Capital Clean Energy Carriers : CCEC Q1 2025 Conference Call Transcript

Published: 2025-05-09 11:55:09 ET CCEC

Published on 05/09/2025 at 11:55

Brian Gallagher - Executive Vice President, Investor Relations Jerry Kalogiratos - Chief Executive Officer

Nikos Tripodakis - Chief Commercial Officer

Jon Chappell - Evercore

Liam Burke - B. Riley Securities

Alexander Bidwell - Webber Research and Advisory Omar Nokta - Jefferies

Climent Molins - Value Investor's Edge

Thank you for standing by. And welcome to Capital Clean Energy Carriers Corp. First Quarter 2025 Financial Results Conference Call. We have with us Mr. Jerry Kalogiratos, Chief Executive Officer; Mr. Brian Gallagher, Executive Vice President, Investor Relations; and Mr. Nikos Tripodakis, Chief Commercial Officer.

At this time, all participants are in a listen-only mode. There'll be a presentation followed by a question-and-answer session. [Operator Instructions] I must advise you that this conference is being recorded today, Thursday, May 8, 2025.

The statement in today's conference call that are not historical facts, including our expectations regarding acquisition, transactions and their expected effects on us, cash generation, equity returns and future debt levels, our ability to pursue growth opportunities, our expectations or objectives regarding future distribution amounts, all share buyback amounts, capital reserve amounts, dividend coverage, future earnings, capital allocation, as well as our expectations regarding market fundamentals and the employment of our vessels, including redelivery dates and charter rates, may be forward-looking statements as such, as defined in Section 21E of the Securities Exchange Act of 1934 as amended.

These forward-looking statements involve risks and uncertainties that could cause the stated or forecasted results to be materially different from those anticipated. Unless required by law, we expressly disclaim any obligation to update or revise any of these forward-looking statements, whether because of future events, new information, a change in our views or expectations to conform to actual results or otherwise. We make no prediction or statement about the performance of our common shares.

I would now like to hand over to your first speaker today, Mr. Brian Gallagher. Please go ahead, sir.

Thank you, Operator. Good morning and afternoon to whoever you are and thank you for listening to the Capital Clean Energy Carriers Q1 2025 earnings call. As a reminder, we will be referring to the supporting slides available on our website as we go through today's presentation.

Let's start then on Slide 4 with the highlights. The first quarter of 2025 was an important quarter for the company in many respects. Firstly, net income from operations for the quarter amounted to just under $81 million, including a $46.2 million gain from the sale of two container vessels. This is included in the release earnings in our discontinued operations. These are the last two of the five 5,000 TEU containers that we agreed to sell last year, and they were delivered to their new owners during this quarter. Overall, we have raised a total of $472.2 million in net proceeds from the sale of 12 container vessels since December 2023 and have recycled this capital into our focus on gas transportation assets.

Another key development for the quarter is that we have secured employment for two of our newbuilding LNG carriers for five years and seven years, respectively, both with an additional five-year option. My colleague, Nikos, will cover that in more detail later.

What is more, during the first quarter of the year, the LNG carrier, Axios II, commenced its seven-year bareboat charter, where the charter has the option to extend by an additional three years. The new charters, in addition to certain options exercised by one of our charters, has increased our firm charter backlog to $3.1 billion.

We believe that these charters further corroborate our view on the positive fundamentals of the longer-term LNG shipping market and provide our investors with visibility into both employment prospects and cash flows, well in advance of our first LNG newbuilding delivery.

With that, I'll now turn it over to Chief Executive, Jerry Kalogiratos and Nikos Tripodakis, our Chief Commercial Officer, for the remainder of the presentation.

Thank you, Brian, and good morning to everyone listening in today. It has been, indeed, a very busy quarter across all fronts, and is also reflected in our financials, which you will find on Slide

6. As Brian pointed out, we derived a further $46 million in one-off gain this quarter from completing the sale of the last two out of the five container vessels we agreed to sell last year. We will continue to be opportunistic about the sale of the three remaining container vessels, as these are modern eco-vessels with long-term cash flow attached.

The dividend, as we discussed in the last call, is a core component of the company's value proposition to shareholders and making this quarter the 72nd consecutive quarter that the company has paid a cash dividend.

Turning to Slide 7, we can see that our capital base continues to consolidate, and we await the next schedule of ships to be delivered next year. Our cash position continues to be solid, supported by the completion of two further container sales, bringing total cash to $420 million. With a great deal of uncertainty and volatility injected into capital markets in recent months, money markets continue to factor in almost 100 basis points in interest rate cuts by the Fed during 2025, and we take this opportunity to remind investors that CCEC could be a beneficiary of such a move, given 80% of our funding is on floating rates.

Finally, our balance sheet is strong, which is important within the business we operate, but the main development for this quarter is a reduction of our open LNG carrier exposure by one-third and enhancing the contract flex of our existing LNG charter book. We expect these developments to further enhance our financial flexibility. I will now turn to the more strategic matters on Slide 9. Our average charter duration now stands at 7.3 years across the fleet, with our LNG fleet showcasing a charter backlog of 91 years or $2.8 billion of contracted revenue.

As you can see at the bottom of the schedule, two of our six LNG carriers under construction have now been placed on an energy supermajor for five years and seven years, respectively, with options to extend both charters by a further five years. This is in addition to certain options exercised by one of our charters for three existing vessels. This translates into an average daily time charter equivalent for our fleet across the firm charters of approximately $87,300 or $91,150, that is per day, including all options. In summary, our charter book continues to expand as we work towards fixing term employment for the remaining assets in our fleet.

Turning now to Slide 10 and looking at the contracted revenue base in more detail. The impact of these charter extensions and the two new charters has boosted our total contracted backlog, including our container vessels, to $3.1 billion or $4.5 billion should all options be exercised. The pie chart illustrates the breakdown of our total time charter revenue base using the firm charter periods. This remains a core strength of our proposition as a company, that is, counterparty diversity.

You will note a slight departure from earlier presentations, where we included the names of all our counterparties. As our counterparties have increased, and also in an effort to preserve confidentiality of certain commercial agreements, we have moved this to a more simplified format. It is important to highlight here that the LNG shipping industry charters are typically supermajors and other national or international energy companies, utilities, traders and liquefaction plant operators with high credit credentials.

Overall, when it comes to CCEC, no single counterparty represents more than 20% of the $3.1 billion contracted revenue backlog. This diversity provides the company with a very strong framework to build our gas transportation portfolio further, with a mix of existing corporate relationships and new customers. I will finish off this section now with a quick look at our newbuilding CapEx program and our expectations with regard to its financing, described with more detail on Slide 11. So, we ended the quarter with $420 billion cash on our balance sheet, which provides a solid buffer for the business. Clearly, our recent contract wins and option declarations, as we have stated previously, give us further financial flexibility.

From our newbuilding program of $2.3 billion underway, we have already paid advances by quarter end to the tune of $467 million. Assuming we finance 70% of the acquisition price of the LNG carriers and 60% of the other gas vessels, with debt amounting to approximately $1,560 million, that would leave us with an excess equity of $105 million, as Slide 11 shows, that is, without taking into account cash flow generation from our existing fleet. I would like to turn now to our Chief Commercial Officer, Nikos Tripodakis, who will run through our LNG market slides. I will be available to answer your questions at the end of the call. Nikos, over to you.

Thank you, Jerry, and good morning or afternoon, everybody. There are two important issues to deal with before I move on to the market-focused commentary on LNG. Firstly, the effect of the

U.S. trade representatives' recently announced support fees. These are the fees that the new

Trump administration has proposed to be levied on ships entering U.S. ports and which have been substantially reduced in their potential impacts from the original proposals.

As far as LNG shipping is concerned, we expect minimum impact. The U.S. is targeting a rising percentage of U.S. LNG exports to be transported on U.S. flags, operate it or build LNG carriers from 2028 onwards, and until then, LNG shipping is exempted from any such levy. In any case, CCEC is heavily insulated against this development, as none of our LNG fleet on the water was built in China and none of our six LNG carriers under construction are being built in China either. Moreover, we view any theoretical suspension of LNG export licenses as a low-probability scenario and the exact mechanisms of such suspensions are still unclear. So, as far as the effects of USTR port fees are concerned, in our view, our business model is unaffected for now, but we will, of course, continue to closely monitor any developments.

Moving on to the impact of tariffs. As Slide 14 shows, it is perhaps counterintuitive for the U.S., the largest LNG exporter, and China, the world's biggest importer, to have little direct LNG traffic between them. However, this has been increasingly the case, as the graph on the left-hand side shows. Indeed, there have been no direct cargo from the U.S. to China since February, and trade has been modest in recent years between the two nations.

We summarize our thoughts on the medium- and longer-term potential impacts from tariffs on the right-hand side of Slide 14. A positive development in this situation could be the signing of bilateral agreements between the U.S. and other nations with the aim to alleviate tariffs and balance the trade deficit with the U.S. More sale and purchase agreements for U.S. LNG projects will facilitate new final investment decisions, and as such, significantly boost demand for LNG trade. A potential headwind, if tariffs persist, however, could be the rising cost of real LNG projects looking to reach that FID.

The financing, operational and capital funding costs for U.S. projects have risen since the pandemic, and the effect of tariffs is likely to further increase this cost and potentially delay FIDs. This remains a fast-moving, complicated and very important issue, and we will be looking forward to update investors.

Turning now to the LNG market itself. On Slide 15, we have highlighted three key areas. Point number one illustrates that newbuilding prices remain firm. There was a single order for an LNG vessel during Q1 for a reported price north of $260 million. Prices for newbuildings have been above $250 million since February 2023, according to brokers, and have not been affected by the weakness in the sports market throughout 2024 and 2025. This trend is now further expected to increase due to Trump's regulatory release for U.S. LNG projects on the one hand and port fees on Chinese-built ships on the other.

On the first point, we have seen multiple new sale and purchase agreements signed since the beginning of the year, as well as the first final investment decision since 2023 from Woodside on the $16.5 million-per-hour Louisiana LNG project. On the second point, the U.S. trade representative's-imposed port fees on Chinese-built vessels is expected to increase demand for Korean-built vessels, and as such, strengthen newbuilding prices further.

Point number two on the graph on Slide 15 illustrates that the longer-term time charter market has remained almost immune from the volatility and largely downward movement in sports rates over the past 12 months to 18 months. 10-year rates remain in the high $80s to low $90s range. As with the strength of newbuilding prices, long-term rates continue to reflect the fact that despite

the weakness in the front of the curve, the LNG shipping market has and continues to be short modern tonnage from 2026 and 2027 onwards.

Lastly, point number three shows how short-term time charter rates have been recovering from the lows we saw in January. While the scale on this chart does not illustrate the scale of this recovery, sports rates have increased by around 300% from below $10,000 per day in January to around $40,000 per day at the end of April. This recovery has been a combination of an increase in sports requirements throughout the first quarter, windows of open arbitrage to Asia, which removed shipping links in the Atlantic basin as vessels repositioned East and also reduced appetite from charters to regulate their own tonnage.

And finally, as is illustrated in the next chart, an increase in the number of idle steam and tri-fuel [ph] vessels.

Looking now at Slide 16, we can see the LNG vessel supply dynamics. Slide 16 illustrates the effect that the weakness in the current spot market has had on older tonnage and how operators of such tonnage are responding to the low charter rate environment. On the left-hand side, we can see the percentage of idle steam and tri-fuel vessels, with idle being defined as vessels being static for 14 days or longer. It is clear that there has been a steep increase in the percentage of idle vessels throughout the past year, as the percentage of both idle steam and tri-fuel vessels is currently the highest it has been over the past five years for both vessel types.

According to market analysts, at the end of Q1 2025, the number of idle steam vessels reached 41, up from 19 in Q3 2024, while 18 tri-fuel vessels were idle at the end of Q1 2025, from only two in Q3 2024. Moreover, there are some interesting points around scrapping, as we can see on the chart on the right-hand side. Firstly, while relatively small in absolute number, 2024 saw a record number of LNG vessels being scrapped.

Secondly, Q1 2025 has already seen the highest number of scrapping of any quarter, with three vessels sold for demolition, a number that, if annualized, would mean that 12 LNG vessels will exit the fleet, which is a 50% increase from the previous record year. In conclusion, the combination of record high idling and scrapping of older vessels supports our view that in the current energy market, where large, efficient and regulation-compliant vessels are required, there is limited room for older ships.

Moving over to Slide 17, we can see what is, in our view, a relatively neutral approach to the LNG shipping supply and demand balance projection. The approach in this chart is holistic, aiming to consider all parameters that affect both the supply and the demand side. The basic premise under this analysis is that only projects that have reached FID are considered on the demand side, and only vessels that are unloaded are considered for the supply side. With relatively conservative assumptions around vessel scrapping and tonne mile demand, both in terms of East-West arbitrage and transiting through Suez, we can see that towards the end of 2026 and the very beginning of 2027, the market is balancing.

From Q1 2028, the market becomes significantly short modern tonnage, with a deficit reaching approximately 100 vessels by 2029, once we add the recent FID on Woodside to Louisiana LNG. This deficit could widen even further by 2029 to 2030, if we consider the circa 80 million tonnes per annum of pre-FID projects, and the fact that there is limited yard capacity available, especially until 2030.

As we all know, this analysis is multivariate and can be affected by many parameters. However, it is a strong view that there is a significant upside from this base case. As an example for this, if

Disclaimer

Capital Clean Energy Carriers Corp. published this content on May 09, 2025, and is solely responsible for the information contained herein. Distributed via Public Technologies (PUBT), unedited and unaltered, on May 09, 2025 at 15:54 UTC.