Business Context and Reporting Period
Company: Dynagas LNG Partners LP
Filing Type: Form 6-K (Foreign Private Issuer)
Reporting Period: Nine months ended September 30, 2016 (Interim Unaudited)
Business Overview: A growth-oriented limited partnership owning and operating a fleet of six LNG carriers. The fleet is employed on multi-year time charters with major international energy companies, including Shell, Gazprom, Statoil, and Yamal. As of November 15, 2016, the fleet had an average age of 6.3 years and a contracted revenue backlog of approximately $1.6 billion.
Key Financial Metrics
| Metric (Nine Months Ended Sept 30, 2016) | 2016 | 2015 |
|---|---|---|
| Voyage Revenues | $128.5 million | $108.2 million |
| Operating Income | $77.8 million | $66.0 million |
| Net Income | $51.4 million | $45.2 million |
| Adjusted EBITDA | $105.6 million | $84.7 million |
| Net Cash from Operating Activities | $80.3 million | $68.2 million |
| Time Charter Equivalent (TCE) Rate | $76,791 | $77,795 |
| Fleet Utilization | 100% | 99% |
| Total Debt (Outstanding) | $730.6 million | $688.3 million |
| Cash and Cash Equivalents | $59.1 million | $24.3 million |
| Available Liquidity | $114.1 million | N/A |
Note: Available liquidity includes cash and a $30.0 million revolving credit facility with the Sponsor.
Material Changes vs. Prior Period
- Fleet Expansion: The fleet grew from 5 to 6 vessels following the acquisition of the Lena River in December 2015. This addition drove a 23.0% increase in voyage revenues and a 25.7% increase in depreciation expenses.
- Profitability: Net income increased by 13.6% to $51.4 million, primarily due to the additional revenue-generating days from the new vessel.
- Cost Structure: Interest and finance costs rose 25.7% to $26.1 million, reflecting higher indebtedness associated with the Lena River acquisition. However, daily vessel operating expenses decreased slightly due to crew cost efficiencies.
- Charter Rates: While the TCE rate remained relatively stable, the Partnership agreed to reduce charter hire rates for the Lena River and Yenisei River effective November 1, 2016, in connection with a new long-term charter for the Clean Energy.
Guidance, Outlook, and Risks
- Recent Contracts: On October 31, 2016, the Partnership secured a new 7-year, 9-month charter for the Clean Energy with Gazprom, commencing July 2018. This was contingent on rate reductions for two other vessels.
- Revenue Backlog: The estimated contracted revenue backlog is $1.6 billion with an average remaining duration of 11.0 years. However, charters for the Lena River and Yenisei River (Yamal LNG Project) are subject to important conditions; failure to satisfy these could result in cancellation.
- Liquidity Outlook: Management anticipates generating sufficient cash from operations over the next 12 months to fund operations, debt service, and minimum distributions. Future growth and vessel acquisitions will likely require external financing.
- Risks: Key risks include LNG market trends, charter rate fluctuations, the ability to re-charter vessels upon expiration, potential delays in the Yamal LNG Project, and the impact of global economic slowdowns. Forward-looking statements are subject to significant uncertainties.
Investor Verification Checklist
- Charter Conditions: Verify the status of the "important conditions" attached to the Yamal LNG Project charters for the Lena River and Yenisei River, as their cancellation would materially impact the revenue backlog.
- Rate Reductions: Confirm the financial impact of the agreed charter hire rate reductions for the Lena River and Yenisei River effective November 1, 2016.
- Debt Covenants: Review compliance with debt covenants, specifically the maximum ratio of total consolidated liabilities to market value adjusted total assets and minimum liquidity requirements.
- Optional Vessels: Assess the likelihood and financing terms for the acquisition of the remaining "Optional Vessels" from the Sponsor, which are currently under construction.
- Distribution Sustainability: Monitor cash flow from operations to ensure continued ability to pay the quarterly distribution of $0.4225 per common unit and $0.5625 per Series A Preferred Unit.