Navigator Holdings Conference Call for the Second Quarter 2022 Financial Results. We have with us Mr. Dag von Appen, Chairman; Mr. Mads Peter Zacho; Navigator’s new Chief Executive Officer; Mr. Niall Nolan, Chief Financial Officer; Mr. Oeyvind Lindeman, Chief Commercial Officer; and myself, Randy Giveans, Executive Vice President of Investor Relations and Business Development in North America. I must advise you that this conference is being recorded today. As we conduct today’s presentation, we will be making various forward-looking statements. These statements include, but are not limited to, future expectations, plans and prospects from both a financial and operational perspective, and are based on management assumptions, forecasts and expectations as of today’s statements, and, as such, are subject to material risks and uncertainties. Actual results may differ significantly from our forward-looking information and financial forecast. Additional information about these factors and assumptions is included in our annual and quarterly reports filed with the Securities and Exchange Commission. With that, I now pass the floor to our Chairman, Mr. Dag von Appen. Please go ahead, Dag.

Thank you, Randy. Can everyone hear me well? I hope yes. Good day to everyone. Welcome to the Navigator Gas second quarter earnings call. Today’s call will include comments from our senior executive team, including Niall Nolan, our Chief Financial Officer; Oeyvind Lindeman, our Chief Commercial Officer; and for the first time since his appointment, Mr. Mads Peter Zacho, Chief Executive Officer of the company. With the merger between Ultragas and Navigator now behind us, we are benefiting from the synergies our two companies have brought to one another. We can appreciate this in terms of a better and more flexible service offering to our clients, increasing revenues, more efficient operations, improving cash flow, and finally, a stronger balance sheet that will allow us to tackle upcoming opportunities. On behalf of the Board of Directors, I would like to thank all the staff at Navigator for their continued hard work during the quarter. Today, on this call, I am joined by Niall and Oeyvind, who have been part of Navigator’s successful expansion from a small company operating five ethylene ships, and since the merger, working very closely together with Michael Schrader, our Chief Operating Officer. The three together have been efficiently leading as a team, the merged companies for the last 10 months. But now, I am very glad to welcome and present our new CEO, Mads Peter Zacho. After careful and many in-person meetings, we now know Mads well and are certain he is the right person to join our executive team to lead Navigator during the next phase. The next decade for shipping in general and for Navigator in particular, are going to be very interesting and challenging. I can without a doubt tell you it will bring several profitable growth opportunities for our company. Mads has joined us from the Mærsk Mc-Kinney Møller Center for Zero Carbon Shipping, where he was Head of Industry Transition. With a long career in shipping, including Mærsk, J. Lauritzen, TORM, and Svitzer, and deep corporate experience, we are well placed to transition into a new exciting period of growth with Mads at the helm, and we look forward as a Board to continuing to work closely with him and the executive team in the coming years. With that, I will hand over to Mads, who can introduce himself and give us some comments before we move on with the formal proceedings of this earnings call. Thank you.

Great. Thank you, Dag, for the introduction and the kind words, and good morning to you all. Before I begin, I’d like to first express my gratitude to the senior executive committee who’s been leading Navigator prior to my appointment. Oeyvind, Niall, and Michael Schrader have stepped up to jointly fill the role at the senior management team since late 2021, driving Navigator to achieve new records. They have not only maintained our stated goals but have also driven some of the strongest operational performances as a company at the same time. This speaks volumes to their capability, tireless work, and commitment to this company, and for that, I cannot thank you enough. By way of introduction, I joined Navigator from the Mærsk Mc-Kinney Møller Center for Zero Carbon Shipping. My career over the past 20 years has been in shipping where I held several leadership positions. I am very excited to lead Navigator as we transition into our next and very exciting period of growth. I joined Navigator at a crucial time in the company’s and the industry’s history. The rising importance and demand for fueling the energy transition cannot be understated, and in tandem, neither can the pace at which it’s required. In addition, the importance of energy security nationally and locally has taken on a whole new level of significance. This emphasizes the importance of strong infrastructure and reliable supply chains. I believe that we at Navigator are ideally placed to support this transition and hence my great excitement about joining this company. Not only do we have the skills and expertise developed over years of exceptional service, but we also have an extraordinary and determined workforce, and critically, a young fleet that continues to lead the handysize market. Having worked across the industry in multiple functions, I believe that by continuing to build on our market position, contracts, and ingenuity, we can take this company to further heights. More specifically, Navigator has a successful track record of making accretive vessel acquisitions and further consolidating the handysize and smaller LPG shipping fleet. We remain engaged in the market and will continue to pursue accretive second-hand acquisitions that will complement our fleet and reduce our average fleet age. In addition, we are working closely with our partner, Enterprise, and reviewing options to best expand our ethylene export terminal in Houston. To note, the terminal set another quarterly record in the second quarter in terms of both throughput volumes as well as financial performance. Our guidance for 2022 remains intact. Together with our partners, we will continue to service our growing target market, and importantly, deliver growth and value to our shareholders. And with that, I’d like to hand it over to Niall. He will talk you through our financial results from Q2 2022. Please, Niall, take over.

Thank you, Mads, and good morning, everybody. The operating performance for the second quarter was not actually dissimilar from that of the first quarter, although there were some important differences in the constituent parts. The net income for the quarter was $14 million or $0.18 per share, which when compared to the $300,000 generated in the second quarter of 2021 or $0.01 per share, provides an indication of the trajectory the company has taken over the past 12 months and hope to continue in the coming quarters. The adjusted EBITDA for the second quarter at $55 million, compared favorably to the $28.8 million for the second quarter of 2021 and is the third consecutive quarter with EBITDA in excess of $55 million. The total operating revenues for the second quarter were $123.9 million, compared to $85.7 million for the comparative second quarter of 2021. $12.3 million of the $37.3 million increase in revenue was generally as a result of the additional seven handysize vessels joining the fleet as part of the Ultragas transaction, with a further $11.4 million generated from the nine smaller vessels acquired that operate within the independently run Unigas pool. Charter rates too continued to improve during the quarter, which accounted for $8.3 million of the overall increase in revenues, with an average charter rate rising to $24,633 per day or just under $750,000 per month. This is the highest daily time charter equivalent since Q2 of 2016 and compares to $22,169 per day or approximately $674,000 per month for the second quarter of 2021, and importantly, this $24,633 per day was also an increase from the $22,900 per day achieved last quarter, the first quarter of 2022. Although vessel utilization improved to 87.4% during the second quarter, compared to 85.4% for the second quarter of last year, it does represent a slight deterioration from the 89.5% utilization achieved during the first quarter of this year. A further three vessels entered into dry dock for scheduled surveys during the second quarter, in addition to the four vessels during the first quarter, taking a total of 53 days and with a capital cost of $3.8 million. A further five vessels are scheduled to enter dry dock for the planned surveys over the course of the second half of 2022 at an expected aggregate cost of $7 million. As we have no new builds on order, these dockings are the only capital expenditures the company has for the remainder of 2022. The operating revenue from the Luna Pool was $6.7 million for the quarter, representing our share of the other participants' net revenues, with voyage expenses from the Luna Pool of $7 million, representing the other participants' shares of our net revenues from the Pool. Consequently, we had a net deficit of $300,000 from the Pool during the second quarter, although we did achieve a benefit of $1.3 million during the first quarter, and overall, this should generally net to zero over time. The voyage expenses increased by 17.6% to $3.1 million during the second quarter to $20.8 million, primarily as a result of the additional vessels in the fleet, most of which are on voyage charters, thereby incurring these pass-through voyage expenses. Bunker costs, along with the global energy crises, continue to be significantly higher than at the beginning of the year. These higher fuel costs, which form part of voyage expenses, are passed on to our customers through higher charter revenues. Our vessel operating expenses or OpEx increased 34% to $38.6 million for the second quarter compared to the second quarter of last year. All of which was a result of the additional investments in the fleet during this quarter relative to last year. Daily operating expenses per vessel actually reduced quarter-on-quarter to $8,009 per vessel per day for the second quarter of this year, compared to $8,336 per vessel per day during the second quarter of last year. Depreciation on our vessels also increased by 61.6% or $12 million compared to last year. As I stated in the last earnings call, this is in part due to the 16 additional vessels in the fleet, which accounted for $5.9 million of this increase, but also $6.1 million of additional depreciation as a result of the company’s decision to reduce the estimate of useful life of all of its vessels from 30 years to 25 years as of January 1, 2022. General and administrative costs increased by 35% or approximately $2 million to $7.8 million relative to the comparative quarter of last year, with $1.5 million of this increase relating to the additional administrative costs associated with the Ultragas, along with unfavorable exchange movements on our Indonesian rupiah account. We received Indonesian rupiah from Pertamina for two of our long-term charters for vessels trading in Indonesia. Other income, being the management fees earned from the other participants for our management of the Luna Pool, was $109,000 for the quarter. The unrealized losses on derivative instruments were $5.3 million for the quarter, relating to movements in the fair value of a foreign currency swap associated with our Norwegian kroner bond and this is offset by further gains on our interest rate swaps as five-year LIBOR swap rates continue to rise during the quarter, although not at the same rate as during the first quarter. Our Norwegian kroner bond is fully hedged against movements in foreign currency exchanges, so any gains or losses on the translation of the principal bond amount are generally offset by an equal and opposite movement in the fair value of the related currency swap. We have fixed interest rates on two of our bank loans at 0.36% and 1.3%, and the loans assumed as part of the Ultragas transaction, each have LIBOR fixed at approximately 2%. Interest for the quarter was $11.5 million, an increase of $2.8 million in the second quarter, all of which was the result of interest on the additional debt assumed as part of the Ultragas transaction. Our share of results from the ethylene export terminal was a further record-breaking profit of $6.8 million for the quarter, based on throughput charges relating to 268,444 tons of ethylene exported during the second quarter. This compares to a profit of $2 million for the second quarter of last year, which was based on 155,500 tons exported to the terminal. This quarterly performance is the third consecutive quarterly profit of approximately $6.5 million. Terminal depreciation amounts to $5.2 million per year or $1.3 million per quarter, giving an EBITDA for our share of the terminal of somewhere between $7.8 million per quarter and $8.2 million per quarter. On the balance sheet, the company had cash of $151.2 million at June 30th, and a further $20 million available from undrawn revolving credit facility. Our minimum liquidity covenant from the various bank loans remains a maximum of $50 million, thus providing significant headroom. Our total debt reduced by $45.9 million during the second quarter, which stood at $905.8 million at June 30th, and our debt comprises of loan facilities relating to our investments of approximately $686 million, the credit facility associated with the terminal of $47.5 million and two Norwegian bonds, the principal of which amounted to $171.7 million. One of these bonds, the NOK600 million denominated bond equivalent to $71.7 million, has a maturity in November 2023, and currently, there’s a call option on this bond at a redemption premium of 2.864% falling to 1.79% in November of this year. On slide nine, we outlined the estimated cash breakeven for 2022 at $18,280 per day. This low level enables us to generate positive EBITDA even in the toughest of markets and we have remained cash generative throughout the shipping cycle. We also provide a range of expected daily OpEx across the vessel segments, ranging from $6,800 per day for the smaller vessels to $9,000 per day for the larger, more complex and older ethylene vessels. We also provide a range of expected annual spend from vessel OpEx, G&A cost, depreciation, and interest expense for your guidance. On the following slide, we outlined our historical quarterly EBITDA, showing an uplift in Q3 2021 and a further increase in Q4 2021, the quarters in which the positive impact of the Ultragas transaction was achieved. It also shows consistent EBITDA of approximately $55 million over the most recent three consecutive quarters. And finally, on the right-hand side of that slide, we outlined with the bar on the left of that graph an annualized EBITDA based on the Q2 performance. Thereafter, each bar moving right shows the potential EBITDA if charter rates across the fleet were to rise by $1,000 per day, giving an EBITDA in excess of $300 million if charter rates were to rise to approximately $30,000 per day. And with that, I will hand you over to Oeyvind for his remarks.

Thank you, Niall, and good day to all the listeners. The U.S. is the main global locomotive for natural gas liquids production and exports and it does not disappoint. North American LPG exports reached new highs during the second quarter of this year, with record exports during June. A larger proportion of these exports shifted from Asian destinations to discharge ports located in the Atlantic Basin. Any additional volume needing maritime logistics in this region is generally positive for medium and handysize vessels due to the shorter distances. As a result, handysize LPG cargoes from the U.S. grew during the last few months. However, this is not yet near the high of January 2021, but it’s showcasing a degree of volatility, along with a proven upside to our segment. In parallel, between the increasing LPG exports, we are also seeing a similar trend for ethane. Ethane exports from the U.S. are reaching new highs, with additional volumes heading both across the Atlantic and the Pacific. Our vessels offer a safe, reliable, and efficient pipeline service in both directions, and we believe this will continue for the long-term in the ethane market. While ethane continues to be the cheapest feedstock for the production of ethylene, U.S. propane remains competitive compared to naphtha for the production of propylene. Most European petrochemical producers have the capacity to switch from oil to gas should the price be sufficiently attractive, as it is today. Consequently, Europe is importing larger volumes of propane from the U.S. for propylene production. However, LPG is extremely versatile and is also used for energy. Europe is struggling with high energy prices due to issues with natural gas supplies, making LPG a viable additional source to the energy mix and pulling supply from North America. Another more market shift is that of the ammonia supply chain. Europe supplied three-quarters of its own demand until February this year when the Black Sea exports via Ukraine stopped. Ammonia’s self-sufficiency is dramatically reducing in Europe as a result, and European consumers are looking further afield to secure supply. We have rarely seen ammonia moving from Asia to Europe; however, today, this is a required reality. This brings with it increasing ton-mile demand and incremental vessels entering the ammonia trade. We now have seven vessels transporting ammonia, which is double that of one year ago, and we expect more to come. Ammonia, as part of food security, is becoming strategically important for countries. Furthermore, the promise of blue and green ammonia as part of our journey to net-zero carbon emissions is driving the ammonia industry into overdrive, and Navigator is here to lead and support these changes. The rate environment has stabilized through the typically slower months of summer. Our three vessel categories attract different rate assessments. The current levels are ranging from $29,000 per day for ethylene time charters to $21,000 per day for fully-refrigerated time charters. It is worth noting that these levels are well above our cash breakeven at $18,280 per day. Our earnings sales mix has constantly evolved. Ammonia is trending up, adding utilization points for July, and we expect this trend to continue as we go forward. Navigator’s LPG transportation has increased slightly over the last couple of months due to additional demand in the Atlantic Basin. Most of the volume tends to move on time charters, with some spot opportunities throughout the months. Petrochemical demand is intrinsically linked to GDP and consumer spending. There’s a saying that everything that moves up to China in containers has to come back to China as raw materials. This holds true for petrochemical commodities that we transport. Today, U.S. ethylene has the widest arbitrage to Europe as opposed to the Far East and China. While the majority of ethylene has historically been transported across the Pacific, most of the volume is now heading to Europe. This results in half the demand for vessels due to the half the distance needed to be traveled. It is logical. Taking all these factors into account, petrochemical demand is expected to be soft in the short term until China returns to a more normal state of consumption and production. In the meantime, Europe will continue to import most of these volumes. LPG is stabilizing, with traditional demand in various areas of intra-regional trade lanes. There is potential for an upside should Europe further increase its imports of LPG for petrochemical production, but perhaps more importantly, an increasing use of LPG as an energy substitute for natural gas is expected. We anticipate ammonia will continue its strong growth due to the increased disparity between supply and demand locations. For instance, BASF is restricting its use of natural gas at one of its German ammonia plants, which is necessary to assist in alleviating the energy deficiency in Germany. Ammonia is still necessary; however, the only alternative is to import by sea from other continents like North America and Asia. In summary, petrochemical demand is weak in the short term, LPG is stable with some upside, while ammonia shows the most promising growth right now. With that, I will leave it back to Randy.

Excellent. Thank you, Oeyvind. Operator, we will now open the lines for some Q&A. So, with that, first question, your line should be open.

Howdy team Navigator. How is it going? This is Omar from Jefferies.

Hi.

Hi, Omar.

That’s the standard Jefferies greeting. For those who don’t know, Randy installed that while he was here. Mads, welcome to Navigator. First off, I just wanted to ask maybe, Oeyvind, on your latest commentary regarding ammonia. You mentioned the blue and green ammonia. From a bigger picture perspective, the ammonia trade has been somewhat inconsistent over the past many years with some up years, some down years, with really no major change to overall tons moved. Do you think that’s changing? Are you seeing that shift? Maybe it starts to get into high gear, like what we have seen with the broader propane and butane trade?

Maybe I can just start out and then you can take over, Oeyvind. From my perspective, there are some short-term fluctuations, and you can say, EDP-related fluctuations and so on. But structurally and looking at the longer term, there will be some very significant changes taking place. First of all, the food security situation has changed dramatically just over the course of this year, which means that the need for ammonia as fertilizer will grow, certainly. Secondly, ammonia is a very important energy carrier for transporting hydrogen between continents. It’s much more efficient to carry hydrogen as ammonia, and then it can be split upon arrival. Additionally, ammonia itself is going to be an important fuel for the future not only for shipping but also potentially for other industries. So there are a ton of projects already in development to produce both blue and green ammonia. But, Oeyvind, you can elaborate, please.

Omar, to answer your question, 12 months ago, there was lackluster demand for ammonia. It was a pretty traditional 17 million tons being transported by sea. It went up a little bit, it went down a little bit; today, in comparison, it’s night and day. In terms of compensation, interest, and serious companies who want to expand or build more production, that then means more exports demand for shipping. Shipping and the additional incremental production supply of ammonia goes hand in hand. Where this will go, we shall see, but it’s definitely a very exciting area to be part of. Just in our own segment, we never had this many ammonia ships on charter before, and I don’t think that’s going to end anytime soon. If you see in one of the charts, we haven’t. What is happening is that ammonia, everybody who needs it is looking around the world, not just within the region but globally. The distances are vastly increasing, and you need more ships, which is a great thing for us, and we are a big player in that space. So, more to come, I am sure.

Thanks. Yeah. That’s interesting. So from all talk to now activity, we will see how things develop there. Second, sort of a follow-up, just wanted to ask about the ethylene movements that you are highlighting and how it’s been more geared towards Europe here over the past couple of quarters instead of maybe being a bit more balanced to Asia as well. You said that creates more supply of ships, because of the shorter ton mile, which obviously sounds like it leans negative. But your realized rate during the quarter, up 24% plus, was at the highest level since 2016. So did you see an effect or an impact of the shorter ton mile? Was it fleet utilization, or is that maybe something still to be seen?

It’s a bit tricky today. Petrochemical demand in general has been soft. If GDP is uncertain and consumers are not spending on household items because their disposable income is under stress from inflation and other things, then of course, demand and GDP is quite softening. We are plugged into the global trade, and we see that the market pie is smaller. What does that mean? It means it’s a little bit trickier to do trades. These trades are happening, but it takes more time. However, there’s more squeeze on utilization. I think this is a short-term impact today. All eyes are on China and when they are getting out of their malaise with the zero COVID strategy, but it is good to see that at least Europe, which has its own issues, is importing. However, I would say the petrochemical side of it, which is ethylene, which is butadiene, which is propylene, has been softening.

Okay. All right. Thanks. Thanks, Oeyvind. I will leave it there. Thanks, guys.

Thanks, Omar. Next question, your line should be open. Operator, if you can open the line.

Hey, team. Can you guys hear me? This is Ben Nolan at Stifel.

Hey, Ben. We can hear you.

Good. So my first question goes a little bit to what Oeyvind, you were talking about in your prepared remarks, just as it really relates to how we are thinking about Europe through the winter. There’s a lot of discussion in Germany and elsewhere about rationing of natural gas, and maybe petrochemical plants being down or having to dramatically cut their output. How does this impact what you guys do if there is gas rationing or if they shut the work week down to three days? What’s the impact on that for you?

Thank you, Ben. That’s a very deep question. At least for our LPG, I think it’s a positive. LPG transportation from any other location that you can buy LPG from, whether that’s the Mediterranean or, more importantly, North America, has supply. This brings shipping into the picture. In a rationing situation, nations in Europe would look for other energy sources. LPG is extremely versatile and is an excellent source of energy. So perhaps you used to run your cooker on natural gas, and if there is a lack of natural gas, you could see LPG being spiked into the natural gas beam, although you have to be careful about BTU levels. However, you can also be more likely to buy a canister or cylinder of LPG and have it as a camping device. It’s very versatile, and I think you are getting into that for winter when temperatures in Europe generally get colder, and you get a pinch on that, you need more energy, and LPG could be part of alleviating some of that pain, meaning more transportation across all segments – big ships, medium ships, handysize ships in the Atlantic Basin. So we have been seeing a little more LPG from the U.S. on handysize. The U.S. is exporting record volumes; more of it proportionately is in the Atlantic Basin, meaning Europe, Africa, and Latin America. I think that is going to stay, if not increase, because of everything that’s happening in Europe.

I appreciate the answer there. And then my next question is maybe for Mads and Dag. The last number of years, obviously, the ethylene terminal has come online, and there’s been much discussion about its expansion. Appreciating that is mainly in the hands of your infrastructure partner regarding expansion and timing, what does Navigator envision in terms of the evolution of infrastructure projects over the next five years? How are you allocating capital to shipping versus petrochemical and LPG infrastructure?

Maybe I can just kick us off and then I will invite my colleagues, Dag and Oeyvind, also to add here. We are extremely pleased with the cooperation that we are having with Enterprise. The whole process around building the terminal, getting it into operation, and seeing the effects of having that integration together with our fleet, and then having the on-land large export volumes in our own hands together with Enterprise, has itself worked really well for us. This has been a project that has been run on time and budget and also one that has fully lived up to our expectations. So it would be natural for us to want to continue expanding that relationship with Enterprise, and we will certainly stay in these extremely fruitful discussions to see how we can best expand it because it is strategically very important for us and something that supplements our focus on shipping as well.

Just to add – thanks, Mads. Just to add to that – thanks, Ben, for the question. The USA Shale Gas has made North America amazingly competitive. You are seeing great, lots of projects and many probably coming on stream soon, growing the exports of ethane, ethylene, and other petchem gases. You are seeing with this competitive edge that American Shale Gas has led to a reindustrialization of the U.S. Gulf area. This is good news because it will be exported and it will be shipped, and we will be present in that.

Great. And I allowed one more. Randy, is that okay?

Yeah. Go for it. One is an exception.

Okay. My last question is around utilization. You are sort of in the high 80s; the last time we were at these kind of day rates, it was closer to the mid-90s. Is there something structurally different about how the business operates today versus how it operated in the previous cycle when we were at these kind of rates, or is mid – maybe even high 90s achievable again?

On that graph, Ben, on page 15, you can see the utilization points per month going back a couple of years. There’s nothing structurally different today compared to what you see throughout that time period in that graph. However, you have nuances such as where do cargoes go, whether it’s Asia or Europe, etc. What it doesn’t show as well is propylene and butadiene moving from Europe to Asia or Europe to the U.S. The petchem side of that utilization trade is really what is driving it, whether it’s above 90 or below. What is good to see now is ammonia backing up from the low, creating a sustainable floor for us in terms of utilization. The more we do in ammonia or LPG charter time reduces that volatility. But again, it’s the petrochemical side that is the volatility causing that utilization to fluctuate. It’s no structurally different today than a year ago or two years ago, except for the terminal.

Yeah.

It’s the volatility that causes utilization to fluctuate. But, in the end, it’s no structurally different than a year or two ago.

All right. Appreciate. Thank you, guys.

Thanks, Ben. All right. Next question, your line should be open.

Hi, guys. Can you hear me? This is Sean Morgan with Evercore.

Hey, Sean. We can hear you.

Hey. I think this is a pretty helpful and detailed chart on slide nine. I was just wondering, with the Ultragas merger now being about a year on, you have had some time to look at synergies. Has most of the low-hanging fruit been executed, or is there more we could find in terms of G&A or just other shared costs to bring down cash breakeven and help the margin a bit in a moderately strong rate environment you guys have?

Yeah.

Niall, will you speak to that one, please?

Yeah. Sure. So, Sean, there are some synergies, but it’s a bit longer than just a sprint. There are some synergies that we have already seen, a lot of it related to technical management and crewing management of the vessels. As you appreciate, changing crew on ships takes some time, and this is the largest benefit we foresee from merging the two businesses. There are some low-hanging fruits that have been explored and accepted, but there is a lot more to come.

All right. Thanks, Niall. Regarding European and Chinese demand for ethylene, we have seen unexpectedly high utilization of U.S. exports to Europe. Do you think this is a result of COVID-related industrial slowdowns in China or perhaps demand disruption in Asia due to European buyers willing to pay excessive premiums because of their energy insecurity?

It’s a little of both, Sean. If you talk about China first, ethane as a feedstock to produce ethylene is going very strong to Chinese crackers. The demand is there, and they are competitive. The vast majority of Chinese crackers are run on naphtha oil, which has been very high in cost, so they have reduced operating rates. However, ethane has gone from strength to strength in Chinese crackers. The crackers that can’t compete are very few. This shows the strength of ethane to ethylene in China. Of course, if consumption is down or reduced in China, that impacts petrochemical trade flows. Conversely, in Europe, they have old inefficient crackers producing ethylene. If they can’t use oil, if oil is very expensive, and they are inefficient, some of them do not switch to gas like ethane, putting them at a commercial disadvantage. Therefore, those producers will reduce operating rates and pay up commercially for ethylene should they need it. However, demand in consumption in Europe is also under pressure with household items and such.

All right. Thanks, Oeyvind. That’s it for me.

Thanks, Sean.

Thanks.

All right. Next question, your line should be open.

Hello, everybody. This is Turner from Clarksons.

Hey, Turner.

Hello is the traditional greeting at Clarksons when Omar was here, so we will continue with that, a bit of musical chairs on this conference call. So I just wanted to touch on the TC fleet. I guess you have quite a few ships that are rolling over. Looking at the appendix, I think I counted 11 ships that have been on time charter that will roll over the next six months. Can you give us some color in terms of how those negotiations are going, how you are thinking about time charter coverage versus spot, and what the rates may look like compared to what they are currently on?

Thanks, Turner. The time charter market in the handysize space is typically 12 months. So invariably, at any point in time, you will have negotiations or renewals, or customers thinking about, ‘How does the future look, and how can we, in partnership with Navigator, come to agreement to make the supply chain more efficient, etc., on a time charter basis?’ We have those internal discussions every week. Typically, we have had 50% coverage. Today, we have a little bit more because of the demand for ammonia. The rate environment in Europe is what we typically peg against Clarksons assessments, so you can derive great insights from that. The text about shipping, as you know, if the market is expected to be up or down, it depends on whether the customer and the shipowner want a time charter. We are in a bit of a mix on that.

Right. So, looking at public rates should be up about 10% versus last year, if you look at the rates for this year. Is that about right?

If that’s what your graph says, yes.

I will trust the Clarksons data. Okay, thanks. Can you also talk a little bit more about the supply side? There hasn’t been a lot of discussion on this call about that element, especially as we look into next year. Newbuild prices continue to go up; marginally, not a lot of ordering, a quite modest order book in the handysize segment, and I guess there are some environmental regulations coming into play with some older ships. Over the next year or two within the order book, how do you see the fleet developing?

We have visibility on the supply side for the next three years. Orders of ships today used to be 24 to 28 months; now, it’s longer because of supply chain issues. We have visibility over the next three years, and the order book for handysize is quite limited, which is good. There are also about 10 vessels that are more than 20 years of age, which will invariably fall off the books. The fleet supply side is positive; it’s balanced, which is a good platform to start with as we talk about the future. We don’t foresee any rush to order in the handysize space or any other space unless it's project-based. However, in the gas segment, due to expense today, delivery times are long; you also need to have consideration about what engines to use and what fuel of the future looks like. If you have ships today, as Navigator does, the situation is good.

Okay. And if I could squeeze one last one in. Dag in his remarks was talking about the U.S. being incredibly competitive, especially during the European energy crisis that seems to worsen day by day and, consequently, higher production increasing U.S. exports. Are there any bottlenecks on the infrastructure side that could slow things down? They are at high levels, and you have been running your terminal at quite high levels, possibly even above capacity. But do you see any challenges?

I wouldn’t be able to answer in detail about operating bottlenecks, pipeline, storage. There’s always a black swan that can hit, such as weather or other issues. But I think there are not. Developing terminals, new infrastructure, investing and expanding production and export expansion projects is easier in the USA than in other parts of the world, especially in Europe. I sense that there is definitely more strength than bottlenecks or troubles. Perhaps Randy or Oeyvind can complement this.

I think traveling towards North America and visiting midstream companies recently has shown they are very optimistic about the future. They are revising their CapEx program, talking about new fractionators because production is going up, which must accompany their requirement for fractionators to facilitate it all. There are no bottlenecks or bureaucracy regarding permitting in North America. The capabilities for new expansion exist.

Yeah. And as Dag mentioned, Enterprise announced on their recent call six or seven different growth projects. Energy Transfer is the same, Kinder Morgan, Plains All American. Any of these midstream pipeline companies are focused on this very thing – more pipelines, more terminal capacity, and a lot of those hydrocarbons are going through the water for European or Asian imports. I think that growth is coming.

Okay. Thank you very much. I will turn it back.

Thanks, Turner. All right. Next question, your line should be open.

Good morning, team. This is Climent Molins. Thank you for taking my questions.

Hey, Climent.

You have been clear on your willingness to pursue the expansion of your ethylene terminal. I was wondering if you could provide commentary on whether you are looking into potentially participating in other infrastructure projects? And if you find any attractive opportunities, do you believe your current fleet would be enough to service them?

Excellent questions. Regarding infrastructure, should we look? Yes. Will it have a positive impact on the fleet as we need more transportation? Yes.

All right. That’s helpful. You are still trading at a sizable discount to NAV. Is there any appetite to pursue share repurchases in the current environment? How would you balance share repurchases with potential CapEx if attractive opportunities arise?

Maybe I can just talk to that one. We constantly evaluate how our projects compare to other ways of returning value to investors. We keep a close look at that, and we are definitely evaluating all options. We will be super happy to revert back to you during the second half of this year to provide more clarity around our approach. We are definitely very observant of the discount we are trading at, and that contributes to how we secure strong returns for shareholders.

All right. That’s it for me. Thank you for taking my questions, and congratulations on the quarter.

Thanks, Climent. All right. We have time for one more question. Operator, if there are any more, you can open their line.

Thanks. This is Tom Mckay. I wanted to ask, Niall, regarding the debt level the company has. You have been reducing debt since the Ultragas combination last year. Could you comment on your target debt level? What would your ideal debt level be?

Hi, Tom. Yeah. The debt level is an amalgam of different things. As you may recall, the terminal was financed pretty much 100% on debt. The Ultragas ships, on the other hand, have quite a low gearing. We have got a kind of a mixed bag, and a lot of the recent significant reduction in debt is associated with the terminal, not surprisingly, given the cash distributions we are getting from that. Currently, we are at about 43% net debt to capitalization, and we think somewhere around there is reasonably comfortable. It could drop to another couple of points down to 40%, 39%, something around those levels.

Okay. Great. Thanks.

Thanks, Tom. Well, that’s it for the call. I’d like to turn it back over to Mads for some closing remarks.

Yes. I just wanted to thank you all for the great questions that you asked and also for a good discussion. We really appreciate this dialogue with you, and it was a good quarter. It was a strong quarter, and that means the whole first half of 2022 came out really well. We look forward to continuing the momentum that we have had, and we also look forward to keeping you updated on both the growth opportunities we are seeing right now and there are several, as well as other exciting developments that may strengthen and secure that the return to the shareholders remains strong in the long-term as well. So thank you so much for joining us and we look forward to keeping you updated as we go.

Thank you.