Welcome to the Navigator Holdings Conference Call on the Second Quarter 2016 Financial Results. We have with us Mr. David Butters, Chairman, President and Chief Executive Officer, Mr. Niall Nolan, Chief Financial Officer and Mr. Oeyvind Lindeman, Chief Commercial Officer. [Operator Instructions]. And now I pass the call to Mr. Butters. Please go ahead, Sir.

Thank you Melanie and welcome everybody to navigator's second quarter earnings conference call. As you all have seen from last night's press release, I reported $0.20 per share earnings for the period was quite disappointing. Whether against last quarter's numbers or against last year's second quarter results. Our comments this morning will focus on attempting to explain some of the underlying causes of for the rapid deterioration that the LPG shipping space has undergone this quarter. We will also examine how our flexible semi-refrigerated handy sized vessels were able to offset some but not all of the weakness in the LPG shipping by shifting to longer haul petrochemical gas cargoes. While the petrochemical gas shipping is more operationally challenging, it does offer navigator a potentially profitable link that could eventually more than offset LPG shipping weakness even if this sector recovery is delayed. We believe that there are, we're in the beginning of a trend that will do just that. Niall Nolan, our Chief Financial Officer, will cover the financial and operating details while Oeyvind Lindeman, our Chief Commercial Officer, comments on the market conditions and market trends. Beginning at the very end of this year's first quarter, we began to see an increasing competitive pressure initially coming from the U.S. East Coast specifically Marcus Hook the terminal. The issue at Marcus Hook was a sudden drop-off in export volumes of propane loading on handy size vessels. The principal cause of this decline was the result of Sunoco Logistics commencing the shipment of ethane on the mariner East one pipeline that feeds Marcus Hook for the Marsalis and [indiscernible] basins. The start of the ethane shipments on Mariner East I around 1 March pushed out propane, cutting deliveries of this LPG product into the market look by almost half. In…

Thank you David and good morning. The company's revenue for the quarter ended June 30, 2016, in the amount of 70 to $0.5 million has been in impacted by the market weakening as David just refer to decreasing by $11.5 million or 13.8% from the $84.1 million generated during the three months ended June 30, June 30, 2015, revenue less voyage expenses decreased to $9.6 million to $63.2 million for the quarter compared to $72.8 million generated during the second order of 2015. This reduction in that net revenue was a result of a number of compensating factors. First revenues rose by $78 million due to the increased number of vessels in our fleet increasing from an average of 27.7 vessels during the second quarter of 15 to 13.8 vessels operating during this second quarter. Secondly, a decrease in charge rates reduced net revenue by $8.9 million as rates reduced to an average of $27,233 per day or $828,000 per month during the second quarter of 16. From $30,596 per day during the second quarter of 2015. And from $29,560 a day during Q1 of 2016. Thirdly, fleet utilization for the second quarter has reduced dramatically to 86% compared to 97.7% during the second quarter of 2015 reducing net revenue by $8.5 million. Our fleet currently 32 vessels following the delivery of two semi refrigerated carriers, Navigator Restto and Navigator Copernico in January and April respectively and since the quarter end, our larger 37,000 cubic meter ethane ethylene carrier navigator Earl was delivered. We now have six new businesses remaining in our new building program in with deliveries scheduled for between October 2016 and July 2017. During the second quarter, a total of six vessels went into dry docks for their respected five year surveys and overhauls for approximately 100…

Thank you, in January of this year, very large and medium-sized charter rates are quoted at $1.69 and $1.1 million per month with respectively. At the end of the second quarter, rates for the same five vessels quote that $640,000 and $650,000 per month. Comparison, the handy size charter rate quoted at $920,000 per month in January and a six and $25,000 per month at the end of June. Interestingly, all three of these segments are converging at similar rate levels despite the differences in size capacity. The larger filler refrigerated vessels are exerting significant dominant pressure on LPG rates however some of the resilience of the handy charter rates can be attribute it to changes in the petrochemical trade which we will touch upon shortly. During the quarter, we had an average 30.8 vessels carrying a total of 1.4 million metric tons of LPG petrochemical and ammonia gases. Of the total to thousand 321 earnings base, 57 of these were covering LPG cargoes. 36% were petrochemical gases and 7% for ammonia. In comparing this quarter with second quarter of 2015, we experienced a reduction of 540 earnings base or 21% of our proportion of LPG employment and an increase of 491 earnings base or 22% to our employment of petrochemical's. The changes even more notable if you compare first half of 16 with first-half 15. We had an increase of 80% of petrochemical participation from 686 earnings base to 1,237 earnings base. This is a trained for navigator gas going forward? Absolutely. The fleet is firmly taking advantage of the petrochemical gas opportunities where we offer economics of scale to our customers in the long-haul should business. For example, we have loaded petrochemical cargoes up to three different grades of the same should and still every month during the…

Operator, I think you are in a position now to open the call up to question-and-answer period.

[Operator Instructions]. And your first question comes from Jon Chappell from Evercore ISI.

Niall, first one for you. You mentioned the debt amortization of the facilities plus the bond in 2016 which combine that up to almost to $275 million. Can you just walk us through a little bit some of the alternatives for those and also given the recent market weakness as well as the tighter lending restrictions across the entire industry, has it become a little bit more difficult when you think about refinancing or extending those facilities or repaying the bond that you might have thought six months ago?

Okay. This is a rough question there has a become more difficult? Possibly not. Have the rates increased? Yes, they have. Financing rates throughout all banks with the backdrop of potential Basel IV have certainly increased rates but not to where they were some time ago. I think banks generally as they have been over the last number of years have been more selective in who they lend to but there is adequate finance there for companies like Navigator. With respect to alternatives, you will appreciate that the two loans that we took out in 2011 and 2012, these two loans that are due to mature next year have had reasonably significant debt amortization of the last five or six years because 2011 and 2012 was not a strong period for bank financing at the time. And therefore to refinance those at a normal shipping bank loan to value levels would increase significantly the amount of indebtedness relevant to those secured ships and that provides us with some optionality.

Okay. And then also just to the extent that you can about the bonds, what are some of the options there?

Well the option is to, we can repay it or we can extend it. We're looking at both options whether we extend it far 2 to 3 years, further out, really depends on the coupon that we would achieve which is as you can imagine fluctuating. But we're looking at that.

Okay. And then just one more from me for David's. You mentioned both in your comments and in the press release some contract renegotiations and even reneging of contracts as it comes to the exports of LPG. I'm just curious, what does that mean from a shipping perspective? Will they renegotiation or reneging on a contract for product that’s already been sold or supposedly sold where freight has been lined up for it, does that threaten the time charter coverage of any of your vessels or the industry as a whole?

Well, first of all, we have not experienced any of those cancellations. They come on the handy sized whether for us as far as I know, none of the other handy sized players. It has come about on very large gas carriers and perhaps Oeyvind will have a little bit more color on that I have. But listen it's never good, whenever you have that type of action by customers, it sets a sour note clearly whether it be shipping or any kind of business. I do not think it's good thing to have. I don’t think it's a matter shipping. I think it's just a matter of bad business practice, but maybe, Oeyvind do you’ve any particular insight onto what those trades were? We weren't, as I say, involved and have just information coming from the press more than anything else and some of the brokers.

What is uncertainty and what we do not want is more uncertainty in the LPG space. It causes hesitation to do business with some partners. What it does, of course, with the companies that are involved have based their whole strategy or parts of trading strategy on this and if one piece falls apart then that causes a ripple effect in those programs. So is it going to effect VLGCs and the demand for those? Possibly. But the cargoes being canceled, either inventories building up or they need to divert it to differ customers but generally it's not ideal.

Your next question comes from Ben Nolan from Stifel. Please ask your questions.

I guess my first question is maybe more broad with respect to the current environment that we're in. Day rates having fallen, utilization having fallen, obviously you guys have better balance sheet I would imagine. Many of the smaller players in the industry. Is there a potential scenario developing whereby some of your competitors might become a bit more let's say stressed and I know that in the past you guys had done certain things in terms of acquiring vessels or chartering in vessels from weaker [indiscernible]. How are you thinking about that and is that evolving currently? I mean are there opportunities in terms of being able to consolidate the distressed situations?

Well, of course falling rates and other issues are certainly helping us in one sense. It is, I alluded to there have been substantial, well, there is a potential of that order book shrinking genetically with the failure of shipyards being able to deliver. And I think they would have delivered if environmental conditions, the market conditions were better. The people who were to audit those vessels would have probably fought a little harder to get them delivered. But more specifically and directly to your question, Ben, there are not a lot of competitors of ours that have vessels that we would like to own. Just a couple. We know them and I do not think they are in a position that they are all healthy because they have, for the most part, a balanced portfolio of activity. I don’t think that any of them have a mindset to sell the vessels. I can think of one would probably like to have done that. Probably more likely have regretted ordering the vessels, but price ideas right now would be prohibitive as far as we're concerned. So I don’t really see consolidation as an opportunity within the handy space. You know, again, the business is suffering at the moment but there are elements in place that will correct it. I cannot tell the timing but it certainly will and if you have sophisticated vessels again the emphasis that we have been placing in the last number of years is to build the vessels that reflect what we believe is going to happen sooner or later that is a shift from the export of the commodity-based business, propane and butane, to the more value added products, the propylene's and the ethylenes and the butadiene's. We need a much more sophisticated vessel then just a fully refrigerated handy sized ship. So we have got them. I think we -- the industry is having that type of high quality, high spec vessel and I do not see much in the way of consolidation bottom-line.

Okay. And certainly looking at the data, we tend to agree at least with respect to ethylene and propylene, but that certainly leads me to my next question. You guys have already taken delivery of the first of the 35 ethane, ethylene capable vessels and you know, I believe the rest are set to be delivered in pretty short order. Three of those do not yet have contracts. At this point now we're very close to delivery, how do you envision as being deployed. Do you think that in the absence of a long term contract, they will compete for you know, ammonia and propane cargoes or is there potential opportunities within higher end petrochemical business for cargoes of that size?

Sure. First of all recognize that the 37,000 cubic meter [ph] ethylene carriers that we have coming onstream, the three that on fixed, they are extremely flexible vessels and they can handle just about any cargo you can think of propane, butane, ammonia and then the whole stream of petrochemical gases including ethylene. We have one vessel that will front run the contract we have for ammonia so that the second vessel is covered as far as employment is concerned and so we're really looking at the third and fourth vessel and the fourth vessel doesn’t come until 2017. Now it begs the question as to what might happen should they terminal operators get together or someone steps forward with contracts for ethylene terminal and we're trying to keep those open for that potential. And I just like to leave it at that because we're in discussions so our dream, our objective really, is to put them in long term business either in ethylene or ethylene. And I think there is still a strong possibility that they find their home there.

Okay. Well and that was going to be my last question. But I am curious just to follow on to that. I know that in the past David, you mentioned that the ethane business was, lent itself to long term contracts whereas the ethylene business is more of a spot oriented market. Is that changing next?

I believe that there will be opportunity. Let's step back for a second. Ethane is a raw material. Ethane therefore is most likely going to be shipped under long term contract to feed a manufacturer who needs a reliable long term supply of their materials. Hence it has the elements of long term charter. On ethylene, it will probably be more optimistic, more of an arbitrage, more of an opportunity for traders to step in and take advantage of shortfalls in Europe or the Far East where cargoes of ethylene are needed and the price disparity is a certain type. So we see ethylene normally as a traders market and that's fine. We can handle that. But I think there is an argument to be made and we will see whether or not some of the ethylene manufacturers around the world see an opportunity to lock in a portion of their requirements under long term ethylene supplies from U.S. producers. I think that may play out. We will see. I do not want to mention anything more than that. But I think there is a possibility, but in the whole you were right about the distinction between ethane being basically a long term charter opportunity because it is a raw material needing to supply with a reliable volumes into the manufacture of ethylene. And ethylene being a very optimistic product that will be used to take advantage of different disparities and arbitrage pricing.

Your next question comes from Doug Mavrinac from Jefferies. Please ask your question, sir.

I just had a few follow-ups on market related items. David, in your prepared comments and Oeyvind in some of your comments, I thought you guys did great job of explaining what's transpired in LPG market to get us to where we’re right now. So my questions are more first on the ethane market and then second on the petrochemical gases market. On ethane market, David, you mentioned how Mariner East I is come online and pushed some of the LPG commodities kind of out of the market or aside, but you guys are really positioned for that with taking deliveries from your ethane ships and ethylene ships and so on. So my question as it pertains to ethane market is when you look at Mariner East I, would you say in terms of their ethane exports, are they at full capacity now or are they still ramping up, trying to get a sense as far as are we going to be seeing more ethane coming out of market or Mariner East I? And second, when you look at Enterprises ethane terminal on the Gulf coast, that thing is ramping up right now and my question is on that, have you guys seen an impact on the market and some of those volumes hitting the market yet

Yes. Well, thank you. Again, one of the things, understand the most of this ethane, most all of ethane that’s is being shipped whether it be in Mariner East I or in the enterprise terminal has been committed already on the long term purchase arrangements and attached to those has been the shipping requirements. Now one of the things we never really get our hands on for, I think for some strategic business reasons and some part of the owner, the terminal owner, is that we're never sure exactly what their capacity to move ethane is. In Marcus Hook, I believe that there is a some modest amount of excess available, I think, but ethane doesn’t normally come and sold on a spot basis. So we wouldn’t have been able to see that. And the same with Enterprise, Enterprise does talk about their capacity being sold out or close to being sold out at to 200 or some odd barrels per day. Again, I would have thought that if someone had interest in some long term modest amounts of ethane, they probably could find some out of enterprise but I am not sure. So it doesn’t lead us to any opportunities in the spot business. The spot business will come from ethylene, but that, if someone were to decide to build an ethylene terminal which could have very significant impact on us, even a 50,000 barrel a day, modest terminal, that little needle movement could have a disproportionate move on our business because we had so dominant position in ethylene carriers, but at the moment, there is not a great deal of U.S. spot business and most of it we're handling. There is only one single terminal in Houston capable of handling ethylene.

Right. And David I was thinking more about just kind of the sheer volumes of ethane coming out and maybe the absorption of some. Even if it's on term contracts, the absorption of some of the capacity that could be up there in terms of just tighthening the market. But you did mention on the ethylene side and just also just in general on the petrochemical gases, just Oeyvind in his comments we’re talking about just a proportion of your fleet that is now moving some of those petrochemical gases. And so my question on that front is can you guys give us an update on some pricing [indiscernible] which has been a big driver for some of the demand for U.S. petrochemical gas exports and then is your ability to basically achieve a premium rates over just your normal LPG types of vessels, does that still exist? And just basically an update general conditions in that market that was supportive of how many the vessels you were employing during 2Q.

Okay. I will try to answer that, but let me go back to your first part of the question on the ethane. Let me just point out that in Mariner East II, the Sunoco Logistics pipe that is expected to open up a year from now, 275,000, we believe that there is some significant excess capacity on that line that can be used for exporting ethane. We again, it's not very clear, not transparent line of thought process in how Sunoco Logistics details what they have sold and the volumes but we believe that there is a substantial ethane. So we will have to wait until there is a clearer picture of exactly when they are going to open up that line and maybe that gets filled later. To answer the question on the economics, let's just -- that’s a difficult question again. I'm sorry to answer, because we're not terribly involved in a particular shippers economics but one of the most significant things we can point to is the trade in ethylene out of the U.S. Gulf Coast. We're taking 150,000 barrels a day of barrels of ethylene from that terminal in [indiscernible] all the way, halfway around the world and we're making good money off of that and we presume the trader, it's a trader who is buying it, is making reasonably good money off of that trade. So somehow and we're also doing that from Brazil to the Far East. And there is a significant potential, we're making reasonably good money. And we're getting as we do get a premium because we have the largest of the ethylene capable vessels. So if you want to move large volumes at economic rates got you would reach out to a Navigator vessel. The economics on the 37,000 cubic meters that we're getting delivered are even more dramatic. So that would increase the potential. I do not know, Oeyvind, if you can add anything to that?

Just on your point there, Doug, what are the ramifications? So during the second quarter now, we have 10 vessels, so 821 days of earnings in petrochemical which equates about 10 ships compared to 330 days last year second quarter with four ships. So it's more than doubled and you can see the trend continuing. So it was LPG is struggling, petrochemical trade lanes are definitely opening up and then we clearly are taking advantage of that.

Your next question comes from [indiscernible]. Please ask your question.

I just note that you reported the utilization of 86% now for Q2 and could you give the utilization on the small vessels as well?

Well, that is the overall utilization that takes into consideration vessels better at 100%. And because of time charters and then the spot vessels so obviously the spot vessels are going to be considerably less than 86%.

Yes. I understand. But is it 60% or 70% or thereabouts?

We don’t have that number offhand. We can get back to you, but yes.

The overwhelming majority will be on the spot vessels. Obviously the time charters barring some of the movements in and out of dry dock and repairs, they will be on full utilization or near there. So from a general guesstimate, the utilization on time PCs would be around the 95% mark or higher. So the spot takes up for slack.

Yes. I am just trying to get the understanding on how much utilization we can expect on spot or vessels trading in the spot market going forward. But I guess we can have a discussion on that.

Yes. I generally, I think the utilization in the mid-80s is where we see it. We have been there in Q1, Q2 is slightly less than Q1 and Q3, albeit reasonably early stages of it, but it's looking something similar also. So the mid-80%.

And then just a question on the rate levels that you are seeing at the moment. I note that you quoted a few rates as of June and do you have figures on the leading edge day rates? Now in August for example

They [indiscernible] they have 12 month charter assessment for the entire market and they publish it every Friday. So last Friday, VLGCs 12 month charter 570, midsize 600, handy 580. That is what they are quoting. And some petrochem cargoes we're doing are more than and so forth. So we tend to look at is of course our average, what are we earning average. Buts that the assessment for our new time charter today, whether it is correct or not is for debate but that is what they quote.

Okay. So but the rates that you're seeing, that's fairly in line with that on the spot vessels or?

I think more or less. Depends very much case-by-case what cargo, what trade lane it is. If is ethylene from U.S. to Far East, it's much higher than that. If it is LPG transatlantic, for instance, it might be less. It all depends.

Your next question comes from Michael Webber from Wells Fargo. Michael, your line is open.

It's bit of a long call but I wanted to go back to one of your one of your comments are we within the release or prepared remarks kind of comparing this market and the parity you are saying between larger, midsize and smaller assets to the 2009, 2010 market, if you look at that period, that was a trough that lasted about four years and while the VLGCs fell to actually below OpEx levels, the small and midsize carries still saw another 20% downside from where we're at today. So I guess first and foremost, if you could kind of comp at a high level, the current cycle to that cycle and then maybe give an assessment as to whether or not you think that's a relevant floor where we're at today in this cycle.

Right, from the beginning of 2009 to 2010, there was decline on oil rates whereby the handy sized were kind of flooring out at 600 and then the very large and midsizes were below that, or below OpEx level and that continued for a while until 2011, so that was the period. And then you see the same thing happening now whereby you have a convergence of the rates around the 600 level mark and our belief is that if you’re only relying on LPG so the large [indiscernible] ships, I think you will repeat what happened in 2009, 2010, 2011 so they have become below the handy sized floor. And I think that is likely happening and it's happening now, because it's only LPG and those couple of trades that are involved in it unfortunately. So I think history repeats itself from that time, the last recession. But at least we can talk about that, we're doing, petrochemical's and you’ve seen the percentages, the fleet is definitely moving into that segment now and again that creates a floor for us which we're left with.

Right. And I guess kind of maybe the second of that question is if the floor is within 20% of where we're at now and the real question is kind of the duration and length of that trough if that was a four-year stretch where we touched those levels, are we have really see the majority of this slide kind of in the trailing 12 months, maybe a bit longer, maybe about 18 months, can you kind of, David, can you talk the similarities between what we’re seeing now and what kind of [indiscernible] itself out in the historical data?

I think for the whole LPG segment shipping thing, what needs happen is the production is there, the ships are there but the demand side, there has been such a glut of supply and the demand centers need to have time to adopt to accommodate the cheap gas. For many customers, they can't switch the -- flick a switch and go from oil for instance to gas. So there is a time period thereby people can need to adjust their infrastructure to do these things. So I think, not necessarily that U.S. prices need to adjust downwards but I think perhaps more importantly the Far East or Asian price needs to -- the purchasing price needs to come up and then that will deviate LPG cargoes for the U.S. to Asia and not have them go to Europe and that will trickle down positively to say up us. So the arbitrage for us opens again on LPG. When this happens, when the entire consumer base is switched to gas, are more inclined to switch to gas well, I think it's happening but it will take some time.

Just one or two more for me I will turn it over, this is actually for [indiscernible] and as it relates to that question and the length of the current trough and whether or not we're in the early to mid-innings, your conversations are around renegotiating net debt, you know aside from pricing which I would expect to go up and the idea that you probably sourcing it from probably with a heavier concentration in Asia than previously just given the restrictions around the European lending base, is there any push to reset covenants and specifically kind of looking at that EBITDA coverage covenant, do you think we will any movement there?

No. Not at all. And they are all three banks or three separate offers that we’re looking at or speaking with our three European banks and we're pretty far advanced on this and we're very different.

But no further restrictions on covenants.

No movement a covenants?

No.

Okay. That is helpful. And I guess one more just kind of high level question for you David, you spent some time already talking about the more reliant on spot cargos and kind of just general shift in terms of access capacity, availability, you guys have COA that runs through the end of the year and I know this quarter on quarter you have added another vessel to that, so I guess the first question is that just a function of kind of the lumpiness of how those volumes are getting shipped as far as that volume-based contract? And then separately, when do you think you can renegotiate that, how early and is it early enough that you can start to look at that? And then more broadly, do you think we will start to see a higher concentration or a higher prevalence of COA based contracts in this market if people try to keep themselves from being long tonnage when it is not needed?

Well I think that the existing COA contract of affreightment we do have, so there is a process and I think we’re at the early stages of that process to renew. It takes two to tango but the other partner is definitely have opened the debate. So there is no indication that it's going to stop.

And remember, we do have the largest fleet of ethylene carriers far none [ph]. So you do not have many place to go to if you are the trader, period. And the function would not be availability, the function will be where is the spread for the trader during the time when he is negotiating. Right now, I think there is a healthy margin, expected to be a healthy margin, prices of ethylene in the Far East are considerably higher than they are in the United States. And considerably higher than when you add-on the terminaling expense, the shipping expense and all other costs associated with moving a barrel of ethylene from the United States to Far East. So it's a healthy market. And that’s why I think there are people interested in further availability of terminaling and exports, while by the producer in the Far East maybe considering ethylene as, on a long term basis. So yes, that’s the function rather than just what the shipping cost is at any one moment. You know, we're encouraged. I think a lot of people are encouraged but it ain't there yet.

Okay. In terms of the I guess [indiscernible] had added that COA group this quarter, is that just, should we think of that as been utilization of assets within that, serving the contract as slightly lower or is it just kind of a lumpiness in terms of the way you guys are shipping the volumes?

It's not three ships and it's not four ships, its somewhere between. So at that time, four ships were taking care of servicing contracts.

Melanie, I think we're at the top of the hour, a bit past, so I think we would have to wrap up, unfortunately today's session.

Okay, that is not a problem. Thank you very much, sir. Well ladies and gentlemen, that does conclude our conference for today. Thank you all for participating. You may now disconnect.