Thank you for standing by, ladies and gentlemen, welcome to the Navigator Holdings conference call on the first 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 the listen-only mode. There'll 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 and wait for your name to be announced. I must advise you that this conference is being recorded today. I now pass the floor to one of your speakers. Mr. Butters, please go ahead, sir.
Thank you. Good morning, everyone, and welcome to Navigator's first quarter 2020 earnings call. As we conduct today's conference call, we'll be making various forward-looking statements. These statements include, but not limited to, future expectations, plans, and prospects from both a financial and operational perspective. These forward-looking statements are based on management assumptions, forecasts, and expectations as of today's date, are, as such, subject to material risk 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. We are a few weeks later than normal in reporting our first quarter 2020 results.
Considering that we only filed our 2019 20F about 20 days ago, we believe that the coordination with our new accounting team at EY is improving, and we will be able to progress from here. Many of you know that for the last 18 months or so, we have been talking about Navigator's Road to 2020. We believe, and still believe, that during 2020, our operational fate would improve dramatically as various infrastructure projects would be completed and lead to a significant pickup in our export volumes on our specialized vessels. Those projects are namely the Mariner East II and Mariner East 2X project along the Delaware River, the completion of the new Repauno export terminal, again on the Delaware River, our important ethylene export terminal in the joint venture with Enterprise in the Gulf of Mexico along the Houston Ship Channel.
Lastly, the important West Coast Canada and British Columbia export terminal that is expected to be completed next year. Unfortunately, shortly after we exited 2019 and entered 2020, we were hijacked by the insidious and unexpected novel coronavirus, which shut down global trade and slowed down, but did not stop our voyage. Ironically, we, the victims of the hijack, are now wearing the face masks. Our team will outline this morning why we believe and have hope that we are now back on the road, albeit somewhat delayed. To give us a better insight in all of that, we will have speaking this morning, Harry Deans, our Chief Executive Officer, Niall Nolan, our Chief Financial Officer, and Oeyvind Lindeman, our Chief Commercial Officer. Why don't we have Harry begin and give us an outline of what has happened over the last quarter. Harry?
Thank you, David. Good morning to everybody on the call. I hope you're all well and keeping safe. It's hard to believe that we are now entering our 11th week of lockdown. Our offices around the world remain closed, and our business is now run remotely from numerous home offices in several countries around the globe. This is our new normal. Remote working with all it entails has become our new modus operandi. I am pleased to say our investment in robust information technology platforms and systems has paid off, allowing our team to interact seamlessly with each other, our customers, and our vessels. Thankfully, the COVID-19 pandemic shows some early signs of abating. China and several other economies, especially in Southeast Asia, have reemerged from their lockdowns and have restarted manufacturing, thus providing a much-needed stimulus for the global economy.
North America and Europe, albeit a few months behind, are also beginning to cautiously ease the draconian lockdown measures and to talk about plans for a phased opening up. When this happens, it should jumpstart both production and consumer demand. It's indeed early days on the road to recovery. However, the gradual lifting of lockdown will benefit the global economy, which has been severely buffeted by the effects of the pandemic. In May, we have witnessed the resurgence of a healthy ethylene arbitrage to Asia, with differentials doubling from record all-time lows in the month.
We've also seen an uptick in both propylene and butadiene export cargos as producers attempt to balance local supply and demand with global export opportunities to maintain high cracker utilization rates. In anticipation of the restrictions being lifted by national governments, Navigator Gas is working hard on a phased return to work plan for our onshore personnel. Now, this plan is not entirely straightforward, as it must respect both social distancing guidelines and other measures. We will only return when legislation allows and when the company believes it is safe to do so. Safe, reliable, efficient operations are at the very heart of what we do as a company. Our vessels continue to safely ply their trade, traversing the world's oceans with much-needed cargos to keep the global economy ticking over. Single-handedly, seafarers have kept global trade moving, and in so doing, helped feed, clothe, and warm humanity.
This has come at some considerable personal cost, as the ubiquitous travel restrictions and quarantine regulations, together with the suspension or heavy curtailment of many flight routes, has forced the company and our third-party managers to temporarily suspend all crew changes until it was safe and feasible to do so. I'm very pleased to report that in the last few weeks, we have carefully, with meticulous planning, managed to relieve almost three dozen crew from around 10 of our vessels. This is real progress. However, with many more crew waiting for well-deserved overdue leave, this, unfortunately, is currently the exception rather than the rule. Again, I want to pass on my heartfelt thanks to all our officers and crew for their professionalism, their dedication, and their sheer determination to keep product flowing and people safe during the current crisis.
Talking of our safety, it'd be remiss of me if I didn't say a big, big thank you to all our in-house managed vessels, which collectively have now gone well over 548 days without a lost time incident. To our fleet, I say, keep looking after each other. Well done, stay safe. Our teams continue to work with the flag states, the classification societies, the various inspection institutions, and of course, our charterers to extend the validity of current inspections and certificates, or to postpone or alter mandatory dry dockings and inspections as they become due. This pragmatic approach, coupled with the additional measures our ports of call have put in place, has ensured that operations continue without any major disruptions at comparable levels to 2019. Inevitably, some routine maintenance work has had to be postponed as current restrictions have prevented qualified third-party personnel from boarding the vessels.
I'm very pleased to announce that our Morgan's Point joint venture ethylene terminal is now 95% sold out, with another take-or-pay offtake agreement being signed in April. The terminal is now fully functional, and throughput is ramping up, with the monthly throughput expected to exceed 45,000 tons in June. With this ramp-up, we expect to see improving financial returns from our terminal and see them filter through to our bottom line. As is evident from the photographs in the supplemental information pack, phase II of our terminal joint venture, which is the construction of the ethylene tank, is progressing safely, on time, and on budget. From the internal tank picture, you can get some feel for the huge scale of our cathedral-like ethylene storage tank. The tank is on track to be fully operational by the end of the year.
Previously, we announced the Luna Pool with Greater Bay Gas and Pacific Gas, and that is now up and running. Live operations began in the second quarter, with all 14 vessels expected to have joined the Luna Pool by the end of Q2. We have high hopes for the Pool, which will provide customers with increased flexibility and improved access to ethylene-ready vessels. As previously discussed, as the COVID-19 pandemic and its economic impacts became apparent, our utilization rates dropped from those achieved in January, running at mid-80% levels in February, March, and April, rates last seen in mid-2019. It is early days, and too early to call it a trend, but our May utilization rates have improved and are expected to reach around the 90% level, which is very encouraging.
This is testament to the increasing global economic activity as lockdown measures are eased, coupled with improving arbitrage activities and the ramping up of the throughput of our Morgan's Point export terminal. Thankfully, handysize TC rates are less volatile than other sectors and have been pretty resilient, with only a marginal 5% reduction in rates at the end of Q1. As a company, we continue to reduce discretionary spend while minimizing working capital and CapEx and thus preserving cash and liquidity. In the following weeks and months, we will take further steps to increase our liquidity in the markets, more of which will be outlined by Niall in his prepared remarks. Navigator is a robust, resilient, and innovative company. Our terminal is now starting to get fully into its stride.
Ladies and gentlemen, please stand by while I reconnect your speaker.
I think I shall take over. Harry was on his last sentence. He was just saying that Navigator Gas is a robust, resilient, and innovative company, and our terminal is now starting to get fully into its stride, both operationally and financially. Our shipping business is ready and well-placed to benefit from the economic upturn when it occurs. With that, he was going to pass it over to me, but I think he was having power cut issues this morning, the challenges of working from home. If I may proceed and say that the results of the first quarter of 2020 show a headline loss of $8.5 million. This comprises a number of differing factors. First, this loss includes $3.7 million of foreign exchange losses, generally as a result of COVID-19.
$2.5 million of which relates to non-cash movements on our cross-currency swap associated with our NOK 600 million bond, and $1.2 million associated with revaluation losses relating to a significant weakening of the Indonesian rupiah against the US dollar. We receive Indonesian rupiah from Pertamina for the charter of three of our vessels trading in Indonesia. A significant part of these losses has reversed since March 31st, after the markets have absorbed the initial shocks of COVID-19. Secondly, the quarterly results include a $3 million loss associated with the initial startup operations of the ethylene terminal. As Harry mentioned, the results for the terminal will improve during the second quarter as throughput volumes through the terminal ramp up.
This leaves the loss relating to our vessels for the first quarter 2020 in the amount of $1.8 million, compared to a loss of $3.3 million for the first quarter of 2019. Operating revenue for the vessels was $81.3 million for the first three months, an increase of $5.2 million from the $76.1 million generated during the first quarter of 2019. This increase was partly as a result of vessel utilization increasing from 84.8% for the first quarter of last year to 89% for this most recent quarter, generating an additional $3 million of revenue. As Harry mentioned, January's utilization was 97.3% before COVID-19 negatively impacted February and March, with utilization levels reducing to around 85% for those months. Average charter rates fell back during the quarter to an average of $20,855 per day or $634,350 per month, compared to $21,782 per day for the first quarter of last year.
However, this first quarter 2020 charter rate is an increase of 3.2% from the $20,200 per day achieved last quarter, the fourth quarter of 2019. During the first quarter, the company undertook only one dry docking, principally as a result of yard closures associated with the impacts of COVID-19. The company has received the necessary dispensations from the relevant authorities for delaying dry dockings in these unusual times. We were planning a total of 10 dry dockings during 2020 at a provision cost of approximately $12.2 million, but at least three of these may be pushed back into 2021, depending on the impact and longevity of the effects of COVID-19. We currently have one vessel, Navigator Magellan, in dry dock in China and another scheduled for July this year.
Vessel operating expenses were $27.4 million for the first quarter or $7,925 per vessel per day, a decrease of 7% from the $29.5 million or $8,618 per vessel per day incurred in the comparative period of 2019. General and admin costs increased by 25.6% to $6 million for the three months ended March 2020. This increase primarily relates to uncrystallized foreign exchange losses on the revaluation of the Indonesian rupiah bank account at March 31st, without which the increase in general and administrative costs would be 1%. Since the end of March, the Indonesian rupiah has regained lost ground against the US dollar, and as of yesterday, this $1.2 million loss at March 31st has reduced by about $750,000. Interest for the first quarter was $12.4 million, a 1.8% increase or $200,000 from the interest incurred in the first quarter of 2019.
This small increase is as a result of expensing interest relating to the ethylene terminal, whereas for the first quarter of last year, interest associated with the terminal's construction was capitalized. The reduction in US LIBOR on most of our debt has in a large part offset this additional interest expense. The ethylene terminal generated a loss of $3 million during the quarter, which is generally associated with the initial startup of operations. The terminal began operations in December last year. As Harry mentioned, and Oeyvind will discuss later, the ethylene terminal is now fully operational, with throughput volumes ramping up. As I mentioned at the outset, COVID-19 related foreign exchange losses accounted for $3.7 million.
The initial startup costs of the operations of the terminal cost $3 million, and the vessels made a loss of $1.8 million, taking the total to $8.5 million loss for the quarter, or $0.14 per share, against a loss of $3.3 million or $0.06 per share for the first quarter of 2019. Cash stood at $51 million at March 31st, against a required liquidity covenant of $43.7 million. In addition, the company had a restricted cash balance of $15.2 million, providing cash collateral against the unrealized losses on its cross-currency interest rate swap. The company was in compliance with all financial covenants on all its debt facilities at March 31st, 2020. However, in the event that the Norwegian kroner weakens further against the US dollar, additional cash security would be required to be deposited into the collateral account, thus providing less headroom on our liquidity maintenance covenant.
That said, the exchange rate between the Norwegian kroner and the US dollar yesterday enables the required cash collateral to be reduced to $9.3 million from the March 31st requirement of $15.2 million. We are also seeking to provide additional liquidity headroom by considering the refinancing of one of our vessel loan facilities, which could provide an additional cash draw of approximately $30 million, and drawing down on the terminal credit facility, which could provide a further $40 million. We did not make any capital contributions to the export terminal joint venture during the first quarter of 2020. However, since the quarter end, we did contribute $7.5 million to the JV and financed this contribution by an initial drawdown on the company's terminal credit facility. We've therefore now contributed an aggregate $133 million of the total anticipated cost of $150 million of the terminal.
The terminal credit facility is in the amount of $75 million, and although the banks have only formally approved a total available amount of $36 million thus far, we believe that as the ethylene terminal is now approximately 95% contracted, the full $75 million will be available, against which we have utilized $7 million and have only $17 million of capital contributions to the joint venture to make over the course of the next 6- 12 months. The balancing amount would increase our cash position and our liquidity covenant headroom. At March 31st, total debt stood at $871.4 million. Although the company does not have any debt facilities maturing during 2020, it does have $100 million Norwegian bond maturing in February 2021, thereby requiring the liability to be moved from the long-term liabilities to current liabilities in our balance sheet for the first time.
As we referred to last quarter, we had anticipated refinancing this bond with a like-for-like bond prior to the COVID-19 outbreak. In the event the capital markets do not sufficiently return to enable a refinancing of this bond in the coming months, we are considering alternatives, which include either an extension to the maturity or a capital raise in the form of a sale and leaseback for a number of our vessels. With that, thank you, and I will hand you over to Oeyvind.
Thank you, Niall. The Clarksons 12-month time charter assessment for semi-refrigerated vessels increased from $645,000 a month to $695,000 a month in January, reflecting an encouraging start of the year with utilization, as you've heard, at 97%. At the end of January, it became apparent that the COVID-19 was something more than a localized issue in Wuhan. The World Health Organization declared it to be an emergency of international concern on the 30th of January and categorized it as a pandemic on the 11th of March. Far Eastern countries went into lockdown, which was swiftly followed by the rest of the world. As we all know, economic activity fell drastically, impacting demand for shipping services.
As you have heard from Harry and Niall, our utilization reduced to the mid-80% levels for February and March and April, and the Clarksons assessment declined 5% to $665,000 a month at the end of the quarter. Handysize LPG demand remained largely unaffected as the key source of demand for this product is relatively inelastic, associated with domestic usage for heating and cooking. This demand is less affected by commodity substitutes and price volatility, which in comparison, influences the larger gas carriers in a more profound way. For example, when naphtha is sufficiently price competitive compared to LPG, the petrochemical industry will evaluate the cracker economics and take decisions whether or not to switch feedstock.
Such substitution effect has been evident during the recent period with low oil price. The majority of LPG being exported from the U.S. goes long haul on larger vessels, fluctuations in the amount of exports, either due to price arbitrage or seasonal domestic demand, has a large impact on this very large gas carrier segment. Handysize vessels, however, are catering for regional distribution and is only moving a fraction of the annual 40 million tons of LPG exports from the U.S. During the first quarter, our vessels transported only 100,000 tons from the U.S. for local distribution, this 100,000 tons is only 10% of the LPG volume Navigator carried on our vessels elsewhere in the world during the same period. Not surprisingly, global petrochemical demand fell during the COVID period due to less manufacturing and less consumption.
Some pockets of the industry have been doing well, though, with increasing demand for plastics for food packaging and personal protection equipment, such as we see every day, face masks. Generally, European and American producers facing low domestic demand are continuously evaluating whether to reduce the operating rates at the crackers or export excess petrochemicals. Many are opting for the latter. We noticed during the month of May, a pickup in deep-sea exports of butadiene from Europe to Asia, and ethylene and propylene from America to Asia on handysize vessels. Logic would dictate that the ongoing easing of lockdown regulations are slowly encouraging demand. Price arbitrage of ethylene, for example, were at an all-time low in Asia during the month of April at $300 a ton delivered. Today, has now more than doubled, reaching $700 a ton for June deliveries. This is encouraging tons for exports.
This ties well in with the ramping up of the Morgan's Point ethylene terminal exports. Of the Targa and Enterprise estimated first half 2020 ethylene exports, more than half of the volume will be handled on Navigator-owned or controlled vessels. Asia demand is also pulling in propylene from the U.S., and at the time of writing, we have two of our vessels carrying this cargo from the U.S. to Asia. It is the first time that this trade has taken place in more than a decade, and showing some green shoots. As a result of petrochemical demand slowly picking up, our utilization, as you heard, is regaining lost ground, and we expect to reach the 90% level during the month of May.
12 / 19 spot vessels we have are currently employed in deep-sea petrochemical voyages, and six out of the seven available handysize ethylene carriers are trading ethylene. There are currently 12 handysize ethylene vessels operating in the Luna Pool, with the two remaining ships expected to enter during the month of June. This pool creates a critical mass for us to better service our customers' needs. The petrochemical ocean-going market is structured and oriented for voyage charters and spot opportunities, which creates a benefit in deploying a larger fleet to optimize and add value to the client's logistics. All in all, we are seeing green shoots in terms of ramping up of deep-sea petrochemical trades, particularly for ethylene, and handysize LPG is somewhat sheltered due to the nature of its demand, and its lower reliance on U.S. LPG exports.
The COVID pandemic and its impact on our markets remain uncertain as to how it will affect the near term. With that, I will thank you, and I will hand you back to David.
Yes, I think we can now open up the call for a Q&A period, please.
Thank you very much, sir. Ladies and gentlemen, if you wish to ask a question, please press star one on your telephone keypad and wait for your name to be announced. Our first question is from Ben Nolan from Stifel. Please go ahead.
Yeah, good morning, or afternoon. It's good to hear those comments from Oeyvind at the end there about the utilization picking up and more petchems. Sort of along those lines, I thought it was interesting that you signed the last contract for the ethylene terminal in April, when really everything was super locked down. Could you maybe talk through what your customers are saying or how maybe conversations are going about potential additional contracts for future expansion or some of those kind of things, about sort of the longer-term outlook of customers with respect to the ethylene?
Oeyvind, why don't you handle that one?
From the customer perspective, Ben, literally it's a race because of the dramatic increase of ethylene delivered price in Asia that we've seen over the last three, four weeks. There's a run on the various ethylene terminals, which there are two of in U.S. Today, a t the moment, U.S. ethylene prices still remain very attractive, competitively attractive at around $250 towards a ton or less. People are trying to buy it at $700 plus in Asia. This arbitrage is really encouraging spot trades and is obviously helpful for the existing contractual customers at the terminal to realize and crystallize gains. Literally, any available terminal space is being investigated for ethylene exports for the month of June. That is why also Harry mentioned early that we anticipate June to be quite as per estimates, around the 45,000, 50,000 tons of exports of ethylene in June.
The question is: Is this the start of a bull run on ethylene over the summer? Time will tell, Asia is easing up from lockdown, restarting manufacturing, demand going up or back to slowly to where it was. It's encouraging. The terminal operators optimize all the available jetty space to export as much as they can. The U.S. have the excess volume available in the various storage caverns. It's a matter of getting it through the terminal, onto the ships, and off to Asia. I don't know whether that answers your question.
No, that was very helpful. Go ahead, David.
Let me just add one thing. I think you made a very important point. Right smack in the middle of a shutdown globally, we had a customer sign up for a long-term 200,000 tons a year, which says something. It says a hell of a lot, as far as I'm concerned. Let me just step back and reflect that in January of this year, I was in Houston talking to our counterparts on the terminal. The question and conversation wasn't about when we were going to expand the terminal, but it was how. What configuration? How quickly could we do it? The need for it. Of course, three weeks later, we're in the midst of this pandemic, and all that conversation is off the table.
The attractiveness of the expansion is still outstanding because the cost to double that size is a fraction of what the original cost, simply because you don't need a lot of the extra equipment there. You don't need additional storage because the storage that's being built right now can accommodate a significant expansion, the doubling of the size. That conversation, of course, is off the table at the moment. I do believe that if we have any kind of resolution of this pandemic, we will see that conversation back on the table and move forward on it.
Okay. That's helpful.
Ben, it's Harry Deans here. Just from my perspective, even before we spend another penny over and above the CapEx that we've committed to the terminal, I think you've heard me say several times, we should be able to squeeze the assets a bit more. Typically, engineers love shiny things, and they build excess capacity into the designs. I'd be disappointed if we couldn't squeeze at least another 100,000 tons throughput through our existing terminal with what we've got once the tank is up and running. I think there's an in-built expansion already priced into the CapEx before we have to spend more money on an additional low-cost expansion.
Interesting. Sort of following on with that, you're still under construction for the storage tank. Has all of this going on changed any of the timing there? Could you maybe update us on when you expect the storage tanks to be operational?
No, I can do that, David. We expect the storage tank to be operational towards the end of the year, sometime late November, early December. COVID hasn't affected it in any shape or form.
Okay. That's good to hear. Last, and I'll turn it over. You guys have, by my count, a handful of vessels that are coming off contract. Some of them were shorter term, but I think there were some ethane contracts in there as well. Given sort of the commentary that you outlined on ethylene, is there good appetite to charter ships on a longer term basis right now, or is that something that you're looking to do? Just curious there.
I mean, our Luna Pool has just been operational for a month or two months, including May. I think we will get a lot of benefit from that in terms of critical mass and catering for the customer needs in terms of spot activities and contract replacements and that sort of stuff associated to petrochemical cargos. I think we need to get that Straighten out and realize benefits from the pool, before we talk about consolidating further.
Okay. Incidentally, I was really thinking about some of the midsize ethane carriers. I think one comes off contract next month. Are those in the pool?
They are not. The mid-size ships are, which ticks the box for Navigator in terms of being the most flexible ships. They are large, they bring economies of scale for longer voyages. They can do propylene, ethylene, ethane, LPG, all those cargoes. In terms of whether they will play a role with the Morgan's Point ethylene terminal, I think so, for sure. They're quite large. If anybody fills up 20,000 tons of ethylene today, it will be a world record. Let's see.
Okay, great. I'll turn it over. Thanks, guys.
Thank you very much. Our next question is from the line of Randy Giveans from Jefferies. Please go ahead.
Howdy, gentlemen. How's it going?
Hi, Randy.
Hey. You mentioned that utilization, it started the year great, 97%, fell down to maybe 85% February, most of March. I guess we're two-thirds through the second quarter, just trying to get a sense for utilization and kind of TCE rates compared to that first quarter, just to get a trend of revenue quarter to quarter.
As we talked on the call, Randy, the mid-80s utilization level continued into April, and then in May, we expect it to reach the 90% mark. It's a bit early to see what it is for June yet. May certainly looks to break the 90% mark which is encouraging considering where we've been and what all the havoc that this pandemic has caused.
Sure. On the rate side?
The rate, the Clarksons 12-month time charter rates are at the end of Q1, they were at $665,000 a month, and I think last week they were down at $616,000, which is not a big decline considering comparing our segment to other segments. That's where the independent brokers are setting the market to be, at least from a time charter level. We're not seeing a complete t ime, but utilization is going up, which is quite positive.
Got it. Okay. All right. I guess secondly, turning to the joint venture, obviously congrats on getting that 95% contracted on the volume side. How many cargoes have been exported from that ethylene terminal so far, and have all those gone on Navigator ships? Secondly, it looks like the share results for the JV was a $3 million loss during the first quarter. What are your expectations for maybe second quarter, third quarter kind of run rate? When do you expect that to be positive and by how much?
The volume question I can take. First half estimate from January to June. Terminal is expecting to do 110,000 tons. There was about 40,000-45,000 tons during the first quarter. Then sort of second half of May and into June, we're looking at the remainder. It's a big ramp-up from mid-May and into June, particularly because the arbitrage also is encouraging the trade. Of that volume from the Enterprise terminal, we've done about 52% of that on Navigator ships. Just about half.
Okay.
On the performance, you're right, we did have a loss of $3 million for Q1. April was pretty much of the same vintage. May, the volumes are ramping up, and June will be fully at capacity, I think, or at least pre-tank capacity. I would expect Q2 maybe around the break even, maybe as much as a $1 million loss, but that would be the extent of it. Q3, which is also pre-tank, would be or any period thereafter, pre-tank would be about a million and a half of a profit. Post-tank, we've already suggested that the EBITDA would be around $24 million-$25 million, which is, whatever, $6 million a quarter.
Perfect. Good deal. Well, hey, thanks for the color and keep up the good work. You all stay safe.
Thanks, man.
Our next question is from Sean Morgan from Evercore. Please go ahead.
Hey, guys. I was wondering, you mentioned that the deep sea petrochemical trade, especially going to the Far East, has been fairly resilient despite COVID-19 and despite a lot of the trade issues that are going on with China. I was wondering, if you look at some other markets like crude and even large carrier LPG and LNG, China's been kind of shadow banning a lot of imports from U.S. suppliers. It seems like some of the propylene butadiene and some of the products that you guys carry on the smaller vessels has been relatively unfazed by that. I was wondering if you just had any insights as to why that was. It's just stronger demand that it just supersedes any kind of trade implications, or how would you sort of look at that?
Well, the tariff situation on propylene, ethylene, and ethane, you can seek to get dispensations. The people and the players that, at least from the U.S. are importing and chartering our vessels, they, as far as I'm aware, they have these dispensations from China. They're not facing the tariffs and therefore are equally competitive as products from elsewhere. That is why some of the products are going from U.S. to Asia. It's more also to do with the attractiveness of the price of U.S.-produced petrochemicals because the feedstocks are so cheap. Therefore, with or without tariffs, they are competitive, and they will move, because the crackers are running at high operating margins, again, because the feedstock is relatively cheap. For the Europeans, they are switching. We talked about the substitution effect of naphtha over LPG.
That has happened in Europe whereby more naphtha is being consumed as feedstock. Because you're doing naphtha instead of LPG, lighter feedstock, you get more heavy. C4 products being butadiene. Suddenly they have more butadiene than normal. With the lower domestic demand in Europe, therefore they have excess. The guys who's going to buy it is in Asia. Asia, I guess, is two months ahead of the European lockdown, and the manufacturing processes and so forth are sort of coming back, and they are buying this excess butadiene from Europe, or the propylene from the U.S. or the ethylene from the U.S. That's why we've seen the utilization pick up in the month of May. Those trades were hard to come by during February, March, April. They seem to be slowly emerging back now.
Okay, great. That's all I have today, so I'm going to go ahead and turn it over.
Thank you very much. As a reminder, ladies and gentlemen, it is star one if you have a question. The next is from Mike Webber. Please go ahead.
Hey, good morning, guys. How are you?
Morning, Mike.
I wanted to dig in a little bit on the contracting activity from April. Obviously, it stands out as kind of a data point that kind of runs against the grain. Without getting into too much detail, can you give us some color around the duration and the rate, for lack of a better term, on the business that you guys were able to sign in April relative to the business that underpinned the initial investment?
I think it's exactly the same as the previous ones.
Identical in terms of term and return/rate?
Yes. Oeyvind can correct me if I'm wrong, but I believe that to be the case, yes.
Yeah, Mike, it's very similar in terms of duration and in terms of pricing and take-or-pay.
How should we think about that? Is that a conversation that's been going on since the inception of the terminal itself? Or should we look at that as an indication that despite the volatility that if you guys were to engage in new conversations around either an expansion, or tapping into maybe some capacity beyond nameplate, that we would expect similar economics there? Is that an on-the-run market indication, or is that something that's more of a legacy price indicator from when you guys started this facility?
The joint venture has been in discussions with the counterparty for a while, but they didn't have to sign it. I think it's good sentiment that the counterparty wanted to sign it when we're in the middle of the COVID crisis, and so confidence in the export and arbitrage going forward long term. Hopefully that answers your question, Mike.
No, that's a fair point, and certainly positive. In terms of the notion of expanding, that's something we've heard elsewhere in the midstream space too, around that facility specifically.
Yeah.
David, I think you mentioned obviously the incremental investment wouldn't be on par with the amount of sunk cost that went into kind of getting the facility up and running in the first place. Can you give us a vague sense of scale around what kind of capital call we could be looking at if you guys were to expand that facility? Obviously, business would be good news for Navigator. Just trying to get a sense of what the typically because it seems like it would likely overlap with some significant refinancing activity you guys are going to be doing in the next 18 months.
Sure. Harry, why don't you take that one?
Yeah. No problem, Mike. Mike, it's hard to give until you do the actual study. It's hard to give any numbers. Typically, when you expand the facility that you already have, because the civils are already there, all the concrete and the reinforcing's been done, the electricals are there, the pumps are there, the jetties are there, all the infrastructure's there. It's typically a discount on what we'd normally pay.
For a greenfield site, it can be anywhere between 50% and 70% of a normal new build. All things being equal, once you've sweated the asset to whatever you can get the maximum capacity to.
That should be the most logical investment in the industry because you've already sort of pre-invested in all those civils and all the underpinning work that's required for the infrastructure, for the tank.
Okay. 50%-70% seems vaguely reasonable. I'm not holding you to it, but just the sense of scale that probably the ballpark we should be thinking on a preliminary basis if and when anything.
Yeah. That's a sort of rough rule of thumb, Mike, that's usually used in the chemical industry.
Okay. Great. All right, guys. That's all I've got. Appreciate the time.
Thank you very much. Our next question is from J Mintzmyer from Value Investor's Edge. Please go ahead.
Hey, good morning, gentlemen. Congrats on getting up to 95% on the take-or-pay.
Thank you.
Just digging into that one first. That 95%, is that totally fixed price or is it a percentage on a per ton basis that fluctuates with the ethylene market?
It's a fixed price, nothing to do with the price of the product. If the Mont Belvieu quoted price of ethylene moves from one day to the other, that doesn't influence. That's nothing to do with the product.
Excellent. That's good to hear. I heard your response to Mike Webber about a 50%-70% sort of CapEx spend to model in there. I know you're on pause because of COVID, but if you decided, say, this fall or next winter to maybe pull the trigger and move forward with expansion, what would the timeline be between the FID and actually rolling out that capacity?
I'll take that one. Thanks. Good question. It's difficult to say because you'll be working in amongst a live plant, which has its own limitations as you can imagine. That's why the CapEx estimate is a range because it all depends on what you've already got and if you're constrained for space, et cetera. It's quite difficult to say until you've actually properly worked up the project and done the proper analysis.
All right. Sounds like we'll need to circle back on that one then. Maybe hopefully we'll get some color this fall or next winter. Looking at the cash economics at the joint venture, it looks like you had, I think you said about $9 million post-quarter and then about $13 million or so excess CapEx left. You also mentioned you could draw down some more debt at the joint venture. How do we think about that in terms of net cash, right, from 31 March into the end of 2020? What's the net cash call at the Navigator level?
If I understand your question, well, there's kind of two questions. One is the facility and one is what's left to go. We have now paid, as of today, $133 million of the $150 million expected or budget, albeit that budget has some contingency in there, so it may not be the full $150 million. Assuming it is, we've got $17 million to go, which is principally the remainder on the tank, the construction of the tank. That's it. From the facility, it's a $75 million total facility, of which we've drawn down so far just $7.5 million of that. If you take the $7 million we've already drawn down and assume we'll draw down the other $17 million to pay for the remaining tank, there's about $40 million-$50 million where essentially we have over-equitized the investment in the terminal.
We would draw down on that facility to rebalance, to do a true up to rebalance those two.
Okay, great. Well, we'll have to model that one out. As far as looking at remainder of joint venture financing, it sounds like the leverage ratio is quite low in terms of EBITDA. I think you guided EBITDA of up to $25 million. I would speculate that you could get financing of five times or more. Is there a possibility to expand that financing and pull some more cash back to the parent level, or are you just going to keep it where it's at?
It is possible, but you've got to bear in mind that this is a joint venture, and there is no debt allowed within the joint venture entity itself. Each of the participants, i.e., ourselves and Enterprise, have to finance their proportion of the terminal upstairs in their own entities. Consequently, there is no security of the terminal allowed being given to any debt providers. That's a challenge. Therefore, the debt in our case is to do with the existence and the quality of the offtake agreements, which is why it's proportionately being ramped up as the offtake agreements kick in.
Understandable. Thanks for the color on that. Congrats on getting that up and running.
Thanks.
There are no further questions, so I'll hand back to your speakers for today.
Okay. Well, thank you very much, everyone, for joining us, and we look forward to our next meeting.
Please hold.
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