Business Context and Reporting Period
Company: Dynagas LNG Partners LP (Dynagas)
Filing Type: Form 6-K (Foreign Private Issuer)
Reporting Period: Six months ended June 30, 2014 (Unaudited)
Business Overview: Dynagas is a growth-oriented limited partnership focused on owning and operating liquefied natural gas (LNG) carriers. As of June 30, 2014, the fleet consisted of four vessels: Clean Energy, Ob River, Clean Force, and the newly acquired Arctic Aurora. The vessels are employed on multi-year time charters with major energy companies including BG Group, Gazprom, and Statoil.
Key Financial Metrics
| Metric (in thousands, except per unit) | Six Months Ended June 30, 2014 | Six Months Ended June 30, 2013 |
|---|---|---|
| Voyage Revenues | $41,872 | $42,444 |
| Operating Income | $25,092 | $27,268 |
| Net Income | $21,247 | $22,728 |
| Adjusted EBITDA | $33,006 | $34,052 |
| Net Cash from Operating Activities | $33,158 | $17,728 |
| Net Cash Used in Investing Activities | $(209,562) | $0 |
| Net Cash from Financing Activities | $190,350 | $(17,728) |
| Total Debt (Long-term + Current) | $335,000 | $214,085 |
| Cash and Cash Equivalents | $19,623 | $5,677 |
| Restricted Cash | $24,000 | $22,000 |
| Earnings Per Unit (Common) | $0.74 | $1.04 |
| Cash Distributions Per Unit | $0.73 | $0.00 |
Material Changes vs. Prior Period
- Fleet Expansion: The Partnership acquired the Arctic Aurora (a 2013-built ice-class LNG carrier) from its Sponsor on June 23, 2014, for $235.0 million. This increased the fleet from three to four vessels.
- Revenue Impact: Voyage revenues decreased slightly by 1.3% ($0.6 million) to $41.9 million. This decline was primarily due to a one-time non-cash charge of $0.9 million related to accelerated time charter amortization for the Clean Force. Excluding this charge, revenues would have increased due to the partial operation of the Arctic Aurora.
- Expense Increases:
- General & Administrative (G&A): Increased from $21,000 to $1.0 million, driven by costs associated with being a public company since the November 2013 IPO.
- Vessel Operating Expenses: Increased to $6.6 million (from $6.2 million) due to higher crew costs and the addition of the Arctic Aurora.
- Debt Refinancing: The Partnership entered a new $340.0 million Senior Secured Revolving Credit Facility in June 2014 to refinance the previous $262.1 million facility and fund the Arctic Aurora acquisition. Total debt outstanding increased to $335.0 million.
- Cash Flow: Operating cash flow increased significantly by 87% to $33.2 million, driven by higher cash revenues and changes in working capital. Investing cash outflows were $209.6 million due to the vessel acquisition.
Guidance, Outlook, and Risks
- Capital Raising: In June 2014, the Partnership completed a follow-on public offering of 5.52 million common units at $22.79 per unit, raising net proceeds of approximately $120.6 million. In September 2014, the Partnership completed a $250.0 million Senior Unsecured Notes offering due 2019 to finance future vessel acquisitions.
- Distribution Increase: On July 31, 2014, the Board approved an increase in the quarterly cash distribution to $0.39 per unit (from $0.365), effective for the third quarter of 2014.
- Revenue Backlog: As of September 17, 2014, the contracted revenue backlog was approximately $612.2 million with an average remaining duration of 5.8 years.
- Risks and Contingencies:
- Charter Renewal: The Clean Force charter with BG Group was amended to expire in July 2015 to align with a new 13-year charter with Gazprom commencing shortly thereafter.
- Market Risks: Exposure to fluctuations in charter rates, bunker prices, currency exchange rates, and global economic conditions.
- Counterparty Risk: Reliance on major charterers (BG Group, Gazprom, Statoil) for stable cash flows; potential for early termination or renegotiation.
Investor Verification Checklist
- Verify the execution and terms of the new 13-year time charter with Gazprom for the Clean Force to ensure revenue stability post-July 2015.
- Confirm the utilization of proceeds from the September 2014 $250 million Notes offering for the acquisition of "Optional Vessels."
- Monitor the impact of the increased quarterly distribution ($0.39/unit) on future cash flow coverage and debt covenants.
- Review the status of the remaining six "Optional Vessels" available for purchase from the Sponsor and the Partnership's financing strategy for these acquisitions.
- Assess the impact of the $0.9 million non-recurring amortization charge on the comparability of 2014 revenue figures.