Q3 2019 Earnings Call
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Today's speakers, our Andy over her Chief Executive Officer, Allison Maxwell Chief Financial Officer into commenced the call Joseph Nelson Deputy head of Investor Relations Mr. Nelson you May begin your conference.
Good morning, Thank you for joining Gaslog partners third quarter 2019 earnings Conference call. We were convenience. This call webcast and presentation are available on the Investor Relations section of our website Www Dot Gaslog MLP dotcom, where replay will also be available.
Please now turn to slide to the presentation.
Many of our remarks contain forward looking statements for factors that could cause actual results to differ materially from these forward looking statements. Please refer to our third quarter earnings press release. In addition, some of our remarks contain non-GAAP financial measures as defined by the I see a reconciliation of these included in the appendix of his presentation I'll now hand over to Andy a week.
<unk> CEO of Gaslog partners. Thank you Joe Good morning, and thanks, everyone for joining Gaslog partners third quarter earnings call.
Before I begin this morning, those of you who participated in our previous calls will undoubtedly notice or new presentation format.
As part of a larger rebranding initiative, we began rolling out at Gaslog and Gaslog partners to emphasize our priorities of safety operational excellence and customer focus and we are delighted to be sharing this with you today.
Moving ahead todays call I'll begin with our highlights for the quarter, our CFO Alister Maxwell will follow with a review of our financial performance and dropdown pipeline after which I'll conclude with an update on the LNG and LNG shipping markets as well as our distribution growth outlook.
Following our presentation, we'd be very happy to take any questions you may have.
Turning to slide three you can see our highlights after another strong quarter of operational and financial performance today, We reported our highest ever partnership performance results for revenue EBITDA and distributable cash flow.
During the third quarter, our dropdown pipeline increased to 14 vessels as our parent charted the gaslog, Singapore for 10 years as a floating storage unit.
We repurchased $10 million of our common units at an average price under $20 would declare.
Distribution of 55 cents per unit or $2.20 on an annualized basis, an increase of nearly 4% over the third quarter of 2018.
And today, we are reiterating our guidance of 2% to 4% distribution growth for 2019.
Lastly, it gives me enormous pride the share of the crew of the nothing else in Victoria was awarded crew of the year at this years I Hs market safety at Sea Awards remarkably. This vessel has had zero lost time incidents sensor delivery in 2007.
Turning to slide four.
A record third quarter results reflected full quarters contribution from several strategic actions partnership has executed in the last 12 months.
Including two accretive vessel acquisitions, the elimination of our GPS incentive distribution rights.
A new three and a half year charter for the Gaslog, Shanghai and most recently the accretive repurchasing of our common units.
Taken in combination these steps have significantly improved our financial performance as you can see from the figures on this slide.
In particular, our EBITDA increased by 22% year over year, while our per unit DCF has been even stronger at 28% over the third quarter of 2018.
With no I'd ours, we expect future dropdown acquisitions can continue to deliver meaningful growth.
Turning to slide five and the impact of our recent unit repurchases.
Since the inception of our buyback authority, we repurchased $20 million of common units retiring nearly 1 million units are approximately 2% of our total outstanding.
As you can see from the figure on the left these repurchases it accretes to our per unit distributable cash flow.
During the third quarter 2019, we generated 72 cents of DCF per common unit I figure, which reflects approximately 1.5% growth as a result of repurchases. We've made this year using only a modest amount of capital.
On the right you can see these repurchases have had a dramatic effect on the capital returned to our unit holders.
Inclusive of our Q3 distribution. We've now returned a total of $2.64 per unit over the last 12 months, an increase of 25% over the prior 12 month period.
More specifically unit repurchases of amounted to approximately 44 cents per unit of that total.
As we look ahead, we expect returns to our unit holders to remain principally in the form of quarterly cash distributions.
However, we plan to continue opportunistic repurchases of our common units as market conditions dictate, which as you can see make a meaningful impacted both our coverage ratio and total unit holder returns.
With that as introduction I'll now turn it over to Alister.
Thanks, Andy and good morning, everyone Im delighted to report another strong quarter in terms of the operational and financial performance of the partnership.
Please turn to slide six throw financial and operational highlights.
In the third quarter 2019, we achieved record quarterly partnership performance results revenue EBITDA and distributable cash flow, we showed robust year over year increases at 18%, 22% and 26% respectively.
Our strong financial performance was due to our two vessel acquisitions in 2018, and one in 2019 as well as a full quarters contribution from the Gaslog Shanghai's Marketlink chances to Guembeul, which offers this exposure to the current strong markets LNG shipping at 100% utilization.
And which delivered a significantly improved performance compared to Q2, when she was primarily trading in the cool pool.
Operationally, our fleet continues to perform exceptionally well with uptime of 100% during the quarter.
Year to date unit Opex of $14468 per vessel per day, a reduction of $427 from the 14895, we reported in the first nine months 2018.
While we are benefiting partially from a stronger us dollar exchange rate.
We are also continuing to make progress with our cost reduction initiatives.
As you can see in the bottom of the table ill reported distribution coverage for the third quarter was 1.3 tons. This increases to 1.33 times when adjusting for several days of scheduled drydocking for the salaries, which was primarily undertaken in Q2, we've carried over into the beginning of the third quarter.
Looking forward, we have one scheduled drydocking in the fourth quarter, which we anticipate will take up to 40 days to complete due to the need to install a ballast water treatment system on the vessel.
Looking further ahead, we have for dry docking scheduling 2020 all of which will also have ballast water treatment systems installed.
Please turn to slide seven what I'll discuss our recent fleet developments.
The chart on this slide shows the 15 vessels comprising the partnership's fleet. Our revenue backlog continues to be robust at over $1 billion, which only includes the minimum rate of higher for the Gasco Shanghai.
As a reminder, I'll first opened steam vessel the meetings and Elizabeth is scheduled to commence a new one year charter Trafigura in November .
Honestly its newest upcoming Chaucer expiry is for the maintain Allison Victoria, which maybe we delivered late in the fourth quarter of this year or in early January .
Looking forward to 2020 , we already enjoyed looked in charter cover of 81% with over 75% of our open days falling in the second half of the year. When we anticipate a very strong LNG shipping market as Andy will discuss shortly.
We're confident that the strengthening LNG shipping market through 2020 , an into 2021 will create opportunities to reach our open ships and to further benefited from the market linked charter of the Gaslogs Shanghai.
Turning to slide eight and our balance sheet.
In the chart on this slide we've set out our year to date and future scheduled amortization during 2019 and 2020 .
Our debt Amortizes at roughly twice the rate of ships depreciate building equity value and balance sheet capacity for future growth.
For the partnership as a whole we expect to amortize approximately $220 million of debt over 29 tenants on gtwenty equivalent to Omas Onetimes annual EBITDA and 9% of total path.
More specifically you can see that on net debt to total cap and our net debt to EBITDA remained healthy at 51% on four and a half times respectively.
Our total available liquidity, including revolver capacity and short term investments is approximately $133 million as of the end of Q3.
Turning to slide nine and look at the partnership sources and cost of capital.
Charles on this slide lays out the current trading yields the Gaslog and Gaslog partners listed debt and preferred equity securities.
As you can see the Gasco group has securities trading at attractive levels in the U.S. and Norwegian bond markets.
And in the U.S retail preferred equity markets.
In addition, ESCO partners continues to evaluate financing options in the private debt and preferred equity markets with a number of kinds of policies.
We are confident that we will be successful in securing cost competitive capital to fund our next acquisition without requiring access to common equity in the public markets.
Turning to slide 10, well discuss all future growth opportunities.
Chart shows the 14 vessels with multi year charters owned by our parents as limited.
Our dropdown pipeline increased during the third quarter after the gas foot after gasco chartered at Gaslog, Singapore to sign Lamb LNG for 10 years as a floating storage unit.
The vessel is Gaslogs first as you project.
And underscores the benefits of the group's scale feet diversity and commercial innovation.
In addition, yes, so put delivery of the Gaslog Walsall at the end of July actually immediately commenced at 22 months charter was Shinya ahead of her Asia charter to Endesa beginning in mid 2021.
Together.
Charter periods in our dropdown pipeline extend from 2025 to 2032 and represented $23 billion in contracted backlog and some $300 million in total annual EBITDA with an average charter duration of approximately eight years.
These vessels provide visible future growth opportunities for Gaslog partners and would contribute positively to the average charter length of our fleet as well as to our distributable cash flows.
Taken in combination with our strong balance sheet and access to diverse sources of debt and equity capital Gaslog partners remains poised for continued growth.
And with that I'll turn it to Andy to discuss the outlook for the energy commodity and LNG shipping markets.
Thank you all Sir.
Turning to slide 11 and trends in LNG demand.
This slide shows the increase in LNG imports by country on a trailing 12 month basis.
LNG demand grew by 43 million tons year over year, an increase of 14%.
China posted the largest increase in absolute volumes importing 11 million tons more LNG or an increase of approximately 22% year on year.
Natural gas continues to grow as a percentage of the country's overall energy mix and recently Sinopec stated it expects China's gas demand to increased by more than 80% from 2018 to 2030.
While Chinese demand continues to be strong LNG growth has been broad based particularly in Europe , where demand in the region grew by nearly 36 million tons over the period, an increase of 105% year over year.
European demand has been bolstered by a combination of declining production continued coal to gas switching for power generation and inventory restocking.
Turning to slide 12, and the future outlook for LNG demand by geographic region.
In total wood Mackenzie expects net LNG demand to grow by 150 million tons between 2018 and 2025.
Although chinas imports have been significant in recent years, it's important to note that other countries in southeast Asia together with Europe account for nearly two thirds of the projected LNG demand growth through 2025.
Turning to slide 13, which shows the new LNG supply coming online.
Next year over 22 million tons of new LNG capacity is planned to begin production mostly from projects in the US which are expected to have a significant impact on ton miles.
In particular, the second and third trains at Cameron and Freeport are expected to begin production and ramp throughout 2020 and into 2021.
Further ahead, there is approximately 94 million tons of new capacity scheduled to start production in 2021 through 2024, including veteran Globals Kalka shoe path in Louisiana, which took f. I'd in the third quarter of 2019.
Turning to slide 14, and a look at future supply growth.
The LNG supply outlook continues to be dynamic and growing while 2019 is already a record year for new project sanctions wood Mackenzie expects, an additional 7 million tons of LNG capacity to reach Jeff I'd. Prior to year end, followed by another 61 million tons and 20 to 21 million tons in 2021.
These proposed supply expansions of that supported by continued momentum in new long term LNG sale and purchase agreements were over 170 million tons per annum have been signed since the beginning of 2017.
Slide 15, we discuss how us exports have positively impacted shipping demand.
According to potent 119 cargoes were exported from the us in the third quarter of Thirtys cargos delivered into North Asia, plus another 7% to the middle east destinations that can require more than two ships for each million tons of LNG export it per annum compared to historical global average of 1.3 ships needed for LNG from the rest of the.
A world.
Exports out of the U.S. began in 2016, an average of 1.8 ships have been acquired for each million tons, a positive development for shipping demand, particularly considering the significant amount of liquefaction capacity expected to be online in the state of the end of 2020, approximately half of which has been sold to Asian buyers.
On slide 16, we discussed on the demand for LNG impact the supply and demand balance for LNG carriers.
This slide illustrates our view of shipping supply and demand through the end of 2021 based on wood Mackenzie and potent data.
As you can see the market is expected to be structurally tighter through at least the end of 2020 based on wood Mackenzie his latest quarterly LNG supply growth estimates and the on the water shipping fleet plus scheduled vessel deliveries.
As a reminder, the partnership suite is 98% contracted through the end of this year and our nearest exposure to the spot market is not expected until December or January when we expect shipping demand to be strong.
In 2020, the partnership suite is 81% contracted and 75% of our open days are weighted towards the second half of the year when shifting demand is expected to be similarly robust.
On slide 17, we discussed the rate trends in the LNG shipping market.
The left panel shows the monthly average headline spot rates for TFT carriers during 2018 and 2019, while the right panel shows the average headline rate by month for the period beginning in 2011 through 2018.
Well the absolute values may differ from the historical monthly averages the trend in 2018 and 2019 as closely followed previously observed seasonal patterns with headline spot rates generally bottoming in early spring and peaking in the fourth quarter.
As you can see from the figure headline spot rates have risen sharply in recent weeks predominantly as a result of two factors one increased demand for LNG ahead of the winter heating season in the northern hemisphere and to the continued startup of new LNG production facilities, particularly in the U.S.
On slide 18, and a discussion of recent developments in the multiyear chartering market.
As the chart on this slide shows periods of strength and weakness in the spot market have historically influenced activity for multi year charters.
Most recently 14 charters between six months and three years in duration were reported in the third quarter of 2019, most since Q2 of 18.
Of these 14 charters six TFT ease and 16 ships were fixed on charter is greater than six months.
In addition, brokers currently assess the one year time charter rate at 84000 per day for TFT and 50000 per day for a steam vessel. Although we would note that the term charter market for on the water ships and steams in particular has limited liquidity for charters of greater than one year.
Over the last 18 months, we've utilized the periods of strengthen the spot market to build on our customer relationships and fixed three of our TFT ease for multiple years as well as one of our steam ships for one year.
Our strategy remains to pursue similar opportunities to Recharter, our ships as the LNG market improves through 2020.
Turning to slide 19, and a recap of our growth history and distribution guidance.
As the far left panel shows our distributions have now grown and an 8% annual rate since our IPO backed by a coverage ratio, which has averaged more than 1.1 times.
Today, we are declaring a third quarter distribution of 55 cents per unit or $2.20 annualized which represents a nearly 4% increase over Q3 of 2018.
As shown on the far right panel. This slide we are reiterating our guidance of 2% to 4% year on year distribution growth for 2019.
This guidance is supported by our accretive vessel acquisitions and positive outlook for the LNG shipping market.
While also reflecting our one dry docking in the fourth quarter and one vessels scheduled to end its charter in December .
Now turning to slide 20.
In summary in the third quarter. The partnership continued to execute the strategy delivering record quarterly financial performance.
Our access to multiple sources of debt and equity capital remains strong and our 14 vessel dropdown pipeline represents highly visible future growth.
We reiterate our target to deliver 2% to 4% distribution growth for 2019, while maintaining prudent coverage and opportunistically repurchasing our common units.
Finally, looking longer term steady progress of new liquefaction facilities, and increasing LNG demand should result in strong fundamentals for LNG shipping and create additional opportunities to recharter our ships.
With that I'd like to now open it up for Kunaev Shannon could you. Please open the call for any questions.
As a reminder to ask a question you will need to press star one of your telephone to withdraw your question press the pound key please standby mode composite county roster.
Our first question comes from Greg Lewis with BTI G. Your line is open.
Yes, Thank you and good morning, and good afternoon.
Andy it's been interesting to watch the distribution coverage ratio kind kind of go up a little bit here and I think when you guys went public it was.
A more in the 1.11 0.2 range now and were were up in the 1.3 range, how should we be thinking about that in the medium term as you think about balancing maybe some vessels rolling off contract over the next year should we be thinking more along the lines of we're going to opt to be in kind.
On the new distribution range coverage.
Level.
In sort of than at or medium term.
Yes, Greg Thanks for the question I think couple observations one clearly the of the challenges of MLP market seem for several years now.
As have manifested in coverage seeming to be valued at a premium to incremental distribution growth. So.
For for several years now it felt like we could have grown the distribution by more than we have but have have begun to prioritize coverage and in a more meaningful way.
Having said that I think you're you're right that we have some ships that over the next few years, our ending their current charters and I think out of Prudence may recharter at lower rates than they're earning today and so it feels that having having the substantial level of coverages.
Is both the right thing to do from a market valuation perspective, and the conservative thing to do for our distribution sustainability. So.
That's one of the reasons really the reason the the unit repurchase program has been our focuses its been adding to coverage.
And and rather than paying that incremental dollar out and distributions spending it on buying back our stock at these levels has been has been more effective and our view.
Okay, Great and then just one more for me on some of these vessels that are rolling off charter over the next 12 months I mean, clearly clearly the rate market has improved.
As we think about some of these vessels that are rolling off primarily the steam vessels should we be thinking about those getting rechartered before they roll off contract or should we be thinking about maybe some idle plant time or downtime in between.
When they're going to be winning their next contracts.
Sure. So I I think the honest answer is we're still quite a ways away from a number of them ending their their current periods and it's it's generally difficult to fix a ship until you know where she's redelivering and that's sometimes is not known.
30 days more than 30 days in advance of the.
The period ending so.
It's still is still early days on on a number of these ships I think the.
Hi, Jane Elizabeth as a good example of the ship whose ending its.
Charter with shell and then going into a dry dock and then immediately coming out of dry dock onto a new charter with Trafigura as Alister mentioned in his remarks, and so that was really well done by our commercial team in minimizing.
The time in which its earning revenues I think most likely they'll be a number of this a number of months, where these ships are in a spot market.
But we of course as in many ways as possible, we'll try to get them back to back with their existing charters.
Having said that as well, but at the second half of next year, we expect to be quite strong and so if they're in a spot market for some period of time, it's it's likely to be a strong one.
Okay perfect. Thank you for the time everybody.
Thank you. Our next question comes from John Shapiro with Evercore. Your line is open.
Thank you good morning.
Andy first question has to do is the capital return I think that's really interesting. The slide you laid out. According your share buybacks to the distribution equivalent you're still trading at nearly 11% yielded if we tend to do some rough math on where you use the ATM versus where use.
Purchased units, it's pretty widespread and like close to 9% on ATM and 11% on buybacks. So you are still kind of in that sweet spot you said, you'll be opportunistic, but you only have about 5 million left I think on the authorization. So.
Does this seem like the time, where are you kind of not getting credit for a 1.3 times coverage ratio in the balance sheet et cetera, and you'd still be more aggressive on the repurchase Ron.
Yeah. Thanks, John I think we are.
The to put it simply I think were more were more buyers of our stock than sellers anywhere near these levels Thats for sure and I think weve.
And then consistent since Weve initiated buyback program, we've been consistent.
In the and the amount we've repurchased in each quarter.
In terms of the remaining authorization I think will my guess is sometime in the in the new year. We can we can refreshed that with the board so thats not really a limitation.
But it's a as you noted were some ways away from where issuing common equity would would be attractive, but as dahlstrom mentioned in his remarks, we feel we've got.
Other growth capital alternatives with respective preferred equity.
And or unsecured debt. So we feel there's there's capital available to us, but it's very unlikely to be common equity anywhere near that these share prices.
That makes sense and my second question was kind of along those lines as well. So you laid out the maintaining the 2% to 4% distribution growth this year, which you're essentially there I know, it's too early to kind of give quote unquote guidance on 2020, but it seems like distribution growth isn't being rewarded.
The MLP space, you've talked to your yields specifically or the the broader group so.
Do you really need kind of further dropdowns and when you think about dropdowns weather, regardless of how you can finance them do you think about them as funding on doing distribution growth or kind of more fleet replacement and especially as some of the existing charters roll off.
Good question I think for US we've our philosophy first for some time has been.
As an MLP. It is just fundamental to who we are that we continued to grow our asset base.
Through through dropdown and third party acquisitions, which we've evaluated as well and so I expect that to continue.
The distribution growth itself as you've noted is somewhat subject to the the way in which the units are being valued and what what feels like is being rewarded as sufficient growth, but my view is generally been that.
Yeah, if you grow assets you ought to grow your distribution as well, perhaps not by a like amount, but but by non zero amount and so.
Even though we're not thrilled with an 11% yield thats why were continuing the guidance we've given for 19.
It is too early to talk about 20, I think 20 theirs.
Worth bearing in mind that we do have for dry dockings in 20.
So so they're there'll be some ships out of the water and Q2 in Q3 as it stands right now and of course.
The number of acquisitions, we can do.
One influenced significantly but the amount of EBITDA growth and then ultimately how we think about distributions as well so still some still some time to come to think about that but we certainly believe that growing assets at the partnership level is critical and we plan to continue doing that <unk> that makes sense.
One last one if I could just a follow up to Greg's question.
If we think about the three steam ships that are rolling off in the next 12 months.
And think about why the units maybe trading a little bit percent yield I think thats, probably one of the top reasons and so I understand that you don't know where the last voyages going to and therefore.
It's hard to kind of get at the next charter in advance.
In a perfect world, but given that the rates are much stronger than probably anybody thought at this point and I understand that you're optimistic on 2020.
But we just we don't know and here we are in kind of our time to shine.
You're talking about maybe just taking a little bit of a discount I'm just a guarantee that 100% utilization because clearly that's been very impactful with with the New chart with Dunbar, just locking in that 100% utilization as opposed to maybe squeezing every last dollar out of the contract rate.
No you're actually right and I think that mirrors the way, we're thinking about it I would expect that of the ships that we have exposure, where we have exposure in 2020. It will be a combination of some ships in the spot market for a period of time hopefully some ships on on term charters.
As you say ensure a 100% utilization or perhaps marketlink structures.
And I would remind you that the ships are steamships have very little debt on them at the asset level. Most are only levered at about 40% versus sort of 50% for the partnership with the whole and so.
Rate rate levels that are say start with a four are comfortably above there, but theyre breakevens because of all but that we've paid down on them over time. So we feel we have some flexibility there and and certainly share your view that utilization can be very powerful and we'll be looking to put some away to take advantage of that.
All right that's super helpful. Thank you Andy.
Thanks, John .
Thank you. Our next question comes from Chris Wetherbee with Citi. Your line is open.
Hey, Thanks for taking my question.
I just want to make sure I sort of understand the moving pieces that you see them to you that may influence. How you think about distribution growth in 2020, obviously have a few ships coming off charter that need to be re chartered sounds like you have some dry docking. If you can give us the days that would be great dig in to Q3 Q.
Next year and so at least those dynamics in pullets, and obviously the market and how it sort of value. The units I think are things to think about their coverage is kind of relative to what it has been historically when I put all those together had number one am I missing anything number two how does that sort of inflow.
Olin's your thoughts Directionally about distribution growth compared to what has been say for the last 12 to 24 months.
Sure I think you've you've captured all the moving parts, Chris I think.
No again with with no idea ours continued access to two growth capital, even if it's not common equity.
We feel we have.
Some very visible growth ahead of us with with dropdown pipeline, we have and are sort of funding model. So so that that's that kind of continues.
Through through 2020.
Clearly you've seen us moderate growth overtime.
Since our IPO and and I think generally the MLP sector as a whole has embraced a kind of lower growth higher coverage.
Model and having having growth that is.
Non zero with with good coverage.
In our in our mind, especially in our within our peer group feels like a pretty compelling combination. So I think our our growth history is.
It is not likely to revert to our early years of double digit and then high single digit growth.
But I think thats more more in keeping with the overall sort of investor dynamic we've been experiencing and then as you say some of the idiosyncratic elements of 2020, where we have some maintenance capex to perform on some of our vessels.
All right now that makes sense.
Do you have a number for the dry dock days that you're projecting handle it's early but for two or three Q.
We can get you some more specific data of course, but it'll be a little bit longer than usual because of the ballast water treatment system installation.
And we usually align 30, including but.
Selling time to and from the dry bulk.
So it might be somewhere somewhere around 40, but we get you a bit more from a bit more information on that.
Any specific time.
Okay.
Makes sense I appreciate that thank you.
I guess, maybe one other question when you think about the fleet more broadly and then that that you have currently at the partnership and then you think about what the potential Dropdowns look like.
Is there a thought around potentially selling some of the steam ships.
Just to kind of completely freshen up the fleet as you think out over the course of the next several years, obviously the dropped down to more modern vessels you have a high degree of modern vessels already in the fleet.
Does it make sense to sort of there's going to continue that that sort of flow through a company at your stages lifecycle, we haven't really seen vessel sales and just kind of curious if you look out over the next couple of years, if that's going to be something that we should be considering.
Just potentially sort of premium up the charter coverage premium up sort of the asset base.
Yeah, it's something we.
Clearly study and unfortunate your observation is correct Chris there is there's.
Essentially no liquidity for a second hand vessels in the in LNG carriers right now now I think.
That is likely to change on certain it's going to change over time, we're hopeful that that it may be changes in the next 12 to 24 months with the strong market that we're envisioning and people trying to.
Be able to enter the business without without having to secure a new building in a newbuilding charter.
So I think we're hopeful that that asset sales.
In our in our market are possible, but today just to manage expectations I think theres theres very little.
Real out there that I think could be explored on that front, but something we monitor very closely and again hope hope that helps with the strength of the market over the next couple of years.
Okay. Okay. That's very helpful. I appreciate the time thank you.
Thanks. Thank you. Our next question comes from Randy given with Jefferies. Your line is open.
Hi, gentlemen, how's it going.
Good morning, or any one Randy.
So I look at chart 17, Theres, obviously been some extreme kind of seasonality with rates rising in the fourth quarter of back in 2017 falling sharply in the first quarter first half 2018 same thing rising in the fourth quarter of 18 falling sharply in first COVID-19 already seeing strong for Q1 9 that said what if anything.
What kind of keep the seasonal decline in the first half of 2020 more moderate than in recent years.
Yeah. So I think there there is a natural seasonality as part of this really any natural gas business. So so I think that that is if it is a feature of our market I would highlight though in most.
Previous seasons, Jay km has peaked in December .
And this year, while the J cam prices are a bit lower than they've been in years passed the peak is expected in February at this time so.
There is certainly a thesis that the winter could last longer so to speak with with more trading opportunities into the new year.
Also you have really just to sort of steady drumbeat of liquefaction being added and being added in here in the states behind schedule.
So it will be brought on as soon as some of these commissioning exercise as can be completed so I think you've got a slightly different dynamic than years past, where we'll have by this time next year, Randy probably twice as much LNG or thereabouts being exported from the us that we have today.
Okay and much of that is ramping in the early part of next year, including its in smaller projects like Elba.
So I think there's there's reason to imagine that the fall off won't be as significant.
But but I do think it's realistic to expect that the market, maybe a little bit lower during that shoulder period of March to may than it is right now.
Got it Okay, all right and then I guess from a question for the Gaslog Shanghai and what was the average Tc that it earned in the third quarter and I guess what is the most kennard in the fourth quarter I know, there's a ceiling rate, but it's likely below the $120000 today, we're seeing today.
Sure. So so fortunately the terms of the charter are confidential so I can't give you.
A lot of precision on that but maybe some guidance.
It's a it's linked to a series of broker quoted.
Rates.
With a bit of a lag in that at a at a percentages. So if you think about the.
Average rate for the third quarter being in and around $60000 a day as as quoted by the leading brokers.
It was that it was that sort of a modest discount to that level for the quarter.
And that that will will carry on through the fourth quarter. It as you say with with the ceiling, but the ceiling on the floor are fairly widespread.
So it can it can certainly earn nicely above what we say our mid cycle rates.
Even if that's not a 140000 a day can earn nicely above the mid cycle numbers here, you're still looking at.
Nicely above okay.
Sounds good well that's it from me anyway, Congrats again on the methane out in Victoria for the crude the year and as a big or to it.
Thank you very much appreciate that.
Thank you. Our next question comes from Michael Webber with whatever research your line is open.
Hey, good morning, guys sorry.
Good morning, Mike Mike.
Hey.
A lot of is very good picked over but but Andy I want to do it the loop back too.
Actually to the to the exit Sydney.
Thats right, you'll get the rolling off next year.
She near I know that the into that term is going to be a little physique, maybe some optionality in the back of it but this year of a six month.
Advance notice in terms of when they would pick up that option. So that's something you would know about whether that spot market by year end.
No no six months.
I have a feeling it's two or 360 days not I think it's not be 60 days, yes.
Youre right that it's a six month extension option.
Okay. Okay.
Okay, not so we'll still get clarity on that by end of Q1, it sounds like some.
Yes.
Most most of the steam questioning that kind of picked over but.
In the past when you guys are at or when the states has had tonnage than a rolling into a market that I know it's from now there's some concern around going to 2021 2022, you helped form the cool pool, which is predominantly tri fuel assets is there when you look around the landscape are there other owners with deemed non.
That are going be market exposed where you maybe as an alternative trying to term out 13 year old 14 year old assets are going to get lucky on that side, you can you could find sort of.
Develops and sort of.
Full employment for seems on as you may be service, some some shorter haul or.
Kind of.
Discounted.
Lanes.
It's certainly something we consider and we've had some some brainstorming around pools for for various.
Vessel classes. So it's a good sought to today there is nothing there is nothing sort of.
On the board for that so to speak but.
Theres no reason that that couldn't be similar effective as the TFT pool, we had.
With with go are invited guests.
I think that the interesting thing about that the relative compression in gas prices globally is that actually suits the steams on a relative basis.
Vis-a-vis the TFT, if you've got some shorter shorter distances smaller smaller parts casting and based on the unit freight cost advantage of TFT or even the two stroke ship.
As you know as much smaller by comparison, so I think thats why you've seen seems to have a fair bit of activity here in the third quarter with the caveat that youre not seeing a lot of three year deals for a steam you're saying six months to a year and sometime shorter voice with.
So that sort of market dynamic that were in around gas prices is actually a bit advantageous to seems on a relative basis.
All right that's helpful.
Alister.
And I guess and giving us I forget who was someone earlier going to mention the fact that.
Thanks, a lot for an LNG carrier to actually clear on the market and there might not be.
And actives S&P market now or really any at any point for ruins the tonnage.
But when you think about what to do with this theme assets I know in the past Alistair.
Gaslog is going to fully support for the LP.
And in.
Talked about asset swaps are finding different ways, you're going to be supportive of the LP structure that was all kind of pre IDR takeout.
So just curious within within that sort of context, it's fair to say the same level support ultimately is there from gaslog parent with regards to finding a workable solution for those for the steam assets to see maybe swapping them back.
And apparent for something like from Rob Presuming you can get the valuation write on both ends.
So Mike I think that.
Your first comment is on so you're right that there was the continues to be full support from the from the GP for the.
For Gaslog partners and we do continue to believe that Tom.
The partnership has access to a different pools of capital.
Which can be valuable to the group going forwards.
In terms of using the seems as currency if you like to funding Dropdowns.
I think nothing's rules I, but there's nothing under active discussion today.
And so yes, it's definitely a possibility it somebody that we have had some some conversations around.
So I certainly wouldnt wouldn't rooted eyes.
I think that with the Gaslog partners I think we're primarily focused on.
Accessing what you Michael more conventional sources of capital both private and public.
Thanks, and preferred and I think that that will be our office choices means to fund growth.
Okay, all right Thats helpful. I, just look we hadn't really addressed that kind of post close I'd our restructuring. So it's it's good to hear that then I'll turn it over thanks, if I Miss.
Thanks, Mike.
Our next question comes from Chriss Snyder with Deutsche Bank. Your line is open.
Hey, good morning, guys. So just another one following up on the steam fleet outlook. So even in this relatively tight LNG shipping market and one that I guess should actually be pretty supportive of steam with the low commodity price. We're still on leasing one near term opportunities at the most for the steam flood fleet.
So just wondering if you see any opportunities here for conversion into either floating storage units or other applications, where term employment is usually much larger the gaslog parent recently announced the conversion of a younger in larger vessels. I guess my question is do you see potential opportunities here for the steam fleet or they too small or old for such.
Applications, where theres, a very long contracts associated.
Yes, Hi, Chris.
No I think you're you're spot on in fact, I think the FSRU market might actually be a better fit for first teams and the FSRU market given.
The power requirements of the ladder.
Business model. So I think there there are others. Other uses for seems rather than carriers at relatively low capital cost. The project that are apparent is pursuing in Panama. A great example of a market that is just getting going.
But I do think I want to be a little careful because we're in a market today, where there's essentially no ships available.
As you would see from the rates and you've got an on the water fleet size of about 500 chips and more than 40% of that have that number our steam ships.
And in fact about 70 of that number our seems that were built before 2000. So we're in a market where essentially every ship as required.
With of course, some seasonality during the year and so I think while I would agree that you're probably not likely to see a seven to 10 year deal for for an on the water steamship as a carrier.
There does there does very much feel like a place in the market for these assets and we infected.
Bid on an opportunity for a a multi year charter first steam ship.
To a very well known customer that one of our competitors. Unfortunately, one so they're out there but they are they are you are right in saying that there are likely to be shorter term opportunities, but theyre absolutely essential for the market that's being service today.
Okay. Yeah makes sense and then just kind of following up on the the tight market. So the spot rates are tracking extremely almost eerily similar to what we saw last year. Despite a much lower LNG commodity price.
So I guess, how do you compare what you're seeing in the market today versus this time last year and how do you think about the recent Q4 day rate inflection despite still sluggish commodity price does this at like an incremental positive to kind of the underlying fundamentals you're seeing the market.
Yes. Thanks. Thanks for the question I think whats been a little lost in the in the narrative around weak.
Global gas prices is we're going to threatening.
The the record high freight rates in a market, where Jay Cam is $6 in December and not 11 and so.
To us that signifies that you've got some real underlying demand and a structural shortage of ships. That's that's driving freight rates high despite not as many trading opportunities for our customers.
So I think it's really many of these long awaited themes of particularly U.S. liquefaction finally, producing on a on a meaningful scale.
That we expect to continue over the next 12 months.
And hopefully will may have a bit of a tailwind in months in quarters to come with higher gas prices in Europe , and Asia, but even with this muted environment you're seeing.
Close to record rates again so.
Feels like a corroboration of the demand trends we've been discussing.
And just one last quick one if I can Andy I thought it was very interesting what you said earlier about the LNG forward curve, peaking in February 2020, when normally.
Commodity peaks out in December so I guess question whats, causing this.
[laughter], if I knew I'd I'd, probably wouldn't be on this phone call but.
I think there's I think there's been a.
A couple.
Issues, we've seen I think.
Last year and it's in previous years, there was storage built up ahead of a winter demand and expected cold weather that never really came through and and in Japan, China and so hopefully we are reverting to a more normalized weather pattern. This year.
And and so I think that that's that's part of the dynamic but last year was really an exception to the rule of the seasonal timing of that demand.
And then I do think you're you've had.
A number of these projects that delay and now are you know finally, reaching close to some nameplate capacity, especially here in the states. We saw I think was a week ago, we saw a record.
Feed gas for the U.S. LNG projects of seven Bcf a day.
Which is a good indication of of the trains actually producing you know what they're supposed to be.
So there's just the opportunity for for more gas to be sold later in the year.
As we move as kind of as we move for the winter and schedule cargos. So.
The other than that.
Hard to say for sure.
Well the interesting I appreciate the color. Thanks for the time guys.
Thanks, Chris.
Once again, ladies gentlemen, if you wish to ask question at this time. Please press Star then one are you touched on telephone. Our next question comes from Ben Nolan with Stephens Stifel. You may begin.
Hey, good morning, guys.
I have a I've a couple of questions I want to sort of capital allocation related but it really is more on the debt side I think alister you said that the plan over the next two years to repay but $200 million should that and then a release it said.
Around 110 for this year.
Is that incorporating in summary financing or is it is just to be clear is the target really.
Pretty aggressive actual reductions of of the debt balance.
Okay, and it's a schedule demos so so it's okay.
Roughly $110 million per year and that's just.
It's obviously those on a per vessel basis, but are you aggravated up to the for the consolidated fleet of the partnership.
That's just what would you to pay on annual basis over 2900 2020.
Okay, and there's no refinancing that.
I understand.
To that end or just kind of doing the math. If you are paying that down and then given the current.
Distributions as they stand now doesn't really leave a whole lot left for distribution growth or.
Or buybacks.
Unless there is some other element of growth or something else that works in there.
So as that is that sort of also an important element and how to think about where where you stand going forward and sort of what the capital needs are.
Relative to the capital once.
So I think that the important thing why the animals, but we said this on on a number of different calls now is that the AMOLED schedule.
Yes.
The profile is roughly.
Sort of 15, 16, 17 years and the ships have a.
Have a of trading line for them, we lose shifts that are trading with 40 is a lot somewhere between 30 and 40 is so what the ammo does for US is it creates incremental.
On a sheet Depastino, we're not going to do is re lever the.
The business too.
Levels, which are within note appropriate that does give us.
An additional.
Lever that we can put on in terms of accessing capital and then how we allocate capital as you say is correct is that go towards a growing the asset base and growing the underlying cash flows. It goes would repurchasing units and that's where we have some.
Some of choice around what we do it that capital, but that's not I think is that the message around the.
The animals and the impact of the animals.
Okay. That's that's helpful. And then Alister another thing I wanted to just touch on a little bit that you mentioned briefly.
It was that your your.
Undergoing some cost cutting efforts and finding ways to do things efficiently I was wondering if you just maybe put some color around what that entails and ultimately what.
If it's possible to put some sort of a.
A number around how much you know you might be able to how much blood might be in the rock here.
Huh.
So at the Investor day in 2018.
We talked to buy a looking for savings of approximately 1500 build as per vessel per day.
Over the time horizon between 17 through 22.
Into 17 to 22.
I think that based on what we know today and that was across DNA and Opex based on what we know today, we're very confident we will.
Hit that target and I think actually will do better than that target. If you look at the costs today.
Total cost base, it's roughly two thirds opaque some onetime gionee and so I would expect savings to be roughly proportional to.
The cost base that we have in the businesses the whole today.
Some of this is coming through.
Relentless focus on just the blocking and tackling.
In the business around procurement negotiating contracts maintenance arrangements maintenance scheduling.
Leverage over yards for dry docking.
Really really basic stuff, which individually doesn't make nicely contributions, but when you added a lump it has a significant impact.
The other the other factor is growth in the fleet because we look at this very much on that on a unit basis.
And as the fleet grows we're not adding gionee proportionately, we're not adding vessel management cost proportionately. So some of this is is underlying cost reductions some of it is the effective of scale over time.
Does that help okay. No. That's that is very detailed and I really appreciate it does for me. Thanks guys.
Excellent.
Our next question comes from Estyn landmark with friendly your line is open.
Hey, good morning, sorry, if we keep going on with Easter is steam turbines, but as you know, it's obviously important for for the lump sum story.
First question I guess, what can pretty much telco at this ourselves, but that the cash break even on the startup turbines. When you include operating cost of service Drydockings and whatnot, so what that number roughly.
Aspen I would say.
It's probably in the high twentys load it depends a little bit on the vessel.
And it depends on how much debt she's got and so on the high Twentys low thirtys.
Okay.
Second is probably a bit more difficult question, but theres been a few ship owners seeking price indications for their TFT at this years.
Price talks are a bit below what would typically be broker quotes I was I was wondering what you think are fair values for the steam turbine. Thus on a charter free basis I know you have them in the books for for around 130.
Yes nights Andy.
I wouldn't I wouldn't want to comment on that obviously every quarter. We go through a very rigorous process for what our assets are worth.
Of our balance sheet date and.
And.
That's that's scrubbed internally and externally.
So we're we're comfortable with the asset values that we have today.
I'm not surprised to hear that that.
Maybe if others are trying to sell assets in the market rather illiquid that maybe some low prices are required to get them to move.
But but other than that we havent seen a lot of those opportunities nor seeing a lot of evidence of transactions happening. So.
Hard to say other than we're we're very comfortable with the values that were that were reporting in our balance sheet.
Fair enough filing you know so to say the cash breakeven. This is 30 day, how many of those could you kind of put away on the annual profit split.
Contract similar to one you have them.
Or will we have seen elsewhere in the space race the recently.
You mean.
Which I will just.
Fixed rate come Jonases right.
This is the thing on your you know 30 day for cash breakeven and then Theres the profits bid on top it could you do that on some of these even turbines.
Interesting question, we haven't we haven't done that.
I don't say do we couldn't though wouldn't.
What we have done is.
With the castle Shanghai's, you know entered into a market linked rate, we continue to look with all customers.
Quite a large number of different options.
Which maybe related to the shipping rates are the maybe related to commodity prices in differentials.
You may have flexibility around.
Seasonal usage and so on so I think there's a quite a lot of different options and.
With with being quite proactive in exploring those options with.
With customers.
Clearly what we're trying to do ultimately is to align the inches upon customers in having access to efficient shifting when they needed and for us.
It is getting utilization as high as we can on the on the on the vessels, which don't have long term chances. So I think the answer is.
I'm not saying, yes, we'll know to that particular structure that we were very much we're trying to be as creative as we can in terms of.
The commercial.
Commercial employment of on ships.
Right. Okay. This interesting thank you very much.
Exactly.
Thank you and I'm currently showing no further questions at this time I'd like to now I'll turn the call back over to do any or weaker for closing remarks.
Thank you Shannon. Thank you all very much for listening we very much. Appreciate your continued interest in Gaslog partners and we look forward to speaking to you again next quarter.
Thanks very much.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.