Navigator Holdings Ltd. (NVGS) Q1 2016 Earnings Report, Transcript and Summary

Thank you for standing by ladies and gentlemen, and welcome to the Navigator Holdings Conference Call on the First Quarter 2016 Financial Results. We have with us Mr. David Butters, Chairman, President and Chief Executive Officer; Mr. Niall Nolan, Chief Financial Officer; and Mr. Oeyvind Lindeman, Chief Commercial Officer of the Company. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions] I must advise you, the conference is being recorded today, Tuesday, May 10, 2016. And I now pass the floor to one of your speakers, Mr. Butters. Please go ahead sir.

Thank you very much and good morning everyone. Welcome to Navigator's first quarter earnings conference call. Now, after my brief comments, Niall Nolan, our Chief Financial Officer will cover the financial details and he will be followed by Oeyvind Lindeman, our Chief Commercial Officer, who'll give us his views on the current markets. Now, while our first quarter revenues of $76.4 million were a near record, our earnings per share of $0.35 was $0.06 less than last year's first quarter. The absence of the Navigator Aries in this year's results versus her positive contribution last year, did account for about two-thirds of that shortfall. I am pleased to report that the Aries after a delay longer than we expected, did go back on term work with Pertamina in the Indonesia, the last week in March, and, in fact, had no real impact this past quarter. Nonetheless, we did begin to see some softness develop in our markets over the course of the first quarter. Some of the market softness can be explained by climatic conditions in Europe over the last two winters when temperatures averaged about normal resulting in higher inventory levels going into this past winter, followed by a somewhat diminished LPG demand for heating. In addition, LPG supplies from Norway and Russia rose at the expense of the longer-haul imports from the U.S. As you know, we have two vessels, the Navigator Leo and the Navigator Libra on long-term charter to the major Russian petrochemical company, Sibur. These vessels are ice class, a requirement from Sibur because of the normal winter icing of the Baltic Sea. Our vessels serve Sibur's Ust-Luga LPG export terminal, North of St. Petersburg and deliver product into Northern Europe. This winter however, with limited icing in the Baltic, non-ice class vessels were permitted to operate and Sibur contracted additional cargoes, some of which were in fact on our own vessels. The net effect though of these incremental Russian cargoes, which would otherwise come from a long-haul U.S. Gulf Coast or East Coast was to reduce the overall number of ton miles. As a reminder, we are currently building two additional ice class vessels that will go under long-term contract with Sibur when they are delivered to us next January and February. This is likely to eliminate Sibur's needs to charter in export cargoes if again the Baltic Sea is ice free. There were other factors pressuring the market as well. At Sunoco Logistics' Marcus Hook terminal, ethane exports commenced during the first quarter after a four or five month delay. With limited capacity on the Mariner East I pipeline, which has a nominal capacity of 70,000 barrels a day, the contracted ethane volumes pushed out what otherwise would have been spot propane or butane volumes. We look forward to next year at this time when Sunoco's Mariner East II pipeline should commence with an additional throughput of 275,000 barrels a day. Sunoco has recently installed a refrigeration unit in Marcus Hook, giving the very large gas carries an opportunity to utilize the terminal in addition to our handy-sized vessels. An important third factor, of course, is the lack of LPG arbitrage in the Atlantic Basin throughout most of the first quarter. With seasonal winter demand strong for domestic use, LPG pricing did not decline as rapidly as oil pricing, limiting the attractiveness of spot export cargo for traders. While our core LPG market remains somewhat soft, we are seeing a stronger and more active market for the transport of petrochemical gases, which should in time more than offset the current softness, even though we do not expect the market weakness to continue for long. Our flexible semi-refrigerated vessels, especially the ethane ethylene capable ones are ideally suited for this complex trade and we remain the dominant player in this segment. What we are seeing is that, for now, relatively small amounts of ethane, ethylene, propylene are being shipped from the U.S., they're being shipped from South America and from the Mid-East with destinations in the Far East and Europe. We believe it's just the beginning of an important growth in the transport of petrochemical gases over the next two to five years. Now when you think about it, this is a logical development as producing countries move from exporting their raw materials; the propane, the butanes, the ethane to exporting more value added products, such as ethylene, propylene, butadiene. In the Mid-East, the petrochemical infrastructure has been building out over the past number of years and it continues. Iran has a solid natural gas-based petrochemical infrastructure in place now, and it had for some time, and we expect petrochemical gas exports to ramp up as soon as payment issues surrounding the lifting of the sanctions are resolved. In the U.S., we are currently handling the bulk of all ethylene exports, but volumes are limited due to the terminal capacity. With the massive investment taking place to expand and build new crackers, and with these facilities expected to be operational by mid-2017 through 2018, we expect the appropriate infrastructure will be built to accommodate exports, recognizing that most of the incremental output will remain in the U.S. for domestic consumption. Now, no company has yet to announce the construction of an ethylene terminal, although Enterprise Product Partners has reported that they are studying the possibility of a purpose-built ethylene export terminal in addition to their ethane terminal, which will come on-stream later this year. There is no question; LPG will remain a core growth business for Navigator. It is a global demand for us, but as structural changes take hold and as the wave of petrochemical facilities are brought online in the U.S. and in the Mid-East, we expect a growing profitable business for Navigator. Navigator fully expects to remain the dominant player in this business. And now, I'd like to turn the call over to Niall Nolan, who will review the financial performance. Niall?

Thank you, David and good morning. The financial performance for the three months till March 31, 2016, as David said, showed some signs of weakening in the markets, mainly due to the absence of pricing arbitrage, principally of LPG between the U.S. and Europe. As a result, The Company's revenue and net income, particularly towards the latter part of the first quarter of 2016, have seen some impact as vessel utilization came under pressure, despite charter rates remaining relatively strong. Although revenue increased by 2.9% to $76.4 million compared to Q1 of 2015, net income and earnings per share reduced by 16% to $19.4 million and $0.35 respectively for the three months ended March 31, 2016. Revenue less voyage expenses increased by $1.9 million to $69.3 million for the three months ended March 31, 2016, compared to $67.4 million generated during the equivalent three months in 2015. This increase in revenue was a result of a number of compensating factors. First, net revenue rose by $8.4 million due to the increased number of vessels in our fleet, which increased from 27 vessels during the first quarter of 2015 to 30 vessels operated during the first quarter of 2016. Second, charter rate movement contributed an additional $1 million in revenue during the first quarter of 2016 relative to the same period in 2015, as the rates nudged up to an average of $29,561 per day or $900,000 per month during the first quarter of 2016, compared to $29,180 or $887,000 per month during the first quarter of 2015. However, rates have lowered since the last quarter, the three months ended December 31, 2016 when charter rate averaged $30,281per day or $921,000 per month. Fleet utilization, however, declined significantly during the first quarter ended March 31, 2016 to 87.6% compared to 97.0% for the first quarter of 2015. This had an effect of reducing the comparative revenue by $7.4 million during this first quarter. As referred to earlier by David, utilization continued to be affected in the first quarter by the Navigator Aries collision on June 28 last year; however, that vessel is now finally out of the shipyard fully repaired and went back on charter to Pertamina on March 22 for an initial period of two years. Our fleet currently stands at 31 vessels following the delivery of the semi-refrigerated LPG carrier, Navigator Ceto, on January 15, 2016, and its sister ship, Navigator Copernico, after the quarter end on April 15. We now have seven newbuilds remaining in our program, four of which have long-term charters attached. Deliveries are scheduled for between July this year and July 2017. During the first, Navigator Neptune completed her 15 year dry-dock at an approximate cost of $1.4 million, and Navigator Global headed to a shipyard for her first five-year dry docking. The cost for the Navigator Global is expected to be approximately $400,000. In all, we expect that seven vessels will undergo dry-docking during 2016 for an aggregate estimated cost of $6.5 million and an aggregate estimated 146 days of hire. There are no dry-docking schedules for 2017. Dry-docking cost, of course, are capitalized and amortized over the period up to the next dry-docking of each respective vessel. Voyage expenses for the first quarter of 2106 were $7.1 million, a slight increase of $200,000 from the $6.9 million incurred during the first quarter of 2015. Increases or reductions in voyage expenses are as a result of changes in the number and cost of voyage charters relative to time charters, as well as the recent lower bunker prices having an impact. At March 31, 2016, we had 15 of our 30 vessels on time charter, three further vessels on contracts of affreightments, committed to carry ethylene from the U.S. to China throughout 2016 and the remaining 12 vessels trading on the spot market, transporting petrochemicals and LPG. Vessel operating expenses or OpEx increased to $22.4 million for the three months ended March 31, 2016 compared to $18 million for the three months ended March 31, 2015. The daily average OpEx across the fleet during the first quarter was $8,164 per vessel per day, which represents 7.4% increase from the daily rate of $7,605 incurred during the first quarter of 2015. This increase was principally as a result of additional operating expenses incurred on repairs and maintenance for some of our older planet ships. However, the daily average OpEx for the 12 months of 2015 was $7,779 per vessel per day and it is expected that the full year 21006 OpEx will be at similar levels to that of 2015. The average age of our fleet at March 31, 2016 was 6.6 years. General and admin and corporate expenses were $3.5 million for the three months ended March 31, 2016, a slight increase from the $3 million incurred in the first three months of 2015, principally as a consequence of fleet expansion, but also as a result of creating a department capable of taking technical management in-house. The first such vessel was successfully brought under in-house technical management on April 14, 2016 with up to another three vessels planned to come in-house during 2016. The principal purpose of taking vessels into technical in-house management is to ensure the continuing quality of our vessels. Technical and crewing management for our vessels is outsourced to three third-party managers, and their management costs are included in vessel's OpEx. Crewing management will remain outsourced for all vessels. Interest costs for the three months ended March 31, 2016 were $7.8 million, up by $1 million compared to the same period in 2015 as a result of additional bank debt associated with the four newbuilding deliveries since March 2015. Net income for the three months ended March 31, 2016 was $19.4 million compared to the $23.1 million for the three months ended March 31, 2015 and earnings per share were $0.35 for this first quarter 2016 against $0.42 for the first quarter of 2015. EBITDA for the first quarter of 2016 was $41.9 million. The Company's balance sheet remains robust with cash at March 31, 2016 of $77.1 million. Total debt stood at $635.8 million at that date including $125 million of unsecured bonds and that gives a net debt of $558.7 million at March 31. We've previously announced that we entered into a $290 million revolving credit facility in December 2015 to finance six of the remaining seven newbuild vessels. This loan is for an agreed period of seven years. The loan-to-value is agreed at 70% for any vessels on long-term charters, of which there are three within this facility, and 65% for those vessels not on long-term charters at delivery. The credit facility has a margin of 2.1% above U.S. LIBOR. Currently, our newbuild order book consists of seven vessels; four mid-sized ethane-ethylene vessels, one of which is charted for a minimum period of 10 years; two handy-sized semi-refrigerated vessels, which are each chartered for minimum initial period of five years; and one mid-sized fully-refrigerated vessel, which is also chartered for a period of 10 years. At March 31, the aggregate contractual commitments to shipyards, outstanding was $356 million for those seven newbuilds, against which existing bank facilities will provide $321 million of that requirement. Finally, the $125 million, 9% unsecured bonds listed is on Oslo Bors, is repayable in December 2017, although the Company has a current option to redeem this bond at 104%. Due to the current climate of the debt markets, the Company does not believe it could extend or renew the unsecured debt at a level or at terms, which would be beneficial in doing so at this time. However, this remains under constant review. And with that, I'll hand you over to Oeyvind Lindeman.

Thank you, Niall, and good morning everybody. At quarter end, we had 30 vessels carrying a total of 1.7 million metric tons of liquefied petroleum gases, ammonia gases, and petrochemical gases. Of the total 2,344 earning days during the quarter, 75% were covering LPG, 17% for petrochemical gases, and 8% for ammonia. However, for the 785 earning days across our vessels trading in the spot market, the petrochemical gas proportion reached a historic high of 53%, with LPG making up the remaining 48%. Interestingly, when comparing our petrochemical involvement with the first quarter 2015, we have experienced a doubling of cubic meter miles for the same volume, meaning that there is a tendency for increasing demand for deep sea movements of particularly ethylene, propylene, and butadiene, and principally from west to east. Further, we have doubled the volume of LPG carried on spot contracts to 170,000 metric tonnes compared to the same period in 2015. Our vessels are therefore increasingly utilizing the semi-refrigerated and sophisticated ethylene capabilities, enabling us to engage with our customers and assist them with these emerging trades. Just as an example, we recently concluded two handy-sized petrochemical shipments out of Saudi Arabia which is something we have never seen before, and we expect these opportunities to continue as we move throughout this year and next year and on. Niall mentioned the fleet employment essentially with the 15 ships from time charter and three vessels doing employment on our contract of affreightment leaving a cover ratio of 60%. This has been our historic rule of thumb going back many years, and we are excited and happy that we are able to maintain that in the current market. Thank you very much.

Good. Daniel, we can open up the call now for Q&A.

Thank you. Good morning David, Oeyvind, Niall.

Good morning.

David and Oeyvind, just a couple questions, a little bit more detail on the markets. So, the softening that you referenced, I mean David when you dug deep into that, there seem like there were a couple seasonal anomalies there, warmer weather in Europe, lack of seasonal arbitrage. Can you give us any sense now that we're almost exactly halfway through the second quarter, if that same type of softening in the core LPG markets has remained improved, gotten any worse, and how that relates to both the rates that you're seeing as well as, I guess, more importantly the utilization of your spot ships.

Thank you for that question and Oeyvind, why don't you try to push through quarter's end and take a peek at what's going on in this second quarter.

Hi, Joan. I think, as I mentioned in my comment here, the petrochemical voyages are really keeping the utilization above the 85% mark. So, we haven't finished second quarter yet, but we are fixing forward on these petrochemical voyages loading in May and also June. So, we are concluding those as we speak. And if you remember, last call we had a comparison about the duration of typical spot LPG voyage for us and for our petrochemical deep sea voyage, and I think the latter is 70 days kind of round voyage and the LPG voyages are less than 10. So, the more of this we see and we are encouraging these trades with our customers. I think utilization for at least the petrochemical trade will keep that going. LPG, it depends a little bit about, as you say, the price arbitrage and so forth. We are fighting with VLGC as well for LPGs out of U.S. into Europe, and we are doing some of the business there, particularly on butane, which is, as we have mentioned briefly before, the handy-sized butane parcels are attractive to the European petrochemical industry and they are still importing handy-sized LPG vessel. So, don't know whether that answers your question, but I think the key here, at least in the very near-term, is the petrochemical trade which has completely opened for us. Last year, we did very little; this year, we're doing much more.

That is helpful. And I'm glad you mentioned VLGCs briefly Oeyvind, because I guess in a sense we've been kind of led to believe that there is very little direct competition between the VLGCs and the semi-refrigerated handy-sized ships, but it seems that maybe there is a bit of a trickledown effect at least as it relates to propane and butane. Can you just explain a little bit more the competitive dynamics there and as we've seen the precipitous drop in the VLGC rates, has that had a direct impact on your specific business?

I think it's more of a perception. So, if the VLGC rates are – while they were down at 600 TCE and if a customer needs to pay more for a ship that is four times small, the customer has difficulties kind of getting around that issue, whether they are forced to have a semi-refrigerated ship or not. But when it comes to fully refrigerated propane, of course, that perception is less. So, then it becomes whether that ship is able to call that specific port or not. So again, for butane, particularly for the petrochemical industry, more of the terminals are more amicable for handy-sized ships than VLCG. So, some of those restrictions still apply.

You have the terminal size limiting the length of a vessel is a real constraint for VLCGs, particularly in Europe and Latin America, as well as storage facilities. A very large gas carrier has a lot of fully refrigerated storage that is required. So, it's not a direct competition, but they have some influence, if you will. But I suppose there is a trickle-down effect to some extent, but not direct and not in your face.

Okay, and then one of Niall. Also kind of 1Q as we look into 2Q, it sounds from the comments – your comments and also reading the 6-K that there maybe is little bit of elevated maintenance on some of the older ships in 1Q. Does that really ring sense into that particular quarter or is that going to be a higher kind of daily maintenance run rate going forward for those ships?

You're right, the additional costs related to the older ships, the five, or four of the five plans has specifically auxiliary engine issues that each of them had. We believe that's ring fenced and most of those costs now are incurred in Q1.

Okay, great. So to sum it all up, obviously still optimistic about the long term and you talked about Mariner East and all the new LPG exports that are coming. In the meantime, there is a little bit of headwinds, but it seems that most of them, especially from the cost side and maybe from the seasonal side was in the first quarter, little bit of weakness in the LPG going forward, but the pet chems helping offset that a little bit. So without putting words in your mouth, hopefully 1Q is the weakest quarter of the foreseeable future.

I hope so, Jonathan. I am absolutely as excited about the future as I have ever been, in some regards, even more exciting. But yes, a little headwind here. Frankly, not expected, I think the weather and the rapid fall in the price of oil did catch us a bit by surprise. But, we're adjusting and I think I'm not terribly concerned at all.

Thanks to all David, Oeyvind and Niall.

Thank you, Jonathan.

Thank you very much indeed, sir. Now your next question from Jefferies comes from the line of Doug Mavrinac. And your line is open, sir.

Good morning, guys and good afternoon for Oeyvind and Niall. I just had a few follow-ups for you all. First, as it pertains to the LPG portion of your business, we saw a pretty decent uptick in LPG exports out of the U.S. during the month of April, back to say 3Q, 4Q types of levels. But that gives me the thinking, for the last few April's, we've seen a similar uptick. So, as it pertains to kind of what's happening right now. How much of the rebound in activity is just seasonal, but also how much of it is a result of oil prices being much higher than they were during their first quarter. So, I guess my question is, how do you guys see a strengthening oil price environment later this year or 2017 impacting all of your businesses, LPG, the petrochemical side, et cetera.

Okay. Some of this can be answered by Oeyvind. Remember, April begins a point where domestic U.S. consumption tapers off so that more product becomes available, pricing becomes looser, and therefore the arbitrage typically opens up and therefore volumes. I think that's the April phenomenon unless Oeyvind sees anything else from that particular issue. Oeyvind?

The direct result of that is inventory buildup in the U.S. During the first quarter, it was draw down April-May, you have every week that has been at least a million barrels of LPG being built up in the inventory. So, I think that has turned, you're right.

Right. So, April may be more seasonal. So, then what that leads a question to is, if crude oil prices in fact begin to strengthen and the market comes into a better balance, the oil market itself that is, how do you guys perform or how a strengthening crude oil price environment impact your business in terms of arb opportunities, spreads and so on. Just kind of given if that's where we're heading, how do you expect that to impact your business?

It clearly will help for a number of different reasons, Doug. First, arbitrage obviously opens up, availability of product opens up, the replacement of naphtha for petrochemicals widens and is more attractive. New projects, ethane projects, ethylene projects, they just become more interesting. Look, if ethylene right now can move to the Far East and moving it in February at the bottom of the pricing of oil, if it is attractive to send ethylene to the Far East when the bottom of $35, $38 barrel of oil, if you get a $50 a barrel of oil, it's going to be dramatically improved. There's a whole series of things. Yes, I think business becomes much more buoyant with a high price of oil.

That's what I would've thought just because – in addition to kind of hammer Jon's point home that in addition to seasonality if we are in this more healthy commodity price environment and that should be good for you guys.

Yes. No, question, but I can't control the price of oil [indiscernible]

Yeah, that'd be great if you could. My second question, David, has to do with more of the ethane export opportunity, particularly out of the U.S., because late last month, we saw Braskem and Enterprise sign a 10-year ethane export contract. My question for you guys is, what are either the direct or probably more likely, indirect takeaways from such an agreement. I mean, does it validate U.S. ethane exports? Does it tighten the market? So, what are your takeaways from that particular announcement?

Yes. The ethane exports are not dead. The projects were delayed, I believe, because of the low price of oil where capital commitments for terminals and storage and so on got delayed as people adjusted and try to understand what was happening in the collapse of the price of oil. But ethane is definitely, it's still on the table and will continue to grow, we'll see more of it. Now, the one issue with ethane is the availability of ethane. Enterprise has got their 200,000 barrel a day facility in Houston. They are close to capacity and I believe they do have the opportunity to expand it without a great deal of expenditure. We know that there are other companies still talking to them about incremental volumes to be purchased out of that facility. The disappointing is on the East Coast with the Sunoco Logistics' Mariner East II being delayed six months because there is a lot of ethane available in the Marcellus and Utica basins that needs to get to the market, but they need a pipeline to get there. The terminal is ready, storage facilities are there, but the pipeline is needed. I think once they get their hands around the completion of that pipeline Mariner East II, you will see a ramp up of additional ethane exports and Braskem is working out of the enterprise capacity and they're in the market now. We'll see what they settle on. I think you'll see that probably within the next month or so.

Got you, very helpful. And just final question; one thing I've noticed, in terms of, kind of keeping an eye on the order book is that newbuilding orders have really dried up this year. I mean, I think we literally have seen one newbuilding order for like a 7500 cubic meter vessel and that's it. My question is, given how strong the market is – I know that first quarter wasn't as strong as late last year, but it's still pretty darn strong. Kind of, what's behind in your view does that lack of newbuilding orders and how does that affect your outlook? I mean, does it go from good to really good because no one else is ordering?

I'm always going to expect there will be orders. Just as you don't expect it, they come at you and that's always chain around your neck pulling it down as new orders. But you're right, they haven't been really anything for a couple of years. And why, I think it's a number of different reasons, finances dried up for people. First, understand, in our handy-sized fleet, particularly the semi-refrigerated, and especially the ethylene capable stuff, it is a complicated business. I mean, it's not your simple vessel crewing and easy to do it. It requires a lot of talent on shore as well as on the vessel itself. But the complexity of financing, the collapse of the price of oil, which I think put everyone into a funk about where everything is going and the availability of LPGs and the whole economic dynamic, was said in question and a limited number of shipyards. There are basically were down to maybe two or three shipyards that can build a capable and one of the shipyards has had some serious financial trouble and there is an issue that some of the backlog in building may not get built, I've seen that in TradeWinds the other, last. So from that endpoint, very attractive, but you never can predict someone coming out of the woodwork and ordering. But at the moment, you're absolutely right. Newbuilds and newbuild orders have dried up. The order book may not be as solid as we were led to believe, if you read some of the reports. And so I think that side of the thing is better today than it was two months ago.

Totally agree. Well actually, that's all I have, David. Thank you so much for the time.

Thank you.

Thank you very much indeed sir. Now from Morgan Stanley, your next question comes from the line of Fotis Giannakoulis, and your line is now open sir.

Hi, it is Sherif on for Fotis. Just a couple quick industry questions from me. Shale production is shrinking at the same time that a number of PDH plants are ready to come online in the U.S. So, how do you see U.S. propane exports going forward? Is there room for future growth?

It certainly appears to be. Remember, Navigator, with its handy-sized vessels is far, far less dependent upon propane exports out of the U.S. than other LPG companies. Most of the other companies are very large gas carries; their whole dependence is designed around U.S. exports of LPG. That's not the case with Navigator. We don't need a lot of exports out of the U.S. What we need is just volumes anywhere around the world. What we need is petrochemical gases developing in areas that heretofore had not developed in giving us long-haul, but LPGs and propane, butane is coming out of the year, it is all the matter of price. We have the shale formations, the structural geological structures here in the United States to tap and produce quantities of LPG pretty much at will. The infrastructure that had never been in place until a few years ago is now in place. So, it's going to be extremely responsive. The volumes of LPG will be extremely responsive to price in the United States, because there's nothing really now that needs to be built out and all of the terminal and so on are there. Is that the question you had asked?

I think you tackled most of it. So, I'd imagine then you'd say that Marcus Hook accepting VLGCs that will have a limited effect on demand for semi-refrigerated vessels? Am I constraining up anyway?

If you have a refrigeration unit and you have a market, a very large gas carrier is more efficient way to move it, particularly to the Far East. That's where they are good at, long-haul, large volumes. Marcus Hook with 275,000 of barrels of LPG coming when it's completed, that's a lot of volume and particularly when the Mariner East III is to be followed. I think it's going to be shared by long-haul VLGCs, by short-haul into Europe and Latin America with handy-sized. It's a mixture. We couldn't handle anything like 270,000. The whole fleet of handy-sized couldn't deal with that size volume, never designed to be. We just like a little piece of it and the little piece goes a long way with our handy vessels

Okay, transitioning to the ethane trade, ethane production has softened a bit as drilling activities declined and producers move to dry areas. At the same time, the crude to gas ratio has narrowed significantly. So, is there a level that I think exports become interesting again and is there room for your open ethane carriers to be deployed in any of the ethane crackers under construction?

I would say the answer is, of course, yes. We're working currently on some projects. We cannot announce anything about at the moment, but we are working on projects that require ethane. But ethane works, ethylene works, both of those work, and they are in development stages. They take time, they take time because the infrastructure required both in the U.S. and on a receiving terminal take time, they take capital and they have to have some degree of certainty attached to it, and with the price of oil fluctuating as much as it has in the last 12 months, there has been some delay in those activities. But ethane is here, there is tons of it, a lot of it will be absorbed by domestic crackers and other facilities. But there is an abundance of ethane that will be exported, both as a pure form, raw material and as ethylene and our vessels are indifferent, will carry ethane or ethylene, doesn't matter. Ethane will tend to be longer term charters, simply because it's a raw material feeding a plant, ethylene will be more optimistic, opportunistic and looking at more arbitrage place, but it will do just as it is right now.

So, in terms of these projects coming online, it's more a matter of the volatility in prices as opposed to just a price rising above a certain threshold, is what you're saying?

That's correct. Certainly well – once it's settled, they will work.

Okay. Got it, that’s it from me. Thank you.

Thank you.

Thank you very much indeed. Now from Wells Fargo, your next question comes from the line of Donald McLee. Your line is now open sir.

Hey guys, most of my questions have been addressed, but I just had a couple of quick ones. As far as the technical management of the fleet, you mentioned bringing in-house three additional vessels in 2016 and I was wondering if the longer-term goal was to bring in-house technical management of the entire fleet?

We'll look at that. I mean there are lot of good advantage to use outside technical manages, as benchmarking to what we do. Sometimes, they have some particular expertise in a vessel and so on. The goal is to control and make sure the quality of the operation is at the highest level possible. That's our goal. That's what we want to do. That's how we want to operate this Company. It's how we stiff up, it's slow that ultimately I could see the majority for sure being under our control, but that will take time, several years at least.

Fair enough and is there any cost savings associated with that movement.

No, I'd like a big duffle but I look at it as the wash.

Got you. And then, my only other question is around the remaining insurance recoverable amount on the balance sheet, how should we expect that to be realized over the next couple of quarters?

Yes, I mean we will – these claims and various litigations or potential litigations or arbitrations do take time as you'd appreciate. We did receive roughly 50% of the claim in the first quarter. The claim is currently being worked on. I wouldn't commit to be received by the end of Q2, but it would be probably more likely to be in Q3 sometime at the cash flow.

Remember the claim. There are two claims. One is the hull and machinery which is for the repairs that we've done in Singapore. We also have a lawsuit against a company for loss of hire. We don't have insurance for loss of hire, but I think we have a good case to collect a substantial portion of the revenue we lost as we were sitting in Singapore, getting the vessel repaired. That's not on our balance sheet.

Got it. That’s all my questions guys. Thanks.

Thank you very much indeed. [Operator Instructions] Gentlemen, there appear to be no further questions. So, I'll pass the floor back to you for closing remarks.

Thank you very much. We enjoyed being with you this morning and look forward to our next meeting in three months' time. Thank you.