Business Context and Reporting Period
Company: Dynagas LNG Partners LP
Filing Type: Form 6-K (Interim Report)
Reporting Period: Six months ended June 30, 2022
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, and Yamal. 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, 2022 | Six Months Ended June 30, 2021 |
|---|---|---|
| Voyage Revenues | $66.7 million | $67.4 million |
| Operating Income | $24.7 million | $31.1 million |
| Net Income | $35.0 million | $25.0 million |
| Net Income (Common Unitholders) | $29.2 million | $19.2 million |
| Earnings Per Unit (Common) | $0.79 | $0.53 |
| Adjusted EBITDA | $45.9 million | $47.5 million |
| Time Charter Equivalent (TCE) Rate | $62,161 per day | $60,780 per day |
| Net Cash from Operating Activities | $33.0 million | $38.8 million |
| Total Debt (Gross) | $543.0 million | $567.0 million |
| Cash and Restricted Cash | $100.2 million | $86.8 million |
| Available Liquidity | $130.2 million | N/A |
Material Changes vs. Prior Period
- Revenue: Voyage revenues decreased by 1.8% ($1.2 million) primarily due to scheduled dry-docking of the Clean Energy and Amur River, which reduced revenue-earning days.
- Expenses: Vessel operating expenses increased to $15.0 million (from $14.5 million) due to higher technical maintenance and supply costs. General and administrative expenses decreased by 11.8% due to lower consultancy costs.
- Net Income: Net income increased significantly by 40.1% ($10.0 million). This increase was driven largely by a $21.2 million gain on derivative instruments (interest rate swaps), compared to a $4.8 million gain in the prior period.
- Debt: Total debt decreased by $24.0 million due to regular principal payments under the $675 Million Credit Facility.
- Working Capital: Improved from a deficit of $13.8 million at year-end 2021 to a surplus of $1.9 million as of June 30, 2022.
Guidance, Outlook, Risks, and Unusual Items
Outlook and Capital Allocation
The Partnership is prioritizing debt repayment and balance sheet strength. Future growth is contingent on accessing debt and equity capital on acceptable terms. The estimated contracted revenue backlog as of October 31, 2022, is approximately $0.93 billion with an average remaining duration of 6.3 years.
Key Risks and Contingencies
- Geopolitical Sanctions: Approximately 84% of revenues in the first half of 2022 were derived from charterers (Yamal and SEFE) trading primarily from Russian LNG ports. While current sanctions have not prohibited these specific shipping routes, the ongoing conflict between Russia and Ukraine poses a risk of further sanctions that could affect charter performance or lead to contract suspension/termination.
- Counterparty Concentration: Three charterers accounted for 100% of revenues (44%, 40%, and 16%) in the period ended June 30, 2022.
- Interest Rate Swaps: The Partnership holds a floating-to-fixed interest rate swap. The significant gain recognized in 2022 ($21.2 million) is a non-cash, non-operating item that inflated Net Income but is excluded from Adjusted EBITDA.
- ATB Prepayment: In October 2022, the Partnership prepaid the participation of Amsterdam Trade Bank (ATB) in its credit facility following ATB's designation as a Specially Designated National (SDN) by OFAC. This was funded by releasing cash from a collateral account.
Distributions
The Partnership is restricted from paying distributions to common unitholders while borrowings are outstanding under the $675 Million Credit Facility. Distributions to Series A and Series B Preferred unitholders continue as scheduled ($0.5625 and $0.546875 per unit, respectively).
Investor Verification Checklist
- Revenue Concentration: Verify the stability of contracts with SEFE and Yamal given the ongoing geopolitical situation and potential for expanded sanctions.
- Derivative Impact: Assess the sustainability of Net Income by excluding the $21.2 million gain on interest rate swaps, which is a non-recurring market-driven item.
- Debt Covenants: Confirm continued compliance with the $675 Million Credit Facility covenants, specifically the minimum liquidity requirement of $50 million in the Cash Collateral Account.
- Charter Expirations: Review the re-chartering risk for the Arctic Aurora, which has the earliest charter expiration in Q3 2023.
- ATB Resolution: Monitor the status of the blocked payments to ATB and the return of funds from the U.S. Sanctions Authority as noted in the subsequent events.