Höegh LNG Partners LP (NYSE:HMLP) Q2 2022 Earnings Conference Call August 24, 2022 8:30 AM ET
Company Representatives
Håvard Furu – Interim CEO, Chief Financial Officer
Conference Call Participants
Operator
Good morning, and welcome to the Höegh LNG Partners, Second Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions]. Please note, this event is being recorded.
I would now like to turn the conference over to Håvard Furu, Chief Financial Officer and Interim CEO. Please go ahead.
Håvard Furu
Thank you, Andrea, and good morning ladies and gentlemen, and welcome to the Höegh LNG Partners earnings call for the second quarter of 2022. My name is Håvard Furu and I’m the Chief Financial Officer of the Partnership and I also fill the role as Interim CEO. For your convenience, this webcast and presentation is available on our website.
Turning to page two in today’s presentation, we have an overview of the content of the presentation. I will start with some highlights from the quarter and then cover the quarterly financials. Thereafter, I will give a market update before summarizing the presentation.
Before we start, please take note of the forward-looking statements on page three and our glossary on page four.
Turning to page five and the highlights, I’m pleased to report that the fleet had 100% availability in the quarter. This resulted in total revenues of $36.9 million and a segment EBITDA of $31 million in the quarter. As of today the Partnership has not been materially impacted by the COVID-19 pandemic. Thanks to the hard work of our crew onboard and personnel onshore, the fleet is operating as expected.
Despite the pending arbitration with the charterer under the lease and maintenance agreement for the PGN FSRU Lampung, both parties have continued to perform their respective obligations under the agreement. No assurance can be given at this time as to the outcome of the dispute with the charterer. Until the arbitration is dissolved or dismissed, the subsidiary that owns the PGN FSRU Lampung is unable to transfer cash flow to HMLP. The refinancing of the Cape Ann debt facility which was agreed on December 15, 2021 was closed on June 1, 2022.
The partnership has established a record date of August 22, 2032 for a special meeting of its common unit holders, currently planned to take place on September 20, 2022. At this special meeting, the holders of the Partnership’s common units will vote on the previously announced proposed merger agreement with Höegh LNG, pursuant to which Höegh LNG will acquire the cash, all of the outstanding publicly held common units of the Partnership at a price of $9.25 per common unit.
Turning to page six, we are showing the overview of the Partnership to modern assets. The Partnership has approximately 8.3 years average reaming contract length and a full contract coverage until late 2026.
Turning to page eight, we have the key figures for the quarter showing an operating performance which was weaker than in the same quarter 2021, with a segment EBITDA of $31 million in the quarter compared to $34.2 million in the second quarter of 2021. The decrease is mainly due to increased administrative expenses and vessel operating expenses. The Limited partners’ interest in the net result was $9.2 million, up from a loss of $1.2 million in the same quarter 2021, which was impacted by negative effects from debt issuance cost and tax provisions.
Turning to page nine, we are showing the development in key measures over time, and as you can see from the graphs, the operating performance remains relatively stable. Two quarters have marked negative deviations, the second quarter of 2019 and the second quarter of 2021. In the first instance the deviation was primarily caused by the dry-docking and maintenance of the Höegh Gallant in 2019. The deviation in the second quarter of 2021 was primarily caused by a tax provision for previous periods, following the result of a tax audit which we disagreed to and have disputed.
Turning to page 10, we are showing the income statement in more detail. The total revenues of $36.9 million in the quarter was about $2.2 million more than in the same period in 2021. Vessel operating expenses of $7.6 million in the quarter were about $1.5 million more than in the same period of last year. The increase is primarily caused by $1.1 million in modification costs for the Höegh Gallant, of which 50% is expected to be reimbursed by Höegh LNG in the second half of 2022.
Administrative expenses of $6.5 million in the quarter were $3.7 million higher than in the second quarter of 2021. The increase is primarily caused by expenses incurred in relation to the proposed merger agreement with Höegh LNG.
Equity in earnings of joint ventures for the quarter was $4.5 million, an increase from $3.3 million in the same period of 2021. Unrealized gains on derivative instruments impacted the equity in earnings of joint ventures from the second quarter of 2022 and 2021 respectively. Excluding these derivative items, the equity and earnings of joint ventures would have been $3.7 million this quarter, an increase from $3.2 million for the same period in 2021.
Total financial expense of $5.8 million in the quarter equals a decrease of $4.4 million from the same quarter of 2021. The decrease is mainly expanded by debt issuance cost being expensed in the second quarter of 2021.
Income tax expense of $3.4 million in the quarter represents a decrease of $7.8 million from the same quarter of 2021. The decrease is mainly explained by significant provision for potential tax liabilities being expensed in the second quarter of 2021.
Turning to page 11, the balance sheet does not change much since year end 2021, with total liabilities and equity standing at $1 billion at the end of the quarter. The 85 million revolving credit facility from Höegh LNG, which is currently drawn with $24.5 million is now classified as current debts, as it matures on January 1, 2023.
Turning to page 13 on the LNG markets. Global LNG trade rose 4.5% in the second quarter of 2022 compared to the second quarter of 2021. Europe continues to be the driving the demand for LNG, on the back of the uncertainty around flow of Russia pipeline gas. The European LNG imports have increased by 52% in the first half of 2022 compared to the first half of 2021.
Turning to page 14, here we have two graphs illustrating the projected development in the global LNG markets from now until 2026. In the chart to the left, the incremental volume supply is projected for the most part to come from the USA and the Middle East. The recent surge in demand and higher LNG prices have led to more long-term LNG sale and purchase agreements concluded lately, bringing potential new liquefaction capacity closer to FID. Depending on construction time, this will potentially add to the long-term supply growth at the back end of this period.
The graph to the right shows the projected growth in LNG imports globally. As you can see, the global LNG demand growth is projected to remain robust, mainly driven by Europe and the Asian region. In the current geopolitical situation, European countries seem determined to secure both LNG and LNG import capacity to safeguard the energy supply and shift away from Russian pipeline gas. This has led to an increase in demand for FSRUs as import facilities from countries such as Germany, the Netherlands, Italy, Poland, Finland and others, typically looking to secure large capacity FSRUs with prompt delivery.
With that, I turn to page 16 for a summary, where I would like to highlight the following: 100% availability of the fleet during the quarter, segment EBITDA of $31 million in the quarter, refinancing on the Cape Ann debt facility closed on June 1, 2022, at a special common unit-holders currently planned to take place on September 20, 2022. The holders of the Partnership’s common units will vote on the previously announced proposed merger agreement with Höegh LNG, pursuant to which Höegh LNG will acquire for cash, all of the outstanding publicly held common units of the Partnership at the price of $9.25 per common unit.
The Partnership is expected to issue a final verse on the proxy statement in the next few days. We urge all our common unit-holders to study this in detail ahead of the special common unit-holder meeting.
With that, I would like to thank everyone for dialing in and participating on the call today. Thank you.
Operator
The conference is now concluded. Thank you for attending today’s presentation and you may now disconnect.
Question-and-Answer Session
Q –
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