Thank you for standing by ladies and gentlemen, and welcome to the Navigator Holdings Conference Call on the Second Quarter 2019 Financial Results. We have with us Mr. David Butters, Executive Chairman; Mr. Niall Nolan, Chief Financial Officer; Mr. Oeyvind Lindeman, Chief Commercial Officer. 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. And now, I pass the floor to one of your speakers, Mr. Butters. Please go ahead, sir.

Thank you, Joan and welcome everyone to Navigator’s second quarter earnings conference call. Today, we will follow the usual format with comments from Niall Nolan around our financial performance followed by Oeyvind Lindeman, who will cover the state of the markets and the near-term outlook. After their remarks, I will come back with a few observations of the macro, economic and political environment that we are operating in. But first, let me begin by saying that while there was not a whole lot of good news coming out of the second quarter report, we did achieve a significant milestone in convincing Harry Deans to join us as President and Chief Executive Officer. Dr. Deans, or Harry as he prefers to be called is an individual whose education, experience, and general background matches perfectly with what we will need to take Navigator to its next and important level. Our first stage is nearing completion with the expectation that various pipeline and export terminals currently under construction will drive our business and provide a high level of tangible and visible free cash flow secured by long-term contracts. We expect much of this constructional [operation] a year from now. But Oeyvind, who recently visited all of the major construction sites will cover this in his prepared remarks. Once pipelines and terminals are in fact operational, we will embark on an even more exciting second growth stage in our development, which is likely to involve an expansion of our transport network into a global partnership with our midstream and petrochemical colleagues. Harry’s background and hands-on experience in the petrochemical industry, especially his early career at BP Chemical and later at INEOS will provide a perfect match with Navigator’s technical strategy and ambitions. We very much look forward to Harry’s joining us late at this month. And I would like Niall to give us an overview of our financial performance during this recent quarter.

Thanks David, and good morning. The challenging markets continued in the second quarter with charter rates not yet benefitting from the upturn seen on the larger mid-size LPG carriers and the very large gas carriers. However, more recently, since the quarter-end, we’ve seen some early indications of modest increases in our charter rates. Revenue for the second quarter was $73.6 million, $400,000 more than the $73.2 million generated during the second quarter of 2018, but $2.5 million down from the revenue generated last quarter, Q1 of 2019. Revenue for the six months period ended June 30 was $149.7 million, against a slightly higher $151 million generated during the first six months of 2018. During the quarter, charter rates improved relative to the second quarter of 2018 at $19,940 per day or $606,600 per calendar month, compared to rates of $191,000 per day for the second quarter of 2018. However, utilization fell during the quarter, relative to the second quarter of last year from 90.3% to 85.2%, which had the impact of reducing the compared revenues by $3.4 million. Although this second quarter utilization was a marginal improvement from the $84.8 million achieved during the first quarter of this year. During this second quarter, time charters accounted for 59% of all vessel operating days, while 41% of the operating days were spent undertaking spot or voice charters. Although LPG was transported for the majority of time charter days at 72%, petrochemical gases accounted for the majority of spot charter days at 79%, with LPG at 17%, and ammonia accounting for 4%. We undertook four drydockings during the first half year, taking in aggregate of 117.5 days, including the time taken to the sale to the respective dockyards and costing a total of $5.1. million, plus an additional approximate $1.6 million for…

Thank you, Niall. Good morning everyone. We mentioned the short-term headwinds we experienced during the second quarter in the press release. In short, the key event being the ripple effect from the U.S. imposed sanctions from the Venezuela National company PdVSA. Historically, Venezuela has employed six handysize vessels on the capitalized LPG trade on the coast. These vessels were forced to cease the trade at the end of first quarter, due to the [indiscernible] and seek employment in alternative trades during the second quarter. In a segmented 118 vessels, which out of 25 vessels were trading in the spot market at influx of such unanticipated vessel capacity to the spot market has been a struggle. During the same period, three new build handysize vessels were delivered from the odds having capacity to the spot market in this period. The second event was that of reduced petrochemical ton mile demand as a result of an extensive European chemical turnaround period. There was a major halt in the traditional Europe, Asia, butadiene shipping vessels contracted to services were left idle seeking other cargoes having shipped capacity in the Atlantic basin. US ethylene export reached typically of discharge in Asia transiting Panama and the Pacific Ocean were diverted to supplying the ethylene short position in Europe further reducing overall handysize ton mile demand. These were the two key headwinds capping our ability to follow the rights in the larger gas vessels during the same period. It is important to highlight the fact that we do not live in complete isolation from other segments. The optimism in the wider LPG environment plays the role across the various ship sizes. They are very large gas carriers as Niall mentioned, up to several years with extremely low rate levels that finally entered into higher supply demand…

Thank you, Oeyvind. You know there’s nothing like visiting a construction site and getting your feet wet and hands dirty to get excited and in deed when Oeyvind returned we all shared his excitement on the quite favorable market outlook that he has presented. And if all goes and comes together as planned, and we know from experience, nothing ever comes together exactly as planned, but nevertheless if everything comes together, Navigator should be operating at a near record level of profitability a year or so from now. But getting there will still require our leaning in to the headwinds of tariffs and sanctions of currency volatility and of course trade uncertainty, but we are confident we will get there successfully. No one knows for sure how the current trade negotiations between the United States and China will play out, but signs suggest that there will be no near-term resolution. We certainly are not planning on it. The lack of trade agreement does not mean a lack of trade. Our business is global and most of what we transport is fungible. And so, while high tariff trade barriers may exist from one country, trade can prosper by alternative routes. Trade barriers persists from one length of time for any length of time, we will see redrawn trade routes developing that may not be the most efficient, but will add ton mile demand, which is in fact may be quite beneficial to shipping and to navigate in particular. So, with that, Joan, I’d like to open up the call for the question-and-answer.

Thank you. Your first question comes from the line of Randy Giveans from Jefferies. Please go ahead, your like is now open.

Good morning.

How are you, gentleman? How’s it going?

Good.

Alright, so on the last call you mentioned utilization in 2Q should be better than 1Q. Now, obviously you did a pretty good job explaining the unforeseen weakness through your prepared remarks, that said, how has utilization been in the past, let’s call it six weeks and when do you expect utilization to exceed 90% again?

Hi, Ran. It’s Oeyvind. [Good question] and the timing is a bit tricky too to pinpoint, so we’re working through these – particularly these nine additional steps that we have in the spot market that we just referred to, so the six from Venezuela, and the three new bases. So, we’re working through that and I think the utilization hasn’t dropped, but when will go back to 90%, our expectation is clearly in parallel with these particularly four projects we just mentioned. So, the first one on the list that we visited is obviously our own in the Gulf Coast, which is about end of the year. But this should improve before that because customers and so forth are waking up to the fact that these projects will have a fundamental impact on the rate environment, and then, the availability of the ship. So, if you are smart, you rather try to lock something in today or start earlier or – to get hold of ships, but the timing on that is difficult to say, Randy.

Okay. What about utilization in the last month or so?

Yes, it was about the same. So, same as second quarter to the first month, something like that.

Alright. Now, switching over to the ethylene export terminal, you’ve guided that most of the cargoes will be exported on Navigator’s ethylene capable ships. So, with that large arbitrage still out there between the U.S. and Asia and now Europe, ethylene prices, where do you expect these vessels to earn per day on a full-year average in 2020, with the ethylene capable handysize?

The arbitrage today has gone up since the last month, which is a good thing. So, today you can buy spot can of ethylene I think around $330 a ton in the U.S., add on terminal fees, shipping fees and so forth, and then, you get to Asia. Today, Asia delivered price quoted with some deals were down for September at $930, $940 of ton. So, in the last month, that’s gone up by $130, which is a good thing. So, the arbitrage today is still there and we expect that to continue into the, you know, future. The question when you’re talking about Asia destination, it’s clearly the tariffs or ethylene today is under 25% tariffs. We’re hearing that this 25% is on the SOB price, which is a low price. So, the absolute impact of that low, we shall see, but the arbitrage is still there to accommodate that tariff today. In terms of earnings of the ships, clearly, if there’s an arbitrage, we will try to participate as much as we can in that [indiscernible]. So, the earnings on the ships on a day-to-day basis clearly is higher than what it is today. How high can it go? Time will tell.

Okay.

But…

Go ahead, Dave.

Yes. I was just going to try to put some clarity to that.

Yes.

Today an ethylene carrier that we might be making, how much if you got an ethylene cargo?

Yes. Today, it’s about depending a little bit, but – everything between [$600,000 to $750,000] a month depending a little bit. It will be higher than that, it should be higher than that because as you know, Randy, having a handysize ethylene capable ship, it’s not 118 ships, [it’s 30 odd]. So, the market in that is very small, but if you have 1-million-ton incremental supply in the market, we think that we’ll be able to push the rates, and there shouldn’t be any reason why we couldn’t.

Okay. And then, how much of that 1 million tons of capacity is contracted today?

It’s over 50% – still it’s over 50%. 55% is under long-term contract, and which again, I repeat what we’ve said in the past, the time this terminal is open at the end of this year. We fully expect to have it all – essentially all under contract. The demand is there; we were open today; we will be selling every ton. So, the question from our customers are, isn’t how much can I take, but how soon can I get it? They want it as soon as possible. So, you know, every time we have a call, it seems as though that next contract is ready to be signed, but it does always gets a bit delayed, but I think you'll see by the end, by certainly by the time we open up the terminal later this year, now – just a few months from now, that substantially all of the capacity will be contracted.

Okay. I will turn it over. Thank you for the time.

Thanks.

Thank you. Your next question comes from line of Ben Nolan from Stifel. Please go ahead, your line is now open.

Good morning, Ben.

Good morning, David, Oeyvind, and Niall. I – maybe just actually a follow-up on what you're saying there, David, based on customer demand and the anticipation that you will be fully contracted really within the next three, four months. How do you think about the ability to – and obviously in conjunction with enterprise, the ability to maybe expand the capacity? If demand is so strong, what’s the viability of actually upsizing it at some point?

Okay. Well, I'll take a risk in answering that. First and foremost, we live in a world of enterprise, and you know enterprise, which is probably the premium midstream company, built its reputation and footprint that’s the biggest in the business being very conservative building against long-term contracts, earning fee off of that in a very conservative way. Expansion and that's how we began our existing terminal with a base of contracts before we agree to construct the terminal, and we’ve added on that and I think the enterprise will share the enthusiasm with us about the success of our terminal and the decision to go forward with it. Same [token], moving forward on an expansion would entail the same kind of thought process that has nailed down the support on the contracts. We’re sure that you have sufficient cover that can justify moving from 1 million tons to whatever we agreed to do there. Technically, we can do it. The space is there; the equipment is known what it would take to expand. So, I believe there is the capability – technical capability to double the size of that facility and handle the – the processing of it and the handling it on to the ships themselves, the [indiscernible] completely capable of handling an expansion. But I want to reiterate that, that decision has not been approached. It's logical at the right time and on – again with the right type of backstop in terms of contractual commitments by off-takers who not just express verbally their interest, but actually put their name and contract on a piece of paper. So, I’m – you know it smells good.

Right, understood. I certainly appreciate not wanting to put the cart in front of the horse, but just thinking that usually in these pet chem infrastructure projects, it is a lot cheaper and the returns are a lot higher when you’re expanding rather than when you’re started from ground zero, so…

And that’s where you’re making money. Now, one of the interesting things let me tell you, if tomorrow we wake up and our friends in Houston said, we’ve just ordered a bunch of equipment and we're going to expand by 50% and will be operational 12 months from now, what the increased capacity will be 1.5 million tons, I’d say, hold on. We don't have the ships. The ships are going to be the problem. So, what’s interestingly enough that we need – this has to be done again, you know, the horse has to be there ahead of the cart, and the cart doesn’t get in the front pod. We need to coordinate. If we are to pursue that expansion, it would have to be done in coordination with enterprise, with contracts, and with the ability to deliver the vessels, which are critical to moving the stuff. So, it’s not that simple, it will be a coordinated effort and believe me, I look forward to making that decision, participating in that.

Alright, great, and I appreciate that. But to that end and that sort of goes back to a little bit something that Oeyvind was talking about the utilization was 85% in the quarter on the basis, so whatever it is, 118 ships in the fleet, you know, that would imply what something like 20-ish, a little over 20 ships of, you know, let’s call it excess capacity. Is that the right numbers? Or at what point do you think utilization rises enough such that you really begin to see pricing power and rates move? You know, do we need, you know, another 10 ships to be employed, you know, firmly or is it more like 20? Just curious you have a [line of sight] on that.

If you today, 10 ships go away back to Venezuela, and four to goes to some other captive trade, you know, then you will see effect. You’re not talking 20 ships. Remember the spot market, which sets the rate and the mood is about today 25, 30 ships. So, you know, remember, we’re dealing with a small segment here, compared to the, you know, very large [gas carriers] and so forth. So, but you see, when you get up to – start to approach 90%, you can theoretically or at least historically you become, you know, the tables have turned and you’re talking about pricing power, it is a dangerous word, but, you know, you’re getting a bit more. You can ask and demand more in contracts and so forth into alongside freight rates. So, 90% is a very good number.

Okay.

I think on the very large [gas carriers] I think to have 90% themselves and they could see what they’re earning. So, you don't need to move much before you can see a tangible effect.

Okay. That’s helpful. And then, as it relates to Venezuela, I know obviously it doesn't seem as there has been any political changes thus far. I believe that last quarter you guys had said you put in a request for some sort of a waiver or something like that. Has there been any movement on that front either broadly speaking as it relates to what you guys are trying to do?

OFAC is a black hole. There’s no way of penetrating and we haven't had any word from them whatsoever. Actually, I didn't really expect to have word back from them. I think they’ve made up their mind, what they’re doing, the State Department has in conjunction with the treasury. And, you know, our foreign policy today is based around tariffs and sanctions, diplomacy, negotiations don't exist. Tariffs, sanctions and that’s the language of diplomacy today. So, we're not hearing anything and I don't expect it.

Okay.

Let me – we’re not counting on Venezuela coming back quickly for sure.

Okay.

It will resolve itself. But let me tell you, once it does come back and eventually it has to come back, it's a serious and cultured country under a great deal of strength, but once it does come back, those five or six vessels, wherever they are, they must go back and they must be handysize semi-refrigerated vessels to do the cabotage business. What they – I’ve stressed before, what they do is a humanitarian business at the moment and that was our application, was for humanitarian need. They provide the basic cooking oil, and other heating, cooling and whenever [stood up], mostly for households. They cut off with that now. So, the cook, I'm not sure how they’re doing it. Wood is not a substitute on a long-term basis. Electricity doesn't exist and they weren't equipped to handle it. It was propane, which was a fundamental cooking, eating component of that country and they don't have it today because no one can move it around, and without that movement, without these vessels, they’re just shut off. It’s a huge pressure point that the U.S. government was putting on, and unfortunately, they were putting it on the common person, the individual and working-class individuals. So, look, I have – we haven't heard anything, don’t expect. You know, it’s sad that we can't do that, but diplomacy rules, sanctions and tariffs are the way we’re going and there won't be any change anytime soon.

Okay. And I have one more. Hopefully I’m not overstaying my welcome, but I don’t know that there’s quite as many of us with questions and more, but the – my question relates to at this point, I'm sure you’re having conversations with some of the off-takers from your terminal and likely, you know, others whether it’s Pembina or the [indiscernible] terminal or wherever. I’m curious, and I know that those are sensitive, but I’m curious about the structure, are these the kind of things what really makes sense to do contracts of affreightment you can utilize your large fleet to just sort of guarantee cargoes rather than committing individual ships? Are there a lot of people looking to do, you know, long-term multi-year contracts on specific ships at, you know, fixed rates? How is that process evolving do you think?

Yes. I think that's a good topic, and the answer is [indiscernible] and…

It depends a lot. I mean it’s a mixed bag. So, if we take West Coast, Canada, it is not our natural home for any ships really, and it’s not gas ships, so they don’t hang around, they don't go there [indiscernible] or anybody moving product out of there. You’re more likely to see alternative charter because the ship will remain like an extension of the pipeline from Alberto on the rail terminal ship to the various consumers. So, because of the location, it’s more a time charter. But in the Gulf, it’s more of an active; it’s more of liquid, if we can use that word in our segment with 118 ships. So, there is a bit more mix of some preferred competitor affreightments, we always believe our strong hand because we have a lot of bulk, so we can offer that, but it’s kind of our USB. Whilst others are more keen to do time charters, particularly on the larger ships we’re buying, it is again – it is not shipping as a pipeline service to a consumer going back and forth. On the East Coast, again, the Atlantic is quite active, probably, you’re looking at some sort of structure of contracts of affreightment with LPG, it’s not unheard of, but common in that area. So, again, it’s a little bit of mixed bag.

Okay. Perfect. I appreciate that and I guess I’ll turn it over to Jon Chappell now.

Thank you. Your next question comes from the line of Jon Chappell from Evercore. Please go ahead, your line is open.

Thanks Ben, thanks everybody.

Good morning.

Good morning, David. So, it’s kind of interesting. You laid out a path to a market that you said could provide record earnings in 12-months’ time, coming right off a quarter which is I think probably the worst quarter since you’ve been public [indiscernible]. Can you just kind of walk us through – Oeyvind laid out the numbers on the different terminals. Number one, what can go wrong, you know, between now and then other than just terminal delays? And then, number two, if you are so fortunate to have that super-tie market in 12 months’ time, what’s the next strategic step for Navigator? Do you start ordering ships to plug that shortage, do you just reap the cash flow or what’s going to happen in the competitive landscape in you’re in a record territory in 12 months?

Appropriate question, Jonathan. Shipping, I’ve learned anything can go wrong and its – if there is something to go wrong it will happen. As I look at the landscape and what do I worry about? I worry about first and foremost, price of oil. And the price of oil is not in itself an absolute, but why is that price either weak or strong? A weak price is not helpful, but if a weak price is just temporary, I’m fine with that. If a weak price of oil is a reflection of a global meltdown in the world economy, that worries me a lot. So, global economic activity and its impact on the pricing of oil is important and something that I get concerned about. Oil is needed – a strength in oil is needed because where I see our future and what is happening is the exports are driven out of the North America, Canada, and the United States are driven by the differential in pricing on U.S. hydrocarbons and international pricing. And international pricing of hydrocarbons really evolves around oil pricing, natural gas and liquids come off pricing from Brent or whatever benchmark they’re using. So, a lower price of oil gives less of a compelling arbitrage issue for exports. So, that’s probably the one concern that I have. The global economic activity and the price of oil. No way I can predict it, but it’s obviously threatened today by this battle of wills between United States and China in developing an intelligent trade agreement, but hopefully we can get through this and trade doesn’t deteriorate and economic – global economic activity is good. Okay. I think any kind of moderate economic expansion will be – the environment that will be very good for us. This current environment…

No. It was not simple at all. It was more a long-term strategic. So, it was a very thorough answer, and actually addressed most of my follow-ups in your comments. So, look forward to the stage 2 and working with Harry on that. Thanks David.

Thank you, Jon.

And your final question … sorry.

I think, if there were any – I don't think there are any other analyst on. This is someone else?

We have another question from the line of Randy Giveans from Jefferies.

Come on back Randy.

I am back. You can’t get rid of me that easily. One more question is, you mentioned in the press release, the contracted amounts or the operational amount would be 60% to 75% in 2020, is that based on what amount gets contract or is that range based on maybe some construction timing uncertainty? Like, what will make it 60%, and what will make it 75%?

Yes, but we’re talking about the physical capacity of the export capacity when the chiller unit is operational end of the year, until the storage tank is constructed and completed, which is later in 2020. So, that – call it a phase between chiller operational and tank operational in that period is up to 75% physical capability for exports.

Right.

Of the 1 million tons, namely.

During the first stage, we have to pump from the chiller with the holes directly into the vessel. And that limits the capacity to 75%. Once the storage is completed, Randy, the chiller can pump directly into that storage tank and then from the storage tank we pump directly into the ships, and that is very quick and very efficient, but until that, those tanks get completed. The reason they take so long is, they are all hand-welded, and that’s, you know labor is slow and that’s why we have 400 workers down there, 24 hours a day, seven days a week to get that thing welded and done. But as soon as the chiller is done, we are in business at around 75%.

Got it. I guess my question is, you're saying in the press release that there’s a chance there will be maybe 60% operational in the first year, so 600,000 tons, right?

Well, it is whatever we – the demand is there. Randy, if it were 1 million tons today, we’d be shipping 1 million tons, because that’s where the demand is. So, it’s only a physical constraint, whether it’s a 60% or 75% during the opening up of the chiller. The storage is not going to be until later in the year in 2020, but the physical capacity and the teething and whatever have you of the chiller is what will dictate the capacity output during the break-in period, stage 1, if you will.

Correct. So, could you sell more than 60%? If you’re not sure you might even only be able to make the 60%?

As I say, if we were open today, we could sell a 100% of it. So, whatever we can get into and out of that chiller, we will be selling because that is the demand. Again, what the first question the customers have for us is, how quickly can we get that ethylene the lean. So, it’s not a question of when, it is a question of physical capacity and constraints that we have on that. And that will by – certainly by the end of next year, when the storage tanks are up and running, we will be at 100%.

Got it. Alright, thanks again.

Thank you, Randy. Okay. Joan, I think we can wrap things up.

That does conclude our conference for today. I want to hand back for closing remarks.

No closing remarks. Look forward to next call. Thank you very much for being patient with us today.

Thank you all for participating. You may now disconnect.