Q3 2016 Dynagas LNG Partners LP Earnings Call

Nov 15, 2016 AM EST
DLNG - Dynagas LNG Partners LP
Q3 2016 Dynagas LNG Partners LP Earnings Call
Nov 15, 2016 / 03:00PM GMT 

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Corporate Participants
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   *  Tony Lauritzen
      Dynagas LNG Partners LP - CEO
   *  Michael Gregos
      Dynagas LNG Partners LP - CFO

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Conference Call Participants
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   *  Michael Webber
      Wells Fargo Securities - Analyst
   *  Ben Nolan
      Stifel Nicolaus - Analyst
   *  Fotis Giannakoulis
      Morgan Stanley - Analyst
   *  Randy Giveans
      Jefferies & Co. - Analyst
   *  Joe Nelson
      Credit Suisse - Analyst

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Presentation
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Operator   [1]
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 Thank you for standing by, ladies and gentlemen, and welcome to Dynagas LNG Partners conference call on the third-quarter 2016 financial results. We have with us Mr. Tony Lauritzen, Chief Executive Officer, and Mr. Michael Gregos, Chief Financial Officer of the Company.

 (Operator Instructions)

 I must advise you that this conference is being recorded today.

 At this time, I would like to read the Safe Harbor statement. This conference call and slide presentation of the webcast contain certain forward-looking statements within the meaning of the Safe Harbor provision of the Private Security Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties which may affect Dynagas LNG Partners' business prospects and results of operations. Such risks are more fully disclosed in Dynagas LNG Partners' filings with the Securities and Exchange Commission.

 And now I pass the floor to Mr. Lauritzen. Please go ahead, sir.

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 Tony Lauritzen,  Dynagas LNG Partners LP - CEO   [2]
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 Good morning, everyone, and thank you for joining us in our third quarter ended September 30, 2016 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 pleased to report the Partnership's earnings for the third quarter 2016. 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 again reported 100% utilization, which we believe is reflective of the quality of our fleet and our managers' operational ability.

 The third quarter, ended September 30, 2016, was a very strong quarter for the Partnership. Our fleet's income is produced from multi-year time charter contracts with international energy companies who pay a fixed daily rate for the chartered vessels. As the charters also pay the majority of variable costs, such as fuel, the Partnership enjoys steady and visible cash flows that are not indexed to oil or gas prices.

 Turning to slide 2. A quarterly cash distribution for the third quarter of 2016 of $0.4225 per common and subordinated unit was paid on October 18 to all unit holders of record as of October 11, 2016. The cash distribution is equal to an increase of 15.8% over the Partnership's minimum quarterly distribution per unit. The Partnership paid on November 12 a cash distribution of $0.5625 per unit of its Series A preferred units for the period from August 12 to November 11, 2016, to all unit holders of record as of November 5, 2016. 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.

 We had stated we would be focused on obtaining additional vessel contract coverage. As disclosed, we have entered into a new long-term charter agreement with Gazprom for the Clean Energy with a firm term of seven years and nine months.

 We also agreed with Gazprom to amend the existing time charters for Yenisei River and the Lena River. While the Yenisei River and the Lena River charter amendments resulted in the reduction of contracted revenues by approximately $18 million, the overall effect of the new long-term employment of these three vessels is expected to result in additional contract coverage and an increase in our combined contract backlog by approximately $150 million, resulting in a total $1.6 billion contracted backlog. With our fleet fully contracted through 2016 and 89% contracted through 2017, and with an estimated fleet wide average remaining contract duration of 11 years, we intend to continue to focus on obtaining additional contract coverage in 2017, in particular, and managing our operating expenses.

 I will now turn over the presentation to Michael, who will provide you with further comments to the financial results.

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 Michael Gregos,  Dynagas LNG Partners LP - CFO   [3]
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 Thank you, Tony. Turning to slide 3 of the presentation, it was another quarter in which we continued to deliver positive financial results. Q3 2016 adjusted EBITDA amounted to $35.4 million, which was a significant increase of 22% across the quarters, as a result of the effect of the acquisition of our sixth LNG carrier, the Lena River, in late 2014 and lower than expected vessel operating expenses.

 For the quarter, we owned an average number of six vessels, versus five vessels in Q3 2015, and our fleet average charter hire gross of commissions on a cash basis amounted to about $81,300 per day per vessel. Our average operating expenses amounted to about $12,200 per day per vessel, which was significantly below our expectations due to seasonal factors.

 Our total cash flow breakeven, excluding cash distributions, amounted to about $45,000 per day per vessel. Adjusted net income for first quarter amounted to $19.1 million, or $0.49 per common unit after taking into account the Series A preferred unit's interest on the Partnership's net income, which was an increase of 20% over the corresponding quarter last year.

 On slide 4, you can see the third quarter 2016 selected operational and financial data results versus the same period of 2015. The key takeaway is that our financial performance for the quarter was significantly enhanced following the Lena River acquisition with its related time charter.

 Moving on to slide 5 to discuss distributable cash flow and our coverage ratio, cash available for distribution is $23 million for the third quarter, as compared to $19 million for the third quarter 2015, for the reasons mentioned above. When we deduct declared distributions to preferred unit holders, cash available for distributions to common subordinated and GP unit holders amounts to $21.3 million for the quarter, which results in a very solid coverage ratio with respect to our common and subordinated unit holders of 1.42 times and which is significantly higher than our target coverage ratio. Going forward, in the medium term, given that we will be dry docking our three steam turbine vessels in 2017 and the Clean Energy will be trading in the short term market until she delivers into the Gazprom contract, we expect that the coverage ratio will slightly decline.

 Moving on to slide 6, just a few words on our capital structure and liquidity. As of September 30, we had about $84 million in cash on hand and total liquidity of about $114 million, including undrawn amounts from our revolving credit facility with our sponsors. As of September 30, we had $730 million in total debt, which suggests a net debt Q3 2016 EBITDA on an annualized basis of 4.6 times.

 We believe our leverage is supported by a significant contract backlog going forward, and we are encouraged that the MLP public equity issuance has resumed, albeit for select offerings. So when the time is right, we will seek to combine future growth with deleveraging of our balance sheet.

 Slide 7 shows our total principal and balloon payments per annum. We do not have any near-term maturities, since our first maturity is our $250 million unsecured note which matures in October, 2019, and thereafter, our two secured facilities which mature in late 2020, 2021, respectively. Given our $1.6 billion contract backlog, we do not anticipate any difficulties in refinancing our unsecured note in late 2019, especially given that by that time, the two Yamal time charters will have either commenced or will be very close to commencing.

 Slide 8 outlines our cash distribution history since we went public in November, 2013. Since our IPO, we have paid total cash distributions to common unit holders of about $4.67 per unit and have grown our total cash distributions by about 16%. We consistently pay our cash distributions to our unit holders solely from our existing fleet contracted cash flow, which is significant. We believe that business fundamentals and balance sheet strength are more important attributes for MLPs than distribution growth under the current environment.

 In the medium to longer term, our cash distribution payout policy going forward will be a function of a number of factors, being mainly our ability to resume our fleet growth through the dropdown of the vessels owned by our sponsor with long-term contracts attached. However, future dropdowns are also a function of our cost of capital.

 We continue to believe that our 12% cash distribution yield does not reflect our contract backlog and makes it challenging to issue equity as a means to partly fund future growth. However, as follow-on market access has returned, we will seek to raise capital if we can raise capital at an attractive cost.

 That wraps it up for my side. I will pass the presentation over to Tony.

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 Tony Lauritzen,  Dynagas LNG Partners LP - CEO   [4]
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 Thank you, Michael. Let's move to slide 9 to summarize the Partnership's profile. The Partnership's fleet currently counts six high specification and versatile LNG carriers, with an average age of about 6.3 years in an industry where expected useful economic lifetime is 35 years. We have a diversified customer base with energy companies, namely Shell, Gazprom, Statoil and Yamal LNG. Our contract backlog is about $1.61 billion and our average remaining charter period is about 11 years, which compares well to our peers.

 Moving on to slide 10, five out of the six vessels in our fleet have ice class 1A notation. Our fleet is fully contracted in 2016 and 89% in 2017, a time we expect the LNG shipping market to have tightened due to the current ongoing construction and ramping up of new energy production plants.

 We have a unique fleet, it can handle conventional LNG shipping, as well as operating ice bound and sub zero areas. This means we are able to and have been successful in pursuing business opportunities in two different markets, namely conventional shipping and a unique market for ice bound trade. As an extension of the ability to operate in ice bound areas, we are the only company in the world with a current capability and experience in transiting LNG carriers via the Northern Sea route, which we deem an important advantage due to the ongoing development of LNG production along this route.

 The contractual relationship between our customers and the vessels are on a time charter party basis. Under a time charter party, the charterer pays fixed day rate to the owner, regardless if the vessel is being used or not, and all major variable costs, such as fuel cost, are for the charterer's accounts. Therefore, and coupled with our multi-year employment profile, the Partnership enjoys visible and stable revenues that are not directly affected by oil or gas prices. Going forward, we will be focused on securing further contract coverage, in particular in 2017.

 Let's move to slide 11. Our potential dropdown candidates count nine LNG carriers. All of those vessels have contracts in place amounting to a multi-billion dollar contract backlog. They are high specification, ice class and winterized.

 Four of the vessels are Arc 4 type, 162,000 cubic meters, and delivered from the yard. The remaining five vessels are Arc 7 type, 172,000 cubic meters, and currently under construction at DSME in Korea for delivery in 2017 and 2019. These last five vessels are 49% owned by our sponsor and 25.5% each by Sinotrans and China LNG Shipping.

 Let's move to slide 13. In summary, the market is in a place where there are substantial volumes of additional LNG expected to be produced in the near to medium term. The world LNG carrier fleet is characterized by few vessels to carry those incremental volumes in the long term and there are many old technology vessels.

 Also, there has been a slowdown in ordering of LNG carriers, with marginal activity since Q3 2015. Also, floating regasification projects appear to create a demand for unsold LNG.

 The current existing LNG world fleet and the order book totals about 528 vessels, as shown on the bar to the left on the graph. The order book is about 28% of the world fleet. About 34% of the world fleet is below 140,000 cubic meters, which we would define, in general, as two small vessels.

 The size is also below the average cargo size; and the average age of these vessels is about 22 years. At some point, we expect that most of the undersized and aged vessels will fade out of the market and be replaced with larger and younger tonnage.

 Furthermore, 92% of the order book has already been committed to forward charters. This means that there are very few new buildings that may be available to facilitate the need to replace, on average, undersized and aged tonnage and to carry expected incremental LNG production.

 According to the order book, most new builds will be delivered during the period 2017 and 2018, which is also a period we expect significant additional LNG production. We have seen a slowdown in ordering activity of LNG carriers. To our knowledge, there has only been recorded five orders since Q3 2015.

 There are only very few yards in the world that has the experience and capability to build LNG carriers. And if one were to order today, our guess is that the yards would be able to offer tonnage for delivery 2019, at the earliest.

 Let's move to slide 14. Gas used to be referred to as an alternative fuel. In 1990, the gas market was about 56% of the oil market. Today, the gas market is about 74% of the oil market. And by the end of 2035, this number is expected to have increased to 90%.

 The LNG market is the fastest growing sub segment within the gas industry. More and more countries are dependent on LNG as an energy resource. In 1990, there were 9 LNG trading routes, today, that number has increased to 232.

 Let's move to slide 15. We are now in a period dominated by strong LNG production growth. It is conservatively forecasted that about 120 million tons of new annual incremental LNG will come to the market between now and 2020. This represents a total increase of 50% compared to 2015. We assume that the vast majority of new LNG is coming from terminals already under construction, meaning a high probability of project materialization.

 The source of this new LNG is primarily from Australia, North America, Southeast Asia and Russia. We continue to believe that the Far East will remain large buyers going forward; however, growth may also come from European markets. We also believe we will continue to see the development of new niche markets in areas such as South Asia, Middle East, and South America.

 We believe that there are sufficient buyers for the new LNG to be absorbed. The majority of the new LNG export volumes have sale agreements or offtake agreements in place. And we believe that the existing input markets will continue to increasingly rely on LNG as a price competitive and clean energy resource.

 Let's move to slide 16. Supplementing to existing and new buyers of LNG via land based terminals, there are new buyers of LNG through fast paced floating regasification terminals. The growth in floating regasification is expected to continue to grow steadily, making up 16.6% of the total regas capacity by end 2020. This is important, as these projects will be buyers of existing and we believe, in particular, unsold and remarketed LNG.

 Let's move to slide 17. As projected, the industry is now in a period of strong growth in incremental LNG production and trade. In the first nine months of 2016, global LNG trade was up 8% compared to the same period in 2015. As expected, in particular, Australia and, to some extent, the US have been the largest incremental producers so far and are expected to add significant volumes going forward.

 When we compare LNG supply to LNG shipping capacity available from now and forward, we remain confident that the market outlook for shipping looks favorable in the long term. In the period prior to that, we believe that the short-term market, in general, may create competition to the long-term market until sufficient LNG supply is outpacing LNG shipping capacity. The growth in LNG production, set at 50% within 2020, is estimated to outpace increase in LNG shipping capacity, set at 29% within the same period.

 The majority of the new LNG will be delivered already within 2019, meaning we should expect the period ramping up to that point and subsequent years to result in a healthy shipping market. Additionally, the Partnership fleet is ice class and winterized, enabling the flexibility to pursue the best of two different markets, which has proven to be a strong advantage so far.

 We have now reached the end of the presentation, and I now open the floor for questions.

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Questions and Answers
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Operator   [1]
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 Thank you.

 (Operator Instructions)

 Your first question comes from the line of Michael Webber. Please ask your question.

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 Michael Webber,  Wells Fargo Securities - Analyst   [2]
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 Good morning, guys. How are you?

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 Tony Lauritzen,  Dynagas LNG Partners LP - CEO   [3]
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 Good morning. Good, thank you.

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 Michael Webber,  Wells Fargo Securities - Analyst   [4]
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 I just wanted to start off with a market question, then move to cost of capital. But the deal you all struck mid quarter, actually out of Q4, with Gazprom has certainly gotten a fair amount of attention, within the context of it being an older asset on a term basis. Granted, there was some existing business you guys had there. But how should we think about that rate? Do you think that rate is indicative of where slightly older steam assets will be employed at for the better part of the next year to 18 months, or do you view that as a stepping stone into a slightly firmer market?

 And then geographically, do you think that area, assuming that ends up going into Cameroon, ends up being almost a destination of choice for some of that older steam tonnage, given the parcel sizes and the need for lower cost?

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 Tony Lauritzen,  Dynagas LNG Partners LP - CEO   [5]
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 Thank you very much. A lot of the rationale behind committing that vessel on a term charter at a somewhat discounted rate to what we already have, average wise, in the fleet was in particular due to that is the single vessel that we have in our fleet that is not ice classed and winterized. So we didn't have the ability to pursue, let's say, these other niche markets that we tend to do and see what offers the best charter.

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 Michael Webber,  Wells Fargo Securities - Analyst   [6]
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 Sure.

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 Tony Lauritzen,  Dynagas LNG Partners LP - CEO   [7]
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 So the question, is this indicative of all turbine vessels of that size going forward, that's an extremely difficult question. It was a good enough rate for us to do the deal, and yes, we felt that it was not so easy for that vessel that didn't have these unique features to get this long-term charters. An alternative would have been to convert into regas, which would have cost a lot of capital. Or another alternative could have been to do shorter charters at a time, so 12 months and 12 months and 12 months, et cetera. But we just felt that it was, since an almost eight-year charter was on the table, it made a lot of sense for us to conclude that with a charter that we have a lot of confidence and a lot of business with.

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 Michael Webber,  Wells Fargo Securities - Analyst   [8]
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 Got you. Okay. That's helpful. We haven't seen a charter, that kind of term on that kind of age of an asset in a long time. So coming at it from a relatively constructive angle there.

 The second part to that question, before the cost of capital, just the idea that, and maybe this can almost come from your vantage point, been working closely with the cool pool, but the idea that the older end of the asset curve potentially shifting towards either Western Africa or Australia as being the most likely source of employment, just given the drive for lower FOB prices or landed prices for gas. Do you think you end up seeing more older assets, or a higher concentration of those slightly older assets within West Africa or potentially Australia versus, say, the US Gulf?

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 Tony Lauritzen,  Dynagas LNG Partners LP - CEO   [9]
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 It's difficult to say. Certainly, vessels that are on longer term charters within the Pacific Basin, so typically Australian trade, et cetera, they tend, on average, to be slightly older. And I think maybe the reason for that is mainly that Japan, being a major import market, is in that basin and is controlling a lot of these long-term charters that have aged, that those vessels have aged by now. So I think that's a lot of the reason. The reason is not that it tends to be less focused on quality or age of vessels, et cetera.

 So I think also that distance is important to keep in mind. So yes, the Clean Energy is great for, for example, intra basin trades, because those trades wouldn't be that long of a distance, so the cargo size wouldn't need to be so big. And since the distance is not so long, the total consumption impact is less than on a long route. I do think that in particular, the Pacific Basin is a good home for slightly older ladies. And then I think West Coast Africa maybe also would be a potentially good home, given the potentially shorter routes, as well.

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 Michael Webber,  Wells Fargo Securities - Analyst   [10]
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 Got you. No, that's helpful. Just one more for me, and I'll turn it over. You mentioned the equity markets easing back open for marine MLPs. I'm just curious what sort of yield threshold do you look at, in terms of where your cost of capital needs to be on the equity side to really facilitate accretion for dropdowns on a long-term basis? Obviously, you'll [book them] here, but we're not quite down, certainly not down to the old normal. I'm just curious where you think you yield needs to be there to comfortably grow.

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 Michael Gregos,  Dynagas LNG Partners LP - CFO   [11]
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 Yes, I think it's hard to pinpoint an exact number. But in an ideal world, I think we would be looking somewhere around 8% in order for us to make sense for us to raise the capital. But that's just a number that it could be plus or minus. That's a ballpark figure, yes.

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 Michael Webber,  Wells Fargo Securities - Analyst   [12]
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 Okay. That's helpful. I'll turn it over. But thanks for the time, guys.

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 Tony Lauritzen,  Dynagas LNG Partners LP - CEO   [13]
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 Thank you.

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Operator   [14]
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 Thank you. The next question comes from the line of Ben Nolan. Please ask your question.

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 Ben Nolan,  Stifel Nicolaus - Analyst   [15]
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 Yes, thanks. I have several, but I'll follow on with similar to Mike's last question there. When I think through the impact of the new adjusted rates on the two vessels, as well as the new contract rate on the Clean Energy, obviously your distribution coverage ratio comes down a little bit and the margin gets tighter. Obviously, that can be offset by dropdown of an additional vessel. Just trying to think through, what's the catalyst? Are you willing to be flexible on your cost of capital or maybe the dropdown multiple in order to juice the cash flows and make sure that the distribution is well covered?

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 Michael Gregos,  Dynagas LNG Partners LP - CFO   [16]
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 No, you're right. That's a very good question. At the end of the day, I think a drop will have to take place. I know that you have on your mind what happens if our, let's say, cash distribution yield doesn't recover. I think at that particular point in time, we're going to have to sit down and think, something has to give at the end of the day, as you say.

 We do know that our sponsor is very supportive. And I'm sure that we would find a way to make a drop that is accretive. I just can't get a bit more specific right now on how we would do that.

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 Ben Nolan,  Stifel Nicolaus - Analyst   [17]
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 Okay. But at the end of the day, the answer at the back of the book is that you're completely supportive of the distributions, and so whatever it takes to make sure that those remain intact is what will happen. Is that a fair way of thinking about it?

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 Michael Gregos,  Dynagas LNG Partners LP - CFO   [18]
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 Yes, yes. That's right.

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 Ben Nolan,  Stifel Nicolaus - Analyst   [19]
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 Okay. Okay. So my next question relates to the FSRU, and obviously you guys chose to put the Clean Energy on a contract as a carrier rather than FSRU. Is that still an area that you're looking to be involved, and was it simply a matter of this is just a bit more expedient and less capital intensive or was there a market for a conversion into an FSRU and something that you could actually execute on and just chose not to?

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 Tony Lauritzen,  Dynagas LNG Partners LP - CEO   [20]
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 Thank you. I think there is a market for FSRUs clearly, and I think you could execute on that. It's just that we were in a position where this opportunity came up and I said, we knew the counterparty very well. We felt very comfortable with it. So it just seemed like a low cost, easy to implement solution that we should go for.

 When it comes to, are we still looking at FSRUs as an organization? Yes, absolutely. The fact that we did this deal doesn't mean that we think that the FSRU market is less robust. We think the FSRU market has a great future.

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 Ben Nolan,  Stifel Nicolaus - Analyst   [21]
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 Okay. And then last for me and I'll turn it over. Tony, you talk about the fleet of older steam powered ships that are becoming a bit more obsolete and less desirable, generally speaking. I know many of those vessels are on longstanding contracts. And my understanding is a fair number of those are going to be rolling off their existing contracts over the next several years and theoretically, as you pointed out, they'd be replaced by newer and more modern assets. I'm just trying to see if it's possible or if you might have a way to quantify how much of that and when it happens. Are we talking about two, three, four ships a year or is it more meaningful in terms of that contract roll off?

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 Tony Lauritzen,  Dynagas LNG Partners LP - CEO   [22]
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 That's a very detailed question. I can't give you a specific number on how many vessels rolls off existing contracts per annum, but it's some time since we did our analysis, but it is pretty significant, I remember that. If you look at just in, let's say, the next five years or so, how many vessels will be rolling off existing contracts, it was sufficient to make an impact. And then the question then is, assuming the cargo is still flowing, what does a charterer do? Do they recharter that vessel or do they charter in a more modern, more efficient maybe and larger vessel?

 And I think it's very, very important to also mention that these vessels that we're talking about, on average, is about 22 years old, is a significant part of the existing world fleet. And although the average size of those vessels are pretty small -- I think it's about 135,000 or 136,000 cubic meters or so -- that doesn't mean it's all bad. Some of these vessels can be used for some specific trades. And some of these vessels are actually quite in a very, very good condition, et cetera. But it's just -- the reality is that if there is an alternative, it would be very difficult to find a home for around 140 or so vessels that are below 140,000 cubic meters. So we think that going forward that will have a pretty good impact.

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 Ben Nolan,  Stifel Nicolaus - Analyst   [23]
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 Okay. And maybe just lastly, if you were to handicap of that 141 vessels how many will not be around by the turn of the century, or by the turn of the decade? Just to throw a number against the wall, what would you imagine that would be?

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 Tony Lauritzen,  Dynagas LNG Partners LP - CEO   [24]
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 I don't dare to throw a number like that against the wall, because that would be upsetting people here. I'm not going to put a number to you. But I'm just saying that I think that there are too many old vessels around, or too many small vessels out there.

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 Ben Nolan,  Stifel Nicolaus - Analyst   [25]
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 Fair enough. Thanks a lot, Tony and Michael.

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 Tony Lauritzen,  Dynagas LNG Partners LP - CEO   [26]
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 You're welcome. Thank you.

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 Michael Gregos,  Dynagas LNG Partners LP - CFO   [27]
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 Take care.

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Operator   [28]
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 Thank you. The next question comes from the line of Fotis Giannakoulis. Please ask your question.

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 Fotis Giannakoulis,  Morgan Stanley - Analyst   [29]
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 Hi, gentlemen. Thank you. Tony, I want to ask you about the demand for LNG. You have in one of your slides that growth this year has been 8%. However, we have seen much more volume coming going forward. How do you view this demand developing and how do you view the LNG prices moving during 2017-2018 when most of the volume will have been developed? And if you can also comment how important it is that pricing of LNG for the shipping market.

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 Tony Lauritzen,  Dynagas LNG Partners LP - CEO   [30]
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 Thank you, Fotis. So we think that in terms of demand for the LNG, that's a very good question. Because we always talk about production. And obviously, there needs to be a buyer, as well, for a healthy market. So we know that a substantial part of the incremental LNG that is under construction and being produced right now, some of it being produced now, a lot of that has a home already. But then you're talking about how much of that LNG would actually go to that buyer and how much will be remarketed. And that's very difficult to put a number on. But we think that there will be a fair amount of remarketed LNG going forward.

 And in terms of demand, what we have seen lately is that we have seen a lot more demand from, let's say, niche buyers that we just hadn't predicted before, a lot of spot cargos and short-term cargos goes, in particular, to this niche market. These niche markets tend to be countries that maybe has a bit more difficulty putting up a strong credit line, so maybe they don't, credit support, so maybe they don't buy ten years of LNG. Maybe they buy spot cargos a couple at a time or several at a time. And that is something that we're definitely seeing. So these new import destinations, typically through FSRUs and, let's say, with less strong buyers. Yes, that is something that we're seeing.

 And when it comes to the price of LNG, our feeling is that the price of LNG will remain under pressure for some time. Simply, if the price of LNGs is low today, well, logic says that it shouldn't be too much higher when you have 50% more of it. Of course, we have a lot of new buyers, et cetera. But I think that it's fair to assume that gas prices coming from LNG will be pretty competitive. But that, on the positive side, is also facilitating trade and new buyers that are very focused on price.

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 Fotis Giannakoulis,  Morgan Stanley - Analyst   [31]
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 And Tony, in terms of a pricing floor, do you have an idea what will drive the price volumes that will be sold and potentially might have to go to the European spot market? What will be the pricing mechanism? Is it going to be the Russian gas price that will set the floor? Is it going to be the US price and the margin of US producers? And also, how do you view the possibility and some of the bears in this market, they talk about US volume being shut in? Do you think that this is something that you are counting your base case?

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 Tony Lauritzen,  Dynagas LNG Partners LP - CEO   [32]
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 So first of all, let's say the price setter of the floor of the LNG is also difficult to say if that would be US pricing or if that is Russian volumes from pipelines. I think in general, when there's a lot of gas, many producers, that will have an impact on the price.

 When it comes to US volumes, if that will be shut in, I don't think so. I think that it's healthy for commodity prices to be competitive. Of course, within a reasonable, let's say, pricing. But I think that what is important is that of the US gas, most of that, if not even all, is spoken for. So I see it very difficult for that to be shut in.

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 Fotis Giannakoulis,  Morgan Stanley - Analyst   [33]
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 And given the growth projections that you and the other industry participants have going forward, at some point, I assume after 2020, the market would look quite tight. At what point do you think that there are going to be more buyers, long-term buyers willing to step in to try to secure post-2020 volume under long-term offtakes? And in other words, when do you think that we should start seeing new FIDs, and how many FIDs do you project that we are going to see the next two, three years?

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 Tony Lauritzen,  Dynagas LNG Partners LP - CEO   [34]
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 Thank you. How many FIDs we will see in the next two or three years is impossible for us to put a number on. I do think that, as you say, what we're seeing now is that we're seeing a general adaptation to LNG and gas being used more and more, let's say, worldwide. As we pointed out in the presentation, in 1990 there were only nine LNG trading routes. Last year, there were 232. Basically, what we're seeing is a lot of worldwide investments into LNG infrastructure. So obviously, it's important to have that infrastructure in place so that the LNG can be utilized broadly.

 And I think that basically, the industry has come a very long way in facilitating that. There is still some distance to go. But just looking at what is happening in the market and how the industry is changing, how many new countries are importing LNG through land base, or now in particular, floating regas solutions, I think that it shouldn't take too long until we see long-term buying again. If that is within a year from now or within three years from now, we don't really know. But certainly, the long-term buying is going to come back.

------------------------------
 Fotis Giannakoulis,  Morgan Stanley - Analyst   [35]
------------------------------
 And if you allow me one last question about your cool pool. You have pioneered the cool pooling arrangement in the LNG market. And there are some articles talking about having signed some contracts of affreightment. This is something really new in the LNG market. Can you describe to us what kind of employment opportunities you can create through the cool pool and how does this impact your bottom line?

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 Tony Lauritzen,  Dynagas LNG Partners LP - CEO   [36]
------------------------------
 I think that first of all, the Partnership is not involved in the cool pool. So it wouldn't affect our bottom line at all. But we've been very well received, as well, the cool pool has been very well received in the market. We've done certain innovative structures with some counterparties. We can't say too much about it. But that has certainly yielded a lot of volumes. Within this first year of operation, the pool did close to 90 fixtures. Given that one year of total fixtures in the market is probably 300, 90 is a pretty good chunk of that.

 So the great advantage of the pool really is that it's a mechanism and it's a tool that is very beneficial for the owners in it and it is beneficial for the charterers. Because we're able to address very quickly, let's say, the more and more complex chartering structures that counterparties are looking for. If we go back a decade or so, there are pretty much no spot fixtures. There were very few spot cargos and certainly very few spot LNG fixtures to support that spot cargo. Now what you're seeing is probably around 25% of all cargos are probably traded spot. That hasn't translated into 25% of all shipping being done spot, and quite far from it, actually. But we're seeing a year-on-year increase in the number of spot fixtures, which is pretty impressive.

 And the pool is really the only tool out there that is big enough and able enough to capture this in a meaningful way. And what the pool can do is, for example, fix vessels with forward delivery. It's not a problem. And we can fix a string of cargos with forward delivery. And what we can do is to trade the fleet around that. Because the fleet in the pool is made up of very similar vessels that have very similar size, very similar propulsion, from owners with good experience that tick all the boxes, meaning that the charterers are more or less indifferent to which of those owners are lifting that cargo. So instead of locking in a ship for a specific forward cargo, we just say we will lift that cargo with one of our vessels. And that has turned out to be an instrument and a tool that is very good for where the market is heading.

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 Fotis Giannakoulis,  Morgan Stanley - Analyst   [37]
------------------------------
 Thank you very much, Tony.

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 Tony Lauritzen,  Dynagas LNG Partners LP - CEO   [38]
------------------------------
 You're welcome.

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Operator   [39]
------------------------------
 Thank you. The next question comes from the line of Randy Giveans. Please ask your question.

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 Randy Giveans,  Jefferies & Co. - Analyst   [40]
------------------------------
 Thank you and good morning, guys. One quick modeling question and one chartering question. So you mentioned the upcoming dry dockings in 2017. First, should we assume about 30 days for each of these and which quarters do you expect those to happen?

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 Michael Gregos,  Dynagas LNG Partners LP - CFO   [41]
------------------------------
 Yes. We expect one dry dock in Q1 of next year and the other two to take place around June, July. And their duration is about 20 days.

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 Randy Giveans,  Jefferies & Co. - Analyst   [42]
------------------------------
 20 days. Perfect. Then lastly, so now that the Clean Energy is on that long-term charter, so your only vessel without coverage after 2018 is the Arctic Aurora. First, by when would the optional extension have to be exercised, and then if not exercised, what are your plans for chartering that vessel after the current charter expires?

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 Tony Lauritzen,  Dynagas LNG Partners LP - CEO   [43]
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 Which one? You mean the Arctic Aurora?

------------------------------
 Randy Giveans,  Jefferies & Co. - Analyst   [44]
------------------------------
 Correct.

------------------------------
 Tony Lauritzen,  Dynagas LNG Partners LP - CEO   [45]
------------------------------
 On the Arctic Aurora, the options have expired. There are currently no options on that. So that is a vessel that would be potentially open in 2018 and yes, we feel very confident about the market at that time and we believe it's a great vessel, extremely versatile, that is ice classed and winterized and can trade really as competitive as a conventional vessel, as well. So we're not in an urgent mood to do something on that vessel.

------------------------------
 Randy Giveans,  Jefferies & Co. - Analyst   [46]
------------------------------
 Sure, sure. You still have a few years there. That's all I got. Thank you so much.

------------------------------
 Tony Lauritzen,  Dynagas LNG Partners LP - CEO   [47]
------------------------------
 Thank you.

------------------------------
Operator   [48]
------------------------------
 Thank you. The next question comes from the line of Gregory Lewis. Please ask your question.

------------------------------
 Joe Nelson,  Credit Suisse - Analyst   [49]
------------------------------
 Thank you and good morning. It's Joe Nelson on for Greg today. One quick one for me, I guess. And maybe it's a bit of a two-parter. You guys called out the limited new build ordering this year, and the Korean yards themselves are having their own stress. What kind of pricing pressure for new builds are you guys seeing? And then as a corollary to that, have you seen a weakness in new build pricing maybe spark some tendering activity from some of these projects that are on development that may not have secured their vessel requirements yet?

------------------------------
 Tony Lauritzen,  Dynagas LNG Partners LP - CEO   [50]
------------------------------
 Yes. So look, it's true that the Korean yards are under pressure. As we understand that now, at least there are some good solutions in place to handle the future for the yard. So that's comforting. LNG carriers are always competing with other tonnage, as well, because none of these yards are only building LNG carriers. So we're very much competing against, for example, normal tanker market, offshore market, dry bulk and other things.

 So basically, since in general the shipping market has been pretty bad and it's gone through a tough time, we haven't seen a lot of competing orders in the other segments on those yards that are building LNG carriers. So it is true that there is some pressure on LNG new builds. And we don't know if that's a temporary pressure or that is something that will come off at some point one day when it's secured a couple of orders. Yes, I think that some of the yards would be happy to, let's say, receive some orders, even if that is at some competitive pricing.

 If that translates into more competitive charter rates for the project -- I think that was your question -- that's yet to be seen. Because often, the projects themselves, they move, they don't move quickly or slowly depending on what the ship building industry is doing. They just move in the pace that they're comfortable with, I think. So I don't think we should necessarily expect that lower ship building prices or lower temporary ship building prices would lead to a broader, let's say, competitive chartering markets for projects.

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 Joe Nelson,  Credit Suisse - Analyst   [51]
------------------------------
 Great. Thanks very much, guys.

------------------------------
 Tony Lauritzen,  Dynagas LNG Partners LP - CEO   [52]
------------------------------
 You're welcome.

------------------------------
Operator   [53]
------------------------------
 Thank you. There are no further questions at this time.

 (Operator Instructions)

 There are no further questions at this time. Please continue.

------------------------------
 Tony Lauritzen,  Dynagas LNG Partners LP - CEO   [54]
------------------------------
 So thank you to everyone for listening in on our call. We're looking forward to talking to you next time. Thank you very much.




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