Tony Lauritzen - Chief Executive Officer Michael Gregos - Chief Financial Officer.

Ben Nolan - Stifel, Nicolaus & Company, Inc. Joe Nelson - Credit Suisse Fotis Giannakoulis - Morgan Stanley.

Thank you for standing by, ladies and gentlemen, and welcome to the Dynagas LNG Partners Conference Call on the Second Quarter 2016 Financial Results. We have with us Mr. Tony Lauritzen, Chief Executive Officer; and Mr. Michael Gregos, Chief Financial Officer of the Company. At this time all participants are in a listen-only mode.

There will be a presentation followed by a question-and-answer session. [Operator Instructions] I must advise you that this conference is being recorded today. At this time I would like to read the Safe Harbor statement.

This conference call and the slide presentation of the webcast contains certain forward-looking statements within the meaning of the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995.

Investors are cautioned that such forward-looking statements involve risks and uncertainties which may affect Dynagas LNG Partners’ business prospects and results of operations. Such risks are more fully disclosed in Dynagas LNG Partners’ filings with the Securities and Exchange Commission. And now I pass the floor to Mr. Lauritzen.

Please go ahead, sir..

Good morning, everyone, and thank you for joining us in our second quarter ended 30 June 2016 earnings conference call. I’m joined today by our CFO, Michael Gregos. We have issued a press release announcing our results for the said period. Certain non-GAAP measures will be discussed on this call.

We have provided a description of those measures, as well as a discussion of why we believe this information to be useful in our press release. We’re pleased to report the Partnership’s earnings for the second quarter 2016, in particular, were focused on the performance of our fleet from its safety, operational and technical point of view.

And we are satisfied to report that during the period, our fleet again recorded a 100% utilization, which we believe is reflective of the quality of our fleet and our managers’ operational ability. The second quarter ended 30 June 2016 was strong.

Our fleet’s income is produced from last year time charted contracts with international energy companies who pay a fixed daily rate for the chartered vessels. As the charterers also pay the majority of variable costs, such as fuel, the Partnership enjoys a steady and visible cash flow that are not indexed to oil or gas prices. Turning to Slide 2.

A quarterly cash distribution for the second quarter of 2016 of $0.4225 per common and subordinated unit was paid on July 19, 2016 to all unit holders of record as of July 12, 2016. The cash distribution is equal to an increase of 15.8% of the Partnership’s minimum quarterly distribution per unit.

The Partnership has announced a cash distribution of $0.5625 per unit of its Series A preferred units for the period from May 12, 2016 to August 11, 2016. This distribution will be paid on August 12, 2016 to all unitholders of record as of August 5, 2016.

Distributions on the Series A preferred units will be payable quarterly on the 12th day of February, May, August and November an equivalent of $0.5625 per unit, provided the same is declared by the Partnership’s Board of Directors.

I will now pass – turn the presentation over to Michael, who will provide you with further comments to the financial results..

Thank you, Tony. Turning to Slide 3 of the presentation, it was another quarter in which we continued to deliver positive financial results.

Q2 2016 adjusted EBITDA amounted to $35 million, which was a significant increase of 27% compared to Q2 2015, as a result of the effect of the acquisition of our sixth LNG carrier, the Lena River in December 2015 and the lower than expected vessel operating expenses.

For the quarter, we owned an average number of six vessels versus five vessels in Q2 2015, and our fleet averaged charter hire gross of commissions on a cash basis amounted to about $81,300 per day per vessel.

Our average operating expenses amounted to about $12,200 per day per vessel, which was significantly below our expectations due to seasonal factors. Our total cash flow break-even, excluding cash distributions amounted to about $45,600 per day per vessel.

Adjusted net income for the first quarter amounted to $18.8 million, or $0.48 per common unit after taking into account the Series A preferred units interest on the Partnership’s net income. On Slide 4, you can see the second quarter 2016 selected operational and financial data results versus the same period of 2015.

The key takeaway is the financial performance for the quarter was significantly enhanced following the Lena River acquisition with its related time charter.

Moving on to Slide 5, to discuss distributable cash flow and our coverage ratio, cash available for distribution is $22.6 million for the second quarter, as compared to $17.4 million for the second quarter of 2015 for the reasons mentioned before.

When we declared distributions to preferred unitholders, cash available for distributions to common, subordinated and GP unitholders amounts to $20.9 million for the quarter, which results in a very solid coverage ratio with respect to our common and subordinated unitholders of 1.39 times and which is significantly higher than our target coverage ratio.

Moving on to Slide 6, just a few words on our capital structure and liquidity. As of June 30, we had about $82 million in cash on hand and total liquidity of about $122 million, including undrawn amounts from our revolving credit facility with our sponsor.

As of June 30, we had $738 million in total debt, which suggests net debt to Q2 2016 EBITDA on an annualized basis of 4.7 times. As we have previously stated, we have reached the higher end of our leverage targets, given that we acquired our last two vessels without issuing any common equity.

While the higher leverage is supported by our significant contract backlog, going forward as we see some normalcy return to the MLP markets, we will seek to fund future growth with deleveraging of our balance sheet. Moving on to Slide 7, this slide shows our total principal and balloon payments per annum.

We do not have any near-term maturities since our first maturity is our $250 million unsecured note, which matures in October 2019, and thereafter are two secured facilities, which mature in late 2020 and 2021, respectively. Moving on to Slide 8, this slide outlines our cash distribution history since we went public in November 2013.

Since our IPO, we have paid total cash distributions to common unitholders of $4.25 per unit and our total cash distributions by about 16%. We consistently pay our cash distributions to our unitholders solely from our existing fleet contracted cash flow coverage, which is significant.

In the medium to longer term, our cash distribution payout policy going forward will be a function of a number of factors being mainly the renewal rates with respect to the vessels, whose time charter contracts naturally expire, and our ability to resume our fleet growth through the dropdown of the vessels owned by our sponsor with its long-term contracts attached.

We continue to believe that our 12.5% cash distribution yield does not reflect our contract backlog and makes it challenging to issue common equity as a means to partly fund future growth. However, we are monitoring the situation as we see a sense of normalcy return to the MLP markets. That wraps it up for my side.

I will pass the presentation over to Tony..

Thank you, Michael. Let’s move on to Slide 9. The Partnership’s fleet currently counts six high specification and versatile LNG carriers with an average age of about six years in an industry where expected useful economic lifetime is 35 years.

Our vessels have unique features that enable them to operate as conventional LNG carriers, as well as operate in ice bound carriers that are restricted for conventional vessels. We have a wide customer base with energy companies, namely BG Group, now part of Shell, Gazprom, Statoil, and Yamal LNG.

Our contract backlog is about $1.55 billion and our average remaining charter period is about 10.1 years, which compares well to our peers. Moving on to Slide 10. Five out of the six vessels in our fleet have ice class 1A notation.

Our fleet is fully contracted in 2016 and 88% in 2017, the time we expect the LNG shipping market to have tightened due to the current ongoing construction and ramping up of new LNG production plans. We have a unique fleet, it can handle conventional LNG shipping as well as operating ice bound in subzero areas.

This means that we are able to, and have been successful in pursuing business opportunities in the two different markets, namely conventional shipping and a unique market for ice bound trade.

As an extension of the ability to operate in ice bound areas, we’re the only company in the world with the current capability and experience in transiting LNG carriers via the northern sea route, which we deem an important advantage due to the ongoing development of LNG production along this route.

The contractual relationship between our customers and the vessels are on a time charter basis. Under a time charter party, the charterer pays a fixed day rate to the owner regardless if the vessel is being used or not. And all major variable costs, such as fuel costs are for the charterer’s account.

Therefore and coupled with our multi-year employment profile, the Partnership enjoys visible and stable revenues that are not directly affected by oil or gas prices. Going forward, we’ll be focused on securing further contract coverage and ensuring high vessel utilization. Let’s move on to Slide 11.

Our potential drop-down candidates count nine LNG carriers, all of those vessels have contracts in place amounting to multibillion dollar contract backlog. They’re high specification ice class and winterized vessels. Four out of those vessels are Arc-4 type, 162,000 cubic meters and delivered from the yard.

The remaining five are Arc-7 type, 172,000 cubic meters and currently under construction at DSME in Korea for delivery in 2017 and 2019. These last five vessels are 49% owned by our sponsor and 25.5% each by Sinotrans and China LNG shipping. Let’s move to Slide 13 for an industry update.

In summary, the market is in a place where the gas market is in growth and expected to grow significantly in the next decades. There are substantial volumes of additional LNG expected to be produced in the near-term to medium-term.

The world LNG carrier fleet is characterized by few vessels to carry those incremental volumes in the long-term and there are many old technology vessels. There has also been a slowdown in the ordering of LNG carriers with marginal activity since Q3 2015. The current existing LNG world fleet and the order book totals about 560 vessels.

The order book is about 29% of the world fleets. About 32% of the world’s fleet is below 140,000 cubic meters, which we would define in general as too small. The size is also below the average cargo size of about 143,000 cubic meters. The average age of these undersized vessels are about 18 years.

At some point, we expect that most of the undersized vessels and aged vessels will fade out of the market and be replaced with larger and younger tonnage. The order book, which stands at 29% compares below the 32% of the world’s fleet, which is undersized and aged. Furthermore, 87% of the order book has already been committed to forward charters.

This means that there are very few new buildings that may be available to facilitate the need to replace on average undersized and aged tonnage and to carry expected incremental LNG production. Moving on to Slide 14.

According to the order book, most new builds will be delivered during the period 2017 and 2018, which is also a period we expect significant additional LNG production. We have seen a slowdown in ordering activity of LNG carriers. To our knowledge, there has only been recorded two orders since Q3 2015.

There are only very few yards in the world that has the experience and capability to build LNG carriers, and if one were to order today, our guess is that, the yards would be able to offer tonnage for delivery in 2018, or more realistic 2019 at the earliest. Let’s move to Slide 15.

World energy consumption has been steadily increasing over time and is projected to continue to do so. The largest sources of energy comes from coal, oil and gas, which collectively accounts for about 85% of all world energy production. It is anticipated that the world energy production will increase by 10% within end 2020 and by 30% within end 2035.

From now until end of 2035, gas with 39% production growth is by far expected to outperform growth in coal at 40% and oil at 13%. Let’s move to Slide 16. Gas used to be referred to as an alternative fuel. In 1990, the gas market was about 56% of the oil market.

Today, the gas market is about 74% of the oil market and by the end of 2035, this number is expected to have increased to 90%. The LNG market is the fastest growing sub segment within the gas industry. More and more countries are dependent on LNG as an energy resource.

As an example, in 1990, there were nine LNG trade routes, today that number has increased to 232. Let’s move to Slide 17. We’re now in a period dominated by strong LNG production growth. It is forecasted that 134 million tons of new annual incremental LNG will come to the market between now and 2020.

This represents a total increase of 55% compared to 2015, about 280% compared to the year 2000 and about 660% compared to the year 1990. We assume that the majority of new energy is coming from terminals already under construction, meaning, a high probability of project materialization.

The source of this new LNG is primarily from Australia, North America, Southeast Asia, and Russia. We continue to believe that the Far East will remain the large buyers going forward, however, growth may also come from European markets.

We also believe we will continue to see the development of new niche markets in areas, such as South Asia, Middle East, and South America. We believe that there are sufficient buyers for the new LNG to be absorbed, the majority of the new LNG export volumes have sales agreements or off-take agreements in place.

We believe that existing import markets will continue to increasingly rely on LNG as a price competitive and clean energy resource. When we compare LNG supply to LNG shipping capacity available from now and forward, we remain confident that the market outlook for shipping looks favorable in the long-term, in particular, from 2018 and onwards.

In the period prior to that, we believe that the short-term market in general may create competition to the long-term market until sufficient LNG supply is outpacing LNG shipping capacity. The growth in LNG production set at 55% within 2020 is estimated to outpace increasing LNG shipping capacity set at 29% within the same period.

The majority of the new LNG will be delivered already within 2019. And as mentioned earlier, yards can likely deliver vessels from 2019 onwards, meaning we should expect the subsequent years to result in healthy shipping markets.

Additionally, the Partnership’s fleet is ice classed and winterized, enabling the flexibility to pursue the best of two different markets, which has proven to be a strong advantage so far. We have now reached the end of the presentation, and we open the floor for questions..

Thank you very much indeed, gentlemen. [Operator Instructions] [Operator Instructions] From Stifel, your first question comes form the line of Ben Nolan. And your line is now open, sir..

Thank you, Tony. So I have a handful of questions. Number one is, I was curious if you maybe, Tony, you could give an update on where things are in the spot market. Obviously, I know the Partnership doesn’t have any spot vessels, but you guys are the managers of the clean pools.

Yes, so I was curious if where utilizations are running for modern and tri-fuel ships? And if you’re beginning to see any momentum with respect to an improvement in the spot market?.

Thank you, Ben. So, we’re now in a place where – well, from the start of the year until end of June, we have seen about 11 million tons of new incremental LNG. And that’s – I mean, that’s within our estimate, but finally we’re starting to see some results of that. Q1 in the spot market was a very tough period. Q3 has been substantially better.

In the last few weeks, we have really started to see a pickup of both volume and rate and utilization. So we believe that the market is pointing in the right direction. The spot market still needs some further time to improve to levels that would be, let’s say, normalized levels.

We do still believe, as we have said before that the end of this year will be substantially different from the beginning of the year. And we think that, given the last weeks’ development, we are on a good track for that..

Okay. And then switching gears a little bit, that was helpful, switching gears a little bit, has there been any change in the thinking with respect to the clean energy, I know that it comes off contract in the early part of next year.

Have – and you guys have kicked around a number of options in terms of maybe finding a new long-term employment for it, maybe doing some sort of a conversion into an FSRU, maybe swapping it out for one of the other vessels at the sponsor level that does have longer-term contracts.

Any update that you might have on the thinking for that vessel?.

No, we haven’t crystallized in what direction we will opt to go. The studies are well underway of how to potentially convert that vessel into a regasification vessel. We have all – we have – that being said, started to see some potential interest on the vessel for just conventional chartering.

So we do think that it’s too early to engage in real discussions just yet on that vessel, simply because the market is improving as we are going. So we would still like to keep the options open..

Okay. And how – along those lines to the extent that there’s a market developing and the momentum is going upwards and you could find good employment for it going forward.

How do you think about the rate differential for a steam powered ship, such as that versus a more modern tri-fuel vessel? What – how should we think about one can earn relative to the other, as the market improves?.

Yes, that’s exactly the – that’s a very difficult question, keeping in mind that, we don’t – I mean, we see the market is on an improving trend. And the way that it works is that, when less and less vessels are available, then the features of that vessels become less and less important.

So we haven’t carved out any expectations as a differential between a turbine ship and tri-fuel ships. I think it would be improper for us to comment on that as well, because I think it would potentially give charterers too much information..

Gotcha. And then last one for me and I’ll turn it over. There has been quite a bit of noise lately about the Yamal project being expanded. Assuming they would need more shipping capacity for that, when would those discussions begin? And I assume obviously you guys would want to be party to, at least, the discussions.

At what point does that ball start to roll?.

Well, I mean, we know for their existing project the – I don’t think it’s a secret, because it’s been in the press is that, they still haven’t concluded the procurement of shipping of the existing project as it is today. So we still have to see how that will be filled and then we’ll take a stand on the onward business.

But I think that given the relationship and I think we should be in a good position to charter vessels going forward, whether that be to Yamal or other top tier performers..

Okay, great. Thanks, Tony..

Welcome..

Thank you very much indeed, sir. Now from Credit Suisse, your next question comes from the line of Gregory Lewis. Your line is open, sir..

Thank you and good afternoon, guys. This is Joe Nelson on for Greg today. Maybe…..

Hi there..

Just to start, can you comment on the depth to the charter market at this point? You guys had some success earlier this year getting some longer-term charters.

How active is that market right now?.

Well, given that the short-term market has been subdued for some period of time, then it has been – it’s a direct competition to the long-term market. So normally, you would see medium-term charters or long-term charters, that market is being more active when the spot market is healthier.

Now that we have started seeing an improvement in the spot market. And we really believe that the consensus in the market, given all the production that is coming is that, the shipping market in general is tightening going forward.

We have in the last, let’s say, in the last couple of months, we’ve seen more inquiries and more discussions around their long-term – or the medium and long-term charters. And we think that will continue. So that liquidity will be – liquidity in the long-term charters will be improved versus what it is today.

I mean, right now, I mean, in the last quarters we – well, in the last quarter, we haven’t really seen many long-term charters. I think maybe the only one is GasLog that concluded a term charter with a top tier major..

Okay, great. Thank you. And then just as we think about the spot market, you made some comments earlier about you are seeing a pickup there.

What’s behind that? I mean, is it basin specific, or is it demand from a certain region? How should we be thinking about that?.

I think, I mean, we see in particular activity in the Atlantic, in the Middle East, maybe less so in the Far East. I think it’s a direct result of increased production..

Okay, great. And then, just you have a slide here kind of calling out the supply coming online in 2016 through 2020. I mean, given about two-thirds of that is being constructed in Korea right now.

I mean, what are your thoughts about how realistic some of these delivery timelines are, and as far as is it relates to supply, given everything we are seeing right now in the shipyards in Korea?.

Oh, I think that the – I mean to show that we speak about the same thing, I mean, you mean the LNG order book and a substantial part of that’s coming from Korea. We think that all of that will be delivered. We think that, yes, some of the yards are having troubles.

But that will mean that hanging onto valuable LNG orders, I think will be the first thing that they would ensure that they perform on..

Okay, great. Thanks. And just one quick one for me on the model.

When are your next scheduled dry dockings?.

We have most likely two vessels in 2017..

Okay, great. Thanks, guys. That’s it for me. I’m going to turn it over..

Thank you..

Thank you very much indeed, sir. And now your next question from Morgan Stanley comes from the line of Fotis Giannakoulis. And your line is now open, sir..

Yes. Hi, gentlemen, and thank you. I also want to follow-up on the market and the improvement that you have noticed.

Can you give us some numbers about the chartering activity that you have seen as of late? And how many vessels right now, they are idle or the market is oversupplied compared to what it was in the previous quarter?.

To give specific numbers on that, it’s always a little bit difficult. But we’ve seen examples of, for example, the – one of the largest competitors to independent owners previously was projects. There was like subletting their vessels in the market.

Now, we’ve seen that largely there are very few sub vessels available for these opportunities, because the vessels are being claimed back to their original projects. And that’s creating an improvement pretty much immediately in the market. When it comes to activity levels, well as we said before, Q3 has been a lot more active than Q1.

We believe – yes, Q3, now that we’re in is also very active. And without giving any actual numbers, we believe that if the market continues like this, maybe by the end of the year, we could have a record of spot fixtures, but that is yet to be seen..

Thank you, Tony. And I also want to ask about the re-chartering of your earliest deliveries, particularly about the Arctic Aurora, since clean energies is a steam vessel. We saw the charter of GasLog recently, starting in 2019, that was a very high number.

This vessel Arctic Aurora is – the current contract expires a year earlier than compared to the GasLog vessel.

What would be the discount, or do you think there would be interest in extending this vessel at the similar level, or starting in 2018, or you think that you might have to operate the vessel in the spot market for a short period of time and have a long-term contract starting a little bit later?.

Yes. So in general, we see a big contango in the market. So the levels that we see – so GasLog fixing 2019 on -- with – was quite appropriate. And when it comes to the Arctic Aurora, that is perhaps slightly earlier.

The – they – that vessel has a particular structure built into it, where the charter has a revolving option and can extend 12 months at a time at an agreed rate, which is always slightly higher than the current rate and provide – and they’ll continue to get those options provided that they declare options.

So we believe, well actually we know that vessel has performed extremely well. Statoil is utilizing that vessel very well. The only TSD vessel in Statoil’s fleet, so it’s a vessel that is important to them.

Of course, we have to leave it in their decision if they will extend or not, but I believe that the current structure that is on the ship is very favorable to the charterer..

Thank you, Tony. I think one last question for Michael. And I’m trying to understand how you have calculated the maintenance CapEx of the last vessel from the previous quarter. If I’m not mistaken, the increase in the maintenance CapEx was something like $400,000 in the first quarter compared to the fourth quarter.

What is the thinking behind this calculation?.

The actual calculation, so the dropdown in – to the Lena River is – the methodology is identical to the methodology for the remaining vessels. We haven’t done anything different. So it’s exactly the same methodology as far as both of the dry dock CapEx reserves and the replacement CapEx reserves..

Okay.

Can you give us an insight about what is the reinvestment rate that you have used in order to calculate the maintenance CapEx on the second tier?.

Yes, it’s 6%..

Okay. Thank you very much..

Thank you..

Thank you very much indeed, sir. [Operator Instructions] Now as there are no further requests for questions, gentlemen, I shall pass the floor back to you for closing remarks..

We would like to thank you for your time and for listening in on our earnings call. We look forward to speak with you again on our next call. Thank you very much..

Thank you very much indeed, gentlemen. And with many thanks to our speakers today, that does conclude the conference. Thank you all for participating. You may now disconnect..