As filed with the Securities and Exchange Commission on October 9, 2013
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM F-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
Dynagas LNG Partners LP
(Exact name of Registrant as specified in its charter)
Republic of the Marshall Islands | 4400 | N/A | ||
(State or other jurisdiction of incorporation or organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification No.) |
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Dynagas LNG Partners LP 97 Poseidonos Avenue & 2 Foivis Street Glyfada, 16674, Greece 011 30 210 8917 260 |
Seward & Kissel LLP Attention: Gary J. Wolfe, Esq. One Battery Park Plaza New York, New York 10004 (212) 574-1200 |
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(Address and telephone number of Registrants principal executive offices) |
(Name, address and telephone number of agent for service) |
Copies to:
Gary J. Wolfe, Esq. Robert E. Lustrin, Esq. Seward & Kissel LLP One Battery Park Plaza New York, New York 10004 (212) 574-1200 (telephone number) (212) 480-8421 (facsimile number) |
Sean T. Wheeler Latham & Watkins LLP 811 Main Street, Suite 3700 Houston, Texas 77002 (713) 546-5400 (telephone number) (713) 546-5401 (facsimile number) |
Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are being offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box. ¨
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
CALCULATION OF REGISTRATION FEE
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Title of Each Class of Securities to be Registered |
Proposed Maximum Aggregate Offering Price(1) |
Amount of Registration Fee |
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Common units representing limited partner interests |
$150,000,000 | $19,320 | ||
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(1) | Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933. |
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
The information in this Prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This Prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED , 2013
PRELIMINARY PROSPECTUS
Dynagas LNG Partners LP
Common Units
Representing Limited Partner Interests
$ per common unit
We are selling of our common units and our Sponsor, Dynagas Holding Ltd., is selling of our common units. Prior to this offering, there has been no public market for our common units. We currently estimate that the initial public offering price will be between $ and $ per unit. Although we are organized as a partnership, we have elected to be treated as a corporation solely for U.S. federal income tax purposes. We have applied to list our common units on the Nasdaq Global Select Market under the symbol DLNG.
The underwriters have an option to purchase a maximum of additional common units from our Sponsor to cover over-allotments.
We are an emerging growth company as that term is used in the Jumpstart Our Business Startups Act (the JOBS Act).
Investing in our common units involves risks. See Risk Factors beginning on page 28. These risks include the following:
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We may not be able to pay the minimum quarterly distribution on our common units and subordinated units. |
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Our Initial Fleet consists of only three LNG carriers. Any limitation in the availability or operation of these vessels could have a material adverse effect on our business, results of operations and financial condition and could significantly reduce or eliminate our ability to pay the minimum quarterly distribution on our common units and subordinated units. |
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We derive all our revenue and cash flow from two charterers and the loss of either of these charterers could cause us to suffer losses or otherwise adversely affect our business. |
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The amount of our debt could limit our liquidity and flexibility in obtaining additional financing and in pursuing other business opportunities. |
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We are currently in breach of certain financial and other covenants contained in our loan agreements, and as a result, our independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern. |
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Our Sponsor, our General Partner and their respective affiliates own a controlling interest in us and have conflicts of interest and limited duties to us and our common unitholders, which may permit them to favor their own interests to your detriment. |
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Demand for LNG shipping could be significantly affected by volatile natural gas prices and the overall demand for natural gas. |
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Unitholders have limited voting rights, and our Partnership Agreement restricts the voting rights of our unitholders that own more than 4.9% of our common units. |
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We are a holding company, and our ability to make cash distributions to our unitholders will be limited by the value of investments we currently hold and by the distribution of funds from our subsidiaries. |
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There is no existing market for our common units, and a trading market that will provide you with adequate liquidity may not develop. The price of our common units may fluctuate significantly, and you could lose all or part of your investment. |
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You will incur immediate and substantial dilution of $ per common unit. |
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U.S. tax authorities could treat us as a passive foreign investment company, which would have adverse U.S. federal income tax consequences to U.S. unitholders. |
Price per Common Unit |
Total |
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Public offering price |
$ | $ | ||
Underwriting discounts(1) |
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Proceeds to Dynagas Holding Ltd. (before expenses)(2) |
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Proceeds to Dynagas LNG Partners LP (before expenses) |
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Total |
$ | $ |
(1) | Excludes an aggregate structuring fee of $ million payable to Seaborne Capital Advisors Ltd. |
(2) | Dynagas Holding Ltd., our Sponsor, is selling an aggregate of of our common units. We will not receive any of the proceeds from the sale of these units. |
Delivery of the common units will be made on or about , 2013.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Credit Suisse | ||||||
BofA Merrill Lynch | ||||||
Morgan Stanley | ||||||
Barclays |
The date of this prospectus is , 2013.
The Ob River , one of our LNG carriers, traversing the Northern Sea Route, which is a shipping lane from the Atlantic Ocean to the Pacific Ocean that is entirely in Arctic waters.
The Clean Energy , one of our LNG carriers.
You should rely only on information contained in this prospectus. We have not, and the underwriters have not, authorized anyone to give any information or to make any representations other than those contained in this prospectus. Do not rely upon any information or representations made outside of this prospectus. This prospectus is not an offer to sell, and it is not soliciting an offer to buy, (1) any securities other than our common units or (2) our common units in any circumstances in which such an offer or solicitation is unlawful. The information contained in this prospectus may change after the date of this prospectus. Do not assume after the date of this prospectus that the information contained in this prospectus is still correct.
Through and including , 2013 (the 25th day after the date of this prospectus), federal securities law may require all dealers that effect transactions in these securities, whether or not participating in this offering, to deliver a prospectus. This requirement is in addition to the dealers obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
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This section summarizes material information that appears later in this prospectus and is qualified in its entirety by the more detailed information and financial statements included elsewhere in this prospectus. This summary may not contain all of the information that may be important to you. As an investor or prospective investor, you should carefully review the entire prospectus, including the risk factors and the more detailed information that appears later.
Unless otherwise indicated, references to Dynagas LNG Partners, the Company, we, our and us or similar terms refer to Dynagas LNG Partners LP and its wholly-owned subsidiaries, including Dynagas Operating LP, unless the context otherwise indicates. Dynagas Operating LP will own, directly or indirectly, a 100% interest in the entities that own the Clean Energy, the Ob River and the Clean Force, collectively, our Initial Fleet. References in this prospectus to our General Partner refer to Dynagas GP LLC, the general partner of Dynagas LNG Partners LP.
All references in this prospectus to us when used in a historical context refer to our predecessor companies and their subsidiaries, which are subsidiaries of our Sponsor that have interests in the vessels in our Initial Fleet, or the Sponsor Controlled Companies, and when used in the present tense or prospectively refer to us and our subsidiaries, collectively, or individually, as the context may require. Upon the completion of this offering, we will own (i) a 100% limited partner interest in Dynagas Operating LP, (ii) the non-economic general partner interest in Dynagas Operating LP through our 100% ownership of its general partner, Dynagas Operating GP LLC and (iii) 100% of Dynagas Equity Holding Ltd. and its subsidiaries. References to our Sponsor are to Dynagas Holding Ltd. and its subsidiaries other than us or our subsidiaries. References in this prospectus to the Prokopiou Family are to our Chairman, Mr. George Prokopiou, and members of his family.
References in this prospectus to BG Group, Gazprom, Statoil, and Cheniere refer to BG Group Plc, Gazprom Global LNG Limited, Statoil ASA and Cheniere Energy, Inc., respectively, and certain of each of their subsidiaries that are our customers. Unless otherwise indicated, all references to dollars and $ in this prospectus are to the lawful currency of the United States. We use the term LNG to refer to liquefied natural gas and we use the term cbm to refer to cubic meters in describing the carrying capacity of our vessels.
Except where we or the context otherwise indicate, the information in this prospectus assumes no exercise of the underwriters over-allotment option described on the cover page of this prospectus.
Overview
We are a growth-oriented limited partnership focused on owning and operating LNG carriers. Our high-specification vessels are employed on multi-year time charters, which we define as charters of two years or more, with international energy companies such as BG Group and Gazprom, providing us with the benefits of stable cash flows and high utilization rates. We intend to leverage the reputation, expertise, and relationships of our Sponsor and our Manager in maintaining cost-efficient operations and providing reliable seaborne transportation services to our customers. In addition, we intend to make further vessel acquisitions from our Sponsor and from third parties.
Our Sponsor entered the LNG sector in 2004 by ordering the construction of three LNG carriers, the Clean Energy , the Ob River , and the Clean Force , from Hyundai Heavy Industries Co. Ltd. or HHI, one of the worlds leading shipbuilders of LNG carriers. Prior to the completion of this offering, we will acquire from our Sponsor these vessels, which we refer to as our Initial Fleet, in exchange for of our common units and all of our subordinated units. The LNG carriers that comprise the Initial Fleet have an average age of 6.2 years and are under time charters with an average remaining term of 3.6 years, as of September 30, 2013.
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We believe that we will have the opportunity to grow our per unit distributions by making acquisitions of LNG carriers from our Sponsor or from third parties. Our Sponsor took delivery of two newbuilding LNG carriers in July 2013 and one in October 2013 from HHI, and has contracts for the construction of an additional four LNG carriers with HHI, scheduled to be delivered to our Sponsor in 2014 and 2015. We will receive the right to purchase these seven vessels, which we refer to as the Optional Vessels, at a purchase price to be determined pursuant to the terms and conditions of the Omnibus Agreement within 24 months of their delivery to our Sponsor.
As of June 30, 2013 and December 31, 2012, we were not in compliance with certain restrictive and financial covenants contained in our credit facilities, and as a result, our independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern. Please see Risk FactorsRisks Relating to Our CompanyWe are currently in breach of certain financial and other covenants contained in our loan agreements, and as a result, our independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern, Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital ResourcesViolation of Financial Covenants Under Certain of our Credit Facilities and Note 3 to our consolidated financial statements included in this prospectus.
For a discussion of the refinancing of our indebtedness that will occur at or prior to the closing of this offering, please see Recent Developments.
Our Initial Fleet
Our Initial Fleet consists of three LNG carriers currently operating under multi-year charters with BG Group and Gazprom. The Clean Force and the Ob River have been assigned with Lloyds Register Ice Class notation 1A FS, or Ice Class, designation for hull and machinery and are fully winterized, which means that they are designed to call at ice-bound and harsh environment terminals and to withstand temperatures up to minus 30 degrees Celsius. According to Drewry Consultants, Ltd., or Drewry, an independent consulting and research company, the Clean Force and Ob River are two of only five LNG carriers in the global LNG fleet that are currently in operation which have been assigned an Ice Class designation or equivalent rating. This means that only 1.4% of the LNG vessels in the global LNG fleet have this designation, and we are the only company in the world that is currently transiting the Northern Sea Route with LNG carriers. We believe that these specifications enhance our trading capabilities and future employment opportunities because they provide greater flexibility in the trading routes available to our charterers.
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We believe that the key characteristics of each of our vessels in our Initial Fleet include the following:
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optimal sizing with a carrying capacity of approximately 150,000 cbm (which is a medium- to large-size class of LNG carrier) that maximizes operational flexibility as such vessel is compatible with most existing LNG terminals around the world; |
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each vessel is a sister vessel, which are vessels built at the same shipyard, HHI, that share (i) a near-identical hull and superstructure layout, (ii) similar displacement, and (iii) roughly comparable features and equipment; |
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utilization of a membrane containment system that uses insulation built directly into the hull of the vessel with a membrane covering inside the tanks designed to maintain integrity and that uses the vessels hull to directly support the pressure of the LNG cargo, which we refer to as a membrane containment system (see The International Liquefied Natural Gas (LNG) Shipping IndustryThe LNG Fleet for a description of the types of LNG containment systems); |
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double-hull construction, based on the current LNG shipping industry standard; and |
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proven track record with 99.5% utilization rate over 2012 and 2011. |
According to Drewry, there are only 39 LNG carriers currently in operation, including the vessels in our Initial Fleet, with a carrying capacity of between 149,000 and 155,000 cbm and a membrane containment system, representing 9.0% of the global LNG fleet and a total of 118 LNG carriers on order of which eight are being constructed with these specifications.
The following table sets forth additional information about our Initial Fleet as of September 30, 2013:
Vessel Name |
Shipyard |
Year
Built |
Capacity
(cbm) |
Ice
Class |
Flag
State |
Charterer |
Charter
Commencement Date |
Earliest
Charter Expiration |
Latest Charter
Expiration Including Non-Exercised Options |
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Clean Energy |
HHI | 2007 | 149,700 | No |
Marshall
Islands |
BG Group | February 2012 | April 2017 | August 2020(2) | |||||||||
Ob River(1) |
HHI | 2007 | 149,700 | Yes |
Marshall
Islands |
Gazprom | September 2012 | September 2017 | May 2018(3) | |||||||||
Clean Force |
HHI | 2008 | 149,700 | Yes |
Marshall
Islands |
BG Group | October 2010 | September 2016 | January 2020(4) |
(1) | Formerly named Clean Power . |
(2) | BG Group has the option to extend the duration of the charter for an additional three-year term until August 2020 at an escalated daily rate, upon notice to us before January 2016. |
(3) | Gazprom has the option to extend the duration of the charter until May 2018 on identical terms, upon notice to us before March 2017. |
(4) | On January 2, 2013, BG Group exercised its option to extend the duration of the charter by an additional three-year term at an escalated daily rate, commencing on October 5, 2013. BG Group has the option to extend the duration of the charter by an additional three-year term at a further escalated daily rate, which would commence on October 5, 2016, upon notice to us before January 5, 2016. The latest expiration date upon the exercise of all options is January 2020. |
The Optional Vessels
The Optional Vessels consist of seven fully winterized newbuilding LNG carriers, four of which have agreed to operate under multi-year charters with Gazprom, Statoil and Cheniere. Each of the seven newbuilds has or is expected to have upon their delivery the Ice Class designation, or its equivalent, for hull and machinery. Three of these vessels were delivered to our Sponsor in July 2013 and October 2013, and the remaining four vessels are scheduled to be delivered to our Sponsor, as follows: two in 2014 and two in 2015. The three vessels with deliveries in 2013 are sister-vessels, each with a carrying capacity of 155,000 cbm and the four remaining
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vessels with expected deliveries in 2014 and 2015 are sister-vessels, each with a carrying capacity of 162,000 cbm. In the event we acquire the Optional Vessels in the future, we believe the staggered delivery dates of these newbuilding LNG carriers will facilitate a smooth integration of the vessels into our fleet, contributing to our annual fleet growth through 2017.
The Optional Vessels are compatible with a wide range of LNG terminals, providing charterers with the flexibility to trade the vessels worldwide. Each vessel is equipped with a membrane containment system. The compact and efficient utilization of the hull structure reduces the required principal dimensions of the vessel compared to earlier LNG designs and results in higher fuel efficiency and smaller quantities of LNG required for cooling down vessels tanks. In addition, the Optional Vessels will be equipped with a tri-fuel diesel electric propulsion system for increased fuel efficiency.
The following table provides certain information about the Optional Vessels as of September 30, 2013.
Vessel Name / Hull Number |
Shipyard |
Delivery
Date / Expected Delivery Date |
Capacity
Cbm |
Ice
Class |
Sister
Vessels |
Charter
Commencement |
Charterer |
Earliest
Charter Expiration |
Latest
Charter Expiration |
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Yenisei River(2) |
HHI | Q3-2013 | 155,000 | Yes | B | Q3 2013 | Gazprom | Q3 2018 | Q3 2018 | |||||||||||||||||||||||||||
Lena River(2) |
HHI | Q4-2013 | 155,000 | Yes | B | Q4 2013 | Gazprom | Q4 2018 | Q4 2018 | |||||||||||||||||||||||||||
Arctic Aurora(2) |
HHI | Q3-2013 | 155,000 | Yes | B | Q3 2013 | Statoil | Q3 2018 |
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Renewal
Options(1) |
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Clean Ocean |
HHI | Q1-2014 | 162,000 | Yes | C | Q2 2015 | Cheniere | Q2 2020 | Q3 2022 | |||||||||||||||||||||||||||
Clean Planet |
HHI | Q3-2014 | 162,000 | Yes | C | |||||||||||||||||||||||||||||||
Hull 2566 |
HHI | Q1-2015 | 162,000 | Yes | C | |||||||||||||||||||||||||||||||
Hull 2567 |
HHI | Q2-2015 | 162,000 | Yes | C |
(1) | Statoil has revolving consecutive one-year renewal options following the initial five year period. |
(2) | In July 2013, our Sponsor took delivery of the Yenisei River and the Arctic Aurora , which were subsequently delivered to their charterers. In October 2013, our Sponsor took delivery of the Lena River , which was subsequently delivered to its charterer. |
Rights to Purchase Optional Vessels
We will receive the right to purchase the Optional Vessels from our Sponsor at a purchase price to be determined pursuant to the terms and conditions of the Omnibus Agreement, which we intend to enter into with our Sponsor and our General Partner at the closing of this offering. These purchase rights will expire 24 months following the respective delivery of each Optional Vessel from the shipyard. If we are unable to agree with our Sponsor on the purchase price of any of the Optional Vessels, the respective purchase price will be determined by an independent appraiser, such as an investment banking firm, broker or firm generally recognized in the shipping industry as qualified to perform the tasks for which such firm has been engaged, and we will have the right, but not the obligation, to purchase each vessel at such price. The independent appraiser will be mutually appointed by our Sponsor and a committee comprised of certain of our independent directors, or the conflicts committee. Please see Certain Relationships and Related Party TransactionsAgreements Governing the TransactionsOmnibus AgreementRights to Purchase Optional Vessels for information on how the purchase price is calculated.
The purchase price of the Optional Vessels, as finally determined by an independent appraiser, may be an amount that is greater than what we are able or willing to pay or we may be unwilling to proceed to purchase such vessel if such acquisition would not be in our best interests. We will not be obligated to purchase the Optional Vessels at the determined price and, accordingly, we may not complete the purchase of such vessels,
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which may have an adverse effect on our expected plans for growth. In addition, our ability to purchase the Optional Vessels, should we exercise our right to purchase such vessels, is dependent on our ability to obtain additional financing to fund all or a portion of the acquisition costs of these vessels. As of the date of this prospectus, we have not secured any financing in connection with the potential acquisition of the Optional Vessels since it is uncertain if and when such purchase options will be exercised. Our Sponsor has entered into loan agreements in connection with the seven Optional Vessels. In the event we acquire the Optional Vessels in the future, we may enter into agreements with our Sponsor to novate these loan agreements to us. Any such novation would be subject to each respective lenders consent.
Our Relationship with Our Sponsor and members of the Prokopiou Family
We believe that one of our principal strengths is our relationship with our Sponsor, our Manager and members of the Prokopiou Family, which provide us access to their long-standing relationships with major energy companies and shipbuilders and their technical, commercial and managerial expertise. As of September 30, 2013 our Sponsors LNG carrier fleet consisted of three LNG carriers and four newbuildings on order, excluding the vessels in our Initial Fleet. While our Sponsor intends to utilize us as its primary growth vehicle to pursue the acquisition of LNG carriers employed on time charters of four or more years, we can provide no assurance that we will realize any benefits from our relationship with our Sponsor or the Prokopiou Family and there is no guarantee that their relationships with major energy companies and shipbuilders will continue. Our Sponsor, our Manager and other companies controlled by members of the Prokopiou Family are not prohibited from competing with us pursuant to the terms of the Omnibus Agreement which we will enter into with our Sponsor and our General Partner at the closing of this offering. Our General Partner, which is wholly-owned by our Sponsor, will own 100% of the general partner units, representing a 0.1% general partner interest in us, or the General Partner Units, and 100% of the incentive distribution rights upon the closing of this offering. Please see Summary of Conflicts of Interest and Fiduciary Duties below and the section entitled Conflicts of Interest and Fiduciary Duties which appears later in this prospectus.
Positive Industry Fundamentals
We believe that the following factors collectively present positive industry fundamental prospects for us to execute our business plan and grow our business:
Natural gas and LNG are vital and growing components of global energy sources. According to Drewry, by 2018 global demand for LNG is forecasted to increase by approximately 146 million tonnes (7 trillion cubic feet), an increase of 44% during 2012. Natural gas accounted for 24% of the worlds primary energy consumption in 2012, and is expected to increase to 25% in 2013. Over the last two decades, natural gas has been one of the worlds fastest growing energy sources, increasing at twice the rate of oil consumption over the same period. We believe that LNG, which accounted for 32% of overall cross-border trade of natural gas in 2012 according to Drewry, will continue to increase its share in the mid-term future. A cleaner burning fuel than both oil and coal, natural gas has become an increasingly attractive fuel source in the last decade.
Demand for LNG shipping is experiencing growth. The growing distances between the location of natural gas reserves and the nations that consume natural gas have caused an increase in the percentage of natural gas traded between countries. This has resulted in an increase in the portion of natural gas that is being transported in the form of LNG, which provides greater flexibility and generally lowers capital costs of shipping natural gas, as well as reduces the environmental impact compared to transportation by pipeline. Increases in planned capacity of liquefaction and regasification terminals are anticipated to increase export capacity significantly, requiring additional LNG carriers to facilitate transportation activity. According to Drewry, based on the current projections of liquefaction terminals that are planned or under construction, liquefaction capacity is expected to increase by approximately 29% by 2016. Approximately one million tonnes of LNG export capacity creates
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demand for approximately one to two LNG carriers with carrying capacity of 160,000 to 165,000 cbm each. According to Drewry, as of August 2013, global liquefaction capacity was 290.6 million tonnes, and an additional 84.0 million tonnes of liquefaction capacity is under construction and scheduled to be available by the end of 2016. Over the past three years, global LNG demand has continued to rise, but at a slower pace than previously predicted. Drewry estimates that LNG trade decreased by 1.2% in 2012 primarily due to delays at many liquefaction plants under construction and lower production as a result of planned and unplanned outages at various LNG facilities and the weakness in the world economy. However, based on current construction projects in Australia and the United States, LNG supply is expected to increase, and to have a beneficial impact on demand for shipping capacity.
A limited newbuilding orderbook and high barriers to entry should restrict the supply of new LNG carriers. According to Drewry, the current orderbook of LNG carriers represents 33.9% of current LNG carrier fleet carrying capacity. During the period from 2002 to 2012, the newbuilding orderbook of LNG carriers represented on average approximately 47.1% of the LNG carrier fleet carrying capacity. As of August 2013, 113 LNG carriers, with an aggregate carrying capacity of 18.3 million cbm, were on order for delivery for the period between 2013 to 2017, while the existing fleet consisted of 363 vessels with an aggregate capacity of 53.9 million cbm. We believe that the current orderbook is limited due to constrained construction capacity at high-quality shipyards and the long lead-time required for the construction of LNG carriers. While we believe this has restricted additional supply of new LNG carriers in the near-term, any increase in LNG carrier supply may place downward pressure on charter rates. In addition, we believe that there are significant barriers to entry in the LNG shipping sector, which also limit the current orderbook due to large capital requirements, limited availability of qualified vessel personnel, and the high degree of technical management required for LNG vessels.
Stringent customer certification standards favor established, high-quality operators. Major energy companies have developed stringent operational, safety and financial standards that LNG operators generally are required to meet in order to qualify for employment in their programs. Based on our Managers track record and long established operational standards, we believe that these rigorous and comprehensive certification standards will be a barrier to entry for less qualified and less experienced vessel operators and will provide us with an opportunity to establish relationships with new customers.
Increasing ownership of the global LNG carrier fleet by independent owners. According to Drewry, as of August 2013, 64% of the LNG fleet was owned by independent shipping companies, 21% was owned by LNG producers and 8% was owned by energy majors and end-users, respectively. We believe that private and state-owned energy companies will continue to seek high-quality independent owners, such as ourselves, for their growing LNG shipping needs in the future, driven in part by large capital requirements, and level of expertise necessary, to own and operate LNG vessels.
We can provide no assurance that the industry dynamics described above will continue or that we will be able to capitalize on these opportunities. Please see Risk Factors and The International Liquefied Natural Gas (LNG) Shipping Industry.
Competitive Strengths
We combine a number of features that we believe distinguish us from other LNG shipping companies.
Management
Broad based Sponsor experience. Under the leadership of Mr. George Prokopiou, our founder and Chairman, we, through our Sponsor and Manager, have developed an extensive network of relationships with
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major energy companies, leading LNG shipyards, and other key participants throughout the shipping industry. Although we were formed in May 2013, we believe that these longstanding relationships with shipping industry participants, including chartering brokers, shipbuilders and financial institutions, should provide us with profitable vessel acquisition and employment opportunities in the LNG sector, as well as access to financing that we will need to grow our Company. Since entering the shipping business in 1974, Mr. Prokopiou has founded and controlled various companies, including Dynacom Tankers Management Ltd., or Dynacom Tankers Management, a Liberian company engaged in the management and operation of crude oil tankers and refined petroleum product tankers, Sea Traders S.A., or Sea Traders, a Panamanian company that manages and operates drybulk carriers and container vessels, and our Manager. Please see BusinessOur Relationship with our Sponsor and members of the Prokopiou Family.
Strong management experience in the LNG shipping sector. Our management has managed and operated LNG carriers since 2004, and we believe that, through our Sponsor and Manager, we have acquired significant experience in the operation and ownership of LNG carriers. Our senior executives and our Chairman have an average of 25 years of shipping experience, including experience in the LNG sector. Furthermore, one of the vessels in our Initial Fleet, the Ob River , while operated by our Manager, became the worlds first LNG carrier to complete an LNG shipment via the Northern Sea Route, that is a shipping lane from the Atlantic Ocean to the Pacific Ocean entirely in Arctic waters, which demonstrated its extensive ice class capabilities. During this voyage, it achieved a significant reduction in navigation time compared to the alternative route through the Suez Canal, and accordingly, generated significant cost savings for its charterer, Gazprom. We believe this expertise, together with our reputation and track record in LNG shipping, positions us favorably to capture additional commercial opportunities in the LNG industry.
Cost-competitive and efficient operations. Our Manager will provide the technical and commercial management of our Initial Fleet and any other vessels we may acquire in the future. We believe that our Manager, through comprehensive preventive maintenance programs and by retaining and training qualified crew members, will be able to manage our vessels efficiently, safely and at a competitive cost.
Demonstrated access to financing. Our Sponsor funded the construction of the Optional Vessels through debt financing as well as equity provided by entities owned and controlled by members of the Prokopiou Family. Should we exercise our right to purchase any of the seven Optional Vessels, our Sponsor may novate to us the loan agreements secured by the Optional Vessels, subject to each respective lenders consent. We believe that our access to financing will improve our ability to capture future market opportunities and make further acquisitions, which we expect will increase the minimum quarterly distribution to our unitholders. In addition, upon the completion of this offering, our Sponsor has agreed to provide us with a $30.0 million revolving credit facility to be used for general partnership purposes, including working capital. This revolving credit facility will have a term of five years and will bear interest at LIBOR plus a margin. As of September 30, 2013, we had outstanding borrowings under our secured loan facilities of $348.2 million.
Fleet
Modern and high specification fleet. Two of the three vessels in our Initial Fleet, the Clean Force and the Ob River , have been assigned with Lloyds Registers Ice Class designation, or its equivalent, for hull and machinery and are fully winterized, which means that they are designed to call at ice-bound and harsh environment terminals and to withstand temperatures up to minus 30 degrees Celsius. In addition, all of the Optional Vessels are being and have been constructed with the same characteristics and all of the Optional Vessels have or are expected to have upon their delivery the Ice Class designation, or its equivalent. We believe that these attractive characteristics should provide us with a competitive advantage in securing future charters with customers and enhance our vessels earnings potential. According to Drewry, the Clean Force and Ob River are two of only five LNG carriers in the global LNG fleet that are currently in operation which have been assigned an Ice Class designation, or its equivalent, and we are the only company in the world that is currently
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transiting the Northern Sea Route with LNG carriers. This means that only 1.4% of the LNG vessels in the global LNG fleet have this designation. We believe that these specifications enhance our trading capabilities and future employment opportunities because they provide greater flexibility in the trading routes available to our charterers. In addition, each of the Optional Vessels is being constructed with an efficient tri-fuel diesel electric propulsion system, which will significantly reduce both fuel costs and emissions.
Sister vessel efficiencies. The seven Optional Vessels consist of two series of sister vessels, vessels of the same type and specification, and our Initial Fleet of three LNG carriers are also sister vessels, which we believe will enable us to benefit from more chartering opportunities, economies of scale and operating and cost efficiencies in ship construction, crew training, crew rotation and shared spare parts. We believe that more chartering opportunities will be available to us because many charterers prefer sister vessels due to their interchangeability and ease of cargo scheduling associated with the use of sister vessels.
Built-in opportunity for fleet growth. In addition to our Initial Fleet, we will have the right to purchase the Optional Vessels from our Sponsor. We believe the staggered delivery dates of the seven Optional Vessels will facilitate a smooth integration of these vessels into our fleet if we purchase and take delivery of the vessels. Additionally, we will have the right to acquire from our Sponsor any LNG carrier it owns and employs under a charter with term of four or more years. We believe these acquisition opportunities will provide us with a way to grow our cash distributions per unit. However, we can make no assurances regarding our ability to acquire these vessels from our Sponsor or our ability to increase cash distributions per unit as a result of any such acquisition. As of the date of this prospectus, we have not secured any financing in connection with the potential acquisition of the Optional Vessels or other vessels since it is uncertain if and when such purchase options will be exercised. Please see Certain Relationships and Related Party TransactionsOmnibus Agreement.
Commercial
Capitalize on growing demand for LNG shipping. We believe our Sponsors and our Managers industry reputation and relationships position us well to further expand our fleet to meet the growing demand for LNG shipping. We intend to leverage the relationships that we, our Sponsor and our Manager have with a number of major energy companies beyond our current customer base and explore relationships with other leading energy companies, with an aim to supporting their growth programs.
Pursue a multi-year chartering strategy. We currently focus on, and have entered into, multi-year time charters with international energy companies, which provide us with the benefits of stable cash flows and high utilization rates. All of the vessels in our Initial Fleet are currently time chartered on multi-year contracts, which should result in 100% of our calendar days being under charter coverage in 2013, 2014 and 2015 and as of September 30, 2013, are expected to provide us with total contracted revenue in excess of $303.1 million, excluding options to extend and assuming full utilization for the full term of the charter. The actual amount of revenues earned and the actual periods during which revenues are earned may differ from the amounts and periods described above due to, for example, off-hire for maintenance projects, downtime, scheduled or unscheduled dry-docking and other factors that result in lower revenues than our average contract backlog per day. In the LNG sector, shipowners generally tend to employ their vessels on multi-year charters for steady and secure returns. Charterers also want to have access to vessels for secured supply of cargoes at pre-determined charter rates which can meet their contractual sale and purchase commitments.
Strengthen relationships with customers. We, through our Sponsor and our Manager, have, over time, established relationships with several major LNG industry participants. The vessels in our Initial Fleet have, in the past, been chartered to numerous major international energy companies and conglomerates, in addition to our current charterers, BG Group and Gazprom. We expect that BG Group and Gazprom will further expand their LNG operations, and that their demand for additional LNG shipping capacity will also increase. While we cannot guarantee that BG Group and Gazprom will further expand their LNG operations or that they will use our
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services, we believe we are well positioned to support them in executing their growth plans if their demand for LNG carriers and services increases in the future. We intend to continue to adhere to the highest standards with regard to reliability, safety and operational excellence.
Borrowing Activities
For a complete description of our credit facilities and the financial and restrictive covenants contained therein, please see Managements Discussion and Analysis of Financial Condition and Results of OperationsOur Borrowing Activities.
We are in advanced discussions with one of our lenders, an affiliate of Credit Suisse Securities (USA) LLC, or Credit Suisse, to enter into a new $262.13 million senior secured credit facility, which we refer to as the Proposed Senior Secured Revolving Credit Facility, at or prior to the closing of this offering to permit, among other things, distributions to our unitholders and the other transactions contemplated herein. A portion of the proceeds of the Proposed Senior Secured Revolving Credit Facility, together with the net proceeds of this offering, will be used to repay all of our existing outstanding indebtedness effective upon the closing of this offering. The expected material terms of this new credit facility are set forth under the heading Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital ResourcesOur Borrowing ActivitiesProposed Senior Secured Revolving Credit Facility.
As a result of the Proposed Senior Secured Credit Facility and repayment of our existing indebtedness, effective as of the closing of this offering, the covenant breaches described above and elsewhere in this prospectus will have no further force or effect.
In addition, we have guaranteed two credit agreements of our Sponsor, with outstanding borrowings of an aggregate of up to $627 million, which are secured by four of the Optional Vessels, the Yenisei River , the Lena River , the Clean Ocean and the Clean Planet . The guarantees have been provided through certain of our subsidiaries, including the subsidiaries that own the vessels comprising our Initial Fleet. Our Sponsor is in discussions with its lenders to amend these two credit agreements at or prior to the closing of this offering to, among other things, release us from our obligations as guarantor effective upon the closing of this offering. Please see Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital ResourcesOur Sponsors Credit Agreements.
As a result of the amendment to these two loan agreements, effective as of the closing of this offering, we will be released from our obligations as guarantor under the loan agreements and will no longer guarantee any of our Sponsors debt.
The consummation of this offering is contingent upon our entry into the Proposed Senior Secured Revolving Credit Facility and the release of the guarantees described above.
We are currently unable to pay distributions to our unitholders. All of our credit agreements, other than the $150 Million Clean Energy Credit Facility, contain provisions that restrict our ability to declare and make distributions to our unitholders, and in the case of our $150 Million Clean Energy Credit Facility, no distributions may be paid to unitholders when there is an event of default that remains uncured.
As of June 30, 2013, we were in breach of the minimum liquidity requirement relating to our $193 Million Ob River Credit Facility, which requires us to maintain minimum liquidity of $30 million, while we maintained $2.8 million in restricted cash. We are currently in compliance with the remaining financial and liquidity covenants in our loan agreements. In addition, we were not in compliance with certain restrictive covenants relating to our credit agreements, which are described under the heading Managements Discussion and
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Analysis of Financial Condition and Results of OperationsLiquidity and Capital ResourcesOur Borrowing ActivitiesViolation of Financial Covenants Under Certain of our Credit Facilities.
A violation of any of the financial covenants contained in our credit facilities described above constitutes an event of default under our credit facilities, which, unless cured under the applicable credit facility, if applicable, or waived or modified by our lenders, provides our lenders with the right to, among other things, require us to post additional collateral, enhance our equity and liquidity, increase our interest payments, pay down our indebtedness to a level where we are in compliance with our loan covenants, sell vessels in our fleet, reclassify our indebtedness as current liabilities and accelerate our indebtedness and foreclose their liens on our vessels and the other assets securing the credit facilities, which would impair our ability to continue to conduct our business.
On July 19, 2013, one of our lenders declared an event of default under one of our credit facilities. As of September 30, 2013, we have not requested or obtained waivers from our lenders for non-compliance with these covenants. We believe, however, that our lenders will not demand payment of the loans before their maturity, provided that we pay scheduled loan installments and interest as they fall due under the existing credit facilities.
Upon completion of this offering and the related transactions, we plan to fund the loan interest and scheduled loan repayments with cash expected to be generated from operations.
Formation Transactions
We were formed on May 30, 2013 as a Marshall Islands limited partnership to own, operate and acquire LNG carriers initially employed on charters of three or more years. Prior to the closing of the offering, we will own (i) a 100% limited partner interest in Dynagas Operating LP, (ii) the non-economic general partner interest in Dynagas Operating LP through our 100% ownership of its general partner, Dynagas Operating GP LLC and (iii) 100% of Dynagas Equity Holding Ltd. and its subsidiaries, which are the Sponsor Controlled Companies that own directly and indirectly the three vessels comprising our Initial Fleet.
In addition, at or prior to the closing of this offering, the following transactions will occur:
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we will issue to our Sponsor common units and all of our subordinated units, representing a 99.9% limited partner interest in us; |
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we will issue to our General Partner, a company owned and controlled by our Sponsor, General Partner Units representing a 0.1% General Partner interest in us and all of our incentive distribution rights, which will entitle our General Partner to increasing percentages of the cash we distribute in excess of $ per unit per quarter; |
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we will sell common units to the public in this offering, representing a % limited partner interest in us; |
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our Sponsor will sell common units to the public in this offering, representing a % limited partner interest in us; and |
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we intend to use the net proceeds from this offering, together with $ from our Proposed Senior Secured Revolving Credit Facility, as follows: (i) approximately $ million to repay in full all of the outstanding indebtedness under our $193 million Ob River Credit Facility, which bears interest at LIBOR plus a margin and matures in July 2017, (ii) approximately $ million to repay in full all of the outstanding indebtedness under our $150 million Clean Energy Credit Facility, which bears interest at LIBOR plus a margin and matures in July 2017, (iii) approximately $ million to repay in full all of the outstanding indebtedness under our $128 million Clean Force Credit Facility, which bears interest at LIBOR plus a margin and matures in April 2020, and (iv) approximately $ million for general partnership purposes, including working capital. See Use of Proceeds. |
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In addition, at or prior to the closing of this offering:
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we will enter into the Proposed Senior Secured Revolving Credit Facility; |
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our Sponsor and its lenders will amend the two loan agreements secured by four of the Optional Vessels to release us from our obligations as guarantor; and |
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we will enter into an Omnibus Agreement with our Sponsor and our General Partner, governing, among other things: |
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to what extent we and our Sponsor may compete with each other; |
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our options to purchase from our Sponsor the Optional Vessels within 24 months after their respective deliveries from the shipyard; |
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certain rights of first offer on LNG carriers operating under charters with an initial term of four or more years as described under Certain Relationships and Related Party TransactionsAgreements Governing the TransactionsOmnibus Agreement; and |
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our Sponsors provision of certain indemnities to us. |
Our Corporate Structure
Dynagas LNG Partners LP was organized as a limited partnership in the Republic of the Marshall Islands on May 30, 2013, as a wholly-owned subsidiary of Dynagas Holding Ltd., our Sponsor. Upon the closing of this offering and the completion of the Formation Transactions described above, our Sponsor will own % of our outstanding common units and all of our outstanding subordinated units, assuming the underwriters do not exercise their over-allotment option.
Dynagas Operating LP owns a 100% interest in the Clean Energy , the Ob River and the Clean Force through intermediate holding companies.
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The following diagram provides a summary of our corporate and ownership structure after giving effect to this offering, assuming no exercise of the underwriters over-allotment option.
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Vessel Management
Our Manager provides us with commercial and technical management services for our Initial Fleet and certain corporate governance and administrative services, pursuant to three identical agreements with our three wholly-owned vessel owning subsidiaries, or the Management Agreements. Our Manager is wholly-owned by Mr. George Prokopiou and has been providing these services for the vessels in our Initial Fleet for over eight years. In addition, our Manager performs the commercial and technical management of each of the Optional Vessels, which also includes the supervision of the construction of these vessels. Through our Manager, we have had a presence in LNG shipping for over eight years, and during that time we believe our Manager has established a track record for efficient, safe and reliable operation of LNG carriers.
We pay our Manager a technical management fee of $2,500 per day for each vessel, pro-rated for the calendar days we own each vessel, for providing the relevant vessel owning subsidiaries with services, including engaging and providing qualified crews, maintaining the vessel, arranging supply of stores and equipment, arranging and supervising periodic dry-docking, cleaning and painting and ensuring compliance with applicable regulations, including licensing and certification requirements.
In addition, we pay our Manager a commercial management fee equal to 1.25% of the gross charter hire, ballast bonus which is the amount paid to the ship owner as compensation for all or a part of the cost of positioning the vessel to the port where the vessel will be delivered to the charterer, or other income earned during the course of the employment of our vessels, during the term of the management agreements, for providing the relevant vessel-owning subsidiary with services, including chartering, managing freight payment, monitoring voyage performance, and carrying out other necessary communications with the shippers, charterers and others.
Under the Management Agreements, our Manager also provides us with certain administrative and support services.
Under the terms of the Management Agreements, we may terminate the Management Agreements upon written notice if our Manager fails to fulfill its obligations to us under the Management Agreements. The Management Agreements terminate automatically following a change of control in us. If the Management Agreements are terminated as a result of a change of control in us, then we will have to pay our Manager a termination penalty. For this purpose a change of control means (i) the acquisition of fifty percent or more by any individual, entity or group of the beneficial ownership or voting power of the outstanding shares of us or our vessel owning subsidiaries, (ii) the consummation of a reorganization, merger or consolidation of us and/or our vessel owning subsidiaries or the sale or other disposition of all or substantially all of our assets or those of our vessel owning subsidiaries and (iii) the approval of a complete liquidation or dissolution of us and/or our vessel owning subsidiaries. Additionally, the Management Agreements may be terminated by our Manager with immediate effect if, among other things, (i) we fail to meet our obligations and/or make due payments within ten business days from receipt of invoices, (ii) upon a sale or total loss of a vessel (with respect to that vessel), or (iii) if we file for bankruptcy.
We expect to pay an aggregate of approximately $2.8 million to our Manager in connection with the management of our Initial Fleet under the Management Agreements for the twelve months ending December 31, 2014.
In addition to such fees, we expect to pay for any capital expenditures, financial costs, operating expenses and any general and administrative expenses, including payments to third parties, in accordance with the Management Agreements.
The term of the Management Agreements with our Manager will expire on December 31, 2020, and will renew automatically for successive eight-year terms thereafter unless earlier terminated. The technical
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management fee of $2,500 per day for each vessel is fixed until December 31, 2013 and will thereafter increase annually by 3%, subject to further annual increases to reflect material unforeseen costs of providing the management services, by an amount to be agreed between us and our Manager, which amount will be reviewed and approved by the conflicts committee.
Pursuant to the terms of the Management Agreements, liability of our Manager to us is limited to instances of negligence, gross negligence or willful default on the part of our Manager. Further, we are required to indemnify our Manager for liabilities incurred by our Manager in performance of the Management Agreements, except in instances of negligence, gross negligence or willful default on the part of our Manager.
Additional LNG carriers that we acquire in the future may be managed by our Manager or other unaffiliated management companies.
Implications of Being an Emerging Growth Company
We had less than $1.0 billion in revenue during our last fiscal year, which means that we qualify as an emerging growth company as defined in the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions include:
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the ability to present only two years of audited financial statements and only two years of related Managements Discussion and Analysis of Financial Condition and Results of Operations in the registration statement for our initial public offering; |
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exemption from the auditor attestation requirement in the assessment of the emerging growth companys internal controls over financial reporting, for so long as a company qualifies as an emerging growth company; |
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exemption from new or revised financial accounting standards applicable to public companies until such standards are also applicable to private companies; and |
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exemption from compliance with any new requirements adopted by the Public Company Accounting Oversight Board, or the PCAOB, requiring mandatory audit firm rotation or a supplement to our auditors report in which the auditor would be required to provide additional information about the audit and our financial statements. |
We may take advantage of these provisions until the end of the fiscal year following the fifth anniversary of our initial public offering or such earlier time that we are no longer an emerging growth company. We will cease to be an emerging growth company if, among other things, we have more than $1.0 billion in total annual gross revenues during the most recently completed fiscal year, we become a large accelerated filer with market capitalization of more than $700 million, or as of any date on which we have issued more than $1.0 billion in non-convertible debt over the three year period to such date. We may choose to take advantage of some, but not all, of these reduced burdens. For as long as we take advantage of the reduced reporting obligations, the information that we provide to our unitholders may be different from information provided by other public companies.
Summary of Conflicts of Interest and Fiduciary Duties
Our General Partner and our directors will have a legal duty to manage us in a manner beneficial to our unitholders, subject to the limitations described under Conflicts of Interest and Fiduciary Duties. This legal duty is commonly referred to as a fiduciary duty. Our directors also will have fiduciary duties to manage us in a manner beneficial to us, our General Partner and our limited partners. As a result of these relationships,
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conflicts of interest may arise between us and our unaffiliated limited partners on the one hand, and our Sponsor and its affiliates, including our General Partner, on the other hand. The resolution of these conflicts may not be in the best interest of us or our unitholders. In particular:
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certain of our directors and officers may also serve as officers of our Sponsor or its affiliates and as such will have fiduciary duties to our Sponsor or its affiliates that may cause them to pursue business strategies that disproportionately benefit our Sponsor or its affiliates or which otherwise are not in the best interests of us or our unitholders; |
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our Partnership Agreement permits our General Partner to make a number of decisions in its individual capacity, as opposed to in its capacity as our General Partner, which entitles our General Partner to consider only the interests and factors that it desires, and it has no duty or obligations to give any consideration to any interest of or factors affecting us, our affiliates or any unitholder; when acting in its individual capacity, our General Partner may act without any fiduciary obligation to us or the unitholders whatsoever; |
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our Sponsor and its affiliates may compete with us, subject to the restrictions contained in the Omnibus Agreement, which we will enter into with our Sponsor and our General Partner, and could own and operate LNG carriers under time charters that may compete with our vessels, including charters with an initial term of four or more years if we do not acquire such vessels when they are offered to us pursuant to the terms and conditions of the Omnibus Agreement; |
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any agreement between us, on the one hand, and our General Partner and its affiliates, on the other, will not grant to the unitholders, separate and apart from us, the right to enforce the obligations of our General Partner and its affiliates in our favor; |
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borrowings by us and our affiliates may constitute a breach of any duty owed by our General Partner or our directors to our unitholders, including borrowings that have the purpose or effect of: (i) enabling our General Partner or its affiliates to receive distributions on any subordinated units held by them or the incentive distribution rights or (ii) hastening the expiration of the subordination period; |
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our General Partner, as the holder of the incentive distribution rights, will have the right to reset the minimum quarterly distribution and the cash target distribution levels, upon which the incentive distributions payable to our General Partner would be based without the approval of unitholders or the conflicts committee of our board of directors at any time when there are no subordinated units outstanding and we have made cash distributions to the holders of the incentive distribution rights at the highest level of incentive distribution for each of the prior four consecutive fiscal quarters, and in connection with such resetting and the corresponding relinquishment by our General Partner of incentive distribution payments based on the cash target distribution levels prior to the reset, our General Partner would be entitled to receive a number of newly issued common units and General Partner Units based on a predetermined formula described under How We Make Cash DistributionsGeneral Partners Right to Reset Incentive Distribution Levels; and |
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in connection with this offering, we will enter into agreements, and may enter into additional agreements, with our General Partner and our Sponsor and certain of its subsidiaries, relating to the purchase of additional vessels, the provision of certain services to us by our Manager and its affiliates and other matters. In the performance of their obligations under these agreements, our Sponsor and its subsidiaries, other than our General Partner, are not held to a fiduciary duty standard of care to us, our General Partner or our limited partners, but rather to the standard of care specified in these agreements. |
For a more detailed description of our management structure, please see ManagementDirectors and Senior Management and Certain Relationships and Related Party Transactions.
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Although a majority of our directors will over time be elected by our common unitholders, our General Partner will have influence on decisions made by our board of directors. Our board of directors will have a conflicts committee comprised of certain of our independent directors. Our board of directors may, but is not obligated to, seek approval of the conflicts committee for resolutions of conflicts of interest that may arise as a result of the relationships between our Sponsor and its affiliates, including our General Partner, on the one hand, and us and our unaffiliated limited partners, on the other. There can be no assurance that a conflict of interest will be resolved in favor of us.
Company Information
The address of our principal executive offices is 97 Poseidonos Avenue & 2 Foivis Street, Glyfada, 16674 Greece. Our telephone number at that address is 011 30 210 89 17 260. After the completion of this offering, we will maintain a website at www.dynagaspartners.com. Information contained on our website does not constitute part of this prospectus.
We own our vessels through separate wholly-owned subsidiaries that are incorporated in the Republic of the Marshall Islands, Republic of Liberia and the Island of Nevis.
Recent Developments
We are in advanced discussions with one of our lenders, an affiliate of Credit Suisse, in connection with the Proposed Senior Secured Revolving Credit Facility to be entered into at or prior to the closing of this offering, to permit, among other things, distributions to our unitholders and the transactions contemplated herein. A portion of the proceeds of the Proposed Senior Secured Revolving Credit Facility, together with the net proceeds of this offering, will be used to repay all of our existing outstanding indebtedness, including the $128 Million Clean Force Credit Facility, $150 Million Clean Energy Credit Facility and $193 million Ob River Credit Facility, effective as of the closing of this offering. See Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital ResourcesOur Borrowing ActivitiesProposed Senior Secured Revolving Credit Facility.
As a result of the Proposed Senior Secured Credit Facility and repayment of our existing indebtedness, effective as of the closing of this offering, the covenant breaches described above under Borrowing Activities and elsewhere in this prospectus will have no further force or effect.
In addition, our Sponsor is in discussions with its lenders to amend two of its credit agreements at or prior to the closing of this offering. These two credit agreements, which are currently guaranteed by certain of our subsidiaries, including the subsidiaries that own the vessels comprising our Initial Fleet, have outstanding borrowings of an aggregate of $627 million. These credit agreements are secured by four of the Optional Vessels, the Yenisei River , the Lena River , the Clean Ocean and the Clean Planet . See Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital ResourcesOur Borrowing ActivitiesOur Sponsors Credit Agreements. As a result of the amendments to these two credit agreements, effective as of the closing of this offering, we will be released from our obligations as guarantor under the loan agreements and will no longer guarantee any of our Sponsors debt.
The consummation of this offering is contingent upon our entry into the Proposed Senior Secured Revolving Credit Facility and the release of the guarantees described above.
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Common units offered to the public by us |
common units. |
Common units offered to the public by the Sponsor |
common units. |
common units if the underwriters exercise their over-allotment option in full. |
Common units and subordinated units outstanding immediately after this offering |
common units and subordinated units, representing a % and % limited partner interest in us, respectively. |
common units if the underwriters exercise their over-allotment option in full. |
Over-allotment option |
Our Sponsor will grant the underwriters a 30-day option to purchase up to additional common units to cover over-allotments, if any. The exercise of the underwriters option will not affect the total number of units outstanding or the amount of cash needed to pay the minimum quarterly distribution. |
Sponsor |
Dynagas Holding Ltd., our Sponsor, owned 100% of our common and subordinated units as of the date of this prospectus. Following the completion of this offering, our Sponsor will own approximately % of our outstanding common units and 100% of our outstanding subordinated units. |
Use of proceeds from sale of common units offered to the public by us |
We expect to receive net proceeds of approximately $ million from the sale of common units offered by this prospectus, assuming an initial public offering price of $ per common unit, which is the mid-point of the price range set forth on the cover of this prospectus and after deducting estimated underwriting discounts and commissions and structuring fees and paying estimated offering expenses. We intend to use the net proceeds from this offering, as follows: |
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Approximately $ million to repay in full all of the outstanding indebtedness under our $193 million Ob River Credit Facility, which bears interest at LIBOR plus a margin and matures in July 2017; and |
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Approximately $ million for general partnership purposes, including working capital. |
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We intend to the use the proceeds from our Proposed Senior Secured Revolving Credit Facility, as follows: |
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Approximately $ million to repay in full all of the outstanding indebtedness under our $150 million Clean Energy Credit Facility, which bears interest at LIBOR plus a margin and matures in July 2017; |
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Approximately $ million to repay in full all of the outstanding indebtedness under our $128 million Clean Force Credit Facility, which bears interest at LIBOR plus a margin and matures in April 2020; and |
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Approximately $ million will remain undrawn and available for vessel acquisitions. |
See Use of Proceeds. |
Use of proceeds from sale of common units offered to the public by our Sponsor |
Our Sponsor will receive $ million in net proceeds from the sale of common units offered by this prospectus to the public and we will not receive any proceeds from the sale of these common units. See Use of Proceeds. |
Cash distributions |
Following this offering, we intend to make minimum quarterly distributions of $ per unit, or $ per unit on an annualized basis, to the extent we have sufficient cash from operations after establishment of cash reserves and payment of fees and expenses, including payments to our General Partner. In general, we will pay any cash distributions we make each quarter in the following manner: |
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first, 99.9% to the holders of common units and 0.1% to our General Partner, until each common unit has received a minimum quarterly distribution of $ plus any arrearages from prior quarters; |
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second, 99.9% to the holders of subordinated units and 0.1% to our General Partner, until each subordinated unit has received a minimum quarterly distribution of $ ; and |
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third, 99.9% to all unitholders, pro rata, and 0.1% to our General Partner, until each unit has received an aggregate distribution of $ . |
Within 45 days after the end of each fiscal quarter (beginning with the quarter ending December 31, 2013), we will distribute all of our available cash to unitholders of record on the applicable record date. We will adjust the minimum quarterly distribution for the period from the closing of the offering through December 31, 2013 based on the actual length of the period. Our ability to pay our minimum quarterly distribution is subject to various restrictions and other factors described in more detail under the caption Our Cash Distribution Policy and Restrictions on Distributions. If cash distributions to our |
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unitholders exceed $ per unit in a quarter, holders of our incentive distribution rights (initially, our General Partner) will receive increasing percentages, up to 49.9%, of the cash we distribute in excess of that amount. We refer to these distributions as incentive distributions. We must distribute all of our cash on hand at the end of each quarter, less, among other things, reserves established by our board of directors to provide for the proper conduct of our business, to comply with any applicable debt instruments or to provide funds for future distributions. We refer to this cash as available cash, which is defined in our Partnership Agreement attached hereto as Appendix A. The amount of available cash may be greater than or less than the aggregate amount of the minimum quarterly distribution to be distributed on all units. |
We believe, based on the estimates contained in and the assumptions listed under Our Cash Distribution Policy and Restrictions on DistributionsForecasted Cash Available for Distribution, that we will have sufficient cash available for distribution to enable us to pay the minimum quarterly distribution of $ on all of our common and subordinated units for each quarter through December 31, 2014. However, unanticipated events may occur which could adversely affect the actual results we achieve during the forecast period. Consequently, our actual results of operations, cash flows and financial condition during the forecast period may vary from the forecast, and such variations may be material. Prospective investors are cautioned to not place undue reliance on the forecast and should make their own independent assessment of our future results of operations, cash flows and financial condition. |
Dynagas LNG Partners LP is a holding company, and its ability to make cash distributions to its unitholders is limited by the distribution of funds from its subsidiaries and the covenants contained in its credit facilities. In addition, we are currently in default under our credit facilities and as a result we are prohibited from paying distributions to our unitholders. All of our credit agreements, other than the $150 Million Clean Energy Credit Facility, also contain provisions that restrict our ability to declare and make distributions to our unitholders. We are in advanced discussions with one of our lenders, an affiliate of Credit Suisse, to enter into the Proposed Senior Secured Credit Revolving Facility at or prior to the closing of this offering to permit, among other things, distributions to the Companys unitholders and the other transactions contemplated herein. A portion of the proceeds of this credit facility, together with the net proceeds of this offering, will be used to repay all of our existing outstanding indebtedness effective as of the closing of this offering. The expected material terms of the Proposed Senior Secured Revolving Credit Facility are set forth under the heading Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital ResourcesOur Borrowing ActivitiesProposed Senior Secured Revolving Credit Facility. |
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See Our Cash Distribution Policy and Restrictions on DistributionsForecasted Cash Available for Distribution. |
Subordinated units |
Our Sponsor will initially own all of our subordinated units. The principal difference between our common units and subordinated units is that in any quarter during the subordination period the subordinated units are entitled to receive the minimum quarterly distribution of $ per unit only after the common units have received the minimum quarterly distribution and arrearages in the payment of the minimum quarterly distribution from prior quarters. Subordinated units will not accrue arrearages. The subordination period will end on the first business day after we have earned and paid in the applicable period at least $ (the minimum quarterly distribution on an annualized basis) on each outstanding common and subordinated unit and the corresponding distribution on the General Partners 0.1% interest for any three consecutive four-quarter periods ending on or after . For purposes of determining whether the subordination period will end, the three consecutive four-quarter periods for which the determination is being made may include one or more quarters with respect to which arrearages in the payment of the minimum quarterly distribution on the common units have accrued, provided that all such arrearages have been repaid prior to the end of each such four-quarter period. If the subordination period ends as a result of us having met the tests described above, all subordinated units will convert into common units on a one-for-one basis, and the common units will no longer be entitled to arrearages. The subordination period will also end upon the removal of our General Partner other than for cause if the units held by our General Partner and its affiliates are not voted in favor of such removal. When the subordination period ends, all subordinated units will convert into common units on a one-for-one basis and the common units will no longer be entitled to arrearages. |
General Partners right to reset the target distribution levels |
Our General Partner has the right, at a time when there are no subordinated units outstanding and it has received incentive distributions at the highest level to which it is entitled (49.9%) for each of the prior four consecutive fiscal quarters, to reset the initial cash target distribution levels at higher levels based on the distribution at the time of the exercise of the reset election. If our General Partner transfers all or a portion of the incentive distribution rights it holds in the future, then the holder or holders of a majority of our incentive distribution rights will be entitled to exercise this right. Following a reset election by our General Partner, the minimum quarterly distribution amount will be reset to an amount equal to the average cash distribution amount per common unit for the two fiscal quarters immediately preceding the reset election (we refer to such amount as the reset minimum quarterly distribution amount), and the target distribution levels will be reset to correspondingly higher levels based on the same percentage increases above the reset |
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minimum quarterly distribution amount as our current target distribution levels. |
In connection with resetting these target distribution levels, our General Partner will be entitled to receive a number of common units equal to that number of common units whose aggregate quarterly cash distributions equaled the average of the distributions to it on the incentive distribution rights in the prior two quarters. See How We Make Cash DistributionsGeneral Partners Right to Reset Incentive Distribution Levels. |
Issuance of additional units |
We can issue an unlimited number of additional units, including units that are senior to the common units in rights of distribution, liquidation and voting, on the terms and conditions determined by our board of directors, without the consent of our unitholders. |
See Units Eligible for Future Sale and The Partnership AgreementIssuance of Additional Securities. |
Board of Directors |
Upon the closing of this offering, our board of directors will consist of five members appointed by our General Partner. We will hold a meeting of the limited partners every year to elect one or more members of our board of directors and to vote on any other matters that are properly brought before the meeting. Our General Partner has the right to appoint two of the five members of our board of directors who will serve as directors for terms determined by our General Partner. At our first annual meeting in 2014, the common unitholders will elect three of our directors. The three directors will be nominated by our General Partner. The three directors elected by our common unitholders at our 2014 annual meeting will be divided into three classes to be elected by our common unitholders annually on a staggered basis to serve for three-year terms. Initially, the majority of our directors will be non-United States citizens or residents. Directors elected by our common unitholders will be nominated by the board of directors or by any limited partner or group of limited partners that holds at least 15% of the outstanding common units. See ManagementManagement of Dynagas LNG Partners LP. |
Voting Rights |
Each outstanding common unit is entitled to one vote on matters subject to a vote of common unitholders. However, to preserve our ability to be exempt from U.S. federal income tax under Section 883 of the U.S. Internal Revenue Code of 1986, as amended, or the Code, if at any time, any person or group owns beneficially more than 4.9% of any class of units then outstanding, any such units owned by that person or group in excess of 4.9% may not be voted on any matter and will not be considered to be outstanding when sending notices of a meeting of unitholders, calculating required votes (except for purposes of nominating a person for election to our board of directors), determining the presence of a quorum or for other similar purposes under our Partnership Agreement, unless otherwise required by law. The voting |
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rights of any such unitholders in excess of 4.9% will effectively be redistributed pro rata among the other common unitholders holding less than 4.9% of the voting power of all classes of units entitled to vote. Our General Partner, its affiliates and persons who acquired common units with the prior approval of our board of directors will not be subject to this 4.9% limitation except with respect to voting their common units in the election of the elected directors. |
You will have no right to elect our General Partner on an annual or other continuing basis. Our General Partner may not be removed except by a vote of the holders of at least 66 2/3% of the outstanding common and subordinated units, including any common and subordinated units owned by our General Partner and its affiliates, voting together as a single class. Upon consummation of this offering, our Sponsor will own % of our common units and all of our subordinated units, representing % of the outstanding common and subordinated units. If the underwriters over-allotment option is exercised in full, our Sponsor will own of our common units and all of our subordinated units, representing % of the outstanding common and subordinated units. As a result, you will initially be unable to remove our General Partner without its consent because our Sponsor will own sufficient units upon completion of this offering to be able to prevent the General Partners removal. |
See The Partnership AgreementVoting Rights. |
Limited call right |
If at any time our Sponsor and its affiliates own more than 80% of the outstanding common units, our Sponsor has the right, but not the obligation, to purchase all, but not less than all, of the remaining common units at a price equal to the greater of (x) the average of the daily closing prices of the common units over the 20 trading days preceding the date three days before the notice of exercise of the call right is first mailed and (y) the highest price paid by our General Partner or any of its affiliates for common units during the 90-day period preceding the date such notice is first mailed. Our Sponsor is not obligated to obtain a fairness opinion regarding the value of the common units to be repurchased by it upon the exercise of this limited call right. |
Material U.S. Federal Income Tax Considerations |
Although we are organized as a partnership, we have elected to be treated as a corporation solely for U.S. federal income tax purposes. Consequently, all or a portion of the distributions you receive from us will constitute dividends for such purposes. The remaining portion of such distributions will be treated first as a non-taxable return of capital to the extent of your tax basis in your common units and, thereafter, as capital gain. We estimate that if you hold the common units that you purchase in this offering through the period ending , the distributions you receive, on a cumulative basis, that will constitute dividends for U.S. federal income tax purposes will be approximately % of the total cash distributions received during |
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that period. See Material U.S. Federal Income Tax ConsiderationsU.S. Federal Income Taxation of U.S. HoldersRatio of Dividend Income to Distributions for the basis for this estimate. For a discussion of material U.S. federal income tax consequences that may be relevant to prospective unitholders who are individual citizens or residents of the United States, see Material U.S. Federal Income Tax ConsiderationsU.S. Federal Income Taxation of U.S. Holders and for a discussion of material U.S. federal income tax consequences that may be relevant to prospective unitholders who are non-U.S. citizens or residents, see Material U.S. Federal Income Tax ConsiderationsU.S. Federal Income Taxation of Non-U.S. Holders. Please also see Risk FactorsTax Risks. |
Exchange listing |
We have applied to have our common units approved for listing on the Nasdaq Global Select Market under the symbol DLNG. |
Risk factors |
Investing in our common units involves substantial risks. You should carefully consider all the information in this prospectus prior to investing in our common units. In particular, we urge you to consider carefully the factors set forth in the section of this prospectus entitled Risk Factors beginning on page 28. |
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SUMMARY HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
We were formed on May 30, 2013 by our Sponsor as a new LNG carrier subsidiary focused on owning and operating LNG carriers that are employed on multi-year time charters with international energy companies. Prior to the completion of this offering, we will complete a series of formation transactions that are described in the section of the prospectus entitled SummaryFormation Transactions, including the acquisition of certain subsidiaries of our Sponsor that have interests in the LNG carriers in our Initial Fleet, or the Sponsor Controlled Companies. Upon the closing of the offering, our business will be a direct continuation of the Sponsor Controlled Companies. We do not intend to engage in any business or other activities prior to the closing of the offering, except in connection with our formation. The Sponsor Controlled Companies are limited to entities that are under the control of our Sponsor and its affiliates, and, as such, this acquisition was accounted for as a transaction between entities under common control. As a result, the financial statements of the Sponsor Controlled Companies and us from May 30, 2013 (the date of our inception) have been presented using combined historical carrying costs of the assets and liabilities of the Sponsor Controlled Companies, and present the consolidated financial position and results of operations as if Dynagas Partners and the Sponsor Controlled Companies were consolidated for all periods presented.
The following table summarizes our summary historical consolidated financial and other operating data at the dates and for the periods indicated. The summary historical consolidated financial data in the table as of December 31, 2012 and 2011 and for the years then ended is derived from our audited consolidated financial statements for 2012 and 2011 included elsewhere in this prospectus, which have been prepared in accordance with U.S. GAAP. Our summary historical consolidated financial data presented below as of and for the six months ended June 30, 2013 and 2012 has been prepared on the same basis as our audited consolidated financial statements, are derived from our unaudited interim condensed consolidated financial statements included herein and, in the opinion of management, include all adjustments (consisting of only normal recurring adjustments) necessary for a fair presentation thereof. Our interim results are not necessarily indicative of our results for the entire year or for any future periods. The following financial data should be read in conjunction with Managements Discussion and Analysis of Financial Condition and Results of Operations, and our consolidated financial statements and related notes included elsewhere in this prospectus.
Our financial position, results of operations and cash flows could differ from those that would have resulted if we operated autonomously or as an entity independent of our Sponsor in the periods for which historical financial data are presented below, and such data may not be indicative of our future operating results or financial performance.
Six Months Ended June 30, | Year Ended December 31, | |||||||||||||||
2013 | 2012 | 2012 | 2011 | |||||||||||||
(in thousands of Dollars) | ||||||||||||||||
Income Statement Data |
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Voyage revenues |
$ | 42,444 | $ | 37,105 | $ | 77,498 | $ | 52,547 | ||||||||
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Voyage expenses(1) |
(832 | ) | (1,928 | ) | (3,468 | ) | (1,353 | ) | ||||||||
Vessel operating expenses |
(6,232 | ) | (7,376 | ) | (15,722 | ) | (11,350 | ) | ||||||||
General and administrative expenses |
(21 | ) | | (278 | ) | (54 | ) | |||||||||
Management fees |
(1,358 | ) | (1,328 | ) | (2,638 | ) | (2,529 | ) | ||||||||
Depreciation |
(6,733 | ) | (6,771 | ) | (13,616 | ) | (13,579 | ) | ||||||||
Dry-docking and special survey costs |
| (719 | ) | (2,109 | ) | | ||||||||||
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Operating income |
27,268 | 18,983 | 39,667 | 23,682 | ||||||||||||
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Interest income |
| 1 | 1 | 4 | ||||||||||||
Interest and finance costs |
(4,591 | ) | (4,452 | ) | (9,576 | ) | (3,977 | ) | ||||||||
Loss on derivative financial instruments |
| (138 | ) | (196 | ) | (824 | ) | |||||||||
Other, net |
51 | (1 | ) | (60 | ) | (65 | ) | |||||||||
Net Income |
$ | 22,728 | $ | 14,393 | $ | 29,836 | $ | 18,820 | ||||||||
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Six Months Ended June 30, | Year Ended December 31, | |||||||||||||||
2013 | 2012 | 2012 | 2011 | |||||||||||||
(in thousands of Dollars) | ||||||||||||||||
Balance Sheet Data: |
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Total current assets |
$ | 5,069 | $ | 8,981 | $ | 3,453 | ||||||||||
Vessels, net |
460,021 | 466,754 | 480,370 | |||||||||||||
Total assets |
468,332 | 476,275 | 484,363 | |||||||||||||
Total current liabilities |
368,069 | 398,434 | 439,024 | |||||||||||||
Total Long Term Debt and stockholders loan, including current portion |
359,045 | 380,715 | 402,189 | |||||||||||||
Total partners equity |
97,903 | 75,175 | 45,339 | |||||||||||||
Cash Flow Data: |
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Net cash provided by operating activities |
$ | 17,728 | $ | 2,988 | $ | 27,902 | $ | 28,974 | ||||||||
Net cash used in financing activities |
(17,728 | ) | (2,988 | ) | (27,902 | ) | (28,974 | ) | ||||||||
Fleet Data: |
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Number of vessels at the end of the year |
3 | 3 | 3 | 3 | ||||||||||||
Average number of vessels in operation(2) |
3 | 3 | 3 | 3 | ||||||||||||
Average age of vessels in operation at end of period (years) |
5.9 | 4.9 | 5.4 | 4.4 | ||||||||||||
Available days(3) |
543 | 530 | 1,056 | 1,095 | ||||||||||||
Time Charter Equivalent(4) |
76,633 | 66,372 | 70,104 | 46,753 | ||||||||||||
Fleet utilization(5) |
100.0 | % | 99.0 | % | 99.5 | % | 99.5 | % | ||||||||
Other Financial Data: |
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Adjusted EBITDA(6) |
34,052 | 25,753 | 53,223 | 37,196 |
(1) | Voyage expenses include commissions of 1.25% paid to our Manager and third party ship brokers. |
(2) | Represents the number of vessels that constituted our fleet for the relevant period, as measured by the sum of the number of days each vessel was a part of our fleet during the period divided by the number of calendar days in the period. |
(3) | Available days are the total number of calendar days our vessels were in our possession during a period, less the total number of scheduled off-hire days during the period associated with major repairs, or dry-dockings. |
(4) |
Time charter equivalent rates, or TCE rates, is a measure of the average daily revenue performance of a vessel. For time charters, this is calculated by dividing total voyage revenues, less any voyage expenses, by the number of Available days during that period. Under a time charter, the charterer pays substantially all of the vessel voyage related expenses. However, we may incur voyage related expenses when positioning or repositioning vessels before or after the period of a time charter, during periods of commercial waiting time or while off-hire during dry-docking or due to other unforeseen circumstances. The TCE rate is not a measure of financial performance under U.S. GAAP (non-GAAP measure), and should not be considered as an alternative to voyage revenues, the most directly comparable GAAP measure, or any other measure of financial performance presented in accordance with U.S. GAAP. However, TCE rate is a standard shipping industry performance measure used primarily to compare period-to-period changes in a companys performance and assists our management in making decisions regarding the deployment and use of our vessels and in evaluating their financial performance. Our calculation of TCE rates may not be comparable to that reported by other companies. The following table reflects the calculation of our TCE rates for the |
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six month periods ended June 30, 2013 and 2012 and the years ended December 31, 2012 and 2011 (amounts in thousands of U.S. dollars, except for TCE rates, which are expressed in U.S. dollars and Available days): |
Six Months Ended June 30, | Year Ended December 31, | |||||||||||||||
2013 | 2012 | 2012 | 2011 | |||||||||||||
Voyage revenues |
$ | 42,444 | 37,105 | $ | 77,498 | $ | 52,547 | |||||||||
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Voyage expenses |
(832 | ) | (1,928 | ) | (3,468 | ) | (1,353 | ) | ||||||||
Time charter equivalent revenues |
41,612 | 35,177 | 74,030 | 51,194 | ||||||||||||
Total Available days |
543 | 530 | 1,056 | 1,095 | ||||||||||||
Time charter equivalent (TCE) rate |
76,633 | 66,372 | 70,104 | 46,753 |
(5) | We calculate fleet utilization by dividing the number of our revenue earning days, which are the total number of Available Days of our vessels net of unscheduled off-hire days, during a period, by the number of our Available days during that period. The shipping industry uses fleet utilization to measure a companys efficiency in finding employment for its vessels and minimizing the amount of days that its vessels are off-hire for reasons such as unscheduled repairs but excluding scheduled off-hires for vessel upgrades, dry-dockings or special or intermediate surveys. |
(6) | Adjusted EBITDA is defined as earnings before interest and finance costs, net of interest income, gains/losses on derivative financial instruments, taxes (when incurred), depreciation and amortization (when incurred). Adjusted EBITDA is used as a supplemental financial measure by management and external users of financial statements, such as our investors, to assess our liquidity and our operating performance. We believe that Adjusted EBITDA assists our management and investors by providing useful information that increases the comparability of our performance operating from period to period and against the operating performance of other companies in our industry that provide Adjusted EBITDA information. This increased comparability is achieved by excluding the potentially disparate effects between periods or companies of interest, other financial items, depreciation and amortization and taxes, which items are affected by various and possibly changing financing methods, capital structure and historical cost basis and which items may significantly affect net income between periods. We believe that including Adjusted EBITDA as a measure of operating performance benefits investors in (a) selecting between investing in us and other investment alternatives and (b) monitoring our ongoing financial and operational strength in assessing whether to continue to hold common units. |
Adjusted EBITDA is not a measure of financial performance under U.S. GAAP, does not represent and should not be considered as an alternative to net income, operating income, cash flow from operating activities or any other measure of financial performance presented in accordance with U.S. GAAP. Adjusted EBITDA excludes some, but not all, items that affect net income and these measures may vary among other companies. Therefore, Adjusted EBITDA as presented below may not be comparable to similarly titled measures of other companies. The following table reconciles Adjusted EBITDA to net income (loss), the most directly comparable U.S. GAAP financial measures, for the periods presented:
Six Months Ended June 30, | Year Ended December 31, | |||||||||||||||
2013 | 2012 | 2012 | 2011 | |||||||||||||
Reconciliation to Net Income | (in thousands of Dollars) | |||||||||||||||
Net Income |
$ | 22,728 | $ | 14,393 | $ | 29,836 | $ | 18,820 | ||||||||
Net interest expense (including loss from derivative instruments) |
4,591 | 4,589 | 9,771 | 4,797 | ||||||||||||
Depreciation |
6,733 | 6,771 | 13,616 | 13,579 | ||||||||||||
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Adjusted EBITDA |
$ | 34,052 | $ | 25,753 | $ | 53,223 | $ | 37,196 | ||||||||
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Statements included in this prospectus which are not historical facts (including our financial forecast and any other statements concerning plans and objectives of management for future operations or economic performance, or assumptions related thereto) are forward-looking statements. In addition, we and our representatives may from time to time make other oral or written statements which are also forward-looking statements. Our disclosure and analysis in this prospectus pertaining to our operations, cash flows and financial position, including, in particular, the likelihood of our success in developing and expanding our business, include forward-looking statements. Statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as expects, anticipates, intends, plans, believes, estimates, projects, forecasts, may, should and similar expressions are forward-looking statements.
All statements in this prospectus that are not statements of either historical or current facts are forward-looking statements.
Forward-looking statements appear in a number of places and include statements with respect to, among other things:
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statements about LNG market trends, including charter rates, factors affecting supply and demand, and opportunities for the profitable operations of LNG carriers; |
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the effect of the worldwide economic slowdown; |
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turmoil in the global financial markets; |
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fluctuations in currencies and interest rates; |
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general market conditions, including fluctuations in charter hire rates and vessel values; |
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changes in our operating expenses, including dry-docking and insurance costs and bunker prices; |
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forecasts of our ability to make cash distributions on our units and the amount of any borrowings that may be necessary to make such distributions; |
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our future financial condition or results of operations and our future revenues and expenses; |
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the repayment of debt; |
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the anticipated taxation of our Company and distributions to our unitholders; |
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our anticipated growth strategies; |
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our ability to make additional borrowings and to access public equity and debt capital markets; |
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our ability to compete successfully for future chartering and newbuild opportunities; |
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planned capital expenditures and availability of capital resources to fund capital expenditures; |
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our ability to maintain long-term relationships with major LNG traders; |
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our ability to leverage our Sponsors and our Managers relationships and reputation in the shipping industry; |
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our ability to purchase vessels from our Sponsor in the future, including the seven newbuilding LNG carriers for which we have rights to purchase; |
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our continued ability to enter into multi-year time charters; |
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our ability to maximize the use of our vessels, including the re-deployment or disposition of vessels no longer under time charter; and |
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timely purchases and deliveries of newbuilding vessels. |
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Limited partner interests are inherently different from the capital stock of a corporation, although many of the business risks to which we are subject are similar to those that would be faced by a corporation engaged in a similar business. You should consider carefully the following risk factors, as well as the other information contained in this prospectus, before making an investment in our common units. Any of the risk factors described below could significantly and negatively affect our business, financial condition or operating results, which may reduce our ability to pay dividends and lower the trading price of our common units. You may lose part or all of your investment.
Risks Relating to Our Company
Our Initial Fleet consists of only three LNG carriers. Any limitation in the availability or operation of these vessels could have a material adverse effect on our business, results of operations and financial condition and could significantly reduce or eliminate our ability to pay the minimum quarterly distribution on our common units and subordinated units.
Our Initial Fleet consists of only three LNG carriers. If any of our vessels are unable to generate revenues as a result of off-hire time, early termination of the applicable time charter or otherwise, our business, results of operations financial condition and ability to make minimum quarterly distributions to unitholders could be materially adversely affected.
We currently derive all our revenue and cash flow from two charterers and the loss of either of these charterers could cause us to suffer losses or otherwise adversely affect our business.
We currently derive all of our revenue and cash flow from two charterers, BG Group and Gazprom. For the year ended December 31, 2012, BG Group accounted for 58%, Qatar Gas accounted for 26% and Gazprom accounted for 16% of our total revenue. For the year ended December 31, 2011, BG Group accounted for 33%, Qatar Gas accounted for 37% and Gazprom accounted for 30% of our total revenue. All of the charters for our Initial Fleet have fixed terms, but may be terminated early due to certain events, such as a charterers failure to make charter payments to us because of financial inability, disagreements with us or otherwise. The ability of each of our counterparties to perform its obligations under a charter with us will depend on a number of factors that are beyond our control and may include, among other things, general economic conditions, the condition of the LNG shipping industry, prevailing prices for natural gas and the overall financial condition of the counterparty. Should a counterparty fail to honor its obligations under an agreement with us, we may be unable to realize revenue under that charter and could sustain losses, which could have a material adverse effect on our business, financial condition, results of operations and ability to pay minimum quarterly distribution to our unitholders.
In addition, a charterer may exercise its right to terminate the charter if, among other things:
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the vessel suffers a total loss or is damaged beyond repair; |
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we default on our obligations under the charter, including prolonged periods of vessel off-hire; |
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war or hostilities significantly disrupt the free trade of the vessel; |
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the vessel is requisitioned by any governmental authority; or |
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a prolonged force majeure event occurs, such as war or political unrest, which prevents the chartering of the vessel. |
In addition, the charter payments we receive may be reduced if the vessel does not perform according to certain contractual specifications. For example, charter hire may be reduced if the average vessel speed falls below the speed we have guaranteed or if the amount of fuel consumed to power the vessel exceeds the guaranteed amount.
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If any of our charters are terminated, we may be unable to re-deploy the related vessel on terms as favorable to us as our current charters, or at all. If we are unable to re-deploy a vessel for which the charter has been terminated, we will not receive any revenues from that vessel, and we may be required to pay ongoing expenses necessary to maintain the vessel in proper operating condition. Any of these factors may decrease our revenue and cash flows. Further, the loss of any of our charterers, charters or vessels, or a decline in charter hire under any of our charters, could have a material adverse effect on our business, results of operations, financial condition and ability to make minimum quarterly distributions to our unitholders.
We are subject to certain risks with respect to our contractual counterparties, and failure of such counterparties to perform their obligations under such contracts could cause us to sustain significant losses, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
We have entered into, and may enter in the future, contracts, charters, conversion contracts with shipyards, credit facilities with banks, interest rate swaps, foreign currency swaps and equity swaps. Such agreements subject us to counterparty risks. The ability of each of our counterparties to perform its obligations under a contract with us will depend on a number of factors that are beyond our control and may include, among other things, general economic conditions and the overall financial condition of the counterparty. Should a counterparty fail to honor its obligations under agreements with us, we could sustain significant losses, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
We may be unable to pay the minimum quarterly distribution on our common units and subordinated units.
Our initial policy is to make minimum quarterly distributions to our unitholders of $ per unit in February, May, August, and November, or $ per unit per year. The amount of cash available for distribution, if any, will principally depend upon the amount of cash we generate from our operations, which may fluctuate from quarter to quarter based on the risks described in this section, including, among other things:
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the rates we obtain from our charters; and |
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the level of our operating and other costs and expenses, such as the cost of crews and insurance. |
In addition, the actual amount of cash we will have available for distribution to our unitholders will depend on other factors, including:
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the level of capital expenditures we make, including for maintaining or replacing vessels, constructing new vessels, acquiring existing vessels and complying with regulations; |
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the number of unscheduled off-hire days for our fleet and the timing of, and number of days required for, scheduled dry-docking of our vessels; |
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our debt service requirements and restrictions on distributions contained in our debt instruments; |
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the level of debt we will incur if we exercise our right to purchase each of the Optional Vessels from our Sponsor; |
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fluctuations in interest rates; |
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fluctuations in our working capital needs; |
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variable tax rates; and |
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currency exchange rate fluctuations. |
In addition, each quarter we will be required to deduct estimated maintenance and replacement capital expenditures from operating surplus, which may result in less cash available to unitholders than if actual maintenance and replacement capital expenditures were deducted.
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The amount of cash we will generate from our operations may differ materially from our profit or loss for the period, which will be affected by non-cash items. As a result of this and the other factors mentioned above, we may make cash distributions during periods when we record losses and may not make cash distributions during periods when we record profits.
Dynagas LNG Partners LP is a holding company, and its ability to make cash distributions to its unitholders is limited by the distribution of funds from its subsidiaries and the covenants contained in its credit facilities. In addition, we are currently in default under our credit facilities and as a result we are prohibited from paying distributions to our unitholders. All of our credit agreements, other than the $150 Million Clean Energy Credit Facility, also contain provisions that restrict our ability to declare and make distributions to our unitholders. We are in advanced discussions with one of our lenders, an affiliate of Credit Suisse, to enter into the Proposed Senior Secured Revolving Credit Facility at or prior to the closing of this offering to permit, among other things, distributions to the Companys unitholders and the other transactions contemplated herein. A portion of the proceeds of this credit facility, together with the net proceeds of this offering, will be used to repay all of our existing outstanding indebtedness effective as of the closing of this offering. The expected material terms of the Proposed Senior Secured Revolving Credit Facility are set forth under the heading Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital ResourcesOur Borrowing ActivitiesProposed Senior Secured Revolving Credit Facility.
Our growth depends on our ability to expand relationships with existing charterers and obtain new charterers, for which we will face substantial competition.
The process of obtaining new time charters is highly competitive and generally involves intensive screening and competitive bidding, and often extends for several months. LNG carrier time charters are generally awarded based upon a variety of factors relating to the vessel operator, including but not limited to:
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LNG shipping experience and quality of vessels; |
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shipping industry relationships and reputation for customer service and safety; |
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technical ability and reputation for operating highly specialized vessels; |
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quality and experience of seafaring crew; |
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the ability to finance LNG carriers at competitive rates, and financial stability generally; |
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construction management experience, including, (i) relationships with shipyards and the ability to obtain suitable berths; and (ii) the ability to obtain on-time delivery of new LNG carriers according to customer specifications; |
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willingness to accept operational risks pursuant to the charter, such as allowing termination of the charter for force majeure events; and |
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competitiveness of the bid in terms of overall price. |
We expect substantial competition for providing marine transportation services for potential LNG projects from a number of experienced companies, including state-sponsored entities and major energy companies. Many of these competitors have significantly greater financial resources and larger and more versatile fleets than we do. We anticipate that an increasing number of marine transportation companies, including many with strong reputations and extensive resources and experience, will enter the LNG transportation market. This increased competition may cause greater price competition for time charters. As a result of these factors, we may be unable to expand our relationships with existing customers or obtain new customers on a profitable basis, if at all, which could have a material adverse effect on our business, results of operations, financial condition and ability to make minimum quarterly distributions to our unitholders.
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The amount of our debt could limit our liquidity and flexibility in obtaining additional financing and in pursuing other business opportunities.
As of September 30, 2013 and December 31, 2012, we had $348.2 million and $380.7 million, respectively, in gross principal amount of interest bearing debt. We expect that a large portion of our cash flow from operations will be used to repay the principal and interest on our debt.
Our current indebtedness and future indebtedness that we may incur could affect our future operations, as a portion of our cash flow from operations will be dedicated to the payment of interest and principal on such debt and will not be available for other purposes. Covenants contained in our debt agreements may affect our flexibility in planning for, and reacting to, changes in our business or economic conditions, limit our ability to dispose of assets or place restrictions on the use of proceeds from such dispositions, withstand current or future economic or industry downturns and compete with others in our industry for strategic opportunities, and limit our ability to obtain additional financing for working capital, capital expenditures, acquisitions, general corporate and other purposes and our ability to make minimum quarterly distributions to our unitholders.
Our ability to service our debt will depend upon, among other things, our future financial and operating performance, which will be affected by prevailing economic conditions and financial, business, regulatory and other factors, some of which are beyond our control. If our operating results are not sufficient to service our current or future indebtedness, we will be forced to take actions such as reducing or eliminating distributions to our unitholders, reducing or delaying our business activities, acquisitions, investments or capital expenditures, selling assets, restructuring or refinancing our debt, or seeking additional equity capital or bankruptcy protection. We may not be able to effect any of these remedies on satisfactory terms, or at all.
We may be unable to comply with covenants in our credit facilities or any future financial obligations that impose operating and financial restrictions on us.
Certain of our existing and future credit facilities, which are secured by mortgages on our vessels, impose and will impose certain operating and financial restrictions on us, mainly to ensure that the market value of the mortgaged vessel under the applicable credit facility does not fall below a certain percentage of the outstanding amount of the loan, which we refer to as the asset coverage ratio and interest coverage ratio. In addition, certain of our credit facilities require us to satisfy certain other financial covenants, including maintenance of minimum cash liquidity levels.
The operating and financial restrictions contained in our credit facilities prohibit or otherwise limit our ability to, among other things:
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obtain additional financing, if necessary, for working capital, capital expenditures, acquisitions or other purposes on favorable terms, or at all; |
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make distributions to unitholders or pay dividends to shareholders, as applicable; |
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incur additional indebtedness, create liens or issue guarantees; |
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charter our vessels or change the terms of our existing charter agreements; |
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sell, transfer or lease our assets or vessels or the shares of our vessel-owning subsidiaries; |
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make investments and capital expenditures; |
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reduce our share capital; and |
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undergo a change in ownership or Manager. |
In addition, one of our credit facilities contains a cross-default provision that may be triggered by a default under one of our other credit facilities. A cross-default provision means that a default on one loan would result in a default on certain other loans.
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We were not in compliance with the following restrictive and financial covenants in our credit facilities as of June 30, 2013 and December 31, 2012.
$128 Million Clean Force Credit Facility
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Restriction on the Provision of Guarantees. We are restricted from issuing any guarantees for the obligations of any person without the prior written consent of our lender. In September 2012, without obtaining the required lender consent, we, through certain of our subsidiaries, provided guarantees on two loans of our Sponsor, with outstanding borrowings of an aggregate of up to $627 million, which are secured by four of the Optional Vessels, the Yenisei River , the Lena River , the Clean Ocean and the Clean Planet . |
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Restriction on Repayment of Shareholder Loans. We are restricted from repaying any shareholder loans without the prior written consent of our lender. In April 2012, without obtaining the necessary lender consent, we repaid in full the then outstanding balance of our $140 Million Shareholder Loan using a portion of the proceeds we received from refinancing the Clean Energy and the Ob River , which resulted in a breach of this covenant as of December 31, 2012. |
$150 Million Clean Energy Credit Facility
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Restriction on the Provision of Guarantees. We are restricted from issuing any guarantees for the obligations of any person without the prior written consent of our lender. In September 2012, without obtaining the required lender consent, we, through certain of our subsidiaries, provided guarantees on two loans of our Sponsor, with outstanding borrowings of an aggregate of up to $627 million, which are secured by four of the Optional Vessels, the Yenisei River , the Lena River , the Clean Ocean and the Clean Planet . |
$193 Million Ob River Credit Facility
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Minimum Liquidity. We are required to maintain minimum liquidity of $30 million. As of June 30, 2013 and December 31, 2012, we had $2.8 million and $6.8 million in restricted cash, respectively. |
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Restriction on Repayment of Shareholder Loans. We are restricted from repaying any shareholder loans without the prior written consent of our lender. In April 2012, without obtaining the necessary lender consent, we repaid in full the then outstanding balance of our $140 Million Shareholder Loan using a portion of the proceeds we received from refinancing the Clean Energy and the Ob River , which resulted in a breach of this covenant as of December 31, 2012. |
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Restriction on the Provision of Guarantees. We are restricted from issuing any guarantees for the obligations of any person without the prior written consent of our lender. In September 2012, without obtaining the necessary lender consent, we, through certain of our subsidiaries, provided guarantees on two loans of our Sponsor, with outstanding borrowings of an aggregate of up to $627 million, which are secured by four of the Optional Vessels, the Yenisei River , the Lena River , the Clean Ocean and the Clean Planet . |
See Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital Resources.
We are in advanced discussions with one of our lenders, an affiliate of Credit Suisse, to enter into the Proposed Senior Secured Revolving Credit Facility, at or prior to the closing of this offering to permit, among other things, distributions to our unitholders and the other transactions contemplated herein. A portion of the proceeds of the Proposed Senior Secured Revolving Credit Facility, together with the net proceeds of this offering, will be used to repay all of our existing outstanding indebtedness effective upon the closing of this offering. The expected material terms of this new credit facility are set forth under the heading Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital ResourcesOur Borrowing ActivitiesProposed Senior Secured Revolving Credit Facility.
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The consummation of this offering is contingent upon our entry into the Proposed Senior Secured Revolving Credit Facility and the release of the guarantees described above.
A violation of any of the covenants described above may constitute an event of default under our credit facilities, which, unless waived or modified by our lenders or cured, provides our lenders with the right to, among other things, require us to post additional collateral, enhance our equity and liquidity, increase our interest payments, pay down our indebtedness to a level where we are in compliance with our loan covenants, sell vessels in our fleet, reclassify our indebtedness under current liabilities and accelerate our indebtedness and foreclose their liens on our vessels and other assets securing the credit facilities, which would impair our ability to continue to conduct our business. In addition, if our secured indebtedness is accelerated in full or in part, it would be very difficult in the current financing environment for us to refinance our debt or obtain additional financing.
As a result of the non-compliance described above, as of June 30, 2013 and December 31, 2012, all of our outstanding debt was classified as a current liability. On July 19, 2013, one of our lenders declared an event of default under one of our credit facilities. As of September 30, 2013, we have not requested or obtained waivers from our lenders for non-compliance with these covenants. We believe, however, that our lenders will not demand payment of the loans before their maturity, provided that we pay scheduled loan installments and interest as they fall due under the existing credit facilities.
In addition, under the terms of our credit facilities, we may be prohibited from making cash distributions to our unitholders. See Our Cash Distribution Policy and Restrictions on Distributions.
For more information, please see Prospectus SummaryRecent Developments and Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital Resources.
We are currently in breach of certain financial and other covenants in our loan agreements, and as a result, our independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern.
As described above, as of June 30, 2013 and December 31, 2012, we were not in compliance with certain restrictive and financial covenants in our $128 million Clean Force Credit Facility, $150 million Clean Energy Credit Facility and $193 million Ob River Credit Facility. Our independent registered public accounting firm has issued its opinion with an explanatory paragraph in connection with our financial statements included in this prospectus that expresses substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, the amounts and classification of liabilities, or any other adjustments that might result in the event that we are unable to continue as a going concern, except that all of our outstanding debt and related finance costs as well as restricted cash were classified under current liabilities and current assets, respectively. These conditions raise significant doubt about our ability to continue as a going concern and, therefore, we may be unable to realize our assets and discharge our liabilities in the normal course of business. See Note 3 to our consolidated financial statements included in this prospectus.
Our Sponsor may be unable to service its debt requirements and comply with the provisions contained in the credit agreements secured by the Optional Vessels. If our Sponsor fails to perform its obligations under its loan agreements, our business and expected plans for growth may be materially affected.
Our Sponsor may be unable to service its debt requirements and comply with the provisions contained in the credit agreements secured by the Optional Vessels. Failure on behalf of our Sponsor to perform its obligations under its credit agreements, including paying scheduled installments and complying with certain covenants, may constitute an event of default under these secured loan agreements. If an event of default occurs under these loan agreements, our Sponsors lenders could accelerate the outstanding loans and declare all amounts borrowed due and payable. In this case, if our Sponsor is unable to obtain a waiver or amendment or does not otherwise have
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enough cash on hand to repay the outstanding borrowings, its lenders may, among other things, foreclose their liens on the Optional Vessels. In this case, we may not be able to exercise our rights under the Omnibus Agreement to acquire the Optional Vessels, which would likely have a material adverse effect on our business and our expected plans for growth.
In addition, since our Sponsor is a private company and there is little or no publicly available information about it, we or an investor could have little advance warning of potential financial or other problems that might affect our Sponsor that could have a material adverse effect on us.
We are dependent on our affiliated Manager for the management of our fleet.
We have entered into Management Agreements with our affiliated Manager for the commercial and technical management of our fleet, including crewing, maintenance and repair. The loss of our Managers services or its failure to perform its obligations to us could materially and adversely affect the results of our operations. In addition, our Manager provides us with significant management, administrative, financial and other support services. Our operational success and ability to execute our growth strategy will depend significantly upon the satisfactory performance of these services. Our business will be harmed if our Manager fails to perform these services satisfactorily, if they cancel their agreements with us or if they stop providing these services to us.
Our Sponsor, our General Partner and their respective affiliates own a controlling interest in us and have conflicts of interest and limited duties to us and our common unitholders, which may permit them to favor their own interests to your detriment.
Members of the Prokopiou Family control our Sponsor, our Manager and our General Partner. Upon completion of this offering, our Sponsor will own of our common units and all of our subordinated units, representing % of the outstanding common and subordinated units in aggregate, and our General Partner will own a 0.1% General Partner interest in us and 100% of our incentive distribution rights, assuming the underwriters over-allotment option is not exercised, and therefore may have considerable influence over our actions. The interests of our Sponsor and the members of the Prokopiou family may be different from your interests and the relationships described above could create conflicts of interest. We cannot assure you that any conflicts of interest will be resolved in your favor.
Conflicts of interest may arise between our Sponsor and its affiliates on the one hand, and us and our unitholders, on the other hand. As a result of these conflicts, our Sponsor and its affiliates may favor their own interests over the interests of our unitholders. Although a majority of our directors will over time be elected by our common unitholders, our General Partner will have influence on decisions made by our board of directors. Our board of directors will have a conflicts committee comprised of independent directors. Our board of directors may, but is not obligated to, seek approval of the conflicts committee for resolutions of conflicts of interest that may arise as a result of the relationships between our Sponsor and its affiliates, on the one hand, and us and our unaffiliated limited partners, on the other. There can be no assurance that a conflict of interest will be resolved in favor of us.
These conflicts include, among others, the following situations:
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neither our Partnership Agreement nor any other agreement requires our Sponsor or our General Partner or their respective affiliates to pursue a business strategy that favors us or utilizes our assets, and their officers and directors have a fiduciary duty to make decisions in the best interests of their respective shareholders, which may be contrary to our interests; |
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our Partnership Agreement provides that our General Partner may make determinations or take or decline to take actions without regard to our or our unitholders interests. Specifically, our General Partner may exercise its call right, pre-emptive rights, registration rights or right to make a determination to receive |
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common units in exchange for resetting the target distribution levels related to the incentive distribution rights, consent or withhold consent to any merger or consolidation of the company, appoint any directors or vote for the election of any director, vote or refrain from voting on amendments to our Partnership Agreement that require a vote of the outstanding units, voluntarily withdraw from the company, transfer (to the extent permitted under our Partnership Agreement) or refrain from transferring its units, the General Partner interest or incentive distribution rights or vote upon the dissolution of the company; |
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our General Partner and our directors and officers have limited their liabilities and any fiduciary duties they may have under the laws of the Marshall Islands, while also restricting the remedies available to our unitholders, and, as a result of purchasing common units, unitholders are treated as having agreed to the modified standard of fiduciary duties and to certain actions that may be taken by the General Partner and our directors and officers, all as set forth in the Partnership Agreement; |
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our General Partner and our Manager are entitled to reimbursement of all reasonable costs incurred by them and their respective affiliates for our benefit; our Partnership Agreement does not restrict us from paying our General Partner and our Manager or their respective affiliates for any services rendered to us on terms that are fair and reasonable or entering into additional contractual arrangements with any of these entities on our behalf; |
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our Sponsor may exercise its right to call and purchase our common units if it and its affiliates own more than 80% of our common units; and is not obligated to obtain a fairness opinion regarding the value of the common units to be repurchased by it upon the exercise of its limited call right. Although a majority of our directors will over time be elected by common unitholders, our General Partner will likely have substantial influence on decisions made by our board of directors. See Certain Relationships and Related Party Transactions, Conflicts of Interest and Fiduciary Duties and The Partnership Agreement. |
Our Sponsor and its affiliates may compete with us.
Pursuant to the Omnibus Agreement that we will enter into with our Sponsor and our General Partner, our Sponsor and its affiliates (other than us, and our subsidiaries) generally have agreed not to acquire, own, operate or contract for any LNG carriers acquired or placed under contracts with an initial term of four or more years after the closing date of this offering. The Omnibus Agreement, however, contains significant exceptions that may allow our Sponsor or any of its affiliates to compete with us, which could harm our business. Our Sponsor and its affiliates may compete with us, subject to the restrictions will be contained in the Omnibus Agreement, and could own and operate LNG carriers under charters of four years or more that may compete with our vessels if we do not acquire such vessels when they are offered to us pursuant to the terms of the Omnibus Agreement. See Certain Relationships and Related Party TransactionsAgreements Governing the TransactionsOmnibus AgreementNoncompetition.
Mr. Tony Lauritzen, our Chief Executive Officer, Mr. Michael Gregos, our Chief Financial Officer, and certain other officers will not devote all of their time to our business, which may hinder our ability to operate successfully.
Mr. Tony Lauritzen, our Chief Executive Officer, Mr. Michael Gregos, our Chief Financial Officer and certain other officers, will be involved in other business activities with our Sponsor and its affiliates, which may result in their spending less time than is appropriate or necessary to manage our business successfully. Based solely on the anticipated relative sizes of our Initial Fleet and the fleet owned by our Sponsor and its affiliates over the next twelve months, we estimate that Mr. Lauritzen, Mr. Gregos, and certain other officers may spend a substantial portion of their monthly business time on our business activities and their remaining time on the business of our Sponsor and its affiliates. However, the actual allocation of time could vary significantly from time to time depending on various circumstances and needs of the businesses, such as the relative levels of strategic activities of the businesses. This could have a material adverse effect on our business, financial condition, results of operations and cash flows.
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Unitholders have limited voting rights, and our Partnership Agreement restricts the voting rights of our unitholders that own more than 4.9% of our common units.
Unlike the holders of common stock in a corporation, holders of common units have only limited voting rights on matters affecting our business. We will hold a meeting of the limited partners every year to elect one or more members of our board of directors that are eligible for reelection and to vote on any other matters that are properly brought before the meeting. Common unitholders will be entitled to elect only three of the five members of our board of directors. The elected directors will be elected on a staggered basis and will serve for three year terms. Our General Partner will have the right to appoint the remaining two directors and set the terms for which those directors will serve. The Partnership Agreement also contains provisions limiting the ability of unitholders to call meetings or to acquire information about our operations, as well as other provisions limiting the unitholders ability to influence the manner or direction of management. Unitholders will have no right to elect our General Partner, and our General Partner may not be removed except by a vote of the holders of at least 66 2/3% of the outstanding common units and subordinated units, including any units owned by our General Partner, our Sponsor and their respective affiliates, voting together as a single class.
Our Partnership Agreement further restricts unitholders voting rights by providing that if any person or group owns beneficially more than 4.9% of any class of units then outstanding, any such units owned by that person or group in excess of 4.9% may not be voted on any matter and will not be considered to be outstanding when sending notices of a meeting of unitholders, calculating required votes (except for purposes of nominating a person for election to our board), determining the presence of a quorum or for other similar purposes, unless required by law. The voting rights of any such unitholders in excess of 4.9% will effectively be redistributed pro rata among the other common unitholders holding less than 4.9% of the voting power of all classes of units entitled to vote. Our Sponsor, its affiliates and persons who acquired common units with the prior approval of our board of directors will not be subject to this 4.9% limitation except with respect to voting their common units in the election of the elected directors.
Our Partnership Agreement limits the duties our General Partner and our directors and officers may have to our unitholders and restricts the remedies available to unitholders for actions taken by our General Partner or our directors and officers.
Our Partnership Agreement provides that our board of directors will have the authority to oversee and direct our operations, management and policies on an exclusive basis. The Marshall Islands Revised Limited Partnership Act, or the Partnership Act, states that a member or managers duties and liabilities may be expanded or restricted by provisions in the partnership agreement. As permitted by the Partnership Act, our Partnership Agreement contains provisions that reduce the standards to which our General Partner and our directors and our officers may otherwise be held by Marshall Islands law. For example, our Partnership Agreement:
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provides that our General Partner may make determinations or take or decline to take actions without regard to our or our unitholders interests. Our General Partner may consider only the interests and factors that it desires, and it has no duty or obligation to give any consideration to any interest of, or factors affecting us, our affiliates or our unitholders. Decisions made by our General Partner will be made by its sole owner. Specifically, our General Partner may decide to exercise its right to make a determination to receive common units in exchange for resetting the target distribution levels related to the incentive distribution rights, call right, pre-emptive rights or registration rights, consent or withhold consent to any merger or consolidation of the company, appoint any directors or vote for the election of any director, vote or refrain from voting on amendments to our Partnership Agreement that require a vote of the outstanding units, voluntarily withdraw from the company, transfer (to the extent permitted under our Partnership Agreement) or refrain from transferring its units, the general partner interest or incentive distribution rights or vote upon the dissolution of the company; |
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provides that our directors and officers are entitled to make other decisions in good faith, meaning they reasonably believe that the decision is in our best interests; |
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generally provides that affiliated transactions and resolutions of conflicts of interest not approved by the conflicts committee of our board of directors and not involving a vote of unitholders must be on terms no less favorable to us than those generally being provided to or available from unrelated third parties or be fair and reasonable to us and that, in determining whether a transaction or resolution is fair and reasonable, our board of directors may consider the totality of the relationships between the parties involved, including other transactions that may be particularly advantageous or beneficial to us; and |
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provides that neither our General Partner nor our officers or our directors will be liable for monetary damages to us, our members or assignees for any acts or omissions unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that our General Partner, our directors or officers or those other persons engaged in actual fraud or willful misconduct. |
In order to become a member of our company, a common unitholder is required to agree to be bound by the provisions in the Partnership Agreement, including the provisions discussed above. See Conflicts of Interest and Fiduciary DutiesFiduciary Duties.
Fees and cost reimbursements, which our Manager, Dynagas Ltd., will determine for services provided to us, will be substantial, will be payable regardless of our profitability and will reduce our cash available for distribution to you.
Our Manager, Dynagas Ltd., which is wholly-owned by Mr. George Prokopiou, is responsible for the commercial and technical management of the vessels in our fleet pursuant to the Management Agreements. We pay our Manager a fee of $2,500 per day for each vessel for providing our ship owning subsidiaries with technical, commercial, insurance, accounting, financing, provisions, crewing, bunkering services and general administrative services. We expect to pay an aggregate of approximately $2.8 million to our Manager in connection with the management of our Initial Fleet for the twelve months ending December 31, 2014. Pursuant to the Management Agreement, our Manager also provides us with certain administrative and support services.
The management fee is fixed until December 31, 2013 and will thereafter increase by 3% annually. In addition we will pay Dynagas Ltd. a commercial management fee equal to 1.25% of the gross freight, demurrage and charter hire collected from the employment of our vessels. The management fees payable for the vessels may be further increased if our Manager has incurred a material unforeseen costs of providing the management services, by an amount to be agreed between us and our Manager, which amount will be reviewed and approved by the conflicts committee.
For a description of our Management Agreement, see Certain Relationships and Related Party TransactionsVessel Management Agreements. The fees and expenses payable pursuant to the management agreement will be payable without regard to our financial condition or results of operations. The payment of fees to could adversely affect our ability to pay cash distributions to you.
Our Partnership Agreement contains provisions that may have the effect of discouraging a person or group from attempting to remove our current management or our General Partner and even if public unitholders are dissatisfied, they will be unable to remove our General Partner without our Sponsors consent, unless our Sponsors ownership interest in us is decreased; all of which could diminish the trading price of our common units.
Our Partnership Agreement contains provisions that may have the effect of discouraging a person or group from attempting to remove our current management or our General Partner.
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The unitholders will be unable initially to remove our General Partner without its consent because our General Partner and its affiliates, including our Sponsor, will own sufficient units upon completion of this offering to be able to prevent its removal. The vote of the holders of at least 66 2/3% of all outstanding common and subordinated units voting together as a single class is required to remove our General Partner. |
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Upon consummation of this offering, our Sponsor will own of our common units and all of our subordinated units, representing % of the outstanding common and subordinated units. If the underwriters over-allotment option is exercised in full, our Sponsor will own of our common units and all of our subordinated units, representing of the outstanding common and subordinated units in aggregate. |
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If our General Partner is removed without cause during the subordination period and units held by our General Partner and our Sponsor are not voted in favor of that removal, all remaining subordinated units will automatically convert into common units, any existing arrearages on the common units will be extinguished, and our General Partner will have the right to convert its incentive distribution rights into common units or to receive cash in exchange for those interests based on the fair market value of those interests at the time. A removal of our General Partner under these circumstances would adversely affect the common units by prematurely eliminating their distribution and liquidation preference over the subordinated units, which would otherwise have continued until we had met certain distribution and performance tests. Any conversion of our General Partners interest or incentive distribution rights would be dilutive to existing unitholders. Furthermore, any cash payment in lieu of such conversion could be prohibitively expensive. Cause is narrowly defined to mean that a court of competent jurisdiction has entered a final, non-appealable judgment finding our General Partner liable for actual fraud or willful or wanton misconduct. Cause does not include most cases of charges of poor business decisions, such as charges of poor management of our business by the directors appointed by our General Partner, so the removal of our General Partner because of the unitholders dissatisfaction with our General Partners decisions in this regard would most likely result in the termination of the subordination period. |
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Common unitholders will be entitled to elect only three of the five members of our board of directors. Our General Partner in its sole discretion will appoint the remaining two directors. |
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Election of the three directors elected by unitholders is staggered, meaning that the members of only one of three classes of our elected directors will be selected each year. In addition, the directors appointed by our General Partner will serve for terms determined by our General Partner. |
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Our Partnership Agreement contains provisions limiting the ability of unitholders to call meetings of unitholders, to nominate directors and to acquire information about our operations as well as other provisions limiting the unitholders ability to influence the manner or direction of management. |
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Unitholders voting rights are further restricted by the Partnership Agreement provision providing that if any person or group owns beneficially more than 4.9% of any class of units then outstanding, any such units owned by that person or group in excess of 4.9% may not be voted on any matter and will not be considered to be outstanding when sending notices of a meeting of unitholders, calculating required votes (except for purposes of nominating a person for election to our board), determining the presence of a quorum or for other similar purposes, unless required by law. The voting rights of any such unitholders in excess of 4.9% will effectively be redistributed pro rata among the other common unitholders holding less than 4.9% of the voting power of all classes of units entitled to vote. Our General Partner, our Sponsor and their respective affiliates and persons who acquired common units with the prior approval of our board of directors will not be subject to |
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There are no restrictions in our Partnership Agreement on our ability to issue additional equity securities. |
The effect of these provisions may be to diminish the price at which the common units will trade.
You may not have limited liability if a court finds that unitholder action constitutes control of our business.
As a limited partner in a partnership organized under the laws of the Marshall Islands, you could be held liable for our obligations to the same extent as a General Partner if you participate in the control of our business. Our General Partner generally has unlimited liability for the obligations of the partnership, such as its debts and environmental liabilities, except for those contractual obligations of the partnership that are expressly
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made without recourse to our General Partner. In addition, the limitations on the liability of holders of limited partner interests for the obligations of a limited partnership have not been clearly established in some jurisdictions in which we do business. See The Partnership AgreementLimited Liability for a discussion of the implications of the limitations on liability of a unitholder.
We can borrow money to pay distributions, which would reduce the amount of credit available to operate our business.
Our Partnership Agreement allows us to make working capital borrowings to pay distributions. Accordingly, if we have available borrowing capacity, we can make distributions on all our units even though cash generated by our operations may not be sufficient to pay such distributions. Any working capital borrowings by us to make distributions will reduce the amount of working capital borrowings we can make for operating our business. For more information, see Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital Resources.
We depend on our Manager to assist us in operating and expanding our business.
We subcontract the commercial and technical management of our fleet, including crewing, maintenance and repair, to our Manager; the loss of our Managers services or its failure to perform its obligations to us could materially and adversely affect the results of our operations.
Our operational success and ability to execute our growth strategy will depend significantly upon the satisfactory performance of these services. Our business will be harmed if our service providers fail to perform these services satisfactorily, if they cancel their agreements with us or if they stop providing these services to us.
Our ability to enter into new charters and expand our customer relationships will depend largely on our ability to leverage our relationship with our Manager and its reputation and relationships in the shipping industry. If our Manager suffers material damage to its reputation or relationships, it may harm our ability to:
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renew existing charters upon their expiration; |
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obtain new charters; |
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successfully interact with shipyards; |
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obtain financing on commercially acceptable terms; |
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maintain access to capital under the Sponsor credit facility; or |
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maintain satisfactory relationships with suppliers and other third parties. |
Our current time charter contracts prevent us from changing our Manager, without the written consent of our charterers.
Our ability to change our Manager, with another affiliated or third-party Manager, is prohibited by provisions in our current time charter contracts with BG Group and Gazprom which prohibit us to change the vessel management company, without the written prior consent from BG Group and Gazprom. In addition, we are not in a position to guarantee you that future time charter contracts with our existing or new charterers will not contain similar provisions.
Since our Manager is a privately held company and there is little or no publicly available information about it, an investor could have little advance warning of potential financial and other problems that might affect our Manager that could have a material adverse effect on us.
The ability of our Manager to continue providing services for our benefit will depend in part on its own financial strength. Circumstances beyond our control could impair our Managers financial strength, and because
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it is privately held, it is unlikely that information about its financial strength would become public unless our Manager began to default on its obligations. As a result, an investor in our common units might have little advance warning of problems affecting our Manager, even though these problems could have a material adverse effect on us.
We may be unable to attract and retain key management personnel in the LNG industry, which may negatively impact the effectiveness of our management and our results of operation.
Our success depends to a significant extent upon the abilities and the efforts of our senior executives. While we believe that we have an experienced management team, the loss or unavailability of one or more of our senior executives for any extended period of time could have an adverse effect on our business and results of operations.
A shortage of qualified officers and crew could have an adverse effect on our business and financial condition.
LNG carriers require a technically skilled officer staff with specialized training. As the world LNG carrier fleet continues to grow, the demand for technically skilled officers and crew has been increasing, which has led to a shortfall of such personnel. Increases in our historical vessel operating expenses have been attributable primarily to the rising costs of recruiting and retaining officers for our fleet. If we or our third-party ship Managers are unable to employ technically skilled staff and crew, we will not be able to adequately staff our vessels. A material decrease in the supply of technically skilled officers or an inability of our Manager to attract and retain such qualified officers could impair our ability to operate, or increase the cost of crewing our vessels, which would materially adversely affect our business, financial condition and results of operations and significantly reduce our ability to pay minimum quarterly distributions to our unitholders.
The derivative contracts we may enter into, in the future, to hedge our exposure to fluctuations in interest rates could result in higher than market interest rates and charges against our income.
As of September 30, 2013 and December 31, 2012, we had total outstanding long-term debt of $348.2 million and $380.7 million, respectively, which in its entirety was exposed to a floating interest rate. In order to manage our current or future exposure to interest rate fluctuations, we may use interest rate swaps to effectively fix a part of our floating rate debt obligations. As of December 31, 2012, we have not entered into interest rate swap agreements to fix the interest rate on our floating rate bank debt. Any future hedging strategies, however, may not be effective and we may incur substantial losses if interest rates move materially differently from our expectations.
We are a holding company, and our ability to make cash distributions to our unitholders will be limited by the value of investments we currently hold and by the distribution of funds from our subsidiaries.
We are a holding company whose assets mainly comprise of equity interests in our subsidiaries and other quoted and non-quoted companies. As a result, our ability to make cash distributions to our unitholders will depend on the performance of our operating subsidiaries and other investments. If we are not able to receive sufficient funds from our subsidiaries and other investments, including from the sale of our investment interests, we will not be able to pay distributions unless we obtain funds from other sources. We may not be able to obtain the necessary funds from other sources on terms acceptable to us.
We are an emerging growth company and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common units less attractive to investors.
We are an emerging growth company, as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies as described under SummaryImplications of Being an Emerging Growth
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Company. We have elected to take advantage of the reduced reporting obligations, including the extended transition period for complying with new or revised accounting standards under Section 102 of the JOBS Act, and as a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates. We cannot predict if investors will find our common units less attractive because we may rely on these exemptions. If some investors find our common units less attractive as a result, there may be a less active trading market for our common units and our share price may be more volatile.
The assumptions underlying our forecast of cash available for distribution are inherently uncertain and are subject to risks and uncertainties that could cause actual results to differ materially from those forecasted.
The forecast of cash available for distribution set forth in Our Cash Distribution Policy and Restrictions on Distributions includes our forecast of operating results and cash flows for the six months ended December 31, 2013 and the twelve months ending December 31, 2014. The financial forecast has been prepared by management and we have not received an opinion or report on it from our or any other independent auditor. The assumptions underlying the forecast are inherently uncertain and are subject to significant business, economic, regulatory and competitive risks and uncertainties that could cause actual results to differ materially from those forecasted. If we do not achieve the forecasted results, we may not be able to pay the full minimum quarterly distribution or any amount on our common units or subordinated units, in which event the market price of the common units may decline materially.
Our ability to grow and to meet our financial needs may be adversely affected by our cash distribution policy.
Our cash distribution policy, which is consistent with our partnership agreement, requires us to distribute all of our available cash (as defined in our partnership agreement) each quarter. Accordingly, our growth may not be as fast as businesses that reinvest their available cash to expand ongoing operations.
In determining the amount of cash available for distribution, our board of directors approves the amount of cash reserves to set aside, including reserves for future maintenance and replacement capital expenditures, working capital and other matters. We also rely upon external financing sources, including commercial borrowings, to fund our capital expenditures. Accordingly, to the extent we do not have sufficient cash reserves or are unable to obtain financing, our cash distribution policy may significantly impair our ability to meet our financial needs or to grow.
If capital expenditures are financed through cash from operations or by issuing debt or equity securities, our ability to make cash distributions may be diminished, our financial leverage could increase or our unitholders may be diluted.
Use of cash from operations to expand or maintain our fleet will reduce cash available for distribution to unitholders. Our ability to obtain bank financing or to access the capital markets for future offerings may be limited by our financial condition at the time of any such financing or offering as well as by adverse market conditions resulting from, among other things, general economic conditions and contingencies and uncertainties that are beyond our control. Our failure to obtain the funds for future capital expenditures could have a material adverse effect on our business, financial condition, results of operations and ability to make cash distributions to our unitholders. Even if we are successful in obtaining necessary funds, the terms of such financings could limit our ability to pay cash distributions to unitholders. In addition, incurring additional debt may significantly increase our interest expense and financial leverage, and issuing additional equity securities may result in significant unitholder dilution and would increase the aggregate amount of cash required to maintain our current level of quarterly distributions to unitholders, both of which could have a material adverse effect on our ability to make cash distributions.
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Due to our lack of diversification, adverse developments in our LNG shipping business could reduce our ability to make distributions to our unitholders.
We rely exclusively on the cash flow generated from our LNG carriers. Due to our lack of diversification, an adverse development in the LNG shipping industry could have a significantly greater impact on our financial condition and results of operations than if we maintained more diverse assets or lines of businesses.
We may experience operational problems with vessels that reduce revenue and increase costs.
LNG carriers are complex and their operation technically challenging. Marine transportation operations are subject to mechanical risks and problems. Operational problems may lead to loss of revenue or higher than anticipated operating expenses or require additional capital expenditures. Any of these results could harm our business, financial condition, results of operations and ability to make cash distributions to our unitholders.
Upon the expiration of the subordination period, the subordinated units will convert into common units and will then participate pro rata with other common units in distributions of available cash.
During the subordination period, which we define elsewhere in this prospectus, the common units will have the right to receive distributions of available cash from operating surplus in an amount equal to the minimum quarterly distribution of $ per unit, plus any arrearages in the payment of the minimum quarterly distribution on the common units from prior quarters, before any distributions of available cash from operating surplus may be made on the subordinated units. Distribution arrearages do not accrue on the subordinated units. The purpose of the subordinated units is to increase the likelihood that during the subordination period there will be available cash from operating surplus to be distributed on the common units. Upon the expiration of the subordination period, the subordinated units will convert into common units and will then participate pro rata with other common units in distributions of available cash. See How We Make Cash DistributionsSubordination Period, Distributions of Available Cash From Operating Surplus During the Subordination Period and Distributions of Available Cash From Operating Surplus After the Subordination Period.
Risks Relating to Our Industry
Our future growth and performance depends on continued growth in LNG production and demand for LNG and LNG shipping.
A complete LNG project includes production, liquefaction, storage, regasification and distribution facilities, in addition to the marine transportation of LNG. Increased infrastructure investment has led to an expansion of LNG production capacity in recent years, but material delays in the construction of new liquefaction facilities could constrain the amount of LNG available for shipping, reducing ship utilization. While global LNG demand has continued to rise, it has risen at a slower pace than previously predicted and the rate of its growth has fluctuated due to several factors, including the global economic crisis and continued economic uncertainty, fluctuations in the price of natural gas and other sources of energy, the continued acceleration in natural gas production from unconventional sources in regions such as North America and the highly complex and capital intensive nature of new or expanded LNG projects, including liquefaction projects. Continued growth in LNG production and demand for LNG and LNG shipping could be negatively affected by a number of factors, including:
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increases in interest rates or other events that may affect the availability of sufficient financing for LNG projects on commercially reasonable terms; |
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increases in the cost of natural gas derived from LNG relative to the cost of natural gas generally; |
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increases in the production levels of low-cost natural gas in domestic natural gas consuming markets, which could further depress prices for natural gas in those markets and make LNG uneconomical; |
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increases in the production of natural gas in areas linked by pipelines to consuming areas, the extension of existing, or the development of new pipeline systems in markets we may serve, or the conversion of existing non-natural gas pipelines to natural gas pipelines in those markets; |
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decreases in the consumption of natural gas due to increases in its price, decreases in the price of alternative energy sources or other factors making consumption of natural gas less attractive; |
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any significant explosion, spill or other incident involving an LNG facility or carrier; |
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infrastructure constraints such as delays in the construction of liquefaction facilities, the inability of project owners or operators to obtain governmental approvals to construct or operate LNG facilities, as well as community or political action group resistance to new LNG infrastructure due to concerns about the environment, safety and terrorism; |
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labor or political unrest or military conflicts affecting existing or proposed areas of LNG production or regasification; |
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decreases in the price of LNG, which might decrease the expected returns relating to investments in LNG projects; |
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new taxes or regulations affecting LNG production or liquefaction that make LNG production less attractive; or |
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negative global or regional economic or political conditions, particularly in LNG consuming regions, which could reduce energy consumption or its growth. |
Reduced demand for LNG and LNG shipping or any reduction or limitation in LNG production capacity, could have a material adverse effect on our ability to secure future multi-year time charters upon expiration or early termination of our current charter arrangements, or for any new ships we acquire, which could harm our business, financial condition, results of operations and cash flows, including cash available for distribution to our unitholders.
Fluctuations in overall LNG demand growth could adversely affect our ability to secure future time charters.
Over the past three years, global LNG demand has continued to rise, but at a slower pace than previously predicted. Drewry estimates that LNG trade decreased by 1.2% in 2012 primarily due to lower production as a result of planned and unplanned outages at various liquefaction sites and the weakness in the world economy. Continued economic uncertainty and the continued acceleration of unconventional natural gas production could have an adverse effect on our ability to secure future term charters.
Demand for LNG shipping could be significantly affected by volatile natural gas prices and the overall demand for natural gas.
Gas prices are volatile and are affected by numerous factors beyond our control, including but not limited to the following:
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worldwide demand for natural gas; |
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the cost of exploration, development, production, transportation and distribution of natural gas; |
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expectations regarding future energy prices for both natural gas and other sources of energy; |
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the level of worldwide LNG production and exports; |
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government laws and regulations, including but not limited to environmental protection laws and regulations; |
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local and international political, economic and weather conditions; |
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political and military conflicts; and |
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the availability and cost of alternative energy sources, including alternate sources of natural gas in gas importing and consuming countries. |
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Seasonality in demand, peak-load demand, and other short-term factors such as pipeline gas disruptions and maintenance schedules of utilities affect charters of less than two years and rates. In general, reduced demand for LNG, LNG carriers or LNG shipping would have a material adverse effect on our future growth and could harm our business, results of operations and financial condition.
Our future growth depends on our ability to expand relationships with existing customers, establish relationships with new customers and obtain new time charter contracts, for which we will face substantial competition from established companies with significant resources and potential new entrants.
We will seek to enter into additional multi-year time charter contracts upon the expiration or early termination of our existing charter arrangements, and we may also seek to enter into additional multi-year time charter contracts in connection with an expansion of our fleet. The process of obtaining multi-year charters for LNG carriers is highly competitive and generally involves an intensive screening procedure and competitive bids, which often extends for several months. We believe LNG carrier time charters are awarded based upon a variety of factors relating to the ship and the ship operator, including:
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size, age, technical specifications and condition of the ship; |
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efficiency of ship operation; |
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LNG shipping experience and quality of ship operations; |
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shipping industry relationships and reputation for customer service; |
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technical ability and reputation for operation of highly specialized ships; |
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quality and experience of officers and crew; |
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safety record; |
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the ability to finance ships at competitive rates and financial stability generally; |
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relationships with shipyards and the ability to get suitable berths; |
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construction management experience, including the ability to obtain on-time delivery of new ships according to customer specifications; and |
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competitiveness of the bid in terms of overall price. |
We expect substantial competition for providing marine transportation services for potential LNG projects from a number of experienced companies, including other independent ship owners as well as state-sponsored entities and major energy companies that own and operate LNG carriers and may compete with independent owners by using their fleets to carry LNG for third parties. Some of these competitors have significantly greater financial resources and larger fleets than we have. A number of marine transportation companiesincluding companies with strong reputations and extensive resources and experiencehave entered the LNG transportation market in recent years, and there are other ship owners and managers who may also attempt to participate in the LNG market in the future. This increased competition may cause greater price competition for time charters. As a result of these factors, we may be unable to expand our relationships with existing customers or to obtain new customers on a profitable basis, if at all, which could have a material adverse effect on our business, financial condition, results of operations and cash flows, including cash available for distributions to you.
Hire rates for LNG carriers are not generally publicly available and may fluctuate substantially. If rates are lower when we are seeking a new charter, our revenues and cash flows may decline.
Our ability from time to time to charter or re-charter any ship at attractive rates will depend on, among other things, the prevailing economic conditions in the LNG industry. Hire rates for LNG carriers are not generally publicly available and may fluctuate over time as a result of changes in the supply-demand balance relating to current and future ship capacity. This supply-demand relationship largely depends on a number of factors outside
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our control. The LNG charter market is connected to world natural gas prices and energy markets, which we cannot predict. A substantial or extended decline in demand for natural gas or LNG could adversely affect our ability to re-charter our vessels at acceptable rates or to acquire and profitably operate new ships. Hire rates for newbuildings are correlated with the price of newbuildings. Hire rates at a time when we may be seeking new charters may be lower than the hire rates at which our vessels are currently chartered. If hire rates are lower when we are seeking a new charter, our revenues and cash flows, including cash available for distributions to our unitholders, may decline, as we may only be able to enter into new charters at reduced or unprofitable rates or we may have to secure a charter in the spot market, where hire rates are more volatile. Prolonged periods of low charter hire rates or low ship utilization could also have a material adverse effect on the value of our assets.
Vessel values may fluctuate substantially and, if these values are lower at a time when we are attempting to dispose of vessels, we may incur a loss.
Factors that influence vessel values include:
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prevailing economic conditions in the natural gas and energy markets; |
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a substantial or extended decline in demand for LNG; |
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increases in the supply of vessel capacity; |
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the size and age of a vessel; and |
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the cost of retrofitting or modifying existing vessels, as a result of technological advances in vessel design or equipment, changes in applicable environmental or other regulations or standards, customer requirements or otherwise. |
As our vessels age, the expenses associated with maintaining and operating them are expected to increase, which could have an adverse effect on our business and operations if we do not maintain sufficient cash reserves for maintenance and replacement capital expenditures. Moreover, the cost of a replacement vessel would be significant. If a charter terminates, we may be unable to re-deploy the affected vessels at attractive rates and, rather than continue to incur costs to maintain and finance them, we may seek to dispose of them. Our inability to dispose of vessels at a reasonable value could result in a loss on their sale and adversely affect our ability to purchase a replacement vessel, results of operations and financial condition and ability to pay minimum quarterly distributions to our unitholders.
An oversupply of ships or delays or abandonment of planned projects may lead to a reduction in the charter hire rates we are able to obtain when seeking charters in the future.
Due to an increase in LNG production capacity, the market supply of LNG carriers has been increasing as a result of the construction of new ships. According to Drewry, during the period from 2007 to 2012, the global fleet of LNG carriers grew from 250 vessels to 359 vessels due to the construction and delivery of new LNG carriers and low levels of vessel demolition. Although the global newbuilding orderbook dropped steeply in 2009 and 2010, according to Drewry, orders for 88 newbuilding LNG carriers were placed during 2011 and 2012. According to Drewry, as of August 31, 2013, the newbuilding orderbook consisted of 113 ships, or 33.9% of the current global LNG carrier fleet capacity, with the majority of the newbuildings scheduled for delivery in 2013, 2014 and 2015.
If charter hire rates are lower when we are seeking new time charters upon expiration or early termination of our current charter arrangements, or for any new vessels we acquire beyond our contracted newbuildings, our revenues and cash flows, including cash available for distributions to our unitholders, may decline.
We may have more difficulty entering into multi-year time charters in the future if an active spot LNG shipping market continues to develop.
One of our principal strategies is to enter into additional LNG carrier time charters of four years or more. Most shipping requirements for new LNG projects continue to be provided on a multi-year basis, though the
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level of spot voyages and time charters of less than 24 months in duration has grown in the past few years. If an active spot market continues to develop, we may have increased difficulty entering into multi-year time charters upon expiration or early termination of our current charters or for any vessels that we acquire in the future, and, as a result, our cash flow may be less stable. In addition, an active spot LNG market may require us to enter into charters based on changing market prices, as opposed to contracts based on a fixed rate, which could result in a decrease in our cash flow in periods when the market price for shipping LNG is depressed or insufficient funds are available to cover our financing costs for related vessels.
Further technological advancements and other innovations affecting LNG carriers could reduce the charter hire rates we are able to obtain when seeking new employment and this could adversely impact the value of our assets.
The charter rates, asset value and operational life of an LNG carrier are determined by a number of factors, including the ships efficiency, operational flexibility and physical life. Efficiency includes speed and fuel economy. Flexibility includes the ability to enter harbors, utilize related docking facilities and pass through canals and straits. Physical life is related to the original design and construction, the ongoing maintenance and the impact of operational stresses on the asset. If more advanced ship designs are developed in the future and new ships are built that are more efficient or more flexible or have longer physical lives than ours, competition from these more technologically advanced LNG carriers could adversely affect the charter hire rates we will be able to secure when we seek to re-charter our vessels upon expiration or early termination of our current charter arrangements and could also reduce the resale value of our vessels. This could adversely affect our revenues and cash flows, including cash available for distributions to you.
Operating costs and capital expenses will increase as our vessels age.
In general, capital expenditures and other costs necessary for maintaining a ship in good operating condition increase as the age of the ship increases. Accordingly, it is likely that the operating costs of our vessels will increase in the future.
Reliability of suppliers may limit our ability to obtain supplies and services when needed.
We rely, and will in the future rely, on a significant supply of consumables, spare parts and equipment to operate, maintain, repair and upgrade our fleet of ships. Delays in delivery or unavailability of supplies could result in off-hire days due to consequent delays in the repair and maintenance of our fleet. This would negatively impact our revenues and cash flows. Cost increases could also negatively impact our future operations.
Exposure to currency exchange rate fluctuations will result in fluctuations in our cash flows and operating results.
Historically our revenue has been generated in U.S. Dollars, but we incur capital, operating and administrative expenses in multiple currencies, including, among others, the Euro. If the U.S. Dollar weakens significantly, we would be required to convert more U.S. Dollars to other currencies to satisfy our obligations, which would cause us to have less cash available for distribution. Because we report our operating results in U.S. Dollars, changes in the value of the U.S. Dollar also result in fluctuations in our reported revenues and earnings. In addition, under U.S. GAAP, all foreign currency-denominated monetary assets and liabilities such as cash and cash equivalents, accounts receivable, restricted cash and accounts payable are revalued and reported based on the prevailing exchange rate at the end of the reporting period. This revaluation may cause us to report significant non-monetary foreign currency exchange gains and losses in certain periods.
An increase in operating expenses or dry-docking costs could materially and adversely affect our financial performance.
Our operating expenses and dry-dock capital expenditures depend on a variety of factors including crew costs, provisions, deck and engine stores and spares, lubricating oil, insurance, maintenance and repairs and
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shipyard costs, many of which are beyond our control and affect the entire shipping industry. Also, while we do not bear the cost of fuel (bunkers) under our time charters, fuel is a significant expense in our operations when our vessels are, for example, moving to or from dry-dock or when off-hire. The price and supply of fuel is unpredictable and fluctuates based on events outside our control, including geopolitical developments, supply and demand for oil and gas, actions by OPEC and other oil and gas producers, war and unrest in oil-producing countries and regions, regional production patterns and environmental concerns. These may increase vessel operating and dry-docking costs further. If costs continue to rise, they could materially and adversely affect our results of operations.
The operation of LNG carriers is inherently risky, and an incident involving significant loss of or environmental consequences involving any of our vessels could harm our reputation and business.
Our vessels and their cargoes are at risk of being damaged or lost because of events such as:
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marine disasters; |
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piracy; |
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environmental accidents |
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bad weather; |
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mechanical failures; |
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grounding, fire, explosions and collisions; |
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human error; and |
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war and terrorism. |
An accident involving any of our vessels could result in any of the following:
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death or injury to persons, loss of property or environmental damage; |
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delays or failure in the delivery of cargo; |
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loss of revenues from or termination of charter contracts; |
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governmental fines, penalties or restrictions on conducting business; |
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spills, pollution and the liability associated with the same; |
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higher insurance rates; and |
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damage to our reputation and customer relationships generally. |
Any of these events could result in a material adverse effect on our business, financial condition and operating results. If our vessels suffer damage, they may need to be repaired. The costs of vessel repairs are unpredictable and can be substantial. We may have to pay repair costs that our insurance policies do not cover. The loss of earnings while these vessels are being repaired, as well as the actual cost of these repairs, would decrease our results of operations. If any of our vessels is involved in an accident with the potential risk of environmental consequences, the resulting media coverage could have a material adverse effect on our business, our results of operations and cash flows weaken our financial condition and negatively affect our ability to pay minimum quarterly distributions to our unitholders.
Our insurance may be insufficient to cover losses that may occur to our property or result from our operations.
The operation of LNG carriers is inherently risky. Although we carry protection and indemnity insurance consistent with industry standards, all risks may not be adequately insured against, and any particular claim may
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not be paid. Any claims covered by insurance would be subject to deductibles, and since it is possible that a large number of claims may be brought, the aggregate amount of these deductibles could be material. Certain of our insurance coverage is maintained through mutual protection and indemnity associations, and as a member of such associations we may be required to make additional payments over and above budgeted premiums if member claims exceed association reserves. We may be unable to procure adequate insurance coverage at commercially reasonable rates in the future. For example, more stringent environmental regulations have led in the past to increased costs for, and in the future may result in the lack of availability of, insurance against risks of environmental damage or pollution. A marine disaster could exceed our insurance coverage, which could harm our business, financial condition and operating results. Any uninsured or underinsured loss could harm our business and financial condition. In addition, our insurance may be voidable by the insurers as a result of certain of our actions, such as our vessels failing to maintain certification with applicable maritime self-regulatory organizations.
Changes in the insurance markets attributable to terrorist attacks may also make certain types of insurance more difficult for us to obtain. In addition, upon renewal or expiration of our current policies, the insurance that may be available to us may be significantly more expensive than our existing coverage.
Our vessels may suffer damage and we may face unexpected costs and off-hire days.
In the event of damage to our owned vessels, the damaged ship would be off-hire while it is being repaired, which would decrease our revenues and cash flows, including cash available for distributions to our unitholders. In addition, the costs of ship repairs are unpredictable and can be substantial. In the event of repair costs that are not covered by our insurance policies, we may have to pay such repair costs, which would decrease our earnings and cash flows.
The current state of global financial markets and current economic conditions may adversely impact our ability to obtain financing or refinance our future credit facilities on acceptable terms, which may hinder or prevent us from operating or expanding our business.
Global financial markets and economic conditions have been, and continue to be, volatile. These issues, along with significant write-offs in the financial services sector, the re-pricing of credit risk and the current weak economic conditions, have made, and will likely continue to make, it difficult to obtain additional financing. The current state of global financial markets and current economic conditions might adversely impact our ability to issue additional equity at prices which will not be dilutive to our existing unitholders or preclude us from issuing equity at all.
Also, as a result of concerns about the stability of financial markets generally and the solvency of counterparties specifically, the cost of obtaining money from the credit markets has increased as many lenders have increased interest rates, enacted tighter lending standards, refused to refinance existing debt at all or on terms similar to current debt and reduced, and in some cases ceased, to provide funding to borrowers. Due to these factors, we cannot be certain that financing will be available to the extent required, or that we will be able to refinance our future credit facilities, on acceptable terms or at all. If financing or refinancing is not available when needed, or is available only on unfavorable terms, we may be unable to meet our obligations as they come due or we may be unable to enhance our existing business, complete the acquisition of our newbuildings and additional vessel acquisitions or otherwise take advantage of business opportunities as they arise.
As of the date of this prospectus, we have not secured any financing in connection with the potential acquisition of the Optional Vessels since it is uncertain if and when such purchase options will be exercised. Our Sponsor has entered into loan agreements in connection with the seven Optional Vessels. In the event we acquire the Optional Vessels in the future, we may enter into agreements with our Sponsor to novate these loan agreements to us. Any such novation would be subject to each respective lenders consent.
In addition, volatility and uncertainty concerning current global economic conditions may cause our customers to defer projects in response to tighter credit, decreased capital availability and declining customer
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confidence, which may negatively impact the demand for our vessels and services and could also result in defaults under our current charters. A tightening of the credit markets may further negatively impact our operations by affecting the solvency of our suppliers or customers which could lead to disruptions in delivery of supplies such as equipment for conversions, cost increases for supplies, accelerated payments to suppliers, customer bad debts or reduced revenues.
Compliance with safety and other requirements imposed by classification societies may be very costly and may adversely affect our business.
The hull and machinery of every commercial LNG carrier must be classed by a classification society. The classification society certifies that the ship has been built and maintained in accordance with the applicable rules and regulations of that classification society. Moreover, every ship must comply with all applicable international conventions and the regulations of the ships flag state as verified by a classification society. Finally, each ship must successfully undergo periodic surveys, including annual, intermediate and special surveys performed under the classification societys rules.
If any ship does not maintain its class, it will lose its insurance coverage and be unable to trade, and the ships owner will be in breach of relevant covenants under its financing arrangements. Failure to maintain the class of one or more of our vessels could have a material adverse effect on our business, financial condition, results of operations and cash flows, including cash available for distributions to our unitholders.
The LNG shipping industry is subject to substantial environmental and other regulations, which may significantly limit our operations or increase our expenses.
Our operations are materially affected by extensive and changing international, national, state and local environmental laws, regulations, treaties, conventions and standards which are in force in international waters, or in the jurisdictional waters of the countries in which our vessels operate and in the countries in which our vessels are registered. These requirements include those relating to equipping and operating ships, providing security and to minimizing or addressing impacts on the environment from ship operations. We have incurred, and expect to continue to incur, substantial expenses in complying with these requirements, including expenses for ship modifications and changes in operating procedures. We also could incur substantial costs, including cleanup costs, civil and criminal penalties and sanctions, the suspension or termination of operations and third-party claims as a result of violations of, or liabilities under, such laws and regulations.
In addition, these requirements can affect the resale value or useful lives of our vessels, require a reduction in cargo capacity, necessitate ship modifications or operational changes or restrictions or lead to decreased availability of insurance coverage for environmental matters. They could further result in the denial of access to certain jurisdictional waters or ports or detention in certain ports. We are required to obtain governmental approvals and permits to operate our vessels. Delays in obtaining such governmental approvals may increase our expenses, and the terms and conditions of such approvals could materially and adversely affect our operations.
Additional laws and regulations may be adopted that could limit our ability to do business or increase our operating costs, which could materially and adversely affect our business. For example, new or amended legislation relating to ship recycling, sewage systems, emission control (including emissions of greenhouse gases) as well as ballast water treatment and ballast water handling may be adopted. The United States has enacted legislation and regulations that require more stringent controls of air and water emissions from ocean-going ships. Such legislation or regulations may require additional capital expenditures or operating expenses (such as increased costs for low-sulfur fuel) in order for us to maintain our vessels compliance with international and/or national regulations. We also may become subject to additional laws and regulations if we enter new markets or trades.
We also believe that the heightened environmental, quality and security concerns of insurance underwriters, regulators and charterers will generally lead to additional regulatory requirements, including enhanced risk
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assessment and security requirements as well as greater inspection and safety requirements on all LNG carriers in the marine transportation market. These requirements are likely to add incremental costs to our operations, and the failure to comply with these requirements may affect the ability of our vessels to obtain and, possibly, collect on, insurance or to obtain the required certificates for entry into the different ports where we operate.
Some environmental laws and regulations, such as the U.S. Oil Pollution Act of 1990, or OPA, provide for potentially unlimited joint, several, and/or strict liability for owners, operators and demise or bareboat charterers for oil pollution and related damages. OPA applies to discharges of any oil from a ship in U.S. waters, including discharges of fuel and lubricants from an LNG carrier, even if the ships do not carry oil as cargo. In addition, many states in the United States bordering on a navigable waterway have enacted legislation providing for potentially unlimited strict liability without regard to fault for the discharge of pollutants within their waters. We also are subject to other laws and conventions outside the United States that provide for an owner or operator of LNG carriers to bear strict liability for pollution, such as the Convention on Limitation of Liability for Maritime Claims of 1976, or the London Convention.
Some of these laws and conventions, including OPA and the London Convention, may include limitations on liability. However, the limitations may not be applicable in certain circumstances, such as where a spill is caused by a ship owners or operators intentional or reckless conduct. In addition, in response to the Deepwater Horizon oil spill, the U.S. Congress is currently considering a number of bills that could potentially modify or eliminate the limits of liability under OPA.
Compliance with OPA and other environmental laws and regulations also may result in ship owners and operators incurring increased costs for additional maintenance and inspection requirements, the development of contingency arrangements for potential spills, obtaining mandated insurance coverage and meeting financial responsibility requirements.
Climate change and greenhouse gas restrictions may adversely impact our operations and markets.
Due to concern over the risks of climate change, a number of countries and the International Maritime Organization, or IMO, have adopted, or are considering the adoption of, regulatory frameworks to reduce greenhouse gas emission from ships. These regulatory measures may include adoption of cap and trade regimes, carbon taxes, increased efficiency standards and incentives or mandates for renewable energy. Although emissions of greenhouse gases from international shipping currently are not subject to the Kyoto Protocol to the United Nations Framework Convention on Climate Change, or the Kyoto Protocol, a new treaty may be adopted in the future that includes additional restrictions on shipping emissions to those already adopted under the International Convention for the Prevention of Marine Pollution from Ships (MARPOL), and some countries have made voluntary pledges to control the emissions of greenhouse gasses. The IMO has approved two new sets of mandatory requirements to address greenhouse gases from ships: the Energy Efficiency Design Index and the Ship Energy Efficiency Management plan, discussed in detail in Business Regulation of Greenhouse Gases. Compliance with future changes in laws and regulations relating to climate change could increase the costs of operating and maintaining our vessels and could require us to install new emission controls, as well as acquire allowances, pay taxes related to our greenhouse gas emissions or administer and manage a greenhouse gas emissions program. Revenue generation and strategic growth opportunities may also be adversely affected.
Adverse effects upon the oil and gas production industry relating to climate change, including growing public concern about the environmental impact of climate change, may also have an effect on demand for our services. For example, increased regulation of greenhouse gases or other concerns relating to climate change may reduce the demand for oil and gas in the future or create greater incentives for use of alternative energy sources. Any long-term material adverse effect on the oil and gas production industry could have significant financial and operational adverse impacts on our business that we cannot predict with certainty at this time.
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We operate our vessels worldwide, which could expose us to political, governmental and economic instability that could harm our business.
Because we operate our vessels worldwide in the geographic areas where our customers do business, our operations may be affected by economic, political and governmental conditions in the countries where our vessels operate or where they are registered. Any disruption caused by these factors could harm our business, financial condition, results of operations and cash flows. In particular, our vessels frequent LNG terminals in countries including Egypt, Equatorial Guinea and Trinidad as well as transit through the Gulf of Aden and the Strait of Malacca. Economic, political and governmental conditions in these and other regions have from time to time resulted in military conflicts, terrorism, attacks on ships, mining of waterways, piracy and other efforts to disrupt shipping. Future hostilities or other political instability in the geographic regions where we operate or may operate could have a material adverse effect on our business, financial condition, results of operations and cash flows, including cash available for distributions to our unitholders. In addition, our business could also be harmed by tariffs, trade embargoes and other economic sanctions by the United States or other countries against countries in the Middle East, Southeast Asia or elsewhere as a result of terrorist attacks, hostilities or diplomatic or political pressures that limit trading activities with those countries.
Failure to comply with the U.S. Foreign Corrupt Practices Act and other anti-bribery legislation in other jurisdictions could result in fines, criminal penalties, contract terminations and an adverse effect on our business.
We may operate in a number of countries throughout the world, including countries known to have a reputation for corruption. We are committed to doing business in accordance with applicable anti-corruption laws and have adopted a code of business conduct and ethics which is consistent and in full compliance with the U.S. Foreign Corrupt Practices Act of 1977. We are subject, however, to the risk that we, our affiliated entities or our or their respective officers, directors, employees and agents may take actions determined to be in violation of such anti-corruption laws, including the U.S. Foreign Corrupt Practices Act. Any such violation could result in substantial fines, sanctions, civil and/or criminal penalties, curtailment of operations in certain jurisdictions, and might adversely affect our business, results of operations or financial condition. In addition, actual or alleged violations could damage our reputation and ability to do business. Furthermore, detecting, investigating, and resolving actual or alleged violations is expensive and can consume significant time and attention of our senior management.
Terrorist attacks, international hostilities and piracy could adversely affect our business, financial condition, results of operations and cash flows.
Terrorist attacks such as the attacks on the United States on September 11, 2001 and more recent attacks in other parts of the world, as well as the continuing response of the United States and other countries to these attacks and the threat of future terrorist attacks, continue to cause uncertainty in the world financial markets and may affect our business, financial condition, results of operations and cash flows, including cash available for distributions to our unitholders. The current turmoil in Iran and the uncertainty surrounding the Strait of Hormuz case, as well as tension in Afghanistan and North Korea, and the continuing hostilities in the Middle East, may lead to additional acts of terrorism, further regional conflicts and other armed actions around the world, which may contribute to further instability in the global financial markets. These uncertainties could also adversely affect our ability to obtain additional financing on terms acceptable to us, or at all or impact the shipyards constructing our Sponsors seven LNG carrier newbuildings.
In the past, political conflicts have also resulted in attacks on ships, mining of waterways and other efforts to disrupt international shipping, particularly in the Arabian Gulf region. Acts of terrorism and piracy have also affected ships trading in regions such as the South China Sea and the Gulf of Aden. Since 2008, the frequency of piracy incidents against commercial shipping vessels has increased significantly, particularly in the Gulf of Aden and off the coast of Somalia. In 2012 M/T Smyrni, a vessel managed by an affiliated company, was hijacked by pirates and was released after almost one year in captivity. Any terrorist attacks targeted at our ships may in
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the future negatively materially affect our business, financial condition, results of operations and cash flows and could directly impact our vessels or our customers. We may not be adequately insured to cover losses from these incidents. In addition, crew costs, including those due to employing onboard security guards, could increase in such circumstances.
In addition, LNG facilities, shipyards, ships, pipelines and gas fields could be targets of future terrorist attacks or piracy. Any such attacks could lead to, among other things, bodily injury or loss of life, as well as damage to the ships or other property, increased ship operating costs, including insurance costs, reductions in the supply of LNG and the inability to transport LNG to or from certain locations. Terrorist attacks, war or other events beyond our control that adversely affect the production, storage or transportation of LNG to be shipped by us could entitle our customers to terminate our charter contracts in certain circumstances, which would harm our cash flows and our business.
Terrorist attacks, or the perception that LNG facilities and LNG carriers are potential terrorist targets, could materially and adversely affect expansion of LNG infrastructure and the continued supply of LNG. Concern that LNG facilities may be targeted for attack by terrorists has contributed significantly to local community and environmental group resistance to the construction of a number of LNG facilities, primarily in North America. If a terrorist incident involving an LNG facility or LNG carrier did occur, in addition to the possible effects identified in the previous paragraph, the incident may adversely affect the construction of additional LNG facilities and could lead to the temporary or permanent closing of various LNG facilities currently in operation.
The vessels we own or manage could be required by our charterers instructions to call on ports located in countries that are subject to restrictions imposed by the United States and other governments.
Although no vessels operated by us have called on ports located in countries subject to sanctions and embargoes imposed by the U.S. government and countries identified by the U.S. government as state sponsors of terrorism, including Cuba, Iran, Sudan and Syria, in the future our vessels may call on ports in these countries from time to time on our charterers instructions. The U.S. sanctions and embargo laws and regulations vary in their application, as they do not all apply to the same covered persons or proscribe the same activities, and such sanctions and embargo laws and regulations may be amended or strengthened over time. In 2010, the U.S. enacted the Comprehensive Iran Sanctions Accountability and Divestment Act, or CISADA, which expanded the scope of the Iran Sanctions Act. Among other things, CISADA expands the application of the prohibitions to companies such as ours and introduces limits on the ability of companies and persons to do business or trade with Iran when such activities relate to the investment, supply or export of refined petroleum or petroleum products. In addition, in 2012, President Obama signed Executive Order 13608 which prohibits foreign persons from violating or attempting to violate, or causing a violation of any sanctions in effect against Iran or facilitating any deceptive transactions for or on behalf of any person subject to U.S. sanctions. Any persons found to be in violation of Executive Order 13608 will be deemed a foreign sanctions evader and will be banned from all contacts with the United States, including conducting business in U.S. dollars. Also in 2012, President Obama signed into law the Iran Threat Reduction and Syria Human Rights Act of 2012, or the Iran Threat Reduction Act, which created new sanctions and strengthened existing sanctions. Among other things, the Iran Threat Reduction Act intensifies existing sanctions regarding the provision of goods, services, infrastructure or technology to Irans petroleum or petrochemical sector. The Iran Threat Reduction Act also includes a provision requiring the President of the United States to impose five or more sanctions from Section 6(a) of the Iran Sanctions Act, as amended, on a person the President determines is a controlling beneficial owner of, or otherwise owns, operates, or controls or insures a vessel that was used to transport crude oil from Iran to another country and (1) if the person is a controlling beneficial owner of the vessel, the person had actual knowledge the vessel was so used or (2) if the person otherwise owns, operates, or controls, or insures the vessel, the person knew or should have known the vessel was so used. Such a person could be subject to a variety of sanctions, including exclusion from U.S. capital markets, exclusion from financial transactions subject to U.S. jurisdiction, and exclusion of that persons vessels from U.S. ports for up to two years.
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Although we believe that we have been in compliance with all applicable sanctions and embargo laws and regulations, and intend to maintain such compliance, there can be no assurance that we will be in compliance in the future, particularly as the scope of certain laws may be unclear and may be subject to changing interpretations. Any such violation could result in fines, penalties or other sanctions that could severely impact our ability to access U.S. capital markets and conduct our business, and could result in some investors deciding, or being required, to divest their interest, or not to invest, in us. In addition, certain institutional investors may have investment policies or restrictions that prevent them from holding securities of companies that have contracts with countries identified by the U.S. government as state sponsors of terrorism. The determination by these investors not to invest in, or to divest from, our common units may adversely affect the price at which our common units trade. Moreover, our charterers may violate applicable sanctions and embargo laws and regulations as a result of actions that do not involve us or our vessels, and those violations could in turn negatively affect our reputation. In addition, our reputation and the market for our securities may be adversely affected if we engage in certain other activities, such as entering into charters with individuals or entities in countries subject to U.S. sanctions and embargo laws that are not controlled by the governments of those countries, or engaging in operations associated with those countries pursuant to contracts with third parties that are unrelated to those countries or entities controlled by their governments. Investor perception of the value of our common units may be adversely affected by the consequences of war, the effects of terrorism, civil unrest and governmental actions in these and surrounding countries.
Governments could requisition our vessels during a period of war or emergency, resulting in loss of earnings.
The government of a jurisdiction where one or more of our vessels are registered could requisition for title or seize our vessels. Requisition for title occurs when a government takes control of a ship and becomes its owner. Also, a government could requisition our vessels for hire. Requisition for hire occurs when a government takes control of a ship and effectively becomes the charterer at dictated charter rates. Generally, requisitions occur during a period of war or emergency, although governments may elect to requisition ships in other circumstances. Although we would expect to be entitled to government compensation in the event of a requisition of one or more of our vessels, the amount and timing of payments, if any, would be uncertain. A government requisition of one or more of our vessels would result in off-hire days under our time charters and may cause us to breach covenants in certain of our credit facilities, and could have a material adverse effect on our business, financial condition, results of operations and cash flows, including cash available for distribution to our unitholders.
Maritime claimants could arrest our vessels, which could interrupt our cash flows.
Crew members, suppliers of goods and services to a vessel, shippers of cargo and other parties may be entitled to a maritime lien against a vessel for unsatisfied debts, claims or damages. In many jurisdictions, a claimant may seek to obtain security for its claim by arresting a vessel through foreclosure proceedings. The arrest or attachment of one or more of our vessels could interrupt our cash flow and require us to pay large sums of money to have the arrest or attachment lifted. In addition, in some jurisdictions, such as South Africa, under the sister ship theory of liability, a claimant may arrest both the vessel which is subject to the claimants maritime lien and any associated vessel, which is any vessel owned or controlled by the same owner. Claimants could attempt to assert sister ship liability against a vessel in our fleet for claims relating to another of our vessels.
We may be subject to litigation that could have an adverse effect on us.
We may in the future be involved from time to time in litigation matters. These matters may include, among other things, contract disputes, personal injury claims, environmental claims or proceedings, toxic tort claims, employment matters and governmental claims for taxes or duties as well as other litigation that arises in the ordinary course of our business. We cannot predict with certainty the outcome of any claim or other litigation
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matter. The ultimate outcome of any litigation matter and the potential costs associated with prosecuting or defending such lawsuits, including the diversion of managements attention to these matters, could have an adverse effect on us and, in the event of litigation that could reasonably be expected to have a material adverse effect on us, could lead to an event of default under certain of our credit facilities.
Risks Relating to the Offering
There is no existing market for our common units, and a trading market that will provide you with adequate liquidity may not develop. The price of our common units may fluctuate significantly, and you could lose all or part of your investment.
Prior to this offering, there has been no public market for the common units. After this offering, there will be only publicly traded common units, assuming no exercise of the underwriters over-allotment option. We do not know the extent to which investor interest will lead to the development of a trading market or how liquid that market might be. You may not be able to resell your common units at or above the initial public offering price. Additionally, the lack of liquidity may result in wide bid-ask spreads, contribute to significant fluctuations in the market price of the common units and limit the number of investors who are able to buy the common units.
The price of our common units after this offering may be volatile.
The price of our common units after this offering may be volatile and may fluctuate due to factors including:
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our payment of cash distributions to our unitholders; |
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actual or anticipated fluctuations in quarterly and annual results; |
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fluctuations in the seaborne transportation industry, including fluctuations in the LNG carrier market; |
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mergers and strategic alliances in the shipping industry; |
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changes in governmental regulations or maritime self-regulatory organization standards; |
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shortfalls in our operating results from levels forecasted by securities analysts; announcements concerning us or our competitors; |
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the failure of securities analysts to publish research about us after this offering, or analysts making changes in their financial estimates; |
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general economic conditions; |
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terrorist acts; |
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future sales of our units or other securities; |
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investors perception of us and the LNG shipping industry; |
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the general state of the securities market; and |
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other developments affecting us, our industry or our competitors. |
Securities markets worldwide are experiencing significant price and volume fluctuations. The market price for our common units may also be volatile. This market volatility, as well as general economic, market or political conditions, could reduce the market price of our common units in spite of our operating performance. Consequently, you may not be able to sell our common units at prices equal to or greater than those that you pay in this offering.
Increases in interest rates may cause the market price of our common units to decline.
An increase in interest rates may cause a corresponding decline in demand for equity investments in general. Any such increase in interest rates or reduction in demand for our common units resulting from other relatively more attractive investment opportunities may cause the trading price of our common units to decline.
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Our costs will increase as a result of operating as a public company, and our management will be required to devote substantial time to complying with public company regulations.
We have never operated as a public company. As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley, as well as rules subsequently adopted by the U.S. Securities and Exchange Commission, or SEC, and Nasdaq Global Select Market, including the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or Dodd-Frank, have imposed various requirements on public companies, including changes in corporate governance practices. Our directors, management and other personnel will need to devote a substantial amount of time to comply with these requirements. Moreover, these rules and regulations relating to public companies will increase our legal and financial compliance costs and will make some activities more time-consuming and costly.
Sarbanes-Oxley requires, among other things, that we maintain and periodically evaluate our internal control over financial reporting as well as disclosure controls and procedures. In particular, we will have to perform systems and process evaluation and testing of our internal control over financial reporting to allow management and our independent registered public accounting firm to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of Sarbanes-Oxley. Compliance with Section 404 will require substantial accounting expense and significant management efforts, and we may need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge to satisfy ongoing compliance requirements. We may have significant difficulties in making such hires given the shortage of available experienced personnel.
Unitholders may have liability to repay distributions.
Under some circumstances, unitholders may have to repay amounts wrongfully returned or distributed to them. Under the Marshall Islands Limited Partnership Act, or the Marshall Islands Act, we may not make a distribution to you if the distribution would cause our liabilities to exceed the fair value of our assets. Marshall Islands law provides that for a period of three years from the date of the impermissible distribution, limited partners who received the distribution and who knew at the time of the distribution that it violated Marshall Islands law will be liable to the limited partnership for the distribution amount. Assignees who become substituted limited partners are liable for the obligations of the assignor to make contributions to the partnership that are known to the assignee at the time it became a limited partner and for unknown obligations if the liabilities could be determined from the partnership agreement. Liabilities to partners on account of their partnership interest and liabilities that are non-recourse to the partnership are not counted for purposes of determining whether a distribution is permitted.
We have been organized as a limited partnership under the laws of the Marshall Islands, which does not have a well-developed body of partnership law.
We are organized in the Republic of the Marshall Islands, which does not have a well-developed body of case law or bankruptcy law and, as a result, unitholders may have fewer rights and protections under Marshall Islands law than under a typical jurisdiction in the United States. Our partnership affairs are governed by our partnership agreement and by the Marshall Islands Act. The provisions of the Marshall Islands Act resemble the limited partnership laws of a number of states in the United States, most notably Delaware. The Marshall Islands Act also provides that it is to be applied and construed to make it uniform with the Delaware Revised Uniform Partnership Act and, so long as it does not conflict with the Marshall Islands Act or decisions of the Marshall Islands courts, interpreted according to the non-statutory law (or case law) of the State of Delaware. There have been, however, few, if any, court cases in the Marshall Islands interpreting the Marshall Islands Act, in contrast to Delaware, which has a fairly well-developed body of case law interpreting its limited partnership statute. Accordingly, we cannot predict whether Marshall Islands courts would reach the same conclusions as the courts in Delaware. For example, the rights of our unitholders and the fiduciary responsibilities of our General Partner under Marshall Islands law are not as clearly established as under judicial precedent in existence in Delaware. As
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a result, unitholders may have more difficulty in protecting their interests in the face of actions by our General Partner and its officers and directors than would unitholders of a similarly organized limited partnership in the United States. Further, the Republic of the Marshall Islands does not have a well-developed body of bankruptcy law. As such, in the case of a bankruptcy of our Company, there may be a delay of bankruptcy proceedings and the ability of unitholders and creditors to receive recovery after a bankruptcy proceeding. Please see Service of Process and Enforceability of Civil Liabilities.
If we do not implement all required accounting practices and policies, we may be unable to provide the required financial information in a timely and reliable manner.
Prior to this offering, as a privately held company, we did not adopt the financial reporting practices and policies required of a publicly traded company. Implementation of these practices and policies could disrupt our business, distract our management and employees and increase our costs. If we fail to develop and maintain effective controls and procedures, we may be unable to provide the financial information that a publicly traded company is required to provide in a timely and reliable fashion. Any such delays or deficiencies could limit our ability to obtain financing, either in the public capital markets or from private sources, and could thereby impede our ability to implement our growth strategies. In addition, any such delays or deficiencies could result in failure to meet the requirements for continued listing of our common units on Nasdaq Global Select Market, which would adversely affect the liquidity of our common units.
Under Section 404 of Sarbanes-Oxley, we will be required to include in each of our future annual reports on Form 20-F a report containing our managements assessment of the effectiveness of our internal control over financial reporting, and after the end of the fiscal year following the fifth anniversary of our initial public offering or such earlier time that we are no longer an emerging growth company, our independent auditors will be required to provide a related attestation containing its assessment of the effectiveness of our internal control over financial reporting. After the completion of this offering, we will undertake a comprehensive effort in preparation for compliance with Section 404. This effort will include the documentation, testing and review of our internal controls under the direction of our management. We cannot be certain at this time that all our controls will be considered effective. As such, our internal control over financial reporting may not satisfy the regulatory requirements when they become applicable to us.
We will be a foreign private issuer and a controlled company under Nasdaq Global Select Market rules, and as such we are entitled to exemption from certain corporate governance standards of the Nasdaq Global Select Market applicable to domestic companies, and you may not have the same protections afforded to shareholders of companies that are subject to all of Nasdaq Global Select Market corporate governance requirements.
After the consummation of this offering, we will be a foreign private issuer under the securities laws of the United States and the rules of Nasdaq Global Select Market. Under the securities laws of the United States, foreign private issuers are subject to different disclosure requirements than U.S. domiciled registrants, as well as different financial reporting requirements. Under Nasdaq Global Select Market rules, a foreign private issuer is subject to less stringent corporate governance requirements. Subject to certain exceptions, the rules of Nasdaq Global Select Market permit a foreign private issuer to follow its home country practice in lieu of the listing requirements of Nasdaq Global Select Market. In addition, after the consummation of this offering, our current unitholders will continue to control a majority of our issued and outstanding common units. As a result, we will be a controlled company within the meaning of Nasdaq Global Select Market corporate governance standards. Under Nasdaq Global Select Market rules, a company of which more than 50% of the voting power is held by an individual, a group or another company is a controlled company and may elect not to comply with certain NASDAQ corporate governance requirements, including (i) the requirement that a majority of the board of directors consist of independent directors, (ii) the requirement that the nominating/corporate governance committee be composed entirely of independent directors and have a written charter addressing the committees purpose and responsibilities, (iii) the requirement that the compensation committee be composed entirely of
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independent directors and have a written charter addressing the committees purpose and responsibilities and (iv) the requirement of an annual performance evaluation of the nominating/corporate governance and compensation committees.
We anticipate that a majority of our directors will qualify as independent. However, we cannot assure you that we will continue to maintain an independent board in the future. In addition, we may have one or more non-independent directors serving as committee members on our compensation committee and our corporate governance and nominating committee. As a result, non-independent directors may among other things, participate in fixing the compensation of our management, making share and option awards and resolving governance issues regarding our Company.
Accordingly, in the future you may not have the same protections afforded to shareholders of companies that are subject to all of Nasdaq Global Select Market corporate governance requirements.
Because we are organized under the laws of the Marshall Islands, it may be difficult to serve us with legal process or enforce judgments against us, our directors or our management.
We are organized under the laws of the Marshall Islands, and substantially all of our assets are located outside of the United States. In addition, our directors and officers generally are or will be non-residents of the United States, and all or a substantial portion of the assets of these non-residents are located outside the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States if you believe that your rights have been infringed under securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Marshall Islands and of other jurisdictions may prevent or restrict you from enforcing a judgment against our assets or the assets of our directors or officers. For more information regarding the relevant laws of the Marshall Islands, see Service of Process and Enforcement of Civil Liabilities.
Our Partnership Agreement designates the Court of Chancery of the State of Delaware as the sole and exclusive forum, unless otherwise provided for by Marshall Islands law, for certain litigation that may be initiated by our unitholders, which could limit our unitholders ability to obtain a favorable judicial forum for disputes with the Company.
Our Partnership Agreement provides that, unless otherwise provided for by Marshall Islands law, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for any claims that:
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arise out of or relate in any way to the Partnership Agreement (including any claims, suits or actions to interpret, apply or enforce the provisions of the Partnership Agreement or the duties, obligations or liabilities among limited partners or of limited partners to us, or the rights or powers of, or restrictions on, the limited partners or us); |
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are brought in a derivative manner on our behalf; |
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assert a claim of breach of a fiduciary duty owed by any director, officer or other employee of us or our General Partner, or owed by our General Partner, to us or the limited partners; |
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assert a claim arising pursuant to any provision of the Partnership Act; or |
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assert a claim governed by the internal affairs doctrine |
regardless of whether such claims, suits, actions or proceedings sound in contract, tort, fraud or otherwise, are based on common law, statutory, equitable, legal or other grounds, or are derivative or direct claims. Any person or entity purchasing or otherwise acquiring any interest in our common units shall be deemed to have notice of and to have consented to the provisions described above. This forum selection provision may limit our unitholders ability to obtain a judicial forum that they find favorable for disputes with us or our directors, officers or other employees or unitholders.
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You will incur immediate and substantial dilution.
We expect the initial public offering price per units of our common units to be substantially higher than the pro forma net tangible book value per unit of our issued and outstanding common units. As a result, you would incur immediate and substantial dilution of $ per unit, representing the difference between the assumed initial public offering price of $ per unit and our pro forma net tangible book value per unit on December 31, 2012. In addition, purchasers of our common units in this offering will have contributed approximately % of the aggregate price paid by all purchasers of our common units, but will own only approximately % of the units outstanding after this offering and the concurrent private placement. Please refer to the Dilution section of this prospectus.
Substantial future sales of our common units could cause the market price of our common units to decline.
Sales of a substantial number of our common units in the public market following this offering, or the perception that these sales could occur, may depress the market price for our common units. These sales could also impair our ability to raise additional capital through the sale of our equity securities in the future.
Although we do not currently have any plans to sell additional common units, subject to the rules of Nasdaq Global Select Market, in the future we may issue additional common units, without unitholder approval, in a number of circumstances. The issuance by us of additional common units or other equity securities would have the following effects:
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our existing unitholders proportionate ownership interest in us will decrease; |
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the dividend amount payable per unit on our common units may be lower; |
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the relative voting strength of each previously outstanding common share may be diminished; and |
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the market price of our common units may decline. |
Our unitholders also may elect to sell large numbers of common units held by them from time to time. The number of our common units available for sale in the public market will be limited by restrictions applicable under securities laws and under agreements that we and our executive officers, directors and existing unitholders have entered into with the underwriters of this offering. Subject to certain exceptions, the agreements entered into with the underwriters of this offering generally restrict us and our executive officers, directors and existing unitholders from directly or indirectly offering, selling, pledging, hedging or otherwise disposing of our equity securities, including common units that will be issued and outstanding.
Provisions in our organizational documents may have anti-takeover effects.
Our Partnership Agreement contains provisions that could make it more difficult for a third party to acquire us without the consent of our board of directors. These provisions require approval of our board of directors and prior consent of our General Partner. Please see The Partnership AgreementMerger, Sale, Conversion or Other Disposition of Assets.
These provisions could also make it difficult for our unitholders to replace or remove our current board of directors or could have the effect of discouraging, delaying or preventing an offer by a third party to acquire us, even if the third partys offer may be considered beneficial by many unitholders. As a result, unitholders may be limited in their ability to obtain a premium for their common units.
Tax Risks
In addition to the following risk factors, you should read Material U.S. Federal Income Tax Considerations and Non-United States Tax Considerations for a more complete discussion of the material Marshall Islands and U.S. Federal income tax consequences of owning and disposing of our common units.
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We will be subject to taxes, which will reduce our cash available for distribution to you.
We and our subsidiaries may be subject to tax in the jurisdictions in which we are organized or operate, reducing the amount of cash available for distribution. In computing our tax obligation in these jurisdictions, we are required to take various tax accounting and reporting positions on matters that are not entirely free from doubt and for which we have not received rulings from the governing authorities. We cannot assure you that upon review of these positions the applicable authorities will agree with our positions. A successful challenge by a tax authority could result in additional tax imposed on us or our subsidiaries, further reducing the cash available for distribution. In addition, changes in our operations or ownership could result in additional tax being imposed on us or our subsidiaries in jurisdictions in which operations are conducted. Please see Material U.S. Federal Income Tax ConsiderationsUnited States Federal Income Taxation of Our Company.
We may have to pay tax on U.S.-source income, which would reduce our earnings and cash flow.
Under the United States Internal Revenue Code of 1986, as amended, or the Code, the U.S. source gross transportation income of a ship-owning or chartering corporation, such as ourselves, generally is subject to a 4% U.S. Federal income tax without allowance for deduction, unless that corporation qualifies for exemption from tax under a tax treaty or Section 883 of the Code and the Treasury Regulations promulgated thereunder. U.S. source gross transportation income consists of 50% of the gross shipping income that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States.
Based on advice we received from Seward & Kissel LLP, our United States counsel, we expect to qualify for this statutory tax exemption after this offering, and we intend to take this position for U.S. Federal income tax purposes if we do so qualify. However, there are factual circumstances beyond our control that could cause us to lose the benefit of this tax exemption and thereby become subject to the 4% U.S. Federal income tax described above. The imposition of this taxation could have a negative effect on our business and would result in decreased earnings available for distribution payments to our unitholders. For a more detailed discussion, see the section entitled Material U.S. Federal Income Tax Considerations.
U.S. tax authorities could treat us as a passive foreign investment company, which would have adverse U.S. federal income tax consequences to U.S. unitholders.
A non-U.S. entity treated as a corporation for U.S. federal income tax purposes will be treated as a passive foreign investment company (or PFIC) for U.S. federal income tax purposes if at least 75.0% of its gross income for any taxable year consists of passive income or at least 50.0% of the average value of its assets produce, or are held for the production of, passive income. For purposes of these tests, passive income includes dividends, interest, gains from the sale or exchange of investment property, and rents and royalties other than rents and royalties that are received from unrelated parties in connection with the active conduct of a trade or business. For purposes of these tests, income derived from the performance of services does not constitute passive income. U.S. shareholders of a PFIC are subject to a disadvantageous U.S. federal income tax regime with respect to the income derived by the PFIC, the distributions they receive from the PFIC, and the gain, if any, they derive from the sale or other disposition of their interests in the PFIC. Based on our current and projected method of operation, and on an opinion of our United States counsel, Seward & Kissel LLP, we believe that we will not be a PFIC for any taxable year. We will receive an opinion of our United States counsel in support of this position that concludes that the income our subsidiaries earn from certain of our present time-chartering activities should not constitute passive income for purposes of determining whether we are a PFIC. In addition, we have represented to our United States counsel that we expect that more than 25.0% of our gross income for our current taxable year and each future year will arise from such time-chartering activities or other income which does not constitute passive income, and more than 50.0% of the average value of our assets for each such year will be held for the production of such nonpassive income. Assuming the composition of our income and assets is consistent with these expectations, and assuming the accuracy of other representations we have made to our United States counsel for purposes of their opinion, our United States counsel is of the opinion that we should not be a PFIC for our current taxable year or any future year. This opinion is based and its accuracy is conditioned on
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representations, valuations and projections provided by us regarding our assets, income and charters to our United States counsel. While we believe these representations, valuations and projections to be accurate, the shipping market is volatile and no assurance can be given that they will continue to be accurate at any time in the future.
While Seward & Kissel LLP, our United States counsel, will provide us with an opinion in support of our position, the conclusions reached are not free from doubt, and it is possible that the U.S. Internal Revenue Service, or the IRS, or a court could disagree with this position. In addition, although we intend to conduct our affairs in a manner to avoid being classified as a PFIC with respect to each taxable year, we cannot assure you that the nature of our operations will not change in the future and that we will not become a PFIC in any taxable year. If the IRS were to find that we are or have been a PFIC for any taxable year (and regardless of whether we remain a PFIC for subsequent taxable years), our U.S. unitholders would face adverse U.S. federal income tax consequences. See Material U.S. Federal Income Tax ConsiderationsU.S. Federal Income Taxation of U.S. HoldersPFIC Status and Significant Tax Consequences for a more detailed discussion of the U.S. federal income tax consequences to U.S. unitholders if we are treated as a PFIC.
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We expect to receive net proceeds of approximately $ million from the sale of common units offered by this prospectus, assuming an initial public offering price of $ per common unit, which is the mid-point of the price range set forth on the cover of this prospectus, and after deducting estimated underwriting discounts and commissions and structuring fees and paying estimated offering expenses. We intend to use the net proceeds from this offering, as follows:
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Approximately $ million to repay in full all of the outstanding indebtedness under our $193 million Ob River Credit Facility, which bears interest at LIBOR plus a margin and matures in July 2017; and |
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Approximately $ million for general partnership purposes, including working capital. |
We intend to the use the proceeds from our Proposed Senior Secured Revolving Credit Facility, as follows:
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Approximately $ million to repay in full all of the outstanding indebtedness under our $150 million Clean Energy Credit Facility, which bears interest at LIBOR plus a margin and matures in July 2017; |
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Approximately $ million to repay in full all of the outstanding indebtedness under our $128 million Clean Force Credit Facility, which bears interest at LIBOR plus a margin and matures in April 2020; and |
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Approximately $ million will remain undrawn and available for vessel acquisitions. |
Our Sponsor has granted the underwriters a 30-day option to purchase up to additional common units to cover over-allotments, if any. If the underwriters exercise their over-allotment option, we will not receive any proceeds from the sale of additional common units by our Sponsor.
A $1.00 increase or decrease in the assumed initial public offering price of $ per common unit would cause the net proceeds from this offering, after deducting the estimated underwriting discount and commissions and structuring fees and offering expenses payable by us, to increase or decrease, respectively, by approximately $ million. In addition, we may also increase or decrease the number of common units we are offering. Each increase of 1.0 million common units offered by us, together with a concomitant $1.00 increase in the assumed public offering price to $ per common unit, would increase net proceeds to us from this offering by approximately $ million. Similarly, each decrease of 1.0 million common units offered by us, together with a concomitant $1.00 decrease in the assumed initial offering price to $ per common unit, would decrease the net proceeds to us from this offering by approximately $ million.
In addition, our Sponsor, will also receive the following:
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Net proceeds of approximately $ million from the sale of common units offered by this prospectus, assuming an initial public offering price of $ per unit; |
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common units; and |
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subordinated units. |
We will not receive any proceeds from the sale of common units by our Sponsor.
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The following table sets forth our consolidated capitalization as of June 30, 2013:
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On an actual basis; |
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On an as adjusted basis after giving effect to our scheduled debt repayments of $10.8 million paid during the period ended September 30, 2013; and |
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On an as further adjusted basis after giving effect to (i) our issuance and sale of common units in this offering at an assumed initial public offering price of $ per unit (representing the mid-point of the price range shown on the cover of this prospectus (ii) the application of the net proceeds of this offering as described under Use of Proceeds. |
There have been no significant adjustments to our capitalization since June 30, 2013, as so adjusted.
You should read this table in conjunction with the consolidated financial statements and the related notes, Managements Discussion and Analysis of Financial Condition and Results of Operations and Use of Proceeds included elsewhere in this prospectus.
As of June 30, 2013 | ||||||||||||
Historical | As Adjusted |
As further
Adjusted |
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(in thousands of U.S. dollars) | ||||||||||||
Restricted Cash(1): |
$ | 2,831 | $ | 2,831 | $ | |||||||
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Debt: |
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$128 Million Clean Force Credit Facility |
$ | 83,375 | $ | 81,250 | $ | |||||||
$150 Million Clean Energy Credit Facility |
132,500 | 129,000 | ||||||||||
$193 Million Ob River Credit Facility |
143,170 | 137,960 | ||||||||||
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Total Long-term secured debt obligations (including current portion): |
$ | 359,045 | $ | 348,210 | $ | |||||||
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Equity: |
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Partners equity |
$ | 97,903 | $ | 97,903 | $ | |||||||
Held by public: |
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Common units: |
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Held by General Partner |
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Common units |
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Subordinated units |
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General Partner units |
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Equity attributable to Dynagas Partners |
97,903 | 97,903 | ||||||||||
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Total capitalization |
$ | 456,948 | $ | 446,113 | $ | |||||||
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(1) | Reflects the classification of our cash as restricted, as defined in the minimum liquidity provisions of the $193 Million Ob River Credit Facility. |
* | The above capitalization table does not include the $30 million revolving credit facility to be entered into with our Sponsor, which we do not intend to draw at the time of the closing of this offering. |
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Dilution is the amount by which the offering price will exceed the net tangible book value per common unit after this offering. On a pro forma basis as of June 30, 2013, our pro forma net tangible book value would have been $ million, or $ per common unit. This remains unchanged when adjusted for the sale by our Sponsor of common units in this offering at an assumed initial public offering price of $ per common unit. Purchasers of common units in this offering will experience substantial and immediate dilution in net tangible book value per common unit for financial accounting purposes, as illustrated in the following table.
Assumed initial public offering price per common unit |
$ | |||
Less: Pro forma net tangible book value per common unit before and after this offering |
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Immediate dilution in net tangible book value per common unit to purchasers in this offering |
$ |
A $1.00 increase or decrease in the assumed initial public offering price of $ per common unit would cause the adjusted net tangible book value to increase or decrease, respectively, by approximately $ million, or $ per common unit.
The following table sets forth the number of units that we will issue and the total consideration contributed to us by our Sponsor and by the purchasers of common units in this offering upon consummation of the transactions contemplated by this prospectus.
Units Acquired | Total Consideration | |||||||||||||
Number | Percent | Amount | Percent | |||||||||||
Our Sponsor(1)(2) |
% | $ | % | |||||||||||
New investors |
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Total |
% | $ | % | |||||||||||
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(1) | Upon consummation of the transactions contemplated by this prospectus, our Sponsor will own an aggregate of common units and subordinated units, assuming no exercise of the underwriters over-allotment option. |
(2) | The assets contributed by the and its affiliates were recorded at historical book value, rather than fair value, in accordance with U.S. GAAP. Book value of the consideration provided by our Sponsor, as of June 30, 2013, was $ million. |
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OUR CASH DISTRIBUTION POLICY AND RESTRICTIONS ON DISTRIBUTIONS
You should read the following discussion of our cash distribution policy and restrictions on distributions in conjunction with specific assumptions included in this section. In addition, you should read Forward-Looking Statements and Risk Factors for information regarding statements that do not relate strictly to historical or current facts and certain risks inherent in our business.
Following this offering, we intend to declare minimum quarterly distributions of $ per unit, or $ per unit on an annualized basis. As our fleet expands, our board of directors will evaluate future increases to the minimum quarterly distribution based on our cash flow and liquidity position. Our policy is to make cash distributions to the extent we have sufficient cash from operations after establishment of cash reserves and payment of fees and expenses, including payments to our General Partner. Our board of directors will determine the timing and amount of all cash distributions, based on various factors, including our financial performance, cash requirements and contractual and legal restrictions. Accordingly, we cannot guarantee that we will be able to make cash distributions. See Risk Factors.
General
Rationale for Our Cash Distribution Policy
Our cash distribution policy reflects a judgment that our unitholders will be better served by our distributing our available cash rather than retaining it because, in general, we plan to finance any expansion capital expenditures from external financing sources. Our cash distribution policy is consistent with the terms of our Partnership Agreement, which requires that we distribute all of our available cash quarterly. Available cash is generally defined to mean, for each quarter cash generated from our business less the amount of cash reserves established by our General Partner at the date of determination of available cash for the quarter to provide for the proper conduct of our business (including reserves for our future capital expenditures and anticipated future credit needs subsequent to that quarter), comply with applicable law, any of our debt instruments or other agreements; and provide funds for distributions to our unitholders and to our General Partner for any one or more of the next four quarters, plus, if our General Partner so determines, all or any portion of the cash on hand on the date of determination of available cash for the quarter resulting from working capital borrowings made subsequent to the end of such quarter.
Limitations on Cash Distributions and Our Ability to Change Our Cash Distribution Policy
There is no guarantee that unitholders will receive quarterly distributions from us. Our cash distribution policy is subject to certain restrictions and may be changed at any time. Set forth below are certain factors that influence our cash distribution policy:
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Our unitholders have no contractual or other legal right to receive distributions other than the obligation under our Partnership Agreement to distribute available cash on a quarterly basis, which is subject to the broad discretion of our board of directors to establish reserves and other limitations. |
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We will be subject to restrictions on distributions under our existing financing arrangements as well as under any new financing arrangements that we may enter into in the future. Our financing arrangements contain financial and other covenants that must be satisfied prior to paying distributions in order to declare and pay such distributions. If we are unable to satisfy the requirements contained in any of our financing arrangements or are otherwise in default under any of those agreements, it could have a material adverse effect on our financial condition and our ability to make cash distributions to you notwithstanding our cash distribution policy. See Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital Resources for a discussion of the financial and other covenants contained in our debt agreements. |
64
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We are required to make substantial capital expenditures to maintain and replace our fleet. These expenditures may fluctuate significantly over time, particularly as our vessels near the end of their useful lives. In order to minimize these fluctuations, our Partnership Agreement requires us to deduct estimated, as opposed to actual, maintenance and replacement capital expenditures from the amount of cash that we would otherwise have available for distribution to our unitholders. In years when estimated maintenance and replacement capital expenditures are higher than actual maintenance and replacement capital expenditures, the amount of cash available for distribution to unitholders will be lower than if actual maintenance and replacement capital expenditures were deducted. |
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Although our Partnership Agreement requires us to distribute all of our available cash, our Partnership Agreement, including provisions contained therein requiring us to make cash distributions may be amended. During the subordination period, with certain exceptions, our Partnership Agreement may not be amended without the approval of non-affiliated common unitholders. After the subordination period has ended, our Partnership Agreement may be amended with the approval of a majority of the outstanding common units. Upon the closing of this offering, our Sponsor will own approximately % of our common units and all of our subordinated units. See The Partnership AgreementAmendment of the Partnership Agreement. |
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Even if our cash distribution policy is not modified or revoked, the amount of distributions we pay under our cash distribution policy and the decision to make any distribution is determined by our board of directors, taking into consideration the terms of our Partnership Agreement. |
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Under Section 57 of the Marshall Islands Act, we may not make a distribution to you if the distribution would cause our liabilities to exceed the fair value of our assets. |
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We may lack sufficient cash to pay distributions to our unitholders due to decreases in total operating revenues, decreases in hire rates, the loss of a vessel or increases in operating or general and administrative expenses, principal and interest payments on outstanding debt, taxes, working capital requirements, maintenance and replacement capital expenditures or anticipated cash needs. See Risk Factors for a discussion of these factors. |
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Our ability to make distributions to our unitholders depends on the performance of our subsidiaries and their ability to distribute cash to us. The ability of our subsidiaries to make distributions to us may be restricted by, among other things, the provisions of existing and future indebtedness, applicable limited partnership and limited liability company laws in the Marshall Islands and other laws and regulations. |
Our Ability to Grow Depends on Our Ability to Access External Expansion Capital
Because we distribute all of our available cash on a quarterly basis, we may not grow as quickly as businesses that reinvest their available cash to expand ongoing operations. We plan to rely primarily upon external financing sources, including commercial bank borrowings and the issuance of debt and equity securities, to fund any future expansion capital expenditures, including any acquisitions through the exercise of our purchase options with our Sponsor. If we are unable to finance growth externally, our cash distribution policy will significantly impair our ability to grow. To the extent we issue additional units in connection with any acquisitions or other capital expenditures, the payment of distributions on those additional units may increase the risk that we will be unable to maintain or increase our per unit distribution level, which in turn may affect the available cash that we have to distribute on each unit. There are no limitations in our Partnership Agreement on our ability to issue additional units, including units ranking senior to the common units. The incurrence of additional borrowings or other debt by us to finance our growth would result in increased interest expense, which in turn may affect the available cash that we have to distribute to our unitholders.
Initial Distribution Rate
Upon the completion of this offering, our board of directors intends to adopt a cash distribution policy pursuant to which we will declare an initial quarterly distribution of $ per unit for each complete quarter, or
65
$ per unit on an annualized basis, to be paid no later than 45 days after the end of each fiscal quarter (beginning with the quarter ending ). This equates to an aggregate cash distribution of $ million per quarter, or $ million per year, in each case based on the number of common units, subordinated units and General Partner Units outstanding immediately after completion of this offering. Our ability to make cash distributions at the initial distribution rate pursuant to this policy will be subject to the factors described above under GeneralLimitations on Cash Distributions and Our Ability to Change Our Cash Distribution Policy.
The table below sets forth the number of outstanding common units, subordinated units and General Partner Units upon the closing of this offering and the aggregate distribution amounts payable on such units during the year following the closing of this offering at our initial distribution rate of $ per unit per quarter, or $ per unit on an annualized basis.
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Distributions | |||||||||
Number of Units | One Quarter(2) | Four Quarters | ||||||||
Common units |
$ | $ | ||||||||
Subordinated units |
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General Partner Units(1) |
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Total |
$ | $ |
(1) | The number of General Partner Units is determined by multiplying the total number of units deemed to be outstanding (i.e., the total number of common and subordinated units outstanding divided by 99.9%) by the General Partners 0.1% General Partner interest. |
(2) | Actual payments of distributions on the common units, subordinated units and the General Partner Units are expected to be approximately $ million for the period between the estimated closing date of this offering; and . |
During the subordination period, before we make any quarterly distributions to subordinated unitholders, our common unitholders are entitled to receive payment of the full minimum quarterly distribution plus any arrearages in distributions from prior quarters. See How We Make Cash DistributionsSubordination Period. We cannot guarantee, however, that we will pay the minimum quarterly distribution or any amount on the common units in any quarter.
As of the closing date of this offering, our General Partner will be entitled to 0.1% of all distributions that we make prior to our liquidation. Our General Partners initial 0.1% interest in these distributions may be reduced if we issue additional units in the future and our General Partner does not contribute a proportionate amount of capital to us to maintain its initial 0.1% General Partner interest. Our General Partner has the right, but not the obligation, to contribute a proportionate amount of capital to us to maintain its current General Partner interest.
Forecasted Results of Operations for the Twelve Months Ending December 31, 2014
In this section, we present in detail the basis for our belief that we will be able to pay our minimum quarterly distribution on all of our outstanding units for the twelve months ending December 31, 2014. We outline the significant assumptions upon which the forecast is based and present two tables, consisting of:
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Forecasted Results of Operations for the twelve months ending December 31, 2014; and |
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Forecasted Cash Available for Distribution for the twelve months ending December 31, 2014. |
We present below a forecast of expected results of our operations for the twelve months ending December 31, 2014 on the basis of our Initial Fleet. Our forecast presents, to the best of our knowledge and belief, the expected results of operations for the forecast period. Although we anticipate exercising our options to purchase each of the Optional Vessels from our Sponsor, the timing of such purchases is uncertain and each such
66
transaction is subject to reaching an agreement with our Sponsor regarding the price of the vessel and raising the requisite equity and debt capital to fund the acquisition.
The forecast reflects our judgment, as of the date of this prospectus, of conditions we expect to exist and the course of action we expect to take during the twelve months ending December 31, 2014. The assumptions and estimates used in the forecast are inherently uncertain and represent those that we believe are significant to our financial forecast. We believe that we have a reasonable objective basis for those assumptions. To the extent that there is a shortfall during any quarter in the forecast period, we believe we would be able to make working capital borrowings to pay distributions in such quarter and would be able to repay such borrowings in a subsequent quarter, because we believe the total cash available for distribution for the forecast period will be more than sufficient to pay the aggregate minimum quarterly distribution to all unitholders. We believe our actual results of operations will approximate those reflected in our forecast, but we can give no assurance that our forecasted results will be achieved. There will likely be differences between our forecast and the actual results and those differences could be material. Our operations are subject to numerous risks that are beyond our control. If the forecast is not achieved, we may not be able to pay cash distributions on our units at the initial distribution rate stated in our cash distribution policy or at all.
Our forecast of our results of operations is a forward-looking statement and should be read together with our historical consolidated financial statements and the accompanying notes included elsewhere in this prospectus and Managements Discussion and Analysis of Financial Condition and Results of Operations. We do not, as a matter of course, make public projections as to future revenues, earnings or other results. The forecast has been prepared by and is the responsibility of our management. However, our management has prepared the financial forecast set forth below in support of our belief that we will have sufficient cash available to allow us to pay the minimum quarterly distribution of $ per unit on all of our outstanding units during the forecast period. The accompanying financial forecast was not prepared in accordance with the guidelines established by the American Institute of Certified Public Accountants with respect to prospective financial information. In addition, in the view of our management, the accompanying financial forecast was prepared on a reasonable basis, reflects the best currently available estimates and judgments, and presents, to the best of our knowledge and belief, our expected course of action and the expected future financial performance. However, this information is not fact and should not be relied upon as being necessarily indicative of future results, and readers of this prospectus are cautioned not to place undue reliance on the financial forecast.
When considering our financial forecast you should keep in mind the risk factors and other cautionary statements included under the heading Risk Factors elsewhere in this prospectus. Any of the risks discussed in this prospectus could cause our actual results of operations to vary significantly from the financial forecast and such variations could be material. Prospective investors are cautioned to not place undue reliance on the financial forecast and should make their own independent assessment of our future results of operations, cash flows and financial condition.
We are providing the financial forecast to supplement our historical consolidated financial statements in support of our belief that we will have sufficient cash available to allow us to pay cash distributions on all of our units for each quarter in the twelve-month period ending December 31, 2014 at our stated initial distribution rate. See Forecast Assumptions and ConsiderationsSummary of Significant Forecast Assumptions for further information as to the assumptions we have made for the financial forecast.
Unanticipated events may occur which could adversely affect the actual results we achieve during the forecast period. Consequently, our actual results of operations, cash flows and financial condition during the forecast period may vary from the forecast and such variations may be material. Prospective investors are cautioned to not place undue reliance on the forecast and should make their own independent assessment of our future results of operations, cash flows and financial condition.
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We do not undertake any obligation to release publicly the results of any future revisions we may make to the financial forecast or to update the financial forecast to reflect events or circumstances after the date of this prospectus, even in the event that any or all of the underlying assumptions are shown to be in error. Therefore, we caution you not to place undue reliance on this information.
Neither our independent registered public accounting firm, nor any other independent registered public accounting firm have compiled, examined or performed any procedures with respect to the forecasted financial information contained herein, nor have they expressed any opinion or given any other form of assurance on such information or its achievability, and they assume no responsibility for such forecasted financial information. Our independent registered accounting firms report included in this prospectus relates to our historical financial information. That report does not extend to the tables and the related forecasted financial information contained in this section and should not be read to do so.
DYNAGAS LNG PARTNERS LP
FORECASTED RESULTS OF OPERATIONS
The following table presents (1) our forecasted results of operations for the twelve months ending December 31, 2014, (2) our estimated results of operations for the year ended December 31, 2013, (3) our estimated results of operations for the six months ended December 31, 2013 and (4) our historical results of operations for the six months ended June 30, 2013. Forecasted net income and net income per unit are not extracted from our audited Combined Financial Statements and the notes thereto for the year ended December 31, 2012 that are included elsewhere in this prospectus.
Year Ending
December 31, 2014(1) |
Year Ending
December 31, 2013 |
Six Months
Ending December 31, 2013 |
Six Months
Ending June 30, 2013 |
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(forecast) | (estimated) | (estimated) | (unaudited) | |||||||||||||
(in thousands of U.S. dollars) | ||||||||||||||||
Total voyage revenues |
$ | 84,529 | $ | 85,056 | $ | 42,612 | $ | 42,444 | ||||||||
Operating expenses: |
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Voyage expenses |
(1,742 | ) | (1,669 | ) | (837 | ) | (832 | ) | ||||||||
Vessel operating expenses |
(13,140 | ) | (12,567 | ) | (6,335 | ) | (6,232 | ) | ||||||||
General and administrative expenses |
(2,250 | ) | (171 | ) | (150 | ) | (21 | ) | ||||||||
Management fees |
(2,820 | ) | (2,738 | ) | (1,380 | ) | (1,358 | ) | ||||||||
Depreciation and amortization |
(13,579 | ) | (13,578 | ) | (6,845 | ) | (6,733 | ) | ||||||||
Dry-docking and special survey costs |
0 | 0 | 0 | 0 | ||||||||||||
Total operating expenses |
(33,531 | ) | (39,723 | ) | (15,547 | ) | (15,176 | ) | ||||||||
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Operating income |
$ | 50,998 | $ | 54,333 | $ | 27,065 | $ | 27,268 | ||||||||
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Financial income (expenses): |
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Interest income |
$ | | $ | | $ | | $ | | ||||||||
Interest expense |
(7,604 | ) | (8,218 | ) | (3,946 | ) | (4,272 | ) | ||||||||
Loss on derivative financial instruments |
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Other financial items, net |
(265 | ) | (1,770 | ) | (1,502 | ) | (268 | ) | ||||||||
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Net financial expenses |
$ | (7,869 | ) | $ | (9,988 | ) | $ | (5,448 | ) | $ | (4,540 | ) | ||||
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Income before income taxes |
43,129 | 44,345 | 21,617 | 22,728 | ||||||||||||
Income taxes |
| | | | ||||||||||||
Net income attributable to Dynagas LNG Partners LP owners |
43,129 | 44,345 | 21,617 | 22,728 |
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Twelve
Months Ending December 31, 2014 |
Year Ending
December 31, 2013 |
Six Months
Ending December 31, 2013 |
Six Months
Ending June 30, 2013 |
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(forecast) | (estimated) | (estimated) | (unaudited) | |||||||||||||
(in thousands of U.S. dollars, except per unit data) | ||||||||||||||||
General Partners interest in net income |
$ | 43 | $ | 45 | $ | 22 | $ | 23 | ||||||||
Limited Partners interest in net income |
$ | 43,086 | $ | 44,300 | $ | 21,595 | $ | 22,705 | ||||||||
Net income per: |
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Common unit (basic and diluted) |
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Subordinated unit (basic and diluted) |
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General Partner Unit (basic and diluted) |
(1) | The forecast is based on the assumptions set forth in Forecast Assumptions and ConsiderationsSummary of Significant Forecast Assumptions. |
Forecast Assumptions and Considerations
Basis of Presentation
The accompanying financial forecast and related notes of Dynagas LNG Partners LP present the forecasted results of operations of Dynagas LNG Partners LP for the twelve months ending December 31, 2014, based on the assumptions that:
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we will issue to our Sponsor common units and subordinated units, representing a combined 99.9% limited partner interest in us; |
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we will issue to our General Partner, a wholly-owned subsidiary of our Sponsor, General Partner Units, representing a 0.1% general partner interest in us, and 100% of our incentive distribution rights, which will entitle our General Partner to increasing percentages of the cash we distribute in excess of $ per unit per quarter; |
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we will sell common units to the public in this offering, representing a % limited partner interest in us; |
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our Sponsor will sell common units to the public in this offering, representing a % limited partner interest in us; |
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we will enter into the Proposed Senior Secured Revolving Credit Facility; |
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our Sponsor will release us as guarantor of certain of its secured credit facilities; and |
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we will use approximately $ million of the proceeds that we receive from this offering and a portion of the Proposed Senior Secured Revolving Credit Facility to repay borrowings outstanding under our existing vessel financing agreements. |
Summary of Significant Accounting Policies
Organization. We are a Marshall Islands limited partnership formed on May 30, 2013 that owns and operates LNG carriers under multi-year contracts.
Principles of Consolidation. This financial forecast includes our accounts and those of our wholly-owned subsidiaries. All intercompany transactions have been eliminated upon consolidation.
Use of Estimates. We prepare our financial statements in accordance with U.S. GAAP, which requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
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Reporting Currency. Our financial forecast is stated in U.S. Dollars because we operate in international shipping markets that typically utilize the U.S. Dollar as the functional currency. Transactions involving other currencies during a period are converted into U.S. Dollars using the exchange rates in effect at the time of the transactions. At the balance sheet dates, monetary assets and liabilities that are denominated in currencies other than the U.S. Dollar are translated to reflect the period-end exchange rates. Resulting gains or losses are reflected in our consolidated statements of income.
Revenue Recognition. We generate our revenues from the chartering of our vessels. All of our vessels are chartered under time charters, where a contract is entered into for the use of a vessel for a specific period of time and at a specified daily charter hire rate. If a charter agreement exists and collection of the related revenue is reasonably assured, revenue is recognized, as it is earned, ratably over the duration of the period of the time charter. Furthermore, revenues from time chartering of vessels are accounted for as operating leases and are thus recognized on a straight line basis as the average lease revenue over the rental periods of such charter agreements, as service is performed. The difference from actually collected hire based on the time charter agreement and reported total voyage revenues for each period is being classified as deferred revenue in the consolidated balance sheets.
Voyage Expenses. Voyage expenses are primarily bunker fuel expenses, LNG boil-off, port fees, cargo loading and unloading expenses, canal tolls, agency fees and commissions. Voyage expenses are paid by the customer under the time charter. However, we may incur voyage related expenses during an off-hire when positioning or repositioning vessels before or after the period of a time charter or before or after dry-docking, the cost of which will be payable by us. We also incur some voyage expenses, principally fuel costs, when our vessels are in periods of commercial waiting time.
Vessel Operating Expenses. Vessel operating expenses include direct vessel operating costs associated with operating a vessel, such as crew wages, which are the most significant component, vessel supplies, routine repairs, maintenance, lubricating oils and insurance. Vessel operating expenses also include peripheral expenses incurred while vessels undergo special survey and dry-docking such as spare parts, port dues, tugs and service engineer attendance.
Cash and Cash Equivalents. We consider all demand and time deposits and highly liquid investments with original maturities of three months or less to be equivalent to cash.
Restricted Cash. Restricted cash comprises of minimum liquidity collateral requirements or minimum required cash deposits, as defined in our loan agreements.
Vessels. Vessels are stated at cost less accumulated depreciation. The cost of vessels less the estimated residual value is depreciated on a straight-line basis over the assets remaining useful economic lives.
Accounting for Dry-docking and Special Survey Costs : Dry-docking and special survey costs are expensed in the period incurred. The vessels undergo dry-dock or special survey approximately every five years during the first fifteen years of their life and every two and a half years within their following useful life. Costs relating to routine repairs and maintenance are also expensed as incurred. All three vessels in our Initial Fleet completed their initial scheduled special survey repairs in 2012.
Loan Costs. Loan costs, including fees, commissions and legal expenses associated with the loans, are presented as deferred charges and amortized with the effective interest method over the term of the relevant loan. Amortization of loan costs is included in interest and finance costs.
Derivative Instruments. We may enter into interest rate swap transactions from time to time to hedge a portion of our exposure to floating interest rates. These transactions involve the conversion of floating rates into fixed rates over the life of the transactions without an exchange of underlying principal. Guidance on accounting
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for derivatives and hedging activities requires an entity to recognize all derivatives as either assets or liabilities on the balance sheet and measure these instruments at fair value. Derivatives that are not hedges are adjusted to fair value through the income statement
Income Taxes. We are not subject to income taxes.
Net Income Per Unit. The calculation of the forecasted basic and diluted earnings for the twelve months ending December 31, 2014 is set forth below:
Common
Unitholders |
Subordinated
Unitholders |
General
Partner |
||||||||||
Partners interests in forecasted net income |
||||||||||||
( in thousands of U.S. dollars ) |
$ | $ | $ | |||||||||
Forecast weighted average number of units outstanding |
||||||||||||
Forecast net income per unit |
$ | $ | $ |
Summary of Significant Forecast Assumptions
Forecast assumptions for the twelve months ended December 31, 2014
Vessels. The forecast reflects or assumes the following about our fleet:
|
363 revenue earning days for the Clean Energy |
|
363 revenue earning days for the Ob River |
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363 revenue earning days for the Clean Force |
The above revenue earning days reflect a fleet utilization rate of 99.5%, which is consistent with our historical fleet utilization rate for the year ended December 31, 2012 which was also 99.5%.
Total Voyage Revenues. Our forecasted total voyage revenues are based on estimated average minimum daily lease revenue under each vessels charter agreement multiplied by the total number of days each of our vessels is expected to be on-hire during the twelve months ending December 31, 2014. The forecasted total voyage revenues are presented using the accounting principles for operating leases, and thus are recognized on a straight line basis as the average lease revenue over the rental periods of such charter agreements. In addition, we have assumed two days of off-hire for each of the vessels in our fleet. The amount of actual off-hire time depends upon, among other things, the time a vessel spends in dry-docking for repairs, maintenance or inspection, equipment breakdowns or delays due to accidents, crewing strikes, certain vessel detentions or similar problems as well as failure to maintain the vessel in compliance with its specifications and contractual standards or to provide the required crew.
Our forecasted total voyage revenues during the twelve months ending December 31, 2014 is $84.5 million compared to forecasted revenues of $85.1 million for the same period in 2013, representing a decrease of 0.6%. This decrease is mainly attributable to the utilization rate of 99.5% assumed for the twelve months ending December 31, 2014 versus the actual utilization of 100.0% during the six months ended June 30, 2013. This forecast assumes that the average time charter rate of our fleet, calculated by dividing the total voyage revenue less commissions by the total revenue earning days, during the twelve months ending December 31, 2014 is $76,020 per day per vessel.
Vessel Operating Expenses. Our forecasted vessel operating expenses for the twelve months ending December 31, 2014 are $13.1 million, compared to forecasted expenses of $12.6 million for the same period in 2013, representing an increase of 4.0%. This forecast assumes that all of our vessels are operational during the twelve months ending December 31, 2014 and that average daily operating expenses will be $12,000 per vessel, compared to $11,477 for the same period in 2013.
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Voyage Expenses. Our forecasted voyage expenses for the twelve months ending December 31, 2014 are $1.7 million, compared to forecasted expenses of $1.7 million for the same period in 2013. Our forecast assumes that all of our vessels are operational during the twelve months ending December 31, 2014 and that they will not incur any voyage expenses other than commissions of 1.25% paid to our Manager as well as commissions of 1.25% paid to third parties under the time charters for the Clean Energy and Clean Force .
General and Administrative Expenses. Our forecasted general and administrative expenses for the twelve months ending December 31, 2014 are approximately $2.3 million, compared to forecasted expenses of $0.2 million for the same period in 2013. Our forecast is based on the assumption that we will incur approximately $2.1 million in incremental expenses as result of being a publicly traded limited partnership, including without limitation, executive officer salaries, board of directors salaries, costs related to director and officer insurance, auditor, legal and consulting fees, NASDAQ listing fees, transfer agent fees, investor relations fees, marketing expenses, travel expenses and various other miscellaneous expenses.
Management Fees and Expenses . Forecasted management fees and expenses for the twelve months ending December 31, 2014 are $2.8 million, compared to forecasted expenses of $2.7 million for the same period in 2013. The forecast is based on a technical management fee of $2,575 per day payable to our Manager under our vessel management agreements. See Certain Relationships and Related Party TransactionsAgreements Governing the TransactionsVessel Management Agreements.
Depreciation and Amortization. Our forecasted depreciation and amortization expense for the twelve months ending December 31, 2014 is $13.6 million, compared to forecasted depreciation and amortization of $13.6 million for the same period in 2013. Our forecast assumes that no vessels are purchased or sold during the twelve months ending December 31, 2014. Vessels are stated at cost less accumulated depreciation. The cost of vessels less the estimated residual value is depreciated on a straight-line basis over the assets remaining economic useful lives, which we estimate at the start of 2014 to be approximately 28 years, 28 years, and 29 years for the Clean Energy , the Ob River and the Clean Force , respectively. The economic life for LNG carriers operated worldwide has generally been estimated to be 35 years.
Dry-docking and Special Survey Costs. We do not expect to incur any dry-docking and special survey costs for the twelve months ending December 31, 2014.
Interest Income. We have assumed that any cash surplus balances will not earn any interest during the twelve months ending December 31, 2014.
Interest Expense. Our forecasted interest expense, which includes commitment fees, for the twelve months ending December 31, 2014 is $7.6 million, compared to forecasted interest expense of $8.2 million for the same period in 2013. The forecast assumes that we will have an average outstanding loan balance of approximately $204.6 million with an estimated weighted average interest rate of approximately 3.3% per annum during the twelve months ending December 31, 2014, as compared to an average outstanding loan balance of approximately $338.3 million during the same period in 2013 with a weighted average interest rate of approximately 2.4%. The rates we have assumed are based on the relevant periods LIBOR forecast and the applicable margin under our Proposed Senior Secured Revolving Credit Facility.
Income Taxes. Forecasted income tax expense for the twelve months ending December 31, 2014 of $0. We do not expect to be subject to income tax expenses.
Deferred Revenues. Forecasted deferred revenues for the twelve months ending December 31, 2014 is based on the net difference between forecasted total voyage revenues, and forecasted actual voyage revenues to be received during the twelve months ending December 31, 2014. Forecasted actual voyage revenues are based on contracted daily hire rate under each vessels charter agreement multiplied by the total number of days each of our vessels is expected to be on-hire during the twelve months ending December 31, 2014. In addition, we have
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assumed two days of off-hire for each of the vessels in our fleet. The amount of actual off-hire time depends upon, among other things, the time a vessel spends in dry-docking for repairs, maintenance or inspection, equipment breakdowns or delays due to accidents, crewing strikes, certain vessel detentions or similar problems as well as failure to maintain the vessel in compliance with its specifications and contractual standards or to provide the required crew.
Maintenance and Replacement Capital Expenditures. Our Partnership Agreement requires our board of directors to deduct from operating surplus each quarter estimated maintenance and replacement capital expenditures, as opposed to actual maintenance and replacement capital expenditures, in order to reduce disparities in operating surplus caused by fluctuating maintenance and replacement capital expenditures, such as dry-docking and vessel replacement. The actual cost of replacing the vessels in our fleet will depend on a number of factors, including prevailing market conditions, charter hire rates and the availability and cost of financing at the time of replacement. Our board of directors, with the approval of the conflicts committee, may determine that one or more of our assumptions should be revised, which could cause our board of directors to increase the amount of estimated maintenance and replacement capital expenditures. We may elect to finance some or all of our maintenance and replacement capital expenditures through the issuance of additional common units which could be dilutive to our existing unitholders.
Maintenance Capital Expenditures. Because of the substantial capital expenditures we are required to make to maintain our fleet, our initial annual estimated dry-docking costs for our vessels for purposes of calculating operating surplus will be $2.0 million per year.
Replacement Capital Expenditures. Because of the substantial capital expenditures we are required to make to replace our fleet, our initial annual estimated replacement capital expenditures for purposes of calculating operating surplus will be $7.5 million per year, including estimated financing costs, for replacing our LNG carriers at the end of their useful lives. The $7.5 million for future vessel replacement is based on assumptions regarding the remaining useful lives of the vessels, a net investment rate, vessel replacement values based on current market conditions and scrap value of the vessels.
Regulatory, Industry and Economic Factors. Our forecast for the twelve months ending December 31, 2014 is based on the following assumptions related to regulatory, industry and economic factors:
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no material nonperformance or credit-related defaults by suppliers, customers or vendors; |
|
no new regulation or any interpretation of existing regulations that, in either case, would be materially adverse to our business; |
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no material accidents, releases, weather-related incidents, unscheduled downtime or similar unanticipated events; |
|
no major adverse change in the markets in which we operate resulting from production disruptions, reduced demand for LNG or significant changes in the market prices of LNG; and |
|
no material changes to market, regulatory and overall economic conditions. |
Forecast assumptions for the six month period ended December 31, 2013
Vessels. The forecast reflects or assumes the following about our fleet:
|
183 revenue earning days for the Clean Energy |
|
183 revenue earning days for the Ob River |
|
183 revenue earning days for the Clean Force |
The above revenue earning days reflect a fleet utilization rate of 99.5% which is consistent with our historical fleet utilization rate for the year ended December 31, 2012 which was also 99.5%. The fleet utilization rate for the six months ended June 30, 2013 was 100%.
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Total Voyage Revenues. Our forecasted total voyage revenues are based on estimated average minimum daily lease revenue under each vessels charter agreement multiplied by the total number of days each of our vessels is expected to be on-hire during the six months ending December 31, 2013. The forecasted total voyage revenues are presented using the accounting principles for operating leases, and thus are recognized on a straight line basis as the average lease revenue over the rental periods of such charter agreements. In addition, we have assumed two days of off-hire for each of the vessels in our fleet. The amount of actual off-hire time depends upon, among other things, the time a vessel spends in dry-docking for repairs, maintenance or inspection, equipment breakdowns or delays due to accidents, crewing strikes, certain vessel detentions or similar problems as well as failure to maintain the vessel in compliance with its specifications and contractual standards or to provide the required crew.
Our forecasted total voyage revenues during the six months ending December 31, 2013 is $42.6 million compared to revenues of $42.4 million for the six months ended June 30, 2013, representing an increase of 0.6%. This increase is mainly attributable to the increase of 1.1% in available days to 549 in the six months ended December 31, 2013 compared to 543 days in the six months ending June 30, 2013. This forecast assumes that the average time charter rate of our fleet, calculated by dividing the total voyage revenue less commissions by the total revenue earning days, during the six months ending December 31, 2013 is $76,093 per day per vessel.
Vessel Operating Expenses. Our forecasted vessel operating expenses for the six months ending December 31, 2013 are $6.3 million, compared to expenses of $6.2 million for the six months ending June 30, 2013. This forecast assumes that all of our vessels are operational during the six months ending December 31, 2013 and that average daily operating expenses will be $11,477 per vessel, in line with the actual average daily operating expenses during the six months ending June 30, 2013.
Voyage Expenses. Our forecasted voyage expenses for the six months ending December 31, 2013 of $0.8 million remained substantially the same as compared to the six months ending June 30, 2013.
Our forecast assumes that all of our vessels are operational during the six months ending December 31, 2013 and that they will not incur any voyage expenses other than commissions of 1.25% paid to our Manager as well as commissions of 1.25% paid to third parties under the time charters for the Clean Energy and Clean Force .
General and Administrative Expenses. Our forecasted general and administrative expenses for the six months ending December 31, 2013 are approximately $0.15 million, compared to expenses of $0.02 million for the six months ended June 30, 2013, the increase of $0.13 million to account mainly for estimated audit and legal fees.
Management Fees and Expenses . Forecasted management fees and expenses for the six months ending December 31, 2013 are $1.4 million, compared to expenses of $1.4 million for the six months ending June 30, 2013. The forecast is based on a technical management fee of $2,500 per day payable to our Manager under our vessel management agreements. See Certain Relationships and Related Party TransactionsAgreements Governing the TransactionsVessel Management Agreements.
Depreciation and Amortization. Our forecasted depreciation and amortization expense for the six months ending December 31, 2013 is $6.8 million, compared to $6.7 million for the six months ending June 30, 2013. Our forecast assumes that no vessels are purchased or sold during the six months ending December 31, 2013. Vessels are stated at cost less accumulated depreciation. The cost of vessels less the estimated residual value is depreciated on a straight-line basis over the assets remaining economic useful lives, which we estimate at July 1, 2013 to be approximately 29 years, 29 years, and 30 years for the Clean Energy , the Ob River and the Clean Force , respectively. The economic life for LNG carriers operated worldwide has generally been estimated to be 35 years.
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Dry-docking and Special Survey Costs. We do not expect to incur any dry-docking and special survey costs for the six months ending December 31, 2013 and did not incur any dry-docking and special survey costs for the six months ending June 30, 2013.
Interest Income. We have assumed that any cash surplus balances will not earn any interest during the six months ending December 31, 2013.
Interest Expense. Our forecasted interest expense, which includes commitment fees, for the six months ending December 31, 2013 is $3.9 million, compared to interest expense of $4.3 million for the six month ending June 30, 2013. The forecast assumes that we will have an average outstanding loan balance of approximately $309.4 million with an estimated weighted average interest rate of approximately 2.4% per annum during the six months ending December 31, 2013, as compared to an average outstanding loan balance of approximately $367.6 million during the six months ending June 30, 2013 with a weighted average interest rate of approximately 2.3%. The rates we have assumed are (i) actual rollovers to our existing facilities, (ii) based on the relevant periods LIBOR forecast and the applicable margin under each of our loan agreements until November 12, 2013 and (iii) for the remaining period based on the relevant periods LIBOR forecast and the applicable margin under our Proposed Secured Revolving Credit Facility.
Income Taxes. Forecasted income tax expense for the six months ending June 30, 2013 of $0.0 million. We do not expect to be subject to income tax expenses.
Deferred Revenues. Forecasted deferred revenues for the six months ending December 31, 2013 is based on the net difference between forecasted total voyage revenues, and forecasted actual voyage revenues to be received in this period. Forecasted actual voyage revenues are based on contracted daily hire rate under each vessels charter agreement multiplied by the total number of days each of our vessels is expected to be on-hire during the six months ending December 31, 2013. In addition, we have assumed one day of off-hire for each of the vessels in our fleet. The amount of actual off-hire time depends upon, among other things, the time a vessel spends in dry-docking for repairs, maintenance or inspection, equipment breakdowns or delays due to accidents, crewing strikes, certain vessel detentions or similar problems as well as failure to maintain the vessel in compliance with its specifications and contractual standards or to provide the required crew.
Maintenance and Replacement Capital Expenditures. Our Partnership Agreement requires our board of directors to deduct from operating surplus each quarter estimated maintenance and replacement capital expenditures, as opposed to actual maintenance and replacement capital expenditures, in order to reduce disparities in operating surplus caused by fluctuating maintenance and replacement capital expenditures, such as dry-docking and vessel replacement. The actual cost of replacing the vessels in our fleet will depend on a number of factors, including prevailing market conditions, charter hire rates and the availability and cost of financing at the time of replacement. Our board of directors, with the approval of the conflicts committee, may determine that one or more of our assumptions should be revised, which could cause our board of directors to increase the amount of estimated maintenance and replacement capital expenditures. We may elect to finance some or all of our maintenance and replacement capital expenditures through the issuance of additional common units which could be dilutive to our existing unitholders.
Regulatory, Industry and Economic Factors. Our forecast for the six months ending December 31, 2013 is based on the following assumptions related to regulatory, industry and economic factors:
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no material nonperformance or credit-related defaults by suppliers, customers or vendors; |
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no new regulation or any interpretation of existing regulations that, in either case, would be materially adverse to our business; |
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no material accidents, releases, weather-related incidents, unscheduled downtime or similar unanticipated events; |
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no major adverse change in the markets in which we operate resulting from production disruptions, reduced demand for LNG or significant changes in the market prices of LNG; and |
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no material changes to market, regulatory and overall economic conditions. |
Forecasted Cash Available for Distribution
The table below sets forth our calculation of forecasted cash available for distribution to our unitholders and General Partner based on the Forecasted Results of Operations set forth above. Based on the financial forecast and related assumptions, we forecast that our cash available for distribution generated during the twelve months ending December 31, 2014 will be approximately $48.2 million. This amount would be sufficient to pay 100% of the minimum quarterly distribution of $ per unit on all of our common units and subordinated units for the four quarters ending December 31, 2014.
Actual payments of distributions on the common units, subordinated units and the General Partner Units are expected to be approximately $ million for the period between the estimated closing date of this offering ( ) and the end of the fiscal quarter in which the closing date of this offering occurs.
You should read Forecast Assumptions and ConsiderationsSummary of Significant Forecast Assumptions included as part of the financial forecast for a discussion of the material assumptions underlying our forecast of adjusted EBITDA that is included in the table below. Our forecast is based on those material assumptions and reflects our judgment of conditions we expect to exist and the course of action we expect to take. The assumptions disclosed in our financial forecast are those that we believe are significant to generate the forecasted adjusted EBITDA. If our estimate is not achieved, we may not be able to pay distributions on the common units at the initial distribution rate of $ per unit per quarter, or $ per unit on an annualized basis. Our financial forecast and the forecast of cash available for distribution set forth below have been prepared by our management. This calculation represents available cash from operating surplus generated during the period and excludes any cash from working capital borrowings, capital expenditures and cash on hand on the closing date.
Adjusted EBITDA should not be considered an alternative to net income, operating income, cash flow from operating activities or any other measure of financial performance calculated in accordance with U.S. GAAP.
When considering our forecast of cash available for distribution for the twelve months ending December 31, 2014, you should keep in mind the risk factors and other cautionary statements under the heading Forward Looking Statements and Risk Factors and elsewhere in this prospectus. Any of these factors or the other risks discussed in this prospectus could cause our financial results of operations to vary significantly from those set forth in the financial forecast and the forecast of cash available for distribution set forth below.
Neither our independent registered public accounting firm, nor any other independent registered public accounting firm have compiled, examined or performed any procedures with respect to the forecasted financial information contained herein, nor have they expressed any opinion or given any other form of assurance on such information or its achievability, and they assume no responsibility for such forecasted financial information.
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DYNAGAS LNG PARTNERS LP
FORECASTED CASH AVAILABLE FOR DISTRIBUTION
Twelve Months
Ending December 31, 2014(1) |
Year Ending
December 31, 2013 |
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(forecast) | (estimated) | |||||||
(in thousands of U.S. dollars,
except per unit amounts) |
||||||||
Adjusted EBITDA(2) |
64,577 | 67,962 | ||||||
Adjustments for cash items and estimated maintenance and replacement capital expenditures: |
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Cash deferred revenue |
776 | (4,152 | ) | |||||
Cash interest expense |
(7,604 | ) | (8,218 | ) | ||||
Cash interest income |
0 | 0 | ||||||
Cash other, net |
0 | (970 | ) | |||||
Dry-docking capital expenditure reserves(3) |
(2,056 | ) | (2,056 | ) | ||||
Replacement capital expenditure reserves(3) |
(7,496 | ) | (7,165 | ) | ||||
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Cash available for distribution |
48,197 | 45,401 | ||||||
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Expected distributions: |
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Distributions per unit |
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Distributions to our public common unitholders(4) |
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Distributions to Dynagas Holding common units(4) |
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Distributions to Dynagas Holding subordinated units(4) |
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Distributions to General Partner Units |
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Total distributions(5) |
||||||||
Excess (shortfall) |
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Annualized minimum quarterly distribution per unit |
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Aggregate distributions based on annualized minimum quarterly distribution |
||||||||
Percent of minimum quarterly distributions payable to common unitholders |
||||||||
Percent of minimum quarterly distributions payable to subordinated unitholders |
(1) | The forecast is based on the assumptions set forth in Forecast Assumptions and ConsiderationsSummary of Significant Forecast Assumptions. |
(2) | Adjusted EBITDA is defined as earnings before interest and finance costs, net of interest income, gains/losses on derivative financial instruments, taxes (when incurred), depreciation and amortization (when incurred). Adjusted EBITDA is used as a supplemental financial measure by management and external users of financial statements, such as our investors, to assess our liquidity and our operating performance. We believe that Adjusted EBITDA assists our management and investors by providing useful information that increases the comparability of our operating performance from period to period and against the operating performance of other companies in our industry that provide Adjusted EBITDA information. This increased comparability is achieved by excluding the potentially disparate effects between periods or companies of interest, other financial items, depreciation and amortization and taxes, which items are affected by various and possibly changing financing methods, capital structure and historical cost basis and which items may significantly affect net income between periods. We believe that including Adjusted EBITDA as a measure of operating performance benefits investors in (a) selecting between investing in us and other investment alternatives and (b) monitoring our ongoing financial and operational strength in assessing whether to continue to hold common units. |
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Adjusted EBITDA is not a measure of financial performance under U.S. GAAP, does not represent and should not be considered as an alternatives to net income, operating income, cash flow from operating activities or any other measure of financial performance presented in accordance with U.S. GAAP. Adjusted EBITDA excludes some, but not all, items that affect net income and these measures may vary amongst other companies. Therefore, Adjusted EBITDA as presented below may not be comparable to similarly titled measures of other companies. The following table reconciles Adjusted EBITDA to net income (loss), the most directly comparable U.S.GAAP financial measures for the periods presented.
Twelve Months
Ending December 31, 2014(1) |
Year Ending
December 31, 2013 |
Six Months
Ending December 31, 2013 |
Six Months
Ending June 30, 2013 |
|||||||||||||
(forecast) | (estimated) | (estimated) | (unaudited) | |||||||||||||
(in thousands of U.S. dollars) | ||||||||||||||||
Net income attributable to Dynagas LNG Partners owners |
$ | 43,129 | 44,345 | 21,617 | 22,728 | |||||||||||
Depreciation and amortization |
13,579 | 13,579 | 6,845 | 6,734 | ||||||||||||
Interest expense |
7,604 | 8,268 | 3,946 | 4,322 | ||||||||||||
Other financial items, net |
265 | 1,770 | 1,502 | 268 | ||||||||||||
Income taxes |
| | | | ||||||||||||
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|
|
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Adjusted EBITDA |
$ | 64,577 | $ | 67,962 | $ | 33,910 | $ | 34,052 | ||||||||
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(3) | Our Partnership Agreement requires that an estimate of the maintenance and replacement capital expenditures necessary to maintain our asset base be subtracted from operating surplus each quarter, as opposed to amounts actually spent. |
(4) | Assumes the underwriters option to purchase additional common units is not exercised. |
(5) | Represents the amount required to fund distributions to our unitholders and our General Partner for four quarters based upon our minimum quarterly distribution rate of $ per unit. |
Forecast of Compliance with Debt Covenants. Our ability to make distributions could be affected if we do not maintain compliance with the financial and other covenants of our financing agreements. After entering into the Proposed Senior Secured Revolving Credit Facility at the closing of this offering, we have assumed we will be in compliance with all the covenants during the forecast period. See Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital ResourcesBorrowing Activities for a further description of our financing arrangements, including these financial covenants.
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HOW WE MAKE CASH DISTRIBUTIONS
Distributions of Available Cash
General
Our Partnership Agreement requires that, within 45 days after the end of each quarter, beginning with the quarter ending , we will distribute all of our available cash (defined below) to unitholders of record on the applicable record date. We will adjust the minimum quarterly distribution for the period from the closing of this offering through , based on the actual length of the period.
Definition of Available Cash
Available cash generally means, for each fiscal quarter, all cash on hand at the end of the quarter (including our proportionate share of cash on hand of certain subsidiaries we do not wholly own):
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less the amount of cash reserves established by our board of directors at the date of determination of available cash for the quarter to: |
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provide for the proper conduct of our business (including reserves for our future capital expenditures and anticipated future credit needs subsequent to that quarter); |
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comply with applicable law, any of our debt instruments or other agreements; and |
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provide funds for distributions to our unitholders and to our General Partner for any one or more of the next four quarters; |
plus, all cash on hand (including our proportionate share of cash on hand of certain subsidiaries we do not wholly own) on the date of determination of available cash for the quarter resulting from (1) working capital borrowings made after the end of the quarter and (2) cash distributions received after the end of the quarter from any equity interest in any person (other than a subsidiary of us), which distributions are paid by such person in respect of operations conducted by such person during such quarter. Working capital borrowings are generally borrowings that are made under a revolving credit facility and in all cases are used solely for working capital purposes or to pay distributions to partners.
Intent to Distribute the Minimum Quarterly Distribution
We intend to distribute to the holders of common units and subordinated units on a quarterly basis at least the minimum quarterly distribution of $ per unit, or $ per unit on an annualized basis, to the extent we have sufficient cash from our operations after the establishment of cash reserves and the payment of costs and expenses, including reimbursements of expenses to our General Partner. The amount of available cash from operating surplus needed to pay the minimum quarterly distribution for one quarter on all units outstanding immediately after this offering and the related distribution on the 0.1% General Partner interest is approximately $ million.
There is no guarantee that we will pay the minimum quarterly distribution on the common units and subordinated units in any quarter. Even if our cash distribution policy is not modified or revoked, the amount of distributions paid under our policy and the decision to make any distribution is determined by our board of directors, taking into consideration the terms of our Partnership Agreement. We will be prohibited from making any distributions to unitholders if it would cause an event of default, or an event of default then exists, under our financing arrangements. See Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital Resources for a discussion of the restrictions contained in our credit facilities that may restrict our ability to make distributions.
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Operating Surplus and Capital Surplus
General
All cash distributed to unitholders will be characterized as either operating surplus or capital surplus. We treat distributions of available cash from operating surplus differently than distributions of available cash from capital surplus.
Definition of Operating Surplus
Operating surplus for any period generally means:
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$ million; plus |
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all of our cash receipts (including our proportionate share of cash receipts of certain subsidiaries we do not wholly own) after the closing of this offering (provided, that cash receipts from the termination of an interest rate, currency or commodity hedge contract prior to its specified termination date will be included in operating surplus in equal quarterly installments over the remaining scheduled life of such hedge contract), excluding cash from (1) borrowings, other than working capital borrowings, (2) sales of equity and debt securities, (3) sales or other dispositions of assets outside the ordinary course of business, (4) capital contributions or (5) corporate reorganizations or restructurings; plus |
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working capital borrowings (including our proportionate share of working capital borrowings for certain subsidiaries we do not wholly own) made after the end of a quarter but before the date of determination of operating surplus for the quarter; plus |
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interest paid on debt incurred (including periodic net payments under related hedge contracts) and cash distributions paid on equity securities issued (including the amount of any incremental distributions made to the holders of our incentive distribution rights and our proportionate share of such interest and cash distributions paid by certain subsidiaries we do not wholly own), in each case, to finance all or any portion of the construction, replacement or improvement of a capital asset (such as a vessel) in respect of the period from such financing until the earlier to occur of the date the capital asset is put into service or the date that it is abandoned or disposed of; plus |
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interest paid on debt incurred (including periodic net payments under related hedge contracts) and cash distributions paid on equity securities issued (including the amount of any incremental distributions made to the holders of our incentive distribution rights and our proportionate share of such interest and cash distributions paid by certain subsidiaries we do not wholly own), in each case, to pay the construction period interest on debt incurred (including periodic net payments under related interest rate swap agreements), or to pay construction period distributions on equity issued, to finance the construction projects described in the immediately preceding bullet; less |
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all of our operating expenditures (which includes estimated maintenance and replacement capital expenditures and is further described below) of us and our subsidiaries (including our proportionate share of operating expenditures by certain subsidiaries we do not wholly own) immediately after the closing of this offering; less |
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the amount of cash reserves (including our proportionate share of cash reserves for certain subsidiaries we do not wholly own) established by our board of directors to provide funds for future operating expenditures; less |
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any cash loss realized on dispositions of assets acquired using investment capital expenditures; less |
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all working capital borrowings (including our proportionate share of working capital borrowings by certain subsidiaries we do not wholly own) not repaid within twelve months after having been incurred. |
If a working capital borrowing, which increases operating surplus, is not repaid during the 12-month period following the borrowing, it will be deemed repaid at the end of such period, thus decreasing operating surplus at
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such time. When such working capital borrowing is in fact repaid, it will not be treated as a reduction in operating surplus because operating surplus will have been previously reduced by the deemed repayment.
As described above, operating surplus includes a provision that will enable us, if we choose, to distribute as operating surplus up to $ million of cash we receive in the future from non-operating sources, such as asset sales, issuances of securities and long-term borrowings, that would otherwise be distributed as capital surplus. In addition, the effect of including, as described above, certain cash distributions on equity securities or interest payments on debt in operating surplus would be to increase operating surplus by the amount of any such cash distributions or interest payments. As a result, we may also distribute as operating surplus up to the amount of any such cash distributions or interest payments of cash we receive from non-operating sources.
Operating expenditures generally means all of our cash expenditures, including, but not limited to taxes, employee and director compensation, reimbursement of expenses to our General Partner, repayment of working capital borrowings, debt service payments and payments made under any interest rate, currency or commodity hedge contracts (provided that payments made in connection with the termination of any hedge contract prior to the expiration of its stipulated settlement or termination date shall be included in operating expenditures in equal quarterly installments over the remaining scheduled life of such hedge contract), provided that operating expenditures will not include:
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deemed repayments of working capital borrowings deducted from operating surplus pursuant to the last bullet point of the definition of operating surplus above when such repayment actually occurs; |
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payments (including prepayments and payment penalties) of principal of and premium on indebtedness, other than working capital borrowings; |
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expansion capital expenditures, investment capital expenditures or actual maintenance and replacement capital expenditures (which are discussed in further detail under Capital Expenditures below); |
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payment of transaction expenses (including taxes) relating to interim capital transactions; or |
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distributions to partners. |
Capital Expenditures
For purposes of determining operating surplus, maintenance and replacement capital expenditures are those capital expenditures required to maintain over the long-term the operating capacity of or the revenue generated by our capital assets, and expansion capital expenditures are those capital expenditures that increase the operating capacity of or the revenue generated by our capital assets. In our Partnership Agreement, we refer to these maintenance and replacement capital expenditures as maintenance capital expenditures. To the extent, however, that capital expenditures associated with acquiring a new vessel or improving an existing vessel increase the revenues or the operating capacity of our fleet, those capital expenditures would be classified as expansion capital expenditures.
Investment capital expenditures are those capital expenditures that are neither maintenance and replacement capital expenditures nor expansion capital expenditures. Investment capital expenditures largely will consist of capital expenditures made for investment purposes. Examples of investment capital expenditures include traditional capital expenditures for investment purposes, such as purchases of equity securities, as well as other capital expenditures that might be made in lieu of such traditional investment capital expenditures, such as the acquisition of a capital asset for investment purposes.
Examples of maintenance and replacement capital expenditures include capital expenditures associated with dry-docking, modifying an existing vessel or acquiring a new vessel to the extent such expenditures are incurred to maintain the operating capacity of or the revenue generated by our fleet. Maintenance and replacement capital expenditures will also include interest (and related fees) on debt incurred and distributions on equity issued
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(including the amount of any incremental distributions made to the holders of our incentive distribution rights) to finance the construction of a replacement vessel and paid in respect of the construction period, which we define as the period beginning on the date that we enter into a binding construction contract and ending on the earlier of the date that the replacement vessel commences commercial service or the date that the replacement vessel is abandoned or disposed of. Debt incurred to pay or equity issued to fund construction period interest payments, and distributions on such equity (including the amount of any incremental distributions made to the holders of our incentive distribution rights), will also be considered maintenance and replacement capital expenditures.
Because our maintenance and replacement capital expenditures can be very large and vary significantly in timing, the amount of our actual maintenance and replacement capital expenditures may differ substantially from period to period, which could cause similar fluctuations in the amounts of operating surplus, adjusted operating surplus, and available cash for distribution to our unitholders if we subtracted actual maintenance and replacement capital expenditures from operating surplus each quarter. Accordingly, to eliminate the effect on operating surplus of these fluctuations, our Partnership Agreement will require that an amount equal to an estimate of the average quarterly maintenance and replacement capital expenditures necessary to maintain the operating capacity of or the revenue generated by our capital assets over the long-term be subtracted from operating surplus each quarter, as opposed to the actual amounts spent. In our Partnership Agreement, we refer to these estimated maintenance and replacement capital expenditures to be subtracted from operating surplus as estimated maintenance capital expenditures. The amount of estimated maintenance and replacement capital expenditures deducted from operating surplus is subject to review and change by our board of directors at least once a year, provided that any change must be approved by our conflicts committee. The estimate will be made at least annually and whenever an event occurs that is likely to result in a material adjustment to the amount of our maintenance and replacement capital expenditures, such as a major acquisition or the introduction of new governmental regulations that will affect our fleet. For purposes of calculating operating surplus, any adjustment to this estimate will be prospective only. For a discussion of the amounts we have allocated toward estimated maintenance and replacement capital expenditures, see Our Cash Distribution Policy and Restrictions on Distributions.
The use of estimated maintenance and replacement capital expenditures in calculating operating surplus will have the following effects:
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it will reduce the risk that actual maintenance and replacement capital expenditures in any one quarter will be large enough to make operating surplus less than the minimum quarterly distribution to be paid on all the units for that quarter and subsequent quarters; |
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it may reduce the need for us to borrow to pay distributions; |
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it will be more difficult for us to raise our distribution above the minimum quarterly distribution and pay incentive distributions to our General Partner; and |
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it will reduce the likelihood that a large maintenance and replacement capital expenditure in a period will prevent our Sponsor from being able to convert some or all of its subordinated units into common units since the effect of an estimate is to spread the expected expense over several periods, mitigating the effect of the actual payment of the expenditure on any single period. |
Definition of Capital Surplus
Capital surplus generally will be generated only by:
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borrowings other than working capital borrowings; |
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sales of debt and equity securities; and |
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sales or other dispositions of assets for cash, other than inventory, accounts receivable and other current assets sold in the ordinary course of business or non-current assets sold as part of normal retirements or replacements of assets. |
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Characterization of Cash Distributions
We will treat all available cash distributed as coming from operating surplus until the sum of all available cash distributed since we began operations equals the operating surplus as of the most recent date of determination of available cash. We will treat any amount distributed in excess of operating surplus, regardless of its source, as capital surplus. As described above, operating surplus does not reflect actual cash on hand that is available for distribution to our unitholders. For example, it includes a provision that will enable us, if we choose, to distribute as operating surplus up to $ million of cash we receive in the future from non-operating sources, such as asset sales, issuances of securities and long-term borrowings, that would otherwise be distributed as capital surplus. We do not anticipate that we will make any distributions from capital surplus.
Subordination Period
General
During the subordination period, the common units will have the right to receive distributions of available cash from operating surplus in an amount equal to the minimum quarterly distribution of $ per unit, plus any arrearages in the payment of the minimum quarterly distribution on the common units from prior quarters, before any distributions of available cash from operating surplus may be made on the subordinated units. Distribution arrearages do not accrue on the subordinated units. The purpose of the subordinated units is to increase the likelihood that during the subordination period there will be available cash from operating surplus to be distributed on the common units.
Definition of Subordination Period
The subordination period will extend until the second business day following the distribution of available cash from operating surplus in respect of any quarter, ending on or after , that each of the following tests are met:
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distributions of available cash from operating surplus on each of the outstanding common units and subordinated units equaled or exceeded the minimum quarterly distribution for each of the three consecutive, non-overlapping four-quarter periods immediately preceding that date; |
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the adjusted operating surplus (as defined below) generated during each of the three consecutive, non-overlapping four-quarter periods immediately preceding that date equaled or exceeded the sum of the minimum quarterly distributions on all of the outstanding common units and subordinated units during those periods on a fully diluted weighted average basis and the related distribution on the 0.1% General Partner interest during those periods; and |
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there are no outstanding arrearages in payment of the minimum quarterly distribution on the common units. |
If the unitholders remove our General Partner without cause, the subordination period may end before .
For purposes of determining whether the tests in the bullets above have been met, the three consecutive four-quarter periods for which the determination is being made may include one or more quarters with respect to which arrearages in the payment of the minimum quarterly distribution on the common units have accrued, provided that all such arrearages have been repaid prior to the end of each such four-quarter period. If the expiration of the subordination period occurs as a result of us having met the tests described above, each outstanding subordinated unit will convert into one common unit and will then participate pro rata with the other common units in distributions of available cash.
In addition, at any time on or after , provided that there are no outstanding arrearages in payment of the minimum quarterly distribution on the common units and subject to approval by our conflicts committee, the
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holder or holders of a majority of our outstanding subordinated units will have the option to convert each subordinated unit into a number of common units determined by multiplying the number of outstanding subordinated units to be converted by a fraction, (i) the numerator of which is equal to the aggregate amount of distributions of available cash from operating surplus (not to exceed adjusted operating surplus) on the outstanding subordinated units (historical distributions) for the four fiscal quarters preceding the date of conversion (the measurement period) and (ii) the denominator of which is equal to the aggregate amount of distributions that would have been required during the measurement period to pay the minimum quarterly distribution on all outstanding subordinated units during such four-quarter period; provided, that if the forecasted distributions to be paid from forecasted operating surplus (not to exceed forecasted adjusted operating surplus) on the outstanding subordinated units for the four fiscal quarter period immediately following the measurement period (forecasted distributions), as determined by the conflicts committee, is less than historical distributions, then the numerator shall be forecasted distributions; provided, further, however, that the subordinated units may not convert into common units at a ratio that is greater than one-to-one. If the option to convert the subordinated units into common units is exercised as described above, the outstanding subordinated units will convert into the prescribed number of common units and will then participate pro rata with other common units in distributions of available cash.
Definition of Adjusted Operating Surplus
Operating surplus for any period generally means:
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operating surplus generated with respect to that period (excluding any amounts attributable to the item described in the first bullet point under Operating Surplus and Capital SurplusDefinition of Operating Surplus above); less |
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the amount of any net increase in working capital borrowings (including our proportionate share of any changes in working capital borrowings of certain subsidiaries we do not wholly own) with respect to that period; less |
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the amount of any net reduction in cash reserves for operating expenditures (including our proportionate share of cash reserves of certain subsidiaries we do not wholly own) over that period not relating to an operating expenditure made during that period; plus |
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the amount of any net decrease in working capital borrowings (including our proportionate share of any changes in working capital borrowings of certain subsidiaries we do not wholly own) with respect to that period; plus |
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the amount of any net increase in cash reserves for operating expenditures (including our proportionate share of cash reserves of certain subsidiaries we do not wholly own) over that period required by any debt instrument for the repayment of principal, interest or premium; plus |
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the amount of any net decrease made in subsequent periods to cash reserves for operating expenditures initially established with respect to such period to the extent such decrease results in a reduction in adjusted operating surplus in subsequent periods |
Adjusted operating surplus is intended to reflect the cash generated from operations during a particular period and therefore excludes net increases in working capital borrowings and net drawdowns of reserves of cash generated in prior periods.
Effect of Removal of Our General Partner on the Subordination Period
If the unitholders remove our General Partner other than for cause and units held by our General Partner and its affiliates are not voted in favor of such removal:
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the subordination period will end and each subordinated unit will immediately convert into one common unit and will then participate pro rata with the other common units in distributions of available cash; |
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any existing arrearages in payment of the minimum quarterly distribution on the common units will be extinguished; and |
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our General Partner will have the right to convert its General Partner interest and its incentive distribution rights into common units or to receive cash in exchange for that interest. |
Distributions of Available Cash From Operating Surplus During the Subordination Period
We will make distributions of available cash from operating surplus for any quarter during the subordination period in the following manner:
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first , 99.9% to the common unitholders, pro rata, and 0.1% to our General Partner, until we distribute for each outstanding common unit an amount equal to the minimum quarterly distribution for that quarter; |
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second , 99.9% to the common unitholders, pro rata, and 0.1% to our General Partner, until we distribute for each outstanding common unit an amount equal to any arrearages in payment of the minimum quarterly distribution on the common units for any prior quarters during the subordination period; |
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third , 99.9% to the subordinated unitholders, pro rata, and 0.1% to our General Partner, until we distribute for each subordinated unit an amount equal to the minimum quarterly distribution for that quarter; and |
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thereafter , in the manner described in General Partner Interest and Incentive Distribution Rights below. |
The preceding paragraph is based on the assumption that our General Partner maintains its 0.1% General Partner interest and that we do not issue additional classes of equity securities.
Distributions of Available Cash From Operating Surplus After the Subordination Period
We will make distributions of available cash from operating surplus for any quarter after the subordination period in the following manner:
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first , 99.9% to all unitholders, pro rata, and 0.1% to our General Partner, until we distribute for each outstanding unit an amount equal to the minimum quarterly distribution for that quarter; and |
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thereafter , in the manner described in General Partner Interest and Incentive Distribution Rights below. |
The preceding paragraph is based on the assumption that our General Partner maintains its 0.1% General Partner interest and that we do not issue additional classes of equity securities.
General Partner Interest
Our Partnership Agreement provides that our General Partner initially will be entitled to 0.1% of all distributions that we make prior to our liquidation. Our General Partner has the right, but not the obligation, to contribute a proportionate amount of capital to us to maintain its 0.1% General Partner interest if we issue additional units. Our General Partners 0.1% interest, and the percentage of our cash distributions to which it is entitled, will be proportionately reduced if we issue additional units in the future and our General Partner does not contribute a proportionate amount of capital to us in order to maintain its 0.1% General Partner interest. Our General Partner will be entitled to make a capital contribution in order to maintain its 0.1% General Partner interest in the form of the contribution to us of common units based on the current market value of the contributed common units.
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Incentive Distribution Rights
Incentive distribution rights represent the right to receive an increasing percentage of quarterly distributions of available cash from operating surplus after the minimum quarterly distribution and the target distribution levels have been achieved. Our General Partner will hold the incentive distribution rights following completion of this offering. The incentive distribution rights may be transferred separately from our General Partner interest, subject to restrictions in the Partnership Agreement. Except for transfers of incentive distribution rights to an affiliate or another entity as part of our General Partners merger or consolidation with or into, or sale of substantially all of its assets to such entity, the approval of a majority of our common units (excluding common units held by our General Partner and its affiliates), voting separately as a class, generally is required for a transfer of the incentive distribution rights to a third party prior to . See The Partnership AgreementTransfer of Incentive Distribution Rights. Any transfer by our General Partner of the incentive distribution rights would not change the percentage allocations of quarterly distributions with respect to such rights.
If for any quarter:
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we have distributed available cash from operating surplus to the common and subordinated unitholders in an amount equal to the minimum quarterly distribution; and |
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we have distributed available cash from operating surplus on outstanding common units in an amount necessary to eliminate any cumulative arrearages in payment of the minimum quarterly distribution; |
then, we will distribute any additional available cash from operating surplus for that quarter among the unitholders and our General Partner in the following manner:
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first , 99.9% to all unitholders, pro rata, and 0.1% to our General Partner, until each unitholder receives a total of $ per unit for that quarter (the first target distribution); |
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second , 85.0% to all unitholders, pro rata, 0.1% to our General Partner and 14.9% to the holders of the incentive distribution rights, pro rata, until each unitholder receives a total of $ per unit for that quarter (the second target distribution); |
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third , 75.0% to all unitholders, pro rata, 0.1% to our General Partner and 24.9% to the holders of the incentive distribution rights, pro rata, until each unitholder receives a total of $ per unit for that quarter (the third target distribution); and |
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thereafter , 50.0% to all unitholders, pro rata, 0.1% to our General Partner and 49.9% to the holders of the incentive distribution rights, pro rata. |
In each case, the amount of the target distribution set forth above is exclusive of any distributions to common unitholders to eliminate any cumulative arrearages in payment of the minimum quarterly distribution. The percentage interests set forth above assume that our General Partner maintains its 0.1% General Partner interest and that we do not issue additional classes of equity securities.
Percentage Allocations of Available Cash From Operating Surplus
The following table illustrates the percentage allocations of the additional available cash from operating surplus among the unitholders, our General Partner and the holders of the incentive distribution rights up to the various target distribution levels. The amounts set forth under Marginal Percentage Interest in Distributions are the percentage interests of the unitholders, our General Partner and the holders of the incentive distribution rights in any available cash from operating surplus we distribute up to and including the corresponding amount in the column Total Quarterly Distribution Target Amount, until available cash from operating surplus we distribute reaches the next target distribution level, if any. The percentage interests shown for the unitholders, our General
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Partner and the holders of the incentive distribution rights for the minimum quarterly distribution are also applicable to quarterly distribution amounts that are less than the minimum quarterly distribution. The percentage interests shown for our General Partner include its 0.1% General Partner interest only and assume that our General Partner has contributed any capital necessary to maintain its 0.1% General Partner interest.
General Partners Right to Reset Incentive Distribution Levels
Our General Partner, as the initial holder of all of our incentive distribution rights, has the right under our Partnership Agreement to elect to relinquish the right of the holders of our incentive distribution rights to receive incentive distribution payments based on the initial cash target distribution levels and to reset, at higher levels, the minimum quarterly distribution amount and cash target distribution levels upon which the incentive distribution payments to our General Partner would be set. Our General Partners right to reset the minimum quarterly distribution amount and the target distribution levels upon which the incentive distributions payable to our General Partner are based may be exercised, without approval of our unitholders or the conflicts committee of our board of directors, at any time when there are no subordinated units outstanding and we have made cash distributions to the holders of the incentive distribution rights at the highest level of incentive distribution for each of the prior four consecutive fiscal quarters. If at the time of any election to reset the minimum quarterly distribution amount and the target distribution levels our General Partner and its affiliates are not the holders of a majority of the incentive distribution rights, then any such election to reset shall be subject to the prior written concurrence of our General Partner that the conditions described in the immediately preceding sentence have been satisfied. The reset minimum quarterly distribution amount and target distribution levels will be higher than the minimum quarterly distribution amount and the target distribution levels prior to the reset such that there will be no incentive distributions paid under the reset target distribution levels until cash distributions per unit following this event increase as described below. We anticipate that our General Partner would exercise this reset right in order to facilitate acquisitions or internal growth projects that would otherwise not be sufficiently accretive to cash distributions per common unit, taking into account the existing levels of incentive distribution payments being made to our General Partner.
In connection with the resetting of the minimum quarterly distribution amount and the target distribution levels and the corresponding relinquishment by our General Partner of incentive distribution payments based on the target cash distributions prior to the reset, our General Partner will be entitled to receive a number of newly issued common units based on a predetermined formula described below that takes into account the cash parity value of the average cash distributions related to the incentive distribution rights received by our General Partner for the two quarters prior to the reset event as compared to the average cash distributions per common unit during this period. We will also issue an additional amount of General Partner Units in order to maintain the General Partners ownership interest in us relative to the issuance of the additional common units.
The number of common units that our General Partner would be entitled to receive from us in connection with a resetting of the minimum quarterly distribution amount and the target distribution levels then in effect would be equal to (x) the average amount of cash distributions received by our General Partner in respect of its incentive distribution rights during the two consecutive fiscal quarters ended immediately prior to the date of such reset election divided by (y) the average of the amount of cash distributed per common unit during each of
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these two quarters. The issuance of the additional common units will be conditioned upon approval of the listing or admission for trading of such common units by the national securities exchange on which the common units are then listed or admitted for trading.
Following a reset election, the minimum quarterly distribution amount will be reset to an amount equal to the average cash distribution amount per unit for the two fiscal quarters immediately preceding the reset election (such amount is referred to as the reset minimum quarterly distribution) and the target distribution levels will be reset to be correspondingly higher such that we would distribute all of our available cash from operating surplus for each quarter thereafter as follows:
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first , 99.9% to all unitholders, pro rata, and 0.1% to our General Partner, until each unitholder receives an amount equal to 115.0% of the reset minimum quarterly distribution for that quarter; |
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second , 85.0% to all unitholders, pro rata, 0.1% to our General Partner and 14.9% to the holders of the incentive distribution rights, pro rata, until each unitholder receives an amount per unit equal to 125.0% of the reset minimum quarterly distribution for the quarter; |
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third , 75.0% to all unitholders, pro rata, 0.1% to our General Partner, and 24.9% to the holders of the incentive distribution rights, pro rata, until each unitholder receives an amount per unit equal to % of the reset minimum quarterly distribution for the quarter; and |
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thereafter, 50.0% to all unitholders, pro rata, 0.1% to our General Partner and 49.9% to the holders of the incentive distribution rights, pro rata. |
The following table illustrates the percentage allocation of available cash from operating surplus between the unitholders, our General Partner and the holders of the incentive distribution rights at various levels of cash distribution levels pursuant to the cash distribution provision of our Partnership Agreement in effect at the closing of this offering as well as following a hypothetical reset of the minimum quarterly distribution and target distribution levels based on the assumption that the average quarterly cash distribution amount per common unit during the two fiscal quarters immediately preceding the reset election was $ .
(1) | This amount is 115% of the hypothetical reset minimum quarterly distribution. |
(2) | This amount is 125% of the hypothetical reset minimum quarterly distribution. |
(3) | This amount is 150% of the hypothetical reset minimum quarterly distribution. |
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The following table illustrates the total amount of available cash from operating surplus that would be distributed to the unitholders, the General Partner and the holders of the incentive distribution rights based on an average of the amounts distributed per quarter for the two quarters immediately prior to the reset. The table assumes that there are common units and General Partner Units outstanding, representing a 0.1% general partner interest, outstanding, and that the average distribution to each common unit is $ for the two quarters prior to the reset. The assumed number of outstanding units assumes the conversion of all subordinated units into common units and no additional unit issuances.
General Partner and
IDR Holders Cash Distributions Prior to Reset |
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Quarterly
Distribution per Unit Prior to Reset |
Common
Unitholders Cash Distributions Prior to Reset |
Additional
Common Units |
0.1%
General Partner Interest |
IDRs | Total |
Total
Distributions |
||||||||||||||||||||||
Minimum Quarterly Distribution |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
First Target Distribution |
$ | |||||||||||||||||||||||||||
Second Target Distribution |
$ | |||||||||||||||||||||||||||
Third Target Distribution |
$ | |||||||||||||||||||||||||||
Thereafter |
$ | |||||||||||||||||||||||||||
$ | $ | $ | $ | $ | $ | $ |
The following table illustrates the total amount of available cash from operating surplus that would be distributed to the unitholders, the General Partner and the holders of the incentive distribution rights with respect to the quarter in which the reset occurs. The table reflects that as a result of the reset there are common units and General Partner Units outstanding, and that the average distribution to each common unit is . The number of additional common units was calculated by dividing (x) $ as the average of the amounts received by the General Partner in respect of their incentive distribution rights, for the two quarters prior to the reset as shown in the table above by (y) the $ of available cash from operating surplus distributed to each common unit as the average distributed per common unit for the two quarters prior to the reset.
General Partner and
IDR Holders Cash Distributions After Reset |
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Quarterly
Distribution per Unit After Reset |
Common
Unitholders Cash Distributions After Reset |
Additional
Common Units |
0.1%
General Partner Interest |
IDRs | Total |
Total
Distributions |
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Minimum Quarterly Distribution |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
First Target Distribution |
$ | |||||||||||||||||||||||||||
Second Target Distribution |
$ | |||||||||||||||||||||||||||
Third Target Distribution |
$ | |||||||||||||||||||||||||||
Thereafter |
$ | |||||||||||||||||||||||||||
$ | $ | $ | $ | $ | $ | $ |
Assuming that it continues to hold a majority of our incentive distribution rights, our General Partner will be entitled to cause the minimum quarterly distribution amount and the target distribution levels to be reset on more than one occasion, provided that it may not make a reset election except at a time when the holders of the incentive distribution rights have received incentive distributions for the prior four consecutive fiscal quarters based on the highest level of incentive distributions that the holders of incentive distribution rights are entitled to receive under our Partnership Agreement.
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Distributions From Capital Surplus
How Distributions From Capital Surplus Will Be Made
We will make distributions of available cash from capital surplus, if any, in the following manner:
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first , 99.9% to all unitholders, pro rata, and 0.1% to our General Partner, until the minimum quarterly distribution is reduced to zero, as described below; |
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second , 99.9% to the common unitholders, pro rata, and 0.1% to our General Partner, until we distribute for each common unit, an amount of available cash from capital surplus equal to any unpaid arrearages in payment of the minimum quarterly distribution on the common units; and |
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thereafter , we will make all distributions of available cash from capital surplus as if they were from operating surplus. |
The preceding paragraph is based on the assumption that our General Partner maintains its 0.1% General Partner interest and that we do not issue additional classes of equity securities.
Effect of a Distribution from Capital Surplus
The Partnership Agreement treats a distribution of capital surplus as the repayment of the consideration for the issuance of the units, which is a return of capital. Each time a distribution of capital surplus is made, the minimum quarterly distribution and the target distribution levels will be reduced in the same proportion as the distribution had to the fair market value of the common units prior to the announcement of the distribution. Because distributions of capital surplus will reduce the minimum quarterly distribution, after any of these distributions are made, it may be easier for our General Partner to receive incentive distributions and for the subordinated units to convert into common units. However, any distribution of capital surplus before the minimum quarterly distribution is reduced to zero cannot be applied to the payment of the minimum quarterly distribution or any arrearages.
Once we reduce the minimum quarterly distribution and the target distribution levels to zero, we will then make all future distributions 50% to the holders of units, 0.1% to our General Partner and 49.9% to the holders of the incentive distribution rights (initially, our General Partner). The 0.1% interests shown for our General Partner assumes that our General Partner maintains its 0.1% General Partner interest.
Adjustment to the Minimum Quarterly Distribution and Target Distribution Levels
In addition to adjusting the minimum quarterly distribution and target distribution levels to reflect a distribution of capital surplus, if we combine our units into fewer units or subdivide our units into a greater number of units, we will proportionately adjust:
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the minimum quarterly distribution; |
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the target distribution levels; and |
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the initial unit price. |
For example, if a two-for-one split of the common and subordinated units should occur, the minimum quarterly distribution, the target distribution levels and the initial unit price, would each be reduced to 50% of its initial level. If we combine our common units into a lesser number of units or subdivide our common units into a greater number of units, we will combine our subordinated units or subdivide our subordinated units, using the same ratio applied to the common units. We will not make any adjustment by reason of the issuance of additional units for cash or property.
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Distributions of Cash Upon Liquidation
If we dissolve in accordance with the Partnership Agreement, we will sell or otherwise dispose of our assets in a process called liquidation. We will apply the proceeds of liquidation in the manner set forth below. If, as of the date three trading days prior to the announcement of the proposed liquidation, the average closing price for our common units for the preceding 20 trading days (or the current market price) is greater than the sum of:
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any arrearages in payment of the minimum quarterly distribution on the common units for any prior quarters during the subordination period; |
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the minimum quarterly distribution; |
then the proceeds of the liquidation will be applied as follows:
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first , 99.9% to the common unitholders, pro rata, and 0.1% to our General Partner, until we distribute for each outstanding common unit an amount equal to the current market price of our common units; |
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second , 99.9% to the subordinated unitholders, pro rata, and 0.1% to our General Partner, until we distribute for each subordinated unit an amount equal to the current market price of our common units; and |
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thereafter , 50.0% to all unitholders, pro rata, 49.9% to holders of incentive distribution rights and 0.1% to our General Partner. |
If, as of the date three trading days prior to the announcement of the proposed liquidation, the current market price of our common units is equal to or less than the sum of:
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any arrearages in payment of the minimum quarterly distribution on the common units for any prior quarters during the subordination period; plus |
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the initial unit price (less any prior capital surplus distributions and any prior cash distributions made in connection with a partial liquidation); |
then the proceeds of the liquidation will be applied as follows:
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first , 99.9% to the common unitholders, pro rata, and 0.1% to our General Partner, until we distribute for each outstanding common unit an amount equal to the initial unit price (less any prior capital surplus distributions and any prior cash distributions made in connection with a partial liquidation); |
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second , 99.9% to the common unitholders, pro rata, and 0.1% to our General Partner, until we distribute for each outstanding common unit an amount equal to any arrearages in payment of the minimum quarterly distribution on the common units for any prior quarters during the subordination period; |
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third , 99.9% to the subordinated unitholders and 0.1% to our General Partner, until we distribute for each outstanding subordinated unit an amount equal to the initial unit price (less any prior capital surplus distributions and any prior cash distributions made in connection with a partial liquidation); and |
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thereafter , 50.0% to all unitholders, pro rata, 49.9% to holders of incentive distribution rights and 0.1% to our General Partner. |
The immediately preceding paragraph is based on the assumption that our General Partner maintains its 0.1% General Partner interest and that we do not issue additional classes of equity securities.
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SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
We were formed on May 30, 2013 by our Sponsor as a new LNG carrier subsidiary focused on owning and operating LNG carriers that are employed on multi-year time charters with international energy companies. Prior to the completion of this offering, we will complete a series of formation transactions that are described in the section of the prospectus entitled SummaryFormation Transactions, including the acquisition of certain subsidiaries of our Sponsor that have interests in the LNG carriers in our Initial Fleet, or the Sponsor Controlled Companies. Upon the closing of the offering, our business will be a direct continuation of the Sponsor Controlled Companies. We do not intend to engage in any business or other activities prior to the closing of the offering, except in connection with our formation. The Sponsor Controlled Companies are limited to entities that are under the control of our Sponsor and its affiliates, and, as such, this acquisition was accounted for as a transaction between entities under common control. As a result, the financial statements of the Sponsor Controlled Companies and us from May 30, 2013 (the date of our inception) have been presented using combined historical carrying costs of the assets and liabilities of the Sponsor Controlled Companies, and present the consolidated financial position and results of operations as if Dynagas Partners and the Sponsor Controlled Companies were consolidated for all periods presented.
The following table summarizes our selected historical consolidated financial and other operating data at the dates and for the periods indicated. The selected historical consolidated financial data in the table as of December 31, 2012 and 2011 and for the years then ended is derived from our audited consolidated financial statements for 2012 and 2011 included elsewhere in this prospectus, which have been prepared in accordance with U.S. GAAP. Our selected historical consolidated financial data presented below as of and for the six months ended June 30, 2013 and 2012 has been prepared on the same basis as our audited consolidated financial statements, are derived from our unaudited interim condensed consolidated financial statements included herein and, in the opinion of management, include all adjustments (consisting of only normal recurring adjustments) necessary for a fair presentation thereof. Our interim results are not necessarily indicative of our results for the entire year or for any future periods. The following financial data should be read in conjunction with Managements Discussion and Analysis of Financial Condition and Results of Operations, and our consolidated financial statements and related notes included elsewhere in this prospectus.
Our financial position, results of operations and cash flows could differ from those that would have resulted if we operated autonomously or as an entity independent of our Sponsor in the periods for which historical financial data are presented below, and such data may not be indicative of our future operating results or financial performance.
Six Months Ended
June 30, |
Year Ended
December 31, |
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2013 | 2012 | 2012 | 2011 | |||||||||||||
(in thousands of
Dollars) |
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Income Statement Data |
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Voyage revenues |
$ | 42,444 | $ | 37,105 | $ | 77,498 | $ | 52,547 | ||||||||
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Voyage expenses(1) |
(832 | ) | (1,928 | ) | (3,468 | ) | (1,353 | ) | ||||||||
Vessel operating expenses |
(6,232 | ) | (7,376 | ) | (15,722 | ) | (11,350 | ) | ||||||||
General and administrative expenses |
(21 | ) | | (278 | ) | (54 | ) | |||||||||
Management fees |
(1,358 | ) | (1,328 | ) | (2,638 | ) | (2,529 | ) | ||||||||
Depreciation |
(6,733 | ) | (6,771 | ) | (13,616 | ) | (13,579 | ) | ||||||||
Dry-docking and special survey costs |
| (719 | ) | (2,109 | ) | | ||||||||||
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Operating income |
27,268 | 18,983 | 39,667 | 23,682 | ||||||||||||
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Interest income |
| 1 | 1 | 4 | ||||||||||||
Interest and finance costs |
(4,591 | ) | (4,452 | ) | (9,576 | ) | (3,977 | ) | ||||||||
Loss on derivative financial instruments |
| (138 | ) | (196 | ) | (824 | ) | |||||||||
Other, net |
51 | (1 | ) | (60 | ) | (65 | ) | |||||||||
Net Income |
$ | 22,728 | $ | 14,393 | $ | 29,836 | $ | 18,820 |
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Six Months Ended
June 30, |
Year Ended
December 31, |
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2013 | 2012 | 2012 | 2011 | |||||||||||||
(in thousands of
Dollars) |
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Balance Sheet Data: |
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Total current assets |
$ | 5,069 | $ | 8,981 | $ | 3,453 | ||||||||||
Vessels, net |
460,021 | 466,754 | 480,370 | |||||||||||||
Total assets |
468,332 | 476,275 | 484,363 | |||||||||||||
Total current liabilities |
368,069 | 398,434 | 439,024 | |||||||||||||
Total Long Term Debt and stockholders loan, including current portion |
359,045 | 380,715 | 402,189 | |||||||||||||
Total partners equity |
97,903 | 75,175 | 45,339 | |||||||||||||
Cash Flow Data: |
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Net cash provided by operating activities |
$ | 17,728 | $ | 2,988 | $ | 27,902 | $ | 28,974 | ||||||||
Net cash used in financing activities |
(17,728 | ) | (2,988 | ) | (27,902 | ) | (28,974 | ) | ||||||||
Fleet Data: |
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Number of vessels at the end of the year |
3 | 3 | 3 | 3 | ||||||||||||
Average number of vessels in operation(2) |
3 | 3 | 3 | 3 | ||||||||||||
Average age of vessels in operation at end of period (years) |
5.9 | 4.9 | 5.4 | 4.4 | ||||||||||||
Available days(3) |
543 | 530 | 1,056 | 1,095 | ||||||||||||
Time Charter Equivalent(4) |
76,633 | 66,372 | 70,104 | 46,753 | ||||||||||||
Fleet utilization(5) |
100.0 | % | 99.0 | % | 99.5 | % | 99.5 | % | ||||||||
Other Financial Data: |
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Adjusted EBITDA (6) |
34,052 | 25,753 | 53,223 | 37,196 |
(1) | Voyage expenses include commissions of 1.25% paid to our Manager and third-party ship brokers. |
(2) | Represents the number of vessels that constituted our fleet for the relevant period, as measured by the sum of the number of days each vessel was a part of our fleet during the period divided by the number of calendar days in the period. |
(3) | Available days are the total number of calendar days our vessels were in our possession during a period, less the total number of scheduled off-hire days during the period associated with major repairs, or dry-dockings. |
(4) | Time charter equivalent rates, or TCE rates, is a measure of the average daily revenue performance of a vessel. For time charters, this is calculated by dividing total voyage revenues, less any voyage expenses, by the number of Available days during that period. Under a time charter, the charterer pays substantially all of the vessel voyage related expenses. However, we may incur voyage related expenses when positioning or repositioning vessels before or after the period of a time charter, during periods of commercial waiting time or while off-hire during dry-docking or due to other unforeseen circumstances. The TCE rate is not a measure of financial performance under U.S. GAAP (non-GAAP measure), and should not be considered as an alternative to voyage revenues, the most directly comparable GAAP measure, or any other measure of financial performance presented in accordance with U.S. GAAP. However, TCE rate is a standard shipping industry performance measure used primarily to compare period-to-period changes in a companys performance and assists our management in making decisions regarding the deployment and use of our vessels and in evaluating their financial performance. Our calculation of TCE rates may not be comparable to that reported by other companies. The following table reflects the calculation of our TCE rates for the six month periods ended June 30, 2013 and 2012 and the years ended December 31, 2012 and 2011 (amounts in thousands of U.S. dollars, except for TCE rates, which are expressed in U.S. dollars and Available days): |
Six Months Ended
June 30, |
Year Ended
December 31, |
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2013 | 2012 | 2012 | 2011 | |||||||||||||
Voyage revenues |
$ | 42,444 | 37,105 | $ | 77,498 | $ | 52,547 | |||||||||
Voyage expenses |
(832 | ) | (1,928 | ) | (3,468 | ) | (1,353 | ) | ||||||||
Time charter equivalent revenues |
41,612 | 35,177 | 74,030 | 51,194 | ||||||||||||
Total Available days |
543 | 530 | 1,056 | 1,095 | ||||||||||||
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Time charter equivalent (TCE) rate |
76,633 | 66,372 | 70,104 | 46,753 | ||||||||||||
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(5) | We calculate fleet utilization by dividing the number of our revenue earning days, which are the total number of Available Days of our vessels net of unscheduled off-hire days, during a period, by the number of our Available days during that period. The shipping industry uses fleet utilization to measure a companys efficiency in finding employment for its vessels and minimizing the amount of days that its vessels are off-hire for reasons such as unscheduled repairs but excluding scheduled off-hires for vessel upgrades, dry-dockings or special or intermediate surveys. |
(6) | Adjusted EBITDA is defined as earnings before interest and finance costs, net of interest income, gains/losses on derivative financial instruments, taxes (when incurred), depreciation and amortization (when incurred). Adjusted EBITDA is used as a supplemental financial measure by management and external users of financial statements, such as our investors, to assess our liquidity and our operating performance. We believe that Adjusted EBITDA assists our management and investors by providing useful information that increases the comparability of our performance operating from period to period and against the operating performance of other companies in our industry that provide Adjusted EBITDA information. This increased comparability is achieved by excluding the potentially disparate effects between periods or companies of interest, other financial items, depreciation and amortization and taxes, which items are affected by various and possibly changing financing methods, capital structure and historical cost basis and which items may significantly affect net income between periods. We believe that including Adjusted EBITDA as a measure of operating performance benefits investors in (a) selecting between investing in us and other investment alternatives and (b) monitoring our ongoing financial and operational strength in assessing whether to continue to hold common units. |
Adjusted | EBITDA is not a measure of financial performance under U.S. GAAP, does not represent and should not be considered as an alternative to net income, operating income, cash flow from operating activities or any other measure of financial performance presented in accordance with U.S. GAAP. Adjusted EBITDA excludes some, but not all, items that affect net income and these measures may vary among other companies. Therefore, Adjusted EBITDA as presented below may not be comparable to similarly titled measures of other companies. The following table reconciles Adjusted EBITDA to net income (loss), the most directly comparable U.S. GAAP financial measures, for the periods presented: |
Six Months Ended
June 30, |
Year Ended
December 31, |
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2013 | 2012 | 2012 | 2011 | |||||||||||||
Reconciliation to Net Income |
(in thousands of
Dollars) |
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Net Income |
$ | 22,728 | 14,393 | $ | 29,836 | $ | 18,820 | |||||||||
Net interest expense (including loss from derivative instruments) |
4,591 | 4,589 | 9,771 | 4,797 | ||||||||||||
Depreciation |
6,733 | 6,771 | 13,616 | 13,579 | ||||||||||||
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Adjusted EBITDA |
$ | 34,052 | $ | 25,753 | $ | 53,223 | $ | 37,196 | ||||||||
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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the Selected Historical Consolidated Financial and Operating Data and the accompanying unaudited consolidated financial statements and the related notes included elsewhere in this prospectus. Amounts relating to percentage variations in periodonperiod comparisons shown in this section are derived from the actual numbers in our books and records. The following discussion contains forward-looking statements that reflect our future plans, estimates, beliefs and expected performance. The forward-looking statements are dependent upon events, risks and uncertainties that may be outside our control. Our actual results could differ materially from those discussed in these forward-looking statements. See Risk Factors and Forward-Looking Statements. In light of these risks, uncertainties and assumptions, the forward-looking events discussed may not occur.
Our Business
We are a growth-oriented limited partnership focused on owning and operating LNG carriers. Our high-specification vessels are employed on multi-year time charters, which we define as charters of two years or more, with international energy companies such as BG Group and Gazprom, providing us with the benefits of stable cash flows and high utilization rates. We intend to leverage the reputation, expertise, and relationships of our Sponsor and our Manager in maintaining cost-efficient operations and providing reliable seaborne transportation services to our customers. In addition, we intend to make further vessel acquisitions from our Sponsor and from third parties.
Our Sponsor entered the LNG sector in 2004 by ordering the construction of three LNG carriers, the Clean Energy , the Ob River , and the Clean Force , from Hyundai Heavy Industries Co. Ltd. or HHI, one of the worlds leading shipbuilders of LNG carriers. Prior to the completion of this offering, we will acquire from our Sponsor these vessels, which we refer to as our Initial Fleet, in exchange for of our common units and all of our subordinated units. The LNG carriers that comprise the Initial Fleet have an average age of 6.2 years and are under time charters with an average remaining term of 3.6 years, as of September 30, 2013.
We believe that we will have the opportunity to grow our per unit distributions by making acquisitions of LNG carriers from our Sponsor or from third parties. Our Sponsor took delivery of two newbuilding LNG carriers in July 2013 and one in October 2013 from HHI, and has contracts for the construction of an additional four LNG carriers with HHI, scheduled to be delivered to our Sponsor in 2014 and 2015. We will receive the right to purchase these seven vessels, which we refer to as the Optional Vessels, at a purchase price to be determined pursuant to the terms and conditions of the Omnibus Agreement within 24 months of their delivery to our Sponsor.
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As of June 30, 2013 and December 31, 2012, we were not in compliance with certain restrictive and financial covenants contained in our credit facilities, and as a result, our independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern. Please see Risk FactorsRisks Relating to Our CompanyWe are currently in breach of certain financial and other covenants contained in our loan agreements, and as a result, our independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern, Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital ResourcesViolation of Financial Covenants Under Certain of our Credit Facilities and Note 3 to our consolidated financial statements included in this prospectus.
For a discussion of the refinancing of our indebtedness that will occur at or prior to the closing of this offering, please see Liquidity and Capital Resources.
Our Initial Fleet
Our Initial Fleet consists of three LNG carriers currently operating under multi-year charters with BG Group and Gazprom. The Clean Force and the Ob River have been assigned with Ice Class designation for hull and machinery and are fully winterized, which means that they are designed to call at ice-bound and harsh environment terminals and to withstand temperatures up to minus 30 degrees Celsius. According to Drewry, the Clean Force and Ob River are two of only five LNG carriers in the global LNG fleet that are currently in operation which have been assigned an Ice Class 1A FS designation, or its equivalent rating. This means that only 1.4% of the LNG vessels in the global LNG fleet have this designation and we are the only company in the world that is currently transiting the Northern Sea Route with LNG carriers. We believe that these specifications enhance our trading capabilities and future employment opportunities because they provide greater flexibility in the trading routes available to our charterers.
We believe that the key characteristics of each of our vessels in our Initial Fleet include the following:
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optimal sizing with a carrying capacity of approximately 150,000 cbm (which is a medium- to large-size class of LNG carrier) that maximizes its operational flexibility as such vessel is compatible with most existing LNG terminals around the world; |
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each vessel is a sister vessel, which are vessels built by the same yard that share (i) a near-identical hull and superstructure layout, (ii) similar displacement, and (iii) roughly comparable features and equipment; |
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utilization of a membrane containment system that uses insulation built directly into the hull of the vessel with a membrane covering inside the tanks designed to maintain integrity and that uses the vessels hull to directly support the pressure of the LNG cargo, which we refer to as a membrane containment system (see The International Liquefied Natural Gas (LNG) Shipping IndustryThe LNG Fleet for a description of the types of LNG containment systems); and |
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double hull construction, based on the current LNG shipping industry standard. |
According to Drewry, there are only 39 LNG carriers currently in operation, including the vessels in our Initial Fleet, with a carrying capacity of between 149,000 and 155,000 cbm and a membrane containment system, representing 9.0% of the global LNG fleet and a total of 118 LNG carriers on order of which 8 are being constructed with these specifications.
The following table sets forth additional information about our Initial Fleet as of September 30, 2013:
Vessel Name |
Shipyard | Year Built |
Capacity
(cbm) |
Ice Class |
Flag State |
Charterer |
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Clean Energy |
HHI | 2007 | 149,700 | No | Marshall Islands | BG Group | ||||||||||||||
Ob River (1) |
HHI | 2007 | 149,700 | Yes | Marshall Islands | Gazprom | ||||||||||||||
Clean Force |
HHI | 2008 | 149,700 | Yes | Marshall Islands | BG Group |
(1) | Formerly named Clean Power . |
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Our Charters
We intend to principally deploy our vessels on multi-year, fixed-rate time charters to take advantage of the stable cash flows and high utilization rates typically associated with multi-year time charters. Under our time charters, hire payments may be reduced if the vessel does not perform to certain of its specifications, such as if the average vessel speed falls below a guaranteed speed or the amount of fuel consumed to power the vessel under normal circumstances exceeds a guaranteed amount, and the customer is responsible for any voyage expenses incurred. We have secured multi-year fixed rate time charter contracts for the three LNG carriers in our Initial Fleet. The following table summarizes our current time charters for the vessels in our Initial Fleet and the expirations and extension options, as of September 30, 2013:
Vessel Name |
Charterer |
Contract Backlog (in millions) |
Charter
Commencement
|
Earliest Charter
|
Latest Charter Expiration Including Non-Exercised Options |
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Clean Energy |
BG Group | $109.8 | February 2012 | April 2017 | August 2020 (2) | |||||
Ob River (1) |
Gazprom | $124.8 | September 2012 | September 2017 | May 2018 (3) | |||||
Clean Force |
BG Group | $68.5 | October 2010 | September 2016 | January 2020 (4) |
(1) | Formerly named Clean Power . |
(2) | BG Group has the option to extend the duration of the charter for an additional three-year term until August 2020 at an escalated daily rate, upon notice to us before January 2016. |
(3) | Gazprom has the option to extend the duration of the charter until May 2018 on identical terms, upon notice to us before March 2017. |
(4) | On January 2, 2013, BG Group exercised its option to extend the duration of the charter by an additional three-year term at an escalated daily rate, commencing on October 5, 2013. BG Group has the option to extend the duration of the charter by an additional three-year term at a further escalated daily rate, which would commence on October 5, 2016, upon notice to us before January 5, 2016. The latest expiration date upon the exercise of all options is January 2020. |
The following table summarizes our contracted charter revenues and contracted days for the vessels in our Initial Fleet as of June 30, 2013 assuming the earliest redelivery dates possible under our charters and 365 revenue days per annum per ship and assuming charterers do not exercise any options to extend the time charters of the Clean Force , the Clean Energy and the Ob River .
Contracted Charter Revenues and Days from Time Charters as of June 30, 2013
(in millions of U.S. Dollars, except days and percentages)
Second
half of 2013 |
2014 | 2015 | 2016 | 2017 | ||||||||||||||||
No. of Vessels whose contracts expire (1) |
| | | 1 | 2 | |||||||||||||||
Contracted Time Charter Revenues (1) |
41.5 | 85.8 | 85.8 | 78.4 | 31.5 | |||||||||||||||
Contracted Days |
552 | 1,095 | 1,095 | 979 | 368 | |||||||||||||||
Available Days |
552 | 1,095 | 1,095 | 1,095 | 1,051 | |||||||||||||||
Contracted/Available Days |
100 | % | 100 | % | 100 | % | 89 | % | 35 | % |
(1) | Annual revenue calculations are based on: (a) an assumed 365 revenue days per vessel per annum, (b) the earliest redelivery dates possible under our LNG carrier charters, and (c) no exercise of any option to extend the terms of those charters except for the option regarding the Clean Force exercised on January 2, 2013. |
Although these expected revenues are based on contracted charter rates, any contract is subject to various risks, including performance by the counterparties or an early termination of the contract pursuant to its terms. If the charterers are unable to make charter payments to us, if we agree to renegotiate charter terms at the request of
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a charterer or if contracts are prematurely terminated for any reason, our results of operations and financial condition may be materially adversely affected. Historically, we have had no defaults or early terminations by charterers. For these reasons, the contracted charter revenue information presented is an estimate and should not be relied upon as being necessarily indicative of future results. Readers are cautioned not to place undue reliance on this information. Neither our independent auditors, nor any other independent accountants, have compiled, examined or performed any procedures with respect to the information presented in the table, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and assume no responsibility for, and disclaim any association with, the information in the table.
In the six month period ended June 30, 2013, we received substantially all of our revenues from two charterers, which individually accounted for 60% and 40% of our revenues, respectively, as compared to three charterers in the same period in 2012 which individually accounted for 60%, 35% and 5%, respectively, of our revenues in 2012. Historically, we have not experienced any credit losses on our accounts receivable portfolio.
Items You Should Consider When Evaluating Our Historical Financial Performance and Assessing Our Future Prospects
We were formed on May 30, 2013 by our Sponsor as a new LNG carrier subsidiary focused on owning and operating LNG carriers that are employed on multi-year time charters with international energy companies. Prior to the completion of this offering, we will complete a series of formation transactions that are described in the section of the prospectus entitled Prospectus SummaryFormation Transactions , including the acquisition of certain subsidiaries of our Sponsor that have interests in the LNG carriers in our Initial Fleet, or the Sponsor Controlled Companies. Upon the closing of the offering, our business will be a direct continuation of the Sponsor Controlled Companies. We do not intend to engage in any business or other activities prior to the closing of the offering, except in connection with our formation. The Sponsor Controlled Companies are limited to entities that are under the control of our Sponsor and its affiliates, and, as such, this acquisition was accounted for as a transaction between entities under common control. As a result, the financial statements of the Sponsor Controlled Companies and us from May 30, 2013 (the date of our inception) have been presented using combined historical carrying costs of the assets and liabilities of the Sponsor Controlled Companies, and present the consolidated financial position and results of operations as if Dynagas Partners and the Sponsor Controlled Companies were consolidated for all periods presented.
You should consider the following facts when evaluating our historical results of operations and assessing our future prospects:
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Upon completion of this offering, our leverage and associated finance expenses will be reduced. We are in advanced discussions with one of our lenders, an affiliate of Credit Suisse, to enter into the Proposed Senior Secured Revolving Credit Facility, which is a condition to closing this offering. A portion of the proceeds of this new credit facility, together with the net proceeds of this offering, will be used to repay all of our existing outstanding indebtedness effective upon the closing of this offering, and, therefore, we expect to have less debt outstanding and lower interest expense upon the completion of this offering. For descriptions of our existing financing agreements, see Liquidity and Capital ResourcesOur Borrowing Activities. |
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We intend to increase the size of our fleet by making other acquisitions. Our growth strategy focuses on expanding our fleet through the acquisition of LNG carriers under multi-year time charters. For example, pursuant to the Omnibus Agreement that we will enter into with our Sponsor and our General Partner, we will have the right but not the obligation to purchase each of the seven Optional Vessels comprising our Sponsors LNG fleet at any time up to 24 months following their respective deliveries from the shipyard. We expect that we will purchase the Optional Vessels if we are able to reach an agreement with our Sponsor regarding the purchase price of the vessels. In order to acquire these vessels or any additional vessels, we may need to issue additional equity or incur additional indebtedness. |
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We expect continued inflationary pressure on crew costs. Due to the specialized nature of operating LNG carriers, the increase in size of the worldwide LNG carrier fleet and the limited pool of qualified officers, we believe that crewing and labor related costs will experience significant increases. |
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Our historical results of operations reflect allocated administrative costs that may not be indicative of future administrative costs. The administrative costs included in our historical results of operations may not be indicative of our future administrative costs, which may include additional costs associated with being an Exchange Act reporting company. We have entered into the Management Agreements pursuant to which our Manager provides us certain administrative services, and our Management Agreements allow management fees to be increased if our Manager has incurred material unforeseen costs of providing the management services. |
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Our Sponsor and General Partner may exert influence over our operations . We expect that upon completion of this offering our Sponsor and our General Partner will own more than one third of our common and subordinated units in aggregate and as a result they will be able to exert influence over our operations. |
Principal Factors Affecting Our Results of Operations
The principal factors which have affected our results and are expected to affect our future results of operations and financial position, include:
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Number of Vessels in Our Fleet. The number of vessels in our fleet is a key factor in determining the level of our revenues. Aggregate expenses also increase as the size of our fleet increases. During 2007 and 2008, we took delivery of our Initial Fleet consisting of three LNG carriers. As of June 30, 2013, our fleet consisted of the same three LNG carriers; |
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Charter Rates. Our revenue is dependent on the charter rates we are able to obtain on our vessels. Charter rates on our vessels are based primarily on demand for and supply of LNG carrier capacity at the time we enter into the charters for our vessels, which is influenced by demand and supply for natural gas and in particular LNG as well as the supply of LNG carriers available for employment. The charter rates we obtain are also dependent on whether we employ our vessels under multi-year charters or charters with initial terms of less than two years. The vessels in our Initial Fleet are currently employed under multi-year time charters with staggered maturities, which will make us less susceptible to cyclical fluctuations in charter rates than vessels operated on charters of less than two years. However, we will be exposed to fluctuations in prevailing charter rates when we seek to recharter our vessels upon the expiry of their respective current charters and when we seek to charter vessels that we may acquire in the future. Prior to the commencement of our current charters, our vessels were employed primarily in the short-term chartering market (on charters with initial terms of less than two years) or the spot market for LNG vessels, which over the last five years has been highly volatile, resulting in significant variability in our earnings; |
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BG Groups potential exercise of charter extension. In 2010, we entered into the time charter contract for the Clean Force with the BG Group at a time when time charter rates were significantly lower than prevailing time charter rates for equivalent periods. On January 2, 2013, BG Group exercised its option to extend the charter of the Clean Force until 2016 and currently holds another option to extend the duration of the charter until 2019 at a further increased daily rate. BG also holds an option to extend the time charter of the Clean Energy for an additional three years until 2020 at an increased daily rate; |
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Utilization of Our Fleet. Historically, our fleet has had a limited number of unscheduled off-hire days. In the six month periods ended June 30, 2013 and 2012 our fleet utilization was approximately 100% and 99%, respectively. However, an increase in annual off-hire days would reduce our utilization. The efficiency with which suitable employment is secured, the ability to minimize off-hire days and the amount of time spent positioning vessels also affects our results of operations. If the utilization pattern of our fleet changes, our financial results would be affected; |
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The level of our vessel operating expenses, including crewing costs, insurance and maintenance costs; |
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The timely delivery of the Optional Vessels (four of which are currently under construction and three of which have been delivered as of October 4, 2013) to our Sponsor and our ability to exercise the options to purchase the seven Optional Vessels; |
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Our ability to maintain solid working relationships with our existing charterers and our ability to increase the number of our charterers through the development of new working relationships; |
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The performance of our charterers obligations under their charter agreements; |
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The effective and efficient technical management of the vessels under our management agreements; |
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Our ability to obtain acceptable debt financing to fund our capital commitments; |
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The ability of our Sponsor to fund its capital commitments and take delivery of the Optional Vessels under construction; |
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Our ability to obtain and maintain regulatory approvals and to satisfy technical, health, safety and compliance standards that meet our charterers requirements; |
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Economic, regulatory, political and governmental conditions that affect shipping and the LNG industry, which includes changes in the number of new LNG importing countries and regions, as well as structural LNG market changes impacting LNG supply that may allow greater flexibility and competition of other energy sources with global LNG use; |
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Our ability to successfully employ our vessels at economically attractive rates, as our charters expire or are otherwise terminated; |
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Our ability to obtain debt financing to fund our capital commitments in the current difficult credit markets and the likely increase in margins payable to our banks for new debt; |
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The amendment of our existing credit facilities or our entry into new financing agreements; |
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Our access to capital required to acquire additional ships and/or to implement our business strategy; |
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Our level of debt, the related interest expense and the timing of required payments of principal; |
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The level of our general and administrative expenses, including salaries and costs of consultants; |
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Our charterers right for early termination of the charters under certain circumstances; |
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Performance of our counterparties and our charterers ability to make charter payments to us; and |
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The level of any distribution on our common and subordinated units. |
See Risk Factors for a discussion of certain risks inherent in our business.
Important Financial and Operational Terms and Concepts
We use a variety of financial and operational terms and concepts when analyzing our performance. These include the following:
Time Charter Revenues. We recognize revenues from time charters over the term of the charter as the applicable vessel operates under the charter. Under time charters, revenue is not recognized during days a vessel is off-hire. Revenue is recognized from delivery of the vessel to the charterer, until the end of the time charter period. Under time charters, we are responsible for providing the crewing and other services related to the vessels operations, the cost of which is included in the daily hire rate, except when off-hire. Revenues are affected by time charter hire rates and the number of days a vessel operates.
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Off-hire (Including Commercial Waiting Time). When a vessel is off-hireor not available for servicethe charterer generally is not required to pay the time charter hire rate and we are responsible for all costs. Prolonged off-hire may lead to vessel substitution or termination of a time charter. Our vessels may be out of service, that is, off-hire, for several reasons: scheduled dry-docking, special survey, vessel upgrade or maintenance or inspection, which we refer to as scheduled off-hire; days spent waiting for a charter, which we refer to as commercial waiting time; and unscheduled repairs, maintenance, operational deficiencies, equipment breakdown, accidents, crewing strikes, certain vessel detentions or similar problems, or our failure to maintain the vessel in compliance with its specifications and contractual standards or to provide the required crew, which we refer to as unscheduled off-hire. We have obtained loss of hire insurance to protect us against loss of income in the event one of our vessels cannot be employed due to damage that is covered under the terms of our hull and machinery insurance. Under our loss of hire policies, our insurer generally will pay us the hire rate agreed in respect of each vessel for each day in excess of 14 days and with a maximum period of 120 days.
Voyage Expenses. Voyage expenses primarily include port and canal charges, bunker (fuel) expenses, agency fees and brokerage commissions. Under our time charter arrangements, the charterer pays substantially all of the voyage expenses, which are primarily fuel and port charges. Voyage expenses are typically paid by the customer under time charters. Voyage expenses are paid by the ship-owner during periods of off-hire and are recognized when incurred. We may incur voyage related expenses when positioning or repositioning vessels before or after the period of a time charter, during periods of commercial waiting time or while off-hire during a period of dry-docking. Voyage expenses can be higher when vessels trade in the short-term chartering market (charters with initial terms of less than two years) or the spot market due to fuel consumption during idling, cool down requirements, commercial waiting time in between charters and positioning and repositioning costs. From time to time, in accordance with industry practice, we pay commissions ranging up to 1.25% of the total daily charter rate under the charters to unaffiliated ship brokers, depending on the number of brokers involved with arranging the charter. These commissions do not include the fees we pay to our Manager, which are described below under Management Fees.
Available Days. Available days are the total number of calendar days our vessels were in our possession during a period, less the total number of scheduled off-hire days during the period associated with major repairs, or dry-dockings.
Average Number of Vessels. Average number of vessels is the number of vessels that constituted our fleet for the relevant period, as measured by the sum of the number of days each vessel was a part of our fleet during the period divided by the number of calendar days in the period.
Fleet utilization. We calculate fleet utilization by dividing the number of our revenue earning days, which are the total number of Available Days of our vessels net of unscheduled off-hire days, during a period, by the number of our Available days during that period. The shipping industry uses fleet utilization to measure a companys efficiency in finding employment for its vessels and minimizing the amount of days that its vessels are off-hire for reasons such as unscheduled repairs but excluding scheduled off-hires for vessel upgrades, dry-dockings or special or intermediate surveys.
Vessel Operating Expenses. Vessel operating expenses include crew wages and related costs, the cost of insurance, expenses for repairs and maintenance, the cost of spares and consumable stores, lubricant costs, statutory and classification expenses, forwarding and communications expenses and other miscellaneous expenses. Vessel operating expenses also include all peripheral expenses incurred while vessels perform their classification special survey and dry-docking such as spare parts, port dues, tugs, service engineer attendance etc. Vessel operating expenses are paid by the ship-owner under time charters and are recognized when incurred.
Dry-docking. We must periodically drydock each of our vessels for inspection, repairs and maintenance and any modifications required to comply with industry certification or governmental requirements. In accordance with industry certification requirements, we drydock our vessels at least every 60 months until the vessel is 15 years old, after which dry-docking takes place at least every 30 months thereafter as required for the renewal of certifications required by classification societies. Special survey and dry-docking costs (mainly shipyard costs,
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paints and class renewal expense) are expensed as incurred. The number of dry-dockings undertaken in a given period and the nature of the work performed determine the level of dry-docking expenditures. We expense costs related to routine repairs and maintenance performed during dry-docking or as otherwise incurred. All three vessels in our fleet completed their scheduled special survey and dry-docking repairs in 2012.
Depreciation. We depreciate our LNG carriers on a straight-line basis over their remaining useful economic lives which we estimate to be 35 years from their initial delivery from the shipyard. Vessel residual value is estimated as 12% of the initial vessel cost and represents Managements best estimate of the current selling price assuming the vessels are already of age and condition expected at the end of its useful life. The assumptions made reflect our experience, market conditions and the current practice in the LNG industry; however they required more discretion since there is a lack of historical references in scrap prices of similar types of vessels.
Interest and Finance Costs We incur interest expense on outstanding indebtedness under our existing credit facilities which we include in interest and finance costs. Interest expense depends on our overall level of borrowings and may significantly increase when we acquire or refinance ships. During construction of a newbuilding vessel, interest expense incurred is capitalized in the cost of the newbuilding. Interest expense may also change with prevailing interest rates, although interest rate swaps or other derivative instruments may reduce the effect of these changes. We also incur financing and legal costs in connection with establishing credit facilities, which are deferred and amortized to interest and finance costs using the effective interest method. We will incur additional interest expense in the future on our outstanding borrowings and under future borrowings. For a description of our existing credit facilities see Our Borrowing Activities.
Vessels Lives and Impairment. Vessels are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group to be tested for possible impairment, we first compare the undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third party independent appraisals as considered necessary.
Insurance
Hull and Machinery Insurance. We have obtained hull and machinery insurance on all our vessels to insure against marine and war risks, which include the risks of damage to our vessels, salvage and towing costs, and also insures against actual or constructive total loss of any of our vessels. However, our insurance policies contain deductible amounts for which we will be responsible. We have also arranged additional total loss coverage for each vessel. This coverage, which is called hull interest and freight interest coverage, provides us additional coverage in the event of the total loss or the constructive total loss of a vessel. The agreed deductible on each vessel averages $500,000.
Loss of Hire Insurance. We have obtained loss of hire insurance to protect us against loss of income in the event one of our vessels cannot be employed due to damage that is covered under the terms of our hull and machinery insurance. Under our loss of hire policies, our insurer will pay us the hire rate agreed in respect of each vessel for each day, in excess of a certain number of deductible days, for the time that the vessel is out of service as a result of damage, for a maximum of 120 days. The number of deductible days for the vessels in our fleet is 14 days per vessel.
Protection and Indemnity Insurance. Protection and indemnity insurance, which covers our third-party legal liabilities in connection with our shipping activities, is provided by a mutual protection and indemnity association, or P&I club. This includes third-party liability and other expenses related to the injury or death of crew members, passengers and other third-party persons, loss or damage to cargo, claims arising from collisions
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with other vessels or from contact with jetties or wharves and other damage to other third-party property, including pollution arising from oil or other substances, and other related costs, including wreck removal. Our current protection and indemnity insurance coverage is unlimited, except for pollution, which is limited to $1 billion per vessel per incident.
Customers/Charterers
Historically, we have derived nearly all of our revenues from a wide range of charterers since as a result of our vessels initially trading on multi-year charters from delivery in 2007-2008 to 2012. For the six month periods ended June 30, 2013 and 2012, we received all our revenues from two and three charterers, respectively:
Charterer |
2013 | 2012 | ||||||
BG Group |
60 | % | 60 | % | ||||
Gazprom |
40 | % | 5 | % | ||||
Qatar Gas |
| % | 35 | % | ||||
100 | % | 100 | % |
Results of Operations
Six month period ended June 30, 2013 compared to the six months period ended June 30, 2012
During the six month periods ended June 30, 2013 and 2012, we had an average of three vessels in our fleet. In the six month period ended June 30, 2013, our fleet Available days totaled 543 days as compared to 530 days in the six month period ended June 30, 2012. The increase of 2.5% was primarily attributable to the fact that in the six month period ended June 30, 2013 we did not have any vessels undergoing scheduled dry-dock and special survey, as compared to the six month period ended June 30, 2012 where one of our vessels underwent her scheduled dry-dock and special survey. Operating days are the primary driver of voyage revenue and vessel operating expenses.
Revenues. The following table sets forth details of our time charter revenues for the six month periods ended June 30, 2013 and 2012:
Six months Ended
June 30, |
||||||||||||||||
2013 | 2012 | Change | % Change | |||||||||||||
(in thousands of
U.S. dollars) |
||||||||||||||||
Time charter revenues |
$ | 42,444 | $ | 37,105 | $ | 5,339 | 14.4 | % |
Total revenues increased by 14.4%, or $5.3 million, to $42.4 million during the six month period ended June 30, 2013, from $37.1 million during the six month period ended June 30, 2012. The increase in revenues was primarily attributable to an increase in time charter rates for two of our vessels. Specifically, for the six month period ended June 30, 2013 the Ob River was employed under its present time charter with Gazprom which commenced in September, 2012 at a higher rate than the previous time charter contract under which the Ob River was employed during the six month period ended June 30, 2012. The increase is also attributable to the fact that the Clean Energy commenced its present time charter contract with BG Group at a significantly higher charter rate than the previous time charter contract under which the Clean Energy was employed up to February 2012.
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Voyage Expenses. The following table sets forth details of our voyage expenses for the six month periods ended June 30, 2013 and 2012:
Six months Ended
June 30, |
|
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2013 | 2012 | Change | % Change | |||||||||||||
(in thousands of
U.S. dollars) |
||||||||||||||||
Commissions |
$ | 297 | $ | 486 | $ | (189 | ) | |||||||||
Bunkers |
| 819 | (819 | ) | ||||||||||||
Port Expenses |
43 | 132 | (89 | ) | ||||||||||||
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|
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Voyage Expenses |
$ | 340 | $ | 1,437 | $ | (1,097 | ) | (76.3 | )% | |||||||
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Voyage expenses decreased by 76,3%, or $1.1 million, to $0.3 million during the six month period ended June 30, 2013, from $1.4 million during the six month period ended June 30, 2012. The decrease was mainly attributable to the fact that during the six month period ended June 30, 2012 one of our vessels underwent mandatory special survey and dry-docking survey and as a result incurred $0.8 million in bunker expenses and $0.1 million in port expenses in connection with positioning the vessel to the shipyard compared to negligible bunker and port expenses in the same period in 2013. The decrease was also attributable to the decrease of $0.2 million in commissions paid to third party brokers in the six month period ended June 30, 2013
Voyage Expensesrelated party. The following table sets forth details of our voyage expenses paid to our Manager for commercial services. For the six month periods ended June 30, 2013 and 2012 pursuant to the respective effective management agreements under which Dynagas Ltd., our Manager, earned 1.25% commission on gross time charter income:
Six months Ended
June 30, |
||||||||||||||||
2013 | 2012 | Change | % Change | |||||||||||||
(in thousands of
U.S. dollars) |
||||||||||||||||
Voyage Expensesrelated party (commissions) |
492 | 491 | 1 | |
Commissions paid to our Manager remained substantially the same during the six month period ended June 30, 2013 compared to the six month period ended June 30, 2012.
Vessel Operating Expenses. The following table sets forth details of our vessel operating expenses for the six month periods ended June 30, 2013 and 2012:
Six months Ended
June 30, |
||||||||||||||||
2013 | 2012 | Change | % Change | |||||||||||||
(in thousands of
U.S. dollars) |
||||||||||||||||
Crew wages and related costs |
$ | 4,765 | $ | 4,445 | $ | 320 | ||||||||||
Insurance |
752 | 719 | 33 | |||||||||||||
Spares and consumable stores |
485 | 1,426 | (941 | ) | ||||||||||||
Repairs and maintenance |
136 | 493 | (357 | ) | ||||||||||||
Tonnage taxes |
35 | 18 | 17 | |||||||||||||
Other operating expenses |
59 | 275 | (216 | ) | ||||||||||||
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Total |
$ | 6,232 | $ | 7,376 | $ | (1,144 | ) | (15.5 | %) | |||||||
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Vessel operating expenses decreased by 15.5%, or $1.1 million, to $6.2 million during the six month period ended June 30, 2013. The decrease was primarily attributable to the decrease in spares and consumables stores and peripheral maintenance and repair expenses related to the dry-docking of one of our vessels in April 2012
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and purchases associated with the dry-docking of a second vessel in July 2012. Peripheral expenses for dry-docking include all expenses related to the dry-docking of the vessel (except for shipyard, paint and classification society survey cost) such as spare parts, service engineer attendances, stores and consumable stores which amounted approximately to $0.8 million. The decrease was mitigated by an increase in crew wages and related costs of $0.3 million to $4.8 million during the six month period ended June 30, 2013 as a result of continued inflationary crew costs and increased training expenses.
General and Administrative Expenses. The following table sets forth details of our general and administrative expenses for the six month periods ended June 30, 2013 and 2012:
Six months Ended
June 30, |
||||||||||||||||
2013 | 2012 | Change | % Change | |||||||||||||
(in thousands of
U.S. dollars) |
||||||||||||||||
General and administrative costs |
$ | 21 | $ | | $ | 21 | 100 | % |
Management Fees. The following table sets forth details of our management fees for the six month periods ended June 30, 2013 and 2012:
Six months Ended
June 30, |
||||||||||||||||
2013 | 2012 | Change | % Change | |||||||||||||
(in thousands of
U.S. dollars) |
||||||||||||||||
Management fees |
$ | 1,358 | $ | 1,328 | $ | 30 | 2.3 | % |
Management fees increased by 2.3%, or $0.03 million, to $1.4 million during the six month period ended June 30, 2013, from $1.3 million during the six month period ended June 30, 2013. The increase in 2013 is attributable to the increase in the daily management fees to $2,500 per day in accordance to the terms of the new management agreements effective January 1, 2013, as compared to management fees ranging from $2,340 to $2,433 per day in the six month period ended June 30, 2012.
Depreciation . The following table sets forth details of our depreciation expense for the six month periods ended June 30, 2013 and 2012:
Six months Ended
June 30, |
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2013 | 2012 | Change | % Change | |||||||||||||
(in thousands of
U.S. dollars) |
||||||||||||||||
Depreciation |
$ | 6,733 | $ | 6,771 | $ | (38 | ) | (0.6 | %) |
Depreciation expense remained substantially the same during six month period ended June 30, 2013 compared to the six month period ended June 30, 2012.
Dry-docking and Special Survey Costs. The following table sets forth details of our dry-docking and special survey expenses for the six month periods ended June 30, 2013 and 2012:
Six months Ended
June 30, |
||||||||||||||||
2013 | 2012 | Change | % Change | |||||||||||||
(in thousands of
U.S. dollars) |
||||||||||||||||
Dry-docking and Special Survey Costs |
$ | | $ | 719 | $ | (719 | ) | (100 | %) |
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Dry-docking and special survey costs are comprised of the repair cost paid to the yards, paints and class expenses and are expensed in the period incurred. Costs relating to routine repairs and maintenance are also expensed as incurred and are included in Vessel Operating Expenses. One of our vessels completed her scheduled dry-docking and special survey during the six month period ended June 30, 2012, as compared to the six month period ended 2013 where none of our vessels were required to perform their mandatory dry-dock or survey. The vessels undergo dry-dock or special survey approximately every five years during the first fifteen years of their life and every two and a half years within their following useful life.
We drydock our vessels when the next special survey becomes due. As we drydocked all our Initial Fleet in 2012 we expect the next scheduled dry-dockings to occur in 2017, 2017 and 2018 for the Clean Energy , Ob River and Clean Force respectively. We expect that our initial fleet will average 22 days on drydock per ship, at which time we perform class renewal surveys and make any necessary repairs or retrofittings.
Interest and Finance Costs. The following table sets forth details of our interest and finance costs for the six month periods ended June 30, 2013 and 2012:
Six months Ended
June 30, |
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2013 | 2012 | Change | % Change | |||||||||||||
(in thousands of
U.S. dollars) |
||||||||||||||||
Interest on long-term debt |
$ | 4,317 | $ | 3,734 | $ | 583 | ||||||||||
Amortization and write-off of financing fees |
268 | 298 | (30 | ) | ||||||||||||
Commitment fees |
| 372 | (372 | ) | ||||||||||||
Other |
6 | 48 | (42 | ) | ||||||||||||
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Total |
$ | 4,591 | $ | 4,452 | $ | 139 | 3.1 | % | ||||||||
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Interest and finance costs increased by 3.1%, or $0.1 million, to $4.6 million during the six month period ended June 30, 2013, from $4.5 million during the six month period ended June 30, 2012. Interest expense increased by $0.6 million to $4.3 million during the six month period ended June 30, 2013, from $3.7 million during the six month period ended June 30, 2012. The increase is mainly attributable to the higher average debt balance and interest margin costs during the six month period ended June 30, 2013 as compared to the six month period ended June 30, 2012 as a result of the refinancing of the Clean Energy and the Ob River during the six month period in 2012. The decrease in commitment fees of $0.4 million is attributable to the lower levels of undrawn amounts under our loan facilities during the six month period ended June 30, 2012.
During the six month period ended June 30, 2013, we had an average of $367.6 million of outstanding indebtedness with a weighted average interest rate of 2.3%, and during the six month period ended June 30, 2012, we had an average of $349.3 million of outstanding indebtedness with a weighted average interest rate of 2.1%.
Realized and Unrealized Loss on Derivative Financial Instruments. The following table sets forth details of our realized and unrealized loss on derivative instruments for the six month periods ended June 30, 2013 and 2012:
Six months Ended
June 30, |
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2013 | 2012 | Change | % Change | |||||||||||||
(in thousands of U.S.
dollars) |
||||||||||||||||
Realized and Unrealized Loss on Derivative Financial Instruments |
$ | $ | 138 | $ | (138 | ) | (100 | )% |
The loss on derivative financial instruments during the six month period ended June 30, 2012 was related to realized losses and unrealized gains on three interest rate swap contracts of $285.6 million notional amount which matured in March, June and July 2012.
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Year ended December 31, 2012 compared to the year ended December 31, 2011
During the years ended December 31, 2012 and 2011, we had an average of three vessels in our fleet. In the year ended December 31, 2012 our fleet Available days totaled 1,056 days as compared to 1,095 days in the twelve month period ended December 31, 2011, the decrease of 3.6% attributable to scheduled dry-docking repairs completed in 2012. Operating days are the primary driver of voyage revenue and vessel operating expenses.
Revenues. The following table sets forth details of our time charter revenues for the years ended December 31, 2011 and 2012:
Year Ended
December 31, |
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2012 | 2011 | Change | % Change | |||||||||||||
(in thousands of
U.S. dollars) |
||||||||||||||||
Time charter revenues |
$ | 77,498 | $ | 52,547 | $ | 24,951 | 47.5 | % |
Total revenues increased by 47.5%, or $25 million, to $77.5 million during the year ended December 31, 2012, from $52.5 million during the year ended December 31, 2011. The increase in revenues was primarily attributable to an increase in time charter rates for two of our vessels. The Clean Energy in 2011 was employed on a time charter contract entered into in 2010, which was at historically low levels and which ended in the first quarter of 2012. The Clean Energy was subsequently employed under its present time charter contract at a significantly higher time charter rate, effective as of February 2012. The increase in revenues was also attributable to the increase in the time charter rates attained by the Clean Power which was employed on a historically low time charter rate in the first quarter of 2011 and subsequently was employed at a higher rate until September 2012. In September 2012, the Clean Power was employed on its present time charter contract at a rate which is 15% higher than the charter rate under its previous charter.
Voyage Expenses. The following table sets forth details of our voyage expenses for the years ended December 31, 2012 and 2011:
Year Ended
December 31, |
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2012 | 2011 | Change | % Change | |||||||||||||
(in thousands of
U.S. dollars) |
||||||||||||||||
Commissions |
$ | 819 | $ | 446 | $ | 373 | ||||||||||
Bunkers |
1,361 | 117 | 1,244 | |||||||||||||
Port Expenses |
307 | 152 | 155 | |||||||||||||
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Voyage Expenses |
$ | 2,487 | $ | 715 | $ | 1,772 | 247.8 | % | ||||||||
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Voyage expenses increased by 247.8%, or $1.8 million, to $2.5 million during the year ended December 31, 2012 from $0.7 million during the year ended December 31, 2011. The increase was mainly attributable to the fact that during the year ended December 31, 2012 all of our three vessels underwent their mandatory special survey and dry-docking survey and as a result incurred $1.4 million in bunker expenses in connection with positioning the vessels to the shipyards compared to negligible bunker expense for 2011. The increase was also attributable to the increase of $0.4 million in commissions paid to third party brokers in the year ended December 31, 2012 as a result of the higher time charter revenues during 2012 and to port expenses payable during the vessels mandatory dry-docking and special survey.
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Voyage Expensesrelated party. The following table sets forth details of our voyage expenses paid to our Manager for commercial services. For the years ended December 31, 2012 and 2011 pursuant to the management agreements under which Dynagas Ltd. earned a 1.25% commission on gross time charter income:
Year Ended
December 31, |
||||||||||||||||
2012 | 2011 | Change | % Change | |||||||||||||
(in thousands of
U.S. dollars) |
||||||||||||||||
Voyage Expensesrelated party (commissions) |
$ | 981 | $ | 638 | $ | 343 | 53.8 | % |
Voyage expenses paid to our Manager increased by 53.8% or $0.3 million, to $1 million during the year ended December 31, 2012 from $0.6 million during the year ended December 31, 2011. The increase was attributable to the higher time charter revenues during 2012.
Vessels Operating Expenses. The following table sets forth details of our vessel operating expenses for the years ended December 31, 2012 and 2011:
Year Ended
December 31, |
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2012 | 2011 | Change | % Change | |||||||||||||
(in thousands of
U.S. dollars) |
||||||||||||||||
Crew wages and related costs |
9,755 | 8,040 | 1,715 | |||||||||||||
Insurance |
1,488 | 1,587 | (99 | ) | ||||||||||||
Spares and consumable stores |
2,561 | 1,102 | 1,459 | |||||||||||||
Repairs and maintenance |
1,340 | 356 | 984 | |||||||||||||
Tonnage taxes |
18 | 28 | (10 | ) | ||||||||||||
Other operating expenses |
560 | 237 | 323 | |||||||||||||
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Total |
$ | 15,722 | $ | 11,350 | $ | 4,372 | 38.5 | % | ||||||||
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|
Vessels operating expenses increased by 38.5%, or $4.4 million, to $15.7 million during the year ended December 31, 2012 from $11.4 million during the year ended December 31, 2011. The increase was primarily attributable to the increase in spares and consumables stores and peripheral maintenance and repair expenses related to the dry-docking of our three vessels in 2012. Peripheral expenses for dry-docking include all expenses related to the dry-docking of the vessel, except for shipyard, paint and classification society survey cost such as spare parts, service engineer attendances, stores and consumable stores which totaled to $1.7 million. The increase is also attributable to an increase in crew wages and related costs of $1.7 million to $9.8 million during the twelve month period ended December 31, 2012 from $8 million during the year ended December 31, 2011 as a result of continued inflationary crew costs and increased training expenses.
General and Administrative Expenses. The following table sets forth details of our general and administrative expenses for the years ended December 31, 2012 and 2011:
Year Ended
December 31, |
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2012 | 2011 | Change | % Change | |||||||||||||
(in thousands of
U.S. dollars) |
||||||||||||||||
General and administrative costs |
$ | 278 | $ | 54 | $ | 224 | 414.8 | % |
General and administrative expenses increased by 414.8%, or $0.2 million, to $0.3 million during the year ended December 31, 2012, from less than $0.1 million during the year ended December 31, 2011. The increase in the year ended December 31, 2012 is mainly attributable to the expenses incurred in connection with the preparations for the initial public offering, which were expensed as incurred.
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Management Fees. The following table sets forth details of our management fees for the years ended December 31, 2012 and 2011:
Year Ended
December 31, |
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2012 | 2011 | Change | % Change | |||||||||||||
(in thousands of
U.S. dollars) |
||||||||||||||||
Management fees |
$ | 2,638 | $ | 2,529 | $ | 109 | 4.3 | % |
Management fees increased by 4.3%, or $0.1 million, to $2.6 million during the year ended December 31, 2012, from $2.5 million during the year ended December 31, 2011. The increase in the year ended December 31, 2012 is attributable to the year-to-year increase in management fees payable to our Manager.
Depreciation . The following table sets forth details of our depreciation expense for the years ended December 31, 2012 and 2011:
Year Ended
December 31, |
||||||||||||||||
2012 | 2011 | Change | % Change | |||||||||||||
(in thousands of U.S.
dollars) |
||||||||||||||||
Depreciation |
$ | 13,616 | $ | 13,579 | $ | 37 | 0.3 | % |
Depreciation expense remained substantially the same during the year ended December 31, 2012 compared to the year ended December 31, 2011.
Dry-docking and Special survey costs. The following table sets forth details of our dry-docking and special survey expenses for the years ended December 31, 2012 and 2011:
Year Ended
December 31, |
||||||||||||||||
2012 | 2011 | Change | % Change | |||||||||||||
(in thousands of
U.S. dollars) |
||||||||||||||||
Dry-docking and Special Survey Costs |
$ | 2,109 | $ | | $ | 2,109 | 100 | % |
Dry-docking and special survey costs comprised of the repair cost paid to the yards, paints and class expenses and are expensed in the period incurred. Costs relating to routine repairs and maintenance are also expensed as incurred and are included in Vessel Operating Expenses. All our vessels completed their scheduled dry-docking and special surveys during the year ended December 31, 2012. The vessels undergo dry-dock or special survey approximately every five years during the first fifteen years of their life and every two and a half years within their following useful life.
We drydock our vessels when the next special survey becomes due. As we dry-docked all our Initial Fleet in 2012, we expect the next scheduled dry-dockings to occur in 2017, 2017 and 2018 for the Clean Energy , Ob River and Clean Force respectively. We expect that our Initial Fleet will average 22 days on drydock per ship, at which time we perform class renewal surveys and make any necessary repairs or retrofittings.
Interest Income. Interest income for the year ended December 31, 2012 of $0.001 million was substantially similar to interest income of $0.004 million for the year ended December 31, 2011.
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Interest and Finance Costs. The following table sets forth details of our interest and finance costs for the years ended December 31, 2012 and 2011:
Year Ended
December 31, |
||||||||||||||||
2012 | 2011 | Change | % Change | |||||||||||||
(in thousands of
U.S. dollars) |
||||||||||||||||
Interest on long-term debt |
8,551 | 3,794 | 4,757 | |||||||||||||
Amortization and write-off of financing fees |
590 | 100 | 490 | |||||||||||||
Commitment fees |
372 | 54 | 318 | |||||||||||||
Other |
63 | 29 | 34 | |||||||||||||
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|
|
|
|
|
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Total |
$ | 9,576 | $ | 3,977 | $ | 5,599 | 140.8 | % | ||||||||
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Interest and finance costs increased by 140.8%, or $5.6 million, to $9.6 million during the year ended December 31, 2012, from $4 million during the year ended December 31, 2011. Interest expense increased by $4.8 million to $8.6 million during the year ended December 31, 2012, from $3.8 million during the year ended December 31, 2011. The increase is mainly attributable to the higher average debt balance and interest margin costs during the year ended December 31, 2012 as compared to the year ended December 31, 2011 as a result of the refinancing of the Clean Energy and Ob River in 2012. The increase in amortization and write-off of financing fees of $0.5 million was attributable to financing fees incurred in connection with the refinancing of Clean Energy and Ob River in 2012 and the increase in commitment fees of $0.3 million attributable to our refinancing activities during the year ended December 31, 2012.
During the year ended December 31, 2012, we had an average of $369.2 million of outstanding indebtedness with a weighted average interest rate of 2.3%, and during the year ended December 31, 2011, we had an average of $295.6 million of outstanding indebtedness with a weighted average interest rate of 1.3%.
Realized and Unrealized Loss on Derivative Financial Instruments. The following table sets forth details of our realized and unrealized loss on derivative instruments for the years ended December 31, 2012 and 2011:
Year Ended
December 31, |
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2012 | 2011 | Change | % Change | |||||||||||||
(in thousands of
U.S. dollars) |
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Realized and Unrealized Loss on Derivative Financial Instruments |
$ | 196 | $ | 824 | $ | (628 | ) | (76.2 | )% |
The loss on derivative financial instruments during the years ended December 31, 2012 and December 31, 2011, respectively, was primarily related to realized and unrealized losses on three interest rate swap contracts of $285.6 million notional amount due to declining long-term interest rates. These three interest rate swap agreements matured in March, July and June 2012, resulting in a decrease of $0.6 million in the loss from derivative financial instruments to $0.2 million during the year ended December 31, 2012, as compared to $0.8 million during the year ended December 31, 2011.
Other. Other Income decreased to $0.06 million during the year ended December 31, 2012, from $0.07 million during the year ended December 31, 2011.
Liquidity and Capital Resources
Liquidity and Cash Needs
We operate in a capital-intensive industry and through our Sponsor have historically financed the purchase of LNG carriers through a combination of equity capital, operating cash flows, borrowings from commercial banks and shareholder loans. Our liquidity requirements relate to servicing our debt and funding capital
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expenditures and working capital. The majority of our revenues are generated from chartering our vessels and we receive charter payments monthly in advance. The majority of our operating costs are paid on a monthly basis. We frequently monitor our capital needs by projecting our upcoming income, expenses and debt obligations, and seek to maintain adequate cash reserves to compensate for any budget overruns. Our short-term liquidity requirements relate to funding working capital, including vessel operating expenses and payments under our management agreements. Our long-term liquidity requirements relate to funding capital expenditures, including the acquisition of additional vessels and the repayment of our long-term debt.
We expect to finance the purchase of additional vessels and other capital expenditures through a combination of borrowings from commercial banks, cash generated from operations and debt and equity financings. In addition to paying distributions to our unitholders, our other liquidity requirements relate to servicing our debt, funding investments (including the equity portion of investments in vessels), funding working capital and maintaining cash reserves against fluctuations in operating cash flows. Because we will distribute all of our available cash, we expect that we will rely upon external financing sources, including bank borrowings and the issuance of debt and equity securities, to fund acquisitions and other expansion capital expenditures.
Our principal uses of funds have been capital expenditures to establish and grow our fleet, comply with international shipping standards, environmental laws and regulations and fund working capital requirements. In monitoring our working capital needs, we project our charter hire income and vessel maintenance and running expenses, as well as debt service obligations, and seek to maintain adequate cash reserves in order to address any budget overruns. Our funding and treasury activities are intended to maximize investment returns while maintaining appropriate liquidity. Cash and cash equivalents are held primarily in U.S. dollars. We have not made use of derivative instruments other than for interest rate risk management purposes.
As of June 30, 2013, we had restricted cash of $2.8 million which decreased by $4 million, or 58.8%, compared to $6.8 million, as of December 31, 2012.
As of June 30, 2013 and December 31, 2012, we had an aggregate of $359 million and 380.7 million, respectively of indebtedness outstanding under various credit agreements, and no unused line of credit or available facility. In January 2012, we refinanced our secured loan facility of the Clean Energy for an amount of $150 million. In February 2012 we entered into an agreement with the same bank to refinance the outstanding balance on our secured loan facility on the Ob River obtained in 2007. As a result, we drew down an additional principal amount of $70.0 million in April 2012 for general partnership purposes. As of September 30, 2013, we had an aggregate of $348.2 million of indebtedness outstanding under our three credit agreements, of which $43.3 million is repayable within one year. See Our Borrowing Activities. In connection with this offering, we expect to amend our existing vessel financing agreements.
As of June 30, 2013 and December 31, 2012, we were in breach of the minimum liquidity requirement relating to our $193 Million Ob River Credit Facility, which requires us to maintain minimum liquidity of $30 million. As of June 30, 2013 and December 31, 2012, we had $2.8 million and $6.8 million in restricted cash, respectively. We are currently in compliance with the remaining financial and liquidity covenants in our loan agreements. In addition, we were not in compliance with certain restrictive covenants relating to our loan agreements, which are described under the heading Our Borrowing ActivitiesViolation of Financial Covenants Under Certain of our Credit Facilities.
A violation of any of the financial covenants contained in our credit facilities described above constitutes an event of default under our credit facilities, which, unless cured under the applicable credit facility, if applicable, or waived or modified by our lenders, provides our lenders with the right to, among other things, require us to post additional collateral, enhance our equity and liquidity, increase our interest payments, pay down our indebtedness to a level where we are in compliance with our loan covenants, sell vessels in our fleet, reclassify our indebtedness as current liabilities and accelerate our indebtedness and foreclose their liens on our vessels and the other assets securing the credit facilities, which would impair our ability to continue to conduct our business. In the case of an event of default, we are prohibited from paying distribution under our credit facilities.
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On July 19, 2013, one of our lenders declared an event of default under one of our credit facilities. As of September 30, 2013, we have not requested or obtained waivers from our lenders for non-compliance with these covenants. We believe, however, that our lenders will not demand payment of the loans before their maturity, provided that we pay scheduled loan installments and interest as they fall due under the existing credit facilities.
We are in advanced discussions with one of our lenders, an affiliate of Credit Suisse, to enter into the Proposed Senior Secured Revolving Credit Facility at or prior to the closing of this offering to permit, among other things, distributions to our unitholders and the other transactions contemplated herein. A portion of the proceeds of the Proposed Senior Secured Revolving Credit Facility, together with the net proceeds of this offering, will be used to repay all of our existing outstanding indebtedness effective upon the closing of this offering. The expected material terms of this new credit facility are set forth under the heading Liquidity and Capital ResourcesOur Borrowing ActivitiesProposed Senior Secured Revolving Credit Facility.
We estimate that we will spend in total approximately $5.0 million for dry-docking and classification surveys for the vessels in our fleet in during the five-year period following this offering. We expect the next scheduled dry-dockings to occur in 2017 and 2018. As our fleet matures and expands, our dry-docking expenses will likely increase. We also anticipate costs for compliance with environmental regulations such as compliance with low sulfur regulations and installation of ballast water treatment plants on our vessels. We anticipate that we will spend approximately $10 million to comply with low sulphur regulations and install ballast water treatment plants during the five year period following this offering.
Working capital is equal to current assets minus current liabilities, including the current portion of long-term debt. Our working capital deficit was $363 million as of June 30, 2013, compared to a working capital deficit of $389.5 million as of December 31, 2012. The deficit decrease is mainly due to the repayment of scheduled loan installments. Absent the classification of the Companys outstanding long term and the related classification of deferred finance fees and restricted cash under current assets, for both periods, our working capital would result in a deficit of $51.6 million and $60.6 million, as of June 30, 2013 and December 31, 2012, respectively.
Based on our fixed-rate charters, we believe we will generate sufficient cash from operations to make the required principal and interest payment on our indebtedness, provide for the normal working capital requirements and remain in a positive cash position in the year ended June 30, 2014.
Estimated Maintenance and Replacement Capital Expenditures
Our Partnership Agreement requires our board of directors to deduct from operating surplus each quarter estimated maintenance and replacement capital expenditures, as opposed to actual maintenance and replacement capital expenditures in order to reduce disparities in operating surplus caused by fluctuating maintenance and replacement capital expenditures, such as dry-docking and vessel replacement. Because of the substantial capital expenditures we are required to make to maintain our fleet, our initial annual estimated maintenance and replacement capital expenditures for purposes of estimating maintenance and replacement capital expenditures will be $9.5 million per year, which is composed of $2.0 million for dry-docking and $7.5 million, including financing costs, for replacing our vessels at the end of their useful lives. The $7.5 million for future vessel replacement is based on assumptions and estimates regarding the remaining useful lives of our vessels, a long-term net investment rate equivalent to our current expected long-term borrowing costs, vessel replacement values based on current market conditions and residual value of the vessels at the end of their useful lives based on current steel prices. The actual cost of replacing the vessels in our fleet will depend on a number of factors, including prevailing market conditions, hire rates and the availability and cost of financing at the time of replacement. Our board of directors, with the approval of the conflicts committee, may determine that one or more of our assumptions should be revised, which could cause our board of directors to increase the amount of estimated maintenance and replacement capital expenditures. We may elect to finance some or all of our maintenance and replacement capital expenditures through the issuance of additional common units which could be dilutive to existing unitholders.
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Cash Flows
The following table summarizes our net cash flows from operating, investing and financing activities and our cash and cash equivalents for the periods presented:
Six month Ended
June 30, |
||||||||
2013 | 2012 | |||||||
(in thousands of
U.S. dollars) |
||||||||
Net cash provided by (used in) operating activities |
$ | 17,728 | $ | 2,988 | ||||
Net cash provided by (used in) investing activities |
| | ||||||
Net cash provided by (used in) financing activities |
(17,728 | ) | (2,988 | ) | ||||
Cash and cash equivalents at beginning of year |
| | ||||||
Cash and cash equivalents at end of year |
| |
Net Cash Provided by (Used In) Operating Activities. Net cash flows provided by operating activities increased by $14.7 million, or 493%, to $17.7 million for the six months ended June 30, 2013, compared to $3.0 million for the same period in 2012. The increase was primarily attributable to the increase in cash generated from charter revenues and the decrease of payments made to our Manager in the six months ended June 30, 2012.
Net Cash Provided by (Used in) Financing Activities. Net cash used in financing activities was $17.7 million for the six month period ended June 30, 2013, consisting of debt repayment of $21.7 million which were partially offset by a decrease of $3.9 million in restricted cash.
Net cash used in financing activities was $3.0 million for the six month period ended June 30, 2012, consisting mainly of debt repayment of $106.7 million, loan proceeds of $220.0 million, the repayment of $116.6 million in outstanding principal in connection with the unsecured loan given to us by Prokopiou Family in previous years, payment of $2.0 million in financing costs and an increase of $2.3 million in restricted cash.
Our Borrowing Activities
Loan Agreements | Amounts Outstanding as of | |||||||
(In millions of U.S. dollars) | June 30, 2013 | December 31, 2012 | ||||||
$128 Million Clean Force Credit Facility |
$ | 83,375 | $ | 87,625 | ||||
$129.75 Million Clean Energy Credit Facility |
| $ | | |||||
$150 Million Clean Energy Credit Facility |
$ | 132,500 | 139,500 | |||||
$193 Million Ob River Credit Facility |
$ | 143,170 | $ | 153,590 | ||||
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Total interest bearing debt |
$ | 359,045 | $ | 380,715 | ||||
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Loan Agreements
$140 Million Shareholder Loan
On February 9, 2004, we entered into a $140 million unsecured credit facility with a corporation owned by members of the Prokopiou Family. We used the proceeds from this facility to partially finance the construction costs of the vessels in our Initial Fleet and for working capital to fund general corporate purposes. This facility bore no interest, and was fully repaid in April 2012.
$30 Million Revolving Credit Facility
In connection with the closing of this offering, our Sponsor will provide us with a $30.0 million revolving credit to be used for general partnership purposes, including working capital. This revolving credit facility will
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have a term of five years and will bear interest at LIBOR plus a margin. We do not intend to draw down any amount under this facility at or prior to the closing of this offering.
$128 Million Clean Force Credit Facility
On May 9, 2006 we entered into a $128 million secured credit facility with The Royal Bank of Scotland NV (ex ABN Amro Bank NV), to partly finance the acquisition of the Clean Force . This facility bears interest at LIBOR plus a margin and is repayable in 48 consecutive quarterly installments of $2.1 million each over 12 years plus a balloon payment of $26 million due at maturity. This facility is secured by, among other things, a first priority mortgage over the Clean Force . As of September 30, 2013 and June 30, 2013, the outstanding balance of this facility was $81.3 million and $83.4 million, respectively, and we had no undrawn available credit.
$129.75 Million Clean Energy Credit Facility
On May 9, 2005 we entered into a $129.75 million secured credit facility with The Royal Bank of Scotland plc. to partly finance the acquisition of the Clean Energy . This facility bears interest at LIBOR plus a margin. This facility was repayable in 40 consecutive quarterly installments of $1.8 million each, plus a balloon payment of $57.8 million due at maturity in 2017. As of December 31, 2011, the outstanding balance of this facility was $95.6 million, which was subsequently repaid and refinanced in full on March 2012 upon our entrance into the $150 Million Clean Energy Credit Facility.
$150 Million Clean Energy Credit Facility
On January 30, 2012, we entered into a secured loan facility for up to $150 million with Credit Suisse to refinance our $129.75 Million Clean Energy Credit Facility. This facility bears interest at LIBOR plus a margin, and is repayable in 20 consecutive quarterly installments of $3.5 million each, plus a balloon payment of $80 million due at maturity in March 2017. This facility is secured by, among other things, a first priority mortgage over the Clean Energy and a 2005-built panamax tanker which is beneficially owned by members of the Prokopiou Family. As of September 30, 2013, and June 30, 2013, the outstanding balance of this facility was $129.0 million and $132.5 million, respectively, and we had no undrawn available credit.
$193 Million Ob River Credit Facility
On October 20, 2005 we entered into a ten-year $123 million credit facility with The Royal Bank of Scotland plc to partly finance the acquisition of the Ob River (formerly, the Clean Power ), which we refer to as the First Ob River Credit Facility. On February 29, 2012, we amended and restated the First Ob River Credit Facility to refinance our indebtedness under the loan by increasing the amount available to $193 million. This facility bears interest at LIBOR plus a margin and is repayable in two tranches. Under the first tranche, $92.2 million of existing debt is repayable in 22 quarterly installments of $1.7 million each over 5.5 years, with a balloon payment of $54.6 million due in July 2017. Under the second tranche, $70.0 million of new indebtedness is repayable in 20 quarterly installments of $3.5 million each, beginning October 2012. This facility is secured by, among other things, a first priority mortgage over the Ob River . As of September 30, 2013, and June 30, 2013, the outstanding balance of this facility was $138.0 million and $143.2 million, respectively, and we had no undrawn available credit.
Covenants
Our credit facilities are generally secured by:
|
first priority mortgages on our vessels and certain tanker vessels beneficially owned by the Prokopiou Family; |
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guarantees by Dynagas Ltd.; |
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assignments of the earnings, insurances and requisition compensation of our vessels; |
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pledges of the operating accounts of our vessels; and |
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assignments of rights and interests in charterparty agreements. |
Our credit facilities generally contain financial covenants which require us, among other things, to:
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maintain minimum liquidity of $30 million; |
|
maintain an asset coverage ratio of between 125% and 130%, depending on the credit facility, and to provide additional security, deposit additional cash as collateral or partially prepay the loan if the market value of the applicable mortgaged vessel falls below the amounts required to meet these percentages; and |
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deposit $15 million as collateral into a reserve account at any time the Clean Force is not operating under an approved charter. |
Our credit facilities also contain restrictive covenants which may limit, among other things, our, and our subsidiaries ability to:
|
pay dividends to unitholders or shareholders, as applicable; |
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incur additional indebtedness, create liens or issue guarantees; |
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charter our vessels or change the terms of our existing charter agreements; |
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sell, transfer or lease our assets or vessels or the shares of our vessel-owning subsidiaries; |
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make investments and capital expenditures; |
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reduce our share capital; and |
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undergo a change in ownership or Manager. |
A failure to comply with the covenants in our loan agreements could result in a default under those agreements and under other debt agreements containing cross-defaults provisions.
Proposed Senior Secured Revolving Credit Facility
On October 8, 2013, we entered into a non-binding term sheet in connection with the Proposed Senior Secured Revolving Credit Facility with one of our lenders that is an underwriter in this offering. A portion of proceeds of this credit facility, together with the net proceeds of this offering, will be used to repay all of our existing outstanding indebtedness, including the $128 Million Clean Force Credit Facility, $150 Million Clean Energy Credit Facility and $193 Million Ob River Credit Facility, effective as of the closing of this offering. The proposed credit facility will be secured by, among other things, a first priority or preferred cross-collateralized mortgage on each of the Clean Force , Clean Energy and Ob River . The loan is expected to bear interest at LIBOR plus a margin. We may draw down this facility no more than four times each year, and only so long as the asset coverage ratio, which is the ratio of our outstanding indebtedness under the facility to the aggregate market value of our vessels, is 130%. The available amount to be drawn under the facility will be reduced each quarter for 14 consecutive quarters by $5 million for the first 13 quarters and by approximately $197 million for the fourteenth quarter.
Certain of the expected financial and other covenants would require us to:
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maintain total consolidated liabilities of less than 65% of the total consolidated market value of our adjusted total assets; |
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maintain an interest coverage ratio of at least 3.0 times; and |
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maintain minimum liquidity equal to at least $22 million. |
Additionally, the terms of the Proposed Senior Secured Revolving Credit Facility are expected to require that the Prokopiou Family owns or controls at least 30% of our share capital and voting rights and that our
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Manager continue to carry out our commercial and technical management. Proposed Senior Secured Credit Facility would also restrict us from paying distributions if an event of default occurs.
Violation of Financial Covenants Under Certain of our Credit Facilities
We were not in compliance with the following restrictive and financial covenants in our loan facilities as of June 30, 2013 and December 31, 2012.
$128 Million Clean Force Credit Facility
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Restriction on the Provision of Guarantees . We are restricted from issuing any guarantees for the obligations of any person without the prior written consent of our lender. In September 2012, without obtaining the required lender consent, we, through certain of our subsidiaries, provided guarantees on two loans of our Sponsor, with outstanding borrowings of an aggregate of up to $627 million, which are secured by four of the Optional Vessels, the Yenisei River , the Lena River , the Clean Ocean and the Clean Planet . |
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Restriction on Repayment of Shareholder Loans . We are restricted from repaying any shareholder loans without the prior written consent of our lender. In April 2012, without obtaining the necessary lender consent, we repaid in full the then outstanding balance of our $140 Million Shareholder Loan using a portion of the proceeds we received from refinancing the Clean Energy and the Ob River , which resulted in a breach of this covenant as of December 31, 2012. |
$150 Million Clean Energy Credit Facility
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Restriction on the Provision of Guarantees . We are restricted from issuing any guarantees for the obligations of any person without the prior written consent of our lender. In September 2012, without obtaining the required lender consent, we, through certain of our subsidiaries, provided guarantees on two loans of our Sponsor, with outstanding borrowings of an aggregate of up to $627 million, which are secured by four of the Optional Vessels, the Yenisei River , the Lena River , the Clean Ocean and the Clean Planet . |
$193 Million Ob River Credit Facility
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Minimum Liquidity . We are required to maintain minimum liquidity of $30 million. As of June 30, 2013 and December 31, 2012, we had $2.8 million and $6.8 million in restricted cash, respectively. |
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Restriction on Repayment of Shareholder Loans . We are restricted from repaying any shareholder loans without the prior written consent of our lender. In April 2012, without obtaining the necessary lender consent, we repaid in full the then outstanding balance of our $140 Million Shareholder Loan using a portion of the proceeds we received from refinancing the Clean Energy and the Ob River , which resulted in a breach of this covenant as of December 31, 2012. |
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Restriction on the Provision of Guarantees . We are restricted from issuing any guarantees for the obligations of any person without the prior written consent of our lender. In September 2012, without obtaining the necessary lender consent, we, through certain of our subsidiaries, provided guarantees on two loans of our Sponsor, with outstanding borrowings of an aggregate of up to $627 million, which are secured by four of the Optional Vessels, the Yenisei River , the Lena River , the Clean Ocean and the Clean Planet . |
In addition, one of our credit facilities contains a cross-default provision that may be triggered by a default under one of our other credit facilities. A cross-default provision means that a default on one loan would result in a default on certain other loans. A violation of any of the covenants described above may constitute an event of
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default under our credit facilities, which, unless waived or modified by our lenders or cured, provides our lenders with the right to, among other things, require us to post additional collateral, enhance our equity and liquidity, increase our interest payments, pay down our indebtedness to a level where we are in compliance with our loan covenants, sell vessels in our fleet, reclassify our indebtedness under current liabilities and accelerate our indebtedness and foreclose their liens on our vessels and other assets securing the credit facilities, which would impair our ability to continue to conduct our business. In addition, if our secured indebtedness is accelerated in full or in part, it would be very difficult in the current financing environment for us to refinance our debt or obtain additional financing.
As a result of the non-compliance described above, as of June 30, 2013 and December 31, 2012, all of our outstanding debt was classified as a current liability. On July 19, 2013, one of our lenders declared an event of default under one of our credit facilities. As of September 30, 2013, we have not requested or obtained waivers from our lenders for non-compliance with these covenants. We believe, however, that our lenders will not demand payment of the loans before their maturity, provided that we pay scheduled loan installments and interest as they fall due under the existing credit facilities.
In addition, under the terms of our credit facilities, we may be prohibited from making cash distributions to our unitholders. See Our Cash Distribution Policy and Restrictions on Distributions.
We are in advanced discussions with one of our lenders to enter into the Proposed Senior Secured Revolving Credit Facility, at or prior to the closing of this offering to permit, among other things, distributions to our unitholders and the other transactions contemplated herein. A portion of proceeds of the Proposed Senior Secured Revolving Credit Facility, together with a portion of the net proceeds of this offering, will be used to repay all of our existing outstanding indebtedness effective upon the closing of this offering. The expected material terms of this new credit facility are set forth above under Proposed Senior Secured Revolving Credit Facility.
Our Sponsors Credit Agreements
We have guaranteed two credit agreements of our Sponsor, with outstanding borrowings of an aggregate of up to $627 million, which are secured by four of the Optional Vessels, the Yenisei River , the Lena River , the Clean Ocean and the Clean Planet . The guarantees have been provided through certain of our subsidiaries, including the subsidiaries that own the vessels comprising our Initial Fleet. Our Sponsor is in discussions with its lenders to amend these two credit agreements at or prior to the closing of this offering to, among other things, release us from our obligations as guarantor effective upon the closing of this offering.
The consummation of this offering is contingent upon our entry into the Proposed Senior Secured Revolving Credit Facility and the release of the guarantees described above.
Off-balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
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Contractual Obligations
The following table sets forth our contractual obligations and their maturity dates as of June 30, 2013:
Payments due by period | ||||||||||||||||||||
Obligations |
Total |
Less than
1 year |
1-3 years | 3-5 years |
More than
5 years |
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(in thousands of Dollars) | ||||||||||||||||||||
Long Term Debt(1) |
$ | 359,045 | $ | 21,670 | $ | 86,680 | $ | 205,570 | $ | 45,125 | ||||||||||
Interest on long term debt(2) |
26,488 | 4,144 | 14,077 | 7,346 | 921 | |||||||||||||||
Management Fees & commissions payable to the Manager(3) |
27,041 | 1,899 | 7,868 | 7,456 | 9,818 | |||||||||||||||
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Total |
$ | 412,574 | $ | 27,713 | $ | 108,625 | $ | 220,372 | $ | 55,864 | ||||||||||
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(1) | As further discussed in Note 7 to our consolidated financial statements, the outstanding balance of our long-term debt at June 30, 2013, was $359 million. The loans bear interest at LIBOR plus margin. The contractual obligations table above sets forth our loan repayment obligations as required under our loan facilities as of June 30, 2012 per the amended terms of loan agreement payments due by period, without taking into consideration the classification of outstanding debt under current liabilities following the non compliances discussed in Note 3 and Note 7 of the accompanying audited consolidated financial statements. |
(2) | Our long-term debt outstanding as of June 30, 2013 bears variable interest at a margin ranging from over LIBOR. The calculation of interest payments has been made assuming interest rates based on the 3-month LIBOR as of December 31, 2012 and our various applicable margin rates ranging from 0.95% to 2.65%. |
(3) | On December 21, 2012, we entered into new management agreements with the Manager effective from January 1, 2013 with an eight year term pursuant to which we agreed to pay a management fee of $2,500 per day with an annual increase of 3%, subject to further annual increases to reflect material unforeseen costs increases of providing the management services, by an amount to be agreed between us and our Manager, which amount will be reviewed and approved by the conflicts committee. The Management Agreements also provide for commissions of 1.25% of charter-hire revenues arranged by the Manager. The agreements will terminate automatically after a change of control of the applicable shipping subsidiary and/or of the owners ultimate parent, in which case an amount equal to fees of at the least 36 months and not more than 60 months, will become payable to the Manager. |
Capital Commitments
Possible Acquisitions of Other Vessels
Although we do not currently have in place any agreements relating to acquisitions of other vessels (other than our right to purchase each Optional Vessel upon entering into the Omnibus Agreement in connection with this offering), we assess potential acquisition opportunities on a regular basis.
Pursuant to the Omnibus Agreement that we intend to enter into with our Sponsor and our General Partner, we will also have the right, but not the obligation, to purchase any LNG carriers acquired or placed under contracts with an initial term of four or more years after the closing date of this offering, for so long as the Omnibus Agreement is in full force and effect. Subject to the terms of our loan agreements, we could elect to fund any future acquisitions with equity or debt or cash on hand or a combination of these forms of consideration. Any debt incurred for this purpose could make us more leveraged and subject us to additional operational or financial covenants.
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Quantitative and Qualitative Disclosures About Market Risk
We are exposed to various market risks, including foreign currency fluctuations, changes in interest rates and credit risk. Our policy is to hedge our exposure to these risks where possible, within boundaries deemed appropriate by management. We accomplish this by entering into appropriate derivative instruments and contracts to maintain the desired level of risk exposure.
Our activities expose us primarily to the financial risks of changes in foreign currency exchange rates and interest rates as described below.
Interest Rate Risk
The international shipping industry is capital intensive, requiring significant amounts of investment provided in the form of long-term debt. Our debt usually contains floating interest rates that fluctuate with changes in the financial markets and in particular changes in LIBOR. Increasing interest rates could increase our interest expense and adversely impact our future earnings. In the past we have managed this risk by entering into interest rate swap agreements in which we exchanged fixed and variable interest rates based on agreed upon notional amounts. We have used such derivative financial instruments as risk management tools and not for speculative or trading purposes. In addition, the counterparties to our derivative financial instruments have been major financial institutions, which helped us to manage our exposure to nonperformance of our counterparties under our debt agreements. We expect our sensitivity to interest rate changes to increase in the future since all of our interest rate swaps matured during 2012. As of June 30, 2013, our net effective exposure to floating interest rate fluctuations on our outstanding debt was $359 million since there was no interest rate swap effective as of that date.
Our interest expense is affected by changes in the general level of interest rates, particularly LIBOR. As an indication of the extent of our sensitivity to interest rate changes, an increase in LIBOR of 1% would have decreased our net income and cash flows during the six months ended June 30, 2013 by approximately $1.85 million based upon our debt level during 2013. We expect our sensitivity to interest rate changes to increase in the future if we enter into additional debt agreements in connection with our potential acquisition of the Optional Vessels.
Inflation and Cost Increases
Although inflation has had a moderate impact on operating expenses, interest costs, dry-docking expenses and overhead, we do not expect inflation to have a significant impact on direct costs in the current and foreseeable economic environment other than potentially in relation to insurance costs and crew costs. It is anticipated that insurance costs, which have increased over the last three years, will continue to rise over the next few years and rates may exceed the general level of inflation. LNG transportation is a specialized area and the number of vessels has increased rapidly. Therefore, there has been an increased demand for qualified crews, which has, and may continue to, put inflationary pressure on crew costs.
Foreign Currency Exchange Risk
We generate all of our revenue in U.S. dollars, and the majority of our expenses are denominated in U.S. dollars. However, a portion of our ship operating, voyage and the majority of our dry-docking related expenses, primarily ship repairs and spares, consumable stores, port expenses and the majority of our administrative expenses, are denominated in currencies other than the U.S. dollar. For the six month period ended June 30, 2013, we incurred approximately 15.4% of our operating expenses and the majority of our management expenses in currencies other than the U.S. dollar as compared to 17% for the six month period ended June 30, 2012. For accounting purposes, expenses incurred in currencies other than the U.S. dollar are converted into U.S. dollars at the exchange rate prevailing on the date of each transaction. Because a significant portion of our expenses are incurred in currencies other than the U.S. dollar, our expenses may from time to time increase
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relative to our revenues as a result of fluctuations in exchange rates, which could affect the amount of net income that we report in future periods. As of June 30, 2013 and 2012, the net effect of a 1% adverse movement in U.S. dollar exchange rates would not have a material effect on our net income.
We do not currently hedge movements in currency exchange rates, but our management monitors exchange rate fluctuations on a continuous basis. We may seek to hedge this currency fluctuation risk in the future.
Concentration of Credit Risk
The market for our services is the seaborne transportation of LNG, and the charterers consist primarily of major gas companies, oil and gas traders and independent and government-owned gas producers. For the six month periods ended June 30, 2013 and 2012, two and three charterers, respectively, accounted for substantially all of our revenues.
Charterer |
2013 | 2012 | ||||||
BG Group |
60 | % | 60 | % | ||||
Gazprom |
40 | % | 5 | % | ||||
Qatar Gas |
| 35 | % | |||||
100 | % | 100 | % |
Ongoing credit evaluations of our charterers are performed and we generally do not require collateral in our business agreements. Typically, under our time charters, the customer pays for the months charter the first day of each month, which reduces our level of credit risk. Provisions for potential credit losses are maintained when necessary.
We have bank deposits that expose us to credit risk arising from possible default by the counterparty. We manage the risk by using credit-worthy financial institutions.
Critical Accounting Policies and estimates
The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. We are an emerging growth company, as defined in the JOBS Act. We have elected to take advantage of the reduced reporting obligations, including the extended transition period for complying with new or revised accounting standards under Section 102 of the JOBS Act, and as such, the information that we provide to our unitholders may be different from information provided by other public companies and our financial statements may not be comparable to companies that comply with public company effective dates. The preparation of those financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosure at the date of our financial statements. Actual results may differ from these estimates under different assumptions and conditions.
Critical accounting policies are those that reflect significant judgments of uncertainties and potentially result in materially different results under different assumptions and conditions. There have been no material changes in the six month period ended June 30, 2013 from Critical Accounting Policies disclosed in the notes to our audited consolidated financial statements for the year ended December 31, 2012 included in this prospectus.
Time Charter Revenues
We recognize revenues from time charters over the term of the charter as the applicable vessel operates under the charter. Under time charters, revenue is not recognized during days a vessel is off-hire. Revenue is recognized from delivery of the vessel to the charterer, until the end of the time charter period. Under time charters, we are responsible for providing the crewing and other services related to vessels operations, the cost of which is included in the daily hire rate, except when off-hire. Revenues are affected by hire-rates and the number of days a vessel operates.
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Our time charter revenues are driven primarily by the number of vessels in our fleet, the amount of daily charter hire that our vessels earn under time charters and the number of operating days during which our vessels generate revenues. These factors are, in turn, affected by our decisions relating to vessel acquisitions, the amount of time that we spend positioning our vessels, the amount of time that our vessels spend in drydock undergoing repairs, maintenance and upgrade work, the age, condition and specifications of our vessels and the levels of supply and demand in the LNG carrier charter market.
Our LNG carriers are employed through multi-year time charter contracts, which for accounting purposes are considered as operating leases and are thus recognized on a straight line basis as the average minimum lease revenue over the rental periods of such charter agreements, as service is performed. Revenues under our time charters are recognized when services are performed, revenue is earned and the collection of the revenue is reasonably assured. The charter hire revenue is recognized on a straight-line basis over the term of the relevant time charter.
Advance payments under time charter contracts are classified as liabilities until such time as the criteria for recognizing the revenue are met. Our revenues will be affected by the acquisition of any additional vessels in the future subject to time charters. Our revenues will also be affected if any of our charterers cancel a time charter or if we agree to renegotiate charter terms during the term of a charter resulting in aggregate revenue reduction or increase. Our time charter arrangements have been contracted in varying rate environments and expire at different times. Rates payable in the market for LNG carriers have been uncertain and volatile as has the supply and demand for LNG carriers.
Vessels Lives and Impairment
The carrying value of a vessel represents its historical acquisition or construction cost, including capitalized interest, supervision, technical and delivery cost, net of accumulated depreciation and impairment loss, if any. Expenditures for subsequent conversions and major improvements are capitalized provided that such costs increase the earnings capacity or improve the efficiency or safety of the vessels.
We depreciate the original cost, less an estimated residual value, of our LNG carriers on a straight-line basis over each vessels estimated useful life. The carrying values of our vessels may not represent their market value at any point in time because the market prices of second-hand vessels tend to fluctuate with changes in hire rates and the cost of newbuilds. Both hire rates and newbuild costs tend to be cyclical in nature.
We review vessels for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable, which occurs when the assets carrying value is greater than the future undiscounted cash flows the asset is expected to generate over its remaining useful life. We determine undiscounted projected net operating cash flows for each vessel and compare it to the vessels carrying value. In developing estimates of future cash flows, we must make assumptions about future charter rates, vessel operating expenses, fleet utilization, and the estimated remaining useful life of the vessels. These assumptions are based on historical trends as well as future expectations. The projected net operating cash flows are determined by considering the charter revenues from existing time charters for the fixed fleet days and the five-year historical average of charter rates for the unfixed days. If the estimated future undiscounted cash flows of an asset exceed the assets carrying value, no impairment is recognized even though the fair value of the asset may be lower than its carrying value. If the estimated future undiscounted cash flows of an asset is less than the assets carrying value and the fair value of the asset is less than its carrying value, the asset is written down to its fair value. Historically, there was no indication of impairment for any of the three vessels in our fleet. Our impairment test exercise is sensitive to variances in the time charter rates. The use of the most recent three and one year historical average rates to determine the charter revenues for the unfixed days would not result to impairment.
We determine the fair value of our vessels based on our estimates and assumptions and by making use of available market data and taking into consideration third party valuations. As of June 30, 2013, and December 31,
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2012, the aggregate charter-free market value of our vessels substantially exceeded their aggregate carrying value as of the same date. A decrease of the estimated fair market value by 10% would not result in any impairment loss as of June 30, 2013. We employ our LNG carriers on fixed-rate charters with major companies. These charters typically have original terms of two or more years in length. Consequently, while the market value of a vessel may decline below its carrying value, the carrying value of a vessel may still be recoverable based on the future undiscounted cash flows the vessel is expected to obtain from servicing its existing and future charters.
Depreciation on our LNG carriers is calculated using an estimated useful life of 35 years, commencing at the date the vessel was originally delivered from the shipyard. However, the actual life of a vessel may be different than the estimated useful life, with a shorter actual useful life resulting in an increase in the depreciation and potentially resulting in an impairment loss. The estimated useful life of our LNG carriers takes into account design life, commercial considerations and regulatory restrictions. Our estimates of future cash flows involve assumptions about future hire rates, vessel utilization, operating expenses, dry-docking expenditures, vessel residual values and the remaining estimated life of our vessels. Our estimated hire rates are based on rates under existing vessel charters and the five-year average historical charter rates for the unfixed periods. Our estimates of vessel utilization, including estimated off-hire time are based on historical experience of trading our vessels and our projections of future chartering prospects. Our estimates of operating expenses and dry-docking expenditures are based on our historical operating and dry-docking costs and our expectations of future inflation and operating requirements. Vessel residual values are based on our estimation over our vessels sale price at the end of their useful life, being a product of a vessels lightweight tonnage and an estimated scrap rate and the estimated resale price of certain equipment and material. The remaining estimated lives of our vessels used in our estimates of future cash flows are consistent with those used in the calculation of depreciation.
Certain assumptions relating to our estimates of future cash flows are more predictable by their nature in our experience, including estimated revenue under existing charter terms, on-going operating costs and remaining vessel life. Certain assumptions relating to our estimates of future cash flows require more discretion and are inherently less predictable, such as future hire rates beyond the firm period of existing charters and vessel residual values, due to factors such as the volatility in vessel hire rates and the lack of historical references in scrap prices of similar type of vessels. We believe that the assumptions used to estimate future cash flows of our vessels are reasonable at the time they are made. We can make no assurances, however, as to whether our estimates of future cash flows, particularly future vessel hire rates or vessel values, will be accurate.
If we conclude that a vessel or equipment is impaired, we recognize a loss in an amount equal to the excess of the carrying value of the asset over its fair value at the date of impairment. The fair value at the date of the impairment becomes the new cost basis and will result in a lower depreciation expense than for periods before the vessel impairment.
The table set forth below indicates (i) the historical acquisition cost of our vessels and (ii) the carrying value of each of our vessels as of June 30, 2013 and December 31, 2012.
Vessel |
Capacity
(cbm) |
Year
Purchased |
Acquisition
Cost (in millions) |
Carrying Value | ||||||||||||||||
June 30, 2013
(in millions) |
December 31, 2012
(in millions) |
|||||||||||||||||||
LNG |
||||||||||||||||||||
Clean Energy |
149,700 | 2007 | $ | 178.2 | $ | 149.8 | $ | 152.0 | ||||||||||||
Ob River |
149,700 | 2007 | 176.0 | 149.5 | 151.7 | |||||||||||||||
Clean Force |
149,700 | 2008 | 186.3 | 160.7 | 163.1 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total |
449,100 | $ | 540.5 | $ | 460.0 | $ | 466.8 | |||||||||||||
|
|
|
|
|
|
|
|
* | We believe that as of October 8, 2013, the market value of our Initial Fleet was $641.1 million based on appraisals obtained from independent brokers. |
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The market value of each vessel individually and in the aggregate substantially exceeds the respective carrying value of each vessel as of October 8, 2013. As such, the Company is not required to perform an impairment test. We refer you to the risk factor entitled Vessel values may fluctuate substantially and, if these values are lower at a time when we are attempting to dispose of vessels, we may incur a loss and the discussion herein under the heading BusinessHow The Liquefied Natural Gas (LNG) Shipping Industry Works.
Our estimates of basic market value assume that our vessels are all in good and seaworthy condition without need for repair and if inspected would be certified in class without notations of any kind. Our estimates are based on information available from various industry sources, including:
|
reports by industry analysts and data providers that focus on our industry and related dynamics affecting vessel values; |
|
news and industry reports of similar vessel sales; |
|
news and industry reports of sales of vessels that are not similar to our vessels where we have made certain adjustments in an attempt to derive information that can be used as part of our estimates; |
|
approximate market values for our vessels or similar vessels that we have received from shipbrokers, whether solicited or unsolicited, or that shipbrokers have generally disseminated; |
|
offers that we may have received from potential purchasers of our vessels; and |
|
vessel sale prices and values of which we are aware through both formal and informal communications with ship-owners, shipbrokers, industry analysts and various other shipping industry participants and observers. |
As we obtain information from various industry and other sources, our estimates of basic market value are inherently uncertain. In addition, vessel values are highly volatile; as such, our estimates may not be indicative of the current or future basic market value of our vessels or prices that we could achieve if we were to sell them.
Depreciation
We depreciate our LNG carriers on a straight-line basis over their remaining useful economic lives which we estimate to be 35 years from their initial delivery from the shipyard. A vessels residual value is estimated as 12% of the initial vessel cost, being approximate to vessels light weight multiplied by the then estimated scrap price per metric ton adjusted to reflect the premium from the value of stainless steel material and represents managements best estimate of the current selling price assuming the vessel is already of age and condition expected at the end of its useful life. The assumptions made reflect our experience, market conditions and the current practice in the LNG industry however, such assumptions required more discretion since there is a lack of historical references in scrap prices of similar type of vessels. A decrease of 10% in estimated scrap price would result to $0.1 million of increase in depreciation cost in the six month period ended June 30, 2013.
We depreciate our vessels on a straight-line basis over their estimated useful lives, after considering their estimated residual values, based on the assumed value of the scrap steel available for recycling after demolition. A decrease in the useful life of a vessel or in its residual value would have the effect of increasing the annual depreciation charge. When regulations place limitations over the ability of a vessel to trade on a worldwide basis, its remaining useful life is adjusted at the date such regulations become effective.
Dry-docking
We must periodically dry-dock each of our vessels for inspection, repairs and maintenance and any modifications required to comply with industry certification or governmental requirements. In accordance with industry certification requirements, we dry-dock our vessels at least every 60 months until the vessel is 15 years old, after which dry-docking takes place at least every 30 months thereafter as required for the renewal of
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certifications required by classification societies. Special survey and dry-docking costs (mainly shipyard costs, paints and class renewal expense) are expensed as incurred. The number of dry-dockings undertaken in a given period and the nature of the work performed determine the level of dry-docking expenditures. We expense costs related to routine repairs and maintenance performed during dry-docking or as otherwise incurred. All three vessels in our fleet completed their scheduled special survey and dry-docking repairs in the second, third and fourth quarters of 2012, respectively.
Recent Accounting Pronouncements
There are no recent accounting pronouncements issued in 2013, whose adoption would have a material impact on our consolidated financial statements in the current year or are expected to have a material impact in future years.
Lack of Historical Operating Data for Vessels Before Their Acquisition
Consistent with shipping industry practice, other than inspection of the physical condition of the vessels and examinations of classification society records, there is no historical financial due diligence process when we acquire vessels. Accordingly, we will not obtain the historical operating data for the vessels from the sellers because that information is not material to our decision to make acquisitions, nor do we believe it would be helpful to potential investors in our common units in assessing our business or profitability. Most vessels are sold under a standardized agreement, which, among other things, provides the buyer with the right to inspect the vessel and the vessels classification society records. The standard agreement does not give the buyer the right to inspect, or receive copies of, the historical operating data of the vessel. Prior to the delivery of a purchased vessel, the seller typically removes from the vessel all records, including past financial records and accounts related to the vessel. In addition, the technical management agreement between the sellers technical manager and the seller is automatically terminated and the vessels trading certificates are revoked by its flag state following a change in ownership.
Consistent with shipping industry practice, we treat the acquisition of a vessel (whether acquired with or without charter) as the acquisition of an asset rather than a business. Although vessels are generally acquired free of charter, we may, in the future, acquire vessels with existing time charters. Where a vessel has been under a voyage charter, the vessel is delivered to the buyer free of charter, and it is rare in the shipping industry for the last charterer of the vessel in the hands of the seller to continue as the first charterer of the vessel in the hands of the buyer. In most cases, when a vessel is under time charter and the buyer wishes to assume that charter, the vessel cannot be acquired without the charterers consent and the buyers entering into a separate direct agreement with the charterer to assume the charter. The purchase of a vessel itself does not transfer the charter, because it is a separate service agreement between the vessel owner and the charterer.
When we purchase a vessel and assume or renegotiate a related time charter, we must take the following steps before the vessel will be ready to commence operations:
|
obtain the charterers consent to us as the new owner; |
|
obtain the charterers consent to a new technical manager; |
|
obtain the charterers consent to a new flag for the vessel; |
|
arrange for a new crew for the vessel; |
|
replace all hired equipment on board, such as gas cylinders and communication equipment; |
|
negotiate and enter into new insurance contracts for the vessel through our own insurance brokers; |
|
register the vessel under a flag state and perform the related inspections in order to obtain new trading certificates from the flag state; |
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|
implement a new planned maintenance program for the vessel; and |
|
ensure that the new technical manager obtains new certificates for compliance with the safety and vessel security regulations of the flag state. |
The following discussion is intended to help you understand how acquisitions of vessels affect our business and results of operations.
Our business is comprised of the following main elements:
|
acquisition and disposition of vessels; |
|
employment and operation of our vessels; and |
|
management of the financial, general and administrative elements involved in the conduct of our business and ownership of our vessels. |
The employment and operation of our vessels require the following main components:
|
vessel maintenance and repair; |
|
crew selection and training; |
|
vessel spares and stores supply; |
|
contingency response planning; |
|
on board safety procedures auditing; |
|
accounting; |
|
vessel insurance arrangement; |
|
vessel chartering; |
|
vessel hire management; |
|
vessel surveying; and |
|
vessel performance monitoring. |
The management of financial, general and administrative elements involved in the conduct of our business and ownership of vessels, which is provided to us pursuant to the Management Agreements with our Manager, requires the following main components:
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management of our financial resources, including banking relationships, i.e., administration of bank loans and bank accounts; |
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management of our accounting system and records and financial reporting; |
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administration of the legal and regulatory requirements affecting our business and assets; and |
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management of the relationships with our service providers and charterers. |
The principal factors that may affect our profitability, cash flows and unitholders return on investment include:
|
rates and periods of charter hire; |
|
levels of vessel operating expenses; |
|
depreciation expenses |
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financing costs; and |
|
fluctuations in foreign exchange rates. |
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THE INTERNATIONAL LIQUEFIED NATURAL GAS (LNG) SHIPPING INDUSTRY
All the information and data presented in this section, including the analysis of the various sectors of the international liquefied natural gas (LNG) shipping industry has been provided by Drewry Consultants, Ltd., or Drewry, an independent consulting and research company. Drewry has advised that the statistical and graphical information contained herein is drawn from its database and other sources. In connection therewith, Drewry has advised that: (a) certain information in Drewrys database is derived from estimates or subjective judgments; (b) the information in the databases of other maritime data collection agencies may differ from the information in Drewrys database; (c) while Drewry has taken reasonable care in the compilation of the statistical and graphical information and believes it to be accurate and correct, data compilation is subject to limited audit and validation procedures.
Overview of Natural Gas Market
Natural gas is one of the key sources of global energy, the others including oil, coal and nuclear power. In the last three decades, demand for natural gas has grown faster than the demand for any other fossil fuel, and it is the only fossil fuel for which the International Energy Agency (IEA) expects demand to grow in the future. Since the early 1970s, natural gas share of total global primary energy consumption has risen from 18% in 1970 to 23.9% in 2012.
Natural Gas Share of Primary Energy Consumption: 1970-2012
(% Based On Million Tonnes Oil Equivalent)
Source: Industry sources, Drewry
Natural gas has a number of advantages that will make it a competitive source of energy in the future. Apart from plentiful supplies, which will help to keep gas prices competitive, it is the fossil fuel least affected by policies to curb greenhouse gas emissions because it is the lowest carbon-intensive fossil fuel. In recent years, consumption of natural gas has risen steadily due to global economic growth and increasing energy demand, consumers desires to diversify energy sources, market deregulation, competitive pricing and recognition that natural gas is a cleaner energy source as compared to coal and oil. Carbon dioxide emissions and other pollutants from gas are half the level produced from coal when used in power generation.
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Natural gas is used principally in power generation (electricity) and for heating. It is an abundant energy source, with worldwide reserves estimated at 208 trillion cubic metres, which is enough for 250 years of supply at current rates of consumption. Over the past decade, global LNG demand has risen over 2.5% per annum, with growth of over 6% per annum in the Middle East, Africa and Asia-Pacific.
In the last decade a large part of the growth in natural gas consumption has been accounted for by countries, in Asia and the Middle East, where gas consumption more than doubled between 2000 and 2012.
The IEA has reported that global reserves of natural gas are large enough to accommodate rapid expansion of gas demand for several decades. Gas reserves and production are widely geographically spread and the geographical disparity between areas of production and areas of consumption has been the principal stimulus of international trade in gas.
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World Natural Gas Production: 1970-2012
(Million Tons oil Equivalent)
Gas production in North America has increased due to the emergence of shale gas reserves and new techniques to access and extract these reserves. U.S. domestic gas production now exceeds domestic gas consumption for a large part of the year which may reduce future gas import rates. Additionally, rising U.S. domestic production may drive down domestic gas prices and raise the likelihood of U.S. gas exports.
As a result of these developments the North American gas market is moving in a different cycle from the rest of the world and has larger price differentials than other markets (see the chart below). Regional price differentials create the opportunity for arbitrage and also act as a catalyst for the construction of new productive capacity. Given these conditions, interest in exporting LNG gas from the U.S. has grown and a number of new liquefaction plants are now planned.
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Natural Gas Prices: 2005-2013
(U.S.$ per Mbtu)
Source: Drewry
The LNG Market
To turn natural gas into a liquefied form, natural gas must be super cooled to a temperature of approximately minus 260 degrees Fahrenheit. This process reduces the gas to approximately 1/600th of its original volume in a gaseous state. Reducing the volume enables economical storage and transportation by ship over long distances. LNG is transported by sea in specially built tanks on double-hulled ships to a receiving terminal, where it is unloaded and stored in heavily insulated tanks. Next, in regasification facilities at the receiving terminal, the LNG is returned to its gaseous state, or regasified, to be shipped by pipeline for distribution to natural gas customers.
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LNG Supply
At the end of 2012, world LNG production capacity was approximately 300 million tonnes per annum, and a further 69 million tonnes of capacity was under construction. In addition, there are a number of planned developments, which, if they all came to fruition, would more than double global world LNG productive capacity.
During 2011 and 2012 considerable investments were made in LNG productive capacity, and further expansion plans were announced in the beginning of 2013. Approximately 70 million tons of new LNG productive capacity was under construction in April 2013. In addition, firm plans have been announced for another 265 million tons of new LNG production capacity. There are also another 200 million tons of potential LNG productive capacity for which no confirmed plans exist.
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We expect that LNG production capacity will grow due to the number of new production facilities which are now under construction and due on stream in the next few years. As spare shipping capacity among the existing LNG fleet is limited, we expect that there will be additional demand for LNG carriers. Generally, every additional one million tons of LNG productive capacity creates demand for up to two LNG carriers in the 150,000 cbm size range.
In the last decade, more countries have entered the LNG exportation market. In 2012, there were 20 producers and exporters of LNG compared with just 12 in 2002. As a result, world trade in LNG has risen from 109 million tonnes in 2002 to 239 million tonnes in 2012.
LNG Exports: 2002-2012
(Million Tonnes)
Source: Drewry
Historically, LNG exporters were located in just three regions: Algeria and Libya in North Africa, Indonesia, Malaysia, Brunei and Australia in Southeast Asia/Australasia, and Abu Dhabi and Qatar in the Middle East (excluding smaller scale LNG exports from Alaska). However, the entry of Trinidad & Tobago, Nigeria and Norway has added a significant regional diversification to LNG exports in the Atlantic basin. Equally, the addition of Oman as an exporter and the rapid expansion of Qatari production have also positioned the Middle East as an increasingly significant player in the global LNG business. Qatar is now the worlds largest producer and exporter of LNG, accounting for close to one-third of all trade in LNG.
Currently, U.S. LNG exports are confined to an established plant in Alaska. In time, it is expected that the U.S. will also export LNG from the Sabine Pass project in the U.S. Gulf, which has received U.S. regulatory approval. Initial shipments from the first phase of this 12.2 cbm plant are planned to commence in 2015/2016, which we believe will create demand for 10-12 LNG carriers of 150,000 cbm plus. A second phase is also planned which will add a similar level of productive capacity. If and when the second phase of the Sabine Pass project goes ahead, we believe that it could create demand for additional 10-12 LNG carriers.
Currently, the main obstacle preventing regulatory permission of these plans is the absence of free trade agreements with potential importers. Elsewhere there are a number of other LNG projects under discussion,
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including further development of new facilities in Australia and Russia, both of which have the potential to add large export volumes. For Russia several of such volumes are located in Arctic ice bound areas where ice classed vessels would be required.
Generally, every additional one million tons of LNG productive capacity creates demand for up to two LNG carriers in the 150,000 cbm size range.
LNG Demand
In tandem with the growth in the number of LNG suppliers there has also been in a corresponding increase in the number of importers. In 2000 there were just 10 countries importing LNG, but by early 2013 this number had increased to 27.
LNG imports by country between 2002 and 2012 are shown in the table below. Despite diversification in the number of importers, Japan, and to a lesser extent South Korea, provide the backbone of LNG trades, collectively accounting for 47% of total LNG imports. Elsewhere, there has been strong growth in European imports, as LNG has provided a source of gas supplies during periods of high winter demand.
LNG Imports by Country 2002-2012
(Million Tonnes)
Importer |
2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | |||||||||||||||||||||||||||||||||
Argentina |
0.3 | 0.7 | 1.3 | 3.2 | 3.4 | |||||||||||||||||||||||||||||||||||||||
Belgium |
2.4 | 2.3 | 2.1 | 2.2 | 3.1 | 2.3 | 2.1 | 4.8 | 4.7 | 4.8 | 3.0 | |||||||||||||||||||||||||||||||||
Brazil |
0.3 | 2.0 | 0.8 | 3.0 | ||||||||||||||||||||||||||||||||||||||||
Canada |
0.7 | 1.5 | 2.4 | 1.3 | ||||||||||||||||||||||||||||||||||||||||
Chile |
0.5 | 2.2 | 2.8 | 2.8 | ||||||||||||||||||||||||||||||||||||||||
China |
0.7 | 2.8 | 3.2 | 5.6 | 9.3 | 12.1 | 14.7 | |||||||||||||||||||||||||||||||||||||
Dom. Rep. |
0.2 | 0.1 | 0.2 | 0.2 | 0.3 | 0.3 | 0.4 | 0.6 | 0.7 | 0.9 | ||||||||||||||||||||||||||||||||||
France |
8.4 | 7.2 | 5.6 | 9.4 | 10.1 | 9.5 | 9.2 | 9.5 | 10.2 | 10.6 | 7.3 | |||||||||||||||||||||||||||||||||
Greece |
0.4 | 0.4 | 0.4 | 0.3 | 0.4 | 0.6 | 0.7 | 0.5 | 0.9 | 0.9 | 0.7 | |||||||||||||||||||||||||||||||||
India |
1.9 | 4.4 | 5.8 | 7.3 | 7.9 | 9.2 | 8.9 | 12.5 | 13.3 | |||||||||||||||||||||||||||||||||||
Italy |
4.2 | 4.0 | 4.3 | 1.8 | 2.3 | 1.8 | 1.1 | 2.1 | 6.6 | 6.4 | 5.2 | |||||||||||||||||||||||||||||||||
Japan |
53.1 | 58.2 | 56.2 | 55.7 | 59.8 | 64.8 | 67.3 | 62.7 | 68.2 | 78.1 | 88.0 | |||||||||||||||||||||||||||||||||
Kuwait |
0.7 | 2.0 | 2.3 | 2.0 | ||||||||||||||||||||||||||||||||||||||||
Mexico |
0.7 | 1.6 | 2.6 | 2.6 | 4.2 | 3.0 | 3.5 | |||||||||||||||||||||||||||||||||||||
Netherlands |
0.6 | 0.6 | ||||||||||||||||||||||||||||||||||||||||||
Portugal |
0.3 | 0.6 | 1.0 | 1.2 | 1.4 | 1.7 | 1.9 | 2.1 | 2.2 | 2.2 | 1.6 | |||||||||||||||||||||||||||||||||
Puerto Rico |
0.5 | 0.5 | 0.5 | 0.5 | 0.5 | 0.5 | 0.6 | 0.6 | 0.6 | 0.5 | 0.9 | |||||||||||||||||||||||||||||||||
South Korea |
17.5 | 19.1 | 21.8 | 22.2 | 24.9 | 25.1 | 26.7 | 25.1 | 32.4 | 36.0 | 36.8 | |||||||||||||||||||||||||||||||||
Spain |
9.0 | 11.0 | 12.8 | 16.0 | 17.8 | 17.7 | 21.0 | 19.7 | 20.1 | 17.6 | 15.7 | |||||||||||||||||||||||||||||||||
Taiwan |
5.1 | 5.5 | 6.7 | 7.0 | 7.4 | 8.0 | 8.8 | 8.6 | 10.9 | 11.9 | 12.7 | |||||||||||||||||||||||||||||||||
Thailand |
0.7 | 1.0 | ||||||||||||||||||||||||||||||||||||||||||
Turkey |
3.9 | 3.6 | 3.1 | 3.6 | 4.2 | 4.4 | 3.9 | 4.2 | 5.8 | 4.5 | 5.6 | |||||||||||||||||||||||||||||||||
UAE |
0.1 | 1.0 | 1.0 | |||||||||||||||||||||||||||||||||||||||||
UK |
0.4 | 2.6 | 1.1 | 0.8 | 7.5 | 13.6 | 18.5 | 10.4 | ||||||||||||||||||||||||||||||||||||
USA |
4.7 | 10.5 | 13.5 | 13.0 | 12.1 | 15.9 | 7.3 | 9.3 | 8.9 | 7.3 | 3.5 | |||||||||||||||||||||||||||||||||
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|||||||||||||||||||||||
World Total |
109.3 | 123.3 | 129.9 | 137.8 | 154.1 | 165.3 | 165.6 | 177.2 | 217.3 | 241.5 | 238.9 | |||||||||||||||||||||||||||||||||
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Source: Drewry
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Chinese imports of LNG commenced in 2006 and have risen rapidly. The Chinese government has a stated target to double the share of gas in total Chinese energy demand by 2015. To support this objective imports of LNG have risen from less than 1 million tonnes in 2006 to 12.1 million tonnes in 2011 and a provisional 14.7 million tonnes in 2012.
Further expansion of regasification and terminal import infrastructure which is now underway will support the continued growth in Chinese LNG imports. China is not dissimilar from the U.S. in that it has large deposits of shale gas, but geological structures in China are far more complicated. Additionally, China lacks the infrastructure to support the rapid development of domestic gas supplies. As such, this will create an opportunity for imported LNG. Monthly trends in LNG imports among Asian importers between January 2000 and July 2013 are shown in the chart below.
Asian LNG Imports: 2000-2013
(Million Tonnes)
In Europe the market is dominated by three large importers Spain, the United Kingdom and France. Collectively, these three importers accounted for 67% of total European LNG imports in 2012.
International Trade in Natural Gas
Generally, a pipeline is the most economical way of transporting natural gas from a producer to a consumer, provided that the pipeline is not too distant from the natural gas reserves. However, for some areas, such as the Far East, the lack of an adequate pipeline infrastructure means that natural gas must be turned into a liquefied form (LNG), as this is the only economical and feasible way it can be transported over long distances. Additionally, sea transportation of LNG is a more flexible solution than pipeline as it can accommodate required changes in trade patterns that are economically or politically driven.
International trade in natural gas nearly doubled between 2000 and 2012. During this period, LNG trade increased by 139%. As a result, LNG captured a growing share of international gas trade, with key drivers of this growth being the diversification of consumers, flexibility among producers, cost efficient transport and access to competitively priced gas.
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LNG Shipping Routes
Although the number of LNG shipping routes has increased in recent years due to growth in the number of LNG suppliers and consumers, demand for shipping services remains heavily focused on a number of key trade routes. In 2013, the principal trade routes for LNG shipping include: the South Pacific (Indonesia, Malaysia, Australia and Brunei) and the Middle East (Qatar, Oman and the UAE) to the North Pacific (Japan, South Korea, Taiwan and increasingly China), North Africa and Nigeria to Europe and the U.S., and Trinidad to the U.S., South America and Europe.
One important result of the geographical shifts in LNG production and consumption is that demand for shipping services, expressed in terms of tonne miles, has grown much faster that the underlying increase in LNG trade. Tonne miles are derived by multiplying the volume of cargo by the distance between the load and discharge port on each voyage.
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Between 2002 and 2011, the last year for which full data is available, total demand for LNG shipping services, expressed in terms of tonne miles, increased by 198%. As result of geographical shifts in the pattern of trade and growth in longer haul movements, average voyage distances also increased from just over 3,000 miles in 2000 to 4,300 miles in 2011.
LNG Trades Requiring Ice Class Tonnage
Ice Class Vessel Classifications
Ice class is assigned where a ship is strengthened to navigate in specific ice conditions. Ice class vessels are governed by different ice class rules and regulations depending on their area of operations.
Baltic Sea
|
Bay and Gulf of Bothnia, Gulf of FinlandFinnish-Swedish Ice Class Rules (FSICR) |
|
Gulf of Finland (Russia territorial waters)Russian Maritime Register (RMR) Ice Class Rules |
Arctic Ocean
|
Barents, Kara, Laptev, East Siberian and Chukchi SeasRussian Maritime Register (RMR) Ice Class Rules |
|
Beaufort Sea, Baffin Bay, etcCanadian Arctic Shipping Pollution Prevention Rules (CASPPR) |
|
RMR Ice Class Rules |
There are also ice class rules and regulations for commercial ship operations on inland lakes, mainly the Great Lakes/St. Lawrence Seaway.
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In the context of current commercial newbuilding orders, the FSICR have become the de facto standard for new tonnage. Four ice classes are defined in the FSICR. The FSICR fairway due ice classes along with the design notional level thicknesses, in order of strength from high to low, are:
Class |
Standard |
|
1A Super (1AS) |
Design notional level ice thickness of 1.0m. For extreme harsh ice conditions. | |
1A |
Design notional level ice thickness of 0.8m. For harsh ice conditions. | |
1B |
Design notional level ice thickness of 0.6m. For medium ice conditions. | |
1C |
Design notional level ice thickness of 0.4m. For mild ice conditions. |
The FSICR and the system of ice navigation operated during the winter months in the Northern Baltic are the most well developed criteria and standards for ice navigation. The system of ice navigation comprises three fundamental elements:
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Ice class merchant vessels (compliant with the FSICR for navigation in the northern Baltic); |
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Fairway navigation channels; and |
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Ice breaker assistance. |
Year-round navigation and continuity of trade using the above three fundamental elements was first introduced in the northern Baltic sea areas during the 1960s, and the current FSICR Rule set, as well as the system of ice navigation, has evolved over the years to its current state.
Requirement for Ice Class Tonnage
The FSICR include technical requirements for hull and machinery scantlings as well as for the minimum propulsion power of ships. The hull of ice class vessels and the main propulsion machinery must be safe. The vessel must have sufficient power for safe operation in ice-covered waters. During the vessels normal operations, they encounter various ice interaction loadings, which calls for strengthened hull structures.
In addition to class rules, ships have to fulfill requirements set by maritime authorities in various jurisdictions. For example, the Russian marine operations headquarters accept ships with ice-strengthening according to or at least the equivalent of FSICR 1B to operate in the North Sea Route, or the NSR, if they fulfill additional requirements on crewing and icebreaker assistance.
Ice Class LNG Fleet
The number of ships in the international LNG fleet with an ice class standard is very low. As of 30 September 2013, there were only 5 LNG carriers with Ice Class 1A standard in operation and a further 5 vessels with Ice Class 1A on order. The only company to date that has experience with and performed NSR transits with LNG carriers is Dynagas Ltd.
Northern Sea Route
Currently there are two major cargo flows that dominate the NSR: oil and gas exports and the export of minerals. in particular coal and ore. The demand for shipping these commodities in the region has been increasing in recent years, driven by several key factors:
|
decreased level of sea ice has lengthened the summer shipping season in the Arctic and is making some areas more navigable; |
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increase in mineral resource development in the Arctic; |
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commodity demand growth in Asia and high commodity prices; |
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technological developments which have made NSR a more feasible shipping route than in the past; and |
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chronic political problems in the Middle East, piracy in North Africa and non-transparent commercial disputes over the Suez in Egypt. |
These factors have made NSR a promising alternative.
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Northern Sea Route
Source: Drewry
As a result, the NSR has experienced exponential growth in trade volumes in the last three years. The table below illustrates this development. The year 2012 set a record both in the number of vessels and in the amount of cargoes registered on this route.
Northern Sea RouteSeaborne Traffic
2010 | 2011 | 2012 | ||||||||||
Number of Vessels |
4 | 34 | 46 | |||||||||
Total Cargo Volume (tons) |
111,000 | 820,789 | 1,261,545 | |||||||||
Dry Bulk Volume (tons) |
N/A | 108,344 | 322,956 | |||||||||
Dry Bulk Share % |
N/A | 13.2 | 25.6 |
Source: Drewry, Centre for High North Logistics
As of today the most suitable LNG terminal for loading LNG for transport to the Far East is located in Northern Norway. The NSR to Japan is shorter than traditional shipping routes generally sailing through the Suez Canal. The Arctic route allows ships to save on time, fuel, and environmental emissions. In Northern Russia located within the NSR there are large gas reserves that are being planned for LNG exports.
In general, ships below 1A ice class will not be allowed to trade on NSR. This affords an advantage to those owners with ice class tonnage. Furthermore, owners/operators with experience of operating in ice conditions will have an edge over the traditional tramp operators who make occasional forays into the region during the winter months.
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The LNG Fleet
LNG carriers are specialist vessels designed to transport LNG between liquefaction facilities and import terminals. They are double-hulled vessels with a sophisticated containment system that holds and insulates LNG to maintain it in liquid form. Any LNG that evaporates during the voyage and converts to natural gas (normally referred to as boil-off) can be used as fuel to help propel the ship.
Among the existing fleet there are several different types of containment systems used on LNG carriers, but the two most popular systems are:
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The Moss Rosenberg spherical system, which was designed in the 1970s and is used by a large portion of the existing LNG fleet. In this system, multiple self-supporting, spherical tanks are built independent of the carrier and arranged inside its hull. |
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The Gaz Transport membrane system, which is built inside the carrier and consists of insulation between thin primary and secondary barriers. The membrane is designed to accommodate thermal expansion and contraction without overstressing the membrane. |
However, it is the case that most new vessels are being built with membrane systems such as the Gaz Transport system. This trend is primarily a result of lower Suez Canal fees and related costs associated with passage through the canal (which is required for many long-haul trade routes) for carriers with membrane systems. In addition, membrane system ships tend to operate more efficiently since the spheres on the Moss Rosenberg systems create more wind resistance. Generally, membrane ships achieve better speed consumption due to improved hull utilization, reduced cool down time and better terminal capacity.
The cargo capacity of an LNG carrier is measured in cubic meters (cbm). As of August 2013, the worldwide fleet totaled 363 ships with a combined capacity of 53.9 million cbm. The breakdown of the fleet by vessel size is shown below.
The LNG Fleet by Vessel Size: August 2013
Size |
No. | 000 Cbm | ||||||
18-49,999 cbm |
8 | 189 | ||||||
50-74,999 cbm |
5 | 348 | ||||||
75-119,999 cbm |
11 | 968 | ||||||
120-144,999 cbm |
222 | 30,718 | ||||||
145-199,999 cbm |
73 | 11,578 | ||||||
200-219,999 cbm |
30 | 6,391 | ||||||
220,000+ cbm |
14 | 3,715 | ||||||
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Total |
363 | 53,907 | ||||||
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Within the current fleet there are only 5 vessels with ice class certification, making these ships a niche part of the market.
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The age profile of the existing fleet as of August 2013 is shown below. The average age of all LNG carriers in service is 11.2 years, with fleet age generally increasing as ship size decreases.
LNG Fleet Age Profile: August 2013
Due to high quality construction and in most cases high quality maintenance, LNG carriers tend to have longer trading lives than oil tankers; it is not unusual to see ships older than 35 years still in service. However, there is some anecdotal evidence to suggest that older ships may find it harder to find employment in the future. Ships built before 1990 will likely become candidates for replacement in the not too distant future.
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LNG Shipping Arrangements
LNG carriers are usually chartered for a fixed period of time with the charter rate payable to the owner on a monthly basis. Shipping arrangements are normally based on charters of five years or more because:
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LNG projects are expensive and typically involve an integrated chain of dedicated facilities. Accordingly, the overall success of an LNG project depends heavily on long-term planning and coordination of project activities, including marine transportation. |
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LNG carriers are expensive to build, and the cash-flow from long-term fixed-rate charters supports vessel financing. |
Most end users of LNG are utility companies, power stations or petrochemical producers that depend on reliable and uninterrupted delivery of LNG. Although most shipping requirements for new LNG projects continue to be provided on a long-term basis, spot voyages (typically consisting of a single voyage) and time charters of four years or less have become a feature of the market in recent years. However, it should be noted that the LNG spot market is different from the tanker spot market. In the tanker market, the term spot trade refers to a single voyage, which is arranged at a short notice. In the LNG market, it relates to the transport of one or more cargoes, sometimes within a specified time period between one and six months, with a set-up time of possibly several months.
Newbuilding Prices
Similar to other types of vessels, newbuilding prices for LNG carriers rose steeply in the late 1980s and early 1990s, and then began to drift downwards in the mid-1990s and fall sharply in the late 1990s. At the beginning of 1992, the price of a 125,000 cbm ship from a Far East yard was reported to be approximately $270 million to $290 million, compared with a low of $120 million at the end of 1986. However, by early 2000 new orders were being struck at a new low of around $150 million.
After the lows of early 2000, prices crept above $165 million in the first half of 2001, but fell back to the $160 million to $165 million range in the second half of the year. Further pressure on newbuilding prices in general pushed typical prices closer to $160 million in 2002, and by 2003 prices fell to just above $150 million. However, a host of factors, including constrained shipbuilding capacity, currency movements and high steel prices led to an increase in prices in 2004 to around $180 million. Prices rose above $200 million in 2005 and renewed pressure on shipbuilding prices pushed prices close to $220 million in 2006.
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LNG Carrier Newbuilding Prices: 2000-2013(1)
(U.S.$ Million)
(1) | Price for 160-173,000 cbm ship from 2009 to 2013, prior prices based on 125-155,000 cbm ship |
Source: Drewry
Prices for larger sized LNG carriers of 210-220,000 cbm were around $215 million when first ordered in late 2004 and increased to $235 million in the summer of 2005. The latest batch of orders in early 2007 for four 210,100 cbm vessels at South Korean yards, were reportedly placed at $246 million each.
Newbuilding prices reached an all-time high mark of $250 million around mid-2008, influenced by a number of factors, including the declining dollar exchange rate, easy availability of finance, high steel prices and tight shipbuilding capacity. However, newbuilding prices then fell in the wake of little new ordering, but leveled out in 2012. In 2013 prices firmed slightly, but they still remain below the last market peak.
LNG Safety
LNG shipping is generally safe relative to other forms of commercial marine transportation. In the past forty years, there have been no significant accidents or cargo spillages involving an LNG carrier, even though over 40,000 plus LNG voyages have been made during that time.
LNG is non-toxic and non-explosive in its liquid state. It only becomes explosive or inflammable when heated and vaporized, and then only when in a confined space within a narrow range of concentrations in the air (5% to 15%). The risks and hazards from an LNG spill vary depending on the size of the spill, environmental conditions and the site at which the spill occurs.
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Overview
We are a growth-oriented limited partnership focused on owning and operating LNG carriers. Our high-specification vessels are employed on multi-year time charters, which we define as charters of two years or more, with international energy companies such as BG Group and Gazprom, providing us with the benefits of stable cash flows and high utilization rates. We intend to leverage the reputation, expertise, and relationships of our Sponsor and our Manager in maintaining cost-efficient operations and providing reliable seaborne transportation services to our customers. In addition, we intend to make further vessel acquisitions from our Sponsor and from third parties.
Our Sponsor entered the LNG sector in 2004 by ordering the construction of three LNG carriers, the Clean Energy , the Ob River , and the Clean Force , from Hyundai Heavy Industries Co. Ltd. or HHI, one of the worlds leading shipbuilders of LNG carriers. Prior to the completion of this offering, we will acquire from our Sponsor these vessels, which we refer to as our Initial Fleet, in exchange for of our common units and all of our subordinated units. The LNG carriers that comprise the Initial Fleet have an average age of 6.2 years and are under time charters with an average remaining term of 3.6 years, as of September 30, 2013.
We believe that we will have the opportunity to grow our per unit distributions by making acquisitions of LNG carriers from our Sponsor or from third parties. Our Sponsor took delivery of two newbuilding LNG carriers in July 2013 and one in October 2013 from HHI, and has contracts for the construction of an additional four LNG carriers with HHI, scheduled to be delivered to our Sponsor in 2014 and 2015. We will receive the right to purchase these seven vessels, which we refer to as the Optional Vessels, at a purchase price to be determined pursuant to the terms and conditions of the Omnibus Agreement within 24 months of their delivery to our Sponsor.
We intend to make minimum quarterly distributions to our unitholders of $ per unit, or $ per unit on an annualized basis. As our fleet expands, our board of directors will evaluate future increases to the minimum quarterly distribution based on our cash flow and liquidity position.
Our Initial Fleet
Our Initial Fleet consists of three LNG carriers currently operating under multi-year charters with BG Group and Gazprom. The Clean Force and the Ob River have been assigned with Ice Class designation for hull and machinery and are fully winterized, which means that they are designed to call at ice-bound and harsh environment terminals and to withstand temperatures up to minus 30 degrees Celsius. According to Drewry, the Clean Force and Ob River are two of only five LNG carriers in the global LNG fleet that are currently in operation which have been assigned an Ice Class designation, or equivalent rating. This means that only 1.4% of
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the LNG vessels in the global LNG fleet have this designation, and we are the only company in the world that is currently transiting the Northern Sea Route with LNG carriers. We believe that these specifications enhance our trading capabilities and future employment opportunities because they provide greater flexibility in the trading routes available to our charterers.
We believe that the key characteristics of each of the vessels in our Initial Fleet include the following:
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optimal sizing with a carrying capacity of approximately 150,000 cbm (which is a medium- to large-size class of LNG carrier) that maximizes operational flexibility as such vessel is compatible with most existing LNG terminals around the world; |
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each vessel is a sister vessel, which are vessels built at the same shipyard, HHI, that share (i) a near-identical hull and superstructure layout, (ii) similar displacement, and (iii) roughly comparable features and equipment; |
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utilization of a membrane containment system that uses insulation built directly into the hull of the vessel with a membrane covering inside the tanks designed to maintain integrity and that uses the vessels hull to directly support the pressure of the LNG cargo, which we refer to as a membrane containment system (see The International Liquefied Natural Gas (LNG) Shipping IndustryThe LNG Fleet for a description of the types of LNG containment systems); |
|
double-hull construction, based on the current LNG shipping industry standard; and |
|
proven track record with 99.5% utilization rate over 2012 and 2011. |
According to Drewry, there are only 39 LNG carriers currently in operation, including the vessels in our Initial Fleet, with a carrying capacity of between 149,000 and 155,000 cbm and a membrane containment system, representing 9.0% of the global LNG fleet and a total of 118 LNG carriers on order of which eight are being constructed with these specifications.
The following table sets forth additional information about our Initial Fleet as of September 30, 2013:
Vessel Name |
Shipyard | Year Built |
Capacity
(cbm) |
Ice
|
Flag State |
Charterer |
||||||||||||||
Clean Energy |
HHI | 2007 | 149,700 | No | Marshall Islands | BG Group | ||||||||||||||
Ob River(1) |
HHI | 2007 | 149,700 | Yes | Marshall Islands | Gazprom | ||||||||||||||
Clean Force |
HHI | 2008 | 149,700 | Yes | Marshall Islands | BG Group |
(1) | Formerly named Clean Power . |
Contract Backlog
Our contract backlog includes commitments represented by signed charters. As of September 30, 2013, our contract backlog was approximately $307.5 million and was attributable to revenues that we expect to generate from our Initial Fleet. We calculate our contract backlog by multiplying the contracted daily rate by the minimum expected number of days committed under signed charters, excluding non-exercised options to extend and assuming full utilization for the full term of the charter. The actual amount of revenues earned and the actual periods during which revenues are earned may differ from the amounts and periods shown in the table below, due to, for example, off-hire for maintenance projects, downtime, scheduled or unscheduled dry-docking and other factors that result in lower revenues than our average contract backlog per day.
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The firm commitments that comprise our contract backlog as of September 30, 2013 were as follows:
Vessel Name |
Charterer |
Contract
Backlog (in millions) |
Contract
Start Date |
Earliest Charter
Expiration |
Latest
Charter
Expiration Including Non-Exercised Options |
|||||
Clean Energy |
BG Group | $109.8 | February 2012 | April 2017 | August 2020 (2) | |||||
Ob River (1) |
Gazprom | $124.8 | September 2012 | September 2017 | May 2018 (3) | |||||
Clean Force |
BG Group | $68.5 | October 2010 | September 2016 | January 2020 (4) |
(1) | Formerly named Clean Power . |
(2) | BG Group has the option to extend the duration of the charter for an additional three-year term until August 2020 at an escalated daily rate, upon notice to us before January 2016. |
(3) | Gazprom has the option to extend the duration of the charter until May 2018 on identical terms, upon notice to us before March 2017. |
(4) | On January 2, 2013, BG Group exercised its option to extend the duration of the charter by an additional three-year term at an escalated daily rate, commencing on October 5, 2013. BG Group has the option to extend the duration of the charter by an additional three-year term at a further escalated daily rate, which would commence on October 5, 2016, upon notice to us before January 5, 2016. The latest expiration date upon the exercise of all options is January 2020. |
Our Chartering Strategy and Customers
We seek to employ our vessels on multi-year time charters with international energy companies that provide us with the benefits of stable cash flows and high utilization rates. We charter our vessels for a fixed period of time at daily rates that are generally fixed, but which could contain a variable component to adjust for, among other things, inflation and/or to offset the effects of increases in operating expenses.
The Clean Energy and the Clean Force are currently chartered to BG Group under time charter contracts with an average remaining term of approximately 3.3 years and a contractual backlog of $178.30 million, in aggregate, based on the earliest redelivery permitted under our charters as of September 30, 2013. BG Group engages in exploration and production of gas and oil reserves, export, shipping and import of LNG, pipeline transmission and distribution of gas, and various gas-powered electricity generation projects. BG Group operates in 23 countries on five continents. BG Group operates in the Atlantic Basin, with liquefaction and/or regasification activities on stream or in development in Chile, Egypt, Italy, Nigeria, the United Kingdom and the United States.
The Ob River is currently chartered to Gazprom under a time charter contract with an average remaining term of approximately 4.0 years and a contractual backlog of $124.8 million based on the earliest redelivery permitted under our charters as of September 30, 2013. Gazprom is a global energy company focused on geological exploration, production, transportation, storage, processing and marketing of gas and other hydrocarbons as well as electric power and heat energy production and distribution. Gazprom possesses the worlds largest natural gas reserves estimated by Gazprom at 35 trillion cubic meters. In November 2012, Ob River became the worlds first LNG carrier to complete an LNG shipment via the Northern Sea Route, demonstrating its extensive ice class capabilities, achieving a significant reduction in navigation time and generating significant cost savings for Gazprom.
The Optional Vessels
The Optional Vessels consist of seven fully winterized newbuilding LNG carriers, four of which have agreed to operate under multi-year charters with Gazprom, Statoil and Cheniere. Each of the seven newbuilds has or is expected to have upon their delivery Ice Class designation, or its equivalent, for hull and machinery. Three of these vessels were delivered to our Sponsor in July 2013 and October 2013, and the remaining four vessels are
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scheduled to be delivered to our Sponsor as follows: two in 2014 and two in 2015. The three vessels with deliveries in 2013 are sister-vessels, each with a carrying capacity of 155,000 cbm and the four remaining vessels with expected deliveries in 2014 and 2015 are sister-vessels, each with a carrying capacity of 162,000 cbm. In the event we acquire the Optional Vessels in the future, we believe the staggered delivery dates of these newbuilding LNG carriers will facilitate a smooth integration of the vessels into our fleet, contributing to our annual fleet growth through 2017.
The Optional Vessels are compatible with a wide range of LNG terminals, providing charterers with the flexibility to trade the vessels worldwide. Each vessel is equipped with a membrane containment system. The compact and efficient utilization of the hull structure reduces the required principal dimensions of the vessel compared to earlier LNG designs and results in higher fuel efficiency and smaller quantities of LNG required for cooling down vessels tanks. In addition, the Optional Vessels will be equipped with a tri-fuel diesel electric propulsion system for increased fuel efficiency.
The following table provides certain information about the Optional Vessels as of September 30, 2013.
Vessel Name / Hull
|
Shipyard |
Delivery
Date / Expected Delivery Date |
Capacity
Cbm |
Ice
Class |
Sister
Vessels |
Charter
Commencement |
Charterer |
Earliest
Charter Expiration |
Latest
Charter Expiration |
|||||||||||||||||||||||||||
Yenisei River(2) |
HHI | Q3-2013 | 155,000 | Yes | B | Q3 2013 | Gazprom | Q3 2018 | Q3 2018 | |||||||||||||||||||||||||||
Lena River(2) |
HHI | Q4-2013 | 155,000 | Yes | B | Q4 2013 | Gazprom | Q4 2018 | Q4 2018 | |||||||||||||||||||||||||||
Arctic Aurora(2) |
HHI | Q3-2013 | 155,000 | Yes | B | Q3 2013 | Statoil | Q3 2018 |
|
Renewal
Options |
(1) |
|||||||||||||||||||||||||
Clean Ocean |
HHI | Q1-2014 | 162,000 | Yes | C | Q2 2015 | Cheniere | Q2 2020 | Q3 2022 | |||||||||||||||||||||||||||
Clean Planet |
HHI | Q3-2014 | 162,000 | Yes | C | |||||||||||||||||||||||||||||||
Hull 2566 |
HHI | Q1-2015 | 162,000 | Yes | C | |||||||||||||||||||||||||||||||
Hull 2567 |
HHI | Q2-2015 | 162,000 | Yes | C |
(1) | Statoil has revolving consecutive one-year renewal options following the initial five year period. |
(2) | In July 2013, our Sponsor took delivery of the Yenisei River and the Arctic Aurora , which were subsequently delivered to their charterers. In October 2013, our Sponsor took delivery of the Lena River , which was subsequently delivered to its charterer. |
Rights to Purchase Optional Vessels
We will receive the right to purchase the Optional Vessels from our Sponsor at a purchase price to be determined pursuant to the terms and conditions of the Omnibus Agreement, which we intend to enter into with our Sponsor and our General Partner at the closing of this offering. These purchase rights will expire 24 months following the respective delivery of each Optional Vessel from the shipyard. If we are unable to agree with our Sponsor on the purchase price of any of the Optional Vessels, the respective purchase price will be determined by an independent appraiser, such as an investment banking firm, broker or firm generally recognized in the shipping industry as qualified to perform the tasks for which such firm has been engaged, and we will have the right, but not the obligation, to purchase each vessel at such price. The independent appraiser will be mutually appointed by our Sponsor and our conflicts committee. Please see Certain Relationships and Related Party TransactionsAgreements Governing the TransactionsOmnibus AgreementRights to Purchase Optional Vessels for information on how the purchase price is calculated.
The purchase price of the Optional Vessels, as finally determined by an independent appraiser, may be an amount that is greater than what we are able or willing to pay or we may be unwilling to proceed to purchase such vessel if such acquisition would not be in our best interests. We will not be obligated to purchase the Optional Vessels at the determined price and, accordingly, we may not complete the purchase of such vessels, which may have an adverse effect on our expected plans for growth. In addition, our ability to purchase the
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Optional Vessels, should we exercise our right to purchase such vessels, is dependent on our ability to obtain additional financing to fund all or a portion of the acquisition costs of these vessels. As of the date of this prospectus, we have not secured any financing in connection with the potential acquisition of the Optional Vessels since it is uncertain if and when such purchase options will be exercised. Our Sponsor has entered into loan agreements in connection with the seven Optional Vessels. In the event we acquire the Optional Vessels in the future, we may enter into agreements with our Sponsor to novate these loan agreements to us. Any such novation would be subject to each respective lenders consent.
Our Relationship with our Sponsor and members of the Prokopiou Family
We believe that one of our principal strengths is our relationship with our Sponsor, our Manager and members of the Prokopiou Family, which provide us access to their long-standing relationships with major energy companies and shipbuilders and their technical, commercial and managerial expertise. As of September 30, 2013, our Sponsors LNG carrier fleet consisted of three LNG carriers and four newbuildings on order, excluding the vessels in our Initial Fleet. While our Sponsor intends to utilize us as its primary growth vehicle to pursue the acquisition of LNG carriers employed on time charters of four or more years, we can provide no assurance that we will realize any benefits from our relationship with our Sponsor or the Prokopiou Family and there is no guarantee that their relationships with major energy companies and shipbuilders will continue. Our Sponsor, our Manager and other companies controlled by members of the Prokopiou Family are not prohibited from competing with us pursuant to the terms of the Omnibus Agreement which we will enter into with our Sponsor and our General Partner at the closing of this offering. Our General Partner, which is wholly-owned by our Sponsor, will own 100% of the general partner units, representing a 0.1% general partner interest in us, or the General Partner Units, and 100% of the incentive distribution rights upon the closing of this offering. Please see Summary of Conflicts of Interest and Fiduciary Duties below and Conflicts of Interest and Fiduciary Duties.
Our founder and Chairman, Mr. George Prokopiou, started his career in shipping in 1974. Mr. Prokopiou, founded Dynacom Tankers Management and Sea Traders. Dynacom Tankers Management is a company engaged primarily in the management and operation of tanker vessels. Sea Traders is a company engaged primarily in the management and operation of dry bulk carriers.
Positive Industry Fundamentals
We believe that the following factors collectively present positive industry fundamental prospects for us to execute our business plan and grow our business:
Natural gas and LNG are vital and growing components of global energy sources. According to Drewry, by 2018 global demand for LNG is forecasted to increase by approximately 146 million tonnes (7 trillion cubic feet), an increase of 44% from 2012. Natural gas accounted for 24% of the worlds primary energy consumption in 2012, and is expected to increase to 25% in 2013. Over the last two decades, natural gas has been one of the worlds fastest growing energy sources, increasing at twice the rate of oil consumption over the same period. We believe that LNG, which accounted for 32% of overall cross-border trade of natural gas in 2012 according to Drewry, will continue to increase its share in the mid-term future. A cleaner burning fuel than both oil and coal, natural gas has become an increasingly attractive fuel source in the last decade.
Demand for LNG shipping is experiencing growth . The growing distances between the location of natural gas reserves and the nations that consume natural gas have caused an increase in the percentage of natural gas traded between countries. This has resulted in an increase in the portion of natural gas that is being transported in the form of LNG, which provides greater flexibility and generally lowers capital costs of shipping natural gas, as well as reduces the environmental impact compared to transportation by pipeline. Increases in planned capacity of liquefaction and regasification terminals are anticipated to increase export capacity significantly, requiring additional LNG carriers to facilitate transportation activity. According to Drewry, based on the current
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projections of liquefaction terminals that are planned or under construction, liquefaction capacity is expected to increase by approximately 29% by 2016. Approximately one million tonnes of LNG export capacity creates demand for approximately one to two LNG carriers with carrying capacity of 160,000 to 165,000 cbm each. According to Drewry, as of August 2013, global liquefaction capacity was 290.6 million tonnes, and an additional 84.0 million tonnes of liquefaction capacity is under construction and scheduled to be available by the end of 2016. Over the past three years, global LNG demand has continued to rise, but at a slower pace than previously predicted. Drewry estimates that LNG trade decreased by 1.2% in 2012 primarily due to delays at many liquefaction plants under construction and lower production as a result of planned and unplanned outages at various LNG facilities and the weakness in the world economy. However, based on current construction projects in Australia and the United States, LNG supply is expected to increase, and to have a beneficial impact on demand for shipping capacity.
A limited newbuilding orderbook and high barriers to entry should restrict the supply of new LNG carriers. According to Drewry, the current orderbook of LNG carriers represents 33.9% of current LNG carrier fleet carrying capacity. During the period from 2002 to 2012, the newbuilding orderbook of LNG carriers represented on average approximately 47.1% of the LNG carrier fleet carrying capacity. As of August 2013, 113 LNG carriers, with an aggregate carrying capacity of 18.3 million cbm, were on order for delivery for the period between 2013 to 2017, while the existing fleet consisted of 363 vessels with an aggregate capacity of 53.9 million cbm. We believe that the current orderbook is limited due to constrained construction capacity at high-quality shipyards and the long lead-time required for the construction of LNG carriers. While we believe this has restricted additional supply of new LNG carriers in the near-term, any increase in LNG carrier supply may place downward pressure on charter rates. In addition, we believe that there are significant barriers to entry in the LNG shipping sector, which also limit the current orderbook due to large capital requirements, limited availability of qualified vessel personnel, and the high degree of technical management required for LNG vessels.
Stringent customer certification standards favor established, high-quality operators. Major energy companies have developed stringent operational, safety and financial standards that LNG operators generally are required to meet in order to qualify for employment in their programs. Based on our Managers track record and long established operational standards, we believe that these rigorous and comprehensive certification standards will be a barrier to entry for less qualified and less experienced vessel operators and will provide us with an opportunity to establish relationships with new customers.
Increasing ownership of the global LNG carrier fleet by independent owners. According to Drewry, as of August 2013, 64% of the LNG fleet was owned by independent shipping companies, 21% was owned by LNG producers and 8% was owned by energy majors and end-users, respectively. We believe that private and state-owned energy companies will continue to seek high-quality independent owners, such as ourselves, for their growing LNG shipping needs in the future, driven in part by large capital requirements, and level of expertise necessary, to own and operate LNG vessels.
We can provide no assurance that the industry dynamics described above will continue or that we will be able to capitalize on these opportunities. Please see Risk Factors and The International Liquefied Natural Gas (LNG) Shipping Industry.
Competitive Strengths
We combine a number of features that we believe distinguish us from other LNG shipping companies.
Management
Broad based Sponsor experience. Under the leadership of Mr. George Prokopiou, our founder and Chairman, we, through our Sponsor and Manager, have developed an extensive network of relationships with
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major energy companies, leading LNG shipyards, and other key participants throughout the shipping industry. Although we were formed in May 2013, we believe that these longstanding relationships with shipping industry participants, including chartering brokers, shipbuilders and financial institutions, should provide us with profitable vessel acquisition and employment opportunities in the LNG sector, as well as access to financing that we will need to grow our Company. Since entering the shipping business in 1974, Mr. Prokopiou has founded and controlled various companies, including Dynacom Tankers Management, a Liberian company engaged in the management and operation of crude oil tankers and refined petroleum product tankers, Sea Traders S.A., or Sea Traders, a Panamanian company that manages and operates drybulk carriers and container vessels, and our Manager.
Strong management experience in the LNG shipping sector. Our management has managed and operated LNG carriers since 2004, and we believe that, through our Sponsor and Manager, and our Chairman we have acquired significant experience in the operation and ownership of LNG carriers. Our senior executives have an average of 25 years of shipping experience, including experience in the LNG sector. Furthermore, one of the vessels in our Initial Fleet, the Ob River , while operated by our Manager, became the worlds first LNG carrier to complete an LNG shipment via the Northern Sea Route, that is a shipping lane from the Atlantic Ocean to the Pacific Ocean entirely in Arctic waters, which demonstrated its extensive ice class capabilities. During this voyage, it achieved a significant reduction in navigation time compared to the alternative route through the Suez Canal, and accordingly, generated significant cost savings for its charterer, Gazprom. We believe this expertise, together with our reputation and track record in LNG shipping, positions us favorably to capture additional commercial opportunities in the LNG industry.
Cost-competitive and efficient operations. Our Manager will provide the technical and commercial management of our Initial Fleet and any other vessels we may acquire in the future. We believe that our Manager, through comprehensive preventive maintenance programs and by retaining and training qualified crew members, will be able to manage our vessels efficiently, safely and at a competitive cost.
Demonstrated access to financing. Our Sponsor funded the construction of the Optional Vessels through debt financing as well as equity provided by entities owned and controlled by members of the Prokopiou Family. Should we exercise our right to purchase any of the seven Optional Vessels, our Sponsor may novate to us the loan agreements secured by the Optional Vessels, subject to each respective lenders consent. We believe that our access to financing will improve our ability to capture future market opportunities and make further acquisitions, which we expect will increase the minimum quarterly distribution to our unitholders. In addition, upon the completion of this offering, our Sponsor has agreed to provide us with a $30.0 million revolving credit facility to be used for general partnership purposes, including working capital. This revolving credit facility will have a term of five years and will bear interest at LIBOR plus a margin. As of September 30, 2013, we had outstanding borrowings under our secured loan facilities of $348.2 million.
Fleet
Modern and high specification fleet Two of the three vessels in our Initial Fleet, the Clean Force and the Ob River , have been assigned with Lloyds Registers Ice Class designation, or its equivalent, for hull and machinery and are fully winterized, which means that they are designed to call at ice-bound and harsh environment terminals and to withstand temperatures up to minus 30 degrees Celsius. In addition, all of the Optional Vessels are being and have been constructed with the same characteristics and all of the Optional Vessels have or are expected to have upon their delivery the Ice Class designation, or its equivalent. We believe that these attractive characteristics should provide us with a competitive advantage in securing future charters with customers and enhance our vessels earnings potential. According to Drewry, the Clean Force and Ob River are two of only five LNG carriers in the global LNG fleet that are currently in operation which have been assigned an Ice Class designation, or its equivalent, and we are the only company in the world that is currently transiting the Northern Sea Route with LNG carriers. This means that only 1.4% of the LNG vessels in the global LNG fleet have this designation. We believe that these specifications enhance our trading capabilities and future
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employment opportunities because they provide greater flexibility in the trading routes available to our charterers. In addition, each of the Optional Vessels is being constructed with an efficient tri-fuel diesel electric propulsion system, which will significantly reduce both fuel costs and emissions.
Sister vessel efficiencies. The seven Optional Vessels consist of two series of sister vessels, vessels of the same type and specification, and our Initial Fleet of three LNG carriers are also sister vessels, which we believe will enable us to benefit from more chartering opportunities, economies of scale and operating and cost efficiencies in ship construction, crew training, crew rotation and shared spare parts. We believe that more chartering opportunities will be available to us because many charterers prefer sister vessels due to their interchangeability and ease of cargo scheduling associated with the use of sister vessels.
Built-in opportunity for fleet growth. In addition to our Initial Fleet, we will have the right to purchase the Optional Vessels from our Sponsor. We believe the staggered delivery dates of the seven Optional Vessels will facilitate a smooth integration of these vessels into our fleet if we purchase and take delivery of the vessels. Additionally, we will have the right to acquire from our Sponsor any LNG carrier it owns and employs under a charter with a term of four or more years. We believe these acquisition opportunities will provide us with a way to grow our cash distributions per unit. However, we can make no assurances regarding our ability to acquire these vessels from our Sponsor or our ability to increase cash distributions per unit as a result of any such acquisition. As of the date of this prospectus, we have not secured any financing in connection with the potential acquisition of the Optional Vessels or other vessels since it is uncertain if and when such purchase options will be exercised. Please see Certain Relationships and Related Party TransactionsOmnibus Agreement.
Commercial
Capitalize on growing demand for LNG shipping. We believe our Sponsors and our Managers industry reputation and relationships position us well to further expand our fleet to meet the growing demand for LNG shipping. We intend to leverage the relationships that we, our Sponsor and our Manager have with a number of major energy companies beyond our current customer base and explore relationships with other leading energy companies, with an aim to supporting their growth programs.
Pursue a multi-year chartering strategy. We currently focus on, and have entered into, multi-year time charters with international energy companies, which provide us with the benefits of stable cash flows and high utilization rates. All of the vessels in our Initial Fleet are currently time chartered on multi-year contracts, which should result in 100% of our calendar days being under charter coverage in 2013, 2014 and 2015 and as of September 30, 2013, are expected to provide us with total contracted revenue in excess of $303.1 million, excluding options to extend and assuming full utilization for the full term of the charter. The actual amount of revenues earned and the actual periods during which revenues are earned may differ from the amounts and periods described above due to, for example, off-hire for maintenance projects, downtime, scheduled or unscheduled dry-docking and other factors that result in lower revenues than our average contract backlog per day. In the LNG sector, shipowners generally tend to employ their vessels on multi-year charters for steady and secure returns. Charterers also want to have access to vessels for secured supply of cargoes at pre-determined charter rates which can meet their contractual sale and purchase commitments.
Strengthen relationships with customers . We, through our Sponsor and our Manager, have, over time, established relationships with several major LNG industry participants. The vessels in our Initial Fleet have, in the past, been chartered to numerous major international energy companies and conglomerates, in addition to our current charterers, BG Group and Gazprom. We expect that BG Group and Gazprom will further expand their LNG operations, and that their demand for additional LNG shipping capacity will also increase. While we cannot guarantee that BG Group and Gazprom will further expand their LNG operations or that they will use our services, we believe we are well positioned to support them in executing their growth plans if their demand for LNG carriers and services increases in the future. We intend to continue to adhere to the highest standards with regard to reliability, safety and operational excellence.
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Borrowing Activities
For a complete description of our credit facilities and the financial and restrictive covenants contained therein, please see Managements Discussion and Analysis of Financial Condition and Results of OperationsOur Borrowing Activities.
We are in advanced discussions with one of our lenders, an affiliate of Credit Suisse, to enter into the Proposed Senior Secured Revolving Credit Facility at or prior to the closing of this offering to permit, among other things, distributions to our unitholders and the other transactions contemplated herein. A portion of the proceeds of the Proposed Senior Secured Revolving Credit Facility, together with the net proceeds of this offering, will be used to repay all of our existing outstanding indebtedness effective upon the closing of this offering. The expected material terms of this new credit facility are set forth under the heading Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital ResourcesOur Borrowing ActivitiesProposed Senior Secured Revolving Credit Facility.
As a result of the Proposed Senior Secured Credit Facility and repayment of our existing indebtedness, effective as of the closing of this offering, the covenant breaches described above and elsewhere in this prospectus will have no further force or effect.
In addition, we have guaranteed two credit agreements of our Sponsor, with outstanding borrowings of an aggregate of up to $627 million, which are secured by four of the Optional Vessels, the Yenisei River , the Lena River , the Clean Ocean and the Clean Planet . The guarantees have been provided through certain of our subsidiaries, including the subsidiaries that own the vessels comprising our Initial Fleet. Our Sponsor is in discussions with its lenders to amend these two credit agreements at or prior to the closing of this offering to, among other things, release us from our obligations as guarantor effective upon the closing of this offering. Please see Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital ResourcesOur Sponsors Credit Agreements.
As a result of the amendment to these two loan agreements, effective as of the closing of this offering, we will be released from our obligations as guarantor under the loan agreements and will no longer guarantee any of our Sponsors debt.
The consummation of this offering is contingent upon our entry into the Proposed Senior Secured Revolving Credit Facility and the release of the guarantees described above.
We are currently unable to pay distributions to our unitholders. All of our credit agreements, other than the $150 Million Clean Energy Credit Facility, contain provisions that restrict our ability to declare and make distributions to our unitholders, and in the case of our $150 Million Clean Energy Credit Facility, no distributions may be paid to unitholders when there is an event of default that remains uncured.
As of June 30, 2013, we were in breach of the minimum liquidity requirement relating to our $193 Million Ob River Credit Facility, which requires us to maintain minimum liquidity of $30 million, while we maintained $2.8 million in restricted cash. We are currently in compliance with the remaining financial and liquidity covenants in our loan agreements. In addition, we were not in compliance with certain restrictive covenants relating to our credit agreements, which are described under the heading Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital ResourcesOur Borrowing ActivitiesViolation of Financial Covenants Under Certain of our Credit Facilities.
A violation of any of the financial covenants contained in our credit facilities described above constitutes an event of default under our credit facilities, which, unless cured under the applicable credit facility, if applicable,
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or waived or modified by our lenders, provides our lenders with the right to, among other things, require us to post additional collateral, enhance our equity and liquidity, increase our interest payments, pay down our indebtedness to a level where we are in compliance with our loan covenants, sell vessels in our fleet, reclassify our indebtedness as current liabilities and accelerate our indebtedness and foreclose their liens on our vessels and the other assets securing the credit facilities, which would impair our ability to continue to conduct our business.
On July 19, 2013, one of our lenders declared an event of default under one of our credit facilities. As of September 30, we have not requested or obtained waivers from our lenders for non-compliance with these covenants. We believe, however, that our lenders will not demand payment of the loans before their maturity, provided that we pay scheduled loan installments and interest as they fall due under the existing credit facilities.
Upon completion of this offering and the related transactions, we plan to fund the loan interest and scheduled loan repayments with cash expected to be generated from operations.
Vessel Management
Our Manager provides us with commercial and technical management services for our Initial Fleet and certain corporate governance and administrative services, pursuant to three identical agreements with our three wholly-owned vessel owning subsidiaries, or the Management Agreements. Our Manager is wholly-owned by Mr. George Prokopiou and has been providing these services for the vessels in our Initial Fleet for over eight years. In addition, our Manager performs the commercial and technical management of each of the Optional Vessels, which also includes the supervision of the construction of these vessels. Through our Manager, we have had a presence in LNG shipping for over eight years, and during that time we believe our Manager has established a track record for efficient, safe and reliable operation of LNG carriers.
We pay our Manager a technical management fee of $2,500 per day for each vessel, pro-rated for the calendar days we own each vessel, for providing the relevant vessel owning subsidiaries with services, including engaging and providing qualified crews, maintaining the vessel, arranging supply of stores and equipment, arranging and supervising periodic dry-docking, cleaning and painting and ensuring compliance with applicable regulations, including licensing and certification requirements.
In addition, we pay our Manager a commercial management fee equal to 1.25% of the gross charter hire, ballast bonus which is the amount paid to the ship owner as compensation for all or a part of the cost of positioning the vessel to the port where the vessel will be delivered to the charterer, or other income earned during the course of the employment of our vessels, during the term of the management agreements, for providing the relevant vessel-owning subsidiary with services, including chartering, managing freight payment, monitoring voyage performance, and carrying out other necessary communications with the shippers, charterers and others.
Under the Management Agreements, our Manager also provides us with certain administrative and support services.
Under the terms of the Management Agreements, we may terminate the Management Agreements upon written notice if our Manager fails to fulfill its obligations to us under the Management Agreements. The Management Agreements terminate automatically following a change of control in us. If the Management Agreements are terminated as a result of a change of control in us, then we will have to pay our Manager a termination penalty equal to the estimated remaining fees payable to our Manager for no less than for a period of 36 months and not more than a period of 60 months. For this purpose a change of control means (i) the acquisition of fifty percent or more by any individual, entity or group of the beneficial ownership or voting power of the outstanding shares of us or our vessel owning subsidiaries, (ii) the consummation of a reorganization, merger or consolidation of us and/or our vessel owning subsidiaries or the sale or other disposition of all or substantially all of our assets or those of our vessel owning subsidiaries and (iii) the approval of a complete liquidation or dissolution of us and/or our vessel owning subsidiaries. Additionally, the
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Management Agreements may be terminated by our Manager with immediate effect if, among other things, (i) we fail to meet our obligations and/or make due payments within ten business days from receipt of invoices, (ii) upon a sale or total loss of a vessel (with respect to that vessel), or (iii) if we file for bankruptcy.
We expect to pay an aggregate of approximately $2.8 million to our Manager in connection with the management of our Initial Fleet under the Management Agreements for the twelve months ending December 31, 2014.
In addition to such fees, we expect to pay for any capital expenditures, financial costs, operating expenses and any general and administrative expenses, including payments to third parties, in accordance with the Management Agreements.
The term of the Management Agreements with our Manager will expire on December 31, 2020, and will renew automatically for successive eight-year terms thereafter unless earlier terminated. The technical management fee of $2,500 per day for each vessel is fixed until December 31, 2013 and will thereafter increase annually by 3%, subject to further annual increases to reflect material unforeseen costs of providing the management services, by an amount to be agreed between us and our Manager, which will be reviewed and approved by the conflicts committee.
Pursuant to the terms of the Management Agreements, liability of our Manager to us is limited to instances of negligence, gross negligence or willful default on the part of our Manager. Further, we are required to indemnify our Manager for liabilities incurred by our Manager in performance of the Management Agreements, except in instances of negligence, gross negligence or willful default on the part of our Manager.
Additional LNG carriers that we acquire in the future may be managed by our Manager or other unaffiliated management companies.
How The Liquefied Natural Gas (LNG) Shipping Industry Works and Specifics about our Initial Fleet
Time Charters
We provide the LNG marine transportation services of the Clean Energy, Clean Force and the Ob River under time charters with BG Group and Gazprom, respectively. A time charter is a contract for the use of the vessel for a fixed period of time at a specified daily rate. Under our time charters, the vessel owner provides crewing and other services related to the vessels operation, the cost of which is included in the daily rate, and the customer is responsible for substantially all of the vessel voyage costs (including fuel, port and canal fees and LNG boil-off). The following discussion describes the material terms of our LNG carrier time charters.
Initial Term; Extensions
Clean Energy. The initial term of the charter with BG Group began in February 2012 and will terminate during the second quarter of 2017. BG Group has the option to extend the duration of the charter by an additional one three-year term at a further escalated daily gross rate, for the period up to August 2020.
Clean Force. The initial term of the charter with BG Group commenced in October 2010 and will terminate during the fourth quarter of 2016. This charter was subject to an outstanding option on the part of BG Group to extend the charter for one or two three-year periods by providing nine months notice prior to the end of each period. On January 2, 2013, BG Group exercised its first option to extend the duration of the charter until September 2016. The Clean Force charter provides that if BG Group exercises its option to extend the charter beyond its initial term, the hire rate for the first three-year extension period will be increased by approximately 38% and by approximately an additional 16% for the second three-year extension period. The latest expiration date upon exercising of all options is January 2020.
Ob River. The initial term of the charter with Gazprom Group began in September 2012 and will terminate in the second quarter of 2018 assuming latest redelivery.
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Hire Rate
Hire rate refers to the basic payment from the customer for use of the ship. Under all of our time charters, the hire rate is payable to us monthly in advance in U.S. dollars.
Expenses
Under all of our LNG carrier charters, we are responsible for vessel operating expenses, which include crewing, repairs and maintenance, insurance, stores, lube oils, brokers, commissions and communication expenses and the cost of providing all of these items and services. The customer generally pays the voyage expenses, which include all expenses relating to particular voyages, including any bunker fuel expenses, LNG boil-off, port fees, cargo loading and unloading expenses, canal tolls, agency fees and commissions.
Off-hire
When the vessel is off-hireor not available for servicethe charterer generally is not required to pay the hire rate and we are responsible for all costs. Prolonged off-hire may lead to vessel substitution or termination of the time charter.
A vessel generally will be deemed off-hire if there is a specified time it is not available for the customers use due to, among other things:
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operational deficiencies, dry-docking for repairs, maintenance or inspection, equipment breakdowns, or delays due to accidents, crewing strikes, certain vessel detentions or similar problems; or |
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our failure to maintain the vessel in compliance with its specifications and contractual standards or to provide the required crew |
Vessels are drydocked at least once during a five-year class cycle for inspection of the underwater parts and for repairs related to inspections. Our vessels are considered to be off-hire under our time charters during such periods.
Ship Management and Maintenance
Under the charters, we are responsible for the technical management of our vessels, including engaging and providing qualified crews, maintaining the vessel, arranging supply of stores and equipment, periodic dry-docking, cleaning and painting and ensuring compliance with applicable regulations, including licensing and certification requirements. Our Manager provides these services to our subsidiaries for all our vessels.
Termination and Cancellation
Under our time charters, each party has certain termination rights which include, among other things, the automatic termination of a charter upon loss of the relevant ship. Either party may elect to terminate a charter upon the occurrence of specified defaults or upon the outbreak of war or hostilities involving two or more major nations, such as the United States or the Peoples Republic of China, if such war or hostilities materially and adversely affect the trading of the ship for a period of at least 30 days. In addition, our charterers have the option to terminate a charter if the relevant ship is off-hire for any reason other than scheduled dry-docking for a period exceeding 90 consecutive days, or for more than 90 days or 110 days, depending on the charter, in any one-year period. Certain of our charters give the charterer a termination option for shorter periods of off-hire, if such off-hire is due to an uncured breach of our obligations to maintain the applicable ship.
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Newbulding vessels construction
A newbuilding vessel is defined as a new vessel currently under construction in a shipyard or just completed. A purchaser may decide to enter the shipbuilding market instead of acquiring a second hand vessel for several different reasons, including the desire to construct a new vessel with certain technical specifications to meet specific business objectives. Unlike a second hand vessel which is readily available in the open market, a newbuilding vessel is acquired through a shipbuilding contract between the purchaser and the shipyard and the delivery ranges between 1-3 years depending on, among other things, on the shipyard orderbook and capacity. In connection with the contracting of newbuildings, purchasers generally are required to make installment payments prior to their delivery. Purchasers typically must pay a percentage of the purchase price upon signing the purchase contract. Purchasers are also required to pay similar installments throughout the construction of the vessel, which are usually connected with certain shipbuilding milestones.
Classification, Inspection and Maintenance
Every large, commercial seagoing vessel must be classed by a classification society. A classification society certifies that a vessel is in class, signifying that the vessel has been built and maintained in accordance with the rules of the classification society and the vessels country of registry and the international conventions of which that country is a member. In addition, where surveys are required by international conventions and corresponding laws and ordinances of a flag state, the classification society will undertake them on application or by official order, acting on behalf of the authorities concerned.
For maintenance of the class certificate, regular and special surveys of hull, machinery, including the electrical plant and any special equipment classed, are required to be performed by the classification society, to ensure continuing compliance. Vessels are dry-docked at least once during a five-year class cycle for inspection of the underwater parts and for repairs related to inspections. Vessels under five years of age can waive dry docking in order to increase available days and decrease capital expenditures, provided the vessel is inspected underwater. If any defects are found, the classification surveyor will issue a recommendation which must be rectified by the shipowner within prescribed time limits. The classification society also undertakes on request of the flag state other surveys and checks that are required by the regulations and requirements of that flag state. These surveys are subject to agreements made in each individual case and/or to the regulations of the country concerned.
Most insurance underwriters make it a condition for insurance coverage that a vessel be certified as in class by a classification society, which is a member of the International Association of Classification Societies (the IACS). In 2012, the IACS issued draft harmonized Common Structure Rules that align with IMO goal standards, and are expected to be adopted in 2013. All of the vessels in our Initial Fleet are certified by Lloyds Register, have been awarded ISM certification and are currently in class.
Our Manager carries out inspections of the ships on a regular basis; both at sea and while the vessels are in port. The results of these inspections, which are conducted both in port and underway, result in a report containing recommendations for improvements to the overall condition of the vessel, maintenance, safety and crew welfare. Based in part on these evaluations we create and implement a program of continual maintenance and improvement for our vessels and their systems.
Safety, Management of Ship Operations and Administration
Safety is our top operational priority. Our vessels are operated in a manner intended to protect the safety and health of the crew, the general public and the environment. We actively manage the risks inherent in our business and are committed to preventing incidents that threaten safety, such as groundings, fires and collisions. We are also committed to reducing emissions and waste generation. We have established key performance indicators to facilitate regular monitoring of our operational performance. We set targets on an annual basis to drive continuous improvement, and we review performance indicators monthly to determine if remedial action is
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necessary to reach our targets. Our Managers shore staff performs a full range of technical, commercial and business development services for us. This staff also provides administrative support to our operations in finance, accounting and human resources.
Crewing and Staff
As of September 30, 2013, we did not employ any offshore staff. Our Manager provides us with commercial and technical management services, including all necessary crew-related services, to our vessel-owning subsidiaries pursuant to the Management Agreements. Please see Certain Relationships and Related Party TransactionsVessel Management.
Risk of Loss, Insurance and Risk Management
The operation of any vessel, including LNG carriers, has inherent risks. These risks include mechanical failure, personal injury, collision, property loss, vessel or cargo loss or damage and business interruption due to political circumstances in foreign countries or hostilities. In addition, there is always an inherent possibility of marine disaster, including explosion, spills and other environmental mishaps, and the liabilities arising from owning and operating vessels in international trade. We believe that our present insurance coverage is adequate to protect us against the accident related risks involved in the conduct of our business and that we maintain appropriate levels of environmental damage and pollution insurance coverage consistent with standard industry practice. However, not all risks can be insured, and there can be no guarantee that any specific claim will be paid, or that we will always be able to obtain adequate insurance coverage at reasonable rates.
We have obtained hull and machinery insurance on all our vessels against marine and war risks, which include the risks of damage to our vessels, salvage or towing costs, and also insure against actual or constructive total loss of any of our vessels. However, our insurance policies contain deductible amounts for which we will be responsible. We have also arranged additional total loss coverage for each vessel. This coverage, which is called hull interest and freight interest coverage, provides us additional coverage in the event of the total loss of a vessel.
We have also obtained loss of hire insurance to protect us against loss of income in the event one of our vessels cannot be employed due to damage that is covered under the terms of our hull and machinery insurance. Under our loss of hire policies, our insurer will pay us the daily rate agreed in respect of each vessel for each day, in excess of a certain number of deductible days, for the time that the vessel is out of service as a result of damage, for a maximum of 120 days. The number of deductible days varies from 14 days to 120 days, depending on the type of damage, machinery or hull damage.
Protection and indemnity insurance, which covers our third party legal liabilities in connection with our shipping activities, is provided by a mutual protection and indemnity association, or P&I club. This includes third party liability and other expenses related to the injury or death of crew members, passengers and other third party persons, loss or damage to cargo, claims arising from collisions with other vessels or from contact with jetties or wharves and other damage to other third party property, including pollution arising from oil or other substances, and other related costs, including wreck removal. Subject to the capping discussed below, our coverage, except for pollution, is unlimited.
Our current protection and indemnity insurance coverage for pollution is $1 billion per vessel per incident. The thirteen P&I clubs that comprise the International Group of Protection and Indemnity Clubs insure approximately 90% of the worlds commercial tonnage and have entered into a pooling agreement to reinsure each associations liabilities. Each P&I club has capped its exposure in this pooling agreement so that the maximum claim covered by the pool and its reinsurance would be approximately $5.45 billion per accident or occurrence. We are a member of the North of England P&I Club. As a member of these P&I clubs, we are subject to a call for additional premiums based on the clubs claims record, as well as the claims record of all
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other members of the P&I clubs comprising the International Group. However, our P&I clubs have reinsured the risk of additional premium calls to limit our additional exposure. This reinsurance is subject to a cap, and there is the risk that the full amount of the additional call would not be covered by this reinsurance.
Environmental and Other Regulation
General
Governmental and international agencies extensively regulate the carriage, handling, storage and regasification of LNG. These regulations include international conventions and national, state and local laws and regulations in the countries where our vessels now or, in the future, will operate or where our vessels are registered. We cannot predict the ultimate cost of complying with these regulations, or the impact that these regulations will have on the resale value or useful lives of our vessels. Various governmental and quasi-governmental agencies require us to obtain permits, licenses and certificates for the operation of our vessels.
Although we believe that we are substantially in compliance with applicable environmental laws and regulations and have all permits, licenses and certificates required for our vessels, future non-compliance or failure to maintain necessary permits or approvals could require us to incur substantial costs or temporarily suspend operation of one or more of our vessels. A variety of governmental and private entities inspect our vessels on both a scheduled and unscheduled basis. These entities, each of which may have unique requirements and each of which conducts frequent inspections, include local port authorities, such as the U.S. Coast Guard, harbor master or equivalent, classification societies, flag state, or the administration of the country of registry, charterers, terminal operators and LNG producers.
International Maritime Regulations of LNG Vessels
The IMO is the United Nations agency that provides international regulations governing shipping and international maritime trade, including the International Convention on Civil Liability for Oil Pollution Damage, the International Convention on Civil Liability for Bunker Oil Pollution Damage, and the International Convention for the Prevention of Pollution from Ships, or the MARPOL Convention. The flag state, as defined by the United Nations Convention on Law of the Sea, has overall responsibility for the implementation and enforcement of international maritime regulations for all ships granted the right to fly its flag. The Shipping Industry Guidelines on Flag State Performance evaluates flag states based on factors such as sufficiency of infrastructure, ratification of international maritime treaties, implementation and enforcement of international maritime regulations, supervision of surveys, casualty investigations, and participation at IMO meetings. The requirements contained in the International Management Code for the Safe Operation of Ships and for Pollution Prevention (the ISM Code) promulgated by the IMO, govern our operations. Among other requirements, the ISM Code requires the party with operational control of a vessel to develop an extensive safety management system that includes, among other things, the adoption of a policy for safety and environmental protection policy setting forth instructions and procedures for operating its vessels safely and also describing procedures for responding to emergencies. We are compliant with the requirement to hold a Document of Compliance under the ISM Code.
Vessels that transport gas, including LNG carriers are also subject to regulation under the International Gas Carrier Code (or the IGC Code) published by the IMO. The IGC Code provides a standard for the safe carriage of LNG and certain other liquid gases by prescribing the design and construction standards of vessels involved in such carriage. Compliance with the IGC Code must be evidenced by a Certificate of Fitness for the Carriage of Liquefied Gases of Bulk. Each of our vessels is in compliance with the IGC Code and each of our newbuilding/conversion contracts requires that the vessel receive certification that it is in compliance with applicable regulations before it is delivered. Non-compliance with the IGC Code or other applicable IMO regulations may subject a shipowner or a bareboat charterer to increased liability, may lead to decreases in available insurance coverage for affected vessels and may result in the denial of access to, or detention in, some ports.
The IMO also promulgates ongoing amendments to the International Convention for the Safety of Life at Sea 1974 and its protocol of 1988, otherwise known as SOLAS. SOLAS provides rules for the construction of and equipment required for commercial vessels and includes regulations for safe operation. It requires the
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provision of lifeboats and other life-saving appliances, requires the use of the Global Maritime Distress and Safety System which is an international radio equipment and watchkeeping standard, afloat and at shore stations, and relates to the International Convention on Standards of Training, Certification and Watchkeeping for Seafarers (or STCW) also promulgated by the IMO. Flag states that have ratified SOLAS and STCW generally employ the classification societies, which have incorporated SOLAS and STCW requirements into their class rules, to undertake surveys to confirm compliance.
In the wake of increased worldwide security concerns, the IMO amended SOLAS and added the International Ship and Port Facilities Security Code (ISPS) as a new chapter to that convention. The objective of the ISPS, which came into effect on July 1, 2004, is to detect security threats and take preventive measures against security incidents affecting ships or port facilities. Our Manager has developed Security Plans, appointed and trained Ship and Office Security Officers and all of our vessels have been certified to meet the ISPS Code. See Vessel Security Regulations for a more detailed discussion about these requirements.
SOLAS and other IMO regulations concerning safety, including those relating to treaties on training of shipboard personnel, lifesaving appliances, radio equipment and the global maritime distress and safety system, are applicable to our operations. Non-compliance with these types of IMO regulations may subject us to increased liability or penalties, may lead to decreases in available insurance coverage for affected vessels and may result in the denial of access to or detention in some ports. For example, the U.S. Coast Guard and European Union authorities have indicated that vessels not in compliance with the ISM Code will be prohibited from trading in U.S. and European Union ports.
The MARPOL Convention establishes environmental standards relating to oil leakage or spilling, garbage management, sewage, air emissions, handling and disposal of noxious liquids and the handling of harmful substances in packaged form.
The IMO amended Annex I to MARPOL, including a new regulation relating to oil fuel tank protection, and the new regulation applies to various ships delivered on or after August 1, 2010. It includes requirements for the protected location of the fuel tanks, performance standards for accidental oil fuel outflow, a tank capacity limit and certain other maintenance, inspection and engineering standards. IMO regulations also require owners and operators of vessels to adopt Ship Oil Pollution Emergency Plans. Periodic training and drills for response personnel and for vessels and their crews are required.
The IMO continues to review and introduce new regulations. It is impossible to predict what additional regulations, if any, may be passed by the IMO and what effect, if any, such regulation may have on our operations.
Air Emissions
In September 1997, the IMO adopted MARPOL 73/78 Annex VI Regulations for the prevention of Air Pollution (or Annex VI) to MARPOL to address air pollution from ships. Annex VI came into force on May 19, 2005. It applies to all ships, fixed and floating drilling rigs and other floating platforms and sets limits on sulfur oxide and nitrogen oxide emissions from ship exhausts, and prohibits deliberate emissions of ozone depleting substances, such as chlorofluoro carbons. Annex VI also includes a global cap on sulfur content of fuel oil and allows for special areas to be established with more stringent controls on sulfur emissions. The certification requirements for Annex VI depend on size of the vessel and time of periodical classification survey. Ships weighing more than 400 gross tons and engaged in international voyages involving countries that have ratified the conventions, or ships flying the flag of those countries, are required to have an International Air Pollution Prevention Certificate (or an IAPP Certificate). Annex VI has been ratified by some but not all IMO member states. Annex VI came into force in the United States on January 8, 2009. All the vessels in our Initial Fleet have been issued with IAPP Certificates.
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On July 1, 2010 amendments to Annex VI to the MARPOL Convention that require progressively stricter limitations on sulfur emissions from ships proposed by the United States, Norway and other IMO member states took effect. Beginning on January 1, 2012, fuel used to power ships may contain no more than 3.5% sulfur. This cap will then decrease progressively until it reaches 0.5% by January 1, 2020. However, in Emission Control Areas (or ECAs), limitations on sulfur emissions require that fuels contain no more than 1% sulfur and will be further reduced to 0.1% on January 1, 2015. For example, in August 2012, the North American ECA became enforceable. The North American ECA includes areas subject to the exclusive sovereignty of the United States and Canada. Consequently, in August 2012, when the North American ECA became effective, the sulfur limit in marine fuel will be capped at 1%, which is the capped amount for all other ECA areas since July 1, 2010. The amendments also establish new tiers of stringent nitrogen oxide emissions standards for new marine engines, depending on their date of installation. Further, the European directive 2005/33/EU, which became effective from January 1, 2010, bans the use of fuel oils containing more than 0.1% sulfur by mass by any merchant vessel while at berth in any EU country. Our vessels have achieved compliance , where necessary, by being arranged to burn gas only in their boilers when alongside. Marine Gas Oil and Low Sulfur Marine Gas Oil, or MGO and LSMGO, respectively, have been purchased as the only fuel for the Diesel Generators.
Additionally, as discussed above, more stringent emission standards could apply in coastal areas designated as ECAs, such as the United States and Canadian coastal areas designated by the IMOs Marine Environment Protection Committee (MEPC), as discussed in U.S. Clean Air Act below. U.S. air emissions standards are now equivalent to these amended Annex VI requirements, and once these amendments become effective, we may incur costs to comply with these revised standards. Additional or new conventions, laws and regulations may be adopted that could require the installation of expensive emission control systems.
Ballast Water Management Convention
The IMO has negotiated international conventions that impose liability for oil pollution in international waters and the territorial waters of the signatory to such conventions. For example, the IMO adopted an International Convention for the Control and Management of Ships Ballast Water and Sediments (or the BWM Convention) in February 2004. The BWM Conventions implementing regulations call for a phased introduction of mandatory ballast water exchange requirements (beginning in 2009), to be replaced in time with a requirement for mandatory ballast water treatment. The BWM Convention will not become effective until 12 months after it has been adopted by 30 states, the combined merchant fleets of which represent not less than 35% of the gross tonnage of the worlds merchant shipping. The Convention has not yet entered into force because a sufficient number of states have failed to adopt it. The IMO has passed a resolution encouraging the ratification of the Convention and calling upon those countries that have already ratified to encourage the installation of ballast water management systems on new ships. As referenced below, the U.S. Coast Guard issued new ballast water management rules on March 23, 2012. Under the requirements of the convention for units with ballast water capacity more than 5000 cubic meters that were constructed in 2011 or before, ballast water management exchange or treatment will be accepted until 2016. From 2016 (or not later than the first intermediate or renewal survey after 2016), only ballast water treatment will be accepted by the Convention.
Bunkers Convention/CLC State Certificate
The International Convention on Civil Liability for Bunker Oil Pollution 2001 (or the Bunker Convention) entered into force in State Parties to the Convention on November 21, 2008. The Convention provides a liability, compensation and compulsory insurance system for the victims of oil pollution damage caused by spills of bunker oil. The Convention requires the ship owner liable to pay compensation for pollution damage (including the cost of preventive measures) caused in the territory, including the territorial sea of a State Party, as well as its economic zone or equivalent area. Registered owners of any sea going vessel and seaborne craft over 1,000 gross tonnage, of any type whatsoever, and registered in a State Party, or entering or leaving a port in the territory of a State Party, will be required to maintain insurance which meets the requirements of the Convention and to obtain a certificate issued by a State Party attesting that such insurance is in force. The State issued certificate must be carried on board at all times.
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Although the United States is not a party to these conventions, many countries have ratified and follow the liability plan adopted by the IMO and set out in the International Convention on Civil Liability for Oil Pollution Damage of 1969, as amended in 2000, or the CLC. Under this convention and depending on whether the country in which the damage results is a party to the 1992 Protocol to the CLC, a vessels registered owner is strictly liable for pollution damage caused in the territorial waters of a contracting state by discharge of persistent oil, subject to certain complete defenses. The limited liability protections are forfeited under the CLC where the spill is caused by the owners actual fault and under the 1992 Protocol where the spill is caused by the owners intentional or reckless conduct. Vessels trading to states that are parties to these conventions must provide evidence of insurance covering the liability of the owner. In jurisdictions where the CLC has not been adopted, various legislative schemes or common law govern, and liability is imposed either on the basis of fault or on a strict liability basis.
P&I Clubs in the International Group issue the required Bunkers Convention Blue Cards to enable signatory states to issue certificates. All of our vessels have received Blue Cards from their P&I Club and are in possession of a CLC State-issued certificate attesting that the required insurance cover is in force.
Anti-Fouling Requirements
In 2001, the IMO adopted the International Convention on the Control of Harmful Anti-fouling Systems on Ships, or the Anti-fouling Convention. The Anti-fouling Convention, which entered into force on September 17, 2008, prohibits the use of organotin compound coatings to prevent the attachment of mollusks and other sea life to the hulls of vessels after September 1, 2003. Vessels of over 400 gross tons engaged in international voyages must obtain an International Anti-fouling System Certificate and undergo a survey before the vessel is put into service or when the antifouling systems are altered or replaced. We have obtained Anti-fouling System Certificates for all of our vessels that are subject to the Anti-Fouling Convention and do not believe that maintaining such certificates will have an adverse financial impact on the operation of our vessels.
United States Environmental Regulation of LNG Vessels
Our vessels operating in U.S. waters now or, in the future, will be subject to various federal, state and local laws and regulations relating to protection of the environment. In some cases, these laws and regulations require us to obtain governmental permits and authorizations before we may conduct certain activities. These environmental laws and regulations may impose substantial penalties for noncompliance and substantial liabilities for pollution. Failure to comply with these laws and regulations may result in substantial civil and criminal fines and penalties. As with the industry generally, our operations will entail risks in these areas, and compliance with these laws and regulations, which may be subject to frequent revisions and reinterpretation, increases our overall cost of business.
Oil Pollution Act and CERCLA
The U.S. Oil Pollution Act of 1990 (OPA 90) established an extensive regulatory and liability regime for environmental protection and clean up of oil spills. OPA 90 affects all owners and operators whose vessels trade with the United States or its territories or possessions, or whose vessels operate in the waters of the United States, which include the U.S. territorial waters and the two hundred nautical mile exclusive economic zone of the United States. The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) applies to the discharge of hazardous substances whether on land or at sea. While OPA 90 and CERCLA would not apply to the discharge of LNG, they may affect us because we carry oil as fuel and lubricants for our engines, and the discharge of these could cause an environmental hazard. Under OPA 90, vessel operators, including vessel owners, managers and bareboat or demise charterers, are responsible parties who are all liable regardless of fault, individually and as a group, for all containment and clean-up costs and other damages arising from oil spills from their vessels. These responsible parties would not be liable if the spill results solely from
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the act or omission of a third party, an act of God or an act of war. The other damages aside from clean-up and containment costs are defined broadly to include:
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natural resource damages and related assessment costs; |
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real and personal property damages; |
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net loss of taxes, royalties, rents, profits or earnings capacity; |
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net cost of public services necessitated by a spill response, such as protection from fire, safety or health hazards; and |
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loss of subsistence use of natural resources. |
Effective July 31, 2009, the U.S. Coast Guard adjusted the limits of OPA liability to the greater of $2,000 per gross ton or $17.088 million for any double-hull tanker that is over 3,000 gross tons (subject to possible adjustment for inflation). These limits of liability do not apply, however, where the incident is caused by violation of applicable U.S. federal safety, construction or operating regulations, or by the responsible partys gross negligence or willful misconduct. These limits likewise do not apply if the responsible party fails or refuses to report the incident or to cooperate and assist in connection with the substance removal activities. This limit is subject to possible adjustment for inflation. OPA 90 specifically permits individual states to impose their own liability regimes with regard to oil pollution incidents occurring within their boundaries, and some states have enacted legislation providing for unlimited liability for discharge of pollutants within their waters. In some cases, states, which have enacted their own legislation, have not yet issued implementing regulations defining shipowners responsibilities under these laws.
CERCLA, which also applies to owners and operators of vessels, contains a similar liability regime and provides for cleanup, removal and natural resource damages for releases of hazardous substances. Liability under CERCLA is limited to the greater of $300 per gross ton or $0.5 million for each release from vessels not carrying hazardous substances as cargo or residue, and $300 per gross ton or $5 million for each release from vessels carrying hazardous substances as cargo or residue. As with OPA 90, these limits of liability do not apply where the incident is caused by violation of applicable U.S. federal safety, construction or operating regulations, or by the responsible partys gross negligence or willful misconduct or if the responsible party fails or refuses to report the incident or to cooperate and assist in connection with the substance removal activities. OPA 90 and CERCLA each preserve the right to recover damages under existing law, including maritime tort law. We believe that we are in substantial compliance with OPA 90, CERCLA and all applicable state regulations in the ports where our vessels call.
OPA 90 requires owners and operators of vessels to establish and maintain with the U.S. Coast Guard evidence of financial responsibility sufficient to meet the limit of their potential strict liability under OPA 90/CERCLA. Under the regulations, evidence of financial responsibility may be demonstrated by insurance, surety bond, self-insurance or guaranty. Under OPA 90 regulations, an owner or operator of more than one vessel is required to demonstrate evidence of financial responsibility for the entire fleet in an amount equal only to the financial responsibility requirement of the vessel having the greatest maximum liability under OPA 90/CERCLA. Each of our shipowning subsidiaries that has vessels trading in U.S. waters has applied for, and obtained from the U.S. Coast Guard National Pollution Funds Center, three-year certificates of financial responsibility, supported by guarantees which we purchased from an insurance based provider. We believe that we will be able to continue to obtain the requisite guarantees and that we will continue to be granted certificates of financial responsibility from the U.S. Coast Guard for each of our vessels that is required to have one.
In response to the BP Deepwater Horizon oil spill, the U.S. Congress is currently considering a number of bills that could potentially increase or even eliminate the limits of liability under OPA 90. Compliance with any new requirements of OPA 90 may substantially impact our cost of operations or require us to incur additional expenses to comply with any new regulatory initiatives or statutes. Additional legislation, regulation, or other
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requirements applicable to the operation of our vessels that may be implemented in the future as a result of the recent BP Deepwater Horizon oil spill in the Gulf of Mexico could adversely affect our business and ability to make distributions to our unitholders.
Clean Water Act
The United States Clean Water Act (or CWA) prohibits the discharge of oil or hazardous substances in United States navigable waters unless authorized by a permit or exemption, and imposes strict liability in the form of penalties for unauthorized discharges. The CWA also imposes substantial liability for the costs of removal, remediation and damages and complements the remedies available under OPA and CERCLA. In additional, many U.S. states that border a navigable waterway have enacted environmental pollution laws that impose strict liability on a person for removal costs and damages resulting from a discharge of oil or a release of a hazardous substance. These laws may be more stringent that U.S. federal law.
The EPA regulates the discharge of ballast water, bilge water, and other discharges incidental to the normal operation of vessels within U.S. waters. Under the new rules, which took effect February 6, 2009, commercial vessels 79 feet in length or longer (other than commercial fishing vessels), or Regulated Vessels, are required to obtain a CWA permit regulating and authorizing such normal discharges. This permit, which the EPA has designated as the Vessel General Permit for Discharges Incidental to the Normal Operation of Vessels (or VGP) incorporates the current U.S. Coast Guard requirements for ballast water management as well as supplemental ballast water requirements, and includes limits applicable to 26 specific discharge streams, such as deck runoff, bilge water and gray water. For each discharge type, among other things, the VGP establishes effluent limits pertaining to the constituents found in the effluent, including best management practices (or BMPs) designed to decrease the amount of constituents entering the waste stream. Unlike land-based discharges, which are deemed acceptable by meeting certain EPA-imposed numerical effluent limits, each of the 26 VGP discharge limits is deemed to be met when a Regulated Vessel carries out the BMPs pertinent to that specific discharge stream. The VGP imposes additional requirements on certain Regulated Vessel types that emit discharges unique to those vessels. Administrative provisions, such as inspection, monitoring, recordkeeping and reporting requirements, are also included for all Regulated Vessels. Several U.S. states have added specific requirements to the VGP and, in some cases, may require vessels to install ballast water treatment technology to meet biological performance standards. On March 28, 2013 the EPA issued a 2013 VGP that will become effective on December 19, 2013 when the current 2008 VGP expires. The 2013 VGP contains ballast water discharge standards for most vessels that now contain numeric limits. EPA is also planning to finalize the VGP for small vessels- the sVGP but the final rule has not yet been issued.
On March 8, 2011, EPA reached a settlement with several environmental groups and the State of Michigan regarding EPAs issuance of the VGP. As part of the settlement, EPA agreed to include in the next draft VGP numeric concentration-based effluent limits for discharges of ballast water expressed as organisms per unit of ballast water volume. These requirements correspond with the IMOs adoption of similar requirements as discussed above. On March 28, 2013 the EPA issued a 2013 VGP that will become effective on December 19, 2013 when the current 2008 VGP expires. The 2013 VGP contains ballast water discharge standards for most vessels that now contain numeric limits. Later this year the EPA is also planning to finalize the VGP for small vessels- the small VGP.
National Aquatic Invasive Species Act
The National Invasive Species Act (or NISA) was enacted in 1996 in response to growing reports of harmful organisms being released into U.S. ports through ballast water taken on by ships in foreign ports. NISA established a ballast water management program for ships entering U.S. waters. Under NISA, mid-ocean ballast water exchange is voluntary, except for ships heading to the Great Lakes, Hudson Bay, or vessels engaged in the foreign export of Alaskan North Slope crude oil. However, NISAs exporting and record-keeping requirements are mandatory for vessels bound for any port in the United States. Although ballast water exchange is the primary
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means of compliance with the acts guidelines, compliance can also be achieved through the retention of ballast water onboard the ship, or the use of environmentally sound alternative ballast water management methods approved by the U.S. Coast Guard. If the mid-ocean ballast exchange is made mandatory throughout the United States, or if water treatment requirements or options are instituted, the costs of compliance could increase for ocean carriers.
As of June 21, 2012, the U.S. Coast Guard implemented revised regulations on ballast water management by establishing standards for the allowable concentration of living organisms in ballast water discharged in U.S. waters. The revised regulations adopt ballast water discharge standards for vessels calling on U.S. ports and intending to discharge ballast water equivalent to those set in IMOs BWM Convention. The final rule requires that ballast water discharge have no more than 10 living organisms per milliliter for organisms between 10 and 50 micrometers in size. For organisms larger than 50 micrometers, the discharge can have 10 living organisms per cubic meter of discharge. New ships constructed on or after December 1, 2012 must comply with these standards and some existing ships must comply with these standards and some existing ships must comply by their first dry dock after January 1, 2014. The U.S. Coast Guard will review the practicability of implementing a more stringent ballast water discharge standard and publish the results no later than January 1, 2016. Compliance with these regulations will require us to incur additional costs and other measures that may be significant.
Clean Air Act
The U.S. Clean Air Act of 1970, as amended (or the CAA) requires the EPA to promulgate standards applicable to emissions of volatile organic compounds and other air contaminants. Our vessels are subject to vapor control and recovery requirements for certain cargoes when loading, unloading, ballasting, cleaning and conducting other operations in regulated port areas and emission standards for so-called Category 3 marine diesel engines operating in U.S. waters. The marine diesel engine emission standards are currently limited to new engines beginning with the 2004 model year. On April 30, 2010, the EPA promulgated final emission standards for Category 3 marine diesel engines equivalent to those adopted in the amendments to Annex VI to MARPOL. The emission standards apply in two stages: near-term standards for newly-built engines will apply from 2011, and long-term standards requiring an 80% reduction in nitrogen dioxides (or NOx) will apply from 2016. Compliance with these standards may cause us to incur costs to install control equipment on our vessels in the future.
Other Regulations
The European Union has also adopted legislation that would: (1) ban manifestly sub-standard vessels (defined as those over 15 years old that have been detained by port authorities at least twice in a six month period) from European waters and create an obligation of port states to inspect vessels posing a high risk to maritime safety or the marine environment; and (2) provide the European Union with greater authority and control over classification societies, including the ability to seek to suspend or revoke the authority of negligent societies.
The European Union has implemented regulations requiring vessels to use reduced sulfur content fuel for their main and auxiliary engines. The EU Directive 2005/EC/33 (amending Directive 1999/32/EC) introduced parallel requirements in the European Union to those in MARPOL Annex VI in respect of the sulfur content of marine fuels. In addition, it has introduced a 0.1% maximum sulfur requirement for fuel used by ships at berth in EU ports, effective January 1, 2010.
In 2005, the European Union adopted a directive on ship-source pollution, imposing criminal sanctions for intentional, reckless or negligent pollution discharges by ships. The directive could result in criminal liability for pollution from vessels in waters of European countries that adopt implementing legislation. Criminal liability for pollution may result in substantial penalties or fines and increased civil liability claims. We cannot predict what regulations, if any, may be adopted by the European Union or any other country or authority.
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Regulation of Greenhouse Gas Emissions
In February 2005, the Kyoto Protocol entered into force. Pursuant to the Kyoto Protocol, adopting countries are required to implement national programs to reduce emissions of certain gases, generally referred to as greenhouse gases, which are suspected of contributing to global warming. Currently, the emissions of greenhouse gases from ships involved in international transport are not subject to the Kyoto Protocol. In December 2009, more than 27 nations, including the United States and China, signed the Copenhagen Accord, which includes a non-binding commitment to reduce greenhouse gas emissions. In addition, in December 2011, the Conference of the Parties to the United Nations Convention on Climate Change adopted the Durban Platform which calls for a process to develop binding emissions limitations on both developed and developing countries under the United Nations Framework Convention on Climate Change applicable to all Parties. The European Union has indicated that it intends to propose an expansion of the existing European Union emissions trading scheme to include emissions of greenhouse gases from marine vessels, and in January 2012, the European Commission launched a public consultation on possible measures to reduce greenhouse gas emissions from ships.
As of January 1, 2013, all ships (including rigs and drillships) must comply with mandatory requirements adopted by MEPC in July 2011 relating to greenhouse gas emissions. The amendments to MARPOL Annex VI Regulations for the prevention of air pollution from ships add a new Chapter 4 to Annex VI on Regulations on energy efficiency requiring the Energy Efficiency Design Index (EEDI), for new ships, and the Ship Energy Efficiency Management Plan (SEEMP) for all ships. Other amendments to Annex VI add new definitions and requirements for survey and certification, including the format for the International Energy Efficiency Certificate. The regulations apply to all ships of 400 gross tonnage and above. These new rules will likely affect the operations of vessels that are registered in countries that are signatories to MARPOL Annex VI or vessels that call upon ports located within such countries. The implementation of the EEDI and SEEMP standards could cause us to incur additional compliance costs. The IMO is also planning to implement market-based mechanisms to reduce greenhouse gas emissions from ships at an upcoming MEPC session. It is impossible to predict the likelihood that such a standard might be adopted or its potential impact on our operations at this time.
In the United States, the EPA has issued a final finding that greenhouse gases threaten public health and safety, and has promulgated regulations that regulate the emission of greenhouse gases. In 2009 and 2010, EPA adopted greenhouse reporting requirements for various onshore facilities, and also adopted a rule potentially imposing control technology requirements on certain stationary sources subject to the federal Clean Air Act. The EPA may decide in the future to regulate greenhouse gas emissions from ships and has already been petitioned by the California Attorney General to regulate greenhouse gas emissions from ocean-going vessels. Other federal and state regulations relating to the control of greenhouse gas emissions may follow, including climate change initiatives that have recently been considered in the U.S. Congress. Any passage of climate control legislation or other regulatory initiatives by the IMO, the European Union, the United States, or other countries where we operate, or any treaty adopted at the international level to succeed the Kyoto Protocol, that restrict emissions of greenhouse gases could require us to make significant financial expenditures, including capital expenditures to upgrade our vessels, that we cannot predict with certainty at this time. In addition, even without such regulation, our business may be indirectly affected to the extent that climate change results in sea level changes or more intense weather events.
Vessel Security Regulations
Since the terrorist attacks of September 11, 2001, there have been a variety of initiatives intended to enhance vessel security. On November 25, 2002, the Maritime Transportation Act of 2002 (or MTSA) came into effect. To implement certain portions of the MTSA, in July 2003, the U.S. Coast Guard issued regulations requiring the implementation of certain security requirements aboard vessels operating in waters subject to the jurisdiction of the United States. Similarly, in December 2002, amendments to SOLAS created a new chapter of the convention dealing specifically with maritime security. The new chapter became effective in July 2004 and imposes various detailed security obligations on vessels and port authorities, most of which are contained in the
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ISPS Code. The ISPS Code is designed to protect ports and international shipping against terrorism. After July 1, 2004, to trade internationally, a vessel must attain an International Ship Security Certificate (or ISSC) from a recognized security organization approved by the vessels flag state.
Among the various requirements are:
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on-board installation of automatic identification systems to provide a means for the automatic transmission of safety-related information from among similarly equipped ships and shore stations, including information on a ships identity, position, course, speed and navigational status; |
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on-board installation of ship security alert systems, which do not sound on the vessel but only alerts the authorities on shore; |
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the development of vessel security plans; |
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ship identification number to be permanently marked on a vessels hull; |
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a continuous synopsis record kept onboard showing a vessels history including, the name of the ship and of the state whose flag the ship is entitled to fly, the date on which the ship was registered with that state, the ships identification number, the port at which the ship is registered and the name of the registered owner(s) and their registered address; and |
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compliance with flag state security certification requirements. |
The U.S. Coast Guard regulations, intended to align with international maritime security standards, exempt non-U.S. vessels from obtaining U.S. Coast Guard-approved MTSA vessel security plans provided such vessels have on board an ISSC that attests to the vessels compliance with SOLAS security requirements and the ISPS Code.
Our Manager has developed Security Plans, appointed and trained Ship and Office Security Officers and each of our vessels in our fleet complies with the requirements of the ISPS Code, SOLAS and the MTSA.
Other Regulation
Our LNG vessels may also become subject to the 2010 HNS Convention, if it is entered into force. The Convention creates a regime of liability and compensation for damage from hazardous and noxious substances (or HNS), including liquefied gases. The 2010 HNS Convention sets up a two-tier system of compensation composed of compulsory insurance taken out by shipowners and an HNS Fund which comes into play when the insurance is insufficient to satisfy a claim or does not cover the incident. Under the 2010 HNS Convention, if damage is caused by bulk HNS, claims for compensation will first be sought from the shipowner up to a maximum of 100 million Special Drawing Rights (or SDR). If the damage is caused by packaged HNS or by both bulk and packaged HNS, the maximum liability is 115 million SDR. Once the limit is reached, compensation will be paid from the HNS Fund up to a maximum of 250 million SDR. The 2010 HNS Convention has not been ratified by a sufficient number of countries to enter into force, and we cannot estimate the costs that may be needed to comply with any such requirements that may be adopted with any certainty at this time.
In-House Inspections
Our Manager carries out ship audits and inspections of the ships on a regular basis; both at sea and while the vessels are in port. The results of these inspections, which are conducted both in port and underway, result in a report containing recommendations for improvements to the overall condition of the vessel, maintenance, safety and crew welfare. Based in part on these evaluations, our Manager has created and implemented a program of continual maintenance for our vessels and their systems.
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Properties
Other than our vessels, we do not own any material property.
Legal Proceedings
From time to time we have been, and expect to continue to be, subject to legal proceedings and claims in the ordinary course of our business, principally personal injury and property casualty claims. These claims, even if lacking merit, could result in the expenditure of significant financial and managerial resources. We are not aware of any legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on us.
Company Information
The address of our principal executive offices is 97 Poseidonos Avenue & 2 Foivis Street, Glyfada 16674 Greece. Our telephone number at that address is 011 30 210 89 17 260. After the completion of this offering, we will maintain a website at www.dynagaspartners.com. Information contained on our website does not constitute part of this prospectus. We own our vessels through separate wholly-owned subsidiaries that are incorporated in the Republic of the Marshall Islands, Republic of Liberia and the Island of Nevis.
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Management of Dynagas LNG Partners LP
Our Partnership Agreement provides that our General Partner will delegate to our board of directors the authority to oversee and direct our operations, management and policies on an exclusive basis, and such delegation will be binding on any successor general partner of the partnership. Our General Partner is wholly-owned by our Sponsor. Our executive officers, who are employed by us, will manage our day-to-day activities consistent with the policies and procedures adopted by our board of directors.
Upon the closing of this offering, our board of directors will consist of five members appointed by our General Partner. We expect that all of our directors and director nominees, other than George Prokopiou and Tony Lauritzen, will be independent. We will hold a meeting of the limited partners every year to elect one or more members of our board of directors and to vote on any other matters that are properly brought before the meeting. Our General Partner has the right to appoint two of the five members of our board of directors who will serve as directors for terms determined by our General Partner. Directors appointed by our General Partner will serve as directors for terms determined by our General Partner. Directors elected by our common unitholders are divided into three classes serving staggered three-year terms. Three of the five directors initially appointed by our General Partner will serve until our first annual meeting in 2014, at which time they will be replaced by three directors nominated by our General Partner and elected by our common unitholders. One of the three directors elected by our common unitholders will be designated as the Class I elected director and will serve until our annual meeting of unitholders in 2015, another of the three directors will be designated as the Class II elected director and will serve until our annual meeting of unitholders in 2016, and the remaining director will be designated as our Class III elected director and will serve until our annual meeting of unitholders in 2017. At each subsequent annual meeting of unitholders, directors will be elected to succeed the class of directors whose terms have expired by a plurality of the votes of the common unitholders. Directors elected by our common unitholders will be nominated by the board of directors or by any limited partner or group of limited partners that holds at least 15% of the outstanding common units.
Each outstanding common unit is entitled to one vote on matters subject to a vote of common unitholders. However, to preserve our ability to be exempt from U.S. federal income tax under Section 883 of the U.S. Internal Revenue Code of 1986, as amended (or the Code), if at any time, any person or group owns beneficially more than 4.9% of any class of units then outstanding, any such units owned by that person or group in excess of 4.9% may not be voted on any matter and will not be considered to be outstanding when sending notices of a meeting of unitholders, calculating required votes (except for purposes of nominating a person for election to our board), determining the presence of a quorum or for other similar purposes under our Partnership Agreement, unless otherwise required by law. The voting rights of any such unitholders in excess of 4.9% will effectively be redistributed pro rata among the other common unitholders holding less than 4.9% of the voting power of all classes of units entitled to vote. Our General Partner, its affiliates and persons who acquired common units with the prior approval of our board of directors will not be subject to this 4.9% limitation except with respect to voting their common units in the election of the elected directors. For more information, see The Partnership AgreementVoting Rights.
Corporate Governance Practices
We have certified to Nasdaq that our corporate governance practices are in compliance with, and are not prohibited by, the laws of the Republic of the Marshall Islands. Therefore, we are exempt from many of Nasdaqs corporate governance practices other than the requirements regarding the disclosure of a going concern audit opinion, submission of a listing agreement, notification to Nasdaq of non-compliance with Nasdaq corporate governance practices, prohibition on disparate reduction or restriction of shareholder voting rights, and the establishment of an audit committee satisfying Nasdaq Listing Rule 5605(c)(3) and ensuring that such audit
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committees members meet the independence requirement of Listing Rule 5605(c)(2)(A)(ii). The practices we follow in lieu of Nasdaqs corporate governance rules applicable to U.S. domestic issuers are as follows:
Audit Committee. Nasdaq requires, among other things, that a listed U.S. company have an audit committee with a minimum of three members, all of whom are independent. As permitted by Rule 10A-3 under the Exchange Act, our audit committee will be, effective as of the closing of this offering, comprised of two independent directors.
Nominating/Corporate Governance Committee . Nasdaq requires that director nominees be selected, or recommended for the boards selection, either by a nominating committee comprised solely of independent directors or by a majority of independent directors. Each listed company also must certify that it has adopted a formal charter or board resolution addressing the nominations process. As permitted under Marshall Islands law and our Partnership Agreement, we do not currently have a nominating or corporate governance committee.
Executive Sessions. Nasdaq requires that non-management directors meet regularly in executive sessions without management. Nasdaq also requires that all independent directors meet in an executive session at least once a year. As permitted under Marshall Islands law and our Partnership Agreement, our non-management directors do not regularly hold executive sessions without management and we do not expect them to do so in the future.
Corporate Governance Guidelines. Nasdaq requires that a listed U.S. Company adopt a code of conduct applicable to all directors, officers and employees, which must provide for an enforcement mechanism. Disclosure of any director or officers waiver of the code and the reasons for such waiver is required. We are not required to adopt such guidelines under Marshall Islands law and we have not adopted such guidelines.
Proxies . As a foreign private issuer, we are not required to solicit proxies or provide proxy statements to Nasdaq pursuant to Nasdaq corporate governance rules or Marshall Islands law. Consistent with Marshall Islands law and as provided in our Partnership Agreement, we will notify our unitholders of meetings between 15 and 60 days before the meeting. This notification will contain, among other things, information regarding business to be transacted at the meeting. In addition, our Partnership Agreement provides that unitholders must give us between 150 and 180 days advance notice to properly introduce any business at a meeting of unitholders.
Other than as noted above, we are in compliance with all Nasdaq corporate governance standards applicable to U.S. domestic issuers. We believe that our established corporate governance practices satisfy Nasdaqs listing standards.
Conflicts Committee
We will also have a conflicts committee ultimately comprised of at least two independent members of our board of directors. The conflicts committee will be available at the boards discretion to review specific matters that the board believes may involve conflicts of interest. The conflicts committee will determine if the resolution of the conflict of interest is fair and reasonable to us. The members of the conflicts committee may not be officers or employees of us or directors, officers or employees of our General Partner or its affiliates. Any matters approved by the conflicts committee will be conclusively deemed to be fair and reasonable to us, approved by all of our partners, and not a breach by our directors, our General Partner or its affiliates of any duties any of them may owe us or our unitholders. Our initial conflicts committee will be comprised of and one or more additional directors who will be appointed after the closing of this offering. For additional information about the conflicts committee, see Conflicts of Interest and Fiduciary Duties.
Our officers, our Chairman and the other individuals providing services to us or our subsidiaries may face a conflict regarding the allocation of their time between our business and the other business interests of our Sponsor, our Manager and/or or other business interests. The amount of time our officers and our Chairman will allocate between our business and other business interests will vary from time to time depending on various
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circumstances and needs of the businesses, such as the level of strategic activities of the businesses. Our officers, our Chairman and the other individuals providing services to us intend to devote as much time to the management of our business and affairs as is necessary for the proper conduct of our business and affairs.
Whenever our General Partner makes a determination or takes or declines to take an action in its individual capacity rather than in its capacity as our General Partner, it is entitled to make such determination or to take or decline to take such other action free of any fiduciary duty or obligation whatsoever to us or any limited partner, and our General Partner is not required to act in good faith or pursuant to any other standard imposed by our Partnership Agreement or under the Partnership Act or any other law. Specifically, our General Partner will be considered to be acting in its individual capacity if it exercises its call right, pre-emptive rights, registration rights or right to make a determination to receive common units in a resetting of the target distribution levels related to its incentive distribution rights, consents or withholds consent to any merger or consolidation of the partnership, appoints any directors or votes for the appointment of any director, votes or refrains from voting on amendments to our Partnership Agreement that require a vote of the outstanding units, voluntarily withdraws from the partnership, transfers (to the extent permitted under our Partnership Agreement) or refrains from transferring its units, General Partner interest or the incentive distribution rights it owns or votes upon the dissolution of the partnership.
Directors and Senior Management
The following provides information about each of our directors, director nominees and senior management. The business address for these individuals is 97 Poseidonos Avenue & 2 Foivis Street, Glyfada 16674 Greece.
Name |
Age |
Position |
||||
George Prokopiou |
67 | Chairman of the Board of Directors | ||||
Tony Lauritzen |
36 | Chief Executive Officer and Director | ||||
Michael Gregos |
42 | Chief Financial Officer | ||||
Levon Dedegian(1) |
62 | Director | ||||
Alexios Rodopoulos(1) |
65 | Director | ||||
Evangelos Vlahoulis(1) |
68 | Director |
(1) | Messrs. Levon Dedegian, Alexios Rodopoulos and Evangelos Vlahoulis have each agreed to serve on our board of directors effective immediately after the effectiveness of the registration statement of which this prospectus forms a part. |
Biographical information concerning the executive officers and directors listed above is set forth below.
George Prokopiou . Mr. George Prokopiou has served as our Chairman of our board of directors since our inception. Since entering the shipping business in 1974, Mr. Prokopiou has managed a shipping fleet consisting in excess of 250 vessels and is among other, the founder of Dynacom Tankers Management, Sea Traders and Dynagas Ltd., our Manager. Dynacom was founded in 1991 to manage tankers and Sea Traders SA was founded in 1974 to manage bulk carriers. Since 2002, companies controlled by Mr. Prokopiou and his family have built more than 93 vessels at shipyards in South Korea, Japan and China. Mr. Prokopiou holds a civil engineering degree from the National Technical University of Athens. Mr. Prokopiou has also served as Chairman of the North of England P&I Association. He is Chairman of the Greek committee of Bureau Veritas, as well as member of the Greek committees of Germanischer Lloyd, Det Norske Veritas, Lloyds Register and ABS. In 2005 Dynacom was awarded Tanker Company of the Year award in 2005 by Lloyds List.
Tony Lauritzen . Mr. Tony Lauritzen has served as our Chief Executive Officer since our inception. Mr. Lauritzen has served on our board of directors since our inception. Mr. Lauritzen has been the commercial manager of our Sponsors LNG activities from 2006 to date. He joined the company when the first vessel was delivered in 2007. He worked for the shipowner and shipmanager Bernhard Schulte Shipmanagement Ltd. from 2004 until 2007 where he was project manager with a focus on the gas shipping segment. Prior to that, he worked for Westshore Shipbrokers AS in the offshore shipbroking segment. He holds a Master of Science in Shipping
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Trade and Finance from Cass Business School, London from 2003 and a Master of Arts in Business and Finance from Heriot Watt University, Edinburgh from 2002. Mr. Lauritzen is married to Marina Kalliope Prokopiou, daughter of our Chairman George Prokopiou.
Michael Gregos. Mr. Michael Gregos has served as our Chief Financial Officer since our inception. Since 2010, Mr. Gregos has served on the board of Ocean Rig UDW Inc. (NASDAQ: ORIG). Mr. Gregos has served as commercial manager of the activities of Dynacom Tankers Management since 2009. From 2007 to 2009, Mr. Gregos served as Chief Operating Officer of OceanFreight Inc. a shipping transportation company listed on NASDAQ. Prior to that, Mr. Gregos was commercial manager of the activities of Dynacom Tankers Management. Mr. Gregos has also worked for Oceania Maritime Agency, a shipping transportation company in Connecticut, USA and ATE Finance the corporate finance arm of Agricultural Bank of Greece responsible for the implementation of initial public offerings in the Greek equities market. He is a graduate of Queen Mary University in London and holds an M.Sc. in Shipping, Trade and Finance from City University.
Levon A. Dedegian . Mr. Levon A. Dedegian has agreed to serve as one of our directors. Mr. Dedegian has been involved in shipping since 1975 with various companies and positions. From 1978 to 1984, he served as general manager of Sea Traders. In 1985, he joined S.S.R.S. Ltd., a member of the Manley Hopkins Group of Companies. In 1987 he was transferred to Hong Kong, where he stayed until 1988 as a Managing Director of each of Gapco Trading and Agencies Limited, Bridge Energy ASA and Elf Agriculture. He was relocated to Greece at the end of 1988 as Managing Director of the Greek office of P. Wigham Richardson Shipbrokers and in 1989 he rejoined Sea Traders and Dynacom Tankers Management as general manager where he remained until December 31, 2009. Mr. Dedegian is a graduate of Pierce College (the American College of Greece) and holds a Bsc in Business Administration and Economics.
Alexios Rodopoulos. Mr. Alexios Rodopoulos has agreed to serve as one of our directors. Mr. Rodopoulos is an independent shipping business consultant, operating through his family-owned company, Rodofin Business Consultants Ltd. From 1999 until 2011 Mr. Rodopoulos served as the Head of Shipping (Piraeus) of Royal Bank of Scotland (RBS). Mr. Rodopoulos is a graduate of the Economic University of Athens, Greece.
Evangelos Vlahoulis . Mr. Evangelos Vlahoulis has agreed to serve as one of our directors. Since 2005, Mr. Vlahoulis has served as Chief Executive Officer of Finship S.A. which provides maritime financing services including to Deutsche Bank in connection with their shipping activities in Greece. From 1984 until 2005 Mr. Vlahoulis served as the representative for Greek shipping of Deutsche Schiffsbank (the predecessor to Commercebank AB). Mr. Vlahoulis is a graduate of London University and holds a BA in Economics.
Executive Compensation
We have not paid any compensation to our executive officers or accrued any obligations with respect to management incentive or retirement benefits prior to this offering. Upon the completion of this offering we plan to enter into employment agreements with individuals who will provide executive management services that were previously provided by our Sponsor. We expect that aggregate annual compensation to members of our executive management will be approximately $ , excluding management unit compensation.
Mr. Tony Lauritzen, our Chief Executive Officer, Mr. Michael Gregos, our Chief Financial Officer, and certain other officers, will be involved in other business activities with our Sponsor and its affiliates, which may result in their spending less time than is appropriate or necessary to manage our business successfully. Based solely on the anticipated relative sizes of our Initial Fleet and the fleet owned by our Sponsor and its affiliates over the next twelve months, we estimate that Mr. Tony Lauritzen and certain other officers may spend a substantial portion of their monthly business time on our business activities and their remaining time on the business of our Sponsor and its affiliates. However, the actual allocation of time could vary significantly from time to time depending on various circumstances and needs of the businesses, such as the relative levels of strategic activities of the businesses. This could have a material adverse effect on our business, financial condition, results of operations and cash flows.
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Compensation of Directors
Our chief executive officer who also serves as our director will not receive additional compensation for his service as director. We anticipate that each non-management director will receive compensation for attending meetings of our board of directors, as well as committee meetings. We expect non-management directors will receive director fees of approximately $120,000 per year, in aggregate. In addition, each director will be reimbursed for out-of-pocket expenses in connection with attending meetings of the board of directors or committees. Each director will be fully indemnified by us for actions associated with being a director to the extent permitted under Marshall Islands law.
Reimbursement of Expenses of Our General Partner
Our General Partner will not receive compensation from us for any services it provides on our behalf, although it will be entitled to reimbursement for expenses incurred on our behalf.
Employees
As of June 30, 2013 and December 31, 2012, we did not employ any onshore or offshore staff. Our Manager has provided and continues to provide us with commercial and technical management services, including all necessary crew-related services, to our vessel owning subsidiaries pursuant to the Management Agreements.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of common units as of the date of this prospectus and upon completion of this offering held by beneficial owners of 5% or more of our common units and by all of our directors and officers as a group. All of our unitholders, including the unitholders listed in the table below, are entitled to one vote for each unit held, subject to certain limitations.
Common Units to
be
Beneficially Owned before the Offering |
Subordinated Units to
be
Beneficially Owned After Offering |
|||||||||||||||
Name and Address of Beneficial Owner |
Number | Percentage(1) | Number | Percentage(2) | ||||||||||||
Dynagas Holding Ltd. (3) |
100% | |||||||||||||||
Our directors and executive officers as a group |
* | * | * | * |
* | Less than 1.0% of our outstanding common units. |
(1) | Calculated based on common units, which assumes the underwriters do not exercise their over-allotment option |
(2) | Calculated based on subordinated units. |
(3) | Dynagas Holding Ltd. is beneficially owned by the Prokopiou family, including George Prokopiou and his daughters Elisavet Prokopiou, Johanna Prokopiou, Marina Kalliope Prokopiou, and Maria Eleni Prokopiou, which collectively have a business address at 97 Poseidonos Avenue & 2 Foivis Street Glyfada, 16674, Greece. |
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Upon the completion of this offering, our Sponsor will own common units and all of the subordinated units, representing a % limited partner interest in us, assuming the underwriters over-allotment option is not exercised. In addition, our General Partner will own a 0.1% general partner interest in us and 100% of our incentive distribution rights. Our General Partners ability to control the appointment of two of the five members of our board of directors and to approve certain significant actions we may take, and our Sponsors common and subordinated unit ownership and its right to vote the subordinated units as a separate class on certain matters, means that both our General Partner and Sponsor, together with their affiliates, will have the ability to exercise influence regarding our management.
Distributions and Payments to our General Partner and Its Affiliates
The following table summarizes the distributions and payments to be made by us to our General Partner and its affiliates in connection with our formation, ongoing operation and any liquidation. These distributions and payments were determined by and among affiliated entities and, consequently, are not the result of arms-length negotiations.
Formation Stage
The consideration received by our General Partner and its affiliates in exchange for the transfer to us of the vessels in our fleet. |
| common units and subordinated units to be issued to our Sponsor.; plus |
|
general partner units representing a 0.1% General Partner interest in us and 100% of our incentive distribution rights to be issued to our General Partner. |
See Prospectus SummaryFormation Transactions for further information about our formation and assets contributed to us in connection with the closing of this offering. The common units and subordinated units to be owned our Sponsor after giving effect to this offering represent a % limited partner interest in us, assuming no exercise of the underwriters over-allotment option. For more information, see The Partnership AgreementVoting Rights and The Partnership AgreementAmendment of the Partnership Agreement.
Operational Stage
Distributions of available cash to our General Partner and its affiliates |
We will generally make cash distributions of 99.9% of available cash to unitholders (including our Sponsor, the holder of common units and subordinated units) and the remaining 0.1% to our General Partner. |
In addition, if distributions exceed the minimum quarterly distribution and other higher target levels, our General Partner, as the holder of the incentive distribution rights, will be entitled to increasing percentages of the distributions, up to 49.9% of the distributions above the highest target level. We refer to the rights to the increasing distributions as incentive distribution rights. See How We Make Cash DistributionsIncentive Distribution Rights for more information regarding the incentive distribution rights. |
Assuming we have sufficient available cash to pay the full minimum quarterly distribution on all of our outstanding units for four quarters,
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but no distributions in excess of the full minimum quarterly distribution, our General Partner would receive an annual distribution of approximately $ million on its 0.1% General Partner interest and our Sponsor would receive an annual distribution of approximately $ million on its common and subordinated units.
Payments to our General Partner and its affiliates |
Our General Partner will not receive compensation from us for any services it provides on our behalf. Our General Partner and its other affiliates will be entitled to reimbursement for all direct and indirect expenses they incur on our behalf. In addition, we will pay fees to our Manager for commercial and technical management services and certain administrative support services. |
Withdrawal or removal of our General Partner |
If our General Partner withdraws or is removed, its General Partner interest will either be sold to the new General Partner for cash or converted into common units, in each case for an amount equal to the fair market value of those interests. See The Partnership AgreementWithdrawal or Removal of our General Partner. |
Liquidation Stage
Liquidation |
Upon our liquidation, the partners, including our General Partner, will be entitled to receive liquidating distributions as described in The Partnership AgreementLiquidation and Distribution of Proceeds. |
Agreements Governing the Transactions
We, our General Partner, our subsidiaries and certain affiliates have entered into various documents and agreements that will affect the transactions relating to our formation and this offering, including the vesting of assets in, and the assumption of liabilities by, us and our subsidiaries. These agreements will not be the result of arms-length negotiations and they, or any of the transactions that they provide for, may not be effected on terms at least as favorable to the parties to these agreements as they could have obtained from unaffiliated third parties. All of the transaction expenses incurred in connection with these transactions will be paid from the proceeds of this offering.
Omnibus Agreement
At the closing of this offering, we will enter into an Omnibus Agreement with our Sponsor and our General Partner. The following discussion describes certain provisions that we expect will be included in the Omnibus Agreement.
Noncompetition
Under the Omnibus Agreement, our Sponsor has agreed, and has caused its affiliates (other than us, and our subsidiaries) to agree, not to acquire, own, operate or contract for any LNG carrier operating under a charter with an initial term of four or more years after the closing of this offering. We refer to these LNG carriers, together with any related contracts, as Four-Year LNG carriers and to all other LNG carriers, together with any related contracts, as Non-Four-Year LNG carriers. The restrictions in this paragraph will not prevent our Sponsor or any of its controlled affiliates (including us and our subsidiaries) from:
(1) | acquiring, owning, operating or chartering Non-Four-Year LNG carriers; |
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(2) | acquiring one or more Four-Year LNG carrier(s) if our Sponsor promptly offers to sell the LNG carrier to us for the acquisition price plus any administrative costs (including reasonable legal costs) associated with the transfer to us at the time of the acquisition; |
(3) | employing a Non-Four-Year LNG carrier under a charter with a term of four or more years if our Sponsor offers to sell the LNG carrier to us at an agreed purchase price pursuant to the terms and conditions of the Omnibus Agreement (x) promptly after becoming a Four-Year LNG carrier and (y) at each renewal or extension of that contract for four or more years; |
(4) | acquiring one or more Four-Year LNG carrier(s) as part of the acquisition of a controlling interest in a business or package of assets and owning, operating or chartering for such LNG carrier(s); provided, however, that: |
(a) | if less than a majority of the value of the business or assets acquired is attributable to Four-Year LNG carriers, as determined in good faith by the board of directors of our Sponsor, it must offer to sell such Four-Year LNG carrier(s) to us at a purchase price pursuant to the terms and conditions of the Omnibus Agreement plus any additional tax or other similar costs that our Sponsor incurs in connection with the acquisition and the transfer of such LNG carriers to us separate from the acquired business; and |
(b) | if a majority or more of the value of the business or assets acquired is attributable to Four-Year LNG carriers, as determined in good faith by the board of directors of our Sponsor, it must notify us of the proposed acquisition in writing. Not later than 10 days following receipt of such notice, we will notify our Sponsor if we wish to acquire such LNG carriers in cooperation and simultaneously with our Sponsor acquiring the Non-Four-Year LNG carriers. If we do not notify our Sponsor of our intent to pursue the acquisition within 10 days, our Sponsor may proceed with the acquisition and then offer to sell such LNG carriers to us as provided in (a) above; |
(5) | acquiring a non-controlling interest in any company, business or pool of assets; |
(6) | acquiring, owning, operating or chartering any Four-Year LNG carrier if we do not fulfill our obligation to purchase such LNG carrier in accordance with the terms of any existing or future agreement; |
(7) | acquiring, owning, operating or chartering a Four-Year LNG carrier that is subject to the offers to us described in paragraphs (2), (3) and(4) above pending our determination whether to accept such offers and pending the closing of any offers we accept; |
(8) | providing vessel management services relating to LNG carriers; |
(9) | owning or operating any Four-Year LNG carrier that our Sponsor owned and operated as of the closing date of this offering, and that was not included in the Initial Fleet. |
(10) | acquiring, owning, operating or chartering any Four-Year LNG carrier if we have previously advised our Sponsor that we consent to such acquisition, operation or charter. |
If our Sponsor or any of its controlled affiliates (other than us or our subsidiaries) acquires, owns, operates or contracts for Four-Year LNG carriers pursuant to any of the exceptions described above, it may not subsequently expand that portion of its business other than pursuant to those exceptions.
Under the Omnibus Agreement we will not be restricted from acquiring, operating or chartering Non-Four-Year LNG carriers.
Upon a change of control of us or our General Partner, the noncompetition provisions of the Omnibus Agreement will terminate immediately. Upon a change of control of our Sponsor, the noncompetition provisions of the Omnibus Agreement applicable to our Sponsor will terminate at the time that is the later of (1) the date of the change of control of our Sponsor and (2) the date on which all of our outstanding subordinated units have
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converted to common units. In addition, on the date on which a majority of our directors ceases to consist of directors that were (1) appointed by our General Partner prior to our first annual meeting of unitholders and (2) recommended for election by a majority of our appointed directors, the noncompetition provisions applicable to our Sponsor shall terminate immediately.
Rights to Purchase Optional Vessels
We will receive the right to purchase the Optional Vessels from our Sponsor at a purchase price to be determined pursuant to the terms and conditions of the Omnibus Agreement, which we intend to enter into with our Sponsor and our General Partner at the closing of this offering. These purchase rights will expire 24 months following the respective delivery of each Optional Vessel from the shipyard. If we are unable to agree with our Sponsor on the purchase price of any of the Optional Vessels, the respective purchase price will be determined by an independent appraiser, such as an investment banking firm, broker or firm generally recognized in the shipping industry as qualified to perform the tasks for which such firm has been engaged, and we will have the right, but not the obligation, to purchase each vessel at such price. The independent appraiser will be mutually appointed by our Sponsor and our conflicts committee.
Rights of First Offer on LNG carriers
Under the Omnibus Agreement, we and our subsidiaries have granted to our Sponsor the right of first offer on any proposed sale, transfer or other disposition of any LNG carrier owned by us. Under the Omnibus Agreement, our Sponsor has agreed (and will cause their subsidiaries to agree) to grant a similar right of first offer to us for any Four-Year LNG carriers they own. These rights of first offer will not apply to (a) with respect to the Sponsor, a sale, transfer or other disposition of assets between or among any of its subsidiaries (other than us) and with respect to us, a sale, transfer or other disposition of assets between or among any of our subsidiaries (other than the Sponsor, if applicable), or pursuant to the terms of any contract or other agreement with a contractual counterparty existing at the time of the closing of this offering or (b) a merger with or into, or sale of substantially all of the assets to, an unaffiliated third-party.
Prior to engaging in any negotiation regarding any LNG carriers disposition with respect to a Four-Year LNG carrier with a non-affiliated third party, we or our Sponsor, as the case may be, will deliver a written notice to the other relevant party setting forth the material terms and conditions of the proposed transaction. During the 30-day period after the delivery of such notice, we and our Sponsor will negotiate in good faith to reach an agreement on the transaction. If we do not reach an agreement within such 30-day period, we or our Sponsor, as the case may be, will be able within the next 180 calendar days to sell, transfer, dispose or re-contract the LNG carrier to a third party (or to agree in writing to undertake such transaction with a third party) on terms generally no less favorable to us or our Sponsor as the case may be, than those offered pursuant to the written notice.
Upon a change of control of us or our General Partner, the right of first offer provisions of the Omnibus Agreement will terminate immediately.
Upon a change of control of our Sponsor, the right of first offer provisions applicable to our Sponsor under the Omnibus Agreement will terminate at the time that is the later of the date of the change of control and the date on which all of our outstanding subordinated units have converted to common units. On the date on which a majority of our directors ceases to consist of directors that were (1) appointed by our General Partner prior to our first annual meeting of unitholders and (2) recommended for election by a majority of our appointed directors, the provisions related to the rights of first offer granted to us by our Sponsor shall terminate immediately.
For purposes of the Omnibus Agreement a change of control means, with respect to any applicable person, any of the following events: (a) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the applicable persons assets to any other person, unless immediately following such sale, lease, exchange or other transfer such assets are owned, directly or indirectly,
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by the applicable person; (b) the consolidation or merger of the applicable person with or into another person pursuant to a transaction in which the outstanding voting securities of the applicable person are changed into or exchanged for cash, securities or other property, other than any such transaction where (i) the outstanding voting securities of the applicable person are changed into or exchanged for voting securities of the surviving person or its parent and (ii) the holders of the voting securities of the applicable person immediately prior to such transaction own, directly or indirectly, not less than a majority of the outstanding voting securities of the surviving person or its parent immediately after such transaction; and (c) a person or group (within the meaning of Sections 13(d) or 14(d)(2) of the Exchange Act), other than our Sponsor or its Affiliates with respect to the General Partner, being or becoming the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act) of more than 50% of all of the then outstanding voting securities of the applicable person, except in a merger or consolidation which would not constitute a change of control under clause (b) above.
Indemnification
Under the Omnibus Agreement, our Sponsor will indemnify us after the closing of this offering for a period of two years against certain environmental and toxic tort liabilities with respect to the assets contributed or sold to us to the extent arising prior to or at the time they were contributed or sold to us.
Liabilities resulting from a change in law after the closing of this offering are excluded from the environmental indemnity. There is an aggregate cap of $5 million on the amount of indemnity coverage provided by our Sponsor for environmental and toxic tort liabilities. No claim may be made unless the aggregate dollar amount of all claims exceeds $500,000, in which case our Sponsor is liable for claims only to the extent such aggregate amount exceeds $500,000.
Our Sponsor will also indemnify us for liabilities related to:
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certain defects in title to our Sponsors assets contributed or sold to us and any failure to obtain, prior to the time they were contributed or sold to us, certain consents and permits necessary to conduct, own and operate such assets, which liabilities arise within three years after the closing of this offering (or, in the case of the seven Optional Vessels which we have rights to purchase, within three years after our purchase of them, if applicable); and |
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tax liabilities attributable to the operation of the assets contributed or sold to us prior to the time they were contributed or sold. |
Amendments
The Omnibus Agreement may not be amended without the prior approval of the conflicts committee of our board of directors if the proposed amendment will, in the reasonable discretion of our board of directors, adversely affect holders of our common units.
Vessel Management
Our Manager provides us with commercial and technical management services for our Initial Fleet and certain corporate governance and administrative services, pursuant to three identical agreements with our three wholly-owned vessel owning subsidiaries, or the Management Agreements. Our Manager is wholly-owned by Mr. George Prokopiou and has been providing these services for the vessels in our Initial Fleet for over eight years. In addition, our Manager performs the commercial and technical management of each of the Optional Vessels, which also includes the supervision of the construction of these vessels. Through our Manager, we have had a presence in LNG shipping for over eight years, and during that time we believe our Manager has established a track record for efficient, safe and reliable operation of LNG carriers.
We pay our Manager a technical management fee of $2,500 per day for each vessel, pro-rated for the calendar days we own each vessel, for providing the relevant vessel owning subsidiaries with services,
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including engaging and providing qualified crews, maintaining the vessel, arranging supply of stores and equipment, arranging and supervising periodic dry-docking, cleaning and painting and ensuring compliance with applicable regulations, including licensing and certification requirements.
In addition, we pay our Manager a commercial management fee equal to 1.25% of the gross charter hire, ballast bonus which is the amount paid to the ship owner as compensation for all or a part of the cost of positioning the vessel to the port where the vessel will be delivered to the charterer, or other income earned during the course of the employment of our vessels, during the term of the management agreements, for providing the relevant vessel-owning subsidiary with services, including chartering, managing freight payment, monitoring voyage performance, and carrying out other necessary communications with the shippers, charterers and others.
Under the Management Agreements, our Manager also provides us with certain administrative and support services.
Under the terms of the Management Agreements, we may terminate the Management Agreements upon written notice if our Manager fails to fulfill its obligations to us under the Management Agreements. The Management Agreements terminate automatically following a change of control in us. If the Management Agreements are terminated as a result of a change of control in us, then we will have to pay our Manager a termination penalty equal to the estimated remaining fees payable to our Manager for no less than for a period of 36 months and not more than a period of 60 months. For this purpose a change of control means (i) the acquisition of fifty percent or more by any individual, entity or group of the beneficial ownership or voting power of the outstanding shares of us or our vessel owning subsidiaries, (ii) the consummation of a reorganization, merger or consolidation of us and/or our vessel owning subsidiaries or the sale or other disposition of all or substantially all of our assets or those of our vessel owning subsidiaries and (iii) the approval a complete liquidation or dissolution of us and/or our vessel owning subsidiaries. Additionally, the Management Agreements may be terminated by our Manager with immediate effect if, among other things, (i) we fail to meet our obligations and/or make due payments within ten business days from receipt of invoices, (ii) upon a sale or total loss of a vessel (with respect to that vessel), or (iii) if we file for bankruptcy.
We expect to pay an aggregate of approximately $2.8 million to our Manager in connection with the management of our Initial Fleet under the Management Agreements for the twelve months ending December 31, 2014.
In addition to such fees, we expect to pay for any capital expenditures, financial costs, operating expenses and any general and administrative expenses, including payments to third parties, in accordance with the Management Agreements.
The term of the Management Agreements with our Manager will expire on December 31, 2020, and will renew automatically for successive eight-year terms thereafter unless earlier terminated. The technical management fee of $2,500 per day for each vessel is fixed until December 31, 2013 and will thereafter increase annually by 3%, subject to further annual increases to reflect material unforeseen costs of providing the management services, by an amount to be agreed between us and our Manager, which amount will be reviewed and approved by the conflicts committee.
Pursuant to the terms of the Management Agreements, liability of our Manager to us is limited to instances of negligence, gross negligence or willful default on the part of our Manager. Further, we are required to indemnify our Manager for liabilities incurred by our Manager in performance of the Management Agreements, except in instances of negligence, gross negligence or willful default on the part of our Manager.
Additional LNG carriers that we acquire in the future may be managed by our Manager or other unaffiliated management companies.
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$140 Million Shareholder Loan
On February 9, 2004, we entered into a $140 million unsecured credit facility with a corporation controlled by members of the Prokopiou Family. We used the proceeds from this facility to partially finance the construction costs of the vessels in our Initial Fleet and for working capital to fund general corporate purposes. This facility bore no interest, and was fully repaid in April 2012. Please see Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital ResourcesOur Borrowing Activities.
$30 Million Revolving Credit Facility
In connection with the closing of this offering, our Sponsor will provide us with a $30.0 million revolving credit to be used for general partnership purposes, including working capital. This revolving credit facility will have a term of five years and will bear interest at LIBOR plus a margin. Please see Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital ResourcesOur Borrowing Activities.
Cross Collateral Guarantee
Our $150 Million Clean Energy Credit Facility is partially secured by a first priority mortgage over a 2005-built panamax tanker, which is beneficially owned by members of the Prokopiou Family. Please see Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital ResourcesOur Borrowing Activities.
Sponsor Guarantees
We have provided guarantees to the banks financing four of our Sponsors contracted newbuilding LNG carriers, the Yenisei River , the Lena River , the Clean Ocean and the Clean Planet , through our wholly-owned subsidiaries that own the vessels in our Initial Fleet. Please see Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital ResourcesOur Borrowing Activities.
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CONFLICTS OF INTEREST AND FIDUCIARY DUTIES
Conflicts of interest exist and may arise in the future as a result of the relationships between our General Partner and its affiliates, including Dynagas Holding Ltd., on the one hand, and us and our unaffiliated limited partners, on the other hand. Our General Partner has a fiduciary duty to make any decisions relating to our management in a manner beneficial to us and our unitholders. Similarly, our board of directors has fiduciary duties to manage us in a manner beneficial to us, our General Partner and our limited partners. Certain of our officers and directors will also be officers of our Sponsor or its affiliates and will have fiduciary duties to our Sponsor or its affiliates that may cause them to pursue business strategies that disproportionately benefit our Sponsor or its affiliates or which otherwise are not in the best interests of us or our unitholders. As a result of these relationships, conflicts of interest may arise between us and our unaffiliated limited partners on the one hand, and our Sponsor and its affiliates, including our General Partner, on the other hand. The resolution of these conflicts may not be in the best interest of us or our unitholders.
Our partnership affairs are governed by our Partnership Agreement and the Partnership Act. The provisions of the Partnership Act resemble provisions of the limited partnership laws of a number of states in the United States, most notably Delaware. We are not aware of any material difference in unitholder rights between the Partnership Act and the Delaware Revised Uniform Limited Partnership Act. The Partnership Act also provides that it is to be applied and construed to make it uniform with the Delaware Revised Uniform Limited Partnership Act and, so long as it does not conflict with the Partnership Act or decisions of the Marshall Islands courts, interpreted according to the non-statutory law or case law of the courts of the State of Delaware. There have been, however, few, if any, court cases in the Marshall Islands interpreting the Partnership Act, in contrast to Delaware, which has a fairly well-developed body of case law interpreting its limited partnership statute. Accordingly, we cannot predict whether Marshall Islands courts would reach the same conclusions as courts in Delaware. For example, the rights of our unitholders and fiduciary responsibilities of our General Partner and its affiliates under Marshall Islands law are not as clearly established as under judicial precedent in existence in Delaware. Due to the less-developed nature of Marshall Islands law, our public unitholders may have more difficulty in protecting their interests or seeking remedies in the face of actions by our General Partner, its affiliates or our controlling unitholders than would unitholders of a limited partnership organized in the United States.
Our Partnership Agreement contains provisions that modify and limit the fiduciary duties of our General Partner and our directors to the unitholders under Marshall Islands law. Our Partnership Agreement also restricts the remedies available to unitholders for actions taken by our General Partner or our directors that, without those limitations, might constitute breaches of fiduciary duty.
Neither our General Partner nor our board of directors will be in breach of their obligations under the Partnership Agreement or their duties to us or the unitholders if the resolution of the conflict is:
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approved by the conflicts committee, although neither our General Partner nor our board of directors are obligated to seek such approval; |
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approved by the vote of a majority of the outstanding common units, excluding any common units owned by our General Partner or any of its affiliates, although neither our General Partner nor our board of directors is obligated to seek such approval; |
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on terms no less favorable to us than those generally being provided to or available from unrelated third parties, but neither our General Partner nor our board of directors is required to obtain confirmation to such effect from an independent third party; or |
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fair and reasonable to us, taking into account the totality of the relationships between the parties involved, including other transactions that may be particularly favorable or advantageous to us. |
Our General Partner or our board of directors may, but are not required to, seek the approval of such resolution from the conflicts committee of our board of directors or from the common unitholders. If neither our
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General Partner nor our board of directors seeks approval from the conflicts committee, and our board of directors determines that the resolution or course of action taken with respect to the conflict of interest satisfies either of the standards set forth in the third and fourth bullet points above, then it will be presumed that, in making its decision, our board of directors, including the board members affected by the conflict, acted in good faith, and in any proceeding brought by or on behalf of any limited partner or the partnership, the person bringing or prosecuting such proceeding will have the burden of overcoming such presumption. When our Partnership Agreement requires someone to act in good faith, it requires that person to reasonably believe that he is acting in the best interests of the partnership, unless the context otherwise requires. See ManagementManagement of Dynagas LNG Partners LP for information about the composition and formation of the conflicts committee of our board of directors.
Conflicts of interest could arise in the situations described below, among others.
Actions taken by our board of directors may affect the amount of cash available for distribution to unitholders or accelerate the right to convert subordinated units.
The amount of cash that is available for distribution to unitholders is affected by decisions of our board of directors regarding such matters as:
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the amount and timing of asset purchases and sales; |
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cash expenditures; |
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borrowings; |
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estimates of maintenance and replacement capital expenditures; |
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the issuance of additional units; and |
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the creation, reduction or increase of reserves in any quarter. |
In addition, borrowings by us and our affiliates do not constitute a breach of any duty owed by our General Partner or our directors to our unitholders, including borrowings that have the purpose or effect of:
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enabling our General Partner or its affiliates to receive distributions on any subordinated units held by them or the incentive distribution rights; or |
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hastening the expiration of the subordination period. |
For example, in the event we have not generated sufficient cash from our operations to pay the minimum quarterly distribution on our common units and our subordinated units, our Partnership Agreement permits us to borrow funds, which would enable us to make this distribution on all outstanding units. See How We Make Cash DistributionsSubordination Period.
Our Partnership Agreement provides that we and our subsidiaries may borrow funds from our General Partner and its affiliates. Our General Partner and its affiliates may not borrow funds from us or our subsidiaries.
Neither our partnership agreement nor any other agreement requires our Sponsor to pursue a business strategy that favors us or utilizes our assets or dictates what markets to pursue or grow. Our Sponsors directors and executive officers have a fiduciary duty to make these decisions in the best interests of the shareholders of our Sponsor, which may be contrary to our interests.
Because we expect that certain of our officers and directors will also be officers of our Sponsor and its affiliates, such directors have fiduciary duties to our Sponsor and its affiliates that may cause them to pursue business strategies that disproportionately benefit our Sponsor, or which otherwise are not in the best interests of us or our unitholders.
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Our General Partner is allowed to take into account the interests of parties other than us, such as our Sponsor
Our Partnership Agreement contains provisions that reduce the standards to which our General Partner would otherwise be held by Marshall Islands fiduciary duty law. For example, our Partnership Agreement permits our General Partner to make a number of decisions in its individual capacity, as opposed to in its capacity as our General Partner. This entitles our General Partner to consider only the interests and factors that it desires, and it has no duty or obligations to give any consideration to any interest of or factors affecting us, our affiliates or any unitholder. Decisions made by our General Partner in its individual capacity will be made by its sole owner, Dynagas Holding Ltd. Specifically, our General Partner will be considered to be acting in its individual capacity if it exercises its call right, pre-emptive rights, registration rights or right to make a determination to receive common units in a resetting of the target distribution levels related to its incentive distribution rights, consents or withholds consent to any merger or consolidation of the partnership, appoints any directors or votes for the election of any director, votes or refrains from voting on amendments to our Partnership Agreement that require a vote of the outstanding units, voluntarily withdraws from the partnership, transfers (to the extent permitted under our Partnership Agreement) or refrains from transferring its units, General Partner interest or incentive distribution rights it owns or votes upon the dissolution of the partnership.
Certain of our officers face conflicts in the allocation of their time to our business.
Certain of our officers who perform executive officer functions for us are not required to work full-time on our affairs and also perform services for affiliates of our General Partner, including our Sponsor. The affiliates of our General Partner, including our Sponsor, conduct substantial businesses and activities of their own in which we have no economic interest. As a result, there could be material competition for the time and effort of our officers who also provide services to our General Partners affiliates, which could have a material adverse effect on our business, results of operations and financial condition.
We will reimburse our General Partner and its affiliates for expenses.
We will reimburse our General Partner and its affiliates for costs incurred, if any, in managing and operating us. Our Partnership Agreement provides that our General Partner will determine the expenses that are allocable to us in good faith. See Certain Relationships and Related Party Transactions and ManagementReimbursement of Expenses of Our General Partner.
Our General Partner intends to limit its liability regarding our obligations.
Our Partnership Agreement directs that liability of our General Partner for the contractual arrangements of the partnership are limited (to the maximum extent permitted under the law) so that the other party has recourse only to our assets and not against our General Partner or its assets or any affiliate of our General Partner or its assets. Our Partnership Agreement provides that any action taken by our General Partner or by our directors to limit the liability of our General Partner or our directors is not a breach of the fiduciary duties of our General Partner or our directors, even if we could have obtained terms that are more favorable without the limitation on liability.
Common unitholders will have no right to enforce obligations of our General Partner and its affiliates under agreements with us.
Any agreements between us, on the one hand, and our General Partner and its affiliates, on the other, will not grant to the unitholders, separate and apart from us, the right to enforce the obligations of our General Partner and its affiliates in our favor.
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Contracts between us, on the one hand, and our General Partner and its affiliates, on the other, will not be the result of arms-length negotiations.
Neither our Partnership Agreement nor any of the other agreements, contracts and arrangements between us and our General Partner and its affiliates are or will be the result of arms-length negotiations. Our Partnership Agreement generally provides that any affiliated transaction, such as an agreement, contract or arrangement between us and our General Partner and its affiliates, must be:
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on terms no less favorable to us than those generally being provided to or available from unrelated third parties; or |
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fair and reasonable to us, taking into account the totality of the relationships between the parties involved (including other transactions that may be particularly favorable or advantageous to us). |
Our Manager, which will provide certain management and administrative services to us, may also enter into additional contractual arrangements with any of its affiliates on our behalf; however, there is no obligation of any affiliate of our Manager to enter into any contracts of this kind.
Common units are subject to our General Partners limited call right.
Our General Partner may exercise its right to call and purchase common units as provided in the Partnership Agreement or assign this right to one of its affiliates or to us. Our General Partner may use its own discretion, free of fiduciary duty restrictions, in determining whether to exercise this right. Our General Partner is not obligated to obtain a fairness opinion regarding the value of the common units to be repurchased by it upon the exercise of this limited call right. As a result, a common unitholder may have common units purchased from the unitholder at an undesirable time or price. See The Partnership AgreementLimited Call Right.
We may choose not to retain separate counsel for ourselves or for the holders of common units.
The attorneys, independent accountants and others who perform services for us have been retained by our board of directors. Attorneys, independent accountants and others who perform services for us are selected by our board of directors or the conflicts committee and may perform services for our General Partner and its affiliates. We may retain separate counsel for ourselves or the holders of common units in the event of a conflict of interest between our General Partner and its affiliates, on the one hand, and us or the holders of common units, on the other, depending on the nature of the conflict. We do not intend to do so in most cases.
Our General Partners affiliates, including our Sponsor, may compete with us.
Our Partnership Agreement provides that our General Partner will be restricted from engaging in any business activities other than acting as our General Partner and those activities incidental to its ownership of interests in us. In addition, our Partnership Agreement provides that our General Partner, for so long as it is General Partner of our partnership, will cause its affiliates not to engage in, by acquisition or otherwise, the businesses described above under the caption Certain Relationships and Related Party TransactionsAgreements Governing the TransactionsOmnibus AgreementNoncompetition. Similarly, under the Omnibus Agreement, our Sponsor will agree and will cause its affiliates to agree, for so long as it controls our partnership, not to engage in the businesses described above under the caption Certain Relationships and Related Party TransactionsAgreements Governing the TransactionsOmnibus AgreementNoncompetition. Except as provided in our Partnership Agreement and the Omnibus Agreement, affiliates of our General Partner are not prohibited from engaging in other businesses or activities, including those that might be in direct competition with us.
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Fiduciary Duties
Our General Partner and its affiliates are accountable to us and our unitholders as fiduciaries. Fiduciary duties owed to unitholders by our General Partner and its affiliates are prescribed by law and the Partnership Agreement. The Partnership Act provides that Marshall Islands partnerships may, in their Partnership Agreements, restrict or expand the fiduciary duties owed by our General Partner and its affiliates to the limited partners and the partnership. Our directors are subject to the same fiduciary duties as our General Partner, as restricted or expanded by the Partnership Agreement.
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Our Partnership Agreement contains various provisions restricting the fiduciary duties that might otherwise be owed by our General Partner or by our directors. We have adopted these provisions to allow our General Partner and our directors to take into account the interests of other parties in addition to our interests when resolving conflicts of interest. We believe this is appropriate and necessary because our officers and directors have fiduciary duties to our Sponsor, as well as to you. These modifications disadvantage the common unitholders because they restrict the rights and remedies that would otherwise be available to unitholders for actions that, without those limitations, might constitute breaches of fiduciary duty, as described below. The following is a summary of: |
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the fiduciary duties imposed on our General Partner and our directors by the Partnership Act; |
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material modifications of these duties contained in our Partnership Agreement; and |
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certain rights and remedies of unitholders contained in the Partnership Act. |
Marshall Islands law fiduciary duty standards |
Fiduciary duties are generally considered to include an obligation to act in good faith and with due care and loyalty. The duty of care, in the absence of a provision in a Partnership Agreement providing otherwise, would generally require a General Partner and the directors of a Marshall Islands limited partnership to act for the partnership in the same manner as a prudent person would act on his own behalf. The duty of loyalty, in the absence of a provision in a Partnership Agreement providing otherwise, would generally prohibit a General Partner or the directors of a Marshall Islands limited partnership from taking any action or engaging in any transaction where a conflict of interest is present. |
Partnership Agreement modified standards |
Our Partnership Agreement contains provisions that waive or consent to conduct by our General Partner and its affiliates and our directors that might otherwise raise issues as to compliance with fiduciary duties under the laws of the Marshall Islands. For example, our Partnership Agreement provides that when our General Partner is acting in its capacity as our General Partner, as opposed to in its individual capacity, it must act in good faith and will not be subject to any other standard under the laws of the Marshall Islands. In addition, when our General Partner is acting in its individual capacity, as opposed to in its capacity as our General Partner, it may act without any fiduciary obligation to us or the unitholders whatsoever. These standards reduce the obligations to which our General Partner and our board of directors would otherwise be held. Our Partnership Agreement generally provides that affiliated transactions and resolutions of conflicts of interest not involving a vote of unitholders |
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and that are not approved by the conflicts committee of our board of directors must be: |
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on terms no less favorable to us than those generally being provided to or available from unrelated third parties; or |
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fair and reasonable to us, taking into account the totality of the relationships between the parties involved (including other transactions that may be particularly favorable or advantageous to us). |
If our board of directors does not seek approval from the conflicts committee, and our board of directors determines that the resolution or course of action taken with respect to the conflict of interest satisfies either of the standards set forth in the bullet points above, then it will be presumed that, in making its decision, our board of directors acted in good faith, and in any proceeding brought by or on behalf of any limited partner or the partnership, the person bringing or prosecuting such proceeding will have the burden of overcoming such presumption. These standards reduce the obligations to which our board of directors would otherwise be held. |
In addition to the other more specific provisions limiting the obligations of our General Partner and our directors, our Partnership Agreement further provides that our General Partner and our officers and directors, will not be liable for monetary damages to us or our limited partners for errors of judgment or for any acts or omissions unless there has been a final and non-appealable judgment by a court of competent jurisdiction determining that our General Partner or our officers or directors engaged in actual fraud or willful misconduct. |
Rights and remedies of unitholders |
The provisions of the Partnership Act resemble the provisions of the limited partnership act of Delaware. For example, like Delaware, the Partnership Act favors the principles of freedom of contract and enforceability of Partnership Agreements and allows the Partnership Agreement to contain terms governing the rights of the unitholders. The rights of our unitholders, including voting and approval rights and the ability of the partnership to issue additional units, are governed by the terms of our Partnership Agreement. See The Partnership Agreement. |
As to remedies of unitholders, the Partnership Act permits a limited partner to institute legal action on behalf of the partnership to recover damages from a third party where a General Partner or a board of directors has refused to institute the action or where an effort to cause a General Partner or a board of directors to do so is not likely to succeed. These actions include actions against a General Partner for breach of its fiduciary duties or of the Partnership Agreement. |
In becoming one of our limited partners, a common unitholder effectively agrees to be bound by the provisions in the Partnership Agreement, including the provisions discussed above. The failure of a limited partner or transferee to sign a Partnership Agreement does not render the Partnership Agreement unenforceable against that person.
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Under the Partnership Agreement, we must indemnify our General Partner and our directors and officers to the fullest extent permitted by law, against liabilities, costs and expenses incurred by our General Partner or these other persons. We must provide this indemnification unless there has been a final and non-appealable judgment by a court of competent jurisdiction determining that these person engaged in actual fraud or willful misconduct. We also must provide this indemnification for criminal proceedings when our General Partner or these other persons acted with no reasonable cause to believe that their conduct was unlawful. Thus, our General Partner and our directors and officers could be indemnified for their negligent acts if they met the requirements set forth above. To the extent that these provisions purport to include indemnification for liabilities arising under the Securities Act of 1933, as amended, or the Securities Act, in the opinion of the Securities and Exchange Commission, such indemnification is contrary to public policy and therefore unenforceable. See The Partnership AgreementIndemnification.
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DESCRIPTION OF THE COMMON UNITS
The Units
The common units and the subordinated units represent limited partner interests in us. The holders of units are entitled to participate in partnership distributions and exercise the rights and privileges available to limited partners under our Partnership Agreement. For a description of the relative rights and privileges of holders of common units and subordinated units in and to partnership distributions, see this section and How We Make Cash Distributions. For a description of the rights and privileges of limited partners under our Partnership Agreement, including voting rights, see The Partnership Agreement.
Transfer Agent and Registrar
Duties
Computershare Trust Company, N.A. will serve as registrar and transfer agent for the common units. We pay all fees charged by the transfer agent for transfers of common units, except the following, which must be paid by unitholders:
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surety bond premiums to replace lost or stolen certificates, taxes and other governmental charges; |
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special charges for services requested by a holder of a common unit; and |
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other similar fees or charges. |
There is no charge to unitholders for disbursements of our cash distributions. We will indemnify the transfer agent, its agents and each of their stockholders, directors, officers and employees against all claims and losses that may arise out of acts performed or omitted for its activities in that capacity, except for any liability due to any gross negligence or intentional misconduct of the indemnified person or entity.
Resignation or Removal
The transfer agent may resign, by notice to us, or be removed by us. The resignation or removal of the transfer agent will become effective upon our appointment of a successor transfer agent and registrar and its acceptance of the appointment. If a successor has not been appointed or has not accepted its appointment within 30 days after notice of the resignation or removal, we may, at the direction of our board of directors, act as the transfer agent and registrar until a successor is appointed.
Transfer of Common Units
By transfer of common units in accordance with our Partnership Agreement, each transferee of common units will be admitted as a limited partner with respect to the common units transferred when such transfer and admission is reflected in our books and records. Each transferee:
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represents that the transferee has the capacity, power and authority to become bound by our Partnership Agreement; |
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automatically agrees to be bound by the terms and conditions of, and is deemed to have executed, our Partnership Agreement; and |
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gives the consents and approvals contained in our Partnership Agreement, such as the approval of all transactions and agreements we are entering into in connection with our formation and this offering. |
A transferee will become a substituted limited partner of our partnership for the transferred common units automatically upon the recording of the transfer on our books and records. Our General Partner will cause any transfers to be recorded on our books and records no less frequently than quarterly.
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We may, at our discretion, treat the nominee holder of a common unit as the absolute owner. In that case, the beneficial holders rights are limited solely to those that it has against the nominee holder as a result of any agreement between the beneficial owner and the nominee holder.
Common units are securities and are transferable according to the laws governing transfer of securities. In addition to other rights acquired upon transfer, the transferor gives the transferee the right to become a limited partner in our partnership for the transferred common units.
Until a common unit has been transferred on our books, we and the transfer agent may treat the record holder of the unit as the absolute owner for all purposes, except as otherwise required by law or stock exchange regulations.
Please see How we make Cash Distributions for descriptions of the General Partner Interest and the Incentive Distribution Rights.
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The following is a summary of the material provisions of our Partnership Agreement. The form of our Partnership Agreement is included in this prospectus as Appendix A. We will provide prospective investors with a copy of our Partnership Agreement upon request at no charge.
We summarize the following provisions of our Partnership Agreement elsewhere in this prospectus:
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with regard to distributions of available cash, see How We Make Cash Distributions; |
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with regard to the fiduciary duties of our General Partner and our directors, see Conflicts of Interest and Fiduciary Duties; and |
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with regard to the transfer of common units, see Description of the Common UnitsTransfer of Common Units. |
Organization and Duration
We were organized on May 30, 2013 and have perpetual existence.
Purpose
Our purpose under the Partnership Agreement is to engage in any business activities that may lawfully be engaged in by a limited partnership pursuant to the Partnership Act.
Although our board of directors has the ability to cause us or our subsidiaries to engage in activities other than liquefied natural gas shipping industry and other maritime LNG infrastructure assets, it has no current plans to do so and may decline to do so free of any fiduciary duty or obligation whatsoever to us or the limited partners, including any duty to act in good faith or in the best interests of us or the limited partners. Our General Partner will delegate to our board of directors the authority to oversee and direct our operations, management and policies on an exclusive basis.
Cash Distributions
Our Partnership Agreement specifies the manner in which we will make cash distributions to holders of our common units and other partnership interests, including to the holders of our incentive distribution rights, as well as to our General Partner in respect of its General Partner interest. For a description of these cash distribution provisions, see How We Make Cash Distributions.
Capital Contributions
Unitholders are not obligated to make additional capital contributions, except as described below under Limited Liability. For a discussion of our General Partners right to contribute capital to maintain its 0.1% General Partner interest if we issue additional units, see Issuance of Additional Securities.
Voting Rights
The following is a summary of the unitholder vote required for the approval of the matters specified below. Matters that require the approval of a unit majority require:
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during the subordination period, the approval of a majority of the common units, excluding those common units held by our General Partner and its affiliates, voting as a class; and a majority of the subordinated units voting as a single class; and |
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after the subordination period, the approval of a majority of the common units voting as a single class. |
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In voting their common units and subordinated units our General Partner and its affiliates will have no fiduciary duty or obligation whatsoever to us or the limited partners, including any duty to act in good faith or in the best interests of us or the limited partners.
Each outstanding common unit is entitled to one vote on matters subject to a vote of common unitholders. However, to preserve our ability to be exempt from U.S. federal income tax under Section 883 of the Code, if at any time, any person or group owns beneficially more than 4.9% of any class of units then outstanding, any such units owned by that person or group in excess of 4.9% may not be voted on any matter and will not be considered to be outstanding when sending notices of a meeting of unitholders, calculating required votes (except for purposes of nominating a person for election to our board), determining the presence of a quorum or for other similar purposes under our Partnership Agreement, unless otherwise required by law. The voting rights of any such unitholders in excess of 4.9% will effectively be redistributed pro rata among the other common unitholders holding less than 4.9% of the voting power of all classes of units entitled to vote. Our General Partner, its affiliates and persons who acquired common units with the prior approval of our board of directors will not be subject to this 4.9% limitation except with respect to voting their common units in the election of the elected directors.
We will hold a meeting of the limited partners every year to elect one or more members of our board of directors and to vote on any other matters that are properly brought before the meeting. Our General Partner has the right to appoint two of the five members of our board of directors with the remaining three directors being elected by our common unitholders beginning with our 2014 annual meeting of unitholders. Subordinated units will not be voted in the election of the three directors elected by our common unitholders.
Action |
Unitholder Approval Required and Voting Rights |
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Issuance of additional units |
No approval rights; General Partner approval required for all issuances, which may have a material adverse impact on the General Partner or its interest in our partnership. | |
Amendment of the Partnership Agreement |
Certain amendments may be made by our board of directors without the approval of the unitholders. Other amendments generally require the approval of a unit majority. See Amendment of the Partnership Agreement. | |
Merger of our partnership or the sale of all or substantially all of our assets | Unit majority and approval of our General Partner and our board of directors. See Merger, Sale, Conversion or Other Disposition of Assets. | |
Dissolution of our partnership |
Unit majority and approval of our General Partner and our board of directors. See Termination and Dissolution. | |
Reconstitution of our partnership upon dissolution |
Unit majority. See Termination and Dissolution. | |
Action |
Unitholder Approval Required and Voting Rights |
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Election of three of the five members of our board of directors | A plurality of the votes of the holders of the common units. | |
Withdrawal of our General Partner |
Under most circumstances, the approval of a majority of the common units, excluding common units held by our General Partner and its affiliates, is required for the withdrawal of our General Partner prior to September 30, 2023 in a manner which would cause a dissolution of our partnership. See Withdrawal or Removal of our General Partner. |
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Action |
Unitholder Approval Required and Voting Rights |
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Removal of our General Partner |
Not less than 66 2/3% of the outstanding units, including units held by our General Partner and its affiliates, voting together as a single class. See Withdrawal or Removal of our General Partner. | |
Transfer of our General Partner interest in us |
Our General Partner may transfer all, but not less than all, of its General Partner interest in us without a vote of our unitholders to an affiliate or another person in connection with its merger or consolidation with or into, or sale of all or substantially all of its assets to such person. The approval of a majority of the common units, excluding common units held by our General Partner and its affiliates, is required in other circumstances for a transfer of the General Partner interest to a third party prior to . See Transfer of General Partner Interest below. | |
Transfer of incentive distribution rights |
Except for transfers to an affiliate or another person as part of the General Partners merger or consolidation with or into, or sale of all or substantially all of its assets to such person, the approval of a majority of the common units, excluding common units held by our General Partner and its affiliates, voting separately as a class, is required in most circumstances for a transfer of the incentive distribution rights to a third party prior to September 30, 2018. See Transfer of Incentive Distribution Rights. | |
Transfer of ownership interests in our General Partner | No approval required at any time. See Transfer of Ownership Interests in General Partner. |
Applicable Law, Forum, Venue and Jurisdiction
Our Partnership Agreement is governed by the Partnership Act. Our Partnership Agreement requires that any claims, suits, actions or proceedings:
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arising out of or relating in any way to the Partnership Agreement (including any claims, suits or actions to interpret, apply or enforce the provisions of the Partnership Agreement or the duties, obligations or liabilities among limited partners or of limited partners to us, or the rights or powers of, or restrictions on, the limited partners or us); |
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brought in a derivative manner on our behalf; |
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asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of us or our General Partner, or owed by our General Partner, to us or the limited partners; |
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asserting a claim arising pursuant to any provision of the Partnership Act; and |
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asserting a claim governed by the internal affairs doctrine. |
shall be exclusively brought in the Court of Chancery of the State of Delaware, unless otherwise provided for by Marshall Islands law, regardless of whether such claims, suits, actions or proceedings sound in contract, tort,
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fraud or otherwise, are based on common law, statutory, equitable, legal or other grounds, or are derivative or direct claims. By purchasing a common unit, a limited partner is irrevocably consenting to these limitations and provisions regarding claims, suits, actions or proceedings and submitting to the exclusive jurisdiction of the Court of Chancery of the State of Delaware, unless otherwise provided for by Marshall Islands law, in connection with any such claims, suits, actions or proceedings; however, a court could rule that such provisions are inapplicable or unenforceable. Any person or entity purchasing or otherwise acquiring any interest in our common units shall be deemed to have notice of and to have consented to the provisions described above. This forum selection provision may limit our unitholders ability to obtain a judicial forum that they find favorable for disputes with us or our directors, officers or other employees or unitholders.
Limited Liability
Assuming that a limited partner does not participate in the control of our business within the meaning of the Partnership Act and that he otherwise acts in conformity with the provisions of our Partnership Agreement, his liability under the Partnership Act will be limited, subject to possible exceptions, to the amount of capital he is obligated to contribute to us for his common units plus his share of any undistributed profits and assets. If it were determined, however, that the right, or exercise of the right, by the limited partners as a group:
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to remove or replace our General Partner; |
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to elect three of our five directors; |
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to approve some amendments to our Partnership Agreement; or |
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to take other action under our Partnership Agreement: |
constituted participation in the control of our business for the purposes of the Partnership Act, then the limited partners could be held personally liable for our obligations under the laws of Marshall Islands, to the same extent as our General Partner. This liability would extend to persons who transact business with us who reasonably believe that the limited partner is a General Partner. Neither our Partnership Agreement nor the Partnership Act specifically provides for legal recourse against our General Partner if a limited partner were to lose limited liability through any fault of our General Partner. While this does not mean that a limited partner could not seek legal recourse, we know of no precedent for this type of a claim in Marshall Islands case law.
Under the Partnership Act, a limited partnership may not make a distribution to a partner if, after the distribution, all liabilities of the limited partnership, other than liabilities to partners on account of their partnership interests and liabilities for which the recourse of creditors is limited to specific property of the partnership, would exceed the fair value of the assets of the limited partnership. For the purpose of determining the fair value of the assets of a limited partnership, the Partnership Act provides that the fair value of property subject to liability for which recourse of creditors is limited shall be included in the assets of the limited partnership only to the extent that the fair value of that property exceeds the non-recourse liability. The Partnership Act provides that a limited partner who receives a distribution and knew at the time of the distribution that the distribution was in violation of the Partnership Act shall be liable to the limited partnership for the amount of the distribution for three years. Under the Partnership Act, a purchaser of units who becomes a limited partner of a limited partnership is liable for the obligations of the transferor to make contributions to the partnership, except that the transferee is not obligated for liabilities unknown to him at the time he became a limited partner and that could not be ascertained from the Partnership Agreement.
Maintenance of our limited liability may require compliance with legal requirements in the jurisdictions in which our subsidiaries conduct business, which may include qualifying to do business in those jurisdictions. Limitations on the liability of limited partners for the obligations of a limited partnership or limited liability company have not been clearly established in many jurisdictions. If, by virtue of our membership interest in an operating subsidiary or otherwise, it were determined that we were conducting business in any jurisdiction
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without compliance with the applicable limited partnership or limited liability company statute, or that the right or exercise of the right by the limited partners as a group to remove or replace the General Partner, to approve some amendments to the Partnership Agreement, or to take other action under the Partnership Agreement constituted participation in the control of our business for purposes of the statutes of any relevant jurisdiction, then the limited partners could be held personally liable for our obligations under the law of that jurisdiction to the same extent as our General Partner under the circumstances. We will operate in a manner that our board of directors considers reasonable and necessary or appropriate to preserve the limited liability of the limited partners.
Issuance of Additional Securities
The Partnership Agreement authorizes us to issue an unlimited amount of additional partnership interests and rights to buy partnership interests for the consideration and on the terms and conditions determined by our board of directors without the approval of the unitholders. However, our General Partner will be required to approve all issuances of additional partnership interests, which may have a material adverse impact on the General Partner or its interest in us.
We intend to fund acquisitions through borrowings and the issuance of additional common units or other equity securities and the issuance of debt securities. Holders of any additional common units we issue will be entitled to share equally with the then-existing holders of common units in our distributions of available cash. In addition, the issuance of additional common units or other equity securities interests may dilute the value of the interests of the then-existing holders of common units in our net assets.
In accordance with Marshall Islands law and the provisions of our Partnership Agreement, we may also issue additional partnership interests that, as determined by our board of directors, have special voting rights to which the common units are not entitled.
Upon issuance of additional partnership interests (other than the issuance of common units upon exercise of the underwriters over-allotment option, the issuance of common units in connection with a reset of the incentive distribution target levels or the issuance of partnership interests upon conversion of outstanding partnership interests), our General Partner will have the right, but not the obligation, to make additional capital contributions to the extent necessary to maintain its 0.1% General Partner interest in us. Our General Partners interest in us will thus be reduced if we issue additional partnership interests in the future and our General Partner does not elect to maintain its 0.1% General Partner interest in us. Our General Partner and its affiliates will have the right, which it may from time to time assign in whole or in part to any of its affiliates, to purchase common units, subordinated units or other equity securities whenever, and on the same terms that, we issue those securities to persons other than our General Partner and its affiliates, to the extent necessary to maintain its and its affiliates percentage interest, including its interest represented by common units and subordinated units, that existed immediately prior to each issuance. Other holders of common units will not have similar preemptive rights to acquire additional common units or other partnership interests.
Tax Status
The Partnership Agreement provides that the partnership will elect to be treated as a corporation for U.S. federal income tax purposes.
Amendment of the Partnership Agreement
General
Amendments to our Partnership Agreement may be proposed only by or with consent of a majority of our board of directors. However, our board of directors will have no duty or obligation to propose any amendment and may decline to do so free of any fiduciary duty or obligation whatsoever to us or the limited partners,
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including any duty to act in good faith or in the best interests of us or the limited partners. In order to adopt a proposed amendment, other than the amendments discussed below, approval of our board of directors is required, as well as written approval of the holders of the number of units required to approve the amendment or call a meeting of the limited partners to consider and vote upon the proposed amendment. Except as we describe below, an amendment must be approved by a unit majority.
Prohibited Amendments
No amendment may be made that would:
(1) | increase the obligations of any limited partner without its consent, unless approved by at least a majority of the type or class of limited partner interests so affected; |
(2) | increase the obligations of, restrict in any way any action by or rights of, or reduce in any way the amounts distributable, reimbursable or otherwise payable by us to our General Partner or any of its affiliates without the consent of the General Partner, which may be given or withheld at its option; |
(3) | change the term of our partnership; |
(4) | provide that our partnership is not dissolved upon an election to dissolve our partnership by our General Partner and our board of directors that is approved by the holders of a unit majority; or |
(5) | give any person the right to dissolve our partnership other than the right of our General Partner and our board of directors to dissolve our partnership with the approval of the holders of a unit majority. |
The provision of our Partnership Agreement preventing the amendments having the effects described in clauses (1) through (5) above can be amended upon the approval of the holders of at least 90% of the outstanding units voting together as a single class (including units owned by our General Partner and its affiliates). Upon completion of this offering, the owner of our General Partner will own % of our outstanding common and subordinated units, assuming no exercise of the underwriters over-allotment option to purchase additional common units.
No Unitholder Approval
Our board of directors may generally make amendments to our Partnership Agreement without the approval of any limited partner to reflect:
(1) | a change in our name, the location of our principal place of business, our registered agent or our registered office; |
(2) | the admission, substitution, withdrawal or removal of partners in accordance with our Partnership Agreement; |
(3) | a change that our board of directors determines to be necessary or appropriate for us to qualify or to continue our qualification as a limited partnership or a partnership in which the limited partners have limited liability under the laws of any jurisdiction; |
(4) | an amendment that is necessary, upon the advice of our counsel, to prevent us or our officers or directors or our General Partner or their or its agents, or trustees from in any manner being subjected to the provisions of the U.S. Investment Company Act of 1940, the U.S. Investment Advisors Act of 1940, or plan asset regulations adopted under the U.S. Employee Retirement Income Security Act of 1974 (or ERISA) whether or not substantially similar to plan asset regulations currently applied or proposed; |
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(5) | an amendment that our board of directors determines to be necessary or appropriate for the authorization of additional partnership interests or rights to acquire partnership interests, including any amendment that our board of directors determines is necessary or appropriate in connection with: |
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the adjustments of the minimum quarterly distribution, first target distribution, second target distribution and third target distribution in connection with the reset of our incentive distribution rights as described under How We Make Cash DistributionsGeneral Partners Right to Reset Incentive Distribution Levels; |
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the implementation of the provisions relating to our General Partners right to reset the incentive distribution rights in exchange for common units; or |
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any modification of the incentive distribution rights made in connection with the issuance of additional partnership interests or rights to acquire partnership interests, provided that, any such modifications and related issuance of partnership interests have received approval by a majority of the members of the conflicts committee of our board of directors; |
(6) | any amendment expressly permitted in the Partnership Agreement to be made by our board of directors acting alone; |
(7) | an amendment effected, necessitated, or contemplated by a merger agreement that has been approved under the terms of the Partnership Agreement; |
(8) | any amendment that our board of directors determines to be necessary or appropriate for the formation by us of, or our investment in, any corporation, partnership or other entity, as otherwise permitted by the Partnership Agreement; |
(9) | a change in our fiscal year or taxable year and related changes; |
(10) | certain mergers or conveyances as set forth in our Partnership Agreement; |
(11) | to cure any ambiguity, defect or inconsistency; or |
(12) | any other amendments substantially similar to any of the matters described in (1) through (11) above. |
In addition, our board of directors may make amendments to the Partnership Agreement without the approval of any limited partner or our General Partner if our board of directors determines that those amendments:
(1) | do not adversely affect the limited partners (or any particular class of limited partners) or our General Partner in any material respect; |
(2) | are necessary or appropriate to satisfy any requirements, conditions, or guidelines contained in any opinion, directive, order, ruling or regulation of any Marshall Islands authority or statute; |
(3) | are necessary or appropriate to facilitate the trading of limited partner interests or to comply with any rule, regulation, guideline or requirement of any securities exchange on which the limited partner interests are or will be listed for trading; |
(4) | are necessary or appropriate for any action taken by our board of directors relating to splits or combinations of units under the provisions of the Partnership Agreement; or |
(5) | are required to effect the intent expressed in this prospectus or the intent of the provisions of the Partnership Agreement or are otherwise contemplated by the Partnership Agreement. |
Opinion of Counsel and Unitholder Approval
Our board of directors will not be required to obtain an opinion of counsel that an amendment will not result in a loss of limited liability to the limited partners if one of the amendments described above under Amendment of the Partnership AgreementNo Unitholder Approval should occur. No other amendments to our Partnership Agreement will become effective without the approval of holders of at least 90% of the outstanding units voting
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as a single class unless we obtain an opinion of counsel to the effect that the amendment will not affect the limited liability under applicable law of any of our limited partners.
In addition to the above restrictions, any amendment that would have a material adverse effect on the rights or privileges of any type or class of outstanding units in relation to other classes of units will require the approval of at least a majority of the type or class of units so affected. Any amendment that reduces the voting percentage required to take any action must be approved by the affirmative vote of limited partners whose aggregate outstanding units constitute not less than the voting requirement sought to be reduced.
Action Relating to the Operating Subsidiary
We effectively control, manage and operate our operating subsidiary by being the sole member of its general partner.
Merger, Sale, Conversion or Other Disposition of Assets
A merger or consolidation of us requires the approval of our board of directors and the prior consent of our General Partner. However, to the fullest extent permitted by law, our General Partner will have no duty or obligation to consent to any merger or consolidation and may decline to do so free of any fiduciary duty or obligation whatsoever to us or the limited partners, including any duty to act in good faith or in the best interests of us or the limited partners. In addition, our Partnership Agreement generally prohibits our board of directors, without the prior approval of our General Partner and the holders of units representing a unit majority, from causing us to, among other things, sell, exchange, or otherwise dispose of all or substantially all of our assets in a single transaction or a series of related transactions, including by way of merger, consolidation, or other combination, or approving on our behalf the sale, exchange, or other disposition of all or substantially all of the assets of our subsidiaries taken as a whole. Our board of directors may, however, mortgage, pledge, hypothecate, or grant a security interest in all or substantially all of our assets without the prior approval of the holders of units representing a unit majority. Our General Partner and our board of directors may also determine to sell all or substantially all of our assets under a foreclosure or other realization upon those encumbrances without the approval of the holders of units representing a unit majority.
Our Board of Directors is permitted, without the approval of our unitholders, to convert the Company or any of its subsidiaries into a new limited liability entity, to merge the Company or any of its subsidiaries into, or convey all of the Companys assets to, another limited liability entity which shall be newly formed and shall have no assets, liabilities or operations at the time of such conversion, merger or conveyance other than those it receives from the Company or any of its subsidiaries if (i) the Board of Directors has received an opinion from the Companys counsel that the conversion, merger or conveyance, as the case may be, would not result in the loss of the limited liability of any limited partner, (ii) the sole purpose of such conversion, merger or conveyance is to effect a mere change in the legal form of the Company into another limited liability entity, and (iii) the governing instruments of the new entity provide the limited partners, the General Partner and the Board of Directors with the same rights and obligations as are herein contained.
If conditions specified in our Partnership Agreement are satisfied, our board of directors, with the consent of our General Partner, may convert us or any of our subsidiaries into a new limited liability entity or merge us or any of our subsidiaries into, or convey some or all of our assets to, a newly formed entity if the sole purpose of that merger or conveyance is to effect a mere change in our legal form into another limited liability entity. The unitholders are not entitled to dissenters rights of appraisal under our Partnership Agreement or applicable law in the event of a conversion, merger or consolidation, a sale of substantially all of our assets, or any other transaction or event.
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Termination and Dissolution
We will continue as a limited partnership until terminated or converted under our Partnership Agreement. We will dissolve upon:
(1) | the election of our General Partner and our board of directors to dissolve us, if approved by the holders of units representing a unit majority; |
(2) | at any time there are no limited partners, unless we continue without dissolution in accordance with the Partnership Act; |
(3) | the entry of a decree of judicial dissolution of us; or |
(4) | the withdrawal or removal of our General Partner or any other event that results in its ceasing to be our General Partner other than by reason of a transfer of its General Partner interest in accordance with the Partnership Agreement or withdrawal or removal following approval and admission of a successor. |
Upon a dissolution under clause (4), the holders of a unit majority may also elect, within specific time limitations, to continue our business on the same terms and conditions described in the Partnership Agreement by appointing as General Partner an entity approved by the holders of units representing a unit majority, subject to our receipt of an opinion of counsel to the effect that the action would not result in the loss of limited liability of any limited partner.
Liquidation and Distribution of Proceeds
Upon our dissolution, unless we are continued as a new limited partnership, the liquidator authorized to wind up our affairs will, acting with all of the powers of our board of directors that are necessary or appropriate, liquidate our assets and apply the proceeds of the liquidation as provided in How We Make Cash DistributionsDistributions of Cash Upon Liquidation. The liquidator may defer liquidation or distribution of our assets for a reasonable period or distribute assets to partners in kind if it determines that a sale would be impractical or would cause undue loss to our partners.
Withdrawal or Removal of our General Partner
Except as described below, it will constitute a breach of our Partnership Agreement by our General Partner to withdraw voluntarily as our General Partner prior to September 30, 2023 without obtaining the approval of the holders of at least a majority of the outstanding common units, excluding common units held by our General Partner and its affiliates, and furnishing an opinion of counsel regarding limited liability. On or after September 30, 2023, our General Partner may withdraw as General Partner without first obtaining approval of any unitholder by giving 90 days written notice, and that withdrawal will not constitute a violation of the Partnership Agreement. Notwithstanding the foregoing, our General Partner may withdraw without unitholder approval upon 90 days notice to the limited partners if at least 50% of the outstanding common units are held or controlled by one person and its affiliates other than our General Partner and its affiliates. In addition, the Partnership Agreement permits our General Partner in some instances to sell or otherwise transfer all of its General Partner interest in us without the approval of the unitholders. See Transfer of General Partner Interest and Transfer of Incentive Distribution Rights.
Upon withdrawal of our General Partner under any circumstances, other than as a result of a transfer by our General Partner of all or a part of its General Partner interest in us, the holders of a majority of the outstanding common units and subordinated units, voting as separate classes, may select a successor to that withdrawing General Partner. If a successor is not elected, or is elected but an opinion of counsel regarding limited liability cannot be obtained, we will be dissolved, wound up and liquidated, unless within a specified period of time after that withdrawal, the holders of a unit majority agree in writing to continue our business and to appoint a successor general partner. See Termination and Dissolution.
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Our General Partner may not be removed unless that removal is approved by the vote of the holders of not less than 662/3% of the outstanding common and subordinated units, including units held by our General Partner and its affiliates, voting together as a single class, and we receive an opinion of counsel regarding limited liability. The ownership of more than 33 1/3% of the outstanding units by our General Partner and its affiliates or controlling our board of directors would provide the practical ability to prevent our General Partners removal. At the closing of this offering, our General Partner and its affiliates will own % of the outstanding common and subordinated units, assuming no exercise of the over-allotment option. Any removal of our General Partner is also subject to the successor general partner being approved by the vote of the holders of a majority of the outstanding common units and subordinated units, voting as a single class.
Our Partnership Agreement also provides that if our General Partner is removed as our General Partner under circumstances where cause does not exist and units held by our General Partner and its affiliates are not voted in favor of that removal:
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the subordination period will end and all outstanding subordinated units will immediately convert into common units on a one-for-one basis; |
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any existing arrearages in payment of the minimum quarterly distribution on the common units will be extinguished; and |
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our General Partner will have the right to convert its General Partner interest and its incentive distribution rights into common units or to receive cash in exchange for those interests based on the fair market value of the interests at the time. |
In the event of removal of our General Partner under circumstances where cause exists or withdrawal of our General Partner where that withdrawal violates the Partnership Agreement, a successor general partner will have the option to purchase the General Partner interest and incentive distribution rights owned by the departing General Partner for a cash payment equal to the fair market value of those interests. Under all other circumstances where our General Partner withdraws or is removed by the limited partners, the departing General Partner will have the option to require the successor general partner to purchase the General Partner interest of the departing General Partner and its incentive distribution rights for their fair market value. In each case, this fair market value will be determined by agreement between the departing General Partner and the successor general partner. If no agreement is reached, an independent investment banking firm or other independent expert selected by the departing General Partner and the successor general partner will determine the fair market value. Or, if the departing General Partner and the successor general partner cannot agree upon an expert, then an expert chosen by agreement of the experts selected by each of them will determine the fair market value.
If the option described above is not exercised by either the departing General Partner or the successor general partner, the departing General Partners General Partner interest and its incentive distribution rights will automatically convert into common units equal to the fair market value of those interests as determined by an investment banking firm or other independent expert selected in the manner described in the preceding paragraph.
In addition, we will be required to reimburse the departing General Partner for all amounts due the departing General Partner, including, without limitation, any employee-related liabilities, including severance liabilities, incurred for the termination of any employees employed by the departing General Partner or its affiliates for our benefit.
Transfer of General Partner Interest
Except for the transfer by our General Partner of all, but not less than all, of its General Partner interest in us to:
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an affiliate of our General Partner (other than an individual); or |
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another entity as part of the merger or consolidation of our General Partner with or into another entity or the transfer by our General Partner of all or substantially all of its assets to another entity. |
Our General Partner may not transfer all or any part of its General Partner interest in us to another person prior to September 30, 2023 without the approval of the holders of at least a majority of the outstanding common units, excluding common units held by our General Partner and its affiliates. As a condition of this transfer, the transferee must, among other things, assume the rights and duties of the General Partner, agree to be bound by the provisions of the Partnership Agreement and furnish an opinion of counsel regarding limited liability.
Our General Partner and its affiliates may at any time transfer units to one or more persons, without unitholder approval.
Transfer of Ownership Interests in General Partner
At any time, the members of our General Partner may sell or transfer all or part of their respective membership interests in our General Partner to an affiliate or a third party without the approval of our unitholders.
Transfer of Incentive Distribution Rights
Our General Partner or its affiliates or a subsequent holder, may transfer its incentive distribution rights to an affiliate of the holder (other than an individual) or another entity as part of the merger or consolidation of such holder with or into another entity, or sale of all or substantially all of its assets to that entity without the prior approval of the unitholders. Prior to , all other transfers of the incentive distribution rights will require the affirmative vote of holders of a majority of the outstanding common units, excluding common units held by our General Partner and its affiliates. On or after , the incentive distribution rights may be transferred without unitholder approval.
Change of Management Provisions
The Partnership Agreement contains specific provisions that are intended to discourage a person or group from attempting to remove Dynagas GP LLC as our General Partner or otherwise change management. If any person or group acquires beneficial ownership of more than 4.9% of any class of units then outstanding, that person or group loses voting rights on all of its units in excess of 4.9% of all such units. Our General Partner, its affiliates and persons who acquired common units with the prior approval of our board of directors will not be subject to this 4.9% limitation except with respect to voting their common units in the election of the elected directors.
The Partnership Agreement also provides that if our General Partner is removed under circumstances where cause does not exist and units held by our General Partner and its affiliates are not voted in favor of that removal:
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the subordination period will end and all outstanding subordinated units will immediately convert into common units on a one-for-one basis; |
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any existing arrearages in payment of the minimum quarterly distribution on the common units will be extinguished; and |
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our General Partner will have the right to convert its General Partner interest and its incentive distribution rights into common units or to receive cash in exchange for those interests |
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Limited Call Right
If at any time our General Partner and its affiliates hold more than 80% of the then-issued and outstanding partnership interests of any class, our General Partner will have the right, which it may assign in whole or in part to any of its affiliates or to us, to acquire all, but not less than all, of the remaining partnership interests of the class held by unaffiliated persons as of a record date to be selected by the General Partner, on at least 10 but not more than 60 days notice equal to the greater of (x) the average of the daily closing prices of the partnership interests of such class over the 20 trading days preceding the date three days before the notice of exercise of the call right is first mailed and (y) the highest price paid by our General Partner or any of its affiliates for partnership interests of such class during the 90-day period preceding the date such notice is first mailed. Our General Partner is not obligated to obtain a fairness opinion regarding the value of the common units to be repurchased by it upon the exercise of this limited call right and has no fiduciary duty in determining whether to exercise this limited call right.
As a result of the General Partners right to purchase outstanding partnership interests, a holder of partnership interests may have the holders partnership interests purchased at an undesirable time or price. The tax consequences to a unitholder of the exercise of this call right are the same as a sale by that unitholder of common units in the market. See Material U.S. Federal Income Tax ConsiderationsU.S. Federal Income Taxation of U.S. HoldersSale, Exchange or Other Disposition of Common Units and Material U.S. Federal Income Tax ConsiderationsU.S. Federal Income Taxation of Non-U.S. HoldersDisposition of Units.
At the completion of this offering and assuming no exercise of the underwriters over-allotment option, our Sponsor will own % of our common units. At the end of the subordination period, assuming no additional issuances of common units, no exercise of the underwriters over-allotment option and conversion of all of our subordinated units into common units, Dynagas Holding will own % of our common units.
Board of Directors
Under our Partnership Agreement, our General Partner has delegated to our board of directors the authority to oversee and direct our operations, policies and management on an exclusive basis, and such delegation will be binding on any successor general partner of the partnership. Our current board of directors consists of five members appointed by our General Partner. We expect that Messrs. Levon Dedegian, Alexios Rodopoulos and Evangelos Vlahoulis will satisfy the independence standards as applicable to us. Following our first annual meeting of unitholders, our board will consist of five members, two of whom will be appointed by our General Partner in its sole discretion and three of whom will be elected by our common unitholders. Directors appointed by our General Partner will serve as directors for terms determined by our General Partner. Directors elected by our common unitholders are divided into three classes serving staggered three-year terms. Three of the five directors initially appointed by our General Partner will serve until our annual meeting in 2014, at which time they will be replaced by three directors elected by our common unitholders. One of the three directors elected by our common unitholders will be designated as the Class I elected director and will serve until our annual meeting of unitholders in 2015, another of the three directors will be designated as the Class II elected director and will serve until our annual meeting of unitholders in 2016, and the remaining director will be designated as the Class III elected director and will serve until our annual meeting of unitholders in 2017. At each subsequent annual meeting of unitholders, directors will be elected to succeed the class of directors whose terms have expired by a plurality of the votes of the common unitholders. Directors to be elected by our common unitholders will be nominated by the board of directors or by any limited partner or group of limited partners that holds at least 15% of the outstanding common units.
In addition, any limited partner or group of limited partners that holds beneficially 15% or more of the outstanding common units is entitled to nominate one or more individuals to stand for election as elected board members at the annual meeting by providing written notice to our board of directors not more than 120 days nor
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less than 90 days prior to the meeting. However, if the date of the annual meeting is not publicly announced by us at least 100 days prior to the date of the meeting, the notice must be delivered to our board of directors not later than 10 days following the public announcement of the meeting date. The notice must set forth:
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the name and address of the limited partner or limited partners making the nomination or nominations; |
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the number of common units beneficially owned by the limited partner or limited partners; |
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the information regarding the nominee(s) proposed by the limited partner or limited partners; |
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the written consent of the nominee(s) to serve as a member of our board of directors if so elected; and |
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a certification that the nominee(s) qualify as elected board members. |
Our General Partner may remove an appointed board member with or without cause at any time. Cause generally means a courts finding a person liable for actual fraud or willful misconduct in his or its capacity as a director. Any and all of the board members may be removed at any time for cause by the affirmative vote of a majority of the other board members. Any and all of the board members appointed by our General Partner may be removed for cause at a properly called meeting of the limited partners by a majority vote of the outstanding units, voting as a single class. If any appointed board member is removed, resigns or is otherwise unable to serve as a board member, our General Partner may fill the vacancy. Any and all of the board members elected by the common unitholders may be removed for cause at a properly called meeting of the limited partners by a majority vote of the outstanding common units. If any elected board member is removed, resigns or is otherwise unable to serve as a board member, the vacancy may be filled by a majority of the other elected board members then serving.
Meetings; Voting
Except as described below regarding a person or group owning more than 4.9% of any class of units then outstanding, unitholders who are record holders of units on the record date will be entitled to notice of, and to vote at, meetings of our limited partners and to act upon matters for which approvals may be solicited.
We will hold a meeting of the limited partners every year to elect one or more members of our board of directors and to vote on any other matters that are properly brought before the meeting. Any action that is required or permitted to be taken by the unitholders may be taken either at a meeting of the unitholders or without a meeting if consents in writing describing the action so taken are signed by holders of the number of units necessary to authorize or take that action at a meeting. Meetings of the unitholders may be called by our board of directors or by unitholders owning at least 20% of the outstanding units of the class for which a meeting is proposed. Unitholders may vote either in person or by proxy at meetings. The holders of a majority of the outstanding units of the class or classes for which a meeting has been called, represented in person or by proxy, will constitute a quorum unless any action by the unitholders requires approval by holders of a greater percentage of the units, in which case the quorum will be the greater percentage.
Each record holder of a unit may vote according to the holders percentage interest in us, although additional limited partner interests having special voting rights could be issued. See Issuance of Additional Securities. However, to preserve our ability to be exempt from U.S. federal income tax under Section 883 of the Code, if at any time any person or group acquires, in the aggregate, beneficial ownership of more than 4.9% of all units then outstanding, that person or group will lose voting rights on all of its units in excess of 4.9% of all such units and those units in excess of 4.9% may not be voted on any matter and will not be considered to be outstanding when sending notices of a meeting of unitholders, calculating required votes (except for purposes of nominating a person for election to our board), determining the presence of a quorum, or for other similar purposes. The voting rights of any such unitholders in excess of 4.9% will effectively be redistributed pro rata among the other common unitholders holding less than 4.9% of the voting power of all classes of units entitled to vote. Our General Partner, its affiliates and persons who acquired common units with the prior approval of our
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board of directors will not be subject to this 4.9% limitation except with respect to voting their common units in the election of the elected directors. Units held in nominee or street name account will be voted by the broker or other nominee in accordance with the instruction of the beneficial owner unless the arrangement between the beneficial owner and his nominee provides otherwise. Except as the Partnership Agreement otherwise provides, subordinated units will vote together with common units as a single class.
Any notice, demand, request report, or proxy material required or permitted to be given or made to record holders of common units under the Partnership Agreement will be delivered to the record holder by us or by the transfer agent.
Status as Limited Partner or Assignee
Except as described above under Limited Liability, the common units will be fully paid, and unitholders will not be required to make additional contributions. By transfer of common units in accordance with our Partnership Agreement, each transferee of common units will be admitted as a limited partner with respect to the common units transferred when such transfer and admission is reflected in our books and records.
Indemnification
Under the Partnership Agreement, in most circumstances, we will indemnify the following persons, to the fullest extent permitted by law, from and against all losses, claims, damages or similar events:
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our General Partner; |
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any departing General Partner; |
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any person who is or was an affiliate of our General Partner or any departing General Partner; |
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any person who is or was an officer, director, member, fiduciary or trustee of any entity described in (1), (2) or (3) above; |
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any person who is or was serving as a director, officer, member, fiduciary or trustee of another person at the request of our board of directors, our General Partner or any departing General Partner; |
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any person designated by our board of directors; |
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our officers; and |
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the members of our board of directors. |
Any indemnification under these provisions will only be out of our assets. Unless it otherwise agrees, our General Partner will not be personally liable for, or have any obligation to contribute or lend funds or assets to us to enable us to effectuate, indemnification. We may purchase insurance against liabilities asserted against and expenses incurred by persons for our activities, regardless of whether we would have the power to indemnify the person against liabilities under the Partnership Agreement.
Reimbursement of Expenses
Our Partnership Agreement requires us to reimburse the members of our board of directors for their out-of-pocket costs and expenses incurred in the course of their service to us. Our Partnership Agreement also requires us to reimburse our General Partner for all expenses it incurs or payments it makes on our behalf and all other expenses allocable to us or otherwise incurred by our General Partner in connection with operating our business. These expenses include salary, bonus, incentive compensation and other amounts paid to persons who perform services for us or on our behalf, and expenses allocated to us or our General Partner by our board of directors.
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Books and Reports
Our General Partner is required to keep appropriate books and records of our business at our principal offices. The books will be maintained for both tax and financial reporting purposes on an accrual basis. For tax and fiscal reporting purposes, our fiscal year is the calendar year.
We will furnish or make available to record holders of common units, within 120 days after the close of each fiscal year, an annual report containing audited financial statements and a report on those financial statements by our independent chartered accountants. Except for our fourth quarter, we will also furnish or make available summary financial information within 90 days after the close of each quarter.
Right to Inspect Our Books and Records
The Partnership Agreement provides that a limited partner can, for a purpose reasonably related to his interest as a limited partner, upon reasonable written demand stating the purpose of such demand and at the limited partners own expense, have furnished to the limited partner:
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a current list of the name and last known address of each partner; |
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information as to the amount of cash, and a description and statement of the agreed value of any other property or services, contributed or to be contributed by each partner and the date on which each became a partner; |
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copies of the Partnership Agreement, the certificate of limited partnership of the partnership, and related amendments; |
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information regarding the status of our business and financial position; and |
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any other information regarding our affairs as is just and reasonable. |
Our board of directors may, and intends to, keep confidential from the limited partners trade secrets or other information the disclosure of which our board of directors believes in good faith is not in our best interests or that we are required by law or by agreements with third parties to keep confidential.
Registration Rights
Under the Partnership Agreement, we have agreed to register for resale under the Securities Act and applicable state securities laws, subject to applicable law, including the regulations of the SEC, any common units proposed to be sold by our Sponsor or any of its affiliates or their assignees if an exemption from the registration requirements is not otherwise available or advisable. These registration rights continue for two years following any withdrawal or removal of Dynagas GP LLC as our General Partner. We are obligated to pay all expenses incidental to the registration, excluding underwriting discounts and commissions. In connection with these registration rights, we will not be required to pay any damages or penalties related to any delay or failure to file a registration statement or to the failure to cause a registration statement to become effective. See Units Eligible for Future Sale.
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UNITS ELIGIBLE FOR FUTURE SALE
After the sale of the common units offered by this prospectus, our Sponsor and its affiliates will hold an aggregate of common units and subordinated units. All of the subordinated units will convert into common units at the end of the subordination period. The sale of these common and subordinated units could have an adverse impact on the price of the common units or on any trading market that may develop.
The common units sold in this offering will generally be freely transferable without restriction or further registration under the Securities Act. However, any common units held by an affiliate of ours may not be resold publicly except in compliance with the registration requirements of the Securities Act or under an exemption from the registration requirements of the Securities Act pursuant to Rule 144 or otherwise. Rule 144 permits securities acquired by an affiliate of ours to be sold into the market in an amount that does not exceed, during any three-month period, the greater of:
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1% of the total number of the class of securities outstanding; or |
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the average weekly reported trading volume of the common units for the four calendar weeks prior to the sale. |
Sales under Rule 144 are also subject to specific manner of sale provisions, holding period requirements, notice requirements and the availability of current public information about us. A person who is not deemed to have been an affiliate of ours at any time during the three months preceding a sale, and who has beneficially owned common units for at least six months (provided we are in compliance with the current public information requirement) or one year (regardless of whether we are in compliance with the current public information requirement), would be entitled to sell those common units under Rule 144 without regard to the public information requirements, volume limitations, manner of sale provisions, and notice requirements of Rule 144.
Our Partnership Agreement provides that we may issue an unlimited number of limited partner interests of any type without a vote of the unitholders. Any issuance of additional common units or other equity securities would result in a corresponding decrease in the proportionate ownership interest in us represented by, and could adversely affect the cash distributions to and market price of, common units then outstanding. See The Partnership AgreementIssuance of Additional Securities.
Under our Partnership Agreement, our Sponsor and its affiliates have the right to cause us to register under the Securities Act and applicable state securities laws the offer and sale of any common units that they hold. Subject to the terms and conditions of the Partnership Agreement, these registration rights allow our Sponsor and its affiliates or their assignees holding any common units to require registration of any of these common units and to include any of these common units in a registration by us of other common units, including common units offered by us or by any unitholder. Our Sponsor and its affiliates will continue to have these registration rights for two years following its withdrawal or removal as our General Partner. In connection with any registration of this kind, we will indemnify each unitholder participating in the registration and its officers, directors and controlling persons from and against any liabilities under the Securities Act or any applicable state securities laws arising from the registration statement or prospectus. We will bear all costs and expenses incidental to any registration, excluding any underwriting discounts and commissions and transfer taxes. Except as described below, our Sponsor and its affiliates may sell their common units in private transactions at any time, subject to compliance with applicable laws.
We, our directors and executive officers, our subsidiaries, our Sponsor and its affiliates and our General Partner and its affiliates have agreed not to sell any common units for a period of 180 days from the date of this prospectus, subject to certain exceptions and extensions. See Underwriters for a description of these lock-up provisions.
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MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a discussion of the material U.S. federal income tax considerations that may be relevant to prospective unitholders and, unless otherwise noted in the following discussion, is the opinion of Seward & Kissel LLP, our U.S. counsel, insofar as it contains legal conclusions with respect to matters of U.S. federal income tax law. The opinion of our counsel is dependent on the accuracy of factual representations made by us to them, including descriptions of our operations contained herein.
This discussion is based upon provisions of the Code, Treasury Regulations, and current administrative rulings and court decisions, all as in effect or existence on the date of this prospectus and all of which are subject to change, possibly with retroactive effect. Changes in these authorities may cause the tax consequences of unit ownership to vary substantially from the consequences described below. Unless the context otherwise requires, references in this section to we, our or us are references to Dynagas LNG Partners LP.
The following discussion applies only to beneficial owners of common units that own the common units as capital assets within the meaning of Section 1221 of the Code (i.e., generally, for investment purposes) and is not intended to be applicable to all categories of investors, such as unitholders subject to special tax rules (e.g., financial institutions, insurance companies, broker-dealers, tax-exempt organizations, retirement plans or individual retirement accounts or former citizens or long-term residents of the United States), persons who own 10% or more of our units (directly, indirectly or constructively), persons who will hold the units as part of a straddle, hedge, conversion, constructive sale or other integrated transaction for U.S. federal income tax purposes, or persons that have a functional currency other than the U.S. dollar, each of whom may be subject to tax rules that differ significantly from those summarized below. If a partnership or other entity classified as a partnership for U.S. federal income tax purposes holds our common units, the tax treatment of its partners generally will depend upon the status of the partner and the activities of the partnership. If you are a partner in a partnership holding our common units, you are encouraged to consult your own tax advisor regarding the tax consequences to you of the partnerships ownership of our common units.
No ruling has been or will be requested from the IRS regarding any matter affecting us or prospective unitholders. The opinions and statements made herein may be challenged by the IRS and, if so challenged, may not be sustained upon review in a court.
This discussion does not contain information regarding any U.S. state or local, estate, gift or alternative minimum tax considerations concerning the ownership or disposition of common units. This discussion does not comment on all aspects of U.S. federal income taxation that may be important to particular unitholders in light of their individual circumstances, and each prospective unitholder is urged to consult its own tax advisor regarding the U.S. federal, state, local and other tax consequences of the ownership or disposition of common units.
Election to be Treated as a Corporation
We have elected to be treated as a corporation for U.S. federal income tax purposes. As a result, we will be subject to U.S. federal income tax to the extent we earn income from U.S. sources or income that is treated as effectively connected with the conduct of a trade or business in the United States unless such income is exempt from tax under an applicable tax treaty or Section 883 of the Code. In addition, among other things, U.S. Holders (as defined below) will not directly be subject to U.S. federal income tax on our income, but rather will be subject to U.S. federal income tax on distributions received from us and dispositions of units as described below.
United States Federal Income Taxation of Our Company
Taxation of Operating Income: In General
Unless exempt from United States federal income taxation under the rules discussed below, a foreign corporation is subject to United States federal income taxation in respect of any income that is derived from the
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use of vessels, from the hiring or leasing of vessels for use on a time, voyage or bareboat charter basis, from the participation in a pool, partnership, strategic alliance, joint Partnership Agreement, code sharing arrangements or other joint venture it directly or indirectly owns or participates in that generates such income, or from the performance of services directly related to those uses, which we refer to as shipping income, to the extent that the shipping income is derived from sources within the United States. For these purposes, 50% of shipping income that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States constitutes income from sources within the United States, which we refer to as U.S.-source shipping income.
Shipping income attributable to transportation that both begins and ends in the United States is considered to be 100% from sources within the United States. We are not permitted to engage in transportation that produces income which is considered to be 100% from sources within the United States.
Shipping income attributable to transportation exclusively between non-U.S. ports will be considered to be 100% derived from sources outside the United States. Shipping income derived from sources outside the United States will not be subject to any United States federal income tax.
In the absence of exemption from tax under Section 883, our gross U.S.-source shipping income would be subject to a 4% tax imposed without allowance for deductions as described below.
Exemption of Operating Income from United States Federal Income Taxation
Under Section 883 of the Code, we will be exempt from United States federal income taxation on our U.S.-source shipping income if:
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we are organized in a foreign country (our country of organization) that grants an equivalent exemption to corporations organized in the United States; and |
either
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more than 50% of the value of our units is owned, directly or indirectly, by individuals who are residents of our country of organization or of another foreign country that grants an equivalent exemption to corporations organized in the United States, which we refer to as the 50% Ownership Test, or |
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our units are primarily and regularly traded on an established securities market in our country of organization, in another country that grants an equivalent exemption to United States corporations, or in the United States, which we refer to as the Publicly-Traded Test. |
The Marshall Islands, the jurisdiction where we and our ship-owning subsidiaries are incorporated, grants an equivalent exemption to United States corporations. Therefore, we will be exempt from United States federal income taxation with respect to our U.S.-source shipping income if we satisfy either the 50% Ownership Test or the Publicly-Traded Test. For taxable years prior to this offering, we believe that the 50% Ownership Test will be satisfied. After this offering, it may be difficult for us to satisfy the 50% Ownership Test due to the widely-held ownership of our stock. Our ability to satisfy the Publicly-Traded Test is discussed below.
The regulations provide, in pertinent part, that stock of a foreign corporation will be considered to be primarily traded on an established securities market if the number of shares of each class of stock that are traded during any taxable year on all established securities markets in that country exceeds the number of shares in each such class that are traded during that year on established securities markets in any other single country. Upon completion of our offering, we anticipate that our common units will be primarily traded on Nasdaq Global Select Market.
Under the regulations, our units will be considered to be regularly traded on an established securities market if one or more classes of our units representing more than 50% or more of our outstanding units, by total
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combined voting power of all classes of units entitled to vote and total value, is listed on the market which we refer to as the listing threshold. Since our common units, which represent more than 50% of our outstanding units, will be listed on Nasdaq Global Select Market, we will satisfy the listing requirement.
It is further required that with respect to each class of stock relied upon to meet the listing threshold (i) such class of the stock is traded on the market, other than in minimal quantities, on at least 60 days during the taxable year or 1 / 6 of the days in a short taxable year; and (ii) the aggregate number of shares of such class of stock traded on such market is at least 10% of the average number of shares of such class of stock outstanding during such year or as appropriately adjusted in the case of a short taxable year. We believe we will satisfy the trading frequency and trading volume tests. Even if this were not the case, the regulations provide that the trading frequency and trading volume tests will be deemed satisfied by a class of stock if, as we expect to be the case with our common units, such class of stock is traded on an established market in the United States and such class of stock is regularly quoted by dealers making a market in such stock.
Notwithstanding the foregoing, the regulations provide, in pertinent part, our common units will not be considered to be regularly traded on an established securities market for any taxable year in which 50% or more of the our outstanding common units are owned, actually or constructively under specified attribution rules, on more than half the days during the taxable year by persons who each own 5% or more of our common units, which we refer to as the 5 Percent Override Rule.
For purposes of being able to determine the persons who own 5% or more of our common units, or 5% Unitholders, the regulations permit us to rely on Schedule 13G and Schedule 13D filings with the United States
Securities and Exchange Commission, or the SEC, to identify persons who have a 5% or more beneficial interest in our common units. The regulations further provide that an investment company which is registered under the Investment Company Act of 1940, as amended, will not be treated as a 5% Unitholder for such purposes.
After the offering, we anticipate that our 5% Unitholders will not own 50% or more of our common units. Therefore, we do not expect to be subject to the 5% Override Rule. However, if our 5% Unitholders were to come to own 50% or more of our common units, then we would not qualify for exemption under Section 883 unless we could establish that among the closely-held group of 5% Unitholders, there are sufficient 5% Unitholders that are qualified stockholders for purposes of Section 883 to preclude non-qualified 5% Unitholders in the closely-held group from owning 50% or more of our common units for more than half the number of days during the taxable year. In order to establish this, sufficient 5% Unitholders that are qualified stockholders would have to comply with certain documentation and certification requirements designed to substantiate their identity as qualified stockholders. These requirements are onerous and there can be no assurance that we would be able to satisfy them.
Taxation In Absence of Exemption
To the extent the benefits of Section 883 are unavailable, our U.S. source shipping income, to the extent not considered to be effectively connected with the conduct of a U.S. trade or business, as described below, would be subject to a 4% tax imposed by Section 887 of the Code on a gross basis, without the benefit of deductions. Since under the sourcing rules described above, no more than 50% of our shipping income would be treated as being derived from U.S. sources, the maximum effective rate of U.S. federal income tax on our shipping income would never exceed 2% under the 4% gross basis tax regime.
To the extent the benefits of the Section 883 exemption are unavailable and our U.S.-source shipping income is considered to be effectively connected with the conduct of a U.S. trade or business, as described below, any such effectively connected U.S.-source shipping income, net of applicable deductions, would be subject to the U.S. federal corporate income tax currently imposed at rates of up to 35%. In addition, we may be
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subject to the 30% branch profits taxes on earnings effectively connected with the conduct of such trade or business, as determined after allowance for certain adjustments, and on certain interest paid or deemed paid attributable to the conduct of its U.S. trade or business.
Our U.S.-source shipping income would be considered effectively connected with the conduct of a U.S. trade or business only if:
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we have, or are considered to have, a fixed place of business in the United States involved in the earning of shipping income; and |
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substantially all of our U.S.-source shipping income is attributable to regularly scheduled transportation, such as the operation of a vessel that follows a published schedule with repeated sailings at regular intervals between the same points for voyages that begin or end in the United States. |
We do not intend to have, or permit circumstances that would result in having any vessel operating to the United States on a regularly scheduled basis. Based on the foregoing and on the expected mode of our shipping operations and other activities, we believe that none of our U.S.-source shipping income will be effectively connected with the conduct of a U.S. trade or business.
United States Taxation of Gain on Sale of Vessels
Regardless of whether we qualify for exemption under Section 883, we will not be subject to United States federal income taxation with respect to gain realized on a sale of a vessel, provided the sale is considered to occur outside of the United States under United States federal income tax principles. In general, a sale of a vessel will be considered to occur outside of the United States for this purpose if title to the vessel, and risk of loss with respect to the vessel, pass to the buyer outside of the United States. It is expected that any sale of a vessel by us will be considered to occur outside of the United States.
U.S. Federal Income Taxation of U.S. Holders
As used herein, the term U.S. Holder means a beneficial owner of our common units that owns (actually or constructively) less than 10% of our equity and that is:
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an individual U.S. citizen or resident (as determined for U.S. federal income tax purposes), |
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a corporation (or other entity that is classified as a corporation for U.S. federal income tax purposes) organized under the laws of the United States or any of its political subdivisions, |
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an estate the income of which is subject to U.S. federal income taxation regardless of its source, or |
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a trust if (i) a court within the United States is able to exercise primary jurisdiction over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (ii) the trust has a valid election in effect to be treated as a U.S. person for U.S. federal income tax purposes. |
Distributions
Subject to the discussion below of the rules applicable to PFICs, any distributions to a U.S. Holder made by us with respect to our common units generally will constitute dividends, which may be taxable as ordinary income or qualified dividend income as described in more detail below, to the extent of our current and accumulated earnings and profits, as determined under U.S. federal income tax principles. Distributions in excess of our earnings and profits will be treated first as a nontaxable return of capital to the extent of the U.S. Holders tax basis in its common units and thereafter as capital gain. U.S. Holders that are corporations generally will not be entitled to claim a dividends received deduction with respect to distributions they receive from us because we are not a U.S. corporation. Dividends received with respect to our common units generally will be treated as
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passive category income for purposes of computing allowable foreign tax credits for U.S. federal income tax purposes.
Dividends received with respect to our common units by a U.S. Holder that is an individual, trust or estate (or a U.S. Individual Holder) generally will be treated as qualified dividend income that is taxable to such U.S. Individual Holder at preferential capital gain tax rates provided that: (i) our common units are readily tradable on an established securities market in the United States (such as the Nasdaq Global Select Market on which we expect our common units to be traded); (ii) we are not a PFIC for the taxable year during which the dividend is paid or the immediately preceding taxable year (which we do not believe we are, have been or will be, as discussed below under PFIC Status and Significant Tax Consequences); (iii) the U.S. Individual Holder has owned the common units for more than 60 days during the 121-day period beginning 60 days before the date on which the common units become ex-dividend (and has not entered into certain risk limiting transactions with respect to such common units); and (iv) the U.S. Individual Holder is not under an obligation to make related payments with respect to positions in substantially similar or related property. There is no assurance that any dividends paid on our common units will be eligible for these preferential rates in the hands of a U.S. Individual Holder, and any dividends paid on our common units that are not eligible for these preferential rates will be taxed as ordinary income to a U.S. Individual Holder.
Special rules may apply to any amounts received in respect of our common units that are treated as extraordinary dividends. In general, an extraordinary dividend is a dividend with respect to a common unit that is equal to or in excess of 10% of a unitholders adjusted tax basis (or fair market value upon the unitholders election) in such common unit. In addition, extraordinary dividends include dividends received within a one year period that, in the aggregate, equal or exceed 20% of a unitholders adjusted tax basis (or fair market value). If we pay an extraordinary dividend on our common units that is treated as qualified dividend income, then any loss recognized by a U.S. Individual Holder from the sale or exchange of such common units will be treated as long-term capital loss to the extent of the amount of such dividend.
Ratio of Dividend Income to Distributions
We will compute our earnings and profits for each taxable year in accordance with U.S. federal income tax principles. We estimate that approximately % of the total cash distributions received by a purchaser of common units in this offering that holds such common units through will constitute dividend income. The remaining portion of these distributions, determined on a cumulative basis, will be treated first as a nontaxable return of capital to the extent of the purchasers tax basis in its common units and thereafter as capital gain. These estimates are based upon the assumption that we will pay the minimum quarterly distribution of $ per unit on our common units during the referenced period and on other assumptions with respect to our earnings, capital expenditures and cash flow for this period. These estimates and assumptions are subject to, among other things, numerous business, economic, regulatory, competitive and political uncertainties that are beyond our control. Further, these estimates are based on current U.S. federal income tax law and tax reporting positions that we will adopt and with which the IRS could disagree. Accordingly, we cannot assure you that these estimates will prove to be correct. The actual percentage of total cash distributions that will constitute dividend income could be higher or lower, and any differences could be material or could materially affect the value of the common units.
Sale, Exchange or Other Disposition of Common Units
Subject to the discussion of PFIC status below, a U.S. Holder generally will recognize capital gain or loss upon a sale, exchange or other disposition of our units in an amount equal to the difference between the amount realized by the U.S. Holder from such sale, exchange or other disposition and the U.S. Holders adjusted tax basis in such units. The U.S. Holders initial tax basis in its units generally will be the U.S. Holders purchase price for the units and that tax basis will be reduced (but not below zero) by the amount of any distributions on the units that are treated as non-taxable returns of capital (as discussed above under Distributions and Ratio of
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Dividend Income to Distributions). Such gain or loss will be treated as long-term capital gain or loss if the U.S. Holders holding period is greater than one year at the time of the sale, exchange or other disposition. Certain U.S. Holders (including individuals) may be eligible for preferential rates of U.S. federal income tax in respect of long-term capital gains. A U.S. Holders ability to deduct capital losses is subject to limitations. Such capital gain or loss generally will be treated as U.S. source income or loss, as applicable, for U.S. foreign tax credit purposes.
PFIC Status and Significant Tax Consequences
Adverse U.S. federal income tax rules apply to a U.S. Holder that owns an equity interest in a non-U.S. corporation that is classified as a PFIC for U.S. federal income tax purposes. In general, we will be treated as a PFIC with respect to a U.S. Holder if, for any taxable year in which the holder held our units, either:
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at least 75% of our gross income (including the gross income of our vessel-owning subsidiaries) for such taxable year consists of passive income (e.g., dividends, interest, capital gains and rents derived other than in the active conduct of a rental business); or |
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at least 50% of the average value of the assets held by us (including the assets of our vessel-owning subsidiaries) during such taxable year produce, or are held for the production of, passive income. |
For purposes of determining whether we are a PFIC, we will be treated as earning and owning our proportionate share of the income and assets, respectively, of any of our subsidiary corporations in which we own at least 25% of the value of the subsidiarys stock. Income earned, or deemed earned, by us in connection with the performance of services would not constitute passive income. By contrast, rental income would generally constitute passive income unless we were treated under specific rules as deriving our rental income in the active conduct of a trade or business.
Based on our current and projected methods of operation, and an opinion of our United States counsel, we do not believe that we are, nor do we expect to become, a PFIC with respect to any taxable year. We will receive an opinion of our United States counsel, Seward & Kissel LLP, in support of this position that concludes that the income our subsidiaries earn from certain of our present time-chartering activities should not constitute passive income for purposes of determining whether we are a PFIC. In addition, we have represented to our United States counsel that we expect that more than 25.0% of our gross income for our current taxable year and each future year will arise from such time-chartering activities on other income which does not constitute passive income, and more than 50.0% of the average value of our assets for each such year will be held for the production of such nonpassive income. Assuming the composition of our income and assets is consistent with these expectations, and assuming the accuracy of other representations we have made to our United States counsel for purposes of their opinion, our United States counsel is of the opinion that we should not be a PFIC for our current taxable year or any future year. We believe there is substantial legal authority supporting our position consisting of case law and IRS pronouncements concerning the characterization of income derived from time charters and voyage charters as services income for other tax purposes. However, it should be noted that there is also authority concluding that income derived from time charters should be treated as rental income rather than services income for other tax purposes. Therefore, in the absence of any legal authority specifically relating to the statutory provisions governing PFICs, our United States counsel has advised us that the conclusions reached are not free from doubt, and the IRS or a court could disagree with our position and the opinion of our United States counsel. In addition, although we intend to conduct our affairs in a manner to avoid being classified as a PFIC with respect to any taxable year, we cannot assure you that the nature of our operations will not change in the future.
As discussed more fully below, if we were to be treated as a PFIC for any taxable year, a U.S. Holder would be subject to different taxation rules depending on whether the U.S. Holder makes an election to treat us as a Qualified Electing Fund, which we refer to as a QEF election. As an alternative to making a QEF election, a U.S. Holder should be able to make a mark-to-market election with respect to our common units, as discussed below. If we are a PFIC, a U.S. Holder will be subject to the PFIC rules described herein with respect to any of our subsidiaries that are PFICs. However, the mark-to-market election discussed below will likely not be
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available with respect to shares of such PFIC subsidiaries. In addition, if a U.S. Holder owns our common units during any taxable year that we are a PFIC, such U.S. Holder must file an annual report with the IRS.
Taxation of U.S. Holders Making a Timely QEF Election
If a U.S. Holder makes a timely QEF election (or an Electing Holder), then, for U.S. federal income tax purposes, that holder must report as income for its taxable year its pro rata share of our ordinary earnings and net capital gain, if any, for our taxable years that end with or within the taxable year for which that holder is reporting, regardless of whether or not the Electing Holder received distributions from us in that year. The Electing Holders adjusted tax basis in the common units will be increased to reflect taxed but undistributed earnings and profits. Distributions of earnings and profits that were previously taxed will result in a corresponding reduction in the Electing Holders adjusted tax basis in common units and will not be taxed again once distributed. An Electing Holder generally will recognize capital gain or loss on the sale, exchange or other disposition of our common units. A U.S. Holder makes a QEF election with respect to any year that we are a PFIC by filing IRS Form 8621 with its U.S. federal income tax return. If, contrary to our expectations, we determine that we are treated as a PFIC for any taxable year, we will provide each U.S. Holder with the information necessary to make the QEF election described above.
Taxation of U.S. Holders Making a Mark-to-Market Election
If we were to be treated as a PFIC for any taxable year and, as we anticipate, our units were treated as marketable stock, then, as an alternative to making a QEF election, a U.S. Holder would be allowed to make a mark-to-market election with respect to our common units, provided the U.S. Holder completes and files IRS Form 8621 in accordance with the relevant instructions and related Treasury Regulations. If that election is made, the U.S. Holder generally would include as ordinary income in each taxable year the excess, if any, of the fair market value of the U.S. Holders common units at the end of the taxable year over the holders adjusted tax basis in the common units. The U.S. Holder also would be permitted an ordinary loss in respect of the excess, if any, of the U.S. Holders adjusted tax basis in the common units over the fair market value thereof at the end of the taxable year, but only to the extent of the net amount previously included in income as a result of the mark-to-market election. A U.S. Holders tax basis in its common units would be adjusted to reflect any such income or loss recognized. Gain recognized on the sale, exchange or other disposition of our common units would be treated as ordinary income, and any loss recognized on the sale, exchange or other disposition of the common units would be treated as ordinary loss to the extent that such loss does not exceed the net mark-to-market gains previously included in income by the U.S. Holder. Because the mark-to-market election only applies to marketable stock, however, it would not apply to a U.S. Holders indirect interest in any of our subsidiaries that were determined to be PFICs.
Taxation of U.S. Holders Not Making a Timely QEF or Mark-to-Market Election
If we were to be treated as a PFIC for any taxable year, a U.S. Holder that does not make either a QEF election or a mark-to-market election for that year (or a Non-Electing Holder) would be subject to special rules resulting in increased tax liability with respect to (1) any excess distribution (i.e., the portion of any distributions received by the Non-Electing Holder on our common units in a taxable year in excess of 125% of the average annual distributions received by the Non-Electing Holder in the three preceding taxable years, or, if shorter, the Non-Electing Holders holding period for the common units), and (2) any gain realized on the sale, exchange or other disposition of the units. Under these special rules:
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the excess distribution or gain would be allocated ratably over the Non-Electing Holders aggregate holding period for the common units; |
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the amount allocated to the current taxable year and any taxable year prior to the taxable year we were first treated as a PFIC with respect to the Non-Electing Holder would be taxed as ordinary income; and |
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the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayers for that year, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year. |
U.S. Federal Income Taxation of Non-U.S. Holders
A beneficial owner of our common units (other than a partnership or an entity or arrangement treated as a partnership for U.S. federal income tax purposes) that is not a U.S. Holder is referred to as a Non-U.S. Holder. If you are a partner in a partnership (or an entity or arrangement treated as a partnership for U.S. federal income tax purposes) holding our common units, you should consult your own tax advisor regarding the tax consequences to you of the partnerships ownership of our common units.
Distributions
Distributions we pay to a Non-U.S. Holder will not be subject to U.S. federal income tax or withholding tax if the Non-U.S. Holder is not engaged in a U.S. trade or business. If the Non-U.S. Holder is engaged in a U.S. trade or business, our distributions will be subject to U.S. federal income tax to the extent they constitute income effectively connected with the Non-U.S. Holders U.S. trade or business. However, distributions paid to a Non-U.S. Holder that is engaged in a trade or business may be exempt from taxation under an income tax treaty if the income arising from the distribution is not attributable to a U.S. permanent establishment maintained by the Non-U.S. Holder.
Disposition of Units
In general, a Non-U.S. Holder is not subject to U.S. federal income tax or withholding tax on any gain resulting from the disposition of our common units provided the Non-U.S. Holder is not engaged in a U.S. trade or business. A Non-U.S. Holder that is engaged in a U.S. trade or business will be subject to U.S. federal income tax in the event the gain from the disposition of units is effectively connected with the conduct of such U.S. trade or business (provided, in the case of a Non-U.S. Holder entitled to the benefits of an income tax treaty with the United States, such gain also is attributable to a U.S. permanent establishment). However, even if not engaged in a U.S. trade or business, individual Non-U.S. Holders may be subject to tax on gain resulting from the disposition of our common units if they are present in the United States for 183 days or more during the taxable year in which those units are disposed and meet certain other requirements.
Backup Withholding and Information Reporting
In general, payments to a non-corporate U.S. Holder of distributions or the proceeds of a disposition of common units will be subject to information reporting. These payments to a non-corporate U.S. Holder also may be subject to backup withholding if the non-corporate U.S. Holder:
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fails to provide an accurate taxpayer identification number; |
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is notified by the IRS that it has failed to report all interest or corporate distributions required to be reported on its U.S. federal income tax returns; or |
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in certain circumstances, fails to comply with applicable certification requirements. |
Non-U.S. Holders may be required to establish their exemption from information reporting and backup withholding by certifying their status on IRS Form W-8BEN, W-8ECI or W-8IMY, as applicable.
Backup withholding is not an additional tax. Rather, a unitholder generally may obtain a credit for any amount withheld against its liability for U.S. federal income tax (and obtain a refund of any amounts withheld in excess of such liability) by timely filing a U.S. federal income tax return with the IRS.
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Pursuant to recently enacted legislation, individuals who are U.S. Holders (and to the extent specified in applicable Treasury regulations, certain individuals who are Non-U.S. Holders and certain U.S. entities) who hold specified foreign financial assets (as defined in Section 6038D of the Code) are required to file IRS Form 8938 with information relating to the asset for each taxable year in which the aggregate value of all such assets exceeds $75,000 at any time during the taxable year or $50,000 on the last day of the taxable year (or such higher dollar amount as prescribed by applicable Treasury regulations). Specified foreign financial assets would include, among other assets, our common units, unless the shares held through an account maintained with a U.S. financial institution. Substantial penalties apply to any failure to timely file IRS Form 8938, unless the failure is shown to be due to reasonable cause and not due to willful neglect. Additionally, in the event an individual U.S. Holder (and to the extent specified in applicable Treasury regulations, an individual Non-U.S. Holder or a U.S. entity) that is required to file IRS Form 8938 does not file such form, the statute of limitations on the assessment and collection of U.S. federal income taxes of such holder for the related tax year may not close until three years after the date that the required information is filed. U.S. Holders (including U.S. entities) and Non-U.S. Holders are encouraged consult their own tax advisors regarding their reporting obligations under this legislation.
Unless the context otherwise requires, references in this section to we, our or us are references to Dynagas LNG Partners LP.
Marshall Islands Tax Consequences
The following discussion is based upon the opinion of Seward & Kissel LLP, our counsel as to matters of the laws of the Republic of the Marshall Islands, and the current laws of the Republic of the Marshall Islands applicable to persons who do not reside in, maintain offices in or engage in business in the Republic of the Marshall Islands.
Because we and our subsidiaries do not and do not expect to conduct business or operations in the Republic of the Marshall Islands, and because all documentation related to this offering will be executed outside of the Republic of the Marshall Islands, under current Marshall Islands law you will not be subject to Marshall Islands taxation or withholding on distributions, including upon distribution treated as a return of capital, we make to you as a unitholder. In addition, you will not be subject to Marshall Islands stamp, capital gains or other taxes on the purchase, ownership or disposition of common units, and you will not be required by the Republic of the Marshall Islands to file a tax return relating to your ownership of common units.
EACH PROSPECTIVE UNITHOLDER IS URGED TO CONSULT HIS OWN TAX COUNSEL OR OTHER ADVISOR WITH REGARD TO THE LEGAL AND TAX CONSEQUENCES OF UNIT OWNERSHIP UNDER THEIR PARTICULAR CIRCUMSTANCES.
Taxation of Non-U.K. Holders
Under the United Kingdom Tax Acts, non-U.K. holders will not be subject to any United Kingdom taxes on income or profits (including chargeable (capital) gains) in respect of the acquisition, holding, disposition or redemption of the common units, provided that:
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we are not treated as carrying on business in the United Kingdom; |
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such holders do not have a fixed base or permanent establishment in the United Kingdom to which such common units pertain; and |
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such holders do not use or hold and are not deemed or considered to use or hold their common units in the course of carrying on a business in the United Kingdom. |
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A non-United Kingdom resident company or an individual not resident or ordinarily resident in the United Kingdom that carries on a business in the United Kingdom through a partnership is subject to United Kingdom tax on income derived from the business carried on by the partnership in the United Kingdom. Nonetheless, we expect to conduct our affairs in such a manner that we will not be treated as carrying on business in the United Kingdom. Consequently, we expect that non-U.K. Holders will not be considered to be carrying on business in the United Kingdom for the purposes of the United Kingdom Tax Acts solely by reason of the acquisition, holding, disposition or redemption of their common units.
While we do not expect it to be the case, if the arrangements we propose to enter into result in our being considered to carry on business in the United Kingdom for the purposes of the United Kingdom Tax Acts, our unitholders would be considered to be carrying on business in the United Kingdom and would be required to file tax returns with the United Kingdom taxing authority and, subject to any relief provided in any relevant double taxation treaty (including, in the case of holders resident in the United States, the double taxation agreement between the United Kingdom and the United States), would be subject to taxation in the United Kingdom on any income and chargeable gains that are considered to be attributable to the business carried on by us in the United Kingdom.
EACH PROSPECTIVE UNITHOLDER IS URGED TO CONSULT HIS OWN TAX COUNSEL OR OTHER ADVISOR WITH REGARD TO THE LEGAL AND TAX CONSEQUENCES OF UNIT OWNERSHIP UNDER THEIR PARTICULAR CIRCUMSTANCES.
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UNDERWRITING (CONFLICTS OF INTEREST)
Under the terms and subject to the conditions contained in an underwriting agreement with respect to the common units being offered, we and the selling unitholder have agreed to sell to the underwriters named below, for whom Credit Suisse Securities (USA) LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Morgan Stanley & Co. LLC are acting as representatives, the following respective amounts of common units:
Underwriter |
Number
of Common Units |
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Credit Suisse Securities (USA) LLC |
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Merrill Lynch, Pierce, Fenner & Smith Incorporated |
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Morgan Stanley & Co. LLC |
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Barclays Capital Inc. |
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Total |
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The underwriting agreement provides that the underwriters are obligated to purchase all of the common units in the offering if any are purchased, other than those common units covered by the over-allotment option described below. The underwriting agreement also provides that if an underwriter defaults the purchase commitments of non-defaulting underwriters may be increased or the offering may be terminated. The offering of the common units by the underwriters is subject to receipt and acceptance and subject to the underwriters right to reject any order in whole or in part.
The selling unitholder has granted to the underwriters a 30-day option to purchase on a pro rata basis up to additional common units at the initial public offering price less the underwriting discounts and commissions. If any common units are purchased pursuant to this option, the underwriters will severally purchase the common units in approximately the same proportion as set forth in the table above.
The underwriters propose to offer the common units initially at the public offering price on the cover page of this prospectus and to selling group members at that price less a selling concession of up to $ per unit. The underwriters and selling group members may allow a discount of up to $ per unit on sales to other broker/dealers. After the initial public offering the representatives may change the public offering price and concession and discount to broker/dealers.
The following table summarizes the compensation and estimated expenses we and the selling unitholder will pay:
Per Unit | Total | |||||||
Without
Over-allotment |
With
Over-allotment |
Without
Over-allotment |
With
Over-allotment |
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Underwriting Discounts and Commissions paid by us |
$ | $ | $ | $ | ||||
Expenses payable by us |
$ | $ | $ | $ | ||||
Underwriting Discounts and Commissions paid by selling unitholder |
$ | $ | $ | $ |
We will pay a structuring fee equal to $ million to Seaborne Capital Advisors Ltd. This structuring fee will compensate Seaborne Capital Advisors Ltd. for providing advice regarding the capital structure of our partnership, the terms of the offering, the terms of our partnership agreement and the terms of certain other agreements between us and our affiliates.
Solebury Capital LLC, or Solebury, a FINRA member, is acting as our financial advisor in connection with this offering. We expect to pay Solebury, upon the successful completion of this offering, a fee of $ for its
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services, and, in our discretion, may pay Solebury an additional incentive fee of up to $ . We have also agreed to reimburse Solebury for certain expenses incurred in connection with the engagement of up to $ . Solebury is not acting as an underwriter and will not sell or offer to sell any securities and will not identify, solicit or engage directly with potential investors. In addition, Solebury will not underwrite or purchase any of the offered securities or otherwise participate in any such undertaking.
We estimate that the expenses of this offering, not including the underwriting discounts and commissions and the structuring fee, will be approximately $ million.
The representatives have informed us that the underwriters do not expect sales to accounts over which the underwriters have discretionary authority to exceed 5% of the common units being offered.
We have agreed that we will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, or file with the Securities and Exchange Commission a registration statement under the Securities Act relating to, any of our common units or securities convertible into or exchangeable or exercisable for any of our common units, or publicly disclose the intention to make any offer, sale, pledge, disposition or filing, without the prior written consent of Credit Suisse Securities (USA) LLC for a period of 180 days after the date of this prospectus.
Our general partner, our directors and executive officers and the selling unitholder have agreed that they will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any of our common units or securities convertible into or exchangeable or exercisable for any of our common units, enter into a transaction that would have the same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of our common units, whether any of these transactions are to be settled by delivery of our common units or other securities, in cash or otherwise, or publicly disclose the intention to make any offer, sale, pledge or disposition, or to enter into any transaction, swap, hedge or other arrangement, without, in each case, the prior written consent of Credit Suisse Securities (USA) LLC for a period of 180 days after the date of this prospectus.
We and the selling unitholder have agreed to indemnify the underwriters and in its capacity as Qualified Independent Underwriter against liabilities under the Securities Act, or contribute to payments that the underwriters may be required to make in that respect.
We have applied to list the common units on The NASDAQ Global Select Market, under the symbol DLNG.
Stabilization, Short Positions and Penalty Bids
In connection with the offering the underwriters may engage in stabilizing transactions, over-allotment transactions, syndicate covering transactions and penalty bids.
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Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum. |
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Over-allotment involves sales by the underwriters of common units in excess of the number of common units the underwriters are obligated to purchase, which creates a syndicate short position. The short position may be either a covered short position or a naked short position. In a covered short position, the number of common units over-allotted by the underwriters is not greater than the number of common units that they may purchase in the over-allotment option. In a naked short position, the number of common units involved is greater than the number of common units in the over-allotment option. The underwriters may close out any covered short position by either exercising their over-allotment option and/or purchasing common units in the open market. |
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Syndicate covering transactions involve purchases of the common units in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of common units to close out the short position, the underwriters will consider, among other things, the price of common units available for purchase in the open market as compared to the price at which they may purchase common units through the over-allotment option. If the underwriters sell more common units than could be covered by the over-allotment option, a naked short position, the position can only be closed out by buying common units in the open market. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the common units in the open market after pricing that could adversely affect investors who purchase in the offering. |
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Penalty bids permit the representatives to reclaim a selling concession from a syndicate member when the common units originally sold by the syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions. |
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In passive market making, market makers in the common units who are underwriters or prospective underwriters may, subject to limitations, make bids for or purchases of our common units until the time, if any, at which a stabilizing bid is made. |
These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our common units or preventing or retarding a decline in the market price of the common units. As a result the price of our common units may be higher than the price that might otherwise exist in the open market. These transactions may be effected on The NASDAQ Global Select Market or otherwise and, if commenced, may be discontinued at any time.
Electronic Distribution
A prospectus in electronic format may be made available on the web sites maintained by one or more of the underwriters, or selling group members, if any, participating in this offering and one or more of the underwriters participating in this offering may distribute prospectuses electronically. The representatives may agree to allocate a number of common units to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the underwriters and selling group members that will make internet distributions on the same basis as other allocations.
Other than the prospectus in electronic format, the information on any underwriters or selling group members web site and any information contained in any other web site maintained by an underwriter or selling group member is not part of the prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed by us or any underwriter or selling group member in its capacity as underwriter or selling group member and should not be relied upon by investors.
We have not authorized and do not authorize the making of any offer of securities through any financial intermediary on their behalf, other than offers made by the underwriters with a view to the final placement of the securities as contemplated in this prospectus. Accordingly, no purchaser of the securities, other than the underwriters, is authorized to make any further offer of the securities on behalf of us or the underwriters.
Offering Price Determination
Prior to this offering, there has been no public market for our common units. The initial public offering price will be determined by negotiation between us and the representatives. Among the factors to be considered in determining the initial public offering price of the common units, in addition to prevailing market conditions, will be our historical performance, estimates of our business potential and earnings prospects, an assessment of our management and the consideration of the above factors in relation to the current market valuation of companies in related businesses or which are comparable to us. We cannot assure you, however, that the price at which the common units will sell in the public market after this offering will not be lower than the initial public offering price or that an active trading market in our common units will develop and continue after this offering.
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Other Relationships
The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include sales and trading, commercial and investment banking, advisory, investment management, investment research, principal investment, hedging, market making, brokerage and other financial and non-financial activities and services. Certain of the underwriters and their respective affiliates have provided, and may in the future provide, a variety of these services to us and to persons and entities with relationships to us, for which they received or will receive customary fees and expenses. In addition, an affiliate of Credit Suisse Securities (USA) LLC will act as lender under our Proposed Senior Secured Revolving Credit Facility that we expect to enter into at or prior to the closing of this offering.
In the ordinary course of their various business activities, the underwriters and their respective affiliates, officers, directors and employees may purchase, sell or hold a broad array of investments and actively trade securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments for their own account and for the accounts of their customers, and such investment and trading activities may involve or relate to assets, securities and/or instruments of the issuer (directly, as collateral securing other obligations or otherwise) and/or persons and entities with relationships to the issuer. The underwriters and their respective affiliates may also communicate independent research views in respect of such assets, securities or instruments and may at any time hold, or recommend to clients that they should acquire, long and/or short positions in such assets, securities and instruments.
Notice to Prospective Investors in the European Economic Area
In relation to each member state of the European Economic Area (each, a relevant member state), other than Germany, an offer of securities described in this prospectus may not be made to the public in that relevant member state other than:
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to any legal entity which is a qualified investor as defined in the Prospectus Directive; |
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to fewer than 100 or, if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive, 150, natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of the relevant Dealer or Dealers nominated by the Issuer for any such offer; or |
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in any other circumstances falling within Article 3(2) of the Prospectus Directive; provided that no such offer of securities shall require us or any underwriter to publish a prospectus pursuant to Article 3 of the Prospectus Directive. |
For purposes of this provision, the expression an offer of securities to the public in any relevant member state means the communication in any form and by any means of sufficient information on the terms of the offer and the securities to be offered so as to enable an investor to decide to purchase or subscribe for the securities, as the expression may be varied in that member state by any measure implementing the Prospectus Directive in that member state, and the expression Prospectus Directive means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State), and includes any relevant implementing measure in the Relevant Member State, and includes any relevant implementing measure in each relevant member state. The expression 2010 PD Amending Directive means Directive 2010/73/EU.
We have not authorized and do not authorize the making of any offer of securities through any financial intermediary on their behalf, other than offers made by the underwriters with a view to the final placement of the securities as contemplated in this prospectus. Accordingly, no purchaser of the securities, other than the underwriters, is authorized to make any further offer of the securities on behalf of us or the underwriters.
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Notice to Prospective Investors in Germany
This prospectus has not been prepared in accordance with the requirements for a securities or sales prospectus under the German Securities Prospectus Act (Wertpapierprospektgesetz), the German Sales Prospectus Act (Verkaufsprospektgesetz), or the German Investment Act (Investmentgesetz). Neither the German Federal Financial Services Supervisory Authority (Bundesanstalt für FinanzdienstleistungsaufsichtBaFin) nor any other German authority has been notified of the intention to distribute the common units in Germany. Consequently, the common units may not be distributed in Germany by way of public offering, public advertisement or in any similar manner and this prospectus and any other document relating to this offering, as well as information or statements contained therein, may not be supplied to the public in Germany or used in connection with any offer for subscription of the common units to the public in Germany or any other means of public marketing. The common units are being offered and sold in Germany only to qualified investors which are referred to in Section 3, paragraph 2 no. 1, in connection with Section 2, no. 6, of the German Securities Prospectus Act, Section 8f paragraph 2 no. 4 of the German Sales Prospectus Act, and in Section 2 paragraph 11 sentence 2 no. 1 of the German Investment Act. This prospectus is strictly for use of the person who has received it. It may not be forwarded to other persons or published in Germany.
This offering of our common units does not constitute an offer to buy or the solicitation or an offer to sell the common units in any circumstances in which such offer or solicitation is unlawful.
Notice to Prospective Investors in Hong Kong
No advertisement, invitation or document relating to the common units has been or may be issued or has been or may be in the possession of any person for the purposes of issue, whether in Hong Kong or elsewhere, which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to common units which are or are intended to be disposed of only to persons outside Hong Kong or only to professional investors as defined in the Securities and Futures Ordinance and any rules made under that Ordinance.
Notice to Prospective Investors in the Netherlands
The common units may not be offered or sold, directly or indirectly, in the Netherlands, other than to qualified investors (gekwalificeerde beleggers) within the meaning of Article 1:1 of the Dutch Financial Supervision Act (Wet op het financieel toezicht).
Notice to Prospective Investors in Switzerland
This prospectus is being communicated in Switzerland to a small number of selected investors only. Each copy of this prospectus is addressed to a specifically named recipient and may not be copied, reproduced, distributed or passed on to third parties. The common units are not being offered to the public in Switzerland, and neither this prospectus, nor any other offering materials relating to the common units may be distributed in connection with any such public offering.
We have not been registered with the Swiss Financial Market Supervisory Authority FINMA as a foreign collective investment scheme pursuant to Article 120 of the Collective Investment Schemes Act of June 23, 2006 (CISA). Accordingly, the common units may not be offered to the public in or from Switzerland, and neither this prospectus, nor any other offering materials relating to the common units may be made available through a public offering in or from Switzerland. The common units may only be offered and this prospectus may only be distributed in or from Switzerland by way of private placement exclusively to qualified investors (as this term is defined in the CISA and its implementing ordinance).
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Notice to Prospective Investors in the United Kingdom
Our partnership may constitute a collective investment scheme as defined by section 235 of the Financial Services and Markets Act 2000 (FSMA) that is not a recognised collective investment scheme for the purposes of FSMA (CIS) and that has not been authorised or otherwise approved. As an unregulated scheme, it cannot be marketed in the United Kingdom to the general public, except in accordance with FSMA. This prospectus is only being distributed in the United Kingdom to, and is only directed at:
(i) | if we are a CIS and are marketed by a person who is an authorised person under FSMA, (a) investment professionals falling within Article 14(5) of the Financial Services and Markets Act 2000 (Promotion of Collective Investment Schemes) Order 2001, as amended (the CIS Promotion Order) or (b) high net worth companies and other persons falling within Article 22(2)(a) to (d) of the CIS Promotion Order; or |
(ii) | otherwise, if marketed by a person who is not an authorised person under FSMA, (a) persons who fall within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the Financial Promotion Order) or (b) Article 49(2)(a) to (d) of the Financial Promotion Order; and |
(iii) | in both cases (i) and (ii) to any other person to whom it may otherwise lawfully be made, (all such persons together being referred to as relevant persons). The common units are only available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such common units will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this prospectus or any of its contents. |
An invitation or inducement to engage in investment activity (within the meaning of Section 21 of FSMA) in connection with the issue or sale of any common units which are the subject of the offering contemplated by this prospectus will only be communicated or caused to be communicated in circumstances in which Section 21(1) of FSMA does not apply to us.
220
SERVICE OF PROCESS AND ENFORCEMENT OF CIVIL LIABILITIES
We are organized under the laws of the Marshall Islands as a limited partnership. The Marshall Islands has a less developed body of securities laws as compared to the United States and provides protections for investors to a significantly lesser extent.
Most of our directors and officers and those of our subsidiaries are residents of countries other than the United States. Substantially all of our and our subsidiaries assets and a substantial portion of the assets of our directors and officers are located outside the United States. As a result, it may be difficult or impossible for United States investors to effect service of process within the United States upon us, our directors or officers, our subsidiaries or to realize against us or them judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States. However, we have expressly submitted to the jurisdiction of the U.S. federal and New York state courts sitting in the City of New York for the purpose of any suit, action or proceeding arising under the securities laws of the United States or any state in the United States. The Trust Company of the Marshall Islands, Inc., Trust Company Complex, Ajeltake Island, Ajeltake Road, Majuro, Marshall Islands MH96960, as our registered agent, can accept service of process on our behalf in any such action.
In addition, there is uncertainty as to whether the courts of the Marshall Islands would (1) recognize or enforce against us, or our directors or officers judgments of courts of the United States based on civil liability provisions of applicable U.S. federal and state securities laws; or (2) impose liabilities against us or our directors and officers in original actions brought in the Marshall Islands, based on these laws.
Certain legal matters with respect to United States Federal and New York law and Marshall Islands law in connection with this offering will be passed upon for us by Seward & Kissel LLP, One Battery Park Plaza, New York, New York 10004. Certain legal matters with respect to this offering will be passed upon for the underwriters by Latham & Watkins LLP, Houston, Texas.
The consolidated financial statements and the related financial statement schedule of Dynagas LNG Partners LP at December 31, 2012 and 2011, and for each of the two years in the period ended December 31, 2012, appearing in this Prospectus and Registration Statement have been audited by Ernst & Young (Hellas) Certified Auditors Accountants S.A., independent registered public accounting firm, as set forth in their report thereon (which contains an explanatory paragraph describing conditions that raise substantial doubt about the Companys ability to continue as a going concern as described in Note 3 to the consolidated financial statements) appearing elsewhere herein and are included in reliance upon such report given on the authority of such firm as experts in auditing and accounting. Ernst & Young (Hellas) Certified Auditors-Accountants S.A. is located at 11th km National Road AthensLamia, Athens, Greece.
This prospectus has been reviewed by Drewry Shipping Consultants Ltd., (Drewry), 15-17 Christopher Street, London, EC2A 2BS, UK and the section in this prospectus entitled The International Liquefied Natural Gas (LNG) Shipping Industry has been supplied by Drewry, which has confirmed to us that this prospectus and such sections accurately describe, to the best of its knowledge, the LNG shipping industry, subject to the availability and reliability of the data supporting the statistical information presented in this prospectus.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form F-1 regarding the common units. This prospectus does not contain all of the information found in the registration statement. For further information
221
regarding us and the common units offered in this prospectus, you may wish to review the full registration statement, including its exhibits. The registration statement, including the exhibits, may be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. Copies of this material can also be obtained upon written request from the Public Reference Section of the SEC at 100 F Street, N.E., Washington, D.C. 20549, at prescribed rates or from the Commissions web site on the Internet at http://www.sec.gov free of charge. Please call the SEC at 1-800-SEC-0330 for further information on public reference room. Our registration statement can also be inspected and copied at the offices of Nasdaq Global Select Market, 20 Broad Street, New York, NY, 10005.
Upon completion of this offering, we will be subject to the information requirements of the Securities Exchange Act of 1934, and, in accordance therewith, we will be required to file with the Commission annual reports on Form 20-F within four months of our fiscal year-end, and provide to the Commission other material information on Form 6-K. These reports and other information may be inspected and copied at the public reference facilities maintained by the Commission or obtained from the Commissions website as provided above. We expect to make our periodic reports and other information filed with or furnished to the Commission available, free of charge, through our website, which will be operational after this offering, as soon as reasonably practicable after those reports and other information are electronically filed with or furnished to the Commission.
As a foreign private issuer, we are exempt under the Exchange Act from, among other things, certain rules prescribing the furnishing and content of proxy statements, and our executive officers, directors and principal unitholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we will not be required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act, including the filing of quarterly reports or current reports on Form 8-K. However, we intend to furnish or make available to our unitholders annual reports containing our audited consolidated financial statements prepared in accordance with U.S. GAAP and make available to our unitholders quarterly reports containing our unaudited interim financial information for the first four fiscal quarters of each fiscal year. Our annual report will contain a detailed statement of any transactions between us and our related parties, including our Sponsor and our General Partner.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the main costs and expenses, other than the underwriting discounts and commissions and the structuring fee, in connection with this offering, which we will be required to pay.
U.S. Securities and Exchange Commission registration fee |
$ | 19,320 | ||
Financial Industry Regulatory Authority filing fee |
23,000 | |||
Nasdaq Global Select Market listing fee |
* | |||
Legal fees and expenses |
* | |||
Accounting fees and expenses |
* | |||
Printing and engraving costs |
* | |||
Transfer agent fees and other |
* | |||
Miscellaneous |
* | |||
|
|
|||
Total |
$ | * | ||
|
|
All amounts are estimated, except the SEC registration fee, the Financial Industry Regulatory Authority filing fee and Nasdaq Global Select Market listing fee.
* | To be filed by amendment. |
222
F-1
DYNAGAS LNG PARTNERS LP
Consolidated Unaudited Balance Sheets
June 30, 2013 (unaudited) and December 31, 2012
(Expressed in thousands of U.S. Dollarsexcept for unit and per unit data)
The accompanying notes are an integral part of these consolidated financial statements.
F-2
DYNAGAS LNG PARTNERS LP
Consolidated Unaudited Statements of Income
For the six month periods ended June 30, 2013 and 2012
(Expressed in thousands of U.S. Dollarsexcept for unit and per unit data)
June 30,
2013 |
June 30,
2012 |
|||||||
REVENUES: |
||||||||
Voyage revenues |
$ | 42,444 | $ | 37,105 | ||||
EXPENSES: |
||||||||
Voyage expenses |
(340 | ) | (1,437 | ) | ||||
Voyage expenses-related party (Note 4(a)) |
(492 | ) | (491 | ) | ||||
Vessel operating expenses |
(6,232 | ) | (7,376 | ) | ||||
General and administrative expenses |
(21 | ) | | |||||
Management fees-related party (Note 4(a)) |
(1,358 | ) | (1,328 | ) | ||||
Depreciation (Note 5) |
(6,733 | ) | (6,771 | ) | ||||
Dry-docking and special survey costs |
| (719 | ) | |||||
|
|
|
|
|||||
Operating income |
27,268 | 18,983 | ||||||
|
|
|
|
|||||
OTHER INCOME/(EXPENSES): |
||||||||
Interest income |
| 1 | ||||||
Interest and finance costs (Notes 6 & 11) |
(4,591 | ) | (4,452 | ) | ||||
Loss on derivative financial instruments (Note 8) |
| (138 | ) | |||||
Other, net |
51 | (1 | ) | |||||
|
|
|
|
|||||
Total other expenses |
(4,540 | ) | (4,590 | ) | ||||
|
|
|
|
|||||
Net Income |
$ | 22,728 | $ | 14,393 | ||||
Earnings per unit, basic and diluted: (Note 12) |
||||||||
Common unit (basic and diluted) |
$ | $ | ||||||
Subordinated unit (basic and diluted) |
$ | $ | ||||||
General Partner unit (basic and diluted) |
$ | $ | ||||||
Weighted average number of units outstanding, basic and diluted: (Note 12) |
||||||||
Common units |
||||||||
Subordinated units |
||||||||
General Partner units |
The accompanying notes are an integral part of these consolidated financial statements.
F-3
DYNAGAS LNG PARTNERS LP
Consolidated Unaudited Statements of Partners Equity
For the six month periods ended June 30, 2013 and 2012
(Expressed in thousands of U.S. Dollarsexcept for unit and per unit data, unless otherwise stated)
Number of Units | Partners Capital | |||||||||||||||||||||||||||
General |
|
Subordinated | General | Common | Subordinated | Total | ||||||||||||||||||||||
BALANCE, December 31, 2011 |
$ | $ | $ | $ | 45,339 | |||||||||||||||||||||||
Net income |
| | | 14,393 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
BALANCE, June 30, 2012 |
59,732 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
BALANCE, December 31, 2012 |
$ | $ | $ | $ | 75,175 | |||||||||||||||||||||||
Net income |
| | | 22,728 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
BALANCE, June 30, 2013 |
$ | $ | $ | $ | 97,903 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-4
DYNAGAS LNG PARTNERS LP
Consolidated Unaudited Statements of Cash Flows
For the six month periods ended June 30, 2013 and 2012
(Expressed in thousands of U.S. Dollars)
June 30,
2013 |
June 30,
2012 |
|||||||
Cash flows from Operating Activities: |
||||||||
Net income: |
$ | 22,728 | $ | 14,393 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Depreciation |
6,733 | 6,771 | ||||||
Amortization and write-off of deferred financing fees |
268 | 298 | ||||||
Deferred revenue |
(2,873 | ) | 2,977 | |||||
Change in fair value of derivative financial instruments |
| (5,692 | ) | |||||
Changes in operating assets and liabilities: |
||||||||
Trade receivables |
(56 | ) | (476 | ) | ||||
Prepayments and other assets |
(242 | ) | 54 | |||||
Due to related party |
(2,328 | ) | (14,093 | ) | ||||
Trade payables |
(1,998 | ) | 743 | |||||
Accrued liabilities and other payables |
(435 | ) | 361 | |||||
Unearned revenue |
(4,069 | ) | (2,348 | ) | ||||
|
|
|
|
|||||
Net cash provided by Operating Activities |
17,728 | 2,988 | ||||||
|
|
|
|
|||||
Cash flows from Investing Activities: |
||||||||
|
|
|
|
|||||
Net cash used in Investing Activities |
| | ||||||
|
|
|
|
|||||
Cash flows from/ (used in) Financing Activities: |
||||||||
Decrease/ (increase) in restricted cash |
3,942 | 2,291 | ||||||
Proceeds from long-term debt |
| 220,000 | ||||||
Repayment of long-term debt |
(21,670 | ) | (106,720 | ) | ||||
Repayment of stockholders loan |
| (116,584 | ) | |||||
Payment of deferred financing fees |
| (1,975 | ) | |||||
|
|
|
|
|||||
Net cash used in Financing Activities |
(17,728 | ) | (2,988 | ) | ||||
|
|
|
|
|||||
Net increase (decrease) in cash and cash equivalents |
| | ||||||
Cash and cash equivalents at beginning of the year |
| | ||||||
|
|
|
|
|||||
Cash and cash equivalents at end of the year |
$ | | $ | | ||||
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-5
DYNAGAS LNG PARTNERS LP
Notes to the Unaudited Interim Consolidated Financial Statements
June 30, 2013
(Expressed in thousands of U.S. Dollarsexcept for unit and per unit data, unless otherwise stated)
1. Basis of Presentation and General Information:
The accompanying unaudited consolidated financial statements of Dynagas LNG Partners LP and its wholly-owned subsidiaries (collectively, the Company) have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial information, subject to the reorganization described in Note 1 and the finalization of capital accounts described in Note 10 to the Companys audited financial statements for the year ended December 31, 2012, where, the consolidated balance sheet as of December 31, 2012 has been derived from. Accordingly, they do not include all of the footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. Operating results for the six months ended June 30, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013.
The Company is engaged in the seaborne transportation industry through the ownership and operation of liquefied natural gas vessels through the following subsidiaries, each incorporated in the Marshall Islands:
(a) | Pegasus Shipholding S.A. (Pegasus), owner of the Marshall Islands flag, 149,700 cubic meters in carrying capacity, class membrane, LNG carrier Clean Energy which was delivered to Pegasus in March 2007. |
(b) | Lance Shipping S.A. (Lance), owner of the Marshall Islands flag, 149,700 cubic meters in carrying capacity, class membrane, LNG carrier Ob River (renamed from Clean Power in July 2012) which was built and delivered to Lance in July 2007. |
(c) | Seacrown Maritime Ltd. (Seacrown), owner of the Marshall Islands flag, 149,700 cubic meters in carrying capacity, class membrane, LNG carrier Clean Force which was built and delivered to Seacrown in January 2008. |
2. Significant Accounting Policies and Recent Accounting Pronouncements:
A summary of the Companys significant accounting policies can be found in the Companys Consolidated Financial Statements for the year ended December 31, 2012. There have been no material changes to these policies in the six-month period ended June 30, 2013.
During the six month periods ended June 30, 2013 and 2012, charterers that individually accounted for more than 10% of the Companys revenues were as follows:
Charterer |
June 30,
2013 |
June 30,
2012 |
||||||
A |
60 | % | 60 | % | ||||
B |
40 | % | | |||||
C |
| 35 | % | |||||
|
|
|
|
|||||
100 | % | 95 | % | |||||
|
|
|
|
F-6
DYNAGAS LNG PARTNERS LP
Notes to the Unaudited Interim Consolidated Financial Statements(Continued)
June 30, 2013
(Expressed in thousands of U.S. Dollarsexcept for unit and per unit data, unless otherwise stated)
3. Going Concern:
As of June 30, 2013 the Company was in breach of certain liquidity and restrictive covenants relating to the loan agreements discussed in Note 7.
As of October 9, 2013, the Company has not obtained waivers from its lenders for non-compliance with these covenants. On July 19, 2013, one of the Companys lenders declared an event of default under one of its credit facilities. Although the Company believes that the lenders will not demand payment of the loans before their maturity, provided that it pays scheduled loan installments and interest as they fall due under the existing credit facilities, the lenders may require immediate repayment of the loans. As a result of this non-compliance, the Company has classified the total outstanding balance of its debt at June 30, 2013 of $359,045 (Note 7), as current liabilities and reports a working capital deficit of $363,000 at June 30, 2013.
The Company is in advanced discussions with its lenders to obtain waivers or to amend the affected debt. Management plans to settle the loan interest and scheduled loan repayments with cash expected to be generated from operations and from financing activities.
The consolidated financial statements have been prepared assuming that the Company will continue as a going concern. Accordingly, the consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, the amounts and classification of liabilities, or any other adjustments that might result in the event the Company is unable to continue as a going concern.
4. Transactions with related parties:
(a) Dynagas Ltd.
Dynagas Ltd. (or the Manager), is a company wholly owned by Mr. George Prokopiou. The Manager has entered into a separate management agreement with each of the vessel-owning entities of the Company in order to provide technical, administrative and commercial management services to the Company in exchange for a fixed daily fee. Beginning on the first calendar year after the commencement of the vessel management agreements and each calendar year thereafter, these fees are adjusted upwards by 4% until expiration of the management agreement. As December 31, 2012, daily management fees per vessel ranged from $2.34 to $2.43. The Manager also provided other services under these agreements for which the Company pays additional fees, including (i) a commission of 1.25% over charter-hire agreements arranged by the Manager and (ii) a lump sum new-building supervision fee of $700 for the services rendered by the Manager in respect of the construction of the vessel plus out of pocket expenses. On December 21, 2012, Pegasus, Lance and Seacrown, entered into new separate management agreements with the Manager effective from January 1, 2013 upon expiration of the previous management agreements and up to December 31, 2020 (Note 9(d)), with an automatic eight year renewal term in exchange for a daily management fee of $2.5 per day with an annual increase of 3%, subject to further annual increases to reflect material unforeseen costs of providing the management services, by an amount to be agreed between the Company and the Manager, which amount will be reviewed and approved by the conflicts committee. The Manager continues to provide commercial services under terms similar to those of the expired agreements. The agreements will terminate automatically after a change of control of the owners and/or of the owners ultimate parent, in which case an amount equal to the estimated remaining fees but in any case not less than for a period of at the least 36 months and not more than 60 months, will become payable to the Manager.
Fees charged in the six month periods ended June 30 2013 and 2012 for technical and administrative services amounted to $1,358 and $1,328, respectively, and are separately reflected as Management fees-related
F-7
DYNAGAS LNG PARTNERS LP
Notes to the Unaudited Interim Consolidated Financial Statements(Continued)
June 30, 2013
(Expressed in thousands of U.S. Dollarsexcept for unit and per unit data, unless otherwise stated)
4. Transactions with related parties (continued):
party in the accompanying consolidated statements of income. Commissions charged in the six month periods ended June 30 2013 and 2012 for commercial services amounted to $492 and $491, respectively, and are separately reflected as Voyage expenses-related party in the accompanying consolidated statements of income. At June 30, 2013 and December 31, 2012, $895 and $3,619 respectively, were due to the Manager and are included in Due to related party in the accompanying consolidated balance sheets. Furthermore, $771 and $240 were due to the Manager as of June 30, 2013 and December 31, 2012, respectively, relating to liabilities arising out of the fleet operations (current account) are included in Due to related party in the accompanying consolidated balance sheets as well. The management agreements provide for an advance of three months of management fees per vessel as security. Such advances as of June 30, 2013 and December 31, 2012 amounted to $675 and $540, respectively, and are separately reflected in Non-Current Assets as Due from related party in the accompanying consolidated balance sheets. Pursuant to the terms of the separate management agreements signed on December 21, 2012, the security advance payment, effective January 1, 2013, increased to $225 per vessel as compared to $180 per vessel on December 31, 2012, and other than in the case of termination of the management agreement by reason of default by the Manager, the advance is not refundable.
(b) Stockholders Loan
On February 9, 2004, Pegasus, Lance and Seacrown entered into an unsecured, interest free credit loan facility agreement with Gregold Compania Maritima S.A a corporation controlled by members of the George Prokopiou family (George Prokopiou, his daughters Elisavet Prokopiou, Johanna Prokopiou, Marina Kalliope Prokopiou, and Maria Eleni Prokopiou together the Family) for a principal amount up to $140,000 available until December 31, 2012. The amount of $140,000 was drawn at various dates in periods prior to December 31, 2010 and was used to partially finance the vessels construction cost and to provide Pegasus, Lance and Seacrown working capital for general corporate purposes. The loan balance of $116,584 was fully paid in April 2012, using the proceeds from the loans refinancing discussed in Note 7(a) and 7(b).
(c) Cross Collateral Guarantee
Reed Trading Ltd. (Reed): is a vessel-owning company controlled by members of the Family. One of the Companys lenders has registered a first priority mortgage on Reeds vessel, the Felicity, in its favor as a cross collateral guarantee on the loan obtained by Pegasus (Note 7(a)). At June 30, 2013 and December 31, 2012, there were no balances due to /from Reed.
5. Vessels, net:
The amounts in the accompanying June 30, 2013 consolidated unaudited balance sheet are analyzed as follows:
Vessel
Cost |
Accumulated
Depreciation |
Net Book
Value |
||||||||||
Balance December 31, 2012 |
$ | 540,454 | $ | (73,700 | ) | $ | 466,754 | |||||
Depreciation |
| (6,733 | ) | (6,733 | ) | |||||||
|
|
|
|
|
|
|||||||
Balance, June 30, 2013 |
$ | 540,454 | $ | (80,433 | ) | $ | 460,021 | |||||
|
|
|
|
|
|
As of June 30, 2013, each of the vessels were first priority mortgaged as collateral to secure the bank loans discussed in Note 7.
F-8
DYNAGAS LNG PARTNERS LP
Notes to the Unaudited Interim Consolidated Financial Statements(Continued)
June 30, 2013
(Expressed in thousands of U.S. Dollarsexcept for unit and per unit data, unless otherwise stated)
6. Deferred Charges:
The amounts in the accompanying June 30, 2013 consolidated unaudited balance sheet represent fees paid to the lenders in relation with the bank loans discussed in Note 7 and are analyzed as follows:
Amount | ||||
Balance, December 31, 2012 |
$ | 1,732 | ||
Amortization |
(268 | ) | ||
|
|
|||
Balance, June 30, 2013 |
$ | 1,464 | ||
|
|
The amortization and write-off of financing costs is included in Interest and finance costs in the accompanying consolidated statements of income (Note 11).
7. Long-Term Debt:
The amounts shown in the accompanying June 30, 2013 consolidated unaudited and December 31, 2012 consolidated unaudited balance sheets are analyzed as follows:
Borrower(s) |
Lenders |
June 30,
2013 |
December 31,
2012 |
|||||||
(a) Pegasus Shipholding S.A. |
Royal Bank of Scotland | $ | | $ | | |||||
Pegasus Shipholding S.A. |
Credit Suisse AG | 132,500 | 139,500 | |||||||
(b) Lance Shipping S.A. |
Royal Bank of Scotland | 143,170 | 153,590 | |||||||
(c) Seacrown Maritime Ltd. |
Royal Bank of Scotland | 83,375 | 87,625 | |||||||
|
|
|
|
|||||||
Total |
$ | 359,045 | $ | 380,715 | ||||||
Less current portion |
$ | 359,045 | $ | 380,715 | ||||||
|
|
|
|
|||||||
Long-term portion |
$ | | $ | | ||||||
|
|
|
|
(a) | Pegasus: During the period from May 2005 to February 2007, Pegasus borrowed $129,750 to partially finance the construction cost of the Clean Energy , under a ten year term credit facility, repayable in forty equal consecutive quarterly installments of $1,800 each, plus a balloon installment of $57,750 payable together with the last installment. On January 30, 2012, Pegasus entered into a five-year term loan facility with Credit Suisse AG for $150,000 (the Credit Suisse Facility) for the purpose of refinancing the then outstanding balance of the loan obtained in February 2007 and for general corporate purposes. The amount was fully drawn in March 2012. The obligations of Pegasus under the Credit Suisse Facility are secured by, among other things, a cross collateralized first priority mortgage over the Clean Energy and a 2005 built panamax tanker vessel named Felicity , owned by a related vessel-owning company, which also serves as collateral (Note 4(c)). The securities relating to Felicity will be released 24 months following drawdown provided that the asset coverage ratio following such discharge and release will be at least 155% and no event of default has occurred and is continuing. The outstanding balance of the loan as of June 30, 2013, of $132,500 is repayable in fifteen equal consecutive quarterly installments of $3,500 each plus a balloon payment of $80,000 payable together with the last installment in March 2017. |
(b) |
Lance: In July 2007, Lance borrowed the amount of $123,000 to partially finance the construction cost of the Clean Power , under a ten-year term credit facility, repayable in forty equal consecutive quarterly installments of $1,710 each, plus a balloon installment of $54,600 payable together with the last |
F-9
DYNAGAS LNG PARTNERS LP
Notes to the Unaudited Interim Consolidated Financial Statements(Continued)
June 30, 2013
(Expressed in thousands of U.S. Dollarsexcept for unit and per unit data, unless otherwise stated)
7. Long-Term Debt (continued):
installment. On February 29, 2012, Lance entered an amendatory agreement with the same bank for the purpose of refinancing the then outstanding balance of the loan obtained in July 2007. As a result of the amendatory agreement, an additional principal amount of $70,000 was drawn in April 2012 for general corporate purposes, payable in twenty equal consecutive quarterly installments of $3,500, each. The outstanding balance of the loan as of June 30, 2013, of $143,170 is repayable in seventeen equal consecutive quarterly installments of $5,210 each, plus a balloon payment of $54,600 payable together with the last installment in July 2017. |
(c) | Seacrown: In January 2008, Seacrown borrowed $128,000, to partially finance the construction cost of the Clean Force , under a twelve-year term credit facility. The outstanding balance of the loan as of June 30, 2013, of $83,375 is repayable in twenty seven equal consecutive quarterly installments of $2,125 each plus a balloon payment of $26,000 payable together with the last installment in January 2020. |
In aggregate for all loans, the annual principal payments for the outstanding debt as of June 30, 2013 required to be made after the balance sheet date, without taking into consideration the re-classification of total outstanding debt within current liabilities following the non compliances discussed below, are as follows:
Period/Year ending December 31, |
Amount | |||
2013 (period) |
$ | 21,670 | ||
2014 |
43,340 | |||
2015 |
43,340 | |||
2016 |
43,340 | |||
2017 |
162,230 | |||
Thereafter |
45,125 | |||
|
|
|||
$ | 359,045 | |||
|
|
Loans bear interest at LIBOR plus a margin. The weighted average interest rate of the Companys long-term debt for the six month periods ended June 30, 2013 and 2012 was 2.3% and 2.1%, respectively.
Total interest incurred on long-term debt for the six month periods ended June 30, 2013 and 2012, amounted to $4,317 and $3,734, respectively. Interest expense on long-term debt, is included in Interest and finance costs (Note 11) in the accompanying consolidated statements of income.
The above loans are secured by a first priority mortgage over the vessels, corporate guarantees, and assignments of all charters, earnings and insurances. In addition, the loan agreements impose operating and negative covenants on the lenders. These covenants may limit the Companys subsidiaries ability to, among other things, without the relevant lenders prior consent (i) incur additional indebtedness, (ii) change the flag, class or management of the vessel mortgaged under such facility, (iii) create or permit to exist liens on their assets, (iv) make or repay loans, (v) make investments or capital expenditures, (vi) change in the general nature of the Companys business, (vii) enter into guarantees and (viii) undergo a change in ownership or control. The loans also contain certain financial covenants relating to the Companys financial position and operating performance including maintaining liquidity above $30,000 or, if higher, 10% of the total aggregate indebtedness to The Royal Bank of Scotland. In addition, all loan agreements also include a
F-10
DYNAGAS LNG PARTNERS LP
Notes to the Unaudited Interim Consolidated Financial Statements(Continued)
June 30, 2013
(Expressed in thousands of U.S. Dollarsexcept for unit and per unit data, unless otherwise stated)
7. Long-Term Debt (continued):
requirement for the value of the vessel secured against the related loan to be in a range of at least 125%-130% and impose restrictions on the Companys ability to pay distributions as follows:
|
For the loan agreement discussed under (a) above, the Company is restricted from paying any dividend or making any other form of distribution or effect any form of redemption, purchase or return of share capital following the occurrence of event of default without the prior written consent of the lender. |
|
For the loan agreement discussed under (b) above, the Company is restricted from declaring or paying any dividend or make any other distribution of its assets or profits to any stockholder without the prior consent of the lender. |
|
For the loan agreement discussed under (c) above, the Company is restricted from declaring or paying any dividends or distribute any of its present or future assets, undertakings, rights or revenues to any of its shareholders without the lenders prior consent. |
As of June 30, 2013, the Company was not in compliance with the following restrictive and financial covenants:
|
The issuance of the guarantees discussed in Note 9(c) below without the prior consent of the lenders which resulted in a breach of the respective restrictive covenant under the loan agreements discussed in (a), (b) and (c) above. |
|
The repayment of the loan discussed in Note 4(b) above without the prior consent of the Companys lenders which resulted in a breach of the respective restrictive covenant under the loan agreements discussed in (b) and (c) above. |
|
The Company was also not in compliance with the minimum liquidity covenant of $30.0 million contained in its loan agreement discussed in (b) above. |
As of October 9, 2013, the Company has not obtained waivers from its lenders for non-compliance with these covenants. On July 19, 2013, one of the Companys lenders declared an event of default under one of its credit facilities. Although the Company believes that the lenders will not demand payment of the loans before their maturity, provided that it pays scheduled loan installments and interest as they fall due under the existing credit facilities, the lenders may require immediate repayment of the loans. As a result of this non-compliance and in accordance with guidance related to the classification of obligations that are callable by the creditor, the Company has classified all of its bank debt amounting to $359,045 as current at June 30, 2013.
There is no unused line of credit or available facility as of June 30, 2013.
8. Financial Instruments:
The Company is exposed to interest rate fluctuations associated with its variable rate borrowings and its objective is to manage the impact of such fluctuations on earnings and cash flows of its borrowings. In this respect, from time to time the Company uses interest rate swaps to manage net exposure to interest rate fluctuations related to its borrowings.
F-11
DYNAGAS LNG PARTNERS LP
Notes to the Unaudited Interim Consolidated Financial Statements(Continued)
June 30, 2013
(Expressed in thousands of U.S. Dollarsexcept for unit and per unit data, unless otherwise stated)
The change in the fair value (determined through Level 2 inputs of the fair value hierarchy as defined in ASC 820 Fair value measurements and disclosures) of the Companys interest rate swaps for the six month period ended June 30, 2012 resulted in unrealized gains of $5,692 whilst the settlements on the interest rate swaps in the same period resulted in realized losses of $5,830 and is separately reflected in Loss on derivative financial instruments in the accompanying consolidated statements of income. All applicable interest rate swaps matured within 2012 and accordingly there were no realized and unrealized gains or losses in the six month period ended June 30, 2013.
9. Commitments and Contingencies:
(a) | Multi-year Time Charters: |
The Company has entered into time charter arrangements on all of its vessels with well-known international charterers. The minimum contractual charter revenues, based on these non-cancelable multi-year time charter contracts as of June 30, 2013, gross of brokerage commissions, without taking into consideration any assumed off-hire, are as analyzed below:
Period/Year ending December 31, |
Amount | |||
2013 (period) |
$ | 41,518 | ||
2014 |
85,775 | |||
2015 |
85,775 | |||
2016 |
78,522 | |||
2017 |
31,524 | |||
|
|
|||
$ | 323,114 | |||
|
|
(b) | Other: Various claims, suits, and complaints, including those involving government regulations and product liability, arise in the ordinary course of the shipping business. In addition, losses may arise from disputes with charterers, agents, insurance and other claims with suppliers relating to the operations of the Companys vessels. Currently, management is not aware of any such claims not covered by insurance or contingent liabilities, which should be disclosed, or for which a provision should be established in the accompanying consolidated financial statements. |
The Company accrues for the cost of environmental liabilities when management becomes aware that a liability is probable and is able to reasonably estimate the probable exposure. Currently, management is not aware of any such claims or contingent liabilities, which should be disclosed, or for which a provision should be established in the accompanying consolidated financial statements. The Company is covered for liabilities associated with the individual vessels actions to the maximum limits as provided by Protection and Indemnity (P&I) Clubs, members of the International Group of P&I Clubs.
(c) |
Guarantees provided to related parties: On September 27, 2012 the Companys three wholly owned vessel owning subsidiaries provided guarantees to the banks financing three contracted new-building LNG carriers, the Lena River , the Clean Ocean and the Clean Planet beneficially controlled by members of the Family, to guarantee the due payment of all amounts including principal and interest payable by the borrowers during the security period, as defined in the terms of a twelve year term loan for an amount up to $465.1 million expiring in January 2027 of which $137.8 million was drawn as of October 3, 2013 for the delivery of the vessel Lena River . The unused available amount under this facility as of the same date is $317.4 million, expected to be fully drawn from March to July 2014. Total estimated interest and commitment fees payable to the lender until its maturity approximates $111.0 million, based 3-month on Libor at December 31, 2012. In addition, on September 28, 2012 Dynagas Equity Holding Limited provided a guarantee to the banks financing the Yenisei River , which was delivered in July 2013 and beneficially controlled by members of the Family, to guarantee the due |
F-12
DYNAGAS LNG PARTNERS LP
Notes to the Unaudited Interim Consolidated Financial Statements(Continued)
June 30, 2013
(Expressed in thousands of U.S. Dollarsexcept for unit and per unit data, unless otherwise stated)
9. Commitments and Contingencies (continued):
payment of all amounts including principal and interest payable by the borrowers during the security period, as defined in the terms of a twelve year loan up to $162.0 million expiring in July 2025 of which $148.4 million were drawn up to July 2013. There is no unused available amount under this facility. Total expected interest payable to the lender until its maturity approximates $31 million based on 3-month Libor at December 31, 2012. The loan agreements are secured with liens on the contracted new-building LNG carriers. Failure by the primary borrowers to service their debt requirements and comply with any provisions contained in these secured loans, including but not limited to, paying scheduled installments and complying with certain covenants, will activate the Companys obligations under the guarantees. The Company determined that is not the primary beneficiary of the entities for which a guarantee has been provided. In addition, the guarantees fall under the scope exception for initial recognition and measurement and accordingly no liability in their respect has been recognized in the accompanying June 30, 2013 unaudited consolidated balance sheet. |
(d) | Technical and Commercial Management Agreement: As further disclosed in Note 4 the Company has contracted the commercial, administrative and technical management of its vessels to Dynagas Ltd. For the commercial services provided under this agreement the Company pays a commission of 1.25% over the charter-hire revenues arranged by the Manager. The estimated commission payable to the Manager over the minimum contractual charter revenues, discussed in Note 9, is $4,039. For administrative and technical management fees the Company pays a daily management fee of $2,500 per vessel (Note 4(a) per vessel. Such management fee for the period from July 1, 2013 to the expiration of the agreements on December 31, 2020 in the aggregate, adjusted for 3% inflation as per agreements, is $23,003 and is analyzed as follows: |
Period/Year ending December 31, |
Amount | |||
2013 (period) |
$ | 1,380 | ||
2014 |
2,820 | |||
2015 |
2,904 | |||
2016 |
3,000 | |||
2017 |
3,081 | |||
2018 and on |
9,818 | |||
|
|
|||
$ | 23,003 | |||
|
|
10. Partners Equity:
On , 2013, the Company issued i) to Dynagas Holding Ltd, common units and subordinated units, representing a 99.9% limited partner interest in the Company and ii) to Dynagas GP LLC (the General Partner), a company owned and controlled by Dynagas Holding Ltd, general partner units representing a 0.1% general partner interest in the Company and all of its incentive distribution rights, which entitle the General Partner to increasing percentages of the Companys distributable cash; in exchange for their ownership interest in the predecessor companies.
The unit and per unit data included in the accompanying consolidated financial statements have been restated to reflect the issuance of the above units, for all periods presented. There were no distributions to the partners during the six month period ended June 30, 2013 and the year ended December 31, 2012.
F-13
DYNAGAS LNG PARTNERS LP
Notes to the Unaudited Interim Consolidated Financial Statements(Continued)
June 30, 2013
(Expressed in thousands of U.S. Dollarsexcept for unit and per unit data, unless otherwise stated)
11. Interest and Finance Costs:
The amounts in the accompanying unaudited consolidated statements of income are analyzed as follows:
2013 | 2012 | |||||||
Interest expense (Note 7) |
$ | 4,317 | $ | 3,734 | ||||
Amortization and write off of financing costs (Note 6) |
268 | 298 | ||||||
Commitment fees |
| 372 | ||||||
Other |
6 | 48 | ||||||
Total |
$ | 4,591 | $ | 4,452 | ||||
|
|
|
|
12. Earnings per Unit:
The partnership agreement of the Company provides for minimum quarterly distributions of $ per unit, $ on an annualized basis to the extent there is sufficient cash from operations after establishment of cash reserves and payment of fees and expenses, including payments to the General Partner. In general, the Company will pay any quarterly cash distributions in the following manner:
|
first , 99.9% to the holders of common units and 0.1% to the General Partner, until each common unit has received a minimum quarterly distribution of $ plus any arrearages from prior quarters |
|
second , 99.9% to the holders of subordinated units and 0.1% to the General Partner, until each subordinated unit has received a minimum quarterly distribution of $ ; and |
|
third , 99.9% to all unitholders, pro rata, and 0.1% to the General Partner, until each unit has received an aggregate distribution of $ |
There were no distributions to the partners during the six month periods ended June 30, 2013 and 2012.
The calculations of the basic and diluted earnings per unit are presented below:
Six months ended June 30, 2013
Unitholders | ||||||||||||
General
Partner |
Common | Subordinated | ||||||||||
Net income |
$ | $ | $ | |||||||||
Earnings per unit basic and diluted |
$ | $ | $ | |||||||||
Weighted average number of units outstanding, basic and diluted |
Six months ended June 30, 2012
Unitholders | ||||||||||||
General
Partner |
Common | Subordinated | ||||||||||
Net income |
$ | $ | $ | |||||||||
Earnings per unit basic and diluted |
$ | $ | $ | |||||||||
Weighted average number of units outstanding, basic and diluted |
F-14
DYNAGAS LNG PARTNERS LP
Notes to the Unaudited Interim Consolidated Financial Statements(Continued)
June 30, 2013
(Expressed in thousands of U.S. Dollarsexcept for unit and per unit data, unless otherwise stated)
13. Subsequent Events:
a. | Subsequent to June 30, 2013, the Company paid aggregate loan installments in the amount of $10.8 million, consisting of payments in the amount of $3.5 million, $5.2 million and $2.1 million under the loans discussed in Notes 7(a), 7(b) and 7(c), respectively. |
b. | On October 8, 2013, the Company entered into a non-binding term sheet in connection with a proposed credit facility with an affiliate of Credit Suisse for $262,125 in order to partially re-finance its existing outstanding indebtedness. The proposed credit facility will be secured by, among other things, a first priority or preferred cross-collateralized mortgage on each of the Companys vessels and is expected to bear interest at LIBOR plus a margin. The Company may draw down this facility no more than four times each year, and only so long as the asset cover ratio, which is the ratio of its outstanding indebtedness under the facility to the aggregate market value of its vessels, is not more than 130%. The availability of the facility will be reduced each quarter for 14 consecutive quarters by $5,000 for the first 13 quarters and by approximately $197,125 for the fourteenth quarter. In accordance with the proposed facility, the Company will be required to: (i) maintain total consolidated liabilities of less than 65% of the total consolidated market value of its adjusted total assets; (ii) maintain an interest coverage ratio of at least 3.0 times; and (iii) maintain minimum liquidity equal to at least $22 million. In addition, the Prokopiou Family is required to own or control at least 30% of the Companys capital and voting rights and 100% of the General Partners share capital and voting rights and the Manager is required to continue to carry out the Companys commercial and technical management. The proposed facility will also restrict the Company from paying distributions if an event of default occurs. The conclusion of the loan facility is conditional upon the Companys successful completion of its initial public offering. |
F-15
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Unit holders of Dynagas LNG Partners LP
We have audited the accompanying consolidated balance sheets of Dynagas LNG Partners LP (the Company) as of December 31, 2012 and 2011, and the related consolidated statements of income, partners equity, and cash flows for each of the two years in the period ended December 31, 2012. Our audits also included the financial statement schedule listed in the Index as Schedule I. These financial statements and schedule are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Companys internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Dynagas LNG Partners LP at December 31, 2012 and 2011, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2012, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, at December 31, 2012, the Company has not complied with certain covenants included in its loan agreements with banks and has a working capital deficiency. These conditions raise substantial doubt about the Companys ability to continue as a going concern. Managements plans in regard to these matters are also described in Note 3. The 2012 consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that might result from the outcome of this uncertainty.
Ernst & Young (Hellas) Certified Auditors Accountants S.A.
Athens, Greece
October 9, 2013
(except for Note 1, Note 10 and Note 12 as to which the date is [ · ], 2013).
The foregoing report is in the form that will be signed upon the completion of the reorganization described in Note 1 and the finalization of capital accounts described in Note 10 to the financial statements.
/s/ Ernst & Young (Hellas) Certified Auditors Accountants S.A.
Athens, Greece
October 9, 2013
F-16
DYNAGAS LNG PARTNERS LP
For the years ended December 31, 2012 and 2011
(Expressed in thousands of U.S. Dollarsexcept for unit and per unit data)
The accompanying notes are an integral part of these consolidated financial statements.
F-17
DYNAGAS LNG PARTNERS LP
Consolidated Statements of Income
For the years ended December 31, 2012 and 2011
(Expressed in thousands of U.S. Dollarsexcept for unit and per unit data)
2012 | 2011 | |||||||
REVENUES: |
||||||||
Voyage revenues |
$ | 77,498 | $ | 52,547 | ||||
EXPENSES: |
||||||||
Voyage expenses |
(2,487 | ) | (715 | ) | ||||
Voyage expenses-related party (Note 4(a)) |
(981 | ) | (638 | ) | ||||
Vessel operating expenses |
(15,722 | ) | (11,350 | ) | ||||
General and administrative expenses |
(278 | ) | (54 | ) | ||||
Management fees-related party (Note 4(a)) |
(2,638 | ) | (2,529 | ) | ||||
Depreciation (Note 5) |
(13,616 | ) | (13,579 | ) | ||||
Dry-docking and special survey costs |
(2,109 | ) | | |||||
|
|
|
|
|||||
Operating income |
39,667 | 23,682 | ||||||
|
|
|
|
|||||
OTHER INCOME/(EXPENSES): |
||||||||
Interest income |
1 | 4 | ||||||
Interest and finance costs (Note 6 & 11) |
(9,576 | ) | (3,977 | ) | ||||
Loss on derivative financial instruments (Note 8) |
(196 | ) | (824 | ) | ||||
Other, net |
(60 | ) | (65 | ) | ||||
|
|
|
|
|||||
Total other expenses |
(9,831 | ) | (4,862 | ) | ||||
|
|
|
|
|||||
Net Income |
$ | 29,836 | $ | 18,820 | ||||
Earnings per unit, basic and diluted: (Note 12) |
||||||||
Common unit (basic and diluted) |
$ | $ | ||||||
Subordinated unit (basic and diluted) |
$ | $ | ||||||
General Partner unit (basic and diluted) |
$ | $ | ||||||
Weighted average number of units outstanding, basic and diluted: (Note 12) |
||||||||
Common units |
||||||||
Subordinated units |
||||||||
General Partner units |
The accompanying notes are an integral part of these consolidated financial statements.
F-18
DYNAGAS LNG PARTNERS LP
Consolidated Statements of Partners Equity
For the years ended December 31, 2012 and 2011
(Expressed in thousands of U.S. Dollarsexcept for unit and per unit data, unless otherwise stated)
Number of Units | Partners Capital | |||||||||||||||||||||||||||
General |
|
Subordinated | General | Common | Subordinated | Total | ||||||||||||||||||||||
BALANCE, December 31, 2010 |
$ | $ | $ | $ | 26,519 | |||||||||||||||||||||||
Net income |
| | | 18,820 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
BALANCE, December 31, 2011 |
45,339 | |||||||||||||||||||||||||||
Net income |
| | | 29,836 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
BALANCE, December 31, 2012 |
$ | $ | $ | $ | 75,175 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-19
DYNAGAS LNG PARTNERS LP
Consolidated Statements of Cash Flows
For the years ended December 31, 2012 and 2011
(Expressed in thousands of U.S. Dollars)
2012 | 2011 | |||||||
Cash flows from Operating Activities: |
||||||||
Net income: |
$ | 29,836 | $ | 18,820 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Depreciation |
13,616 | 13,579 | ||||||
Amortization and write-off of deferred financing fees |
590 | 100 | ||||||
Deferred revenue |
2,666 | | ||||||
Change in fair value of derivative financial instruments |
(5,692 | ) | (11,256 | ) | ||||
Changes in operating assets and liabilities: |
||||||||
Trade receivables |
126 | (322 | ) | |||||
Prepayments and other assets |
184 | 245 | ||||||
Due to related party |
(18,597 | ) | 6,567 | |||||
Trade payables |
3,804 | 307 | ||||||
Accrued liabilities and other payables |
(701 | ) | (44 | ) | ||||
Unearned revenue |
2,070 | 978 | ||||||
|
|
|
|
|||||
Net cash provided by Operating Activities |
27,902 | 28,974 | ||||||
|
|
|
|
|||||
Cash flows from Investing Activities: |
||||||||
Net cash used in Investing Activities |
| | ||||||
|
|
|
|
|||||
Cash flows from/(used in) Financing Activities: |
||||||||
Decrease/(increase) in restricted cash |
(4,453 | ) | 16,982 | |||||
Proceeds from long-term debt |
220,000 | | ||||||
Repayment of long-term debt |
(124,890 | ) | (22,540 | ) | ||||
Repayment of stockholders loan |
(116,584 | ) | (23,416 | ) | ||||
Payment of deferred financing fees |
(1,975 | ) | | |||||
|
|
|
|
|||||
Net cash used in Financing Activities |
(27,902 | ) | (28,974 | ) | ||||
|
|
|
|
|||||
Net increase (decrease) in cash and cash equivalents |
| | ||||||
Cash and cash equivalents at beginning of the year |
| | ||||||
|
|
|
|
|||||
Cash and cash equivalents at end of the year |
$ | | $ | | ||||
|
|
|
|
|||||
SUPPLEMENTAL CASH FLOW INFORMATION |
||||||||
Cash paid during the year for interest |
$ | 7,775 | $ | 3,797 | ||||
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-20
DYNAGAS LNG PARTNERS LP
Notes to the Consolidated Financial Statements
December 31, 2012 and 2011
(Expressed in thousands of U.S. Dollarsexcept for unit and per unit data, unless otherwise stated)
1. Basis of Presentation and General Information:
The accompanying consolidated financial statements include the accounts of Dynagas LNG Partners LP and its wholly-owned subsidiaries as further discussed below.
Dynagas LNG Partners LP (Dynagas Partners) was incorporated as a limited partnership on May 30, 2013 under the laws of the Republic of The Marshall Islands as part of a reorganization to acquire, directly or indirectly, the ownership interests in three vessel owning companies, Pegasus Shipholding S.A., Lance Shipping S.A. and Seacrown Maritime Ltd.
Dynagas Equity Holding Limited (Dynagas Equity), was incorporated on July 30, 2012, under the laws of the Republic of Liberia and its only activity is the holding of all the issued and outstanding common stock of three vessel owning companies, Pegasus Shipholding S.A. (Pegasus) (through the ownership of all issued and outstanding common stock of Quinta Group Corp. (Quinta), an entity incorporated on December 8, 2011, in the Republic of Nevis), Lance Shipping S.A. (Lance) (through the ownership of all issued and outstanding common stock of Pelta Holdings S.A. (Pelta), an entity incorporated on January 23, 2012, in the Republic of Nevis), and Seacrown Maritime Ltd (Seacrown). Dynagas Equity is wholly owned by the George Prokopiou family (George Prokopiou, his daughters Elisavet Prokopiou, Johanna Prokopiou, Marina Kalliope Prokopiou and Maria Eleni Prokopiou together the Family).
Pegasus Shipholding S.A. (Pegasus) was incorporated on March 18, 2004, under the laws of the Republic of The Marshall Islands. Pegasus owns and operates the Marshall Islands flag, 149,700 cubic meters in carrying capacity, class membrane, LNG carrier Clean Energy which was delivered to Pegasus in March 2007. As of December 31, 2012 the Clean Energy was employed under a five year time charter agreement expiring in April 2017, with an additional extension period of at least 33 months at charterers option.
Lance Shipping S.A. (Lance) was incorporated on December 29, 2003, under the laws of the Republic of The Marshall Islands. Lance owns and operates the Marshall Islands flag, 149,700 cubic meters in carrying capacity, class membrane, LNG carrier Ob River (renamed from Clean Power in July 2012) which was built and delivered to Lance in July 2007. As of December 31, 2012, the Ob River was employed under a five year time charter agreement expiring in September 2017, with an additional extension period of 180 days at charterers option.
Seacrown Maritime Ltd. (Seacrown) was incorporated on March 2, 2004, under the laws of the Republic of The Marshall Islands. Seacrown owns and operates the Marshall Islands flag, 149,700 cubic meters in carrying capacity, class membrane, LNG carrier Clean Force which was built and delivered to Seacrown in January 2008. As of December 31, 2012 the Clean Force was employed under a three year time charter agreement expiring in October 2013. In January 2013, the charterer exercised its option to extend the duration of the charter until September 2016. The charterer has the option to extend the duration of the charter by an additional three-year term.
Dynagas Equity, Quinta, Pelta, Pegasus, Lance and Seacrown are hereinafter referred to as the predecessor companies.
On , 2013, the Family transferred all the issued and outstanding common stock of Dynagas Equity to Dynagas Holding Ltd (Dynagas Holding), a corporation established under the laws of the Republic of The Marshall Islands March 7, 2012 and wholly owned by the Family. On the same date Dynagas
F-21
DYNAGAS LNG PARTNERS LP
Notes to the Consolidated Financial Statements(Continued)
December 31, 2012 and 2011
(Expressed in thousands of U.S. Dollarsexcept for unit and per unit data, unless otherwise stated)
1. Basis of Presentation and General Information (continued):
Holding transferred to Dynagas Partners its ownership interest in Dynagas Equity in exchange of of Dynagas Partners common units and all of its subordinated units. As the Family is the sole shareholder of Dynagas Holdings, and previously owned 100% of the predecessor companies, there is no change in ownership or control of the business, and therefore the transaction constitutes a reorganization of companies under common control, and is accounted for in a manner similar to a pooling of interests. Accordingly, the financial statements of the predecessor companies along with Dynagas Partners, from the date of its inception have been presented using combined historical carrying costs of the assets and liabilities of the predecessor companies, and present the consolidated financial position and results of operations as if Dynagas Partners and the predecessor companies (collectively referred to as the Company) were consolidated for all periods presented.
The technical, administrative and commercial management of the Companys vessels is performed by Dynagas Ltd. (the Manager), a related corporation, wholly owned by George Prokopiou, the Companys Chairman of the Board of Directors (Note 4).
2. Significant Accounting Policies and Recent Accounting Pronouncements:
(a) | Principles of Consolidation: The accompanying consolidated financial statements have been prepared in accordance with Generally Accepted Accounting Principles in the United States of America (U.S. GAAP). The consolidated financial statements include the accounts of Dynagas Partners and its wholly-owned subsidiaries, assuming the reorganization referred to in Note 1, took place as of the beginning of the two years presented (January 1, 2011). All intercompany balances and transactions have been eliminated upon consolidation. |
(b) | Use of Estimates: The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. |
(c) | Other Comprehensive Income: The Company follows the provisions of Financial Accounting Standards Board (FASB) Accounting Standard Codification (ASC) 220, Comprehensive Income which requires separate presentation of certain transactions, which are recorded directly as components of stockholders equity. The Company has no such transactions which affect other comprehensive income and, accordingly, for the years ended December 31, 2012 and 2011 comprehensive income was the same as net income. |
(d) | Foreign Currency Translation: The functional currency of the Company is the U.S. Dollar because the Companys vessels operate in international shipping markets, and therefore primarily transact business in U.S. Dollar. The Companys books of accounts are maintained in U.S. Dollars. Transactions involving other currencies during the year are converted into U.S. Dollars using the exchange rates in effect at the time of the transactions. At the balance sheet date, monetary assets and liabilities, which are denominated in other currencies, are translated into U.S. Dollars using the balance sheet date exchange rates. Resulting gains or losses are included in Other, net in the accompanying consolidated statements of income. |
(e) | Cash and Cash Equivalents: The Company considers highly liquid investments such as time deposits with an original maturity of three months or less to be cash equivalents. |
F-22
DYNAGAS LNG PARTNERS LP
Notes to the Consolidated Financial Statements(Continued)
December 31, 2012 and 2011
(Expressed in thousands of U.S. Dollarsexcept for unit and per unit data, unless otherwise stated)
2. Significant Accounting Policies and Recent Accounting Pronouncements (continued):
(f) | Restricted cash: Restricted cash comprises of minimum liquidity collateral requirements or minimum required cash deposits, as defined in the Companys loan agreements. |
(g) | Trade Receivables, net: The amount shown as trade receivables, net, at each balance sheet date, includes receivables from charterers for hire net of any provision for doubtful accounts. At each balance sheet date, all potentially uncollectible accounts are assessed individually for purposes of determining the appropriate provision for doubtful accounts primarily based on the aging of such balances and any amounts in disputes. No provision for doubtful accounts has been established as of December 31, 2012 or 2011. |
(h) | Insurance Claims: The Company records insurance claim recoveries for insured losses incurred on damage to fixed assets, loss of hire and for insured crew medical expenses. Insurance claim recoveries are recorded, net of any deductible amounts, at the time the Companys vessels suffer insured damages or when crew medical expenses are incurred, when recovery is probable under the related insurance policies, the Company can make an estimate of the amount to be reimbursed following submission of the insurance claim and when the claim is not subject to litigation. No significant claims existed in 2012 and 2011. |
(i) | Vessels, Net: Vessels are stated at cost, which consists of the contract price and any material expenses incurred upon delivery (initial repairs, improvements and delivery expenses, interest expense and on-site supervision costs incurred during the construction periods). Subsequent expenditures for conversions and major improvements are also capitalized when they appreciably extend the life, increase the earning capacity or improve the efficiency or safety of the vessels; otherwise these amounts are charged to expense as incurred. The cost of each of the Companys vessels is depreciated beginning when the vessel is ready for her intended use, on a straight-line basis over the vessels remaining economic useful life, after considering the estimated residual value (a vessels residual value is estimated as 12% of the initial vessel cost, being approximate to a vessels light weight multiplied by the then estimated scrap price per metric ton adjusted to reflect the premium from the value of stainless steel material and represents Managements best estimate of the current selling price assuming the vessels are already of age and condition expected at the end of its useful life). Management estimates the useful life of the Companys vessels to be 35 years from the date of initial delivery from the shipyard. When regulations place limitations over the ability of a vessel to trade on a worldwide basis, its remaining useful life is adjusted at the date such regulations are adopted. |
(j) | Impairment of Long-Lived Assets: The Company follows ASC 360-10-40 Impairment or Disposals of Long-Lived Assets, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The standard requires that long-lived assets and certain identifiable intangibles held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. When the estimate of undiscounted projected operating cash flows, excluding interest charges, expected to be generated by the use of the asset is less than its carrying amount, the Company should evaluate the asset for an impairment loss. Measurement of the impairment loss is based on the fair value of the asset. The Company determines the fair value of its assets based on managements estimates and assumptions and by making use of available market data and taking into consideration third party valuations. |
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances, such as undiscounted projected operating cash flows, business plans to dispose a vessel earlier than the end of its useful life and prevailing market conditions, indicate that the carrying amount of the assets may |
F-23
DYNAGAS LNG PARTNERS LP
Notes to the Consolidated Financial Statements(Continued)
December 31, 2012 and 2011
(Expressed in thousands of U.S. Dollarsexcept for unit and per unit data, unless otherwise stated)
2. Significant Accounting Policies and Recent Accounting Pronouncements (continued):
not be recoverable. The Company determines undiscounted projected net operating cash flows, for each vessel and compares it to the vessels carrying value. In developing estimates of future cash flows, the Company must make assumptions about future charter rates, vessel operating expenses, fleet utilization, and the estimated remaining useful life of the vessels. These assumptions are based on historical trends as well as future expectations. The projected net operating cash flows are determined by considering the charter revenues from existing time charters for the fixed fleet days and the five-year historical average of charter rates for the unfixed days. Expected outflows for scheduled vessels maintenance and vessel operating expenses are based on historical data, and adjusted annually assuming an average annual inflation rate prevailing at the time of test. An estimate is also applied to effective fleet utilization, taking into account the period(s) each vessel is expected to undergo her scheduled maintenance (dry-docking and special surveys) and vessels loss of hire from repositioning or other conditions. Estimates for the remaining estimated useful lives of the current fleet and scrap values are identical with those employed as part of the Companys depreciation policy. When the undiscounted projected operating cash flows, excluding interest charges, expected to be generated by the use of the vessel and its eventual disposition are less than her carrying amount, the Company impairs the carrying amount of the vessel. Measurement of the impairment loss is based on the fair value of the asset. The fair values are determined through Level 2 inputs of the fair value hierarchy as defined in ASC 820 Fair value measurements and disclosures and are derived principally from or by corroborated or observable market data. Inputs, considered by management in determining the fair value, include independent brokers valuations and other market observable data that allow value to be determined. |
As of December 31, 2012 and 2011, the Company concluded that there were no events or changes in circumstances indicating that the carrying amount of its vessels may not be recoverable and accordingly there is no impairment loss for 2012 and 2011. |
(k) | Accounting for Special Survey and Dry-Docking Costs: Dry-docking and special survey costs are expensed in the period incurred. The vessels undergo dry-dock or special survey approximately every five years during the first fifteen years of their life and every two and a half years within their following useful life. Costs relating to routine repairs and maintenance are also expensed as incurred. All three vessels in the Companys fleet completed their initial scheduled special survey repairs in 2012. |
(l) | Financing Costs: Costs associated with new loans including fees paid to lenders or required to be paid to third parties on the lenders behalf for obtaining new loans or refinancing existing ones are recorded as deferred charges. Such fees are deferred and amortized to interest and finance costs during the life of the related debt using the effective interest method. Unamortized fees are presented in the accompanied balance sheets as deferred charges. Unamortized fees relating to loans repaid or refinanced as debt extinguishments and loan commitment fees are expensed as interest and finance costs in the period incurred in the accompanying statements of income. |
(m) | Concentration of Credit Risk: Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist principally of cash and cash equivalents, trade receivables and derivative contracts (interest rate swaps). The maximum exposure to loss due to credit risk is the book value at the balance sheet date. The Company places its cash and cash equivalents, consisting mostly of deposits, with high credit qualified financial institutions. The Company performs periodic evaluations of the relative credit standing of those financial institutions. The Company limits its credit risk with accounts receivable by performing ongoing credit evaluations of its customers financial condition and generally does not require collateral for its accounts receivable. |
F-24
DYNAGAS LNG PARTNERS LP
Notes to the Consolidated Financial Statements(Continued)
December 31, 2012 and 2011
(Expressed in thousands of U.S. Dollarsexcept for unit and per unit data, unless otherwise stated)
2. Significant Accounting Policies and Recent Accounting Pronouncements (continued):
During 2012 and 2011, charterers that individually accounted for more than 10% of the Companys revenues were as follows:
Charterer |
2012 | 2011 | ||||||
A |
58 | % | 33 | % | ||||
B |
16 | % | 30 | % | ||||
C |
26 | % | 37 | % | ||||
|
|
|
|
|||||
100 | % | 100 | % | |||||
|
|
|
|
(n) | Accounting for Revenues and Related Expenses: The Company generates its revenues from charterers for the chartering of its vessels. All vessels are chartered under time charters, where a contract is entered into for the use of a vessel for a specific period of time and at a specified daily charter hire rate. If a charter agreement exists and collection of the related revenue is reasonably assured, revenue is recognized, as it is earned ratably over the duration of the period of the time charter. Furthermore, revenues from time chartering of vessels are accounted for as operating leases and are thus recognized on a straight line basis as the average minimum lease revenue over the rental periods of such charter agreements, as service is performed with the residual from actually collected hire based on the time charter agreement for each period being classified as deferred revenue in the accompanying consolidated balance sheets. Unearned revenue includes cash received prior to the balance sheet date for which all criteria to recognize as revenue have not yet been met as at the balance sheet date and accordingly is related to revenue earned after such date. |
Voyage expenses, primarily consisting of port, canal and bunker expenses that are unique to a particular charter, are paid for by the charterer under the time charter arrangements. All voyage expenses are expensed as incurred, except for commissions. Commissions paid to brokers are deferred and amortized over the related charter period to the extent revenue has been deferred since commissions are earned as the Companys revenues are earned.
(o) | Repairs and Maintenance : All repair and maintenance expenses including underwater inspection expenses are expensed in the period incurred. Such costs are included in vessel operating expenses in the accompanying consolidated statements of income. |
(p) | Earnings Per Unit : Basic earnings per unit are computed by dividing net income available to unitholders by the weighted average number of units outstanding during the year. Diluted earnings per unit reflect the potential dilution that could occur if securities or other contracts to issue units were exercised, if any. The Company had no dilutive securities outstanding during the two-year period ended December 31, 2012. |
(q) | Segment Reporting: The Company has determined that it operates under one reportable segment relating to its operations as it operates solely LNG vessels. The Company reports financial information and evaluates its operations and operating results by type of vessel and not by the length or type of ship employment for its customers. The Companys management does not use discrete financial information to evaluate operating results for each type of charter. Although revenue can be identified according to these type of charters or for charters with different duration, management cannot and does not identify expenses, profitability or other financial information for these charters. Furthermore, when the Company charters a vessel to a charterer, the charterer is free to trade the vessel worldwide and, as a result, the disclosure of geographic information is impracticable. |
F-25
DYNAGAS LNG PARTNERS LP
Notes to the Consolidated Financial Statements(Continued)
December 31, 2012 and 2011
(Expressed in thousands of U.S. Dollarsexcept for unit and per unit data, unless otherwise stated)
2. Significant Accounting Policies and Recent Accounting Pronouncements (continued):
(r) | Fair Value Measurements: The Company adopted ASC 820, Fair Value Measurements and Disclosures, which defines, and provides guidance as to the measurement of fair value. This statement creates a hierarchy of measurement and indicates that, when possible, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The fair value hierarchy gives the highest priority to quoted prices in active markets (Level 1) and the lowest priority to unobservable data (Level 3), for example, the reporting entitys own data. Under the standard, fair value measurements would be separately disclosed by level within the fair value hierarchy. ASC 820 applies when assets or liabilities in the financial statements are to be measured at fair value, but does not require additional use of fair value beyond the requirements in other accounting principles. Upon issuance of guidance on the fair value option in 2007, the Company elected not to report the then existing financial assets or liabilities at fair value that were not already reported as such. |
(s) | Commitments and Contingencies: Commitments are recognized when the Company has a present legal or constructive obligation as a result of past events and it is probable that an outflow of resources embodying economic benefits will be required to settle this obligation, and a reliable estimate of the amount of the obligation can be made. Provisions are reviewed at each balance sheet date and adjusted to reflect the present value of the expenditure expected to be required to settle the obligation. Contingent liabilities are not recognized in the financial statements but are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are not recognized in the financial statements but are disclosed when an inflow of economic benefits is probable. |
(t) | Variable Interest Entities : ASC 810-10, addresses the consolidation of business enterprises (variable interest entities) to which the usual condition (ownership of a majority voting interest) of consolidation does not apply. The guidance focuses on financial interests that indicate control. It concludes that in the absence of clear control through voting interests, a companys exposure (variable interest) to the economic risks and potential rewards from the variable interest entitys assets and activities are the best evidence of control. Variable interests are rights and obligations that convey economic gains or losses from changes in the value of the variable interest entitys assets and liabilities. Additionally, ASU 2009-17, Consolidations (Topic 810) Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a reporting entity is required to consolidate another entity is based on, among other things, the other entitys purpose and design and the reporting entitys ability to direct the activities of the other entity that most significantly impact the other entitys economic performance. ASU 2009-17 also requires a reporting entity to provide additional disclosures about its involvement with variable interest entities and any significant changes in risk exposure due to that involvement. |
The Company evaluates financial instruments, service contracts, and other arrangements to determine if any variable interests relating to an entity exist, as the primary beneficiary would be required to include assets, liabilities, and the results of operations of the variable interest entity in its financial statements. As of December 31, 2012 and 2011, no such interests existed.
(u) |
Accounting for Financial Instruments and Derivatives: The principal financial assets of the Company consist of cash and cash equivalents, restricted cash and trade receivables, net. The principal financial liabilities of the Company consist of trade payables, accrued liabilities, deferred and unearned revenue, |
F-26
DYNAGAS LNG PARTNERS LP
Notes to the Consolidated Financial Statements(Continued)
December 31, 2012 and 2011
(Expressed in thousands of U.S. Dollarsexcept for unit and per unit data, unless otherwise stated)
2. Significant Accounting Policies and Recent Accounting Pronouncements (continued):
long-term debt, and interest-rate swaps. Derivative financial instruments are used to manage risk related to fluctuations of interest rates. ASC 815, Derivatives and Hedging, requires all derivative contracts to be recorded at fair value, as determined in accordance with ASC 820, Fair Value Measurements and Disclosures (Note 8). The changes in fair value of a derivative contract are recognized in earnings unless specific hedging criteria are met. |
At the inception of a hedge relationship, the Company formally designates and documents the hedge relationship to which the Company wishes to apply hedge accounting and the risk management objective and strategy undertaken for the hedge. The documentation includes identification of the hedging instrument, hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instruments effectiveness in offsetting exposure to changes in the hedged items cash flows attributable to the hedged risk. A cash flow hedge is a hedge of the exposure to variability in cash flows that is attributable to a particular risk associated with a recognized asset or liability, or a highly probable forecasted transaction that could affect profit or loss. Such hedges are expected to be highly effective in achieving offsetting changes in cash flows and are assessed on an ongoing basis to determine whether they actually have been highly effective throughout the financial reporting periods for which they were designated. All derivatives are recorded on the balance sheet as assets or liabilities and measured at fair value. For derivatives designated as cash flow hedges, the effective portion of the changes in fair value of the derivatives are recorded in Accumulated Other Comprehensive Income/(Loss) and subsequently recognized in earnings when the hedged items impact earnings. |
None of the Companys outstanding, during the period, derivative instruments meet those hedging criteria and, therefore, the changes in fair value are recognized as an increase or decrease in other income and expense.
(v) | Recent Accounting Pronouncements : There are no recent accounting pronouncements issued in 2012, whose adoption would have a material impact on the Companys consolidated financial statements in the current year or are expected to have a material impact in future years. |
3. Going Concern:
As of December 31, 2012 the Company was in breach of certain liquidity and restrictive covenants relating to the loan agreements discussed in Note 7.
As of October 9, 2013, the Company has not obtained waivers from its lenders for non-compliance with these covenants. On July 19, 2013, one of the Companys lenders declared an event of default under one of its credit facilities. Although the Company believes that the lenders will not demand payment of the loans before their maturity, provided that it pays scheduled loan installments and interest as they fall due under the existing credit facilities, the lenders may require immediate repayment of the loans. As a result of this non-compliance, the Company has classified the total outstanding balance of its debt at December 31, 2012 of $380,715 (Note 7), as current liabilities and reports a working capital deficit of $389,453 at December 31, 2012.
The Company is in advanced discussions with its lenders to obtain waivers or to amend the affected debt. Management plans to settle the loan interest and scheduled loan repayments with cash expected to be generated from operations and from financing activities.
F-27
DYNAGAS LNG PARTNERS LP
Notes to the Consolidated Financial Statements(Continued)
December 31, 2012 and 2011
(Expressed in thousands of U.S. Dollarsexcept for unit and per unit data, unless otherwise stated)
3. Going Concern (continued):
The consolidated financial statements have been prepared assuming that the Company will continue as a going concern. Accordingly, the consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, the amounts and classification of liabilities, or any other adjustments that might result in the event the Company is unable to continue as a going concern.
4. Transactions with related parties:
(a) Dynagas Ltd.
Dynagas Ltd. (or the Manager), is a company wholly owned by Mr. George Prokopiou. The Manager has entered into a separate management agreement with each of the vessel-owning entities of the Company in order to provide technical, administrative and commercial management services to the Company in exchange for a fixed daily fee. Beginning on the first calendar year after the commencement of the vessel management agreements and each calendar year thereafter, these fees are adjusted upwards by 4% until expiration of the management agreement. As of December 31, 2012 and 2011, daily management fees per vessel ranged from $2.34 to $2.43 and $2.25 to $2.34, respectively. The Manager also provides other services under these agreements for which the Company pays additional fees, including (i) a commission of 1.25% over charter-hire agreements arranged by the Manager and (ii) a lump sum new-building supervision fee of $700 for the services rendered by the Manager in respect of the construction of the vessel plus out of pocket expenses. These agreements expired on December 31, 2012.On December 21, 2012, Pegasus, Lance and Seacrown, entered into new separate management agreements with the Manager effective from January 1, 2013 with an eight year term in exchange for a daily management fee of $2.5 per day with an annual increase of 3%, subject to further annual increases to reflect material unforeseen costs of providing the management services, by an amount to be agreed between the Company and the Manager, which amount will be reviewed and approved by the conflicts committee. The Manager will continue to provide commercial services under terms similar to those of the expired agreements. The agreements will terminate automatic after a change of control of the owners and/or of the owners ultimate parent, in which case an amount equal to the estimated remaining fees but in any case not less than for a period of at the least 36 months and not more than 60 months, will become payable to the Manager.
Fees charged in 2012 and 2011 for technical and administrative services amounted to $2,638 and $2,529, respectively, and are separately reflected as Management fees-related party in the accompanying consolidated statements of income. Commissions charged in 2012 and 2011 for commercial services amounted to $981 and $638, respectively, and are separately reflected as Voyage expenses-related party in the accompanying consolidated statements of income. These amounts, totaling $3,619 and $3,167 in each of the years ended December 31, 2012 and 2011,respectively, were due to the Manager and are included in Due to related party in the accompanying consolidated balance sheets. Furthermore, $240 and $19,289 due to the Manager as of December 31, 2012 and 2011, respectively, relating to liabilities arising out of the fleet operations (current account) are included in Due to related party in the accompanying consolidated balance sheets as well. The management agreements provide for an advance of $180 (three months of management fees) per vessel as security. Such advances as of December 31, 2012 and 2011 amounted to $540 and $540, respectively, and are separately reflected in Non-Current Assets as Due from related party in the accompanying consolidated balance sheets. Pursuant to the terms of the separate management agreements signed on December 21, 2012, the security advance payment, effective January 1, 2013, shall increase to $225 per vessel, and other than in the case of termination of the management agreement by reason of default by the Manager, the advance is not refundable.
F-28
DYNAGAS LNG PARTNERS LP
Notes to the Consolidated Financial Statements(Continued)
December 31, 2012 and 2011
(Expressed in thousands of U.S. Dollarsexcept for unit and per unit data, unless otherwise stated)
4. Transactions with related parties (continued):
(b) Stockholders Loan
On February 9, 2004, Pegasus, Lance and Seacrown entered into an unsecured, interest free credit loan facility agreement with Gregold Compania Maritima S.A. a corporation controlled by members of the Family for a principal amount up to $140,000 available until December 31, 2012. The amount of $140,000 was drawn at various dates in periods prior to December 31, 2010 and was used to partially finance the vessels construction cost and to provide Pegasus, Lance and Seacrown working capital for general corporate purposes. Part of the loan ($23,416) was paid in 2011 and the remaining amount of $116,584 was fully paid in April 2012, using the proceeds from the loans refinancing discussed in Note 7(a) and 7(b).
(c) Cross Collateral Guarantee
Reed Trading Ltd. (Reed): is a vessel-owning company controlled by members of the Family. One of the Companys lenders has registered a first priority mortgage on Reeds vessel, the Felicity, in its favor as a cross collateral guarantee on the loan obtained by Pegasus (Note 7(a)). At December 31, 2012 and 2011, there were no balances due to /from Reed.
5. Vessels, net:
The amounts in the accompanying consolidated balance sheets are analyzed as follows:
Vessel
Cost |
Accumulated
Depreciation |
Net Book
Value |
||||||||||
Balance January 1, 2011 |
$ | 540,454 | $ | (46,505 | ) | $ | 493,949 | |||||
Depreciation |
| (13,579 | ) | (13,579 | ) | |||||||
|
|
|
|
|
|
|||||||
Balance December 31, 2011 |
$ | 540,454 | $ | (60,084 | ) | $ | 480,370 | |||||
Depreciation |
| (13,616 | ) | (13,616 | ) | |||||||
|
|
|
|
|
|
|||||||
Balance December 31, 2012 |
$ | 540,454 | $ | (73,700 | ) | $ | 466,754 | |||||
|
|
|
|
|
|
As of December 31, 2012, each of the vessels were first priority mortgaged as collateral to secure the bank loans discussed in Note 7.
6. Deferred Charges:
The amounts in the accompanying consolidated balance sheets represent fees paid to the lenders in relation with the bank loans discussed in Note 7 and are analyzed as follows:
Amount | ||||
Balance, January 1, 2011 |
$ | 447 | ||
Amortization |
(100 | ) | ||
|
|
|||
Balance, December 31, 2011 |
$ | 347 | ||
Additions |
1,975 | |||
Write-offs |
(105 | ) | ||
Amortization |
(485 | ) | ||
|
|
|||
Balance, December 31, 2012 |
$ | 1,732 | ||
|
|
The amortization and write-off of financing costs is included in Interest and finance costs in the accompanying consolidated statements of income (Note 11).
F-29
DYNAGAS LNG PARTNERS LP
Notes to the Consolidated Financial Statements(Continued)
December 31, 2012 and 2011
(Expressed in thousands of U.S. Dollarsexcept for unit and per unit data, unless otherwise stated)
7. Long-Term Debt:
The amounts shown in the accompanying consolidated balance sheets are analyzed as follows:
Borrower(s) |
Lenders |
2012 | 2011 | |||||||
(a) Pegasus Shipholding S.A. |
Royal Bank of Scotland | $ | | $ | 95,550 | |||||
Pegasus Shipholding S.A. |
Credit Suisse AG | 139,500 | | |||||||
(b) Lance Shipping S.A. |
Royal Bank of Scotland | 153,590 | 93,930 | |||||||
(c) Seacrown Maritime Ltd. |
Royal Bank of Scotland | 87,625 | 96,125 | |||||||
|
|
|
|
|||||||
Total |
$ | 380,715 | $ | 285,605 | ||||||
Less current portion |
$ | 380,715 | $ | 285,605 | ||||||
|
|
|
|
|||||||
Long-term portion |
$ | | $ | | ||||||
|
|
|
|
(a) | Pegasus: During the period from May 2005 to February 2007, Pegasus borrowed $129,750 to partially finance the construction cost of the Clean Energy , under a ten year term credit facility, repayable in forty equal consecutive quarterly installments of $1,800 each, plus a balloon installment of $57,750 payable together with the last installment. On January 30, 2012, Pegasus entered into a five-year term loan facility with Credit Suisse AG for $150,000 (the Credit Suisse Facility) for the purpose of refinancing the then outstanding balance of the loan obtained in February 2007 and for general corporate purposes. The amount was fully drawn in March 2012. The obligations of Pegasus under the Credit Suisse Facility are secured by, among other things, a cross collateralized first priority mortgage over the Clean Energy and a 2005 built panamax tanker vessel named Felicity , owned by a related vessel-owning company, which also serves as a collateral (Note 4(c)). The securities relating to Felicity will be released 24 months following drawdown provided that the asset coverage ratio following such discharge and release will be at least 155% and no event of default has occurred and is continuing. The outstanding balance of the loan as of December 31, 2012, of $139,500 is repayable in seventeen equal consecutive quarterly installments of $3,500 each plus a balloon payment of $80,000 payable together with the last installment in March 2017. |
(b) | Lance: In July 2007, Lance borrowed the amount of $123,000 to partially finance the construction cost of the Clean Power , under a ten-year term credit facility, repayable in forty equal consecutive quarterly installments of $1,710 each, plus a balloon installment of $54,600 payable together with the last installment. On February 29, 2012, Lance entered an amendatory agreement with the same bank for the purpose of refinancing the then outstanding balance of the loan obtained in July 2007. As a result of the amendatory agreements an additional principal amount of $70,000 was drawn in April 2012 for general corporate purposes, payable in twenty equal consecutive quarterly installments of $3,500, each. The outstanding balance of the loan as of December 31, 2012, of $153,590 is repayable in nineteen equal consecutive quarterly installments of $5,210 each, plus a balloon payment of $54,600 payable together with the last installment in July 2017. |
(c) | Seacrown: In January 2008, Seacrown borrowed $128,000, to partially finance the construction cost of the Clean Force , under a twelve-year term credit facility. The outstanding balance of the loan as of December 31, 2012, of $87,625 is repayable in twenty nine equal consecutive quarterly installments of $2,125 each plus a balloon payment of $26,000 payable together with the last installment in January 2020. |
F-30
DYNAGAS LNG PARTNERS LP
Notes to the Consolidated Financial Statements(Continued)
December 31, 2012 and 2011
(Expressed in thousands of U.S. Dollarsexcept for unit and per unit data, unless otherwise stated)
7. Long-Term Debt (continued):
In aggregate for all loans, the annual principal payments for the outstanding debt as of December 31, 2012 required to be made after the balance sheet date, without taking into consideration the re-classification of total outstanding debt within current liabilities following the non compliances discussed below, are as follows:
Year ending December 31, |
Amount | |||
2013 |
$ | 43,340 | ||
2014 |
43,340 | |||
2015 |
43,340 | |||
2016 |
43,340 | |||
2017 |
162,230 | |||
Thereafter |
45,125 | |||
|
|
|||
$ | 380,715 | |||
|
|
Loans bear interest at LIBOR plus a margin. The weighted average interest rate of the Companys long-term debt for the years ended December 31, 2012 and 2011 was 2.3% and 1.3%, respectively.
Total interest incurred on long-term debt for 2012 and 2011 amounted to $8,551 and $3,794, respectively. Interest expense on long-term debt, is included in Interest and finance costs (Note 11) in the accompanying consolidated statements of income. The above loans are secured by a first priority mortgage over the vessels, corporate guarantees, and assignments of all charters, earnings and insurances. In addition, the loan agreements impose operating and negative covenants on the lenders. These covenants may limit the Companys subsidiaries ability to, among other things, without the relevant lenders prior consent (i) incur additional indebtedness, (ii) change the flag, class or management of the vessel mortgaged under such facility, (iii) create or permit to exist liens on their assets, (iv) make or repay loans, (v) make investments or capital expenditures, (vi) change in the general nature of the Companys business, (vii) enter into guarantees and (viii) undergo a change in ownership or control. The loans also contain certain financial covenants relating to the Companys financial position and operating performance including maintaining liquidity above $30,000 or, if higher, 10% of the total aggregate indebtedness to The Royal Bank of Scotland. In addition, all loan agreements also include a requirement for the value of the vessel secured against the related loan to be in a range of at least 125%-130%, and impose restrictions on the Companys ability top pay distributions as follows:
|
For the loan agreement discussed under (a) above, the Company is restricted from paying any dividend or making any other form of distribution or effect any form of redemption, purchase or return of share capital following the occurrence of event of default without the prior written consent of the lender. |
|
For the loan agreement discussed under (b) above, the Company is restricted from declaring or paying any dividend or make any other distribution of its assets or profits to any stockholder without the prior consent of the lender. |
|
For the loan agreement discussed under (c) above, the Company is restricted from declaring or paying any dividends or distribute any of its present or future assets, undertakings, rights or revenues to any of its shareholders without the lenders prior consent. |
F-31
DYNAGAS LNG PARTNERS LP
Notes to the Consolidated Financial Statements(Continued)
December 31, 2012 and 2011
(Expressed in thousands of U.S. Dollarsexcept for unit and per unit data, unless otherwise stated)
7. Long-Term Debt (continued):
As of December 31, 2012, the Company was not in compliance with the following restrictive and financial covenants:
|
The issuance of the guarantees discussed in Note 9(c) below without the prior consent of the lenders which resulted in a breach of the respective restrictive covenant under the loan agreements discussed in (a), (b) and (c) above. |
|
The repayment of the loan discussed in Note 4(b) above without the prior consent of the Companys lenders which resulted in a breach of the respective restrictive covenant under the loan agreements discussed in (b) and (c) above. |
|
The Company was also not in compliance with the minimum liquidity covenant of $30.0 million contained in its loan agreement discussed in (b) above. |
As of October 9, 2013, the Company had not obtained waivers from its lenders for non-compliance with these covenants. On July 19, 2013, one of the Companys lenders declared an event of default under one of its credit facilities. Although the Company believes that the lenders will not demand payment of the loans before their maturity, provided that it pays scheduled loan installments and interest as they fall due under the existing credit facilities, the lenders may require immediate repayment of the loans. As a result of this non-compliance and in accordance with guidance related to the classification of obligations that are callable by the creditor, the Company has classified all of its bank debt amounting to $380,715 as current at December 31, 2012.
There is no unused line of credit or available facility as of December 31, 2012.
8. Financial Instruments and Fair Value Measurements:
The Company is exposed to interest rate fluctuations associated with its variable rate borrowings and its objective is to manage the impact of such fluctuations on earnings and cash flows of its borrowings. In this respect, from time to time the Company uses interest rate swaps to manage net exposure to interest rate fluctuations related to its borrowings.
ASC 815, Derivatives and Hedging requires companies to recognize all derivative instruments as either assets or liabilities at fair value in the statement of financial position. The Company recognizes all derivative instruments as either assets or liabilities at fair value on its consolidated balance sheets. The carrying amounts of cash and cash equivalents, restricted cash, trade receivables and trade payables reported in the consolidated balance sheets approximate their respective fair values because of the short-term nature of these accounts. The fair values of long-term bank loans approximate the recorded values due to the variable interest rates payable. The fair value of shareholders loan is not practicable to be estimated due to the absence of the fixed repayment terms and stated maturity. The fair value of non-current portion of amounts due from related party is not practicable to be estimated given the terms of the management agreements which provide for periodic adjustment of the working capital advance per vessel in line with the changes in the vessels daily operating costs. Additionally, the Company considers its creditworthiness in determining the fair value of the credit facilities. The carrying value approximates the fair market value for the floating rate loans.
As of December 31, 2011, the Company was a party to three interest rate swap agreements of $285,6 million notional amount, which do not qualify for hedge accounting and, as such, the changes in their fair values are recognized in the statement of income. The Company made quarterly payments to the counterparties based on
F-32
DYNAGAS LNG PARTNERS LP
Notes to the Consolidated Financial Statements(Continued)
December 31, 2012 and 2011
(Expressed in thousands of U.S. Dollarsexcept for unit and per unit data, unless otherwise stated)
8. Financial Instruments and Fair Value Measurements (continued):
decreasing notional amounts at fixed rates of 4.31%, 4.35% and 4.35%, respectively, net of the floating-rate payments at LIBOR due from the counterparty to the Company. The swaps matured in June, July and March 2012, respectively, and as such the fair value of derivative financial instruments as of December 31, 2012 and 2011 was nil and $5,692, respectively, and is presented under Derivative financial instruments within current liabilities in the accompanying consolidated balance sheets.
The guidance for fair value measurements applies to all assets and liabilities that are being measured and reported on a fair value basis. This guidance enables the reader of the financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. The statement requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
The fair values of the Companys derivative financial instruments equate to the amount that would be paid or received by the Company if the agreements were cancelled at the reporting date, taking into account current market data per instrument and the Companys or counterpartys creditworthiness, as appropriate. The Companys derivative financial instruments are valued using pricing models that are used to value similar instruments by market participants. Where possible, the Company verifies the values produced by its pricing models to market prices. Valuation models require a variety of inputs, including contractual terms, market prices, yield curves, credit spreads, measures of volatility and correlations of such inputs. The Companys derivatives trade in liquid markets, and as such, model inputs can generally be verified and do not involve significant management judgment. Such instruments are typically classified within Level 2 of the fair value hierarchy.
The change in the fair value of the Companys interest rate swaps for each of the years ended December 31, 2012 and 2011 resulted in unrealized gains of $5,692 and $11,256, respectively. The settlements on the interest rate swaps for the year ended December 31, 2012 and 2011 resulted in realized losses of $5,888 and $12,080, respectively. The total of the change in fair value and settlements for the years ended December 31, 2012 and 2011 aggregate to losses of $196 and $824, respectively, and is separately reflected in Loss on derivative financial instruments in the accompanying consolidated statements of income.
F-33
DYNAGAS LNG PARTNERS LP
Notes to the Consolidated Financial Statements(Continued)
December 31, 2012 and 2011
(Expressed in thousands of U.S. Dollarsexcept for unit and per unit data, unless otherwise stated)
9. Commitments and Contingencies:
(a) Long-term time charters:
The Company has entered into time charter arrangements on all of its vessels with well-known international charterers. The minimum contractual charter revenues, based on these non-cancelable long-term time charter contracts as of December 31, 2012, gross of brokerage commissions, without taking into consideration any assumed off-hire, and considering the exercised option on January 2, 2013 for the extension of the charter party of Clean Force until September 2016 amounting to $68,224, are as analyzed below:
Period/Year ending December 31, |
Amount | |||
2013 (period) |
$ | 80,841 | ||
2014 |
85,775 | |||
2015 |
85,775 | |||
2016 |
78,522 | |||
2017 |
31,524 | |||
|
|
|||
$ | 362,437 | |||
|
|
(b) | Other: Various claims, suits, and complaints, including those involving government regulations and product liability, arise in the ordinary course of the shipping business. In addition, losses may arise from disputes with charterers, agents, insurance and other claims with suppliers relating to the operations of the Companys vessels. Currently, management is not aware of any such claims not covered by insurance or contingent liabilities, which should be disclosed, or for which a provision should be established in the accompanying consolidated financial statements. |
The Company accrues for the cost of environmental liabilities when management becomes aware that a liability is probable and is able to reasonably estimate the probable exposure. Currently, management is not aware of any such claims or contingent liabilities, which should be disclosed, or for which a provision should be established in the accompanying consolidated financial statements. The Company is covered for liabilities associated with the individual vessels actions to the maximum limits as provided by Protection and Indemnity (P&I) Clubs, members of the International Group of P&I Clubs. |
(c) |
Guarantees provided to related parties: On September 27, 2012 the Companys three wholly owned vessel owning subsidiaries provided guarantees to the banks financing three contracted new-building LNG carriers, the Lena River , the Clean Ocean and the Clean Planet beneficially controlled by members of the Family, to guarantee the due payment of all amounts including principal and interest payable by the borrowers during the security period, as defined in the terms of a twelve year term loan for an amount up to $465,115 expiring in January 2027. Total estimated interest payable to the lender until its maturity approximates $119 million, based on Libor at December 31, 2012. In addition, on September 28, 2012 Dynagas Equity Holding Limited provided a guarantee to the banks financing the Yenisei River , which was delivered in July 2013 and beneficially controlled by members of the Family, to guarantee the due payment of all amounts including principal and interest payable by the borrowers during the security period, as defined in the terms of a twelve year loan up to $162,000 expiring in July 2025. Total estimated interest payable to the lender until its maturity approximates $35 million based on 3-month Libor at December 31, 2012. The loan agreements are secured with liens on the contracted new-building LNG carriers. |
F-34
DYNAGAS LNG PARTNERS LP
Notes to the Consolidated Financial Statements(Continued)
December 31, 2012 and 2011
(Expressed in thousands of U.S. Dollarsexcept for unit and per unit data, unless otherwise stated)
9. Commitments and Contingencies (continued):
Failure by the primary borrowers to service their debt requirements and comply with any provisions contained in these secured loans, including but not limited to, paying scheduled installments and complying with certain covenants, will activate the Companys obligations under the guarantees. The Company determined that is not the primary beneficiary of the entities for which a guarantee has been provided. In addition, the guarantees fall under the scope exception for initial recognition and measurement and accordingly no liability in their respect has been recognized in the accompanying 2012 consolidated balance sheet. |
(d) | Technical and Commercial Management Agreement: As further disclosed in Note 4 the Company has contracted the commercial, administrative and technical management of its vessels to Dynagas Ltd. For the commercial services provided under this agreement the Company pays a commission of 1.25% over the charter-hire revenues arranged by the Manager. The estimated commission payable to the Manager over the minimum contractual charter revenues, discussed in Note 9, is $4,530, of which $853 relate to the Clean Force exercised option. For administrative and technical management fees the Company pays a daily management fee per vessel. Such management fee for the period from January 1, 2013 to the expiration of the agreements on December 31, 2020, adjusted for 3% inflation, is $24,361 and is analyzed as follows: |
Year ending December 31, |
Amount | |||
2013 |
$ | 2,738 | ||
2014 |
2,820 | |||
2015 |
2,904 | |||
2016 |
3,000 | |||
2017 |
3,081 | |||
2018 and on |
9,818 | |||
|
|
|||
$ | 24,361 | |||
|
|
10. Partners Equity:
On , 2013, the Company issued i) to Dynagas Holding Ltd, common units and subordinated units, representing a 99.9% limited partner interest in the Company and ii) to Dynagas GP LLC (the General Partner), a company owned and controlled by Dynagas Holding Ltd, General Partner Units representing a 0.1% General Partner interest in the Company and all of its incentive distribution rights, which entitle the General Partner to increasing percentages of the cash the Company distribute; in exchange for their ownership interest in the predecessor companies.
The unit and per unit data included in the accompanying consolidated financial statements have been restated to reflect the issuance of the above units, for all periods presented. There were no distributions to the partners during the year 2012 and 2011.
F-35
DYNAGAS LNG PARTNERS LP
Notes to the Consolidated Financial Statements(Continued)
December 31, 2012 and 2011
(Expressed in thousands of U.S. Dollarsexcept for unit and per unit data, unless otherwise stated)
10. Partners Equity (continued):
Voting Rights
The following is a summary of the unitholder vote required for the approval of the matters specified below. Matters that require the approval of a unit majority require:
|
during the subordination period, the approval of a majority of the common units, excluding those common units held by the General Partner and its affiliates, voting as a class and a majority of the subordinated units voting as a single class; and |
|
after the subordination period, the approval of a majority of the common units voting as a single class. |
In voting their common units and subordinated units, the General Partner and its affiliates will have no fiduciary duty or obligation whatsoever to the Company or the limited partners, including any duty to act in good faith or in the best interests of the Company or the limited partners.
Each outstanding common unit is entitled to one vote on matters subject to a vote of common unitholders. However, to preserve the Companys ability to be exempt from U.S. federal income tax under Section 883 of the Code, if at any time, any person or group owns beneficially more than 4.9% of any class of units then outstanding, any such units owned by that person or group in excess of 4.9% may not be voted on any matter and will not be considered to be outstanding when sending notices of a meeting of unitholders, calculating required votes (except for purposes of nominating a person for election to the board), determining the presence of a quorum or for other similar purposes under the Partnership Agreement, unless otherwise required by law. The voting rights of any such unitholders in excess of 4.9% will effectively be redistributed pro rata among the other common unitholders holding less than 4.9% of the voting power of all classes of units entitled to vote. The General Partner, its affiliates and persons who acquired common units with the prior approval of the board of directors will not be subject to this 4.9% limitation except with respect to voting their common units in the election of the elected directors.
The Company will hold a meeting of the limited partners every year to elect one or more members of the board of directors and to vote on any other matters that are properly brought before the meeting. The General Partner has the right to appoint two of the five members of the board of directors with the remaining three directors being elected by the Companys common unitholders beginning with the 2014 annual meeting of unitholders. Subordinated units will not be voted in the election of the three directors elected by the Companys common unitholders.
Distributions
General Partner Interest
The Partnership Agreement provides that the General Partner initially will be entitled to 0.1% of all distributions that the Company makes prior to its liquidation. The General Partner has the right, but not the obligation, to contribute a proportionate amount of capital to the Company to maintain its 0.1% General Partner interest if the Company issues additional units. The General Partners 0.1% interest, and the percentage of the Companys cash distributions to which it is entitled, will be proportionately reduced if the Company issues additional units in the future and the General Partner does not contribute a proportionate amount of capital to the Company in order to maintain its 0.1% General Partner interest. The General Partner will be entitled to make a
F-36
DYNAGAS LNG PARTNERS LP
Notes to the Consolidated Financial Statements(Continued)
December 31, 2012 and 2011
(Expressed in thousands of U.S. Dollarsexcept for unit and per unit data, unless otherwise stated)
10. Partners Equity (continued):
capital contribution in order to maintain its 0.1% General Partner interest in the form of the contribution to the Company of common units based on the current market value of the contributed common units.
Incentive Distribution Rights
Incentive distribution rights represent the right to receive an increasing percentage of quarterly distributions of available cash from operating surplus after the minimum quarterly distribution and the target distribution levels have been achieved. The General Partner will hold the incentive distribution rights following completion of this offering. The incentive distribution rights may be transferred separately from the General Partner interest, subject to restrictions in the Partnership Agreement. Except for transfers of incentive distribution rights to an affiliate or another entity as part of the General Partners merger or consolidation with or into, or sale of substantially all of its assets to such entity, the approval of a majority of the Companys common units (excluding common units held by the General Partner and its affiliates), voting separately as a class, generally is required for a transfer of the incentive distribution rights to a third party prior to . Any transfer by the General Partner of the incentive distribution rights would not change the percentage allocations of quarterly distributions with respect to such rights.
If for any quarter:
|
the Company has distributed available cash from operating surplus to the common and subordinated unitholders in an amount equal to the minimum quarterly distribution; and |
|
the Company has distributed available cash from operating surplus on outstanding common units in an amount necessary to eliminate any cumulative arrearages in payment of the minimum quarterly distribution; |
then, the Company will distribute any additional available cash from operating surplus for that quarter among the unitholders and the General Partner in the following manner:
|
first , 99.9% to all unitholders, pro rata, and 0.1% to the General Partner, until each unitholder receives a total of $ per unit for that quarter (the first target distribution); |
|
second , 85.0% to all unitholders, pro rata, 0.1% to the General Partner and 14.9% to the holders of the incentive distribution rights, pro rata, until each unitholder receives a total of $ per unit for that quarter (the second target distribution); |
|
third , 75.0% to all unitholders, pro rata, 0.1% to the General Partner and 24.9% to the holders of the incentive distribution rights, pro rata, until each unitholder receives a total of $ per unit for that quarter (the third target distribution); and |
thereafter , 50.0% to all unitholders, pro rata, 0.1% to the General Partner and 49.9% to the holders of the incentive distribution rights, pro rata.
F-37
DYNAGAS LNG PARTNERS LP
Notes to the Consolidated Financial Statements(Continued)
December 31, 2012 and 2011
(Expressed in thousands of U.S. Dollarsexcept for unit and per unit data, unless otherwise stated)
11. Interest and Finance Costs:
The amounts in the accompanying consolidated statements of income are analyzed as follows:
2012 | 2011 | |||||||
Interest expense (Note 7) |
$ | 8,551 | $ | 3,794 | ||||
Amortization and write off of financing costs (Note 6) |
590 | 100 | ||||||
Commitment fees |
372 | 54 | ||||||
Other |
63 | 29 | ||||||
Total |
$ | 9,576 | $ | 3,977 | ||||
|
|
|
|
12. Earnings per Unit:
The partnership agreement of the Company provides for minimum quarterly distributions of $ per unit, $ on an annualized basis to the extent there is sufficient cash from operations after establishment of cash reserves and payment of fees and expenses, including payments to the General Partner. In general, the Company will pay any quarterly cash distributions in the following manner:
|
first , 99.9% to the holders of common units and 0.1% to the General Partner, until each common unit has received a minimum quarterly distribution of $ plus any arrearages from prior quarters |
|
second , 99.9% to the holders of subordinated units and 0.1% to the General Partner, until each subordinated unit has received a minimum quarterly distribution of $ ; and |
|
third , 99.9% to all unitholders, pro rata, and 0.1% to the General Partner, until each unit has received an aggregate distribution of $ |
There were no distributions to the partners during the years 2012 and 2011.
The calculations of the basic and diluted earnings per unit are presented below:
Year ended December 31, 2012
Unitholders | ||||||||||||
General Partner | Common | Subordinated | ||||||||||
Net income |
$ | $ | $ | |||||||||
Earnings per unit basic and diluted |
$ | $ | $ | |||||||||
Weighted average number of units outstanding, basic and diluted |
Year ended December 31, 2011
Unitholders | ||||||||||||
General Partner | Common | Subordinated | ||||||||||
Net income |
$ | $ | $ | |||||||||
Earnings per unit basic and diluted |
$ | $ | $ | |||||||||
Weighted average number of units outstanding, basic and diluted |
13. Taxes:
Effective January 1, 2013 onwards, each foreign flagged vessel managed in Greece by Greek or foreign ship management companies are subject to Greek tonnage tax, under the laws of the Greek Republic . The Companys vessels technical manager, Dynagas Ltd an affiliate (Note 4(a)) which is established in Greece under Greek Law
F-38
DYNAGAS LNG PARTNERS LP
Notes to the Consolidated Financial Statements(Continued)
December 31, 2012 and 2011
(Expressed in thousands of U.S. Dollarsexcept for unit and per unit data, unless otherwise stated)
13. Taxes (continued):
89/67 is responsible for the filing and payment of the respective tonnage tax on behalf the Company. The tonnage taxes are expected to amount to approximately $96 in 2013 and will be recorded within Vessel operating expenses in the 2013 consolidated statement of income.
Under the laws of Marshall Islands, Liberia and Nevis, place of incorporation and of the Companys subsidiaries, the Company is not subject to tax on its international shipping income.
Pursuant to the Internal Revenue Code of the United States (the Code), U.S. source income from the international operations of ships is generally exempt from U.S. tax if the Company operating the ships meets both of the following requirements, (a) the Company is organized in a foreign country that grants an equivalent exception to corporations organized in the United States and exempts the type of income earned by the vessel owing Company and (b) either (i) more than 50% of the value of the Companys stock is owned, directly or indirectly, by individuals who are residents of the Companys country of organization or of another foreign country that grants an equivalent exemption to corporations organized in the United States (50% Ownership Test) or (ii) the Companys stock is primarily and regularly traded on an established securities market in its country of organization, in another country that grants an equivalent exemption to United States corporations, or in the United States (Publicly-Traded Test). Additionally, the Company must meet all of the documentation requirements as outlined in the regulations.
The Company and each of its subsidiaries expects to qualify for this statutory tax exemption for the 2012 and 2011 taxable years, and the Company takes this position for United States federal income tax return reporting purposes. In the absence of an exemption under Section 883, based on its U.S. source Shipping Income, the Company would be subject to U.S. federal income tax approximately nil and $31, for 2012 and 2011 respectively.
14. Subsequent Events:
a. | Subsequent to December 31, 2012, the Company paid aggregate loan installments in the amount of a $32.5 million, consisting of payments in the amount of $10.5 million, $15.6 million and $6.4 million under the loans discussed in Notes 7(a), 7(b) and 7(c), respectively. |
b. | On October 8, 2013, the Company entered into a non-binding term sheet in connection with a proposed credit facility with an affiliate of Credit Suisse for $262,125 in order to partially re-finance its existing outstanding indebtedness. The proposed credit facility will be secured by, among other things, a first priority or preferred cross-collateralized mortgage on each of the Companys vessels and is expected to bear interest at LIBOR plus a margin. The Company may draw down this facility no more than four times each year, and only so long as the asset cover ratio, which is the ratio of its outstanding indebtedness under the facility to the aggregate market value of its vessels, is not more than 130%. The availability of the facility will be reduced each quarter for 14 consecutive quarters by $5,000 for the first 13 quarters and by approximately $197,125 for the fourteenth quarter. In accordance with the proposed facility, the Company will be required to: (i) maintain total consolidated liabilities of less than 65% of the total consolidated market value of its adjusted total assets; (ii) maintain an interest coverage ratio of at least 3.0 times; and (iii) maintain minimum liquidity equal to at least 22 million. In addition, the Prokopiou Family is required to own or control at least 30% of the Companys capital and voting rights and 100% of the General Partners share capital and voting rights and the Manager is required to continue to carry out the Companys commercial and technical management. The proposed facility will also restrict the Company from paying distributions if an event of default occurs. The conclusion of the loan facility is conditional upon the Companys successful completion of its initial public offering. |
F-39
Schedule ICondensed Financial Information of
DYNAGAS LNG PARTNERS LP (Parent Company Only)
For the years ended December 31, 2012 and 2011
(Expressed in thousands of U.S. Dollarsexcept for unit and per unit data)
2012 | 2011 | |||||||
ASSETS |
||||||||
CURRENT ASSETS: |
||||||||
Total current assets |
| | ||||||
|
|
|
|
|||||
NON CURRENT ASSETS: |
||||||||
Investments in subsidiaries* |
75,175 | 45,339 | ||||||
|
|
|
|
|||||
Total non-current assets |
75,175 | 45,339 | ||||||
|
|
|
|
|||||
Total assets |
$ | 75,175 | $ | 45,339 | ||||
|
|
|
|
|||||
LIABILITIES AND PARTNERS EQUITY |
||||||||
CURRENT LIABILITIES: |
||||||||
Total current liabilities |
| | ||||||
Total non-current liabilities |
| | ||||||
PARTNERS EQUITY: |
||||||||
Total partners equity |
75,175 | 45,339 | ||||||
|
|
|
|
|||||
Total liabilities and partners equity |
$ | 75,175 | $ | 45,339 | ||||
|
|
|
|
* | Eliminated in consolidation |
F-40
Schedule ICondensed Financial Information of
DYNAGAS LNG PARTNERS LP (Parent Company Only)
Statements of Income
For the years ended December 31, 2012 and 2011
(Expressed in thousands of U.S. Dollarsexcept for unit and per unit data)
2012 | 2011 | |||||||
Operating income |
| | ||||||
Equity in earnings of subsidiaries* |
29,836 | 18,820 | ||||||
Net Income |
$ | 29,836 | $ | 18,820 | ||||
|
|
|
|
|||||
Earnings per unit, basic and diluted |
$ | $ | ||||||
|
|
|
|
|||||
Weighted average number of units, basic and diluted |
||||||||
|
|
|
|
* | Eliminated in consolidation |
F-41
Schedule ICondensed Financial Information of
DYNAGAS LNG PARTNERS LP (Parent Company Only)
Statements of Cash Flows
December 31, 2012 and 2011
(Expressed in thousands of U.S. Dollarsexcept for unit and per unit data, unless otherwise stated)
2012 | 2011 | |||||||
Cash flows from Operating Activities: |
||||||||
Net cash provided by Operating Activities |
| | ||||||
Cash flows from Investing Activities: |
||||||||
Net cash used in Investing Activities |
| | ||||||
Cash flows from/ (used in) Financing Activities: |
||||||||
Net cash used in Financing Activities |
| | ||||||
Net increase (decrease) in cash and cash equivalents |
| | ||||||
Cash and cash equivalents at beginning of the year |
| | ||||||
|
|
|
|
|||||
Cash and cash equivalents at end of the year |
$ | | $ | | ||||
|
|
|
|
Schedule ICondensed Financial Information of Dynagas LNG Partners LP (Parent Company Only)
In the condensed financial information of the Parent Company, the Parent Companys investment in subsidiaries is stated at cost plus equity in undistributed earnings of subsidiaries. The Parent Company, during the years ended December 31, 2011 and 2012, did not receive cash dividends from its subsidiaries.
The condensed financial information of the Parent Company should be read in conjunction with the Companys consolidated financial statements.
F-42
APPENDIX A
FORM OF FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF
DYNAGAS PARTNERS LP
Dynagas LNG Partners LP
Common Units
Representing Limited Partner Interests
$ per common unit
Through and including , 2013 (25 days after the commencement of the offering), federal securities law may require all dealers that buy, sell or trade our common units, whether or not participating in this offering, to deliver a prospectus. This requirement is in addition to the dealers obligation to deliver a prospectus when acting as an underwriter and with respect to unsold allotments or subscriptions.
PART II: INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 6. Indemnification of Officers and Directors
The section of the prospectus entitled The Partnership AgreementIndemnification discloses that we will generally indemnify officers, directors and affiliates of the General Partner to the fullest extent permitted by the law against all losses, claims, damages or similar events and is incorporated herein by this reference. Reference is made to the Underwriting Agreement to be filed as Exhibit 1.1 to this registration statement in which Dynagas LNG Partners LP and its affiliates will agree to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended, or the Securities Act, and to contribute to payments that may be required to be made in respect of these liabilities.
Item 7. Recent Sales of Unregistered Securities.
On , 2013, in connection with our formation, we issued to (a) Dynagas Holding Ltd., our Sponsor, common units and all of our subordinated units, representing a 99.9% limited partner interest in us and (b) Dynagas GP LLC, our General Partner, a company related to our Sponsor, General Partner Units representing a 0.1% General Partner interest in us and all of our incentive distribution rights, in exchange for the shares of the Sponsor Controlled Companies in offerings exempt from registration under Section 4(2) of the Securities Act. There have been no other sales of unregistered securities within the past three years.
Item 8. Exhibits and Financial Statement Schedules.
Exhibit Number |
Description |
|||
1.1 | * |
Form of Underwriting Agreement |
||
3.1 |
Certificate of Limited Partnership of Dynagas LNG Partners LP |
|||
3.2 | * |
Form of Amended and Restated Limited Partnership Agreement of Dynagas LNG Partners LP |
||
3.3 |
Certificate of Formation of Dynagas GP LLC |
|||
3.4 | * |
Form of Limited Liability Company Agreement of Dynagas GP LLC |
||
3.5 |
Certificate of Limited Partnership of Dynagas Operating LP |
|||
3.6 | * |
Form of Limited Partnership Agreement of Dynagas Operating LP |
||
3.7 |
Certificate of Formation of Dynagas Operating GP LLC |
|||
3.8 | * |
Form of Limited Liability Company Agreement of Dynagas Operating GP LLC |
||
5.1 |
Form of Opinion of Seward & Kissel LLP as to the legality of the securities being registered |
|||
8.1 |
Form of Opinion of Seward & Kissel LLP with respect to certain U.S. tax matters |
|||
10.1 | Vessel Management Agreement between Lance Shipping S.A., as vessel owner, and Dynagas Ltd., as manager, dated December 21, 2012, as amended by Addendum No. 1 dated October 7, 2013 | |||
10.2 | Vessel Management Agreement between Pegasus Shipping S.A., as vessel owner, and Dynagas Ltd., as manager, dated December 21, 2012, as amended by Addendum No. 1 dated October 7, 2013 | |||
10.3 | Vessel Management Agreement between Seacrown Maritime Ltd., as vessel owner, and Dynagas Ltd., as manager, dated December 21, 2012, as amended by Addendum No. 1 dated October 7, 2013 | |||
10.4 | * |
Form of Omnibus Agreement |
||
10.5 | * |
Form of Contribution Agreement |
||
10.6 | * |
$30 Million Revolving Credit Facility with Dynagas Holding Ltd. |
||
10.7 | * |
Senior Secured Revolving Credit Facility |
||
10.8 | |
Charter Agreement by and between Lance Shipping S.A. and Gazprom Global LNG Limited, a subsidiary of Gazprom, dated August 2, 2011, as amended. |
II-1
Exhibit Number |
Description |
|
10.9 |
Charter Agreement by and between Seacrown Maritime Ltd. and Methane Services Ltd., a subsidiary of BG Group, dated October 2, 2010, as amended. |
|
10.10 |
Charter Agreement by and between Pegasus Shipholding S.A. and Methane Services Ltd., a subsidiary of BG Group, dated May 18, 2011, as amended. |
|
21.1 |
List of Subsidiaries |
|
23.1 |
Consent of Independent Registered Public Accounting Firm |
|
23.2 |
Consent of Drewry Shipping Consultants, Ltd. |
|
23.3 |
Consent of Seward & Kissel LLP |
|
23.4 |
Consent of Levon Dedegian, Director Nominee |
|
23.5 |
Consent of Alexios Rodopoulos, Director Nominee |
|
23.6 |
Consent of Evangelos Vlahoulis, Director Nominee |
|
24.1** |
Powers of Attorney |
* | To be filed by amendment. |
** | Contained on the signature page hereto. |
| Certain portions have been omitted pursuant to a confidential treatment request. Omitted information has been filed separately with the Securities and Exchange Commission. |
Item 9. Undertakings.
The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) | For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4), or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. |
(2) | For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
The registrant undertakes to provide to the limited partners the financial statements required by Form 20-F for the first full fiscal year of operations of the partnership.
II-2
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form F-1 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Athens, Greece, on the 9th day of October, 2013.
DYNAGAS LNG PARTNERS LP | ||||
By: |
/s/ Michael Gregos |
|||
Name: Michael Gregos | ||||
Title: Chief Financial Officer |
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Gary J. Wolfe and Robert E. Lustrin, or either of them, with full power to act alone, his or her true and lawful attorneys-in-fact and agents, with full powers of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this registration statement, and any registration statement (including any amendment thereto) for this offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing necessary to be done, as fully for all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed by the following persons on October 9, 2013 in the capacities indicated.
Signature |
Title |
|
/s/ George Prokopiou |
Chairman of the Board of Directors | |
George Prokopiou | ||
/s/ Tony Lauritzen |
Chief Executive Officer and Director ( Principal Executive Officer ) |
|
Tony Lauritzen | ||
/s/ Michael Gregos Michael Gregos |
Chief Financial Officer ( Principal Financial Officer and Principal Accounting Officer ) |
|
Authorized Representative in the United States
Pursuant to the requirement of the Securities Act of 1933, as amended, the undersigned, the duly undersigned representative in the United States of Dynagas LNG Partners LP has signed this registration statement in the City of Newark, State of Delaware on October 9, 2013.
PUGLISI & ASSOCIATES | ||||
By: |
/s/ Donald J. Puglisi |
|||
Name: | Donald J. Puglisi | |||
Title: | Authorized | |||
Representative in the United States |
Exhibit 3.1
CERTIFICATE OF LIMITED PARTNERSHIP
OF
DYNAGAS LNG PARTNERS LP
AS A
LIMITED PARTNERSHIP |
DUPLICATE COPY | ||||
The original of this Document was filed in accordance with Section 10 of the Limited Partnership Act on |
||||
NON RESIDENT |
||||
May 30, 2013 | ||||
/s/ Illegible |
||||
Deputy Registrar | ||||
Reg. No. 950060 |
CERTIFICATE OF LIMITED PARTNERSHIP
OF
DYNAGAS LNG PARTNERS LP
PURSUANT TO SECTION 10 OF THE MARSHALL ISLANDS LIMITED
PARTNERSHIP ACT
The undersigned, Michael Gregos, the Authorized Person of Dynagas LNG Partners LP , for the purpose of forming a Limited Partnership, hereby certifies:
1. | The name of the Limited Partnership is Dynagas LNG Partners LP (the Limited Partnership). |
2. | The registered address of the Limited Partnership in the Marshall Islands is Trust Company Complex, Ajeltake Island, Ajeltake Road, Majuro, Marshall Islands MH96960. The name of the Limited Partnerships Registered Agent in the Marshall Islands upon whom process may be served at such address is The Trust Company of the Marshall Islands, Inc. |
3. | The name and the business, residence or mailing address of the general partner is: |
Name |
Address |
|||
Dynagas GP LLC | 94, Poseidonos Avenue & 2 Nikis Street | |||
P.O. Box 70303 | ||||
P.C. 166-75 | ||||
Athens, Greece |
IN WITNESS WHEREOF, the undersigned has executed this Certificate of Limited Partnership on this 29 th day of May, 2013.
DYNAGAS LNG PARTNERS LP | ||||
By: | Dynagas GP LLC | |||
General Partner | ||||
/s/ Michael Gregos |
||||
Name: | Michael Gregos | |||
Title: | Authorized Person |
Exhibit 3.3
CERTIFICATE OF FORMATION
OF
DYNAGAS GP LLC
AS A
LIMITED LIABILITY COMPANY |
REPUBLIC OF THE MARSHALL ISLANDS | ||||
REGISTRAR OF CORPORATIONS | ||||
DUPLICATE COPY | ||||
NON RESIDENT |
The original of this Document was filed in accordance with section 9 of the Limited Liability Company Act on |
|||
May 29, 2013 | ||||
/s/ Illegible |
||||
Deputy Registrar | ||||
Reg. No. 962417 |
CERTIFICATE OF FORMATION
OF
DYNAGAS GP LLC
UNDER SECTION 9 OF THE LIMITED LIABILITY COMPANY ACT OF 1996
OF THE REPUBLIC OF THE MARSHALL ISLANDS
The undersigned, Michael Gregos, an Authorized Person of Dynagas GP LLC , for the purpose of forming a limited liability company under and pursuant to the provisions of the Limited Liability Company Act of 1996 of the Republic of the Marshall Islands, hereby certifies:
1. | The name of the Limited Liability Company (the Company) is: Dynagas GP LLC |
2. | The registered address of the Company in the Marshall Islands is Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, Marshall Islands MH 96960. The name of the registered agent of the Company in the Marshall Islands upon whom process may be served at such address is The Trust Company of the Marshall Islands, Inc. |
3. | The formation date of the Company is the date of the filing of this Certificate of Formation with the Registrar of Corporations. |
IN WITNESS WHEREOF, the undersigned has executed this Certificate of Formation on this 29 th day of May, 2013.
DYNAGAS GP LLC | ||
/s/ Michael Gregos |
||
Name: | Michael Gregos | |
Title: | Authorized Person |
REPUBLIC OF THE MARSHALL ISLANDS
OFFICE OF THE REGISTRAR OF CORPORATIONS
CERTIFICATE OF FORMATION
OF LIMITED LIABILITY COMPANY
I HEREBY CERTIFY that
DYNAGAS GP LLC
is duly formed and has filed a Certificate of Formation under the provisions of the Marshall Islands Limited Liability Company Act on
May 29, 2013 | ||
WITNESS my hand and the official seal of the Registry on May 29, 2013 . | ||
/s/ Illegible |
||
Deputy Registrar |
Reg. No. 962417 |
Exhibit 3.5
CERTIFICATE OF LIMITED PARTNERSHIP
OF
DYNAGAS OPERATING LP
AS A
LIMITED PARTNERSHIP |
DUPLICATE COPY | ||||
The original of this Document was filed in accordance with Section 10 of the Limited Partnership Act on |
||||
NON RESIDENT |
||||
May 30, 2013 | ||||
/s/ Illegible |
||||
Deputy Registrar | ||||
Reg. No. 950059 |
||||
CERTIFICATE OF LIMITED PARTNERSHIP
OF
DYNAGAS OPERATING LP
PURSUANT TO SECTION 10 OF THE MARSHALL ISLANDS LIMITED
PARTNERSHIP ACT
The undersigned, Michael Gregos, the Authorized Person of Dynagas Operating LP , for the purpose of forming a Limited Partnership, hereby certifies:
1. | The name of the Limited Partnership is Dynagas Operating LP (the Limited Partnership). |
2. | The registered address of the Limited Partnership in the Marshall Islands is Trust Company Complex, Ajeltake Island, Ajeltake Road, Majuro, Marshall Islands MH96960. The name of the Limited Partnerships Registered Agent in the Marshall Islands upon whom process may be served at such address is The Trust Company of the Marshall Islands, Inc. |
3. | The name and the business, residence or mailing address of the general partner is: |
Name |
Address |
|||
Dynagas Operating GP LLC | 94, Poseidonos Avenue & 2 Nikis Street | |||
P.O. Box 70303 | ||||
P.C. 166-75 | ||||
Athens, Greece |
IN WITNESS WHEREOF, the undersigned has executed this Certificate of Limited Partnership on this 29 th day of May, 2013.
DYNAGAS OPERATING LP | ||||
By: |
Dynagas Operating GP LLC |
|||
General Partner | ||||
/s/ Michael Gregos |
||||
Name: | Michael Gregos | |||
Title: | Authorized Person |
Exhibit 3.7
CERTIFICATE OF FORMATION
OF
DYNAGAS OPERATING GP LLC
AS A
LIMITED LIABILITY COMPANY |
REPUBLIC OF THE MARSHALL ISLANDS
REGISTRAR OF CORPORATIONS
DUPLICATE COPY |
||||
NON RESIDENT |
The original of this Document was filed in accordance with section 9 of the Limited Liability Company Act on |
|||
May 29, 2013 | ||||
/s/ Illegible |
||||
Deputy Registrar | ||||
Reg. No. 962418 |
CERTIFICATE OF FORMATION
OF
DYNAGAS OPERATING GP LLC
UNDER SECTION 9 OF THE LIMITED LIABILITY COMPANY ACT OF 1996
OF THE REPUBLIC OF THE MARSHALL ISLANDS
The undersigned, Michael Gregos, an Authorized Person of Dynagas Operating GP LLC , for the purpose of forming a limited liability company under and pursuant to the provisions of the Limited Liability Company Act of 1996 of the Republic of the Marshall Islands, hereby certifies:
1. | The name of the Limited Liability Company (the Company) is: Dynagas Operating GP LLC |
2. | The registered address of the Company in the Marshall Islands is Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, Marshall Islands MH 96960. The name of the registered agent of the Company in the Marshall Islands upon whom process may be served at such address is The Trust Company of the Marshall Islands, Inc. |
3. | The formation date of the Company is the date of the filing of this Certificate of Formation with the Registrar of Corporations. |
IN WITNESS WHEREOF, the undersigned has executed this Certificate of Formation on this 29 th day of May, 2013.
DYNAGAS OPERATING GP LLC | ||
/s/ Michael Gregos |
||
Name: | Michael Gregos | |
Title: | Authorized Person |
REPUBLIC OF THE MARSHALL ISLANDS
OFFICE OF THE REGISTRAR OF CORPORATIONS
CERTIFICATE OF FORMATION
OF LIMITED LIABILITY COMPANY
I HEREBY CERTIFY that
DYNAGAS OPERATING GP LLC
is duly formed and has filed a Certificate of Formation under the provisions of the Marshall Islands Limited Liability Company Act on
May 29, 2013 | ||||
WITNESS my hand and the official seal of the Registry on May 29, 2013 . | ||||
/s/ Illegible |
||||
Deputy Registrar |
Reg. No. 962418
Exhibit 5.1
, 2013
Dynagas LNG Partners LP
97 Poseidonos Avenue & 2 Foivis Street
Glyfada, 16674
Greece
Re: | Dynagas LNG Partners LP |
Ladies and Gentlemen:
We have acted as counsel to Dynagas LNG Partners LP, a limited partnership organized under the laws of the Republic of the Marshall Islands (the Partnership ) in connection with the registration of up to common units, including units to be sold by Dynagas Holding Ltd. pursuant to the underwriters over-allotment option, (together, the Units ), representing limited partner interests in the Partnership, pursuant to the Partnerships registration statement on Form F-1 (File No. 333- ) (such registration statement as amended or supplemented from time to time) (the Registration Statement ) as filed with the U.S. Securities and Exchange Commission (the Commission ) under the U.S. Securities Act of 1933, as amended (the Securities Act ). The Units are being offered in the Partnerships initial public offering pursuant to an underwriting agreement dated , 2013 (the Underwriting Agreement ) among the Partnership, Dynagas GP LLC and the representatives of the underwriters named therein.
We have examined originals or copies, certified or otherwise identified to our satisfaction, of:
(i) | the Registration Statement and the prospectus contained therein (the Prospectus ); |
(ii) | the First Amended and Restated Agreement of Limited Partnership of the Partnership; |
(iii) | the Underwriting Agreement; and |
(iv) |
such other papers, documents, agreements, and records of the Partnership and such other instruments, certificates and documents as we have deemed necessary or appropriate as a basis for the opinions hereinafter expressed. In such examinations, we have assumed the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as copies or drafts of documents to be executed, the genuineness of all signatures and the legal competence or capacity of persons or entities to complete the execution of documents. As to matters of fact material to this opinion that have not been |
Dynagas LNG Partners LP
October , 2013
Page 2
independently established, we have relied upon representations, statements, and certificates of public officials, directors or officers of the Partnership and the , and others, in each case as we have deemed relevant and appropriate, and upon the representations and warranties of each of the Partnership and the in the Underwriting Agreement. We have not independently verified the facts so relied on. |
In rendering this opinion, we have also assumed that:
(i) | the issuance and sale of the Units complies in all respects with the terms, conditions and restrictions set forth in the Prospectus and all of the instruments and other documents relating thereto or executed in connection therewith; |
(ii) | the Underwriting Agreement has been duly and validly authorized by the parties thereto (other than the Partnership and ), and executed and delivered by such parties; and |
(iii) | the validity and enforceability of the Underwriting Agreement against the parties thereto. |
This opinion letter is limited to Marshall Islands Law and is as of the date hereof. We expressly disclaim any responsibility to advise of any development or circumstance of any kind, including any change of law or fact that may occur after the date of this opinion letter that might affect the opinion expressed herein.
Based on the foregoing, and having regard to legal considerations which we deem relevant, and subject to the qualifications, limitations and assumptions set forth herein, we are of the opinion that under the laws of the Republic of the Marshall Islands, when the Units are issued and delivered against payment therefor in accordance with the terms of the Underwriting Agreement, the Registration Statement and the Prospectus, the Units will be validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the references to us in the Prospectus. In giving such consent, we do not hereby admit that we are experts within the meaning of the Securities Act and the rules and regulations of the Commission promulgated thereunder with respect to any part of the Registration Statement.
Very truly yours,
Exhibit 8.1
, 2013
Dynagas LNG Partners LP
97 Poseidonos Avenue & 2 Foivis Street
Glyfada, 16674
Greece
Re: | Dynagas LNG Partners LP |
Ladies and Gentlemen:
We have acted as counsel to Dynagas LNG Partners LP, a limited partnership organized under the laws of the Republic of the Marshall Islands (the Partnership ) in connection with the registration of its common units, representing limited partner interests in the Partnership, pursuant to the Partnerships registration statement on Form F-1 (File No. 333- ) (such registration statement as amended or supplemented from time to time) (the Registration Statement ) as filed with the U.S. Securities and Exchange Commission under the U.S. Securities Act of 1933, as amended (the Securities Act ).
In formulating our opinion, we have examined originals or copies, certified or otherwise identified to our satisfaction, of the Registration Statement and the prospectus contained therein (the Prospectus ) and such other papers, documents, agreements, and records of the Partnership and such other instruments, certificates and documents as we have deemed necessary or appropriate as a basis for the opinions hereinafter expressed. In such examinations, we have assumed the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as copies or drafts of documents to be executed, the genuineness of all signatures and the legal competence or capacity of persons or entities to complete the execution of documents. As to matters of fact material to this opinion that have not been independently established, we have relied upon representations, statements, and certificates of public officials, directors or officers of the Partnership, and others, in each case as we have deemed relevant and appropriate. We have not independently verified the facts so relied on.
Capitalized terms not defined herein have the meanings ascribed to them in the Registration Statement.
Based on the facts as set forth in the Registration Statement and, in particular, on the representations, covenants, assumptions, conditions and qualifications described under the headings Risk FactorsWe may have to pay tax on U.S. source income, which would reduce our earnings and cash flow, Risk FactorsU.S. tax authorities could treat us as passive foreign investment company, which would have adverse U.S. federal income tax consequences to U.S. unitholders, Material U.S. Federal Income Tax Considerations and Non-U.S. Tax Considerations therein, we
Dynagas LNG Partners LP
October , 2013
Page 2
hereby confirm that the discussions of United States federal income tax matters and Marshall Islands tax matters expressed in the Registration Statement under the headings Risk FactorsWe may have to pay tax on U.S. source income, which would reduce our earnings and cash flow, Risk FactorsU.S. tax authorities could treat us as passive foreign investment company, which would have adverse U.S. federal income tax consequences to U.S. unitholders, Material U.S. Federal Income Tax Considerations and Non-U.S. Tax Considerations accurately state our views as to the tax matters discussed therein.
Our views on the tax matters discussed above are based on the current provisions of the U.S. Internal Revenue Code of 1986, as amended, the Treasury Regulations promulgated thereunder, published pronouncements of the Internal Revenue Service, which may be cited or used as precedents, and case law, any of which may be changed at any time with retroactive effect. No opinion is expressed on any matters other than those specifically referred to above by reference to the Registration Statement.
We hereby consent to the filing of this opinion as an exhibit to the Registration Statement, and to each reference to us and discussion of advice provided by us in the Prospectus. In giving such consent, we do not hereby admit that we are experts within the meaning of the Securities Act and the rules and regulations of the Commission promulgated thereunder with respect to any part of the Registration Statement.
Very truly yours,
Exhibit 10.1
SHIPMAN 98 Standard Ship Management Agreement
1. | Definitions |
In this Agreement save where the context otherwise requires, the following words and expressions shall have the meanings hereby assigned to them.
Owners means the party identified in Box 2.
Managers means the party identified in Box 3.
Vessel means the vessel or vessels details of which are set out in Annex A attached hereto.
Crew means the Master, officers and ratings
employed on the Vessel from time to time
of the numbers, rank and
nationality specified in Annex B attached hereto.
Crew Support Costs means all expenses of a general nature which are not particularly referable to any individual vessel for the time being managed by the Managers and which are incurred by the Managers for the purpose of providing an efficient and economic management service and, without prejudice to the generality of the foregoing, shall include the cost of crew standby pay, training schemes for officers and ratings, cadet training schemes, sick pay, study pay, recruitment and interviews.
Severance Costs means the costs which the employers are legally obliged to pay to or in respect of the Crew as a result of the early termination of any employment contract for service on the Vessel. Crew Insurances means insurances against crew risks which shall include but not be limited to death, sickness, repatriation, injury, shipwreck unemployment indemnity and loss of personal effects.
Management Services means the services specified in sub-clauses 3.1 to 3.8 as indicated affirmatively in Boxes 5 to 12.
ISM Code means the International Management Code for the Safe Operation of Ships and for Pollution Prevention as adopted by the International Maritime Organization (IMO) by resolution A.741(18) or any subsequent amendment thereto.
STCW 95 means the International Convention on Standards of Training, Certification and Watchkeeping for Seafarers, 1978, as amended in 1995 or any subsequent amendment thereto.
2. | Appointment of Managers |
With effect from the day and year stated in Box 4 and continuing unless and until terminated provided herein, the Owners hereby appoint the Managers and the Managers hereby agree to act as the managers of the Vessel in accordance with the Management Services .
3. | Basis of Agreement |
Subject to the terms and conditions herein provided, during the period of this Agreement, the Managers shall carry out Management Services in respect of the Vessel as agents for and on behalf of the Owners. The Managers shall have authority to take such actions as they may from time to time in their absolute discretion consider to be necessary to enable them to perform this Agreement in accordance with sound ship management practice.
3.1 | Crew Management |
(only applicable if agreed according to Box 5)
The Managers shall provide suitably qualified Crew for the Vessel as required by the Owners in accordance with the STCW 95 requirements, provision of which includes but is not limited to the following functions:
(i) | selecting and engaging the Vessels Crew, including payroll arrangements, pension administration when required , and insurances for the Crew other than those mentioned in Clause 6; |
(ii) | ensuring that the applicable requirements of the law of the flag of the Vessel are satisfied in respect of manning levels, rank, qualification and certification of the Crew and employment regulations including Crews tax, social insurance, discipline and other requirements; |
(iii) ensuring that all members of the Crew have passed a medical examination with a qualified doctor certifying that they are fit for the duties for which they are engaged and are in possession of valid medical certificates issued in accordance with appropriate flag State requirements. In the |
1
absence of applicable flag State requirements the medical certificate shall be dated not more than three months prior to the respective Crew members leaving their country of domicile and maintained for the duration of their service on board the Vessel; |
(iv) | ensuring that the Crew shall have a command of the English language of a sufficient standard to enable them to perform their duties safely; |
(v) | arranging transportation of the Crew, including repatriation , board and lodging as and when required at rates and types of accommodations as customary in the industry ; |
(vi) | training of the Crew and supervising their efficiency; |
(vii) | keeping and maintaining full and complete records of any labor agreements which may be entered into with the Crew and, if applicable conducting union negotiations; |
(viii) | operating the Managers drug and alcohol policy unless otherwise agreed. |
3.2 | Technical Management |
(only applicable if agreed according to Box 6)
The Managers shall provide technical management which includes, but is not limited to, the following functions:
(i) | provision of competent personnel to supervise the maintenance and general efficiency of the Vessel; |
(ii) | arrangement and supervision of dry dockings, repairs, alterations and the upkeep of the Vessel to the standards required by the Owners provided that the Managers shall be entitled to incur the necessary expenditure to ensure that the Vessel will comply with the law of the flag of the Vessel and of the places where she trades, and all requirements and recommendations of the classification society; |
(iii) | arrangement of the supply of necessary stores, spares and lubricating oil; |
(iv) | appointment of surveyors , service engineers , and technical consultants as the Managers may consider from time to time to be necessary; |
(v) | development, implementation and maintenance of a Safety Management System (SMS) in accordance with the ISM Code (see sub-clauses 4.2 and 5.3) and a Planned Maintenance System ; |
(vi) | Handling any claims against the builder of the Vessel arising out of the relevant shipbuilding contract, if applicable; and |
(vii) | On request by the Owners, obtaining and / or providing the Owners with a copy of any inspection report, survey, valuation or any other similar report prepared by any shipbrokers, surveyors, the Class etc. |
3.3 | Commercial Management |
(only applicable if agreed according to Box 7)
The Managers shall provide the commercial operation of the Vessel, as required by the Owners, which includes, but is not limited to, the following functions;
(i) | providing chartering services in accordance with the Owners instructions which include, but are not limited to, developing and seeking and negotiating employment for the Vessel and the conclusion (including the execution thereof) of charter parties or other contracts relating to the employment of the Vessel. If such a contract exceeds the period stated in Box 13, consent thereto in writing shall first be obtained from the Owners. |
(ii) | arranging of the proper payment to Owners or their nominees of all hire and/or freight revenues or other moneys of whatsoever nature to which Owners may be entitled arising out of the employment of or otherwise in connection with the Vessel;. |
(iii) | providing voyage estimates and accounts and calculating of hire, freights, demurrage and/or despatch moneys due from or due to the charterers of the Vessel; |
(iv) | issuing of voyage instructions and monitoring voyage performance ; |
(v) | appointing agents; |
(vi) | appointing stevedores; |
(vii) | arranging surveys associated with the commercial operation of the Vessel; |
(viii) | carrying out the necessary communications with the shippers, charterers and others involved with the receiving and handling of the Vessel at the relevant loading and discharging ports, including sending any notices required under the terms of the Vessels employment at the time ; |
(ix) | invoicing on behalf of the Owners all freights, hires, demurrages, outgoing claims, refund of taxes, balances of disbursements, statements of account and other sums due to the Owners and account receivables arising from the operation of the Vessel and, upon the request of the Owners, issuing releases on behalf of the Owners upon receipt of payment or settlement of any such amounts; |
2
(x) | preparing off-hire statements and/or hire statements; |
(xi) | conducting Ship Shore Compatibility studies and procuring and arranging for port/terminal entrance and clearance, pilots, consular approvals and other services necessary for the management and safe operation of the Vessel; and |
(xii) | reporting to the Owners of any major casualties, damages received or caused by the Vessel or any major release or discharge of oil or other hazardous material not in compliance with any laws. |
3.4 | Insurance Arrangements |
(only applicable if agreed according to Box 8)
The Managers shall arrange insurances in accordance with Clause 6, on such terms and conditions as the Owners shall have instructed or agreed, in particular regarding, conditions, insured values, deductibles and franchises.
3.5 | Accounting Services |
(only applicable if agreed according to Box 9)
The Managers shall:
(i) | establish an accounting system which meets the reasonable requirements of the Owners and provide regular accounting services, supply regular reports and records, |
(ii) | maintain the records of all costs and expenditure incurred as well as data necessary or proper for the settlement of accounts between the parties. |
3.6 | Sale or Purchase of the Vessel |
(only applicable if agreed according to Box 10)
The Managers shall, in accordance with the Owners instructions, supervise the sale or purchase of the Vessel, including the performance of any sale or purchase agreement, but not including negotiation of the same.
3.7 | Provisions |
(only applicable if agreed according to Box 11)
The Managers shall arrange for the supply of provisions.
3.8 | Bunkering |
(only applicable if agreed according to Box 12)
The Managers shall arrange for the provision of bunker fuel of the quality specified by the Owners as required for the Vessels trade.
4. | Managers Obligations |
4.1 | The Managers undertake to use their best endeavours to provide the agreed Management Services as agents for and on behalf of the Owners in accordance with sound ship management practice and to protect and promote the interests of the Owners in all matters relating to the provision of services hereunder. Provided, however, that the Managers in the performance of their management responsibilities under this Agreement shall be entitled to have regard to their overall responsibility in relation to all vessels as may from time to time be entrusted to their management and in particular, but without prejudice to the generality of the foregoing, the Managers shall be entitled to allocate available supplies, manpower and services in such manner as in the prevailing circumstances the Managers in their absolute discretion consider to be fair and reasonable. |
4.2 | Where the Managers are providing Technical Management in accordance with sub-clause 3.2, they shall procure that the requirements of the law of the flag and Charterers -of the Vessel are satisfied and they , or such other entity as may be appointed by them which shall be acceptable to Owners, shall in particular be deemed to be the Company as defined by the ISM Code, assuming the responsibility for the operation of the Vessel and taking over the duties and responsibilities imposed by the ISM Code when applicable. |
3
5. | Owners Obligations |
5.1 | The Owners shall pay ail sums due to the Managers punctually in accordance with the terms of this Agreement. |
5.2 | Where the Managers are providing Technical Management in accordance with sub-clause 3.2, the Owners shall: |
(i) | procure that all officers and ratings supplied by them or on their behalf comply with the requirements of STCW 95; |
(ii) | instruct such officers and ratings to obey all reasonable orders of the Managers in connection with the operation of the Managers safety management system. |
|
|
6. | Insurance Policies |
The Owners shall procure, whether by instructing the Managers under sub-clause 3.4 or otherwise, that throughout the period of this Agreement:
6.1 | at the Owners expense, the Vessel is insured for not less than her sound market value or entered for her full gross tonnage, as the case may be for: |
(i) | usual hull and machinery marine risks (including crew negligence) and excess liabilities; |
(ii) | protection and indemnity risks (including pollution risks and Crew Insurances); and |
(iii) | war risks (including protection and indemnity and crew risks); and |
(iv) | any other insurance that the Owners determine or the Managers advise them in writing that, in either case, it is prudent or, as the case may be, appropriate on the basis of prevailing market practices to be obtained in respect of the Vessel, its freight/hire or any third party liabilities, in each case in accordance with the best practice of prudent owners of vessels of a similar type to the Vessel, with first class insurance companies, underwriters or associations (the Owners Insurances); |
6.2 | all premiums and calls on the Owners Insurances are paid promptly by their due date, |
6.3 | the Owners Insurances name the Managers and, subject to underwriters agreement, any third party designated by the Managers as a joint assured, with full cover, with the Owners obtaining cover in respect of each of the insurances specified in sub-clause 6.1: |
(i) |
|
(ii) | if reasonably obtainable, on terms such that neither the Managers nor any such third party shall be under any liability in respect of premiums or calls arising in connection with the Owners Insurances; or |
(iii) |
|
Indicate alternative (i), (ii) or (iii) in Box 14. If Box 14 is left blank then (i) applies.
6.4 | written evidence is provided, to the reasonable satisfaction of the Managers, of their compliance with their obligations under Clause 6 within a reasonable time of the commencement of the Agreement, and of each renewal date and, if specifically requested, of each payment date of the Owners Insurances. |
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7. | Income Collected and Expenses Paid on Behalf of Owners |
7.1 | All moneys collected by the Managers under the terms of this Agreement (other than moneys payable by the Owners to the Managers) and any interest thereon shall be held to the credit of the Owners in a separate bank account. |
7.2 | All expenses incurred by the Managers under the terms of this Agreement on behalf of the Owners (including expenses as provided in Clause 8) may be debited against the Owners in the account referred to under sub-clause 7.1 but shall in any event remain payable by the Owners to the Managers on demand. Furthermore and without prejudice to the generality of the provisions of this Clause 7, the Managers shall, subject to being placed in funds by the Owners, arrange for the payment of all ordinary charges incurred in connection with the Management Services, including, but not limited to, all canal tolls, port charges, amounts due to any governmental authority with respect to the Crew and all duties and taxes in respect of the Vessel, the cargo, hire or freight (whether levied against the Owners), insurance premiums, advances of balances of disbursements, invoices for bunkers, stores, spares, provisions, repairs and any other material and/or service in respect of the Vessel. |
8. | Management Fee |
8.1 |
The Owners shall pay to the Managers for their services as Managers under this Agreement an annual management fee as stated in Box 15 which shall be payable by equal
quarterly
|
8.2 |
The management fee shall be subject
|
8.3 | The Managers shall, at no extra cost to the Owners, provide their own office accommodation, office staff, facilities and stationery. Without limiting the generality of Clause 7 the Owners shall reimburse the Managers for postage and communication expenses, travelling expenses, and other out of pocket expenses properly incurred by the Managers in pursuance of the Management Services. |
8.4 | In the event of the appointment of the Managers being terminated by the Owners or the Managers in accordance with the provisions of Clauses 17 and 18 other than by reason of default by the Managers, or if the Vessel is lost, sold or otherwise disposed of, the management fee payable to the Managers according to the provisions of sub-clause 8.1, shall continue to be payable for a further period of three calendar months as from the termination date. In addition, provided that the Managers provide Crew for the Vessel in accordance with sub-clause- 3.1: |
(i) | the Owners shall continue to pay Crew Support Costs during the said further period of three calendar months and |
(ii) | the Owners shall pay an equitable proportion of any Severance Costs which may materialize, not exceeding the amount stated in Box 16. |
8.5 | If the Owners decide to lay up the Vessel whilst this Agreement remains in force and such lay up lasts for more than three months, an appropriate reduction of the management fee for the period exceeding three months until one month before the Vessel is again put into service shall be mutually agreed between the parties. |
8.6 | Unless otherwise agreed in writing all discounts and commissions obtained by the Managers in the course of the management of the Vessel shall be credited to the Owners. |
9. | Budgets and Management of Funds |
9.1 |
|
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9.2 |
|
9.3 | Following the agreement of the budget, the Managers shall prepare and present to the Owners their estimate of the working capita! requirement of the Vessel and the Managers shall each month update this estimate. Based thereon, the Managers shall each month request the Owners in writing for the funds required to run the Vessel for the ensuing month, including the payment of any occasional or extraordinary item of expenditure, such as emergency repair costs, additional insurance premiums, bunkers or provisions. Such funds shall be received by the Managers within ten running days after the receipt by the Owners of the Managers written request and shall be held to the credit of the Owners in a separate bank account in the name of the Managers or, if requested by the Managers, in the name of the Owners. |
9.4 | The Managers shall produce a comparison between budgeted and actual income and expenditure of the Vessel in such form as required by the Owners monthly or at such other intervals as mutually agreed. |
9.5 | Notwithstanding anything contained herein to the contrary, the Managers shall in no circumstances be required to use or commit their own funds to finance the provision of the Management Services. |
10. | Managers Right to Sub-Contract |
The Managers shall not have the right to sub-contract any of their obligations hereunder, including those mentioned in sub-clause 3.1, without the prior written consent of the Owners which shall not be unreasonably withheld. In the event of such a sub-contract the Managers shall remain fully liable for the due performance of their obligations under this Agreement.
11. | Responsibilities |
11.1 | Force Majeure - Neither the Owners nor the Managers shall be under any liability for any failure to perform any of their obligations hereunder by reason of any cause whatsoever of any nature or kind beyond their reasonable control. |
11.2 | Liability to Owners - (i) Without prejudice to sub-clause 11.1, the Managers shall be under no liability whatsoever to the Owners for any loss, damage, delay or expense of whatsoever nature, whether direct or indirect (including but not limited to loss of profit arising out of or in connection with detention of or delay to the Vessel) and howsoever arising in the course of performance of the Management Services UNLESS same is proved to have resulted solely from the negligence, gross negligence or wilful default of the Managers or their employees, or agents or sub-contractors employed by them in connection with the Vessel, in which case (save where loss, damage, delay or expense has resulted from the Managers personal act or omission committed with the intent to cause same or recklessly and with knowledge that such loss, damage, delay or expense would probably result) the Managers liability for each incident or series of incidents giving rise to a claim or claims shall never exceed a total of ten times the annual management fee payable hereunder. |
(ii) Notwithstanding anything that may appear to the contrary in this Agreement, the Managers shall not be liable for any of the actions of the Crew, even if such actions are negligent, grossly negligent or wilful, except only to the extent that they are shown to have resulted from a failure by the Managers to discharge their obligations under sub-clause 3.1, in which case their liability shall be limited in accordance with the terms of this Clause 11.
11.3 | Indemnity - Except to the extent and solely for the amount therein set out that the Managers would be liable under sub-clause 11.2, the Owners hereby undertake to keep the Managers and their employees, agents and sub-contractors indemnified and to hold them harmless against all actions, proceedings, claims, demands or liabilities whatsoever or howsoever arising which may be brought against them or incurred or suffered by them arising out of or in connection with the performance of the Agreement, and against and in respect of all costs, losses, damages and expenses (including legal costs and expenses on a full indemnity basis) which the Managers may suffer or incur (either directly or indirectly) in the course of the performance of this Agreement. |
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11.4 | Himalaya It is hereby expressly agreed that no employee or agent of the Managers (including every sub-contractor from time to time employed by the Managers) shall in any circumstances whatsoever be under any liability whatsoever to the Owners for any loss, damage or delay of whatsoever kind arising or resulting directly or indirectly from any act, neglect or default on his part while acting in the course of or in connection with his employment and, without prejudice to the generality of the foregoing provisions in this Clause 11, every exemption, limitation, condition and liberty herein contained and every right, exemption from liability, defence and immunity of whatsoever nature applicable to the Managers or to which the Managers are entitled hereunder shall also be available and shall extend to protect every such employee or agent of the Managers acting as aforesaid and for the purpose of all the foregoing provisions of this Clause 11 the Managers are or shall be deemed to be acting as agent or trustee on behalf of and for the benefit of all persons who are or might be their servants or agents from time to time (including sub-contractors as aforesaid) and all such persons shall to this extent be or be deemed to be parties to this Agreement. |
12. | Documentation |
Where the Managers are providing Technical Management in accordance with sub-clause 3.2 and/or Crew Management in accordance with sub-clause 3.1, they shall make available, upon Owners request, all documentation and records related to the Safety Management System (SMS) and/or the Crew which the Owners need in order to demonstrate compliance with the ISM Code, and STCW 95 or to defend a claim against a third party.
13. | General Administration |
13.1 | The Managers shall handle and settle all claims arising out of the Management Services hereunder and keep the Owners informed regarding any incident of which the Managers become aware which gives or may give rise to claims or disputes involving third parties. |
13.2 | The Managers shall, as instructed by the Owners, bring or defend actions, suits or proceedings in connection with matters entrusted to the Managers according to this Agreement. |
13.3 | The Managers shall also have power to obtain legal or technical or other outside expert advice in relation to the handling and settlement of claims and disputes or all other matters affecting the interests of the Owners in respect of the Vessel. |
13.4 | The Owners shall arrange for the provision of any necessary guarantee bond or other security. |
13.5 | Any costs reasonably incurred by the Managers in carrying out their obligations according to Clause 13 shall be reimbursed by the Owners. |
14. | Auditing |
The Managers shall at all times maintain and keep true and correct accounts and shall make the same available for inspection and auditing by the Owners at such times as may be mutually agreed. On the termination, for whatever reasons, of this Agreement, the Managers shall release to the Owners, if so requested, the originals where possible, or otherwise certified copies, of all such accounts and all documents specifically relating to the Vessel and her operation.
15. | Inspection of Vessel |
The Owners shall have the right at any time after giving reasonable notice to the Managers to inspect the Vessel for any reason they consider necessary.
16. | Compliance with Laws and Regulations |
The Managers will not do or permit to be done anything which might cause any breach or infringement of the laws and regulations of the Vessels flag, or of the places where she trades.
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17. | Duration of the Agreement |
This Agreement shall come into effect on the day and year stated in Box 4
and shall continue until the date stated in Box 17
.
Thereafter it shall automatically renew for an eight-year period and shall thereafter be extended in additional eight-year increments if notice of termination is not provided by the Owners in
the fourth quarter of the year immediately preceding the end of the respective term
.
Thereafter it shall continue until terminated by either party giving to the other notice in writing, in which event the Agreement shall
terminate upon the expiration of a period of two months from the date upon which such notice was given.
18. | Termination |
18.1 | Owners default |
(i) |
The Managers shall be entitled to terminate the Agreement with immediate effect by notice in writing if any moneys payable by the Owners under this Agreement and/or the owners of any associated vessel,
|
(ii) | If the Owners: |
(a) | fail to meet their obligations under sub-clauses 5.2 and 5.3 of this Agreement for any reason within their control, or |
(b) | proceed with the employment of or continue to employ the Vessel in the carriage of contraband, blockade running, or in an unlawful trade, or on a voyage which in the reasonable opinion of the Managers is unduly hazardous or improper, the Managers may give notice of the default to the Owners, requiring them to remedy it as soon as practically possible. In the event that the Owners fail to remedy it within a reasonable time to the satisfaction of the Managers, the Managers shall be entitled to terminate the Agreement with immediate effect by notice in writing. |
18.2 | Managers Default |
If the Managers fail to meet their obligations under Clauses 3 and 4 of this Agreement for any reason within the control of the Managers, the Owners may give notice to the Managers of the default, requiring them to remedy it within as soon as practically possible. In the event that the Managers fail to remedy it within a reasonable time to the satisfaction of the Owners, the Owners shall be entitled to terminate the Agreement with immediate effect by notice in writing.
18.3 | Extraordinary Termination |
This Agreement shall be deemed to be terminated in the case of the sale of the Vessel or if the Vessel becomes a total loss or is declared as a constructive or compromised or arranged total loss or is requisitioned.
18.4 | For the purpose of sub-clause 18.3 hereof |
(i) | the date upon which the Vessel is to be treated as having been sold or otherwise disposed of shall be the date on which the Owners cease to be registered as Owners of the Vessel; |
(ii) | the Vessel shall not be deemed to be lost unless either she has become an actual total loss or agreement has been reached with her underwriters in respect of her constructive, compromised or arranged total loss or if such agreement with her underwriters is not reached it is adjudged by a competent tribunal that a constructive loss of the Vessel has occurred. |
18.5 | This Agreement shall terminate forthwith in the event of an order being made or resolution passed for the winding up, dissolution, liquidation or bankruptcy of either party (otherwise than for the purpose of reconstruction or amalgamation) or if a receiver is appointed, or if it suspends payment, ceases to carry on business or makes any special arrangement or composition with its creditors. |
18.6 | The termination of this Agreement shall be without prejudice to all rights accrued due between the parties prior to the date of termination. |
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19. | Law and Arbitration |
19.1 | This Agreement shall be governed by and construed in accordance with English law. and any dispute arising out of or in connection with this Agreement shall be referred to arbitration in London in accordance with the Arbitration Act 1996- or any statutory modification or re-enactment thereof save to the extent necessary to give effect to the provisions of this Clause. The arbitration shall be conducted in accordance with the London Maritime Arbitrators Association (LMAA) Terms current at the time when the arbitration proceedings are commenced. The reference shall be to three arbitrators. A party wishing to refer a dispute to arbitration shall appoint its arbitrator and send notice of such appointment in writing to the other party requiring the other party to appoint its own arbitrator within 14 calendar days of that notice and stating that it will appoint its arbitrator as sole arbitrator unless the other party appoints its own arbitrator and gives notice that it has done so within the 14 days specified. If the other party does not appoint its own arbitrator and give notice that it has done so within the 14 days specified, the party referring a dispute to arbitration may, without the requirement of any further prior notice to the other party, appoint its arbitrator as sole arbitrator and shall advise the other party accordingly. The award of a sole arbitrator shall be binding on both parties as if he had been appointed by agreement. Nothing herein shall prevent the parties agreeing in writing to vary these provisions to provide for the appointment of a sole arbitrator. In cases where neither the claim nor any counterclaim exceeds the sum of USD50,000 (or such other sum as the parties may agree) the arbitration shall be conducted in accordance with the LMAA Small Claims Procedure current at the time when the arbitration proceedings are commenced. |
19.2 |
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19.3 |
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19.4 | If Box 18 in Part I is not appropriately filled in, sub-clause 19.1 of this Clause shall apply. Note: 19.1, 19.2 and 19.3 are alternatives; indicate alternative agreed in Box 18. |
20. | Notices |
20.1 |
Any notice to be given by either party to the other party shall be in writing and may be sent by
email,
fax,
|
20.2 | The address of the Parties for service of such communication shall be as stated in Boxes 19 and 20, respectively. |
21. | Administrative Services |
The Manager shall provide certain general administrative services to the Owners, including, but not limited to, the following:
(a) keeping all books and records of things done and transactions performed on behalf of the Owners as it may require from time to time, including, but not limited to, liaising with accountants, lawyers and other professional advisors;
(b) except as otherwise contemplated herein, representing the Owner generally in its dealings and relations with third parties;
(c) maintaining the general ledgers of the Owner, establishing bank accounts with such financial institutions as may be requested, managing, administering and reconciling of bank accounts, preparation of periodic financial statements, including, but not limited to, those required for governmental and regulatory or self-regulatory agency filings and reports to shareholders, arranging of the auditing and/or review of any such financial statements and the provision of related data processing services as required;
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(d) preparing and providing (or procuring, at the Owners cost) tax returns required by any law or regulatory authority and developing, maintaining and monitoring internal audit controls;
(e) providing office accommodation, office staff (including secretarial and administrative assistance), facilities and stationery;
(f) maintaining, at the Owners cost, corporate existence, qualification and good standing in all necessary jurisdictions and assisting in all other corporate and regulatory compliance requirements;
(g) negotiating the terms and thereafter arranging for cash management services and/or hedging arrangements, in each case with a third party provider at the cost of the Owner.
(h) providing any such other administrative services as may be requested and the Manager may agree to provide from time to time.
(i) Negotiate, at the Owners request, loan and credit terms with lenders and monitor and maintain compliance therewith and in addition negotiate and arrange, at the Owners request, for interest rate swap agreements, foreign currency contracts, forward exchange contracts and any other hedging arrangements;
(j) Provide, or arrange for the provision of, information technology services
22. | Commercial Services |
In addition to any commercial services provided under this Agreement, the Manager shall provide the following commercial services to the Owners:
(a) managing relationships between the Owners and any existing or potential charterers, shipbuilders, insurers, lenders, investors, fund managers, shareholders and other shipping industry service providers/participants; and
(b) providing certain services in connection with taking physical delivery of the vessel, if applicable, registering a vessel under a ship register, tendering physical delivery of a Vessel or deleting a Vessel from the applicable port of registry, in each case on behalf of the Owners.
23. | Management Fees |
23.1 | In consideration of the Manager providing the services herein, the Owners shall pay the Manager the following management fee: |
(a) A fee of US$2,500 per day per Vessel, payable quarterly in arrears (pro rated to reflect the number of days that the Owners owns the Vessel during the applicable quarter);
(b) a fee equal to 1.25% calculated on the aggregate of the gross freight, charter hire, ballast bonus or other income obtained for the employment of the Vessel during the term of this Agreement, payable to the Manager monthly in arrears, only to the extent such freight, charter hire, ballast bonus or other income, as the case may be, is received as revenue. Such fee will be payable in USD. For the avoidance of any doubt and regardless of anything stipulated in this Agreement, chartering commissions shall survive the termination of this agreement under all circumstances until the termination of the charter party in force at the time or termination of any other employment arranged;
23.2 | The Management Fees will be fixed for the period commencing on the date the stipulated in Box 4 (the Commencement Date) and ending on the last day of the calendar year (the Initial Year). For the 12-month period starting on the day falling immediately after 31st December of the Initial Year and for each subsequent calendar year falling thereafter (each such 12-month period referred to hereinafter as an Annual Period), the Management Fee for the Vessel payable pursuant to this clause will be adjusted upwards with effect from the beginning of such Annual Period by application, to the relevant per Vessel amount, of a percentage figure equal to three per cent (3%), PROVIDED ALWAYS, that in the event of any of the provisions of Section 23.2 applying, further increases may be applied to such Management Fees as determined pursuant to Section 23.2. |
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23.3 | The Management Fees for the Vessel payable pursuant to this clause, for the Annual Period commencing on the day falling immediately after the end of the Initial Year and each subsequent Annual Period thereafter, will, in each case, be further adjusted upwards with effect from the beginning of such Annual Period if the Manager has incurred a material unforeseen increase in the cost of providing the management services, by an amount to be agreed between the Manager and the Owners, each acting in a commercially reasonable manner. |
23.4 | The Owners hereby acknowledge that any capital expenditure, financial costs, operating expenses for the Vessel and any general and administrative expenses of the Owners whatsoever are not covered by the management fees and any such expenditure, costs and expenses shall be paid fully by the Owners, whether directly to third parties or by payment to such third parties through the Manager and to the extent incurred by the Manager, shall be reimbursed to it by the Owners. The said capital expenditure, financial costs, operating expenses for the Vessel and general and administrative expenses include, without limiting the generality of the foregoing, items such as: |
(a) fees, interest, principal and any other costs due to the Owners financiers and their respective advisors;
(b) all voyage expenses and vessel operating and maintenance expenses relating to the operation and management of the Vessels (including Crew costs, surveyors attendance fees, bunkers, lubricant oils, spares, survey fees, classification society fees, maintenance and repair costs, vetting expenses, etc.);
(c) any commissions, fees, remuneration or disbursements due to lawyers, brokers, agents, surveyors, consultants, financial advisors, investment bankers, auditors, insurance advisors or any other third parties whatsoever appointed by the Manager whether in its name or on behalf and/or in the name of the Owners;
(d) applicable deductibles, insurance premiums and/or P&I calls;
(e) postage, communication, traveling, lodging, victualing, overtime, out of office compensation and out of pocket expenses of the Manager and/or its personnel, incurred in pursuance of the services; and
(f) any other out of pocket expenses that are incurred by the Manager in the performance of the services pursuant to this Agreement and Supervision Agreement.
23.5 | At their sole discretion the Owner on an annual basis in order to provide the Managers with a performance incentive, may make a payment to the Managers of an incentive fee in addition to the management fee. |
24. | Incentive Fee |
24.1 | At their sole discretion the Owners on an annual basis in order to provide the Managers with a performance incentive, may make a payment to the Managers of an incentive fee in addition to the management fee. |
25. | Termination After Change of Control |
25.1 | This Agreement will terminate automatically immediately after a change of control (as defined below) of the Owners and/or of the Owners ultimate parent. Upon such termination, the Owners will be required to pay the Manager the Termination Payment in a single Installment. |
For the purpose of this Agreement Change of Control means the occurrence of any of the following:
(i) The acquisition by any individual, entity or group of beneficial ownership of fifty (50) percent (%) or more of either (A) the then-outstanding shares of stock of the Owner and/or the Owners ultimate parent or (B) the combined voting power of the then-outstanding voting securities of the Owner and/or the Owners ultimate parent entitled to vote generally in the election of directors;
(ii) The consummation of a reorganization, merger or consolidation of Owner and/or the Owners ultimate parent or the sale or other disposition of all or substantially all of the assets of Owner and/or Owners ultimate parent.
(iii) The approval by the shareholders of Owner and/or the Owners ultimate parent of a complete liquidation or dissolution of Owner and/or the Owners ultimate parent.
Further, for the purpose of this Agreement Termination Payment means a payment to be received by the Manager in the event of a Change of Control. Such payment shall be equal to the estimated remaining fees payable to the Manager under the then current term of the agreement but in any case shall not be less than for a period of 36 months and not more than a period of 60 months.
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ANNEX A (DETAILS OF VESSEL OR VESSELS) TO
THE BALTIC AND INTERNATIONAL MARITIME COUNCIL (BIMCO)
STANDARD SHIP MANAGEMENT AGREEMENT - CODE NAME: SHIPMAN 98
Date of Agreement | : | December 21, 2012 | ||
Name of Vessel(s) | : | Ob River | ||
Particulars of Vessel(s): |
149,700 cubic meters membrane LNG carrier 288 meters LOA Breadth Moulded 44.2 meters |
Addendum No. 1
Dated 7 th October 2013
to the
Management Agreement dated December 21 st , 2012 (the Management Agreement)
Between Lance Shipping S.A. (the Owners)
and
Dynagas LTD. (the Managers)
with respects to the LNG carrier OB RIVER (the Vessel)
WHEREAS:
The Owners and the Managers have entered into the Management Agreement in connection with the vessel.
It is deemed appropriate that Article 24 (Incentive Fee) is deleted as agreed herein for the purposes of clarity.
IT IS HEREBY MUTUALLY AGREED
That the following clause shall be deleted, with retroactive effect from 1 st January 2013.
Clause 24 Incentive Fee, including subclause 24.1 At their sole discretion the Owners on an annual basis in order to provide the Managers with a performance incentive, may make a payment to the Managers of an incentive fee in addition to the management fee.
All other terms and conditions of the Management Agreement to remain unaltered, fully enforced and effective.
In witness whereof, this Addendum has been executed on 7 th October, 2013, with retroactive effect from 1 st January 2013.
For the Owners | For the Managers | |||
/s/ Illegible | /s/ Illegible |
Exhibit 10.2
SHIPMAN 98 Standard Ship Management Agreement
1. | Definitions |
In this Agreement save where the context otherwise requires, the following words and expressions shall have the meanings hereby assigned to them.
Owners means the party identified in Box 2.
Managers means the party identified in Box 3.
Vessel means the vessel or vessels details of which are set out in Annex A attached hereto.
Crew means the Master, officers and ratings
employed on the Vessel from time to time
of the numbers, rank and
nationality specified in Annex B attached hereto.
Crew Support Costs means all expenses of a general nature which are not particularly referable to any individual vessel for the time being managed by the Managers and which are incurred by the Managers for the purpose of providing an efficient and economic management service and, without prejudice to the generality of the foregoing, shall include the cost of crew standby pay, training schemes for officers and ratings, cadet training schemes, sick pay, study pay, recruitment and interviews.
Severance Costs means the costs which the employers are legally obliged to pay to or in respect of the Crew as a result of the early termination of any employment contract for service on the Vessel.
Crew Insurances means insurances against crew risks which shall include but not be limited to death, sickness, repatriation, injury, shipwreck unemployment indemnity and loss of personal effects.
Management Services means the services specified in sub-clauses 3.1 to 3.8 as indicated affirmatively in Boxes 5 to 12.
ISM Code means the International Management Code for the Safe Operation of Ships and for Pollution Prevention as adopted by the International Maritime Organization (IMO) by resolution A.741(18) or any subsequent amendment thereto.
STCW 95 means the international Convention on Standards of Training, Certification and Watchkeeping for Seafarers, 1978, as amended in 1995 or any subsequent amendment thereto.
2. | Appointment of Managers |
With effect from the day and year stated in Box 4 and continuing unless and until terminated provided herein, the Owners hereby appoint the Managers and the Managers hereby agree to act as the managers of the Vessel in accordance with the Management Services .
3. | Basis of Agreement |
Subject to the terms and conditions herein provided, during the period of this Agreement, the Managers shall carry out Management Services in respect of the Vessel as agents for and on behalf of the Owners. The Managers shall have authority to take such actions as they may from time to time in their absolute discretion consider to be necessary to enable them to perform this Agreement in accordance with sound ship management practice.
3.1 | Crew Management |
(only applicable if agreed according to Box 5)
The Managers shall provide suitably qualified Crew for the Vessel as required by the Owners in accordance with the STCW 95 requirements, provision of which includes but is not limited to the following functions:
(i) | selecting and engaging the Vessels Crew, including payroll arrangements, pension administration when required , and insurances for the Crew other than those mentioned in Clause 6; |
(ii) | ensuring that the applicable requirements of the law of the flag of the Vessel are satisfied in respect of manning levels, rank, qualification and certification of the Crew and employment regulations including Crews tax, social insurance, discipline and other requirements; |
(iii) |
ensuring that all members of the Crew have passed a medical examination with a qualified doctor certifying that they are fit for the duties for which they are engaged and are in possession of valid medical certificates issued in accordance with appropriate flag State requirements. In the |
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absence of applicable flag State requirements the medical certificate shall be dated not more than three months prior to the respective Crew members leaving their country of domicile and maintained for the duration of their service on board the Vessel; |
(iv) | ensuring that the Crew shall have a command of the English language of a sufficient standard to enable them to perform their duties safely; |
(v) | arranging transportation of the Crew, including repatriation , board and lodging as and when required at rates and types of accommodations as customary in the industry ; |
(vi) | training of the Crew and supervising their efficiency; |
(vii) | keeping and maintaining full and complete records of any labor agreements which may be entered into with the Crew and, if applicable conducting union negotiations; |
(viii) | operating the Managers drug and alcohol policy unless otherwise agreed. |
3.2 | Technical Management |
(only applicable if agreed according to Box 6)
The Managers shall provide technical management which includes, but is not limited to, the following functions:
(i) | provision of competent personnel to supervise the maintenance and general efficiency of the Vessel; |
(ii) | arrangement and supervision of dry dockings, repairs, alterations and the upkeep of the Vessel to the standards required by the Owners provided that the Managers shall be entitled to incur the necessary expenditure to ensure that the Vessel will comply with the law of the flag of the Vessel and of the places where she trades, and all requirements and recommendations of the classification society; |
(iii) | arrangement of the supply of necessary stores, spares and lubricating oil; |
(iv) | appointment of surveyors , service engineers , and technical consultants as the Managers may consider from time to time to be necessary; |
(v) | development, implementation and maintenance of a Safety Management System (SMS) in accordance with the ISM Code (see sub-clauses 4.2 and 5.3) and a Planned Maintenance System ; |
(vi) | Handling any claims against the builder of the Vessel arising out of the relevant shipbuilding contract, if applicable; and |
(vii) | On request by the Owners, obtaining and / or providing the Owners with a copy of any inspection report, survey, valuation or any other similar report prepared by any shipbrokers, surveyors, the Class etc. |
3.3 | Commercial Management |
(only applicable if agreed according to Box 7)
The Managers shall provide the commercial operation of the Vessel, as required by the Owners, which includes, but is not limited to, the following functions:
(i) | providing chartering services in accordance with the Owners instructions which include, but are not limited to, developing and seeking and negotiating employment for the Vessel and the conclusion (including the execution thereof) of charter parties or other contracts relating to the employment of the Vessel. If such a contract exceeds the period stated in Box 13, consent thereto in writing shall first be obtained from the Owners. |
(ii) | arranging of the proper payment to Owners or their nominees of all hire and/or freight revenues or other moneys of whatsoever nature to which Owners may be entitled arising out of the employment of or otherwise in connection with the Vessel;. |
(iii) | providing voyage estimates and accounts and calculating of hire, freights, demurrage and/or despatch moneys due from or due to the charterers of the Vessel; |
(iv) | issuing of voyage instructions and monitoring voyage performance ; |
(v) | appointing agents; |
(vi) | appointing stevedores; |
(vii) | arranging surveys associated with the commercial operation of the Vessel; |
(viii) | carrying out the necessary communications with the shippers, charterers and others involved with the receiving and handling of the Vessel at the relevant loading and discharging ports, including sending any notices required under the terms of the Vessels employment at the time; |
(ix) | invoicing on behalf of the Owners all freights, hires, demurrages, outgoing claims, refund of taxes, balances of disbursements, statements of account and other sums due to the Owners and account receivables arising from the operation of the Vessel and, upon the request of the Owners, issuing releases on behalf of the Owners upon receipt of payment or settlement of any such amounts; |
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(x) | preparing off-hire statements and/or hire statements; |
(xi) | conducting Ship Shore Compatibility studies and procuring and arranging for port/terminal entrance and clearance, pilots, consular approvals and other services necessary for the management and safe operation of the Vessel; and |
(xii) | reporting to the Owners of any major casualties, damages received or caused by the Vessel or any major release or discharge of oil or other hazardous material not in compliance with any laws. |
3.4 | Insurance Arrangements |
(only applicable if agreed according to Box 8)
The Managers shall arrange insurances in accordance with Clause 6, on such terms and conditions as the Owners shall have instructed or agreed, in particular regarding, conditions, insured values, deductibles and franchises.
3.5 | Accounting Services |
(only applicable if agreed according to Box 9)
The Managers shall:
(i) | establish an accounting system which meets the reasonable requirements of the Owners and provide regular accounting services, supply regular reports and records, |
(ii) | maintain the records of all costs and expenditure incurred as well as data necessary or proper for the settlement of accounts between the parties. |
3.6 | Sale or Purchase of the Vessel |
(only applicable if agreed according to Box 10)
The Managers shall, in accordance with the Owners instructions, supervise the sale or purchase of the Vessel, including the performance of any sale or purchase agreement, but not including negotiation of the same.
3.7 | Provisions |
(only applicable if agreed according to Box 11)
The Managers shall arrange for the supply of provisions.
3.8 | Bunkering |
(only applicable if agreed according to Box 12)
The Managers shall arrange for the provision of bunker fuel of the quality specified by the Owners as required for the Vessels trade.
4. | Managers Obligations |
4.1 | The Managers undertake to use their best endeavours to provide the agreed Management Services as agents for and on behalf of the Owners in accordance with sound ship management practice and to protect and promote the interests of the Owners in all matters relating to the provision of services hereunder. Provided, however, that the Managers in the performance of their management responsibilities under this Agreement shall be entitled to have regard to their overall responsibility in relation to all vessels as may from time to time be entrusted to their management and in particular, but without prejudice to the generality of the foregoing, the Managers shall be entitled to allocate available supplies, manpower and services in such manner as in the prevailing circumstances the Managers in their absolute discretion consider to be fair and reasonable. |
4.2 | Where the Managers are providing Technical Management in accordance with sub-clause 3.2, they shall procure that the requirements of the law of the flag and Charterers -of the Vessel are satisfied and they , or such other entity as may be appointed by them which shall be acceptable to Owners , shall in particular be deemed to be the Company as defined by the ISM Code, assuming the responsibility for the operation of the Vessel and taking over the duties and responsibilities imposed by the ISM Code when applicable. |
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5. | Owners Obligations |
5.1 | The Owners shall pay all sums due to the Managers punctually in accordance with the terms of this Agreement. |
5.2 | Where the Managers are providing Technical Management in accordance with sub-clause 3.2, the Owners shall: |
(i) | procure that all officers and ratings supplied by them or on their behalf comply with the requirements of STCW 95; |
(ii) | instruct such officers and ratings to obey all reasonable orders of the Managers in connection with the operation of the Managers safety management system. |
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6. | Insurance Policies |
The Owners shall procure, whether by instructing the Managers under sub-clause 3.4 or otherwise, that throughout the period of this Agreement:
6.1 | at the Owners expense, the Vessel is insured for not less than her sound market value or entered for her full gross tonnage, as the case may be for: |
(i) | usual hull and machinery marine risks (including crew negligence) and excess liabilities; |
(ii) | protection and indemnity risks (including pollution risks and Crew Insurances); and |
(iii) | war risks (including protection and indemnity and crew risks); and |
(iv) | any other insurance that the Owners determine or the Managers advise them in writing that, in either case, it is prudent or, as the case may be, appropriate on the basis of prevailing market practices to be obtained in respect of the Vessel, its freight/hire or any third party liabilities, in each case in accordance with the best practice of prudent owners of vessels of a similar type to the Vessel, with first class insurance companies, underwriters or associations (the Owners Insurances); |
6.2 | all premiums and calls on the Owners Insurances are paid promptly by their due date, |
6.3 | the Owners Insurances name the Managers and, subject to underwriters agreement, any third party designated by the Managers as a joint assured, with full cover, with the Owners obtaining cover in respect of each of the insurances specified in sub-clause 6.1: |
(i) |
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(ii) | if reasonably obtainable, on terms such that neither the Managers nor any such third party shall be under any liability in respect of premiums or calls arising in connection with the Owners Insurances; or |
(iii) |
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Indicate alternative (i), (ii) or (iii) in Box 14. If Box 14 is left blank then (i) applies.
6.4 | written evidence is provided, to the reasonable satisfaction of the Managers, of their compliance with their obligations under Clause 6 within a reasonable time of the commencement of the Agreement, and of each renewal date and, if specifically requested, of each payment date of the Owners insurances. |
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7. | Income Collected and Expenses Paid on Behalf of Owners |
7.1 | All moneys collected by the Managers under the terms of this Agreement (other than moneys payable by the Owners to the Managers) and any interest thereon shall be held to the credit of the Owners in a separate bank account. |
7.2 | All expenses incurred by the Managers under the terms of this Agreement on behalf of the Owners (including expenses as provided in Clause 8) may be debited against the Owners in the account referred to under sub-clause 7.1 but shall in any event remain payable by the Owners to the Managers on demand. Furthermore and without prejudice to the generality of the provisions of this Clause 7, the Managers shall, subject to being placed in funds by the Owners, arrange for the payment of all ordinary charges incurred in connection with the Management Services, including, but not limited to, all canal tolls, port charges, amounts due to any governmental authority with respect to the Crew and all duties and taxes in respect of the Vessel, the cargo, hire or freight (whether levied against the Owners), insurance premiums, advances of balances of disbursements, invoices for bunkers, stores, spares, provisions, repairs and any other material and/or service in respect of the Vessel. |
8. | Management Fee |
8.1 |
The Owners shall pay to the Managers for their services as Managers under this Agreement an annual management fee as stated in Box 15 which shall be payable by equal
quarterly
|
8.2 |
The management fee shall be subject
|
8.3 | The Managers shall, at no extra cost to the Owners, provide their own office accommodation, office staff, facilities and stationery. Without limiting the generality of Clause 7 the Owners shall reimburse the Managers for postage and communication expenses, travelling expenses, and other out of pocket expenses properly incurred by the Managers in pursuance of the Management Services. |
8.4 | In the event of the appointment of the Managers being terminated by the Owners or the Managers in accordance with the provisions of Clauses 17 and 18 other than by reason of default by the Managers, or if the Vessel is lost, sold or otherwise disposed of, the management fee payable to the Managers according to the provisions of sub-clause 8.1, shall continue to be payable for a further period of three calendar months as from the termination date. In addition, provided that the Managers provide Crew for the Vessel in accordance with sub- clause- 3.1: |
(i) | the Owners shall continue to pay Crew Support Costs during the said further period of three calendar months and |
(ii) | the Owners shall pay an equitable proportion of any Severance Costs which may materialize, not exceeding the amount stated in Box 16. |
8.5 | If the Owners decide to lay up the Vessel whilst this Agreement remains in force and such lay up lasts for more than three months, an appropriate reduction of the management fee for the period exceeding three months until one month before the Vessel is again put into service shall be mutually agreed between the parties. |
8.6 | Unless otherwise agreed in writing all discounts and commissions obtained by the Managers in the course of the management of the Vessel shall be credited to the Owners. |
9. | Budgets and Management of Funds |
9.1 |
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9.2 |
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9.3 | Following the agreement of the budget, the Managers shall prepare and present to the Owners their estimate of the working capital requirement of the Vessel and the Managers shall each month update this estimate. Based thereon, the Managers shall each month request the Owners in writing for the funds required to run the Vessel for the ensuing month, including the payment of any occasional or extraordinary item of expenditure, such as emergency repair costs, additional insurance premiums, bunkers or provisions. Such funds shall be received by the Managers within ten running days after the receipt by the Owners of the Managers written request and shall be held to the credit of the Owners in a separate bank account in the name of the Managers or, if requested by the Managers, in the name of the Owners. |
9.4 | The Managers shall produce a comparison between budgeted and actual income and expenditure of the Vessel in such form as required by the Owners monthly or at such other intervals as mutually agreed. |
9.5 | Notwithstanding anything contained herein to the contrary, the Managers shall in no circumstances be required to use or commit their own funds to finance the provision of the Management Services. |
10. | Managers Right to Sub-Contract |
The Managers shall not have the right to sub-contract any of their obligations hereunder, including those mentioned in sub-clause 3.1, without the prior written consent of the Owners which shall not be unreasonably withheld. In the event of such a sub- contract the Managers shall remain fully liable for the due performance of their obligations under this Agreement.
11. | Responsibilities |
11.1 | Force Majeure - Neither the Owners nor the Managers shall be under any liability for any failure to perform any of their obligations hereunder by reason of any cause whatsoever of any nature or kind beyond their reasonable control. |
11.2 | Liability to Owners - (i) Without prejudice to sub-clause 11.1, the Managers shall be under no liability whatsoever to the Owners for any loss, damage, delay or expense of whatsoever nature, whether direct or indirect (including but not limited to loss of profit arising out of or in connection with detention of or delay to the Vessel) and howsoever arising in the course of performance of the Management Services UNLESS same is proved to have resulted solely from the negligence, gross negligence or wilful default of the Managers or their employees, or agents or sub-contractors employed by them in connection with the Vessel, in which case (save where loss, damage, delay or expense has resulted from the Managers personal act or omission committed with the intent to cause same or recklessly and with knowledge that such loss, damage, delay or expense would probably result) the Managers liability for each incident or series of incidents giving rise to a claim or claims shall never exceed a total of ten times the annual management fee payable hereunder. (ii) Notwithstanding anything that may appear to the contrary in this Agreement, the Managers shall not be liable for any of the actions of the Crew, even if such actions are negligent, grossly negligent or wilful, except only to the extent that they are shown to have resulted from a failure by the Managers to discharge their obligations under sub-clause 3.1, in which case their liability shall be limited in accordance with the terms of this Clause 11. |
11.3 | Indemnity - Except to the extent and solely for the amount therein set out that the Managers would be liable under sub-clause 11.2, the Owners hereby undertake to keep the Managers and their employees, agents and sub-contractors indemnified and to hold them harmless against all actions, proceedings, claims, demands or liabilities whatsoever or howsoever arising which may be brought against them or incurred or suffered by them arising out of or in connection with the performance of the Agreement, and against and in respect of all costs, losses, damages and expenses (including legal costs and expenses on a full indemnity basis) which the Managers may suffer or incur (either directly or indirectly) in the course of the performance of this Agreement. |
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11.4 | Himalaya It is hereby expressly agreed that no employee or agent of the Managers (including every sub-contractor from time to time employed by the Managers) shall in any circumstances whatsoever be under any liability whatsoever to the Owners for any loss, damage or delay of whatsoever kind arising or resulting directly or indirectly from any act, neglect or default on his part while acting in the course of or in connection with his employment and, without prejudice to the generality of the foregoing provisions in this Clause 11, every exemption, limitation, condition and liberty herein contained and every right, exemption from liability, defence and immunity of whatsoever nature applicable to the Managers or to which the Managers are entitled hereunder shall also be available and shall extend to protect every such employee or agent of the Managers acting as aforesaid and for the purpose of all the foregoing provisions of this Clause 11 the Managers are or shall be deemed to be acting as agent or trustee on behalf of and for the benefit of all persons who are or might be their servants or agents from time to time (including sub-contractors as aforesaid) and ail such persons shall to this extent be or be deemed to be parties to this Agreement. |
12. | Documentation |
Where the Managers are providing Technical Management in accordance with sub-clause 3.2 and/or Crew Management in accordance with sub-clause 3.1, they shall make available, upon Owners request, all documentation and records related to the Safety Management System (SMS) and/or the Crew which the Owners need in order to demonstrate compliance with the ISM Code, and STCW 95 or to defend a claim against a third party.
13. | General Administration |
13.1 | The Managers shall handle and settle all claims arising out of the Management Services hereunder and keep the Owners informed regarding any incident of which the Managers become aware which gives or may give rise to claims or disputes involving third parties. |
13.2 | The Managers shall, as instructed by the Owners, bring or defend actions, suits or proceedings in connection with matters entrusted to the Managers according to this Agreement. |
13.3 | The Managers shall also have power to obtain legal or technical or other outside expert advice in relation to the handling and settlement of claims and disputes or all other matters affecting the interests of the Owners in respect of the Vessel. |
13.4 | The Owners shall arrange for the provision of any necessary guarantee bond or other security. |
13.5 | Any costs reasonably incurred by the Managers in carrying out their obligations according to Clause 13 shall be reimbursed by the Owners. |
14. | Auditing |
The Managers shall at all times maintain and keep true and correct accounts and shall make the same available for inspection and auditing by the Owners at such times as may be mutually agreed. On the termination, for whatever reasons, of this Agreement, the Managers shall release to the Owners, if so requested, the originals where possible, or otherwise certified copies, of all such accounts and all documents specifically relating to the Vessel and her operation.
15. | Inspection of Vessel |
The Owners shall have the right at any time after giving reasonable notice to the Managers to inspect the Vessel for any reason they consider necessary.
16. | Compliance with Laws and Regulations |
The Managers will not do or permit to be done anything which might cause any breach or infringement of the laws and regulations of the Vessels flag, or of the places where she trades.
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17. | Duration of the Agreement |
This Agreement shall come into effect on the day and year stated in Box 4 and
shall continue until the date stated in Box 17
.
Thereafter it shall automatically renew for an eight-year period and shall thereafter be extended in additional eight-year increments if notice of termination is not provided by the Owners in the
fourth quarter of the year immediately preceding the end of the respective term
. Thereafter it shall continue until terminated by either party giving to the other notice in writing, in which event the Agreement shall terminate upon
the expiration of a period of two months from the date upon which such notice was given.
18. | Termination |
18.1 | Owners default |
(i) |
The Managers shall be entitled to terminate the Agreement with immediate effect by notice in writing if any moneys payable by the Owners under this Agreement and/or the owners of any associated vessel,
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(ii) | If the Owners: |
(a) | fail to meet their obligations under sub-clauses 5.2 and 5.3 of this Agreement for any reason within their control, or |
(b) | proceed with the employment of or continue to employ the Vessel in the carriage of contraband, blockade running, or in an unlawful trade, or on a voyage which in the reasonable opinion of the Managers is unduly hazardous or improper, the Managers may give notice of the default to the Owners, requiring them to remedy it as soon as practically possible. In the event that the Owners fail to remedy it within a reasonable time to the satisfaction of the Managers, the Managers shall be entitled to terminate the Agreement with immediate effect by notice in writing. |
18.2 | Managers Default |
If the Managers fail to meet their obligations under Clauses 3 and 4 of this Agreement for any reason within the control of the Managers, the Owners may give notice to the Managers of the default, requiring them to remedy it within as soon as practically possible. In the event that the Managers fail to remedy it within a reasonable time to the satisfaction of the Owners, the Owners shall be entitled to terminate the Agreement with immediate effect by notice in writing.
18.3 | Extraordinary Termination |
This Agreement shall be deemed to be terminated in the case of the sale of the Vessel or if the Vessel becomes a total loss or is declared as a constructive or compromised or arranged total loss or is requisitioned.
18.4 | For the purpose of sub-clause 18.3 hereof |
(i) | the date upon which the Vessel is to be treated as having been sold or otherwise disposed of shall be the date on which the Owners cease to be registered as Owners of the Vessel; |
(ii) | the Vessel shall not be deemed to be lost unless either she has become an actual total loss or agreement has been reached with her underwriters in respect of her constructive, compromised or arranged total loss or if such agreement with her underwriters is not reached it is adjudged by a competent tribunal that a constructive loss of the Vessel has occurred, |
18.5 | This Agreement shall terminate forthwith in the event of an order being made or resolution passed for the winding up, dissolution, liquidation or bankruptcy of either party (otherwise than for the purpose of reconstruction or amalgamation) or if a receiver is appointed, or if it suspends payment, ceases to carry on business or makes any special arrangement or composition with its creditors. |
18.6 | The termination of this Agreement shall be without prejudice to all rights accrued due between the parties prior to the date of termination. |
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19. | Law and Arbitration |
19.1 | This Agreement shall be governed by and construed in accordance with English law. and any dispute arising out of or in connection with this Agreement shall be referred to arbitration in London in accordance with the Arbitration Act 1996- or any statutory modification or re-enactment thereof save to the extent necessary to give effect to the provisions of this Clause. The arbitration shall be conducted in accordance with the London Maritime Arbitrators Association (LMAA) Terms current at the time when the arbitration proceedings are commenced. The reference shall be to three arbitrators. A party wishing to refer a dispute to arbitration shall appoint its arbitrator and send notice of such appointment in writing to the other party requiring the other party to appoint its own arbitrator within 14 calendar days of that notice and stating that it will appoint its arbitrator as sole arbitrator unless the other party appoints its own arbitrator and gives notice that it has done so within the 14 days specified. If the other party does not appoint its own arbitrator and give notice that it has done so within the 14 days specified, the party referring a dispute to arbitration may, without the requirement of any further prior notice to the other party, appoint its arbitrator as sole arbitrator and shall advise the other party accordingly. The award of a sole arbitrator shall be binding on both parties as if he had been appointed by agreement. Nothing herein shall prevent the parties agreeing in writing to vary these provisions to provide for the appointment of a sole arbitrator. In cases where neither the claim nor any counterclaim exceeds the sum of USD50,000 (or such other sum as the parties may agree) the arbitration shall be conducted in accordance with the LMAA Small Claims Procedure current at the time when the arbitration proceedings are commenced. |
19.2 |
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19.3 |
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19.4 | If Box 18 in Part I is not appropriately filled in, sub-clause 19.1 of this Clause shall apply. Note: 19.1, 19.2 and 19.3 are alternatives; indicate alternative agreed in Box 18. |
20. | Notices |
20.1 |
Any notice to be given by either party to the other party shall be in writing and may be sent by
email
,
fax,
|
20.2 | The address of the Parties for service of such communication shall be as stated in Boxes 19 and 20, respectively. |
21. | Administrative Services |
The Manager shall provide certain general administrative services to the Owners, including, but not limited to, the following:
(a) keeping all books and records of things done and transactions performed on behalf of the Owners as it may require from time to time, including, but not limited to, liaising with accountants, lawyers and other professional advisors;
(b) except as otherwise contemplated herein, representing the Owner generally in its dealings and relations with third parties;
(c) maintaining the general ledgers of the Owner, establishing bank accounts with such financial institutions as may be requested, managing, administering and reconciling of bank accounts, preparation of periodic financial statements, including, but not limited to, those required for governmental and regulatory or self-regulatory agency filings and reports to shareholders, arranging of the auditing and/or review of any such financial statements and the provision of related data processing services as required;
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(d) preparing and providing (or procuring, at the Owners cost) tax returns required by any law or regulatory authority and developing, maintaining and monitoring internal audit controls;
(e) providing office accommodation, office staff (including secretarial and administrative assistance), facilities and stationery;
(f) maintaining, at the Owners cost, corporate existence, qualification and good standing in all necessary jurisdictions and assisting in all other corporate and regulatory compliance requirements;
(g) negotiating the terms and thereafter arranging for cash management services and/or hedging arrangements, in each case with a third party provider at the cost of the Owner.
(h) providing any such other administrative services as may be requested and the Manager may agree to provide from time to time.
(i) Negotiate, at the Owners request, loan and credit terms with lenders and monitor and maintain compliance therewith and in addition negotiate and arrange, at the Owners request, for interest rate swap agreements, foreign currency contracts, forward exchange contracts and any other hedging arrangements;
(j) Provide, or arrange for the provision of, information technology services
22. | Commercial Services |
In addition to any commercial services provided under this Agreement, the Manager shall provide the following commercial services to the Owners:
(a) managing relationships between the Owners and any existing or potential charterers, shipbuilders, insurers, lenders, investors, fund managers, shareholders and other shipping industry service providers/participants; and
(b) providing certain services in connection with taking physical delivery of the vessel, if applicable, registering a vessel under a ship register, tendering physical delivery of a Vessel or deleting a Vessel from the applicable port of registry, in each case on behalf of the Owners.
23. | Management Fees |
23.1 | In consideration of the Manager providing the services herein, the Owners shall pay the Manager the following management fee: |
(a) A fee of US$2.500 per day per Vessel, payable quarterly in arrears (pro rated to reflect the number of days that the Owners owns the Vessel during the applicable quarter);
(b) a fee equal to 1.25% calculated on the aggregate of the gross freight, charter hire, ballast bonus or other income obtained for the employment of the Vessel during the term of this Agreement, payable to the Manager monthly in arrears, only to the extent such freight, charter hire, ballast bonus or other income, as the case may be, is received as revenue. Such fee will be payable in USD. For the avoidance of any doubt and regardless of anything stipulated in this Agreement, chartering commissions shall survive the termination of this agreement under all circumstances until the termination of the charter party in force at the time or termination of any other employment arranged;
23.2 | The Management Fees will be fixed for the period commencing on the date the stipulated in Box 4 (the Commencement Date) and ending on the last day of the calendar year (the Initial Year). For the 12-month period starting on the day falling immediately after 31st December of the Initial Year and for each subsequent calendar year falling thereafter (each such 12-month period referred to hereinafter as an Annual Period), the Management Fee for the Vessel payable pursuant to this clause will be adjusted upwards with effect from the beginning of such Annual Period by application, to the relevant per Vessel amount, of a percentage figure equal to three per cent (3%), PROVIDED ALWAYS, that in the event of any of the provisions of Section 23.2 applying, further increases may be applied to such Management Fees as determined pursuant to Section 23.2. |
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23.3 | The Management Fees for the Vessel payable pursuant to this clause, for the Annual Period commencing on the day falling immediately after the end of the Initial Year and each subsequent Annual Period thereafter, will, in each case, be further adjusted upwards with effect from the beginning of such Annual Period if the Manager has incurred a material unforeseen increase in the cost of providing the management services, by an amount to be agreed between the Manager and the Owners, each acting in a commercially reasonable manner. |
23.4 | The Owners hereby acknowledge that any capital expenditure, financial costs, operating expenses for the Vessel and any general and administrative expenses of the Owners whatsoever are not covered by the management fees and any such expenditure, costs and expenses shall be paid fully by the Owners, whether directly to third parties or by payment to such third parties through the Manager and to the extent incurred by the Manager, shall be reimbursed to it by the Owners. The said capital expenditure, financial costs, operating expenses for the Vessel and general and administrative expenses include, without limiting the generality of the foregoing, items such as: |
(a) fees, interest, principal and any other costs due to the Owners financiers and their respective advisors:
(b) all voyage expenses and vessel operating and maintenance expenses relating to the operation and management of the Vessels (including Crew costs, surveyors attendance fees, bunkers, lubricant oils, spares, survey fees, classification society fees, maintenance and repair costs, vetting expenses, etc.);
(c) any commissions, fees, remuneration or disbursements due to lawyers, brokers, agents, surveyors, consultants, financial advisors, investment bankers, auditors, insurance advisors or any other third parties whatsoever appointed by the Manager whether in its name or on behalf and/or in the name of the Owners:
(d) applicable deductibles, insurance premiums and/or P&I calls;
(e) postage, communication, traveling, lodging, victualing, overtime, out of office compensation and out of pocket expenses of the Manager and/or its personnel, incurred in pursuance of the services: and
(f) any other out of pocket expenses that are incurred by the Manager in the performance of the services pursuant to this Agreement and Supervision Agreement.
23.5 | At their sole discretion the Owner on an annual basis in order to provide the Managers with a performance incentive, may make a payment to the Managers of an incentive fee in addition to the management fee. |
24. | Incentive Fee |
24.1 | At their sole discretion the Owners on an annual basis in order to provide the Managers with a performance incentive, may make a payment to the Managers of an incentive fee in addition to the management fee. |
25. | Termination After Change of Control |
25.1 | This Agreement will terminate automatically immediately after a change of control (as defined below) of the Owners and/or of the Owners ultimate parent. Upon such termination, the Owners will be required to pay the Manager the Termination Payment in a single Installment. |
For the purpose of this Agreement Change of Control means the occurrence of any of the following:
(i) The acquisition by any individual, entity or group of beneficial ownership of fifty (50) percent (%) or more of either (A) the then-outstanding shares of stock of the Owner and/or the Owners ultimate parent or (B) the combined voting power of the then-outstanding voting securities of the Owner and/or the Owners ultimate parent entitled to vote generally in the election of directors:
(ii) The consummation of a reorganization, merger or consolidation of Owner and/or the Owners ultimate parent or the sale or other disposition of all or substantially all of the assets of Owner and/or Owners ultimate parent.
(iii) The approval by the shareholders of Owner and/or the Owners ultimate parent of a complete liquidation or dissolution of Owner and/or the Owners ultimate parent.
Further, for the purpose of this Agreement Termination Payment means a payment to be received by the Manager in the event of a Change of Control. Such payment shall be equal to the estimated remaining fees payable to the Manager under the then current term of the agreement but in any case shall not be less than for a period of 36 months and not more than a period of 60 months.
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ANNEX A (DETAILS OF VESSEL OR VESSELS) TO
THE BALTIC AND INTERNATIONAL MARITIME COUNCIL (BIMCO)
STANDARD SHIP MANAGEMENT AGREEMENT - CODE NAME: SHIPMAN 98
Date of Agreement | : | December 21, 2012 | ||
Name of Vessel(s) | : | Clean Energy | ||
Particulars of Vessel(s) | : |
149,700 cubic meters membrane LNG carrier 288 meters LOA Breadth Moulded 44.2 meters |
Addendum No. 1
Dated 7 th October 2013
to the
Management Agreement dated 1 st January, 2013 (the Management Agreement)
Between Pegasus Shipholding S.A. (the Owners)
and
Dynagas LTD. (the Managers)
with respects to the LNG carrier Clean Energy (the Vessel)
WHEREAS:
The Owners and the Managers have entered into the Management Agreement in connection with the vessel.
It is deemed appropriate that Article 24 (Incentive Fee) is deleted as agreed herein for the purposes of clarity.
IT IS HEREBY MUTUALLY AGREED
That the following clause shall be deleted, with retroactive effect from 1 st January 2013.
Clause 24 Incentive Fee, including subclause 24.1 At their sole discretion the Owners on an annual basis in order to provide the Managers with a performance incentive, may make a payment to the Managers of an incentive fee in addition to the management fee.
All other terms and conditions of the Management Agreement to remain unaltered, fully enforced and effective.
In witness whereof, this Addendum has been executed on 7 th October, 2013, with retroactive effect from 1 st January 2013.
For the Owners | For the Managers | |||
/s/ Illegible |
/s/ Illegible |
|||
|
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Exhibit 10.3
SHIPMAN 98 Standard Ship Management Agreement
1. | Definitions |
In this Agreement save where the context otherwise requires, the following words and expressions shall have the meanings hereby assigned to them.
Owners means the party identified in Box 2.
Managers means the party identified in Box 3.
Vessel means the vessel or vessels details of which are set out in Annex A attached hereto.
Crew means the Master, officers and ratings
employed on the Vessel from time to time
of the numbers, rank and
nationality specified in Annex B attached hereto.
Crew Support Costs means all expenses of a general nature which are not particularly referable to any individual vessel for the time being managed by the Managers and which are incurred by the Managers for the purpose of providing an efficient and economic management service and, without prejudice to the generality of the foregoing, shall include the cost of crew standby pay, training schemes for officers and ratings, cadet training schemes, sick pay, study pay, recruitment and interviews.
Severance Costs means the costs which the employers are legally obliged to pay to or in respect of the Crew as a result of the early termination of any employment contract for service on the Vessel.
Crew Insurances means insurances against crew risks which shall include but not be limited to death, sickness, repatriation, injury, shipwreck unemployment indemnity and loss of personal effects.
Management Services means the services specified in sub-clauses 3.1 to 3.8 as indicated affirmatively in Boxes 5 to 12.
ISM Code means the International Management Code for the Safe Operation of Ships and for Pollution Prevention as adopted by the International Maritime Organization (IMO) by resolution A.741(18) or any subsequent amendment thereto.
STCW 95 means the International Convention on Standards of Training, Certification and Watchkeeping for Seafarers, 1978, as amended in 1995 or any subsequent amendment thereto.
2. | Appointment of Managers |
With effect from the day and year stated in Box 4 and continuing unless and until terminated provided herein, the Owners hereby appoint the Managers and the Managers hereby agree to act as the managers of the Vessel in accordance with the Management Services .
3. | Basis of Agreement |
Subject to the terms and conditions herein provided, during the period of this Agreement, the Managers shall carry out Management Services in respect of the Vessel as agents for and on behalf of the Owners. The Managers shall have authority to take such actions as they may from time to time in their absolute discretion consider to be necessary to enable them to perform this Agreement in accordance with sound ship management practice.
3.1 | Crew Management |
(only applicable if agreed according to Box 5)
The Managers shall provide suitably qualified Crew for the Vessel as required by the Owners in accordance with the STCW 95 requirements, provision of which includes but is not limited to the following functions:
(i) | selecting and engaging the Vessels Crew, including payroll arrangements, pension administration when required , and insurances for the Crew other than those mentioned in Clause 6; |
(ii) | ensuring that the applicable requirements of the law of the flag of the Vessel are satisfied in respect of manning levels, rank, qualification and certification of the Crew and employment regulations including Crews tax, social insurance, discipline and other requirements; |
(iii) ensuring that all members of the Crew have passed a medical examination with a qualified doctor certifying that they are fit for the duties for which they are engaged and are in possession of valid medical certificates issued in accordance with appropriate flag State requirements. In the
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absence of applicable flag State requirements the medical certificate shall be dated not more than three months prior to the respective Crew members leaving their country of domicile and maintained for the duration of their service on board the Vessel;
(iv) | ensuring that the Crew shall have a command of the English language of a sufficient standard to enable them to perform their duties safely; |
(v) | arranging transportation of the Crew, including repatriation , board and lodging as and when required at rates and types of accommodations as customary in the industry ; |
(vi) | training of the Crew and supervising their efficiency; |
(vii) | keeping and maintaining full and complete records of any labor agreements which may be entered into with the Crew and, if applicable conducting union negotiations; |
(viii) | operating the Managers drug and alcohol policy unless otherwise agreed. |
3.2 | Technical Management |
(only applicable if agreed according to Box 6)
The Managers shall provide technical management which includes, but is not limited to, the following functions:
(i) | provision of competent personnel to supervise the maintenance and general efficiency of the Vessel; |
(ii) | arrangement and supervision of dry dockings, repairs, alterations and the upkeep of the Vessel to the standards required by the Owners provided that the Managers shall be entitled to incur the necessary expenditure to ensure that the Vessel will comply with the law of the flag of the Vessel and of the places where she trades, and all requirements and recommendations of the classification society; |
(iii) | arrangement of the supply of necessary stores, spares and lubricating oil; |
(iv) | appointment of surveyors , service engineers, and technical consultants as the Managers may consider from time to time to be necessary; |
(v) | development, implementation and maintenance of a Safety Management System (SMS) in accordance with the ISM Code (see sub-clauses 4.2 and 5.3) and a Planned Maintenance System ; |
(vi) | Handling any claims against the builder of the Vessel arising out of the relevant shipbuilding contract, if applicable; and |
(vii) | On request by the Owners, obtaining and / or providing the Owners with a copy of any inspection report, survey, valuation or any other similar report prepared by any shipbrokers, surveyors, the Class etc. |
3.3 | Commercial Management |
(only applicable if agreed according to Box 7)
The Managers shall provide the commercial operation of the Vessel, as required by the Owners, which includes, but is not limited to, the following functions:
(i) | providing chartering services in accordance with the Owners instructions which include, but are not limited to, developing and seeking and negotiating employment for the Vessel and the conclusion (including the execution thereof) of charter parties or other contracts relating to the employment of the Vessel, If such a contract exceeds the period stated in Box 13, consent thereto in writing shall first be obtained from the Owners. |
(ii) | arranging of the proper payment to Owners or their nominees of all hire and/or freight revenues or other moneys of whatsoever nature to which Owners may be entitled arising out of the employment of or otherwise in connection with the Vessel; |
(iii) | providing voyage estimates and accounts and calculating of hire, freights, demurrage and/or despatch moneys due from or due to the charterers of the Vessel; |
(iv) | issuing of voyage instructions and monitoring voyage performance ; |
(v) | appointing agents; |
(vi) | appointing stevedores; |
(vii) | arranging surveys associated with the commercial operation of the Vessel; |
( viii) | carrying out the necessary communications with the shippers, charterers and others involved with the receiving and handling of the Vessel at the relevant loading and discharging ports, including sending any notices required under the terms of the Vessels employment at the time; |
( ix) | invoicing on behalf of the Owners all freights, hires, demurrages, outgoing claims, refund of taxes, balances of disbursements, statements of account and other sums due to the Owners and account receivables arising from the operation of the Vessel and, upon the request of the Owners, issuing releases on behalf of the Owners upon receipt of payment or settlement of any such amounts; |
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(x) | preparing off-hire statements and/or hire statements; |
(xi) | conducting Ship Shore Compatibility studies and procuring and arranging for port/terminal entrance and clearance, pilots, consular approvals and other services necessary for the management and safe operation of the Vessel; and |
(xii) | reporting to the Owners of any major casualties, damages received or caused by the Vessel or any major release or discharge of oil or other hazardous material not in compliance with any laws. |
3.4 | Insurance Arrangements |
(only applicable if agreed according to Box 8)
The Managers shall arrange insurances in accordance with Clause 6, on such terms and conditions as the Owners shall have instructed or agreed, in particular regarding, conditions, insured values, deductibles and franchises.
3.5 | Accounting Services |
(only applicable if agreed according to Box 9)
The Managers shall:
(i) | establish an accounting system which meets the reasonable requirements of the Owners and provide regular accounting services, supply regular reports and records, |
(ii) | maintain the records of all costs and expenditure incurred as well as data necessary or proper for the settlement of accounts between the parties. |
3.6 | Sale or Purchase of the Vessel |
(only applicable if agreed according to Box 10)
The Managers shall, in accordance with the Owners instructions, supervise the sale or purchase of the Vessel, including the performance of any sale or purchase agreement, but not including negotiation of the same.
3.7 | Provisions |
(only applicable if agreed according to Box 11)
The Managers shall arrange for the supply of provisions.
3.8 | Bunkering |
(only applicable if agreed according to Box 12 )
The Managers shall arrange for the provision of bunker fuel of the quality specified by the Owners as required for the Vessels trade.
4. | Managers Obligations |
4.1 | The Managers undertake to use their best endeavours to provide the agreed Management Services as agents for and on behalf of the Owners in accordance with sound ship management practice and to protect and promote the interests of the Owners in all matters relating to the provision of services hereunder. Provided, however, that the Managers in the performance of their management responsibilities under this Agreement shall be entitled to have regard to their overall responsibility in relation to all vessels as may from time to time be entrusted to their management and in particular, but without prejudice to the generality of the foregoing, the Managers shall be entitled to allocate available supplies, manpower and services in such manner as in the prevailing circumstances the Managers in their absolute discretion consider to be fair and reasonable. |
4.2 |
Where the Managers are providing Technical Management in accordance with sub-clause 3.2, they shall procure that the requirements of the law of the flag
and Charterers
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5. | Owners Obligations |
5.1 | The Owners shall pay all sums due to the Managers punctually in accordance with the terms of this Agreement. |
5.2 | Where the Managers are providing Technical Management in accordance with sub-clause 3.2, the Owners shall: |
(i) | procure that all officers and ratings supplied by them or on their behalf comply with the requirements of STCW 95; |
(ii) | instruct such officers and ratings to obey all reasonable orders of the Managers in connection with the operation of the Managers safety management system. |
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6. | Insurance Policies |
The Owners shall procure, whether by instructing the Managers under sub-clause 3.4 or otherwise, that throughout the period of this Agreement:
6.1 | at the Owners expense, the Vessel is insured for not less than her sound market value or entered for her full gross tonnage, as the case may be for: |
(i) | usual hull and machinery marine risks (including crew negligence) and excess liabilities; |
(ii) | protection and indemnity risks (including pollution risks and Crew Insurances); and |
(iii) | war risks (including protection and indemnity and crew risks); and |
(iv) | any other insurance that the Owners determine or the Managers advise them in writing that, in either case, it is prudent or, as the case may be, appropriate on the basis of prevailing market practices to be obtained in respect of the Vessel, its freight/hire or any third party liabilities, in each case in accordance with the best practice of prudent owners of vessels of a similar type to the Vessel, with first class insurance companies, underwriters or associations (the Owners Insurances); |
6.2 | all premiums and calls on the Owners Insurances are paid promptly by their due date, |
6.3 | the Owners Insurances name the Managers and, subject to underwriters agreement, any third party designated by the Managers as a joint assured, with full cover, with the Owners obtaining cover in respect of each of the insurances specified in sub-clause 6.1: |
(i) |
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(ii) | if reasonably obtainable, on terms such that neither the Managers nor any such third party shall be under any liability in respect of premiums or calls arising in connection with the Owners Insurances; or |
(iii) |
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Indicate alternative (i), (ii) or (iii) in Box 14. If Box 14 is left blank then (i) applies.
6.4 | written evidence is provided, to the reasonable satisfaction of the Managers, of their compliance with their obligations under Clause 6 within a reasonable time of the commencement of the Agreement, and of each renewal date and, if specifically requested, of each payment date of the Owners Insurances. |
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7. | Income Collected and Expenses Paid on Behalf of Owners |
7.1 | All moneys collected by the Managers under the terms of this Agreement (other than moneys payable by the Owners to the Managers) and any interest thereon shall be held to the credit of the Owners in a separate bank account. |
7.2 | All expenses incurred by the Managers under the terms of this Agreement on behalf of the Owners (including expenses as provided in Clause 8) may be debited against the Owners in the account referred to under sub-clause 7.1 but shall in any event remain payable by the Owners to the Managers on demand. Furthermore and without prejudice to the generality of the provisions of this Clause 7, the Managers shall, subject to being placed in funds by the Owners, arrange for the payment of all ordinary charges incurred in connection with the Management Services, including, but not limited to, all canal tolls, port charges, amounts due to any governmental authority with respect to the Crew and all duties and taxes in respect of the Vessel, the cargo, hire or freight (whether levied against the Owners), insurance premiums, advances of balances of disbursements, invoices for bunkers, stores, spares, provisions, repairs and any other material and/or service in respect of the Vessel. |
8. | Management Fee |
8.1 |
The Owners shall pay to the Managers for their services as Managers under this Agreement an annual management fee as stated in Box 15 which shall be payable by equal
quarterly
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8.2 |
The management fee shall be subject
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8.3 | The Managers shall, at no extra cost to the Owners, provide their own office accommodation, office staff, facilities and stationery. Without limiting the generality of Clause 7 the Owners shall reimburse the Managers for postage and communication expenses, travelling expenses, and other out of pocket expenses properly incurred by the Managers in pursuance of the Management Services. |
8.4 | In the event of the appointment of the Managers being terminated by the Owners or the Managers in accordance with the provisions of Clauses 17 and 18 other than by reason of default by the Managers, or if the Vessel is lost, sold or otherwise disposed of, the management fee payable to the Managers according to the provisions of sub-clause 8.1, shall continue to be payable for a further period of three calendar months as from the termination date. In addition, provided that the Managers provide Crew for the Vessel in accordance with sub-clause- 3,1: |
(i) | the Owners shall continue to pay Crew Support Costs during the said further period of three calendar months and |
(ii) | the Owners shall pay an equitable proportion of any Severance Costs which may materialize, not exceeding the amount stated in Box 16. |
8.5 | If the Owners decide to lay up the Vessel whilst this Agreement remains in force and such lay up lasts for more than three months, an appropriate reduction of the management fee for the period exceeding three months until one month before the Vessel is again put into service shall be mutually agreed between the parties. |
8.6 | Unless otherwise agreed in writing all discounts and commissions obtained by the Managers in the course of the management of the Vessel shall be credited to the Owners. |
9. | Budgets and Management of Funds |
9.1 |
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9.2 |
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9.3 | Following the agreement of the budget, the Managers shall prepare and present to the Owners their estimate of the working capital requirement of the Vessel and the Managers shall each month update this estimate. Based thereon, the Managers shall each month request the Owners in writing for the funds required to run the Vessel for the ensuing month, including the payment of any occasional or extraordinary item of expenditure, such as emergency repair costs, additional insurance premiums, bunkers or provisions. Such funds shall be received by the Managers within ten running days after the receipt by the Owners of the Managers written request and shall be held to the credit of the Owners in a separate bank account in the name of the Managers or, if requested by the Managers, in the name of the Owners. |
9.4 | The Managers shall produce a comparison between budgeted and actual income and expenditure of the Vessel in such form as required by the Owners monthly or at such other intervals as mutually agreed. |
9.5 | Notwithstanding anything contained herein to the contrary, the Managers shall in no circumstances be required to use or commit their own funds to finance the provision of the Management Services. |
10. | Managers Right to Sub-Contract |
The Managers shall not have the right to sub-contract any of their obligations hereunder, including those mentioned in sub-clause 3.1, without the prior written consent of the Owners which shall not be unreasonably withheld. In the event of such a sub-contract the Managers shall remain fully liable for the due performance of their obligations under this Agreement.
11. | Responsibilities |
11.1 | Force Majeure - Neither the Owners nor the Managers shall be under any liability for any failure to perform any of their obligations hereunder by reason of any cause whatsoever of any nature or kind beyond their reasonable control. |
11.2 | Liability to Owners - (i) Without prejudice to sub-clause 11.1, the Managers shall be under no liability whatsoever to the Owners for any loss, damage, delay or expense of whatsoever nature, whether direct or indirect (including but not limited to loss of profit arising out of or in connection with detention of or delay to the Vessel) and howsoever arising in the course of performance of the Management Services UNLESS same is proved to have resulted solely from the negligence, gross negligence or wilful default of the Managers or their employees, or agents or sub-contractors employed by them in connection with the Vessel, in which case (save where loss, damage, delay or expense has resulted from the Managers personal act or omission committed with the intent to cause same or recklessly and with knowledge that such loss, damage, delay or expense would probably result) the Managers liability for each incident or series of incidents giving rise to a claim or claims shall never exceed a total of ten times the annual management fee payable hereunder. |
(ii) Notwithstanding anything that may appear to the contrary in this Agreement, the Managers shall not be liable for any of the actions of the Crew, even if such actions are negligent, grossly negligent or wilful, except only to the extent that they are shown to have resulted from a failure by the Managers to discharge their obligations under sub-clause 3.1, in which case their liability shall be limited in accordance with the terms of this Clause 11.
11.3 | Indemnity - Except to the extent and solely for the amount therein set out that the Managers would be liable under sub-clause 11.2, the Owners hereby undertake to keep the Managers and their employees, agents and sub-contractors indemnified and to hold them harmless against all actions, proceedings, claims, demands or liabilities whatsoever or howsoever arising which may be brought against them or incurred or suffered by them arising out of or in connection with the performance of the Agreement, and against and in respect of all costs, losses, damages and expenses (including legal costs and expenses on a full indemnity basis) which the Managers may suffer or incur (either directly or indirectly) in the course of the performance of this Agreement. |
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11.4 | Himalaya It is hereby expressly agreed that no employee or agent of the Managers (including every sub-contractor from time to time employed by the Managers) shall in any circumstances whatsoever be under any liability whatsoever to the Owners for any loss, damage or delay of whatsoever kind arising or resulting directly or indirectly from any act, neglect or default on his part while acting in the course of or in connection with his employment and, without prejudice to the generality of the foregoing provisions in this Clause 11, every exemption, limitation, condition and liberty herein contained and every right, exemption from liability, defence and immunity of whatsoever nature applicable to the Managers or to which the Managers are entitled hereunder shall also be available and shall extend to protect every such employee or agent of the Managers acting as aforesaid and for the purpose of all the foregoing provisions of this Clause 11 the Managers are or shall be deemed to be acting as agent or trustee on behalf of and for the benefit of all persons who are or might be their servants or agents from time to time (including sub-contractors as aforesaid) and all such persons shall to this extent be or be deemed to be parties to this Agreement. |
12. | Documentation |
Where the Managers are providing Technical Management in accordance with sub-clause 3.2 and/or Crew Management in accordance with sub-clause 3.1, they shall make available, upon Owners request, all documentation and records related to the Safety Management System (SMS) and/or the Crew which the Owners need in order to demonstrate compliance with the ISM Code, and STCW 95 or to defend a claim against a third party.
13. | General Administration |
13.1 | The Managers shall handle and settle all claims arising out of the Management Services hereunder and keep the Owners informed regarding any incident of which the Managers become aware which gives or may give rise to claims or disputes involving third parties. |
13.2 | The Managers shall, as instructed by the Owners, bring or defend actions, suits or proceedings in connection with matters entrusted to the Managers according to this Agreement. |
13.3 | The Managers shall also have power to obtain legal or technical or other outside expert advice in relation to the handling and settlement of claims and disputes or all other matters affecting the interests of the Owners in respect of the Vessel. |
13.4 | The Owners shall arrange for the provision of any necessary guarantee bond or other security. |
13.5 | Any costs reasonably incurred by the Managers in carrying out their obligations according to Clause 13 shall be reimbursed by the Owners. |
14. | Auditing |
The Managers shall at all times maintain and keep true and correct accounts and shall make the same available for inspection and auditing by the Owners at such times as may be mutually agreed. On the termination, for whatever reasons, of this Agreement, the Managers shall release to the Owners, if so requested, the originals where possible, or otherwise certified copies, of all such accounts and all documents specifically relating to the Vessel and her operation.
15. | Inspection of Vessel |
The Owners shall have the right at any time after giving reasonable notice to the Managers to inspect the Vessel for any reason they consider necessary.
16. | Compliance with Laws and Regulations |
The Managers will not do or permit to be done anything which might cause any breach or infringement of the laws and regulations of the Vessels flag, or of the places where she trades.
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17. | Duration of the Agreement |
This Agreement shall come into effect on the day and year stated in Box 4 and
shall continue until the date stated in Box 17
. Thereafter it shall automatically renew for an eight-year period and shall thereafter be extended in additional eight-year increments if notice of termination is not provided by the Owners in the
fourth quarter of the year immediately preceding the end of the respective term
. Thereafter it shall continue until terminated by either party giving to the other notice in writing, in which event the Agreement shall terminate upon
the expiration of a period of two months from the date upon which such notice was given.
18. | Termination |
18.1 | Owners default |
(i) |
The Managers shall be entitled to terminate the Agreement with immediate effect by notice in writing if any moneys payable by the Owners under this Agreement and/or the owners of any associated vessel,
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(ii) | If the Owners: |
(a) | fail to meet their obligations under sub-clauses 5.2 and 5.3 of this Agreement for any reason within their control, or |
(b) | proceed with the employment of or continue to employ the Vessel in the carriage of contraband, blockade running, or in an unlawful trade, or on a voyage which in the reasonable opinion of the Managers is unduly hazardous or improper, the Managers may give notice of the default to the Owners, requiring them to remedy it as soon as practically possible. In the event that the Owners fail to remedy it within a reasonable time to the satisfaction of the Managers, the Managers shall be entitled to terminate the Agreement with immediate effect by notice in writing. |
18.2 | Managers Default |
If the Managers fail to meet their obligations under Clauses 3 and 4 of this Agreement for any reason within the control of the Managers, the Owners may give notice to the Managers of the default, requiring them to remedy it within as soon as practically possible. In the event that the Managers fail to remedy it within a reasonable time to the satisfaction of the Owners, the Owners shall be entitled to terminate the Agreement with immediate effect by notice in writing.
18.3 | Extraordinary Termination |
This Agreement shall be deemed to be terminated in the case of the sale of the Vessel or if the Vessel becomes a total loss or is declared as a constructive or compromised or arranged total loss or is requisitioned.
18.4 | For the purpose of sub-clause 18.3 hereof |
(i) | the date upon which the Vessel is to be treated as having been sold or otherwise disposed of shall be the date on which the Owners cease to be registered as Owners of the Vessel; |
(ii) | the Vessel shall not be deemed to be lost unless either she has become an actual total loss or agreement has been reached with her underwriters in respect of her constructive, compromised or arranged total loss or if such agreement with her underwriters is not reached it is adjudged by a competent tribunal that a constructive loss of the Vessel has occurred. |
18.5 | This Agreement shall terminate forthwith in the event of an order being made or resolution passed for the winding up, dissolution, liquidation or bankruptcy of either party (otherwise than for the purpose of reconstruction or amalgamation) or if a receiver is appointed, or if it suspends payment, ceases to carry on business or makes any special arrangement or composition with its creditors. |
18.6 | The termination of this Agreement shall be without prejudice to all rights accrued due between the parties prior to the date of termination. |
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19. | Law and Arbitration |
19.1 | This Agreement shall be governed by and construed in accordance with English law, and any dispute arising out of or in connection with this Agreement shall be referred to arbitration in London in accordance with the Arbitration Act 1996- or any statutory modification or re-enactment thereof save to the extent necessary to give effect to the provisions of this Clause. The arbitration shall be conducted in accordance with the London Maritime Arbitrators Association (LMAA) Terms current at the time when the arbitration proceedings are commenced. The reference shall be to three arbitrators. A party wishing to refer a dispute to arbitration shall appoint its arbitrator and send notice of such appointment in writing to the other party requiring the other party to appoint its own arbitrator within 14 calendar days of that notice and stating that it will appoint its arbitrator as sole arbitrator unless the other party appoints its own arbitrator and gives notice that it has done so within the 14 days specified. If the other party does not appoint its own arbitrator and give notice that it has done so within the 14 days specified, the party referring a dispute to arbitration may, without the requirement of any further prior notice to the other party, appoint its arbitrator as sole arbitrator and shall advise the other party accordingly. The award of a sole arbitrator shall be binding on both parties as if he had been appointed by agreement. Nothing herein shall prevent the parties agreeing in writing to vary these provisions to provide for the appointment of a sole arbitrator. In cases where neither the claim nor any counterclaim exceeds the sum of USD50,000 (or such other sum as the parties may agree) the arbitration shall be conducted in accordance with the LMAA Small Claims Procedure current at the time when the arbitration proceedings are commenced. |
19.2 |
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19.3 |
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19.4 | If Box 18 in Part I is not appropriately filled in, sub-clause 19.1 of this Clause shall apply. Note: 19.1, 19.2 and 19.3 are alternatives; indicate alternative agreed in Box 18. |
20. | Notices |
20.1 |
Any notice to be given by either party to the other party shall be in writing and may be sent by
email,
fax,
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20.2 | The address of the Parties for service of such communication shall be as stated in Boxes 19 and 20, respectively. |
21. | Administrative Services |
The Manager shall provide certain general administrative services to the Owners, including, but not limited to, the following:
(a) keeping all books and records of things done and transactions performed on behalf of the Owners as it may require from time to time, including, but not limited to, liaising with accountants, lawyers and other professional advisors;
(b) except as otherwise contemplated herein, representing the Owner generally in its dealings and relations with third parties;
(c) maintaining the general ledgers of the Owner, establishing bank accounts with such financial institutions as may be requested, managing, administering and reconciling of bank accounts, preparation of periodic financial statements, including, but not limited to, those required for governmental and regulatory or self-regulatory agency filings and reports to shareholders, arranging of the auditing and/or review of any such financial statements and the provision of related data processing services as required;
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(d) preparing and providing (or procuring, at the Owners cost) tax returns required by any law or regulatory authority and developing, maintaining and monitoring internal audit controls;
(e) providing office accommodation, office staff (including secretarial and administrative assistance), facilities and stationery;
(f) maintaining, at the Owners cost, corporate existence, qualification and good standing in all necessary jurisdictions and assisting in all other corporate and regulatory compliance requirements;
(g) negotiating the terms and thereafter arranging for cash management services and/or hedging arrangements, in each case with a third party provider at the cost of the Owner.
(h) providing any such other administrative services as may be requested and the Manager may agree to provide from time to time.
(i) Negotiate, at the Owners request, loan and credit terms with lenders and monitor and maintain compliance therewith and in addition negotiate and arrange, at the Owners request, for interest rate swap agreements, foreign currency contracts, forward exchange contracts and any other hedging arrangements;
(j) Provide, or arrange for the provision of, information technology services
22. | Commercial Services |
In addition to any commercial services provided under this Agreement, the Manager shall provide the following commercial services to the Owners:
(a) managing relationships between the Owners and any existing or potential charterers, shipbuilders, insurers, lenders, investors, fund managers, shareholders and other shipping industry service providers/participants; and
(b) providing certain services in connection with taking physical delivery of the vessel, if applicable, registering a vessel under a ship register, tendering physical delivery of a Vessel or deleting a Vessel from the applicable port of registry, in each case on behalf of the Owners.
23. | Management Fees |
23.1 | In consideration of the Manager providing the services herein, the Owners shall pay the Manager the following management fee: |
(a) A fee of US$2,500 per day per Vessel, payable quarterly in arrears (pro rated to reflect the number of days that the Owners owns the Vessel during the applicable quarter);
(b) a fee equal to 1.25% calculated on the aggregate of the gross freight, charter hire, ballast bonus or other income obtained for the employment of the Vessel during the term of this Agreement, payable to the Manager monthly in arrears, only to the extent such freight, charter hire, ballast bonus or other income, as the case may be, is received as revenue. Such fee will be payable in USD. For the avoidance of any doubt and regardless of anything stipulated in this Agreement, chartering commissions shall survive the termination of this agreement under all circumstances until the termination of the charter party in force at the time or termination of any other employment arranged;
23.2 | The Management Fees will be fixed for the period commencing on the date the stipulated in Box 4 (the Commencement Date) and ending on the last day of the calendar year (the Initial Year). For the 12-month period starting on the day falling immediately after 31st December of the Initial Year and for each subsequent calendar year falling thereafter (each such 12-month period referred to hereinafter as an Annual Period), the Management Fee for the Vessel payable pursuant to this clause will be adjusted upwards with effect from the beginning of such Annual Period by application, to the relevant per Vessel amount, of a percentage figure equal to three per cent (3%), PROVIDED ALWAYS, that in the event of any of the provisions of Section 23.2 applying, further increases may be applied to such Management Fees as determined pursuant to Section 23.2. |
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23.3 | The Management Fees for the Vessel payable pursuant to this clause, for the Annual Period commencing on the day falling immediately after the end of the Initial Year and each subsequent Annual Period thereafter, will, in each case, be further adjusted upwards with effect from the beginning of such Annual Period if the Manager has incurred a material unforeseen increase in the cost of providing the management services, by an amount to he agreed between the Manager and the Owners, each acting in a commercially reasonable manner. |
23.4 | The Owners hereby acknowledge that any capital expenditure, financial costs, operating expenses for the Vessel and any general and administrative expenses of the Owners whatsoever are not covered by the management fees and any such expenditure, costs and expenses shall be paid fully by the Owners, whether directly to third parties or by payment to such third parties through the Manager and to the extent incurred by the Manager, shall he reimbursed to it by the Owners. The said capital expenditure, financial costs, operating expenses for the Vessel and general and administrative expenses include, without limiting the generality of the foregoing, items such as: |
(a) fees, interest, principal and any other costs due to the Owners financiers and their respective advisors;
(b) all voyage expenses and vessel operating and maintenance expenses relating to the operation and management of the Vessels (including Crew costs, surveyors attendance fees, bunkers, lubricant oils, spares, survey fees, classification society fees, maintenance and repair costs, vetting expenses, etc.);
(c) any commissions, fees, remuneration or disbursements due to lawyers, brokers, agents, surveyors, consultants, financial advisors, investment bankers, auditors, insurance advisors or any other third parties whatsoever appointed by the Manager whether in its name or on behalf and/or in the name of the Owners;
(d) applicable deductibles, insurance premiums and/or P&I calls;
(e) postage, communication, traveling, lodging, victualing, overtime, out of office compensation and out of pocket expenses of the Manager and/or its personnel, incurred in pursuance of the services; and
(f) any other out of pocket expenses that are incurred by the Manager in the performance of the services pursuant to this Agreement and Supervision Agreement.
23.5 | At their sole discretion the Owner on an annual basis in order to provide the Managers with a performance incentive, may make a payment to the Managers of an incentive fee in addition to the management fee. |
24. | Incentive Fee |
24.1 | At their sole discretion the Owners on an annual basis in order to provide the Managers with a performance incentive, may make a payment to the Managers of an incentive fee in addition to the management fee. |
25. | Termination After Change of Control |
25.1 | This Agreement will terminate automatically immediately after a change of control (as defined below) of the Owners and/or of the Owners ultimate parent. Upon such termination, the Owners will be required to pay the Manager the Termination Payment in a single Installment. |
For the purpose of this Agreement Change of Control means the occurrence of any of the following:
(i) The acquisition by any individual, entity or group of beneficial ownership of fifty (50) percent (%) or more of either (A) the then-outstanding shares of stock of the Owner and/or the Owners ultimate parent or (B) the combined voting power of the then-outstanding voting securities of the Owner and/or the Owners ultimate parent entitled to vote generally in the election of directors;
(ii) The consummation of a reorganization, merger or consolidation of Owner and/or the Owners ultimate parent or the sale or other disposition of all or substantially all of the assets of Owner and/or Owners ultimate parent.
(iii) The approval by the shareholders of Owner and/or the Owners ultimate parent of a complete liquidation or dissolution of Owner and/or the Owners ultimate parent.
Further, for the purpose of this Agreement Termination Payment means a payment to be received by the Manager in the event of a Change of Control. Such payment shall be equal to the estimated remaining fees payable to the Manager under the then current term of the agreement but in any case shall not be less than for a period of 36 months and not more than a period of 60 months.
11
ANNEX A (DETAILS OF VESSEL OR VESSELS) TO
THE BALTIC AND INTERNATIONAL MARITIME COUNCIL (BIMCO)
STANDARD SHIP MANAGEMENT AGREEMENT - CODE NAME: SHIPMAN 98
Date of Agreement | : | December 21, 2012 | ||
Name of Vessel(s) | : | Clean Force | ||
Particulars of Vessel(s) | : |
149,700 cubic meters membrane LNG carrier 288 meters LOA Breadth Moulded 44.2 meters |
Addendum No. 1
Dated 7 th October 2013
to the
Management Agreement dated December 21 st , 2012 (the Management Agreement)
Between Seacrown Maritime Ltd. (the Owners)
and
Dynagas LTD. (the Managers)
with respects to the LNG carrier Clean Force (the Vessel)
WHEREAS:
The Owners and the Managers have entered into the Management Agreement in connection with the vessel.
It is deemed appropriate that Article 24 (Incentive Fee) is deleted as agreed herein for the purposes of clarity.
IT IS HEREBY MUTUALLY AGREED
That the following clause shall be deleted, with retroactive effect from 1 st January 2013.
Clause 24 Incentive Fee, including subclause 24.1 At their sole discretion the Owners on an annual basis in order to provide the Managers with a performance incentive, may make a payment to the Managers of an incentive fee in addition to the management fee.
All other terms and conditions of the Management Agreement to remain unaltered, fully enforced and effective.
In witness whereof, this Addendum has been executed on 7 th October, 2013, with retroactive effect from 1 st January 2013.
For the Owners | For the Managers | |||
/s/ Illegible | /s/ Illegible | |||
|
|
Exhibit 10.8
SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT FOR THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH FIVE ASTERISKS (*****).
STRICTLY CONFIDENTIAL
Execution Copy
DATED 02 AUGUST 2011
LNG CARRIER TIME CHARTERPARTY
between
LANCE SHIPPING S.A.
and
GAZPROM GLOBAL LNG LIMITED
TIME CHARTERPARTY
LNG CARRIER
CLEAN POWER
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TABLE OF CONTENTS
1. |
Description and Condition of Vessel |
4 | ||||
2. |
Shipboard Personnel and their Duties |
6 | ||||
3. |
Duty to Maintain |
8 | ||||
4. |
Period, Trading Limits and Safe Places |
9 | ||||
5. |
Bunkers and LNG Heel at Delivery and Redelivery |
11 | ||||
6. |
Grade of Bunkers |
13 | ||||
7. |
Delivery, Redelivery, Laydays and Cancelling |
14 | ||||
8. |
Owners to Provide |
15 | ||||
9. |
Charterers to Provide |
15 | ||||
10. |
Rate of Hire |
16 | ||||
11. |
Payments |
16 | ||||
12. |
Space Available to Charterers |
18 | ||||
13. |
Instructions and Logs |
18 | ||||
14. |
Bills of Lading |
18 | ||||
15. |
Conduct of Vessels Personnel |
19 | ||||
16. |
LNG Retention/Supply for Operational Purposes |
19 | ||||
17. |
Pilots and Tugs |
20 | ||||
18. |
Super-Numeraries |
20 | ||||
19. |
Sub-letting/Assignment/Novation |
21 | ||||
20. |
Final Voyage |
21 | ||||
21. |
Loss of Vessel |
21 | ||||
22. |
Off-hire |
22 | ||||
23. |
Ship to Ship Transfers |
26 | ||||
24. |
Periodical Drydocking |
26 | ||||
25. |
Ship Inspection |
28 | ||||
26. |
Key Vessel Performance Criteria |
29 | ||||
27. |
Salvage |
30 | ||||
28. |
Lien |
30 | ||||
29. |
Exceptions |
31 | ||||
30. |
Injurious Cargoes |
32 | ||||
31. |
Disbursements |
32 |
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32. |
Laying-up - Deleted |
32 | ||||
33. |
Requisition |
32 | ||||
34. |
Outbreak of War |
32 | ||||
35. |
Additional War Expenses |
32 | ||||
36. |
War Risks |
33 | ||||
37. |
Both to Blame Collision Clause |
35 | ||||
38. |
New Jason Clause |
35 | ||||
39. |
Clause Paramount |
36 | ||||
40. |
Insurance/ITOPF |
37 | ||||
41. |
Export Restrictions |
37 | ||||
42. |
General |
38 | ||||
43. |
Drugs and Alcohol |
38 | ||||
44. |
Pollution and Emergency Response |
38 | ||||
45. |
ISPS Code/USMTSA 2002 |
39 | ||||
46. |
Routing |
40 | ||||
47. |
Owners Representations, Warranties and Undertakings |
41 | ||||
48. |
Consequential Losses |
42 | ||||
49. |
Law and Litigation |
42 | ||||
50. |
Confidentiality |
43 | ||||
51. |
Construction |
44 | ||||
52. |
Notices |
45 | ||||
54. |
Definitions |
47 | ||||
55. |
Additional Clauses |
49 | ||||
APPENDIX 1 - Gas Form |
50 | |||||
APPENDIX 2 - Primary Terminals |
60 | |||||
APPENDIX 3 - Detailed Performance Criteria |
63 | |||||
APPENDIX 4 - Experience Matrix |
73 | |||||
APPENDIX 5 - Safety And Environmental Monthly Reporting Template |
74 | |||||
APPENDIX 6 - Letter Of Indemnity |
77 |
Page 3 of 78
STRICTLY CONFIDENTIAL
TIME CHARTER PARTY
IT IS THIS DAY AGREED between
A | Lance Shipping S.A., a company incorporated under the laws of Marshall Islands and having its registered office at Ajeltake Road. Ajeltake Island, Majuro, 96960 Marshall Islands (hereinafter referred to as Owners), being owners of the good steam Liquefied Natural Gas carrier called CLEAN POWER (hereinafter referred to as the Vessel) described as per Clause 1 hereof and |
B | Gazprom Global LNG Limited, a limited liability company incorporated under the laws of England and having its registered office at 20 Triton Street, London, NW1 3BF, United Kingdom (hereinafter referred to as Charterers): |
1. | Description and Condition of Vessel |
At the date of delivery of the Vessel under this charter and throughout the charter period:
(a) | she shall be classed by a Classification Society, which is a member of the International Association of Classification Societies; |
(b) | if she is fifteen years old or over she shall obtain and maintain a Condition Assessment Programme (CAP) of not worse than two (2); |
(c) | she shall be in every way fit to load, carry, store, discharge and measure Liquefied Natural Gas (LNG). |
(d) | she shall be tight, staunch, strong, in good order and condition, and in every way fit for the service, with her machinery, boilers, hull and other equipment (including but not limited to hull stress calculator, radar, computers and computer systems) in a good and efficient state; |
(e) | her tanks, valves, manifolds and pipelines shall be liquid and gas tight; |
(f) | she shall be in every way fitted for burning, in accordance with the grades specified in Clause 6 hereof: |
(i) | at sea, HFO and LSFO in any proportion with Boil-Off for main propulsion and HFO, LSFO and MGO for auxiliaries as ordered by Charterers, and for storing fuels of such grades in segregated storage tanks; |
(ii) | in port, HFO in her boilers and MGO for auxiliaries; |
(g) | she shall have all her cargo measuring equipment and instrumentation calibrated and certified by an approved surveyor, and this shall be verified (if required by Charterers) by an approved surveyor at each load port; |
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(h) | she shall have her insulation spaces prepared and maintained as per her containment system design conditions as set by relevant manufacturer and licensor; |
(i) | she shall comply with the regulations in force so as to enable her, if her size permits, to pass through the Suez Canal and the Panama Canal (after the planned expansion) and Magellan and Great Belt straits by day and night without delay; |
(j) | she shall have on board all certificates, documents and equipment required from time to time by any applicable law to enable her to perform the charter service between Primary Terminals without delay or interruption, including without limitation such certificates, documents and equipment as are required to comply with the laws and regulations of any ECA when directed by Charterers. For the avoidance of doubt this will include, but will not be limited to, the Vessels Certificate of Financial Responsibility; |
(k) | she shall comply with the description in the Gas Form appended hereto as Appendix 1, provided however that if there is any conflict between the provisions of this questionnaire and any other provision, including this Clause 1, of this charter such other provisions shall govern; |
(l) | her ownership structure, flag, registry, classification society and management company shall not be changed; |
Safety Management
(m) | Owners will operate: |
(i) | a safety management system certified to comply with the International Safety Management Code (ISM Code) for the Safe Operation of Ships and for Pollution Prevention; |
(ii) | a documented safe working procedures system (including procedures for the identification and mitigation of risks); |
(iii) | a documented environmental management system; and |
(iv) | a documented accident/incident reporting system compliant with flag state requirements. |
(n) | Owners shall submit to Charterers a monthly written report on or before the tenth day of the subsequent month, detailing all accidents/incidents and environmental reporting requirements, in accordance with the Safety and Environmental Monthly Reporting Template appended hereto as Appendix 5 and shall promptly submit to Charterers any details and reports of any Port State Control inspections, Conditions of Class imposed by the Vessels Classification Society(ies), incidents involving the Vessel or any other LNG vessels under the same technical or commercial management or any changes to the Experience Matrix in Appendix 4; |
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(o) | Owners shall maintain Health Safety Environmental (HSE) records sufficient to demonstrate compliance with the requirements of their HSE system and of this charter. Charterers reserve the right to confirm compliance with HSE requirements by audit of Owners; and |
(p) | Owners shall ensure that a SIRE inspection report which is less than six (6) months old shall be available on OCIMFs website upon delivery and throughout the term of this charter. The cost of SIRE inspections are for Owners account. |
Trading to the USA & Japan
(q) | If Charterers require the Vessel to call at a port in the United States of America during this Charter, the Owners shall install an AIS Pilot Plug, as defined in and required by the SOLAS regulations. |
(r) | Owners shall ensure that the Vessel is able to trade freely to the United States of America and that the Vessel complies with all applicable U.S. Coast Guard regulations, (including without limitation a Certificate of Compliance with such regulations). If the Certificate of Compliance is not available on delivery of the Vessel, Owners shall procure that an inspection is carried out by the US Coast Guard prior to or on arrival at the first port in the United States of America. |
(s) | Where so required by Charterers, Owners shall ensure that the custody transfer measurement systems on the Vessel comply in all respects with the requirements of the Japanese customs authorities, the classification society Nippon Kaiji Kyokai and any other relevant authorities in Japan having jurisdiction over the measurement or discharge of LNG in Japan. |
2. | Shipboard Personnel and their Duties |
(a) | At the date of delivery of the Vessel under this charter and throughout the charter period: |
(i) | she shall have a full and efficient complement of master, officers and crew for a vessel of her tonnage, who shall in any event be not less than the number required by the laws of the flag state and who shall be trained to operate the Vessel and her equipment competently and safely and, for the senior officers, have the sea-going and LNG experience set out in the Experience Matrix in Appendix 4; |
(ii) |
all shipboard personnel shall hold valid certificates of competence in accordance with the requirements of the law of the flag state, and shall be trained to operate the Vessel and her equipment competently, |
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safely and in accordance with first class international standards for LNG vessels, including SIGTTO LNG Shipping Suggested Competency Standards 2008 (or any subsequent amendments or replacements thereof); |
(iii) | all shipboard personnel shall be trained in accordance with the relevant provisions of the International Convention on Standards of Training, Certification and Watchkeeping for Seafarers, 1995 or any additions, modifications or subsequent versions thereof; |
(iv) | there shall be on board sufficient personnel with a good working knowledge of the English language to enable cargo operations at loading and discharging places to be carried out efficiently and safely and to enable communications between the Vessel and those loading the Vessel or accepting discharge therefrom to be carried out quickly and efficiently; |
(v) | the terms of employment of the Vessels staff and crew will always remain fully compliant with the requirements of the International Transport Workers Federation and the Vessel will at all times be entered in the PanHellenic Seafarerss Union and have on board a Blue Card or equivalent allowing the Vessel to call at all Primary Terminals where such a Blue Card or equivalent is required; and |
(vi) | the nationality of the Vessels officers and crew given in the Gas Form referred to in Clause 1(k) will not change without Charterers prior agreement which shall not be unreasonably withheld. |
(b) | Owners guarantee that throughout the charter service the master shall with the Vessels officers and crew, unless otherwise ordered by Charterers: |
(i) | prosecute all voyages with the utmost despatch; |
(ii) | render all customary assistance; and |
(iii) | load and discharge cargo as rapidly as possible when required by Charterers or their agents to do so, by night or by day, but always in accordance with the laws of the place of loading or discharging (as the case may be) and in each case in accordance with any applicable laws of the flag state. |
(c) | Owners shall at all times have responsibility for the proper docking, loading, stowage and discharging of the cargo and shall keep a strict account of all cargo loaded, boiled off and discharged. |
(d) | Owners shall at all times have responsibility for the proper care and storage of bunkers and shall keep a strict account of all bunkers received and used on board. |
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(e) | Owners shall place on the Vessel at Owners cost: |
(i) | By delivery minimum of two cadets (one deck cadet and one engine cadet) who are nationals of the Russian Federation from the Admiral Makarov State Maritime Academy in St. Petersburg (the Academy); and |
(ii) | By delivery two officers who are nationals of the Russian Federation, provided that the same are available and meet the crewing requirements set out in Clause 2(a) and Owners standard crewing requirements; and |
(iii) | within 12 months of delivery to Charterers under this charter a further two officers who are nationals of the Russian Federation, provided that the same are available and meet the crewing requirements set out in Clause 2(a) and Owners standard crewing requirements. |
so that at all times during the Charter within 12 months of delivery the Vessel shall have four (4) officers and, where possible under the training schedule of the Academy, two (2) cadets who are nationals of the Russian Federation.
Charterers shall provide reasonable assistance to Owners in establishing contact with the Academy and selecting the cadets, and shall encourage the Academy to assist Owners in verifying certificates of Russian nationals that are considered under this sub-clause (e).
3. | Duty to Maintain |
(a) | Throughout the charter period Owners shall, whenever the passage of time, wear and tear or any event (whether or not coming within Clause 29 hereof) that requires steps to be taken to maintain or restore the conditions stipulated in Clauses 1 and 2, exercise due diligence so to maintain or restore these conditions. |
(b) | If at any time whilst the Vessel is on hire under this charter the Vessel fails to comply with the requirements of Clauses 1, 2 or 12 except 2 (d) then hire shall be reduced to the extent necessary to indemnify Charterers for such failure. If and to the extent that such failure affects the time taken by the Vessel to perform any services under this charter, hire shall be reduced by an amount equal to the value, calculated at the rate of hire, of the time so lost. Any reduction of hire under this sub-Clause (b) shall be without prejudice to any other remedy available to Charterers, but where such reduction of hire is in respect of time lost, such time shall be excluded from any calculation under Clause 26 and Appendix 3. |
(c) |
If Owners are in breach of their obligations under Clause 3(a), Charterers may so notify Owners in writing and if, after the expiry of 30 days following |
Page 8 of 78
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the receipt by Owners of any such notice, Owners have failed to demonstrate to Charterers reasonable satisfaction the exercise of due diligence as required in Clause 3(a), the Vessel shall be off-hire, and no further hire payments shall be due, until Owners have so demonstrated that they are exercising such due diligence. |
(d) | Owners shall advise Charterers immediately, in writing, should the Vessel fail an inspection by, but not limited to, a governmental and/or port state authority, and/or terminal and/or major charterer of similar tonnage and/or receives a Condition of Class from the Vessels Classification Society. Owners shall simultaneously advise Charterers of their proposed course of action to remedy the defects, which have caused the failure of such inspection. |
(e) | If, in Charterers reasonably held view: |
(i) | failure of an inspection, or |
(ii) | any finding of an inspection |
referred to in Clause 3(d), prevents normal commercial operations then Charterers have the option to place the Vessel off-hire from the date and time that the Vessel fails such inspection, or becomes commercially inoperable, until the date and time that the Vessel passes a re-inspection by the same organisation, or becomes commercially operable, which shall be in a position no less favourable to Charterers than at which she went off-hire.
(f) | Furthermore, at any time while the Vessel is off-hire under this Clause 3 (with the exception of Clause 3(e)(ii)), Charterers have the option to terminate this charter by giving notice in writing with effect from the date on which such notice of termination is received by Owners or from any later date stated in such notice. This Clause 3(f) is without prejudice to any rights of Charterers or obligations of Owners under this charter or otherwise (including without limitation Charterers rights under Clause 22 hereof). |
4. | Period, Trading Limits and Safe Places |
(a) | Firm Period |
From the time and date of delivery for one thousand eight hundred and twenty five (1,825) days plus or minus up to ten (10) days in Charterers option. This shall be known as the Firm Period.
Optional Period
From the end of and in direct continuation after the Firm Period for up to one hundred and eighty (180) days plus or minus up to ten (10) days in Charterers option. This shall be known as Optional Period and is to be declared by Charterers by no later than one hundred and eighty (180) days prior to the end of the Firm Period.
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Owners agree to let and Charterers agree to hire the Vessel for the Firm Period and, subject to exercise of its option by Charterers, the Optional Period, for the purpose of carrying all lawful merchandise (subject always to Clause 30) including in particular, LNG in any part of the world as Charterers shall direct, subject to the limits of the current British Institute Warranties and any subsequent amendments thereof. Notwithstanding the foregoing, but subject to Clause 36, Charterers may order the Vessel beyond such limits provided that Owners consent thereto (such consent not to be unreasonably withheld) and that Charterers pay for any insurance premium required by the Vessels underwriters or other costs arising as a consequence of such order in accordance with Clause 9 (d).
Notwithstanding any other provision of this charter, the Vessel shall not be obliged to go to any place if the Vessel going to such place would violate any resolution of the United Nations Security Council.
During the course of the charter period Owners and Charterers agree to discuss in good faith the possibility of a further extension to the charter period on the same or different terms. Any such discussion, negotiation or agreement shall be without prejudice to the parties rights and obligations under this charter.
(b) | Any time during which the Vessel is off-hire under this charter may be added to the charter period in Charterers option up to the total amount of time spent off-hire. In such cases the rate of hire will be that prevailing at the time the off-hire occurred, and the additional time shall be treated as part of the period of the charter in which the off-hire occurred. Charterers shall exercise this option no later than ten (10) days after the Vessel is delivered back from each off-hire period. Any periods of off-hire occurring after the time and date on which Charterers have declared their option may be added to the charter period as long as Charterers have declared that they will be so added within three (3) days of the end of the relevant period of off-hire. |
(c) | Charterers shall use due diligence to ensure that the Vessel is only employed between and at safe places (which expression when used in this charter shall include ports, berths, wharves, docks, anchorages, submarine lines, alongside vessels or lighters, bunker barges and other locations including locations at sea) where she can safely lie always afloat. Notwithstanding anything contained in this or any other clause of this charter, Charterers do not warrant the safety of any place to which they order the Vessel and shall be under no liability in respect thereof except for loss or damage caused by their failure to exercise due diligence as aforesaid. Subject as above, the Vessel shall be loaded and discharged at any places as Charterers may direct. |
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(d) | Owners warrant that the Vessel is compatible with the Primary Terminals listed in Appendix 2 for berthing, unberthing, loading and discharging LNG cargo without modification to the Vessel. In the event that modification to the Vessel becomes necessary as a result of changes in international regulations or standards and/or are required by the Vessels Classification Society or Flag State, the cost of such modification shall be for Owners account, and the Vessel shall be off-hire for the time required to effect such modifications unless this can be achieved without affecting the performance of the Vessel under this charter. If the Vessel cannot, by modification, be made compatible with all of the Primary Terminals, within a period of thirty (30) days from delivery, Charterers shall be entitled to terminate this charter on the terms set out in Clauses 3(f) and 22(k). |
(e) | If Charterers so request from time to time, Owners shall agree to perform expeditiously ship-to-shore compatibility (SSC) studies of terminals, including those not listed as Primary Terminals in Appendix 2, and/or obtain confirmations from the relevant authorities at such terminals that the Vessel is compatible and acceptable. All costs, including routine communications, documentation support, such as submission of Gas Form, Optimoor® studies and other data requests, and travel by Owners Representatives to the terminal shall be for Owners account. If, following such compatibility studies, Owners deem a terminal compatible, or if the relevant authorities at the terminal have accepted the Vessel as compatible, such terminal shall be added to the Primary Terminals list in Appendix 2. Charterers shall provide reasonable assistance to Owners in connection with such SSC studies by advising relevant terminals and facilitating contact and discussions between Owners and the terminals. |
(f) | Any unconventional equipment required by terminals, including equipment required for the monsoon season, shall be arranged, supplied and provided by Owners, and the costs thereof shall be borne by Charterers. |
(g) | The Vessel shall not be obliged to call at ports, terminals or places or trade in waters which exposes the Vessel to dangerous levels of Radioactivity to be harmful to human health or the Vessel as determined by the International Atomic Energy Authority and the World Health Organization, provided however, that the decision to enter such ports, terminals, places or waters shall always be in the sole discretion of the Vessels master. |
5. | Bunkers and LNG Heel at Delivery and Redelivery |
(a) | Charterers shall on delivery accept and pay for all bunkers (which shall include HFO, LSFO, MDO and MGO) on board valued at the Fuel Price. |
Owners shall inform Charterers of the estimated quantity of bunkers remaining on board on delivery at the same time as serving the 29 day notice of delivery in accordance with Clause 7(d).
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Charterers shall not bunker the Vessel without Owners approval as long as bunker quantities are within required reserves as stated below, such approval not to be unreasonably withheld. Owner will provide Charterer with bunker re-delivery quantity with sufficient notice to enable Charterer to comply.
The Master shall provide an On-Hire and Off-Hire Certificate containing the ROB numbers for bunkers and LNG Heel upon both delivery and redelivery of the Vessel.
For the avoidance of doubt, the Vessels figures shall be used to ascertain the quantity of all Bunkers on delivery and redelivery. Charterers may request that an independent surveyor shall be appointed to verify the Vessels figures at Charterers costs, in which case the independent surveyors figures shall be final in the absence of manifest error.
*****
(b) | Owners shall on redelivery (whether it occurs at the end of the charter or on the earlier termination of this charter) accept and pay for all bunkers and liquid LNG Heel remaining on board, valued respectively at Fuel Price and LNG Price. The Vessel shall be delivered to Charterers with not less than 1,500tonnes of HFO and not less than 200 tonnes of MGO, and redelivered to Owners with not less than 1,500 tonnes of HFO and not less than100 tonnes of MGO. |
(c) | Throughout the charter the Vessel shall operate with at least the quantity of HFO, MDO, MGO and LNG on board sufficient to prosecute safely each voyage or reach the nearest safe bunker port. The above amount shall be in addition to a safety reserve of fuel oil, which would enable the Vessel to steam at the Service Speed for a total of five (5) days. |
(d) | Notwithstanding anything contained in this charter all bunkers and LNG Heel on board the Vessel shall, throughout the duration of this charter, remain the property of Charterers or their nominee and can only be purchased on the terms specified in the charter at the end of the charter period or, if earlier, at the termination of the charter. |
(e) | The Vessel shall be delivered to Charterers with its cargo tanks (a) containing natural gas vapour and ready for cooldown or (b) cold with retained LNG Heel and ready for loading, at Owners option which option shall be declared fifteen (15) days prior to delivery. If necessary ***** shall provide and pay for LNG for cool down for first loading, and the Vessel shall remain on hire for such cool down for first loading. |
(f) | If Owners exercise the right under Clause 5(e) to deliver the Vessel cold with retained LNG Heel, Charterers shall accept and pay for such LNG Heel valued at the LNG Price up to a maximum of 3,500 cubic meters. |
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(g) | Owner shall have the option to retain up to 3,500 cubic meters of LNG Heel at last discharge port, but shall be obliged to pay Charterers for such LNG Heel retained at the LNG Price, such option to be declared at least 30 days before last discharge. |
(h) | Unless otherwise agreed by Owners and Charterers or pursuant to Clause 5(f), the Vessel shall be redelivered to Owners free of LNG Heel with its cargo tanks containing natural gas vapour only. |
(i) | For the avoidance of doubt Charterers shall not be entitled to require Owners to retain LNG Heel other than as agreed by Owners and Charterers pursuant to (f) and (g) of this Clause. |
6. | Grade of Bunkers |
(a) | Charterers shall supply bunkers whose properties comply with those set out in ISO Standard 8217:2005 for RMG380, with sulphur content always in compliance with Vessels EP notation requirements, and MGO whose properties comply with the standard for DMA. If Owners require the Vessel to be supplied with more expensive bunkers they shall be liable for the extra cost thereof. |
(b) | Should Charterers trade the Vessel into an ECA or into a member state of the EU following the entry into force of the Directive, then the Charterers shall supply fuels: |
(i) | of such specifications and quality that comply with the ECA or Directive requirements as applicable; |
(ii) | from bunker suppliers who comply with Regulations 14 and 18 of MARPOL Annex VI, including the Guidelines in respect of sampling and the provision of bunker delivery notes. |
(c) | Owners warrant, in the event the Vessel trades in an ECA that the Vessel: |
(i) | complies with Regulation 14 and 18 of MARPOL Annex VI and with the requirements of the ECA or the Directive as applicable; |
(ii) | is able to consume fuels of the required sulphur content when ordered by the Charterers to trade within the ECA; and |
(iii) | will provide segregated storage for this fuel. |
(d) | Owners warrant, in the event the Vessel trades into a member state of the EU following the entry into force of the Directive that the Vessel complies with the Directive by being capable of applying one of the following procedures depending on the specific terminals requirements and subject to having sufficient LNG Heel on board, each of which constitutes current LNG industry practice for discharge in EU member states: |
(i) | both boilers operating in gas mode while being alongside, OR |
(ii) | one boiler operating in gas mode and one boiler in dual mode with minimum flow for LSFO pilot flame. |
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Owners will ensure that emissions as a result of this operation according to this clause will not exceed 0.1% sulphur content.
Charterers acknowledge that the procedure (i) under this sub-clause is allowed under the Directive; and the procedure (ii) under this sub-clause is expected to be compliant with the Directive as evident under the EC Question and Answers ( http://ec.europa.eu/environment/air/transport/pdf/ships_faq.pdf ).
(e) | If Charterers supplied the Vessel with fuels in accordance with this clause, the Charterers shall not be liable for any loss, delay, fines, costs or expenses arising or resulting from the Vessels non-compliance with Regulations 14 and 18 of MARPOL Annex VI or any ECA or Directive requirements. |
7. | Delivery, Redelivery, Laydays and Cancelling |
Owners shall deliver the Vessel to Charterers upon dropping last outward pilot at the last discharge port from the voyage preceding this charter.
(a) | Unless otherwise agreed, the Vessel shall not be delivered to Charterers before 0001 hours local time at the place of delivery 1st October 2012, but must be delivered to Charterers no later than 2359 hours local time 30th November 2012. |
Charterers shall have the option of cancelling this charter if the Vessel is not ready and at their disposal on or before 2359 hours local time at the place of delivery on 30th November 2012.
(b) | Where the Vessel has been dry docked during the term of this charter, save where the Vessel is redelivered pursuant to early termination provisions of this charter, Charterers shall redeliver the Vessel to Owners at: one safe anchorage at or passing (i) Gibraltar if the last discharge under this charter takes place at a port west of Suez, and (ii) Singapore if the last discharge under this charter takes place east of Suez, or (iii) some other safe location at Owners option if such location is closer to the last discharge port than Gibraltar or Singapore as the case may be under this Clause. |
(c) | If the Vessel has not been dry docked during the term of this charter, save where the Vessel is redelivered pursuant to early termination provisions of this charter, Charterers shall redeliver the Vessel to Owners at one safe anchorage at or passing Singapore. |
(d) | Owners are required to give Charterers 29 days approximate prior notice of delivery and 15, 10, 7, 5, 4, 3, 2 and 1 days prior notice of delivery and Charterers are required to give Owners 30 days approximate prior notice of redelivery and 15, 10, 7, 5, 4, 3, 2 and 1 days prior notice of redelivery. |
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8. | Owners to Provide |
Owners undertake to provide and to pay for all provisions, wages (including but not limited to all overtime payments), and shipping and discharging fees and all other expenses of the master, officers and crew; also, except as provided in Clauses 4 and 35 hereof, for all insurance on the Vessel, for all deck, cabin and engine-room stores, lubricating oil and water; for all drydocking, overhaul, maintenance and repairs to the Vessel; for all fumigation expenses; and for all certification, vetting and inspections of the Vessel. Owners obligations under this Clause 8 extend to all liabilities for taxes, customs or import duties arising at any time during the performance of this charter in relation to the personal effects of the master, officers and crew, and in relation to the stores, provisions and other matters aforesaid which Owners are to provide and pay for and Owners shall refund to Charterers any sums Charterers or their agents may have paid or been compelled to pay in respect of any such liability. Any amounts allowable in general average for wages and provisions and stores shall be credited to Charterers insofar as such amounts are in respect of a period when the Vessel is on-hire.
9. | Charterers to Provide |
(a) | Charterers shall provide and pay for all HFO, LSFO, MGO and MDO (which includes fuel consumed for the production of nitrogen, production of water, inert gas generation (except when used for gas freeing for drydocking and repairs), main and auxiliary engines and emergency generator when the Vessel is on hire) which must be supplied from a bunker supplier who applies the standards required by a first class operator, towage and pilotage and shall pay agency fees, port charges, commissions, expenses of loading and unloading cargoes, canal dues and all charges other than those payable by Owners in accordance with Clause 8 hereof, provided that all charges for the said items shall be for Owners account when such items are consumed, employed or incurred for Owners purposes or while the Vessel is off-hire (unless such items reasonably relate to any service given or distance made good and taken into account under Clause 22); and provided further that any fuel used in connection with a general average sacrifice or expenditure shall be paid for by Owners. |
(b) | Charterers shall provide Boil-Off to be used by the Vessel as fuel when the Vessel is on hire up to the limits guaranteed in Clause 26(e) and 26(f) at no cost to Owners. All Boil-Off in excess of such limits shall, unless authorised by Charterers, be paid by Owners at the LNG Price in accordance with Appendix 3 Article 8. |
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(c) | In respect of HFO, LSFO and MGO consumed for Owners purposes, including without limitation when the Vessel is off-hire, these will be paid by Owners on each occasion to Charterers at the Fuel Price. |
(d) | The Charterer shall reimburse the Owner for the following: |
(i) any additional insurance premium in accordance with the Charterers voyage instructions, under H&M insurance, war risk insurance or any other type of additional insurance premium required under this Charter, in each case less any reduction, rebate or waiver from the relevant insurance companies, underwriters and Approved Club;
(ii) any voyage-related and port specific charges, including but not limited to OPA 90 charges and additional premiums charged by providers of oil pollution cover when incurred by the Vessel calling at ports in the United States of America and/or its protectorates in accordance with the Charterers orders; and
(iii) the cost of Social Responsibility Insurance for Japan and High Risk Area crew bonus payments, provided that the Charterer is given prior notification of and approves of such payments.
10. | Rate of Hire |
Subject as herein provided, Charterers shall pay for the use and hire of the Vessel during both the Firm Period and Optional Period at the rate of ***** per day (United States Dollars *****), and pro rata for any part of a day from the time and date of her delivery to Charterers until the time and date of redelivery to Owners.
11. | Payments |
(a) | Subject to Clause 3(c) and 3(e), payment of hire, free from general average, shall be made in immediately available funds |
to:
*****
REF: *****
in United States Dollars per calendar month in advance or, in the case of the first hire payment, on delivery of the Vessel to Charterers, in all cases no later than ten (10) Business Days after the receipt of the respective invoice, less:
(i) | any hire paid which Charterers reasonably estimate to relate to off-hire periods or Late arrivals as defined in Appendix 3 Article 2; |
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(ii) | any amounts disbursed on Owners behalf, any advances and commission thereon, and charges which are for Owners account pursuant to any provision hereof; and |
(iii) | any amounts due or reasonably estimated to become due to Charterers under Clause 3(b), 16(c) or 26 hereof, and under Appendix 3 Articles 5 (e) and 7 (d) |
any such adjustments to be made at the due date for the next monthly payment after the facts have been ascertained. All deductions from hire shall be verified by Charterers by production of vouchers or supporting documentation corresponding to the deductions within 30 days after the applicable deduction. Charterers shall not be responsible for any delay or error by Owners bank in crediting Owners account provided that Charterers have made proper and timely payment.
(b) | In default of such proper and timely payment of any of the amounts set out in paragraph (a) above: |
(i) | Owners shall notify Charterers of such default and Charterers shall ***** Business Days of receipt of such notice pay to Owners the amount due, including interest, failing which Owners may withdraw the Vessel from the service of Charterers without prejudice to any other rights Owners may have under this charter or otherwise; and |
(ii) | interest on any amount due but not paid on the due date shall accrue from the day after that date up to and including the day when payment is made, at a rate per annum which shall be ***** above the U.S. Prime Interest Rate as published in the Wall Street Journal on the due date, or, if no such interest rate is published on that day, the interest rate published on the next preceding day on which such a rate was so published, computed on the basis of a 360 day year of twelve 30-day months, compounded semi-annually. |
(c) | Payment of any amounts listed in (a) of this Clause 11 that remain due to Charterers after deduction from hire, shall be made in immediately available funds |
to:
*****
Ref: *****
in United States Dollars per calendar month in advance ten (10) Business Days after the receipt of the respective invoice.
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(d) | In default of such proper and timely payment of any of the amounts set out in paragraph (c) above: |
(i) | Charterers shall notify Owners of such default and Owners shall within ***** Banking Days of receipt of such notice pay to Charters the amount due, including interest; and |
(ii) | interest on any amount due but not paid on the due date shall accrue from the day after that date up to and including the day when payment is made, at a rate per annum which shall be ***** above the U.S. Prime Interest Rate as published in the Wall Street Journal on the due date, or, if no such interest rate is published on that day, the interest rate published on the next preceding day on which such a rate was so published, computed on the basis of a 360 day year of twelve 30-day months, compounded semi-annually. |
12. | Space Available to Charterers |
The whole reach, burthen and decks on the Vessel and any passenger accommodation (including Owners suite) shall be at Charterers disposal, reserving only proper and sufficient space for the Vessels master, officers, crew, tackle, apparel, furniture, provisions and stores, provided that the weight of stores on board shall not, unless specially agreed, exceed 150 tonnes at any time during the charter period.
13. | Instructions and Logs |
Charterers shall from time to time give the master all requisite instructions and sailing directions, and the master shall keep a full and correct log of the voyage or voyages, which Charterers or their agents may inspect as required. The master shall when required furnish Charterers or their agents with a true copy of such log and with properly completed loading and discharging port sheets and voyage reports for each voyage and other returns as Charterers may require. Charterers shall be entitled to take copies at Owners expense of any such documents, which are not provided by the master.
14. | Bills of Lading |
(a) | The master (although appointed by Owners) shall be under the orders and direction of Charterers as regards employment of the Vessel, agency and other arrangements, and shall sign Bills of Lading as Charterers or their agents may direct (subject always to Clauses 36 and 41) without prejudice to this charter. Charterers hereby indemnify Owners against all consequences or liabilities that may arise: |
(i) | from signing Bills of Lading in accordance with the directions of Charterers or their agents, to the extent that the terms of such Bills of Lading fail to conform to the requirements of this charter, or (except as provided in Clause 14(b)) from the master otherwise complying with Charterers or their agents orders; |
(ii) | from any irregularities in papers supplied by Charterers or their agents. |
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(b) | If Charterers by e-mail, facsimile or other form of written communication that specifically refers to this Clause request Owners to discharge a quantity of cargo either without Bills of Lading and/or at a discharge place other than that named in a Bill of Lading and/or that is different from the Bill of Lading quantity (other than by reason of boil off of cargo), then Owners shall discharge such cargo in accordance with Charterers instructions in consideration of receiving an indemnity in the terms of Appendix 6, which shall be deemed to be given by Charterers on each and every such occasion and which is limited in value to 200% of the CIF value of the cargo carried on board. |
(c) | Owners warrant that the Master will comply with orders to carry and discharge against one or more Bills of Lading from a set of original negotiable Bills of Lading should Charterers so require. |
15. | Conduct of Vessels Personnel |
If Charterers complain of the conduct of the master or any of the officers or crew, Owners shall immediately investigate the complaint. If the complaint proves to be well founded, Owners shall, without delay, make a change in the appointments and Owners shall in any event communicate the result of their investigations to Charterers as soon as possible.
16. | LNG Retention/Supply for Operational Purposes |
(a) | Unless Charterers stipulate otherwise, Owners shall retain on board the Vessel following completion of discharge sufficient LNG Heel (which will be agreed with Charterers prior to the commencement of discharge) to enable the Vessel to arrive at the next load port in a cold and ready to load condition and to remain in that condition for not less than twenty-four (24) hours. |
(b) | ***** shall provide and pay for natural gas and LNG required for gassing up and cooling the Vessels cargo tanks and other handling systems to the temperatures necessary to commence loading only in the following circumstances: |
(i) | in the event that the quantity of LNG Heel retained on board pursuant to Clause 16(a) is not sufficient to enable the Vessel to arrive at the next loading port in a cold and ready to load condition unless such insufficiency is the result of an act or omission on the part of Owners or fault of the Vessel; |
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(ii) | when LNG is required by reason of: |
(aa) | strikes, quarantine restrictions, seizure under legal process, piracy, restraint of labour, none of which arise in connection with the Vessel or crew; |
(bb) | an act of God, act of war, lock outs, riots, civil commotions, restraint of princes rulers or people; |
(iii) | when LNG is required by reason of any Restricted Period as defined in Appendix 3 Article 2 (e) (i) to (vi), or by reason of Charterers changing the SAT, or by reason of Charterers ordering the Vessel to steam at any speed other than the Service Speed; |
(iv) | upon return of the Vessel to the first load port after any lay-up ordered by Charterers pursuant to Clause 32, after any underwater cleaning ordered under Appendix 3 Article 11 (a), or after the Vessel has been withdrawn from service at the request or convenience of Charterers as a result of which the Vessel has been warmed up and/or gas freed; |
(v) | where the LNG is required and caused by Charterers breach of this charter. |
(c) | ***** shall provide and pay for natural gas and LNG required for gassing up and cooling the Vessels cargo tanks at the LNG Price, in all other circumstances, including, but not limited to: |
(i) | following periods of off-hire; |
(ii) | following requisition under Clause 33; |
(iii) | where the LNG is required and caused by Owners breach of this Charter. |
17. | Pilots and Tugs |
Owners hereby indemnify Charterers, their servants and agents against all losses, claims, responsibilities and liabilities arising in any way whatsoever from the employment of pilots or tugboats, who although employed by Charterers shall be deemed to be the servants of and in the service of Owners and under their instructions (even if such pilots or tugboat personnel are in fact the servants of Charterers their agents or any affiliated company); provided, however, that the foregoing indemnity shall not exceed the amount to which Owners would have been entitled to limit their liability if they had themselves employed such pilots or tugboats.
18. | Super-Numeraries |
(a) | Charterers may send up to two representatives in the Vessels available accommodation upon any voyage made under this charter, Owners providing provisions and all requisites as supplied to officers. |
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Charterers shall pay at the rate of United States Dollars 15 (fifteen) per day for each of its representative while on board the Vessel.
(b) | Owners may send its representatives upon any voyage made under this charter at its own expense subject to Charterers consent, such consent not to be unreasonably withheld. For the purpose of Clause 22 of this charter, Owners representatives shall be deemed members of the Vessels crew. |
19. | Sub-letting/Assignment/Novation |
Charterers may sub-let the Vessel, or assign or novate this charter to any Affiliate but shall always remain responsible to Owners for due fulfilment of this charter.
20. | Final Voyage |
If, when a payment of hire is due hereunder, Charterers reasonably expect to redeliver the Vessel before the next payment of hire would fall due, the hire to be paid shall be assessed on Charterers reasonable estimate of the time necessary to complete Charterers programme up to redelivery, and from which estimate Charterers may deduct amounts due or reasonably expected to become due for:
(a) | disbursements on Owners behalf or charges for Owners account pursuant to any provision hereof, and |
(b) | bunkers and LNG Heel on board at redelivery pursuant to Clauses 5 and 16. |
Promptly, and in any event not later than ten (10) Business Days after redelivery any overpayment shall be refunded by Owners or any underpayment made good by Charterers.
If at the time this charter would otherwise terminate in accordance with Clause 4 the Vessel is on a ballast voyage to a port of redelivery or is upon a laden voyage, Charterers shall continue to have the use of the Vessel at the same rate and conditions as stand herein for as long as necessary to complete such ballast voyage, or to complete such laden voyage and return to a port of redelivery as provided by this charter, as the case may be. However, Charterers acknowledge that the Owner may refuse orders where it is self evident that the voyage cannot be completed within the Charter Period.
21. | Loss of Vessel |
Should the Vessel be lost, this charter shall terminate and hire shall cease at noon (GMT) on the day of her loss; should the Vessel be a constructive total loss, this charter shall terminate and hire shall cease at noon (GMT) on the day on which the Vessels underwriters agree that the Vessel is a constructive total loss; should the Vessel be missing, this charter shall terminate and hire shall cease at noon (GMT) on the day on which she was last heard of. Any hire paid in advance and not earned shall be returned to Charterers and Owners shall reimburse Charterers for the value of the estimated quantity of bunkers on board at the time of termination, at the price paid by Charterers at the last bunkering port.
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22. | Off-hire |
(a) | On each and every occasion that there is loss of time (whether by way of interruption in the Vessels service or, from reduction in the Vessels performance, or in any other manner): |
(i) | due to deficiency of personnel or stores; repairs; gas-freeing for drydocking, hot work, entry into cargo tanks or repairs; repositioning to and from, time in and waiting to enter dry dock for repairs; breakdown (whether partial or total) of machinery, boilers or other parts of the Vessel or her equipment (including without limitation any part of the cargo containment system); overhaul, maintenance or survey; collision, stranding, accident or damage to the Vessel; or any other similar cause preventing the efficient working of the Vessel; and such loss continues for more than three consecutive hours (if resulting from interruption in the Vessels service) or cumulates to more than three hours in any ballast or laden voyage (if resulting from partial loss of service); or |
(ii) | due to industrial action, refusal to sail, breach of orders or neglect of duty on the part of the master, officers or crew; or |
(iii) | for the purpose of obtaining medical advice or treatment for or landing any sick or injured person (other than a Charterers representative carried under Clause 18 hereof) or for the purpose of landing the body of any person (other than a Charterers representative), and such loss continues for more than three consecutive hours; or |
(iv) | due to any delay in quarantine arising from the master, officers or crew having had communication with the shore at any infected area without the written consent or instructions of Charterers or their agents, or to any detention by customs or other authorities caused by smuggling or other infraction of local law on the part of the master, officers, or crew; or |
(v) | due to delay or detention of the Vessel by authorities at home or abroad attributable to legal action against or breach of regulations by the Vessel, the Vessels owners, or Owners (unless brought about by the act or neglect of Charterers); or |
(vi) | due to pre-docking and repair procedure including warming, gas freeing and inerting; or |
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(vii) | due to scheduled maintenance, maintaining, overhauling, repairing or dry docking the Vessel and submitting her for survey or inspection; waiting for any of the aforesaid purposes; proceeding to or from, and whilst at, any port or place for any of the aforesaid purposes; or |
(viii) | due to post-docking or repair procedure including inerting, gassing and cooling in excess of that undertaken for normal loading; or |
(ix) | due to delay caused by an inspection by US Coast Guard or by absence of Japanese Customs approval as per Clause 1(s) in each case to the extent that this delay exceeds three hours; |
(x) | due to any provision of Clause 3 except as otherwise provided therein; or |
(xi) | due to any documentary failure or any other prohibition or delay caused by the Vessels failure to meet the requirements of any applicable law, regulations or port state control, including the requirements of any Primary Terminal; or |
(xii) | due to the Vessels inability to trade by reason of any deficiency of the insurance cover required to be maintained by Owners under this charter, except in the case where such deficiency is caused by Charterers refusing to bear the cost of additional insurance cover required under this charter; or |
(xiii) | due to any other circumstances where the Vessel is off-hire under this charter |
then without prejudice to Charterers rights under Clause 3 or to any other rights of Charterers hereunder, or otherwise, the Vessel shall be off-hire from the commencement of such loss of time until she is again ready and in an efficient state to resume her service from a position not less favourable to Charterers than that at which such loss of time commenced; provided, however, that any service given or distance made good by the Vessel whilst off-hire shall be taken into account in assessing the amount to be deducted from hire.
(b) | If the Vessel fails to proceed at any Guaranteed Speed (as defined in Appendix 3 Article 2 (a) (iv)) pursuant to Clause 26 and Appendix 3, and such failure arises wholly or partly from any of the causes set out in Clause 22(a) above, then the following provisions shall apply: |
(i) | if the Vessel is unable to maintain a speed of at least 85% of the Guaranteed Speed under Clause 26, provided none of the Restricted Periods defined in Appendix 3 Article 2 (e) are applicable, Charterers shall have the option to place the Vessel off-hire but any distance made good by the Vessel whilst off-hire shall be taken into account in accordance with Clause 22(a); |
(ii) | except where Charterers have placed the Vessel off-hire pursuant to Clause 22(b)(i), failure of the Vessel to proceed at any Guaranteed Speed shall be dealt with under Clause 26 and Appendix 3 and the Vessel will not be off-hire under Clause 22. |
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(c) | Further and without prejudice to the foregoing, in the event of the Vessel deviating (which expression includes without limitation putting back, or putting into any port other than that to which she is bound under the instructions of Charterers) for any cause or purpose mentioned in Clause 22(a), the Vessel shall be off-hire from the commencement of such deviation until the time when she is again ready and in an efficient state to resume her service from a position not less favourable to Charterers than that at which the deviation commenced, provided, however, that any service given or distance made good by the Vessel whilst so off-hire shall be taken into account in assessing the amount to be deducted from hire. If the Vessel, for any cause or purpose mentioned in Clause 22(a), puts into any port other than the port to which she is bound on the instructions of Charterers, the port charges, pilotage and other expenses at such port shall be borne by Owners. Should the Vessel be driven into any port or anchorage by stress of weather, hire shall continue to be due and payable during any time lost thereby. |
(d) | Owners undertake that all cleaning of boilers and overhauling of engines shall be carried out as far as safe and possible concurrently with performance of the services provided under this Charter, provided that the approval of Charterers, which shall not be unreasonably withheld, has first been obtained. Any time lost thereby shall be off-hire. Owners shall immediately inform Charterers of any delays to the Vessel as a result of aforesaid maintenance and repair operations. |
(e) | If the Vessels flag state becomes engaged in hostilities, and Charterers in consequence of such hostilities find it commercially impracticable to employ the Vessel and have given Owners written notice thereof then from the date of receipt by Owners of such notice until the termination of such commercial impracticability the Vessel shall be off-hire and Owners shall have the right to employ the Vessel on their own account. |
(f) | The Vessel shall additionally be off-hire as provided in this Clause 22 whenever there is loss of time: |
(i) | as a result of a boycott arising in connection with the business of Owners, the terms or conditions of employment of Owners servants, or employment; |
(ii) |
due to restraint or interference in the Vessels operation by any governmental authority in connection with the ownership, |
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registration, or obligations of Owners or the Vessel, or stowaways, or in connection with smuggling or other prohibited activities, unless such restraint or interference involves a cargo carried under this charter, or Charterers themselves, or the shippers or receivers of such a cargo; or |
(iii) | due to strikes or labour boycotts against the Vessel because of the ownership and/or officers and crew and/or officers and crews employment conditions; |
(g) | Time during which the Vessel is off-hire under this charter shall count as part of the charter period except where Charterers declare their option to add off-hire periods under Clause 4(b). |
(h) | All references to time in this charter party shall be references to local time except where otherwise stated. |
(i) | If as a consequence of any cause or purpose mentioned in this Clause 22 or in Clause 16(c), the Vessel presents for loading with tank temperatures other than that which would otherwise allow bulk loading to commence within 1/2 (half) an hour after cooling of the loading arms, any time lost as a consequence thereof, including without limitation any time lost in additional cooling of tanks prior to loading shall count as off-hire and the cost of any LNG supplied for such additional cooling shall be paid for by Owners at the LNG Price. |
(j) | If any LNG is lost as Boil-off during periods of off-hire, Owners shall reimburse Charterers for the LNG lost at the LNG Price. |
Where accurate measurement of LNG lost as Boil-off during any such off-hire period is impossible for whatever reason, the LNG lost as Boil-off shall be assumed to have occurred at a constant rate equal to that obtained by measurement between official gaugings of the cargo in question in accordance with Appendix 3 Article 8 (b). Where, due to the off-hire occurring during a ballast passage, all LNG Heel is lost as Boil-off prior to the Vessel next commencing to load, such Boil-off shall be deemed to have occurred at a constant rate equal to that which occurred during the Vessels last previous ballast voyage or, if information as to such rate is unavailable, at the rate guaranteed in Clause 26(i).
(k) |
In the event that the Vessel is off-hire for any reason for any period in excess of ninety (90) consecutive days or exceeding ***** days in any period of nine hundred (900) days, Charterers shall have the option to terminate this charter by giving notice in writing with effect from any date stated in such notice, provided that the Vessel is free of cargo (other than LNG Heel) at the time when such notice becomes effective, in which case Charterers rights to terminate remain in force until the completion of discharge of such cargo. This Clause 22(k) is without prejudice to any other rights or obligations of |
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Owners or Charterers under this charter. For the purposes of this Clause 22(k), in the event of partial loss of service, the period of off-hire shall be the total period during which the Vessel is not fully efficient rather than the resulting loss of time. |
23. | Ship to Ship Transfers |
(a) | Charterers may at any time during this charter require part or all of the cargo to be loaded onto or discharged from the Vessel, while the Vessel is at sea, including transfers of cargo for lightering purposes and for loading and discharging LNG alongside offshore or floating FPSO or FSRU units or LNG liquefaction or re-gasification vessels, subject to Owners consent which shall not be unreasonably withheld or delayed. Such transhipment, loading or discharging operations shall be carried out in accordance with the recommendations set out in the latest ICS/OCIMF Ship-to-Ship Transfer Guide (Liquefied Gases) and/or SIGTTO Considerations for Planning a Ship-to-Ship Transfer of LNG, as amended from time to time |
(b) | Owners consent for transhipment operations shall be subject to prior approval of the Classification Society(ties) and hull & machinery and the Approved Club of the Vessel and SSC studies of the Vessel with the transhipment facility. Owners shall seek such approvals and perform such SSC studies, as the case may be, at Charterers cost and as quickly as reasonably possible. |
(c) | If Owners are obliged to extend their existing insurance policies to cover any such transhipment operation or to incur any other additional cost or expense, Charterers shall reimburse Owners for any reasonable additional premium or cost or expense involved. |
(d) | Charterers shall undertake at their time and cost such procedures as may be necessary from time to time to prepare for and conduct transhipment loading or discharge. The time and costs for any vessel modification required and any additional equipment including, but not limited to, hoses, fenders, reducers and other similar equipment shall be for Charterers account. Such equipment shall remain on board during the charter period and shall be removed from the Vessel by Charterers at their discretion and cost. |
(e) | Owners shall permit, at Charterers expense, personnel nominated by Charterers to attend on board to assist in the transhipment operation, although such operation shall always be the responsibility of Owners. |
24. | Periodical Drydocking |
(a) | Charterers acknowledge that the Vessel is scheduled to drydock within and about July 2017. If requested by Charterers, Owners will make reasonable efforts to obtain an extension from the Vessels Classification Society and Flag State of up to six (6) months (the Drydocking Extension). |
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(b) | In the event that, notwithstanding any Drydocking Extension, the Vessel must make a drydock prior to the redelivery of the Vessel to Owners under this charter, the following shall apply: |
(i) | Not less that one hundred and twenty (120) days before the date of the planned drydocking, Owners shall advise Charterers of the requirement for drydocking, specifying the number of days required and the date on which drydocking is planned to commence. |
(ii) | Charterers shall, within [14] days of such notice, signify their consent to Owners requirements or indicate any reasonable change they may require to the date on which drydocking shall commence. |
(iii) | Owners shall schedule the drydocking in accordance with any reasonable change so required by Charterers unless prevented by shipyard scheduling, Classification Societies, Flag State or operational requirements. If Owners cannot comply with Charterers request or if Charterers indicate requirements for changes after the period specified in sub-clause (ii) above, the parties shall decide upon a mutually acceptable drydocking date in consultation, bearing in mind the requirements of Charterers scheduling and the Classification Societies. |
(iv) | Charterers shall, not less than ninety (90) days prior to the date of planned drydocking established in accordance with sub-clauses (i) to (iii) above, specify the port in which the drydocking shall take place, which shall be one of Singapore, Ferrol or Dubai (the Drydocking Port). |
(v) | Charterers shall take all reasonable steps to make the Vessel available, as near to such date as practicable and clear of cargo other than natural gas vapour. Owners shall put the Vessel in drydock at its expense as soon as practicable after Charterers place the Vessel at Owners disposal. |
(vi) | The Vessel shall be off-hire from the time when she arrives at one safe anchorage or pilot boarding station at the Drydocking Port until drydocking is completed and the Vessel is in every way ready to resume Charterers service and is at the position at which off-hire commenced prior to drydocking or is at a position no less favourable to Charterers. Notwithstanding the foregoing: |
(A) | provided that Owners exercise due diligence in carrying out expeditiously gas freeing for the purpose of drydocking, any time lost in gas freeing to the standard required for entry into drydock for cleaning and painting the hull shall not count as off-hire, whether lost on passage to the Drydocking Port or after arrival there; and |
(B) | any additional time lost in further gas freeing to meet the standard required for hot work or entry to cargo tanks shall count as off-hire, whether lost on passage to the Drydocking Port or after arrival there. |
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All expenses associated with or arising out of gas freeing, including the cost of bunkers, shall be for Owners account.
(vii) | Any Boil-Off lost in gas freeing for the purpose of drydocking shall be for Charterers account, provided that during the last discharge prior to drydocking the Owners shall use reasonable endeavours to pump out the maximum amount of cargo. |
(viii) | During all drydockings under this charter, Owners shall use reasonable endeavours to minimise the time the Vessel spends in the shipyard or otherwise out of service and agree not to undertake any work on the Vessel additional to that required to maintain the Vessel in accordance with the terms of this charter and within the requirements of the Vessels Classification Societies and of other internationally recognised safety and environmental organisations and industry bodies including IMO, OCIMF and SIGTTO. |
(ix) | Charterers shall provide and pay for any LNG required for gassing up and cooling down the Vessels cargo tanks following drydocking. |
25. | Ship Inspection |
Charterers shall have the right at any time prior to delivery (if the current charterer of the Vessel consents) or during the charter period to make such inspection of the Vessel, as they may consider necessary. This right may be exercised as often and at such intervals as Charterers in their absolute discretion may determine and whether the Vessel is in port, at anchor or on passage.
Owners shall afford all necessary co-operation and accommodation on board provided, however:
(a) | that neither the exercise nor the non-exercise, nor anything done or not done in the exercise or non-exercise, by Charterers of such right shall in any way reduce the masters or Owners authority over or responsibility to Charterers or third parties for the Vessel and every aspect of her operation, nor increase Charterers responsibilities to Owners or third parties for the same; |
(b) | that Charterers shall not be liable for any act, neglect or default by themselves, their servants or agents in the exercise or non-exercise of the aforesaid right; |
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(c) | that any cost incurred by such inspection shall be for Charterers account provided such costs have been disclosed to and approved by Charterers in advance; |
(d) | that any inspection carried out by Charterers shall be made without interference with or hindrance to the Vessels safe and efficient operation, and shall be limited to a maximum of two persons; and |
(e) | that any overnight stays shall be subject to Clause 18. |
26. | Key Vessel Performance Criteria |
Subject to Appendix 3, Owners guarantee that:
(a) | the Laden Service Speed shall be ***** knots; |
the Ballast Service Speed shall be ***** knots;
the Minimum Speed shall be about ***** knots;
the Slow-Steaming Speed shall be about ***** knots for a period of maximum twenty (20) consecutive steaming days.
(b) | the Vessel shall be capable of loading and discharging the cargo as follows: |
(i) | a full cargo may be loaded within twelve (12) hours if the Vessels cargo tanks are as cold or colder than the tank design temperature for commencement of loading, excluding the time for connecting, disconnecting, cooling down, topping up and custody transfer measurement; and provided that the loading terminal is capable of pumping at least 12,292 cubic meters of LNG per hour to the Vessel at not less than 2.0 bar (gauge) pressure at the flange connection between ship and terminal utilising a minimum of three liquid loading arms; and provided that the terminal is capable of receiving all return vapour from the Vessel that may be generated when loading the Vessel at the above specified flow rate of LNG; |
(ii) | a full cargo may be discharged within twelve (12) hours using three liquid manifolds and a vapour manifold, excluding the time for connecting, disconnecting, cooling down, starting up pumps, ramping up, ramping down for stripping at end of discharge and custody transfer measurement; and provided that the discharge terminal is capable of receiving LNG at a rate of at least 12,292 cubic meters of LNG per hour with a back pressure at the flange connection between ship and terminal not exceeding 100 metres of liquid LNG of specific gravity of 0.47 utilising a minimum of three liquid unloading arms. The terminal must also be capable of providing sufficient return vapour to the Vessel to compensate for the displacement of the LNG being discharged from the Vessel; |
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(c) | The Vessels guaranteed maximum fuel consumption shall be: ***** |
(d) | the Fuel Oil Equivalent factor shall be 0.475 metric tonne HFO equals one (1) cubic meter of LNG; |
(e) | the maximum laden Boil-Off shall be zero point one five percent (0.15 %) per day of the Cargo Capacity on sea passages (or pro rated by the ratio of volumetric cargo loaded to cargo capacity if any of the tanks are not used); |
(f) | the maximum ballast Boil-Off shall be zero point one five percent (0.15 %) per day of the Cargo Capacity (or pro rated by the ratio of the number of tanks previously used to the total number of cargo tanks if any of the tanks were not utilised for the carriage of cargo on the previous laden passage; |
(g) | The Vessel shall be capable of operating without forced vapourisation except during operation in gas mode when natural Boil-Off is insufficient for propulsion at the speed as instructed by Charterers; |
(h) | The Vessel shall be capable of operating without venting of Boil-Off to the atmosphere; and |
(i) | The foregoing speed, bunker consumption and Boil-Off guarantees shall not apply in respect of any day in which the Vessel has to proceed in wind force in excess of Beaufort Force 5 for more than 12 (twelve) hours continuously or for an aggregate period of more than 12 hours from noon to noon and not valid when Charterers have not elected to clean the hull and/or propeller as provided in this Charter. Boil off guarantees are not valid if Charterers instruct to vent, steam dump or force vapourise. |
27. | Salvage |
Subject to the provisions of Clause 22 hereof, all loss of time and all expenses (excluding any damage to or loss of the Vessel or tortious liabilities to third parties) incurred in saving or attempting to save life or in successful or unsuccessful attempts at salvage shall be borne equally by Owners and Charterers provided that Charterers shall not be liable to contribute towards any salvage payable by Owners arising in any way out of services rendered under this Clause 27.
All salvage and all proceeds from derelicts shall be divided equally between Owners and Charterers after deducting the masters, officers and crews share.
28. | Lien |
Owners shall have a lien upon all cargoes and all freights, sub-freights and demurrage for any amounts due under this charter; and Charterers shall have a lien on the Vessel for all monies paid in advance and not earned, and for all claims for damages arising from any breach by Owners of this charter.
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29. | Exceptions |
(a) | The Vessel, her master and Owners shall not, unless otherwise in this charter expressly provided, be liable for any loss or damage or delay or failure arising or resulting from any act, neglect or default of the master, pilots, mariners or other servants of Owners in the navigation or management of the Vessel; fire, unless caused by the actual fault or privity of Owners; collision or stranding; dangers and accidents of the sea; explosion, bursting of boilers, breakage of shafts or any latent defect in hull, equipment or machinery; provided, however, that Clauses 1, 2, 3 and 26 hereof shall be unaffected by the foregoing. Further, neither the Vessel, her master or Owners, nor Charterers shall, unless otherwise in this charter expressly provided, be liable for any loss or damage or delay or failure in performance hereunder arising or resulting from act of God, act of war, seizure under legal process, quarantine restrictions, strikes, lock-outs, riots, restraints of labour, civil commotions or arrest or restraint of princes, rulers or people. |
(b) | The Vessel shall have liberty to sail with or without pilots, to tow or go to the assistance of Vessels in distress and to deviate for the purpose of saving life or property. |
(c) | Clause 29(a) shall not apply to, or affect any liability of Owners or the Vessel or any other relevant person in respect of: |
(i) | loss or damage caused to any berth, jetty, dock, dolphin, buoy, mooring line, pipe or crane or other works or equipment whatsoever at or near any place to which the Vessel may proceed under this charter, whether or not such works or equipment belong to Charterers; or |
(ii) | any claim (whether brought by Charterers or any other person) arising out of any loss of or damage to or in connection with cargo. Any such claim shall be subject to the Hague-Visby Rules or the Hague Rules or the Hamburg Rules, as the case may be, which ought pursuant to Clause 39 hereof to have been incorporated in the relevant Bill of Lading (whether or not such Rules were so incorporated) or, if no such Bill of Lading is issued, to the Hague-Visby Rules unless the Hamburg Rules compulsorily apply in which case to the Hamburg Rules. |
(d) | In particular and without limitation, the foregoing subsections (a), (b) and (c) of this Clause shall not apply to or in any way affect any provision in this charter relating to off-hire or to reduction of hire or Boil-Off or bunkers consumed during periods of off-hire. |
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30. | Injurious Cargoes |
No acids, explosives or cargoes injurious to the Vessel shall be shipped and without prejudice to the foregoing any damage to the Vessel caused by the shipment of any such cargo, and the time taken to repair such damage, shall be for Charterers account. No voyage shall be undertaken, nor any goods or cargoes loaded, that would expose the Vessel to capture or seizure by rulers or governments.
31. | Disbursements |
Should the master require advances for ordinary disbursements up to a cap of United States Dollars twenty-five thousand ($25,000) at any port, Charterers or their agents shall make such advances to him, in consideration of which Owners shall pay a commission of two and a half per cent, and all such advances and commission shall be deducted from hire.
32. | Laying-up - Deleted |
33. | Requisition |
Should the Vessel be requisitioned by any government, de facto or de jure, during the period of this charter, the Vessel shall be off-hire during the period of such requisition, and any hire paid by such governments in respect of such requisition period shall be for Owners account. Any such requisition period shall count as part of the charter period.
34. | Outbreak of War |
If war or hostilities break out between any two or more of the following countries: United States of America, Russian Federation, France, Peoples Republic of China, United Kingdom and the country that the Vessel is registered in, then both Owners and Charterers shall have the right to cancel this charter provided that such war or hostilities materially and adversely affect the trading of the Vessel for a period of at least sixty (60) days.
35. | Additional War Expenses |
If the Vessel is ordered to trade in areas where there is war (de facto or de jure) or threat of war, Charterers shall reimburse Owners for any additional insurance premiums, crew bonuses and other expenses which are reasonably incurred by Owners as a consequence of such orders, provided that Charterers are given notice of such expenses as soon as practicable and in any event before such expenses are incurred, and provided further that Owners obtain from their insurers a waiver of any subrogated rights against Charterers in respect of any claims by Owners under their war risk insurance arising out of compliance with such orders provided such waiver is permitted by the respective insurers normal commercial terms. If such waiver results in increased premiums for the Owners, the Charterers shall elect whether to (i) reimburse Owners for the amount of such increase, or (ii) release the Owners from the obligation to obtain such waiver.
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Any payments by Charterers under this Clause will only be made against proven documentation. Any discount or rebate refunded to Owners, for whatever reason, in respect of additional war risk premium shall be passed on to Charterers.
36. | War Risks |
(a) | The master shall not be required or bound to sign Bills of Lading for any place which in his or Owners reasonable opinion is dangerous or impossible for the Vessel to enter or reach owing to any blockade, war, hostilities, warlike operations, civil war, civil commotions, revolutions, acts of piracy, acts of terrorists, acts of hostility or malicious damage. |
(b) | If in the reasonable opinion of the master or Owners it becomes, for any of the reasons set out in Clause 36(a) or by the operation of international law, dangerous, impossible or prohibited for the Vessel to reach or enter, or to load or discharge cargo at, any place to which the Vessel has been ordered pursuant to this charter (a place of peril), then Charterers or their agents shall be immediately notified in writing or by radio messages, and Charterers shall thereupon have the right to order the cargo, or such part of it as may be affected, to be loaded or discharged, as the case may be, at any other place within the trading limits of this charter (provided such other place is not itself a place of peril). If any place of discharge is or becomes a place of peril, and no orders have been received from Charterers or their agents within 48 hours after dispatch of such messages, then Owners shall be at liberty to discharge the cargo or such part of it as may be affected at any place which they or the master may in their or his discretion select within the trading limits of this charter and such discharge shall be deemed to be due fulfilment of Owners obligations under this charter so far as cargo so discharged is concerned. |
Notwithstanding the foregoing, it shall be unreasonable for the master or Owners to refuse any order for any voyage, route, or port or place of loading or discharge if insurance against such risks is available from a leading insurer, unless the terms of such insurance require such order to be refused.
(c) |
The Vessel shall have liberty to comply with any directions or recommendations as to departure, arrival, routes, ports of call, stoppages, destinations, zones, waters, delivery or in any other wise whatsoever given by the government of the state under whose flag the Vessel sails or any other government or local authority or by any person or body acting or purporting to act as or with the authority of any such government or local authority including any de facto government or local authority or by any person or body acting or purporting to act as or with the authority of any such government or local authority or by any committee or person having under the terms of the war risks insurance on the Vessel the right to give any such |
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directions or recommendations. If by reason of or in compliance with any such directions or recommendations anything is done or is not done, such shall not be deemed a deviation. If by reason of or in compliance with any such direction or recommendation the Vessel does not proceed to any place of discharge to which she has been ordered pursuant to this charter, the Vessel may proceed to any place which the master or Owners in his or their discretion select and there discharge the cargo or such part of it as may be affected. Such discharge shall be deemed to be due fulfilment of Owners obligations under this charter so far as cargo so discharged is concerned. |
Charterers shall procure that all Bills of Lading issued under this charter shall contain provisions equivalent to this Clause 36(a) to (c).
(d) | Owners and Charterers agree that should the threat of piracy or terrorism be present in any geographical range where the Vessel is likely to trade or should the Vessel be detained by pirates during the charter period, then the following provisions of this Clause 36(d) will apply and will prevail over any contrary provision in this charter: |
(i) | Charterers have the right to order the Vessel to trade through areas where there have been incidents of piracy or terrorism or where there is a known risk of piracy. |
(ii) | From the moment of any piracy or terrorist detention or attack, the Vessel will remain on hire until such time as she is released or the attack ceases except to the extent that such time lost is covered by any applicable insurance. |
(iii) | If the Vessel is detained by pirates or terrorists, Owners shall keep Charterers closely informed of the actions taken to obtain the release of the Vessel. |
(iv) | Owners shall follow Charterers reasonable requests and Charterers shall follow Owners reasonable requests with regard to taking steps to minimise the risk of any piracy or terrorist attack and/or detention. |
(v) | Owners shall be entitled to take reasonable preventative measures to protect the Vessel, her crew and cargo if required by the prevailing circumstances including proceeding in convoy, using escort, avoiding day or night navigation, adjusting speed or course, or engaging security personnel or equipment on or about the Vessel. Charterers shall reimburse Owners for all reasonable additional costs of any such preventative measures taken by Owners subject to the terms of Clause 35. |
(vi) |
Owners shall be entitled, if Charterers give written approval in advance (such approval not to be unreasonably withheld), to take a safe alternative route in place of the normal, direct or intended route |
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to the next port of call, in which case Owners shall give Charterers prompt notice of the alternative route, an estimate of the time and bunker consumption and a revised estimated time of arrival. |
37. | Both to Blame Collision Clause |
If the liability for any collision in which the Vessel is involved while performing this charter falls to be determined in accordance with the laws of the United States of America, the following provision shall apply:
If the ship comes into collision with another ship as a result of the negligence of the other ship and any act, neglect or default of the master, mariner, pilot or the servants of the carrier in the navigation or in the management of the ship, the owners of the cargo carried hereunder will indemnify the carrier against all loss, or liability to the other or non-carrying ship or her owners in so far as such loss or liability represents loss of, or damage to, or any claim whatsoever of the owners of the said cargo, paid or payable by the other or non-carrying ship or her owners to the owners of the said cargo and set off, recouped or recovered by the other or non-carrying ship or her owners as part of their claim against the carrying ship or carrier.
The foregoing provisions shall also apply where the owners, operators or those in charge of any ship or ships or objects other than, or in addition to, the colliding ships or objects are at fault in respect of a collision or contact.
Charterers shall procure that all Bills of Lading issued under this charter shall contain a provision in the foregoing terms to be applicable where the liability for any collision in which the Vessel is involved falls to be determined in accordance with the laws of the United States of America.
38. | New Jason Clause |
General average contributions shall be payable according to York/Antwerp Rules, 1994, as amended from time to time, and shall be adjusted in London in accordance with English law and practice but should adjustment be made in accordance with the law and practice of the United States of America, the following provision shall apply:
In the event of accident, danger, damage or disaster before or after the commencement of the voyage, resulting from any cause whatsoever, whether due to negligence or not, for which, or for the consequence of which, the carrier is not responsible by statute, contract or otherwise, the cargo, shippers, consignees or owners of the cargo shall contribute with the carrier in general average to the payment of any sacrifices, losses or expenses of a general average nature that may be made or incurred and shall pay salvage and special charges incurred in respect of the cargo.
If a salving ship is owned or operated by the carrier, salvage shall be paid for as fully as if the said salving ship or ships belonged to strangers. Such deposit as the carrier or his agents may deem sufficient to cover the estimated
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contribution of the cargo and any salvage and special charges thereon shall, if required, be made by the cargo, shippers, consignees or owners of the cargo to the carrier before delivery.
Charterers shall procure that all Bills of Lading issued under this charter shall contain a provision in the foregoing terms, to be applicable where adjustment of general average is made in accordance with the laws and practice of the United States of America.
39. | Clause Paramount |
Charterers shall procure that all Bills of Lading issued pursuant to this charter shall contain the following:
(a) Subject to sub-clause (b) or (c) hereof, this Bill of Lading shall be governed by, and have effect subject to, the rules contained in the International Convention for the Unification of Certain Rules relating to Bills of Lading signed at Brussels on 25th August 1924 (hereafter the Hague Rules) as amended by the Protocol signed at Brussels on 23rd February 1968 (hereafter the Hague-Visby Rules). Nothing contained herein shall be deemed to be either a surrender by the carrier of any of his rights or immunities or any increase of any of his responsibilities or liabilities under the Hague-Visby Rules.
(b) If there is governing legislation which applies the Hague Rules compulsorily to this Bill of Lading, to the exclusion of the Hague-Visby Rules, then this Bill of Lading shall have effect subject to the Hague Rules. Nothing therein contained shall be deemed to be either a surrender by the carrier of any of his rights or immunities or an increase of any of his responsibilities or liabilities under the Hague Rules.
(c) If there is governing legislation which applies the United Nations Convention on the Carriage of Goods by Sea 1978 (hereafter the Hamburg Rules) compulsorily to this Bill of Lading, to the exclusion of the Hague-Visby Rules, then this Bill of Lading shall have effect subject to the Hamburg Rules. Nothing therein contained shall be deemed to be either a surrender by the carrier of any of his rights or immunities or an increase of any of his responsibilities or liabilities under the Hamburg Rules.
(d) If any term of this Bill of Lading is repugnant to the Hague-Visby Rules, or Hague Rules, or Hamburg Rules, as applicable, such term shall be void to that extent but no further.
(e) Nothing in this Bill of Lading shall be construed as in any way restricting, excluding or waiving the right of any relevant party or person to limit his liability under any available legislation and/or law.
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40. | Insurance/ITOPF |
Owners warrant that the Vessel is now, and will, throughout the duration of the charter:
(a) | be owned or demise chartered by a member of the International Tanker Owners Pollution Federation Limited; |
(b) | be properly entered in North of England P & I Club, being a member of the International Group of P & I Clubs; |
(c) | have in place insurance cover for oil pollution for the maximum on offer through the International Group of P&I Clubs but always a minimum of United States Dollars 1,000,000,000 (one thousand million); |
(d) | have in full force and effect Hull and Machinery insurance placed through reputable brokers on Institute Time Clauses (current insured value is United States Dollars 250,000,000 (two hundred fifty million)) as would be procured by a first class operator of similar such vessels. |
Owners will provide, within a reasonable time following a request from Charterers to do so, documented evidence of compliance with the warranties given in this Clause 40.
41. | Export Restrictions |
The master shall not be required or bound to sign Bills of Lading for the carriage of cargo to any place to which export of such cargo is prohibited under the laws, rules or regulations of the country in which the cargo was produced and/or shipped.
Charterers shall procure that all Bills of Lading issued under this charter shall contain the following clause:
If any laws rules or regulations applied by the government of the country in which the cargo was produced and/or shipped, or any relevant agency thereof, impose a prohibition on export of the cargo to the place of discharge designated in or ordered under this Bill of Lading, carriers shall be entitled to require cargo owners forthwith to nominate an alternative discharge place for the discharge of the cargo, or such part of it as may be affected, which alternative place shall not be subject to the prohibition, and carriers shall be entitled to accept orders from cargo owners to proceed to and discharge at such alternative place. If cargo owners fail to nominate an alternative place within 72 hours after they or their agents have received from carriers notice of such prohibition, carriers shall be at liberty to discharge the cargo or such part of it as may be affected by the prohibition at any safe place on which they or the master may in their or his absolute discretion decide and which is not subject to the prohibition, and such discharge shall constitute due performance of the contract contained in this Bill of Lading so far as the cargo so discharged is concerned.
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The foregoing provision shall apply mutatis mutandis to this charter, the references to a Bill of Lading being deemed to be references to this charter.
42. | General |
Charterers and Owners recognise the importance of securing and maintaining safety in all matters contemplated in this charter. It is their respective intention to secure and maintain high standards of safety in accordance with International Standards and the generally accepted standards prevailing in the LNG shipping industry from time to time.
43. | Drugs and Alcohol |
Owners warrant that they have in force an active policy covering the Vessel which meets or exceeds the standards set out in the Guidelines for the Control of Drugs and Alcohol On Board Ship as published by the Oil Companies International Marine Forum (OCIMF) dated June 1995 (or any subsequent modification, version, or variation of these guidelines) and that this policy will remain in force throughout the charter period, and Owners will exercise due diligence to ensure the policy is complied with.
44. | Pollution and Emergency Response |
Owners are to advise Charterers of organisational details and names of Owners personnel together with their relevant telephone/facsimile/e-mail/telex numbers, including the names and contact details of Qualified Individuals for OPA 90 response, who may be contacted on a 24 hour basis in the event of oil spills or emergencies.
Notice to Owners Pollution and Emergency Response Department:
Capt. G.Sarimpelas-Marine Operations Co-ordinator
Office Tel: +30 210 8917700
Mob: +30 6978 336 977
Home Phone: +30 210 2633726
Capt. M.Bogas-Designated Person Ashore
Office Tel: +30 210 8917700
Mob: +30 6972 999 135
Home Phone: +30 210 6036179
Office Email: lngsafety@dynagas.com
Office Telex: +601 214113 DNGA GR
Office Fax: +30 210 968 0571
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QUALIFIED INDIVIDUAL CONTACT DETAILS:
OBRIENS OIL POLLUTION SERVICE INC. (OOPS)
EMERGENCY:
Tel: +1-985-781-0804 24 hours
Fax: +1-985-781-0580 24 hours
Tlx: 49617361 OOPS UI
E-mail: commandcenter@oopsusa.com
OIL SPILL RESPONSE ORGANIZATION (OSRO):
NATIONAL RESPONSE CORPORATION (NRC)
Tel: +1-631-224-9141 24 hours
Fax: +1-631-224-9086 24 hours
Email: iocdo@nrcc.com
SALVAGE COMPANY:
DONJON-SMIT
Tel: +1-703-299-0081 24 hours
Fax: +1-703-299-0085 24 hours
Email: response@donjon-smit.com
Notice to Charterers Pollution and Emergency Response Department:
Attn: | Duty Manager | |
Braemar Howells Ltd | ||
Address | 3 Stockwell Centre, Stephenson Way, Crawley, West Sussex RH10 1TN, United Kingdom. | |
Tel: | +44 (0) 1293 529 000 | |
Tel: | +44 (0) 1293 544 482 (alternative) | |
E-Mail: | crisis@breamarhowells.com | |
cc: | shipping@gazpromlng.com |
45. | ISPS Code/USMTSA 2002 |
This Clause 45 makes reference to the International Code for the Security of Ships and of Port Facilities and the relevant amendments to Chapter XI of SOLAS (ISPS Code) and the US Maritime Transportation Security Act 2002 (MTSA).
(a) |
(i) | During the currency of this charter, Owners shall procure that both the Vessel and the Company (as defined by the ISPS Code) and the owner(as defined by the MTSA) shall comply with the requirements of the ISPS Code relating to the Vessel and the Company and the requirements of MTSA relating to the Vessel and the owner. Upon request Owners shall provide documentary evidence of compliance with this Clause 45(a)(i). |
(ii) | Except as otherwise provided in this charter, loss, damage, expense or delay, caused by failure on the part of Owners or the Company/owner to comply with the requirements of the ISPS Code/MTSA or this Clause shall be for Owners account. |
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(b) |
(i) | Charterers shall provide Owners/Master with their full style contact details and shall ensure that the contact details of all sub-charterers are likewise provided to Owners/Master. Furthermore, Charterers shall ensure that all sub-charter parties they enter into during the period of this charter contain the following provision: |
The Charterers shall provide the Owners with their full style contact details and, where sub-letting is permitted under the terms of the charter party, shall ensure that the contact details of all sub-charterers are likewise provided to the Owners.
(ii) | Except as otherwise provided in this charter, loss, damage, expense or delay, caused by failure on the part of Charterers to comply with this sub-Clause 45(b) shall be for Charterers account. |
(c) | Notwithstanding anything else contained in this charter costs or expenses related to security regulations or measures required by the port facility or any relevant authority in accordance with the ISPS Code/MTSA including, but not limited to, security guards, launch services, tug escorts, port security fees or taxes and inspections, shall be for Charterers account, unless such costs or expenses result solely from Owners negligence in which case such costs or expenses shall be for Owners account. All measures required by Owners to comply with the security plan required by the ISPS Code/MTSA shall be for Owners account. |
(d) | Notwithstanding any other provision of this charter, the Vessel shall not be off-hire where there is a loss of time caused by Charterers failure to comply with the ISPS Code/MTSA. |
(e) | If either party makes any payment, which is for the other partys account according to this Clause, the other party shall indemnify the paying party. |
46. | Routing |
Charterers shall be entitled at any time and from time to time to make available to the master the advice of a weather-routing service, or otherwise provide advice as to routing which advice the master shall follow, provided always (a) that the master has the discretion not to follow such advice in the interests of the safe navigation of the
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Vessel, and (b) that if the master elects not to follow such advice, he shall promptly notify Charterers of his intentions and explain his reasons. It is understood that such routing advice shall be without prejudice to Owners obligations under any other Clause of this Charter and shall not be deemed to constitute any interference by Charterers in the navigation or management of the Vessel or give rise to any indemnity or other claim against Charterers. Any time lost as a result of the masters failure to act reasonably in relation to such advice shall count as off-hire under Clause 22.
47. | Owners Representations, Warranties and Undertakings |
(a) | Corporate Organisation and Authority and General |
(i) | Owners represent and warrant that the following matters are true on the date hereof: |
Owners are a company, duly organised, validly existing and in good standing under the laws of Marshall Islands, have full power to own their property and assets and to carry on their business as it is now being conducted, and have complied with all statutory and other requirements relative to their business.
Owners have all necessary power and authority and have obtained all necessary licences, authorisations, approvals and consents, to execute and deliver, to perform their obligations under, this Charter. The execution, delivery and performance of this Charter by Owners have been duly authorised by all necessary action on their part.
This Charter has been duly executed by Owners and constitutes the legal, valid and binding obligations of Owners, enforceable against Owners in accordance with its terms, except insofar as enforcement may be limited by any applicable laws relating to bankruptcy, insolvency, administration and similar laws affecting creditors rights generally.
Owners maintain and shall maintain accurate books and records reflecting their operations separately from the books and records of any other entity and shall maintain such books and records in English.
(b) | Related Agreements and Parties. |
(i) | Owners represent and warrant that all contracts, agreements and instruments are in effect as may be necessary in order for Owners to perform fully their obligations hereunder. |
(ii) |
Owners undertake to procure that the Manager and other applicable parties will take all necessary steps to perform their obligations under |
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the above-referenced agreements for the benefit of Charterers. Except as expressly provided in this Charter, no material amendment, modification or waiver shall be made in respect of any contract, agreement or instrument referred to in this Clause 47(b)(ii), nor shall the effectiveness of any such contract, agreement or instrument be terminated, without the prior written approval of Charterers. |
(c) | Ownership of the Vessel |
Owners represent and warrant that, as of the date of delivery, they shall have full and marketable title to the Vessel and Owners shall be the owner of the Vessel, and Owners undertake throughout the charter period to remain the owner of the Vessel.
(d) | Deemed Repetition |
Owners agree that the representations and warranties set out in this Clause 47 shall survive the execution of this Charter and shall be deemed to be repeated on each Business Day with reference to the facts and circumstances then subsisting, as if made on such date.
48. | Consequential Losses |
(a) | Except as provided in Clause 48, neither party shall have any liability for any consequential, indirect or special loss resulting from or arising out of this Charter, including loss of reputation or goodwill, loss of use, time or profit, loss of contract and loss of production or business interruption. |
(b) | The exclusion of liability under Clause 48(a) shall not apply: |
(i) | to any hire, freight, demurrage or other income to be derived from any sub-charter, contract of affreightment or other employment of the Vessel by Charterers; or |
(ii) | to losses caused by reckless or wilful misconduct or the personal act or omission or negligence of the senior management personnel of the party concerned. |
49. | Law and Litigation |
(a) | This charter and any non-contractual obligations arising out of or in connection with it shall be construed and the relations between the parties determined in accordance with the laws of England. |
(b) | All disputes arising out of this charter shall be referred to Arbitration in London in accordance with the Arbitration Act 1996 (or any re-enactment or modification thereof for the time being in force) subject to the following appointment procedure: |
(i) | The parties shall jointly appoint a sole arbitrator not later than 28 days after service of a request in writing by either party to do so. |
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(ii) | If the parties are unable or unwilling to agree the appointment of a sole arbitrator in accordance with (i) then each party shall appoint one arbitrator, in any event not later than 14 days after receipt of a further request in writing by either party to do so. The two arbitrators so appointed shall appoint a third arbitrator before any substantive hearing or forthwith if they cannot agree on a matter relating to the arbitration. |
(iii) | If a party fails to appoint an arbitrator within the time specified in (ii) (the Party in Default), the party who has duly appointed his arbitrator shall give notice in writing to the Party in Default that he proposes to appoint his arbitrator to act as sole arbitrator. |
(iv) | If the Party in Default does not within 7 days of the notice given pursuant to (iii) make the required appointment and notify the other party that he has done so the other party may appoint his arbitrator as sole arbitrator whose award shall be binding on both parties as if he had been so appointed by agreement. |
(v) | Any Award of the arbitrator(s) shall be final and binding and not subject to appeal. |
(vi) | For the purposes of this clause 49(b) any requests or notices in writing shall be sent by fax, e-mail or telex and shall be deemed received on the day of transmission. |
(c) | It shall be a condition precedent to the right of any party to a stay of any legal proceedings in which maritime property has been, or may be, arrested in connection with a dispute under this charter, that that party furnishes to the other party security to which that other party would have been entitled in such legal proceedings in the absence of a stay. |
(d) | Any claim arising under this charter shall be waived and finally barred unless and to the extent that such claim has not been referred to arbitration within six (6) months after the date on which the Vessel was redelivered to Owners under this charter. For the avoidance of doubt a claim shall be treated as having been referred to arbitration when a request under Clause 49(b)(i) has been served in respect of such a claim. |
50. | Confidentiality |
The parties agree to keep the terms and conditions of this Charter (the Confidential Information ) strictly confidential, provided that a party may disclose Confidential Information:
(i) | through a press release in agreed terms and on an agreed date notifying the execution of this Charter; |
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(ii) | where this is required to be disclosed under applicable law or by a governmental order, decree, regulation or rule (provided that the disclosing party shall give written notice of such required disclosure to the other party prior to the disclosure); |
(iii) | in filings with a court or arbitral body in proceedings in which the Confidential Information is relevant and in discovery/disclosure arising out of such proceedings, or to any of the following persons on a need to know basis or for bona fide audit purposes: |
| a buyer or seller or a potential buyer or seller of LNG shipped or to be shipped on the Vessel; |
| a sub-charterer or a potential sub-charterer of the Vessel; |
| an associated company; |
| employees, officers, directors and agents of the disclosing party or an associated company; |
| professional consultants retained by a disclosing party; or |
| financial institutions advising on, providing or considering the provision of financing to the disclosing party or an associated company, |
provided that the disclosing party shall exercise due diligence to ensure that no such person shall disclose Confidential Information to any unauthorised person or under any unauthorised circumstances. As used in this Clause 50 associated company means (i) a Manager of the Vessel, or (ii) any Affiliate.
51. | Construction |
The side headings have been included in this charter for convenience of reference and shall in no way affect the construction hereof.
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52. | Notices |
(a) | Whenever written notices, which shall include without limitation invoices and credit notes, are required to be given by either party to the other party, such notices shall be sent by telex, fax, registered mail, e-mail or registered airmail to the following addresses: |
Notice to Owners:
Lance Shipping S.A.
C/O Dynagas Ltd.
94, Poseidonos Avenue & 2 Nikis Street
166-75 Glyfada, Athens Greece
Telephone: +30-210-8917960
Fax: +30-210-894-7275
Attention: Tony Lauritzen
Email: lngcoordination@dynagas.com
Cc: lngopsgroup1@dynagas.com
Notice to Charterers:
Gazprom Global LNG Limited
20 Triton Street
London NW1 3BF
United Kingdom
Tel: +44 207 756 0326
Fax: +44 207 756 9741
Email: shipping@gazpromlng.com
Cc: nikolai.grigoriev@gazpromlng.com
Notice to Owners Operations Department:
Capt. G.Sarimpelas-Marine Operations Co-ordinator
Office Tel: +30 210 8917700
Mob: +30 6978 336 977
Home Phone: +30 210 2633726
Fax: +30-210-894-7275
Email: lngopsgroup1@dynagas.com
Notice to Charterers Operations Department:
Attn: Mr. Quinn Booth
Shipping Operations Manager
Gazprom Marketing and & Trading Singapore Pte. Ltd.
9 Raffles Place, Level 58, Republic Plaza.
Singapore 048619
Copy:
Tejas Voralia
Shipping Operator
Gazprom Global LNG Ltd
20 Triton Street
London NW1 3BF
United Kingdom.
Tel: +65 6671 9091 / +44 207 756 0325
Fax: +65 6435 6200 / +44 207 756 9741
Email: shipping@gazpromlng.com
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or to such other addresses as the parties may respectively from time to time designate by notice in writing. Any failure to transmit a copy of the notice to a party listed as entitled to receive a copy shall not in any way affect the validity of any notice otherwise properly given as provided in this Clause.
(b) | Any notice required under this charter to be given in writing shall be deemed to be duly received only: |
In the case of a telex, at the time of transmission recorded on the message if such time is within normal business hours on a working day at the place of receipt, otherwise at the commencement of normal business hours on the next working day there.
(i) | In the case of a letter, whether delivered in course of the post or by hand or by courier, at the date and time of its actual delivery if within normal business hours on a working day at the place of receipt otherwise at the commencement of normal business on the next such working day. |
(ii) | In the case of a facsimile or e-mail, at the time of transmission recorded on the message if such time is within normal business hours (09:00 - 17:00) in the country of receipt, otherwise at the commencement of normal business hours on the next working day at the place of receipt. |
53. | Taxes |
All payments of charter hire made by Charterers to Owners under this Charter shall be made without deduction or withholdings whatsoever in respect of taxes imposed on such charter hire by any country where loading or discharging of LNG takes place under this charter. All other taxes and dues on the Vessel, excluding taxes imposed on such charter hire, to be for Owners account. All taxes and dues on Cargo or Cargo Owner to be for Charterers account.
For the purposes of VAT, all amounts referred to in this agreement are exclusive of VAT. The VAT treatment of the supply of the services performed under the charter shall be determined pursuant to the VAT laws of the jurisdiction where a taxable transaction for VAT purposes is deemed to take place. If VAT is payable on any such amounts, the payer shall pay to the payee an amount equal to the VAT at the rate applicable from time to time; provided that such amount shall only be required to be paid once the payee provides the payer with a valid VAT invoice (applicable in the jurisdiction of supply) in relation to that amount.
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Where, in accordance with EU and/or national legislation, any supplies under the agreement may be zero-rated pursuant to the Value Added Tax Act 1994 Schedule 8 Group 8, the following shall apply:
a) | the payer and payee hereby covenant that they will do all such proper acts, deeds and things as are necessary (which may include and shall not be limited to providing to the payee all such proper, true and accurate documentation or assistance as may reasonably be required by the relevant taxing authority) to ensure that such supply is zero-rated for the purposes of such legislation; |
b) | in the event that the payer or the payee fails to comply with such obligation, the non-complying Party shall indemnify the other Party in respect of any and all VAT, penalties and interest incurred by the other Party as a result of the non-complying Partys failure to comply with the above covenant; and |
c) | in the absence of the payer providing any documentation as referred to in (a) above, the payee reserves the right to charge local VAT. |
54. | Business Principles |
Owners and Charterers hereby acknowledge that certain laws of the United States of America, the United Kingdom and the European Union, as well as the laws of the various jurisdictions where this Charter is to be performed, prohibit any person or entity from offering to make or making any payment of money or anything of value, directly or indirectly, to any governmental official, political party, candidate for political office, official of a public international organisation or any other person for the purpose of obtaining or retaining business or providing an improper advantage. Each of Owners and Charterers hereby represents, warrants and covenants to the other that, in the performance of its obligations hereunder, it has not made or offered to make, and will not make or offer to make, any such prohibited payment. In the event of a breach of any such laws, the party in breach shall fully indemnify (on an after tax basis), protect, defend and hold harmless the other party and its Affiliates, officers, directors, agents and employees from and against any and all claims, losses and liabilities attributable to any such breach and the enforcement of such laws.
55. | Definitions |
In this charter, save where the context otherwise requires, the following words and expressions shall have the meanings respectively assigned to them in this Clause;
Affiliate means any person who directly or indirectly controls, is under common control with or is controlled by a party to this charter; where control means the right to exercise more than 50% of the voting rights at a shareholders meeting of the applicable entity
Boil-Off means the vapour, which results from vaporisation of LNG in the cargo tanks.
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Business Day means a day (other than a Saturday, Sunday, or public holiday) on which commercial banks are ordinarily open with respect to a payment obligation of a Party under this Agreement, in the country in which that Partys bank is located as identified in Clause 11 (Payments).
Cargo Capacity means the maximum safe LNG loading limit of the Vessel as per Appendix 1.
Certificate of Financial Responsibility means a certificate of financial responsibility as required by the US Oil Pollution Act 1990.
Classification Society means Lloyds Register or its successors or such other classification society as Charterers shall, at the request of Owners, have agreed shall be treated as a Classification Society for the purposes of this Charter.
Directive means EU Directive 2005/33/EC of 6th July 2005.
ECA means a Sulphur Oxide Emission Control Area as defined in Annex VI of MARPOL and amended from time to time, or any other area where sulphur oxide or other Vessel emissions are controlled such area being established and governed by state or regional laws including without limitation the US Clean Air Act 1990.
Fuel Price means United States Dollars last invoiced price for HFO, LSFO, MGO or MDO as the case may be per metric ton (or relevant volumetric unit) as purchased by the Vessel on FIFO basis in the currency of the invoice.
Gas Free means the Vessels cargo tanks are free off all natural gas vapour and under an atmosphere of inert gas.
HFO means Heavy Fuel Oil.
LNG means natural gas liquefied by cooling and which is in a liquid state at or near atmospheric pressure.
LNG Heel means liquid cargo retained in the cargo tanks on completion of discharge.
LNG Price means United States Dollars per mmBtu DES price for LNG at the last port of discharge based upon the composition of LNG at discharge in the currency of the invoice.
LSFO means marine fuel oil with the sulphur content of less than 1% of weight.
MARPOL means the International Convention for the Prevention of Pollution from Ships, 1973, as modified by the Protocol of 1978 relating thereto.
MDO means Marine Diesel Oil.
MGO means Marine Gas Oil.
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Radioactivity means ionizing radiations from or contamination by radioactivity from nuclear fuel, nuclear waste, or the radioactive properties of any nuclear installation, reactor or other nuclear assembly.
Service Speed shall have the meaning ascribed to it in Appendix 3 Article 1 (a).
56. | Additional Clauses |
The following documents attached in Appendices 1 to 4 shall be incorporated herein:
Appendix 1: Gas Form for the Vessel
Appendix 2: Primary Terminal List
Appendix 3: Detailed Performance Criteria
Appendix 4: Experience Matrix
Appendix 5: Gazprom Global LNG Safety and Environmental Monthly Reporting Template.
SIGNED FOR OWNERS /s/ Illegible | SIGNED FOR CHARTERERS /s/ Illegible | |
FULL NAME Ioannis Edipidis | FULL NAME Nikolas Grigorien | |
POSITION Attorney-in-Fact | POSITION Director of Global Shipping & Logistics |
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APPENDIX 1
Gas Form
VESSELS SPECIFICATIONS AND THE GAS INSTALLATION, WHICH ARE REPRESENTED BY THE OWNERS.
A. VESSELS CHARACTERISTICS
PREAMBULE
S/S | : | LNG CARRIER CLEAN POWER | ||
OWNER | : | LANCE SHIPPING S.A. | ||
OPERATOR | : | LANCE SHIPPING S.A. | ||
FLAG | : | Marshall Islands | ||
BUILT | : | 2007 | ||
DATE OF DELIVERY | : | 06 TH JULY 2007 |
CLASS: | LR+100A1 Liquefied Gas Tanker, Ship type 2G, Methane (LNG) (membrane tanks 0.25 bar G, -163C, 500 kg/m3), Ship Right (SDA), *IWS, LI, EP. ICE CLASS 1A FS. LMC UMS, ICC, NAV1, IBS Ship Right (FDA PLUS, CM, BWMP(S), SCM, SERS, SEA (HSS-4, L, VDR)) PART HIGHER TENSILE STEEL. |
GRT International: | 100,244 | Suez: | 103,525.75 | Panama: | N/A | |||||
NRT International: | 30,073 | Suez: | 88,241.74 | Panama: | N/A |
IS VESSEL BUILT ACCORDING TO USCG REGULATIONS? YES
HAS VESSEL RECEIVED USCG APPROVAL? NOT YET
HULL : | ||||||
LOA | : | 288.18 m | ||||
LBP | : | 275.00 m | ||||
BREADTH | : | 44.20 m | ||||
DEPTH (moulded) | : | 26.00 m | ||||
SUMMER DRAFT (moulded): 12.35 m | (Corresponding deadweight: 84,682 T) | |||||
SUMMER DRAFT (extreme): 12.37 m | ||||||
DESIGNED DRAFT | : | 11.35 m | ||||
LIGHT WEIGHT | : | 31,643 T | ||||
FWA | : | 274 mm | ||||
KTM | : | 52.54 m | (Antenna + Xmas tree lowered: 50.75 m) |
ESTIMATED DRAFT WITH FULL CARGO AND FULL BUNKERS
Product LNG |
Draughts (moulded) |
Corresponding | ||||||
Forward |
Mean |
Aft |
Deadweight |
|||||
Designed draught |
11.35 m | 11.35 m | 11.35 m | 74,163 MT | ||||
Max draught |
12.35 m | 12.35 m | 12.35 m | 84,682 MT |
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Immersion at draft : | 11.35 m= | 104 | MT/cm | |||
12.35 m= | 106 | MT/cm |
COMMUNICATION EQUIPMENT
|
||||
CALL LETTERS | : | ***** | ||
RADIO STATION NORMALLY WATCHED | : | YES | ||
RADIO TELEX (NBDP) | : | YES - MMSI : ***** | ||
(VHF + MF) | ||||
RADIO TELEPHONY | : | YES | ||
VHF | : | YES | ||
SATELLITE COMMUNICATION F-77 | : | ***** | ||
SATELLITE COMMUNICATION F-33 | : | ***** | ||
SATELLITE COMMUNICATION C | : | ***** | ||
E-MAIL ADDRESS | : | ***** |
The guaranteed average sea speed at the designed draft of 11.35m, on even keel and on a year period shall be ***** knots under weather conditions not exceeding Beaufort scale 5, 50% LOADED 50% BALLAST.
CONSUMPTION / DAY
AT SEA:
MAIN ENGINE
Speed | 100 % HFO (HCV 10,280 kcal/kg) | |
***** | ***** |
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IN PORT:
AUX. ENGINE | ***** T/day in case D/G running only. | |
BOILERS | ***** T/day depending on operations |
PERMANENT BUNKER CAPACITY ALLOWING AN ULLAGE OF 95 %
HFO (incl. low sulphur oil) | 6,784.3 MT |
(SG 0.99 MT/m3) |
||
DIESEL (MDO+GO) | 360.1 MT |
(SG 0.85 MT/m3) |
||
LUB OIL | 308.0 MT |
(SG 0.90 MT/m3) |
B. CARGO INSTALLATIONS
1. TRANSPORTABLE PRODUCTS AND RESPECTIVE QUANTITIES, calculated in accordance with IMO - maximum filling formula.
100% capacity
At 20 deg C Excluding dome |
98.5 % capacity
At 160 o C Excluding dome |
98 % capacity
At 160 o C Excluding dome |
LNG 98 % filling
SG: 0,50 @ -163°C Excluding dome |
|||||||||||||
Cargo tanks |
(m 3 ) | (m 3 ) | (m 3 ) | MT | ||||||||||||
Tank 1 |
24623.616 | 24,254.262 | 24,131.144 | 12065.5 | ||||||||||||
Tank 2 |
43226.489 | 42,578.092 | 42,361.959 | 21181.0 | ||||||||||||
Tank 3 |
43242.497 | 42,593.860 | 42,377.647 | 21188.8 | ||||||||||||
Tank 4 |
38642.014 | 38,062.384 | 37,869.174 | 18934.6 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
TOTAL |
149,734.616 | 147,488.598 | 146,739.924 | 73369.9 | ||||||||||||
|
|
|
|
|
|
|
|
Note : | MAX DENSITY OF CARGO: 500kg/m 3 . |
2. OTHER TRANSPORTABLE PRODUCTS
NIL
3. TANKS
3.1. Working pressure | : | Between 70 200 mbar g | ||
3.2. Valve setting | : | 0.25 bar g (opening) | ||
0.22 bar g (closing) | ||||
3.3. Maximum vacuum obtainable | : | -1 kPa g (safety valve) | ||
3.4. Maximum specific gravity | : | 0.500 MT/m 3 | ||
3.5. Maximum temperature acceptable | : | -163°C (0°C = 273 K) |
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4. LOADING RATE
4.1. ex atmospheric storage, with gas return :
About 13,500cm/hr at not more than 2.0 bar g pressure at the flange connection between ship and terminal
Loading full cargo within 12 hours using three (3) liquid manifolds and a vapour manifold excluding cooling down time and provided ample vapour return facilities on shore.
without vapour return : N/A.
4.2 UNLOADING
About 14,400 cm/hr with a back pressure at the flange connection between ship and terminal not exceeding 100 mlc of liquid LNG of S.G. 0.47 measured inboard of the manifold strainer with cargo tanks at mid level.
Unloading full cargo within 12 hours using three (3) liquid manifolds and a vapour manifold excluding build up period for starting pumps and slow down or stripping at the end of unloading.
5. CARGO PUMPS.
5.1. | Main cargo pumps : |
Type : | electric motor driven submerged vertical centrifugal 16EC-24 | |
Make : | EBARA International Corp. | |
How many : | Eight (8) (2 per tank) | |
Maximum specific gravity : | 0.500 T/m 3 |
5.2. | Capacity each (CBM/hour) : 1,800 m 3 /h at 155 m. T.H. |
Two speed or variable speed : | No | |
Max Working pressure LNG | 10.0 kg/cm 2 g |
5.3. | Location: within cargo tanks |
Removable: No |
5.4. | Stripping / Spray pumps : Four (4) (1 in each tank) |
Type: | Electric motor driven, Vertical, Centrifugal, Submerged, 2EC-12 | |
Maker: | EBARA International Corp. |
5.5. | Capacity (CBM/hour) : 50 m 3 /h x 145 m.T.H. (S.G. max 0.500 T/m 3 ) |
Max Working pressure : LNG 10.0 kg/cm 2 g |
5.6. | Location : within cargo tanks |
5.7 | Emergency cargo pump : One (1) |
Type: | Electric motor driven, Vertical, Centrifugal, Submersible 8ECR-12 | |
Maker: | EBARA International Corp. |
5.8 | Capacity (CBM/hour) : 550 m 3 /h 155 m.T.H. (S.G. max 0.500 T/m 3 ) |
5.9 | Location : Deck Store (can be installed in cargo tanks 1, 2, 3 & 4) |
5.10 | What amount of cargo remains in tank after completion pumping before stripping: |
liquid : |
abt. 1198 m3 on evel keel condition | |
vapour : |
N/A |
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6. STRIPPING
6.1. Stripping system if any: See above paragraph 5.4 for Stripping/spray pumps.
6.2. Time required to remove all traces of liquid cargo as stated in 5.10 for about four (4) hours
7. CARGO COMPRESSORS
7.1. | Type : | High Duty Compressors CM400/55 | ||
Maker : | Cryostar | |||
How many : | Two (2) sets, 32,000 m3/h each. | |||
Total flow: | 64,000 m 3 /h | |||
7.2. | Are compressors oil free: Yes | |||
7.3. | Type : | Low Duty Compressors CM300/55 | ||
Maker : | Cryostar | |||
How many : | Two (2) sets, 8,500 m3/h each | |||
Total flow : | 17,000 m 3 /h |
8. INERT GAS SYSTEM
8.1. | Does the vessel use inert gas? : | Yes | ||
Maker : | Smit Gas Inert Gas Generator (one (1) set) | |||
If so, state utilization and quantities : | Inerting, drying & aeration. | |||
Capacity : 15,000 Nm 3 /h |
8.2. | Can the vessel produce inert gas? | Yes | ||
If so, state type and composition of gas produce |
O 2 | Max 0.5 % by volume | |||
CO | Max 100 ppm by volume | |||
SOx | Max 10 ppm by volume | |||
Nox | Max 100 ppm by volume | |||
CO 2 | about 14.0 % vol by volume | |||
N 2 | Balance | |||
Dew point : -45ºC @ atmospheric pressure |
8.3. | Maximum capacity : 15,000 Nm 3 /h with discharge press. 250 mbar g | |
8.4. | State if there are storage facilities for inert gas on board: No | |
8.5. | State if any supply of nitrogen may be required: Yes |
for what purpose : |
Breeding in insulation spaces of the cargo tank to maintain pressure, purging of the gas fuel line, cargo pipes, vent masts, fire extinguishing in the vent masts , purging of boiler hood headers and for sealing of cargo compressors glands. | |||
what quantities : |
Two (2) sets of Nitrogen generators. |
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Type : | Membrane separation, low pressure. | |
Maker : | Air Products | |
Capacity : | 125 Nm 3 /h with dewpoint 65ºC , each | |
Tank : | One (1) N2 Buffer tank 30 m 3 capacity at pressure 1020 kPa |
9. GAS FREEING
9.1. | State method used giving all details: |
| Introducing inert gas into cargo tanks for replacement of warm vapours. |
| Introducing dry air into cargo tanks for replacement of inert gas. |
Dry air blowers (IGG Plant) : Two (2) sets, each 7,500 Nm3/h
9.2. | State time required for gas freeing : | about 36 hours (warm up) | ||||
20 hours (inerting) | ||||||
20 hours (aeration) | ||||||
|
||||||
about 76 hours in total |
Time required for displacing IG with dry air : about 20 hours
9.3 | State consumption of inert gas if any : about 300,000m 3 |
10. CHANGING GRADE
10.1 | From A to B : From completion discharge of cargo A, time required in hours and other gas in CBM. |
B |
LNG |
INERT GAS |
DRY AIR |
|||
A |
||||||
CH 4 less than 2 % Vol | ||||||
20 hours | ||||||
LNG | ||||||
300,000 m3 Inert gas |
||||||
CO 2 less than 1% Vol | O 2 = 20 % Vol | |||||
20 hours | 20 hours | |||||
INERT GAS | ||||||
280,000 m 3 | 300,000 m 3 | |||||
LNG | Dry air | |||||
O 2 less than 2 % Vol | ||||||
20 hours | ||||||
DRY AIR | ||||||
300,000 m 3 | ||||||
Inert gas |
Warming up / inerting : Total about 56 hrs
Cooling down : about 15 hrs Tank mean temperature : -130 ºC
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10.2. Can this operation be carried out at sea? Yes
10.3. Can the ship measure the number of LNG in a vapour phase? No
10.4. Has vessel deck tank for changing grade/cooling operations? No
10.5. Deck tanks : N/A
11. COOLING BEFORE LOADING
For fully-refrigerated ship what quantity of cargo is needed and time required, to pre-cool tanks to have them ready to load. (Starting with tanks at ambient temperature filled with cargo vapour and with no vapour return to shore.)
CARGO | MT | HOURS | ||
LNG | abt 550 m 3 = 300 MT | 15 (including cool down lines) |
12. CARGO BOIL OFF / WARM UP HEATER :
13. CARGO VAPORIZER
13.1 : LNG VAPORIZER :
Maker : | Cryostar | |
Type : | BEU 65-UT-38/34-5.6 | |
Capacity : | 22,000 kg/h | |
Number of units : | One (1) set |
13.2 : LNG FORCING VAPORIZER
Maker : | Cryostar | |
Type : | BEU 34-UT-25/21-3.6 | |
Capacity : | 7,100 kg/h | |
Number of units : | One (1) set |
14. REFRIGERATING APPARATUS
N/A
15. MEASURING APPARATUS
What gauges on board?
Primary system : | Radar beam system. Maker SAAB. | |
Secondary system : | Float type level gauge. Maker Whessoe. |
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16. SAMPLES
16.1. | State how tank atmosphere samples can be taken and where from? |
Through sample valves at tank Liquid / gas domes.
Level : Bottom Mid Top
Standard of fitting? Double ball valve ND15 mm.
16.2 | Same question for cargo ? Double ball valves ND15 mm & ND8mm. |
16.3. | Are sample bottles available on board? No |
17. CARGO LINES
17.1. | Is ship fitted with a port and starboard cargo manifold? YES |
BOW | ||
Liquid 1 | 16 150 ANSI | |
Liquid 2 | 16 150 ANSI | |
Vapour | 16 150 ANSI | |
Liquid 3 | 16 150 ANSI | |
Liquid 4 | 16 150 ANSI | |
STERN |
17.2. | Position of cargo manifold : Centre L-L-V-L-L . |
distance from bow : |
144.83 m | |||
distance from stern: |
143.35 m | |||
height above deck / driptray : |
4,938/1,394 m | |||
distance from ships rail : |
3,150 m | |||
height from underside keel : |
30.938 m | |||
distance between lines : |
3.0 m |
Height above waterline : |
when light ballast : |
draught 9.18 m | 21.758 m | ||||
when loaded : |
draught 12.35 m | 18.588 m |
Loading connection |
height from centre of flange to first obstacle downward below each flange : 1.379 m |
17.3. Liquid line :
diameter : |
400mm | |
flange - size : |
16 | |
type : |
150 ANSI RF type (Max Work Press 10 Bar 145psi) |
Vapour line :
diameter : |
400mm | |
flange size : |
16 | |
type : |
150 ANSI RF type(Max Work Press 10 Bar - 145 psi) |
17.4. What reducers on board?
For chicksan | 10 × 16- RF (ship side)> 16- FF ANSI (shore side) | |
For STS |
4 × 16 > 8 ANSI |
|
For N2 receiving | N/A |
17.5 Strainers for liquid manifolds
Type : portable conical dual flow type.
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8 sets x 16 with mesh size of ASTM 60, four (4) sets directly fitted on liquid dome manifold and four (4) sets to be installed in Cargo gear locker.
17.6. Is ship fitted with stern discharge? NO
liquid line - diameter : |
||
flange - size : |
||
type : |
18. REGASSIFICATION SYSTEM N/A
18.1 | High pressure pumps |
Type: | ||
Maker: | Electric Co., Ltd. |
Capacity: xxx m3/hr x xxxx m. T. H.
18.2 | High pressure vaporizer |
Type: |
design |
|
Maker: |
Inc. |
Capacity: | normal flow rate | mmscfd | ||
Max flow rate | mmscfd |
18.3 | Send out: |
| NG output: MMSCFD at nominal operation in Open Loop operation mode |
| NG Output MMSCFD at nominal operation in Closed Loop operation mode. |
| NG output: MMSCFD at peak operation with all units in operation and heating water greater than °C (65 °F) |
| Minimum operation: MMSCFD utilizing large HP pump |
| Minimum operation: MMSCFD utilizing small HP pump. |
(Outputs lower than MMSCFD are not considered as normal operations)
| NG outlet pressure at swivel: between bar g bar g. |
| NG outlet temperature limit at swivel: Minimum- °C |
| NG outlet flow velocity limit at STL: Maximum m/s |
| NG outlet temperature at vaporizer outlet: Minimum +° C (40°F) |
18.4 | Turret / HP Manifolds |
Discharging of NG can be performed through an internal turret arrangement connected to an offshore buoy or to a high pressure manifold located at Portside or starboard side.
18.4.1 Location of HP manifolds
Size: ANSI
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distance from bow : |
m | |
distance from stern: |
m | |
distance from ships rail : |
m | |
height from underside keel : |
m |
Height above waterline : | ||||||
when light ballast : |
draught | m | m | |||
when loaded : |
draught | m | m |
19. HOSES
Are serviceable hoses available on board? YES
19.1 For Ship to Ship transfer : 4 sets (2 sets for liquid line and 2 sets for vapour line) of Cryogenic flexible hoses size: 8, length 4 m with ANSI 150# on both end.
19.2 Minimum temperature acceptable : -163 ºC
Maximum pressure acceptable : 10 bar
19.3 For what products are hoses suitable? LNG
20. DERRICKS / CRANES
How many : |
2 cranes | |
Where situated? |
Adjacent to manifolds on centre line of ship | |
Lifting capacity: |
10 MT SWL | |
Maximum distance from ships side of lifting hook when derrick swung outboard? 13.0 m |
21. SPECIAL FACILITIES.
21.1. How many grades can be segregated? 1
21.2. How many cooled simultaneously? 1
21.3. Can vessel sail with slack cargo tanks? :
YES FOR EMERGENCY SHIFTING / NO FOR NORMAL VOYAGE
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APPENDIX 2
Primary Terminals
(as of the date of this Charter)
Export Terminals
COUNTRY |
TERMINAL |
|
Indonesia | Arun North | |
Indonesia | Arun South | |
Indonesia | Badak; Bontang - 3 | |
Algeria | Bethioua M5 | |
Malaysia | Bintulu No 1 | |
Malaysia | Bintulu No 2 | |
Malaysia | Bintulu No 3 | |
Nigeria | Bonny | |
Brunei | Brunei/Lumut | |
Egypt | Damietta | |
UAE | Das Island | |
Egypt | Idku | |
Trinidad and Tobago | Point Fortin | |
Russia | Prigorodnoye | |
Equatorial Guinea | Punta Europa | |
Oman | Qalhat | |
Qatar | Ras Laffan No 1 | |
Qatar | Ras Laffan No 2 | |
Qatar | Ras Laffan No 3 | |
Qatar | Ras Laffan No 4 | |
Qatar | Ras Laffan No 5 | |
Qatar | Ras Laffen No 6 | |
Norway | Snohvit | |
Australia | Withnell Bay |
Import Terminals
COUNTRY |
TERMINAL |
|
Turkey | Aliaga Ege Gaz | |
Mexico | Altamira | |
Spain | Barcelona | |
Spain | Bilbao | |
UK | Canvey Island | |
Spain | Cartagena | |
Japan | Chita L 1 | |
Japan | Chita L2 | |
USA | Cove Point North |
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USA | Cove Point South | |
India | Dabohl | |
India | Dahej | |
UAE | Dubai | |
USA | Elba Island North | |
USA | Elba Island South | |
Mexico | Energia Costa Azul | |
USA | Everett | |
France | Fos Cavou | |
China | Fujian | |
Japan | Futtsu No 1 | |
Japan | Futtsu No 2 | |
USA | Freeport | |
China | Guang Dong | |
Korea | Gwangyang | |
Japan | Higashi Ogishima | |
Japan | Himeji | |
Spain | Huelva | |
Korea | Inchon No 1 | |
Korea | Inchon No 2 | |
UK | Isle of Grain | |
Japan | Kawagoe | |
USA | Lake Charles | |
Turkey | Marmara Ereglisi | |
Chile | Mejillones | |
UK | Milford Haven - Dragon | |
France | Montoir Upstream | |
France | Montoir Downstream | |
Japan | Niigata | |
Japan | Oita | |
Japan | Ohgishima | |
Korea | Pyeong Taek No 1 | |
Korea | Pyoeng Taek No 2 | |
Greece | Revithoussa | |
USA | Sabine Pass | |
Spain | Sagunto | |
Japan | Senboku No 2-1 | |
Japan | Senboku No 2-2 | |
Japan | Shimizu - sodeshi | |
Portugal | Sines | |
Japan | Sodegaura No 2 | |
Japan | Sodegaura No 3 | |
UK | South Hook LNG Berth 1 | |
UK | South Hook LNG Berth 2 |
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Japan | Tobata | |
Korea | Tong Yeong | |
Japan | Yokkaichi | |
Taiwan | Yung An No 1 East | |
Taiwan | Yung An No 2 West | |
Belgium | Zeebrugge |
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APPENDIX 3
Detailed Performance Criteria
CONTENTS
Article 1. | Speed Warranties |
Article 2. | Timeliness |
Article 3. | Guaranteed Daily Fuel Consumption |
Article 4. | Definitions for Fuel Consumption Calculations |
Article 5. | Basis of Calculation for Fuel Consumption |
Article 6. | Actual Fuel Consumption on a Voyage |
Article 7. | Guaranteed Maximum Boil Off |
Article 8. | Boil Off Calculations |
Article 9. | Spray Cooling, Forced Vaporisation and use of Boil-Off |
Article 10. | Provisions for Gauging |
Article 11. | Underwater Cleaning / Waiting at Anchorage |
Article 12. | Interpretation |
1. | Speed Warranties |
(a) | Owners guarantee that the Vessel is capable of steaming and, subject to Article 1(b), shall steam at the Laden Service Speed or the Ballast Service Speed as set out in Clause 26(a) as applicable (the Service Speed). |
(b) | Charterers may order the Vessel to steam at the Service Speed or at any lesser average speed but not less than the Minimum Speed or, as the case may be, Slow-Steaming Speed as set out in Clause 26(a) and not at a greater average speed, except with Owners consent, which shall not be unreasonably withheld. For the avoidance of doubt, it is agreed that Owners may decline orders to steam at any lesser average speed than the Slow-Steaming Speed or at any greater average speed than the Service Speed for operational reasons, but the onus shall be on Owners to show reasonable justification based upon the principle of Weather and Safe Navigation Permissible (WSNP). If on Charterers request, the Vessel steams at an average speed greater than the Service Speed or at less than the Slow-Steaming Speed, then Owners shall be deemed to comply with all warranties to speed and fuel consumption during the voyage or that part of the voyage affected by Charterers request. |
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2. | Timeliness |
(a) | At any time prior to each voyage Charterers shall, subject to Article 1(b), instruct the Vessel to proceed so as to arrive at the pilot boarding station at each port at a given date and time (the Scheduled Arrival Time or SAT). Provided however: |
(i) | In the event that Charterers fail to provide a SAT to Owners the SAT shall be deemed to be the estimated arrival time of the Vessel assuming the Vessel steams at the Service Speed by the shortest safe route to the named port measured from pilot station to pilot station (a Sea Passage) (or the route specified by Charterers, if different) from the time Charterers instruct the Vessel to proceed; |
(ii) | The SAT shall in any event not be earlier than the estimated arrival time calculated in accordance with Article 2(a)(i); |
(iii) | Subject to Article 1(b), Charterers may amend the SAT from time to time during or prior to each voyage to accommodate changes in circumstances concerning the voyage or the readiness of the berth to receive the Vessel (the Amended SAT); and |
(iv) | The speed at which the Vessel needs to steam in order to meet the SAT or the Amended SAT or any permissible speed ordered by the Charterers shall be a Guaranteed Speed. |
(b) | Charterers shall compare the actual time of arrival of the Vessel at the pilot station at each port with the SAT save that if the SAT was amended solely for reasons not attributable to any failure in performance by the Vessel, then such comparison shall be made with the Amended SAT. |
(c) | If the Vessel arrives at the pilot station at the arrival port not later than three (3) hours after the SAT or Amended SAT, where applicable, the Vessel shall be deemed to have arrived On Time. If the Vessel arrives at the pilot station more than three (3) hours after the SAT, or Amended SAT where applicable, the Vessel shall be deemed to have arrived Late. |
(d) | Subject to Article 2(e) and (f), Charterers shall be entitled to make a deduction from hire in respect of any period by which the Vessel arrives Late. |
(e) | Notwithstanding the foregoing but subject to Article 2(f), Charterers shall not be entitled to make any deduction from hire if the Vessel arrives Late to the extent that such late arrival is caused by one or more of the following during the voyage being known as Restricted Periods: |
(i) | the incidence of bad weather, being any day in which the Vessel has to proceed in wind force in excess of Beaufort Force 5 for more than 12 (twelve) hours noon to noon; |
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(ii) | poor visibility; |
(iii) | time spent navigating in congested waters; |
(iv) | alterations in speed or course to avoid areas of bad weather; |
(v) | any period spent at a waiting area following arrival; |
(vi) | time lost waiting for or as a result of a canal transit; |
(vii) | time taken for bunkering during a sea passage in accordance with Charterers instructions; |
(viii) | time spent during stops at sea requested by Charterers; |
(ix) | time spent steaming at a reduced speed by mandatory order of regulatory bodies having jurisdiction over the Vessel; |
(x) | time spent steaming at a reduced speed as per Charterers orders; |
(xi) | time lost in order to observe recommendations as to traffic separation and routing as issued by the International Maritime Organisation, or as promulgated by any state and their agencies to which the Vessel may from time to time trade or through whose the waters the Vessel may pass; or |
(xii) | the saving of life or (with Charterers consent) property. |
The master shall record in his daily noon report the time lost in the previous 24 hours due to any of the matters referred to in this Article 2(e).
Provided that any period when the Vessel is off-hire at sea on any individual voyage shall be credited against the deductions from hire that would otherwise have been made under this Article 2.
(f) | If the Vessel arrives Late, the following calculation shall be made to assess the period in respect of which Charterers shall be entitled to deduct hire. The speed of the Vessel shall be calculated over the Sea Passage excluding all Restricted Periods (the Achieved Speed). If the Achieved Speed equals or exceeds the Guaranteed Speed, Owners shall be deemed to have met the speed warranties. If the Achieved Speed is less than the Guaranteed Speed, Charterers shall apply the Achieved Speed to the total Sea Passage and the time at which the Vessel would have arrived if steaming at the Achieved Speed shall be the Deemed Arrival Time. Charterers shall be entitled to deduct hire to the extent to which the Deemed Arrival Time exceeds the SAT by more than three hours. |
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(g) | The relationship between this Article 2 and Clause 22 shall be as follows: |
(i) | Periods of off-hire under Clause 22 shall be excluded for all purposes from calculations under this Article 2; |
(ii) | Article 2 of this Appendix 3 shall apply (to the exclusion of Clause 22) to deal with lateness/loss of time where no deviation or Stoppages occur or to deal with lateness after deviation or Stoppages (for which deductions can be made under Clause 22) greater than the duration of such Stoppages and deviations; |
(iii) | Clause 22 shall deal with Stoppages and/or deviation on a voyage, and the consequences of Stoppages and/or deviation where the Vessel does not arrive On Time with reference to SAT prevailing immediately before the first Stoppage or deviation for that voyage; |
(iv) | Clause 22 applies (to the exclusion of Article 2 of this Appendix) to deal with loss of time at a port after the end of the voyage to such a port and before the start of the next voyage from such a port as defined in Article 2 (c) of this Appendix. |
(h) | In Clause 2 Stoppage means any time during which no power is being applied to propel the Vessel for a reason listed in Clause 22. |
3. | Guaranteed Daily Fuel Consumption |
(a) | Owners guarantee that subject to the other provisions of Appendix 3, the maximum daily fuel consumption of the Vessel for all purposes shall not exceed the quantities tabulated in Clause 26(c) and, where applicable, shall be prorated between the speeds shown. |
(b) | The average speed in knots on any Voyage (as defined in Article 4) shall be calculated by reference to the observed distance steamed and the duration of the Voyage, but excluding from the calculation of average speed the duration of all off-hire periods and distance covered in such periods and excluding the distance covered during any deviation which is not an off-hire period because the Vessel arrives On Time. |
4. | Definitions for Fuel Consumption |
(a) | In this Appendix 3: |
(i) | EOSP means the time the Vessel records End of Sea Passage on arrival after any voyage; |
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(ii) | FAOP means the time the Vessel proceeds Full Away On Passage from her departure point on a voyage; and |
(iii) | fuel refers collectively to HFO, LSFO, MGO and Boil-Off, measured in tonnes of Fuel Oil Equivalent. |
(b) | For the purpose of fuel consumption calculations a voyage shall, where applicable, be divided into separate segments (each a Voyage). A Voyage shall be deemed to have started either: |
(i) | at FAOP; |
(ii) | immediately after an off-hire period; or |
(iii) | at the time the Vessel alters speed to comply with an amended SAT or otherwise pursuant to Charterers orders as the case may be. |
(c) | A Voyage shall be deemed to have ended either: |
(i) | at EOSP; |
(ii) | immediately before an off-hire period; or |
(iii) | at the time the Vessel alters speed to comply with an amended SAT or otherwise pursuant to Charterers orders as the case may be. |
(d) | The duration of a voyage shall be the elapsed time between its start and its end pursuant to Article 4. |
5. | Basis of Calculation for Fuel Consumption |
(a) | For each Voyage the guaranteed fuel consumption shall be calculated by multiplying the maximum daily consumption as determined pursuant to Article 3 by the duration of the Voyage calculated on the assumption that the Vessel steamed at the Guaranteed Speed. In calculating both the guaranteed fuel consumption and the actual fuel consumption Restricted Periods pursuant to Article 2(e) shall be excluded. Subject as hereinafter provided, there shall be a saving of fuel for that Voyage equal to the amount by which the guaranteed fuel consumption exceeds the actual fuel consumption and an excess consumption for that Voyage equal to the amount by which the actual fuel consumption exceeds the guaranteed fuel consumption. Such saving or excess shall be adjusted to take into account the Restricted Periods by dividing such saving or excess by the number of miles over which the fuel consumption has been calculated and multiplying by the same number of miles plus the miles steamed during the Restricted Periods in order to establish the total saving or excess in fuel consumption for the Voyage. |
(b) |
If on any Voyage the Vessel has to steam faster than the Service Speed or slower than the Minimum Speed pursuant to Charterers orders, or in order to |
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achieve the SAT (provided this is not attributable to any failure of performance by the Vessel), the Vessel shall be deemed to have complied with the fuel consumption guarantees for the duration of such Voyage. |
(c) | Owners warranties relating to speed and fuel consumption shall not apply to the period between the end of one Voyage and the start of the next Voyage as described in Article 4. |
(d) | As soon as practicable after receipt of the necessary voyage returns, Charterers shall furnish Owners with their calculations determining fuel consumption on each Voyage. |
(e) | At the conclusion of the charter period or annually (whichever occurs first) (the Performance Period), the quantities of excess fuel used and the quantities of fuel saved on all voyages in the Performance Period shall each be added up. The total of fuel saved for the Performance Period shall then be subtracted from the total of excess fuel used for the Performance Period and if the balance is positive Charterers shall deduct from hire due under Clause 11 an amount calculated by multiplying: |
(i) | Where the excess is in consumption of HFO or MGO, the net excess quantity consumed for the Performance Period by the weighted average price paid by the Charterers for each fuel for the Vessel over the Performance Period in question; |
(ii) | Where the excess is in consumption of Boil-Off, the calorific value of the additional Boil-Off consumed, calculated using the weighted average LNG Price over the Performance Period in question. |
If the balance is zero or negative, Owners shall be deemed to have complied with their fuel consumption obligations for the Performance Period.
6. | Actual Fuel Consumption on a Voyage |
(a) | The actual fuel consumption on a Voyage shall, subject to Article 6 (b), be the sum of |
(i) | HFO and MGO consumed during the Voyage (expressed in tonnes ) and excluding any HFO and MGO used in any off-hire period on that voyage; and |
(ii) | the fuel equivalent of the total volume of cargo lost as Boil-Off during the Voyage (expressed in tonnes excluding any Boil-Off in any off-hire period on that voyage and excluding any Boil-Off in excess of guaranteed maximum Boil-Off under the provisions of Article 7. |
(b) |
For the purpose of this Article 6 the Fuel Oil Equivalent of the LNG lost as Boil-Off which is available as fuel during the voyage shall be assumed to be |
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the total volumetric value loss of the cargo, measured in cubic meters, as determined from the difference between gaugings at the loading and discharging ports (in accordance with Article 9), pro rated for the difference between the voyage and gauging times and multiplied by the Fuel Oil Equivalent factor set out in Clause 26(d). |
(c) | Owners may appoint an independent cargo surveyor to verify the composition of cargoes at loading and discharge ports. |
7. | Boil Off Calculations |
(a) | The Boil-Off excess or saving on any sea passage shall be calculated by comparing the guaranteed Boil-Off for the sea passage (i.e. the daily guaranteed maximum Boil-Off multiplied by the time between gaugings) with the actual Boil-Off. |
(b) | The actual amount of Boil-Off on a sea passage shall be calculated by subtracting the volume of LNG contained in the Vessels tanks at gauging after the sea passage from the volume therein at gauging before the sea passage. |
(c) | If the Vessel was off-hire during any sea passage the excess or saving shall be pro rated in the same proportion as the time on hire is to the total time between gaugings. |
(d) | At the conclusion of the charter period or annually (whichever occurs first) (the Performance Period), the quantities of excess Boil-Off and the quantities of Boil-Off saved on all trips in the Performance Period shall each be added up. The total Boil-Off saved for any such period shall then be subtracted from the total excess Boil-Off in the same period and if the balance is positive Charterers may deduct from hire due under Clause 11 an amount calculated by multiplying the said balance by the LNG Price or, if more than one LNG Price is applicable during the Performance Period, the arithmetical average of such LNG Prices. If the balance is zero or negative, then Owners shall be deemed to have complied with this Clause for the Performance Period. |
8. | Spray Cooling, Forced Vaporisation and use of Boil-Off |
(a) | If Owners require or Charterers so request, the Vessel shall spray cool as necessary in a manner consistent with Owners or Charterers requirements so as to maximise the use of the available Boil-Off for propulsion, whilst using due diligence to avoid the generation of any excess Boil-Off. |
(b) | The master shall notify Charterers if he is of the opinion that the Vessel will not, on arrival at the loading port, be able to commence bulk loading within half an hour after cooling of the loading arms without spray cooling on the ballast sea passage. |
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(c) | Without prejudice to any of Owners or Charterers obligations under this Article 8, if Owners intend to order spray cooling at any time during the charter period, Owners agree, if requested by Charterers, to discuss the reasons and technical basis for spray cooling. |
(d) | If on any sea passage Charterers order the Vessel to force vaporise LNG to eliminate or minimise the use of bunkers and the order is complied with, the Boil-Off guarantee shall be deemed to have been complied with on that sea passage. |
(e) | If Charterers give orders that require the temperature or vapour pressure of a cargo to fall during a laden sea passage and that order is complied with, the Boil-Off guarantee shall be deemed to have been complied with on that sea passage. |
(f) | Subject to the provisions of this charter, Owners shall have free use of Boil-Off. Any venting or steam dumping of Boil-Off shall not be permitted without Charterers prior written consent. |
(g) | If the LNG supplied to the Vessel is not at full saturation temperature at loading, the Boil-Off guarantee shall be deemed to have been complied with on that sea passage. |
(h) | If the Voyage is less than thirty six (36) hours, the Boil-Off guarantee shall be deemed to have been complied with on that sea passage. |
(i) | If Charterers give orders that require to shift LNG Heel to maximize heel deployment during a ballast passage, the Boil-Off guarantee shall be deemed to have been complied with on that sea passage. |
9. | Provisions for Gauging |
(a) | The time at which any volume of LNG is determined is referred to in this charter as a gauging time. |
(b) | In relation to any laden sea passage the cargo volume on loading at the start of the laden sea passage shall be the volume of LNG contained in the Vessels cargo tanks measured promptly after the closing of the Vessels manifold vapour return valve in the loading port and on discharge at the end of the laden sea passage shall be the volume of LNG contained in the Vessels cargo tanks measured promptly before the opening of the Vessels manifold vapour return valve in the discharge port. |
(c) |
In relation to any ballast sea passage the LNG heel volume after discharge (i.e. at the start of the ballast sea passage) shall be the volume of LNG contained in the Vessels cargo tanks measured promptly after the closing of the manifold vapour return valve in the discharge port and the LNG heel volume on loading (i.e. at the end of the ballast sea passage) shall be the |
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volume of LNG contained in the Vessels cargo tanks measured promptly before the opening of the Vessels manifold vapour return valve in the loading port. |
10. | Underwater Cleaning / Waiting at Anchorage |
(a) | Charterers may request Owners at any time to arrange for the cleaning afloat of the Vessels underwater hull and propeller, whereupon Owners shall arrange for the said cleaning to take place, provided that: |
(i) | the Vessel is free of cargo but may be under vapour if permitted by the port authority; |
(ii) | in Owners opinion such cleaning will not damage in any way the Vessels underwater hull coatings; and |
(iii) | such cleaning afloat can be carried out safely at a place approved by Owners and where the water is sufficiently clear for an underwater survey to be made of cleanliness of the Vessels hull and propeller immediately thereafter. |
(b) | The cost of such underwater hull and propeller cleaning and underwater survey referred to in Article 10 (a) shall be for Charterers account and the Vessel shall remain on hire for their duration. If the underwater survey shows that both the Vessels underwater hull and propeller are clean, a successful cleaning shall be deemed to have occurred. |
(c) | Charterers shall be entitled to require the Vessel to wait at anchorage and/or to use the Vessel for the purposes of providing floating storage for LNG. If Charterers order the Vessel to wait at anchorage for more than 20 days for such aforementioned purpose on any one occasion or more than 80 days comprising periods of not more than 20 days each in any period of 365 days, and, if as a result of such waiting Owners have good reason to believe that the performance of the Vessel or her fuel consumption is affected and speed and/or fuel warranties can no longer be met because of fouling, then Owners shall so state by written notice to Charterers and, if Charterers request, shall carry out an underwater inspection at Charterers expense to see if there is fouling of the hull and/or propeller. |
(d) | If as a result of the aforesaid inspection, Owners consider that there is evidence of such fouling then, if Charterers so request, Owners shall arrange and carry out cleaning afloat of the Vessels underwater hull and propeller provided that the provisions of Article 10 (a) (i), (ii) and (iii) apply. |
(e) | The cost of such underwater hull and propeller cleaning and underwater survey referred to in Article 10 (d) shall be for Charterers account and the Vessel shall remain on hire for their duration. If the underwater survey shows that both the Vessels underwater hull and propeller are clean, a successful cleaning shall be deemed to have occurred. |
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(f) | Provided that if any inspection pursuant to Article 10 (c) reveals the presence of hull or propeller fouling, or if Charterers decline to request an inspection following receipt of a notice from Owners under Article 10 (c), then from the time Owners give written notice that performance is affected by fouling, Owners shall be deemed to have complied with the speed and fuel warranties until the completion of the next periodic drydocking or successful cleaning, whichever occurs sooner. |
(g) | If the Vessel is instructed by Charterers to wait at anchorage or adrift for whatever reason for a period exceeding 20 days, Charterers shall pay for any reasonable service boats required for provisions, personnel or similar. |
11. | Interpretation |
(a) | In this Appendix 3, Article shall mean an Article of this Appendix, and Clause shall mean a Clause of the charter. |
(b) | In the event of any conflict between the charter and Appendix 3, Appendix 3 shall prevail. |
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APPENDIX 4
Experience Matrix
Seagoing Experience | ||||
Combined |
Individual minimum experience |
|||
Master | 12 years | 4 years | ||
Chief Officer |
2 years |
|||
Senior 2nd Officer |
|
1 year | ||
Chief Engineer | 14 years | 4 years | ||
2nd Engineer |
2 years |
|||
Gas Engineer |
2 years |
|||
3rd Engineer (x2) |
|
6 months |
LNG Vessel Experience | ||||
Combined |
Individual minimum experience |
|||
Master | 4 years | Minimum 30 days Observer time on LNG vessel if 4 years experience with another Dangerous Cargo Endorsement OR 2 years LNG experience | ||
Chief Officer | At least 1 year on LNG vessel in rank or as Second Officer | |||
Gas Engineer | At least 1 year on LNG vessel in rank or as another Engineering Officer | |||
Chief Engineer | 4 years | Minimum 30 days Observer time on LNG vessel if 4 years diesel experience / 2 years steam experience on non-LNG vessels | ||
2nd Engineer | Minimum 30 days Observer time on LNG vessel if 2 years diesel experience / 1 year steam experience on non-LNG vessels | |||
3rd Engineer (x2) | Minimum 30 days Observer time on LNG vessel (cadet service on LNG vessel counts as observer time) |
Notes: All experience periods are in years of sea time
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APPENDIX 5
Safety And Environmental Monthly Reporting Template
Gazprom Global LNG
Safety and Environmental Monthly Report |
Return to:
Fax: Phone: Email: |
Vessel Name
|
Management Company
|
Month / Year
|
BUNKER OR LUBOIL SPILL INCIDENTS (Any amount entering the water) Approximate weight in kg (bunker) volume in ltr (luboil) and brief details |
||
ANY OTHER INCIDENTS resulting in or having potential for injury, damage or loss |
A. No. Of crew:
|
B. Days in month / period:
|
EXPOSURE HOURS (A x B x 24):
|
LOST TIME INJURIES (LTIS) including brief details / any treatments |
TOTAL RECORDABLE CASE INJURIES (TRCS) including brief details / any treatments |
Page 74 of 78
STRICTLY CONFIDENTIAL
MANAGEMENT COMPANY CONTACT DETAILS:
Name: |
||
Phone: |
||
Fax: |
||
Email: |
Page 75 of 78
STRICTLY CONFIDENTIAL
Notes : | Enter zero i.e. 0 where any amount is nil (rather than entering Nil or N/A) |
Do not enter a % sign in the entry boxes for Fuel Sulphur content i.e. if it is 3% then just enter 3.
Fuel gas should be reported as tonnes and not as m3.
For definitions of incident classification and exposure hours see Oil Companies International Marine Forum (OCIMF) booklet
Marine Injury Reporting Guidelines (February 1997) or any subsequent version, amendment, or variation to them
Page 76 of 78
STRICTLY CONFIDENTIAL
APPENDIX 6
Letter Of Indemnity
To: | Owner of LNG CARRIER [YARD] HULL [ ] (the Vessel) |
Time Charter dated [ ] 2011 (the Charter)
Dear Sirs
It is a term of the Charter that, pursuant to the provisions of Clause 14 where Bills of Lading are issued and we (as the Charterer) order you (as the Owner) in writing to discharge a quantity of the cargo:
(i) | at any place other than that shown on the Bill of Lading; and/or |
(ii) | without presentation of an original Bill of Lading; and/or |
(iii) | that is different from the Bill of Lading quantity (other than by reason of Boil-Off of cargo; |
an indemnity in terms of this letter shall be deemed to be given to you on every occasion where we give such written orders.
In consideration of your complying with any such request as set out in (i) and/or (ii) above, we hereby inform you of the following.
1. | The Charterer shall indemnify the Owner and the Owners servants and agents and hold the Owner and the Owners servants and agents harmless in respect of any liability loss or damage or expense of whatsoever nature (including legal costs as between attorney or solicitor and client and associated expenses) which the Owner may sustain by reason of delivering such cargo in accordance with the Charterers request. |
2. | If any proceeding is commenced against the Owner or any of the Owners servants or agents in connection with the Vessel having delivered cargo in accordance with such request, the Charterer shall provide the Owner or any of the Owners servants or agents from time to time on demand with sufficient funds to defend the said proceedings. |
3. | If the Vessel or any other vessel or property in the same or associated ownership, management or control should be arrested or detained, or if the arrest or detention thereof should be threatened or should there be any interference in the use or trading of the Vessel (whether by virtue of a caveat being entered on the ships registry or otherwise howsoever), by reason of discharge or in connection with the delivery of the cargo in accordance with the Charterers instruction as aforesaid, the Charterer shall provide on demand such bail or other security as may be required to prevent such arrest or detention or to secure the release of such vessel or property or to remove such interference and the Charterer shall indemnify the Owner in respect of any loss, damage or expenses caused by such arrest or detention or threatened arrest or detention or such interference whether or not same may be justified. |
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STRICTLY CONFIDENTIAL
4. | The Charterer shall, if called upon to do so at any time while such cargo is in the Charterers possession, custody or control, redeliver the same to the Owner. |
5. | As soon as all original Bills of Lading for the above cargo which name as discharge port the place where delivery actually occurred shall have arrived and/or come into the Charterers possession, the Charterer shall produce and deliver the same to the Owner whereupon the Charterers liability hereunder shall cease, except in case the Charterer requests the Owner to discharge a quantity of cargo that is different from the Bill of Lading quantity. |
Provided however, if the Charterer have not received all such original Bills of Lading by 2359 hours on the day 36 calendar months after the date of discharge, that this indemnity shall terminate at that time unless before that time the Charterer have received from the Owner written notice that:
(a) | Some person is making a claim in connection with the Owner delivering cargo pursuant to the Charterers request or |
(b) | Legal proceedings have been commenced against the Owner and/or carriers and/or the Charterer and/or any of their respective servants or agents and/or the Vessel for the same reason. |
When the Charterer has received such a notice, then this indemnity shall continue in force until such claim or legal proceedings are settled. Termination of this indemnity shall not prejudice any legal rights a party may have outside this indemnity.
6. | The Owner shall promptly notify the Charterer if any person (other than a person to whom the Charterer ordered cargo to be delivered) claims to be entitled to such cargo and/or if the Vessel or any other property belonging to the Owner is arrested by reason of any such discharge of cargo. |
7. | This indemnity shall be governed and construed in accordance with English law and each and any dispute arising out of or in connection with this indemnity shall be subject to the jurisdiction of the High Court of Justice of England |
Yours faithfully, |
For and on behalf of |
|
Page 78 of 78
ADDENDUM No1 TO THE TIME CHARTERPARTY
Between
LANCE SHIPPING S.A.
As Owners
And
GAZPROM GLOBAL LNG LIMITED
As Charterers
For the charter of
CLEAN POWER
As the Vessel
Dated 02 nd August, 2011
It is hereby mutually agreed between Owners and Charterers that the below items a) and b) be amended into the above stated time charterparty (the Charterparty) as follows:
a) The following additional clause to be inserted
Clause 57
It has mutually been agreed between Owners and Charterers that the Clean Power to be renamed Ob River during the scheduled dry docking in Singapore July 2012. All costs and expenses related to such mentioned name change shall be for Owners account. The ownership of the Vessel shall remain unaffected by such mentioned name change. Owners will as soon as practically possible after such mentioned name change provide Charterers with a transcript from the Flag Maritime Administrator confirming that the name change has been effected and identifying that Lance Shipping S.A. remains the owners of Ob River.
b) All references to the vessel Clean Power shall read Ob River.
Agreed this day July 17 th , 2012
LANCE SHIPPING S.A. | ||
Name: | /s/ Ioannis Edipidis | |
Ioannis Edipidis | ||
Title: | (Attorney-in-Fact) | |
GAZPROM GLOBAL LNG | ||
Name: | /s/ Nikolas Grigorien | |
Nikolas Grigorien | ||
Title: | Attorney-in-Fact |
ADDENDUM No2 TO THE LNG CARRIER TIME CHARTER PARTY
Between
LANCE SHIPPING S.A.
As Owners
And
GAZPROM GLOBAL LNG LIMITED
As Charterers
For the charter of
OB RIVER
As the Vessel
It is hereby mutually agreed between Owners and Charterers that the below items 1) and 2) be amended into the above stated time Charterparty (the Charterparty) as follows:
1) | Clause 4(a) to be amended as follows |
(a) | Firm Period |
From the time and date of delivery for one thousand eight hundred and twenty nine (1,829) days plus or minus up to ten (10) days in Charterers option. This shall be known as the Firm Period
2) | Clause 7(a) to be amended as follows |
(a) | Unless otherwise agreed, the Vessel shall not be delivered to charterers before 0001 hours local time at the place of delivery 27 th September 2012, but must be delivered to Charterers no later than 2359 hours local time 30 th November 2012. |
Charterers shall have the option of cancelling this charter if the Vessel is not ready and at their disposal on or before 2359 hours local time at the place of delivery on 30th November 2012.
Agreed this day 10 th September, 2012
LANCE SHIPPING S.A.
Name: /s/ Ioannis Edipidis
Ioannis Edipidis
Title: Attorney-in-fact
GAZPROM GLOBAL LNG
Name: /s/ Illegible
Title: Manager, Chartering
ADDENDUM No3 TO THE TIME CHARTERPARTY
Between
LANCE SHIPPING S.A.
As Owners
And
GAZPROM GLOBAL LNG LIMITED
As Charterers
For the charter of
OB RIVER
As the Vessel
Dated 02 nd August, 2011
*****
ADDENDUM No4 TO THE TIME CHARTERPARTY
Between
LANCE SHIPPING S.A.
As Owners
And
GAZPROM GLOBAL LNG LIMITED
As Charterers
For the charter of
OB RIVER
As the Vessel
Dated 02 nd August, 2011
* * * * *
FORM OF
ADDENDUM No5 TO THE TIME CHARTERPARTY
Between
LANCE SHIPPING S.A.
As Owners
And
GAZPROM GLOBAL LNG LIMITED
As Charterers
For the charter of
OB RIVER
As the Vessel
Dated 02 nd August, 2011
The Parties have agreed to delete the following wording under Clause 4 a):
Notwithstanding any other provision of this charter, the Vessel shall not be obliged to go to any place if the Vessel going to such place would violate any resolution of the United Nations Security Council
and replaced it with the following wording under Clause 4 a):
Notwithstanding any other provision of this charter, the Vessel shall not trade in areas that are in breach of sanctions imposed by any of the following; United Nations Security Council, United States of America or European Union
Agreed this day October 8, 2013
LANCE SHIPPING S.A.
Name:
Title:
GAZPROM GLOBAL LNG
Name:
Title:
Exhibit 10.9
SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT FOR THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH FIVE ASTERISKS (*****).
Private and Confidential
TIME CHARTER
OF
CLEAN FORCE
Between
Seacrown Maritime Ltd
And
Methane Services Ltd.
02-October-2010
Page 1 of 83
Private and Confidential
TABLE OF CONTENTS
1. |
Description and Condition of Vessel |
4 | ||||
2. |
Shipboard Personnel and their Duties |
6 | ||||
3. |
Duty to Maintain |
8 | ||||
4. |
Trading Limits and Safe Places |
9 | ||||
5. |
Bunkers and LNG Heel at Delivery and Redelivery |
10 | ||||
6. |
Grade of Bunkers |
11 | ||||
7. |
Period, Delivery, Redelivery, Laydays and Cancelling |
12 | ||||
8. |
Owners to Provide |
13 | ||||
9. |
Charterers to Provide |
14 | ||||
10. |
Rate of Hire |
14 | ||||
11. |
Payment of Hire |
15 | ||||
12. |
Space Available to Charterers |
16 | ||||
13. |
Instructions and Logs |
16 | ||||
14. |
Bills of Lading |
17 | ||||
15. |
Conduct of Vessels Personnel |
19 | ||||
16. |
LNG Retention/Supply for Operational Purposes |
19 | ||||
17. |
Pilots and Tugs |
20 | ||||
18. |
Super-Numeraries |
20 | ||||
19. |
Sub-letting/Assignment/Novation |
20 | ||||
20. |
Substitution |
21 | ||||
21. |
Final Voyage |
21 | ||||
22. |
Loss of Vessel |
22 | ||||
23. |
Off-hire |
22 | ||||
24 |
Ship to Ship Transfers and FPSO/FSRU Cargo Operations |
26 | ||||
25. |
Periodical Dry-docking |
26 | ||||
26. |
Ship Inspection |
28 | ||||
27. |
Key Vessel Performance Criteria |
29 | ||||
28. |
Salvage |
31 | ||||
29. |
Lien |
31 | ||||
30. |
Exceptions |
31 | ||||
31. |
Injurious Cargoes |
32 | ||||
32. |
Disbursements |
32 | ||||
33. |
Laying-up |
32 | ||||
34. |
Requisition |
33 | ||||
35. |
Outbreak of War |
33 | ||||
36. |
Additional War Expenses |
33 | ||||
37. |
War Risks |
33 | ||||
38. |
Both to Blame Collision Clause |
34 | ||||
39. |
New Jason Clause |
35 | ||||
40. |
Clause Paramount |
36 | ||||
41. |
Insurance/ITOPF |
36 | ||||
42. |
Export Restrictions |
37 | ||||
43. |
Business Principles |
37 | ||||
44. |
Drugs and Alcohol |
37 |
Page 2 of 83
Private and Confidential
45. |
Pollution and Emergency Response |
38 | ||||
46. |
ISPS Code/USMTSA 2002 |
39 | ||||
47. |
Law and Litigation |
40 | ||||
48. |
Confidentiality |
40 | ||||
49. |
Construction |
41 | ||||
50. |
Notices |
41 | ||||
51. |
Invoices |
42 | ||||
52. |
Ship Contact details |
43 | ||||
53. |
Definitions |
43 | ||||
54. |
Claim Validity Period |
44 | ||||
55. |
Eligibility & Compliance |
44 | ||||
56. |
Vapour Pressure |
47 | ||||
57. |
Cargo Transfer Inspection and System Calibration |
47 | ||||
58. |
Vessel Performance Data |
48 | ||||
59. |
Third Party Vetting Information |
48 | ||||
60. |
Taxes |
48 | ||||
61. |
U.S. Compliance |
48 | ||||
62. |
Owners Defaults |
48 | ||||
63. |
Charterers Defaults |
50 | ||||
64. |
Quiet Enjoyment |
51 | ||||
65. |
Rights of Third Parties |
51 | ||||
66. |
Health, Safety, Security & Environmental Reporting and Requirements |
51 | ||||
67. |
Brokers Commission |
52 | ||||
APPENDIX A List Of Primary Terminals |
53 | |||||
APPENDIX B Safety and Environmental Monthly Reporting Template |
54 | |||||
APPENDIX C Detailed Performance Criteria |
61 | |||||
APPENDIX D Gas Form C |
70 | |||||
APPENDIX E Crew Experience Matrix |
83 |
Page 3 of 83
Private and Confidential
IT IS THIS DAY AGREED between Seacrown Maritime Ltd, a company incorporated under the laws of Marshall Islands and having its registered office at Ajeltake Road, Ajeltake Island, Maujuro, Marshall Islands, 96960 (hereinafter referred to as Owners), being owners of the good steam Liquefied Natural Gas Carrier called CLEAN FORCE (hereinafter referred to as the Vessel) described as per Clause 1 hereof and Methane Services Limited , a company incorporated under the laws of England and Wales and having its registered office at 100 Thames Valley Park Drive, Reading, Berkshire RG6 1PT, United Kingdom (hereinafter referred to as Charterers):
1. | Description and Condition of Vessel |
At the date of delivery of the Vessel under this charter and throughout the charter period:
(a) | she shall be classed by a classification society, which is a member of the International Association of Classification Societies; |
(b) | if she is fifteen years old or over she shall obtain and maintain a LNG Condition Assessment Programme (CAP) of not less than two (2); |
(c) | she shall be in every way fit to load, carry, discharge and measure Liquefied Natural Gas (LNG); |
(d) | she shall be tight, staunch, strong, in good order and condition, and in every way fit for the service, with her machinery, boilers, hull and other equipment (including but not limited to hull stress calculator, radar, computers and computer systems) in a good and efficient state; |
(e) | her tanks, valves and pipelines shall be liquid and gas tight; she shall have a working inert gas system and nitrogen generator with officers and crew experienced in the operation of both; |
(f) | she shall be in every way fitted for burning fuels, in accordance with the grades specified in Clause 6 hereof: |
(i) | at sea, heavy fuel oil in any proportion with LNG Boil-Off for main propulsion and heavy fuel oil, marine diesel oil and marine gas oil for auxiliaries; |
(ii) | in port, heavy fuel oil or 100% LNG boil off (whilst being alongside excluding manoeuvring) in her boilers and marine gas oil for auxiliaries; |
(g) | she shall have all her instrumentation calibrated and certified in accordance with the requirements of the Vessels classification society; |
Page 4 of 83
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(h) | she shall have her cargo measuring equipment calibrated by a recognised calibration company as referenced in Clause 56 hereof and certified in accordance with the requirements of the Vessels classification society; |
(i) | she shall have her inter-barrier and insulation spaces prepared as per international regulations and her containment system design conditions; |
(j) | she shall comply with the regulations in force so as to enable her, if her size permits, to pass through the Suez Canal and Panama Canal by day and night without delay; |
(k) | she shall have on board all certificates, documents and equipment required from time to time by any applicable law to enable her to perform the charter service without delay. For the avoidance of doubt this will include, but will not be limited to, the Vessels Certificate of Financial Responsibility; |
(l) | she shall comply with the description in the LNG Form C appended hereto as Appendix D, provided however that if there is any conflict between the provisions of this Form C and any other provision, including this Clause 1, of this charter such other provisions shall govern; |
(m) | her ownership structure, flag, registry, classification society and management company shall not be changed without Charterers consent, not to be unreasonably withheld or delayed; |
(n) | Owners shall work with Charterers in good faith to employ and retain ShipNet (Charterers Voyage Management System) on board Vessel and at Owners premises subject to software compatibility with Owners Computer Systems. All costs for new software update installations, provision of licences, provision of technical support, payment of subscription fees and other necessary items and/or expenditures in respect of the maintenance of ShipNet and training shall be for Charterers account. |
(o) | Owners shall operate: |
(i) | a Safety Management System (SMS) that shall comply as a minimum with the following regulations and/or industry standards, plus any additions, modifications or subsequent versions thereof: International Safety Management Code (ISM Code) for the Safe Operation of Ships and for Pollution Prevention, International Ship and Port Security Code (ISPS), International Convention for the Prevention Of Pollution from Ships (MARPOL), International Convention for Safety of Life at Sea, 1974 (SOLAS), International Convention on Standards of Training, Certification and Watchkeeping for Seafarers, 1995 (STCW), best practice recommendations from the Tanker Management Self Assessment (TMSA), the International Safety Guide for Oil Tankers and Terminals (ISGOTT), Society of International Gas Tanker and Terminal Operators (SIGTTO) and the Code Of Safe Working Practices (COSWOP); |
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(ii) | a documented safe working procedures system within the SMS to address the Health Safety Security and Environment (HSSE) risks specific to the scope of work set out in this charter party and the management of controls to eliminate, reduce or mitigate these risks as low as reasonably practicable. Owners operations shall be certified, as a minimum to ISO:9001:2000; |
(iii) | a documented environmental management system to protect environmental resources by applying best available techniques to ISO 14001 Standards, to minimise or, where possible, eliminate any direct or indirect impact from operations. |
(iv) | a documented accident/incident reporting system compliant with flag state requirements. |
(p) | Owners shall arrange at their expense for a Ship Inspection Report (SIRE) inspection to be carried out at intervals of six months plus or minus thirty days. Upon delivery, Vessel shall have a valid operational SIRE report, or Owner shall be responsible for obtaining one prior to the first loading under this charter. |
2. | Shipboard Personnel and their Duties |
(a) | At the date of delivery of the Vessel under this charter and throughout the charter period: |
(i) | she shall have a full and efficient complement of master, officers and crew for a Vessel of her tonnage, who shall in any event be not less than the number required by the laws of the flag state and who shall be trained to operate the Vessel and her equipment competently and safely; |
(ii) | all shipboard personnel shall hold valid certificates of competence in accordance with the requirements of the law of the flag state; |
(iii) | all shipboard personnel shall be trained in accordance with the relevant provisions of STCW or any additions, modifications or subsequent versions thereof. Shipboard personnel shall be trained to the SIGTTO LNG Shipping Suggested Competency Standards 2005 or subsequent versions thereof and, preferably, certified to the SIGTTO LNG Shipping Suggested Competency Standards 2005 or subsequent versions thereof; |
(iv) | there shall be on board sufficient personnel with a good working knowledge of the English language to enable cargo operations at loading and discharging places to be carried out efficiently and safely and to enable communications between the Vessel and those loading the Vessel or accepting discharge there from to be carried out quickly and efficiently; |
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(v) | the terms of employment of the Vessels staff and crew shall always remain acceptable to the International Transport Workers Federation and the Vessel will at all times be entered in the PanHellenic Seafarers Union and carry onboard a Blue Card or equivalent allowing the Vessel to call at all LNG Terminals listed in Appendix A where such Blue card or equivalent may be required; |
(vi) | the nationality of the Vessels officers given in the LNG Form C referred to in Clause 1(k) shall not change without Charterers prior agreement which shall not be unreasonably withheld. |
(vii) | Vessel shall always operate with safe manning levels. The Vessel shall maintain a STCW record of deviation hours for all officers aboard the Vessel and provide this record to the Charterers upon request. If Charterers express concern with the STCW deviation hours, Charterers and Owners shall discuss and agree to a mitigation plan that shall ensure the Vessel can comply with the requisite STCW rest hours. |
(viii) | Charterers shall have the right to review the qualifications of the Master, Chief Officer, Chief Engineer, Second Engineer and the Gas Engineer. Charterers shall also have the right to interview these officers, at Charterers cost. |
(ix) | Crew Experience levels shall fall within the requirements shown in Appendix E. |
(b) | Owners guarantee that throughout the charter service the master shall with the Vessels officers and crew, unless otherwise ordered by Charterers: |
(i) | prosecute all voyages with the utmost despatch; |
(ii) | render all customary assistance; and |
(iii) | load and discharge cargo as rapidly as possible when required by Charterers or their agents to do so, by night or by day, but always in accordance with the laws of the place of loading or discharging (as the case may be) and in each case in accordance with any applicable laws of the flag state. |
(c) | Owners shall at all times have responsibility for the proper stowage of the cargo and shall keep a strict account of all cargo loaded, Boil-Off, and cargo discharged. |
Page 7 of 83
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3. | Duty to Maintain |
(a) | Throughout the charter service Owners shall, whenever the passage of time, wear and tear or any event (whether or not coming within Clause 29 hereof) requires steps to be taken to maintain or restore the conditions stipulated in Clauses 1 and 2(a), exercise due diligence so to maintain or restore the Vessel. |
(b) | If at any time whilst the Vessel is on hire under this charter the Vessel fails to comply with the requirements of Clauses 1, 2(a) or 12 then hire shall be reduced to the extent necessary to indemnify Charterers for such failure. If and to the extent that such failure affects the time taken by the Vessel to perform any services under this charter, hire shall be reduced by an amount equal to the value, calculated at the rate of hire, of the time so lost. |
Any reduction of hire under this sub-Clause (b) shall be without prejudice to any other remedy available to Charterers, but where such reduction of hire is in respect of time lost; such time shall be excluded from any calculation under Clause 28 and Appendix C.
(c) | If Owners are in breach of their obligations under Clause 3(a), Charterers may so notify Owners in writing and if, after the expiry of 30 days following the receipt by Owners of any such notice, Owners have failed to demonstrate to Charterers reasonable satisfaction the exercise of due diligence as required in Clause 3(a), the Vessel shall be off-hire, and no further hire payments shall be due, until Owners have so demonstrated that they are exercising such due diligence. |
(d) | Owners shall advise Charterers immediately, in writing, should the Vessel fail an inspection by, but not limited to, a governmental and/or port state authority, and/or terminal and/or major charterer of similar tonnage. Owners shall simultaneously advise Charterers of their proposed course of action to remedy the defects, which have caused the failure of such inspection. |
(e) | If, in Charterers reasonably held view: |
(i) | failure of an inspection, or, |
(ii) | any finding of an inspection, |
referred to in Clause 3 (d), prevents normal commercial operations then Charterers shall have the option to place the Vessel off-hire from the date and time that the Vessel fails such inspection, or becomes commercially inoperable, and the vessel shall remain off-hire until the date and time that the Vessel passes a re-inspection by the same organisation, or becomes commercially operable, which shall be in a geographical position no less favourable to Charterers than at which she went off-hire.
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(f) | Furthermore, at any time while the Vessel is off-hire under this Clause 3 (with the exception of Clause 3(e)(ii)), Charterers have the option to terminate this charter by giving notice in writing with effect from the date on which such notice of termination is received by Owners or from any later date stated in such notice. This sub-Clause (f) is without prejudice to any rights of Charterers or obligations of Owners under this charter or otherwise (including without limitation Charterers rights under Clause 23 and 63 hereof). |
4. | Trading Limits and Safe Places |
(a) | The Vessel shall be chartered for the purpose of carrying LNG, in any part of the world, as Charterers shall direct, subject to the limits of the current British Institute Warranties and any subsequent amendments thereof. Notwithstanding the foregoing, but subject to the provisions of the charter concerning areas of war risk, Charterers may order the Vessel beyond such limits provided that Owners consent thereto and that Charterers pay for any additional insurance premium required by the Vessels underwriters as a consequence of such order. |
(b) | Charterers shall use due diligence to ensure that the Vessel is only employed between and at safe places (which expression when used in this charter shall include ports, berths, wharves, docks, anchorages, submarine lines, alongside vessels or lighters, bunker barges and other locations including locations at sea) where she can safely lie always afloat. Notwithstanding anything contained in this or any other clause of this charter, Charterers do not warrant the safety of any place to which they order the Vessel and shall be under no liability in respect thereof except for loss or damage caused by their failure to exercise due diligence as aforesaid. Subject as above, the Vessel shall be loaded and discharged at any places as Charterers may direct. |
(c) | Owners warrant that the Vessel is compatible with the Primary Terminals listed in Appendix A for berthing, unberthing, loading and discharging LNG cargo without modification to the Vessel. In the event that such modification to the Vessel becomes necessary as a result of changes in international regulations or standards and/or are required by the Vessels classification society or flag state and in the case Charterers need compatibility with such specific LNG Terminal, the cost of such modification shall be for Owners account, and the Vessel shall be off-hire for the time required to effect such modifications unless this can be achieved without affecting the performance of the Vessel under this charter. [For the avoidance of doubt such above stated compatibility shall not mean light terminal specific equipment requirements such as additional, and/or long mooring tails, etc. Such additional equipment shall be for Charterers account]. |
Owners shall provide Optimoor static mooring analysis free of charge to Charterers. In the case an Optimoor dynamic mooring analysis is required as part of a compatibility study such shall be for Charterers account.
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(d) | If Charterers direct the Vessel to any LNG loading or receiving facilities other than the Primary Terminals listed in Appendix A, Charterers shall give notice to Owners sufficiently in advance thereof so as to enable Owners to comply with environmental, fire prevention, health, safety and other similar regulations applicable at such other place including any alteration in ship design. The reasonable cost and the necessary time taken to comply with such regulations, necessary, solely, to allow the Vessel to load or discharge at such other place, shall be discussed between the parties. |
5. | Bunkers and LNG Heel at Delivery and Redelivery |
(a) | Upon delivery, Charterers shall purchase all liquid fuels on board at the Fuel Price (except LNG priced at USD ***** mmBtu). Original supplier invoices, or copy thereof, must be provided by Owner to Charterer. |
(b) | Upon Redelivery, Owners shall purchase all liquid fuels on board at the Fuel Price. Original supplier invoices, or copy thereof, must be provided by Charterer to Owner. The Master shall provide an On-Hire and Off-Hire Certificate containing the ROB numbers for all liquid fuels upon both Delivery and Redelivery of the Vessel. Owner or Charterer may choose to use an independent surveyor to verify ROB quantities at their own cost. In any dispute, the surveyor numbers shall prevail. |
(c) | The vessel shall be delivered under natural gas vapours or with LNG heel (up to about 3000 m3) CHOPT. Charterers to declare their intention by no later than 1800 hours Houston time 15-September-2010. For the sake of good order the price for LNG Heel is US$8.00 per mmBtu which is the price Owners have agreed with the Vessels current charterer. |
(d) | The vessel shall be redelivered under natural gas vapours unless Owners exercise the LNG Heel option. Owners shall have the option to retain up to 3500 m³ of LNG Heel at last discharge. Such option to be exercised upon loading of last cargo and to be priced at the ex ship LNG Price in USD per mmBtu. In the case Owners do not wish to retain any LNG Heel, the Vessel shall be instructed to heel out. Any LNG Heel retained onboard after completion of discharge as a result of unpumpable quantities or the Terminals instructions to complete discharge shall be kept by Owners free of costs. In the event the last discharge port rules forbid Charterers to heel out, any LNG Heel remaining onboard the Vessel will be purchased by the Owner at one half (1/2) the Fuel Oil Equivalency price or one half (1/2) the Charterers ex-ship LNG price, whichever is lower. Such LNG Heel shall not to exceed 1000 m³. |
(e) |
The Vessel shall be delivered to Charterers with about 2200 MT of bunkers heavy fuel oil onboard. Throughout the charter (and upon delivery and redelivery) the Vessel shall operate with at least a quantity of bunkers or Fuel Oil Equivalent, as defined in Clause 54, and a quantity of diesel oil and nitrogen (if nitrogen is applicable) on board sufficient to prosecute safely each voyage or reach the |
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nearest safe bunker port. The above amount shall be in addition to a safety reserve of fuel oil, which would enable the Vessel to steam at the Service speed defined in this charter party for a total of five days. |
(f) | Notwithstanding anything contained in this charter all bunkers and LNG Heel on board the Vessel shall, throughout the duration of this charter, remain the property of Charterers or their nominee and can only be purchased on the terms specified in the charter at the end of the charter period or, if earlier, at the termination of the charter. |
(g) | The Master shall provide on On-Hire and Off-Hire Certificate containing the ROB numbers for LNG, HFO, gas oil and diesel upon both Delivery and Redelivery of the Vessel. |
(h) | Owners or Charterers may choose to use an independent surveyor to verify ROB quantities and qualities at their own cost, however, in any dispute, the surveyor numbers shall prevail. |
(i) As soon as practically possible after receiving notice of Redelivery from Charterers, Owner shall notify Charterer with Owners required bunker quantity to be onboard at Redelivery which shall be agreed by Charterer, such agreement shall not be unreasonably withheld.
6. | Grade of Bunkers |
(a) | The bunker fuel oil grade shall have a maximum viscosity of 380 Centistoke at 50 degrees Centigrade for propulsion (RMH 380, ISO 8217:2005 and marine gas oil . Both Owners and Charterers can request the other party to provide bunker survey data to verify the quality of the bunkers on board. This request can be made at any time during the Charter Period or the Claim Validity Period. For the sake of good order, HFO sulphur content always to be in compliance of all applicable rules and regulations of the Vessels trading limits and vessels EP notation. If Owners require the Vessel to be supplied with more expensive bunkers they shall be liable for the extra cost thereof. |
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(b) | Should Charterers trade the Vessel into a Sulphur Emissions Control Area (ECA) as defined in Annex VI of MARPOL, then the Charterers shall supply low sulphur fuel oil of a quality which will satisfy the ECA requirements, sufficient for the Vessels need while in the restricted area, and the Owners shall provide segregated storage for this fuel oil. If for any reason the segregated storage becomes unavailable or not able to be used, then Owners shall reimburse Charterers for the additional cost of purchasing low sulphur FO which is consumed outside of a ECA. |
(c) | From 1 January 2015 Owners shall not rely on 100% gas burning for compliance with ECA regulations whilst maneuvering in restricted waters. |
(d) | Owners and Charterers can request the other party to provide bunker survey data to verify the quality of the bunkers on board. This request can be made at any time during the charter period or the Claim Validity Period at the cost of the requestor. |
7. | Period, Delivery, Redelivery, Laydays and Cancelling |
(a) | Owners agree to let and Charterers agree to hire the Vessel commencing from the time and date of delivery as provided in Clause 7(b) until time and date of redelivery as provided in Clause 7(d). |
(b) | The Vessel shall not be delivered to Charterers before 0001 hrs local time 04-October-2010 but must be delivered to Charterers no later than 2359 hrs local time 06-October-2010. Charterers shall have the option of cancelling this charter if the Vessel is not ready and at their disposal during this period. |
(c) | Owners shall deliver the Vessel to Charterers in Port Limits or off port limits in Owners option, Taiwan. Owners shall provide 15, 7, 5, 4, 3, 2, 1 days notice of delivery. |
(d) | The Vessel shall be chartered for a period of ninety (90) days commencing on delivery of the Vessel and in accordance with the delivery provisions described above. This period to be known as the Initial Period. |
(e) | Owners shall grant Charterers the sole right to extend this charter to 0001 hrs 05 October 2013 plus up to ninety (90) days or minus up to thirty (30) Charterers option. Such period shall be known as the First Option Period. The First Option Period shall follow in direct continuation of the Initial Period. Charterers shall declare such First Option Period no later than 14 October 2010. The plus / minus options must be declared no later then one hundred and eighty (180) days before the notional expiration of the term and will apply only to the last term in question. |
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(f) | Owners shall grant Charterers the sole right to extend this charter by an additional three (3) years plus up to ninety (90) days or minus up to thirty (30) at Charterers option. Such period shall be known as the Second Option Period. In the case the Second Option Period is exercised the First Option Period shall end on 00:01 hrs 05 October 2013 and the Second Option Period shall follow in direct continuation. Charterers shall declare such Option Period no later than nine (9) months before the termination of this charter. The plus / minus options must be declared no later then one hundred and eighty (180) days before the notional expiration of the term and will apply only to the last term in question. |
(g) | Owners shall grant Charterers the sole right to extend this charter by an additional three (3) years plus up to ninety (90) days or minus up to thirty (30) Charterers option. Such period shall be known as the Third Option Period. In the case the Third Option Period is exercised the Second Option Period shall end on 00:01 hrs 05 October 2016 and the Third Option Period shall follow in direct continuation. Charterers shall declare such Option Period no later than nine (9) months before the termination of this charter. The plus / minus options must be declared no later then one hundred and eighty (180) days before the notional expiration of the term and will apply only to the last term in question. |
(h) | Charterers shall redeliver the Vessel to Owners at Dropping Last Outbound Pilot last discharge port, worldwide, except South America and West Coast Mexico. Charterers shall provide 30, 25, 15, 7, 5, 4, 3, 2, 1 days notice of redelivery. |
(i) | Any time during which the Vessel is off-hire under this charter may be added to the charter period in Charterers option up to the total amount of time spent off-hire. In such cases the rate of hire will be that prevailing at the time the Vessel would, but for the provisions of this Clause, have been redelivered. Charterers shall exercise this option no later than ninety (90) days before the earliest date on which the charter would otherwise terminate. Any periods of off-hire occurring after the time and date on which Charterers have declared their option may be added to the charter period as long as Charterers have declared that they will be so added within five (5) days of the end of the relevant period of off-hire. |
8. | Owners to Provide |
Owners undertake to provide and to pay for all provisions, wages (including but not limited to all overtime payments), and shipping and discharging fees and all other expenses of the master, officers and crew; also, except as provided in Clauses 4 and 35 hereof, for all insurance on the Vessel (except additional insurances such as additional war risk insurance and additional insurance required for vessel entering a terminal that has a Conditions of Use agreement or similar not acceptable to Owners P&I Club) , for all deck, cabin and engine-room stores lubricating oil, and for water; for all dry-docking, overhaul, maintenance and repairs to the Vessel; and for all fumigation expenses and de-rat certificates. Owners obligations under this Clause 8 extend to all liabilities for customs or import duties arising at any time during the performance of this charter in
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relation to the personal effects of the master, officers and crew, and in relation to the stores, provisions and other matters aforesaid which Owners are to provide and pay for and Owners shall refund to Charterers any sums Charterers or their agents may have paid or been compelled to pay in respect of any such liability. Any amounts allowable in general average for wages and provisions and stores shall be credited to Charterers insofar as such amounts are in respect of a period when the Vessel is on-hire.
9. | Charterers to Provide |
(a) | Charterers shall provide and pay for all fuel (which includes fuel consumed for the production of nitrogen and all Boil-Off gas, which in accordance with Charterers instructions is to be used as fuel) which must be supplied from a bunker supplier who applies the standards required by a first class operator, towage and pilotage and shall pay agency fees, port charges, commissions, expenses of loading and unloading cargoes, canal dues and all charges other than those payable by Owners in accordance with Clause 8 hereof, provided that all charges for the said items shall be for Owners account when such items are consumed, employed or incurred for Owners purposes or while the Vessel is off-hire (unless such items reasonably relate to any service given or distance made good and taken into account under Clause 23); and provided further that any fuel used in connection with a general average sacrifice or expenditure shall be paid for by Owners. |
(b) | In respect of bunkers consumed for Owners purposes these will be charged on each occasion by Charterers at the Fuel Price. |
(c) | If the trading limits of this charter include ports in the United States of America and/or its protectorates then Charterers shall reimburse Owners for port specific charges relating to additional premiums charged by providers of oil pollution cover, when incurred by the Vessel calling at ports in the United States of America and/or its protectorates in accordance with Charterers orders. |
10. | Rate of Hire / Ballast Bonus Payment |
Subject as herein provided, for the Initial Period and the First Option Period Charterers shall pay for the use and hire of the Vessel at the rate of United States Dollars ***** (USD $*****) per day, and pro rata for any part of a day, from the time and date of her delivery (local time) to Charterers until the time and date of redelivery (local time) to Owners or until the commencement of the Second Option Period if such is exercised.
Notwithstanding anything stated herein, in the event Charterers exercise the Second Option Period, after 00:01 hrs 05 October 2013, Charterers shall pay for the use and hire of the Vessel at the rate of United States Dollars ***** (USD $*****) per day and pro rata for any part of a day from 00:01 hrs 05 October 2013 (local time) until the date and time of redelivery (local time) to Owners or until the commencement of the Third Option Period if such is exercised , and a rate of United States Dollars ***** (USD $*****) per
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day, and pro rata for any part of a day for the Third Option Period commencing from 00:01 hrs 05 October 2016 (local time) until the date and time of redelivery (local time) to Owners.
Charterers shall pay Owners a Ballast Bonus equal to ***** to position the vessel from the last discharge port to Trinidad, Malta, Fujairah or Singapore at Charterers option.
In calculating the relevant time from last discharge port to either Trinidad, Malta, Fujairah or Singapore, Service Speed, as per Gas Form C, will be utilized.
In calculating the relevant fuel cost from last discharge port to either Trinidad, Malta, Fujairah or Singapore, most economical speed, as per Gas Form C, will be utilized.
For the purpose of calculating the notional ballast leg, the distance between the last discharging port to either Trinidad, Malta, Fujairah or Singapore shall be based on Dataloy (www.dataloy.com).
Ballast Bonus shall be paid upon redelivery.
11. | Payment of Hire |
Subject to Clause 3 (c) and 3 (e), payment of hire shall be made in immediately available funds
to:
*****
REF: *****
in United States Dollars per calendar month in advance, less:
(a) | any hire paid which Charterers reasonably estimate to relate to off-hire periods, and; |
(b) | any amounts disbursed on Owners behalf, any advances and commission thereon, and charges which are for Owners account pursuant to any provision hereof, and; |
(c) | any amounts due or reasonably estimated to become due to Charterers under Clause 3 (b), 16 or 28 and Appendix C hereof, |
any such adjustments to be made at the due date for the next monthly payment after the facts have been ascertained. Charterers shall not be responsible for any delay or error by Owners bank in crediting Owners account provided that Charterers have made proper and timely payment.
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In default of such proper and timely payment:
(i) | Owners shall notify Charterers of such default and Charterers shall within ***** days of receipt of such notice pay to Owners the amount due, including interest, failing which Owners may withdraw the Vessel from the service of Charterers without prejudice to any other rights Owners may have under this charter or otherwise; and |
(ii) | interest on any amount due but not paid on the due date shall accrue from the day after that date up to and including the day when payment is made, at a rate per annum which shall be ***** above the U.S. Prime Interest Rate as published by the Chase Manhattan Bank in New York at 12.00 New York time on the due date, or, if no such interest rate is published on that day, the interest rate published on the next preceding day on which such a rate was so published, computed on the basis of a 360 day year of twelve 30-day months, compounded semi-annually. |
12. | Space Available to Charterers |
The whole reach, burthen and decks on the Vessel and any passenger accommodation (including Owners suite) shall be at Charterers disposal, reserving only proper and sufficient space for the Vessels master, officers, crew, tackle, apparel, furniture, provisions and stores, provided that the weight of stores on board shall not, unless specially agreed, exceed 150 tonnes at any time during the charter period.
13. | Instructions and Logs |
Charterers shall from time to time give the master all requisite instructions and sailing directions, and the master shall keep a full and correct log of the voyage or voyages, which Charterers or their agents may inspect as required. The master shall when required furnish Charterers or their agents with a true copy of such log and with properly completed loading and discharging port sheets and voyage reports for each voyage and other returns as Charterers may require. Charterers shall be entitled to take copies at Owners expense of any such documents, which are not provided by the master.
A controlled copy of Charterers instructions will be placed on board the Vessel. The instructions in this document shall be followed by the crew. If the Vessel or crew cannot comply with such instructions, immediate notification is required in accordance with Clause 49. In the event of any conflict between the instructions and this Charterparty, the Charterparty shall prevail.
Owners shall be responsible for any time, cost, delay or loss associated with Vessels failure to comply with Charterers voyage instructions, including loading any cargo quantity in excess or short of voyage orders. If a discrepancy arises at a loading terminal, the Master shall notify Charterers immediately to clarify the situation. Owners shall be responsible for any deadfreight or additional expenses arising from Owners failure to comply with this Clause.
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14. | Bills of Lading |
(a) | The master (although appointed by Owners) shall be under the orders and direction of Charterers as regards employment of the Vessel, agency and other arrangements, and shall sign Bills of Lading as Charterers or their agents may direct (subject always to Clauses 38 (a) and 43) without prejudice to this charter. Charterers hereby indemnify Owners against all consequences or liabilities that may arise: |
(i) | from signing Bills of Lading in accordance with the directions of Charterers or their agents, to the extent that the terms of such Bills of Lading supplied by Charterers terminals fail to conform to the requirements of this charter, provided, however, that no further indemnity beyond that expressed in this Clause 14 or elsewhere in this Charter shall be implied against Charterers; |
(ii) | from any irregularities in papers supplied by Charterers or their agents. |
(b) | If Charterers by telex, facsimile or other form of written communication that specifically refers to this Clause request Owners to discharge a quantity of cargo either without Bills of Lading and/or at a discharge place other than that named in a Bill of Lading and/or that is different from the Bill of Lading quantity, then Owners shall discharge such cargo in accordance with Charterers instructions in consideration of receiving the following indemnity, which shall be deemed to be given by Charterers on each and every such occasion and which is limited in value to 200% of the CIF value of the cargo carried on board: |
(i) | Charterers shall indemnify Owners and Owners servants and agents in respect of any liability loss or damage of whatsoever nature (including legal costs as between attorney or solicitor and client and associated expenses) which Owners may sustain by reason of delivering such cargo in accordance with Charterers request. |
(ii) | If any proceeding is commenced against Owners or any of Owners servants or agents in connection with the Vessel having delivered cargo in accordance with such request, Charterers shall provide Owners or any of Owners servants or agents from time to time on demand with sufficient funds to defend the said proceedings. |
(iii) |
If the Vessel or any other vessel or property belonging to Owners should be arrested or detained, or if the arrest or detention thereof should be threatened, by reason of discharge in accordance with Charterers |
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instruction as aforesaid, Charterers shall provide on demand such bail or other security as may be required to prevent such arrest or detention or to secure the release of such Vessel or property and Charterers shall indemnify Owners in respect of any loss, damage or expenses caused by such arrest or detention whether or not same may be justified. |
(iv) | Charterers shall, if called upon to do so at any time while such cargo is in Charterers possession, custody or control, redeliver the same to Owners. |
(v) | As soon as all original Bills of Lading for the above cargo which name as discharge port the place where delivery actually occurred shall have arrived and/or come into Charterers possession, Charterers shall produce and deliver the same to Owners whereupon Charterers liability hereunder shall cease. |
Provided however, if Charterers have not received all such original Bills of Lading by 24.00 hours on the day 36 calendar months after the date of discharge, that this indemnity shall terminate at that time unless before that time Charterers have received from Owners written notice that:
aaa) Some person is making a claim in connection with Owners delivering cargo pursuant to Charterers request or,
bbb) Legal proceedings have been commenced against Owners and/or carriers and/or Charterers and/or any of their respective servants or agents and/or the Vessel for the same reason.
When Charterers have received such a notice, then this indemnity shall continue in force until such claim or legal proceedings are settled. Termination of this indemnity shall not prejudice any legal rights a party may have outside this indemnity.
(vi) | Owners shall promptly notify Charterers if any person (other than a person to whom Charterers ordered cargo to be delivered) claims to be entitled to such cargo and/or if the Vessel or any other property belonging to Owners is arrested by reason of any such discharge of cargo. |
(vii) | This indemnity shall be governed and construed in accordance with English law and each and any dispute arising out of or in connection with this indemnity shall be subject to the jurisdiction of the High Court of Justice of England. |
(c) | Owners warrant that the Master will comply with orders to carry and discharge against one or more Bills of Lading from a set of original negotiable Bills of Lading should Charterers so require. |
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15. | Conduct of Vessels Personnel |
If Charterers complain of the conduct of the master or any of the officers or crew, Owners shall immediately investigate the complaint. If the complaint proves to be well founded, Owners shall, without delay, make a change in the appointments and Owners shall in any event communicate the result of their investigations to Charterers as soon as possible.
16. | LNG Retention/Supply for Operational Purposes |
a) | Unless Charterers stipulate otherwise, Owners shall retain on board the Vessel following completion of discharge sufficient LNG Heel (which will be agreed with Charterers) to enable the Vessel to arrive at the next load port in a cold and ready to load condition and to remain in that condition for not less than twenty-four (24) hours. |
b) | ***** shall provide and pay for LNG required for cooling the Vessels cargo tanks and other handling systems to the temperatures necessary to commence loading only in the following circumstances: |
(i) | in the event that the quantity of LNG Heel retained on board pursuant to Clause 16 (a) is not sufficient to enable the Vessel to arrive at the next loading port in a cold and ready to load condition unless such insufficiency is the result of an act or omission on the part of Owners or fault of the Vessel; |
(ii) | when LNG is required by reason of: |
(aa) strikes, quarantine restrictions, seizure under legal process, restraint of labour, none of which arise in connection with the Vessel or crew;
(bb) an act of God, act of war, lock outs, riots, civil commotions, restraint of princes, rulers or people;
(iii) | when LNG is required by reason of any Restricted Period as defined in Appendix C Article 2 (e) (i) to (vi), or by reason of Charterers changing the SAT, or by reason of Charterers ordering the Vessel to steam at any speed other than the Service Speed; |
(iv) | upon return of the Vessel to the first load port after any lay-up ordered by Charterers pursuant to Clause 34, after any underwater cleaning ordered under Appendix C Article 11 (a), or after the Vessel has been withdrawn from service at the request or convenience of Charterers as a result of which the Vessel has been warmed up and/or gas freed; |
(v) | where the LNG is required and caused by Charterers breach of this Charter. |
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(c) | ***** shall pay for LNG required for cooling the Vessels cargo tanks at the LNG Price, in all other circumstances, including, but not limited to: |
(i) | following periods of off-hire; |
(ii) | following requisition under Clause 35; |
(iii) | where the LNG is required and caused by Owners breach of this Charter. |
Quantities required for gas up and cool down shall be in accordance to the cool down tables that shall be provided by Owners to Charterers upon request.
In all cases where Owners are required to pay for LNG required for cooling hereunder, the LNG shall nevertheless be supplied by Charterers who shall be entitled to deduct the cost from the next payment of hire due to Owners at the LNG Price.
17. | Pilots and Tugs |
Owners hereby indemnify Charterers, their servants and agents against all losses, claims, responsibilities and liabilities arising in any way whatsoever from the employment of pilots or tugboats, who although employed by Charterers shall be deemed to be the servants of and in the service of Owners and under their instructions (even if such pilots or tugboat personnel are in fact the servants of Charterers their agents or any affiliated company); provided, however, that the foregoing indemnity shall not exceed the amount to which Owners would have been entitled to limit their liability if they had themselves employed such pilots or tugboats.
18. | Super-Numeraries |
Charterers may send up to two representatives in the Vessels available accommodation upon any voyage made under this charter, Owners providing provisions and all requisites as supplied to officers, except alcohol.
Charterers shall pay at the rate of United States Dollars fifteen ($15.00USD) per day for each representative while on board the Vessel.
19. | Sub-letting/Assignment/Novation |
Charterers may sub-let the Vessel, but shall always remain responsible to Owners for due fulfilment of this charter.
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Additionally Owners and Charterers may assign or novate this charter to any of their affiliates who have comparable creditworthiness and competence, with the benefit of any guarantees if applicable, subject to the approval of the other party, such approval not to be unreasonably withheld.
For the avoidance of doubt, Owners may not novate or assign the Vessel to a non affiliate.
20. | Substitution |
Prior to the charter period, Owners shall have, subject always to Charterers consent, which shall not be unreasonably withheld, the right, prior to the charter period, on reasonable notice, to substitute the LNG vessel CLEAN POWER (Substitute Vessel) provided (a) the Substitute Vessel has no material impact on the Charterers loading and/or discharge schedule as notified to Owners; (b) the Substitute Vessels capacity, speed and performance is equal to, or exceeds, the Vessels warranties herein; and (c) that any substitution will be scheduled without any loss of time to Charterers (collectively the Substitution Requirements).
During the charter period, Owners shall also have the right to substitute into the Charter the Substitute Vessel, subject to the Substitution Requirements being met and the Vessel being out of service and/or unavailable
21. | Final Voyage |
If when a payment of hire is due hereunder Charterers reasonably expect to redeliver the Vessel before the next payment of hire would fall due, the hire to be paid shall be assessed on Charterers reasonable estimate of the time necessary to complete Charterers programme up to redelivery, and from which estimate Charterers may deduct amounts due or reasonably expected to become due for:
(a) | disbursements on Owners behalf or charges for Owners account pursuant to any provision hereof, and |
(b) | bunkers and LNG Heel on board at redelivery pursuant to Clause 5. |
Promptly, and in any event not later than 30 days after redelivery any overpayment shall be refunded by Owners or any underpayment made good by Charterers.
Notwithstanding the provisions of Clause 7, if at the time this charter would otherwise terminate in accordance with Clause 4 the Vessel is on a ballast voyage to a port of redelivery or is upon a laden voyage, Charterers shall continue to have the use of the Vessel at the same rate and conditions as stand herein for as long as necessary to complete such ballast voyage, or to complete such laden voyage and return to a port of redelivery as provided by this charter, as the case may be. However, if Charterer instructs
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the Vessel to prosecute a voyage or deviate to an alternative port which can be reasonably foreseen to extend the voyage beyond the Charter Period, Owner may elect to reject such instruction.
22. | Loss of Vessel |
Should the Vessel be lost, this charter shall terminate and hire shall cease at noon on the day of her loss; should the Vessel be a constructive total loss, this charter shall terminate and hire shall cease at noon on the day on which the Vessels underwriters agree that the Vessel is a constructive total loss; should the Vessel be missing, this charter shall terminate and hire shall cease at noon on the day on which she was last heard of. Any hire paid in advance and not earned shall be returned to Charterers and Owners shall reimburse Charterers for the value of the estimated quantity of bunkers on board at the time of termination, at the price paid by Charterers at the last bunkering port.
23. | Off-hire |
(a) | On each and every occasion that there is loss of time (whether by way of interruption in the Vessels service or, from reduction in the Vessels performance, or in any other manner): |
(i) | due to deficiency of personnel or stores; repairs; gas-freeing for repairs; time in and waiting to enter dry-dock for repairs; breakdown (whether partial or total) of machinery, boilers or other parts of the Vessel or her equipment (including without limitation tank coatings); overhaul, maintenance or survey; collision, stranding, accident or damage to the Vessel; or any other cause whatsoever preventing the efficient working of the Vessel; and such loss continues for more than three consecutive hours (if resulting from interruption in the Vessels service) or cumulates to more than three hours (if resulting from partial loss of service); or |
(ii) | due to industrial action, refusal to sail, breach of orders or neglect of duty on the part of the master, officers or crew; or |
(iii) | for the purpose of obtaining medical advice or treatment for or landing any sick or injured person (other than a Charterers representative carried under Clause 18 hereof) or for the purpose of landing the body of any person (other than a Charterers representative), and such loss continues for more than three consecutive hours; or |
(iv) | due to any delay in quarantine arising from the master, officers or crew having had communication with the shore at any infected area without the written consent or instructions of Charterers or their agents, or to any detention by customs or other authorities caused by smuggling or other infraction of local law on the part of the master, officers, or crew; or |
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(v) | due to detention of the Vessel by authorities at home or abroad attributable to legal action against or breach of regulations by the Vessel, the Vessels owners, or Owners (unless brought about by the act or neglect of Charterers); or |
(vi) | due to pre-docking and repair procedure including warming, gas freeing and inerting; or |
(vii) | due to scheduled dry-docking and maintenance, maintaining, overhauling, repairing or dry-docking the Vessel and submitting her for survey; waiting for any of the aforesaid purposes; proceeding to or from, and whilst at, any port or place for any of the aforesaid purposes; or |
(viii) | due to post-docking or repair procedure including inerting, gassing and cooling in excess of that undertaken for normal loading; or |
(x) | due to any other circumstances where the Vessel is off-hire under this charter; and |
(xi) | due to attack and /or seizure by pirates. |
then without prejudice to Charterers rights under Clause 3 or to any other rights of Charterers hereunder, or otherwise, the Vessel shall be off-hire from the commencement of such loss of time until she is again ready and in an efficient state to resume her service from a position not less favourable to Charterers than that at which such loss of time commenced; provided, however, that any service given or distance made good by the Vessel whilst off-hire shall be taken into account in assessing the amount to be deducted from hire.
(b) | If the Vessel fails to proceed at any Guaranteed Speed (as defined in Appendix C Article 2 (a) (iv)) pursuant to Clause 28 and Appendix C, and such failure arises wholly or partly from any of the causes set out in Clause 23(a) above, then the following provisions shall apply: |
(i) | if the Vessel is unable to maintain a speed of at least 85% of the Guaranteed Speed under Clause 28 in wind and sea state not exceeding Beaufort force 5, Charterers shall have the option to place the Vessel off-hire but any distance made good by the Vessel whilst off-hire shall be taken into account in accordance with Clause 23(a); |
(ii) | except where Charterers have placed the Vessel off-hire pursuant to Clause 23(b)(i), failure of the Vessel to proceed at any Guaranteed Speed shall be dealt with under Clause 28 and Appendix C and the Vessel will not be off-hire under Clause 23. |
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(c) | Further and without prejudice to the foregoing, in the event of the Vessel deviating (which expression includes without limitation putting back, or putting into any port other than that to which she is bound under the instructions of Charterers) for any cause or purpose mentioned in Clause 23 (a), the Vessel shall be off-hire from the commencement of such deviation until the time when she is again ready and in an efficient state to resume her service from a position not less favourable to Charterers than that at which the deviation commenced, provided, however, that any service given or distance made good by the Vessel whilst so off-hire shall be taken into account in assessing the amount to be deducted from hire. If the Vessel, for any cause or purpose mentioned in Clause 23 (a), puts into any port other than the port to which she is bound on the instructions of Charterers, the port charges, pilotage and other expenses at such port shall be borne by Owners. Should the Vessel be driven into any port or anchorage by stress of weather hire shall continue to be due and payable during any time lost thereby. |
(d) | If the Vessels flag state becomes engaged in hostilities, and Charterers in consequence of such hostilities find it commercially impracticable to employ the Vessel and have given Owners written notice thereof then from the date of receipt by Owners of such notice until the termination of such commercial impracticability the Vessel shall be off-hire and Owners shall have the right to employ the Vessel on their own account. |
(e) | Time during which the Vessel is off-hire under this charter shall count as part of the charter period except where Charterers declare their option to add off-hire periods under Clause 4 (b). |
(f) | All references to time in this charter party shall be references to local time except where otherwise stated. |
(g) | (i) If as a consequence of any cause or purpose mentioned in this Clause 23 or in Clause 16 (c) except for first load after drydocking and except when Vessel follows Charterers instructions, the Vessel presents for loading with tank temperatures other than that which would otherwise allow bulk loading to commence within 1/2 (half) an hour after cooling of the loading arms, any time lost as a consequence thereof, including without limitation any time lost in additional cooling of tanks prior to loading shall count as off-hire and the cost of any LNG supplied for such additional cooling shall be paid for by Owners at the LNG Price. |
(ii) | If any LNG is lost as Boil-Off during periods of off-hire, excluding during events of attack and / or seizure by pirates, Owners shall reimburse Charterers for the LNG lost at the LNG Price. |
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Where accurate measurement of LNG lost as Boil-Off during any such off-hire period is impossible for whatever reason, the LNG lost as Boil-Off shall be assumed to have occurred at a constant rate equal to that obtained by measurement between official gaugings of the cargo in question in accordance with Appendix C Article 8 (b). Where, due to the off-hire occurring during a ballast passage, all LNG Heel is lost as Boil-Off prior to the Vessel next commencing to load, such Boil-Off shall be deemed to have occurred at a constant rate equal to that which occurred during the Vessels last previous ballast voyage.
(h) | If the Cargo Capacity of the Vessel is reduced for reasons directly attributable to Owner not exercising operational due-diligence, Charterers shall have the option of putting the Vessel off-hire or using the Vessel, such option to be declared within 5 business days after Charterers has been informed about reduction in Cargo Capacity, in which case hire shall be reduced pro rata to the reduction in the Vessels Cargo Capacity from the commencement of loading at the loading port until the Vessel is again ready to load at the next loading port without such reduction in capacity. |
(i) | The Vessel shall additionally be off-hire as provided in this Clause 23 whenever there is loss of time: |
i) | as a result of a boycott arising in connection with the business of Owners, the terms or conditions of employment of Owners servants, or employment, trades, or cargoes of the Vessel other than under this Charter; |
ii) | due to restraint or interference in the Vessels operation by any governmental authority in connection with the ownership, registration, or obligations of Owners or the Vessel, or stowaways, or in connection with smuggling or other prohibited activities, unless such restraint or interference involves a cargo carried under this Charter, or Charterers themselves, or the shippers or receivers of such a cargo; or |
iii) | due to strikes, labour boycotts or any other discrimination/difficulties against the Vessel because of previous trade and/or the ownership and/or flag and/or officers and crew and/or officers and crews employment conditions; |
and all losses, damages and expenses directly incurred thereby (including bunkers consumed) shall be for Owners account.
(j) |
In the event that the Vessel is off-hire for any reason other than in connection with periodical dry-docking pursuant to Clause 25 for any period in excess of ***** consecutive days or exceeding 90 days in any period of 365 days, Charterers shall have the option to terminate this charter by giving notice in writing with effect from any date stated in such notice provided that the Vessel is free of cargo (other than LNG Heel) at the time when such notice becomes |
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effective. This Clause 23(j) is without prejudice to any other rights or obligations of Owners or Charterers under this charter. For the purposes of this Clause 23(j), in the event of partial loss of service, the period of off-hire shall be the total period during which the Vessel is not fully efficient rather than the resulting loss of time. |
24. | Ship to Ship Transfers and FPSO/FSRU Cargo Operations |
a) | Subject to the provisions of Clause 24 (b), Owners shall allow a transhipment of the cargo to another ship or floating storage re-gasification unit (FSRU) or loading from floating production storage and offloading unit (FPSO) to be carried out via fixed hard arm cargo transfer facilities, provided that a suitably documented formalised risk assessment is carried out, identifying potential hazards, probability and consequences and all risks identified can be mitigated adequately to the complete technical and operational satisfaction of Owners. |
b) | Such cargo operation, if deemed acceptable by Owner, shall be carried out in accordance with the recommendations set out in the latest ICS/OCIMF Ship-to-Ship Transfer Guide (Liquefied Gases) and SIGTTOs Considerations for Planning a Ship-to-Ship Transfer of LNG, as amended from time to time. Owners shall permit, at Charterers expense, personnel nominated by Charterers to attend any pre operation risk assessment and to attend on board to assist in the transhipment operation although such operation shall always be the responsibility of Owners. All additional equipment and services required for a Ship to Ship Transfer and FPSO/FSRU Cargo operation shall be supplied and paid by Charterers. Owners shall not bare any additional costs (including additional insurance) as a consequence of a Ship to Ship Transfer and FPSO/FSRU Cargo operation. |
25. | Periodical Dry-docking |
(a) | Owners shall dry-dock the Vessel at least twice in any five year period for the purposes of maintaining the Vessels underwater area and anti-fouling coating system and to effect overhaul, scheduled maintenance, other necessary repairs, and re-certification, so that the Vessel is fit in every way for service under this charter. Provided that Owners can demonstrate that a performing five year under water anti-fouling coating system has been applied to the hull and obtain classification society approval for intermediate dockings / maintenance periods to be carried out afloat then Charterers will accept the same. A letter from the underwater anti-fouling coating system manufacturer clearly stating that the coating system applied will last for 5 years under normal operational service shall be provided to the Charterer. |
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No dry-docking shall be undertaken by Owners for the first 8 months of this Charter unless in an emergency or by agreement with Charterers.
(b) | Owners shall give Charterers at least 6 months notice of any intended non-emergency dry-docking, together with the reasons for such dry-docking. Such notice shall include the name and location of the yard. |
(c) | In the event of dry-docking, the Vessel shall be off-hire from the time she is in a gas free condition and arriving/passing at a) Singapore or b) Gibraltar or c) equal distance basis a) or b) from last discharge port, whichever is closer to Owners nomination according to Clause 24 b). On completion of dry-docking, the Vessel will be on-hire again when she is in every way ready to resume Charterers service at dropping outward pilot from the dry-dock in a gas free condition. For the purpose of resuming on-hire after completion of the dry-docking the Vessel shall not be further away from Gibraltar or Singapore than Gibraltar or Singapore respectively. If the Vessel has dry-docked further away from Gibraltar or Singapore than Gibraltar or Singapore respectively, then the Vessel shall go on-hire when she is in a position not less favourable to Charterers than such. |
(d) | All dry-dock expenses and expenses of preparing the Vessel for dry-dock shall be for Owners account. Any natural gas vapour lost in gas freeing for the purpose of dry-docking shall be for Charterers account provided that during the last discharge prior to dry-docking Owners shall use their reasonable endeavours to pump out the maximum amount of cargo. |
(e) | Vessel will be off-hire for the gas-up operation only at the first load port after dry-dock or in-water-dock. All gas/LNG used for the gas up and cool down shall be at Charterers account. |
(f) | Provided that Charterers have been previously notified and agreed to the period in advance, Charterers agree to provide the Owner with a preventative maintenance window or windows that shall not exceed ***** during each six month period when the Vessel remains continuously on-hire. The following maintenance procedures shall be permitted during this window: |
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condenser cleaning |
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main boiler and turbine safety system testing, |
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boiler inspections, |
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LSA & FFA maintenance (to include routine servicing of life rafts, testing of lifeboats and fixed fire fighting systems |
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propeller polishing |
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hull scrubbing |
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26. | Secondary Barrier Tightness Tests for GTT Containment Systems |
When required by the International Association of Classification Societies (IACS) rules, and in keeping with the Vessels dry dock schedule (not to exceed five (5) years in interval), Owners agree to carry out a Secondary Barrier Tightness Test (SBTT) in accordance with approved Gaztransport & Technigaz (GTT) procedures. Owners agree that Charterers shall be permitted to have full access to; (a) the results of such test, which shall be made available to Charterers immediately after the test of each individual tank has been completed and such results have been received by Owners and (b) a written confirmation by the classification society, following each individual tank SBTT, if it meets the vessels classification requirements.
Upon Charterers receipt of (a) and (b), for all tanks, and if (a) does not meet Charterers SBTT acceptance criteria, which Charterers shall provide three (3) months before scheduled dry-docking, Charterers have the obligation to exercise one of the following options within two (2) business working days:
(i) Charterers shall have the right to terminate this Charter with immediate effect from the time of notifying Owners in writing. The termination of the Charterparty shall be without prejudice to any rights or remedies that may exist or any claims still outstanding under this Charterparty.
(ii) Charterers shall continue to use the Vessel as per this Charterparty once she returns back on hire from drydock to Charterers.
(iii) Upon Charterers request, Owners shall, availability permitting, substitute the Vessel for a Substitute Vessel, which Owners shall deliver at a mutually agreed time and location, provided that the Substitute Vessel (I) is a vessel under Owners control, (II) meets Charterers vetting and assurance standards (III) the Substitute Vessels capacity, speed and performance is equal to, or exceeds, the Vessels warranties.
(iv) Charterers may elect at its sole discretion and cost to carry out further investigation of the secondary barrier containment system. If additional secondary barrier defects are uncovered, then Charterers shall have such defects repaired in accordance with classification society and GTT procedures. All costs and time associated with Charterers further investigation and repairs are solely for Charterers account. Specifically, all work will be supervised by GTT and carried out by an approved GTT contractor in accordance with the classification societys requirements. While such repairs are being performed, Charterers shall have the right to have its technical representative, with relevant experience of SBT testing and repairing GTT MkIII containment systems which shall be approved by Owners, not to be unreasonably withheld, on site at all times witnessing the work in conjunction with Owners representatives. Although all related costs of such work shall be for Charterers account, Charterers does not under any circumstances warrant the quality of these repairs nor assume any liability for the repairs or the post-repair condition of the Vessel.
27. | Ship Inspection |
Prior to or at any time during the charter period, Charterer may inspect or audit Vessel or Owners office (in case of a managed or time chartered Vessel Owners office includes the office of the technical manager) at Charterers convenience and at Charterers time and expense.
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Owners shall afford all necessary co-operation and accommodation on board provided, however:
(a) | that neither the exercise nor the non-exercise, nor anything done or not done in the exercise or non-exercise, by Charterers of such right shall in any way reduce the masters or Owners authority over, or responsibility to Charterers or third parties for, the Vessel and every aspect of her operation, nor increase Charterers responsibilities to Owners or third parties for the same; |
(b) | that Charterers shall not be liable for any act, neglect or default by themselves, their servants or agents in the exercise or non-exercise of the aforesaid right; |
(c) | that any cost incurred by such inspections or audits shall be for Charterers account provided such costs have been disclosed to and approved by Charterers in advance; |
(d) | that any inspection carried out by Charterers shall be made without interference with or hindrance to the Vessels safe and efficient operation, and shall be limited to a maximum of two persons; and |
(e) | that any overnight stays shall be subject to Clause 18. |
(f) | Upon delivery, Vessel shall have a valid operational SIRE report, or Owner shall be responsible for obtaining one prior to the first loading under this Charter. Owners will maintain SIRE inspection validity on a rolling six (6) month basis. |
27. | Key Vessel Performance Criteria |
Subject to Appendix C, Owners guarantee that:
(a) | the Laden Service Speed shall be ***** knots; |
(b) | the Ballast Service Speed shall be ***** knots; |
(c) | the Minimum Speed shall be ***** knots; |
(d) | the Vessel shall be capable of loading and discharging the cargo as follows: |
(i) |
a full cargo may be loaded within twelve (12) hours if the Vessels cargo tanks are colder than the tank design temperature for commencement of loading, excluding the time for connecting; disconnecting; cooling down; topping up and custody transfer measurement, and provided that the loading terminal is capable of pumping at least 12,292 cubic meters of |
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LNG per hour to the Vessel and terminal utilising a minimum of three liquid loading arms, and provided that the terminal is capable of receiving all return vapour from the Vessel that may be generated when loading the Vessel at the above specified flow rate of LNG; |
(ii) | a full cargo may be discharged within twelve (12) hours, excluding the time for connecting; disconnecting; cooling down; starting up pumps; ramping up; ramping down for stripping at end of discharge and custody transfer measurement, and provided that the discharge terminal is capable of receiving LNG at a rate of at least 12,292 cubic meters of LNG per hour with a back pressure at the flange connection between ship and terminal not exceeding 100 mlc metres of liquid LNG of specific gravity of 0.475 utilising a minimum of three liquid unloading arms. The terminal must also be capable of providing sufficient return vapour to the Vessel to compensate for the displacement of the LNG being discharged from the Vessel; |
(iii) | If Charterers request either slow loading or slow discharging, Owners shall permit such operations. |
(e) | the Vessels guaranteed maximum fuel consumption for weather conditions not exceeding Beaufort Scale 5 shall be: ***** |
(f) | The fuel oil equivalent factor (tonnes fuel oil per cubic metre of LNG) shall be calculated using actual bunker survey reports and LNG quality reports and shall be agreed upon by both Owners and Charterers. |
(g) | the maximum laden Boil-Off shall be zero point one five percent (0.15%) per day of the Cargo Capacity on fully laden sea passages (or pro rated by the ratio of volumetric cargo loaded to Cargo Capacity if all tanks are not used); |
(h) | the maximum ballast Boil-Off shall be zero point one five percent (0.15%) per day of the Cargo Capacity where the previous sea passage was fully laden (or pro rated by the ratio of the number of tanks previously used to the total number of cargo tanks if all tanks were not utilised for the carriage of cargo on the previous laden passage). |
(i) | The Owner shall be entitled to use natural boil-off from the LNG being transported at no cost to the Owner. At no point during the Charter Period shall the Vessel vent, dump steam (except for safety reasons) or force vaporise without permission of the Charterer. |
(j) |
Speed, fuel consumption and boil-off warranties are not valid under weather conditions in which the Vessel has to proceed in Wind Force in excess of Beaufort Force 5 for more than 12 (twelve) hours noon to noon. For purposes of |
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calculating claims, Wind Force reported in the Masters noon report shall be used. Charterer may employ the services of a reputable weather reporting company at their own cost. In any dispute, the weather reporting company numbers shall prevail. |
28. | Salvage |
Subject to the provisions of Clause 23 hereof, all loss of time and all expenses (excluding any damage to or loss of the Vessel or tortious liabilities to third parties) incurred in saving or attempting to save life or in successful or unsuccessful attempts at salvage shall be borne equally by Owners and Charterers provided that Charterers shall not be liable to contribute towards any salvage payable by Owners arising in any way out of services rendered under this Clause 29.
All salvage and all proceeds from derelicts shall be divided equally between Owners and Charterers after deducting the masters, officers and crews share.
29. | Lien |
Owners shall have a lien upon all cargoes and all freights, sub-freights and demurrage for any amounts due under this charter; and Charterers shall have a lien on the Vessel for all monies paid in advance and not earned, and for all claims for damages arising from any breach by Owners of this charter.
30. | Exceptions |
(a) | Unless caused by the actual fault or privity of Owners or the Vessel, her master and Owners shall not, unless otherwise in this charter expressly provided, be liable for any loss or damage or delay or failure arising or resulting from any act, neglect or default of the master, pilots, mariners or other servants of Owners in the navigation or management of the Vessel; fire,; collision or stranding; dangers and accidents of the sea; explosion, bursting of boilers, breakage of shafts or any latent defect in hull, equipment or machinery; provided, however, that Clauses 1, 2, 3 and 28 hereof shall be unaffected by the foregoing. Further, neither the Vessel, her master or Owners, nor Charterers shall, unless otherwise in this charter expressly provided, be liable for any loss or damage or delay or failure in performance hereunder arising or resulting from act of God, act of war, seizure under legal process, quarantine restrictions, strikes, lock-outs, riots, restraints of labour, civil commotions or arrest or restraint of princes, rulers or people. |
(b) | The Vessel shall have liberty to sail with or without pilots, to tow or go to the assistance of Vessels in distress and to deviate for the purpose of saving life or property. |
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(c) | Clause 32 (a) shall not apply to, or affect any liability of Owners or the Vessel or any other relevant person in respect of: |
(i) | loss or damage caused to any berth, jetty, dock, dolphin, buoy, mooring line, pipe or crane or other works or equipment whatsoever at or near any place to which the Vessel may proceed under this charter, whether or not such works or equipment belong to Charterers; or |
(ii) | any claim (whether brought by Charterers or any other person) arising out of any loss of or damage to or in connection with cargo. Any such claim shall be subject to the Hague-Visby Rules or the Hague Rules or the Hamburg Rules, as the case may be, which ought pursuant to Clause 41 hereof to have been incorporated in the relevant Bill of Lading (whether or not such Rules were so incorporated) or, if no such Bill of Lading is issued, to the Hague-Visby Rules unless the Hamburg Rules compulsorily apply in which case to the Hamburg Rules. |
(d) | In particular and without limitation, the foregoing subsections (a), (b) and (c) of this Clause shall not apply to or in any way affect any provision in this charter relating to off-hire or to reduction of hire or Boil-Off or bunkers consumed during periods of off-hire. |
31. | Injurious Cargoes |
No acids, explosives or cargoes injurious to the Vessel shall be shipped and without prejudice to the foregoing any damage to the Vessel caused by the shipment of any such cargo, and the time taken to repair such damage, shall be for Charterers account. No voyage shall be undertaken, nor any goods or cargoes loaded, that would expose the Vessel to capture or seizure by rulers or governments.
32. | Disbursements |
Should the master require advances for ordinary disbursements up to a cap of United States Dollars twenty-five thousand ($25,000) at any port, Charterers or their agents shall make such advances to him, in consideration of which Owners shall pay a commission of two and a half per cent, and all such advances and commission shall be deducted from hire.
33. | Laying-up |
Charterers shall have the option, after consultation with Owners, of requiring Owners to lay up the Vessel at a safe place nominated by Charterers, taking into account questions of maintenance access and security and with Owners consent and always subject to Clause 4, in which case the hire provided for under this charter shall be adjusted to reflect any net increases in expenditure reasonably incurred or any net saving which should reasonably be made by Owners as a result of such lay up. Charterers may exercise the said option any number of times during the charter period.
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34. | Requisition |
Should the Vessel be requisitioned by any government, de facto or de jure, during the period of this charter, the Vessel shall be off-hire during the period of such requisition, and any hire paid by such governments in respect of such requisition period shall be for Owners account. Any such requisition period shall count as part of the charter period.
35. | Outbreak of War |
If war or hostilities break out between any two or more of the following countries: United States of America, the countries or republics having been part of the former U.S.S.R (except that declaration of war or hostilities solely between any two or more of the countries or republics having been part of the former USSR shall be exempted), Peoples Republic of China, United Kingdom, and the country that the Vessel is registered in, then both Owners and Charterers shall have the right to cancel this charter provided that such war or hostilities materially and adversely affect the trading of the Vessel for a period of at least 30 days.
36. | Additional War Expenses |
If the Vessel is ordered to trade in areas where there is war (de facto or de jure) or threat of war, Charterers shall promptly reimburse Owners for any additional insurance premiums, crew bonuses and other expenses which are reasonably incurred by Owners as a consequence of such orders, provided that Charterers are given notice of such expenses as soon as practicable and in any event before such expenses are incurred, and provided further that Owners obtain from their insurers a waiver of any subrogated rights against Charterers in respect of any claims by Owners under their war risk insurance arising out of compliance with such orders.
Any payments by Charterers under this Clause will only be made against proven documentation. Any discount or rebate refunded to Owners, for whatever reason, in respect of additional war risk premium shall be passed on to Charterers.
37. | War Risks |
(a) | The master shall not be required or bound to sign Bills of Lading for any place which in his or Owners reasonable opinion is dangerous or impossible for the Vessel to enter or reach owing to any blockade, war, hostilities, warlike operations, civil war, acts of piracy, acts of terrorists, acts of hostility, civil commotions or revolutions. |
(b) |
If in the reasonable opinion of the master or Owners it becomes, for any of the reasons set out in Clause 38 (a) or by the operation of international law, |
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dangerous, impossible or prohibited for the Vessel to reach or enter, or to load or discharge cargo at, any place to which the Vessel has been ordered pursuant to this charter (a place of peril), then Charterers or their agents shall be immediately notified in writing or by radio messages, and Charterers shall thereupon have the right to order the cargo, or such part of it as may be affected, to be loaded or discharged, as the case may be, at any other place within the trading limits of this charter (provided such other place is not itself a place of peril). If any place of discharge is or becomes a place of peril, and no orders have been received from Charterers or their agents within 48 hours after dispatch of such messages, then Owners shall be at liberty to discharge the cargo or such part of it as may be affected at any place suitable for the discharge of LNG which they or the master may in their or his discretion select within the trading limits of this charter and such discharge shall be deemed to be due fulfilment of Owners obligations under this charter so far as cargo so discharged is concerned. |
(c) | The Vessel shall have liberty to comply with any directions or recommendations as to departure, arrival, routes, ports of call, stoppages, destinations, zones, waters, delivery or in any other wise whatsoever given by the government of the state under whose flag the Vessel sails or any other government or local authority or by any person or body acting or purporting to act as or with the authority of any such government or local authority including any de facto government or local authority or by any person or body acting or purporting to act as or with the authority of any such government or local authority or by any committee or person having under the terms of the war risks insurance on the Vessel the right to give any such directions or recommendations. If by reason of or in compliance with any such directions or recommendations anything is done or is not done, such shall not be deemed a deviation. If by reason of or in compliance with any such direction or recommendation the Vessel does not proceed to any place of discharge to which she has been ordered pursuant to this charter, the Vessel may proceed to any place which the master or Owners in his or their discretion select and there discharge the cargo or such part of it as may be affected. Such discharge shall be deemed to be due fulfilment of Owners obligations under this charter so far as cargo so discharged is concerned. |
Charterers shall procure that all Bills of Lading issued under this charter shall contain the Chamber of Shipping War Risks Clause 1952.
38. | Both to Blame Collision Clause |
If the liability for any collision in which the Vessel is involved while performing this charter falls to be determined in accordance with the laws of the United States of America, the following provision shall apply:
If the ship comes into collision with another ship as a result of the negligence of the other ship and any act, neglect or default of the master, mariner, pilot or the servants of the carrier in the navigation or in the management of the ship, the owners of the cargo
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carried hereunder will indemnify the carrier against all loss, or liability to the other or non-carrying ship or her owners in so far as such loss or liability represents loss of, or damage to, or any claim whatsoever of the owners of the said cargo, paid or payable by the other or non-carrying ship or her owners to the owners of the said cargo and set off, recouped or recovered by the other or non-carrying ship or her owners as part of their claim against the carrying ship or carrier.
The foregoing provisions shall also apply where the owners, operators or those in charge of any ship or ships or objects other than, or in addition to, the colliding ships or objects are at fault in respect of a collision or contact.
Charterers shall procure that all Bills of Lading issued under this charter shall contain a provision in the foregoing terms to be applicable where the liability for any collision in which the Vessel is involved falls to be determined in accordance with the laws of the United States of America.
39. | New Jason Clause |
General average contributions shall be payable according to York/Antwerp Rules, 1994, as amended from time to time, and shall be adjusted in London in accordance with English law and practice but should adjustment be made in accordance with the law and practice of the United States of America, the following position shall apply:
In the event of accident, danger, damage or disaster before or after the commencement of the voyage, resulting from any cause whatsoever, whether due to negligence or not, for which, or for the consequence of which, the carrier is not responsible by statute, contract or otherwise, the cargo, shippers, consignees or owners of the cargo shall contribute with the carrier in general average to the payment of any sacrifices, losses or expenses of a general average nature that may be made or incurred and shall pay salvage and special charges incurred in respect of the cargo.
If a salving ship is owned or operated by the carrier, salvage shall be paid for as fully as if the said salving ship or ships belonged to strangers. Such deposit as the carrier or his agents may deem sufficient to cover the estimated contribution of the cargo and any salvage and special charges thereon shall, if required, be made by the cargo, shippers, consignees or owners of the cargo to the carrier before delivery.
Charterers shall procure that all Bills of Lading issued under this charter shall contain a provision in the foregoing terms, to be applicable where adjustment of general average is made in accordance with the laws and practice of the United States of America.
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40. | Clause Paramount |
Charterers shall procure that all Bills of Lading issued pursuant to this charter shall contain the following:
(a) | Subject to sub-clause (b) or (c) hereof, this Bill of Lading shall be governed by, and have effect subject to, the rules contained in the International Convention for the Unification of Certain Rules relating to Bills of Lading signed at Brussels on 25th August 1924 (hereafter the Hague Rules) as amended by the Protocol signed at Brussels on 23rd February 1968 (hereafter the Hague-Visby Rules). Nothing contained herein shall be deemed to be either a surrender by the carrier of any of his rights or immunities or any increase of any of his responsibilities or liabilities under the Hague-Visby Rules. |
(b) | If there is governing legislation which applies the Hague Rules compulsorily to this Bill of Lading, to the exclusion of the Hague-Visby Rules, then this Bill of Lading shall have effect subject to the Hague Rules. Nothing therein contained shall be deemed to be either a surrender by the carrier of any of his rights or immunities or an increase of any of his responsibilities or liabilities under the Hague Rules. |
(c) | If there is governing legislation which applies the United Nations Convention on the Carriage of Goods by Sea 1978 (hereafter the Hamburg Rules) compulsorily to this Bill of Lading, to the exclusion of the Hague-Visby Rules, then this Bill of Lading shall have effect subject to the Hamburg Rules. Nothing therein contained shall be deemed to be either a surrender by the carrier of any of his rights or immunities or an increase of any of his responsibilities or liabilities under the Hamburg Rules. |
(d) | If any term of this Bill of Lading is repugnant to the Hague-Visby Rules, or Hague Rules, or Hamburg Rules, as applicable, such term shall be void to that extent but no further. |
(e) | Nothing in this Bill of Lading shall be construed as in any way restricting, excluding or waiving the right of any relevant party or person to limit his liability under any available legislation and/or law. |
41. | Insurance/ITOPF |
Owners warrant that the Vessel is now, and will, throughout the duration of the charter:
(a) | be owned or demise chartered by a member of the International Tanker Owners Pollution Federation Limited; |
(b) | be properly entered in a reputable P&I Club that is a member of the International Group of P&I Clubs; |
(c) | have in place insurance cover for oil pollution for the maximum on offer through the International Group of P&I Clubs but always a minimum of United States Dollars $1,000,000,000 (one thousand million); |
(d) | have in full force and effect Hull and Machinery insurance (currently valued at USD $250,000,000 placed through reputable brokers on Institute Time Clauses to a value as would be procured by a first class operator of similar such vessels. |
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Owners will provide, within a reasonable time following a request from Charterers to do so, documented evidence of compliance with warranties given in this Clause 40.
42. | Export Restrictions |
The master shall not be required or bound to sign Bills of Lading for the carriage of cargo to any place to which export of such cargo is prohibited under the laws, rules or regulations of the country in which the cargo was produced and/or shipped.
Charterers shall procure that all Bills of Lading issued under this charter shall contain the following clause:
If any laws rules or regulations applied by the government of the country in which the cargo was produced and/or shipped, or any relevant agency thereof, impose a prohibition on export of the cargo to the place of discharge designated in or ordered under this Bill of Lading, carriers shall be entitled to require cargo owners forthwith to nominate an alternative discharge place for the discharge of the cargo, or such part of it as may be affected, which alternative place shall not be subject to the prohibition, and carriers shall be entitled to accept orders from cargo owners to proceed to and discharge at such alternative place. If cargo owners fail to nominate an alternative place within 72 hours after they or their agents have received from carriers notice of such prohibition, carriers shall be at liberty to discharge the cargo or such part of it as may be affected by the prohibition at any safe place on which they or the master may in their or his absolute discretion decide and which is not subject to the prohibition, and such discharge shall constitute due performance of the contract contained in this Bill of Lading so far as the cargo so discharged is concerned.
The foregoing provision shall apply mutatis mutandis to this charter, the references to a Bill of Lading being deemed to be references to this charter.
43. | Business Principles |
Owners and Charterers shall cooperate to ensure that the Business Principles, as of the date of the charter party signature, by the BG Group, which are posted on the Worldwide Web ( www.bg-group.com ), are complied with.
44. | Drugs and Alcohol |
Owners warrant that they have in force an active policy covering the Vessel which meets or exceeds the standards set out in the Guidelines for the Control of Drugs and Alcohol On Board Ship as published by the Oil Companies International Marine Forum
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(OCIMF) dated January 1990 (or any subsequent modification, version, or variation of these guidelines) and that this policy will remain in force throughout the charter period, and Owners will exercise due diligence to ensure the policy is complied with.
45. | Pollution and Emergency Response |
Owners are to advise Charterers of organisational details and names of Owners personnel together with their relevant telephone/facsimile/e-mail details, including the names and contact details of Qualified Individuals for OPA 90 response, who may be contacted on a 24-hour basis in the event of oil spills or emergencies.
OFFICE PERSONNEL
Capt. G.Sarimpelas-Marine Operations Co-ordinator
Office Tel: +30 210 8917700
Mob: +30 6978 336 977
Home Phone: +30 210 2633726
Capt. M.Bogas-Designated Person Ashore
Office Tel: +30 210 8917700
Mob: +30 6972 999 135
Home Phone: +30 210 6036179
Mr. Ch. Vlachos-Technical Co-ordinator
Office Tel: +30 210 8917700
Mob: +30 6978 336 973
Home Phone: +30 210 5060949
Office Email: lngsafety@dynagas.com
Office Telex: +601 214113 DNGA GR
Office Fax: +30 210 968 0571
QUALIFIED INDIVIDUAL CONTACT DETAILS:
OBRIENS OIL POLLUTION SERVICE INC. (OOPS)
EMERGENCY:
Tel: +1-985-781-0804 24 hours
Fax: +1-985-781-0580 24 hours
Tlx: 49617361 OOPS UI
E-mail: commandcenter@oopsusa.com
OIL SPILL RESPONSE ORGANIZATION (OSRO):
NATIONAL RESPONSE CORPORATION (NRC)
Tel: +1-631-224-9141 24 hours
Fax: +1-631-224-9086 24 hours
Email: iocdo@nrcc.com
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SALVAGE COMPANY:
DONJON-SMIT
Tel: +1-703-299-0081 24 hours
Fax: +1-703-299-0085 24 hours
Email: response@donjon-smit.com
Notice to Charterers Pollution and Emergency Response Department:
Attn | : Duty Officer | |
Address | : BG LNG Services, | |
Suite 1200, 5444 Westheimer, Houston, Texas 77056, USA | ||
Telephone | : +1 713 366 6248 (primary); +1 713 884 9142 (secondary) | |
Fax | : +1 713 877 9212 | |
: incident@bg-group.com (for incidents only) | ||
shipping@bg-group.com ; lngcharters@bg-group.com | ||
Cc | : bghub.usa@gacworld.com |
46. | ISPS Code/USMTSA 2002 |
This clause 45 makes reference to the International Code for the Security of Ships and of Port Facilities and the relevant amendments to Chapter XI of SOLAS (ISPS Code) and the US Maritime Transportation Security Act 2002 (MTSA).
(a) | (i) | During the currency of this charter, Owners shall procure that both the Vessel and the Company (as defined by the ISPS Code) and the owner(as defined by the MTSA) shall comply with the requirements of the ISPS Code relating to the Vessel and the Company and the requirements of MTSA relating to the Vessel and the owner. Upon request Owners shall provide documentary evidence of compliance with this Clause 47 (a) (i). | ||
(ii) | Except as otherwise provided in this charter, loss, damage, expense or delay, caused by failure on the part of Owners or the Company/owner to comply with the requirements of the ISPS Code/MTSA or this Clause shall be for Owners account. | |||
(b) | (i) | Charterers shall provide Owners/Master with their full style contact details and shall ensure that the contact details of all sub-charterers are likewise provided to Owners/Master. Furthermore, Charterers shall ensure that all sub-charter parties they enter into during the period of this charter contain the following provision: | ||
The Charterers shall provide the Owners with their full style contact details and, where sub-letting is permitted under the terms of the charter party, shall ensure that the contact details of all sub-charterers are likewise provided to the Owners. | ||||
(ii) | Except as otherwise provided in this charter, loss, damage, expense or delay, caused by failure on the part of Charterers to comply with this sub-Clause 47 (b) shall be for Charterers account. |
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(c) | Notwithstanding anything else contained in this charter costs or expenses related to security regulations or measures required by the port facility or any relevant authority in accordance with the ISPS Code/MTSA including, but not limited to, security guards, launch services, tug escorts, port security fees or taxes and inspections, shall be for Charterers account, unless such costs or expenses result solely from Owners negligence in which case such costs or expenses shall be for Owners account. All measures required by Owners to comply with the security plan required by the ISPS Code/MTSA shall be for Owners account. |
(d) | Notwithstanding any other provision of this charter, the Vessel shall not be off-hire where there is a loss of time caused by Charterers failure to comply with the ISPS Code/MTSA. |
(e) | If either party makes any payment, which is for the other partys account according to this Clause, the other party shall indemnify the paying party. |
47. | Law and Litigation |
(a) | This charter shall be construed and the relations between the parties determined in accordance with the laws of England. |
(b) | Each of the parties hereto hereby submits to the exclusive jurisdiction of the High Court of London for the purposes of all legal proceedings arising out of or relating to this charter or the transactions contemplated hereby. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. |
(c) | It shall be a condition precedent to the right of any party to a stay of any legal proceedings in which maritime property has been, or may be, arrested in connection with a dispute under this charter, that that party furnishes to the other party security to which that other party would have been entitled in such legal proceedings in the absence of a stay. |
48. | Confidentiality |
Details | of this agreement and the charter to remain strictly private & confidential. |
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49. | Construction |
The side headings have been included in this charter for convenience of reference and shall in no way affect the construction hereof.
50. | Notices |
a) | Whenever written notices are required to be given by either party to the other party, such notices shall be sent by fax, registered mail, e-mail or registered airmail to the following addresses: |
Notice to Owners:
Seacrown Maritime Ltd.
C/O Dynagas Ltd.
94, Poseidonos Avenue & 2 Nikis Street
166-75 Glyada, Athens Greece
Telephone: +30-210-891-7960
Facsimile: +30-210-894-7275
Attention: LNG Coordination Department.
Email: lngcoordination@dynagas.com
Notice to Charterers:
Attn | : LNG Chartering Manager | |
Address | : BG LNG Services, LLC, | |
Suite 1200, 5444 Westheimer | ||
Houston, Texas 77056 | ||
Telephone | : +1 713 599 3033 | |
Fax | : +1 713 456 2351 | |
: lngcharters@bg-group.com |
Notice to Owners Operations Department:
Capt. G. Sarimpelas Marine Operations Co-ordinator
Office Telephone: +30-210-891-7700
Mobile Telephone: +30-6978-336-977
Home Telephone: +30-210-263-3726
Facsimile: +30-210-894-7275
Email: lngopsgroup1@dynagas.com
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or to such other addresses as the parties may respectively from time to time designate by notice in writing. Any failure to transmit a copy of the notice to a party listed as entitled to receive a copy shall not in any way affect the validity of any notice otherwise properly given as provided in this Clause.
b) | Any notice required under this charter to be given in writing shall be deemed to be duly received only: |
i) | In the case of a letter, whether delivered in course of the post or by hand or by courier, at the date and time of its actual delivery if within normal business hours on a working day at the place of receipt otherwise at the commencement of normal business on the next such working day. |
ii) | In the case of a facsimile or e-mail, at the time of transmission recorded on the message if such time is within normal business hours (09:00 - 17:00) in the country of receipt, otherwise at the commencement of normal business hours on the next working day at the place of receipt. |
51. | Invoices |
All invoices should be sent to the following contacts and shall be deemed to be duly received as per Clause 49(b):
Seacrown Maritime Ltd.
C/O Dynagas Ltd.
94, Poseidonos Avenue & 2 Nikis Street
166-75 Glyada, Athens Greece
Telephone: +30-210-891-7960
Facsimile: +30-210-894-7275
Attention: LNG Postfixture Departement
Email: lngcoordination@dynagas.com
Cc lngpostfixture@dynagas.com
Cc lngaccount@dynagas.com
Charterers: | ||
Attn | : LNG Chartering Manager | |
Address | : BG LNG Services, LLC, | |
Suite 1200, 5444 Westheimer | ||
Houston, Texas 77056 | ||
Telephone | : ********** | |
Fax | : ********** | |
: lngcharters@bg-group.com |
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52. | Ship Contact details |
The Vessels contact details are as follows:
*****
53. | Definitions |
In this charter, save where the context otherwise requires, the following words and expressions shall have the meanings respectively assigned to them in this Clause;
* | means delete as applicable. | |
Boil-Off | means the vapour, which results from vaporisation of LNG in the cargo tanks. | |
Cargo Capacity | means the maximum safe LNG loading limit of the Vessel as per Appendix D. | |
Certificate of Financial Responsibility | means a certificate of financial responsibility as required by the US Oil Pollution Act 1990. | |
Fuel Oil Equivalent | refers collectively to its two components, fuel oil and Boil-Off gas and is measured in metric tonnes applying the fuel oil equivalent factor set out in Clause 26 (f). | |
Fuel Price | means last invoiced price per increment of volume bunkered in USD $ per metric tonne (or relevant volumetric unit) | |
Gas Free | means the Vessels cargo tanks are free off all natural gas vapour and under an atmosphere of inert gas. | |
LNG | means natural gas liquefied by cooling and which is in a liquid state at or near atmospheric pressure. | |
LNG Heel | means liquid cargo retained in the cargo tanks on completion of discharge. | |
LNG Price | means the ex-ship price of LNG in USD/mmBtu at the port where the LNG was |
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retained, based upon composition of LNG at discharge; except for LNG supplied for cool down at a loading port, and for excess LNG boiled off on ballast leg, where the price will be based on the price charged by the terminal for cool down LNG. | ||
Service Speed | shall have the meaning ascribed to it in Appendix C, Article 1. (a). | |
BG Group | mean companies owned directly or indirectly by BG Group plc. |
54. | Claim Validity Period |
Any claims arising under this charter party must be brought within twelve (12) months of the conclusion of the Charter.
55. | Eligibility & Compliance |
At all times during this Charter:
(a) | the Vessel shall be in all respects eligible under applicable conventions, laws and regulations for, and shall not be prevented for any reason whatsoever from, trading to and from the ports and places permitted in clause 4 of the Charter; |
(b) | the Vessel shall comply with all applicable conventions, laws, rules and regulations of any international, national, state or local government entity having jurisdiction and shall have on board for inspection by the authorities all necessary certificates, records, letters and other documents evidencing such compliance, including but not limited to certificates evidencing compliance with international and US oil pollution regulations, SOLAS 1974, as amended, MARPOL 1973/1978 and US Department of Labor Safety and Health Regulations; and |
(c) | When trading to the U.S. the Vessel will comply fully with all applicable U.S. Federal, U.S. Coastguard and State laws, rules, orders, regulations, guidelines and circulars now in effect and which may be promulgated (and subsequent amendments and successors thereto) including, but not limited to, the following provisions relating to maritime safety and oil pollution response : |
i) | the U.S. Federal Water Pollution Control Act (as amended by the Clean Water Act of 1977 (Water Pollution)); |
ii) | the U.S. Oil Pollution Act of 1990 and the governmental regulations issued thereunder (OPA-90); |
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iii) | the U.S. Comprehensive Environmental Response, Compensation and Liability Act of 1980; and |
iv) | the U.S. Port and Tanker Safety Act; |
v) | the U.S. Coastguard Navigational and Vessel Inspection Circular No. 8-92; |
vi) | the Code of Federal Regulations |
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(d) | the Vessel will have on board throughout the Charter any certificates or other documentation required under the said laws, rules, orders, regulations, guidelines and circulars and evidencing such compliance, and, subject to Clause 4(d) shall include but not be limited to a U.S. Coastguard Certificate of Financial Responsibility for Oil Pollution (COFR) together with a similar certificate for hazardous substances and a Tanker Vessel Examination Letter (TVEL). |
(e) | prior to delivery the Vessel owner or operator will have submitted, and obtained approval from the US Coastguard for a response plan for the Vessel (VRP) which meets in full the requirements of OPA-90 and of the US Coastguard and in accordance with which the Vessel will at all times be operated. Charterers shall reimburse Owners for all port specific OPA charges (including but not limited to additional premium to maintain P&I cover) incurred by the Vessel calling at ports in the USA in accordance with Charterers orders. Requirements of a similar nature imposed by other countries after the date of this Charter shall be treated in the same way. |
(f) | to the extent that the Vessel does not at any time comply with any USCG. regulation now in effect or to be promulgated, all necessary waivers are or will be held. Owners will advise Charterers of all such waivers, including period of validation and reason(s) for waiver. |
(g) | Owners shall ensure that the Vessel is free to trade to the USA and if Certificate of Compliance (CoC) is not available at the commencement of the charter, then an inspection shall be carried prior to arrival at the first USA port or on arrival at the first USA port. Any delay incurred carrying out this initial inspection that exceeds three hours shall be classified as off-hire. Charterers shall provide sufficient notice to Owners to allow Owners to comply with the rules and regulations in USA and LNG Terminals not listed in Appendix A. |
(h) | If the Vessel is required to discharge at a US port during this charter, the Owners are required to install an AIS Pilot Plug as defined by SOLAS regulations. Specific regulations can be found in Chapter V, Regulation 19 and in Title 33 Code of Federal Regulations §164.46 Automatic Identification System (AIS), Paragraph (d) The AIS Pilot Plug, on each vessel over 1600 gross tons on an international voyage, must be available for pilot use, easily assessable from the primary conning position of the vessel, and near a 120 Volt, AC power, 3-prong receptacle. Additional information regarding proper installation of the AIS Pilot Plug can be found in IMO SN/Circ. 227. |
(i) | When calling at LNG terminals located in ports in the European Union, Vessel must be able to meet the requirements of EU Council Directives 1999/32/EC dated 26 April 1999 and 2005/33/EC dated 6 July 2005 either directly or through the Vessels ability to burn natural gas whilst alongside berth. |
Any direct delays, and/or expenses arising from Owners failure exercise due-diligence to comply with this clause shall be for Owners account and Owners shall fully indemnify Charterers therefor. Charterers shall not be liable for any delay caused by the Vessels failure to comply with the foregoing warranty.
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For any time lost due to a breach of this clause the Vessel shall be off-hire, and direct expenses incurred due to such breach (including bunkers consumed) shall be for Owners account.
56. | Vapour Pressure |
Owners undertake that the Vessel will arrive at each discharge port or terminal with the Vessel and its cargo in such a condition that the vapour pressure in the Vessels cargo tanks meets the requirements of the discharging port or terminal as advised to Owners. In any event, Owners will follow vapour pressure instructions received from Charterers and will not allow vapour pressure to increase beyond the pressure permitted by Charterers voyage instructions
57. | Cargo Transfer Inspection and System Calibration |
Charterers may at their option place their cargo transfer inspection representative on board to observe preparation for loading and discharging of cargo during periods when the Vessel is in port, at Charterers expense. Such representative will not, however, under any circumstances order or direct the taking of any particular action by the Vessel or crew or interfere in any way with the Masters exercise of his authority.
The Custody Transfer Measurement Gauging System (CTMS) shall undergo a full calibration check and recertification by a recognized calibration company at minimum each dry dock. This check shall include a full calibration check of the Primary Gauging System, Secondary Gauging System, in tank temperature monitoring system, tank pressure monitoring system, and independent tank hi level alarm(s). The CTMS shall always remain approved and acceptable to Japanese customs.
Charterers shall have access to calibration check reports.
If the Vessel is required to discharge at a Japanese port during this charter, the Owners are required to start Japan customs approval process for the CTMS and cargo tank tables immediately once Charterers notify Owners of intention to discharge at a Japanese port. The Vessel shall comply with Japanese customs approvals requirements throughout the charter period.
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58. | Vessel Performance Data |
If Vessel is equipped with the Kyma Ship Performance software or equivalent system, Charterers require that Owners run a performance trial at sea once per month. When available, both the ship performance software and the steam analyzer software (or equivalent) shall be used to record information during a minimum one hour trial.
A detailed procedure for carrying out the trial shall be included in Charterers Instructions. Owners agree to send the resulting data and/or summary report of the trial to the Charterers within fifteen (15) days of carrying out each trial.
59. | Third Party Vetting Information |
Owners shall permit Charterers to discuss vetting results with third party vetting companies upon Charterers request.
60. | Taxes |
All taxes and dues on the Vessel and on the Charter hire, which are imposed by Vessels flag state and/or by the country in which Owners are domiciled, shall be for Owners account.
61. | U.S. Compliance |
Owners represent and guarantee that Owners and the Vessel are not in any way directly or indirectly owned, controlled by or related to any Cuban, North Korean, Iranian, Myanmar, or Sudanese interests.
62. | Owners Defaults |
(a) | Each of the following events shall be deemed to be a breach of this Charter and an Owners Default for the purposes of this Charter: |
i) | if any licence, approval, consent, authorisation or registration at any time necessary for Owners to comply with their obligations under this Charter, or in connection with the ownership and operation of the Vessel, is revoked with just cause, withheld or expires or is modified so as to prevent or materially delay the lawful performance by Owners of their obligations hereunder (unless remedied, if capable of remedy, within thirty (30) days); |
ii) | if an order is made, or an effective resolution passed, for the compulsory or voluntary winding-up or dissolution of Owners (other than for the purposes of amalgamation or reconstruction in respect of which the prior written consent of Charterers has been obtained) or if Owners suspend payment of or are unable to or admit inability to pay, their debts as they fall due or make any special arrangement or composition with their creditors generally or any class of their creditors; |
iii) |
if an administrator, administrative receiver, receiver or trustee or similar official is appointed in respect of the whole, or a material part, of the |
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property, assets or undertaking of Owners, and such appointment is not discharged within thirty (30) days of the date of such appointment (unless such appointment is being contested by Owners in good faith by appropriate proceedings) or if Owners apply for, or consent to, any such appointment; |
iv) | if any event occurs in relation to Owners in any jurisdiction which has an effect equivalent to any of the events specified in ii) and iii) above; |
v) | if an encumbrancer takes possession of, or distress or execution is levied upon, the whole, or a material part, of the property, assets or undertaking of Owners and the same shall not be discharged within thirty (30) days of the date of commencement of such action unless such possession or levy is being contested by Owners in good faith by appropriate proceedings; |
vi) | if Owners cease to carry on their business, or dispose of the whole, or a material part, of their property, assets or undertaking without Charterers consent; |
vii) | if Owners cease to be a corporation duly registered in good standing in its place of incorporation without Charterers consent; |
viii) | if any of the events specified in ii) to vii) inclusive above occurs (mutatis mutandis) in relation to the Parent Company Guarantor; |
ix) | if it becomes impossible or unlawful for Owners to fulfil any of their obligations under this Charter, or for Charterers to exercise any of the rights vested in them by this Charter, or this Charter for any reason becomes invalid or unenforceable or ceases to be in full force and effect or Owners repudiate this Charter; |
x) | if the Vessel is arrested as a consequence of any claim or event other than a claim arising by, through or under acts, deeds or omission of Charterers and is not released for any reason from such arrest within thirty (30) days after being arrested; |
xi) | if Owners are in material breach of any other provision of this Charter with serious and adverse consequences to Charterers; and Owners have failed to cure such breach within a reasonable period of time but in no event longer than thirty (30) days after notice of such breach from Charterers (unless such breach has a shorter cure period hereunder, in which case, the shorter period shall apply. |
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(b) | Upon the occurrence of an Owners Default and at any time thereafter for so long as such default is continuing, and whether or not the Time Charter has commenced, Charterers shall be entitled to terminate this Charter by giving notice in writing to Owners. This Clause 63(b) is without prejudice to any other rights Charterers may have hereunder or at common law. |
63. | Charterers Defaults |
(a) | Each of the following events shall be deemed to be a breach of this Charter and a Charterers Default for the purposes of this Charter: |
i) | if an order is made, or an effective resolution passed, for the compulsory or voluntary winding-up or dissolution of Charterers (other than for the purposes of amalgamation or reconstruction in respect of which the prior written consent of Owners has been obtained) or if Charterers suspend payment of, or are unable to or admit inability to pay, their debts as they fall due or make any special arrangement or composition with their creditors generally or any class of their creditors; |
ii) | if an administrator, administrative receiver, receiver or trustee or similar official is appointed in respect of the whole, or a material part, of the property, assets or undertaking of Charterers, and such appointment is not discharged within thirty (30) days of the date of such appointment (unless such appointment is being contested by Charterers in good faith by appropriate proceedings) or if Charterers apply for, or consent to, any such appointment; |
iii) | if any event occurs in relation to Charterers in any jurisdiction which has an effect equivalent to any of the events specified in (ii)) and (iii)) above; |
iv) | if an encumbrancer takes possession of, or distress or execution is levied upon, the whole, or a material part, of the property, assets or undertaking of Charterers and the same shall not be discharged within thirty (30) days of the date of commencement of such action unless such possession or levy is being contested by Charterers in good faith by appropriate proceedings; |
v) | if Charterers cease to carry on their business, or dispose of the whole, or a material part, of their property assets or undertaking without Owners consent; |
vi) | if Charterers cease to be a corporation duly registered in good standing in its place of incorporation without Owners consent; |
vii) | if it becomes impossible or unlawful for Charterers to fulfil any of their obligations under this Charter or for Owners to exercise any of the rights vested in them by this Charter, or this Charter for any reason becomes invalid or unenforceable or ceases to be in full force and effect or Charterers repudiate this Charter; |
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(b) | Upon the occurrence of a Charterers Default and at any time thereafter for so long as such default is continuing, and whether or not the Time Charter has commenced, Owners shall be entitled to terminate this Charter by giving notice in writing to Charterers. This Clause 64(b) is without prejudice to any other rights Owners may have hereunder or at common law. |
64. | Quiet Enjoyment |
The Owners acknowledge that the Charterers shall be entitled to the quiet enjoyment and use of the Vessel under this charter throughout the charter period without interruption.
Any mortgage, lien, claim, encumbrance or security interest of whatsoever nature on the Vessel, shall be subordinate to any right the Charterer has, and exist without any prohibition to the Charterer and shall not limit in any way the Vessels ability to perform this Charter or limit in any way the trading limits of the Vessel. Owners shall disclose Clause 64 when such a mortgage, lien, claim, encumbrance or security interest of whatsoever nature on the Vessel will be secured.
65. | Rights of Third Parties |
No provision of this Charter shall, under the Contracts (Rights of Third Parties) Act 1999, confer any benefit on, nor be enforceable by, any person who is not a party to this Charter.
66. | Health, Safety, Security & Environmental Reporting and Requirements |
(a) | Owners shall ensure that all crew and supernumeraries are provided an orientation training programme to the Vessel with training relevant under the SMS. Owners shall ensure that all subcontractors visiting the Vessel shall receive a briefing or information on the parts of the SMS relevant to their visit and comply to the owners HSSE policies and procedures during the visit. |
(b) | Owners shall document and report immediately to Charterers any incidents of environmental damage, any unforeseen activity or event which could have led to environmental damage as per ISO 14001 Standards, release or venting of hydrocarbons, breaches or potential breaches of environmental regulations or complaint from local groups, organisations including enforcement agencies or individuals; |
(c) | If requested by the Charterers and mutually agreed by both parties, Owners may participate in an emergency response exercise; |
(d) | In the event of a fatality in connection with the charter of the Vessel, Owners are to notify Charterers immediately. In the event of a lost time injury, Owners shall notify Charterers in writing, within seven (7) days of the incident and Charterers may be invited to participate in any subsequent incident investigation; |
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(e) | Owners shall implement a Behavioural Based Safety (BBS) observation system or equivalent. Owners shall submit a minimum of (five) 5 BBS observations per month, using the form set forth in Appendix B; |
(f) | Owners shall submit to Charterers a monthly written report, within ten (10) days of the end of each month that the Vessel is on hire, detailing all accidents/incidents and environmental reporting requirements, in accordance with the Safety and Environmental Monthly Reporting Template appended hereto (Appendix B) as identified by the Owners reporting requirement; |
(g) | Owners shall maintain HSSE records sufficient to demonstrate compliance with the requirements of the SMS and provide Charterers the right to confirm compliance with HSSE requirements by audit of Owners, including but not limited to the right to audit and review Owners facilities, services and/or performance of its activities as mutually agreed by the Owners; |
67. | Brokers Commission |
The broker for this arrangement is Poten & Partners. The brokerage fee is 1.25% of the charter hire and the hire element of the ballast bonus payment, which is to be paid by Owners.
Appendix A: List of Primary Terminals.
Appendix B: Safety and Environmental Monthly Reporting Template
Appendix C: Detailed Performance Criteria
Appendix D: LNG Form C for the Vessel
Appendix E: Crew Experience Matrix
Agreed and signed by Owners | Agreed and signed by Charterers | |||||||
/s/ Athanasakos Efstratios |
/s/ B. A. Bhat |
|||||||
Name: | Athanasakos Efstratios | Name: | B. Amrit Bhat | |||||
Title: | Attorney in Fact | Title: | Director | |||||
Date: | 04-10-2010 | Date: | 14-10-2010 |
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APPENDIX A List Of Primary Terminals
INDEX
NO. |
TERMINAL |
COUNTRY |
REMARK |
NO. |
TERMINAL |
COUNTRY |
REMARK |
|||||||||||
1/4 |
1 | Arun North |
Indonesia |
26/09/2006 |
3/4 |
32 | Kawagoe | Japan | 26/09/2006 | |||||||||
2 | Arun South | 26/09/2006 | 33 | Lake Charles | USA | 26/09/2006 | ||||||||||||
3 | Badak; Bontang-3 | 26/09/2006 | 34 | Marmara Ereglisi | Turkey | 26/09/2006 | ||||||||||||
4 | Barcelona | Spain | 26/09/2006 | 35 | Mejillones | Bolibia | 26/09/2006 | |||||||||||
5 |
Bethioua M5 | Algeria | 26/09/2006 | 36 | Montoir Upstream | France | 26/09/2006 | |||||||||||
6 |
Bilbao | Spain | 26/09/2006 | 37 | Montoir Downstream | 26/09/2006 | ||||||||||||
7 |
Bintulu No.1 | 26/09/2006 | 38 | Niigata | Japan | 26/09/2006 | ||||||||||||
8 |
Bintulu No.2 | Malaysia | 26/09/2006 | 39 | Ohgishima | 26/09/2006 | ||||||||||||
9 |
Bintulu No.3 | 26/09/2006 | 40 | Paria Peninsular | Venezuela | 26/09/2006 | ||||||||||||
10 | Bonny | Nigeria | 26/09/2006 | 41 | Pipavav | India | 26/09/2006 | |||||||||||
11 | Brunei | Brunei | 26/09/2006 | 42 | Point Fortin | Trinidad | 26/09/2006 | |||||||||||
12 |
Canvey Island |
UK | 26/09/2006 | 43 | Pyeong-Taek No.1 | Korea | 26/09/2006 | |||||||||||
13 | Cartagena | Spain | 26/09/2006 | 44 | Pyeong-Taek No.2 | 26/09/2006 | ||||||||||||
14 | Chita L-1 | Japan | 26/09/2006 | 45 | Qalhat | Oman | 26/09/2006 | |||||||||||
15 | Chita L-2 | 26/09/2006 | 46 | Ras Laffan No.1 | Qatar | 26/09/2006 | ||||||||||||
2/4 |
16 | Cove Point North |
USA |
26/09/2006 |
4/4 |
47 | Ras Laffan No.2 | Qatar | 26/09/2006 | |||||||||
17 | Cove Point South | 26/09/2006 | 48 | Revithousa | Greece | 26/09/2006 | ||||||||||||
18 | Dabhol | India | 26/09/2006 | 49 | Senboku No.2-1 | 26/09/2006 | ||||||||||||
19 |
Adgas - Das Island |
U.A.E | 26/09/2006 | 50 | Senboku No. 2-2 | Japan | 26/09/2006 | |||||||||||
20 | Elba Island | 26/09/2006 | 51 | Shimizu | 26/09/2006 | |||||||||||||
21 | Ensenada | USA | 26/09/2006 | 52 | Snohvit | Norway | 26/09/2006 | |||||||||||
22 | Everett | 26/09/2006 | 53 | Sodegaura No.2 | Japan | 26/09/2006 | ||||||||||||
23 | Fos Cavaou | France | 26/09/2006 | 54 | Sodegaura No.3 | 26/09/2006 | ||||||||||||
24 |
Futtsu NO.1 |
Japan |
26/09/2006 | 55 | Sunrise | Australia | 26/09/2006 | |||||||||||
25 |
Futtsu NO.2 | 26/09/2006 | 56 | Tong Yeong | Korea | 26/09/2006 | ||||||||||||
26 | Higashi Ogishima | 26/09/2006 | 57 | Withnell bay | Australia | 26/09/2006 | ||||||||||||
27 | Himeji | 26/09/2006 | 58 | Yokkaichi | Japan | 26/09/2006 | ||||||||||||
28 |
Huelva | Spain | 26/09/2006 | 59 | Yung-An No.1 (East) | Taiwan | 26/09/2006 | |||||||||||
29 |
Idku | Egypt | 10/05/2007 | 60 | Yung-An No.2 (West) | 26/09/2006 | ||||||||||||
30 |
Inchon No.1 | Korea | 26/09/2006 | 61 | Zeebrugge | Belgium | 26/09/2006 | |||||||||||
31 |
Inchon No.2 | 26/09/2006 | ||||||||||||||||
62 @2 | Dahej | India | 11/10/2006 | 63 @2 | Damietta | Egypt | 12/06/2007 | |||||||||||
64 @2 | Hazira | India | 05/04/2007 | 65 @3 | Lake Charles (East) | USA | 10/05/2007 | |||||||||||
66 @4 | Ras Laffan No.3 | Qatar | 29/03/2007 | 67 @2 | Guang Dong | China | 25/07/2007 | |||||||||||
68 @2 | Elba Island North | USA | 05/06/2007 | 69 @2 | Elba Island South | USA | 05/06/2007 | |||||||||||
70 |
Freeport | USA | 71 | Ras Laffan No.4 | Qatar | |||||||||||||
72 | Ras Laffan No.5 | Qatar | 73 | Gwangyang | Korea | |||||||||||||
74 | Isle of Grain | UK |
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APPENDIX B Safety and Environmental Monthly Reporting Template
Month/Year: |
HSSE all vessels
LTI |
||||||||
Vessel |
Incidents this Month |
Date |
Status |
YTD Total |
||||
Exposure Hours |
||||||
Vessel |
Total for the Month |
Total for the Year |
12 month rolling |
|||
Recordable and reportable cases for reporting month |
||||||||||
Vessel |
Medical
Case |
Restricted Work Cases |
First Aid Cases |
Near Misses |
Details |
|||||
BBS Observations (if applicable) |
||||||||
Vessel |
No. of
|
No. of
|
No. of
|
Comments |
||||
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Pollution management, all vessels
General information |
||||||||||
Vessel |
Monthly cargo discharged |
Monthly distance steamed |
No. of bunker operations |
Total bunkers lifted |
Remarks |
|||||
Fuel consumption |
||||||||||||||||||
Vessel |
HFO Cons. (mt) |
HFO
|
MDO
|
MDO
|
Equip* |
MGO
|
MGO
|
Equip* |
BOG
|
|||||||||
Environmental impact |
||||||||||
Vessel |
Refrigerant gas - type |
Refrigerant gas
consumption
|
Equipment requiring gas |
LNG Venting (m³) |
Oil Spill (Ltr) |
|||||
Waste Management |
||||||
Vessel |
Garbage disposed at Sea (m³) |
Garbage Incinerated on board (m³) |
Garbage disposed ashore (m³) |
|||
* | State equipment which consumed MGO and MDO |
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Maintenance, all vessels
Special Survey Schedule |
||||||||
Vessel |
Last |
Yard |
Next |
Remarks |
||||
Intermediate Survey Schedule (state if in-water or dry dock) |
||||||||
Vessel |
Last |
Yard |
Next |
Remarks |
||||
Pending Reports to BG (to include On hire and off hire maintenance reports, terminal incidents etc) |
||||||
Vessel |
Subject |
Status |
Comments |
|||
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Vetting, all vessels
Vetting (last) |
||||||||||||||||
Vessel |
PSC (Specify Country) |
USCG |
BP |
Shell |
||||||||||||
Validity Dates |
Issued |
Expiry |
Issued |
Expiry |
Issued |
Expiry |
Issued |
Expiry |
||||||||
Vessel |
BG |
Repsol |
Other (ISLE OF GRAIN) |
Other (Specify) |
||||||||||||
Validity Dates |
Issued |
Expiry |
Issued |
Expiry |
Issued |
Expiry |
Issued |
Expiry |
||||||||
SIRE |
||||||||
Vessel |
Date of last inspection |
Inspected by whom |
Number of
|
Next inspection due |
||||
CAP Status (If applicable) |
||||||
Vessel |
Hull |
Machinery |
Remarks |
|||
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Vessel Name
Senior officers onboard |
||||||
Position |
Onboard |
Reliever |
Change planned |
|||
Technical items (To include any items which may affect the operational performance) |
||||
Item |
Due date |
Status |
||
Class related items (to include all CoCs and MO) |
||||
Item |
CC/MO # |
Status |
||
Maintenance stops/projects/major events |
||||
Item |
Due date |
Status |
||
Services |
||||||
Item |
Last / date |
Next |
Remarks |
|||
Propeller polish |
||||||
Hull Scrub |
||||||
Main Condenser Cleaning |
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Definitions and Instructions
HSSE
Lost Time Injury (LTI)
A disabling occupational injury or illness that results in a person being unfit for work on any day beyond the day of the incident. Any day includes rest days, weekend days, leave days, public holidays or days after ceasing employment.
Exposure hours
The number of officers and crew, multiplied by 24 multiplied by the number of days in the month.
Medical Treatment Cases (MTC)
Cases that are not LTIs or restricted work day cases but are more severe than requiring simple first aid treatment. Includes treatment of injuries administered by physicians and registered professional personnel. Medical treatment does not include first aid treatment even though provided by a physician or registered professional personnel.
A medical treatment case is defined as one in which:
|
Treatment is carried out by a physician or licensed medical personnel (or would normally have been carried out under the supervision of a doctor) |
|
There is permanent impairment of bodily functions (i.e. normal use of senses, limbs, etc.) |
|
There is damage to the physical structure of a non-superficial nature (e.g. fractures) |
|
There are complications requiring follow up medical treatment |
|
There was loss of consciousness in the work place. This is a recordable condition and should be included with medical treatment cases. |
Restricted Work Case (RWC)
Any work-related injury other than a fatality or lost workday case which results in a person being unfit for full performance of the regular job on any day after the occupational injury. Work performed might be:
|
an assignment to a temporary job; |
|
part-time work at the regular job; |
|
continuation full-time in the regular job but not performing all usual duties. |
Where no meaningful restricted work is being performed, the incident should be recorded as a lost time injury (LTI).
Reportable Incident
Any incident associated with a BG related asset that results or had the potential to result (near miss) in injury to personnel, occupational related illness, damage to the asset, environment or companys reputation, production loss, process control failure, security related breach, or the creation of a hazardous or unsafe condition
FAC (First Aid Cases) any one time treatment and subsequent observation or minor injury such as scratches, cuts, burns and splinters etc, which do not ordinarily require medical care. Such treatments and observations are considered first aid even though provided by a physician or registered professional personnel.
Near Miss
Any incident which could have resulted in injury to persons or damage to plant or equipment or harm to the environment, or any activity, which if allowed to continue, could have the potential to cause an incident.
Pollution management
General information state total cargo discharged, distance steamed in nautical miles, total number of bunker operations for the month and total bunkers lifted for the month for each vessel.
Fuel consumption state total consumptions for each vessel.
Note, state which machinery has consumed MDO or MGO, e.g. incinerator
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Environmental impact
Only to be completed for any vessel which has a refrigerant loss, LNG venting or an oil spill as per the below definitions:
Refrigerant gas consumption any piece of equipment that has been topped up with refrigerant gas or had additional gas added after maintenance or had gas added due to a failure in the machinery or piping should be classed as consumed unless gas has been recovered and is expected to be re-used/recycled.
LNG venting Actual amount of controlled vapour releases (i.e. controlled venting) shall be reported. All uncontrolled vapour releases of an estimated quantity greater than or equal to 1.0 standard cubic metre shall be reported as an incident.
Oil spill - Oil Spills: All oil spills with the potential to harm the environment and where the amount released is 0.5 litres or more (whether released into a containment system, on deck, or in the water) shall be reported as an incident. All oil spills with the potential to harm the environment of less than 0.5 litres and contained on the vessel shall be reported as a near miss. Oil spills that occur inside machinery spaces with no potential to harm the environment shall be treated as part of an equipment failure or related to the creation of a hazardous or unsafe condition and reported in accordance with the definition of a Reportable Incident above.
LNG spill - All LNG spills of 0.5 litres or more shall be reported as an incident. LNG spills of less than 0.5 litres in the loading manifold or other vessel areas (where the mild steel deck is protected by a stainless steel drip tray, deck or other material resistant to cryogenic temperatures) do not need to be reported. All LNG spills of less than 0.5 litres, where LNG comes in direct contact with non-cryogenic steel but where no damage to the steel occurs, shall be reported as a near miss.
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APPENDIX C Detailed Performance Criteria
CONTENTS
Article 1. |
Speed Warranties |
|
Article 2. |
Timeliness |
|
Article 3. |
Guaranteed Daily Fuel Consumption |
|
Article 4. |
Definitions for Fuel Consumption Calculations |
|
Article 5. |
Basis of Calculation for Fuel Consumption |
|
Article 6. |
Actual Fuel Consumption on a Voyage |
|
Article 7. |
Guaranteed Maximum Boil-Off |
|
Article 8. |
Boil-Off Calculations |
|
Article 9. |
Spray Cooling, Forced Vaporisation and use of Boil-Off |
|
Article 10. |
Provisions for Gauging |
|
Article 11. |
Underwater Cleaning / Waiting at Anchorage |
|
Article 12. |
Interpretation |
|
Article 13. |
Weather Limits for Performance Warranties |
|
Article 14 |
Claim Validity Period |
1. | Speed Warranties |
(a) | Owners guarantee that the Vessel is capable of steaming and, subject to Article 1(b), shall steam at the Laden Service Speed or the Ballast Service Speed as set out in Clause 26(a) and (b) as applicable (the Service Speed). |
(b) | Charterers may order the Vessel to steam at the Service Speed or at any lesser average speed but not less than the Minimum Speed as set out in Clause 26 (c) and not at a greater average speed, except with Owners consent, which shall not be unreasonably withheld. For the avoidance of doubt, it is agreed that Owners may decline orders to steam at any lesser average speed than the Minimum Speed or at any greater average speed than the Service Speed for operational reasons. |
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2. | Timeliness |
(a) | Prior to each voyage Charterers may, subject to Article 1(b), instruct the Vessel to proceed so as to arrive at the pilot boarding station at each port at a given date and time (the Scheduled Arrival Time or SAT). Provided however: |
(i) | In the event that Charterers fail to provide a SAT to Owners the SAT shall be deemed to be the estimated arrival time of the Vessel assuming the Vessel steams at the Service Speed by the shortest safe route to the named port measured from pilot station to pilot station (a Sea Passage) (or the route specified by Charterers, if different) from the time Charterers instruct the Vessel to proceed. |
(ii) | The SAT shall in any event not be earlier than the estimated arrival time calculated in accordance with Article 2(a)(i). |
(iii) | Subject to Article 1(b), Charterers may amend the SAT from time to time during or prior to each voyage to accommodate changes in circumstances concerning the voyage (the Amended SAT). |
(iv) | The speed at which the Vessel needs to steam in order to meet the SAT or the Amended SAT or any permissible speed ordered by the Charterers shall be a Guaranteed Speed. |
(b) | Charterers shall compare the actual time of arrival of the Vessel at the pilot station at each port with the SAT save that if the SAT was amended solely for reasons not attributable to any failure in performance by the Vessel, then such comparison shall be made with the Amended SAT. |
(c) | If the Vessel arrives at the pilot station at the arrival port not later than three (3) hours after the SAT or Amended SAT, where applicable, the Vessel shall be deemed to have arrived On Time. If the Vessel arrives at the pilot station more than three (3) hours after the SAT, or Amended SAT where applicable, the Vessel shall be deemed to have arrived Late. |
(d) | Subject to Article 2(e) and (f), Charterers shall be entitled to make a deduction from hire in respect of any period by which the Vessel arrives Late. |
(e) | Notwithstanding the foregoing but subject to Article 2(f), Charterers shall not be entitled to make any deduction from hire if the Vessel arrives Late to the extent that such late arrival is caused by one or more of the following during the voyage: |
(i) | the incidence of bad weather, being any day in which the Vessel has to proceed in wind force in excess of Beaufort Force 5 for more than 12 (twelve) hours noon to noon, or |
(ii) | poor visibility, or |
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(iii) | congested waters, or |
(iv) | alterations in speed or course to avoid areas of bad weather, or |
(v) | any period spent at a waiting area following arrival, or |
(vi) | the saving of life or (with Charterers consent) property, (Article 2(e)(i)(ii)(iii)(iv) and (v) being known as Restricted Periods), or |
(vii) | any period when the Vessel is off-hire at sea on any individual voyage. The master shall record in his daily noon report the time lost in the previous 24 hours due to any of the matters referred to in this Article 2(e). |
(f) | If the Vessel arrives Late the following calculation shall be made to assess the period in respect of which Charterers shall be entitled to deduct hire. The speed of the Vessel shall be calculated over the Sea Passage excluding all Restricted Periods (the Achieved Speed). If the Achieved Speed equals or exceeds the Guaranteed Speed Owners shall be deemed to have met the speed warranties. If the Achieved Speed is less than the Guaranteed Speed Charterers shall apply the Achieved Speed to the total Sea Passage and the time at which the Vessel would have arrived if steaming at the Achieved Speed shall be the Deemed Arrival Time. Charterers shall be entitled to deduct hire to the extent to which the Deemed Arrival Time exceeds the SAT by more than three hours. |
(g) | The relationship between this Article 2 and Clause 22 shall be as follows: |
(i) | Periods of off-hire under Clause 22 shall be excluded for all purposes from calculations under this Article 2. |
(ii) | Article 2 shall apply to deal with lateness to which Clause 22 does not apply pursuant to Clause 22 (b). |
3. | Guaranteed Daily Fuel Consumption |
(a) | Owners guarantee that subject to the other provisions of Appendix C, the maximum daily fuel consumption of the Vessel for all purposes shall not exceed the quantities tabulated in Clause 26(e) and, where applicable shall be prorated between the speeds shown. |
(b) | The average speed in knots on any Voyage (as defined in Article 4) shall be calculated by reference to the observed distance steamed and the duration of the Voyage, but excluding from the calculation of average speed the duration of all off-hire periods and distance covered in such periods and excluding the distance covered during any deviation which is not an off-hire period because the Vessel arrives On Time. |
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4. | Definitions for Fuel Consumption |
(a) | In this Appendix C: |
(i) | EOP means the time the Vessel records End of Passage on arrival after any voyage. |
(ii) | FAOP means the time the Vessel proceeds Full Away On Passage from her departure point on a voyage. |
(iii) | fuel refers collectively to its two components, fuel oil and Boil-Off, measured in tonnes of Fuel Oil Equivalent, while fuel oil refers only to the oil component of the fuel. |
(b) | For the purpose of fuel consumption calculations a voyage shall, where applicable, be divided into separate segments (each a Voyage). A Voyage shall be deemed to have started either: |
(i) | at FAOP or |
(ii) | immediately after an off-hire period, or |
(iii) | at the time the Vessel alters speed to comply with an amended SAT or otherwise pursuant to Charterers orders as the case may be. |
(c) | A Voyage shall be deemed to have ended either: |
(i) | at EOP, or |
(ii) | immediately before an off-hire period, or |
(iii) | at the time the Vessel alters speed to comply with an amended SAT or otherwise pursuant to Charterers orders as the case may be. |
5. | Basis of Calculation for Fuel Consumption |
(a) |
For each Voyage the guaranteed fuel consumption shall be calculated by multiplying the maximum daily consumption as determined pursuant to Article 3 by the duration of the Voyage calculated on the assumption that the Vessel steamed at the Guaranteed Speed. In calculating both the guaranteed fuel consumption and the actual fuel consumption Restricted Periods pursuant to Article 2(e) shall be excluded. Subject as hereinafter provided, there shall be a saving of fuel for that Voyage equal to the amount by which the guaranteed fuel consumption exceeds the actual fuel consumption and an excess consumption for |
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that Voyage equal to the amount by which the actual fuel consumption exceeds the guaranteed fuel consumption. Such saving or excess shall be adjusted to take into account the Restricted Periods by dividing such saving or excess by the number of miles over which the fuel consumption has been calculated and multiplying by the same number of miles plus the miles steamed during the Restricted Periods in order to establish the total saving or excess in fuel consumption for the Voyage. |
(b) | If on any Voyage the Vessel has to steam faster than the Service Speed or slower than the Minimum Speed pursuant to Charterers orders, or in order to achieve the SAT (provided this is not attributable to any failure of performance by the Vessel), the Vessel shall be deemed to have complied with the fuel consumption guarantees for the duration of such Voyage. |
(c) | Owners warranties relating to speed and fuel consumption shall not apply to the period between the end of one Voyage and the start of the next Voyage as described in Article 4. |
(d) | As soon as practicable after receipt of the necessary voyage returns, Charterers shall furnish Owners with their calculations determining fuel consumption on each Voyage. |
(e) | At the conclusion of the charter period or annually (whichever occurs first) (the Performance Period), the quantities of excess fuel used and the quantities of fuel saved on all voyages in the Performance Period shall each be added up. The total of fuel saved for the Performance Period shall then be subtracted from the total of excess fuel used for the Performance Period and if the balance is positive Charterers shall deduct from hire due under Clause 11 an amount calculated by multiplying the net excess quantity of fuel consumed for the Performance Period by the weighted average price paid by the Charterers for fuel oil for the Vessel over the Performance Period in question. If the balance is zero or negative, Owners shall be deemed to have complied with their Fuel consumption obligations for the Performance Period. |
6. | Actual Fuel Consumption on a Voyage |
(a) | The actual fuel consumption on a Voyage shall, subject to Article 6(b), be the sum of, |
(i) | the fuel oil consumed during the Voyage (expressed in tonnes ) and excluding any fuel oil used in any off-hire period on that voyage; and |
(ii) | the fuel equivalent of the total volume of cargo lost as Boil-Off during the Voyage (expressed in tonnes of Fuel Oil Equivalent) excluding any Boil-Off in any off-hire period on that voyage and excluding any Boil-Off in excess of guaranteed maximum Boil-Off under the provisions of Article 8. |
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(b) | For the purpose of this Article 6 the Fuel Oil Equivalent of the LNG lost as Boil-Off which is available as fuel during the voyage shall be assumed to be the total volumetric loss of the cargo, measured in cubic meters, as determined from the difference between gaugings at the loading and discharging ports (in accordance with Article 9), pro rated for the difference between the on hire voyage and gauging times and multiplied by the Fuel Oil Equivalent factor set out in Clause 26(f). |
7. | Guaranteed Maximum Boil-Off |
(a) | Owners guarantee that Boil-Off shall not exceed: |
(i) | the maximum laden Boil-Off percentage stated in Clause 26(g); and |
(ii) | the maximum ballast Boil-Off percentage stated in Clause 26(h). |
(b) | If Charterers give orders that require the temperature or vapour pressure of a cargo to fall during a laden sea passage and that order is complied with, the Boil-Off guarantee shall be deemed to have been complied with on that sea passage. |
8. | Boil-Off Calculations |
(a) | The Boil-Off excess or saving on any sea passage shall be calculated by comparing the guaranteed Boil-Off for the sea passage (i.e. the daily guaranteed maximum Boil-Off multiplied by the time between gaugings) with the actual Boil-Off. |
(b) | The actual amount of Boil-Off on a sea passage shall be calculated by subtracting the volume of LNG contained in the Vessels tanks at gauging after the sea passage from the volume therein at gauging before the sea passage. |
(c) | If the Vessel was off-hire during any sea passage the excess or saving shall be pro rated in the same proportion as the time on hire is to the total time between gaugings. |
(d) | At the conclusion of the charter period or annually (whichever occurs first) (the Performance Period), the quantities of excess Boil-Off and the quantities of Boil-Off saved on all trips in the Performance Period shall each be added up. The total Boil-Off saved for any such period shall then be subtracted from the total excess Boil-Off in the same period and if the balance is positive Charterers may deduct from hire due under Clause 11 an amount calculated by multiplying the said balance by the LNG Price or, if more than one LNG Price is applicable during the Performance Period, the arithmetical average of such LNG Prices. If the balance is zero or negative, then Owners shall be deemed to have complied with this Clause for the Performance Period. |
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9. | Spray Cooling, Forced Vaporisation and use of Boil-Off |
(a) | If on any sea passage, Charterers order the Vessel to force vaporise LNG to for whatever reason and the order is complied with, the Boil-Off guarantee shall be deemed to have been complied with on that sea passage. |
(b) | The master shall notify Charterers if he is of the opinion that the Vessel will not, on arrival at the loading port, be able to commence bulk loading within half an hour after cooling of the loading arms even with spray cooling on the ballast sea passage. |
(c) | Without prejudice to any of Owners or Charterers obligations under this Article 9; if Owners intend to order spray cooling at any time during the charter period, Owners agree, if requested by Charterers, to discuss the reasons and technical basis for spray cooling |
(d) | Subject to the provisions of this charter, Owners shall have free use of Boil-Off. Owners shall exercise due diligence to minimise the use of the steam dump system during the normal operation of the vessel. At no time during the charter period, (except for safety reasons) shall the Vessel use the vent system as a primary means of controlling the cargo tank pressures. Any such safety related venting, or venting caused by any other reason, shall immediately be reported to Charterers (as required in Appendix B) with full explanation as to why venting was required and duration and quantity of venting. |
10. | Provisions for Gauging |
(a) | The time at which any volume of LNG is determined is referred to in this charter as a gauging time. |
(b) | In relation to any laden sea passage the cargo volume on loading at the start of the laden sea passage shall be the volume of LNG contained in the Vessels cargo tanks measured promptly after the closing of the Vessels manifold vapour return valve in the loading port and on discharge at the end of the laden sea passage shall be the volume of LNG contained in the Vessels cargo tanks measured promptly before the opening of the Vessels manifold vapour return valve in the discharge port. |
(c) | In relation to any ballast sea passage the LNG heel volume after discharge (i.e. at the start of the ballast sea passage) shall be the volume of LNG contained in the Vessels cargo tanks measured promptly after the closing of the manifold vapour return valve in the discharge port and the LNG heel volume on loading (i.e. at the end of the ballast sea passage) shall be the volume of LNG contained in the Vessels cargo tanks measured promptly before the opening of the Vessels manifold vapour return valve in the loading port. |
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11. | Underwater Cleaning / Waiting at Anchorage |
(a) | Charterers may request Owners at any time to arrange for the cleaning afloat of the Vessels underwater hull and propeller whereupon Owners shall arrange for the said cleaning to take place provided that: |
(i) | the Vessel is free of cargo but may be under vapour if permitted by the port authority and; |
(ii) | in Owners opinion such cleaning will not damage in any way the Vessels underwater hull coatings and; |
(iii) | such cleaning afloat can be carried out safely at a place approved by Owners and where the water is sufficiently clear for an underwater survey to be made of cleanliness of the Vessels hull and propeller immediately thereafter; |
(b) | The cost of such underwater hull and propeller cleaning and underwater survey referred to in Article 11 (a) shall be for Charterers account and the Vessel shall remain on hire for their duration. If the underwater survey shows that both the Vessels underwater hull and propeller are clean, a successful cleaning shall be deemed to have occurred. |
(c) | If Charterers order the Vessel to wait at anchorage or in lay up for more than 20 days on any one occasion or more than 60 days comprising periods of not less than 5 days each in any period of 6 months, and, if as a result of such waiting or lay up Owners have good reason to believe that the performance of the Vessel or her fuel consumption is affected and speed and/or fuel warranties can no longer be met because of fouling then Owners shall so state by written notice to Charterers and if Charterers request, shall carry out an underwater inspection at Charterers expense to see if there is fouling of the hull and/or propeller. |
To prevent hull fouling from marine growth during charter period, wherever practically possible, Charterers are required to steam the Vessel for a period of 24 hours, every 7 days after anchoring, at a speed between 14 and 15 knots.
(d) | If as a result of the aforesaid inspection, Owners consider that there is evidence of such fouling then if Charterers so request, Owners shall arrange and carry out cleaning afloat of the Vessels underwater hull and propeller provided that the provisions of Article 11 (a)(i), (ii) and (iii) apply. |
(e) | The cost of such underwater hull and propeller cleaning and underwater survey referred to in Article 11 (d) shall be for Charterers account and the Vessel shall remain on hire for their duration. If the underwater survey shows that both the Vessels underwater hull and propeller are clean, a successful cleaning shall be deemed to have occurred. |
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(f) | If any inspection pursuant to Article 11 (c) reveals the presence of hull or propeller fouling, or if Charterers decline to request an inspection following receipt of a notice from Owners under Article 11 (c), then from the time Owners give written notice that performance is affected by fouling, Owners shall be deemed to have complied with the speed and fuel warranties until the completion of the next periodic dry-docking or successful cleaning, whichever occurs sooner. |
12. | Interpretation |
(a) | In this Appendix C, Article shall mean an Article of this Appendix, and Clause shall mean a Clause of the charter. |
(b) | In the event of any conflict between the charter and Appendix C, Appendix C shall prevail. |
13. | Weather Limits for Performance Warranties |
Speed, boil-off and fuel consumption warranties defined in this Appendix are not valid under weather conditions in which the Vessel has to proceed in wind force in excess of Beaufort Force 5 for more than 12 (twelve) hours noon to noon.
For the purposes of calculating claims, the Wind Force reported in the Masters noon report shall be used. Charterers may employ the services of a reputable weather reporting company at their own cost. In any dispute, the weather reporting company numbers shall prevail.
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APPENDIX D Gas Form C
Hyundai Heavy Industries S No. 1734
FORM C (GAS)
VESSELS SPECIFICATIONS AND THE GAS INSTALLATION, WHICH ARE REPRESENTED BY THE OWNERS.
A. | VESSELS CHARACTERISTICS |
PREAMBULE
S/S | : | LNG CARRIER CLEAN FORCE | ||
OWNER | : | SEACROWN MARITIME LTD. | ||
OPERATOR | : | SEACROWN MARITIME LTD. | ||
FLAG | : | Marshall Islands | ||
BUILT | : | 2008 | ||
DATE OF DELIVERY | : | 15 TH JANUARY 2008 |
CLASS: | LR+100A1 Liquefied Gas Tanker, Ship type 2G, Methane (LNG) (membrane tanks 0.25 bar G, -163C, 500 kg/m3), Ship Right (SDA), *IWS, LI, EP. ICE CLASS 1A FS. LMC UMS, ICC, NAV1, IBS Ship Right (FDA PLUS, CM, BWMP(S), SCM, SERS, SEA (HSS-4, L, VDR)) PART HIGHER TENSILE STEEL. |
GRT International: 100,244 | Suez: 103,525.75 | Panama: N/A | ||
NRT International: 30,073 | Suez: 88,241.74 | Panama: N/A |
IS VESSEL BUILT ACCORDING TO: | USCG REGULATIONS? YES |
HAS VESSEL RECEIVED USCG APPROVAL? | YES VALID UNTIL 24 FEB 2011. |
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HULL: | ||||||
LOA | : | 288.18 m | ||||
LBP | : | 275.00 m | ||||
BREADTH | : | 44.20 m | ||||
DEPTH (moulded) | : | 26.00 m | ||||
SUMMER DRAFT(moulded): | 12.35 m | (Corresponding deadweight: 84,598 T) | ||||
SUMMER DRAFT (extreme): | 12.37 m | |||||
DESIGNED DRAFT | : | 11.35 m | ||||
LIGHT WEIGHT | : | 31,727 T | ||||
FWA | : | 274 mm | ||||
KTM | : | 52.54 m | (Antenna + Xmas tree lowered: 50.75 m) |
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69. ESTIMATED DRAFT WITH FULL CARGO AND FULL BUNKERS
Product |
Draughts (moulded) |
Corresponding | ||||||
LNG |
Forward |
Mean |
Aft |
Deadweight |
||||
Designed draught | 11.35 m | 11.35 m | 11.35 m | 74,079 MT | ||||
Max draught | 12.35 m | 12.35 m | 12.35 m | 84,598 MT |
Immersion at draft : | 11.35 m= | 104 MT/cm | ||
12.35 m= | 106 MT/cm |
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SPEED
The guaranteed average sea speed at the designed draft of 11.35m, on even keel and on a year period shall be ***** knots under weather conditions not exceeding Beaufort scale 5,50% LOADED 50% BALLAST.
CONSUMPTION / DAY
AT SEA:
MAIN ENGINE | ||
Speed |
100 % HFO (HCV 10,280 kcal/kg) | |
***** |
***** |
IN PORT:
AUX. ENGINE | *****T/day in case D/G running only. | |
BOILERS | ***** T/day depending on operations |
Section 69.01 PERMANENT BUNKER CAPACITY ALLOWING AN ULLAGE OF 95 %
HFO (incl. low sulphur oil) | 6,784.3 MT | (SG 0.99 MT/m3) | ||||
DIESEL (MDO+GO) | 360.1 MT | (SG 0.85 MT/m3) | ||||
LUB OIL | 308.0 MT | (SG 0.90 MT/m3) |
B. CARGO INSTALLATIONS
1. TRANSPORTABLE PRODUCTS AND RESPECTIVE QUANTITIES, calculated in accordance with IMO - maximum filling formula.
Cargo tanks |
100% capacity
At 20 deg C Excluding dome |
98.5 % capacity
At 160 o C Excluding dome |
98 % capacity
At 160 o C Excluding dome |
LNG 98 % filling
SG: 0,50 @ -163°C Excluding dome |
||||||||||||
(m 3 ) | (m 3 ) | (m 3 ) | MT | |||||||||||||
Tank 1 |
24629.648 | 24,260.203 | 24,137.055 | 12068.5 | ||||||||||||
Tank 2 |
43246.630 | 42,597.931 | 42,381.697 | 21190.8 | ||||||||||||
Tank 3 |
43213.747 | 42,565.541 | 42,349.472 | 21174.7 | ||||||||||||
Tank 4 |
38652.739 | 38,072.948 | 37,879.684 | 18939.8 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
TOTAL |
149,742.764 | 147,496.623 | 146,747.908 | 73373.8 | ||||||||||||
|
|
|
|
|
|
|
|
Note : MAX DENSITY OF CARGO: 500kg/m 3 .
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2. OTHER TRANSPORTABLE PRODUCTS
NIL
3. TANKS
3.1. Working pressure | : | Between 70 200 mbar g | ||
3.2. Valve setting | : | 0.25 bar g (opening) | ||
0.22 bar g (closing) | ||||
3.3. Maximum vacuum obtainable | : | -1 kPa g (safety valve) | ||
3.4. Maximum specific gravity | : | 0.500 MT/m 3 | ||
3.5. Maximum temperature acceptable | : | -163°C (0°C = 273 K) |
4. LOADING RATE
4.1. ex atmospheric storage, with gas return :
About 13,500cm/hr at not more than 2.0 bar g pressure at the flange connection between ship and terminal
Loading full cargo within 12 hours using three (3) liquid manifolds and a vapour manifold excluding cooling down time and provided ample vapour return facilities on shore.
without vapour return : |
N/A. |
4.2 UNLOADING
About 14,400cm/hr with a back pressure at the flange connection between ship and terminal not exceeding 100 mlc of liquid LNG of S.G. 0.47 measured inboard of the manifold strainer with cargo tanks at mid level.
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Unloading full cargo within 12 hours using three (3) liquid manifolds and a vapour manifold excluding build up period for starting pumps and slow down or stripping at the end of unloading.
5. CARGO PUMPS.
5.1. | Main cargo pumps : |
Type | : | electric motor driven submerged vertical centrifugal 16EC-24 | ||
Make | : | EBARA International Corp. | ||
How many | : | Eight (8) (2 per tank) |
Maximum specific gravity | : | 0.500 T/m 3 |
5.2. | Capacity each (CBM/hour) : 1,800 m 3 /h at 155 m. T.H. |
Two speed or variable speed | : | No | ||
Max Working pressure LNG | 10.0 kg/cm 2 g |
5.3. | Location: within cargo tanks | |
Removable: No |
5.4. | Stripping / Spray pumps : Four (4) (1 in each tank) | |
Type: Electric motor driven, Vertical, Centrifugal, Submerged, 2EC-12 |
||
Maker: EBARA International Corp. |
5.5. | Capacity (CBM/hour) : 50 m 3 /h x 145 m.T.H. (S.G. max 0.500 T/m 3 ) | |
Max Working pressure : LNG 10.0 kg/cm 2 g |
5.6. | Location : within cargo tanks |
5.7 | Emergency cargo pump : One (1) | |
Type: Electric motor driven, Vertical, Centrifugal, Submersible 8ECR-12 | ||
Maker: EBARA International Corp. |
5.8 | Capacity (CBM/hour) : 550 m 3 /h 155 m.T.H. (S.G. max 0.500 T/m 3 ) |
5.9 | Location : Deck Store (can be installed in cargo tanks 1, 2, 3 & 4) |
5.10 | What amount of cargo remains in tank after completion pumping before stripping: |
- liquid | : | abt. 1198 m3 on evel keel condition | ||
- vapour | : | N/A |
6. STRIPPING
6.1. | Stripping system if any: See above paragraph 5.4 for Stripping/spray pumps. |
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6.2. | Time required to remove all traces of liquid cargo as stated in 5.10 for about four (4) hours |
7. CARGO COMPRESSORS
8. INERT GAS SYSTEM
8.1. | Does the vessel use inert gas? | : | Yes | |||
Maker | : | Smit Gas Inert Gas Generator (one (1) set) | ||||
If so, state utilization and quantities | : | Inerting, drying & aeration. | ||||
Capacity : 15,000 Nm 3 /h |
8.2. | Can the vessel produce inert gas? | Yes | ||
If so, state type and composition of gas produce |
O 2 | Max 0.5 % by volume | |
CO | Max 100 ppm by volume | |
SOx | Max 10 ppm by volume | |
Nox | Max 100 ppm by volume | |
CO 2 | about 14.0 % vol by volume | |
N 2 | Balance | |
Dew point : -45ºC @ atmospheric pressure |
8.3. | Maximum capacity : 15,000 Nm 3 /h with discharge press. 250 mbar g |
8.4. | State if there are storage facilities for inert gas on board: No |
8.5. |
State if any supply of nitrogen may be required: Yes |
- for what purpose | : |
Breeding in insulation spaces of the cargo tank to maintain pressure, purging of the gas fuel line, cargo pipes, vent masts, fire extinguishing in the vent masts , purging of boiler hood headers and for sealing of cargo compressors glands. |
||
- what quantities | : |
Two (2) sets of Nitrogen generators. |
||
Type | : |
Membrane separation, low pressure. |
||
Maker | : |
Air Products |
||
Capacity | : |
125 Nm 3 /h with dewpoint 65°C , each |
||
Tank | : |
One (1) N2 Buffer tank 30 m 3 capacity at pressure 1020 kPa |
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9. GAS FREEING
9.1. | State method used giving all details: | |
- Introducing inert gas into cargo tanks for replacement of warm vapours. |
||
- Introducing dry air into cargo tanks for replacement of inert gas. | ||
Dry air blowers (IGG Plant) : Two (2) sets, each 7,500 Nm3/h |
9.2. | State time required for gas freeing | : about 36 hours (warm up) | ||||
20 hours (inerting) | ||||||
20 hours (aeration) | ||||||
|
||||||
about 76 hours in total | ||||||
Time required for displacing IG with dry air : about 20 hours |
9.3 | State consumption of inert gas if any : about 300,000m 3 |
10. CHANGING GRADE
10.1 | From A to B : From completion discharge of cargo A, time required in hours and other gas in CBM. |
B |
LNG |
INERT GAS |
DRY AIR |
|||
A |
||||||
CH 4 less than 2 % Vol 20 hours |
||||||
LNG | ||||||
300,000 m3 Inert gas |
||||||
CO 2 less than 1% Vol 20 hours |
O 2 = 20 % Vol 20 hours |
|||||
INERT GAS | ||||||
280,000 m 3 LNG |
300,000 m 3 Dry air |
|||||
O 2 less than 2 % Vol 20 hours |
||||||
DRY AIR | ||||||
300,000 m 3 Inert gas |
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Warming up / inerting : Total about 56 hrs
Cooling down : about 10 hrs Tank mean temperature : -130 ºC
10.2. | Can this operation be carried out at sea? Yes | |||
10.3. | Can the ship measure the number of LNG in a vapour phase? No | |||
10.4. | Has vessel deck tank for changing grade/cooling operations? No | |||
10.5. | Deck tanks :N/A |
11. COOLING BEFORE LOADING
For fully-refrigerated ship what quantity of cargo is needed and time required, to pre-cool tanks to have them ready to load. (Starting with tanks at ambient temperature filled with cargo vapour and with no vapour return to shore.)
CARGO | MT | HOURS | ||
LNG | abt 550 m 3 = 300 MT | 15 (including cool down lines) |
12. CARGO BOIL OFF / WARM UP HEATER :
13. CARGO VAPORIZER
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14. REFRIGERATING APPARATUS
N/A
15. MEASURING APPARATUS
What gauges on board? | ||
Primary system : | Radar beam system. Maker SAAB. | |
Secondary system : | Float type level gauge. Maker Whessoe. |
16. SAMPLES
16.1. | State how tank atmosphere samples can be taken and where from? | |
Through sample valves at tank Liquid / gas domes. |
||
Level : Bottom Mid Top |
||
Standard of fitting? Double ball valve ND15 mm. |
||
16.2 | Same question for cargo ? Double ball valves ND15 mm & ND8mm. | |
16.3. | Are sample bottles available on board? No |
17. CARGO LINES
17.1. | Is ship fitted with a port and starboard cargo manifold? YES |
BOW | ||
Liquid 1 | 16 150 ANSI | |
Liquid 2 | 16 150 ANSI | |
Vapour | 16 150 ANSI | |
Liquid 3 | 16 150 ANSI | |
Liquid 4 | 16 150 ANSI | |
STERN |
17.2. | Position of cargo manifold : Centre L-L-V-L-L. |
- distance from bow : | 144.83 m | |
- distance from stern: | 143.35 m | |
- height above deck / driptray : | 4,938/1,394 m | |
- distance from ships rail : | 3,150 m | |
- height from underside keel : | 30.938 m | |
- distance between lines : | 3.0 m |
Height above waterline :
- when light ballast : | draught 9.18 m | 21.758 m | ||
- when loaded : | draught 12.35 m | 18.588 m |
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Loading connection
height from centre of flange to first obstacle downward below each flange : 1.379 m
17.3. Liquid line : | - diameter : | 400mm | ||
- flange - size : | 16 | |||
- type : | 150 ANSI RF type (Max Work Press 10 Bar 145psi) |
Vapour line : |
- diameter : | 400mm | ||
- flange - size : | 16 | |||
- type : | 150 ANSI RF type(Max Work Press 10 Bar 145 psi) |
17.4. What reducers on board?
For chicksan | 10 × 16- RF (ship side)> 16- FF ANSI (shore side) | |
For STS | 4 × 16 > 8 ANSI | |
For N2 receiving | N/A |
17.5 Strainers for liquid manifolds
Type : portable conical dual flow type.
8 sets x 16 with mesh size of ASTM 60, four (4) sets directly fitted on liquid dome manifold and four (4) sets to be installed in Cargo gear locker.
17.6. Is ship fitted with stern discharge? NO
- liquid line - diameter :
- flange - size :
- type :
18. REGASSIFICATION SYSTEM N/A
18.1 High pressure pumps
Type: | ||
Maker: | Electric Co., Ltd. |
Capacity: xxx m3/hr x xxxx m. T. H.
18.2 High pressure vaporizer
Type: | design | |
Maker: | Inc. |
Capacity: | normal flow rate | mmscfd | ||
Max flow rate | mmscfd |
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18.3 | Send out: |
- | NG output: MMSCFD at nominal operation in Open Loop operation mode | |
- | NG Output MMSCFD at nominal operation in Closed Loop operation mode. | |
- | NG output: MMSCFD at peak operation with all units in operation and heating water greater than o C (65 °F) | |
- | Minimum operation: MMSCFD utilizing large HP pump | |
- |
Minimum operation: MMSCFD utilizing small HP pump.
(Outputs lower than MMSCFD are not considered as normal operations) |
|
- | NG outlet pressure at swivel: between bar g bar g. | |
- | NG outlet temperature limit at swivel: Minimum - o C | |
- | NG outlet flow velocity limit at STL: Maximum m/s | |
- | NG outlet temperature at vaporizer outlet: Minimum + o C (40 o F) |
18.4 |
Turret / HP Manifolds |
|
Discharging of NG can be performed through an internal turret arrangement connected to an offshore buoy or to a high pressure manifold located at Portside or starboard side. |
18.4.1 |
Location of HP manifolds |
|
Size: ANSI |
- distance from bow : | m | |||
- distance from stern: | m | |||
- height above deck: | m | |||
- distance from ships rail : | m | |||
- height from underside keel : | m | |||
Height above waterline : |
||||
- when light ballast : | draught m m | |||
- when loaded : | draught m m |
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19. HOSES
Are serviceable hoses available on board? YES |
19.1 For Ship to Ship transfer : 4 sets (2 sets for liquid line and 2 sets for vapour line) of Cryogenic flexible hoses size: 8 , length 4 m with ANSI 150# on both end.
19.2 | Minimum temperature acceptable : | -163 ºC | ||
Maximum pressure acceptable : | 10 bar | |||
19.3 | For what products are hoses suitable? | LNG |
20. DERRICKS / CRANES
- How many : | 2 cranes | |
- Where situated? | Adjacent to manifolds on centre line of ship | |
- Lifting capacity: | 10 MT SWL | |
- Maximum distance from ships side of lifting hook when derrick swung outboard? 13.0 m |
21. SPECIAL FACILITIES.
21.1. | How many grades can be segregated? | 1 | ||
21.2. | How many cooled simultaneously? | 1 | ||
21.3. | Can vessel sail with slack cargo tanks? |
: YES FOR EMERGENCY SHIFTING / NO FOR NORMAL VOYAGE Minimum permissible upper sloshing limit above 70% of tank height and maximum permissible lower sloshing limit below 10% of tank length. |
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APPENDIX E Crew Experience Matrix
Seagoing Experience | ||||
Combined |
Individual minimum experience |
|||
Master | 12 years | 4 years | ||
Chief Officer | 2 years | |||
Senior 2 nd Officer | | 1 year | ||
Chief Engineer | 14 years | 4 years | ||
2 nd Engineer | 2 years | |||
Gas Engineer | 2 years | |||
3 rd Engineer (x2) | | 6 months | ||
LNG Vessel Experience | ||||
Combined |
Individual minimum experience |
|||
Master | 4 years | Minimum 30 days Observer time on LNG vessel if 4 years experience with another Dangerous Cargo Endorsement OR 2 years LNG experience | ||
Chief Officer | At least 1 year on LNG vessel in rank or as Second Officer | |||
Gas Engineer | At least 1 year on LNG vessel in rank or as another Engineering Officer | |||
Chief Engineer | 4 years | Minimum 30 days Observer time on LNG vessel if 4 years diesel experience / 2 years steam experience on non-LNG vessels | ||
2 nd Engineer | Minimum 30 days Observer time on LNG vessel if 2 years diesel experience / 1 year steam experience on non-LNG vessels | |||
3 rd Engineer (x2) | Minimum 30 days Observer time on LNG vessel (cadet service on LNG vessel counts as observer time) |
Notes: All experience periods are in years of sea time
Page 83 of 83
Methane Services Ltd
100 Thames Valley Park Drive
Reading, Berkshire RG6 1PT, UK
Telephone: +441189 293431
Fax: +441189 293475
Registered in England and Wales
no. 737366
13 October 2010
Seacrown Maritime Ltd.
C/O Dynagas Ltd.
94, Poseidonos Avenue & 2 Nikis Street
166-75 Glyada, Athens Greece
Telephone: +30-210-891-7960
Fax: +30-210-894-7275
Attention: LNG Coordination Department.
RE: Amendment No. 1 to Time Charter of CLEAN FORCE dated 2 October 2010
Dear Owner:
Reference is made to the Time Charter of the CLEAN FORCE dated 02 October 2010 (hereinafter the Charterparty) between Seacrown Maritime Ltd, a company incorporated under the laws of Marshall Islands and having its registered office at Ajeltake Road, Ajeltake Island, Maujuro, Marshall Islands, 96960 (hereinafter referred to as Owners) and Methane Services Limited (MSL), a company incorporated under the laws of England and Wales and having its registered office at 100 Thames Valley Park Drive, Reading, Berkshire RG6 1PT, United Kingdom (hereinafter referred to as Charterers): The capitalized terms not otherwise defined in this letter have the meanings set forth for such terms in the Charterparty.
Owners and Charterers hereby agree to amend the Charterparty to reflect the following:
APPENDIX E - Crew Experience Matrix shall be amended, as follows:
Owners employ onboard the Vessel one (1) Third Engineer and one (1) Fourth Engineer instead of two (2) Third Engineers. When the vessel is on Unmanned Machinery Space (VMS) mode both officers on watch have combined a minimum LNG steam vessel experience level of 1 year (inclusive of cadet service).
Please verify your agreement to the foregoing by executing the below.
Sincerely, |
/s/ B. A. Bhat |
Amrit Bhat |
Director, METHANE SERVICES LIMITED |
AGREED AND ACKNOWLEDGED FOR AND ON BEHALF OF SEACROWN MARITIME LTD.
By: /s/ Ioamis Edipidis |
Name: Ioamis Edipidis |
Title: Attorney-in-Fact |
FORM OF
ADDENDUM No 2 TO THE TIME CHARTERPARTY
Between
SEACROWN MARITIME LTD
As Owners
And
Methane Services Limited
As Charterers
For the charter of
CLEAN FORCE
As the Vessel
Dated 2 nd October, 2010
The Parties have agreed to insert the following sub-clause 4 e) under Clause 4:
4 e) Notwithstanding any other provision of this charter, the Vessel shall not trade in areas that are in breach of sanctions imposed by any of the following: United Nations Security Council, United States of America or European Union
Agreed this day October , 2013
SEACROWN MARITIME LTD |
Name: |
Title: |
METHANE SERVICES LIMITED |
Name: |
Title: |
Exhibit 10.10
SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE CONFIDENTIAL TREATMENT FOR THOSE TERMS HAS BEEN REQUESTED. THE REDACTED MATERIAL HAS BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, AND THE TERMS HAVE BEEN MARKED AT THE APPROPRIATE PLACE WITH FIVE ASTERISKS (*****).
Private and Confidential
TIME CHARTER
OF
CLEAN ENERGY
Between
Pegasus Shipholding S.A.
And
Methane Services Ltd.
18-May-2011
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TABLE OF CONTENTS
1. |
Description and Condition of Vessel |
4 | ||||
2. |
Shipboard Personnel and their Duties |
6 | ||||
3. |
Duty to Maintain |
7 | ||||
4. |
Trading Limits and Safe Places |
8 | ||||
5. |
Bunkers and LNG Heel at Delivery and Redelivery |
9 | ||||
6. |
Grade of Bunkers |
10 | ||||
7. |
Period, Delivery, Redelivery, Laydays and Cancelling |
10 | ||||
8. |
Owners to Provide |
11 | ||||
9. |
Charterers to Provide |
12 | ||||
10. |
Rate of Hire / Ballast Bonus Payment |
12 | ||||
11. |
Payment of Hire |
13 | ||||
12. |
Space Available to Charterers |
13 | ||||
13. |
Instructions and Logs |
14 | ||||
14. |
Bills of Lading |
14 | ||||
15. |
Conduct of Vessels Personnel |
16 | ||||
16. |
LNG Retention/Supply for Operational Purposes |
16 | ||||
17. |
Pilots and Tugs |
17 | ||||
18. |
Super-Numeraries |
17 | ||||
19. |
Sub-letting/Assignment/Novation |
17 | ||||
20. |
Final Voyage |
18 | ||||
21. |
Loss of Vessel |
18 | ||||
22. |
Off-hire |
18 | ||||
23. |
Ship to Ship Transfers and FPSO/FSRU Cargo Operations |
21 | ||||
24. |
Periodical Dry-docking |
22 | ||||
25. |
Secondary Barrier Tightness Tests for GTT Containment Systems |
23 | ||||
26. |
Ship Inspection |
24 | ||||
27. |
Key Vessel Performance Criteria |
24 | ||||
28. |
Salvage |
26 | ||||
29. |
Lien |
26 | ||||
30. |
Exceptions |
26 | ||||
31. |
Injurious Cargoes |
27 | ||||
32. |
Disbursements |
27 | ||||
33. |
Laying-up |
27 | ||||
34. |
Requisition |
27 | ||||
35. |
Outbreak of War |
27 | ||||
36. |
Additional War Expenses |
27 | ||||
37. |
War Risks |
28 | ||||
38. |
Both to Blame Collision Clause |
29 | ||||
39. |
New Jason Clause |
29 | ||||
40. |
Clause Paramount |
30 | ||||
41. |
Insurance/ITOPF |
30 | ||||
42. |
Export Restrictions |
31 | ||||
43. |
Business Principles |
31 | ||||
44. |
Drugs and Alcohol |
31 | ||||
45. |
Pollution and Emergency Response |
32 | ||||
46. |
ISPS Code/USMTSA 2002 |
33 | ||||
47. |
Law and Litigation |
34 |
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IT IS THIS DAY AGREED between Pegasus Shipholding S.A. , a company incorporated under the laws of Marshall Islands and having its registered office at Ajeltake Road, Ajeltake Island, Maujuro, Marshall Islands, 96960 (hereinafter referred to as Owners), being owners of the good steam Liquefied Natural Gas Carrier called CLEAN ENERGY (IMO #: 9323687) (hereinafter referred to as the Vessel) described as per Clause 1 hereof and Methane Services Limited, a company incorporated under the laws of England and Wales and having its registered office at 100 Thames Valley Park Drive, Reading, Berkshire RG6 1PT, United Kingdom (hereinafter referred to as Charterers):
1. | Description and Condition of Vessel |
At the date of delivery of the Vessel under this charter and throughout the charter period:
(a) | she shall be classed by a classification society, which is a member of the International Association of Classification Societies; |
(b) | if she is fifteen years old or over she shall obtain and maintain a LNG Condition Assessment Programme (CAP) of not less than two (2); |
(c) | she shall be in every way fit to load, carry, discharge and measure Liquefied Natural Gas (LNG); |
(d) | she shall be tight, staunch, strong, in good order and condition, and in every way fit for the service, with her machinery, boilers, hull and other equipment (including but not limited to hull stress calculator, radar, computers and computer systems) in a good and efficient state; |
(e) | her tanks, valves and pipelines shall be liquid and gas tight; she shall have a working inert gas system and nitrogen generator with officers and crew experienced in the operation of both; |
(f) | she shall be in every way fitted for burning fuels, in accordance with the grades specified in Clause 6 hereof: |
(i) | at sea, heavy fuel oil in any proportion with LNG Boil-Off for main propulsion and heavy fuel oil, marine diesel oil and marine gas oil for auxiliaries; |
(ii) | in port, heavy fuel oil or 100% LNG boil off (whilst being alongside excluding manoeuvring) in her boilers and marine gas oil for auxiliaries; |
(g) | she shall have all her instrumentation calibrated and certified in accordance with the requirements of the Vessels classification society; |
(h) | she shall have her cargo measuring equipment calibrated by a recognised calibration company as referenced in Clause 58 hereof and certified in accordance with the requirements of the Vessels classification society; |
(i) | she shall have her inter-barrier and insulation spaces prepared as per international regulations and her containment system design conditions; |
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(j) | she shall comply with the regulations in force so as to enable her, if her size permits, to pass through the Suez Canal and Panama Canal by day and night without delay; |
(k) | she shall have on board all certificates, documents and equipment required from time to time by any applicable law to enable her to perform the charter service without delay. For the avoidance of doubt this will include, but will not be limited to, the Vessels Certificate of Financial Responsibility; |
(l) | she shall comply with the description in the LNG Form C appended hereto as Appendix D, provided however that if there is any conflict between the provisions of this Form C and any other provision, including this Clause 1, of this charter such other provisions shall govern; |
(m) | her ownership structure, flag, registry, classification society and management company shall not be changed without Charterers consent, not to be unreasonably withheld or delayed; |
(n) | Owners shall complete the daily Shipnet template (Charterers voyage management system) onboard the Vessel. |
(o) | Owners shall operate: |
(i) | a Safety Management System (SMS) that shall comply as a minimum with the following regulations and/or industry standards, plus any additions, modifications or subsequent versions thereof: International Safety Management Code (ISM Code) for the Safe Operation of Ships and for Pollution Prevention, International Ship and Port Security Code (ISPS), International Convention for the Prevention Of Pollution from Ships (MARPOL), International Convention for Safety of Life at Sea, 1974 (SOLAS), International Convention on Standards of Training, Certification and Watchkeeping for Seafarers, 1995 (STCW), best practice recommendations from the Tanker Management Self Assessment (TMSA), the International Safety Guide for Oil Tankers and Terminals (ISGOTT), Society of International Gas Tanker and Terminal Operators (SIGTTO) and the Code Of Safe Working Practices (COSWOP); |
(ii) | a documented safe working procedures system within the SMS to address the Health Safety Security and Environment (HSSE) risks specific to the scope of work set out in this charter party and the management of controls to eliminate, reduce or mitigate these risks as low as reasonably practicable. Owners operations shall be certified, as a minimum to ISO:9001:2000; |
(iii) | a documented environmental management system to protect environmental resources by applying best available techniques to ISO 14001 Standards, to minimise or, where possible, eliminate any direct or indirect impact from operations. |
(iv) | a documented accident/incident reporting system compliant with flag state requirements. |
(p) | Owners shall arrange at their expense for a Ship Inspection Report (SIRE) inspection to be carried out at intervals of six months plus or minus thirty days. Upon delivery, Vessel shall have a valid operational SIRE report, or Owner shall be responsible for obtaining one prior to the first loading under this charter. |
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2. | Shipboard Personnel and their Duties |
(a) | At the date of delivery of the Vessel under this charter and throughout the charter period: |
(i) | she shall have a full and efficient complement of master, officers and crew for a Vessel of her tonnage, who shall in any event be not less than the number required by the laws of the flag state and who shall be trained to operate the Vessel and her equipment competently and safely; |
(ii) | all shipboard personnel shall hold valid certificates of competence in accordance with the requirements of the law of the flag state; |
(iii) | all shipboard personnel shall be trained in accordance with the relevant provisions of STCW or any additions, modifications or subsequent versions thereof. Shipboard personnel shall be trained to the SIGTTO LNG Shipping Suggested Competency Standards 2005 or subsequent versions thereof and, preferably, certified to the SIGTTO LNG Shipping Suggested Competency Standards 2005 or subsequent versions thereof; |
(iv) | there shall be on board sufficient personnel with a good working knowledge of the English language to enable cargo operations at loading and discharging places to be carried out efficiently and safely and to enable communications between the Vessel and those loading the Vessel or accepting discharge there from to be carried out quickly and efficiently; |
(v) | the terms of employment of the Vessels staff and crew shall always remain acceptable to the International Transport Workers Federation and the Vessel will at all times be entered in the Pan Hellenic Seafarers Union and carry onboard a Blue Card or equivalent allowing the Vessel to call at all LNG Terminals listed in Appendix A where such Blue card or equivalent may be required; |
(vi) | the nationality of the Vessels officers given in the LNG Form C referred to in Clause 1(k) shall not change without Charterers prior agreement which shall not be unreasonably withheld. |
(vii) | Vessel shall always operate with safe manning levels. The Vessel shall maintain a STCW record of deviation hours for all officers aboard the Vessel and provide this record to the Charterers upon request. If Charterers express concern with the STCW deviation hours, Charterers and Owners shall discuss and agree to a mitigation plan that shall ensure the Vessel can comply with the requisite STCW rest hours. |
(viii) | Charterers shall have the right to review the qualifications of the Master, Chief Officer, Chief Engineer, Second Engineer and the Gas Engineer. Charterers shall also have the right to interview these officers, at Charterers cost. |
(ix) | Crew Experience levels shall fall within the requirements shown in Appendix E. |
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(b) | Owners guarantee that throughout the charter service the master shall with the Vessels officers and crew, unless otherwise ordered by Charterers: |
(i) | prosecute all voyages with the utmost despatch; |
(ii) | render all customary assistance; and |
(iii) | load and discharge cargo as rapidly as possible when required by Charterers or their agents to do so, by night or by day, but always in accordance with the laws of the place of loading or discharging (as the case may be) and in each case in accordance with any applicable laws of the flag state. |
(c) | Owners shall at all times have responsibility for the proper stowage of the cargo and shall keep a strict account of all cargo loaded, Boil-Off, and cargo discharged. |
3. | Duty to Maintain |
(a) | Throughout the charter service Owners shall, whenever the passage of time, wear and tear or any event (whether or not coming within Clause 31 hereof) requires steps to be taken to maintain or restore the conditions stipulated in Clauses 1 and 2(a), exercise due diligence so to maintain or restore the Vessel. |
(b) | If at any time whilst the Vessel is on hire under this charter the Vessel fails to comply with the requirements of Clauses 1, 2(a) or 12 then hire shall be reduced to the extent necessary to indemnify Charterers for such failure. If and to the extent that such failure affects the time taken by the Vessel to perform any services under this charter, hire shall be reduced by an amount equal to the value, calculated at the rate of hire, of the time so lost. |
Any reduction of hire under this sub-Clause (b) shall be without prejudice to any other remedy available to Charterers, but where such reduction of hire is in respect of time lost; such time shall be excluded from any calculation under Clause 28 and Appendix C.
(c) | If Owners are in breach of their obligations under Clause 3(a), Charterers may so notify Owners in writing and if, after the expiry of 30 days following the receipt by Owners of any such notice, Owners have failed to demonstrate to Charterers reasonable satisfaction the exercise of due diligence as required in Clause 3(a), the Vessel shall be off-hire, and no further hire payments shall be due, until Owners have so demonstrated that they are exercising such due diligence. |
(d) | Owners shall advise Charterers immediately, in writing, should the Vessel fail an inspection by, but not limited to, a governmental and/or port state authority, and/or terminal and/or major charterer of similar tonnage. Owners shall simultaneously advise Charterers of their proposed course of action to remedy the defects, which have caused the failure of such inspection. |
(e) | If, in Charterers reasonably held view: |
(i) | failure of an inspection, or, |
(ii) | any finding of an inspection, |
referred to in Clause 3 (d), prevents normal commercial operations then Charterers shall have the option to place the Vessel off-hire from the date and time that the Vessel fails such inspection, or becomes commercially inoperable, and the vessel shall remain off-hire until the date and time that the Vessel passes a re-inspection by the same organisation, or becomes commercially operable, which shall be in a geographical position no less favourable to Charterers than at which she went off-hire.
(f) | Furthermore, at any time while the Vessel is off-hire under this Clause 3 (with the exception of Clause 3(e)(ii)), Charterers have the option to terminate this charter by giving notice in writing with effect from the date on which such notice of termination is received by Owners or from any later date stated in such notice. This sub-Clause (f) is without prejudice to any rights of Charterers or obligations of Owners under this charter or otherwise (including without limitation Charterers rights under Clause 23 and 63 hereof). |
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4. | Trading Limits and Safe Places |
(a) | The Vessel shall be chartered for the purpose of carrying LNG, in any part of the world, as Charterers shall direct, subject to the limits of the current British Institute Warranties and any subsequent amendments thereof. Notwithstanding the foregoing, but subject to the provisions of the charter concerning areas of war risk, Charterers may order the Vessel beyond such limits provided that Owners consent thereto and that Charterers pay for any additional insurance premium required by the Vessels underwriters as a consequence of such order. |
(b) | The Vessel shall not be obliged to call ports, terminals or places or trade in waters which exposes the Vessel to dangerous levels of Radioactivity to be harmful to human health or the Vessel determined by the International Atomic Energy Authority and the World Health organisation however the decision to always be in the sole discretion of the Vessels Master. |
(c) | Charterers shall use due diligence to ensure that the Vessel is only employed between and at safe places (which expression when used in this charter shall include ports, berths, wharves, docks, anchorages, submarine lines, alongside vessels or lighters, bunker barges and other locations including locations at sea) where she can safely lie always afloat. Notwithstanding anything contained in this or any other clause of this charter, Charterers do not warrant the safety of any place to which they order the Vessel and shall be under no liability in respect thereof except for loss or damage caused by their failure to exercise due diligence as aforesaid. Subject as above, the Vessel shall be loaded and discharged at any places as Charterers may direct. |
(d) | Owners warrant that the Vessel is compatible with the Primary Terminals listed in Appendix A for berthing, unberthing, loading and discharging LNG cargo without modification to the Vessel. In the event that such modification to the Vessel becomes necessary as a result of changes in international regulations or standards and/or are required by the Vessels classification society or flag state and in the case Charterers need compatibility with such specific LNG Terminal, the cost of such modification shall be for Owners account, and the Vessel shall be off-hire for the time required to effect such modifications unless this can be achieved without affecting the performance of the Vessel under this charter. [For the avoidance of doubt such above stated compatibility shall not mean light terminal specific equipment requirements such as additional, and/or long mooring tails, etc. Such additional equipment shall be for Charterers account]. |
Owners shall provide Optimoor static mooring analysis free of charge to Charterers. In the case an Optimoor dynamic mooring analysis is required as part of a compatibility study such shall be for Charterers account.
(e) | If Charterers direct the Vessel to any LNG loading or receiving facilities other than the Primary Terminals listed in Appendix A, Charterers shall give notice to Owners sufficiently in advance thereof so as to enable Owners to comply with environmental, fire prevention, health, safety and other similar regulations applicable at such other place including any alteration in ship design. The reasonable cost and the necessary time taken to comply with such regulations, necessary, solely, to allow the Vessel to load or discharge at such other place, shall be discussed between the parties. |
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5. | Bunkers and LNG Heel at Delivery and Redelivery |
(a) | Upon delivery, Charterers shall purchase all liquid fuels on board at the Fuel Price. Original supplier invoices, or copy thereof, must be provided by Owner to Charterer. |
(b) | Upon Redelivery, Owners shall purchase all liquid fuels on board at the Fuel Price. Original supplier invoices, or copy thereof, must be provided by Charterer to Owner. The Master shall provide an On-Hire and Off-Hire Certificate containing the ROB numbers for all liquid fuels upon both Delivery and Redelivery of the Vessel. Owner or Charterer may choose to use an independent surveyor to verify ROB quantities at their own cost. In any dispute, the surveyor numbers shall prevail. |
(c) | The vessel shall be delivered gas free, requiring gas up and cool-down. |
(d) | The vessel shall be redelivered from the Firm Period in a gas free condition. The Vessel shall be redelivered from the first option period under natural gas vapours or with LNG heel. Owners shall have the option to retain up to 3500 m³of LNG Heel at last discharge of the First Option Period. Such option to be exercised prior to loading of last cargo and to be priced at the ex ship LNG Price in USD per mmBtu. In the case Owners do not wish to retain any LNG Heel, the Vessel shall be instructed to heel out. Any LNG Heel retained onboard after completion of discharge as a result of unpumpable quantities or the Terminals instructions to complete discharge shall be kept by Owners free of costs. In the event the last discharge port rules forbid Charterers to heel out, any LNG Heel remaining onboard the Vessel will be purchased by the Owner at one half (1/2) the Fuel Oil Equivalency price or one half (1/2) the Charterers ex-ship LNG price, whichever is lower. Such LNG Heel shall not to exceed 1000 m³. |
(e) | The Vessel shall be delivered to Charterers with about 2000 MT of bunkers onboard. Throughout the charter (and upon delivery and redelivery) the Vessel shall operate with at least a quantity of bunkers or Fuel Oil Equivalent, as defined in Clause 54, and a quantity of diesel oil and nitrogen (if nitrogen is applicable) on board sufficient to prosecute safely each voyage or reach the nearest safe bunker port. The above amount shall be in addition to a safety reserve of fuel oil, which would enable the Vessel to steam at the Service speed defined in this charter party for a total of five days. |
(f) | Notwithstanding anything contained in this charter all bunkers and LNG Heel on board the Vessel shall, throughout the duration of this charter, remain the property of Charterers or their nominee and can only be purchased on the terms specified in the charter at the end of the charter period or, if earlier, at the termination of the charter. |
(g) | The Master shall provide on On-Hire and Off-Hire Certificate containing the ROB numbers for LNG, HFO, gas oil and diesel upon both Delivery and Redelivery of the Vessel. |
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(h) | Owners or Charterers may choose to use an independent surveyor to verify ROB quantities and qualities at their own cost, however, in any dispute, the surveyor numbers shall prevail. |
(i) | As soon as practically possible after receiving notice of Redelivery from Charterers, Owner shall notify Charterer with Owners required bunker quantity to be onboard at Redelivery which shall be agreed by Charterer, such agreement shall not be unreasonably withheld. |
6. | Grade of Bunkers |
(a) | The bunker fuel oil grade shall have a maximum viscosity of 380 Centistoke at 50 degrees Centigrade for propulsion (RMH 380, ISO 8217:2005 and marine gas oil. Both Owners and Charterers can request the other party to provide bunker survey data to verify the quality of the bunkers on board. This request can be made at any time during the Charter Period or the Claim Validity Period. For the sake of good order, HFO sulphur content always to be in compliance of all applicable rules and regulations of the Vessels trading limits and vessels EP notation. If Owners require the Vessel to be supplied with more expensive bunkers they shall be liable for the extra cost thereof. |
(b) | Should Charterers trade the Vessel into a Sulphur Emissions Control Area (ECA) as defined in Annex VI of MARPOL, then the Charterers shall supply low sulphur fuel oil of a quality which will satisfy the ECA requirements, sufficient for the Vessels need while in the restricted area, and the Owners shall provide segregated storage for this fuel oil. If for any reason the segregated storage becomes unavailable or not able to be used, then Owners shall reimburse Charterers for the additional cost of purchasing low sulphur FO which is consumed outside of an ECA. |
(c) | From 1 January 2015 or at such later date the relevant ECA regulations are in effect Owners shall not rely on 100% gas burning for compliance with ECA regulations whilst maneuvering in or transiting through restricted waters. |
(d) | Owners and Charterers can request the other party to provide bunker survey data to verify the quality of the bunkers on board. This request can be made at any time during the charter period or the Claim Validity Period at the cost of the requestor. |
7. | Period, Delivery, Redelivery, Laydays and Cancelling |
(a) | Owners agree to let and Charterers agree to hire the Vessel commencing from the time and date of delivery as provided in Clause 7(b) until time and date of redelivery as provided in Clause 7(d). |
(b) | The Vessel shall be delivered to Charterers, post dry-dock, between 2359 hrs local time 31-March-2012 and plus or minus up to fifteen (15) days at Owners option, such period to be known as the Delivery Window. In the case the Vessel is delayed in dry-dock Charterers and Owners shall agree on a new date of delivery which shall not exceed 30 days beyond the Delivery Window. If the Vessel is not delivered with the above described timing, Charterers shall have the right to cancel this charter. |
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(c) | Owners shall deliver the Vessel to Charterers dropping last out bound pilot boarding station from dry-dock. Owners will work with current Charterers to attempt to have the dry dock occur in the Atlantic Basin as per Charterers preference. However it is it is acknowledged by the Parties that the place of dry dock will be a result of current Charterers trading and Owners shall be under no obligation to dry dock the vessel in the Atlantic Basin. Owners shall provide 30, 15, 7, 5, 4, 3, 2, 1 days notice of delivery. |
(d) | Charterers shall be solely responsible for the cost incurred in time and LNG for both gassing up and cooling down of LNG tanks. |
(e) | The Vessel shall be chartered for a period of five (5) years plus or minus up to ten (10) days at Charterers option commencing on delivery of the Vessel and in accordance with the delivery provisions described above. This period to be known as the Firm Period. It is acknowledged by the Parties that such period shall be equal to the five year scheduled period between the scheduled dry-docking of the Vessel. |
(f) | Owners shall grant Charterers the sole right to extend this charter by an additional three (3) years plus or minus up to ninety (90) days at Charterers option. Such period shall be known as the First Option Period. If Charterers exercise the First Option Period, the Firm Period shall end upon arrival at first inbound pilot boarding station, Singapore. The First Option Period shall commence at dropping last outbound pilot boarding station Singapore, post second five year dry-dock cycle. Charterers shall declare such Option Period no later than twelve (12) months before the termination of this charter. On the declaration date Owners and Charterers shall discuss in good faith potential preferences for alternative dry-dock locations. The plus / minus options must be declared no later then one hundred and eighty (180) days before the notional expiration of the term and will apply only to the last term in question. |
(g) | Charterers shall redeliver the Vessel to Owners Dropping First inbound Pilot boarding station, Singapore. Charterers shall provide 30, 25, 15, 7, 5, 4, 3, 2, 1 days notice of redelivery. When Charterers do not exercise Option Period, gas freeing of cargo tanks shall occur during Charterers ballast voyage to dry-dock with costs of fuel for pre dry-dock gas freeing for Owners account. |
(h) | Any time during which the Vessel is off-hire under this charter may be added to the charter period in Charterers option up to the total amount of time spent off-hire. In such cases the rate of hire will be that prevailing at the time the Vessel would, but for the provisions of this Clause, have been redelivered. Charterers shall exercise this option no later than ninety (90) days before the earliest date on which the charter would otherwise terminate. Any periods of off-hire occurring after the time and date on which Charterers have declared their option may be added to the charter period as long as Charterers have declared that they will be so added within five (5) days of the end of the relevant period of off-hire. |
8. | Owners to Provide |
Owners undertake to provide and to pay for all provisions, wages (including but not limited to all overtime payments), and shipping and discharging fees and all other expenses of the master, officers and crew; also, except as provided in Clauses 4 and 37 hereof, for all insurance on the Vessel (except
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additional insurances such as additional war risk insurance and additional insurance required for vessel entering a terminal that has a Conditions of Use agreement or similar not acceptable to Owners P&I Club) , for all deck, cabin and engine-room stores lubricating oil, and for water; for all dry-docking, overhaul, maintenance and repairs to the Vessel; and for all fumigation expenses and de-rat certificates. Owners obligations under this Clause 8 extend to all liabilities for customs or import duties arising at any time during the performance of this charter in relation to the personal effects of the master, officers and crew, and in relation to the stores, provisions and other matters aforesaid which Owners are to provide and pay for and Owners shall refund to Charterers any sums Charterers or their agents may have paid or been compelled to pay in respect of any such liability. Any amounts allowable in general average for wages and provisions and stores shall be credited to Charterers insofar as such amounts are in respect of a period when the Vessel is on-hire.
9. | Charterers to Provide |
(a) | Charterers shall provide and pay for all fuel (which includes fuel consumed for the production of nitrogen and all Boil-Off gas, which in accordance with Charterers instructions is to be used as fuel) which must be supplied from a bunker supplier who applies the standards required by a first class operator, towage and pilotage and shall pay agency fees, port charges, commissions, expenses of loading and unloading cargoes, canal dues and all charges other than those payable by Owners in accordance with Clause 8 hereof, provided that all charges for the said items shall be for Owners account when such items are consumed, employed or incurred for Owners purposes or while the Vessel is off-hire (unless such items reasonably relate to any service given or distance made good and taken into account under Clause 23); and provided further that any fuel used in connection with a general average sacrifice or expenditure shall be paid for by Owners. |
(b) | In respect of bunkers consumed for Owners purposes these will be charged on each occasion by Charterers at the Fuel Price. |
(c) | If the trading limits of this charter include ports in the United States of America and/or its protectorates then Charterers shall reimburse Owners for port specific charges relating to additional premiums charged by providers of oil pollution cover, when incurred by the Vessel calling at ports in the United States of America and/or its protectorates in accordance with Charterers orders. |
10. | Rate of Hire / Ballast Bonus Payment |
Subject as herein provided, for the Firm Period Charterers shall pay for the use and hire of the Vessel to the Owners at the rate of United States Dollars ***** (USD *****) per day, and pro rata for any part of a day, from the time and date of her delivery (local time) to Charterers until the time and date of redelivery (local time) to Owners or until the commencement of the Option Period if such is exercised.
Notwithstanding anything stated herein, in the event Charterers exercise the Option Period, Charterers shall pay for the use and hire of the Vessel at the rate of United States Dollars *****(USD *****) per day and pro rata for any part of a day thereof for the First Option Period commencing at dropping last outbound pilot boarding station Singapore, post second five year dry-dock cycle until the date and time of redelivery (local time) to Owners.
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11. | Payment of Hire |
Subject to Clause 3 (c) and 3 (e), payment of hire, and all other costs, free from general average shall be paid monthly in advance made in immediately available funds per calendar month, prorated for partial months/days
to:
******
REF: *****
in United States Dollars per calendar month in advance, less:
(a) | any hire paid which Charterers reasonably estimate to relate to off-hire periods, and; |
(b) | any amounts disbursed on Owners behalf, any advances and commission thereon, and charges which are for Owners account pursuant to any provision hereof, and; |
(c) | any amounts due or reasonably estimated to become due to Charterers under Clause 3 (b), 16 or 28 and Appendix C hereof, |
any such adjustments to be made at the due date for the next monthly payment after the facts have been ascertained. Charterers shall not be responsible for any delay or error by Owners bank in crediting Owners account provided that Charterers have made proper and timely payment.
In default of such proper and timely payment:
(i) | Owners shall notify Charterers of such default and Charterers shall within ***** days of receipt of such notice pay to Owners the amount due, including interest, failing which Owners may withdraw the Vessel from the service of Charterers without prejudice to any other rights Owners may have under this charter or otherwise. The period of ***** days shall be extended to ***** days if the Charterers are prohibited from making payment of hire to the Owners by the Office of Foreign Asset Control in the United States of America (OFAC) during which period the Owners and Charterers shall, in good faith, meet to discuss and mutually explore all reasonable solutions to comply with OFAC; and |
(ii) | interest on any amount due but not paid on the due date shall accrue from the day after that date up to and including the day when payment is made, at a rate per annum which shall be ***** above the U.S. Prime Interest Rate as published by the Chase Manhattan Bank in New York at 12.00 New York time on the due date, or, if no such interest rate is published on that day, the interest rate published on the next preceding day on which such a rate was so published, computed on the basis of a 360 day year of twelve 30-day months, compounded semi-annually. |
12. | Space Available to Charterers |
The whole reach, burthen and decks on the Vessel and any passenger accommodation (including Owners suite) shall be at Charterers disposal, reserving only proper and sufficient space for the Vessels master, officers, crew, tackle, apparel, furniture, provisions and stores, provided that the weight of stores on board shall not, unless specially agreed, exceed 150 tonnes at any time during the charter period.
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13. | Instructions and Logs |
Charterers shall from time to time give the master all requisite instructions and sailing directions, and the master shall keep a full and correct log of the voyage or voyages, which Charterers or their agents may inspect as required. The master shall when required furnish Charterers or their agents with a true copy of such log and with properly completed loading and discharging port sheets and voyage reports for each voyage and other returns as Charterers may require. Charterers shall be entitled to take copies at Owners expense of any such documents, which are not provided by the master.
A controlled copy of Charterers instructions will be placed on board the Vessel. The instructions in this document shall be followed by the crew. If the Vessel or crew cannot comply with such instructions, immediate notification is required in accordance with Clause 51. In the event of any conflict between the instructions and this Charterparty, the Charterparty shall prevail.
Owners shall be responsible for any time, cost, delay or loss associated with Vessels failure to comply with Charterers voyage instructions, including loading any cargo quantity in excess or short of voyage orders. If a discrepancy arises at a loading terminal, the Master shall notify Charterers immediately to clarify the situation. Owners shall be responsible for any deadfreight or additional expenses arising from Owners failure to comply with this Clause.
14. | Bills of Lading |
(a) | The master (although appointed by Owners) shall be under the orders and direction of Charterers as regards employment of the Vessel, agency and other arrangements, and shall sign Bills of Lading as Charterers or their agents may direct (subject always to Clauses 38 (a) and 43) without prejudice to this charter. Charterers hereby indemnify Owners against all consequences or liabilities that may arise: |
(i) | from signing Bills of Lading in accordance with the directions of Charterers or their agents, to the extent that the terms of such Bills of Lading supplied by Charterers terminals fail to conform to the requirements of this charter, provided, however, that no further indemnity beyond that expressed in this Clause 14 or elsewhere in this Charter shall be implied against Charterers; |
(ii) | from any irregularities in papers supplied by Charterers or their agents. |
(b) | If Charterers by telex, facsimile or other form of written communication that specifically refers to this Clause request Owners to discharge a quantity of cargo either without Bills of Lading and/or at a discharge place other than that named in a Bill of Lading and/or that is different from the Bill of Lading quantity, then Owners shall discharge such cargo in accordance with Charterers instructions in consideration of receiving the following indemnity, which shall be deemed to be given by Charterers on each and every such occasion and which is limited in value to 200% of the CIF value of the cargo carried on board: |
(i) | Charterers shall indemnify Owners and Owners servants and agents in respect of any liability loss or damage of whatsoever nature (including legal costs as between attorney or solicitor and client and associated expenses) which Owners may sustain by reason of delivering such cargo in accordance with Charterers request. |
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(ii) | If any proceeding is commenced against Owners or any of Owners servants or agents in connection with the Vessel having delivered cargo in accordance with such request, Charterers shall provide Owners or any of Owners servants or agents from time to time on demand with sufficient funds to defend the said proceedings. |
(iii) | If the Vessel or any other vessel or property belonging to Owners should be arrested or detained, or if the arrest or detention thereof should be threatened, by reason of discharge in accordance with Charterers instruction as aforesaid, Charterers shall provide on demand such bail or other security as may be required to prevent such arrest or detention or to secure the release of such Vessel or property and Charterers shall indemnify Owners in respect of any loss, damage or expenses caused by such arrest or detention whether or not same may be justified. |
(iv) | Charterers shall, if called upon to do so at any time while such cargo is in Charterers possession, custody or control, redeliver the same to Owners. |
(v) | As soon as all original Bills of Lading for the above cargo which name as discharge port the place where delivery actually occurred shall have arrived and/or come into Charterers possession, Charterers shall produce and deliver the same to Owners whereupon Charterers liability hereunder shall cease. |
Provided however, if Charterers have not received all such original Bills of Lading by 24.00 hours on the day 36 calendar months after the date of discharge, that this indemnity shall terminate at that time unless before that time Charterers have received from Owners written notice that:
aaa) Some person is making a claim in connection with Owners delivering cargo pursuant to Charterers request or,
bbb) Legal proceedings have been commenced against Owners and/or carriers and/or Charterers and/or any of their respective servants or agents and/or the Vessel for the same reason.
When Charterers have received such a notice, then this indemnity shall continue in force until such claim or legal proceedings are settled. Termination of this indemnity shall not prejudice any legal rights a party may have outside this indemnity.
(vi) | Owners shall promptly notify Charterers if any person (other than a person to whom Charterers ordered cargo to be delivered) claims to be entitled to such cargo and/or if the Vessel or any other property belonging to Owners is arrested by reason of any such discharge of cargo. |
(vii) | This indemnity shall be governed and construed in accordance with English law and each and any dispute arising out of or in connection with this indemnity shall be subject to the jurisdiction of the High Court of Justice of England. |
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(c) | Owners warrant that the Master will comply with orders to carry and discharge against one or more Bills of Lading from a set of original negotiable Bills of Lading should Charterers so require. |
15. | Conduct of Vessels Personnel |
If Charterers complain of the conduct of the master or any of the officers or crew, Owners shall immediately investigate the complaint. If the complaint proves to be well founded, Owners shall, without delay, make a change in the appointments and Owners shall in any event communicate the result of their investigations to Charterers as soon as possible.
16. | LNG Retention/Supply for Operational Purposes |
a) | Unless Charterers stipulate otherwise, Owners shall retain on board the Vessel following completion of discharge sufficient LNG Heel (which will be agreed with Charterers) to enable the Vessel to arrive at the next load port in a cold and ready to load condition and to remain in that condition for not less than twenty-four (24) hours. |
b) | ***** shall provide and pay for LNG required for cooling the Vessels cargo tanks and other handling systems to the temperatures necessary to commence loading only in the following circumstances: |
(i) | in the event that the quantity of LNG Heel retained on board pursuant to Clause 16 (a) is not sufficient to enable the Vessel to arrive at the next loading port in a cold and ready to load condition unless such insufficiency is the result of an act or omission on the part of Owners or fault of the Vessel; |
(ii) | when LNG is required by reason of: |
(aa) strikes, quarantine restrictions, seizure under legal process, restraint of labour, none of which arise in connection with the Vessel or crew;
(bb) an act of God, act of war, lock outs, riots, civil commotions, restraint of princes, rulers or people;
(iii) | when LNG is required by reason of any Restricted Period as defined in Appendix C Article 2 (e) (i) to (vi), or by reason of Charterers changing the SAT, or by reason of Charterers ordering the Vessel to steam at any speed other than the Service Speed; |
(iv) | upon return of the Vessel to the first load port after any lay-up ordered by Charterers pursuant to Clause 34, after any underwater cleaning ordered under Appendix C Article 11 (a), or after the Vessel has been withdrawn from service at the request or convenience of Charterers as a result of which the Vessel has been warmed up and/or gas freed; |
(v) | where the LNG is required and caused by Charterers breach of this Charter. |
(vi) | following periods of dry-dockings |
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(c) | ***** shall pay for LNG required for cooling the Vessels cargo tanks at the LNG Price, in all other circumstances, including, but not limited to: |
(i) | following periods of off-hire, excluding scheduled dry-dockings; |
(ii) | following requisition under Clause 35; |
(iii) | where the LNG is required and caused by Owners breach of this Charter. |
Quantities required for gas up and cool down shall be in accordance to the cool down tables that shall be provided by Owners to Charterers upon request.
In all cases where Owners are required to pay for LNG required for cooling hereunder, the LNG shall nevertheless be supplied by Charterers who shall be entitled to deduct the cost from the next payment of hire due to Owners at the LNG Price.
17. | Pilots and Tugs |
Owners hereby indemnify Charterers, their servants and agents against all losses, claims, responsibilities and liabilities arising in any way whatsoever from the employment of pilots or tugboats, who although employed by Charterers shall be deemed to be the servants of and in the service of Owners and under their instructions (even if such pilots or tugboat personnel are in fact the servants of Charterers their agents or any affiliated company); provided, however, that the foregoing indemnity shall not exceed the amount to which Owners would have been entitled to limit their liability if they had themselves employed such pilots or tugboats.
18. | Super-Numeraries |
Charterers may send up to two representatives in the Vessels available accommodation upon any voyage made under this charter, Owners providing provisions and all requisites as supplied to officers, except alcohol.
Charterers shall pay at the rate of United States Dollars fifteen ($15.00USD) per day for each representative while on board the Vessel.
19. | Sub-letting/Assignment/Novation |
Charterers may sub-let the Vessel, but shall always remain responsible to Owners for due fulfilment of this charter, with Owners consent, not to be unreasonably withheld.
Additionally Owners or Charterers may assign or novate this charter to any of their credit-worthy affiliates with comparable competence, subject to the approval of the other party, such approval not to be unreasonably withheld.
For the avoidance of doubt, Owners may not novate or assign the Vessel to a non affiliate.
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20. | Final Voyage |
If when a payment of hire is due hereunder Charterers reasonably expect to redeliver the Vessel before the next payment of hire would fall due, the hire to be paid shall be assessed on Charterers reasonable estimate of the time necessary to complete Charterers programme up to redelivery, and from which estimate Charterers may deduct amounts due or reasonably expected to become due for:
(a) | disbursements on Owners behalf or charges for Owners account pursuant to any provision hereof, and |
(b) | bunkers and LNG Heel on board at redelivery pursuant to Clause 5. |
Promptly, and in any event not later than 30 days after redelivery any overpayment shall be refunded by Owners or any underpayment made good by Charterers.
Notwithstanding the provisions of Clause 7, if at the time this charter would otherwise terminate in accordance with Clause 4 the Vessel is on a ballast voyage to a port of redelivery or is upon a laden voyage, Charterers shall continue to have the use of the Vessel at the same rate and conditions as stand herein for as long as necessary to complete such ballast voyage, or to complete such laden voyage and return to a port of redelivery as provided by this charter, as the case may be. However, if Charterer instructs the Vessel to prosecute a voyage or deviate to an alternative port which can be reasonably foreseen to extend the voyage beyond the Charter Period, Owner may elect to reject such instruction.
21. | Loss of Vessel |
Should the Vessel be lost, this charter shall terminate and hire shall cease at noon on the day of her loss; should the Vessel be a constructive total loss, this charter shall terminate and hire shall cease at noon on the day on which the Vessels underwriters agree that the Vessel is a constructive total loss; should the Vessel be missing, this charter shall terminate and hire shall cease at noon on the day on which she was last heard of. Any hire paid in advance and not earned shall be returned to Charterers and Owners shall reimburse Charterers for the value of the estimated quantity of bunkers on board at the time of termination, at the price paid by Charterers at the last bunkering port.
22. | Off-hire |
(a) | On each and every occasion that there is loss of time (whether by way of interruption in the Vessels service or, from reduction in the Vessels performance, or in any other manner): |
(i) | due to deficiency of personnel or stores; repairs; gas-freeing for repairs; time in and waiting to enter dry-dock for repairs; breakdown (whether partial or total) of machinery, boilers or other parts of the Vessel or her equipment (including without limitation tank coatings); overhaul, maintenance or survey; collision, stranding, accident or damage to the Vessel; or any other cause whatsoever preventing the efficient working of the Vessel; and such loss continues for more than three consecutive hours (if resulting from interruption in the Vessels service) or cumulates to more than three hours (if resulting from partial loss of service); or |
(ii) | due to industrial action, refusal to sail, breach of orders or neglect of duty on the part of the master, officers or crew; or |
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(iii) | for the purpose of obtaining medical advice or treatment for or landing any sick or injured person (other than a Charterers representative carried under Clause 18 hereof) or for the purpose of landing the body of any person (other than a Charterers representative), and such loss continues for more than three consecutive hours; or |
(iv) | due to any delay in quarantine arising from the master, officers or crew having had communication with the shore at any infected area without the written consent or instructions of Charterers or their agents, or to any detention by customs or other authorities caused by smuggling or other infraction of local law on the part of the master, officers, or crew; or |
(v) | due to detention of the Vessel by authorities at home or abroad attributable to legal action against or breach of regulations by the Vessel, the Vessels owners, or Owners (unless brought about by the act or neglect of Charterers); or |
(vi) | due to pre-docking and repair procedure including warming, gas freeing and inerting other than the scheduled five year cycle dry-docking; or |
(vii) | due to scheduled dry-docking and maintenance, maintaining, overhauling, repairing or dry-docking the Vessel and submitting her for survey; waiting for any of the aforesaid purposes; proceeding to or from, and whilst at, any port or place for any of the aforesaid purposes; or |
(viii) | due to post-docking or repair procedure including gassing and cooling in excess of that undertaken for normal loading; or |
(x) | due to any other circumstances where the Vessel is off-hire under this charter; and |
(xi) | due to attack and /or seizure by pirates. |
then without prejudice to Charterers rights under Clause 3 or to any other rights of Charterers hereunder, or otherwise, the Vessel shall be off-hire from the commencement of such loss of time until she is again ready and in an efficient state to resume her service from a position not less favourable to Charterers than that at which such loss of time commenced; provided, however, that any service given or distance made good by the Vessel whilst off-hire shall be taken into account in assessing the amount to be deducted from hire.
(b) | If the Vessel fails to proceed at any Guaranteed Speed (as defined in Appendix C Article 2 (a) (iv)) pursuant to Clause 28 and Appendix C, and such failure arises wholly or partly from any of the causes set out in Clause 23(a) above, then the following provisions shall apply: |
(i) | if the Vessel is unable to maintain a speed of at least 85% of the Guaranteed Speed under Clause 28 in wind and sea state not exceeding Beaufort force 5, Charterers shall have the option to place the Vessel off-hire but any distance made good by the Vessel whilst off-hire shall be taken into account in accordance with Clause 23(a); |
(ii) | except where Charterers have placed the Vessel off-hire pursuant to Clause 23(b)(i), failure of the Vessel to proceed at any Guaranteed Speed shall be dealt with under Clause 28 and Appendix C and the Vessel will not be off-hire under Clause 23. |
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(c) | Further and without prejudice to the foregoing, in the event of the Vessel deviating (which expression includes without limitation putting back, or putting into any port other than that to which she is bound under the instructions of Charterers) for any cause or purpose mentioned in Clause 23 (a), the Vessel shall be off-hire from the commencement of such deviation until the time when she is again ready and in an efficient state to resume her service from a position not less favourable to Charterers than that at which the deviation commenced, provided, however, that any service given or distance made good by the Vessel whilst so off-hire shall be taken into account in assessing the amount to be deducted from hire. If the Vessel, for any cause or purpose mentioned in Clause 23 (a), puts into any port other than the port to which she is bound on the instructions of Charterers, the port charges, pilotage and other expenses at such port shall be borne by Owners. Should the Vessel be driven into any port or anchorage by stress of weather hire shall continue to be due and payable during any time lost thereby. |
(d) | If the Vessels flag state becomes engaged in hostilities, and Charterers in consequence of such hostilities find it commercially impracticable to employ the Vessel and have given Owners written notice thereof then from the date of receipt by Owners of such notice until the termination of such commercial impracticability the Vessel shall be off-hire and Owners shall have the right to employ the Vessel on their own account. |
(e) | Time during which the Vessel is off-hire under this charter shall count as part of the charter period except where Charterers declare their option to add off-hire periods under Clause 4 (b). |
(f) | All references to time in this charter party shall be references to local time except where otherwise stated. |
(g) | (i) If as a consequence of any cause or purpose mentioned in this Clause 23 or in Clause 16 (c) except for first load after drydocking and except when Vessel follows Charterers instructions, the Vessel presents for loading with tank temperatures other than that which would otherwise allow bulk loading to commence within 1/2 (half) an hour after cooling of the loading arms, any time lost as a consequence thereof, including without limitation any time lost in additional cooling of tanks prior to loading shall count as off-hire and the cost of any LNG supplied for such additional cooling shall be paid for by Owners at the LNG Price. |
(ii) | If any LNG is lost as Boil-Off during periods of off-hire, excluding during events of attack and / or seizure by pirates, Owners shall reimburse Charterers for the LNG lost at the LNG Price. |
Where accurate measurement of LNG lost as Boil-Off during any such off-hire period is impossible for whatever reason, the LNG lost as Boil-Off shall be assumed to have occurred at a constant rate equal to that obtained by measurement between official gaugings of the cargo in question in accordance with Appendix C Article 8 (b). Where, due to the off-hire occurring during a ballast passage, all LNG Heel is lost as Boil-Off prior to the Vessel next commencing to load, such Boil-Off shall be deemed to have occurred at a constant rate equal to that which occurred during the Vessels last previous ballast voyage.
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(h) | If the Cargo Capacity of the Vessel is reduced for reasons directly attributable to Owner not exercising operational due-diligence, Charterers shall have the option of putting the Vessel off-hire or using the Vessel, such option to be declared within 5 business days after Charterers has been informed about reduction in Cargo Capacity, in which case hire shall be reduced pro rata to the reduction in the Vessels Cargo Capacity from the commencement of loading at the loading port until the Vessel is again ready to load at the next loading port without such reduction in capacity. |
(i) | The Vessel shall additionally be off-hire as provided in this Clause 23 whenever there is loss of time: |
i. | as a result of a boycott arising in connection with the business of Owners, the terms or conditions of employment of Owners servants, or employment, trades, or cargoes of the Vessel other than under this Charter; |
ii. | due to restraint or interference in the Vessels operation by any governmental authority in connection with the ownership, registration, or obligations of Owners or the Vessel, or stowaways, or in connection with smuggling or other prohibited activities, unless such restraint or interference involves a cargo carried under this Charter, or Charterers themselves, or the shippers or receivers of such a cargo; or |
iii. | due to strikes, labour boycotts or any other discrimination/difficulties against the Vessel because of previous trade and/or the ownership and/or flag and/or officers and crew and/or officers and crews employment conditions; |
and all losses, damages and expenses directly incurred thereby (including bunkers consumed) shall be for Owners account.
(j) | In the event that the Vessel is off-hire for any reason other than in connection with periodical dry-docking pursuant to Clause 25 for any period in excess of 30 consecutive days or exceeding ***** days in any period of 365 days, Charterers shall have the option to terminate this charter by giving notice in writing with effect from any date stated in such notice provided that the Vessel is free of cargo (other than LNG Heel) at the time when such notice becomes effective. This Clause 23(j) is without prejudice to any other rights or obligations of Owners or Charterers under this charter. For the purposes of this Clause 23(j), in the event of partial loss of service, the period of off-hire shall be the total period during which the Vessel is not fully efficient rather than the resulting loss of time. |
23. | Ship to Ship Transfers and FPSO/FSRU Cargo Operations |
a) | Subject to the provisions of Clause 24 (b), Owners shall allow a transhipment of the cargo to another ship or floating storage re-gasification unit (FSRU) or loading from floating production storage and offloading unit (FPSO) to be carried out via fixed hard arm cargo transfer facilities, provided that a suitably documented formalised risk assessment is carried out, identifying potential hazards, probability and consequences and all risks identified can be mitigated adequately to the complete technical and operational satisfaction of Owners. |
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b) | Such cargo operation, if deemed acceptable by Owner, shall be carried out in accordance with the recommendations set out in the latest ICS/OCIMF Ship-to-Ship Transfer Guide (Liquefied Gases) and SIGTTOs Considerations for Planning a Ship-to-Ship Transfer of LNG, as amended from time to time. Owners shall permit, at Charterers expense, personnel nominated by Charterers to attend any pre operation risk assessment and to attend on board to assist in the transhipment operation although such operation shall always be the responsibility of Owners. All additional equipment and services required for a Ship to Ship Transfer and FPSO/FSRU Cargo operation shall be supplied and paid by Charterers. Owners shall not bare any additional costs (including additional insurance) as a consequence of a Ship to Ship Transfer and FPSO/FSRU Cargo operation. |
24. | Periodical Dry-docking |
(a) | Owners shall dry-dock the Vessel at least twice in any five year period for the purposes of maintaining the Vessels underwater area and anti-fouling coating system and to effect overhaul, scheduled maintenance, other necessary repairs, and re-certification, so that the Vessel is fit in every way for service under this charter. Provided that Owners can demonstrate that a performing five year under water anti-fouling coating system has been applied to the hull and obtain classification society approval for intermediate dockings / maintenance periods to be carried out afloat then Charterers will accept the same. A letter from the underwater anti-fouling coating system manufacturer clearly stating that the coating system applied will last for 5 years under normal operational service shall be provided to the Charterer. |
No dry-docking shall be undertaken by Owners for the first 8 months of this Charter unless in an emergency or by agreement with Charterers.
(b) | Owners shall give Charterers at least 6 months notice of any intended non-emergency dry-docking, together with the reasons for such dry-docking. Such notice shall include the name and location of the yard. |
(c) | In the event of dry-docking, the Vessel shall be off-hire from the time she is in a gas free condition and arriving/passing at a) Singapore or b) Gibraltar or c) equal distance basis a) or b) from last discharge port, whichever is closer to Owners nomination according to Clause 24 b). On completion of dry-docking, the Vessel will be on-hire again when she is in every way ready to resume Charterers service at dropping outward pilot from the dry-dock in a gas free condition. For the purpose of resuming on-hire after completion of the dry-docking the Vessel shall not be further away from Gibraltar or Singapore than Gibraltar or Singapore respectively. If the Vessel has dry-docked further away from Gibraltar or Singapore than Gibraltar or Singapore respectively, then the Vessel shall go on-hire when she is in a position not less favourable to Charterers than such. |
(d) | All dry-dock expenses and expenses of preparing the Vessel for dry-dock shall be for Owners account. Any natural gas vapour lost in gas freeing for the purpose of dry-docking shall be for Charterers account provided that during the last discharge prior to dry-docking Owners shall use their reasonable endeavours to pump out the maximum amount of cargo. If Charterers exercise the Option Period gas freeing of cargo tanks shall occur during Charterers ballast voyage to dry-dock with costs of fuel for pre dry-dock gas freeing for Owners account. |
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(e) | The Vessel will be on-hire for the gas-up and cool down operation at the first load port after the scheduled five year cycle dry-dock or in-water-dock. All gas/LNG used for the gas up and cool down shall be at Charterers account. |
(f) | Provided that Charterers have been previously notified and agreed to the period in advance, Charterers agree to provide the Owner with a preventative maintenance window or windows that shall not exceed ***** during each six month period when the Vessel remains continuously on-hire. |
25. | Secondary Barrier Tightness Tests for GTT Containment Systems |
When required by the International Association of Classification Societies (IACS) rules, and in keeping with the Vessels dry dock schedule (not to exceed five (5) years in interval), Owners agree to carry out a Secondary Barrier Tightness Test (SBTT) in accordance with approved Gaztransport & Technigaz (GTT) procedures. Owners agree that Charterers shall be permitted to have full access to; (a) the results of such test, which shall be made available to Charterers immediately after the test of each individual tank has been completed and such results have been received by Owners and (b) a written confirmation by the classification society, following each individual tank SBTT, if it meets the vessels classification requirements.
Upon Charterers receipt of (a) and (b), for all tanks, and if (a) does not meet Charterers SBTT acceptance criteria, which Charterers shall provide three (3) months before scheduled dry-docking, Charterers have the obligation to exercise one of the following options within two (2) business working days:
(i) Charterers shall have the right to terminate this Charter with immediate effect from the time of notifying Owners in writing. The termination of the Charterparty shall be without prejudice to any rights or remedies that may exist or any claims still outstanding under this Charterparty.
(ii) Charterers shall continue to use the Vessel as per this Charterparty once she returns back on hire from drydock to Charterers.
(iii) Upon Charterers request, Owners shall, availability permitting, substitute the Vessel for a Substitute Vessel, which Owners shall deliver at a mutually agreed time and location, provided that the Substitute Vessel (I) is a vessel under Owners control, (II) meets Charterers vetting and assurance standards (III) the Substitute Vessels capacity, speed and performance is equal to, or exceeds, the Vessels warranties.
(iv) Charterers may elect at its sole discretion and cost to carry out further investigation of the secondary barrier containment system. If additional secondary barrier defects are uncovered, then Charterers shall have such defects repaired in accordance with classification society and GTT procedures. All costs and time associated with Charterers further investigation and repairs are solely for Charterers account. Specifically, all work will be supervised by GTT and carried out by an approved GTT contractor in accordance with the classification societys requirements. While such repairs are being performed, Charterers shall have the right to have its technical representative, with relevant experience of SBT testing and repairing GTT MkIII containment systems which shall be approved by Owners, not to be unreasonably withheld, on site at all times
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witnessing the work in conjunction with Owners representatives. Although all related costs of such work shall be for Charterers account, Charterers does not under any circumstances warrant the quality of these repairs nor assume any liability for the repairs or the post-repair condition of the Vessel.
26. | Ship Inspection |
Prior to or at any time during the charter period, Charterer may inspect or audit Vessel or Owners office (in case of a managed or time chartered Vessel Owners office includes the office of the technical manager) at Charterers convenience and at Charterers time and expense.
Owners shall afford all necessary co-operation and accommodation on board provided, however:
(a) | that neither the exercise nor the non-exercise, nor anything done or not done in the exercise or non-exercise, by Charterers of such right shall in any way reduce the masters or Owners authority over, or responsibility to Charterers or third parties for, the Vessel and every aspect of her operation, nor increase Charterers responsibilities to Owners or third parties for the same; |
(b) | that Charterers shall not be liable for any act, neglect or default by themselves, their servants or agents in the exercise or non-exercise of the aforesaid right; |
(c) | that any cost incurred by such inspections or audits shall be for Charterers account provided such costs have been disclosed to and approved by Charterers in advance; |
(d) | that any inspection carried out by Charterers shall be made without interference with or hindrance to the Vessels safe and efficient operation, and shall be limited to a maximum of two persons; and |
(e) | that any overnight stays shall be subject to Clause 18. |
(f) | Upon delivery, Vessel shall have a valid operational SIRE report, or Owner shall be responsible for obtaining one prior to the first loading under this Charter. Owners will maintain SIRE inspection validity on a rolling six (6) month basis. |
27. | Key Vessel Performance Criteria |
Subject to Appendix C, Owners guarantee that:
(a) | the Laden Service Speed shall be ***** knots; |
(b) | the Ballast Service Speed shall be ***** knots; |
(c) | the Minimum Speed shall be ***** knots; |
(d) | the Vessel shall be capable of loading and discharging the cargo as follows: |
(i) |
a full cargo may be loaded within twelve (12) hours if the Vessels cargo tanks are colder than the tank design temperature for commencement of loading, excluding the time for |
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connecting; disconnecting; cooling down; topping up and custody transfer measurement, and provided that the loading terminal is capable of pumping at least 12,292 cubic meters of LNG per hour to the Vessel and terminal utilising a minimum of three liquid loading arms, and provided that the terminal is capable of receiving all return vapour from the Vessel that may be generated when loading the Vessel at the above specified flow rate of LNG; |
(ii) | a full cargo may be discharged within twelve (12) hours, excluding the time for connecting; disconnecting; cooling down; starting up pumps; ramping up; ramping down for stripping at end of discharge and custody transfer measurement, and provided that the discharge terminal is capable of receiving LNG at a rate of at least 12,292 cubic meters of LNG per hour with a back pressure at the flange connection between ship and terminal not exceeding 100 mlc metres of liquid LNG of specific gravity of 0.475 utilising a minimum of three liquid unloading arms. The terminal must also be capable of providing sufficient return vapour to the Vessel to compensate for the displacement of the LNG being discharged from the Vessel; |
(iii) | If Charterers request either slow loading or slow discharging, Owners shall permit such operations. |
(e) | the Vessels guaranteed maximum fuel consumption for weather conditions not exceeding Beaufort Scale 5 shall be: ***** |
(f) | The fuel oil equivalent factor (tonnes fuel oil per cubic metre of LNG) shall be calculated using actual bunker survey reports and LNG quality reports and shall be agreed upon by both Owners and Charterers. |
(g) | the maximum laden Boil-Off shall be zero point one five percent (0.15%) per day of the Cargo Capacity on fully laden sea passages (or pro rated by the ratio of volumetric cargo loaded to Cargo Capacity if all tanks are not used); |
(h) | the maximum ballast Boil-Off shall be zero point one five percent (0.15 %) per day of the Cargo Capacity where the previous sea passage was fully laden (or pro rated by the ratio of the number of tanks previously used to the total number of cargo tanks if all tanks were not utilised for the carriage of cargo on the previous laden passage). |
(i) | The Owner shall be entitled to use natural boil-off from the LNG being transported at no cost to the Owner. At no point during the Charter Period shall the Vessel vent, dump steam (except for safety reasons) or force vaporise without permission of the Charterer. |
(j) | Speed, fuel consumption and boil-off warranties are not valid under weather conditions in which the Vessel has to proceed in Wind Force in excess of Beaufort Force 5 for more than 12 (twelve) hours noon to noon. For purposes of calculating claims, Wind Force reported in the Masters noon report shall be used. Charterer may employ the services of a reputable weather reporting company at their own cost. In any dispute, the weather reporting company numbers shall prevail. |
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28. | Salvage |
Subject to the provisions of Clause 23 hereof, all loss of time and all expenses (excluding any damage to or loss of the Vessel or tortious liabilities to third parties) incurred in saving or attempting to save life or in successful or unsuccessful attempts at salvage shall be borne equally by Owners and Charterers provided that Charterers shall not be liable to contribute towards any salvage payable by Owners arising in any way out of services rendered under this Clause 29.
All salvage and all proceeds from derelicts shall be divided equally between Owners and Charterers after deducting the masters, officers and crews share.
29. | Lien |
Owners shall have a lien upon all cargoes and all freights, sub-freights and demurrage for any amounts due under this charter; and Charterers shall have a lien on the Vessel for all monies paid in advance and not earned, and for all claims for damages arising from any breach by Owners of this charter.
30. | Exceptions |
(a) | Unless caused by the actual fault or privity of Owners or the Vessel, her master and Owners shall not, unless otherwise in this charter expressly provided, be liable for any loss or damage or delay or failure arising or resulting from any act, neglect or default of the master, pilots, mariners or other servants of Owners in the navigation or management of the Vessel; fire,; collision or stranding; dangers and accidents of the sea; explosion, bursting of boilers, breakage of shafts or any latent defect in hull, equipment or machinery; provided, however, that Clauses 1, 2, 3 and 28 hereof shall be unaffected by the foregoing. Further, neither the Vessel, her master or Owners, nor Charterers shall, unless otherwise in this charter expressly provided, be liable for any loss or damage or delay or failure in performance hereunder arising or resulting from act of God, act of war, seizure under legal process, quarantine restrictions, strikes, lock-outs, riots, restraints of labour, civil commotions or arrest or restraint of princes, rulers or people. |
(b) | The Vessel shall have liberty to sail with or without pilots, to tow or go to the assistance of Vessels in distress and to deviate for the purpose of saving life or property. |
(c) | Clause 31 (a) shall not apply to, or affect any liability of Owners or the Vessel or any other relevant person in respect of: |
(i) | loss or damage caused to any berth, jetty, dock, dolphin, buoy, mooring line, pipe or crane or other works or equipment whatsoever at or near any place to which the Vessel may proceed under this charter, whether or not such works or equipment belong to Charterers; or |
(ii) | any claim (whether brought by Charterers or any other person) arising out of any loss of or damage to or in connection with cargo. Any such claim shall be subject to the Hague-Visby Rules or the Hague Rules or the Hamburg Rules, as the case may be, which ought pursuant to Clause 41 hereof to have been incorporated in the relevant Bill of Lading (whether or not such Rules were so incorporated) or, if no such Bill of Lading is issued, to the Hague-Visby Rules unless the Hamburg Rules compulsorily apply in which case to the Hamburg Rules. |
(d) | In particular and without limitation, the foregoing subsections (a), (b) and (c) of this Clause shall not apply to or in any way affect any provision in this charter relating to off-hire or to reduction of hire or Boil-Off or bunkers consumed during periods of off-hire. |
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31. | Injurious Cargoes |
No acids, explosives or cargoes injurious to the Vessel shall be shipped and without prejudice to the foregoing any damage to the Vessel caused by the shipment of any such cargo, and the time taken to repair such damage, shall be for Charterers account. No voyage shall be undertaken, nor any goods or cargoes loaded, that would expose the Vessel to capture or seizure by rulers or governments.
32. | Disbursements |
Should the master require advances for ordinary disbursements up to a cap of United States Dollars twenty-five thousand ($25,000) at any port, Charterers or their agents shall make such advances to him, in consideration of which Owners shall pay a commission of two and a half per cent, and all such advances and commission shall be deducted from hire.
33. | Laying-up |
Charterers shall have the option, after consultation with Owners, of requiring Owners to lay up the Vessel at a safe place nominated by Charterers, taking into account questions of maintenance access and security and with Owners consent and always subject to Clause 4, in which case the hire provided for under this charter shall be adjusted to reflect any net increases in expenditure reasonably incurred or any net saving which should reasonably be made by Owners as a result of such lay up. Charterers may exercise the said option any number of times during the charter period.
34. | Requisition |
Should the Vessel be requisitioned by any government, de facto or de jure, during the period of this charter, the Vessel shall be off-hire during the period of such requisition, and any hire paid by such governments in respect of such requisition period shall be for Owners account. Any such requisition period shall count as part of the charter period.
35. | Outbreak of War |
If war or hostilities break out between any two or more of the following countries: United States of America, the countries or republics having been part of the former U.S.S.R (except that declaration of war or hostilities solely between any two or more of the countries or republics having been part of the former USSR shall be exempted), Peoples Republic of China, United Kingdom, and the country that the Vessel is registered in, then both Owners and Charterers shall have the right to cancel this charter provided that such war or hostilities materially and adversely affect the trading of the Vessel for a period of at least 30 days.
36. | Additional War Expenses |
If the Vessel is ordered to trade in areas where there is war (de facto or de jure) or threat of war, Charterers shall promptly reimburse Owners for any additional insurance premiums, crew bonuses and
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other expenses which are reasonably incurred by Owners as a consequence of such orders, provided that Charterers are given notice of such expenses as soon as practicable and in any event before such expenses are incurred, and provided further that Owners obtain from their insurers a waiver of any subrogated rights against Charterers in respect of any claims by Owners under their war risk insurance arising out of compliance with such orders provided such waiver is permitted by the respective insurers on normal commercial terms. If such waiver results in increased premiums for the Owner, the Charterer shall elect whether to (i) reimburse Owner for the amount of such increase, or (ii) release the Owner from the obligation to obtain such waiver.
Any payments by Charterers under this Clause will only be made against proven documentation. Any discount or rebate refunded to Owners, for whatever reason, in respect of additional war risk premium shall be passed on to Charterers.
37. | War Risks |
(a) | The master shall not be required or bound to sign Bills of Lading for any place which in his or Owners reasonable opinion is dangerous or impossible for the Vessel to enter or reach owing to any blockade, war, hostilities, warlike operations, civil war, acts of piracy, acts of terrorists, acts of hostility, civil commotions or revolutions. |
(b) | If in the reasonable opinion of the master or Owners it becomes, for any of the reasons set out in Clause 36 (a) or by the operation of international law, dangerous, impossible or prohibited for the Vessel to reach or enter, or to load or discharge cargo at, any place to which the Vessel has been ordered pursuant to this charter (a place of peril), then Charterers or their agents shall be immediately notified in writing or by radio messages, and Charterers shall thereupon have the right to order the cargo, or such part of it as may be affected, to be loaded or discharged, as the case may be, at any other place within the trading limits of this charter (provided such other place is not itself a place of peril). If any place of discharge is or becomes a place of peril, and no orders have been received from Charterers or their agents within 48 hours after dispatch of such messages, then Owners shall be at liberty to discharge the cargo or such part of it as may be affected at any place suitable for the discharge of LNG which they or the master may in their or his discretion select within the trading limits of this charter and such discharge shall be deemed to be due fulfilment of Owners obligations under this charter so far as cargo so discharged is concerned. |
(c) | The Vessel shall have liberty to comply with any directions or recommendations as to departure, arrival, routes, ports of call, stoppages, destinations, zones, waters, delivery or in any other wise whatsoever given by the government of the state under whose flag the Vessel sails or any other government or local authority or by any person or body acting or purporting to act as or with the authority of any such government or local authority including any de facto government or local authority or by any person or body acting or purporting to act as or with the authority of any such government or local authority or by any committee or person having under the terms of the war risks insurance on the Vessel the right to give any such directions or recommendations. If by reason of or in compliance with any such directions or recommendations anything is done or is not done, such shall not be deemed a deviation. If by reason of or in compliance with any such direction or recommendation the Vessel does not proceed to any place of discharge to which she has been ordered pursuant to this charter, the Vessel may proceed to any place which the master or Owners in his or their discretion select and there discharge the cargo or such part of it as may be affected. Such discharge shall be deemed to be due fulfilment of Owners obligations under this charter so far as cargo so discharged is concerned. |
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Charterers shall procure that all Bills of Lading issued under this charter shall contain the Chamber of Shipping War Risks Clause 1952.
38. | Both to Blame Collision Clause |
If the liability for any collision in which the Vessel is involved while performing this charter falls to be determined in accordance with the laws of the United States of America, the following provision shall apply:
If the ship comes into collision with another ship as a result of the negligence of the other ship and any act, neglect or default of the master, mariner, pilot or the servants of the carrier in the navigation or in the management of the ship, the owners of the cargo carried hereunder will indemnify the carrier against all loss, or liability to the other or non-carrying ship or her owners in so far as such loss or liability represents loss of, or damage to, or any claim whatsoever of the owners of the said cargo, paid or payable by the other or non-carrying ship or her owners to the owners of the said cargo and set off, recouped or recovered by the other or non-carrying ship or her owners as part of their claim against the carrying ship or carrier.
The foregoing provisions shall also apply where the owners, operators or those in charge of any ship or ships or objects other than, or in addition to, the colliding ships or objects are at fault in respect of a collision or contact.
Charterers shall procure that all Bills of Lading issued under this charter shall contain a provision in the foregoing terms to be applicable where the liability for any collision in which the Vessel is involved falls to be determined in accordance with the laws of the United States of America.
39. | New Jason Clause |
General average contributions shall be payable according to York/Antwerp Rules, 1994, as amended from time to time, and shall be adjusted in London in accordance with English law and practice but should adjustment be made in accordance with the law and practice of the United States of America, the following position shall apply:
In the event of accident, danger, damage or disaster before or after the commencement of the voyage, resulting from any cause whatsoever, whether due to negligence or not, for which, or for the consequence of which, the carrier is not responsible by statute, contract or otherwise, the cargo, shippers, consignees or owners of the cargo shall contribute with the carrier in general average to the payment of any sacrifices, losses or expenses of a general average nature that may be made or incurred and shall pay salvage and special charges incurred in respect of the cargo.
If a salving ship is owned or operated by the carrier, salvage shall be paid for as fully as if the said salving ship or ships belonged to strangers. Such deposit as the carrier or his agents may deem sufficient to cover the estimated contribution of the cargo and any salvage and special charges thereon shall, if required, be made by the cargo, shippers, consignees or owners of the cargo to the carrier before delivery.
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Charterers shall procure that all Bills of Lading issued under this charter shall contain a provision in the foregoing terms, to be applicable where adjustment of general average is made in accordance with the laws and practice of the United States of America.
40. | Clause Paramount |
Charterers shall procure that all Bills of Lading issued pursuant to this charter shall contain the following:
(a) | Subject to sub-clause (b) or (c) hereof, this Bill of Lading shall be governed by, and have effect subject to, the rules contained in the International Convention for the Unification of Certain Rules relating to Bills of Lading signed at Brussels on 25th August 1924 (hereafter the Hague Rules) as amended by the Protocol signed at Brussels on 23rd February 1968 (hereafter the Hague-Visby Rules). Nothing contained herein shall be deemed to be either a surrender by the carrier of any of his rights or immunities or any increase of any of his responsibilities or liabilities under the Hague-Visby Rules. |
(b) | If there is governing legislation which applies the Hague Rules compulsorily to this Bill of Lading, to the exclusion of the Hague-Visby Rules, then this Bill of Lading shall have effect subject to the Hague Rules. Nothing therein contained shall be deemed to be either a surrender by the carrier of any of his rights or immunities or an increase of any of his responsibilities or liabilities under the Hague Rules. |
(c) | If there is governing legislation which applies the United Nations Convention on the Carriage of Goods by Sea 1978 (hereafter the Hamburg Rules) compulsorily to this Bill of Lading, to the exclusion of the Hague-Visby Rules, then this Bill of Lading shall have effect subject to the Hamburg Rules. Nothing therein contained shall be deemed to be either a surrender by the carrier of any of his rights or immunities or an increase of any of his responsibilities or liabilities under the Hamburg Rules. |
(d) | If any term of this Bill of Lading is repugnant to the Hague-Visby Rules, or Hague Rules, or Hamburg Rules, as applicable, such term shall be void to that extent but no further. |
(e) | Nothing in this Bill of Lading shall be construed as in any way restricting, excluding or waiving the right of any relevant party or person to limit his liability under any available legislation and/or law. |
41. | Insurance/ITOPF |
Owners warrant that the Vessel is now, and will, throughout the duration of the charter:
(a) | be owned or demise chartered by a member of the International Tanker Owners Pollution Federation Limited; |
(b) | be properly entered in a reputable P&I Club that is a member of the International Group of P&I Clubs, Owners reserve the right to change P&I Club during Charter period with Charterers approval, not to be unreasonably withheld; |
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(c) | have in place insurance cover for oil pollution for the maximum on offer through the International Group of P&I Clubs but always a minimum of United States Dollars $1,000,000,000 (one thousand million); |
(d) | have in full force and effect Hull and Machinery insurance (currently valued at USD $250,000,000 placed through reputable brokers on Institute Time Clauses to a value as would be procured by a first class operator of similar such vessels. |
Owners will provide, within a reasonable time following a request from Charterers to do so, documented evidence of compliance with warranties given in this Clause 42.
42. | Export Restrictions |
The master shall not be required or bound to sign Bills of Lading for the carriage of cargo to any place to which export of such cargo is prohibited under the laws, rules or regulations of the country in which the cargo was produced and/or shipped.
Charterers shall procure that all Bills of Lading issued under this charter shall contain the following clause:
If any laws rules or regulations applied by the government of the country in which the cargo was produced and/or shipped, or any relevant agency thereof, impose a prohibition on export of the cargo to the place of discharge designated in or ordered under this Bill of Lading, carriers shall be entitled to require cargo owners forthwith to nominate an alternative discharge place for the discharge of the cargo, or such part of it as may be affected, which alternative place shall not be subject to the prohibition, and carriers shall be entitled to accept orders from cargo owners to proceed to and discharge at such alternative place. If cargo owners fail to nominate an alternative place within 72 hours after they or their agents have received from carriers notice of such prohibition, carriers shall be at liberty to discharge the cargo or such part of it as may be affected by the prohibition at any safe place on which they or the master may in their or his absolute discretion decide and which is not subject to the prohibition, and such discharge shall constitute due performance of the contract contained in this Bill of Lading so far as the cargo so discharged is concerned.
The foregoing provision shall apply mutatis mutandis to this charter, the references to a Bill of Lading being deemed to be references to this charter.
43. | Business Principles |
Owners and Charterers agree to operate this charter under proper business and HSSE practices consistent with BG Groups Business Principles, as of the date of the charter party signature, as published on the BG website (www.bg-group.com).
44. | Drugs and Alcohol |
Owners warrant that they have in force an active policy covering the Vessel which meets or exceeds the standards set out in the Guidelines for the Control of Drugs and Alcohol On Board Ship as published by the Oil Companies International Marine Forum (OCIMF) dated January 1990 (or any subsequent modification, version, or variation of these guidelines) and that this policy will remain in force throughout the charter period, and Owners will exercise due diligence to ensure the policy is complied with.
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45. | Pollution and Emergency Response |
Owners are to advise Charterers of organisational details and names of Owners personnel together with their relevant telephone/facsimile/e-mail details, including the names and contact details of Qualified Individuals for OPA 90 response, who may be contacted on a 24-hour basis in the event of oil spills or emergencies.
OFFICE PERSONNEL
Capt. G.Sarimpelas-Marine Operations Co-ordinator
Office Tel: +30 210 8917700
Mob: +30 6978 336 977
Home Phone: +30 210 2633726
Capt. M.Bogas-Designated Person Ashore
Office Tel: +30 210 8917700
Mob: +30 6972 999 135
Home Phone: +30 210 6036179
Mr. Ch. Vlachos-Technical Co-ordinator
Office Tel: +30 210 8917700
Mob: +30 6978 336 973
Home Phone: +30 210 5060949
Office Email: lngsafety@dynagas.com
Office Telex: +601 214113 DNGA GR
Office Fax: +30 210 968 0571
QUALIFIED INDIVIDUAL CONTACT DETAILS:
OBRIENS OIL POLLUTION SERVICE INC. (OOPS)
EMERGENCY:
Tel: +1-985-781-0804 24 hours
Fax: +1-985-781-0580 24 hours
Tlx: 49617361 OOPS UI
E-mail: commandcenter@oopsusa.com
OIL SPILL RESPONSE ORGANIZATION (OSRO):
NATIONAL RESPONSE CORPORATION (NRC)
Tel: +1-631-224-9141 24 hours
Fax: +1-631-224-9086 24 hours
Email: iocdo@nrcc.com
SALVAGE COMPANY:
DONJON-SMIT
Tel: +1-703-299-0081 24 hours
Fax: +1-703-299-0085 24 hours
Email: response@donjon-smit.com
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Notice to Charterers Pollution and Emergency Response Department:
Attn | : Duty Officer | |
Address |
: BG LNG Services, Suite 1200, 5444 Westheimer, Houston, Texas 77056, USA |
|
Telephone | : +1 713 366 6248 (primary); +1 713 884 9142 (secondary) | |
Fax | : +1 713 877 9212 | |
: incident@bg-group.com (for incidents only), shipping@bg-group.com; | ||
Cc | :bghub.usa@gacworld.com,MarineAssurance@bg-group.com, lngcharters@bg-group.com |
46. | ISPS Code/USMTSA 2002 |
This clause 47 makes reference to the International Code for the Security of Ships and of Port Facilities and the relevant amendments to Chapter XI of SOLAS (ISPS Code) and the US Maritime Transportation Security Act 2002 (MTSA).
(a) | (i) |
During the currency of this charter, Owners shall procure that both the Vessel and the Company (as defined by the ISPS Code) and the owner(as defined by the MTSA) shall comply with the requirements of the ISPS Code relating to the Vessel and the Company and the requirements of MTSA relating to the Vessel and the owner. Upon request Owners shall provide documentary evidence of compliance with this Clause 47 (a) (i). |
(ii) | Except as otherwise provided in this charter, loss, damage, expense or delay, caused by failure on the part of Owners or the Company/owner to comply with the requirements of the ISPS Code/MTSA or this Clause shall be for Owners account. |
(b) | (i) |
Charterers shall provide Owners/Master with their full style contact details and shall ensure that the contact details of all sub-charterers are likewise provided to Owners/Master. Furthermore, Charterers shall ensure that all sub-charter parties they enter into during the period of this charter contain the following provision: |
The Charterers shall provide the Owners with their full style contact details and, where sub-letting is permitted under the terms of the charter party, shall ensure that the contact details of all sub-charterers are likewise provided to the Owners.
(ii) | Except as otherwise provided in this charter, loss, damage, expense or delay, caused by failure on the part of Charterers to comply with this sub-Clause 47 (b) shall be for Charterers account. |
(c) |
Notwithstanding anything else contained in this charter costs or expenses related to security regulations or measures required by the port facility or any relevant authority in accordance with the ISPS Code/MTSA including, but not limited to, security guards, launch services, tug escorts, port security fees or taxes and inspections, shall be for Charterers account, unless such costs or |
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expenses result solely from Owners negligence in which case such costs or expenses shall be for Owners account. All measures required by Owners to comply with the security plan required by the ISPS Code/MTSA shall be for Owners account. |
(d) | Notwithstanding any other provision of this charter, the Vessel shall not be off-hire where there is a loss of time caused by Charterers failure to comply with the ISPS Code/MTSA. |
(e) | If either party makes any payment, which is for the other partys account according to this Clause, the other party shall indemnify the paying party. |
47. | Law and Litigation |
(a) | This charter shall be construed and the relations between the parties determined in accordance with the laws of England. |
(b) | Each of the parties hereto hereby submits to the exclusive jurisdiction of the High Court of London for the purposes of all legal proceedings arising out of or relating to this charter or the transactions contemplated hereby. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. |
(c) | It shall be a condition precedent to the right of any party to a stay of any legal proceedings in which maritime property has been, or may be, arrested in connection with a dispute under this charter, that that party furnishes to the other party security to which that other party would have been entitled in such legal proceedings in the absence of a stay. |
48. | Confidentiality |
Details of this agreement and the charter to remain strictly private & confidential.
49. | Construction |
The side headings have been included in this charter for convenience of reference and shall in no way affect the construction hereof.
50. | Notices |
a) | Whenever written notices are required to be given by either party to the other party, such notices shall be sent by fax, registered mail, e-mail or registered airmail to the following addresses: |
Notice to Owners:
Pegasus Shipholding S.A.
C/O Dynagas Ltd.
94, Poseidonos Avenue & 2 Nikis Street
166-75 Glyada, Athens Greece
Telephone: +30-210-891-7960
Facsimile: +30-210-894-7275
Attention: LNG Coordination Department.
Email: lngcoordination@dynagas.com
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Notice to Charterers:
Attn | : LNG Chartering Manager | |
Address |
: BG LNG Services, LLC, | |
Suite 1200, 5444 Westheimer | ||
Houston, Texas 77056 | ||
Telephone |
: +1 713 599 3962 | |
Fax |
: +1 713 456 2351 | |
: lngcharters@bg-group.com |
Notice to Owners Operations Department:
Capt. G. Sarimpelas Marine Operations Co-ordinator
Office Telephone: +30-210-891-7700
Mobile Telephone: +30-6978-336-977
Home Telephone: +30-210-263-3726
Facsimile: +30-210-894-7275
Email: lngopsgroup1@dynagas.com
Notice to Charterers Operations Department:
Attn | : Vessel Coordinator | |
Address | : BG LNG Services, LLC, | |
Suite 1200, 5444 Westheimer |
||
Houston, Texas 77056 | ||
Telephone | : +1 713 599 3747 | |
Fax | : +1 713 456 2351 | |
: shipping@bg-group.com |
or to such other addresses as the parties may respectively from time to time designate by notice in writing. Any failure to transmit a copy of the notice to a party listed as entitled to receive a copy shall not in any way affect the validity of any notice otherwise properly given as provided in this Clause.
b) | Any notice required under this charter to be given in writing shall be deemed to be duly received only: |
i) | In the case of a letter, whether delivered in course of the post or by hand or by courier, at the date and time of its actual delivery if within normal business hours on a working day at the place of receipt otherwise at the commencement of normal business on the next such working day. |
ii) | In the case of a facsimile or e-mail, at the time of transmission recorded on the message if such time is within normal business hours (09:00 - 17:00) in the country of receipt, otherwise at the commencement of normal business hours on the next working day at the place of receipt. |
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51. | Invoices |
All invoices should be sent to the following contacts and shall be deemed to be duly received as per Clause 51(b):
Pegasus Shipholding S.A.
C/O Dynagas Ltd.
94, Poseidonos Avenue & 2 Nikis Street
166-75 Glyada, Athens Greece
Telephone: +30-210-891-7960
Facsimile: +30-210-894-7275
Attention: LNG Postfixture Departement
Email: lngcoordination@dynagas.com
Cc lngpostfixture@dynagas.com
Cc lngaccount@dynagas.com
Charterers:
Attn | : LNG Chartering Manager | |
Address | : BG LNG Services, LLC, | |
Suite 1200, 5444 Westheimer | ||
Houston, Texas 77056 | ||
Telephone | : +1 713 599 3962 | |
Fax | : +1 713 456 2351 | |
: lngcharters@bg-group.com |
52. | Ship Contact details |
The Vessels contact details are as follows:
*****
53. | Definitions |
In this charter, save where the context otherwise requires, the following words and expressions shall have the meanings respectively assigned to them in this Clause;
* | means delete as applicable. | |
Boil-Off | means the vapour, which results from vaporisation of LNG in the cargo tanks. | |
Cargo Capacity | means the maximum safe LNG loading limit of the Vessel as per Appendix D. | |
Certificate of Financial Responsibility | means a certificate of financial responsibility as required by the US Oil Pollution Act 1990. |
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Fuel Oil Equivalent | refers collectively to its two components, fuel oil and Boil-Off gas and is measured in metric tonnes applying the fuel oil equivalent factor set out in Clause 28 (f). | |
Fuel Price | means last invoiced price per increment of volume bunkered in USD $ per metric tonne (or relevant volumetric unit) | |
Gas Free | means the Vessels cargo tanks are free off all natural gas vapour and under an atmosphere of inert gas. | |
LNG | means natural gas liquefied by cooling and which is in a liquid state at or near atmospheric pressure. | |
LNG Heel | means liquid cargo retained in the cargo tanks on completion of discharge. | |
LNG Price | means the ex-ship price of LNG in USD/mmBtu at the port where the LNG was retained, based upon composition of LNG at discharge; except for LNG supplied for cool down at a loading port, and for excess LNG boiled off on ballast leg, where the price will be based on the price charged by the terminal for cool down LNG. | |
Service Speed | shall have the meaning ascribed to it in Appendix C, Article 1. (a). | |
BG Group | mean companies owned directly or indirectly by BG Group plc. | |
Radioactivity | means ionizing radiations from or contamination by radioactivity from nuclear fuel, nuclear waste, or the radioactive properties of any nuclear installation, reactor or other nuclear assembly. |
54. | Claim Validity Period |
Any claims arising under this charter party must be brought within twelve (12) months of the termination of the Charter Period.
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55. | Eligibility & Compliance |
At all times during this Charter:
(a) | the Vessel shall be in all respects eligible under applicable conventions, laws and regulations for, and shall not be prevented for any reason whatsoever from, trading to and from the ports and places permitted in clause 4 of the Charter; |
(b) | the Vessel shall comply with all applicable conventions, laws, rules and regulations of any international, national, state or local government entity having jurisdiction and shall have on board for inspection by the authorities all necessary certificates, records, letters and other documents evidencing such compliance, including but not limited to certificates evidencing compliance with international and US oil pollution regulations, SOLAS 1974, as amended, and MARPOL 1973/1978; and |
(c) | When trading to the U.S. the Vessel will comply fully with all applicable U.S. Federal, U.S. Coastguard and State laws, rules, orders, regulations, guidelines and circulars now in effect and which may be promulgated (and subsequent amendments and successors thereto) including, but not limited to, the following provisions relating to maritime safety and oil pollution response : |
i. | the U.S. Federal Water Pollution Control Act (as amended by the Clean Water Act of 1977 (Water Pollution)); |
ii. | the U.S. Oil Pollution Act of 1990 and the governmental regulations issued thereunder (OPA-90); |
iii. | the U.S. Comprehensive Environmental Response, Compensation and Liability Act of 1980; and |
iv. | the U.S. Port and Tanker Safety Act; |
v. | the U.S. Coastguard Navigational and Vessel Inspection Circular No. 8-92; |
vi. | the Code of Federal Regulations |
(d) | the Vessel will have on board throughout the Charter any certificates or other documentation required under the said laws, rules, orders, regulations, guidelines and circulars and evidencing such compliance, and, subject to Clause 4(d) shall include but not be limited to a U.S. Coastguard Certificate of Financial Responsibility for Oil Pollution (COFR) together with a similar certificate for hazardous substances and a Tanker Vessel Examination Letter (TVEL). |
(e) | prior to delivery the Vessel owner or operator will have submitted, and obtained approval from the US Coastguard for a response plan for the Vessel (VRP) which meets in full the requirements of OPA-90 and of the US Coastguard and in accordance with which the Vessel will at all times be operated. Charterers shall reimburse Owners for all port specific OPA charges (including but not limited to additional premium to maintain P&I cover) incurred by the Vessel calling at ports in the USA in accordance with Charterers orders. Requirements of a similar nature imposed by other countries after the date of this Charter shall be treated in the same way. |
(f) | to the extent that the Vessel does not at any time comply with any USCG. regulation now in effect or to be promulgated, all necessary waivers are or will be held. Owners will advise Charterers of all such waivers, including period of validation and reason(s) for waiver. |
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(g) | Owners shall ensure that the Vessel is free to trade to the USA and if Certificate of Compliance (CoC) is not available at the commencement of the charter, then an inspection shall be carried prior to arrival at the first USA port or on arrival at the first USA port. Any delay incurred carrying out this initial inspection that exceeds three hours shall be classified as off-hire. Charterers shall provide sufficient notice to Owners to allow Owners to comply with the rules and regulations in USA and LNG Terminals not listed in Appendix A. |
(h) | If the Vessel is required to discharge at a US port during this charter, the Owners are required to install an AIS Pilot Plug as defined by SOLAS regulations. Specific regulations can be found in Chapter V, Regulation 19 and in Title 33 Code of Federal Regulations §164.46 Automatic Identification System (AIS), Paragraph (d) The AIS Pilot Plug, on each vessel over 1600 gross tons on an international voyage, must be available for pilot use, easily assessable from the primary conning position of the vessel, and near a 120 Volt, AC power, 3-prong receptacle. Additional information regarding proper installation of the AIS Pilot Plug can be found in IMO SN/Circ. 227. |
(i) | When calling at LNG terminals located in ports in the European Union, Vessel must be able to meet the requirements of EU Council Directives 1999/32/EC dated 26 April 1999 and 2005/33/EC dated 6 July 2005 either directly or through the Vessels ability to burn natural gas in port and whilst alongside berth. Owners and Charterers to discuss suitability of modifications Owners are required to undertake to ensure the Vessel shall comply with IMO sulphur limits enforced from 1 January 2015. |
Any direct delays, and/or expenses arising from Owners failure to exercise due-diligence to comply with this clause shall be for Owners account and Owners shall fully indemnify Charterers. Charterers shall not be liable for any delay caused by the Vessels failure to comply with the foregoing warranty.
For any time lost due to a breach of this clause the Vessel shall be off-hire, and direct expenses incurred due to such breach (including bunkers consumed) shall be for Owners account.
56. | Vapour Pressure |
Owners undertake that the Vessel will arrive at each discharge port or terminal with the Vessel and its cargo in such a condition that the vapour pressure in the Vessels cargo tanks meets the requirements of the discharging port or terminal as advised to Owners. In any event, Owners will follow vapour pressure instructions received from Charterers and will not allow vapour pressure to increase beyond the pressure permitted by Charterers voyage instructions
57. | Cargo Transfer Inspection and System Calibration |
Charterers may at their option place their cargo transfer inspection representative on board to observe preparation for loading and discharging of cargo during periods when the Vessel is in port, at Charterers expense. Such representative will not, however, under any circumstances order or direct the taking of any particular action by the Vessel or crew or interfere in any way with the Masters exercise of his authority.
The Custody Transfer Measurement Gauging System (CTMS) shall undergo a full calibration check and recertification by a recognized calibration company at minimum each dry dock. This check shall
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include a full calibration check of the Primary Gauging System, Secondary Gauging System, in tank temperature monitoring system, tank pressure monitoring system, and independent tank hi level alarm(s). The CTMS shall always remain approved and acceptable to Japanese customs.
Charterers shall have access to calibration check reports.
If the Vessel is required to discharge at a Japanese port during this charter, the Owners are required to start Japan customs approval process for the CTMS and cargo tank tables immediately once Charterers notify Owners of intention to discharge at a Japanese port. The Vessel shall comply with Japanese customs approvals requirements throughout the charter period.
58. | Vessel Performance Data |
The Vessel shall upon request provide Charterers with daily reports (and other reports to be agreed between Owners and Charterers) including information retrieved from the Vessels voyage data recorder and or Kyma Ship Performance software or other equivalent system if fitted onboard. If no performance measuring system is on board Owners shall fit, Charterers specified Kyma system onboard the Vessel at Charterers cost.
If the Vessel is equipped with the Kyma Ship Performance software or equivalent system, Charterers require that Owners run a performance trial at sea once per month. When available, both the ship performance software and the steam analyzer software (or equivalent) shall be used to record information during a minimum one hour trial.
A detailed procedure for carrying out the trial shall be included in Charterers Instructions. Owners agree to send the resulting data and/or summary report of the trial to the Charterers within fifteen (15) days of carrying out each trial.
59. | Third Party Vetting Information |
Owners shall permit Charterers to discuss vetting results with third party vetting companies upon Charterers request.
60. | Taxes |
All taxes and dues on the Vessel and on the Charter hire, which are imposed by Vessels flag state and/or by the country in which Owners are domiciled, shall be for Owners account.
61. | U.S. Compliance |
Owners represent and guarantee that Owners and the Vessel are not in any way directly owned, controlled by or related to any Cuban, North Korean, Iranian, Myanmar, Libyan, or Sudanese interests.
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62. | Owners Defaults |
(a) | Each of the following events shall be deemed to be a breach of this Charter and an Owners Default for the purposes of this Charter: |
i. | if any licence, approval, consent, authorisation or registration at any time necessary for Owners to comply with their obligations under this Charter, or in connection with the ownership and operation of the Vessel, is revoked with just cause, withheld or expires or is modified so as to prevent or materially delay the lawful performance by Owners of their obligations hereunder (unless remedied, if capable of remedy, within thirty (30) days); |
ii. | if an order is made, or an effective resolution passed, for the compulsory or voluntary winding-up or dissolution of Owners (other than for the purposes of amalgamation or reconstruction in respect of which the prior written consent of Charterers has been obtained) or if Owners suspend payment of or are unable to or admit inability to pay, their debts as they fall due or make any special arrangement or composition with their creditors generally or any class of their creditors; |
iii. | if an administrator, administrative receiver, receiver or trustee or similar official is appointed in respect of the whole, or a material part, of the property, assets or undertaking of Owners, and such appointment is not discharged within thirty (30) days of the date of such appointment (unless such appointment is being contested by Owners in good faith by appropriate proceedings) or if Owners apply for, or consent to, any such appointment; |
iv. | if any event occurs in relation to Owners in any jurisdiction which has an effect equivalent to any of the events specified in ii) and iii) above; |
v. | if an encumbrancer takes possession of, or distress or execution is levied upon, the whole, or a material part, of the property, assets or undertaking of Owners and the same shall not be discharged within thirty (30) days of the date of commencement of such action unless such possession or levy is being contested by Owners in good faith by appropriate proceedings; |
vi. | if Owners cease to carry on their business, or dispose of the whole, or a material part, of their property, assets or undertaking without Charterers consent; |
vii. | if Owners cease to be a corporation duly registered in good standing in its place of incorporation without Charterers consent; |
viii. | if any of the events specified in ii) to vii) inclusive above occurs (mutatis mutandis) in relation to the Parent Company Guarantor; |
ix. | if it becomes impossible or unlawful for Owners to fulfil any of their obligations under this Charter, or for Charterers to exercise any of the rights vested in them by this Charter, or this Charter for any reason becomes invalid or unenforceable or ceases to be in full force and effect or Owners repudiate this Charter; |
x. | if the Vessel is arrested as a consequence of any claim or event other than a claim arising by, through or under acts, deeds or omission of Charterers and is not released for any reason from such arrest within thirty (30) days after being arrested; |
xi. |
if Owners are in material breach of any other provision of this Charter with serious and adverse consequences to Charterers; and Owners have failed to cure such breach |
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within a reasonable period of time but in no event longer than thirty (30) days after notice of such breach from Charterers (unless such breach has a shorter cure period hereunder, in which case, the shorter period shall apply. |
(b) | Upon the occurrence of an Owners Default and at any time thereafter for so long as such default is continuing, and whether or not the Time Charter has commenced, Charterers shall be entitled to terminate this Charter by giving notice in writing to Owners. This Clause 63(b) is without prejudice to any other rights Charterers may have hereunder or at common law. |
63. | Charterers Defaults |
(a) | Each of the following events shall be deemed to be a breach of this Charter and a Charterers Default for the purposes of this Charter: |
i. | if an order is made, or an effective resolution passed, for the compulsory or voluntary winding-up or dissolution of Charterers (other than for the purposes of amalgamation or reconstruction in respect of which the prior written consent of Owners has been obtained) or if Charterers suspend payment of, or are unable to or admit inability to pay, their debts as they fall due or make any special arrangement or composition with their creditors generally or any class of their creditors; |
ii. | if an administrator, administrative receiver, receiver or trustee or similar official is appointed in respect of the whole, or a material part, of the property, assets or undertaking of Charterers, and such appointment is not discharged within thirty (30) days of the date of such appointment (unless such appointment is being contested by Charterers in good faith by appropriate proceedings) or if Charterers apply for, or consent to, any such appointment; |
iii. | if any event occurs in relation to Charterers in any jurisdiction which has an effect equivalent to any of the events specified in (ii)) and (iii)) above; |
iv. | if an encumbrancer takes possession of, or distress or execution is levied upon, the whole, or a material part, of the property, assets or undertaking of Charterers and the same shall not be discharged within thirty (30) days of the date of commencement of such action unless such possession or levy is being contested by Charterers in good faith by appropriate proceedings; |
v. | if Charterers cease to carry on their business, or dispose of the whole, or a material part, of their property assets or undertaking without Owners consent; |
vi. | if Charterers cease to be a corporation duly registered in good standing in its place of incorporation without Owners consent; |
vii. | if it becomes impossible or unlawful for Charterers to fulfil any of their obligations under this Charter or for Owners to exercise any of the rights vested in them by this Charter, or this Charter for any reason becomes invalid or unenforceable or ceases to be in full force and effect or Charterers repudiate this Charter; |
(b) | Upon the occurrence of a Charterers Default and at any time thereafter for so long as such default is continuing, and whether or not the Time Charter has commenced, Owners shall be entitled to terminate this Charter by giving notice in writing to Charterers. This Clause 64(b) is without prejudice to any other rights Owners may have hereunder or at common law. |
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64. | Quiet Enjoyment |
The Owners acknowledge that the Charterers shall be entitled to the quiet enjoyment and use of the Vessel under this charter throughout the charter period without interruption.
Any mortgage, lien, claim, encumbrance or security interest of whatsoever nature on the Vessel, shall be subordinate to any right the Charterer has, and exist without any prohibition to the Charterer and shall not limit in any way the Vessels ability to perform this Charter or limit in any way the trading limits of the Vessel. Owners shall disclose this Clause, 64, when such a mortgage, lien, claim, encumbrance or security interest of whatsoever nature on the Vessel will be secured.
65. | Rights of Third Parties |
No provision of this Charter shall, under the Contracts (Rights of Third Parties) Act 1999, confer any benefit on, nor be enforceable by, any person who is not a party to this Charter.
66. | Health, Safety, Security & Environmental Reporting and Requirements |
(a) | Owners shall ensure that all crew and supernumeraries are provided an orientation training programme to the Vessel with training relevant under the SMS. Owners shall ensure that all subcontractors visiting the Vessel shall receive a briefing or information on the parts of the SMS relevant to their visit and comply to the owners HSSE policies and procedures during the visit. |
(b) | Owners shall document and report immediately to Charterers any incidents of environmental damage, any unforeseen activity or event which could have led to environmental damage as per ISO 14001 Standards, release or venting of hydrocarbons, breaches or potential breaches of environmental regulations or complaint from local groups, organisations including enforcement agencies or individuals; |
(c) | If requested by the Charterers and mutually agreed by both parties, Owners may participate in an emergency response exercise; |
(d) | In the event of a fatality in connection with the charter of the Vessel, Owners are to notify Charterers immediately. In the event of a lost time injury, Owners shall notify Charterers in writing, within seven (7) days of the incident and Charterers may be invited to participate in any subsequent incident investigation; |
(e) | Owners shall implement a Behavioural Based Safety (BBS) observation system or equivalent. Owners shall submit a minimum of (five) 5 BBS observations per month, using the form set forth in Appendix B; |
(f) | Owners shall submit to Charterers a monthly written report, within ten (10) days of the end of each month that the Vessel is on hire, detailing all accidents/incidents and environmental reporting requirements, in accordance with the Safety and Environmental Monthly Reporting Template appended hereto (Appendix B) as identified by the Owners reporting requirement; |
(g) | Owners shall maintain HSSE records sufficient to demonstrate compliance with the requirements of the SMS and provide Charterers the right to confirm compliance with HSSE requirements by audit of Owners, including but not limited to the right to audit and review Owners facilities, services and/or performance of its activities as mutually agreed by the Owners; |
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67. | Brokers Commission |
The broker for this arrangement is Poten & Partners. The brokerage fee is 1.25% of the charter hire, which is to be paid by Owners.
Appendix A: | List of Primary Terminals. |
Appendix B: | Safety and Environmental Monthly Reporting Template |
Appendix C: | Detailed Performance Criteria |
Appendix D: | LNG Form C for the Vessel |
Appendix E: | Crew Experience Matrix |
Agreed and signed by Owners | Agreed and signed by Charterers | |||||||
/s/ Efstratios Athanasakos |
/s/ B. A. Bhat |
|||||||
Name: | Efstratios Athanasakos | Name: | B. Amrit Bhat | |||||
Title: | Attorney in Fact | Title: | Director Methane Services Limited | |||||
Date: | 19 May 2011 | Date: | 18 May 2011 |
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APPENDIX A List Of Primary Terminals
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APPENDIX B Safety and Environmental Monthly Reporting Template
The items below (1 through 6) are included in the electronic monthly report which will be sent out to the Vessel and which shall be filled out on board, and sent back to Charterers.
Persons on board:
No. of officers
No. of ratings
No. of stewards
No. of cadet & supernumeraries
Incidents details for the reporting month:
No. and details of LTIs
No. and details of Restricted Work Day Cases
No. and details of Medical treatment cases
No. and details of First Aid Cases and Work Related in Illnesses
No. and details of Near Miss reports
Quality Performance:
No. Port State Control Detentions
No. of Port State Control Deficiencies
No. of non-conformities or observations from external parties
No. of critical equipment work orders overdue
% PMS work orders overdue
No. of control loops on
No. of active safety system overrides
Pollution Management General
Monthly cargo discharged
Monthly distance steamed
Oil spills
LNG venting
Refrigerant gas consumption / type / equipment
Pollution Management - Fuel Consumption:
HFO Consumed/ Sulphur %/ Equipment
MDO consumed/ Sulphur %/ Equipment
MGO consumed/ Sulphur %/ Equipment
BOG Consumed/ Equipment
Pollution Management - Waste Management:
Estimated amount discharged at Sea (CAT 1-6)
Non- hazardous - Disposed to shore
Non- hazardous - Amount incinerated
Hazardous - Disposed to shore
Hazardous - Amount incinerated
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APPENDIX C Detailed Performance Criteria
CONTENTS
Article 1. | Speed Warranties |
Article 2. | Timeliness |
Article 3. | Guaranteed Daily Fuel Consumption |
Article 4. | Definitions for Fuel Consumption Calculations |
Article 5. | Basis of Calculation for Fuel Consumption |
Article 6. | Actual Fuel Consumption on a Voyage |
Article 7. | Guaranteed Maximum Boil-Off |
Article 8. | Boil-Off Calculations |
Article 9. | Spray Cooling, Forced Vaporisation and use of Boil-Off |
Article 10. | Provisions for Gauging |
Article 11. | Underwater Cleaning / Waiting at Anchorage |
Article 12. | Interpretation |
Article 13. | Weather Limits for Performance Warranties |
Article 14 | Claim Validity Period |
1. | Speed Warranties |
(a) | Owners guarantee that the Vessel is capable of steaming and, subject to Article 1(b), shall steam at the Laden Service Speed or the Ballast Service Speed as set out in Clause 28(a) and (b) as applicable (the Service Speed). |
(b) | Charterers may order the Vessel to steam at the Service Speed or at any lesser average speed but not less than the Minimum Speed as set out in Clause 28 (c) and not at a greater average speed, except with Owners consent, which shall not be unreasonably withheld. For the avoidance of doubt, it is agreed that Owners may decline orders to steam at any lesser average speed than the Minimum Speed or at any greater average speed than the Service Speed for operational reasons. |
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2. | Timeliness |
(a) | Prior to each voyage Charterers may, subject to Article 1(b), instruct the Vessel to proceed so as to arrive at the pilot boarding station at each port at a given date and time (the Scheduled Arrival Time or SAT). Provided however: |
(i) | In the event that Charterers fail to provide a SAT to Owners the SAT shall be deemed to be the estimated arrival time of the Vessel assuming the Vessel steams at the Service Speed by the shortest safe route to the named port measured from pilot station to pilot station (a Sea Passage) (or the route specified by Charterers, if different) from the time Charterers instruct the Vessel to proceed. |
(ii) | The SAT shall in any event not be earlier than the estimated arrival time calculated in accordance with Article 2(a)(i). |
(iii) | Subject to Article 1(b), Charterers may amend the SAT from time to time during or prior to each voyage to accommodate changes in circumstances concerning the voyage (the Amended SAT). |
(iv) | The speed at which the Vessel needs to steam in order to meet the SAT or the Amended SAT or any permissible speed ordered by the Charterers shall be a Guaranteed Speed. |
(b) | Charterers shall compare the actual time of arrival of the Vessel at the pilot station at each port with the SAT save that if the SAT was amended solely for reasons not attributable to any failure in performance by the Vessel, then such comparison shall be made with the Amended SAT. |
(c) | If the Vessel arrives at the pilot station at the arrival port not later than three (3) hours after the SAT or Amended SAT, where applicable, the Vessel shall be deemed to have arrived On Time. If the Vessel arrives at the pilot station more than three (3) hours after the SAT, or Amended SAT where applicable, the Vessel shall be deemed to have arrived Late. |
(d) | Subject to Article 2(e) and (f), Charterers shall be entitled to make a deduction from hire in respect of any period by which the Vessel arrives Late. |
(e) | Notwithstanding the foregoing but subject to Article 2(f), Charterers shall not be entitled to make any deduction from hire if the Vessel arrives Late to the extent that such late arrival is caused by one or more of the following during the voyage: |
(i) | the incidence of bad weather, being any day in which the Vessel has to proceed in wind force in excess of Beaufort Force 5 for more than 12 (twelve) hours noon to noon, or |
(ii) | poor visibility, or |
(iii) | congested waters, or |
(iv) | alterations in speed or course to avoid areas of bad weather, or |
(v) | any period spent at a waiting area following arrival, or |
(vi) | the saving of life or (with Charterers consent) property, (Article 2(e)(i)(ii)(iii)(iv) and (v) being known as Restricted Periods), or |
(vii) | any period when the Vessel is off-hire at sea on any individual voyage. The master shall record in his daily noon report the time lost in the previous 24 hours due to any of the matters referred to in this Article 2(e). |
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(f) | If the Vessel arrives Late the following calculation shall be made to assess the period in respect of which Charterers shall be entitled to deduct hire. The speed of the Vessel shall be calculated over the Sea Passage excluding all Restricted Periods (the Achieved Speed). If the Achieved Speed equals or exceeds the Guaranteed Speed Owners shall be deemed to have met the speed warranties. If the Achieved Speed is less than the Guaranteed Speed Charterers shall apply the Achieved Speed to the total Sea Passage and the time at which the Vessel would have arrived if steaming at the Achieved Speed shall be the Deemed Arrival Time. Charterers shall be entitled to deduct hire to the extent to which the Deemed Arrival Time exceeds the SAT by more than three hours. |
(g) | The relationship between this Article 2 and Clause 23 shall be as follows: |
(i) | Periods of off-hire under Clause 23 shall be excluded for all purposes from calculations under this Article 2. |
(ii) | Article 2 shall apply to deal with lateness to which Clause 23 does not apply pursuant to Clause 23 (b). |
3. | Guaranteed Daily Fuel Consumption |
(a) | Owners guarantee that subject to the other provisions of Appendix C, the maximum daily fuel consumption of the Vessel for all purposes shall not exceed the quantities tabulated in Clause 28(e) and, where applicable shall be prorated between the speeds shown. |
(b) | The average speed in knots on any Voyage (as defined in Article 4) shall be calculated by reference to the observed distance steamed and the duration of the Voyage, but excluding from the calculation of average speed the duration of all off-hire periods and distance covered in such periods and excluding the distance covered during any deviation which is not an off-hire period because the Vessel arrives On Time. |
4. | Definitions for Fuel Consumption |
(a) | In this Appendix C: |
(i) | EOP means the time the Vessel records End of Passage on arrival after any voyage. |
(ii) | FAOP means the time the Vessel proceeds Full Away On Passage from her departure point on a voyage. |
(iii) | fuel refers collectively to its two components, fuel oil and Boil-Off, measured in tonnes of Fuel Oil Equivalent, while fuel oil refers only to the oil component of the fuel. |
(b) | For the purpose of fuel consumption calculations a voyage shall, where applicable, be divided into separate segments (each a Voyage). A Voyage shall be deemed to have started either: |
(i) | at FAOP or |
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(ii) | immediately after an off-hire period, or |
(iii) | at the time the Vessel alters speed to comply with an amended SAT or otherwise pursuant to Charterers orders as the case may be. |
(c) | A Voyage shall be deemed to have ended either: |
(i) | at EOP, or |
(ii) | immediately before an off-hire period, or |
(iii) | at the time the Vessel alters speed to comply with an amended SAT or otherwise pursuant to Charterers orders as the case may be. |
5. | Basis of Calculation for Fuel Consumption |
(a) | For each Voyage the guaranteed fuel consumption shall be calculated by multiplying the maximum daily consumption as determined pursuant to Article 3 by the duration of the Voyage calculated on the assumption that the Vessel steamed at the Guaranteed Speed. In calculating both the guaranteed fuel consumption and the actual fuel consumption Restricted Periods pursuant to Article 2(e) shall be excluded. Subject as hereinafter provided, there shall be a saving of fuel for that Voyage equal to the amount by which the guaranteed fuel consumption exceeds the actual fuel consumption and an excess consumption for that Voyage equal to the amount by which the actual fuel consumption exceeds the guaranteed fuel consumption. Such saving or excess shall be adjusted to take into account the Restricted Periods by dividing such saving or excess by the number of miles over which the fuel consumption has been calculated and multiplying by the same number of miles plus the miles steamed during the Restricted Periods in order to establish the total saving or excess in fuel consumption for the Voyage. |
(b) | If on any Voyage the Vessel has to steam faster than the Service Speed or slower than the Minimum Speed pursuant to Charterers orders, or in order to achieve the SAT (provided this is not attributable to any failure of performance by the Vessel), the Vessel shall be deemed to have complied with the fuel consumption guarantees for the duration of such Voyage. |
(c) | Owners warranties relating to speed and fuel consumption shall not apply to the period between the end of one Voyage and the start of the next Voyage as described in Article 4. |
(d) | As soon as practicable after receipt of the necessary voyage returns, Charterers shall furnish Owners with their calculations determining fuel consumption on each Voyage. |
(e) | At the conclusion of the charter period or annually (whichever occurs first) (the Performance Period), the quantities of excess fuel used and the quantities of fuel saved on all voyages in the Performance Period shall each be added up. The total of fuel saved for the Performance Period shall then be subtracted from the total of excess fuel used for the Performance Period and if the balance is positive Charterers shall deduct from hire due under Clause 11 an amount calculated by multiplying the net excess quantity of fuel consumed for the Performance Period by the weighted average price paid by the Charterers for fuel oil for the Vessel over the Performance Period in question. If the balance is zero or negative, Owners shall be deemed to have complied with their Fuel consumption obligations for the Performance Period. |
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6. | Actual Fuel Consumption on a Voyage |
(a) | The actual fuel consumption on a Voyage shall, subject to Article 6(b), be the sum of, |
(i) | the fuel oil consumed during the Voyage (expressed in tonnes ) and excluding any fuel oil used in any off-hire period on that voyage; and |
(ii) | the fuel equivalent of the total volume of cargo lost as Boil-Off during the Voyage (expressed in tonnes of Fuel Oil Equivalent) excluding any Boil-Off in any off-hire period on that voyage and excluding any Boil-Off in excess of guaranteed maximum Boil-Off under the provisions of Article 8. |
(b) | For the purpose of this Article 6 the Fuel Oil Equivalent of the LNG lost as Boil-Off which is available as fuel during the voyage shall be assumed to be the total volumetric loss of the cargo, measured in cubic meters, as determined from the difference between gaugings at the loading and discharging ports (in accordance with Article 9), pro rated for the difference between the on hire voyage and gauging times and multiplied by the Fuel Oil Equivalent factor set out in Clause 28(f). |
7. | Guaranteed Maximum Boil-Off |
(a) | Owners guarantee that Boil-Off shall not exceed: |
(i) | the maximum laden Boil-Off percentage stated in Clause 28(g); and |
(ii) | the maximum ballast Boil-Off percentage stated in Clause 28(h). |
(b) | If Charterers give orders that require the temperature or vapour pressure of a cargo to fall during a laden sea passage and that order is complied with, the Boil-Off guarantee shall be deemed to have been complied with on that sea passage. |
8. | Boil-Off Calculations |
(a) | The Boil-Off excess or saving on any sea passage shall be calculated by comparing the guaranteed Boil-Off for the sea passage (i.e. the daily guaranteed maximum Boil-Off multiplied by the time between gaugings) with the actual Boil-Off. |
(b) | The actual amount of Boil-Off on a sea passage shall be calculated by subtracting the volume of LNG contained in the Vessels tanks at gauging after the sea passage from the volume therein at gauging before the sea passage. |
(c) | If the Vessel was off-hire during any sea passage the excess or saving shall be pro rated in the same proportion as the time on hire is to the total time between gaugings. |
(d) |
At the conclusion of the charter period or annually (whichever occurs first) (the Performance Period), the quantities of excess Boil-Off and the quantities of Boil-Off saved on all trips in the |
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Performance Period shall each be added up. The total Boil-Off saved for any such period shall then be subtracted from the total excess Boil-Off in the same period and if the balance is positive Charterers may deduct from hire due under Clause 11 an amount calculated by multiplying the said balance by the LNG Price or, if more than one LNG Price is applicable during the Performance Period, the arithmetical average of such LNG Prices. If the balance is zero or negative, then Owners shall be deemed to have complied with this Clause for the Performance Period. |
9. | Spray Cooling, Forced Vaporisation and use of Boil-Off |
(a) | If on any sea passage, Charterers order the Vessel to force vaporise LNG to for whatever reason and the order is complied with, the Boil-Off guarantee shall be deemed to have been complied with on that sea passage. |
(b) | The master shall notify Charterers if he is of the opinion that the Vessel will not, on arrival at the loading port, be able to commence bulk loading within half an hour after cooling of the loading arms even with spray cooling on the ballast sea passage. |
(c) | Without prejudice to any of Owners or Charterers obligations under this Article 9; if Owners intend to order spray cooling at any time during the charter period, Owners agree, if requested by Charterers, to discuss the reasons and technical basis for spray cooling |
(d) | Subject to the provisions of this charter, Owners shall have free use of Boil-Off. Owners shall exercise due diligence to minimise the use of the steam dump system during the normal operation of the vessel. At no time during the charter period, (except for safety reasons) shall the Vessel use the vent system as a primary means of controlling the cargo tank pressures. Any such safety related venting, or venting caused by any other reason, shall immediately be reported to Charterers (as required in Appendix B) with full explanation as to why venting was required and duration and quantity of venting. |
10. | Provisions for Gauging |
(a) | The time at which any volume of LNG is determined is referred to in this charter as a gauging time. |
(b) | In relation to any laden sea passage the cargo volume on loading at the start of the laden sea passage shall be the volume of LNG contained in the Vessels cargo tanks measured promptly after the closing of the Vessels manifold vapour return valve in the loading port and on discharge at the end of the laden sea passage shall be the volume of LNG contained in the Vessels cargo tanks measured promptly before the opening of the Vessels manifold vapour return valve in the discharge port. |
(c) | In relation to any ballast sea passage the LNG heel volume after discharge (i.e. at the start of the ballast sea passage) shall be the volume of LNG contained in the Vessels cargo tanks measured promptly after the closing of the manifold vapour return valve in the discharge port and the LNG heel volume on loading (i.e. at the end of the ballast sea passage) shall be the volume of LNG contained in the Vessels cargo tanks measured promptly before the opening of the Vessels manifold vapour return valve in the loading port. |
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11. | Underwater Cleaning / Waiting at Anchorage |
(a) | Charterers may request Owners at any time to arrange for the cleaning afloat of the Vessels underwater hull and propeller whereupon Owners shall arrange for the said cleaning to take place provided that: |
(i) | the Vessel is free of cargo but may be under vapour if permitted by the port authority and; |
(ii) | in Owners opinion such cleaning will not damage in any way the Vessels underwater hull coatings and; |
(iii) | such cleaning afloat can be carried out safely at a place approved by Owners and where the water is sufficiently clear for an underwater survey to be made of cleanliness of the Vessels hull and propeller immediately thereafter; |
(b) | The cost of such underwater hull and propeller cleaning and underwater survey referred to in Article 11 (a) shall be for Charterers account and the Vessel shall remain on hire for their duration. If the underwater survey shows that both the Vessels underwater hull and propeller are clean, a successful cleaning shall be deemed to have occurred. |
(c) | If Charterers order the Vessel to wait at anchorage or in lay up for more than 20 days on any one occasion or more than 60 days comprising periods of not less than 5 days each in any period of 6 months, and, if as a result of such waiting or lay up Owners have good reason to believe that the performance of the Vessel or her fuel consumption is affected and speed and/or fuel warranties can no longer be met because of fouling then Owners shall so state by written notice to Charterers and if Charterers request, shall carry out an underwater inspection at Charterers expense to see if there is fouling of the hull and/or propeller. |
To prevent hull fouling from marine growth during charter period, wherever practically possible, Charterers are required to steam the Vessel for a period of 24 hours, every 7 days after anchoring, at a speed between 14 and 15 knots.
(d) | If as a result of the aforesaid inspection, Owners consider that there is evidence of such fouling then if Charterers so request, Owners shall arrange and carry out cleaning afloat of the Vessels underwater hull and propeller provided that the provisions of Article 11 (a)(i), (ii) and (iii) apply. |
(e) | The cost of such underwater hull and propeller cleaning and underwater survey referred to in Article 11 (d) shall be for Charterers account and the Vessel shall remain on hire for their duration. If the underwater survey shows that both the Vessels underwater hull and propeller are clean, a successful cleaning shall be deemed to have occurred. |
(f) | If any inspection pursuant to Article 11 (c) reveals the presence of hull or propeller fouling, or if Charterers decline to request an inspection following receipt of a notice from Owners under Article 11 (c), then from the time Owners give written notice that performance is affected by fouling, Owners shall be deemed to have complied with the speed and fuel warranties until the completion of the next periodic dry-docking or successful cleaning, whichever occurs sooner. |
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12. | Interpretation |
(a) | In this Appendix C, Article shall mean an Article of this Appendix, and Clause shall mean a Clause of the charter. |
(b) | In the event of any conflict between the charter and Appendix C, Appendix C shall prevail. |
13. | Weather Limits for Performance Warranties |
Speed, boil-off and fuel consumption warranties defined in this Appendix are not valid under weather conditions in which the Vessel has to proceed in wind force in excess of Beaufort Force 5 for more than 12 (twelve) hours noon to noon.
For the purposes of calculating claims, the Wind Force reported in the Masters noon report shall be used. Charterers may employ the services of a reputable weather reporting company at their own cost. In any dispute, the weather reporting company numbers shall prevail.
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APPENDIX D Gas Form C
Hyundai Heavy Industries S No. 1748
FORM C (GAS)
SPECIFICATIONS OF THE VESSEL AND THE GAS INSTALLATION WHICH ARE REPRESENTATIONS BY THE OWNERS.
A. | VESSELS CHARACTERISTICS |
PREAMBULE |
S/S | : | LNG CARRIER CLEAN ENERGY | ||
OWNER |
: | PEGASUS SHIPHOLDING S.A. | ||
OPERATOR |
: | PEGASUS SHIPHOLDING S.A. | ||
FLAG |
: | Marshall Islands | ||
BUILT |
: | 2007 | ||
DATE OF DELIVERY |
: | 2 nd MARCH 2007 |
CLASS: | LR+100A1 Liquefied Gas Tanker Ship type 2G, Methane (LNG) (membrane tank 0.25 bar, -163C, 500 kg/m3), IWS Ship Right (SDA. FDA + CM) + LMC. UMS. ICC. NAV1. IBS. SCM. EP. LI. BWMP (S) SERS with descriptive note pt HT steel SEA (HSS-4L, VDR) |
GRT | International: | 100,244 | Suez: | 103,525.75 MT | Panama: N.A. | |||||||||||
NRT | International: | 30,073 | Suez: | 88,241.74 MT | Panama: N.A. |
IS VESSEL BUILT ACCORDING TO: USCG REGULATIONS? YES
HAS VESSEL RECEIVED USCG APPROVAL? YES
HULL : | ||||||
LOA | : | 288.18 m | ||||
LBP | : | 275.00 m | ||||
BREADTH | : | 44.20 m | ||||
DEPTH (moulded) | : | 26.00 m | ||||
SUMMER DRAFT(moulded) | : | 12.35 m | ||||
SUMMER DRAFT (extreme) | : | 12.37 m | (Corresponding deadweight : 85,513 T) | |||
DESIGNED DRAFT | : | 11.35 m | ||||
LIGHT WEIGHT | : | 30,812.3 T | ||||
FWA | : | 0.274 m | ||||
KTM | : | 52.54 m | (Antenna + Xmas tree lowered : 50.75 m) |
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68. | ESTIMATED DRAFT WITH FULL CARGO AND FULL BUNKERS |
Product | Draughts (moulded) | Corresponding | ||||||
LNG |
Forward | Mean | Aft | Deadweight | ||||
Designed draught | 11.35 m | 11.35 m | 11.35 m | 74,994 MT | ||||
Max draught | 12.37 m | 12.37 m | 12.37 m | 85,513 MT |
Immersion at draft : |
11.35 m= 104.0 MT/cm | |
12.35 m= 106.0 MT/cm |
COMMUNICATION EQUIPMENT
CALL LETTERS | : | ***** | ||
RADIO STATION NORMALLY WATCHED | : | YES | ||
RADIO TELEX (NBDP) | : | YES - MMSI : ***** | ||
RADIO TELEPHONY | : | YES | ||
VHF | : | YES | ||
SATELLITE COMMUNICATION F-77 | : | ***** | ||
SATELLITE COMMUNICATION F-33 | : | ***** | ||
SATELLITE COMMUNICATION C | : | ***** | ||
IRIDIUM | : | ***** | ||
E-MAIL ADDRESS | : | ***** |
MACHINERY
MAIN ENGINE | -Make and type | : | Main Turbine Maker : Kawasaki Japan : One (1) set | |||
Type : KHI UA400 | ||||||
Two Cylinder Cross Compound Marine steam turbine, consisting of a HP turbine and LP turbine with built-in astern turbine. | ||||||
- Service power | : | MCR 39,000 BHP @ 88 rpm | ||||
- Normal output | : | 35,100 BHP @ 85 rpm. | ||||
- Grade of fuel used | : | up to 700 cSt @ 50 ºC | ||||
AUXILIARIES | - Type and make | : | Two (2) sets of Turbogenerators SHINKO RG 92-2 | |||
Multi-stage, impulse type with reduction gear. | ||||||
- Service power | : | 3,850kW each | ||||
- Type and make | : | One (1) set of Diesel Generator | ||||
HHI-MAN B&W 9L34/40 | ||||||
4-stroke trunk piston type. | ||||||
- Service power | : | 3,850 kW. |
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SPEED
The guaranteed average sea speed at the designed draft of 11.35m, on even keel and on a year period shall be ***** under weather conditions not exceeding Beaufort scale 5, 50% LOADED 50% BALLAST.
CONSUMPTION / DAY
AT SEA:
MAIN ENGINE
Speed | 100 % HFO (HCV 10,280 kcal/kg) | |
***** | ***** |
IN PORT:
AUX. ENGINE | ***** T/day in case D/G running only. | |
BOILERS | ***** T/day depending on operations |
PERMANENT BUNKER CAPACITY ALLOWING AN ULLAGE OF 95 %
HFO (incl. low sulphur oil) | 6,784.3 MT | (SG 0.99 MT/m3) | ||||
DIESEL (MDO+GO) | 360.1 MT | (SG 0.85 MT/m3) | ||||
LUB OIL | 308.0 MT | (SG 0.90 MT/m3) |
B. CARGO INSTALLATIONS
1. TRANSPORTABLE PRODUCTS AND RESPECTIVE QUANTITIES, calculated in accordance with IMO - maximum filling formula.
Cargo tanks |
100% capacity
At 20 deg C Excluding dome |
98.5 % capacity
At 160 o C Excluding dome |
98 % capacity
At 160 o C Excluding dome |
LNG 98 % filling
SG: 0,50 @ 163°C Excluding dome |
||||||||||||
(m 3 ) | (m 3 ) | (m 3 ) | MT | |||||||||||||
Tank 1 |
24,611.108 | 24,241.941 | 24,118.886 | 12,059.443 | ||||||||||||
Tank 2 |
43,219.474 | 42,571.182 | 42,355.085 | 21,177.542 | ||||||||||||
Tank 3 |
43,258.228 | 42,609.355 | 42,393.063 | 21,196.531 | ||||||||||||
Tank 4 |
38,666.466 | 38,086.469 | 37,893.137 | 18,946.568 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
TOTAL |
149,755.276 | 147,508.947 | 146,760.171 | 73,380.084 | ||||||||||||
|
|
|
|
|
|
|
|
Note : MAX DENSITY OF CARGO: 500kg/m 3 .
2. OTHER TRANSPORTABLE PRODUCTS
NIL
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3. TANKS
3.1. Working pressure | : | Between 70 200 mbar g | ||
3.2. Valve setting | : | 0.25 bar g (opening) | ||
0.22 bar g (closing) | ||||
3.3. Maximum vacuum obtainable | : | 1 kPa g (safety valve) | ||
3.4. Maximum specific gravity | : | 0.500 MT/m 3 | ||
3.5. Maximum temperature acceptable | : | 163°C (0°C = 273 K) |
4. LOADING RATE
4.1. ex atmospheric storage, with gas return :
About 13,500m/hr at not more than 2.0 bar g pressure at the flange connection between ship and terminal.
Loading full cargo within 12 hours using three (3) liquid manifolds and a vapour manifold excluding cooling down time and provided ample vapour return facilities on shore.
without vapour return : N/A.
4.2 UNLOADING
About 14,400 cm/hr with a back pressure at the flange connection between ship and terminal not exceeding 100 mlc of liquid LNG of S.G. 0.47 measured inboard of the manifold strainer with cargo tanks at mid level.
Unloading full cargo within 12 hours using three (3) liquid manifolds and a vapour manifold excluding build up period for starting pumps and slow down or stripping at the end of unloading.
5. CARGO PUMPS.
5.1. | Main cargo pumps : |
Type | : | electric motor driven submerged vertical centrifugal 16EC-24 | ||
Make | : | EBARA International Corp. | ||
How many | : | Eight (8) (2 per tank) | ||
Maximum specific gravity | : | 0.500 T/m 3 |
5.2. | Capacity each (CBM/hour) : 1,800 m 3 /h at 155 m. T.H. |
Two speed or variable speed : No | ||
Max Working pressure LNG 10.0 kg/cm 2 g |
5.3. | Location: within cargo tanks |
Removable: No |
5.4. | Stripping / Spray pumps : Four (4) (1 in each tank) |
Type: | Electric motor driven, Vertical, Centrifugal, Submerged, 2EC-12 | |
Maker: EBARA International Corp. |
5.5. | Capacity (CBM/hour) : 50 m 3 /h x 145 m.T.H. (S.G. max 0.500 T/m 3 ) |
Max Working pressure : LNG 10.0 kg/cm 2 g |
5.6. | Location : within cargo tanks |
5.7 | Emergency cargo pump : One (1) |
Type: | Electric motor driven, Vertical, Centrifugal, Submersible 8ECR-12 | |
Maker: | EBARA International Corp. |
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5.8 | Capacity (CBM/hour) : 550 m 3 /h 155 m.T.H. (S.G. max 0.500 T/m 3 ) |
5.9 | Location : Deck Store (can be installed in cargo tanks 1, 2, 3 & 4) |
5.10 | What amount of cargo remains in tank after completion pumping before stripping: |
- liquid | : | abt. 1198 m3 on evel keel condition | ||
- vapour | : | N/A |
6. STRIPPING
6.1. | Stripping system if any: See above paragraph 5.4 for Stripping/spray pumps. . |
6.2. | Time required to remove all traces of liquid cargo as stated in 5.10 for about four (4) hours |
7. CARGO COMPRESSORS
7.1. | Type | : | High Duty Compressors CM400/55 | |||
Maker | : | Cryostar | ||||
How many | : | Two (2) sets, 32,000 m3/h each. | ||||
Total flow | : | 64,000 m 3 /h |
7.2. | Are compressors oil free: Yes |
7.3. | Type | : | Low Duty Compressors CM300/55 | |||
Maker | : | Cryostar | ||||
How many | : | Two (2) sets, 8,500 m3/h each | ||||
Total flow | : | 17,000 m 3 /h |
8. INERT GAS SYSTEM
8.1. | Does the vessel use inert gas ? | : | Yes | |||
Maker | : | Smit Gas Inert Gas Generator (one (1) set) | ||||
If so, state utilization and quantities | : | Inerting, drying & aeration. | ||||
Capacity : 15,000 Nm 3 /h | ||||||
8.2. | Can the vessel produce inert gas ? | Yes |
If so, state type and composition of gas produce
O 2 | Max 0.5 % by volume | |
CO | Max 100 ppm by volume | |
SOx | Max 10 ppm by volume | |
Nox | Max 100 ppm by volume | |
CO 2 | about 14.0 % vol by volume | |
N 2 | Balance |
Dew point : 45ºC @ atmospheric pressure
8.3. | Maximum capacity : 15,000 Nm 3 /h with discharge press. 250 mbar g |
8.4. | State if there are storage facilities for inert gas on board: No |
8.5. | State if any supply of nitrogen may be required: Yes |
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- for what purpose | : | Breeding in insulation spaces of the cargo tank to maintain pressure, purging of the gas fuel line, cargo pipes, vent masts, fire extinguishing in the vent masts , purging of boiler hood headers and for sealing of cargo compressors glands. | ||
- what quantities | : | Two (2) sets of Nitrogen generators. | ||
Type |
: | Membrane separation, low pressure. | ||
Maker |
: | Air Products | ||
Capacity |
: | 125 Nm 3 /h with dewpoint 65ºC , each | ||
Tank |
: | One (1) N2 Buffer tank 30 m 3 capacity at pressure 1020 kPa |
9. GAS FREEING
9.1. | State method used giving all details: |
| Introducing inert gas into cargo tanks for replacement of warm vapours. |
| Introducing dry air into cargo tanks for replacement of inert gas. |
Dry air blowers (IGG Plant) : Two (2) sets, each 7,500 Nm3/h
9.2. | State time required for gas freeing | : | about 36 hours (warm up) | |||||
20 hours (inerting) | ||||||||
20 hours (aeration) | ||||||||
about 76 hours in total |
Time required for displacing IG with dry air : about 20 hours
9.3 | State consumption of inert gas if any : about 300,000m 3 |
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10. CHANGING GRADE
10.1 From A to B : From completion discharge of cargo A, time required in hours and other gas in CBM.
A B |
LNG |
INERT GAS |
DRY AIR |
|||
LNG |
CH 4 less than 2 % Vol 20 hours
300,000 m3 Inert gas |
|||||
INERT GAS |
CO 2 less than 1% Vol 20 hours
280,000 m 3 LNG |
O 2 = 20 % Vol 20 hours
300,000 m 3 Dry air |
||||
DRY AIR |
O 2 less than 2 % Vol 20 hours
300,000 m 3 Inert gas |
Warming up / inerting : Total about 56 hrs
Cooling down : about 15 hrs Tank mean temperature : -130 ºC
10.2. | Can this operation be carried out at sea? | Yes | ||||
10.3. | Can the ship measure the number of LNG in a vapour phase? | No | ||||
10.4. | Has vessel deck tank for changing grade/cooling operations? | No | ||||
10.5. | Deck tanks : | N/A |
11. COOLING BEFORE LOADING
For fully-refrigerated ship what quantity of cargo is needed and time required, to pre-cool tanks to have them ready to load. (Starting with tanks at ambient temperature filled with cargo vapour and with no vapour return to shore.)
CARGO | MT | HOURS | ||
LNG | abt 550 m 3 = 300 MT (approx.) | 15 (including cool down lines) |
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12. CARGO BOIL OFF / WARM UP HEATER :
12.1. | State heating source: | Steam. | ||
12.2. | Maker : | Cryostar | ||
Type : | BEU 108-UT- 38 /34 -4.6 & BEU 21-UT-38/34-3.2 | |||
Number of units : | Two (2) sets (High Duty and Low Duty) | |||
Capacity : | High Duty Heater : 37,200 kg/hr | |||
Low Duty Heater : 12,000 kg/hr |
13. CARGO VAPORIZER
13.1 : LNG VAPORIZER :
Maker : | Cryostar | |
Type : | BEU 65-UT-38/34-5.6 | |
Capacity : | 22,000 kg/h | |
Number of units : | One (1) set |
13.2 : LNG FORCING VAPORIZER
Maker : | Cryostar | |
Type : | BEU 34-UT-25/21-3.6 | |
Capacity : | 7,100 kg/h | |
Number of units : | One (1) set |
14. REFRIGERATING APPARATUS
N/A
15. MEASURING APPARATUS
What gauges on board?
Primary system : | Radar beam system. Maker SAAB. | |
Secondary system : | Float type level gauge. Maker Whessoe. |
16. SAMPLES
16.1. State how tank atmosphere samples can be taken and where from?
Through sample valves at tank Liquid / gas domes.
Level : Bottom Mid Top
Standard of fitting? Double ball valve ND15 mm.
16.2 Same question for cargo ? Double ball valves ND15 mm & ND8mm.
16.3. Are sample bottles available on board? No
17. CARGO LINES
17.1. Is ship fitted with a port and starboard cargo manifold? YES
BOW | ||
Liquid 1 | 16 150 ANSI | |
Liquid 2 | 16 150 ANSI | |
Vapour | 16 150 ANSI | |
Liquid 3 | 16 150 ANSI | |
Liquid 4 | 16 150 ANSI | |
STERN |
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17.2. Position of cargo manifold : Centre L-L-V-L-L .
- distance from bow : | 144.83 m | |
- distance from stern: | 143.35 m | |
- height above deck / driptray : | 4,938/1,394 m | |
- distance from ships rail : | 3,150 m | |
- height from underside keel : | 30.938 m | |
- distance between lines : | 3.0 m | |
Height above waterline : | ||
- when light ballast : | draught 9.18 m 21.758 m | |
- when loaded : | draught 12.35 m 18.588 m | |
Loading connection | ||
height from centre of flange to first obstacle downward below each flange : 1.379 m |
17.3. Liquid line : | - diameter : | 400mm | ||
- flange - size : | 16 | |||
- type : | 150 ANSI RF type (Max Work Press 10 Bar 145psi) | |||
Vapour line : | - diameter : | 400mm | ||
- flange size : | 16 | |||
- type : | 150 ANSI RF type(Max Work Press 10 Bar - 145 psi) |
17.4. What reducers on board?
For chicksan | 10 × 16- RF (ship side)> 16- FF ANSI (shore side) | |
For STS |
4 × 16 > 8 ANSI |
|
For N2 receiving | N/A |
17.5 Strainers for liquid manifolds
Type : portable conical dual flow type.
8 sets x 16 with mesh size of ASTM 60, four (4) sets directly fitted on liquid dome manifold and four (4) sets to be installed in Cargo gear locker.
17.6. Is ship fitted with stern discharge? NO
- liquid line - diameter :
- flange - size :
- type :
18. REGASSIFICATION SYSTEM N/A
18.1 High pressure pumps
Type: | ||
Maker: | Electric Co., Ltd. |
Capacity: xxx m3/hr x xxxx m. T. H.
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- How many : |
2 cranes | |
- Where situated? |
Adjacent to manifolds on centre line of ship | |
- Lifting capacity: |
10 MT SWL | |
- Maximum distance from ships side of lifting hook when derrick swung outboard? 13.0 m |
21. SPECIAL FACILITIES. |
||
21.1. How many grades can be segregated? |
1 | |
21.2. How many cooled simultaneously? |
1 | |
21.3. Can vessel sail with slack cargo tanks? |
: YES FOR EMERGENCY SHIFTING / NO FOR NORMAL VOYAGE Minimum permissible upper sloshing limit as per latest GTT guidelines and maximum permissible lower sloshing limit as per latest GTT guidelines however not to exceed 2 m of tank height. |
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APPENDIX E Crew Experience Matrix
BG Group Experience Requirements for LNG Vessels on Time Charter
SEAGOING EXPERIENCE ON ANY TYPE OF VESSEL |
||||
Combined sea time on
|
Individual minimum sea time experience on any type of tank vessel |
|||
Master | 12 years | 4 years | ||
Chief Officer | 2 years | |||
Senior 2 nd Officer | 1 year | |||
Chief Engineer | 14 years | 4 years | ||
2 nd Engineer | 2 years | |||
Gas 3 rd Engineer | 2 year |
LNG STEAM VESSEL EXPERIENCE |
||||
Combined
|
Individual minimum sea time experience |
|||
Master | 4 years | Minimum 30 days Observer time on LNG vessel if 4 years experience with another Dangerous Cargo Endorsement OR 2 years LNG experience | ||
Chief Officer | At least 1 year | |||
Gas Engineer | At least 1 year | |||
Chief Engineer | 4 years | Minimum 30 days Observer time on LNG vessel if 4 years diesel experience / 2 years steam experience | ||
2 nd Engineer | Minimum 30 days Observer time on LNG vessel if 2 years diesel experience / 1 year steam experience | |||
3 rd Engineer (x1) | 1 year combined between 3 rd Engineer and 4 th Engineer (inclusive of cadet service) | |||
4 th Engineer (x1) |
Notes: All experience periods are in years of sea time or time on board
Page 66 of 83
PRIVILEGED AND CONFIDENTIAL
ADDENDUM TO THE TIME CHARTERPARTY
Between
PEGASUS SHIPHOLDING S.A.
As Owner
And
METHANE SERVICES LTD
As Charterer
For the charter of
CLEAN ENERGY
As the Vessel
Dated May 18, 2011
It is hereby mutually agreed that the below clause be amended into the above stated time charterparty (the Charterparty) as follows:
5. | Bunkers and LNG Heel at Delivery and Redelivery |
(a) | Upon delivery, Charterers shall purchase all liquid fuels and on board at the Fuel Price and up to 5000m³ of LNG Heel at United States Dollars ***** per mmBtu . Original supplier invoices, or copy thereof, must be provided by Owner to Charterer. |
(b) | Upon Redelivery, Owners shall purchase all liquid fuels on board at the Fuel Price. Original supplier invoices, or copy thereof, must be provided by Charterer to Owner. The Master shall provide an On-Hire and Off-Hire Certificate containing the ROB numbers for all liquid fuels upon both Delivery and Redelivery of the Vessel. Owner or Charterer may choose to use an independent surveyor to verify ROB quantities at their own cost. In any dispute, the surveyor numbers shall prevail. |
(c) | The Vessel shall be delivered with her tanks under natural gas vapour and with up to 5000 m³ of LNG Heel. |
(d) |
The vessel shall be redelivered from the Firm Period in a gas free condition. The Vessel shall be redelivered from the first option period under natural gas vapours or with LNG heel. Owners shall have the option to retain up to 3500 m³of LNG Heel at last discharge of the First Option Period. Such option to be exercised prior to loading of last cargo and to be priced at the ex ship LNG Price in USD per mmBtu. In the case Owners do not wish to retain any LNG Heel, the Vessel shall be instructed to heel out. Any LNG Heel retained onboard after completion of discharge as a result of unpumpable quantities or the Terminals instructions to complete discharge shall be kept by Owners free of costs. In the event the last discharge port rules forbid Charterers to heel out, any LNG Heel remaining onboard the Vessel will be purchased by the Owner |
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at one half (1/2) the Fuel Oil Equivalency price or one half (1/2) the Charterers ex-ship LNG price, whichever is lower. Such LNG Heel shall not to exceed 1000 m³. |
(e) | The Vessel shall be delivered to Charterers with about 2000 MT of bunkers onboard. Throughout the charter (and upon delivery and redelivery) the Vessel shall operate with at least a quantity of bunkers or Fuel Oil Equivalent, as defined in Clause 54, and a quantity of diesel oil and nitrogen (if nitrogen is applicable) on board sufficient to prosecute safely each voyage or reach the nearest safe bunker port. The above amount shall be in addition to a safety reserve of fuel oil, which would enable the Vessel to steam at the Service speed defined in this charter party for a total of five days. |
(f) | Notwithstanding anything contained in this charter all bunkers and LNG Heel on board the Vessel shall, throughout the duration of this charter, remain the property of Charterers or their nominee and can only be purchased on the terms specified in the charter at the end of the charter period or, if earlier, at the termination of the charter. |
(g) | The Master shall provide on On-Hire and Off-Hire Certificate containing the ROB numbers for LNG, HFO, gas oil and diesel upon both Delivery and Redelivery of the Vessel. |
(h) | Owners or Charterers may choose to use an independent surveyor to verify ROB quantities and qualities at their own cost, however, in any dispute, the surveyor numbers shall prevail. |
(i) | As soon as practically possible after receiving notice of Redelivery from Charterers, Owner shall notify Charterer with Owners required bunker quantity to be onboard at Redelivery which shall be agreed by Charterer, such agreement shall not be unreasonably withheld. |
7. | Period, Delivery, Redelivery, Laydays and Cancelling |
(a) | Owners agree to let and Charterers agree to hire the Vessel commencing from the time and date of delivery as provided in Clause 7(b) until time and date of redelivery as provided in Clause 7(d). |
(b) | The Vessel shall be delivered to Charterers between 0001 hours, 4 February 2012 and 2359 hours, 8 February 2012. Owners shall provide Charterers with a 48 hours delivery window no later than 1400 hours London time on the 20 th January 2012. |
(c) | Owners shall deliver the Vessel to Charterers at one safe anchorage in Singapore. Owners shall provide 25, 15, 7, 5, 4, 3, 2, 1 days notice of delivery. |
(d) | The Vessel shall be redelivered prior to the second scheduled special survey dry docking in 2017. |
(e) |
The charter period consist of (i) a five (5) year period plus or minus ten (10) days at Charterers option commencing post scheduled special survey dry docking in 2012 |
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PRIVILEGED AND CONFIDENTIAL
and (ii) a period commencing upon delivery as provided in 7(b) until the Vessels special survey scheduled dry docking in 2012. Delivery and redelivery provisions pertaining to the Vessels dry docking shall be as per Claus 24(c). |
(f) | Owners shall grant Charterers the sole right to extend this charter by an additional three (3) years plus or minus up to ninety (90) days at Charterers option. Such period shall be known as the First Option Period. If Charterers exercise the First Option Period, the Firm Period shall end upon arrival at first inbound pilot boarding station, Singapore. The First Option Period shall commence at dropping last outbound pilot boarding station Singapore, post second five year dry-dock cycle. Charterers shall declare such Option Period no later than twelve (12) months before the termination of this charter. On the declaration date Owners and Charterers shall discuss in good faith potential preferences for alternative dry-dock locations. The plus / minus options must be declared no later then one hundred and eighty (180) days before the notional expiration of the term and will apply only to the last term in question. |
(g) | Charterers shall redeliver the Vessel to Owners Dropping First inbound Pilot boarding station, Singapore. Charterers shall provide 30, 25, 15, 7, 5, 4, 3, 2, 1 days notice of redelivery. When Charterers do not exercise Option Period, gas freeing of cargo tanks shall occur during Charterers ballast voyage to dry-dock with costs of fuel for pre dry-dock gas freeing for Owners account. |
(h) | Any time during which the Vessel is off-hire under this charter may be added to the charter period in Charterers option up to the total amount of time spent off-hire. In such cases the rate of hire will be that prevailing at the time the Vessel would, but for the provisions of this Clause, have been redelivered. Charterers shall exercise this option no later than ninety (90) days before the earliest date on which the charter would otherwise terminate. Any periods of off-hire occurring after the time and date on which Charterers have declared their option may be added to the charter period as long as Charterers have declared that they will be so added within five (5) days of the end of the relevant period of off-hire. |
10. | Rate of Hire / Ballast Bonus Payment |
Subject as herein provided, for the Firm Period Charterers shall pay for the use and hire of the Vessel to the Owners at the rate of United States Dollars ***** (USD $*****) per day, and pro rata for any part of a day, from the time and date of her delivery (local time) until 2359 hours (local time) 15-April-2012, and United States Dollars ***** (USD $*****) per day, and pro rata for any part of a day, from 0001 hours (local time) 16-April-2012 until the time and date of redelivery (local time) to Owners or until the commencement of the Option Period if such is exercised.
Charterers shall pay Owners a lump sum ballast bonus of United States Dollars *****(US$*****). Such ballast bonus shall be paid upon delivery with the first hire payment.
Notwithstanding anything stated herein, in the event Charterers exercise the Option Period, Charterers shall pay for the use and hire of the Vessel at the rate of United States Dollars ***** (USD $*****) per day and pro rata for any part of a day thereof for the First Option Period commencing at dropping last outbound pilot boarding station Singapore, post second five year dry-dock cycle until the date and time of redelivery (local time) to Owners.
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PRIVILEGED AND CONFIDENTIAL
24. | Periodical Dry-docking |
(a) | Owners shall dry-dock the Vessel at least twice in any five year period for the purposes of maintaining the Vessels underwater area and anti-fouling coating system and to effect overhaul, scheduled maintenance, other necessary repairs, and re-certification, so that the Vessel is fit in every way for service under this charter. Provided that Owners can demonstrate that a performing five year under water anti-fouling coating system has been applied to the hull and obtain classification society approval for intermediate dockings / maintenance periods to be carried out afloat then Charterers will accept the same. A letter from the underwater anti-fouling coating system manufacturer clearly stating that the coating system applied will last for 5 years under normal operational service shall be provided to the Charterer. |
(b) | The Vessel shall be scheduled to dry dock for its first Special Survey around 01 June 2012 provided the same is mutually agreed between the Parties. Owners shall give Charterers at least 5 months notice of any intended non-emergency dry-docking, together with the reasons for such dry-docking. Such notice shall include the name and location of the yard. |
(c) | In the event of dry-docking, the Vessel shall be off-hire from the time she is in a gas free condition and arriving/passing at Singapore. On completion of dry-docking, the Vessel will be on-hire again when she is in every way ready to resume Charterers service at one safe anchorage in Singapore in a gas free condition. |
(d) | All dry-dock expenses and expenses of preparing the Vessel for dry-dock shall be for Owners account. Any natural gas vapour lost in gas freeing for the purpose of dry-docking shall be for Charterers account provided that during the last discharge prior to dry-docking Owners shall use their reasonable endeavours to pump out the maximum amount of cargo. If Charterers exercise the Option Period gas freeing of cargo tanks shall occur during Charterers ballast voyage to dry-dock with costs of fuel for pre dry-dock gas freeing for Owners account. |
(e) | The Vessel will be on-hire for the gas-up and cool down operation at the first load port after the scheduled five year cycle dry-dock or in-water-dock. All gas/LNG used for the gas up and cool down shall be at Charterers account. |
(f) | Provided that Charterers have been previously notified and agreed to the period in advance, Charterers agree to provide the Owner with a preventative maintenance window or windows that shall not exceed 48 hours during each six month period when the Vessel remains continuously on-hire. |
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PRIVILEGED AND CONFIDENTIAL
Agreed this day December 23, 2011
PEGASUS SHIPHOLDING S.A. | ||
/s/ Tony Lauritzon | ||
Name: | Tony Lauritzon | |
Title: | Attorney in Fact | |
METHANE SERVICES LTD | ||
Name: | /s/ B. A. Bhat | |
Title: | Director |
Private and Confidential | 5 |
PRIVILEGED AND CONFIDENTIAL
ADDENDUM NO. 2 TO THE TIME CHARTERPARTY
Between
PEGASUS SHIPHOLDING S.A.
As Owner
And
METHANE SERVICES LTD
As Charterer
For the charter of
CLEAN ENERGY
As the Vessel
Dated May 18, 2011
It is hereby mutually agreed that the below clause be amended into the above stated time charterparty (the Charterparty) as follows:
19. | Payment of Hire |
Replace *****
With
*****
*****
Agreed this day 14 March, 2012.
PEGASUS SHIPHOLDING S.A. |
Name: /s/ Efstratios Athanasakos |
Title: Attorney-in-Fact |
METHANE SERVICES LTD |
Name: /s/ B.A. Bhat |
Title: Director |
Private and Confidential | 1 |
FORM OF
ADDENDUM No 3 TO THE TIME CHARTERPARTY
Between
PEGASUS SHIPHOLDING S.A.
As Owners
And
Methane Services Limited
As Charterers
For the charter of
CLEAN ENERGY
As the Vessel
Dated 18 th May, 2011
The Parties have agreed to insert the following sub-clause 4 f) under Clause 4:
4 f) Notwithstanding any other provision of this charter, the Vessel shall not trade in areas that are in breach of sanctions imposed by any of the following: United Nations Security Council, United States of America or European Union
Agreed this day October , 2013
PEGASUS SHIPHOLDING S.A. |
Name: |
Title: |
METHANE SERVICES LIMITED |
Name: |
Title: |
Exhibit 21.1
SUBSIDIARIES OF DYNAGAS LNG PARTNERS LP
Name of Subsidiary |
Jurisdiction of Incorporation |
|
Dynagas Operating LP |
Republic of the Marshall Islands | |
Dynagas Equity Holding Ltd. |
Liberia | |
Quinta Group Corp. |
Nevis | |
Pegasus Shipholding S.A. |
Republic of the Marshall Islands | |
Seacrown Maritime Ltd. |
Republic of the Marshall Islands | |
Pelta Holdings S.A. |
Nevis | |
Lance Shipping S.A. |
Republic of the Marshall Islands |
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the reference to our firm under the caption Experts and to the use of our report dated October 9, 2013 (except for Note 1, Note 10 and Note 12 as to which the date is [ ]), in the Registration Statement (Form F-1) and related Prospectus of Dynagas LNG Partners LP for the registration of its common units.
Ernst & Young (Hellas) Certified Auditors Accountants S.A.
Athens, Greece
October 9, 2013
The foregoing consent is in the form that will be signed upon the completion of the reorganization described in Note 1 and the finalization of capital accounts described in Note 10 to the financial statements.
/s/ Ernst & Young (Hellas) Certified Auditors Accountants S.A.
Athens, Greece
October 9, 2013
Exhibit 23.2
October 9, 2013
Dynagas LNG Partners LP
97 Poseidonos Avenue & 2 Foivis Street
Glyfada, 16674, Greece
Gentlemen:
Reference is made to the Form F-1 registration statement, including any amendments or supplements thereto (the Registration Statement) relating to the public offering of common units of Dynagas LNG Partners LP (the Partnership). We hereby consent to all references to our name in the Registration Statement and to the use of the statistical information supplied by us set forth in the sections of the Registration Statement entitled Prospectus Summary, Risk Factors, Business and The International Liquified Natural Gas (LNG) Shipping Industry. We further advise the Partnership that our role has been limited to the provision of such statistical data supplied by us. With respect to such statistical data, we advise you that:
(1) we have accurately described the seaborne transportation industry, subject to the availability and reliability of the data supporting the statistical and graphical information presented; and
(2) our methodologies for collecting information and data may differ from those of other sources and does not reflect all or even necessarily a comprehensive set of the actual transactions occurring in the LNG shipping industry.
We hereby consent to the filing of this letter as an exhibit to the Registration Statement to be filed with the U.S. Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended, and to the reference to our firm in the section of the Registration Statement entitled Experts.
Yours faithfully,
/s/ Nigel Gardiner
Nigel Gardiner
Group Managing Director
Drewry Shipping Consultants Ltd.
LONDON | DELHI | SINGAPORE
Drewry Shipping Consultants, 15-17 Christopher Street, London EC2A 2BS, United Kingdom
t : +44 (0) 20 7538 0191 f : +44 (0) 20 7987 9396 e : enquiries@drewry.co.uk
Registered in England No. 3289135 Registered VAT No. 830 3017 77
www.drewry.co.uk
Exhibit 23.3
CONSENT OF SEWARD & KISSEL LLP
We hereby consent to each reference to our firm and the discussions of advice provided by us under the headings Risk FactorsU.S. tax authorities could treat us as a passive foreign investment company, which would have adverse U.S. federal income tax consequences to U.S. unitholders, Material U.S. Federal Income Tax Considerations, and Legal Matters in the prospectus contained in the Registration Statement on Form F-1 (the Registration Statement) of Dynagas LNG Partners LP dated the date hereof, without admitting we are experts within the meaning of the Securities Act of 1933, as amended, or the rules and regulations of the Securities and Exchange Commission issued thereunder with respect to any part of the Registration Statement.
/s/ Seward & Kissel LLP |
Seward & Kissel LLP |
New York, New York |
October 9, 2013 |
Exhibit 23.4
Consent of Nominee for Director
of Dynagas LNG Partners LP
I hereby consent to the reference to me in the prospectus included in the registration statement on Form F-1 as shall be filed with the U.S. Securities and Exchange Commission, and any and all amendments thereto.
/s/ Levon Dedegian |
Name: Levon Dedegian |
Date: October 9, 2013 |
Exhibit 23.5
Consent of Nominee for Director
of Dynagas LNG Partners LP
I hereby consent to the reference to me in the prospectus included in the registration statement on Form F-1 as shall be filed with the U.S. Securities and Exchange Commission, and any and all amendments thereto.
/s/ Alexios Rodopoulos |
Name: Alexios Rodopoulos |
Date: October 9, 2013 |
Exhibit 23.6
Consent of Nominee for Executive Officer
of Dynagas LNG Partners LP
I hereby consent to the reference to me in the prospectus included in the registration statement on Form F-1 as shall be filed with the U.S. Securities and Exchange Commission, and any and all amendments thereto.
/s/ Evangelos Vlahoulis |
Name: Evangelos Vlahoulis |
Date: October 9, 2013 |