Capital Clean Energy Carriers Corp. (CCEC) Earnings Call Transcript

Good day, everyone, and welcome to the Capital Clean Energy Carriers Corp. Third Quarter 2026 Financial Results. Please note that this event is being recorded. [Operator Instructions] I will now turn over the call to today's host, Brian Gallagher, EVP, Investor Relations. Brian, please go ahead.

Thank you. Good evening, and good afternoon to those of you in the U.S., and welcome to the Capital Clean Energy carriers Q3 2026 earnings call. My name is Brian Gallagher, Head of Investor Relations. With me today I have Jerry Kalogiratos, our Chief Executive; Nikos Kalapotharakos, our CFO; Nikos Tripodakis, our Chief Commercial Officer and Head of LNG Commercial; and Jack Neilan, our Head of LPG Commercial. Before we start, please note that today's presentation contains forward-looking statements and actual results may differ materially. Please refer to the notice on Slide 2 and the risk factors in our 2025 annual report on Form 20-F. So let's kick off looking at the key highlights from the Q3 that we just finished. In the third quarter, we just delivered 3 vessels, the LNG carrier [indiscernible], the dual fuel MGC carrier Aridaios in July and the LCR2 multi-gas carrier, Alkimos in September. During the quarter, we also secured new employment for 2 energy carriers and 4 gas carriers. The TC for the quarter was just under $84,000 a day for our LNG fleet and just under $41,000 a day for our gas fleet. Net income from continuing operations was $34.6 million, up 52% compared to the same period last year, and we declared a dividend of $0.15 per share, our 70th consecutive cash quarterly dividend. Contracted revenues stand at around $2.8 billion for the group or $4.2 billion for the group, including auctions. That gives you a sense of the highlights and now pass on to Nikolaos with regards to the financials.

Thank you, Brian. Before turning to the financials, I would like to touch on our dividend payout, which remains a core part of the company's value proposition to our shareholders. As already announced on October 22, we declared a quarterly cash dividend of $0.15 per share. This is our 78th consecutive quarterly dividends since our IPO in 2007. The dividend will be paid on November 12 to shareholders of record of November 3. Turning now to the income statement. Revenue for the 3 months ended September 30, 2026, increased to $138.1 million from $95.6 million during same period last year. The 44% increase primarily reflects the growth in the average number of vessels in our fleet to 19.7 vessels from 13 vessels during the said last year following the delivery of 300 gas carriers, 2 dual fuel medium gas carriers, and 3 LNG carriers during 2026. Project expenses for the third quarter 2026, increased to $9 million from $2.2 million in the third quarter of 2025. The increase was mainly due to voyage expenses incurred by certain of our vessels due to their delivery from the yard and the start of their employment as well as balance [indiscernible] associated with certain of our vessels passing their 5-year special survey. Vessel operating expenses and depreciation and amortization increased by $6.2 million and $8.6 million, respectively, compared to the same period in the previous year, mainly due to the increase in the average number of vessel in our fleet. Interest expense and finance costs increased to $33.7 million from $25.5 million during the same period last year. The increase mainly reflects higher average indebtedness following the finance of the vessels delivered this year, partly offset by a decrease in the weighted average interest rate on our debt. Therefore, net income from continuing operations was $34.3 million for the quarter, or $0.57 per share, corresponding to an increase of 52% compared to the same period last year as this year's delivery start to contribute. So moving on to our balance sheet. We maintained a solid cash position with total cash of $287 million, including a restricted cash. And the net leverage ratio adjusted for the fair market value of our vessels at approximately 55%. Total assets grew to $4.9 billion. That is an increase of more than 20% from the beginning of 2026 as we took delivery of 8 vessels this year. Shareholders' equity rose by $87 million or by 6% to approximately $1.6 billion. As of quarter end, total debt stood at $3.2 billion. Floating rate debt, which makes up approximately 78% of our total debt carried an average margin of 1.70%. Our fixed rate debt, together with the $800 million of 0 cost interest rate collars entered into during the second and third quarters of this year, make approximately 47% of our total debt either fixed or hedged. So let me now turn to our CapEx program. Our newbuilding program is well funded. We have already paid a substantial portion of the CapEx from generally generated cash, asset monetizations and attractive debt financing, including our conditions in February, assuming 70% debt financing for the vessels that do not yet have facilities in place, and excluding future operating cash flows and net proceeds from the sale of Amore Mio to the previously announced LNG joint venture, we expect to fully fund the remaining CapEx while also releasing significant liquidity for the company. So let me now hand over to Nikos Tripodakis, our Head of LNG Commercial for an update on our LNG fleet and the market. Niko?

Thank you, Nikos. I would like to start with Slide 10, which shows our charter book for our 21 latest-generation LNG carriers, 15 on the water and 6 under construction. Our total contracted backlog is around $2.7 billion, with an average firm duration of 6 years, rising to $4 billion and $9.4 -- if all options are exercised. Long-term charters with quality counterparties insulated us from this quarter's spot volatility. Our market exposure is delivered and limited. Alkimos 1 is an 18-month index-linked charter to early 2028. [indiscernible] will start a 1-year index-linked charter on delivery before a 7-year charter and with 5 newbuilding positions open. We also continue to lengthen the book on the sale of Amore Mio 1 to our joint venture with BGN at $230 million remains on track to complete in the first quarter of 2027 when she starts a 10-year charter with 2-, 3-year extension options. Until then, she is employed on a 3-month charter. For our open positions, latest generation 2 stock vessels like ours remain the first to be fixed and command a clear premium over older tonnage, which gives us confidence as we market them for long-term employment. Moving on to Slide 11. We can see that the LNG market has proven more resilient than initially expected after the outbreak of war. Qatar and UAE volumes have been largely shut in. However, an increase in production, mainly from the U.S. has partially offset the volumes lost, the rest of the lost outlook being met by lower demand in Europe and North Asia. The U.S. has stepped up to replace part of the loss Middle-East volumes. Year-on-year, U.S. project expansion expansions have added roughly 8 cargoes a week, offsetting around 40% of the loss from Qatar. Global LNG exports in the first 9 months were down just 1.3% as record U.S. output and new start-ups absorbed most but not all of the of the EUA gulf shortfall. For shipping, this matters as U.S. cargo travel much further to reach Asian buyers, which supports ton-mile demand over time. On the import side, global LNG imports were down 1.7% year-on-year. North Asia, Europe and buyers that depend on Qatar supply cut back as prices rose, while Egypt, Thailand, India and Taiwan increased their imports. Export growth came mainly from the U.S., Canada and West Africa. The longer the gulf disruption lasts, the more buyers will look to diversify towards Atlantic supply, which is structurally positive for long-haul shipment. Even Qatar is now purchasing U.S. LNG volumes in order to diversify. For shipping, a strong first half of 2026 gave way to a softer third quarter as the risk premium faded and vessel availability rose. Atlantic 2 stock spot rates averaged around $51,000 a day with a low of around $10,000 a day in August. The quarter itself was very volatile. Long-haul 2 stock rates were above 90,000 a day at the start of July before falling sharply in August as the interbasin arbitrage closed and prompt tonnage build up. Pacific rates held up for longer, averaging around $56,000 a day. A late quarter pickup in US gulf requirements showed how quickly the [indiscernible] can tighten but the debt of available tonnage, newbuilding deliveries, [indiscernible] and shorter rotations limited the recovery. However, as it is always the case we're shipping, volatility is a double-edged sword. And as we can see on Slide 12, this winter holds a significant risk premium. Moving on to Slide 12. Europe enters this winter with gas storage at historically low levels. EU storage was around 74% full in mid-October, roughly 11% lower than a year ago in key markets such as Germany and the Netherlands and near 60% -- a backward dated forward curve through the summer gave little incentive to the field from the spot market, and that leaves Europe more dependent on LNG winter and more exposed cold weather and supply disruption. It also means a larger refill requirement next summer, which should support LNG demand into 2027. Europe is expected to end November, only 75% to 78% full, around 10 points below the 5-year average. With lower inventories, European gas prices are more sensitive to cold spells and to competition with Asia for cargoes. A cold winter could take stocks down to 10% to 15% by the end of the season, which would carry through into next year's refill demand. Whether here is a swing factor and current forecast going to a milder start to the winter, so we expect volatility in both directions. In a market where global gas prices trade at 4-year highs, currently around $35 per MMBtu, the value for a modern LNG carrier for the charter increases exponentially. The oil, of course, becomes the most important factor in LNG transportation and in this price environment of approximately $30 to $35 from BTU. The [indiscernible] of cost, the financial between 1 of our vessels in CCC and an older LNG carrier can be up to $100,000 per day. Moving on to a longer-term view where the U.S. is set to further solidify its position as the world's biggest producer. On Slide 13, looking further out, supply growth extends well into the early 2030s. U.S. liquefaction capacity alone is now expected to exceed 260 million tons per annum by 2031. SID momentum has also continued. 5 projects totaling almost 58 million tonnes per annum have taken FID in 2026, including LNG Canabo Phase I in the third quarter and several more are targeting decisions by the year-end. Every one of these projects net shipping and a significant puts long-haul Atlantic volume. Three more projects, Sealy Sims in Canada, excess LNG and YPF project in Argentina are targeting decisions around the end of the year. In Volpe, 2026 FIDs would reach close to 100 million tons per annum, translating to firm demand for 150 to 300 LNG carriers. The impact of this demand surge is reflected in the term charter rates, as you can see on Slide 14. The term market has held up better than the spot market towards the end of Q3. One year rates eased with a spot correction averaging around $55,000 a day in the quarter, but rates for 3 years and longer have remained broadly stable. Charters are focused on 2027 and index-linked structures are gaining traction. For longer periods, rates continue to be supported by new building economics. Forward rates softened into 2027 before recovering in 2028, a reflection of vessel rig deliveries expected in 2027, including 18 uncommitted newbuild banks. Index-linked fixtures are typically being concluded at around 90% to 95% of the relevant index. And at the long end, 5-year rates for prompt deliveries are based in the high 70s to mid-80s a day well above 1 year level. And the message from the term market is clear. This is a near-term tonnage imbalance, not a change in the long-term structural fundamentals. Moving on to the final slide now, where we still view the supply and demand inflection point happening in 2028. This analysis compares cumulatively net fleet growth with the vessels required by the liquefaction projects. Net fleet growth takes around 2029 and then declines as older tonnage lives the fleet, while the vessels need and the vessels needed by projects that have taken FID, keep rising to over 440 by 2031 and over 700 including committed projects. That is why we focused on the latest generation vessels on long-term charters. On the supply side, ordering has picked up despite the conflict. The order book now stands at 286 ships around 36% of the fleet, 71 vessels were delivered in the first 9 months, a further 32 are due by year-end and 91 are scheduled for 2027 and 76 for 2028. For those of our new buildings remain uncommitted and scrapping has paused rather than stopped with 7 vessels in the [indiscernible] so far this year. As rates normalize, we expect older steam and early year fuel tonnage to leave the fleet at a faster pace. I now hand over to Jack Neilan, our Head of LPG Commercial for the gas carrier update. Jack?

Thank you, Nikos. Turn over to our gas carrier fleet and the handy mid sized gas markets. All 5 for our 2026 gas carrier new buildings have now been delivered and employed. The LCO2 multigas carriers active, Amadeus and Alkimos and the dual-fuel MGCs, Aristogenis and Aridaios. 5 more delivered in 2027, the Athenian and Aratos in January; Anios and Agenor in March and the Andrianos in July. This will then complete our gas program. The fleet on the water is fixed into 2027, and our 2027 newbuilds are already attracting firm term interest. Our gas fleet earned $40,987 a day in the third quarter and we have been layering in coverage. Aridaios moves on to a 1-year time charter in Q4, while Alkimos active and Amadeus are fixed some charters through to the second quarter 2. Our multigas carriers Concardia LPG, petrochemicals, ammonia and liquefied CO2 and our MGCs are LPG dual fuel with the ability to carry LPG, ammonia and petrochemicals. So the fleet has the flexibility to follow the strongest strengths. Moving on to Slide 18. This slide shows how earnings have moved across vessel sizes, brings with the larger fully refrigerated ships firm sharply. One year TC assessments for VLGCs have nearly doubled this year to around $88,000 per day. And the MGC rates are up around $10,000 a day with 40K conventional units now at around 43K. Semi [indiscernible] handy rates have held broadly flat at around 32,000 as ethylene-capable ships moved into the [indiscernible] when the ethane arbitrage closed. Three factors drove the kit in the quarter, continued destruction at the Strait of Hormuz, growing constraints of the Panama Canal and record U.S. LNG exports. Middle East LPG and ammonia exports remained largely shut in, so buyers kept sourcing from the U.S., West Africa and South America. At Panama, falling water levels led the canal authority to suspend Panamax daily auctions from July 25. This then pushed more of U.S. cargoes onto MGCs and VLGCs on to longer routes via the Cape of Good Hope. Moving now on to the Handy market update. The Handy market in the third quarter went long to sold out. In July, the West position list lengthened as MGC tonnage briefly been available and ethylene capable ships entered the LPG pool with spot earnings briefly falling below $20,000 a day. By [indiscernible], MGC availability had sold out. 2 Handies were need to proliferate MTC cargo, taking earnings into the $40,000 per day. 1-year TC assessments for semi-refs held around $32,000 per day. The supply picture for Handy's is supportive. The fleet stands at 131 vessels, with 5 joining the fleet in the third quarter and the order book of just 6 ships under 5% of the fleet with no new orders placed in the quarter. Around the fifth, there is over 20 years old and more than half is over 15. We are also seeing charters start to look longer cover with 3 fixtures of 12 months or more concluded in the third quarter. Moving on now to the medium gas carriers update. The MGC segment stayed structurally tight. In July, with Warner Tonnage Limited, Spot TCE was around $62,000 per day base is a $40,000 conventional vessel. U.S. positions for August were fully committed and a wave of fixing it September clears the list -- taking spot TC to almost $80,000 per day. U.S. MGC LPG loadings reached a record 50 in September. The 1-year TC assessments for $40,000 conventional ships rose to around $43,000 per day, and our early 2027 new buildings are already drawing firm term bids. New build deliveries continue to be absorbed. The fully refrigerated MTC fleet stands at 150 vessels with 8 joining in the third quarter, the order book of 49 ships is about 1/3 of the fleet. Almost all of those new buildings are $40,000 or larger and both dual fuel and scrubber fitted, which is exactly the modern flexible tonnage charters are looking for. Term interest is broad with 12 months fixtures in the 40s and some charters now looking to take longer coverage beyond 2 years. That concludes the slide presentation. With that, I'll hand back to the operator, where management will be available to take any questions.

[Operator Instructions] Our first question is from Alexander Bidwell from Weber Research and Advisory.

So I wanted to actually follow up on a question from last quarter. So the global gas market seems to be pricing, some -- can you degree of supply constraints into the second half of 2027 which implies some degree of risk to the right on a Middle East restart. Can you give us a sense of where charter sentiment sits around the timing of a conflict resolution and how any quarter-over-quarter changes to that sentiment have impacted charter.

So obviously, when we try to give a view on how long this contract will last, we're obviously expressing our opinion. The best indication that would help you with your question will be how long are the Qatar is churning out their own fleet, right? This is a concrete indication of their view of how long this will last. And I can tell you that as of now, we're looking at least 4- to 5-month time frame based on that piece of information, which is usually pretty reflective of their view on outages. And usually, that's the case with outages. When you see the producer chartering out their own fleet for the next period of time, it's a clarification that they expect that they were not that fleet for that amount of time. Now in any time frame in situations like this beyond that, we would be guessing. But our view is that this situation will continue for at least the first half of...

All right. And then to follow up, just looking a little bit longer term, so we're seeing the conflict driving some LNG buyers to diversify their supply portfolio with some of the recent SPAs likely being driven by that diversification. Based on your recent commercial discussions, have you seen that diversification pushed to impact shipping demand in the back half of the decade?

Yes, in a positive way. I mean, we would have expected the Qataris would be buying multiple million tons from the U.S. project, right? Crazy times we're going through. But -- all in all, this is [indiscernible] shipping for 2 reasons: one, more FIDs, which regardless of where it comes from the world, it requires shipping and also because of ton-miles. So U.S., as we have explained multiple times in the past, has the -- potentially one of the best multipliers for LNG freight demand, especially if there's an open arbitrars to Asia. One MTPA from Qatar to Asia would require 1 ship, 1 FDPA from the U.S. to Asia would require 3 ships. So it's a double bubble in a sense for LNG shipping more if more U.S. projects go ahead, and this situation clearly helps this.

Our next question is from Greg Lewis from BTIG.

I was hoping you could give a little bit of an overview of kind of the state of the build order book. I really appreciate you have a handful of ships on the LNG side -- LNGC side that are coming delivered, but just kind of how does that stand versus kind of the overall order book that you highlighted earlier in the slide presentation.

Just to make sure that I understand your question, what would you like us to expand on top of the slide with fleet, like what order book and...

Versus the industry?

Okay. Well, the most important point on this is that we hold the biggest open order book of any of our competitors. If I'm not mistaken, right now, we have 42 open new buildings in an order book of 287 ships. And of those, we control 5 where our the second biggest competitor has 4. So we hold the lion's share of open new buildings. And the majority of those are delivering in line with where we see the inflection point in the market from 2028 onwards. Does this answer your question? Or do you want to...

Yes. Perfect. And then just as we think about the opportunity to recontract the vessels, as we think about just fixed rate versus index versus index with floors and ceilings. I mean, I guess, how is that evolving, right? And does that end up I mean I'm clear that's in the negotiation process. But as we think about CEC positioning its fleet, should we kind of think about a mix of all 3? Or I guess, given where we are in the right now I mean, the Qataris have been putting some of their tonnage in the market, right, seasonally weak rates are maybe holding up better than some would think. Is that kind of helping pave the way for higher floors and higher ceilings, and maybe some of this index-linked charters.