AVACF - Avance Gas Holding Ltd (AVACF) Q3 2023 Earnings Call Transcript

2023-11-28 12:49:08 ET

Avance Gas Holding Ltd (AVACF)

Q3 2023 Earnings Call Transcript

November 28, 2023 08:00 AM ET

Company Participants

Oystein Kalleklev - CEO

Randi Bekkelund - CFO

Presentation

Operator

Good day and thank you for standing by. Welcome to the Avance Gas Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Oystein Kalleklev, CEO. Please go ahead.

Oystein Kalleklev

Thank you and good afternoon and welcome to Avance Gas' third quarter earnings presentation. As mentioned, I'm Oystein Kalleklev, CEO of Avance Gas and as usual, I will be joined by our CFO, Randi Navdal Bekkelund who will guide you through the financials a bit later in the presentation. As mentioned, you can submit questions either by the telephone conference or using the chat function, and we will cover the questions at the end of the presentation.

Before we begin, I would like to draw your attention to the picture on the front page. Here you can see [indiscernible], one of our VLGCs leaving the Panama Canal, which we thought would be an appropriate picture for today's presentation. As you are probably aware of Panama has experienced significant growth this year, which have reduced water levels to such low levels that the canal authorities have been forced to cut daily, allowed transit by half in order to preserve fresh water.

The reduced capacity in Panama has dramatically increased sailing distances for VLGCs and thus made the freight market super tight. We will discuss the situation in Panama and implication for VLGCs freight market in more detail in the market section. In the picture ahead, Sirocco is going through the Pollux to Panama City in laden condition, and you can actually see both the Bridge of Americas and the Pacific Ocean in the horizon.

So, before we begin the presentation, I will just remind you the disclaimer as we will provide some forward-looking statements, use some non IFRS measures, and of course there are limits to completeness of detail we can provide in this webcast. So, we recommend to review the earnings support together with the presentation. So, on the -- let's kick off today's presentation.

Q3 highlights or average Time Charter Equivalent earnings or TCE for the third quarter came in at $55,300 per day for the fleet. This is on a discharge-to-discharge basis, which is the basis we use for our guidance. While we technically are within the TCE guidance as $55,300 day is in the high interval of $50,000, we have to admit that we were expecting that the TCE would be more like $58,000 or $59,000 per day when we made our guidance on August 30th.

However, on the following day, August 31, we saw the biggest ever daily jump in the Baltic LPG1 index. Baltic LPG1 is the index for sport voyages from Saudi Arabia to Japan, which is the most liquid index, and therefore the index we utilize for hedging freight by using forward freight agreement or FFAs. In one single day on August 31st, the cost of freight for this route jumped 20% from $98.5 per metric ton to $118 per metric ton.

The Baltic LPG1 index then went on to record its strongest ever seven-day trading results with the index shooting up by more than 50% to 151.5 points by September 8th. While a booming freight market is good news for us, our results in Q3 is however adversely impacted by FFAs, especially in September as this is the fixing window for October cargo. Overall, average TCE for the fleet was just reduced by $10.6 million in Q3 or $8,300 per day due to FFA hedging, and I will cover this in more detail shortly.

Another effect of rapidly increasing freight rate is that we record a very big deviation in our earnings on a low to discharge basis, which is the basis for IFRS accounts compared to discharge-to-discharge basis, which is -- its Avance economics typically used live by shipping industry to measure trading performance. Over time, these two metrics even south, but they can deviate substantially when the market moves either up or down.

For this quarter, the IFRS effect was $10.9 million and the load-to-discharge numbers therefore came in $8,600 lower at $46,700 per day. I will also share some more lights on this timing effect shortly. Despite these two-timing effects totaling $21.4 million trading results for the quarter was very strong with a net profit of $30 million for the quarter, thereby increasing the net profit for the year to $102 million.

Hence, we have already surpassed the results from last year with the best yet to come, as we expect you for to be by far or best trading results this year. Please note that the $102 million above does not include the gain from the sale of Iris Glory. As we announced in July, we have agreed to sell Iris Glory for $60 million and we expect to book a profit of $22 million one share delivered to new owners. Iris Glory is currently discharging her last cargo under her two-year time shutter, and we are currently marketing her for a final spot voyage prior to delivering her to new owners.

We therefore expect to handle -- okay, if it's something wrong with the sounds. Okay now, okay, let's continue. I just got some message here from my speaker phone. We therefore expect to hand the Iris Glory over to new owners once this last voyage has been completed. The profit from the sale will be -- Sorry. We do have some technical glitches, sir. I think we just -- We expect to hand Iris Glory over to the new owners once the last voyage has been completed. The profit from the sale will be booked when such handover occurs, and we expect this to take place at the end of the year or more probably, early next year, depending on the timing of final spot voyages. Voyage of other recent events, we are pleased to have secured a new $43 million bank finance thing for -- as improved terms compared to the sale and lease actually currently financed under. And Ron, they will give some more details on this in the finance part.

Finally, as already mentioned, the Panama Canal congestion is of particular importance. As mentioned in the introduction, this has really fired up the freight market, and I will cover this in more detail in the market section.

So, with the freight market shooting up from September, we expect to deliver substantially stronger numbers for fourth quarter. We still have some days to book for Q4, which is okay, given the spot rates currently at $130,000 to $140,000 a day. Overall, we expect the fleet to deliver a time charter equivalent earnings for the fourth quarter of $70,000 to $75,000 per day. This is on discharge to discharge basis and then includes the FX from FFA hedging at current rate levels. Hence, with strong numbers, a healthy cash position, and compelling outlook, the board has once again decided to declare a quarterly dividend of $0.050 per share, which brings the dividend last 12 months to $2 per share, which implies a running yield of about 12%.

So, let's review our commercial performance. This is where we spend most time with the analyst today, given the big timing effects on our results.

For the third quarter, about 64% of our fleet was allocated to spot voyages, while the remaining was allocated to term market to TC coverage. Given the strong spot market, we generated average spot earnings of $75,700 per day, slightly ahead of guidance of $71,000 per day while the TC ships delivered average earnings of $41,700 in line with guidance of $42,000 per day. This ended up with an average of $63,600 per day before FFA deductions.

As we have hedged two of our port ships by FFA in the third quarter at an average of $50,000 per day. This dragged on numbers for the fees by about $8,300 per day to $55,300, as spot rates were significantly higher than our average hedging rate, particularly this was due in September as mentioned. As rates spiked from September, we haven't been able to book Q4 at substantially higher rates than Q3, and we do expect this to be by far the best quarter for us this year, and probably the best quarter since third quarter of 2015.

Achieved spot rates for Q4, we expect to end up somewhere between $90,000 to $100,000 per day on average. As the two-year TC for Iris and venous glory is coming to an end in Q4, spot exposure will be reduced to about 30% with average TC rate of around $50,000 per day. Overall, this should give our TC for the fleet of around $80,000 to $85,000 per day. But since we have hedged to ships by FFA at the average of $55,000 per day, we expect a negative revision also from FFA in Q4, best estimate around $10,000 per day giving a net TCE for the fleet of around $70,000 to $75,000 per day.

Keep in mind, our cash breakeven level is around $22,000 per day. So, we will generate substantial super profit in the fourth quarter. Okay, so let's go into the timing effects a bit more in detail. First let me explain briefly the difference between discharge to discharge and load to discharge. When we calculate freight economics and shipping, we usually, use discharge to discharge basis. This is then the gross freight income, less voyage cost like bunkers, canal fees, and work commission. And then we take the net voyage result and divide it by the days for our own trip.

I.e. from this shower of lost voyage to discharge of the current voyage. In IFRS we do however apply load to digital basis for spot voyages. So here we only recognize revenue from the point in time we have cargo on board and until we discharge it. So, when the market moves sharply up or down, you typically will have a lot of ships balancing into new fixtures, which you cannot recognize income form. And that's why we have this so-called IFRS 15, timing effect in a flat market, there would be no such effect. Our timing effect is also magnified by the fact that we utilize FFA to hedge two of our spot ships as mentioned in third and fourth quarter. Here, we calculate profit loss every single day and when the market moved sharply in September as you can see from the graph, we have to recognize these losses immediately in the September P&L while we are booking the ships for voyages well into fourth quarter.

Hence, we have illustrated effect with a bridge from gross average TCE of $63,600 with deduction of FFA of about $8,300 per day. And then finally the IFRS effect of $8,600 per day. As we are starting from a high point, we do expect the IFRS 15 effect to be less or significantly less in Q4. Okay, let's look at the fleet. What we have been doing the last couple of years is to sell ownerships and renew with many more fuel efficient and flexible tonnage. Last year we sold three ships all at a decent book profit and we announced, a sale this year of Iris Glory. We have recently docked Venus Glory and she is currently completing her final voyage on her two-year time charter. So, we are marketing her for sale and have received quite a lot of interest so we are upbeat about the prospect for divesting her also at a very healthy good profit.

At the same time, we are investing in new ships. We contracted the right ships at the right time within total six large usual fuel LPG, VLGCs at about $80 million each. New build prices for such vessels today are at about $115 million to $120 million depending on spec. And these ships are typically not due for delivery prior to 2027. A large dual fuel VLGC has a cargo capacity about 9% to 10% larger than traditional VLGCs, and they can run on LPG instead of propane.

And they can run on LPG instead of compliant fuel, which is not only good for the environment, but also for economics as LPG is much cheaper than compliant fuel. Last year we took delivery of Polaris and Capella. This year we are taking delivery of Rigel and Avior, and the two last chips Castor and Pollux, which are scheduled for delivery this year has been delayed until Q1 and Q2 next year due to a lot of work at the yards these days with all the container and LNG contracts that they have entered into.

Additionally, we contracted four mid-size gas carriers this summer for delivery in 2025 and 2026. These ships can carry both LPG and ammonia and we contracted them at very good price points of $61.5 million each, which compares very favorable to new billing prices being quoted for such ships today with typical delivery into 2027. The equity for the new MGCs, we are planning to release from the sale of the older ships where we have one more ship to sell as Spain. So, let's look at our employment profile.

As mentioned, our two older ships are coming off to year fixed thesis in Q4 and Iris Glory will be delivered to new owners in December or January. Venus Glory as mentioned on a final voyage under TCE and we will trade her spot until we potentially can secure a buyer for her where we already have some interest. We have 8, 2015 equal ships. The two ships without a scrubber is on time charter, a variable time charter for Chinook until summer next year and a fixed hire TCE of 21 months for Pampero until she will be carrying out a 10-year special survey in Q3 2025.

We have stated that the backlog from this time charter for Pampero is $29 million. So, this gives you a rate of around $45,000 per day. The older 6, 2015 eco ships, we have installed a scrubber, and we are trading those ships in the spot market. One of these ships we hedged by use of FFA last autumn at $48,000 per day for the calendar year of 2023. This is the FFA 1 as you can see at the bottom of the graph. Then we have six dual fuel ships of which four have now been delivered both Polaris and Capella, and on two years variable TCEs directly from yard with a floor and a ceiling of around $50,000 per day.

The Polaris TCE expires in -- and while we in May agree to prematurely terminate the Capella variable TCE, we then turn around and hedged this ship at $53,000 and $63,000 respectively for the third and fourth quarter of this year. This hedge is noted as FFA 3 in the graph. There is some upside on the FFA numbers for Capella, as we can take a bigger parcel size than a conventional size and in case, we burn LPG instead of very low sulfur oil.

So, the -- this is the rationale for our two FFA positions for the Q3 and Q4 this year. The two, dual fuel ships we have taken delivery of this year, Rigel and Avior, we are trading spots and the two ships for delivery next year is also open. This means we are increasing our spot exposure next year unless we find some good TCEs for some of these ships. We also do have some FFA cover for next year. We have extended the scrubber hedge into Q1 at one ship for Q1 at $60,000 per day. And then, we also hedged 50% of one scrubber ship for calendar year 2024 at $70,000 per day noted as FFA 2 in the graph.

Lastly, we have four MGCs for delivery in 2025 and ‘26, which we are currently marketing for longer term TCEs. So last slide before handing over to you Randi. There is the dividend slide. As you can see, we have ramped up dividend in Q4 last year, given the stronger results and we have now kept the dividend at $0.50 per share for the last four quarters with today's declaration of $0.50 per share for the third quarter of 2023.

We are paying slightly more in dividend than earnings in the third quarter as the earnings are dragged down by the timing effects I explained earlier. However, as mentioned, we do expect a rather big bounce in earnings for the fourth quarter, so we do not see any reason for not maintaining the dividends at $0.50 saying in the total to $2 per share the last 12 months. I covered the factors for determining the dividend level in great detail in the past, but as you can see, more or less green lights on all the factors and that's why we are optimistic about outlook also for dividend in the coming for us. So that's -- and we do the financials.

Randi Bekkelund

Thank you, Oystein, and let's go to Slide 9 and have a look at our income statement and key financial figures. So, as already presented by Oystein, our commercial performance measured in time charter equivalent rate or TCE rate for the quarter was $55,300 on a discharge-to-discharge basis versus the guidance in the high fifties and compared to $50,800 for the second quarter. The TCE rate was impacted by forward freight agreement or FFA losses of $10.6 million or $8,300 a day for the sleep in the third quarter. The TCE rate, according to the accounting and reporting standard, IFRS recognized revenue on a low-to-discharge basis, thereby adjustment of IFRS was negative $10.9 million or $8,600 per ship day for the third quarter. As the spot market reached elevated levels by the end of the quarter resulting in a reported TCE of $46,700 compared to $52,000 for the second quarter.

Operating expense or OpEx were $10.4 million equaling a daily average of $8,100 per ship day, approximately at the same level as the previous quarter. We continued to hold the lowest administrative and general expense compared to our industry peers, despite a higher A&G for the quarter, which is explained by non-recurring expenses as settlement of share options.

For the quarter, A&G came in at $2.8 million equaling a daily average per ship day of $2,200 whereas a normalized A&G is closer to a thousand dollars a day, which is as expected going forward. And that concludes an operating profit before depreciation or EBITDA of $46 million compared to $52 million in previous quarter.

Depreciation is down from $12 million previous quarter to $11 million this quarter, as we have reclassified Iris Glory, the 2008 buildability following the sale previously announced in July. And consequently, the vessel is not depreciated by holding the classification as spot voyages. As delivery to the new owners within January ’24, we expect to generate $22 million in book profits in the first quarter ‘24'.

Next finance expense was up $4 million from five previous quarter due to rising interest rates and higher average net debt, interest bearing debt as we have a full quarter with financing on our recent delivery of Avance of yield in May. So, despite this, we maintain a lower net finance expense compared to the floating over by interest rate hedges. Currently, we have approximately 90% of the underlying interest-bearing debt is 3% on the floating length compared to the current sulfur at 5.32%. So, this concludes the net profit of $30.1 million and corresponds to an analyzed return on book equity of 21%.

Moving to slide 10, you can see that 80% of our total assets currently consists of 14 VLGCs on water, which is soon to be 13 as we sold the Iris Glory with delivery to the new owner within January 24. So, additionally, we have a few new buildings under construction, the VLGC Avance Castor and Avance Pollux, with expected delivery in March and May ‘24.

And also, we have paid the first pre-delivery CapEx on our two first midsize gas carriers, MGC representing $18.6 million for the quarter. The MGC number three and four will start capitalized the next quarter when we will pay the first installment to the yard. Looking at the credit side, we have a balanced loan-to-value ratio of 49% as we have amortized interest-bearing debt while values had gone up. We have also refinanced the VLGC comparable, which I will come back to in a few minutes. Looking at the total shareholder equity we also maintain a relatively solid shareholder ratio of 50%. And the total shareholder equity was $581 million at quarter end and has decreased $9 million during the quarter, which is explained by a net profit of $30.1 million being offset by dividend paid of $38.3 million for the second quarter.

And negative movement in other comprehensive income of $900 dollars, [indiscernible] sorry, which is explained by positive market-to-market movements in interest rate swaps of $1.6 million and negative market-to-market movements in SFA hedges of $2 million. We have a solid cash position of $146 million as of 30th of September ‘23, which leads us to the next slide showing the cash movements during the quarter.

We started the quarter with a cash position of $192 million and during the third quarter, we generated $42 million in cashflow from operations coming from a strong freight income exceeding our cash break level at $22,000, which was offset by a decrease in working capital items of $15 million, driven by increased prepayments which is explained by cash deposit in relation to our FFA hedges.

Further we had $21 million in capital expenditure, of which $18.6 million relates to our two first MGC schedule for delivery in Q4, ‘25 and Q1, ‘26, and the remaining $2.4 million is dry docking of Venus Glory. Further, we reclaimed $11 million in debt and lastly, we paid yeah, as already mentioned, $38 million in dividends for the second quarter and $1.8 million in settlement of share options. So, this brings a total negative cash movement of $46 million, and explains the bridge from the second to the third quarter.

So just to summarize, the recent transactions announced in cash terms, we expect to generate in total $45 million in cash proceeds during the first quarter ‘24 in addition to the cash from operations, where we have the sale of Iris Glory will generate approximately $25 million, $5 million from the refinancing of Pampero, and $14 million coming from financing of the remaining two deceased new buildings as delivery.

Looking at our financing structure on slide 12, 70% of our outstanding committed debt is bank financed with a split in term loans and flexible non-amortizing revolver credit facility or RCF of $130 million. Post-sale of Iris Glory and refinancing of Pampero above 80% of our committed financing will be provided by banks and the remaining 20% is sale leaseback arrangement with book on of $135 million, which will be drawn next year at delivery of our remaining two new buildings. Avance Castor Avance Pollux, and thereby, we will be cash positive of in total $14 million during the first and the second quarter ‘24.

Looking a bit into the refinancing, that we've done, we have been working on improving the financing structure for the VLGC Pampero 2015 bills. So, we have terminated the current Chinese lease and replaced it with a bank facility. So, by end of October, we received a credit approval for the refinancing of the vessel in a $43 million bank facility. And as we already mentioned, the transaction will generate a net cash proceed, so $5 million a drawdown schedule in March ‘24, and the exercise will significantly improve the current financing of the vessel bearing a margin of 1.9% versus existing margin of 3.25%.

Further, the bank facility will have adjusted profile of 20 years matures in January ‘28, and we expect to close documentation and procedures within January ‘24. And thereby we will maintain our low cash prep even of about $22,000 a day. And we know that majority before 2028 for the majority of split.

And with that, I give the word back to Oystein for providing an update on our smoking hot LPG markets.

Oystein Kalleklev

Okay, thanks. And we spent so much time with IFRS 15 now and FFA, so I think we'll run through the market slide a bit quickly. This just gives an overview, the slide 14 of the current market with all elevated freight levels. Baltic 1, as I mentioned, the main route from Saudi Arabia to Japan. Of course, the Baltic route today used in Chiba. This is on -- basically, only exist on paper. This route assumes you going from Japan to using both ways to using the Panama Canal and having our own trip of 60 days. While today, you will mostly route your ship both ways to Suez or Suez or Cape of Good Hope making that voyage until 1995 days rather than the 60 days in a perfect voyage.

Still so, the TCE $145,000 for the longest route, it will be a bit lower on paper when you're adjusting for the sailing route. The premium route continues to be Atlantic, where rates are very elevated from US to flushing. But of course, you do have a bit more weighting risk on some of these shoulder routes. The freight levels are supported by good arbitrage level, about $350 cheaper with the LPG in US than Japan now. So, the product spread is $350. So even after paying $239 on freight, you still have a lot of margin for the terminals and the traders.

As mentioned, the Panama Canal is clogged. Average auction fee in order to skip the cure for November is $2.6 million northbound and $2.3 million southbound, which of course are leading a lot of the bigger ships to take longer routes other than waiting in Panama. US exports very stellar growth 14% year on year. We do get the question from time to time, why do we do see this high growth of US exports, and when US oil production are fairly flat? And I will come into that and touch a bit upon that later in the presentation.

In terms of import China, despite slow economic recovery following zero COVID, 23% growth year on year. So, of course, the Chinese are importing a lot of cheap LPG, and with a lot of new PDH plants commissioning, they have a lot of demand for US LPG. So, let's say look at the overall market on Slide 15. As we've shown in the past, very high growth in both US, which is by far the biggest exporter, especially when it comes to real disease cargoes. And then Middle East, despite the OPEC cuts where strong growth, it's OPEC cuts only applies to oil, and there's a lot of gas producers in the Middle East, which are ramping up exports.

On the import side, as I mentioned, China has up 32% from 2021, which was prior to the zero COVID policies. We even had growth in China in 2022, despite the zero COVID policies. And then we have had a big spike in import growth this year, despite somewhat disappointing economic recovery. Europe as well have been importing Russian LPG by rail or, and on smaller size ships. They are now buying more US LPG, and the growth is or volumes are at 58% from 2021.

Looking into US on page 16 here, you see very strong growth and we will touch upon why we do see this extremely strong growth from US LPG exports? And the high growth in US LPG production is also driving down domestic prices and inventories to new record high, which is then creating this fantastic arbitrage to forest markets. And today, 60% of the propane in US is being exported. So, this has really become our export product for the US producers.

Looking into next slide on the arbitrage is just the same picture. You can see how the -- go goes up and down the price difference between US and Paris. And this is also of course, then driving into what you can pay for freight. And if you look at the forward market for the arbitrage, it's very conductive staying at $200 to $300 per ton, which means that the freight market also expects rates to stay at high levels. We do expect the freight market to start softening from next year, but still staying at $80,000 - $100,000 dollars per day is very favorable compared to our cash breakeven as shown at $22,000 per day or so.

So, on there, let's look at some of the drivers for this extremely strong growth in the US exports, you know, people, you know, 80% of the drilling in the US is for oil. Nobody really drills for propane or butane. So, this is driven the volumes are driven here by associated gas primarily?

So, what happens typically in this well is that, ratio of gas to oil is increasing with time. And then we have some of the major basins in the US on the graph on the left-hand side. And what we do see is the gas-to-oil ratio is picking up. So, for Permian, which is rather new area in terms of shale this has to increase from 3.4 to 3.8 in from 2017, it doesn't sound like a lot, but given the scale of Permian drilling, this really increased availability of associated gas. And as you can look at this graph, number two, higher gas to oil ratio means more associated gas. And this is particularly true for the Permian, which associated gas production has gone up a lot. And this is, this is associated gas close to export plants in the US and also in a favorable regime in terms of regulation where there's not a lot of obstacles to building pipelines.

So, this has also then disrupted in as I mentioned, more associated gas. And this associated gas is saturated with NGLs natural gas liquids, which is not only propane and butane, but also ethane. So, the gas, the gas recovery of gas in the associated gas, or what we call the gallons of NGL produced per thousand cubic or DPM. This ratio is also picking up. So not only are you producing more associated gas, you're also [indiscernible] especially when you have this rapid build out of infrastructure in US. Everything from export plants to pipelines. So, this is the, you know, the main drivers why you have higher growth of NGL natural gas liquids than you do from crude and natural gas, which I will show on graph number 19. The next. So, this is a nice graph from, RBN Energy which is a very good source for information about LPG business.

So, if you look at the growth in crude oil in US, it's been a fantastic growth story since 2013. The same goes for natural gas, but they are far lower than NGL, where you have more than 50% higher growth in production of NGLs than crude oil, and even more so when it comes to natural gas. So, if you look at the situation today on page 20, actually, we are in a situation now today where for every barrel of crude oil being produced in the US, you today produce half a barrel of natural gas liquid. And this consists of ethane. And then we have the main feedstock for all trade, the propane, the butane, and the ease of butane, which is the LPG. And then on top of that, you have, call it natural gasoline, which you utilize for refineries. So that means with all these drivers, you really have a much stronger growth picture for NGL than fluid.

And if we look at next slide 21, you will actually see oil demand from 2010. So, you see the picture here from ‘11, ‘14, and then you see this dark blue starting to pick up. And this is the NGLs or also consisting of LPGs, which is driving world oil demand. And this is considered is actually 36% of old growth since 2010 is NGLs. So that explain why us can produce a lot more growth for LPG than they can do for both natural gas and crude oil.

Yes, let's also have a look at Panama Canal. We do get a lot of questions about this these days. So of course, when they agreed to expand the canal back in 2007, this was mainly driven by container traffic. Container traffic was booming after China became member of ETO in December 20 -- 2001. And in order to facilitate the container traffic, they added a third lane in Panama. You have a regular, you have the Panamax, and then the Neo Panamax opened in summer of 2016.

However, this is not really a ordinary canal where you just go to a ship channel. This is actually more what I would call a water escalator. So, what it -- the Panama Canal does is you take a ship from either the Atlantic or the Pacific side, and you lift it up to well above ground level, and where you end up in this lake called the Gatun Lake. And then you take the elevator down again, and you go to the other side. So, either from the Atlantic to the Pacific side or the, all the way around. In normal operation, Panama Canal can facilitate up to about 40 daily transits. Usually, the name plate capacity is 36.

And then of those 36/40 daily slots, around 10 of them are for the new Panamax size. The bigger ships with a beam wider than 32.5 meter, but less than around 50 meters, which is most of the real disease except for the Panamax size. So, what has happened now is you have had a period with [Indiscernible] with we have had caused by Neo-Panamax in the past we had that in October 2022, and then we had the double Neo in ‘14, ‘15, ‘16. This was prior to the Neo-Panamax locks opening in Panama. So, when you have less rainfall, you are also not able to face enough fresh water in the Gatun Lake. So, in order to mitigate that, first they implemented draft limitations. And then now we have had a sharp reduction in allow daily transit where the daily transit will go from 36 to 40 down to ‘32, ‘28, ‘24, ‘22, 18.

And by February this will be at 18, which means that Neo Panamax slots will go from around 10 to five. So, you're cutting the capacity in half. And of those slots, container ships are being prioritized because they have a more valuable cargo and can pay a higher fee. Second, its LNG carriers, which also have a more valuable cargo than VLGC, and then VLGC are being prioritized out of the canal and are having to find all the routes or participating in auctions. So there has been a couple of special auctions lately, and we have set new records in terms of the price being paid to skip line. The recent record was $3.98 million being paid for a one-way transit northbound and as you can see from the data points there, they have gone rapidly up from typically below $500,000 to stabilizing, as I mentioned, briefly in the beginning at $2.5 million, $3 million on average.

So that means the waiting time has gone up, auction prices has gone up, and today, there is about 50 VLGC’s taking a route via serious Cape of Good Hope to US in the summer, June, July, this number was 10. So, the numbers of VLGC’s taking longer routes to US from Asia has skyrocketed. And this means because sailing distances is up, as I mentioned, 60 days perfect voyage from us to Japan. It's more like 90 days today with all the ships taking longer routes. This means fewer ships available in market. And it's the reason why freight rates are elevated, supported by the very high arbitrage from US.

So probably, so maybe look at the last slide before concluding. It's the order book. It's the typical slide for this segment. Order books been the real scale this year, scheduled delivery this year was 46. We said we actually -- one year ago, we didn't think that there will be 46 ships for delivery. We estimated around 35 to 40 ships for delivery this year, depending on based on market conditions. As we also had two or four ships delivery this year until next year. We will end up probably around four ships because the market is so strong now that you want to get your ship out and into the spot market or in order to capture these rate levels.

Then the order book will taper off with significantly pure deliveries in the coming quarters. So actually, the Panama congestion has come as a perfect time for the VLGC market. We have had no a year and a period with a very high growth in the fleet, which could have derailed the spot market but given the longer sailing routes. We have had we stressed the fleet out so that -- mileage effect has been mitigating the fleet route. And we do expect the problems in Panama to endure. The raining reigning season is only for two more months. There are limitations to how much they can get towards the level up again before they start consuming -- expect this to endure as a problem well into ‘24, and then we will see whether there will be another -- or not. But regardless of that, we have to keep in mind the canal was made for container traffic.

When the canal was expanded nobody foresaw that US would become the world's biggest LNG exporter, and by far the biggest LPG exporter in the world. So, it's really not scaled for this kind of goat in the US exports. So, we do expect Panama Canal to be a headache for VLGC owners in the future headache in the sense that they have to take longer routes, which is generally good for the market overall, given the on-mileage effects.

Also, what not thing, the dark fleets of VLGC’s trading in captive trade, typically, Iran to China that number of ships keep on growing given the export growth from Iran. And we now count 52% of the fleet being in this kind of trade and not being in the kind of international trade.

So, with that, I do think we can conclude today's presentation, which has been rather along. As mentioned, $55,300 on, TCE numbers impacted a bit by FFAs and then also the IFRS 15 on the load-to-discharge numbers. However, best number since 2015, year to date, $102 million already ahead of last year. And we do expect Q4 to be by far the best quarter for this year. We are in the process of selling Iris Glory once we fixed the final spot voyage. We have a refinancing place for Pampero Panama Canal will continue to be a bottleneck for the trade. And we are guiding numbers of 70,000 to 75,000 in CC for next quarter. And, with that, we are happy to continue paying very good dividends to our shareholders. $0.50 also for Q4 bringing the total to $2 the last 12 months.

So that's it. Maybe we could do some questions then.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions]. We'll now go to our first question. Please stand by. Our first question comes from the line of Clement Mullins from Value Investors Edge. Please go ahead.

Unidentified Analyst

Hi, Oystein and Randi, thank you for taking my questions. I wanted to start by asking about your Q4 guidance. I mean after the impact that the load to discharge accounting had on Q3 earnings, could you give us some commentary on whether we should expect a reversal, so a positive accounting effect in Q4?

Oystein Kalleklev

Yeah, we can start with that. I think actually if you look at some of the notes we have put in what we do expect this effect to be in Q4. So, you know, given that we are in a rising market, we don't expect this effect to be reversed in Q4. We do however expect effect to be significantly less than in Q3. So, if in one of the notes in the presentation we have put in that we do expect the IFRS 15 effect in Q4 to be negative by $2,000 per day, and we will first see a reversal of this effect once the market starts moving downwards, then we will have kind of on average a higher freight rates on the ships with a loaded cargo than the ships we are booking.

Unidentified Analyst

Makes sense. Thanks for the color. In the slide 15, you had an interesting graph with the market share of VLGCs, MGCs, and smaller vessels. The VLGC market share has increased a bit over the past few years, and as US exports continue to increase this trend could or should continue, could you give us some commentary on where you see that trend finishing out in the medium term?

Oystein Kalleklev

Generally, we have seen our trend towards bigger ships, VLGCs, especially US, it's mostly a VLGC market, Russia, which was, is actually our very small exporter of LPG, was mostly our smaller ships handy, midsize segment. So that, that volume has disappeared. I think for us it's, mostly interesting in the VLGC for the LPG market, and that's where we do see our competitive advantage.

However, we have invested in four MGCs, because these MGCs are both LPG and ammonia carriers. We do think that once the LPG trades are taking off, we do see more of that, more of those cargoes being put on MGCs with a smaller cargo size than our VLGC. That's why we found those ships attractive. That said, we do have ammonia capabilities on new billing five and six for delivery next year. Those ships can carry ammonia as well as LPG. So, but in general, we stay focused as our VLGC shipping company where we do find most of the action, but we added them MGCs, because of the fit for also the ammonia test and not least the good price point we got.

Unidentified Analyst

That makes sense. Thanks for all color. And final question from me actually, on the MGCs you ordered, the equity portion looks covered with existing cash position and proceeds from the sale of the Iris Glory. But I was wondering when should we expect financing to be announced for the vessels? And secondly, are you comfortable with your current fleet positioning or should we expect some additional acquisitions?

Oystein Kalleklev

Yes, financing wise, of course it's two years until delivery of the first MGC, and then three, almost three years until the last one. So, we have had several banks already knocking on this door and offering her quite attractive financing and more attractive than the one we did for Pampero actually, because this has to do also with the green credential of these ships. They make them very interesting for all of the banks to finance those ships. However, if we were to put in place financing days for those ships, we would have to pay commitment fees to banks for two up to three years. And we don't really see the value in locking in financing now and paying commitment fee for such a long period. We do have the equity from the cash position and the sales we have been announcing, and we rather do financing once we get closer to delivery.

At that time, we might also know better whether we have been able to secure long-term charters for the ships, because that will also affect both the leverage we can put on and possibly also the margin in case we have a very good counterparty. So that was question number one. Question number two was in terms of our fleet. Of course, we're always happy to a new build. So, we are in the middle of a new building program with two wheels for delivery next year, and then four MGC for delivery ‘25 and ‘26. So, we have been doing some contracting the last two years. But at the same time, we are also selling off ownerships in order to renew the fleet. We are open to continue doing that, but prices for new ships or new buildings now have become very elevated.

The odds are packed with the orders for container ship and LNGs, which is driving up the new billing price for VLGCs. As I mentioned, $115 million, $120 million for similar VLGC today, which we contracted at 80. And if you are adding this VLAC spec, the very large ammonia carrier, you can also be paying $125 million. So, we do think that it's a bit elevated, and we rather than focus on taking delivery of existing ships, if we find opportunities to add ships at attractive price points, we might do that. But that is something we are discussing with yards, and the brokers all the time to see if we find some, a good angle to do something. But right now, it focuses is to take delivery of existing ship and sell the last old ship.

Oystein Kalleklev

We had some chat questions as well, but maybe we have some more audio. Let's see.

Operator

At this time there are no further audio questions.

Oystein Kalleklev

Then I will just jump on some of these chat questions. Some of them are a bit long, but what are the key dates for the dividend?

I think we sent out a separate press release today with key information regarding the dividend with all the dates for record date, x date, and payment date. So, you should find them on a website unless you have them in the back of your head around there.

Randi Bekkelund

The dividend date is the 7th of December, followed by record date the 8th of December, and payment date is 15th of December. Right ahead of the Christmas holiday.

Oystein Kalleklev

And then we just pick a couple of do you see a fundamental driver for why FFA rates are lower in Q2 ‘24 than currently, despite the fact that Panama Canal restrictions increase in February as a good question.

So actually, we are nothing near the peak kind of bottlenecks in Panama. We expect the situation in Panama to kind of be, become tighter and tighter, and more ships having to balance around it. So yeah, you should think maybe then that the freight market should be even tighter. Freight market forward rates or FFAs are however, very much linked to the arbitrage. So, when we have a situation where the LPG product prices are in liquidation, meaning they are lower in February than they are today, then typically freight follows that pattern. And that's why the FFA, even though it's very strong for Q1. It's -- or the FFA or the forward rate curve is also in backwardation linking up with the product backwardation curve. So that is the main reason.

And then, of course, the FFA are not very -- not always very good at predicting the future. So, let's see. When we get to February, and we are reporting Q4.

We have one long questionnaire from Greg Miller and he writes very good articles in -- which I recommend to everybody to read. So maybe you can read it. I don't have my glasses with me.

Randi Bekkelund

It's the oxide scenario that Permian Basin M&A leads to higher US production. Even more US LPG becomes available for exports and at the same time, Panama restrictions length sailing distance and limit the number of available to load the increased volumes of US LPG available for export, thereby supporting high US inventories and low US LPG prices, which in turn supports arbitrage spreads. And that's, we'll just see freight --

Oystein Kalleklev

That's a long question. Actually, I did have a slide, which I took out the last night from the slide deck, which was about M&A activity in US shale industry. We have had two big mega-mergers recently. Both Exxon and Chevron have been buying up smaller players. So yes, we do see a trend towards consolidation on the shale side. And yes, we do think that will result in higher growth than maybe EIA is expecting because a lot of these smaller shell players have been kind of cut off from the financing market. And they have scaled back CapEx investments because investors has been forcing on them some more capital discipline than in the past. Of course, the big oil players like Chevron and Exxon, they don't really have the same kind of pressure from their investors to cut CapEx.

Actually, if something, maybe they get more pressure to invest, increase CapEx because to kind of increase the reserve ratio. And, a lot of these projects have a very good IRR. These bigger players also have access to cheaper financing. So yes, we do expect that with big mergers here, you could see increased drilling activity, and once you get the higher drilling activity, you get more associated gas. And with the build out of infrastructure, you will probably also have a higher recovery of gas in the associated gas, which is available then for exports.

So, it's a long way to say that we are quite optimistic about that. I do think the merger wave in US shale has just begin begun. I do think we will see more of it, because it's also a short cycle investment, you know, drilling offshore, oil well and getting that to production can take a decade with these wells in the Permian it's much shorter and a much shorter payback time, which fits better today in today's environment where a lot of governments are pushing for a pathway to net zero by 2015, then it's a lot less risky to, to actually drill wells with shorter lead time.

So yes, that's a roundabout way to say that we do, concur with your analysis in terms of the premise for the question. So, I guess with that three o'clock one hour, I think that is sufficient.

Thank you all for listening in. Randi and I will be back in February with stronger numbers. And in the meantime, you can enjoy your dividend coming a bit late for Black Friday, but still there are a lot of good shopping opportunities. So, thank you for listening in.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please stand by.

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Avance Gas Holding Ltd (AVACF) Q3 2023 Earnings Call Transcript