Singapore-based Epic Gas today (Thursday) announced its unaudited financial and operating results for the year ended 31st December, 2015.
The year 2015 shows revenue of $130.3 million, up 11% on the previous year. Vessel calendar days were up 19% over the year and adjusted EBITDA of $29.8 million was up 25% over year. Adjusted general and administrative expenses of $1,150 per vessel per calendar day were down 22% over year while time charter revenues of $8,682 per vessel calendar day were up 2% over year.
Epic Gas completed the delivery of three newbuildings from shipyards in Japan. The sale of two older vessels and the redelivery of one chartered-in ship upon charter expiry brings the company’s on the water fleet to 36 vessels. It has a remaining newbuilding program of seven owned vessels and one chartered-in vessel.
Rates in the pressurised LPG sector for 2015 were “bouncing along the bottom”, says the company, with record newbuilding deliveries, some regional demand weakness and dramatic falls in commodity prices all playing a part. Overall average market rates in the year were broadly at 15-year lows, with the 3,500cbm and 5,000cbm segments approximately 19% lower than 2014, while the larger 7,500cbm dropped 4%.
On the supply side, Epic Gas ended the year with 309 pressure vessels on the water after a record year of newbuilding deliveries comprising 23 vessels totalling 141,300cbm. This was offset by six vessels with an average age of 27 years, and 21,727cbm being scrapped. Thus the company saw net pressurised fleet capacity growth of 8.6%.
Newbuildings ordered during the year were limited to five vessels of 44,000cbm capacity, to be delivered in 2017. It is also worth observing the small semi-ref fleet, with which there is some occasional cross-over competition, saw a minor net capacity reduction during 2015.
Of the 309 pressurised ships on the water today, 11 vessels are 25 years or older, and should be considered candidates for scrapping, complemented by a further 23 small semi-ref vessels of a similar age. There are another 42 vessels in the combined sector aged 20-24 years that are likely to be covering only operating costs if they are in the spot market. The company expects further scrapping will occur in the months ahead.
Epic Gas loaded 2.6 million tons during 2015, up 38% year on year, with 76% of tonnes loaded being LPG, and the balance petrochemicals, broadly similar to 2014. The steady petrochemical business provides a good offset to seasonality within LPG. The company’s increasing average vessel size drove a 10% increase in the average parcel size loaded across 1,019 liftings.
Initial figures show total global LPG exports of 79 million tonnes, up 9.7% year on year. While tonne mile demand growth was steady in most regions through the year, and in some regions considerably better, helping to offset some of the over-capacity resulting from record newbuilding deliveries.
In North Asia, the company saw a stable market, albeit at low levels, for the smaller 3500cbm to 5000cbm sector. Significant increases in butadiene and VCM imports to PRC on longer tonne mile routes were more than offset by a 9% year on year decrease in propylene imports as domestic PDH (propane dehydrogenation) capacity to produce propylene came online. In S E Asia, Epic Gas has seen a step up in transhipment from larger VLGC tonnage to smaller pressurised vessels for last mile delivery. The company performed 60 transhipment operations during 2015, up almost three times year on year. The region has also absorbed a number of older vessels into offmarket domestic cabotage trades.
The Indian Ocean saw a number of newbuildings absorbed, including 7,200cbm and 11,000cbm vessels for transport of both LPG and petrochemicals. We expect to see a continued shift to larger pressure vessels as existing trades upscale, and as new tenders and infrastructure projects deliver. West of Suez, the Black Sea and Eastern Mediterranean, where some markets have seen double digit growth, have also been able to accommodate further larger pressurised vessels, with the arrival of an incremental two vessels of 11,000cbm during the year.
Epic Gas has seen continued volume in the Western Mediterranean, as the company remains active in last-mile deliveries into West and North Africa. Overall activity in North West Europe remains weak for smaller pressurised vessels. Over the year, the company saw periods of increased activity driven by events such as lower water levels on the Rhine, refinery maintenance, and the added impact of a refinery breakdown at Moerdijk leading to butane exports during the repair period. For the larger vessels, Moroccan butane imports have maintained a steady demand.
In the Americas, overall export growth of LPG has passed the 20 million tonne mark for the first time, a year on year increase of over 40%. Within that context, pressurised LPG exports grew over 65%, with volumes heading both intra-Caribbean, and also gaining some share in the trans-Atlantic markets.
The company’s revenue for 2015 of $8,682 per vessel calendar day, up 1.9% year over year, represents a 4% premium to the weighted average market during the period. Its increasing scale, the strength of its broad access to the market through a variety of contractual arrangements, its diversified exposure to the global markets and increasing exposure to larger pressurised vessels has enabled Epic Gas to outperform a depressed market.
Within this difficult market environment, Epic Gas continues to execute on its strategy of pairing focused investment with consistent delivery of commercial and technical service to its customers at the highest of industry standards. The company’s operational capabilities enabled the business to take delivery of three high quality Japanese newbuildings during the year, including two owned newbuildings and one bareboat vessel.
Given the challenging environment for the smallest pressure vessels, Epic Gas has proactively sought to manage down its exposure to the smallest, oldest vessels in its fleet. While a pressurised gas carrier can operate past 30 years, a vessel’s utility on the international market declines dramatically as vessels approach 20 years of age. With age, it becomes increasingly difficult to maintain the vessels up to the oil major vetting standards required to trade in the company’s markets. Accordingly in March, Epic Gas successfully sold 18 and 19 year old assets into the South East Asian cabotage market, and in December it redelivered a 15-year-old bareboat chartered vessel.
The net impact to the company’s fleet is that it is now larger and younger. It has delivered a 4.6% increase in exposure to both total trading capacity and average vessel size, and a decrease of 5.8% in the average age of its fleet.
Epic Gas continues to monitor the market for additional opportunities to sell assets where the sale would help improve the profitability of its business and further accelerate the transformation of its fleet.
The company ends 2015 with 13 vessels trading in Asia, while its larger vessels including its first newbuilding of 11,000cbm included in its fleet of 23 vessels trading outside Asia. Its primary spot exposure remains within its larger vessels trading in the West. While the majority of its business will remain time charter in nature, the company expects to continue developing certain markets where its expertise, assets, and class-leading network density allow it to outperform the time charter market through a combination of COA and spot business.
One of its major objectives has been, and continues to be, to optimise vessel utilisation. This is achieved through a combination of better commercial management and less mechanical downtime. In 2015, the company’s vessel utilisation increased by 1.5% (150 basis points) to 96%, aided by a 38% decrease in idle days.
The net impact means that time charter earnings for 2015 year have reached a new record of $116.8 million, up 21% year on year, in a year where the weighted market has been 8% lower on average.
Epic Gas executed eight scheduled dry docks in 2015, accounting for 157 off-hire days including deviation time to and from the dock, compared to four dockings in 2014. Despite the increased dockings, total technical off-hire days for the year accounted for 1.8% of calendar days, marginally up from 1.4% in 2014.
In line with its strategy to manage all its vessels in-house, the company took over the technical management of three of its vessels which were previously under external technical management, leaving two remaining vessels under external management.
In 2015, the company’s seafarer pool passed 1,000 for the first time, an increase of 24% on 2014. Within its SHEQ (Safety, Health, Environment and Quality) team in Technical, the company completed 76 shipboard SIRE (Ship Inspection Reports) and five audits of its Singapore offices by oil majors, ensuring its vessels remain of the highest quality and widely accepted within the global market.
As of 31st December, 2015, the company was 40% covered for 2016, equivalent to 5,623 voyage days at an average daily TCE rate of $8,523, with 8,338 calendar days open. Following period end, the Epic Gas has booked further business for the balance of FY 2016, including the fixing of one of its newbuilding 7,500cbm vessels delivered ex yard in Japan for two years charter.
Epic Gas completed 2015 well on its way to a renewed, larger, more modern fleet with tightly managed costs, a stronger balance sheet, with a broad commercial strategy and strong in-house technical management.
The company says it starts 2016 excited for the future, with supply and demand equalising in the second half, and a further five high quality newbuildings over 7500cbm due during the year.
Vessel operating expenses increased from $46.5 million in 2014 to $55.2 million in 2015 mainly due to the company’s fleet expansion of 19% – as measured by the number of fleet calendar days. Even with an increased average ship size, the vessel operating expenses per calendar day remained stable at $4,103 in 2015 as compared to $4,105 in 2014.
Voyage costs were down 36% year over year as the company’s voyage charter activity declined 37% from 3,478 spot market days in 2014 to 2,197 spot market days in 2015. The spot market days
included 482 days of COA activity. During 2015, charter-in costs increased $4.0 million to $15.1 million from $11.1 million in 2014 as a result of an increase in the company’s bareboat chartered-in fleet.
On average, Epic Gas had nine vessels on bareboat charter representing 3,224 calendar days (2,679 days in 2014), at an average charter-in cost per day of $4,668 ($ 4,129 in 2014). One contract expired in December 2015 and the ship was re-delivered to the owner. Another bareboat contract will expire during Q2 2016.
The Company assessed the value of its owned ships and the respective carrying amounts. While modern ships have not experienced a significant decline in market values and require lower costs of
operations, impairment indicators were identified for the older and smaller ships, i.e. vessels that are more than 15 years old that have a capacity of 5,000cbm and below. The challenging environment for the smallest pressure vessels resulted in an impairment charge of $10.4 million.
General and administrative expenses decreased by 7% year over year from $16.7 million in 2014 to $15.5 million in 2015. Coupled with the growth of the company’s fleet, general and administrative expenses per vessel calendar day fell 22% to $1,150 which, in our integrated model, includes the cost of commercial and technical management of our fleet as well as all ownership and corporate level general and administrative expenses.
This figure has decreased from $1,277 per calendar day in Q1 2015 to $1,021 in Q4 2015 and is expected to improve further as Epic Gas continues to improve the efficiency of its platform and service offering.