Good day and thank you for standing by. Welcome to the Avance Gas Holding Ltd Q2 2022 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one and one on your telephone. You will then hear an automated message advising your hand is raised. If you wish to ask a question via the webcast, please use the Q&A box available on the webcast link anytime during the conference. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Øystein Kalleklev. Please go ahead.
Thank you and good afternoon and welcome to Avance Gas Q2 earnings presentation. I am Øystein Kalleklev, the Executive Chairman of Avance Gas. Today, I will be joined by Randi Navdal Bekkelund, our CFO, who will guide you through the financial a bit later in the presentation. Let's just have a look at the disclaimer before we start the presentation. I will remind you of the disclaimer as we will provide some forward-looking statements, use some non-GAAP measures, and there are limits to the completeness of detail we can provide in this rather short webcast. We also recommend that you review our earnings report. Let's kick off with a summary of our highlights. I'm pleased to say that in the H1 of 2022, we delivered the best results since 2015.
For Q2, time charter equivalent income or TCE income came in at $43.6 million, corresponding to an average TCE per ship of around $36,200 per day, which is ahead of our guidance of around $32,000-$33,000 per day. This resulted in our EBITDA of $31.6 million and our net profit of $18.4 million, translating into earnings per share of $0.24 per share. During the quarter, we completed the sale of the 2008-built VLGC Providence with a book gain of $4.5 million with a cash release of around $26 million, given our rather low leverage, slightly below 50%. I'm also pleased to say we have been busy on the financing side recently.
In Q2, we closed the $555 million facility announced back in May, which boosted our cash by around $83 million in the quarter. Under this facility, we also had the accordion option to add bank financing of $115 million for the two last new buildings, new building five and new building six. We have, however, agreed to a $135 million sale and leaseback at attractive terms, which in addition to providing us with $20 million more cash, also extend our debt maturity profile. With that financing in place, all remaining four new buildings are fully financed with $250 million of debt finance commitments versus CapEx obligation towards the yard of $248 million, i.e. $2 million less than the debt secured.
Given the recent refinancing, good cash flow and vessel sale, cash balance jumped to $199 million at quarter end, which we find very comfortable given the fully financed CapEx program and our market outlook. Another recent event which I'm pleased to announce is that we have been able to recruit a new chief commercial officer to take over for Ben Martin, and we didn't have to look very far. Marius Foss, whom I have enjoyed working with in Flex during the last four years, have agreed to also take on the role of CCO in Avance Gas. Marius have a wealth of shipping experience after his maritime education, which also involved a couple of years at sea. He's worked basically 10 years with LPG and Petchem, 10 years in very large crude carriers or VLCCs, and around 10 years in LNG.
Altogether around 30 years in these three segments which share many similarities. Marius will, like me, also be fully dedicated to Flex LNG, but we find taking on Avance as an exciting endeavor and by doing so we can just cut costs compared to having duplicate management. In terms of guidance for Q3, this is admittedly a bit on the soft side as the market has been slightly weaker in Q3 compared to Q2. We estimate the TCE to be in the low thirties for Q3 with around $32,000 per day as the best estimate. Some of this is due to timing effects as we beat our guidance in Q2 due to similar timing effects.
For Q4, we are booked around 40%-50% and as we are now looking at fixing October dates, rates have pulled up. Based on market today and forward freight rates or FFAs, we do expect TCE to bounce back up again in Q4. With good results, four remaining new buildings fully financed with some spare left actually and $199 million of cash at hand, the board has decided to also pay $0.20 per share in dividend this quarter. This should provide our investor with an attractive yield of around 16%. $0.20 is also in line with what I would call the clean earnings per share.
is our earnings per share where we adjust out the gain of the vessel sale, $4.5 million, and then add the non-cash effect of the write-off of debt issuance cost, $1.6 million, which is booked under finance costs. Turning to slide four and our current fleet status. Avance Gas is a shipping company focused on seaborne transportation of LPG with a fleet consisting entirely of the larger ships in the segment, which we call very large gas carrier or just VLGCs for short. The VLGCs transport about 75% of all seaborne LPG. During the H1 of the year, we have sold two 2008-built ships while taking delivery of two new dual-fueled LPG ships. For the remaining three 2008 and two 2009 ships, we have secured fixed higher time charter coverage for most of 2023.
These have just eliminated the fuel price risk as these ships are on average thirstier than the newer ships, and they are also not fitted with an exhaust gas cleaning system or what we typically call a scrubber. I will revert with some more details on scrubber economics later in the presentation. We have eight 2015 eco design VLGCs. Six out of these eight ships are fitted with a scrubber, which has significantly improved their competitiveness this year given the fuel spreads. One of the ships, Chinook, which is not fitted with a scrubber, we have put on available TC until the middle of next year, giving us some charter coverage. During the Q1, we took delivery of two of our new buildings, which are equipped with LPG dual fuel systems.
These ships have a very favorable freight economics compared to older ships as they are more efficient and have the flexibility to run on LPG fuel. As I will illustrate shortly, LPG has become very cheap compared to other comparable fuels, so we remain upbeat about not only the environmental profile of these ships, but also the economics. Next year, we expect to take delivery of three more dual fuel VLGCs, and the last remaining VLGC newbuilding is expected to be delivered in early 2024. Before turning over to Randi for our financial update, I just want to highlight the compelling attributes of LPG.
LPG is today cheaper than coal while being a clean burning fuel in terms of local emissions, which is a big problem for a lot of people around the world, especially in developing countries where access to electricity or natural gas piping is scarce and where often the only alternative is coal, biomass like wood or even waste. Every year, more than 4 million people die prematurely due to indoor air pollution caused by household air pollution. Additionally, propane also contributes greatly to reduce CO2 emissions as well as ambient air pollution, which annual death toll is similar to the indoor air pollution. In total, around 8 million people just die from poor air quality, so this is a rather big thing, as I've also highlighted in the Flex presentations in the past.
LPG is efficient in the sense that it has a high calorific value and it's pretty dense. It's fully portable, which is a great advantage in rural areas without pipeline or electricity infrastructure, like my terrace, where I fuel my barbecue with propane and I have done so very often lately. As I mentioned, LPG is clean burning with no sulfur and virtually no particulate matter emissions. LPG is extremely versatile and can be used in transportation as auto gas in commercial businesses, industry like plastic and refinery, farming, domestic heating and cooking to mention some. LPG is also very accessible. It can be transported with relative ease over sea, road and rail, and infrastructure is not very complicated as illustrated with the canister on the slide. Lastly, which is probably the main focus area today with energy crisis ravaging, LPG is affordable.
As mentioned, it's cheaper than coal, it's cheaper than crude oil and definitely diesel with today's refining margins. Natural gas is often considered its main competitor, with advanced countries mostly building out pipeline infrastructure to facilitate the movement of large quantities of gas. In developing countries, but also rural areas in advanced economies, LPG is often a very good substitute. It's a bit hard to compare pricing with LNG or natural gas. LNG is still somewhat a regional market where U.S. consumers have access to cheap natural gas even though Henry Hub recently hit a 14-year high. Henry Hub is now hovering at around $9 per million BTU, translating into around $50 per barrel of oil equivalent.
If you buy LNG on a long-term contract, which is the case for two-thirds of LNG volumes, price is around 20% discount to oil at around $80 per million BTU. This is in line with the price of LPG, which is around $90. However, this is spot LNG, LPG compared to contracted LNG. However, if you are one of the unlucky spot LNG buyers where about one-third of volumes are traded, then you are paying around $75 per million BTU. Today, European buyers dominate this trade. European pipeline gas prices are actually even higher than spot LNG due to the congestion issues in Europe. Pipeline gas is priced about $20 higher at around $95 per million BTU or $550 on a barrel of oil equivalent.
Thus, European pipeline gas is today around six times more expensive than LPG, as I know this was recently highlighted by one of our competitors. Although I have a problem remembering which competitor, I think it started with a B or was it a W? I'm not really sure. Well, while I'm getting my brain working again, I think I can hand it over to you, Randi, for a financial review before I return with a short market update.
Thank you, Øystein Kalleklev. Let's have a look at the financial takeaways for the Q2 on slide six. As already stated by Øystein Kalleklev, the time charter equivalent TC earnings or net operating revenue and voyage expense came in at $43.6 million, equaling a daily TCE per ship day of $36,200, which is slightly lower than previous quarter. Three to $4,000 a day ahead of guidance, and this is due to more favorable positions than anticipated, resulting in a positive timing effect of revenues in the Q2. Operating expense representing crew, repair, maintenance, spares, and equipment for managing the vessels on a daily basis, also known as OpEx, were $10.1 million, down from $10.7 million in previous quarter. This equals a daily average OpEx of $8,200 for the Q2 compared to $8,500 for the previous quarter.
We're still seeing high crew change expenses, but a small portion relates to COVID-19 as the vaccine has been rolled out and the local regulations have been lifted. As we're all seeing these days, either it's for business or pleasure, airfare expenses have increased significantly, causing a higher OpEx and represents approximately $300 a day for the Q2. Administrative and general expense for the quarter was slightly higher, this quarter compared to last one, and is explained by, one-off personal, expense for employees, which is, expense in accordance with accounting standards. This concludes a reported EBITDA of $31.6 million compared to $34.8 million in previous quarter. Depreciation expense came in at $11.1 million. This is $1 million lower than previous quarter and is explained by one vessel less in the fleet during the Q2 compared to the Q1.
Furthermore, we have sold one of our 2008-built ladies, which was delivered to the new owner in May, and thereby we recorded a gain on sale of $4.5 million in the Q1. In total, for the H1, we have recognized a gain on sale of $10.8 million, including Thetis Glory delivered to the new owner during the Q1. Net profit was $18.4 million or $0.24 per share, compared to $24.3 million or $0.32 per share for the Q1. The H1 results of $32.7 million or $0.56 per share is the strongest H1 in seven years, and is already 33% ahead of the full year results last year.
As already stated by Øystein, we're happy to share the majority of that profit with our shareholders by distributing a dividend of $0.20 per share for the Q2, which will be paid during September. Furthermore, below the net profit, we have recognized $5.1 million in positive mark-to-market adjustment related to our interest hedges, which is designated for hedge accounting through other comprehensive income and equity, which I will come back to in a minute. A few comments to the balance sheet. At quarter end, we had a net interest-bearing debt of $501 million, equaling a debt-to-total asset ratio of 46%. We had a solid equity of $579 million, corresponding to a book equity ratio of 53%. A strong cash balance of approximately $200 million, which leads us to the next slide, number seven.
With the refinancing of the bank facility announced in previous quarter, we have significantly increased our cash position during the quarter as we drew $325 million, resulting in a net cash release of $83 million. Of the $325 million, $125 million is a revolving credit facility, giving the flexibility to repay when we have the capacity to do so and avoid related interest expense and redraw when we need it. Other movements in our cash balance is positive cash flow from operations of $22 million, sale of Providence generating a net cash release of just below $26 million, offset by $18 million in dividends for the Q3, pre-delivery capital expenditures in relation to our new buildings 3, 5, and 6, totaling $24 million, and $3 million in scheduled debt repayment.
This adds up to an increase in cash of $88 million from the first to the Q2. Moving to slide 8, we are happy to announce that a few days ago, we signed $135 million sale-leaseback agreement with BOCOM Leasing for financing the final two newbuildings for delivery H2 2023 and the Q1 2024. The new financing bears a tenor of 10 years from actual delivery date of each vessel, has a repayment profile of approximately 22 years, and is SOFR-based as the LIBOR will be phased out in June next year. The agreement will contribute with a total of $39 million in net cash release at delivery of these vessels, resulting in no unfunded remaining capital expenditure.
The funding of the newbuilding program have been completed. Along with a robust cash position, we are well-positioned to continue returning value to shareholders through dividends as we have done for this quarter when we generate profits while handling a potential downward moving freight market into next year when the order book is coming on board. Even though we maintain our view that improving fundamentals and regulations will likely absorb the order book, Øystein will talk more about that in a few minutes. Moving to slide nine, following the refinancing of the 9 VLGCs executed in May, and the sale lease back agreement with Bocomm.
This slide gives an overview of our total commitment, financing and further demonstrates that we have secured financing for the whole fleet with a staggered debt maturity, with the first maturity date in February 2027. We have further improved the profile, the tenor, and pricing on our financing in the recent 12 months, resulting in an attractive average cash break-even of below $21,000 over the debt duration of the whole fleet. The financing portfolio is now diversified with 10 different well-reputed lenders, including European banks and Asian leasing houses. We're also proud to have the majority of the debt linked to an annual sustainability margin adjustment, which goes hand-in-hand with the company's ambition to reduce the carbon intensity of the fleet with support from the bank.
Moving to the next slide, 10, provides you with an overview of the interest rate swaps, which is used to manage risk of increasing interest rates. For the H1, we were ahead of the interest rate curve, thus recognizing just below $17 million in interest rate swap gains through the other comprehensive income and a positive mark-to-market value of $9 million, recognized as an asset in the balance sheet. These swaps had a notional amount of $256 million by end of the Q2, and subsequently in July, we blended and expanded an existing $15 million LIBOR interest rate swap into SOFR-based swap and increased our hedging with another 100 million.
In total, $250 million fixed at an average rate of 1.87% based on SOFR maturing in 2030 and 2031, compared with a fixed rate today of approximately 2.7% with the same duration. Additionally, we now have a LIBOR hedges with a notional amount of $206 million at an average rate of 2.82% maturing in 2025, compared with the spot pricing today of approximately 3.8% with the same duration. This concludes the financing section, and I will now hand the word over to Øystein for the market update and outlook.
Okay. Thank you, Randi. Randi has been busy lately, as you can see, not only have we met $575 million of debt financing, but she is also now embarking on raising her second child, who was recently delivered more or less according to schedule three weeks ago. Congratulations to you, Randi.
Thank you.
Well, well delivered on both.
Thank you.
Let's review the recent market development. Slide 11 is the most boring slide in this deck. It's very similar to what we said in May. We'll just see exports are up 11% in the first 7 months of the year, the same run rate as reported in May for the first 4 months. The big relative increases are still coming from the big oil producers in the Arabian Gulf, led by Saudi, Iran, and United Arab Emirates, as OPEC has been pushing up oil volumes. We do have, however, continued the healthy growth from the U.S., which is the largest export market with around 50% of the volumes compared to our market share for the Middle East producers of around 40%. On the import side, growth is steady everywhere.
While China has really put the brake on LNG imports in 2022, with imports down more than 20%, this is not the case with LPG. Imports in China is up by about 5%, which is maybe not too surprising given the affordability of LPG, as I mentioned in the introduction. Given the energy crisis in Europe, it's not too surprisingly also that we see growth from Europe eating into Asian market share, with European buyers now increasing their market share from around 7% to 10% compared to last year. Slide 12 and the cash costs.
In our May presentation, we had a slide on the capital discipline by the shale players despite a record free cash flow, with investors' pressure to maintain capital discipline being the main reason why, with about 60% of respondents saying this is the reason why they are not investing in drilling new wells. Since then, expected free cash flow have increased even further from around $170 billion to around $200 billion dollars according to a new Deloitte study. While shale players have been cash drains the last decade, they have now been turned into cash cows. It's not only the shale players that are generating huge sums of money. The same goes with the whole upstream oil and gas industry on aggregate.
We are still of the belief that this super profit and rapid deleveraging will induce new investment, increasing production with associated export growth potential given the short lead time of shale oils. The million dollar question is how will shale players spend the windfall of cash? So far, focus has been on deleveraging with gradual increase on returning cash flow to shareholders through dividends and share buybacks. Capital discipline has been the name of the game. However, economic forces are usually like gravity. If there is profit to be made, and we are here talking big profits, with shale players generally making profits with West Texas Intermediate oil price in the range of $50-$55 compared to our WTI price of closer to $100 today. Such profits are difficult to say no to, especially when the balance sheets have been repaired.
Additionally, Washington and even Brussels is now shouting, "Drill, baby, drill," which is certainly a big change in policy, but maybe not too surprisingly given the energy crisis. Shale wells are also fairly low risk investment as lead time is short and payback period thus very short compared to large offshore oil field developments, which also enable the drillers to hedge the price. Dallas Fed has some regular survey of participants in the industry, and as we can see, lead time is short, with about 24% of the market participants able to drill and complete a well within six months and more than 90% within a year. More oil and gas also means more LPG exports. I think I said 24%. I really meant closer to 45%.
You know, as you can see, wells can be brought to the market very quickly, and it's extremely profitable. Let's talk about China. China is the largest market for LPG, market share close to 30%, which is almost twice as the other key markets being India and Japan. What LPG is used for vary greatly for the different markets. Worldwide, ResCom is the biggest share with around 40% share. Petrochemical represents around 30%, with transportation, industrial, and refinery each about 10%, with some usage also in agriculture. What is one of the key drivers for China's LPG demand is propane dehydrogenation plants, or PDH plants in short. These are basically refining LPG into plastic, and there's been a construction boom in China for such plants. Plastic is our obvious product.
During COVID-19, plastic has been essential, not only as plastic wrapping for your fresh tomatoes, but also a key input in all personal protective equipment. The construction boom in China for PDH capacity will create further LPG demand down the road, and the key factor to monitor here is the utilization of these PDH plants, which will affect import volumes. Turning to slide 15, Panama Canal tolling fees. As those who follow shipping closely, we have already seen the Panama Canal clogging up regularly with long waiting time. The Panama Canal was expanded in order to facilitate the increased container shipping traffic. However, a shale boom in the U.S. resulting in a sharp increase in U.S. exports of oil, LNG, and LPG was not anticipated, so the Panama Canal is therefore running at max capacity.
Since the Panama Canal is a monopoly, it can adjust its pricing according to demand, and with the high demand, they are therefore pushing up the pricing by around 90% until the period 2025. Slightly higher tolling fees for the ballast voyage than the laden leg. With more expensive transit and the unpredictable waiting times, we think this means more VLGC freight will be priced out of the canal, with capacity being used mostly by container ships and LNG carriers, which has some more valuable cargo. Our take is that this will result in longer sailing distances, thus driving up freight demand. U.S. to China is around 10,000 nautical miles through the Panama Canal, but 15,000 nautical miles if you go through Cape of Good Hope, thus increasing sailing distances by 50%.
I think particularly on the ballast leg, where the tolls are increasing the most, this will be the case that voyage through Cape of Good Hope on the ballast will be more common. This also enable the shipowner more trading opportunities than being able to pick up cargoes in the Arabian Gulf, West Africa, in addition to U.S. cargo, and this gives owners a bit more trading flexibility in addition. Freight market, slide 16. The biggest driver for the freight rates is the price spread or arbitrage between the producing regions, U.S. and Middle East, and the main import destination, Asia.
With arbitrage spreads in contango heading into Q4, with US Far East arbitrage going from around $120 per ton in September to closer to $150 at the end of the year. We therefore expect freight rates to rebound in Q4 so we can generate somewhat higher earnings for this quarter compared to Q3, where freight rates have been slightly below the seasonal average while being above seasonal average in Q2. While spot rates continue to be volatile, the one-year time charter rates have been remarkably stable this year with time charter rates of around $35,000 per day for our one-year time charter. Heading into the next slide, 17, the scrubbers. I mentioned the economics here has been fantastic. You know, with a scrubber, you can burn the heavy fuel oil and use exhaust gas cleaner.
The spread has been extremely volatile, especially during Q2, and this also provides us some benefit on the fuel savings. The spread here went up close to $600 per ton, translating into a fuel saving per day of close to $25,000 per day. It's come down since the peak, but still at around $250 per ton, and then converging towards $200 per ton in fuel spread. For the ships we have with scrubbers, the 6-15 eco-designed ships, this represents a saving of close to $9,000 per day or $3.2 million per ship per year. A very short payback time on these scrubbers. Scrubber installation is costing around $2.5 million, so you are talking here less than a year payback time.
Last slide before concluding is the order book. The order book is always a theme in LPG shipping. If we look at the order book, we have a big chunk of ships approaching retirement. 30 vessels already past 25 years. 17 vessels is above 20 to 25 years. These are inefficient ships which will be hit by upcoming decarbonization regulation with expected engine power limitation for these ships, as well as a lot of the ships built prior to the eco ships of 2014, 2015. Additionally, there are 46 ships for delivery next year. We do expect some slippage. It might also happen for us on the last ship. In historical perspective, if we look at the numbers here, we do see three big peaks.
It's 2008, 2015, 2016, and 2023, where you have similar amount of ships as we had in 2016. However, the fleet of ships has grown tremendously during this period, driven especially by U.S. becoming a huge LPG exporter. If we look at the order book in relation to the fleet, the order book today is around 20% of the fleet. On the last two peaks back in 2017, 2008 before the financial crisis, which really derailed the world economy, and then in 2015, just bit prior to the oil price crash, at the oil price crash in the U.S., then order books hit 46% of fleet.
We are talking a lot smaller numbers in terms of relative size of the order book compared to the fleet. In addition, we have the new IMO 2023 rules. There will be decarbonization taxation in the European Union for those ships calling into Europe. We also have some movement on the Joint Comprehensive Plan of Action. This is the negotiations with Iran. There are about 30 ships, mostly older ships, tied up in the trade between Iran and China. These could trigger some more scrapping, as scrapping has been very low in the recent years. Lastly, new building prices are affected by the high demand for building container ships and LNG ships and generally high material prices and inflation. New buildings today are at around $95 million, which incentivize people running to the yards ordering new ships.
We do think the number of ships coming for next year is a bit high, but we do expect some slippage. We expect scrapping to come up. In general, the order book compared to previous peak is much, much lower and much more manageable, especially when you have new decarbonization routes coming into force. With that, I think we summarized today's presentation. TCE income or TCE of around $36,000 ahead of the guidance of $32,000-$33,000. We are making $18.4 million or EPS of 0.20 at some 0.24. Twenty as the clean EPS. We're paying out that all as dividends, giving our investors a very good attractive yield of around 16%. We have fully financed the fleet.
We have actually $250 million of debt financing for the $248 million of CapEx obligations. We have a very big cash cushion of $199 million, which I think put us in a very good position to navigate the market next year. We also do have some charter coverage. Earnings for next quarter are a bit softer than Q2, but hopefully we will be bouncing back in Q4. With that, I think we open up for some questions, Heidi. You can maybe check the teleconference while we are checking the chat. Thank you.
Thank you. As a reminder, to ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. If you wish to ask a question via the webcast, please use the Q&A box available on the webcast link. Please stand by while we compile the Q&A roster. Once again, if you wish to ask a question, please press star one and one on your telephone. There seems to be no questions at this time via the audio.
Okay. Thank you, Heidi, and thank you everybody for joining. I don't think we have any chat questions either, but you know, we are always here to serve you. If you have any questions, please reach out to us and we will respond quickly. With that, thank you, everybody. We will be back reporting Q3 in end of November, so I hope you join then as well. Thank you.
This concludes today's conference call. Thank you for participating. You may now disconnect.