Navigator Holdings Ltd. (NVGS) Q3 2015 Earnings Report, Transcript and Summary

Thank you for standing by ladies and gentlemen, and welcome to the Navigator Holdings Conference Call on the Third Quarter 2015 Financial Results. We have with us Mr. David Butters, Chairman, President and Chief Executive Officer; Mr. Niall Nolan, Chief Financial Officer; Mr. Oeyvind Lindeman, Chief Commercial Officer; Mr. Paul Flaherty, Director of Fleet and Technical Operations 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. And I now pass the floor to one of your speakers, Mr. Butters. Please go ahead sir.

Thank you, Donna, and good morning everyone and welcome to Navigator's third quarter earnings conference call. As Donna had mentioned, with us today is Niall Nolan, our Chief Financial Officer, and Oeyvind Lindeman, Chief Commercial Officer; as well as Paul Flaherty. Both Mr. Lindeman and Mr. Nolan will have some prepared remarks, and after which we will open the call to a Q&A period. As you will have seen from last night's earnings release, Navigator had a relatively good third quarter, our reported $0.41 per share may not have been up to last year's $0.43, but this year's results carried the burden of the Navigator Aries which was idle throughout the period. You may recall, the Aries was in an accident -- a collision in fact, with a containership, following its discharge from an Indonesian terminal late last June. Repairs are continuing in Singapore, the cost of which is covered by our own insurance, but we are not reporting any revenue and are running her fully daily operating costs through our P&L. All in all, this has likely resulted in about a $0.05 per share penalty against our third quarter results, and will likely have a similar impact on our fourth quarter results. We expect the repairs to be finished around January of next year, and hopefully back in charter with Pertamina shortly thereafter. Our assets will continue however to seek recovery of the lost revenue from the owners of the containership that we believe caused the accident. There is of course no guarantee of any recovery. The important takeaway suggested by our third quarter results is the relative stability of our markets, i.e., the handysize semi-refrigerated LPG segment. As we have emphasized in the past, our business benefits from a geographical diversification, and that we are not dependent on any one geographical area or country for export volumes, nor are we dependent on any one product, we carry LPG, propane, butane, we carry ammonia, and a variety of petrochemical gases. The rates and utilization of this trade tend to be far less volatile, than say the very large gas carriers have essentially carried propane from the U.S. or the Mid East to the Far East. This is a large volume business and when export volumes exceed shipping capacity, rates are highly attractive, as they currently are. But when shipping capacity catches up to demand, things change. Our business is much more different -- much different. We do a captive cabotage trade in Indonesia and in Venezuela; a shuttle trade in the North Sea, in the Mediterranean, and a fair amount of petrochemical gas business, especially ethylene, out of the Middle East. These businesses give us a more stable level of activity, and we believe more sustainability in the long run. Now, you would not let me leave my prepared remarks without a word on ethane prospects. In short, we have not concluded any further long term contracts for our three new remaining 35,000 cubic meter ethane carriers currently under construction. We continue to discuss with potential shippers, their plans for long term use of the vessels, with projects they continue to evaluate. Conversations are ongoing between ourselves, the shippers and ethane suppliers, Enterprise and Sonoco Logistics. Enterprise, as you may have seen a few days ago, announced further ethane sales out of this Morgan Point facility and express confidence that they will sell out the plant's capacity by next spring. Sonoco Logistics is currently in open season. Their Mariner East 3 Project, or the Mariner East 2x as they like to call it, they have expressed confidence in this project, which is expected to be operational around the end of 2016 or 2017. While no specifics have been given, they expect a fair amount of ethane to be shipped on this new line. We are in discussions with a number of potential shippers, who, if successful, will need shipping capacity. Our new ethane ships should be delivered around the time the Mariner East 2 and 3 are completed. We will be ready. In the meantime, we are currently seeing strong demand for our small handysize ethane carriers for transport of ethylene out of the Mid East, Abu Dhabi, [indiscernible] into Europe, and more importantly, ethylene out of the Gulf of Mexico, specifically targets Houston terminals, through Europe and through the Far East. At the moment, there is only one terminal in the United States, and that's Targa, is capable of loading ethylene. Currently, we have one of our vessels, the Navigator Umbrio, loading a full cargo of ethylene at Targa and destined for the Far East. Following its departure, the Navigator Triton will load and lastly the Navigator Europa will load near the end of December. All these cargos are tended to reschedule to go to the Far East, where the ethylene has been purchased -- or will be purchased by local petrochemical manufacturers in replacement of locally produced ethylene. These shipments are taking place now on a relatively small 21,000 cubic meter ethane carriers, and take over two months to complete. This is obviously good business for us. This trade could not happen, unless a significant spread or arbitrage exists between the ethylene costs in the United States, Targa's terminal fees, Navigator's shipping cost including bunkers against the locally sourced ethylene. Now our 35,000 cubic meter ethane carriers will be able to cut the delivered cost per ton quite significantly, so we expect this U.S. ethylene trade to continue, and this is in addition to what we may develop on the ethane exports themselves. Lastly, I'd like to mention the announcement we made earlier this morning regarding the ordering of a 38,000 cubic meter fully refrigerated LPG carrier from Hyundai Mipo. While the terms are private and confidential, the newbuild order is against a long term charter. The charter is with a highly respected investment grade company, that will use the vessel to source material for its own operations. We will not get the liberty of the 38,000 cubic meter fully refrigerated vessel until August of 2017, but we will begin the contract in mid-2016 utilizing one of our new 35,000 cubic meter ethane carriers as a frontrunner. We expect to utilize the ethane carrier or a substitute for about nine months to a year before converting over to the fully refrigerated vessel. We believe this business to be highly attractive to Navigator for several reasons. Number one, the charter establishes a secure, predictable level of cash flow and accretive earnings for an extended period of time, balancing the spot business of our handysize fleet. Number two, it provides a highly attractive return on our equity investment in a low interest rate environment with a contract secured by an investment grade credit. Number three, it provides Navigator with a partner and entry into a LPG segment, where we have not yet previously operated, and in a segment with a significant potential for expansion. With that, I'd like to hand the call over to Niall Nolan, who will walk us through the detailed results of our third quarter financials.

Thank you, David, and good morning. As David mentioned, Navigator had a relatively good third quarter, generating net income of $22.7 million for the three months ended September 30, 2015, which gave rise to an earnings per share of $0.41 for the quarter. However there were a few factors affecting these results, which I will expand on in a moment. Operating revenue for the third quarter was $78.2 million, which reflected a 3% decrease from the $80.6 million generated during the third quarter of 2014. Principally as a result of the Navigator Aries, and three vessels that dried up during the quarter. However net revenue, that is revenue after deducting voyage costs was $69 million for the quarter ended September 30, 2015, compared to $66.8 million for the equivalent three month period in 2014. This increase in net revenue was a result of first, the increased number of vessels in the fleet, with an average of 27.7 vessels during the third quarter of 2015 versus 25 vessels operated during the third quarter of 2014. Secondly, rates rose to an average of $31,081 per day or $945,000 per month for this third quarter; against $30,400 per day for the third quarter of 2014, an increase of $681 per day. And importantly, these third quarter rates also reflects an increase from last quarter, Q2 of 2015, which was at an average rate of $30,600 per day. Unfortunately, revenue and ultimately net income was slightly affected by the decrease in fleet utilization for the quarter, down from an average of 98.4 during Q3 of 2014 to 89.8% for the three months ended September 30, 2015. This most recent quarter's utilization was significantly influenced by Navigator Aries being in repair dock for the entire quarter, following he collision in June, which alone reduced utilization by 3.8%, and it will continue to affect performance for the next two quarters, as the vessel is not expected to be back in service, until around perhaps the end of February 2016. Secondly, there were an unusually high number of vessels ballasting to take up time charters during the quarter, which collectively accounted for approximately a 3% drop in utilization. And finally, September was a little bit challenging with few vessels idle for short periods towards the end of the quarter, which Oeyvind will comment on, a bit later. With respect to fleet size, we took delivery of Navigator Centauri on August of 13, the first of the series of four handysize semi-ref LPG carriers from Jiangnan Shipyard in China. As we mentioned on the previous earnings call, we completed on the sale of Navigator Mariner during the third quarter for $32.6 million cash, which generated a book profit of $550,000. $7.3 million of the proceeds were used to pay part of a bank loan associated with our vessels, and Navigator purchased Navigator Mariner from AP Moller Maersk in September 2013, and during our ownership, we generated $12.1 million of EBITDA in trading that vessel. As was mentioned earlier, three vessels undertook drydocking during the third quarter, at an aggregate cost of approximately $3.6 million. Two additional dockings will be undertaken in the fourth quarter, at a combined cost of approximately $3 million, and it is expected that six vessels will enter drydock during 2016, costing an expected $5.5 million in total. All drydocking costs are capitalized and amortized over the period of next drydock, but you will appreciate, no revenues earned for approximately 20 to 30 days, while the vessel is in dock, is sailing to or from the dockyard. With respect to costs, voyage expenses for the third quarter decreased by approximately $4.6 million compared to the third quarter of 2014, but this is effectively a revenue pass-through. The overall decrease, is, as a consequence of a combination of reductions in bunker prices, as well as a decrease in a number and cost of voyage charters. Vessel operating expenses or OpEx increased by 15.6% to $20.4 million for the three months to September 30, 2015 compared to $17.6 million for the same period last year, as the number of vessels in our fleet increased by 11% over that same period. Our average daily OpEx across the fleet marginally increased by 0.5% to $8,014 per vessel for the third quarter, compared to $7,976 per vessel per day for the three months ended September 30, 2014. General, admin and corporate expenses remain approximately 5% of net revenues for the quarter, a similar level to that incurred in the third quarter of 2014. General and admin expenses have marginally increased over the recent months, as we commence the process of bringing technical management of our vessels in-house, and this trend may continue in to next year. Currently technical and crewing management is outsourced to three third party managers, and their profits are included within the vessels' OpEx. Interest costs for the third quarter were $8.3 million, up by $1 million compared to the same period as 2014, as a result of additional bank debt associated with the five newbuild deliveries that we have taken delivery of over the past 12 months. Net income for the three months ended September 30, 2015 was $22.7 million compared to $23.7 million for the three months ended September 30, 2014, with results in earnings per share of $0.41, which as David mentioned, could have been $0.05 higher, had Navigator Aries been operating at the contractual charter rate throughout the quarter. However, EBITDA for the third quarter rose by 3.5% to $44 million compared to $42.5 million for the three months ended September 30, 2014, notwithstanding Navigator Aries being out of service for the third quarter and the sales of Navigator Mariner. Turning briefly to the balance sheet, the company maintains a strong balance sheet, with cash at September 30, 2015 at $107.4 million, which is bolstered by the sale of Navigator Mariner during the quarter. Debt stood at $614.6 million on September 30, resulting in net debt of $507.3 million at that date. As I mentioned, we took delivery of Navigator Centauri in August, our third handysized delivery in 2015. The final installment payment of Navigator Centauri represented 80% of the construction costs, with 70% of the construction costs being funded by bank debt. Our newbuild orderbook at September 30, 2015 consisted of nine vessels, five handysized semi-ref vessels and four mid-sized ethane ethylene vessels with an aggregate construction cost of $502.6 million, of which $409 million remained payable to the shipyard at that date. Following the delivery of Navigator Ferries on October 21st, the remaining eight vessels will be delivered between January 2016 and March 2017. And finally, we expect to enter into a new bank loan facility by the end of this year, to finance the last six newbuild vessels in October, excluding the newbuild vessels announced earlier this morning. And with that, I will hand you over to Oeyvind for some market comments.

Thank you. Our fleet of 28 vessels completed 144 voyages during the quarter, carrying a total of 1.5 million metric ton of gases, consisting of propane, butane, ammonia and other petrochemical gases. Of the 144 voyages, 16 of them come from United States. First, the proportion of butane of U.S. LPG exports have been authorized, and we believe this trend is here to stay. Handysize gas carriers regularly transport butane for European petrochemical producers and to Mediterranean and Arctic [ph] destinations servicing domestic demand. The later voyages to Africa are adding combined to the segment in a meaningful way. On the U.S. East Coast, markets with export terminals have a steady lineup of handysize vessels during the quarter. However, spot volumes were reduced from previous quarters. It was negatively impacted due to one of the fleet, that is being upgraded for ethane capabilities, which is linked to the Mariner East 1. And also, the September stockpiling of volume in preparation for colder temperatures, I suppose the key natural gas liquid [indiscernible] in the northeast has a mandate to prevent the repeat of low to no inventories shipped, and other polar vortex arrive. Same tendencies were seen across the Atlantic, with buyers scaling back their inventory buildup, adopting our wait and see approach to better obtain clarity on pricing trends and local demands. However, the U.S. petrochemical industry is continuing to take advantage of the abundant supply and incredible value of domestic ethane, increasing the cracker base towards the lighter feeds, and making liquid ethylene attractive to international markets. There has been no less progress in exports from Galena Park in the Houston ship channels, to Europe and Asia. Currently, we have three of our [indiscernible] vessels employed in the U.S. to Asia trade, as David mentioned, which is a nice incremental piece of business for us, and we do not foresee this to cease anytime soon, and this will take up additional capacity going forward. So those were the short comments from me, and I leave it to the floor.

Thank you, guys. Donna, you might use this opportunity to open up the call for question-and-answer.

[Operator Instructions]. Your first question comes from Jon Chappell from Evercore. Please go ahead.

Thank you. Good morning guys.

Good morning.

David, first question on the rate front? I noticed in the 8-K, there was a comment in the September quarter results that said, there is a relative decrease in cost and duration of voyage charters. I am just trying to figure that out relative to the rates actually being up quarter-over-quarter, being up year-over-year; is this more of a temporary thing, which no short haul voyages, or is it something that's becoming more of a trend, where the longer haul voyages are becoming shorter and maybe the rates kind of eased into the end of the quarter?

Okay, thank you Jonathan. Niall or Oeyvind might have a more accurate answer on that one.

They voyage costs are a revenue pass-through, so there is nothing particular to glean from this. But the reduction in the voyage cost, is as a consequence, as I mentioned, a reduction in bunker prices. But also, at the end of September, we probably had more vessels on time charter, or equivalently less vessels on voyage charters, than any time -- percentage wise, any time ever before. So if all the ships are on time charter, then we would have less voyage expenses.

Yeah. I understand. I think I phrased my question incorrectly, it says, 'the reduction in operating revenue relating to a relative decrease in the cost and duration of voyage charters.' So that was actually the revenue line before voyage expenses. Just talking about a reduction in duration, that's the first time I have ever seen that in any of your filings?

Sure. We have that [indiscernible] in all the time, but if the voyage costs are reduced, then the revenue that we need to cover those additional voyage costs is also not needed to be as high.

Okay. Thank you. Another question has to do with the CapEx schedule. Niall, you said that there is about $409 million still payable. Could you break that out by year, and then also, what's the price of the newbuild that you announced this morning and what are the terms of that, as far as the 10.10, 10.70 or five times 20?

Okay. Well on the first question, we got about -- what we had at the end of September, about $60 million remaining to be paid of that $409 million in 2015, the lion's share of that is now done, because we paid 80% or $35 million on Navigator Ferries which came out in October 21st. We then got $275 million in 2016. Again most of the installments are biased towards delivery installments, so you would not be surprised that the lion's share of this is under delivery of the six vessels we are due to take out next year 2016, and the $75 million less then to be paid on the two handysize ships of Korea in 2017.

And then that's obviously exclusive of the newbuilds you announced this morning?

Absolutely. I was just going to say, that excludes the newbuilds that we referred to this morning.

And how much roughly was that asset?

Go ahead.

Jonathan, I was just going to say part of the agreement with the charter coming in, that we would try to keep everything as private and confidential as possible, at the request of the charter. You can pretty well guess, anybody can, what a 38,000 mid-size kind of fully refrigerated vessel. They are running anywhere from $48 million to $55 million depending upon specs and so on, and that's kind of -- let's leave it with that, here is a ballpark number for a mid-sized fully refrigerated vessel. The terms are typical in terms, 20-20-20-20.

Just ask one more strategic question, David; you highlighted last quarter, your rates continue to just trade within an entire range and nearly as volatile as anything else in LPG. Have you seen in the third quarter better year-over-year, better quarter-over-quarter, obviously despite what's happening in the broader commodity market yet. The stock price has, almost 100% correlation with oil prices, and a less than 30% correlation with the actual rents that your ships are earning. Is there any excess capital or any thought process around buying your own shares at, what I would consider to be pretty attractive price relative to the steel you're investing in?

Jonathan; look what we tried to do is take our capital and maximize the use of it, short and simple. Our objective isn't to build anything for the sake of building, or do anything without a focus on creating value. We talked about this particular vessel that we awarded this morning. That's the thing I would like to do, the return on our equity is substantial. Our return on our book equity for example, if you ex out the amount of money that we have under construction and progress that is not earning money, in fact its costing us a bit of money from interest, our return on equity is roughly 12%, and that is about as high as any shipping company I know. You can compare it with what companies you cover, that's attractive. That's a ballpark number that I look at and always measure against what we are going to be doing as far as investments are concerned, whether we pay that out, we buy stock or we invest it in our existing business. In this case, its highly attractive -- the returns that we were going to get from this particular charter, where we have a very-very low risk, because its an investment grade company, is more attractive than what we would have as an alternative. In addition, has provided us with a steady stream of income that's independent of markets, that balances the handysized spot business that we have, and because of that it should, by any investment philosophy, begin to give us a greater valuation as far as investment in the marketplace. So I look at what we can do with our money and the best use of the money, maximizing our returns, because that's what our business is all about. And I find it to be, at the moment, with so many interesting things happening and the structural changes taking place in our segment, to be more effective than that, than simply buying stock, which is -- I agree, I think we misunderstood as a company, because we have no real impact on the price of oil, we have no impact that we can see, any serious impact on any of the -- perhaps overbuilt very large gas carrier business. I tried to illustrate that this morning. But we can't fight events, we can't find market sentiment, it turns negative. But what we can do, is be intelligent with the use of our funds, that in the long run, will continue to create good growth for our business, strong earnings and cash flow and ultimately, great value that will be recognized in due course, and that's all we can do. That's what we have control of, and I think what we are doing with our cash makes a lot of sense as we face -- going forward. Now the important thing too, Jonathan, is that we are in -- as I mentioned, not in a cyclical upturn, LPG, particularly the handy thing, we are not going through any cycles at the moment. Oil tankers and drybulk, they are dancing around cyclical recovery etcetera. What is happening in our segment, and I have stressed this before, is the structural change. We are doing businesses that we never did before. We are opening markets we never opened before, all driven by a shift to gas to oil, and the development of the United States as a major export of not only the raw material of propane and butane, but in petrochemical gases. We are building a company that's trying to anticipate those structural changes, put ourselves in front of that change and capture the value and earnings that we will be materializing over the next few years, and that's our goal. And we will do that by establishing a steady, market oriented business in the handys, and a industrial leg through these types of charters that we have announced this morning. It's a long winded end.

I appreciate the answer. Thank you, David. Thanks Niall.

Yes Jonathan.

Thank you. And our next question comes from Ben Nolan from Stifel. Please go ahead.

Thank you. I wanted to come back to something that, David, you talked about a bit earlier, and that we got on -- and are prepared [indiscernible]. But the number of ethylene partners that you are carrying out of the Gulf Coast, and obviously the potential to do more of that when the new ethane carriers come online, what we have heard is, or I think what is definitely happening, is that demand for LNG has been a lot softer in Asia, but it sounds like you guys are having no problems for carrying ethylene to Asia. Is there a disconnect between appetite, for say LNG relative to LPG? I mean, are you continuing to see extremely robust business for LPG into Asia that has been on, correlated with LNG?

Normally, we don't carry fewer LPG propane or butane from the U.S. Those are the very large gas carriers. The ethane -- so ethane and ethylene is so cheap in the United States, and think about it, what they can do, what is happening, is they are taking ethane in the United States, going through a manufacturing process with the incremental cost of that ethane, packaging it, terminaling it at Targa, putting it on our vessels, and able to ship it half way around the world in a relatively small 150 pounds a barrel capacity vessel to the Far East and make a profit. Now we have a rough idea of what the profit is on those trades, and its pretty significant part of the trade that its doing. Now, why is it happening, because essentially, ethane is being given away. So you are only having the manufacturing costs and pushing it through. Ethane is not competitive with LNG, because LNGs -- the manufacturing costs, to get the raw material, the manufacturing cost is so high. So there [indiscernible] appears to be any resistance, and we are moving it from the United States. We are moving ethylene from Brazil to the Far East as well, and that's an interesting trade, because you don't have, in Brazil, the cheap ethane that you do in the United States. It’s a trade that's going to continue. The economics, if we go on a very large ethane carrier, not the very large one but the mid-size ethylene carriers that we are building, cuts the cost dramatically to move it, which we don't even have to cut it, happening now in a small vessel. I think this is one of the most interesting phenomenon, and represents, what I have said before, a structural change taking place, as more of this is coming, and clearly I can envision potentially the market in the Far East, not taking ethane, but taking ethylene as rapid and going through the manufacturing. I don't really care where or when and whether its ethylene or ethane, our vessels carry either one and to change places. But I am sure it will be ethane down the road, because they are not going to close down plants, just to import ethylene into various countries. I don't know if that answers the question Ben, but it is a very powerful phenomenon that's happening, that I don't believe is going to let up, and only going to develop more, as the U.S. continues to put on additional olefins plants, more and more ethylene plants are being built, coming onstream in 2017-2018. There will be significant amounts of ethylene, and I have to say, that there has got to be more ethylene terminals, because its one relatively inefficient terminal base there in Galena Park.

Okay. Out of curiosity, I know there are relatively few larger ethylene carriers, are you guys able to -- on a premium on those trades, give in your capacity to carry ethylene?

Oeyvind, why don't you tell us, how much we make?

Well Ben, there are no larger ethylene capable than those on the water that's available for this trade the minute, apart from ours. So as we talked above, carrying 150,000 barrels, halfway across Europe, and it gives a favorable return. [ph] And then of course, if you double the size, almost, with our mid-size ethane-ethylene carriers, then of course we can offer a better economy of scale to them using the charter. But hopefully, leave more profits to ourselves as well. So everybody wins.

Okay. But currently, with the 150,000 barrel capacity, do you make more on that than you would, carrying, whatever, butane to -- on a regional trade basis, something like that?

Generally it’s the same, but where the value comes in, is that if you have an estimated ship, but you are more versatile in terms of picking up backhauls and other things, than the standard semi-refrigerated ship. But generally, the rates are obtained.

The other factor then is the length of the voyage. Ethylene tends to travel longer distances, and therefore, you have got that for a longer period of time, plus what Oeyvind says, the ability to perhaps bring a backhaul. We have got three vessels, as pointed out, all sequential going to the Far East, carrying the ethylene out of Houston. They are going to come back to the U.S. or come back to the West. We are going to get a handsome rate, whether we come back with something or not. We are hoping, and this is where the gravy comes, we are hoping as we pass-through Taiwan or we pass through Mid east, that there is a cargo or something that we can pick up and deliver to Europe or bring back to the Gulf. But we don't count on it. We bid the rate that gives us the return we want, and anything on top of that is gravy, and because of the flexibility, we can think of just about any kind of product available.

Okay, that's helpful. And then, two quick ones, hopefully one. Number one is, and I will ask them together, and you can sort of answer them together. I know that the Norwegian bonds are coming during callable -- well they are not coming due to the callable. I was curious how, Niall, how you think of those, and then the second question is, with the lifting of sanctions in Iran, I know that in the past, they have been a relatively large exporter of petrochemicals. How do you envision changes in the Iran market in tackling your -- a bit of market dynamics in your business?

I will answer the second question. Niall, why don't you give a quick response?

On the bonds, you are right, we have got the call at 104 from December 18 of this year, or any time thereafter. Certainly, the debt markets [indiscernible] are not kind at the moment, so to refinance, is there anything sensible, is not really available right now, and is probably, I think the combined wisdom is not going to be about well until at least the turn of the year. So we will see, I mean, we are not in a rush to do anything good side of the year end. We will have a look at it, again at the new year, to whether we either refinance, repay. I think some of the bond is trading actually at below 104, it was 103 and a few bips yesterday. So we are comfortably watching it, but there is no particular intention to do anything dramatic just yet.

And Ben, Iran is an interesting place for us. As you know, we haven't been able to operate there. No one -- well basically, very few countries have been able to operate out of Iran. But Iran, above all else, is a major petrochemical producing country and historical exporter of petrochemicals. They have a vast complex in there. Its driven not by oil, but principally, natural gas coming from the Pars fields. They will be in the process -- are in the process of reinvigorating and maximizing the efficiencies of those plants, and we would clearly expect some sanctions are lifted, a substantial export petrochemical business coming out of that country. Now I mentioned, we have got these series of vessels going to the Far East, delivering ethylene, and the gravy comes about, if we can come back. I would love to envision that area in our return trips to be able to stop in Iran, and pickup propylene or any other particular product that they have available, and deliver it to Europe or wherever else it may go. I think, for companies with these sophisticated vessels such as we have, with capable of all of these products and petrochemical gases. Iran shows great promise, and it is particularly nice for us, if we can use that as a way point coming back from deliveries for the Far East.

Okay. Thanks a lot guys.

Thanks.

Thank you. And your next question comes from Omar Nokta from Clarkson. Please go ahead.

Good morning Omar.

Morning. Hi, actually I was just going to ask about the newbuilding charter. Is there any -- obviously you'd be underutilizing one of the second ethane newbuilding. But is there any scope for compensation for you to get paid up a rate based off from the construction cost of that vessel, versus the lower cost of the standard refrigerated MGC newbuilds?

We do have flexibility on what we can do with -- how we can provide the frontrunner. The frontrunner is they have nine months to a year. And Oeyvind, why don't you give us an idea of what alternatives might be available to us, should there be such a strong appetite for the ethane carrier?

We have -- as David mentioned, the flexibility of using other ships that are more in tune with that trade. So we keep our options open, and when we get closer to the time, we will decide which ship or ships to deploy. But essentially, we don't want to be in a situation where we have -- our hands are tied for our second Navigator Eclipse, should ethane or ethylene be in such a demand right at that time.

Okay. I just wanted to ask that. And then just also, back to John's question about the share buyback; obviously I asked last quarter about the potential of a dividend, and maybe you had said that there is still opportunities for growth and sure enough this morning, you have announced this newbuilding order against the long term contract. As we get into next year and you look at the company and the fleet is going to start to delivery, you are going to get the bulk of your newbuilds delivered by the end of next year. Is the dividend potentially on the table for next year, or is it still, you prefer not to even adjust that, and really, pull on in growth mode?

Well, I am a large shareholder, so I'd look at it in a selfish way, just as a true investor would be selfish about what the company should be doing. Two things, number one I want -- balance sheet protection is critical to any company in the shipping industry. You guys who have covered it, know that level because of the consistent trouble that shipping companies get themselves into, where over-expansion or doing some silly things. So balance sheet will be a focus always, under my watch. Number two, we are moving towards, what we believe strongly, that ethane carriers will eventually -- hopefully sooner than later, find themselves a home in long term charters on ethane exports from the United States. I have no issue about that, that's coming. When that happens, combined with the kind of contracts we have entered into this morning, with a long term charter, when I take a look at what we have in our seabuild contracts, we are moving LPG out of Russia, and three, fairly securely business out of Indonesia, with essentially long term charters. I get more comfortable, that we are developing a very significant pipeline of undestructible cash flow and earnings; and when I am comfortable with that, then I think we can be more flexible about our balance sheet and what we do, whether it'd be buybacks or distributions. In the meantime, we are seeing, and I stress this very importantly, some very attractive opportunities to deploy the cash in highly accretive and value creating opportunities, as we move into a continuation of the structural change. I think we should short-change ourselves and short-change you and all the investors, if we ignore that simply to compel ourselves to walk the line with Wall Street and doing something that temporarily is in favor. We are going to build great value which we are doing, and we are going to return those values to shareholders in due course; because we are major shareholders. But the directors of the company and management are probably -- by far, the most significant shareholders, and we like to treat ourselves well.

Got it. Thanks David. Definitely understand the position you are in of trying to balance immediate needs, but also the long term viability of the company. That works for me. Thank you.

Thank you, Omar.

[Operator Instructions]. We have no further questions. Thank you.

Well thank you, Donna. And to everyone who have joined us, thank you for taking the time out to listen to our story, and we look forward to being with you again a few months time. Bye now.