Dorian LPG: Market Fundamentals Remain Strong

Dorian LPG Ltd., a leading owner and operator of modern very large gas carriers (“VLGCs”), reported its financial results for the three months ended September 30, 2024.

Key Recent Development

Declared an irregular dividend totaling $42.8 million to be paid on or about November 25, 2024 to shareholders of record as of November 5, 2024.

Highlights for the Second Quarter Fiscal Year 2025

Revenues of $82.4 million.

Time Charter Equivalent (“TCE”)(1) rate per available day for our fleet of $37,010.

Net income of $9.4 million, or $0.22 earnings per diluted share (“EPS”), and adjusted net income(1) of $15.0 million, or $0.35 adjusted earnings per diluted share (“adjusted EPS”).(1)

Adjusted EBITDA(1) of $46.2 million.

Declared and paid an irregular cash dividend totaling $42.8 million in August 2024.

TCE, adjusted net income, adjusted EPS and adjusted EBITDA are non-U.S. GAAP measures. Refer to the reconciliation of revenues to TCE, net income to adjusted net income, EPS to adjusted EPS and net income to adjusted EBITDA included in this press release under the heading “Financial Information.”

John C. Hadjipateras, Chairman, President and Chief Executive Officer of the Company, commented, “Rates during the quarter reflect a return to a balanced market as the Panama Canal drought effect has reversed. The fundamentals of the seaborne LPG trade remain strong, as LPG’s availability, cost effectiveness, and environmental footprint make it a fuel of choice for many applications. Our view of the VLGC sector prospects underpinned our dividend declaration this quarter and reflects our commitment to disciplined capital allocation. I am happy to welcome Mark Ross to our Board of Directors. Mark recently retired as President of Chevron Shipping. Mark’s expertise and the values we share will contribute positively to the continuing success of Dorian. As always, I acknowledge our dedicated seafarers and shoreside staff, whose hard work and dedication make our results possible.”

Second Quarter Fiscal Year 2025 Results Summary

Net income amounted to $9.4 million, or $0.22 per diluted share, for the three months ended September 30, 2024, compared to $76.5 million, or $1.89 per diluted share, for the three months ended September 30, 2023.

Adjusted net income amounted to $15.0 million, or $0.35 per diluted share, for the three months ended September 30, 2024, compared to adjusted net income of $75.0 million, or $1.85 per diluted share, for the three months ended September 30, 2023. Adjusted net income for the three months ended September 30, 2024 is calculated by adjusting net income for the same period to exclude an unrealized loss on derivative instruments of $5.6 million. Please refer to the reconciliation of net income to adjusted net income, which appears later in this press release.

The $60.0 million decrease in adjusted net income for the three months ended September 30, 2024, compared to the three months ended September 30, 2023, is primarily attributable to (i) a decrease of $62.3 million in revenues; (ii) increases of $2.9 million in general and administrative expenses, and $0.4 million in depreciation and amortization; (iii) a $1.6 million unfavorable change in other gain/(loss), net; and (iv) a decrease in realized gain on derivatives of $0.2 million; partially offset by an increase of $2.5 million in interest income and decreases of $2.2 million in charter hire expenses, $1.5 million in vessel operating expenses, $0.9 in interest and finance costs, and $0.4 million in voyage expenses.

The TCE rate per available day for our fleet was $37,010 for the three months ended September 30, 2024, a 41.1% decrease from $62,846 for the same period in the prior year. Please see footnote 7 to the table in “Financial Information” below for information related to how we calculate TCE.

Vessel operating expenses per vessel per calendar day decreased to $10,114 for the three months ended September 30, 2024 compared to $10,858 in the same period in the prior year. Please see “Vessel Operating Expenses” below for more information.

Revenues

Revenues, which represent net pool revenues—related party, time charter revenues, and other revenues, net, were $82.4 million for the three months ended September 30, 2024, a decrease of $62.3 million, or 43.0%, from $144.7 million for the three months ended September 30, 2023 primarily due to reduced average TCE rates, which declined by $25,836 per available day from $62,846 for the three months ended September 30, 2023 to $37,010 for the three months ended September 30, 2024, primarily due to lower spot rates. The Baltic Exchange Liquid Petroleum Gas Index, an index published daily by the Baltic Exchange for the spot market rate for the benchmark Ras Tanura-Chiba route (expressed as U.S. dollars per metric ton), averaged $52.049 during the three months ended September 30, 2024 compared to an average of $121.007 during the six months ended September 30, 2023.

Vessel Operating Expenses

Vessel operating expenses were $19.5 million during the three months ended September 30, 2024, or $10,114 per vessel per calendar day, which is calculated by dividing vessel operating expenses by calendar days for the relevant time-period for the technically-managed vessels that were in our fleet and decreased by $1.5 million, or 6.9% from $21.0 million for the three months ended September 30, 2023. The decrease of $744 per vessel per calendar day, from $10,858 for the three months ended September 30, 2023 to $10,114 per vessel per calendar day for the three months ended September 30, 2024 was primarily the result of decreases per vessel per calendar day of $301 for spares and stores, $166 for lubricants, $116 for repairs and maintenance and $207 per vessel per calendar day for other vessel operating expenses. Excluding non-capitalizable drydock-related operating expenses, daily operating expenses decreased by $632 from $10,399 for the three months ended September 30, 2023 to $9,767 for the three months ended September 30, 2024.

Market Outlook & Update

External factors were influential on the market, particularly in the U.S. Gulf where weather effects of Hurricane Beryl played a major role. Exports in the U.S. were limited in July and fell nearly 0.5 million metric tons (“MM MT”) from June 2024. Hurricane Beryl hampered terminals from finding the required capacity to clear the backlog of vessels from delays in June when chiller breakdowns were witnessed, the Panama Canal saw minimal delays to shipping, and tropical storm Alberto reduced export capacity.

Total exports in August from the U.S. reached a record high level of 5.8 MM MT, evidencing strong production numbers in North America. For the freight market, however, rates reduced in July and August, although the latter part of September and the first part of October saw a rebound in rates, once vessel supply reduced. While vessel supply was rebalancing, terminal fees for available spot cargoes significantly strengthened , reflecting the limited terminal capacity during the period. Higher terminal fees compressed the arbitrage between the U.S. and Asia, although demonstrating that traders of the arbitrage were willing to pay the higher fees because the trade remained profitable. Terminal fees are forecast to remain strong for the rest of the year particularly with additional maintenance/force majeure seen at the Nederland terminal at the end of September/beginning of October.

Imports into China fell from 3.48 MM MT in July to under 3 MM MT in August, indicative of the reduced export capacity from the U.S. in June and July. Chinese imports also remained below July levels in September, at under 3.1 MM MT, with part of the reason being lower demand ahead of the National Day holiday in early October. Limited upside on olefin/polyolefin prices also reduced the incentive for increasing imports dramatically. According to NGLStrategy’s analysis, steam cracking margins for propane in the Far East fell from an average of $66 per metric ton in Q2 2024 to $2 per metric ton in Q3 2024. In NW Europe, economics were superior to those seen in the East, with naphtha margins returning to positive territory in August after reaching an average of ($118) per metric ton in July. The challenging plant economics are resulting in lower operating rates for some plants, particularly PDH plants, where nominal overcapacity remains in China, keeping margins for the production of propylene and polypropylene at low levels.

A further 3 new VLGCs were added during Q3 2024, adding some extra capacity to a freight market that has been primarily impacted by the overhang of vessel supply in the U.S. Gulf Coast (“USGC”) from the quarter prior, capacity limitations at USGC terminals, and the aftermath of Hurricane Beryl. The fourth calendar quarter of 2024 has a similar number of scheduled deliveries, but seasonality indicates increased seaborne trade for LPG with winter demand increasing in the far east.

An additional 41 VLGCs equivalent to roughly 3.6 million cbm of carrying capacity are expected to be added to the global fleet by calendar year 2027. The average age of the global fleet is now approximately 10.6 years old. Currently the VLGC orderbook stands at approximately 10% of the global fleet, excluding the VLAC (Very Large Ammonia Carriers) and VLEC (Very Large Ethane Carriers) orderbook which totals 119 vessels with potential capability to carry LPG as a product.

The above market outlook update is based on information, data and estimates derived from industry sources available as of the date of this release, and there can be no assurances that such trends will continue or that anticipated developments in freight rates, export volumes, the VLGC orderbook or other market indicators will materialize. This information, data and estimates involve a number of assumptions and limitations, are subject to risks and uncertainties, and are subject to change based on various factors. You are cautioned not to give undue weight to such information, data and estimates. We have not independently verified any third-party information, verified that more recent information is not available and undertake no obligation to update this information unless legally obligated.

Seasonality

Liquefied gases are primarily used for industrial and domestic heating, as chemical and refinery feedstock, as transportation fuel and in agriculture. The LPG shipping market historically has been stronger in the spring and summer months in anticipation of increased consumption of propane and butane for heating during the winter months. In addition, unpredictable weather patterns in these months tend to disrupt vessel scheduling and the supply of certain commodities. Demand for our vessels therefore may be stronger in our quarters ending June 30 and September 30 and relatively weaker during our quarters ending December 31 and March 31, although 12-month time charter rates tend to smooth out these short-term fluctuations and recent LPG shipping market activity has not yielded the typical seasonal results. The increase in petrochemical industry buying has contributed to less marked seasonality than in the past, but there can no guarantee that this trend will continue. To the extent any of our time charters expire during the typically weaker fiscal quarters ending December 31 and March 31, it may not be possible to re-charter our vessels at similar rates. As a result, we may have to accept lower rates or experience off-hire time for our vessels, which may adversely impact our business, financial condition and operating results.
Source: Dorian LPG Ltd.