Thank you for standing by. Ladies and gentlemen, welcome to the Dynagas LNG Partners conference call on the first quarter 2022 financial results. We have with us Mr. Tony Lauritzen, Chief Executive Officer, and Mr. Michael Gregos, Chief Financial Officer of the company. At this time, all participants are on a listen-only mode. There will be a presentation followed by a question and answer session. At which time, if you wish to ask a question, please press star one on your telephone keypad. I must advise you that this conference is being recorded today. Please be reminded that the company announced its results with a press release that has been publicly distributed. At this time, I would like to remind everyone that in today's presentation and conference call, Dynagas LNG Partners will be making forward-looking statements. These statements are within the meaning of the federal securities laws.
This conference call and slide presentation of the webcast contains certain forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The statements in today's conference call that are not historical facts, including among other things, the expected financial performance of Dynagas LNG Partners business, Dynagas LNG Partners ability to pursue growth opportunities, Dynagas LNG Partners expectations or objectives regarding future and market charter rate expectations, and in particular, the effects of COVID-19 on the financial condition and operations of Dynagas LNG Partners and the LNG industry in general, may be forward-looking statements as such as defined in Section 21E of the Securities Exchange Act of 1934 as amended. Matters discussed may be forward-looking statements which are based on current management expectations that involve risk and uncertainties that may result in such expectations not being realized.
I kindly draw your attention to slide 2 of the webcast presentation, which has a full forward-looking statement, and the same statement was also included in the press release. Please take a moment to go through the whole statement and read it. Now I'll pass the floor to Mr. Lauritzen. Please go ahead, sir.
Morning, everyone, and thank you for joining us in our three month and the 31st March 2022 earnings conference call. I'm joined today by our CFO, Michael Gregos. We have issued a press release announcing our results for the said period. Certain non-GAAP measures will be discussed on this call. We have provided a description of those measures, as well as a discussion of why we believe this information to be useful in our press release. We can move to slide three of the presentation. We are pleased to report the results for the three months and 31st March 2022. All six LNG carriers in our fleet are operating under their respective long-term charters. Our fleet reported 100% utilization for the first quarter of 2022, and for the 8th consecutive quarter included.
For the first quarter of 2022, we reported net income of $23.9 million, earnings per common unit of $0.57, adjusted net income of $10 million, adjusted earnings per common unit of $0.19, and adjusted EBITDA of $22.9 million. Our thoughts go out to everyone affected and suffering as a result of the crisis in Ukraine. We continue to closely monitor this ongoing situation, including the implications of economic sanctions, trade restrictions, and other considerations that may affect our business. The partnership is currently in compliance with applicable U.S. and E.U. sanctions. It is our understanding that the current U.S. and E.U. sanctions regime have broadly exempted LNG shipping and do not materially affect the business operations or financial conditions of the partnership.
Also, the partnership's counterparties are performing all of their obligations under their respective time charters in compliance with all applicable U.S. and EU rules and regulations. Our vessels named Clean Energy, Ob River, and Amur River are on charter to Gazprom Marketing & Trading Singapore, which is owned indirectly by Gazprom Germania. Gazprom Germania, including its subsidiaries, has been placed under control of the German government, which company has also received a loan commitment of approximately EUR 9.8 billion from the German government. Essentially, this all means that the three respective charters of Clean Energy, Ob River, and Amur River are now under German control as opposed to Russian control. The change in control has had no impact on our revenue. Sanctions legislation is changing rapidly, and the partnership is continuously monitoring the ongoing situation.
I will now turn the presentation over to Michael, who will provide you with further comments to the financial results.
Thank you, Tony. Turning to slide four, our quarter results continue to reflect our stable, contractually based operating model as our fleet continues to operate with 100% utilization. The quarter was mainly impacted by the special survey drydock of our 2007-built LNG carrier, Clean Energy, which commenced on March 16, was completed on April 15, and which $2.6 million was attributable to this quarter. Vessel operating expenses were 10% higher versus Q1 2021, although they were 5% lower than the previous quarter. As a result, adjusted net income for the quarter decreased by 5.7% to $10 million compared to the first quarter of 2021, and adjusted EBITDA amounted to $22.9 million, a 4.2% decrease compared to the first quarter of 2021.
Looking forward, we anticipate that next quarter's earnings will also be impacted, firstly, with the balance of the Clean Energy special survey and drydock, which is anticipated to amount to $2.7 million, excluding the installation for the ballast water treatment plant, which will be capitalized. Please also note that the Amur River commenced its special survey and dry dock on June twenty-sixth, and the Ob River is expected to commence its special survey and dry dock on July twentieth, with each vessel being expected to be off-hire for about 25 days. Moving to slide five.
As of the end of March, we had $555 million debt outstanding under our credit facility, all of which has been hedged with an interest rate swap, leading to a fixed interest rate of 3.41% for the life of the loan until its maturity in September 2024. We are continuing our comprehensive deleveraging path, which commenced in the fourth quarter of 2019, having repaid through the quarterly installments on our credit facility, $120 million in debt, resulting in a decrease in our net leverage to 4.7x from 6.6x, and an increase in our book value of equity by 30%. Moving to slide six.
In line with our strategy of using our contracted cash flow to reduce leverage for the quarter, we utilized 72% of our unlevered cash flow to service debt and interest payments. Excluding working capital changes, operating cash flow for the quarter was $15.8 million. After debt service payments, Clean Energy plus survey costs and payments to preferred unit holders, we generated a little under $600,000, excluding working capital changes. Our cash balance increased by about $9.6 million- $106 million, primarily due to working capital changes. Our per vessel quarterly break-even daily rate, including all operating G&A expenses, debt service payments, and class survey costs amounted to $55,300, excluding preferred distributions, versus our fleet contracted time charter rates for the quarter, which amounted to about $62,200 per day per vessel.
That wraps it up from my side.
Thank you, Michael. Let's move on to slide seven. Our fleet currently counts 6 LNG carriers with an average age of about 11.9 years. The charters of our vessels are Equinor of Norway, Gazprom Marketing & Trading Singapore, and Yamal Trade of Singapore. As of 28th June 2022, the fleet contract backlog is about $978 million, equivalent to an average backlog of about $163 million per vessel. The fleet's average remaining charter period is about 6.6 years. Moving on to slide eight. Our strategy is to conclude long-term charters with reputable LNG producers. Our earliest potential availability will be in the third quarter of 2023 for the Arctic Aurora. The next available vessel may be the Clean Energy, which contract expires in 2026.
Barring any unforeseen events and vessel scheduled drydockings, our fleet is 100% employed for the remainder of 2022, 96% for the year 2023, and 83% for 2024 and 2025. There is strong demand for LNG in term shipping. As such, we believe that the Arctic Aurora should be in a good position to benefit from this spot market. All the vessels in our fleet are employed on time charter contracts, under which the charterer pays major voyage-related variable costs such as fuel, canal fees, and terminal costs. Two of the vessels, namely the Lena River and Yenisei River, are under drydock and OpEx cost pass-through contracts, and in general provide full protection for reasonable inflation in operating expenses. Let's move on to slide nine.
Since September 2019, the partnership has repaid $120 million in debt, increased its cash balance from $66 million - $106 million, decreased net leverage from 6.6 to 4.7 times, and increased book equity value by 30% to $403 million. The partnership's deleveraging efforts should continue to build equity value on a contractually structured basis as we continue to benefit from stable long-term cash flow visibility. The Russia-Ukraine situation has shed light on a fragile European energy infrastructure and a general global underinvestment into LNG production and receiving facilities. The EU's goal to replace 50 BCM of Russian pipeline gas imports with LNG imports has increased competition for LNG supply and shipping, which has resulted in a significant increase in time charter rates and periods.
With the opening of the Arctic Aurora in Q3 2023, we believe the partnership will have exposure to strong shipping fundamentals. Some European countries are looking to accelerate their infrastructure development by chartering FSRUs. Germany, which currently does not have any LNG import facilities, has recently chartered 4 FSRUs for long-term charters, 2 of which are from the private fleet of Dynagas Ltd. 87% of the newbuilding order book has already been tied up with employment, which underlines a long-term demand for LNG. An LNG order placed today may give deliveries in 2026, 2027 or even later. Therefore, post current charters, we believe the partnership has the potential to consider conversion of existing LNG carriers to FSRUs as an alternative to conventional LNG charters. Both alternatives will be considered.
We believe the combination of the availability of the Arctic Aurora against a strong market and the further strengthening of our balance sheet places the partnership in a favorable position. We have now reached the end of the presentation, and I now open the floor for questions. Thank you.
Ladies and gentlemen, if you have a question or a comment at this time, please press the star then the one key on your touchtone telephone. First question comes from Nolan with Stifel.
Yeah. Hey, Michael. Hey, Tony. Appreciate you taking my question. I guess I wanted to start a little bit on the vessels that are contracted with Gazprom first. You were pretty clear that there's no disruption to contract tenor or cash flows or anything else. Just finishing that circle, I guess. Should at some point sanctions be lifted, the contracts in that case would still remain in place, and so this doesn't change anything at all with respect to the contracts that you have on the vessels. Is that correct?
That is correct, Ben. There's been no change whatsoever in the contractual structure. The charter party is identical. There has been no change whatsoever. The only change is in the control side, not in the actual ownership side further up the chain. The contractor, the contractual structure, the charter party structure is exactly the same.
Okay. That's helpful. The other one that was mentioned is the other two vessels, the Lena River and the Yenisei River that are on contract to Yamal. I appreciate that that's not, or I believe that that is not a Russian entity, but could you maybe talk through that? Is that not subject to any of the same dynamics that you would have on the Gazprom vessels or where do those two ships sit with respect to their contract structure?
Yeah, exactly. The counterparty to on the Lena River and the Yenisei River are Singaporean entities. It is a company called Yamal Trade Pte. Ltd., and which is the same counterparty as it always was. Now, this company is ultimately owned by a joint venture company, which is the majority is owned by Novatek, then you have CNPC, Total and the Silk Road Fund also into the shareholding structure.
Okay. That company is not subject to any sanctions or anything else. It should be completely independent of that, correct?
That's right. There is no.
Okay.
You know, there is no sanctions that is to that company that affects the partnership.
Okay. With respect to those vessels, really all of your vessels, are you guys still lifting cargoes from Russian facilities, whether it's Yamal or Sakhalin or Vysotsk?
Yeah, exactly. You know, so from at this moment, the company's not. I mean, you know, the charter of the Ob River and the Amur River is not instructing the vessels to lift any cargo out of Sakhalin. Now these vessels are, let's say, rather under the instruction of Gazprom Marketing & Trading to serve their, you know, their portfolio.
When it comes to the Lena River and the Yenisei River, we expect that potentially these vessels will lift cargo out of Sabetta, you know, into the summer, but I don't believe it's you know, open yet for these vessels, you know, to do so. Yes. I mean, these vessels are under the full instruction of the charter, which is Yamal Trade.
Right. Okay. That's helpful. I think that squares me away on all things Russia here. I'm curious, lastly, you talked about the possibility of converting perhaps the Arctic Aurora into an FSRU when it comes off contract in a year and a half or so. Is that, you know, I guess appreciating that at the moment most people are looking for quick fixes, and that would, you know, probably not be available for maybe two and a half years or so. Is that something that you're currently out trying to market?
And is it something that you feel like, you know, if there is an appetite, it's something that we could know about, I don't know, later this year or sooner?
Just because I know there's long lead time items and other things that would need to be ordered in order for conversion to take place.
Well, thank you. Thank you, Ben, for the question. Now, you know, for the Arctic Aurora, which contract expires in, you know, September, October next year, you know, to be honest, there is. You know, she comes open before we could have the long lead items available. What we are foreseeing with the Arctic Aurora, you know, is more realistically to charter her as a conventional carrier from the time that she comes open. Actually September, October from a seasonality point of view, it's a very, very good position. That's what we are most likely thinking with the Arctic Aurora.
Now, when it comes to the newbuilding market, if you place an order today, you'll be lucky to get a 26th position and now more realistically, you will get a 27th position and we have even started to hear about 28 positions too. There is a real tightness in the shipbuilding market. The shipyards are really preferring to build repeat designs, ordinary carriers, nothing out of the ordinary. What we see more likely is an opportunity potentially for the Clean Energy when she comes open in 2026. She is a very good candidate for an FSRU conversion. She has very big boilers which is required in a, you know, in a closed-loop, you know, configuration.
We have previously done a study on the vessel and the sister ships for such a possibility. This is rather a position that is being marketed and could be further marketed. When it comes to a timeline, we don't have a timeline on it. We are just kind of you know in discussion with a couple of projects that could have a potential interest in the ship. We would evaluate both using her as an FSRU and as a conventional ship, depending what is more attractive and what is more realistic.
Okay. That's helpful. One way or the other, it's still quite a few years before that would happen. I guess for my last question, is it, you know, your cash balance is continuing to build, the debt balance is continuing to fall and you're creating equity. Are you any closer to being in a position to think about growth at all? If so, how would you envision that manifesting? Is this something where maybe you could order a vessel? I don't know. It might be too expensive at the moment. I would think, in my opinion, they are.
You know, thinking about maybe talk perhaps drop-downs or is it, are we still at this point in delevering mode and too early to really be serious about any growth capital?
Yeah. Hi, Ben. This is Michael. No, I think we haven't changed our strategy. I mean, each quarter that passes, you know, the partnership is stronger than the previous quarter as a part of the deleveraging process. You know, when we wanna make a move, we have to be as strong as possible. You know, we have to solve for acquiring a vessel which is accretive and would not increase leverage. That is also in light of, you know, there will be some equity required for fleet expansion. We're getting there slowly. You know, future growth is something, you know, that's definitely on our minds.
Would you think about ordering a new vessel? I mean, you're creating cash, you're building, you know, there's no need to do a drop-down and have something that's immediately cash flowing. You could certainly incubate something at this point and wouldn't need the parent for that. Is that at all a possibility for you?
Yeah. Hi, Ben. This is Tony. Yeah, I mean, look, we are basically looking at all options, and we don't exclude that one. I mean, we couldn't share any color on it now. I do agree with you that shipbuilding prices are getting very expensive. Also, you know, slots are, you know, slot availability is extremely tight, but it is an alternative that could be considered.
Okay. Very good. I appreciate it. Thank you, guys.
Thank you. Thank you.
This concludes the Q&A portion of today's call. I'd like to turn it back over to Tony for any closing remarks.
Thank you all for your time and for listening in on our earnings call. We look forward to speak with you again on our next call. Thank you very much.
Ladies and gentlemen, this does conclude today's presentation. You may disconnect and have a wonderful day.