Höegh LNG Partners LP
Q1 2021 Earnings Call Transcript

Published: 27 May 2021

[Operator:]

Good morning, ladies and gentlemen, and welcome to the Höegh LNG Partners Q1 2021 conference call. Please also note today’s event is being recorded. At this time, I’d like to turn the conference call over to Mr. Stohle, CEO of Höegh LNG. Please go ahead.

[Sveinung Stohle:]

Thank you, Jamie. Good morning, ladies and gentlemen, and welcome to Höegh LNG Partners earnings call for the first quarter of 2021. For your convenience, this webcast and presentation is available on our website. With me today, I have Mr. Havard Furu, the CFO of the Partnership. So turning to Page 2 in today’s presentation, I will take you through the quarter. And then hand over the word to Mr. Furu, who will take you through the financials. Then I will present a market update and the summary. You will have the opportunity to ask questions to both of us at the end of the presentation.

[Havard Furu:]

Thank you, Sveinung, and good morning, everyone. Turning to Page 9, we have the key figures for the quarters showing an operating performance, which was slightly weaker than in the same quarter of 2020 with a segment EBITDA of $34.5 million in the quarter, compared to $36.1 million in the first quarter of 2020. The operating results led to distributable cash flow of $17.1 million, which was about $1 million less than in the same quarter of 2020. The coverage ratio was 1.14 times and that is a decline from 1.2 times in the first quarter of 2020. I’d like to thank all of our seafarers and onshore staff, enabling the Partnership to continue to operate all of its assets without interruptions during these unprecedented times. Turning to Page 10, we are showing the development in key measures over time. And as you can see from the graphs, the operating performance remains relatively stable. The only exception is the second quarter of 2019, which was impacted by the drydocking and maintenance of the Höegh Gallant. Höegh Grace is the next vessel due for periodic survey and this commenced in the first quarter of 2021 and is expected to be completed during the second quarter. However, this is carried out afloat and is not expected to cause any significant downtime or fire. I would further like to highlight the stability in distributions from the partnership through the pandemic. Moving on to Page 11, here we are showing the income statement in more detail. Total revenues of $34.8 million in the quarter was about $1.9 million less than in the same period in 2020, mainly due to reduced time charter revenue for the Höegh Gallant under its new charter. Vessel operating expenses was $6.2 million in the quarter, or up by $0.7 million from the same period in 2020. The increase is driven by higher operating expenses for the PGN FSRU Lampung and the Höegh Grace as well as less need for spare parts and lower use of external services in 2020. Equity in earnings of joint ventures for the quarter was $11.1 million, an increase from a loss of $10 million for the same period in 2020. Unrealized gains and losses on derivative instruments significantly impacted the equity in earnings of joint ventures for the first quarter of 2021 and 2020 respectively. Excluding these derivative items, the equity in earnings from joint ventures would have been $3.4 million this quarter, an increase from $1.7 million in the same period 2020. Total financial expense of $6.2 million in the quarter is down by $0.8 million from the same quarter 2020, mainly due to lower interest expense as debt is amortized.

[Sveinung Stohle:]

Thank you, Havard. So turning to Page 14 and the LNG market looked in at the total market. So Global LNG trade rose with about 1.2% year-on-year in the first quarter. Asia keeps being the region with the highest growth in LNG input volumes. At the first quarter of 2021 is the quarter with the highest volume of imported LNG in history. China has a strong year-on-year growth of 14.4% in the first quarter, mainly due to the fact that in the same quarter last year, of course the Chinese economy was affected by COVID. Turning to Page 15, we have two graphs illustrating the expected development in the global LNG markets from now until 2025. The graph on the left shows the expected growth in LNG inputs globally. And once again, you can see most of the growth is expected to be in the Asian region, excluding the legacy markets Japan, South Korea and Taiwan. The countries accounting for around three quarters of the expected input growth are all either existing or potential markets for FSRU import terminals, mainly China, India, Pakistan, and Thailand. The total market growth in the period 2020 to 2025 is expected to be according to this forecast about 23%. On the supply side, the incremental volume will most part come from Europe and the Americas, more specifically the U.S. and Russia. Turning to Page 16, which gives an overview of the expected development in floating regasification terminal projects, and also when these are expected to come on-stream versus the assumed FSRU fleet input capacity illustrated by the green-dashed line. The dark blue line – blue dashed line, sorry, represents all announced floating regas projects, but some of this have a low probability of materializing. They are not all included in the forward projections. As you can see, the current capacity surplus in the FSRU market is expected to be reduced. And an important point to make a list of FSRU would be committed to project several months or even years before the start date of the project, meaning that the market balance and cash balance can become tight at an earlier point in time than what can we see on this graph.

[Operator:]

Our first question today comes from Chris Wetherbee from Citigroup. Please go ahead with your question.

[James Monigan:]

Hey guys. Good morning. This is James on for Chris. Just wanting to basically – perhaps sort of like the current market environment. It definitely seems like there’s a bit up there for assets from pools of private capital. Just wanted to understand if you basically, we’re seeing a bid for your particular assets and sort of like what you were sort of appetite for a sale, we’re just kind of wanting to go through, or just understand your thinking around that, and also what you were seeing?

[Sveinung Stohle:]

I was wondering, I mean, you have two questions. The line was a bit blur. Can you please repeat?

[James Monigan:]

Yes. There seems to be a bid for LNG assets out there with that out term. Have you actually been receiving any inbound or interest for your assets in particular and what are your thoughts around potentially selling to an incoming bid? What would your thinking around that be in terms of reservations or would it be something you would actively pursue?

[Sveinung Stohle:]

Okay. So, let me take the last one first. I mean, speaking on behalf of the partnership, looking at the remaining contract portfolio we have, I doubt very much that we would see numbers that would justify selling any of those assets. As for contracts – sorry, as for assets without contracts, we have had some indications. But I think that, as I just explained our view of the market certainly is such that we believe that the market is coming back into balance in the surplus of FSRU available is in the process of disappearing, as I explained a few minutes ago. And therefore, we believe that, there will be and there are ample availability of the commercial contracts that will make the assets certainly much more valuable with the contract and selling them without the contract or acting in the LNGC market. So even if we’ve had indications for potential purchase that we have, but that has always been in connection with a specific project, not the pure sale as such. Does that answer your question?

[James Monigan:]

Yes, it does. And it is helpful to understand that. But also sort of along the same lines, you mentioned you have spoken about the improving the environment. Could you also touch on the prospects you’re seeing for around the Gallant and like essentially what your sort of expectations for it would be sort of let’s call it like 12 months, 18 months out from now?

[Sveinung Stohle:]

Right. So on that obviously, Gallant is the basis for at least two ongoing, call it, projects or bids that we are actively pursuing. Those two are both for longer term contracts. Obviously, they are not term yet, but we are marketing the Gallant together with the three other FSRU that we currently have operating in the carrier market. So well, we should never say never until it’s confirm, but we believe that there’s very good prospects to have that on a longer term contract over a, call it, next one to two years.

[James Monigan:]

Got it. And sort of things don’t materialize the way you would think with the potential of sale that – potentially makes sense to you, or is that something that doesn’t necessarily align with how you think about the company in that assets?

[Sveinung Stohle:]

No. I mean, obviously, I guess, anything is for sale at the right price, but we do believe that the value of the assets is much, much higher than what you can obtain from a pure sale if you get a contract on it. And really at the moment actually the LNGC market is of course not on the level that we would like to see, but actually a lot better than it was only a short while ago. So we think that it’s with the model that we have and we can charge out in the LNGC market, whilst we develop long-term effort and new contracts. At the moment, we don’t really see any reason to change that.

[James Monigan:]

Understood. I’ll hop back in the queue. Bye.

[Sveinung Stohle:]

Thank you.

[Operator:]

Our next question comes from Liam Burke from B. Riley FBR. Please go ahead with your question.

[Liam Burke:]

Yes. Thank you. How are you today?

[Sveinung Stohle:]

Very good. Thank you.

[Liam Burke:]

Could we go – when I look at the acquisition of Höegh LNG and historically you’ve been able to grow through the dropdown arrangement? How does this arrangement change your look at possibly buying assets outside the old sponsor MLP relationship?

[Sveinung Stohle:]

Right. That’s a very good question. Clearly with this change that opens the door for the Partnership to acquire basically assets from also other parties, so that for the Partnership obviously it’s an important change.

[Liam Burke:]

Would look at that as an opportunity or be able to go outside the traditional dropdown avenue?

[Sveinung Stohle:]

Well, I think it’s both, right, because as we have referred to in the statement the parent still holds the door open for potential drop downs if the conditions are right for both parties. So that is still a potential avenue for potential growth.

[Liam Burke:]

Great. And quick question on the progress you’re making on the refinancing of the Neptune. I know that’s in conjunction with your JV partner, but can we get a little more detail on that?

[Sveinung Stohle:]

Yes. Please go ahead Furu.

[Havard Furu:]

Yes. I think I can say that we have an active dialogue with the existing vendors on that refinancing for both vessels. So it’s Neptune and Cape Ann. As you know the Cape Ann facility matures six months later than the Neptune. So we are pursuing to refinance both of them at the same time. So we’re working on that, it’s too early to discuss and reveal details around that. But it is an active dialogue ongoing.

[Liam Burke:]

Great. Thank you very much.

[Sveinung Stohle:]

Thank you.

[Operator:]

And ladies and gentlemen, at this time, we’ve reached the end of today’s question-and-answer session. I’d like to turn the floor back over to the management team for any closing remarks.

[Sveinung Stohle:]

Yes. Thank you, Jamie. I would like to thank everybody for dialing in and participating in the call and also for the questions. So thank you very much. And we close from here.

[Operator:]

And ladies and gentlemen, with that we’ll conclude today’s presentation. We do thank you for attending. You may now disconnect your lines.