Navigator Holdings Ltd.
Q4 2014 Earnings Call Transcript

Published: 18 Mar 2015

[Operator:]

Thank you for standing by, ladies and gentlemen, and welcome to the Navigator Holdings Conference Call on the Fourth Quarter 2014 Financial Results. We have with us Mr. David Butters, Chairman, President and Chief Executive Officer; Mr. Niall Nolan, Chief Financial Officer; Mr. Oeyvind Lindeman, Chief Commercial Officer; Mr. Tommy Hjalmas, Chief Operation Officer; Mr. Paul Flaherty, Director of Fleet & Technical Operations. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session [Operator Instructions]. I must advise you this conference is being recorded today. And I now pass the floor to your speaker today, Mr. Butters. Please go ahead sir.

[David Butters:]

Thank you, Julie and good morning everyone and welcome to Navigator's year-end earnings conference call. Over the past half year or so we have witnessed some of the negative impact of Saudi Arabia’s redirecting of its energy strategy to keep the oil prices low and to maintain its market share. Companies engaged in providing drilling services, production enhancement, and oil field equipment have seen their revenues plummet, their capital expenditures curtailed and in many cases, dividends cut or eliminated. But if a certain amount of gloom has set in among the US energy producers and investors, one place it hasn’t reached is Navigator Gas. Navigator has managed through this difficult time, achieving record revenues, record earnings and record cash flow and more importantly, we see this trend continuing through 2015. Our immunity to the Saudi contagion is best exemplified by our fourth quarter earnings per share of $0.44, twice what we achieved a year ago. Niall Nolan, our Chief Financial Officer, will shortly cover the details of the quarterly performance, as well as the full year. Oeyvind Lindeman will follow that with the update of the commercial activity and a market update. Now, our success is in part the result of the continued growth in the supply of global, and I stress the word global supply of LPG and the resulting demand for seaborne transportation, which has not been materially dampened by lower crude pricing. Moreover, Navigator continues to be the shipping company of choice for a wide range of charters, not least because we have a dominant position in modern, technologically advanced vessels for the LPG and petrochemical gas markets. Our success is also the result of the unique partnership forged among our customers, employees and other stakeholders. Throughout the year, we’ve worked hard to understand our customers’ capabilities and needs and we believe this effort brought a closer alignment between our company and our customer base. Our fleet is strong, it is modern and is reflective of both customer needs and industry trends. By April of this year, when the fifth handy-sized ethylene-capable new build is delivered, Navigator will own 10 handy-sized vessels capable of carrying both ethylene and ethane, as well as a full range of LPG products, putting Navigator in an unchallenged position in a segment that is expected to experience exceptional growth over the next decade. Our preeminent position in the handy-sized ethane market will be reinforced upon delivery of our four 35,000 cubic meter ethane vessels, currently being built with delivery expected from mid-2016 and extending into early 2017. While our business is strong and is expected to remain strong, the perception remains that somehow the fate of Navigator and indeed all LPG related companies, remains inextricably tied to the price of oil. I will not speak to the markets of very large gas carriers, except to note that it is a very different business from ours. Ours is a semi-refrigerated and a very different and distinguished business. But I will argue that the crude price levels have only a marginal impact on the demand for Navigator’s vessels. It is a basic premise that lower crude prices generally result in stronger demand for oil and its derivatives such as LPG, and indeed we are seeing that growth. Furthermore, our business is truly an international trading business, with no country or company the source of more than 12% of our revenues. We also carry a diverse group of products. In addition to our core LPG market; we carry ammonia and a variety of petrochemical gas products. We believe our geographical diversity and ability to carry a wide range of refrigerated and ambient products is our strength. Now I’m not saying that crude pricing and product differentials don’t have some degree of marginal short-term impact on our business. Obviously price volatility and diminished spreads will influence a trader’s behavior in any one moment in time and consequently a cargo may get deferred for a day or two and sometimes a bit longer, but eventually it dos get sold and it will be transported. I believe the fourth quarter results reflect product elasticity and not charter rate elasticity, as we are confident that our results will progressively show that our business is reasonably immune to crude gas differentials. Now last week we concluded the fixture that I believe pretty well reflects what we have been saying about our unique diverse mix of business, as well as the related indifference to crude gas differentials. We fixed the full cargo of ethylene from Targa’s Houston terminal to the Far East for a major customer. This was not done on a VLEC, nor was it done on a mid-sized ethylene carrier where the economics of scale can play a role. It wasn’t done on them because there were none. It was done on one of our new 22,000 cubic meter ethylene carriers. This voyage, which will take around two and half months on a round trip basis, reflects the charter’s belief that ethylene from the US can be bought and transported halfway around the world and be at a profitable trade for the buyer. The reason the trade works is simply the price flexibility of the product, in this case ethylene. We are hopeful that more of these profitable voyages develop over the coming years as America builds out its ethylene manufacturing capabilities. Finally, a word about large scale US ethane exports. Since our last conference call, we have seen no further contracts entered into with producers or terminal operators, but at the same time we know that interest remains strong and to our knowledge no company that was previously discussing export projects has terminated discussions or lost interest. It is understood and understandable that importers are grasping to understand the long-term implications of the Saudi move and the impact it will have on their overall business. We believe that further ethane and ethylene exports will develop over time and we are in a prepared mode to act should we be fortunate enough to be included in any of these projects. Now with that, I’d like to hand the conference call over to Niall who’ll run through the fourth quarter numbers for you.

[Niall Nolan:]

Thank you, David, and good morning. The 2014 fourth quarter results and those for the full year ended December 31, 2014 were undoubtedly a record for Navigator Gas. With full year revenue up 27% at $305 million and net income of 106% at $84 million, the company has clearly demonstrated significant growth over the past year and one which we expect to continue with our existing new-build program in place and the marked lack of any significant volatility in our charter rates despite the turmoil in the oil markets. Operating revenue for the fourth quarter was up 16.5% at $78.4 million, compared to the fourth quarter of 2013. This $11.1 million increase derived $5.2 million as a result of the increased fleet size, compared to the fourth quarter of 2013, $7.2 million from an improvement in our utilization rate to 94.8% for the quarter and $3 million from increased charter rates, which rose from $830,500 per month, or $27,300 per day in the fourth quarter of 2013, to an average of $912,000 per month, or $30,646 per day for the most recent quarter. Set against this was a reduction in revenue of $4.3 million as a result of undertaking the less higher generating spot businesses and more time charter business relative to the fourth quarter of last year. For the year as a whole, operating revenue rose by $66.5 million to $305 million, an increase of 27% as I just mentioned. The majority of this increase, $49 million related to increased fleet size following a full year’s trading of the 2013 acquired AP Moeller handy-size fleet, as well as our own three additional new-builds delivered during 2014. In addition, operating revenue increased by $14 million as a result of increases in charter rates over the past year, referred to a moment ago and approximately $12 million as a consequence of increased vessel utilization to 97.3% for the full year, just above our 10 year average utilization rate of 97.26%. We ended the year with a total of 26 vessels in the water as at December 31, 2014, following the delivery of Navigator Oberon on December 5, our current new-build delivered during 2014, and the return of Maple 3, our chartered-in vessel which occurred in late December. Our new-build order book stood at 12 vessels at December 31, although Navigator Triton, an ethylene carrier, has since been delivered on January 9, 2015, taking our current order book to 11 vessels. As well as taking delivery of an expected three new-buildings during 2015, we will undertake eight dry dockings during the forthcoming year, the first which is undergoing dry docking as we speak. Custom dry dockings are principally capitalized and amortized over the period until the next dry docking in either two and a half year time or five years’ time, but we do not earn revenue for approximately 20 to 30 days per vessel while each vessel is either in or sailing to or from the dock yard. Voyage expense decreased in both fourth quarter and the full year of 2014 by approximately $4.3 million as we earned more time charter revenue as a percentage of total operating revenue during those periods relative to the equivalent period in 2013. As I explained previously however, voyage expenses such as bumpers, port costs and canal tows, are a pass-through cost on spot charters and therefore movements in these costs can be essentially disregard as they are an evolution of the charter mix between spot and time charter. Vessel operating expenses however are real costs to us as they include costs for crewing and maintaining the vessels. These costs reduced by 3.5% for the fourth quarter relative to the fourth of 2013 as costs were carefully controlled. For the full year ended December 31 2014, vessel operating expenses increased by 25% to $70 million solely due to the increase in fleet size. Despite the overall increase, this overall increase in vessel operating expenses, the average daily rates per vessel reduced for the full year from a daily rate of $8,115 over the 12 months of 2013 to $8,068 during the 12 months to end of December 31, 2014. General and administrative costs and other corporate expenses rose by approximately 20% to $9.6 million for the 12 months to December 31, 2013 to $12.6 million for the 12 months of 2014. This was as a consequence of additional costs attributed to an increased number of employees associated with the fleet expansion and also as a result of increased costs associated with being a publically listed company. Interest costs reduced by $0.8 of a million from $8.2 million for the fourth quarter of 2013 to $7.4 million for the three month ended December 31, 2014 as overall borrowings decreased despite drawing down $90 million associated with the delivery of the three 2004 the new buildings. We previously reported pre-paying $120 million in July 2014 against one of our bank’s loan facilities from surplus cash as a result of the 2013 IPO and since then we have redrawn half of that $60 million for installment payments on some of our new buildings, leaving a further $60 million available for future drawdowns. Overall interest for the full year ended December 31, 2014 rose 5.4% to $30.3 million as the level of borrowings throughout the year were greater than those for the comparative period in 2013. Net income rose by a significant 123% and 106% for the fourth quarter and 12 month period to December 31, 2014 respectively relative to the equivalent period in 2013. Earnings per share rose to $0.44 for the fourth quarter based on weighted average number of 55.6 million shares in issue, compared to $0.22 for the fourth quarter of 2013 based on a lower 49.8 million shares in issue at that time. This results in an earnings per share of $1.53 for the full 12 months of 2014 compared to $0.89 for the 12 months of 2013. EBITDA for the three months to December 31, 2014 rose 47% to $44.1 million compared to $30 million during the fourth quarter of 2013 and also increased by 50.6% for the full year to $161.3 from $107.1 million for the full year of 2013. Now looking at the balance sheet, cash at December 31 stood at $62.5 million, down from $194.7 million that we held at the end of 2013. This follows the $60 million net pre-payment on the bank loan mentioned a moment ago and a total of $220 million paid to the shipyards for a combination of the three vessel deliveries, against which we drew $90 million from the secured bank loan and further installments on the other vessels currently under construction. During 2015, we expect to pay $194 million to the shipyard, $48 million of which has already been paid principally on the delivery of Navigator Triton, which was delivered as I mentioned on January the 9th. At December 31, 2014 we had total commitment to the shipyard of $561 million, which we expect to finance from existing cash resources and additional debt finance. As previously announced, we’ve entered into a $278 million facility on January the 27th, 2015, effectively outsizing a previous $120 million facility. This facility has and will in the future fund the cost of the five 2014, 2015 ethylene carriers and the four subsequent semi-refrigerated new build deliveries. The terms of this loan are more favorable than its $120 million predecessor, with the term of the loan increased up to 7 years from each vessel’s delivery, the loan to value funding of 70% of the construction cost and interest at a reduced blended rate of 2.5% above US LIBOR. However, there is a requirement to write off $1.8 million of deferred financing costs on the original $120 million loan in the fourth quarter of 2015 in accordance with US GAAP, despite this loan being an enlargement of the previous loan. Net debt at December 31, 2014 was $480.3 million equating to a debt to capitalization rate of a modest 35%. Our average cost of debt is 4.7% on our expanding debt at December 31, 2014 and this includes the 9% payable on the $125 million bond. In summary, so it was a record 2014 results, and although the first quarter of 2015 was impacted by seasonal market softening, which Oeyvind will comment on in a moment, we believe the quarter one 2015 outcome will be just slightly shy of this record fourth quarter 2014 results, excluding the aforementioned effect of the $1.8 million write off in deferred financing cost, which will equate to about $0.03, and earnings per share of about $0.03. With that, thank you for your attention. I'll turn the call over to Oeyvind Lindeman

[Oeyvind Lindeman:]

Thank you, Niall and good morning all. I'll try to be brief. We carried 6.25 million tons of LPG, ammonia and petrochemical gases during 2014. That was up from 4 million tons during the previous year. These liquid gases were transported over 550 voyages. We called on 1,288 ports across the globe and performed 378 ship-to-ship loading and unloading operations. At year end our fleet consisted of 26 vessels. 20 of these at the time were traded under time charter and the remaining six traded in the spot market. The average coverage then for 2014 stood at 67%, slightly above our historical level of about 60/40 split. Typically the US domestic LPG demand increases during the winter months due to heating, with the consequence of reduced seaborne exports of natural gas liquids from and particularly the US East coast. This effect was eroded last January and February due to the combined influence of the polar vortex and low LPG inventories, which resulted in an extraordinary situation whereby we imported European LPG to US East coast, maintaining a healthy Trans-Atlantic trade during the winter months. Despite the cold spell experienced in many parts of the US during this winter, the high level of domestic LPG inventories being a direct consequence of the ever increasing shale gas production mitigated the need for imports. In parallel, the usually active MGM hub, export hub in market [indiscernible] Philadelphia, reduced the volume available to international customers which has softened the Trans-Atlantic trade market somewhat. That said, the US producers and exporters, in correlation with rising spring temperatures, are now very much back in the market offering volume available for export and for us to transport. Last week, Clarkson’s issued -- every week they issue a 12-month time charter assessment for our segment and that last week that stood at for 12 months handy-sized, semi-refrigerated ship at $32,800 a day and a fully ref handy-sized vessel at $27,900 a day and that was last week. Thank you.

[David Butters:]

Good. We can open the conference call now open to questions.

[Operator:]

Thank you. [Operator Instructions]. Your first question comes from the line of Ben Nolan of Stifel. Your line is now open.

[Ben Nolan:]

Thank you. I have several questions and I’ll try to keep them brief, but my first question relates to some of the vessels and Oeyvind you mentioned it that are currently on contract. But going over the list, it looks like about 11 of them come off contract between March and May. I was wondering if you could maybe give me a little bit of context about should there be any roll over in terms of the time charter rates at maybe higher levels or it will be approximately the same as where it was. Any color that you can add to that?

[David Butters:]

Oeyvind, you can do that one.

[Oeyvind Lindeman:]

Typically as you know, Ben, the markets we’re in, the segment we’re in typically 12 month time charters, plus minus and therefore throughout the year, typically these charters are rolled over to another 12-month time charter. Invariably, wherever you are time in the year, these ships regularly will be extended. However, the vessels do and we did mention, we have extended a few of them already being only middle of March. Some were options, some were new, but as a guidance, at least for the options that were declared that is in line with the Clarkson’s assessment that I just mentioned.

[David Butters:]

Do you have another question, Ben?

[Operator:]

We have a question from the line of Doug Mavrinac of Jefferies. Your line is now open.

[Doug Mavrinac:]

Thank you operator. Good morning David and Niall and Oeyvind. First off, congratulations on a great quarter. Despite all the uncertainty out there I think on the part of some people in the marketplace, record quarter in that type of environment is quite an accomplishment. My first question pertains to the quarter itself. There are two things that jumped out at me and obviously Oeyvind you mentioned the spring time and kind of how we all know things get seasonally soft, but during the fourth quarter, oil was in decline, yet this chartering environment was very strong. Before the winter kind of started to disrupt things, Oeyvind or team, what one or two things out there did you see kind of being the primary driver behind demand in the face of a declining oil environment that caused these rates to be so strong that you guys reported?

[David Butters:]

Oeyvind, why don’t you reflect on that one?

[Oeyvind Lindeman:]

I think, Doug it’s an excellent question and we always ask ourselves that question too, but it boils down to the fundamentals of LPG being a supply driven product. And the shale gas production in the US is not stopping any time soon. It’s been increasing ever since it started, with more volume that needs to be exported, yet you have big storages in the US in particular at Mount Bellevue. There still is an international market for that. So I think fourth quarter the real driver as all through last year, really new exports. I mean the existing terminal operators in the US, the Targas and Sunoco Enterprise, they would chock a block -- they were at first selling out all the available dock space to the range of different vessel sizes, including ours and I think that was the main, if we are going to mention something, that was the main point for the full quarter.

[Doug Mavrinac:]

Perfect, that’s very helpful, Oeyvind. And then as we kind of extrapolate that concept into 2015, the supply driven market that the US represents, can you guys talk about how your ships may be advantaged versus say some of your peers or versus some of the bigger VLGCs. Given what you know about the specifics about Marcus Hook, or Occidental, or what have you, how your ships may be more desirable given some of the specifics behind the export requirements for the projects that are planned to come online in 2015.

[David Butters:]

Oeyvind, if you mention the Occidental and the expansion in Marcus Hook, I think that would be helpful to be responsive to Doug’s question.

[Oeyvind Lindeman:]

Yeah, just the Occidental terminal, they’re opening up in Ingleside, Texas, which is a big naval base. They have huge dock space. They are gearing up for export of ambient i.e. warm propane and butane straight off the pipes there, which Navigator ships and refrigerated vessels are the largest ships that can load this kind of product because of the temperatures. We will definitely benefit very much from that specific terminal. The timeframe for that, the last time we met with Occidental they were talking about June this year. Then in Marcus Hook in particular, being close to Europe, European ports, may, some of them or many of them cannot take a VLGC, a large ship or they might not even have storage or demand for a large volume. So we go there regularly from the US. Also the US Gulf and the US East Coast to Europe and to Mediterranean west coast African ports, but the Mariner East One pipeline is coming. We expect or Sunoco is mentioning second quarter of this year, which will ramp up volume for Marcus Hook in particular. And in the meantime, MarkWest and the other producers and exporters on the US east coast have also communicated to us that the volumes are definitely on the rise. Now that we are in the spring time, they need to get, I’m afraid to say, but they need to get rid of this product because they have it and they need an outlet.

[Operator:]

Thank you. Your next question comes from the line of Ben Nolan. Your line is now open

[Ben Nolan:]

Actually my question that I was going to ask is sort of related to what you were just talking about on Marcus Hook there. I was looking at some of the things that Sunoco had put out and they’re talking about the possibility of a new polypropylene -- sorry, a propylene export facility there which obviously I would assume would have to go on a gas carrier like yours. Are you guys seeing my -- and I know that David you’d mentioned fixing a cargo of ethylene from the gulf coast to Asia. Are you guys seeing much momentum in terms of the pet-chem side on longer haul voyages which obviously lends itself to a larger ship?

[David Butters:]

Sure. I’ll let Oeyvind talked about the Mideast and what they’re doing on ethylene in a second. But look, pet-chem is a future for a lot of our activity. It’s not understood. The complicated vessels that have to carry this product, sometimes you carry different grades and different products in each of our tanks. Some of it we refrigerate and some ambient. So it’s a complicated business to trade. But if you listen to Sunoco Logistics and what they want to accomplish in their Marcus Hook facility, which is a large facility that is just now awakening if you will because up to this point the product coming into them has been essentially being trucked in from the Marcellus and trucked in or rail card in. And they’re opening the first of the pipe with Mariner East 1. In their expansion of over 270,000 barrels a day that will begin in the second half of late 2016, they anticipate a lot of pure grade product to be exported, but their game plan is to use that facility to sort of upgrade to make propylene for example and other upgraded products, part to create jobs and business activity in that part of the country and to encourage the regulators and so on to be kind to them and they’re getting the permits. But it’s a good economic strategy for the Philadelphia area, but it’s a brilliant thing for us because our vessels are the largest of the petroleum gas vessels. We carry -- we are the VLGCs if you will of the petrochemical gas markets, evidenced by the fact we can be economic by carrying ethylene from the U.S gulf all away to the Far East. We also have another interesting project the cargo being loaded next week or the week after in South America that is even more complicated because we have ethylene on one in cargo and propylene in the other cargo to make a full cargo and it's going just as this far. I didn’t mention that, but that again shows flexibility in the developing petrol chemical gas market. We talk about the ethylene. We are going to have enough a lot of excess ethylene coming out of the United States and a lot of that will be upgraded to pellets and shipped in bulk form, but I believe that the facilities and terminals in the gulf coast that have ready access to the ethylene manufacturers will be looking to export a lot of their liquids not till 2017. So it's not near term, but it's a market that we are going to build into and we are building our vessels into that market. And hopefully the vessels come at the same time as these facilities open up. It’s a complicated mix. I have to again to stress the difference between a VLGC markets, which is going to have really one function and that is to haul propane, refrigerated, fully refrigerated propane from the gulf coast in Mexico -- Gulf coast in the United States to the Far East or from the Persian Gulf to the Far East and they return empty. It's a shuttle business. It’s a one product business. It’s a fully refrigerated business and that’s just not what we are. We are a much more complicated, technically complicated and the marketing and chartering is far more detailed than what these other companies are doing. I'm very optimistic that the petro-chemical gas market as you rightly coined out, Ben, is developing, both in the Mideast and certainly in the United States and the Gulf coast and it will be in the East coast as well. But Oeyvind, why don’t you mention what’s happening in the Mideast as far as the ethylene business as we’re picking up now?

[Oeyvind Lindeman:]

Yeah, I mean on petro-chemicals, we’ve seen a size creep i.e. larger is better because of economies of scale, which falls into our domain. Now on the Middle East ethylene exports, we are the ones doing most of the ethylene molecules from [revise] in the Middle East to Europe. So we have the minute we have three ships going back and forth as a floating pipeline servicing that trade, delivering ethylene to the European market. In addition, there are expansion going on in the Middle East, particularly over in propylene and a few months there’s 200,000, 300,000 tons of propylene coming to market that needs to find a home and the home where is that? Well, it’s further afield. It’s Far East, it’s Europe, potentially even the US in the short term. That also falls to the domain of our size vessels. I think on the petrochemical side, there’s a lot of scope for an upside for Navigator trading in that environment.

[Operator:]

Thank you. Your next question comes from the line of Jon Chappell of Evercore ISI. Your line is now open.

[Jonathan Chappell:]

Thank you. It’s Evercore ISI. Hi guys. First question which I'm surprised hasn’t been asked so far is just an update on the three remaining 35,000 cubic meter ethane carriers that have not been contracted longer term yet. Can you give any progress reports on those and given what you talked about in the broader industry, any thoughts about maybe chartering those shorter term right out of the yard until longer term contracts emerge?

[David Butters:]

Thank you Jonathan and good to hear your voice. Those vessels aren’t due to us until approximately the fourth quarter of 2016. The first vessel coming out will be dedicated to Borealis on the long term charter. We are excited about that and they’re pleased with that vessel and how it's progressing. We are in talks with others. Obviously it's a little sensitive, but I'll try to put it this way, that there has been seemingly no letup in interest in ethylene carriage from the United States -- ethane carriage from the United States to, these are really designed for European type of market or Atlantic basin type of market where they can fit in and be very economic. I think things have been just differed a bit as I try to point out. Some decisions have to take a little built longer time as people evaluate changes. I think some things will jell a little earlier than later. I think by our next conference call I hope, and this is always dangerous to say that I would hope that we would have something more tangible to talk about, but on specific charter. On the other hand, those vessels today would be operating -- if we had them in the market, they would be operating at a very profitable rate and would be making very good money, whether it would be hauling fully refrigerated propane or we would be possibly handling ethylene or some other complex petrochemical gas. If the economics work for a handy-size vessel to go halfway around the world carrying ethylene, they will be just terrific if they carry on a 35,000 cubic meter ethane carrier, because ethane, ethylene, the same thing. I'm not concerned whatsoever about those vessels coming to the market. I just want them sooner than later, but they take time to build. But the long and short of it, my preference obviously would be to put them on long term charter just to build that core industrial leg built upon long term charters. That would be very nice even though the monetary returns might not be as attractive as we’re operating on today in the spot markets.

[Operator:]

Thank you. Your next question comes from line of Omar Nokta of Clarkson Capital. Your line is open.

[Omar Nokta:]

Hi David. Good morning. Now this has been helpful in a lot of my question have been answered. I just want to ask a little bit about the potential for a dividend. I know this is something that has been brought up in the past and you are still definitely in a growth phase with several new buildings coming on this year and over the next couple of years. How do you think about it where we are in the cycle and where you are in the corporate life cycle? Where are you on returning capital to shareholders?

[David Butters:]

Thanks. It’s always a good question. I just answered that to our board yesterday. Look, I mentioned in my prepared remarks that the ethane, trade particularly on the larger vessels that we don’t own and not even have been contracted to build, that that business may develop at any moment. It's been preferred, people evaluating what is happening in the oil markets, evaluating the economics, evaluating a variety of other things, but a lot of work has been done by the potential charters. They have not killed anything related to ethane exports. It's still in the process of evaluations. Some of them are closer than others and if we were to get a call tomorrow to be part of a major project, it would require probably capital up to maybe $500 to $600 million, $700 million of capital expenditures on our behalf to build new very large ethane carriers. I want to be in a position to be part of that. if we start a dividend policy today or indeed any kind of kind of use of capital outside of building our own steel, then I think we might jeopardize either the project being part of it in a full way or we would have to revisit the decision pay dividends. I don’t want to do either one of them. I want to be part of it. I think my attitude is we’re building a strong company. We’re very robust financially. We can handle everything very easily with what we have, with our capital program that’s in place today and indeed our projection at the end of three years we’re going to be very -- continue to be very to be very cash rich and a very strong balance sheet. But I want to be prepared. I think short term decision is a mistake. I want to be there if something develops quickly and that’s just the long and short of it is a simple, but honest answer. I'm not dismissive of a potential major program and I want to be part of it very much so.

[Operator:]

Thank you. Your next question comes from line of Andrew Casella of Imperial Capital. Your line is open.

[Andrew Casella:]

How are you? Congrats on the quarter. When we look at the down ticking commodity prices in the fourth quarter, can you frame the trend line from October through December? And then obviously you guys haven’t provided guidance in the past, but how are you seeing trends and strength even with oil around $40 into the first quarter?

[David Butters:]

I'm not quite sure I understand the question, Andrew. Could you …?

[Andrew Casella:]

Sure. Let me ask it again. I guess throughout the months when you saw weakness in the commodity pricing, the quarter -- in the fourth quarter from October, November, December, would you say it was directionally downward? Was it stable? I'm just trying to frame if it was incremental.

[David Butters:]

The only thing I could say, it does have a trend. What it does have is with the volatility as dramatic as it was in the fourth quarter, when it moves down as quickly as it has, you may have a delay on the part of a buyer of a cargo of X simply because yesterday he or she may have purchased it at $1 and it’s changed dramatically. They hold off a day or two before they commit finally to do it. It’s only a hesitation, not a delay and there is no real trend. It doesn’t really trend with those --with the price of oil. It only does it only like a trader’s mentality, but nothing fundamental. I can’t stress that enough.

[Andrew Casella:]

Got it. And I think this question is more for Oeyvind, but how are you seeing the rate environment develop this year? Do you think $32,000, $33,000 a day is the bogey for the semi-ref rates or any discussions you think as far as margin degradation on the part of customers trying to capture a little bit more value along the value chain?

[David Butters:]

Oeyvind?

[Oeyvind Lindeman:]

If you look at every week on the Clarkson 12-month time charter assessment, they will give you a fair guide indication of whether the market is strong or soft. Our market in general is quite stable. You can glance at that whenever you have a question about okay, where are we? But remember that those rates being quoted is of a 12-month time charter right there and then. We have some charters that were contracted a year ago or two years ago. Our combined rate is obviously different than that one, but that is the reflective of what’s happening in the market.

[Operator:]

Thank you. Your next question comes from line of Michael Webber of Wells Fargo. Your line is now up.

[Michael Webber:]

Hey, good morning guys. How are you? I wanted to just touch on that last question. David, in your remarks, you were talking to just how tight dynamics are and we’ve talked about this on the newer projects coming online here and there being no real signs of any letup. Just thinking about that within the context of you current CC levels which remains very firm. If you were to think about this conceptually in 2015 and maybe even 2016, where is the realistic peak level average DC rate do you think you can earn on your handy-size suite? How close to peak do you think we really are from a sustainable basis?

[David Butters:]

The economics today, I hate to say it because I hate to encourage people to build and that’s all I'm going to do by saying the rates are attractive, but the rates are attractive. I don’t think we’ll see much in the way of price increases, rate increases. We don’t need them. There’s a high rate of profitability, whether it's on our existing fleet or the new buildings and the price that we’ve been paying for those new buildings. It's all a very attractive return on investment and particularly return on our equity. It is a bigger risk the price rates climb than going down. It's a risk for us because it just encourages new builds. I'm happy with where they are. I think they will stay close to where they are and we will show incremental profitability and revenues and cash flow, partly because of increased in the number of vessels in our fleet expansion that’s programed over the next year and a half. And we will seek strategic trades that enhance our rates to triangulation or bring -- carrying multi-cargos of different things and more difficult trades we get a premium price. Again I will refer to that trade, the cargo we fixed of ethylene to the Far East, get a premium trade on that because we have specialized knowledge on how to handle it and we have the vessels to do that. It will be that type of a rate enhancement that we’ll seek or won’t seek it on the conventional semi-refrigerated vessels. I think the rates there are good, they’re attractive and I would not expect we would see much in way of increases on the headline rates.

[Operator:]

Thank you. Your next question comes from the line of Charles Rupinski of Global Hunter. Your line is open.

[Charles Rupinski:]

Good morning everybody. I just had a -- you did a very – I appreciate all the comments on the industry and I just had, most of my question have been answered, but I did have a quick modeling question. As new builds are delivered, can you maybe give us a little color on working capital requirements say for the first one month or so when they come online in terms of bunkering, depending on whether you need to bunker them, positioning, things of that nature?

[David Butters:]

Yeah. Niall?

[Niall Nolan:]

Yeah. W generally tend to get employment for a vessel about a month after it's delivered or date of delivery and in that month we will have our standard OpEx, which is a round number is about $250,000 a month. Bunkers kind of depends where it goes. Obviously they are being delivered in China. If they go to the Middle East, it's probably on today’s bunkering price is about $300,000. If for some reason we want to take it over to East through Panama into the US, it would be a bit more, but we would be doing that for a particular reason. If we were lucky and got a cargo in either some place like Taiwan or even in Korea to take to Hawaii to help us along the way, then obviously it’s less to start performing, albeit those initial charters may not be premium earning because from our perspective, we are just looking for a relocation of the charter to get us to someplace central. But generally I suppose you are talking about $500,000.

[Operator:]

Thank you. Your next question comes from line of Jon Chappell of Evercare ISI. Your line is now open.

[David Butters:]

Hi Jon. I guess you all get cut off a little too quickly.

[Jonathan Chappell:]

Yeah, we do. That’s all right. I'm going to ask two really quick ones right now and then I'll move on, but don’t cut me off after I ask the first one. First of all, I just want to be clear about the chartering costs because they were up significantly quarter to quarter despite the fact the only chartering ship that you had expired in mid-December. So is there a one-time charge associated with redelivering that and should chartering costs continue to be --- start to be zero going forward in 2015, or are you doing some short term charter-ins? And before I let you answer that, I just want to be clear on one thing, although I’ve been pointed a couple of times in the Clarkson’s number. I just want to know how that stands relative to 12 months ago when you were chartering, rolling these ships over as well. I think that’s important because obviously if it's significantly higher, then we are not just talking about a full utilization charter rollover, but we are marking this to market at a much higher level than the last contracted level. Thank you.

[David Butters:]

Okay, the first question, Niall?

[Niall Nolan:]

The Maple 3 was chartered right through to the end of December. You did actually have a full month and there is no penalties or additional cost associated with re-delivering it. We did have a short-term chartered in vessel, the semi which we had an undertaking to do and didn’t have enough available vessel capacity. So we took it on for I think it was about slightly less than a month. It was about $600,000. So that’s the explanation as to why the chartered in costs were higher at the end of Q3.

[David Butters:]

And we don’t expect that through the first quarter of 2015.

[Niall Nolan:]

No. It’s redelivered now so we are done. There should be zero costing going forward. Unless we decide or need to charter in something else for a short-term need.

[David Butters:]

Oeyvind, why don’t you take Jonathan’s second question?

[Oeyvind Lindeman:]

So last week Clarkson’s assessed semi-ref $32,800, which is about $1 million a month. 12 months ago, I can’t remember exactly what it was, but I would imagine it was around the 950 mark. So from 12 months ago, it’s a notch up.

[David Butters:]

Okay. We probably have time enough for one more question.

[Operator:]

Certainly. Your last question comes from the line of Michael Weber. Your line is now open.

[Michael Weber:]

Hey, thanks guys. I just wanted to follow up on the earlier question from the analyst from ISI around ethane specifically. I know you talked about the fact that there maybe people dragging their feet a little bit in terms of making decisions on delaying or anything like that. But if you could maybe lay out what the current tendering environment looks like for your mid-size carriers, maybe in terms of just the number of tenders and then the size of those tenders on a per ship basis so you can help us frame it up.

[David Butters:]

Yeah. First of all you understand that there are -- we are the only ones building 35,000 cubic meters ethane carriers end of story.

[Michael Weber:]

Yeah.

[David Butters:]

Okay. So there will be no tenders because if someone is interested in ethane import commencing at the end of 2016 or the very close of 2017, there’s only one place for them to go that’s to Navigator, period. End of story. So you don’t have a tender. What tends to happen is that a potential user will approach us saying they have this project. They’re working through the numbers. They’re so and so. They’ve began doing X and Y, spending money to get in preparation. They will say we are in advanced stages talking to the ethane suppliers and they’re doing that. They expect to conclude a contract for the supply in X time and let’s talk about your vessels and let’s talk about mostly on technical up to this point. They have their rates. The rates are attractive to us. The rates give us a handsome return on cash on cash unleveraged basis and leverage is even much more attractive. That’s the rates we are quoting and the technical aspects are being reviewed because these vessels are not simple. These are not straight VLGCs, fully refrigerated vessels. These are complicated vessels. So there’s a lot of technical issues that have to be understood, not resolved. Sometimes they’re resolved, but most of them are just understood. So we are making that kind of progress and we are closing in, but nothing has been concluded, Michael. But I am confident that we’ll be able to talk more specifically. But again if we were to tap those vessels today, unencumbered by any charter doing anything and put them in a spot market, we would be able to make a very good return in spot market carrying mundane products. But that’s not the market we want, not the market that I expected them to be in in six months or so. So I’m sorry I can’t be any more clear than that, but that’s where we are.

[Michael Weber:]

No, that color was helpful. I know it’s sensitive, so I appreciate it. Thanks for the time guys.

[David Butters:]

Okay. Well, thank you all for joining us. It’s been an interesting -- and to also apologize for the late conference call, late in terms of publishing our numbers. But we have gone through the first time, because we are a public company, the process of incorporating Sarbanes-Oxley. So we are a proud member of that community today and believe me it takes a lot of time to have all your documentation done. The process is as bad as going to get a root canal, but it’s done and we are happy and bright people today. But thank you very much.

[Operator:]

That does conclude our conference for day. Thank you for participating. You may all disconnect.