Epic Gas Announces Q2 2017 Results

Announced Date :  Aug 10, 2017


Epic Gas Ltd. (Epic Gas) has announced its unaudited financial and operating results for the interim period ended June 30, 2017.
Second Quarter 2017 Highlights

• 3,731 calendar days, up 8% year over year

• Revenue of $33.9 million, up 4% year over year

• Time charter equivalent revenues of $8,022 per vessel calendar day, down 2% year over year

• General and administrative expenses of $1,049 per vessel calendar day, down 5% year over year

• Adjusted EBITDA of $6.4 million, down 15% year over year

• Net Loss of $5.4 million, compared to a net loss of $0.9 million in Q2 2016

• Forward cover for balance of 2017 stands at 54% at $8,119 per day, up 8% year over year.

• $8.5 million secured term loan drawn down to part-finance acquisition of 2009 built 7,500cbm

vessel, bringing the Company’s on the water fleet to 42 vessels

The Pressurised Market

Green shoots: The quarter ended on a positive note with signs of a recovery from low market levels

reached since the end of the seasonally stronger first quarter. Smaller pressurised vessels are

benefitting from a strengthening market. Larger pressurised vessels continue to show signs of oversupply

and, on some routes, are competing with Handysize semi-ref vessels.

The following chart illustrates the 12-month Time Charter pressurised freight rates during the last 10

years. For the second quarter of 2017, 3,500cbm, 5,000cbm and 7,500cbm market rates averaged

$6,266, $7,958, $10,608 per day, respectively. Generally, a modest gain from Q1 2017, but a significant

12-14% rise for the smaller vessels compared to a year ago. 

During the quarter, 2 pressure vessels representing a total of 20,500cbm of capacity delivered. Of the

326 international (Chinese flag excluded) pressurised ships on the water today, 28 vessels equalling

8.6% of the fleet size are 25 years or older, and could be considered candidates for scrapping. There

are a further 40 semi-ref vessels sized between 3,000 and 13,000cbm of a similar age. Whilst no

pressure vessels were scrapped in the quarter, we have seen 2 pressurised and a record 8 semi-ref

recycled year to date, representing 1.9% of the combined fleet. After combining pressurised and semiref

vessels, approximately 12.5% of the 544 vessels are likely scrapping candidates.

Pressure vessel newbuilding back-log is down considerably. As of 30 June 2017, with only 1 newbuild

order, for a 7,500cbm, placed in the past eighteen months, the order book for pressurised vessels has

dropped to 7 ships and 51,000cbm of capacity, equivalent to 3.1% of the existing global fleet by cubic.

As a positive consequence of the considerable growth in demand for very large gas carriers (VLGC), we

continue to be actively involved in a growing LPG break bulk trade, delivering LPG into the terminals

and ports where the larger vessels are unable to operate. We carried out 122 ship to ship (STS)

operations during the period, a 30% increase from the previous quarter. We see a growing trend of

such operations in the Caribbean and off Africa.

China’s propylene imports have held up despite increased propane imports and propane

dehydrogenation (PDH) plant utilisation, to produce more propylene domestically. The year to date

monthly average of propylene imports is a healthy 255,000 tonnes, equivalent to an annualised 3

million tonnes. This business is a driver of demand for smaller-sized pressurised vessels involved in last

mile delivery in Asia.

Infrastructure development made headway in South Africa during the quarter. Sunrise Energy received

their first LPG cargo via a 7,500cbm pressure vessel to their import terminal and pressurised storage

facility in Saldanha Bay. Avedia Energy’s 8,000 tonne storage facility in Saldanha Bay is expected to

commence operations shortly, and Petredec and Bidvest have announced they will construct a 22,600

tonne pressurised LPG import Terminal in Richards Bay.

The trade in the Black Sea and Mediterranean was mostly contract driven with traders using their timechartered

tonnage. Due to low spot market activity, ships have moved towards North West Europe

looking for employment during the seasonally stronger period after the Easter holidays.

US LPG exports dipped this quarter with several cargo cancellations on the Gulf Coast because of the

poor commodity arbitrage economics. This meant that the pressurised trade on the long-haul routes

across the Atlantic were negatively impacted and we witnessed a second consecutive quarter with no

US pressure cargoes bound for the Mediterranean and West Africa. However, the trade within the

Caribbean, from which we benefit, continued to grow with a 60% gain from the previous quarter.

Revenue

Following the completion of our extensive new building programme in Q1, our fleet size during the

quarter remained constant at 41 vessels with a total capacity of 268,900cbm, representing 16.1% of

the international pressure fleet and about 30% of the 7,000+cbm sized vessels. We ended the quarter

with 26 vessels positioned West of Suez and 15 vessels in the East. The development of the market for

larger pressurised vessels in the East has been a notable success, with as many as 6 of the larger

7,500cbm and 11,000cbm vessels deployed in the region East of Suez during the period.

During the second quarter the fleet experienced 236 technical off-hire days due to four routine and one unscheduled vessel docking (Q1, one routine and one unscheduled). This resulted in fleet availability of 93.7% (Q2 2016, 97.6%), with Operational Utilisation of 89.6% (Q2 2016, 94.8%). With a number of special survey dockings behind us, and the return to trading of the Epic Madeira in July (post-period end), we are confident that this level of technical off hire will not be recurring.

Whilst time charter equivalent revenue is up 5% to US$29.9m, the TCE revenue per calendar day of $8,022 was lower than the $8,183 in Q2 2016 and down by 5% from the previous quarter, reflecting the impact of lower revenue days. We offer customers any form of contract including time charter, voyage charter, and contracts of affreightment (“COA’s). The fleet traded in the spot market for 26% of total voyage days, with 46% of these spot voyage days occurring in the West and 54% in the East.

As of 30 June 2017, the Company was 54% covered for the balance of the year 2017 with 4,144 voyage

days covered at an average daily TCE rate of $8,119, leaving 3,486 calendar days open on the current

fleet for the rest of the year. The 8% year over year increase in forward TCE highlights the recovery in

the underlying market space.

Operating Expenses

Vessel operating expenses increased from $14.0 million in the second quarter of 2016 to $15.6

million in the second quarter of 2017, reflecting the Company’s fleet expansion by 8% as measured

by the number of fleet calendar days. Vessel operating expenses per vessel calendar day were

$4,170 in the second quarter of 2017, only 3% above the $4,040 per vessel calendar day during the

second quarter of 2016 despite an increased ship average size by 9% as measured in cubic metre

capacity (cbm).

Voyage expenses increased by 3% to $3.5 million in the second quarter of 2017, from $3.4 million in

the second quarter of 2016 reflecting increased bunker expenses during the period. Spot market

activity remained constant with 912 spot market days in Q2 2017 compared to 962 days in Q2 2016.

Charter-in costs increased 21% year over year from $3.4 million to $4.1 million due to the delivery of

one 11,000cbm bareboat vessel in Q1 2017. As of 30 June 2017, the Company had 8 ships on

traditional inward bareboat charter arrangements under which charter payments are expensed. 

General and administrative expenses of $3.9 million during the period reflected a year over year

increase of 3%. However, SG&A per vessel calendar day fell 5% to $1,049 which, in our integrated

model, includes the cost of commercial and technical management of our fleet as well as all

corporate-level general and administrative expenses.

Finance and other expenses

Finance expenses during the period were $4.2 million compared to $3.4 million in Q2 2016. The

increase is primarily due to the increase of the Company’s total bank borrowings associated with the

delivery of its newbuilding program which completed in Q1 2017. Furthermore, the Company

entered into interest rate swaps for a total of $42.5 million, which, together with existing hedges,

brings the hedge ratio to 61% of total borrowings (excluding finance leases).

Subsequent Events

In July 2017, the Company has taken delivery of the 7,500 cbm LPG carrier Epic Boracay, built in 2009

at Murakami Hide Shipbuilding Co. Ltd., Japan. The acquisition was financed by a combination of

equity and debt. Part of the equity portion of the acquisition was funded through the issuance of

85,714 shares at a share price of NOK 15/share. NIBC Bank N.V. provided a senior secured loan

facility of USD 8.5 million with a 5-year tenor which was drawn down in June 2017.

The Company entered into a Memorandum of Agreement to sell the oldest vessel in its fleet, the

Epic Capri (3,300cbm, 1997 built.). The sale is expected to be completed within 2017 and will not

have a material impact on the Company’s FY2017 earnings.

In July 2017, Epic Gas entered into a sale and 10-year bareboat charter back transaction for the Epic

Salina (11,000cbm, 2017 built) with a Japanese ship owning company. This transaction has the

advantage of increasing the Company’s liquidity position whilst reducing the monthly financing cost.

The Company has purchase options to re-acquire the vessel during the charter period, with the first

such option exercisable on the third anniversary of the vessel delivery.

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