Thank you for standing by, ladies and gentlemen, and welcome to the Navigator Holdings Conference Call on the Third Quarter 2020 Financial Results. We have with us Mr. David Butters, Executive Chairman, Mr. Harry Deans, Chief Executive Officer, Mr. Niall Nolan, Chief Financial Officer, and Mr. Oeyvind Lindeman, Chief Commercial Officer. At this time, all participants are in a listen-only mode, and there will be a presentation followed by a question- and- answer session. I must also advise you the conference is being recorded.
Limited to future expectations, plans and prospects for both the financial and operational perspective. These forward-looking statements are based on management assumptions, forecasts, and expectations as of today's date, and are as such, subject to material risks and uncertainties. Actual results may differ significantly from our forward-looking information and financial forecasts. Additional information about these factors and assumptions are included in our annual and quarterly reports filed with the Securities and Exchange Commission. Now, I ask you to take over the call.
Thanks, David. Good morning to everybody in the call. I hope you're well and keeping safe. At the beginning of September, in line with the prevailing government advice, we reopened our company offices on a phased Team A, Team B basis, with staggered working hours to both reduce risk and to maintain social distancing. This turned out to be a temporary measure, however, as the second wave of COVID-19 started to take hold in late September, and we've subsequently had to close our offices again. Once more, we're running our business remotely from numerous home offices worldwide. This week, the prospect of the Pfizer vaccine provided a glimmer of hope for all of us and was a welcome shot in the arm for the global economy.
We all live in hope that this vaccine or one of the others that are currently on the development fast track will prove to have good efficacy and will be quickly rolled out globally, much to the relief of everyone. U.S. LPG production and exports have been remarkably resilient throughout this pandemic, and there's no sign of that abating. In fact, the recent modest uptick in U.S. rig counts helps further underpin confidence, and are very pleasing to know that despite the impact of the weather headwinds on petrochemical supply from hurricanes Laura, Zeta, et al, that the business continued to be profitable in Q3, albeit at low levels. We have built on the momentum of Q2 with a net income of $1.5 million and an adjusted EBITDA of $31.9 million in Q3.
Our Ethylene Terminal joint venture was profitable for the quarter, helping to more than offset the impact on the shipping business of the weather disruptions in the U.S. Gulf. The quarterly and year-to-date operating revenue, net income and pandemic struck before rallying to the low 90% levels in May and June. Unfortunately, that recovery in utilization rates was short-lived as Hurricane Laura knocked out over 25% of the U.S. Gulf export capacity for an extended period of time, causing rates to fall back to just under 80% for Q3. Although October was also impacted, thankfully, utilization rates have since started to recover and are currently hovering in the mid to high 80% levels. The record 2020 hurricane season was in many respects a relief. I am pleased to report that we've been able to dramatically reduce the overdue crew changes by completing a significant number of crew reliefs.
Currently, we have less than 50 seafarers who have overdue leave, and we continue to work hard to reduce the backlog whenever and wherever possible. We are working pragmatically with the flag states and classification societies as we resolve the many practical inspection and dry dock challenges that have been caused by this pandemic. Our Morgan's Point joint venture Ethylene Terminal continues to exceed our expectations and has had an impressive quarter, both in terms of profitability and throughput. We have now exported just over 300,000 tons from the terminal. The terminal complex is working extremely well, we're impressed by the workmanship, the quality, and the performance of the installation. As you can see from the photographs in the supplemental information pack, construction of the ethylene tank is progressing safely, on budget, and on time, with commissioning and startup scheduled for December this year.
We expect the first ethylene tons to be loaded into the tank in mid-December, which will be a key milestone and a crucial first. The long and short of it is that the company now has a much-improved balance sheet and has significantly boosted our liquidity to around $120 million, with our current loan expiry runway till March 2022 and with no maturities over the next 17 months. Niall in his prepared remarks will provide much more color on our recent refinancing success. Q3 has been a mixed quarter for our business, with considerably, mostly weather-related headwinds, which have impacted our overall utilization rates, some of which lingered well into October. It could end as a stable cash flow from this infrastructure investment, with its take-or-pay contracts start to hit our bottom line.
The terminal historical lows, and with the imminent ramp-up of several new North American export facilities in late 2020 and the first half of 2021, including our Morgan's Point Ethylene Terminal, the Repauno Terminal, and the Prince Rupert facility. We believe these factors will help firm vessel utilization rates. This, coupled with an improving ethylene arbitrage and increasing demand for ethane and LPG in China, will help boost exports and should, all things being equal, be good news for the handysize segment and for Navigator Gas. We are in pole position to capitalize on these opportunities.
EBITDA for this third quarter was $31.9 million, with $4.4 million being generated from the operations of the terminal and $27.5 million the result of an increase in average charter rates, which rose to just under $700,000 per month or $22,892 per day from just over $650,000 per month or $21,466 per day for the third quarter of 2019. Average charter rates across the nine months of this year averaged $21,733 per day, an increase despite any negative impacts of COVID-19 from the $21,000 a day achieved during the equivalent nine months of last year. Although charter rates continue to see some upward primarily as a result of the effects of hurricanes Laura and Delta, that Oeyvind will refer to later.
Revenue also reduced by $900,000 due to an increased number of days that the vessels were in dry dock during the quarter. five vessels completed dry docking, taking a total of 112 days when vessels would have been unavailable for charter, relative to 64 dry docking days during the third quarter of last year. This increase in dry dock activity was as a consequence of dry docks being delayed earlier in the year as a result of COVID-19. seven dry dockings in total have been undertaken during the nine months of 2020 at a total cost of $8 million, $6.8 million, or $7,672 per day incurred in the comparative third quarter of 2019. General and administrative costs increased by $1.9 million for the three months ended September 2020 and $2.9 million year to date.
This year-to-date increase related to $1 million on foreign exchange losses on the revaluation of an Indonesian rupiah bank account, which should not be repeated and may reverse. A $1 million increase for audit and related fees and $600,000 for additional top-up insurances for the marine $0.8 million, primarily as a result of reductions in U.S. LIBOR, which has now fallen since September 2019 by 180 basis points on our approximate $760 million of variable interest rate debt. The share of results of equity accounted joint venture, i.e., the terminal, generated a profit of $3.1 million for the third quarter. Our first quarterly profit following the long-term throughput agreements becoming effective on June 1st, 2020.
Net income for the third quarter was therefore $1.5 million, or $0.03 per share, compared to a loss for the third quarter of 2019 of $2.9 million, or a loss per share of $0.05. During the most recent quarter, we entered into an agreement to amend the terminal credit facility to allow an early true-up of $34 million. This amount was drawn down on October 8th. We also concluded the refinancing of one of our vessel loan revolving credit facilities on September 24th, which provides available liquidity of $120 million. We had a further $6.1 million as restricted cash supporting the cross-currency interest rate swap relating to our Norwegian kroner bond. Although since the quarter end, and as a result of further strengthening of the Norwegian kroner versus the US dollar, this restricted cash has reduced to $3 million as of yesterday.
During the quarter, we also refinanced our $100 million unsecured Norwegian bond with a new five-year like-for-like bond. This bond, which matures in 2025, attracts an interest rate of 8% per annum. Importantly, as Harry referred to, the company does now not have any debt facilities maturing until April 2022. Finally, with respect to the construction of the Ethylene Terminal, we have contributed a further $7.5 million during the third quarter and an additional $2 million since the quarter end, both fully funded by drawdowns from the terminal facility. Following these drawdowns, along with the initial true-up of $34 million, the aggregate amount now drawn under that facility is $51 million out of a total available amount. With that, I'd like to hand you over to Oeyvind.
Thank you, Niall. As Harry mentioned initially, we were on a roll during the summer months, ramping up the Ethylene Terminal with record-breaking export volumes of competitively produced U.S. ethylene. The utilization levels were in excess of 90%, and our specialized fleet enabled Asian post-COVID-19 phase I demand to flourish. Ethylene, as well as propane, were required for the production of personal protection equipment such as face masks or as landfall. The middle of August, one quarter or 25% of the entire U.S. ethylene production was shut in preparation for Laura's landfall. The hurricane did make landfall right in the middle of the ethylene-heavy Lake Charles area. Luckily, minimal physical damage occurred at the petrochemical industrial parks. However, the shutdowns were prolonged due to slow repairs of the local electricity grid and continuing scare of additional hurricanes.
Only after Hurricane Zeta made landfall in October, in August through October, U.S. domestic ethylene prices rose as there were little to no excess production available. It went from its lowest level of $0.09 per pound in the summer, reaching above $0.30 per pound during the hurricane period. Exports through the terminal reduced, which directly impacted our ethylene fleet. The vessels that have been ballasting back to U.S. Gulf for ethylene prospects had to either take idle time or look for alternative employment opportunities, but in the semi or fully refrigerated, resulting in possible arbitrage of more than $400 a ton today, which is widening by the day. There's been a noticeable uptick in activity and discussions for November, and particularly December, on both freight and terminal throughputs.
Our utilization has recently improved from the lows of the hurricane season, hovering today in the mid to high 80% level. U.S. natural gas liquid production remains strong, which is positive, ensuring competitively priced feedstock for the U.S. ethylene producers. It also bodes well for continuing ethane exports as well as LPG exports. It underpins their prospects of full volumes going through the terminal once the tank is operational. The annual nameplate capacity of 1 million metric tons of ethylene gives about 80,000 tons per month ignoring any seasonality.
If we assume that the majority of these molecules will head transpacific to cater for Asian demand, then this translates to about 15 handysize vessels. That is a huge difference compared to the vessel demand from that terminal during the lows of the hurricane season, which were at three to four vessels. The quoted market rates for handysize ships have been moving sideways since May, including through the recent hurricane volatility at least in an environment with stronger oil appetite going forward. This enables gas to play out its rightful role, a viable substitute for oil products, with the added bonus of reducing greenhouse gas emissions. With that, I will hand you back to the operator.
We would be ready to open the conference to questions- and- answers, please.
Thank you. Your first question comes.
This quarter, you mentioned in the release that the hurricane or the hurricanes impact the shipping business in the Gulf Coast, but you also mentioned it affected the terminal. Are you able to quantify what kind of impact that is for, say, the fourth quarter?
Omar, the issue with these hurricanes is that the production capacity shutting took a long time before they returned or are returning back to normal. The impacted months have been kind of second half August, September, October. We've seen stronger throughput in November, and we expect that to be back up to expectations for December. December, probably looking at similar levels as we saw in June, July.
Okay. If we just think of it in terms of numbers, in the third quarter, you got $4.4 million of EBITDA, $3.1 million of earnings. Is that repeatable, you think, with what we've seen so far for the fourth quarter?
I think it may be, given what we've seen in October, and the early part of November, that might be slightly on the high side, but not significantly so.
Okay. Just generally, how do the terminal contracts work when it comes to these types of events, storms, hurricanes? Are they take-or-pay, hell or high water type contracts?
Yes, they are.
Okay, great. Then just sorry, one other follow-up. I just wanted to ask with ballasting into the Gulf. Thank you.
Yeah. The Luna Pool, as we discussed last call as well, is fully operational. It commenced the 1st of April, and today all the 14 ships are in the pool and performing accordingly. The Luna Pool consists of ethylene ships, specialized ships, and of course, the pool is formed in order to better service the ethylene customers and of course also the U.S. Gulf's ethylene exports, including from Targa terminal and our own joint venture terminal.
Of course, when there's less ethylene to be exported from there, it will impact the pool, but the whole concept of a pool is collaboration and sharing of earnings. Therefore, through the pool, we were, during this time, more likely to have the right asset at the right location for other cargoes. If we only had our own ships, and let's say we navigate to ballasted and most of them back to U.S. Gulf, we didn't have any other ships available for other opportunities.
Actually, I wanted to, it made me think there, follow up on Omar's last question there. In some ways, was the Luna Pool a little bit, or did it drive down utilization across the fleet a little bit? Obviously the Luna Pool's carrying ethylene specifically, you have to have vessels dedicated to that. Maybe in the past, if an ethylene cargo isn't available, you could just take propane or something else. As a function of dedicated cargo commitments, did you maybe forego business that might have kept utilization otherwise a little bit higher?
I don't think so, Ben. It's a complex question. With the 14 ships, clearly the ambition is to trade with ethane and also ethylene. Whether the pool was in place or not, and you are facing this volatility that the hurricanes caused, less exports in that one particular cargo grade, with pool or not, we would be chasing other opportunities and working very hard to find alternatives. The point with the pool is that we have a more global footprint, therefore, the chances are more likely that we can find other alternatives. I wouldn't say that the pool has been detrimental in utilization for Navigator during this time. I think it would've been more or less the same, probably a little bit worse if we hadn't had the pool.
Okay.
When you get back to the ethylene, you have to stop, clean, and refrigerate. It's a process that takes time and money. In the case where you are temporarily down, such as caused by the hurricanes, your choice is to just sit there and wait until it clears and the ethylene becomes available because it's just too expensive and time-consuming to take a spot cargo of propane, do that cargo, and then come back to do the ethylene. Much more expensive. That causes an extra delay, if you follow me.
Yeah, sure. You probably would not have picked up.
To be temporary. They extended longer than we expected because the electricity was down longer than people had expected.
Right. In the release, you had mentioned a new multi-year contract on a vessel, I believe it's a Chinese counterparty. Any color that you might be able to provide there with respect to rate at all?
This was in our Q2, actually, announcement. I think we put it in where it's a three year contract at higher than mid $30,000 rate per day.
Got you. Okay. It was an incremental to 2-Q. Okay. That's helpful. Lastly for me, this is a little bit more strategic, I guess, area. As you look at the company, and you've made a lot of progress, taken delivery of a lot of ships. Obviously, the terminal has come along nicely. The share price has languished at levels below sort of where you traded initially after the IPO for some time here.
A couple of years, what Navigator's gone through, from sanctions to tariffs, to the COVID-19 shutdown, global shutdown, negative pricing of oil, and then back-to-back hurricanes right down the mainstream of where the petrochemical complex is located. Yet we're generating profit. What it has done is put a kind of a fog over the future. The fog being simply a more difficult time, a period in which to focus on where we are anticipated going. I think a great event occurred this week with the Pfizer vaccine. We know a vaccine can be, whether it's the Pfizer one or another one. It clarifies some of that fog. It takes it away.
More and more of the intermediate chemicals, the olefins, the propylenes, the ethylenes. The infrastructure required for that is still in its infancy. Our little terminal, it's not little, it's a world-class terminal, but it is the beginning. I see far more of that type of infrastructure required. More infrastructure required on the receiving end, and more companies willing to start to crack as far export. Enterprise is doing that now with the second propylene facility being built in Texas solely for export. No. Look, everyone has taken a step back because of all of these convergent factors that were unforeseeable. Black swans coming so common that they are no longer black swans. They're common day events. I think we've gotten through them. The conviction of where the U.S. petrochemical industry had some setbacks, but they were unforeseen and unforeseeable.
No, I think we're fully convinced that we've got the right kind of position. Yes, we're disappointed in the stock price, but I think we're not alone, and I think these things do pass. Perhaps, we're entering into a new phase where focus may be on value stocks, such as a Navigator versus a growth stock. I think if one looked at it, we are a combination of both a solid growth opportunities as well as great value. I don't think we've changed at all. I think we're committed, and I'm as excited as ever. Disappointed on these things that we couldn't see. Harry, do you have any comments from that?
Thanks, David. Yeah, I think you covered it very well. I think then our strategy's on track, and it's starting to deliver, as you can see from the terminal. In the next, when we get that tank on stream, we'll virtually be doubling the capacity through that terminal going forward. No, we're all frustrated about the stock price, but that's life, isn't it, Ben, so.
Yeah. Okay. All right. I appreciate the color. Thanks, guys.
Thank you. Your next question comes from Sean Morgan from Evercore. Please go ahead.
Hey, David. I think one of the things you said in your response just now that you kind of view yourself as a value but also a growth company. We look at the sort of CapEx and cash requirements in handysize vessels that need dry docking and probably, I think you said only $4 million of additional capital needs to be paid from, sort of in light of this idea of growth that you made that capital available, or is it just kind of going back to what you said about black swans and being prepared for rainy days?
Well, one has to be prepared for the rainy days. We've been just hit so frequently that these black swans are commonplace. No. Look, balance sheet strength and building up is obviously key, and yet being prepared to have additional capital for these potential expansions. Clearly, the most obvious capital requirement early on will be to consider whether or not we need to expand that Ethylene Terminal. If things go as we anticipate and continue volumes ramp up we'll need more money for that.
That's pretty obvious for anyone who looks at the situation. I don't think expansion. Again, it's a logical thing that we would be doing. I don't know if this answers. Do we have enough of that? No, probably not. As these things unfold and the visibility, hopefully this begins the period of visibility of earnings, then our share price would expect respond. We would see the kind of appreciation that one would expect with the growth and value orientation. That we'll be able to fund, and keep a pace with.
Maybe hinting at another footprint, but maybe that's kind of further down the road. For my last question, you said that there was some disruption in terms of utilization in October, and we were given kind of a current rate of mid to high 80s utilization. A month and a half in, we have about 50% of this quarter on the books. What does it look like right now in terms of the blended utilization for the first half of November and October?
Yeah. October was higher than the third quarter, but we see the trend going north through November and also into December. Where it is at today is the mid-80s, high 80s% level.
If you average, typically the best debottleneck is a free debottleneck where you spread the assets, and we're pretty confident we can at least get 10% additional capacity at our current footprint at Morgan's Point. Then the next best one is if you expand on an existing facility because the cost per ton of installed capacity is dramatically reduced. That's a good opportunity. Equally, in this marketplace, with low share prices and low profitabilities, there's a lot of opportunities out there as well in the traditional shipping market. We're looking at all those options and assessing them. There's nothing imminent in the pipeline today.
Okay. All right. Thanks a lot.
Thanks.
Your final question comes from Randy Giveans from Jefferies. Go ahead.
Howdy, gentlemen. How's it going?
Hi, Randy.
Hey. I guess two questions from me. Any updates on Repauno or Pembina? I know those have been kind of in the pipeline for quite some time here, so seeing if you have any news on those.
Yes. Pembina, Randy, is still on schedule to commence operations back end of first quarter, maybe April next year. No change there and no change in the volume or the specifications requiring then four to five or six, depending on the destination of that Canadian volume, the incremental demand of handysize ships. That is going as far as we are aware and talking to Pembina and looking what they publish publicly. That's in the initial phase, learn to walk before they run, I suppose. They have publicly stated that they intend to start exporting, which is obviously we're interested in and will impact our business from at the same timeframe as Pembina. I think we'll come back end of first quarter next year. If you have Pembina, Repauno both starting, you will have a big kicker in our segment.
Got it. All right, I guess one more quick modeling question. In terms of interest expense, that continues to fall here in the last three or four quarters. Is this kind of current number, the $9.8 or so, a fair run rate, which we use for the fourth quarter? Same for G&A. That has certainly bounced around this year. Where is that going to shake out this quarter and then maybe a run rate for 2021?
The interest charge should be something similar to Q3. There's been a slight further reduction in interest rates from Q3. The Indonesian rupiah $1 million should probably, well, certainly is unlikely to repeat itself. As of today, it has rebounded somewhat, so there should be somewhat of a reduction in that. The terminal additional insurance will remain as is, and the audit and related fees will be repeated to some extent, but not that full amount. That was partly a catch-up.
Got it. All right. Well, that covers it. Thanks so much.
Thanks, Randy.
We now have no further questions.
Good. Well, thank you for joining us this morning, and we welcome you back in a few months' time. Thank you.
Thank you. That does conclude today's presentation. Thank you all for joining.