Business Context and Reporting Period
Company: Dynagas LNG Partners LP
Filing Type: Form 6-K (Foreign Private Issuer)
Reporting Period: Six months ended June 30, 2023
Business Overview: The Partnership owns and operates a fleet of six LNG carriers. All vessels are currently employed on multi-year time charters with international energy companies, including SEFE, Equinor, Yamal, and NextDecade. The Partnership is currently focused on debt repayment and balance sheet strength rather than fleet expansion due to elevated costs of equity capital.
Key Financial Metrics
| Metric | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 |
|---|---|---|
| Voyage Revenues | $74.9 million | $66.7 million |
| Operating Income | $37.6 million | $24.7 million |
| Net Income | $24.0 million | $35.0 million |
| Net Income (Common Unitholders) | $18.2 million | $29.2 million |
| Earnings Per Unit (Basic & Diluted) | $0.50 | $0.79 |
| Adjusted EBITDA | $46.6 million | $45.9 million |
| Time Charter Equivalent (TCE) Rate | $67,586 | $62,161 |
| Net Cash from Operating Activities | $22.4 million | $33.0 million |
| Total Debt (Gross) | $444.6 million | $499.9 million |
| Cash and Cash Equivalents | $52.9 million | $48.6 million (Dec 31, 2022) |
| Fleet Utilization | 95.8% | 100% |
Material Changes vs. Prior Period
- Revenue Growth: Voyage revenues increased by 12.3% ($8.2 million) compared to the prior year, driven primarily by an increase in available days due to fewer scheduled dry-docks in 2023 compared to 2022.
- Net Income Decline: Net income decreased by 31.3% ($11.0 million). This decline was primarily caused by a significant reduction in the gain on derivative instruments ($5.0 million in 2023 vs. $21.2 million in 2022) and a 77.3% increase in interest and finance costs due to higher interest rates (weighted average 7.8% vs. 3.5%).
- Operating Expenses: Vessel operating expenses increased slightly to $15.4 million (from $15.0 million) due to increased technical maintenance. Dry-docking costs decreased significantly to $0.4 million (from $5.4 million) as major dry-docks occurred in the prior year.
- Debt Reduction: Total debt decreased by approximately $55.3 million, reflecting regular principal payments and a voluntary prepayment of $31.3 million in March 2023.
Outlook, Risks, and Management Commentary
- Refinancing Needs: The Partnership has a $675 Million Credit Facility with a balloon payment of approximately $384.6 million due on September 18, 2024. Management estimates that current cash and operating cash flows will not be sufficient to repay this obligation at maturity. Negotiations for refinancing are underway, and management believes refinancing is probable.
- Revenue Backlog: As of October 4, 2023, the estimated contracted revenue backlog is approximately $1.2 billion with an average remaining duration of 7.4 years. All six vessels are currently contracted.
- Geopolitical Risks: 39% of revenues in the first half of 2023 were derived from Yamal, which trades primarily from Russian LNG ports. While current sanctions have not prohibited these shipments, management notes that further escalation of the Russia-Ukraine conflict or new sanctions could adversely affect charter performance and revenue realization.
- Distributions: No distributions were paid to common unitholders during the period due to restrictions in the Credit Facility. Distributions were paid to Series A and Series B Preferred unitholders as scheduled.
- Interest Rate Transition: The Partnership has transitioned its debt interest rate benchmark from LIBOR to SOFR (Secured Overnight Financing Rate).
Investor Verification Checklist
- Refinancing Status: Verify the progress of negotiations to refinance the $384.6 million balloon payment due in September 2024.
- Sanctions Impact: Monitor developments regarding sanctions on Russian entities and their potential impact on the 39% of revenue derived from Yamal charters.
- Interest Rate Exposure: Assess the impact of rising SOFR rates on future interest expenses, given the variable rate nature of the debt.
- Derivative Valuation: Review the fair value of the interest rate swap ($28.3 million asset) and its volatility impact on net income.
- Common Unit Distributions: Confirm the timeline for resuming common unit distributions, which are currently restricted while the Credit Facility is outstanding.