in the northern sea route just to enter the northern sea route you need to have minimum ice class 1A or the equivalent Arc-4 Ice Class notation and as we mentioned in our presentation the partnership and our sponsor controls 82% of that market and there are to our knowledge only 2 other vessels with that equivalent notation and as far as we know they are on long-term charters. So provided company like Yamal LNG would have requirement for a vessel like that, we think that will be a good fit. Another taker is, or potential taker is off course Statoil where the vessel is on to now. This is the only Ice Class 1-A vessel in the Statoil fleet, so that gives them a lot of flexibility. It is also the largest vessel in Statoil's fleet and also the only TFT vessel in Statoil's fleet. So it is arguably the most efficient and largest vessel that they have in their fleet. So that would be a possibility as well. When it comes to other project that specifically need Ice Class carriers beyond this for example as you said arctic LNG-2 this is of course quite a lot ahead in time and we wouldn't market that vessel for this kind of projects just yet.

Great, thank you so much.

Thank you.

Thank you very much indeed ma'am. Now your next question from Stifel comes from the line of Ben Nolan. And your line is now open sir.

Great, thanks. So the -- I have a few questions but the first really revolves around the cash flows and obviously having done this term loan and the subsequent improvement and available cash flow of $20 million is pretty important. But at least based on my calculations the differential based on the contract rollovers probably more than that, more than the $20 million savings. Just curious how you guys now that term loan is done with and you're taking a look at the cash flows as they are and supporting their distributions which I assume is the utmost priority to you. How are you thinking through sort of your options to cover bridge this period of time until your maul contracts really began to sort of generate cash? Are you where you need to be or there are other things that in your view might need to be done in order to support distribution?

Yes, hi Ben. No, I think what we did with the term loan B pretty much addresses what we have to do in order to sustain the distribution for the next couple of years. So I think it does as you mentioned there is a reduction in our - our revenues will be reduced as we enter into let's say a longer term contracts and it's only natural that the more the security did that becomes obviously you have to pay a price for security and this EBITDA will drop. So this is the natural evolution of the company. So for us it was an opportunistic financing which gave us the opportunity to improve our liquidity significantly for the next couple of years and during the same period until the Yamal charges commence, I think we're pretty much fine.

Okay. So in your view there is nothing else that needs to be done in order to maintain distribution to talk text?

Right. Yes, yes.

Okay. That's helpful. And then, well actually associated with that I was curious if you have swapped out the interest or thinking of fixing the interest associated with term loan?

No, we haven't swapped it out yet. We are thinking about it, but we haven't done it yet. It's still under consideration.

Okay. And then Tony, maybe for you, you had talked about the obsolescence of the older vessels and some of those rolling off as they roll up contract and are replaced with newer vessels that effectively a portion of the order book is kind of already spoken for as replacements. And I'm curious if you've begun to see that happen? I think perhaps there may have been a little bit Nigeria, but is this really beginning to come to bare and at the end of the day, is it possible to quantify how many vessels are likely to be sort of pushed to the side in your view?

Yes, thank you Ben for that question. We haven't quantified it. It is something that we're looking at, you know so, we don't have a number on that yet. But yes, I think that we have started to see that you know to a smaller degree that you know younger tonnage and technologies preferred versus older technology and I think what is - where that is evident, we - I think we estimate that more than you know 21 - about more than 20 vessels over the first gen as we call it you know are idling at this time, which is quite a high number. And the shorter-term market and the spot market is - I think is kind of until the market has improved substantially, you know the shorter-term market is covering up for those long-term contracts that we expect to be firmed up as the market is evolving. But you know indirectly, I think we see exactly what you are asking for in the idling of the older ships.

And then last from me and I'll turn it over. Any new thoughts or developments as it relates to how you guys including the sponsor level are thinking through sort of your potential participation after sales market?

No, I mean we've communicated previously that you know that this is something that you know that our sponsor is very much in discussions about and you know I do expect that to be - you know to be firmed up in not too distant future.

Okay. Alright. I'll turn it over. Thanks.

Thank you, sir. Your next question is from Morgan Stanley comes from the line of Fotis Giannakoulis. And your line is now open.

Hi guys and thank you. Tony, I want to go back to the impact of the situation in Qatar, not so much for the short-term but for the long-term impact of this decision, how do you think about the blockade will impact the decisions of the Qatar's customers and the decision of Qatar to bring additional production either by the recent lifting of the moratorium of the North Field and also the impact on the Golden Pass liquefaction terminal?

Thank you Fotis and that's a really good question. You know what we - and of course we can't speak for Qatar. They are very powerful. It's the biggest producer in the world of LNG and you know beyond the Arab nation of course they have you know a lot of support worldwide and very strong buyers. There is no doubt about that. And you know with the blockage, you know they can I'm sure sell all their cargos elsewhere. But of course it does raise some questions. If you are buyer of LNG, I think it would be reasonable to look at diversifying your portfolio of origin if it's too heavily based on Qatar volume. So, I think that is to be potentially expected. When it comes to for example the - you know the further output of volume from Qatar or the Golden Pass terminal, I'm not so sure that you know that it will have too much of an impact for the reasons I just mentioned that they can sell their cargo elsewhere. As far as we understand, you know to increase production out of Qatar wouldn't take you know such a big cost. And also when it comes to the Golden Pass, you know I'm sure that they will find other ways around it and I'm not sure - so sure that those volumes are destined to the Middle Eastern countries.

Thank you Tony, that's very helpful. You showed in one of your slides the age composition of the fleet. There are quite a few vessels that they are quite old around 30-years old, many of them they are sitting idle, but I notice that couple of them, they are still in the market. They are probably not idle. Can you tell us if these vessels, what kind of utilization this vessels have? These vessels coming out of the market will have a meaningful impact on the supply demand.

So, for example when we look at - you know I mean, you know several of the vessels are actually laid up. So, I think 24 of those vessels are actually in lay up, so they are not being utilized and not moving. But as you say, yes, you know other vessels you know of similar type you know are being used. I think that you know the ones that are being used are the ones that are on long-term charters. They haven't been redelivered for some reason. Maybe they are particular good for that trade, but the reality is that you know these are very old and in particular very small and you know heavy consuming vessels. They are just not able to compete with larger vessels and newer technology, and it's just a matter of time before these vessels will fade out of the market.

How many newbuilding vessels equivalent these vessels are in terms of freight. How many vessels do we need in order to replace these vessels? I notice that there are around 25 vessels that whether they are old and not sitting idle. Do we need 20 or 15, how many of them?

Yeah, that's a very good question. So, let say that, let say that there are 25 you know sitting now to be replaced, so let say they take 130,000 cubic each…

So, I get what you are trying to do, so it's going to be proportional to the size you mean?

Yeah, I think so. I think that would be - I think that would be the way to think about it. But of course there are many other factors that comes into place, but that will be the rational way of thinking about it.

Thank you, Tony. One last question about the dropdown of the Yamal vessels. As we all know this kind of dropdowns, they are heavily dependent on - the capital markets and the stock price to the degree that they will take place with common equity. Can you give us some alternatives thoughts that you have, how are you going to drop them down if the equity capital markets are not as receptive as for - in a meaningful way to allow you to do this drop down. What kind of other alternative do you have? Is the sponsor willing to receive equity doing some preferred or other forms of securities? Can you describe a little bit your thoughts?

Let's not really get at when we're talking about the Arc-7s which is where the vessels which are to be - two vessels which are coming end of this year, we're talking about our 49% interest in that - in those vessels. As you correctly say, we are heavily dependent on where our equity is trading, because as I mentioned, we do want to be leveraged going forward. So, we do envision more equity than debt, as we finance new acquisitions. I think we'll have to cross that bridge when we get there. We have time until these ships are delivered. When we actually get there, I think that the sponsor is willing to support the MLP in order for the MLP to grow. So that's as specific as I can get at this particular point.

Okay. Thank you very much Michael. Thank you Tony for the answers.

Thank you.

Thank you very much.

Thank you very much indeed. Now your next question from Credit Suisse comes from the line of Gregory Lewis. And your line is now open sir.

Thank you and good afternoon. This is Joe Nelson on for Greg today. Thanks for taking my questions maybe just one quick one for me on the market. Tony mentioned the market is turning, you were able to sign the clean energy looks like on a couple of short term charters through, looks like maybe through midsummer, mid to end of summer. I mean just, it's just kind of conceptually are you starting to see more length to some of these charters that are coming out into the market and our terms improving and are you seeing any more I guess the charter is getting more active maybe in looking at length now that it seems that the market is starting to improve?

Yes, thank you very much. That's a very good question. We've seen as a result of a very good overall LNG output. We've seen that in general the supply of vessels is just much thinner than what most market participants think. We've seen some fixtures been done very lately at extremely high levels compared to what we've seen before. So we see the sudden spike. But in general we're also seeing that the market is tightening. We see improved rates. Improved charter rates now versus let's say a month ago and even three weeks ago. As a result any particular, as a result of the Qatar situation we are starting to see that several charters are getting nervous about the actual availability of vessels and are enquiring for term tonnage. Not necessarily the multi-year ones always, but definitely we see that there are discussions taking place within these organizations whether they should strictly rely on a spot market or if they should have a larger term cover.

Okay, thank you. And then maybe just one Michael just might be more for you guys have done a good job. You got the new term loan out, you pushed the maturities out. And I think you know that really just leaves the senior unsecured as the only real kind of medium term maturity. Is it too early to begin having discussions on what a possible outcome might be for that or those things you're sort of already actively looking at that now that the term loan is in place?

No thank you. No, it's a bit too early. I mean this is the non-cold I know so I think we're going to start actively looking at it about a year prior so we're talking early 2018. But we don't anticipate any difficulties I mean by the time that this note matures all our vessels will be under long term contracts. The Yamal charges would have commenced, so we don't anticipate any difficulties on that front.

Okay, thank you very much gentlemen. That does it for me.

Thank you.

Thank you very much indeed. Now your next question from Jefferies comes from the line of Randy Giveans. And your line is now open sir.

Thank you operator and good morning guys, so one quick market question and one quick mauling question. So first look at the clean energy what kind of spot rates and utilization levels are you seeing and expecting in the short term market over the next say 12 months.

Yes, so basically the vessel is available from end August until the July 2018 once she goes on a longer-term contract. So we are in discussions about what will happen after August. We're looking at several opportunities there. So ideally what we want to see is that the vessel goes on the charter that just fills that gap in its entirety. But it's too soon to do anything right now. As we said earlier the market is tightening, it's improving when it comes to rates et cetera it's not something that we can really say what we expect here on the phone. But we're also not too eager to jump into a deal too quickly because we kind of see that day by day there are more uncertainties in the market there are more interesting things going on. There is an improvement. So maybe pace just to wait a little bit.

Sure. And then you said you entered into two consecutive short term charters what rate levels are that at for this summer?

Yes. We haven't given any guidance and those levels as of now. But basically the vessel were charted almost immediately upon her availability for 2 consecutive charters there may be a very small gap in between those two charters, but we're also seeking out some potential one potential cargo to fill that minor gap in between the 2 consecutive charters.

Got it, and then as for the modeling question. So which quarters with the clean energy Ob River and Amur River be dry-docked and specifically how many days in 2Q versus 3Q?

Yes the Clean Energy has been dry-docked already so that's done that was in the second quarter. The Ob River is underway as we're speaking she's on the dry dock and the remaining are steam turbine vessels going to be next month. And the cost, it's about -- our guidance remains unchanged about 20 to 22 days of higher and $1.5 million to $2 million cost.

Okay. Sounds good. Well, that's it for me. Thank you again.

Thank you.

Thank you very much indeed. Thank you. Now from Maxim Group your next question comes from the line of James Jang. And your line is now open sir.

Good morning, guys. I have a couple of quick questions. In terms of the new term loan B is the lending environment getting a lot tighter seems there are few refinancing done by other firms at much lower rates. I was wondering 450 basis points, it seems a little high.

No, I think it was a good result. It was more or less in line with our expectations when we launched the transaction. So I think comparing it to other deals that we've seen which is within the sector, within the industry I think we did much better than many of our peers. Given that what essentially were a very different company than our shipping peers. But the market is definitely open, there's no doubt about that and definitely receptive. But for us I think it was a very good result given that the amortization as profile has reduced significantly the covenant structure has improved significantly and you know obviously there's a price that you have to pay for everything there's a price for flexibility and we are more than willing to pay the price, it's a price worth paying.

Okay. And my last question is there's news of the Australian government looking to restrict some LNG exports to protect domestic pricing. And that's probably not a short term event. But do you see that, do you see something like this going through by the Australian, especially with LNG export being such a big part of their economy?

Yeah that's really a very good question. It's a question that's difficult to answer because these are discussions that are ongoing between the government and certain projects in Australia. As we understand it doesn't affect all projects, it kind of is specifically related to LNG projects on the East Coast where the argument is that is the drawing on volumes that should have been kept for the domestic market. So we're not sure what kind of impact this will have if it materializes at all. But I think that indicates that there are volumes that should have been exported are not longer exported, I think the result is that those buyers that were expecting to buy those volumes, they would need to source from elsewhere. And in the Pacific Basin it's not so easy to find big producer that has available LNG; so they probably have to look at some resourcing from locations that are much further away. So in general, we -- if this materializes, we would expect it to be positive for shipping but at the same time we are realistic and we think it would be highly unreasonable for volumes to be withheld for domestic use that are volumes that falls under an SPA to an existing buyer. I do think already that those volumes that are under existing SPA -- so that they are excluded; that is kind of our understanding, but these are all topics that are being discussed right now. So what we can only say is that it indicates that there is less product coming out of Australia. One, ideally you know, that should come from somewhere else and you know, if it comes for example, from the United States, then obviously the ton miles for that trade would be much, much higher.

Okay, great. And then you know -- just one more question, just one follow-up. So in terms of the dropdown, the next vessels that you guys prefer to dropdown, would it be fair to say it would be the Yamal ARC-7's or with something like the Clean Ocean be a better candidate?

Well, the more immediate candidate would be the Clean Ocean that would be the -- yes, yes.

Okay, got you. And on the ARC-7s, everything has gone well, alright; there hasn't been any hiccups?

No. I mean -- so with respect to the vessels that are going under sea-trials on the sponsor level, they have not yet performed sea-trials; that is something that is coming up now very soon but we understand and what we've already said from the sea-trials and the ice-trials of the first vessel which is not under our sponsor control. You know, as far as we were told ice-trials and sea-trials went well.

Okay, great. Alright, thank you guys.

Thank you very much.

Thank you very much. And as there are no further questions, I shall pass the floor back to you for closing remarks.

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

Thank you very much, sir and with many thanks to both our speakers today. That does conclude the conference. Thank you all for participating and you may now disconnect. Thank you, gentlemen.