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Edited Transcript of LPG earnings conference call or presentation 27-May-20 2:00pm GMT

Q4 2020 Dorian LPG Ltd Earnings Call

Stamford Jun 11, 2020 (Thomson StreetEvents) -- Edited Transcript of Dorian LPG Ltd earnings conference call or presentation Wednesday, May 27, 2020 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* John C. Hadjipateras

Dorian LPG Ltd. - Chairman of the Board, President & CEO

* John C. Lycouris

Dorian LPG Ltd. - CEO of Dorian LPG (USA) LLC

* Theodore B. Young

Dorian LPG Ltd. - CFO, Treasurer and Principal Financial & Accounting Officer

* Tim Hansen

Dorian LPG Ltd. - Chief Commercial Officer and Director of Dorian LPG (UK) Ltd

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Conference Call Participants

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* Chris Tsung

Webber Research & Advisory LLC - Analyst

* Eirik Haavaldsen

Pareto Securities, Research Division - Head of Research

* Omar Mostafa Nokta

Clarksons Platou Securities, Inc., Research Division - Head of Shipping Research & Analyst

* Randall Giveans

Jefferies LLC, Research Division - VP,Senior Analyst & Group Head of Energy Maritime Shipping

* Sean Edmund Morgan

Evercore ISI Institutional Equities, Research Division - Analyst

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Presentation

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Operator [1]

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Greetings, and welcome to the Dorian LPG Fourth Quarter 2020 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. Additionally, a live audio webcast of today's conference call is available on Dorian LPG's website which is www.dorianlpg.com.

I would now like to turn the conference over to Ted Young, Chief Financial Officer. Thank you, Mr. Young. Please go ahead.

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Theodore B. Young, Dorian LPG Ltd. - CFO, Treasurer and Principal Financial & Accounting Officer [2]

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Thank you, Christine. Good morning, everyone, and thank you all for joining us for our fourth quarter 2020 results conference call. With me today are John Hadjipateras, Chairman, President and CEO of Dorian LPG Ltd.; and John Lycouris, Chief Executive Officer of Dorian LPG USA. As a reminder, this conference call webcast and a replay of this call will be available through June 30, 2020.

Many of our remarks today contain forward-looking statements based on current expectations. These statements may often be identified with words such as expect, anticipate, believe or similar indications of future expectations. Although we believe that such forward-looking statements are reasonable, we cannot assure you that any forward-looking statements will prove to be correct. These forward-looking statements are subject to known and unknown risks and uncertainties and other factors as well as general economic conditions. Should one or more of these risks or uncertainties materialize or should underlying assumptions or estimates prove to be incorrect, actual results may vary materially from those we express today.

Additionally, let me refer you to our unaudited results for the period ended March 31, 2020, that were filed this morning as part of our earnings release on Form 8-K. In addition, please refer to our previous filings on Form 10-K and Form 10-Q where you'll find risk factors that could cause actual results to differ materially from those forward-looking statements.

With that, I'll turn over the call to John Hadjipateras.

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John C. Hadjipateras, Dorian LPG Ltd. - Chairman of the Board, President & CEO [3]

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Good morning from Stamford, Connecticut, and thank you for joining us. I will say a few words before Ted, who will review the financials with you, and John will then talk about the fleet and the market. And today, we also have with us on the line from Copenhagen, Tim Hansen, our Chief Commercial Officer, who will answer questions from you about the market, the current freight market.

In my prepared remarks for our last call on February 4, I said our outlook for the coming calendar year remains optimistic. The coronavirus is, of course, a potential headwind. That was 16 weeks ago. In the intervening period, my priority has been the safety of the 500 seafarers currently serving on board our ships as well as our shore-based staff and stakeholders. And I can report that our fleet has continued to operate, thanks to the dedication of our seafarers and colleagues onshore and that we are all safe though mindful of the new peril that surrounds us.

The most talked about disruption for us has been the difficulty to make crew changes. For a while, we could hardly make any. This inconvenienced both those who exceeded their contractual time on board and those ashore waiting to replace them, anxious to get back to work.

We are starting to see opportunities to carry out crew changes now. What was a simple task in the past has become a logistical challenge. Transporting a COVID-free seafarer through airports and launches to the ship, try to minimize exposure and striving to ensure that the ship remains disease-free is no simple task, as you can imagine.

It is encouraging, though, to start to return to a normality. One of our second engineers will shortly be going home to meet his new baby born at the end of April. I hope that you and all your families and friends are also safe and healthy.

Our financial year 2020 concluded March 31 was our best since 2016. Continued growth of seaborne trade of LPG, a somewhat restrained order book and renewed exports from the U.S.A. to China resulted in freight levels I would call good. These developments were supported by a continued expansion of U.S. shale production and of PDH demand in China and South Korea as well as continued inroads of LPG for residential use in India and other Asian countries.

The freight market was quite resilient and the TCEs were also underpinned by a lower bunker cost. In the quarter ended March 31, we achieved total utilization of 91.7% and a daily TCE revenue over operating days, as defined in our filings, of $51,888 a day, yielding utilization adjusted TCE, or TCE per available day, of about $47,594 a day.

April continued robust, and we estimate that we have 75% cover of the current quarter at near $50,000 per day. However, the current market, as expressed by the published Baltic Index, is now closer to $20,000 per day. We have read many forecasts ranging from little -- a little to very pessimistic. They're predominantly based on assumptions about a decline in U.S. shale production available for expert -- export.

I do not pretend to know which forecast to believe much less to make them. Will economic activity bounce or crawl back? Will there be permanent demand disruption? What I do know is that the order book is at about 12%. Propane as a fuel for several applications is among the most attractive options, avoiding greenhouse gas emissions, it produces fewer than gasoline, diesel and heavy fuel oil. And whereas natural gas, methane produces fewer per -- greenhouse gas per BTU than propane. If it released in air directly or from methane slip, it produces a global warming effect 25x that of carbon dioxide. LPG, as has been shown in India, can improve the quality of life for a very large part of the world's population.

Dorian has a young ECO fleet. Dorian has a strong balance sheet with leverage -- low leverage and good liquidity and no significant CapEx commitments. As we previously reported, we completed 2 strategically significant transactions during April 2020, a Japanese sale-leaseback, our 7th, and a refinancing of the commercial tranche of our main banking facility. These transactions increased our available liquidity, reduced our financing costs, extended the maturity of our debt and reduced our principal amortization.

We are optimistic on the fundamentals of the LPG trade and confident that Dorian LPG is well positioned to continue to provide safe, reliable, clean and trouble-free transportation for our customers and create value for our shareholders. Over to Ted to discuss our financial results.

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Theodore B. Young, Dorian LPG Ltd. - CFO, Treasurer and Principal Financial & Accounting Officer [4]

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Thanks. My comments today will focus on our recent financings and our unaudited fourth quarter results. For the discussion of our fourth quarter results, you may also find it useful to refer to the investor highlight slide posted this morning on our website. John just touched on the 2 strategically significant financing transactions we completed during April 2020. On April 23, we completed the sale-leaseback financing of the Cresques. After prepaying the debt on the ship, we netted $23.9 million in additional liquidity. With a floating rate of 250 basis points over LIBOR and an age-adjusted amortization profile of over 20 years, this financing represents attractive terms and met our goals of lowering our interest cost and extending the debt maturity in line with our strong balance sheet.

On April 29, we completed the refinancing of the commercial tranche of our 2015 debt facility. This transaction addressed a number of objectives. First, we turned out the next major refinancing to March 2025. And secondly, we added a $25 million revolving credit facility, which gives us access to additional liquidity should we need it. Thirdly, we achieved an immediate reduction in interest margin on our commercial tranche from 275 basis points over LIBOR to 250 basis points. We can also reduce the margin by an additional 10 basis points if we reduce the loan-to-value ratio on the vessels in this facility below 40%. Finally, we are extremely pleased to have added a sustainability feature by which we have the opportunity to reduce our interest margin further by achieving agreed levels of improvement in our average efficiency ratio which is part of the Poseidon Principles promulgated by the leading shipping banks, measures annual carbon emissions per deadweight ton and targets consistent year-over-year decreases in this ratio in line with IMO guidelines. Finally, the new facility reduces the mandatory amortization on the commercial tranche from approximately $12.3 million per year to $600,000. With these 2 financings now completed, we have reduced the principal portion of our cash cost per day by approximately $1,330.

Going forward, we will amortize about $9 million per quarter on the 2015 amended and restated facility and $4.3 million on all the Japanese financing arrangements. Thus in total, we will pay down $13.3 million per quarter or $53.3 million per year, which is down from nearly $64 million a year.

Again, turning to our fourth quarter results. We had a total utilization of 91.7% for the quarter and TCE per operating day of $51,888 a day, yielding a utilization adjusted rate of $47,594.

Our spot TCE, which reflects our portion of the net profits of the Helios Pool for the quarter, was $50,311 per day. Finally, to give you some additional insight into our overall spot chartering performance, the Helios Pool as a unit, encompassing about 35 ships, recorded a spot TCE, including contracts of affreightment of approximately $51,500 per available day for the quarter. Daily OpEx for the quarter ended March 31, 2020, was $8,556 per day, excluding amounts expensed for drydockings. It was $9,407, including those costs. OpEx per day, excluding the drydocking-related costs modestly increased compared to last quarter's $8,413 a day. Since the March quarter, though, had fewer calendar days than December quarter, total OpEx was roughly flat on an aggregate basis, again, reflecting our team's continued vigilance on operating costs.

Total G&A for the quarter was $5.7 million and cash G&A, i.e., G&A, excluding noncash compensation expense, was about $5.3 million. This level is generally consistent with our expectations for the first calendar quarter of the year.

Our reported adjusted EBITDA for the quarter was $67.2 million, which was a significant increase from the $14.1 million, excluding costs related to the unsolicited BW LPG Proposal recorded during the same quarter last fiscal year. The strong rate environment and lower G&A accounted for most of the improvement. Compared to the prior quarter, EBITDA increased $7.3 million in spite of modestly higher costs from drydocking.

Turning to our financing costs. We look at cash interest expense on our debt as the sum of the line items, interest expense, excluding deferred financing fees and other loan expenses and realized gain/loss on interest rate swap derivatives. On that basis, total cash interest expense for the quarter was $7.1 million, which was down about $300,000 from the prior quarter largely due to continued debt paydown and somewhat lower LIBOR rates. We continue to benefit from our hedging policy and the favorable pricing of our Japanese financings, leaving us with a current interest cost, fixed hedge and a small floating piece of 4.15%. For the coming quarter, with our new financings in place, we anticipate cash interest expense in roughly the same magnitude, approximately $7 million as the lower LIBOR margin will be offset by slightly higher debt balances given our lower amortization.

For the quarter, we had cash outlays for capital costs associated with drydockings of roughly $9.6 million or $4,398 per fleet day. Fleet day is, again, calendar days plus time charter-in days as those terms are used in our filings. Combined with amounts expensed during the quarter, our total drydocking cash outlay was $11.3 million. We also managed to repurchase $32.2 million of stock since the last time we reported in February, and that represents about 3 million shares. In total, we have now repurchased $49.3 million worth of stock, comprising 4.4 million shares or roughly 8% of the shares outstanding prior to the announcement of the buyback in August.

Turning briefly to our full year results. We reported total adjusted EBITDA of $232.8 million, the highest in our history, and adjusted net income of $130 million. To put those levels in historical context, our TCE per available day for fiscal year 2020 was $40,824 and our daily TCE in 2016, heretofore our best year, was $51,266. The increase in profits off a lower TCE reflects the improvements in our cost structure in the intervening years as well as an increase in available days.

For fiscal year 2020, we generated free cash flow, which we define as cash flow from operations less principal repayments before drydocking outlays, of $110.3 million and $85.2 million after all drydocking outlays, both expensed and capitalized. This equates to between $1.68 and $2.17 per share based on the shares currently outstanding. Our cash flow and liquidity remains strong. Since quarter end through to May 26, 2020, our restricted and unrestricted cash and short-term marketable securities balance is up to over $148 million. In order to assist you in your modeling, please note that our quarter ending debt balance, excluding deferred financing fees of $646.1 million, does not reflect the 2 transactions we completed in April. Those 2 transactions increased our total debt by $26.8 million although our net debt was unchanged because we retained the cash proceeds of the debt increase for general corporate purposes. We expect, therefore, our debt balance at June 30, 2020, to be approximately $660 million, again, excluding deferred financing fees. Although we currently hold a 76 plus percent economic interest in Helios, we do not consolidate its balance sheet accounts, which has the effect of understating our cash and working capital. Thus we believe it is used to provide some additional insight in order to give a more complete picture. As of Tuesday, May 26, 2020, the pool had roughly $13 million of cash on hand, reflecting the fact that the pool has just paid the distribution at the end of last week.

We feel that our liquidity and capital structure have positioned us well for whatever rate environment we face in the coming months, and we believe that allows our company to make capital allocation decisions from a position of strength. We still have over $50 million remaining under our share buyback authorization, and we also remain interested in accretive growth opportunities that meet our risk reward criteria.

With that, I'll pass it over to John Lycouris.

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John C. Lycouris, Dorian LPG Ltd. - CEO of Dorian LPG (USA) LLC [5]

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Thank you, Ted. Global LPG volumes during the first quarter of 2020 totaled 26.9 million metric tons, a 3.6% year-over-year increase while U.S. seaborne export volumes for the first quarter reached a record high of 11 million metric tons, which is over a 30% increase from the same period last year. VLGC liftings from the U.S. reached over 50 both in March and April, and the Middle East Gulf lifting reached 70 in April. So that's the highest level since June 2019 for the Middle East. Even though May has not concluded yet, we expect about 66 VLGC liftings from the U.S., slightly higher than May last year, while the Middle East liftings were lower at 52 -- 54 most likely on account of crude oil production cutbacks. Year-to-date seaborne exports of LPG from the U.S. were 5.3% higher than last year, while the Middle East has seen a 16.3% reduction year-on-year.

On the supply side, U.S. NGL exports have continued strong in 2020, with capacity and infrastructure additions remaining on schedule during this year by all major export terminals. Several projects related to dock expansions, additional fractionation capacity, pipeline commitments are all expected to complete during 2020 and early '21, perhaps at a slower pace. The COVID-19 lockdowns and the oil price collapse over the last few months have led to poor market fundamentals in the U.S. and caused early production shut-ins, refinery cutbacks, deferred drilling and reduced processing volumes, which supported the Mont Belvieu NGL pricing and also absorbed NGL inventory volumes which satisfied record export demand from 2 countries, which were preparing for lockdowns and for their inventory builds.

Although Chinese LPG imports declined last quarter mainly due to the COVID-19 lockdowns in that country, there was substantial demand growth from India, Japan, South Korea and Indonesia during the same period. India imports grew 7.2% to 3.9 million metric tons, while Japanese imports grew 13.2% to 3.1 metric ton -- million metric tons, and Korea imports grew 36% to 2.2 million metric tons. Northwest Europe and Mediterranean demand for U.S. LPG is expected to recover now that the markets in Europe gradually return from lockdowns. And with crude oil prices recovering to above $30 levels, we find the propane to naphtha spreads starting to turn in favor of LPG cracking economics. The VLGC fleet order book stands at roughly 12% or about 35 vessels according to Clarkson's. Only 4 ships have been ordered this year compared to 7 at this time last year.

The crude oil price collapse brought in lower bunker price to the shipping markets. The absolute bunker fuel price levels and spreads we saw earlier this year have shrunk, but in relative terms, they have remained the same. High sulfur marine fuel oil, HSFO, with 3.5% sulfur content, still trades at about 25% to 30% discount to the new IMO 2020 0.5% sulfur compliant fuel, also called VLSFO. All our scrubber equipped vessels will produce consistently higher TCEs as they continue to benefit from the relevant -- from the relative price discount spread of heavy marine fuel oil to those burning compliant fuel oils. Dorian remains committed to improving the environment, and I would note that scrubbers not only reduce sulfur oxides from vessel emissions, but also they deliver significantly reduction -- significant reductions in black carbon, any particulate matter emissions, particularly when compared with the emissions produced by very low sulfur fuel oils, which are normally blended and unstable to -- and other compliant marine fuels of IMO 2020. We also continue to monitor closely and evaluate the potential for LPG as fuel. The current prices might marginally appear to make economics more attractive. However, it is difficult to make a long term decision, given the volatility in the underlying hydrocarbon prices and more significantly -- the -- more significantly the capital investment required. Dorian LPG has currently in service 9 scrubber-fitted vessels, 7 of which were fitted with hybrid scrubbers during the last 8 months, also completing their first special survey and their drydockings. Two of those vessels also installed new ballast water treatment systems. We have now commenced the retrofit work on our tenth hybrid scrubber vessel, which is scheduled to complete next month, including completion of the first special survey in drydocking. Subject to market conditions in the second half of 2020, we are considering retrofitting scrubbers to those vessels which were originally committed when they are programmed to undergo their upcoming drydocking and special surveys. Thank you, and now I'll pass it over to John.

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John C. Hadjipateras, Dorian LPG Ltd. - Chairman of the Board, President & CEO [6]

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Thank you. We're ready to take questions from anybody who wishes to question us.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

Our first question comes from the line of Omar Nokta with Clarksons Platou.

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Omar Mostafa Nokta, Clarksons Platou Securities, Inc., Research Division - Head of Shipping Research & Analyst [2]

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Obviously, I would say, impressive performance on the spot market and very good results overall really despite a lot of disruptions, John, that you mentioned that we're seeing here these past few months. I have a couple of market-related questions, but also just wanted to ask about the refinancing here recently. You guys have unlocked a good amount of cash with the sale-leaseback and you deferred the maturities with the 2015 refi. Ted, you mentioned the annual repayments are now $53 million -- excuse me, from the 2019 10-K, you had $64 million due in fiscal '21 and $203 million in fiscal '22. Are both years now basically the $53 million?

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Theodore B. Young, Dorian LPG Ltd. - CFO, Treasurer and Principal Financial & Accounting Officer [3]

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That's correct, Omar, yes. We term -- the annual amort is now down to about $53.3 million from $63.9 million -- $64 million. And then most importantly, as part of the 2015 financing, we were able to extend out that maturity on the commercial tranche of our big facility to 2025. So yes, you're absolutely right.

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Omar Mostafa Nokta, Clarksons Platou Securities, Inc., Research Division - Head of Shipping Research & Analyst [4]

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Yes. And then -- right. Okay. And that includes the $53 million that includes the leaseback as well?

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Theodore B. Young, Dorian LPG Ltd. - CFO, Treasurer and Principal Financial & Accounting Officer [5]

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It does.

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Omar Mostafa Nokta, Clarksons Platou Securities, Inc., Research Division - Head of Shipping Research & Analyst [6]

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Okay. So I also just wanted to ask about clearly, the market backdrop that we're in. Clearly, you guys had a very strong performance in the first quarter. And John, you mentioned bookings, 75% of 2Q, I believe at $50,000 as we kind of think about how things are, and clearly, the markets dropped off into the low 20s per day, the OPEC+ cuts, when we think about it in the crude market, as, call it, 10 million barrels a day out of, say, global trade of 40 million barrels of crude. Can you give us maybe an order of magnitude of how this is affecting the LPG trade? John, I recall you mentioned in your remarks, about 42 liftings per month to 54. Do you mind just kind of going a little bit at that again and giving some perspective?

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John C. Hadjipateras, Dorian LPG Ltd. - Chairman of the Board, President & CEO [7]

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The way the question on the -- can you just repeat the last bit of your question?

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Omar Mostafa Nokta, Clarksons Platou Securities, Inc., Research Division - Head of Shipping Research & Analyst [8]

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Yes. Just basically trying to understand, when we think about the lost volumes that are coming as a result of, say, the OPEC cuts by those cells, what effect...

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John C. Hadjipateras, Dorian LPG Ltd. - Chairman of the Board, President & CEO [9]

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Okay. Okay. All right, Omar. Why don't we let Tim take that because he can give you a more current view of what's going on, and how it affects, more specifically, how it has been affecting the market in the last few weeks. Tim?

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Tim Hansen, Dorian LPG Ltd. - Chief Commercial Officer and Director of Dorian LPG (UK) Ltd [10]

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Yes. Yes I would say, of course, we're seeing these cuts also eating into the LPG volumes that is expected out of the U.S. I guess John mentioned earlier, it's a little bit early to say exactly how much because LPG, both origin from the crudes drilling and the LNG drilling and also the NGLs at the moment looks to be more profitable. So we're trying to figure out what -- if that is directly related to reductions that we will see out of the U.S. to the reduction in balance of oil drilled, but definitely see some changes. And we are already seeing that even though we have not seen cancellation yet. As I said, the NGLs actually seems to be of high-value comparator to the oil but you can say that there's probably almost figures from oil that there will be a shortage in the LPG markets due to high demand. So we expect that the -- you can say the reduction of the production will be somewhat offset also by, at the moment, you have high inventories that will be even through the year until the production starts recovering. But exactly how much, I mean, you're mentioning 10 million barrels of crude per day. Exactly. What that is based on fuel price or oil prices and so on, it's quite uncertain projections at the moment, I would say. That's what you think the price would be, yes?

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Omar Mostafa Nokta, Clarksons Platou Securities, Inc., Research Division - Head of Shipping Research & Analyst [11]

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Yes. That makes sense. I guess maybe -- just maybe thinking about the May lifting. I believe John Lycouris had mentioned 62 or 54 liftings for May. How does that compare to, say, the prior May? John, if you don't mind, just to give a perspective?

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John C. Lycouris, Dorian LPG Ltd. - CEO of Dorian LPG (USA) LLC [12]

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It was 52 -- it was 52 liftings the prior May. Sorry, I have a condensed chart somewhere. I will get it to you during the -- but it was a little bit lower. We thought it was on the back of production cuts and perhaps towards -- as we get into June, we will see whether this reduction in liftings will continue in the Middle East. We're just talking here. Tim talked about U.S. Gulf, and I think you are talking about the Middle East and true enough, Middle East has seen lower liftings this May. But I'll give you the number for last year, this May. If you carry on, I will come back.

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Tim Hansen, Dorian LPG Ltd. - Chief Commercial Officer and Director of Dorian LPG (UK) Ltd [13]

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But I think you can say the U.S. from -- oil drills from the U.S. gives more LPG than when you have production cuts in the Middle East. So the ratio of LPG per barrels drilled is different from U.S. and the Middle East.

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Omar Mostafa Nokta, Clarksons Platou Securities, Inc., Research Division - Head of Shipping Research & Analyst [14]

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Got it. Okay. And then sorry, just one -- maybe one more just on this because there's a lot of moving parts and a lot of whether -- you mentioned there aren't really cargo cancellations, but obviously, limited arbs and things happening very quickly and very fluidly, we've seen in, say, the product tanker space in the MRs and in Handies a lot of logistical issues with excess demurrage and waiting time. Is this something that's happening in the VLGC trade as well?

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John C. Hadjipateras, Dorian LPG Ltd. - Chairman of the Board, President & CEO [15]

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We saw a little bit on India when they closed down that they bought more cargoes to check in because they expected the demand to be higher when people were shut home. So they bought extra cargoes, which resulted in more waiting time in India. And then eventually, they deferred some of the cargoes back East where there is more storage and where we haven't seen those kinds of delays. But yes, you can see some surges for certain destinations where there will be a block up due to both lower offtake, especially like India where it's taken off on trucks and going through bottle plants and whatever, that is all not working efficiently in these times. So you could see congestions there -- we are already seeing that.

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Theodore B. Young, Dorian LPG Ltd. - CFO, Treasurer and Principal Financial & Accounting Officer [16]

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Omar, the liftings for 2019 May were 60 from the Middle East. And this -- looks like they are 54.

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Operator [17]

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Our next question comes from the line of Sean Morgan with Evercore.

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Sean Edmund Morgan, Evercore ISI Institutional Equities, Research Division - Analyst [18]

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So I just want to touch back. I think Ted mentioned that the interest rate on some of the new loans that were refinanced are -- there's a component of it that's tied to an environmental presiding principle type element. And I just wanted to figure out how material that is. And I think in the past, you talked about there are, I think, 16 VLGCs that you could potentially retrofit for LPG propulsion. And I note some of your competitors are kind of implementing that and pushing ahead with it. So just wondering if there's any kind of incremental savings that might be material enough to push you towards LPG, or whether you think you get enough benefit to realize those savings from scrubber retrofits alone? Or does this kind of change the strategy at all in terms of how you approach the environment and just propulsion of the vessels?

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John C. Hadjipateras, Dorian LPG Ltd. - Chairman of the Board, President & CEO [19]

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Ted will give you a little bit specific on what -- how the incentive -- what the incentive is in kind of percentage terms. But we, of course, are looking at the one competitor who is moving to retrofit ships. And others, of course, who are building ships that are LPG fueled. And it is -- and it's not something which we have excluded from possibilities of -- for ourselves. We were always interested in that LPG as an alternative fuel for the ships, and we continue to be. Until now we've chosen to be -- to have the advantage of a second mover. But we continue -- but we're very much aware of what's going on, in touch with the manufacturers, the shipyards, and we'll see. I don't know whether the banking is enough to incentivize, but Ted will tell you what comes out of...

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Theodore B. Young, Dorian LPG Ltd. - CFO, Treasurer and Principal Financial & Accounting Officer [20]

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Yes. I mean I think like any -- the short answer to your question, Sean, is it's a 10 basis point reduction in the commercial tranche of our facility, which represents about 1/3 of the entire facility. So it's more of a way that the banks are putting their money where their mouth is. And so we certainly support that. I think like any business decision that we make here, it's the economics that drive it. And if the economics of the investment are supported by the future fuel savings, then it's then, as John suggested, and we get -- we're comfortable with the technical aspects of it, then it's something we'll obviously look at. But the financing differential loan wouldn't drive the decision.

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Sean Edmund Morgan, Evercore ISI Institutional Equities, Research Division - Analyst [21]

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Okay. And did the banks give you an indication of what they view as the most green friendly? Or is it not that specific yet?

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Theodore B. Young, Dorian LPG Ltd. - CFO, Treasurer and Principal Financial & Accounting Officer [22]

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No, we just have to -- at this point, it's I think generally within the sustainability world, LPG seems to be viewed as a bridge fuel. So better than the existing alternatives, not as green as, I don't know, wind or solar or hydrogen or something, but those aren't really on the table at this point. And so the metric is really a calculation that measures our year-over-year average efficiency ratio across the fleet. And it's something we -- it's data we capture anyway. And the IMO has promulgated an improvement curve. And that's the basis on which this potential interest margin saving is calculated. So if we can hit the levels that are already out there, then we will enjoy further interest savings.

And I should be clear, it's up to 5 basis points year 1, 5 basis points year 2. So it's not 10 basis points all at one go, although we might try for that if we do a really good job on our emissions reductions.

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Sean Edmund Morgan, Evercore ISI Institutional Equities, Research Division - Analyst [23]

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Okay. And then it looks like you kind of -- in terms of the total year, you accelerated buybacks into your fiscal year 4Q, so 1Q calendar year. But if I look at the average price, I mean, I can kind of assume that some of it was done in January, February and some of it done more recently. So are you guys in light of potentially weaker VLGC rates and lower LPG exports, are you getting a little bit more cautious in terms of using that $50 million of buyback authorization still outstanding? Or do you -- you think you'll try and be aggressive in light of the lower share price.

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John C. Hadjipateras, Dorian LPG Ltd. - Chairman of the Board, President & CEO [24]

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We've always been cautious, and we look at it in terms of value and opportunity. So I think we will continue in the same way.

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Operator [25]

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Our next question comes from the line of Randy Giveans with Jefferies.

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Randall Giveans, Jefferies LLC, Research Division - VP,Senior Analyst & Group Head of Energy Maritime Shipping [26]

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Just following up on the question about kind of scrubbers and LPG dual fuel, what is the kind of cost differential for kind of adding those incremental scrubbers? I know I think you still have 2 plans for later this year versus possibly going on the dual fuel LPG side?

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John C. Lycouris, Dorian LPG Ltd. - CEO of Dorian LPG (USA) LLC [27]

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Okay. Well, Randy, it's significant enough to say that it's on the high single digits in millions of dollars, the differential. So it's over probably 6 to 10 maybe. We believe from what BW reported the other day, yesterday, they have -- it looks like it's over $9 million per ship and from what they reported. So but we believe it's a little bit more than that, perhaps or even over 10, but this is where we think this. But our interest remains. We will see how cost and pricing of the fuel develops. And in the meantime, the scrubber provides intermediate solution for us, which is very satisfactory compared to compliant fuels.

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Randall Giveans, Jefferies LLC, Research Division - VP,Senior Analyst & Group Head of Energy Maritime Shipping [28]

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Got it. Okay. And then just one more kind of general market question on possible expansion or just a completion, I guess, of the Mariner East 2 and 2X and kind of coming out of Marcus Hook up there as well as kind of Pembina project on the West Coast of Canada. Have you heard any updates about either of those for this year?

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John C. Lycouris, Dorian LPG Ltd. - CEO of Dorian LPG (USA) LLC [29]

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Nothing was found out in the public...

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John C. Hadjipateras, Dorian LPG Ltd. - Chairman of the Board, President & CEO [30]

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Tim, let Tim take that.

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Theodore B. Young, Dorian LPG Ltd. - CFO, Treasurer and Principal Financial & Accounting Officer [31]

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Tim, are you?

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Tim Hansen, Dorian LPG Ltd. - Chief Commercial Officer and Director of Dorian LPG (UK) Ltd [32]

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Yes. I -- so as far as we hear, the Mariner 2 is still moving ahead and should come on later this year, which is also, I think, we haven't heard of more delays, but of course, there has been a lot of last-minute problems there before, so -- but so far, it seems to be on time now. And out of Canada, I have heard no news on the Canada project. Well, of course, we have seen kind of the price changes and the shut-ins of trading and so on that could, of course, impact, but we have no particular figures on that.

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Operator [33]

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(Operator Instructions) Our next question comes from the line of Eirik Haavaldsen with Pareto Securities.

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Eirik Haavaldsen, Pareto Securities, Research Division - Head of Research [34]

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Just one question on the time charter-in strategy. What's -- how -- I mean you added another one now. Can you first give an indication on the rate on that second one? And secondly, what is the strategy here? Is it always going to be to balance your charter-out coverage with new ships or the other way around or -- because this is obviously adding a layer of risk to the setup in a way?

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John C. Hadjipateras, Dorian LPG Ltd. - Chairman of the Board, President & CEO [35]

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Yes. Yes. I mean I think Tim is perfectly able to give you what goes into our thinking with respect to charter-in and charter-out.

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Tim Hansen, Dorian LPG Ltd. - Chief Commercial Officer and Director of Dorian LPG (UK) Ltd [36]

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Yes. I think these ships that has been added this year has been done, yes, a while ago, one was a new building, so contracted and termed up a few years ago. And the last one, at least, yes, 6 to 8 months ago, I think we concluded the contract. So I can see that the time charter-in has been more opportunistic, where we have seen -- where we thought the market will go and was confident to increase the exposure a bit. And then we have chartered out also you can say, to balance this a little bit and lock in a margin or if you have to have any changes in the markets to charter-out. And also, you can say the periods are different. So the time charter-out that is done through the pool is very short term. So 6 to 18 months. And then the time charter-out that we have done a store and it's more, you can say, 3-year or plus years where it's more like a financial decision to lock in something. Since locking something little bit...

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John C. Hadjipateras, Dorian LPG Ltd. - Chairman of the Board, President & CEO [37]

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And there is also -- I just want to add -- yes. And I just want to add, there is also a strategic element to chartering out. If a good customer requires a long-term charter, we -- there is that aspect to it as well.

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Eirik Haavaldsen, Pareto Securities, Research Division - Head of Research [38]

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Understood. But sort of -- I mean, where is the 3-year time charter today? And where was it back in February, so to say?

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John C. Hadjipateras, Dorian LPG Ltd. - Chairman of the Board, President & CEO [39]

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Where is it? And how do you mean where is it? Is it above or below the current market?

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Eirik Haavaldsen, Pareto Securities, Research Division - Head of Research [40]

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What are you paying? I would obviously assume it's above the current market, but where -- if you can be a little bit more specific.

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John C. Hadjipateras, Dorian LPG Ltd. - Chairman of the Board, President & CEO [41]

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It is -- I don't know that we can be more specific because we have confidentiality clauses. And it has been considerably below the market. And now it may be -- if the market is in the 20s, it probably is below -- above the market, but not by very much. The thing is that we have this question often, and this is one of the disadvantages of -- or a disadvantage of reporting on a quarterly basis because deals like this basically can only be reconciled at the end of the day. You can have, including charter-out or charter-in. Last year, we had ships chartered out and end of the calendar year, they were very deeply out of the money because the market had gone up to the $60,000, $70,000 levels, and we were fixed in the 20s. And in the meantime, however, those ships in the early part of that period, were providing a very good cash flow buffer for us. So it's very difficult to look at these on a kind of flash basis. You have to look at it in a consistent -- do you know, over time on a rolling basis.

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Eirik Haavaldsen, Pareto Securities, Research Division - Head of Research [42]

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No, I agree on that. But just if we can maybe understand a little bit more the strategy because is this an intention to kind of continue to build on this, expand the fleet via time charter-in agreements because, obviously, now with rates being a little bit lower, and you can say there should be ample opportunity to charter-in ships at rates that at least 3 months ago seemed attractive. I don't know, I'm just trying to kind of understand.

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John C. Hadjipateras, Dorian LPG Ltd. - Chairman of the Board, President & CEO [43]

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Yes. Ted is just pointing out to me.

Yes. Ted is pointing out to me that we can disclose the number.

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Theodore B. Young, Dorian LPG Ltd. - CFO, Treasurer and Principal Financial & Accounting Officer [44]

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Well, you can calculate it, Eirik, from the numbers that we've disclosed. So it's fair to say that it's 24 to 26 a day, call it, 25 in change or so, 25-ish a day. You can extrapolate that from the numbers we've disclosed.

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John C. Hadjipateras, Dorian LPG Ltd. - Chairman of the Board, President & CEO [45]

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On your next question, our chartering window is open, and Tim can tell you, whether can tell your chartering people to give us a call or not.

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Tim Hansen, Dorian LPG Ltd. - Chief Commercial Officer and Director of Dorian LPG (UK) Ltd [46]

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Yes. I think as a strategy also, so we took a longer term time charter from a new building, is that to have a mixed portfolio of owned and TC tonnage. So yes, if there are opportunities, we can look at it if it really makes sense. And as you say, rates are probably lower than they were a couple of months ago.

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Operator [47]

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Our next question comes from the line of Chris Tsung with Webber Research.

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Chris Tsung, Webber Research & Advisory LLC - Analyst [48]

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So I just kind of wanted to get a couple of questions on the scrubber program going in. I know there's a fine to retrofit 12. We've done 10. There's about 2 left for the rest of the year. I mean given the spread on bunker prices and the benefits you get from lower emissions and the black smoke and everything, are there plans to when to spend it because the spreads aren't there or maybe perhaps expand it to kind of meet my next question, which is the sustainability metric that you guys are trying to hit on that refinancing?

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John C. Hadjipateras, Dorian LPG Ltd. - Chairman of the Board, President & CEO [49]

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We are doing one ship now. So we have further 2 scrubbers to fit. And several ships due for drydocking this year. So in time, when the ships go to drydock, we will decide whether to fit them or not to fit them. We may fit them this year or we may defer and do it at a later time on ships that we're drydocking next year going forward. But we have it under review, as you said, the spread is closed in a lot. So we're happy to have the scrubbers that we have on board because we still have the saving that they produce. And if the market is closed, is $20,000 or close to $20,000, $3,000, $4,000 a day is a lot -- makes a lot more difference than it does between 50 and 55.

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Theodore B. Young, Dorian LPG Ltd. - CFO, Treasurer and Principal Financial & Accounting Officer [50]

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Yes. And you had a follow-up. You had another question, Chris about the financing?

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Chris Tsung, Webber Research & Advisory LLC - Analyst [51]

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Yes. Just one more on the scrubber. Just I know last quarter that they were being done like around 35 -- 33 to 35 days. And I know the shipyards were having trouble due to corona, has there been any sort of delays, the one that's in drydocking on constitution, is this -- are we still aiming for like the 33, 35 days?

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Theodore B. Young, Dorian LPG Ltd. - CFO, Treasurer and Principal Financial & Accounting Officer [52]

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It is aimed to be at 40 days. That's the plan. We are hoping to do it sooner, Chris.

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Chris Tsung, Webber Research & Advisory LLC - Analyst [53]

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Okay. Makes sense. And yes, for the financing, I guess, I was wondering if you can go into a little bit more detail. I think Sean covered this earlier, but for the average efficiency ratio, I mean, is it based off a certain benchmark or is in absolute unit? You have specific unit gram of CO2 per ton-mile that you guys are trying to achieve. I just want to get a sense of like what are the goals here that either you've set or the bank has set that you guys are trying to achieve?

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Theodore B. Young, Dorian LPG Ltd. - CFO, Treasurer and Principal Financial & Accounting Officer [54]

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It's about -- it's really IMO guidance, it's not the guidance the bank set. It's about a 2.7% reduction per year. And it's based on the deadweight of the ship. There's a metric that the IMO puts together and we -- and on a -- for a ship of this much deadweight, this is the kind of emissions that you ought to be targeting. When we file the 10-K in a couple of weeks, the loan agreement will be appended as an exhibit, and there's a couple of pages that outline the terms there. And I think it's probably best that we not get into the details until we disclose it, not because there's anything so exciting or incendiary but I don't need to file an 8-K in advance of filing my 10-K. So I think there's plenty of meat in there. I guess I'd be -- I guess, to give all credit where it's due, ours look similar to what International Seaways did. That seems to be a market -- that seems to be kind of a market standard.

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John C. Lycouris, Dorian LPG Ltd. - CEO of Dorian LPG (USA) LLC [55]

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Chris, it's just based on the energy efficiency operational indicator or in short called EEOI. Most of the people use that, and it has to do with the CO2 emission per unit of transport work done, if you want to know. But you will see more details, I'm sure, in the press and in our filings.

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Chris Tsung, Webber Research & Advisory LLC - Analyst [56]

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All right. Yes, great. I mean I know you guys may have seen that we put out like a sustainability report in our corporate score card and it's something that I'm digging into right now. So I was excited about this sorry, but more color than I achieved is necessary. And I guess just for like the last question that I have is the 40% LTV for margin reduction, is it -- is that still sort of tethered to the NAV at the date that the deal was done? Or is it like more or less floating where it's above 41% or 40%, it goes up 10 basis points, it's below, then it drops down and it changes quarter-over-quarter?

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Theodore B. Young, Dorian LPG Ltd. - CFO, Treasurer and Principal Financial & Accounting Officer [57]

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Not quite. It's tethered to the actual LTV at every quarter based on the vessels in the security package and that amount of debt. There's a -- there's sort of a no foul -- no harm, no foul range, which is between 40% and 60% or 59.999%. There's -- it's 2.5 -- 250 basis points. If it goes above 60 or below 40, that's when the benefits kick in. So there's sort of a wide range of LTV before there's a change in the -- before there's a change in the margin.

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Chris Tsung, Webber Research & Advisory LLC - Analyst [58]

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I see, I see. 20% band. Got it. Great.

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Operator [59]

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We have no further questions at this time. I would now like to turn the floor back over to management for closing comments.

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John C. Hadjipateras, Dorian LPG Ltd. - Chairman of the Board, President & CEO [60]

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Thank you all very much, and have a good -- stay safe. Have a good summer and talk to you soon. Bye-bye.

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Operator [61]

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Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.