Tony Lauritzen - CEO Michael Gregos - CFO.

Christopher Robertson - Jefferies Frank Galanti - Stifel.

Thank you for standing by, ladies and gentlemen, and welcome to Dynagas LNG Partners Conference Call on the Fourth Quarter 2017 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.

[Operator Instructions] I must advise you that this conference is being recorded today. And at this time, I would like to read the Safe Harbor statement.

This conference call and the slide presentation of the webcast contain 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 shall pass the floor to Mr. Lauritzen.

Please go ahead, sir..

Good morning, everyone and thank you for joining us in our full year and fourth quarter ended 31 December 2017 earnings conference call. I am 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. Turning to Slide 3 of the presentation, we have stated in our last earnings call that we would be aiming at covering part of our availability into '18.

The Arctic Aurora has entered into a new 3-year time charter agreement with Statoil. The charter is expected to commence in the third quarter of 2018 in direct continuation of the current charter with Statoil. Statoil will have the options to extend this new charter by two consecutive 12 month periods at escalated rates.

As a result, the contract backlog is increased by about $61 million over the charters from period. In April 2017, the Clean Energy became available for employment at which time we entered into two consecutive short-term charters with Gazprom to employ the vessels through the end of August 2017.

Following the exploration of these charters, the vessel is employed on an additional short-term charter with Petrochina until her 8-year contract with Gazprom from the July 2018. Although we have been successful in employing the Clean Energy on the short-term market, such market was although improving weaker than her long-term charter.

Our adjusted EBITDA for the period was reported at $26.9 million with corresponding adjusted income of $7.6 million. The partnership reported a net income of $5.6 million and distributable cash flow was reported at $11.8 million.

Our quarterly cash distribution for the fourth quarter of 2017 of $0.42 in a quarter per common unit was paid on January 18, 2018. The cash distribution is equal to an increase of 15.8% over the partnerships minimum quarterly distribution per unit.

The partnership paid on February 12, 2018 a cash distribution of $0.56 in a quarter for each of it's Series A Preferred Units for the period from November 12, 2017 to February 11, 2018.

Distributions on the Series A Preferred Units will be payable quarterly on the 12th day of February, May, August and November and an equivalent of $0.56 in the quarter per unit provided the same is declared by the partnerships Board of Directors.

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

Thank you, Tony. Moving onto Slide 4, the results for the quarter were within our expectations. For the quarter we generated $11.8 million in distributable cash flow and $27 million in EBITDA. We are pleased with our operating performance for the quarter with utilization of 99% and vessel daily operating expenses of $12,200 per day.

For the quarter, our average gross time charter hire on a cash basis amounted to about $66,000 per vessel per day whereas our cash breakeven including our distributions to preferred and common unit holders amounted to about $70,000 per day.

Some guidance on 2018; we have three dry-docks in 2018 and we expect they will cost about $10.5 million in total. We believe the dry-docks will be Q2 and Q3 events. We will have some limited spot exposure as the Yenisei River and the Lena River roll off their existing charges in Q2 and Q3 of 2018 until they enter their Yamal contracts.

The Arctic Aurora is entering her new contract in Q3 of this year after she performs her dry-docking. Moving onto Slide 5; in this slide we see the progress of our distributable cash flow and contract backlog since we went public.

In the last three quarters we have experienced the material increase in our revenue contract backlog due to the Yenisei River and the Lena River being chartered to Yamal with 15-year time charter contracts.

At the same time, we had experienced a decrease in EBITDA and a weakening in distribution coverage which follows our shift to longer time charters with greater visibility albeit at lower but attractive charter rates.

Moving onto Slide 6; currently you are aware that we are tapping into our existing cash balance in order to fund the current distribution which is possible because of our healthy cash position, however, this is not something which we believe is in our unit holder's interests.

Specifically during Q4 2017, our distributable cash flow available to common units holders was $10 million and we paid $15 million in cash distributions to our common unit holders.

We're very much a long-term focused company and we will take a long-term look at cash flow and distribution coverage which should follow shifts in long run sustainable earnings. As a result, we will seek to align our distribution coverage with long-term secured cash flow of our fleets.

Moving onto Slide 7; in this slide we highlight the cash flow generating capacity of our existing fleet with a growth potential from dropping down the optional vessels.

We estimate that the long-term run rate EBITDA of the existing partnership of six vessel fleet once all our LNG carriers have been delivered to their long-term contracts will be about $95 million.

The first four potential dropdowns which are fully owned by our sponsor without approximately $22 million in EBITDA each, whereas the five Arc-7 LNG carriers on time charter to Yamal which are sponsor owns 49% of our expected produce, dividend streams of approximately $5 million annually.

We have added this expected stream of dividends to the estimated EBITDA number for simplicity purposes. Dropdowns may improve our distribution coverage and as a result we intend to dropdown two vessels within this year subject to approval of our Board and raising the equity capital for the oppositions [ph].

We would not need to raise additional debt capitals since all the existing debt financing on our sponsors vessels which is amortizing debt at very attractive terms is transferable to the partnership subject to certain conditions being met.

By way of an example, please note, that the total annual debt service of the four dropdown candidates wholly owned by the sponsor amounts to approximately $19 million to $20 million per vessel.

Moving onto Slide 8 to our debt profile which as of September 31 stood at $729 million and which consists of $479 million in secured term loan B debt and $250 million in our unsecured note.

Our low amortization of $5 million per year is supported by a long-term contracted fleet and it is noteworthy that our contract expiries far exceed our debt maturities. 34% of our debt has no exposure to floating interest rates.

Due to the contracted nature of our cash flows, we see our unsecured note and term loan Been trading well in the secondary market which reaffirms our outstanding access to credit markets. This year we expect to focus on the refinancing of our unsecured note which is maturing in October 2019.

Moving onto Slide 9; we have a strong capital structure supported by a long-term profitable charter backlog. Our current strengths are our conservative chartering policy, predictable running costs, specialized modern fleet and healthy liquidity.

As of today, our total debt-to-capitalization stands at 61% and we ended up the year at around six times net debt to EBITDA. Looking across the capital structure we believe we have outstanding access to credit and preferred equity markets in order to fund potential dropdowns.

However, the reduced price of our total units has raised our cost of equity to the point where we currently do not consider it as a source of expansion capital. We believe that our distribution level should be sustainable over a period of time with letting the equally long-term cash flow of our existing fleet and that of our dropdown candidates.

We have best-in-class long-term contracts secured at attractive charter rates, few MOPs can boast of 10.4-year average fluctuation [ph] and $1.5 billion backlog. That wraps it up from my side. I'll pass over the presentation to Tony..

Thank you, Michael. Let's move on to Slide 10 to summarize the partnerships profile. Our fleet currently counts six high specification and versatile LNG carriers with an average age of 7.5 years in an industry where expected use for economic lifetime is 35 years.

We have a diversified customer base with substantial energy companies, namely Gazprom, Statoil, Petrochina and Yamal LNG, which the latter is an international joint venture between Total, CNPC, Novatek, and the Silk Road Fund.

Our contract backlog is about $1.49 billion and our average remaining charter period is about 10.4 years which compares well versus our peers. Our vessels have also served customers such as Shell, Qatargas, RasGas, Marubeni, Woodside Co., Gas CPC, North West Shelf and other major oil and gas companies.

We therefore have a large customer base that we are able to contract with. Moving on to Slide 11. Our fleet of LNG carriers are largely fixed on long-term charters with strong and reputable energy companies. Drivers for our charters were the characteristics of the fleet including its ice class notations and our organization's track record.

Compared to other shipping segments, LNG's shipping is a highly industrial segment where owners and charterers work very closely together and mutual performance is key. Charters typically program the vessels for straight for long periods of time.

After employing the Clean Energy to Petrochina and extending the Arctic Aurora to Statoil, we only have limited availability going forward into '18 and onwards.

We are 85% contracted in 2018, 92% contracted in 2019 and 100% contract in 2020 assuming that the Yenisei River and the Lena River will enter their long-term charters at the earlier state in their delivery windows. We are now pursuing opportunities for the availability that we have in 2018 given that we believe the market is on an improving trend.

Let's move to Slide 12. We have a unique fleet, 5 out of the 6 vessels in our fleet have ice class 1A notations.

The fleet can handle conventional LNG shipping as well as operate in ice bound and subzero areas; this means that we are able to and have been successful in pursuing business opportunities in two different markets, namely conventional shipping and a unique market for icebound trade.

The initial capital expenditure for an ice class vessel is somewhat more expensive than conventional carriers. However, the operating costs between our ice class type carriers and conventional carriers are very similar. The company together with our sponsor has a market share of 75% for vessels with Arc-4 or equivalent ice class notation.

There are only 3 other LNG carriers in the world with equivalent notation which to our knowledge are chartered out for long-term. We view the ability to trade in icebound areas an important advantage due to the current and ongoing construction of LNG producing terminals within icebound areas, and in particular, in the Northern sea routes.

Yamal LNG has recently commenced production and we also expect further project to be developed in that region. We view the ability to perform niche operations as an important driver in securing attractive long-term charters going forward.

Further to that, our fleet is optimized for terminal compatibility which is of significant importance in a market that is changing from a fixed route trade to a worldwide trade. The fleet consists of groups of sister vessels that provides for overall relatively better economics and efficiencies. Let's move to Slide 14.

In summary, we are experiencing ongoing substantial growth of LNG production from new projects, primarily in the U.S., Russia and Australia. The world LNG carrier fleet appears too small to carry those additional volumes in the long-term and there are too many small and old technology vessels.

There appears to be sufficient demand for the new LNG from existing and new importers with floating regasification projects creating accelerated demand. The LNG shipping market is maturing with increased fixture activity on the back of an improving spot market increasing LNG production and larger LNG carrier fleet.

The current LNG world fleet and the order book including FSRUs and FSUs totals about 584 vessels. The order book counting 107 vessels is about 22% of the world fleet. As much as 30% of the world fleet is below 140,000 cubic meters and aged.

These vessels are small with average size of about 135,000 cubic meters, this is well below the average cargo size. We expect that most of these undersized and aged vessels will fade out of the market and be replaced with larger and younger tonnage.

As seen on the graph on the upper right side, almost all vessels built prior to 2006 are small turbine driven vessels, and about 49% of the world fleet is steam driven.

Furthermore, 81% of the order book has already been committed for employment; this means that there are very few new buildings that may be available to replace on average undersized and aged tonnage and to carry expected incremental LNG production.

According to the order book most newbuilds will be delivered during 2018, which is also a period we expect significant additional LNG production.

There are only very few yards in the world that has the experience and capability to build such vessels; and if one were to order today, our guess is that yards would be able to offer tonnage for delivery in the first or more likely second quarter of 2020 at the earliest. Let's move to Slide 15.

We are now in the period with strong growth in LNG production. It is conservatively forecasted that LNG production will increase by more than 50% within 2022. It also assumed that project outputs on existing terminals may increase going forward adding additional supply.

The majority of the new LNG is coming from terminals already under construction, meaning a high probability of project materialization. We expect to see imminent production increases from Australia, U.S. and Russia. It is likely that the Far East will remain the largest buyers going forward, in particular with growing imports to China.

We believe we will continue to see the emergence of new niche markets in areas such as South Asia, Africa, Middle East and South America where large volumes will be imported by FSRUs.

We also believe that there are sufficient buyers for the new LNG to be absorbed; the majority of the new LNG export volumes have sale agreements or off-take agreements in place and we believe that existing import markets will continue to increasingly rely on LNG as a price competitive and Clean Energy resource. Let's move to Slide 16.

2017 LNG production was up 11% compared to 2016. As expected in particular, Australia and the U.S. have been the largest incremental producers so far.

The trend is expected to continue going forward with existing projects such as Gorgon [ph], PFLNG, Wheatstone Train 1, Sabine Pass and Yamal LNG are ramping up capacity and new projects such as Cove Point, Yamal LNG Train 1 and Train 2, Cameron LNG, Elba, Wheatstone Train 2, Ichthys and Prelude being added.

In March 2017, the industry saw the world's first cargo being produced by a floating LNG terminal namely the PFLNG Satu which gives confidence to floating LNG production technology and we expect Golar's FLNG Hilli to follow soon. Let's move to Slide 17. The Far East is still the largest consumer of LNG and demand is growing.

The Far East demand is fueled by recovery in Japan and Korea, and China's push to replace coal with gas for heating and power generation. While Japan and Korea have long been relying on LNG as an energy resource, China completed it's first LNG import terminal in 2008 and today have 13 completed terminals and 10 under construction.

Growth in Chinese average LNG imports have averaged 17% per annum in the last five years. China is now the second largest importer of LNG behind Japan and we expect a need for LNG into China to continue to grow going forward. Let's move to Slide 18. With the U.S.

projected to become one of the world's largest exporters of LNG, it is important to monitor where those volumes are being shipped.

Based on shipping volumes in 2017, 9% of the volumes went to South America, 24% to Central America including Caribs, 16% to Europe including Turkey, 37% to the Far East, 11% to the Middle East and 3% to India and Pakistan. Analysis indicates that the Sabine Pass requires about 1.76 vessels for every million ton LNG produced.

At full production, we expect Sabine Pass to produce 27 million tons per annum over 6 trains. This means that one would require about 47 vessels fully utilized per annum to serve this terminal alone. If we conservatively estimate that the U.S. exports will produce 69 million tons of LNG per annum within 2021, U.S.

volumes may require about 121 vessels alone, that is equivalent to 25% of the current world fleet. Let's move to Slide 19. As we have 2 vessels with limited availability in 2018, we want to see how the short-term market is developing. In the year 2000, 2% of all LNG were sold spots.

In 2015, after years of substantial international investments in LNG infrastructure, this number had increased to 37%. As a result, we see a steady increase in spots and short-term fixture activity. In 2016 and 2017, spot fixtures accounted for 89% and 91% of all fixtures respectively.

We expect going forward that the spot shipping market will be substantial and therefore we believe that niche operators in general will be better suited to conclude longer term deals. Let's move to Slide 20.

we experienced new import markets emerging in particularly via floating regasification terminals, which we term FSRU imports that allows for quick market access. In 2016, 22 million tons equivalent to 8% of the worldwide production were exported to new markets and the majority of those volumes were discharged into FSRU terminals.

Although most incremental demand going forward will come from land-based terminals, the FSRU landscape is important because it develops very quickly and is accelerating LNG demand growth. The FSRU market has grown steadily over the past years.

In 2016 floating regas made up 16% of total regasification capacity; this number is expected to increase to 22% within 2020 which does not include more than 40 proposed FSRU projects. Over the next 12 months, 10 FSRU projects are expected to come online growing the number of countries with FSRU solutions to 23.

In summary, 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. The growth in LNG production set at above 50% within 2022 is estimated to outpace increase in LNG shipping capacity of 22% within the same period.

A large portion of the new LNG will be delivered already within 2019, meaning we should expect the period ramping up to that point and subsequent years to result in an improved and increasingly healthy shipping market.

Additionally, the partnership's fleet is largely 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 in securing long-term charters. We have now reached the end of the presentation. And I now open the floor for questions. Thank you..

[Operator Instructions] Your first question is from Randy Givens from Jefferies. Please go ahead..

I was wondering if we can get some additional color around the distribution; in particular, how low of a cash balance and coverage ratio would you be comfortable with until the new contract start in 2019? And are you committed to the current distribution level or is there a possibility that that might be reduced in the coming quarters?.

We're not looking at the near-term as we have to look at the long-term as far as the distribution is concerned because once our Yamal contract start we have a very good visibility of what our cash flows will look like.

What I can say is, it's an ongoing analysis, we would like to end up with a distribution coverage of above one-times which is sustainable for the longer term.

And we're very fortunate because we can use the word long-term because we held it long time, the long-term contracts which is a necessary ingredient for having sustainable distribution, so that's what I can say at this point..

With regards to Slide 11, I know that you had mentioned it during the call but the Yenisei River and the Lena River, do you plan on operating those in the cool pool between the charters?.

Yes, I mean that could be a possibility. Another possibility would be to find a charter that would fill that gap in it's entirety; we would prefer the latter..

Our next question today is from Frank Galanti from Stifel..

In the call you guys talked about -- whine [ph] to dropdown 2 vessels in 2018 but you'd mentioned your equity capital is too expensive to be considered a source and you would look to the debt markets to fund those dropdowns.

Can you talk about which types of debt capital and the respective interest rates that would be available to make that work?.

No Frank, we said the opposite. We said the debt -- we do not have to arrange debt capital because we can essentially transfer the existing laws [ph] which are at the sponsor level into the NOP subject to certain conditions being met.

We obviously would not be able to access the common equity market, we would need to fund the equity portion with a combination of preferred equity and send us credit from the sponsor..

The two FSRU newbuilds; I just had a question on -- if there have been any development in regard to contracting those vessels?.

That is something that has been working on throughout and as of now these vessels are still open for employment but I can confirm that on a sponsor level it's been looked at several opportunities for those..

Just regarding the cool pool and what kind of utilization rates you guys are seeing?.

I mean, obviously, this is -- we are involved in the cool pool, so we do have some insight to what's going there. I think the utilization should be around above 80% at current. I think that's how specific we can get at this point..

Is that trending any direction from -- I guess from December/January or is that….

No, I think that utilization in general has been up when we look at -- I mean, if we look at let's say the last six months or so. We've seen an increase in utilization and in freight income.

We did see that when gas prices were peaking in the Far East over Christmas at -- what was it, $11, $12; the charter rates were very good at that point, we were kind of -- there is a lot of spread in the spot market so we saw everything from $75,000 to $100,000 a day.

I would say that in the last few weeks it's come off a little bit but we are again starting to see activity picking up again. So we expect that when the Chinese New Year is over, people are back on their desk in the Far East, that activity will continue and we'll see the result of new volumes that are coming on-stream and into the market..

Our next question is from the line of James Jank [ph] from Maxim Group..

So relating to the Yenisei River and the Lena River, if oil price -- if gas prices drop dramatically, would there be options to use these vessels to store offshore?.

Well, there is always is -- I mean, there is always an option to use the vessel to store.

What we typically would see -- if there is a contango in the gas market so that forward prices are much higher than current prices, yes, we would typically see that vessels are being used for storage from time to time and at least they slow steam towards their destination.

So yes, I mean theoretically if gas prices were to fall dramatically and forward prices would stay up, yes, we agree there would be an opportunity for storage..

[Operator Instructions] We have a follow-up question from Randy Givens [ph]..

This is Chris again.

With regards to the ice class vessels, I know that you had mentioned some shipyards in terms of timing of delivery of newbuilds but in terms of those ice class vessels, is there a big difference between how many yards are specialized enough to build those and how long would it take for a delivery of one of those vessels?.

When it comes to construction time, it would probably be very similar as a conventional one. The main difference is equipment and the grade of steel being used.

But we don't foresee that on a typically Arc-4 types that that would take longer time than a conventional ship because when you build -- when you make an order for a ship, there is always a queue in the shipyard.

So construction doesn't -- normally doesn't start the day that you signed a paper for a contract, it starts when the queue allows you to start construction. So I don't expect that conventional -- that an ice class carriers will take longer time than a conventional ship..

There has been some talk around the spot charter rates but have the 3, 5 and 7-year time charter rates responded in recent months as well?.

Yes, I think we've seen along with a substantial improvement in the spot markets. We've seen everything from multi-months to multi-year charter is being discussed. So yes, we can answer affirmative to that..

Probably, there are no further questions..

Okay. So thank you for your time and for listening in on our earnings call. We look forward to speaking with you again on our next call. Thank you very much..

Thank you very much. Ladies and gentlemen, that does conclude the conference. You may now all disconnect your lines..