Navigator Holdings Ltd. (NVGS) Q2 2022 Earnings Call Transcript

Navigator Holdings Ltd. (NYSE: NVGS) Q2 2022 earnings call dated Aug. 19, 2022

Corporate Participants:

Randy Giveans — Executive Vice President, Investor Relations and Business Development

Dag von Appen — Chairman

Mads Peter Zacho — Chief Executive Officer

Niall Nolan — Chief Financial Officer

Oeyvind Lindeman — Chief Commercial Officer

Analysts:

Omar Nokta — Jefferies — Analyst

Ben Nolan — Stifel — Analyst

Sean Morgan — Evercore — Analyst

Turner Holm — Clarksons — Analyst

Climent Molins — Value Investor’s Edge — Analyst

Tom McKay — — Analyst

Presentation:

Randy Giveans — Executive Vice President, Investor Relations and Business Development

Welcome to 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’ll be making various forward-looking statements. These statements include, but are not limited to, the future expectations, plans and prospects from both the financial and operational perspective and are based on management assumptions, forecasts and expectations as of today’s date 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 are included in our annual and quarterly reports filed with the Securities and Exchange Commission.

With that, I’ll now pass the floor to our Chairman, Mr. Dag von Appen. Please go ahead, Dag.

Dag von Appen — Chairman

Thank you, Randy. Can everyone hear me well? I hope yes. Good. 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 broad one other. 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’m 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 Schroder, 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’m very glad to welcome and percent our new CEO, Mads Peter Zacho After careful and many in-person meetings, by now we 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 Maersk Mc-Kinney’s Moller Center for Zero Carbon Shipping, where he was Head of Industry Transition. With a long career in shipping, including Maersk, J. Lauritzen, TORM and Svitzer, and a 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 the call 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.

Mads Peter Zacho — Chief Executive Officer

Right. Thank you, Dag, for the introduction, 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 have been leading Navigator prior to my appointment. Oeyvind, Niall and Michael Schroder have stepped up to jointly build the role at the senior management team since late 2021, have together driven Navigator to achieve new records. They have not only maintained our stated goals, but have 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 Maersk Mc-Kinney Moller Center for Zero Carbon Shipping. My career over the past 20 years have been in shipping where I held a number of several leadership positions. I’m very excited to lead Navigator as we transition into our next and very exciting period of growth. I joined Navigator in crucial time in the company’s and also the industry’s history. The rising importance and demand required to fuel the energy transition cannot be understated and in tandem neither kind of 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 is emphasizing 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 grand excitement about joining the company. Not only do we have the skills and expertise developed over years of exceptional service, we also have an extraordinary and determined workforce and critically a young fleet with — which 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. And more specifically, Navigator has a successful track record in making accretive vessel acquisitions and further consolidating the handysize and smaller LPG shipping fleet. We remain engaged in the market and we’ll 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 we’re doing options to best expand our ethylene export terminal in Houston. To note, the terminal sets 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’ll 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.

Niall Nolan — Chief Financial Officer

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 of $55 million compared favorably to the $28.8 million for the second quarter of 2021. And this 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, the highest daily time charter equivalent since Q2 of 2016 and compares $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. Further three vessels entered into drydock for their scheduled service 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. Further five vessels are scheduled to enter drydock for the planned service 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 drydockings 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 Luna Pool of $7 million representing the other participants share 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% or $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 all global energy prices, continue to be significantly higher than at the beginning of the year. And 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 as a result of the additional investments in the fleet during this quarter relative to last year. Daily operating — vessel 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 increased also by 61.6% or $12 million compared to last year. And 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 on 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. $1.5 million of this increase relates to additional administrative costs associated with the Ultragas, and also in addition to 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 participant for our management of the Luna Pool, was $109,000 for the quarter. And the unrealized losses on derivative instruments was $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 as a result of interest on the additional debt assumed as part of that Ultragas transaction. Our share of results from the Ethylene Export Tunnel was a further record-breaking profit of $6.8 million for the quarter based on throughput charges relating to 268,444 tonnes 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 tonnes export to the terminal. And 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 and $8.2 million per quarter.

On the balance sheet on Slide 7, the company had cash of $151.2 million at June 30 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 30. And our debt comprises of loan facilities relating to our vessels 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 of — 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 9, we outlined the estimated cash breakeven for 2022 at $18,280 per day. This low level enables us to generate positive EBITDA in even the toughest of markets, and we have remained cash generative throughout the shipping cycle. In the box on the right-hand side of this Slide 9, we’ve provided our daily — 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 for vessel opex, G&A cost, depreciation and interest expense for your guidance.

On this following slide, Slide 10, 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 10, 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.

Oeyvind Lindeman — Chief Commercial Officer

Thank you, Niall, and good day to all the listeners. The US is the main global locomotive for natural gas liquid’s production and exports, and it does not disappoint. On Page 12, we can see that 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 deviated from Asia destinations to discharge ports located in the Atlantic base.

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 US grew during the last few months. However, not yet near the high of January 2021, but it’s showcasing a degree of volatility as well as 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 US are reaching new highs, with additional volumes heading both across the Atlantic as well as 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. Whilst ethane continues to be the cheapest feedstock for the production of ethylene, US propane remains competitive compared to naphtha for the production of propylene. This can be seen on Page 13.

Most of the 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 US for propylene production. However, in addition, LPG is extremely versatile and is also used for energy. Europe is struggling with high energy prices due to issues with natural gas supplies, which makes LPG a viable additional source to the energy mix and is pulling supply from North America.

Another more market change is that of the ammonia supply chain. Europe supplied three quarters of its own demand up 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 have now 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. But also perhaps more importantly, in addition, the promise of blue and green ammonia as part of our journey to net zero carbon emission 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 assessment, as you can see on Page 14. And 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 is constantly evolving. We can illustrate some of the points already mentioned in the graph on Page 15. Ammonia, being the dark blue at the bottom of the graph, is trending up, adding a few utilization points for July, and 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 base. 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 is a saying stating that everything that moves up to China in containers have to come into China as raw materials. This holds true for petrochemical commodities that we transport. Today, US ethylene has the widest arbitrage to Europe as opposed to Far East and China, as seen on Page 16. Whereas the majority of ethylene were transported across the Pacific in the past, most of the volume are now heading to Europe. This results in half the demand for vessels due half the distance needing to say, just pretty logical.

Taking all these things into account, petrochemical demand is expected to be soft in the short-term until specifically 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 the various intra-regional trade lanes. There is an upside should Europe further increase imports of LPG for petrochemical production, but perhaps, more importantly, increasing its use of LPG as an energy substitute for natural gas.

We expect ammonia to continue its strong growth due to the increased disparity between supply and demand locations. As an example, BASF is restricting its use of natural gas at one of the German ammonia plants. They are doing this to assist the energy deficiency in Germany. Ammonia is still needed, however, and the only alternative is to import by sea from other continents such as North America and Asia. So in short, petrochemicals is short term because of GDP, LPG is sideways, pretty good with an upside, but ammonia is the biggest and most positive as we see it right now.

And with that, I’ll leave it back to Randy.

Randy Giveans — Executive Vice President, Investor Relations and Business Development

Excellent. Thank you, Oeyvind. Operator, we’ll now open the lines for some Q&A.

Questions and Answers:

Randy Giveans — Executive Vice President, Investor Relations and Business Development

[Operator Instructions] So with that, first question, your line should be open.

Omar Nokta — Jefferies — Analyst

This is Omar from Jefferies.

Dag von Appen — Chairman

Hi, Omar.

Omar Nokta — Jefferies — Analyst

Hi. That’s the standard Jefferies greeting. For those who don’t know Randy, he 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. And I guess, from a sort of a bigger picture perspective, the ammonia trade has been somewhat, I guess, 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, and maybe it starts to get into a high gear, like we’ve seen with more broader propane and butane trade?

Dag von Appen — Chairman

Maybe I can just start out and then you can take over, Oeyvind. From my perspective, there are some, you could say, short term, and you can say, EDP-related fluctuations and so on. But structurally, and if you look 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. And that means that the need for ammonia as a fertilizer will grow certainly. Secondly, ammonia is a very, very important energy carrier for carrying and transporting hydrogen between continents. It’s much more efficient to carry hydrogen as ammonia, and then it can be split upon arrival. And then, of course, thirdly, ammonia in itself is going to be an important fuel for the future not only for shipping, but also potentially for other industries. So there are some very — there are a ton of projects that are already under development to produce both blue and green ammonia.

But Oeyvind, you can elaborate, please.

Oeyvind Lindeman — Chief Commercial Officer

Omar, to answer your question, 12 months ago, there was lackluster demand for ammonia. It was pretty traditional 17 million tons being transported by sea, 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, build more production, production then means more exports demand for shipping. So, shipping and the additional incremental production supply of ammonia goes hand in hand. So, they are very different. 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. And if you see in one of the charts there, we haven’t — I mean, what is happening is ammonia, everybody who needs ammonia, looking around the world, not within the region, but around the world globally, to find ammonia today. And 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’m sure.

Omar Nokta — Jefferies — Analyst

Thanks, Oeyvind. Yeah, that’s interesting. So from all talk to now activity, we’ll see how things develop there. Second, sort of a follow-up, just wanted to ask about the ethylene movements that you’re 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. And you said that 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?

Oeyvind Lindeman — Chief Commercial Officer

Yeah, particularly the demand [Technical Issues]. And if GDP is uncertain and consumers are not spending on household items and so forth because their disposable income is under stress because of inflation and other things, then of course demand and GDP is softening. So we are plugged into the global trade, and we see that there’s — the pie is smaller. What does that mean? It means that it’s a little bit more tricky to do trades. The trades are happening, takes more time, buy shorter, there’s more squeeze on utilization. But I think this is a short-term impact today, all eyes on China, and when they are getting out of their malaise with the zero COVID strategy and so forth. But it is good to see that at least Europe, which have their own issues, are importing or taking the role of China in terms of ethylene. But that is softening on the petrochemical side, which is ethylene, which is butadiene, which is propylene, it’s a matter of fact.

Omar Nokta — Jefferies — Analyst

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

Randy Giveans — Executive Vice President, Investor Relations and Business Development

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

Ben Nolan — Stifel — Analyst

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

Randy Giveans — Executive Vice President, Investor Relations and Business Development

Ben, we can hear you.

Ben Nolan — Stifel — Analyst

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’re 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 or what’s the impact on [Indecipherable]?

Oeyvind Lindeman — Chief Commercial Officer

Thank you, Ben. Very deep question there. So, at least for LPG, I think it’s a positive, LPG transportation from any other location that you can buy LPG from, whether that’s Mediterranean, or more importantly, in North America. North America has supply, so that brings shipping into the picture.

In rationing situation, then you would expect the nations or Europe to look for other energy sources. And as I mentioned, LPG is extremely versatile and is an excellent source of energy. So perhaps if you used to run your cooker on natural gas and if there is 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 perhaps be more likely to buy a canister or cylinder of LPG and have it as a camping device. I mean, it’s very versatile, and I think you’re getting into that for winter when temperatures in Europe generally gets colder, and you get a pinch on that, you need more energy. And LPG could be part of alleviating some of that pain. And that means more transportation across all segments, big ships, medium ships, handysize ships in the Atlantic base.

So, we haven’t seen — we’ve seen a little bit now. You saw on the slide a little bit more LPG from the US on handysize. US exporting record volumes, more of it proportionally 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.

Ben Nolan — Stifel — Analyst

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 a lot of discussion about the expansion of that, and appreciating that that really is probably more in the hands of your infrastructure partner in terms of the expansion and timing. But maybe big picture, how you guys think of the evolution of Navigator in terms of that infrastructure element? Where do you see the company going in, let’s say, the next five years in terms of how you’re allocating capital to shipping versus petrochemical and LPG infrastructure?

Mads Peter Zacho — Chief Executive Officer

Maybe I can just kick us off, and then I’ll invite my colleagues Dag and Oeyvind also to add here. We are extremely pleased with the cooperation that we’re having with Enterprise. The whole process around building the terminal, getting it on stream 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 worked really well for us. So it 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’ll certainly stay in these extremely fruitful discussions that we are having with them right now to see how we can best expand it, because it is strategically very, very important for us and something that supplements our focus on shipping as well.

Dag von Appen — Chairman

Just to add — thanks, Mads. Just to add that — thanks, Mads, for the question — that USA shale gas has made North America amazingly competitive. And you’re seeing great — lots of projects, and many probably coming onstream soon, growing the exports of ethane, ethylene and other petchem gases. You’re seeing with this competitive edge, USA has — American shale gas has kind of a reindustrialization of the US Gulf area. So this is good news because it will be exported, it will be shipped and we’ll be present in that.

Ben Nolan — Stifel — Analyst

Great. Am I allowed one more, Randy? Is that okay?

Randy Giveans — Executive Vice President, Investor Relations and Business Development

Sure. Go ahead [Phonetic].

Ben Nolan — Stifel — Analyst

Thank you. My last question is around utilization. You’re 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 a little bit 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?

Oeyvind Lindeman — Chief Commercial Officer

On that graph, Ben, on Page 15. You can see the utilization points per month going back a couple of years. So, there’s no structurally different today than what you see throughout that time period in that graph except, of course, the Ethylene Terminal kicked in really this year, which is great. However, you have nuances such that where does cargoes go? Is it Asia? Is it Europe? That sort of stuff.

What it doesn’t show as well is propylene and butadiene. Is it short sea? Is it from Europe to Asia or Europe to US propylene, etc. So, the petchem side of that petchem utilization, petchem trade is really what is driving the utilization between, whether it’s 90%-plus or 90% below. What is good to see now is the ammonia is backing up from below, so that is creating a sustainable floor for us in terms of utilization. So, the more we do in ammonia or LPG in time charter reduces that volatility. But it’s the petrochemical side, which is the volatility that causes utilization up and down. But again, there’s no structurally different today than a year ago or two years ago, except our term, which is meaning.

Ben Nolan — Stifel — Analyst

All right. Appreciate it. Thank you, guys.

Randy Giveans — Executive Vice President, Investor Relations and Business Development

Thanks, Ben. All right, next question. Your line should be open.

Sean Morgan — Evercore — Analyst

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

Randy Giveans — Executive Vice President, Investor Relations and Business Development

Hey, Sean. We can hear you.

Sean Morgan — Evercore — Analyst

Hey. So I think this is a pretty helpful and detailed chart on Slide 9. And I was just wondering, with the Ultragas merger now being about a year on, you’ve had some time to sort of look at synergies. Is there any — has most of the low-hanging fruit sort of executed? Or is there kind of more we could sort of find in terms of G&A or just other kind of share costs between the two fleets to kind of bring down the cash breakeven to, I guess, sort of help the margin a little bit, kind of a mid to sort of moderately strong rate environment you guys have? Hello?

Mads Peter Zacho — Chief Executive Officer

Yeah. Niall, will you speak to that one, please?

Niall Nolan — Chief Financial Officer

Yeah, sure. So, Sean, there are some synergies, but it’s a bit longer than just a sprint. There are some synergies that we’ve already made. A lot of it, I think, as we discussed perhaps some calls ago, related to the technical management or the cream management of the vessels. And as you appreciate, that takes changing crew on ships, takes some time, and that is the largest benefit of — that we foresee in the synergistic effect of merging the two businesses. But there are some of the low-hanging fruit that have already been explored and accepted, but there is yet quite a lot more to come.

Sean Morgan — Evercore — Analyst

All right. Thanks, Niall. And then just kind of just touching again on the European and Chinese demand for ethylene, which I think people have talked about, but maybe asking a little bit differently. We had almost surprisingly high utilization of US exports from Europe. And do you think that that’s — if you had to sort of way out, whether it’s the COVID-related sort of industrial slowdown in China or is there maybe a little bit of demand destruction in Asia happening because they’re sort of getting crowded out of the trade by European buyers willing to pay just really excessive premiums because of their energy and security?

Oeyvind Lindeman — Chief Commercial Officer

It’s a little bit of both, Sean. If you talk about China first, ethane, as a feedstock to produce ethylene, is going very strong to Chinese crackers. So the demand is there and they are competitive compared to the vast majority in Chinese crackers are run on naphtha oil. Oil has been very high, so they have reduced operating rates. But on one of the graphs, ethane has gone from strength to strength to Chinese crackers. The crackers that count [Phonetic], it’s very few. So that shows the strength of ethane to ethylene in China. And of course, if consumption is down or reduced in China, that impacts petrochemical trade flows as we see today.

So, conversely in Europe, they have old inefficient crackers that produce ethylene. So, if they are unable to use oil — sorry, if oil is very expensive and they’re inefficient crackers and if they cannot switch to gas like ethane, some do but some don’t, then they’re definitely disadvantaged. Therefore, those guys will reduce operating rates and then commercially pay up for ethylene should they need. But demand in consumption in Europe too just consumption in household items and so forth is also under pressure. But Europe is still buying because they kind of need it, which is [Speech Overlap].

Sean Morgan — Evercore — Analyst

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

Randy Giveans — Executive Vice President, Investor Relations and Business Development

Thanks, Sean. All right. Next question. Your line should be open.

Turner Holm — Clarksons — Analyst

Hello, everybody. This is Turner from Clarksons. Hello is the traditional greeting at Clarksons when Omar was here, so we’ll continue with that, the 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. Just 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, flavor in terms of how those negotiations are going, how you’re thinking about sort of time charter coverage versus spot, and what the rates may look like compared to kind of what they’re currently on? Thanks.

Oeyvind Lindeman — Chief Commercial Officer

Yeah. Thanks, Turner. The time charter market in the handysize space, it’s typically 12 months, so invariably six to 12 months. Invariably, at any point in time, you will have negotiations so you have renewals, or people or customers are thinking about, okay, 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?

So, we have those internal discussions every week. Typically we’ve had 50% coverage. Today, we have a little bit more because of the ammonia has pushed up on a good note. But the rate environment is Europe, for Clarkson, we typically peg our assessments and so forth publicly on the Clarkson’s assessments, so you can take cues from that. The textbook in shipping, as you know, if the market is expected to go up or down, it depends on whether the customer and the ship owner wants time charter. So we’re in a little bit of mix on that.

Turner Holm — Clarksons — Analyst

All right. So, I guess, just looking at the public rates to be up about 10% versus last year, it would be the rates for this year. Is that about right?

Oeyvind Lindeman — Chief Commercial Officer

If that’s what your graph says, yes.

Turner Holm — Clarksons — Analyst

I’ll trust the Clarkson’s there, okay. Thanks. And then, I guess, could you talk a little bit more about the supply side? It hasn’t been a lot of discussion on this call so far on that element, especially as we’re looking into next year. Newbuild prices continue to go up as far as I can see marginally, not a lot of ordering. It’s a quite modest order book in the handysize segment. And I guess there’s some environmental regulations are coming into play and some older ships as well. So, over the next year or two sort of within the sort of view of the order book, how do you see the fleet developing? Thanks.

Oeyvind Lindeman — Chief Commercial Officer

So we have visibility on the supply side for the next three years. The orders of ship today used to be 24, 28 months, now it’s longer because of supply chain issues. So we have visibility over the next three years. The order book for the handysize is quite limited. It is a good thing. And there are about 10 vessels that are more than 20 years of age — or 25 years of age, which will invariably fall off on the other side.

So, the fleet supply side is positive, it’s balanced, which is a good platform to start off with when we talk about the future. So, we don’t foresee any rush to order in the handysize space or any space really, depending if it’s project-based. But in the gas segment, because as you say, it’s expensive today, delivery times are long. But also, there are — you need to have consideration about a few — what engines to use, what do you think you have an opinion about, what is the fuel of the future and so forth, etc. So, it’s — if you have ships today, navigate. We do, the situation is good.

Turner Holm — Clarksons — Analyst

Okay. And if I could squeeze one last one in. Dag in his remarks was talking about the US just incredible competitiveness, especially in the midst of the European energy crisis, which just seems to get worse day by day. And exports out of the US, I guess, as a consequence of that and higher production increasing, are there any bottlenecks on the infrastructure side that could kind of hit the brakes in terms of US exports? I mean, they’re at high levels, you’ve been running your terminal at quite high levels, close to capacity or above even at times. But do you see any bottlenecks that could slow things down? Thanks.

Dag von Appen — Chairman

I wouldn’t be able to answer in detail about operating bottlenecks, pipeline, storage, I think there’s no. There’s always a black swan here and there that can hit, weather or other issues, but I think not. I do also see that developing terminals, new infrastructure, investing and expansion, production and export expansion projects is easier in USA than in other parts of the world, especially if you look into Europe, for example. So, I do sense that there is — that the competitive edge is not only on the competitive availability, the availability of natural gas and shale gas, it’s also the network that already exists, the pipelines that already exist, couple of large companies, including our good partners, Enterprise, who have an amazing grid. So in general terms, I see definitely more strength than bottlenecks of troubles.

But maybe Randy or Oeyvind can complement.

Oeyvind Lindeman — Chief Commercial Officer

I think, having — toward North America, and visited some of the midstream companies recently, they are quite optimistic about the future. They are revising their capex program. People are talking about new fractionators, because production is going up, you must have fractionators to facilitate all of it. So, the industry in North America on that front is very optimistic about the future. And also there was a question at the conference, I think, that Randy visited earlier this week, on the question of red tape or bureaucracy permitting in North America, it’s available. And it’s there for new expansion, for production, midstream and then ultimately, exports.

Randy Giveans — Executive Vice President, Investor Relations and Business Development

Yeah. And as Dag mentioned, Enterprise, I think on their recent call announced six or seven different growth projects, Energytrans [Phonetic] is the same, Kinder Morgan, Bank of America [Phonetic] and these midstream kind of pipeline companies are focused on that very thing. More pipelines, more terminal capacity and a lot of those hydrocarbons are going through the water, right, for European or Asian imports. So, I think that growth is coming.

Turner Holm — Clarksons — Analyst

Okay. Thank you very much. I’ll turn it back.

Randy Giveans — Executive Vice President, Investor Relations and Business Development

Thanks, Turner. Our next question, your line should be open.

Climent Molins — Value Investor’s Edge — Analyst

Good morning, team. This is Climent Molins, I’m from Value Investor’s Edge. Thank you for taking my questions.

Dag von Appen — Chairman

Hey, Climent.

Climent Molins — Value Investor’s Edge — Analyst

You’ve been clear on your willingness to pursue the expansion of your Ethylene Terminal. And I was wondering if you could provide some commentary on whether you’re looking into potentially participating in other infrastructure projects? And following on that, should you find any attractive opportunities? Do you believe your current fleet would be enough to service them?

Oeyvind Lindeman — Chief Commercial Officer

Excellent questions. Infrastructure, are we looking? Yes. Will it have a positive impact on the fleet that we need more transportation? Yes.

Climent Molins — Value Investor’s Edge — Analyst

All right. That’s helpful. And you’re still trading at a sizable discount to NAV. And I was wondering, is there any appetite to pursue share repurchases in the current environment? How would you balance share repurchases with potential capex if attractive opportunities come along?

Niall Nolan — Chief Financial Officer

Maybe I can just talk to that one. We constantly evaluate how our projects measure up about — to other ways of returning, making returns for the investors. So we keep a very close look at that and we are definitely evaluating all the options. And we’ll be super happy to revert back to you during the second half of this year to make more clarity around how we do that. But we are definitely very observant about the discount that we’re trading at, and that certainly goes into our consideration around how we best secure that there’s a good return to the shareholders.

Climent Molins — Value Investor’s Edge — Analyst

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

Randy Giveans — Executive Vice President, Investor Relations and Business Development

Thanks, Climent. All right, we have time for one more question. Operator, if there’s any more, we can now open their line.

Tom McKay — — Analyst

Thanks. This is Tom McKay [Phonetic]. I wanted to ask Niall a question about the debt level the company has. You’ve been reducing debt since the Ultragas combination last year. And could you comment on what your target debt level, your ideal debt level would be?

Niall Nolan — Chief Financial Officer

Hi, Tom. I mean, 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, we’ve actually got quite a low gearing. So we’ve 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’re getting from that. In terms of the target, I think somewhere — we’re at about 43% net debt to capitalization at the moment. I think somewhere around there, we’re reasonably comfortable with. It could come off at another couple of points down to, say, 40%, 39%, something around those levels.

Tom McKay — — Analyst

Okay, great. Thanks.

Randy Giveans — Executive Vice President, Investor Relations and Business Development

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

Mads Peter Zacho — Chief Executive Officer

Yes. 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 was — it means that the whole first half of 2022 came out really well. So, we look forward to continuing the momentum that we have had, and we also look forward to continuing to keeping you updated on both the growth opportunities that we are seeing right now and there are several and also other exciting developments that may come that can 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 look forward to keeping you updated as we go.

Randy Giveans — Executive Vice President, Investor Relations and Business Development

Thank you.