Q4 2019 Earnings Call
Good morning, My name is Sydney, and I will be your conference operator today.
This time I would like to welcome everyone to the Gaslog limited and Gaslog partners fourth quarter 2019 results conference call.
All lines have been placed on mute to prevent any background noise. After the speaker's remarks still will be a question and answer session.
As a reminder, this conference call is being recorded on today's call our Peter live on <unk> Chairman of Gaslog Ltd.
I'm director of Gaslog partners.
<unk> Chief Executive Officer of Gaslog Ltd, and drink, Andrew a recur Chief Executive Officer of Gaslog partners, and Alistair Maxwells, Chief Financial Officer fill corvette head of Investor Relations well begin your conference.
Good morning look at all today. Thank you.
Joining the Gaslog limited Gaslog partners fourth quarter 2019 earnings conference call.
You'll convenience. This webcast presentation are available on the Investor Relations section about website www Dot Gaslog L.P. dot com and W.W. adult Gaslog I know you don't call, where a replay will also be available.
Please now turn to slide to the presentation.
Many of our remarks contain forward looking statements factors that could cause actual results to different maturity from these forward looking statements. Please refer to <unk> fourth quarter earnings press releases.
In addition of some of our remarks contain non-GAAP financial measures I was just fine body FCC.
A reconciliation of these included in the appendix of this presentation.
During the presentation.
All of the partnership's fourth quarter before your 2019 hard luck.
And the revised capital allocation strategy announced today.
Paul will then cover an update on the LNG and LNG shipping all kids.
We'll take me through capsules fourth quarter something for me. It's when she 19 performance. It will then be having to take your questions, but before we commence today's presentation. He did a bonus will make some introductory remarks.
Thank you Phil.
As we enter the new decade, I wanted to take the opportunity to give you my perspective on the LNG and.
The street and the outlook for Gaslog and Gaslog partners.
World Today is keen to deal with pressing concerns regarding climate change.
Consequently, making the sustainability of any business a key value driver.
The LNG transportation industry and Gaslog in particular can and will play a key part in it.
Moving this forward energy sector in transition.
Personally I remain confident in the outlook for natural gas demand and LNG is key role in delivering supply to meet the consumption growth.
This positive view is underpinned by the switching from coal to gas as a primary fuel source.
As well as playing a critical role in supporting the fast developing renewable power sector.
In addition to the power sector LNG will have a vital role in the ability of the shipping industry to achieve stated IMO targets of 25% reduction of C. O two emissions by 2030 by providing the most.
Most effective and readily available fuel on the path to this transition, thereby adding yet another demand driver to the LNG story.
Let's not forget to the LNG industry involve significant investment over long term horizons.
And any cyclical business there may be a temporary mismatch between supply and demand.
Such as the one currently playing out in the global gas markets.
However.
As we have seen times again low commodity prices are the catalyst for new and structural gas demand growth.
Particularly when there was also a clear environmental benefit from doing so.
I'm pleased to see a growing.
Two new downstream LNG infrastructure projects in particular, the significant capital commitments in China, and India to increasing each country's re gasification capacity.
Against this backdrop, we're seeing LNG demand continued to increase.
This is characterized by the growing role.
Traders emboldened by the greater liquidity in the spot LNG market.
These changes are opening new markets and trade routes positive for LNG shipping demand with the potential to increase ton miles, albeit one likely to result in a shorter term charter duration.
Finish.
I think we've seen significant newbuilding ordering in the past two years.
This has been driven by historically low shipyard prices, coupled with improved propulsion and boil off systems.
However, we expect further technological advancements will be minimal over the next several years.
The rapid changes in.
Propulsion technology steam power to diesel electric engines to medium speed diesel engines as well as a significant improvements in boil off rate from 0.152, 0.07% coupled with the structural changes in vessel carrying capacity over the last 10 years have reached levels were further off.
Conversation is either impractical, we're not cost effective.
Flattening technology curve, when combined with shorter charter durations inherent in a more liquid commodity environment leads me to believe that speculative newbuilding ordering will abate relative to the levels over the last few years.
Our track record.
Third of support from lenders and export credit agencies puts us in a preferred position relative to others in our industry given the critical importance of capital cost Breakevens and returns.
At Gaslog, we remain committed to the two company structure, maintaining strong and beneficial links between.
Limited at Gaslog partners following each company the autonomy to pursue their own strategies.
Gaslog limited once our Newbuilding program is fully delivered in 2021, we'll have a fleet of 20 ships, which 13 will be ultra modern vessels with compelling unit freight cost economics.
These vessels have you additional benefit of being fully financed and supported by long term charters that deliver attractive committed revenue with strong counterparties I see this strategy as a key differentiator from Gaslog limited from our peers, who may have uncommitted newbuilding orders.
A portion of.
The Gaslog sleep 40 of these remain exposed to the spot market, although somewhat less technologically advanced than our other ships are very much in the upper half of the global LNG fleets technology cost curve.
We are mitigating this exposure by developing opportunities in the floating storage segment.
Into which we will deploy uncommitted TFT ships on attractive long term charters fall, we'll be discussing two of these projects in his presentation.
Our revenue growth is underpinned by our commitment to operational excellence and the ability to deliver our new ships into service on time and on budget. This.
Requires no incremental equity or debt and as such I take great comfort and having a fully funded program.
Consequently, our strategy at Gaslog limited for 2020 and the next few years is simple we are concluding a chapter of material growth for the business delivery modern vessels on to long.
Term charter to leading companies in the global LNG sector.
We will now focus on harvesting the fruits of this strategy, while continuing to address our administrative and operational cost base.
We will focus on deleveraging, our balance sheet and use surplus free cash flow to reward our loyal shareholders primarily.
From common and special dividends.
Moving on to Gaslog partners, our daughter company in which we are by far the largest shareholder.
After several years a successful equity generation for the group, we're moving to a strategy that prioritizes the strengthening of our balance sheet through debt reductions.
Setting the stage Andy will talk to you about the book values of the steam fleet and Rebasing the level of distributions Andy will shortly be going through both these events in more detail, but suffices to say the rebased distribution will facilitate a further strengthening of the Gaslog partners balance sheet over the next several years.
This will position it as a cost effective provider of LNG shipping.
Gaslog partners financial strength walk to the catalyst for growth when accretive opportunities appear in the coming years.
Gaslog partners fleet of 15 ships will consequently benefit from lower cash flow breakeven levels as a result of debt.
Ones and optimization of cost.
Combined effects will allow gaslog partners to prosper under the backdrop of an increasingly short term and opportunistic LNG transportation market.
In conclusion, we are laser focused on balance sheet strength commercial flexibility efficiency and.
Excellence this will give us the ability to exploit changes in the LNG shipping market and to maximize the earnings and utilization of both Gaslog and Gaslog partners fleets at the same time, there's an emphasis on cost control across all levels to enhance competitiveness, we believe that the changes already.
Underway will deliver leaner and more agile organization without sacrificing safety for our market leading operational standards.
As the biggest single shareholder and against the positive, but shifting out look of our industry as well as Gaslogs track record our share price performance has been deeply.
Frustrating.
I do understand some of the drivers of our share price global growth uncertainty very weak gas pricing as well as a challenged MLP model. However, I strongly believe the actions we have announced today provide a platform for all owners of our capital structure to benefit going forward I.
I fully.
We endorsing initiatives taken by management to reduce costs and prioritize balance sheet strength I believe all these actions underpin the investment case for both businesses going forward.
And with that I'll now hand over to Andy take you through the partnership presentation.
Thank you Peter I'll begin today with the partnership pilots for the quarter and full year.
Your 2019, after which I will discuss the evolving commercial environment for our ships and the current challenges facing the MLP capital markets.
These two key issues underpinned our decision to take the conservative action of rebalancing, our common unit distribution in the first quarter of 2020 in favor of strengthening our balance sheet.
In time.
We expect this approach will improve the competitive positioning of our fleet and allow us to continue our acquisition growth strategy in future years.
Turning to slide five review of our performance in the fourth quarter and full year 2019.
After a strong quarter operational and financial performance today, Gaslog partners reported our highest ever.
Well results for revenue EBITDA and distributable cash flow.
During the fourth quarter, we met the distribution guidance, we established for 2019, declaring a distribution of 56 spot one cents per unit and we repurchased $3 million of our units, bringing our totals for the year at 23 million and 1.2 million of our common units retired.
Our strong financial performance enabled the partnership to return a total of 130 million to our common unitholders in 2019 or $2.71 per unit, an increase of 25% over 2018.
Combining the capital we've returned in the form of common distribution plus the univer purchases, we executed over the last 12 months.
Gaslog partners is currently trading at a 26.5% total return yield.
We do not believe that continuing to pay such an elevated deal is the most long term value enhancing use of our capital, which I will discuss in more detail shortly.
Lastly, as of December 31, we recognize a noncash impairment.
As of approximately 139 million related to our five steamship built in 2006 in 2007, primarily as a result, lower expected utilization and earnings estimates for these vessels.
On slide six you'll see our track record of fleet growth since our IPO.
Including our vessel acquisition and.
Many 19, our fleet stands at 15 wholly owned LNG carriers, where the revenue backlog of $945 million.
Today, we are proud to say that the partnership is one of the largest independent owners of LNG carriers with a scale platform.
Although our fleet has 81% of its operating days fixed in 2020 the partnership.
Fleet is expected to be increasingly exposed to the spot market in future years.
This creates an opportunity to capture simple upside in a strong market for our ships, but also significantly reduces our cash flow visibility relative to prior years.
Turning to slide seven.
Despite our accomplishments in 2019 the backdrop for.
MLP capital markets has remained challenging.
As you can see from the chart on the left there have been nearly $5 billion of outflows from the MLP in midstream sector since January 2018.
Issuance of common equity for the entire sector was just $2 billion last year and only $5 billion in total over the last two years.
And lastly, the.
Environment for MLP as can be seen in the trading yield of the benchmark Alaron index, which is expanded by 300 basis points over the last several years and is now approximately 10% indicative of a higher cost of equity capital for the industry as a whole.
At the partnership has relied primarily on external capital to fund its growth the challenging backdrop or.
Common equity issuance mix funding additional acquisition difficult for us to execute at this time.
Turning to slide eight and a discussion of the recent industry wide trends for term chartering of steam vessels.
As you can see on the right hand panel of the slide only 16 vessels were fixed under term charters of one year or more during 2019.
A poor result relative to 2018, which saw a total of 12 seen six under term deals.
While this trend in the multiyear charter market has been disappointing. It is important note. The feedback will continue to represent 42% of the global LNG shipping fleet.
There remains a sizable spot market for seen as demonstrated by the total of.
The six spot charters for steam vessels in 2019, representing more than a quarter of all spot fixtures reported for the year.
Slide nine thats, not our adjusted EBITDA guidance and capital allocation plan for 2020.
In light of the capital market and vessel utilization challenges I just discussed today that.
Partnership is taking a proactive step to focus on further strengthening its balance sheet.
While we did not take this difficult decision lightly we believe our plan for 2020 will be in the best interest of our unitholders over the long term.
This morning, we announced adjusted EBITDA guidance of $230 million to $60 million for 2020.
In preparing our guidance our assumptions are based on our fleet generating approximately 200 million of adjusted EBITDA from our vessels with fixed rate charters with the remaining 30 to 60 million subject to charter rates earned by our vessel of expected to operate in the spot market in 2020.
In addition today the partnership declared a distribution of just over 56 cents for the fourth.
Quarter of 2019.
For 2020, beginning with the first quarter. This year, we expect to pay a quarterly distribution of 12, and a half sense or 50 cent annually.
Our rebate annual common distribution represents only 10% of our adjusted EBITDA guidance for 2020, and we consider this level to be a conservative and sustainable.
Hey out of our earnings per unit.
Our plan for 2020 will reduce the partnership's annual common distribution by $83 million and considerably decrease our cash outflows during the year.
In the near term, we plan to prioritize debt repayment, while continuing to opportunistically repurchase our common units.
In time, we expect today decision will create greater flexibility for the partnership to continue growing at that that with reduced reliance on common equity markets.
Slide 10 fit that our balance sheet metrics planned debt repayment over the next several years and capital commitments.
The partnership's credit profile is robust.
With net debt to trailing EBITDA of 4.6 times.
Our net debt to capital after the write down of our steam fleet remains a strong 52%.
We expect to further strengthen our balance sheet in 2020, beginning with the expected retirement of approximately 115 million of debt this year.
Lower common distribution and reducing debt.
This will improve cash flow gaslog partners cash flow breakeven levels over time, which will enhance the competitiveness of our fleet.
Lastly, it is important to note that the partnership has no committed growth capex this year, but willing to spend $20 million and maintenance capital expenditures related to four drydockings with one scheduled in each of the first.
Two quarters, followed by two in the third quarter.
Our four drydockings or expect to cost the totaled 13 million with an additional one time costs of 6.8 million for the installation of ballast water treatment systems as required by regulatory compliance.
Turning to slide 11, and a discussion of how are.
On debt repayment create equity value for our common unit holders.
This chart, we demonstrate how M are amortizing debt build balance sheet capacity and book equity using our most recent acquisition of the Gaslog Glasgow as an example.
This vessel has approximately 134 million of existing debt as of the end of 2019.
All of Gaslog partners debt is that the vessel level and our debt amortizes at roughly twice the radar ships depreciate.
As you can see from this slide our loan to book value ratio on the Glasgow declined by over 9% from the end of 2019 through the end of 2021.
During the same period, our book equity for the vessels projected increase by 14 million.
$1, a 10% compound annual growth rate in equity value.
We believe that part I think debt reduction will support the partnership's future growth in book equity value per unit.
Which they stand at approximately $13 and well above the current trading price of our units.
Turning to slide 12 in summary.
In the fourth quarter, the partnership delivered a strong operational and financial performance, resulting in record annual revenues and adjusted EBITDA for the full year 2019.
We met our distribution guidance for the year, returning a total of 130 million in capital to our common unit holders in the form of quarterly distribution and unit repurchases.
Our adjusted EBITDA guidance of 230 to 260 million is supported by our 81% charter coverage for the year with approximately 200 million of adjusted EBITDA expected from our vessels operating under fixed rate charters.
We have taken a more conservative approach to capital allocation for 2020, focusing on debt repayment, a well cover common.
Tradition, and opportunistic share repurchases.
We believe that strengthening our balance sheet today will position the partnership for accretive growth in future years.
Finally, as one of the largest independent owners of LNG carriers, our scale and continued focus on operational excellence cost control and reducing cash flow breakeven will improve the.
Ownership competitive positioning in a growing LNG market.
With that I'll now turn it over to Paul to discuss the LNG macro and shipping outlook. Thank you Andy Let me first provide you with an update on the LNG and LNG shipping markets and then take you to Gaslogs fourth quarter earnings and outlook.
Turning to slide 14.
LNG supply in 2019 totaled 364 million tons, a 7% compounded annual compound growth since 2000.
Capacity is set to continue growing strongly with a record 71 million tons per annum at new LNG production.
One sanctioned in 2019.
Wood Mackenzie estimates at least another 50 million tons per annum at new LNG capacity will take five d. this year.
Slide 15 shows LNG demand growth forecast by region.
Wood Mackenzie expects net LNG.
Amounted to grow by 90 million tons between 2019 at 2025 or 4% compound growth Brandon.
Well as hard as forecast demand growth comes from the Pacific Basin, nearly three quarters of forecast supply growth comes from the Atlantic Basin, which should drive greater ton miles and.
Future demand for LNG shipping.
Furthermore, LNG is a marine fuel is forecast to grow quickly and account for approximately 9 million tons of 10% to demand growth through 2025.
This trend is being driven by rapid growth and the number of LNG fuel chips.
You are expected to rise more than fivefold other 2015 to 2025 period.
On slide 16.
Nearly 150 million tons Prime a new LNG production is expected over the 2019 to 2025 period.
Income.
On to re gasification capacity is expected to double in the high growth markets of India and China.
Slide 17 illustrates our shipping our view of shipping supply and demand through the end of Twentytwenty one.
I will demand range is in part based.
On the number of vessels needed to expose 1 million tons of LNG prominent expressed as the shipping multi client.
Our analysis supports a tight market through the 20 2021 winter.
However.
Recent headwinds in the global gas market, including the uncertainty caused by the.
Our own a virus outbreak could have a dampening effect on near term gas demand.
Moving to slide 18.
And here I'd like to reiterate several of Pete resilient message messages that embody the Gaslog investment case.
We have seven medium speed.
We'll newbuildings delivering through the third quarter 2021.
That all on time and on budget.
And they will join defined loaded medium speed diesel vessels already in the Gaslog fleet.
These new buildings are backed by fixed rate charges to high quality counterparties.
These.
With an average eight year duration, resulting in annualized EBITDA of $145 million once fully delivered.
Currently we have no further plans to expand our fleet beyond this newbuilding program.
As we entered this harvest period, we will focus.
On strengthening our balance sheet with over $1 billion, a scheduled debt amortization during the 2020 to 23 period.
In parallel we will also look to continue executing on our strategy of enhancing shareholder returns, which resulted in nearly $1 per share of common.
Actual dividends announced during 2019.
Well the gas market is presently oversupplied, we are seeing low prices incentivize the gas demand growth, particularly switching from coal.
With many regions of gas demand growth also seeing indigenous production declines we.
We remain confident in the longer term fundamentals of LNG and LNG shipping demand.
Slide 19 shows the Gaslog fleet, the majority of which molded medium speed diesel vessels contracted to high quality Counterparties.
As of December 31st two.
And 19.
Average duration of the Gaslog limited charter fleet, a seven years, delivering a backlog of approximately $3 billion.
The bottom of the slide also highlights the FX you FSRU opportunities. We are currently developing and slide 20 provide further.
Further details on these opportunities.
In September last year, we announced a 10 year charter for the Gaslog, Singapore as a converted floating storage unit supporting a power project being developed in Panama.
The Singapore's conversion will take place in conjunction with the vessel shed fueled by the.
Our special survey led to this yet, enabling both cost and time synergies.
The charter is expected to generate approximately $20 billion of EBITDA Brandon.
We will also tend to for the supply of an FSRU into the colleagues on Drupa list gas input project in Greece.
For which we already hold the operating contract.
If successful we will convert an existing TFT into an FSRU before selling it into the project.
Recently this project has made meaningful progress.
Last month gas trade launched the binding bids space for customers.
To take capacity and the project.
The Greek utility Delta agreed to acquire a 20% shareholding in gas trade, whilst the Bulgarian government is also close to acquiring the same level of ownership.
We expect both parties will provide anca through throughput commitments to the project.
Moving to slide 20, while.
We had a strong year operationally.
We took delivery of two new builds on time and on budget enjoyed an exceptional safety record high vessel uptime and strong service delivery to our customers.
And we continue to develop new customer relationships.
To conclude in long term charters with Gerra under Investor and the fixing of two vessels on multi year charters to gumbo market linked Rex of Hyatt.
Financially, we delivered our highest ever net revenues on adjusted EBITDA underpinned by our Newbuilding.
Deliveries.
We secured a $1 billion new build finance.
We achieved significant improvements to our covenants across all our bank debt of both Gaslog on the partnership.
We also to the strategic decision to relocate motive gaslogs people on most of the.
The management to authorize office in order to enhance execution improve efficiency and reduce administrative costs. We expect the restructuring will deliver annualized savings of approximately $6 million from 2021 onwards. After a one off costs.
Have a similar magnitude over 2019 and Twentytwenty.
These savings are equivalent to approximately 14% of our underlying 2019 gionee.
Slide 22 shows up financial performance for the year.
Net revenues increased 4% year on year as initial contributions from the Gaslog Warsaw and glass Gaslog Gladstone charters offset lowest spot vessel revenues with unit Opex broadly unchanged year on year adjusted EBIT date, Doc increased 3% on 2018.
The consolidated.
Diluted adjusted EBITDA figure excludes the $162 million impairment charge incurred in the fourth quarter on the consolidated fleets steam vessels.
As well as restructuring costs of 4.7 million the benefits of which will help expected unit DNA.
The average around 10% less than 2019 levels.
The Twentytwenty, we expect unit opex to average around $14000 per day subject to movements in exchange rates.
Slide 23 shows the Q4 2019 performance above.
Trouble right vessels.
These vessels owned approximately $66000 per day, Q4, 2019, which is in line with our guidance of 60 to $70000 per day.
To reiterate our commercial strategy has been wherever possible to charter those.
Alright vessels with scheduled Drydockings in Twentytwenty right up to those dry docks to minimize both positioning costs on waiting time.
While this has resulted in a trade off on charter rate. We believe this strategy will optimize the earnings of these vessels through to the dry dock.
We've also.
But multi month chances of a spot business to mitigate any seasonality in rates following the northern hemisphere winter.
We expect that this commercial strategy will enhance utilization and reduce the volatility of variable rate earnings across quarters.
The second chart on this slide shows.
Yes look and Gaslog partners can track to then open days by quarter during Twentytwenty.
These figures exclude drydockings the details of which can be found in the appendix of today's presentation.
But our variable rate chopped TFT east, we expect to earn a DC of 50 to $60000 today.
In the first quarter and again further information for the vessels on variable rate charges. During the first quarter are included in the appendix.
Slide 24 illustrates the successful financing of on Newbuilding program over recent years.
At the start to 28 team the.
Expected gaslog equity payments on the Newbuilding program, we're close to $300 million today, we've paid 75% to these commitments on have only 75 million offer remaining equity payments.
We expect to fund these payments through our unrestricted cash balances.
Liberal revolving credit facilities and operating cash flows from our growing fleet.
The debt component to the new build financing is funded through the EPA facility announced in December which extends gaslogs track record of accessing secured debt on highly attractive returns.
Turning to slide 25.
In summary, Gaslog limited has a young and increasingly loading fleet underpinned by long term charters to high quality customers.
Which will deliver revenue growth through 2022, and average 70% charter coverage for the Gaslog fleet over the 20.
20 to 2023 period.
We have a clear commercial strategy to focus on utilization on charter cover for variable rate fleet.
As Peter advised we have a laser like focus on cost control and operational efficiencies and we will benefit from significant.
Debt reduction over time.
We believe the out two decades of experience in LNG shipping our reputation for high operating and safety standards, and a leaner and more agile organization leave us well positioned to capitalize on a growing fast evolving and increasingly fragmented LNG.
Shipping market.
And finally, our investment case is underpinned by our focus on delivering shareholder value from fleet growth deleveraging and cash returns.
Finally on slide 26, we invite you all to our upcoming analyst and Investor day to be.
The New York on May the seven Twentytwenty, while we look forward to providing you with an indepth update on the groups strategy and outlook.
With that I'd like to open up the QNX operator could you now please open the call for any questions.
Certainly.
Ladies and gentlemen to ask a question you want me to press Star one on your telephone to withdraw your question. Please press the pound key once again that is star wanted to ask a question on our first question comes from Mike LIBOR.
Well we were research your line is now.
Hey, guys sorry, good morning.
Hey, Mike Mike.
So.
I see video busy quarter.
And Peter I'm going to take advantage would be on the call and intelligent questions your direction.
So starting out obviously.
Yes.
Sure you did the.
It was starting off with.
The capital allocation.
Susan Nick Rob I know that was I'm sure the a complicated decision for you.
And I just.
Somebody gets an inflow lending about business within the context and last week to nine months.
The market has been challenged for a while you guys had been.
I'm kind of above the phrase for for quite a bit.
You know two point really you bought back the I'd ours.
Seven months ago now.
I'm just curious.
This ultimately came down to decision between support from the sponsor and that's why.
Current level versus a redistribution one about that math.
Typically when you looked at your ability to tap different markets over the next 18 months and or swap assets at the parent level, what about that math made you decide the this is a time to.
To reconfigure the basis.
Well.
Mike.
Andy mentioned to 26% yield.
Is not sustainable.
And signals very clearly from the market that that.
That they expect us to be rebalancing and re rethinking the distribution levels.
[music].
On the Gaslog limited side.
Having come to the conclusion that.
We should.
Pause, we should pause our growth trajectory.
And then a reasons why why that makes a very good sense.
Well as our growth trajectory the whole concept around needing to do Dropdowns to fund growth became somewhat.
Less of a priority for us and that gave us the opportunity to to take drastic action to address the financial strength, both companies and we.
We feel that.
When times change the people, who change quickly with those times the ones, who will benefit most for and so we're taking that.
Step and that's one that and that's what we're doing it I mean, it's interesting because gaslog limited actually has a very interesting.
Oh revenues committed revenue stream with our charters in our Newbuildings Gaslog partners overtime becomes more opportunistic and Andy.
I think its balance sheet means with his his his breakeven costs on those opportunistic ships will be lower so he'll be more competitive and be able to trade them and he'll be able to uses balance sheet in the coming years to be able to.
Pickup assets when accretive assets become available and I have no doubt in my mind, Michael was there some people who are.
Going to find themselves in an uncomfortable position of the next two or three years with some of these speculative with newbuildings. So we're getting ready.
And we're getting ready to take advantage of that.
It it's not it's not the most it's not the most pleasant of things to do but if I didnt, if I didn't get ready for that.
I wouldn't be able to see that I had a sustainable business sustainability is not fixed it means you change and that's what we're doing.
Okay.
A couple more in line and kind of bigger picture good Peter could those by your thoughts on this to be but this is particularly thoughtful you mentioned a flattening technology.
Yeah.
The notion of the record doesn't flooding in perpetuity that they're going to being a came through it as it pertains to secondary propulsion or some sort of sea change in terms of in terms of.
And when the there was a marine feeling that goes beyond simply LNG bunkering.
With that something weird Gaslog would look too.
To put some early feed work in oil going to kind of looking to move to me 2050 targets as opposed to looking at 23.
Well, it's interesting that you mentioned that because for the LNG shipping space is somewhat unique and I'll, let me come back to that.
We.
Can meet the 2030 IMO targets as a shipping industry, along all types from container to bulk carrier to tanker by shifting to LNG fuel and making some modest adjustments to the way we run these ships in terms of speed.
There is there there is no way that we will achieve the 20.
50 targets without a major change in propulsion systems. So if you then say okay.
What's the average asset life of a tanker or a capesize bulk carrier or potentially containership no 15, 18 years, probably the commercial why for that ship.
So I can order one of those today and still see my way clear to meeting the 2030 targets with LNG fuel on the ship, which by the way is significantly cheaper today than than diesel, but let's not go there.
And then and then when I get to sort of 2030.
And then I'll.
Have a clear aligner side on what the new technology will be isn't going to be hydrogen is going to be ammonia as we're going to be biofuels and I'll be able to order my next set of ships.
LNG fleet on the other hand has a 30 35 year asset life, Ano and everybody who's who's running the economics of buying these ships is running room are 30 35 year level. So we're at 2020 today.
Put 35 years, we're past 2050 that means that the every LNG shipped today guests at 2050, and probably is technologically challenged in terms of residual value and that's pretty unique and I don't think that that the industry has picked up on that and when we start seeing ships being ordered and 24 and 25.
For the projects that are coming out there Mozambique, Qatar expansion et cetera. The people who are those ships are going to have to run the math on a 25 year life. Another 35 year life, and that's going to and that's going to make those ships somewhat less economically Chuck efficient compared to the ships that are out there today the.
LNG curve.
The boil off level, it's reached pretty close to shore side boil off levels. It's unreasonable to think that that's going to get better we might see some improvements in re liquefaction technology or some cost savings in that but it's pretty much there we've seen the sizes go from one.
38000 cubic meters teams all the way up to Q Qmax is and then back again, we sort of hit on the 174 180 sites as the long haul ship and the 150 560 size as the short haul ship and the same thing happened in tankers, where we went from small ships to you Lccs and then the you LCC.
Fill out of favor. So I think the size of the ships of sort of reached the stability level propulsion systems, we talked about that earlier went from steam turbines to tri fuel diesel electric to medium speed diesels. The next propulsion system is going to be something completely different and there's going to use a completely different fuel and it's not there yet.
So so.
The technology curve is at you're right to say, it's it's a kink, it's not flattened in perpetuity, but certainly one would be would be well advised to watch it very carefully as one looks at 2025 2026 deliveries around new projects and the potential useful life with those assets in the changing.
Environment I hope that helps you helps you get clarity on that.
It does.
One more before I turn it over.
And it dovetails with with the distribution cuts than just the thought process of handling there was a july steam assets.
The notion of placing assets in the downstream projects and storage or building.
Got a re gas presence, we've talked about that for several years.
It's been.
I guess relatively successful, but I would.
Probably venture to say you probably haven't put as many assets into the downstream ARPU as you would expect in several years ago.
And we talked in the World Bank or other players there seems to be pretty big divergence between my club.
Good.
Elbows and along with the people that are willing to put assets into these projects.
People that can provide both.
I'm curious when you talk about the downstream market and you've got no. As examples are going on for quite awhile and your South American business, what what do you need to do to just to get an advantage we do.
Not going to seek the cost into local knowledge and really just the on the grand the boots on the ground there probably required to actually develop one of these projects on your own.
A large scale where several of them.
What do you need to do to better differentiate gaslog from the long list of potential.
That providers in it as a steam assets that are more than willing to put an asset more projects and take a ill take a cell phone all had will have the second the FERC for many of these downstream projects.
The steam doesn't work because you need massive power generation to run a re gas ship and so having a steam ship do that.
Is it unless you're getting shore power connected doesn't work.
I think we're going to focus I think I know, we're going to focus on what we know how to do best which is the transportation of LNG as a as as a commodity.
We think we have some interesting operational advantages in terms of the size of our fleet and flexibility.
And we're working on some very interesting structures around how these ships will be chartered in future.
I think we're going to focus on that.
To spend a lot of time and money and investment in developing downstream projects.
You said you quite rightly say, we've been working alone Alex and group was for a long time, we certainly have.
When frustrating for for all of Us to see how long these things take and the other thing that happens is it's very the counterparty risk and these projects is.
It is not as attractive.
In many cases as one would would would need to get the proper financing in place. So we're going to be opportunistic about that.
We got Panama that was that that was that that was a great deal where we have a critical we have a crucial position in ellenson group, which was a shareholder there and we have the operating contract, but we're not going to spend a lot of the company's resources.
On trying to develop more of these projects so with a Gaslog limited we.
Don't have that many open ships anyway.
Gaslog partners, Andy is going to get to the point, where his breakeven levels are going to be low enough that that he will be able to trade. These things opportunistically in the spot market and make money and I think thats a much more cohesive strategy for the two companies than trying to spend a lot of money trying to open up or other.
Sectors in an area, that's clearly oversupplied at this point.
Thank you, ladies and gentlemen, as a reminder, we ask that you. Please limit yourself to one question and one follow up.
Our next question comes from Greg Lewis with EPA AG. Your line is open.
Yes, Thank you and good morning good.
Our noon.
Yes, I guess I'd like to touch a little bit more about.
The strengthening the balance Jimmy clearly this has been a theme on the call.
Andy I mean, you mentioned the scheduled debt repayments.
You know you kind of highlighted a.
The net debt EBITDA was 4.6 times could you talk a.
Little bit more about how we should be thinking about that are their targets, where do you expect to be maybe by how are you thinking about that beyond 20 in the 21.
Because it's clearly it seems we're going to de lever in the near.
Opportunistic down the road, so just kind of curious on any.
Color around on the how you're thinking about that and then does that involve.
Prepayments and things like that.
Hey, Greg its alister I'll take that now overstressed that proposed on.
Gaslog and Gaslog partners.
So clearly at the group level.
We will be taking on.
More data as we draw on the new EPA facility for the vessels that deliver during 2020 and 2021.
The peak will be at the end of 2020.
Models and incremental debt for new deliveries in 2021 or more or less balanced and then after that group.
Average will start full that about $275 million per year and as Paul said in his remarks, that's about a billion dollars over the periods on 20 to 2023.
So clearly in terms of leverage targets as measured by net debt to EBITDA it depends.
On what the variable rate ships are going to be earning over.
Over that.
Over time at the group level, but it's very much our ambition.
To see net debt to EBITDA full down towards five times and even below over time.
And we will provide more information on the financial framework for the group.
But the time of the Investor day in May as far as capital partners is concerned as.
He said, we're amortizing that about 110 $115 million.
Per year.
That would take net debt to EBITDA down all other things be equaled 5.5, 0.6 times EBITDA.
On an annual basis.
Depending on how the market performs what charges were able to put in.
Place.
What are available cash flow is that will then be discussion on how best to allocate that incremental cash flow does it go towards deleveraging.
And does it go towards incremental growth in the future should that be really interesting opportunities, but thats a sort of feel for how we expect leverage to behave over time to the said, we'll provide a much more.
Comprehensive framework for both companies.
In may.
Okay, Great and then just one follow for me.
Clearly, we're seeing the challenges for the steam vessels.
If we were to go back I guess 12, 18 months ago, when gaslog not the steam but not the steam vessels, but the other vessels were part of.
Cool pool, maybe it was a function of the market just right place right time, but it seemed like those vessels performed.
Very well or at least above kind of evolve in line with market expectations is there any thought about trying to partner with other steam owners and maybe starting.
Sort of a steam ship pool, just given you know given the fact that it's a lot more spotty work, it's you need to be in the right place. The right time, just kind of curious.
You were once in a pool is that something that we should be thinking about maybe re entering and is there a value in that.
Kind of in this kind of new environment.
Yeah.
Hi, Greg is full here yeah. I mean, we've we have as you said had a very good experience being a full with partners that worked well.
The time for us as the sort of partners debt structure diverged then.
That came back to us I think pools in shipping have been very successful I think the one we had with the on the LNG side.
Performed very well so yes, we're very open to that in future on the steam ships, but I think we're also very confident.
Chartering those ships.
Files with the relationships that we have that we will be able to do a very good job, especially as the cash breakeven of those vessels comes down that we'll do a very good job and been able to generate cash flow. So I think we'll be opportunistic rather than driving sort of pull consolidation in the steam ships, but certainly always open to it.
Okay, great. Thank you very.
As much.
Thank you and our next question comes from the line of Jon Chappell with Evercore ISI.
Your line is okay.
Thank you good morning, and good afternoon.
Guys. I wanted just said I think you did a lot of rate things here from the distribution cut proactively Peter's involvement on this call.
And support to the the transparency in the appendix, which is incredibly helpful. I think the one thing I'm not fully clear about on the strategy because it's a pretty compelling investment colon Gaslog limited on why the need still for two companies now that the a the distributions been caught in there is no competitive cost of capital at the MLP.
I get you are trying to de lever there and there maybe some opportunities in the future, but it almost seems like the weaker lincare is dragging down the investment profile of the stronger link which has gaslog. So Peter if you could just maybe digging a little deeper on why the need for two publicly traded entities at this point.
Yeah.
Asking interesting question and we may yet come to the conclusion that we don't want to have two publicly traded entities.
And that could come in many different permutations, whether it be combining the two or.
Potentially.
Taking one off the stock market that being said.
I like the fact that we have two very clear.
Sorry, and easily explained strategies for each of those two entities. So you've got Gaslog limited, which has you know and ultra modern fleet with committed charter revenues and mineral exposures to the stock market and we'll be using that too.
To to get committed revenues do de leverage you got Gaslog partners, that's going to become more and more opportunistic.
It will also be strengthening its own.
Balance sheet and financial position.
And could then become the vehicle we use for accretive growth.
Through the.
Of ships companies et cetera, whether it be from Gaslog limited or from others, there and I'm as I said to what Mike Webber ask question I'm quite sure that we will see opportunities to acquire assets at significantly attractive valuation points going forward and I'd like to have gaslog.
Partners in a position whether that can lead bid and do that without complicating the Gaslog limited story, which is about delivering our new fleet and and recovering our revenues as a result of our long term charters. It seemed to me clearer to keep the two pictures out there.
Okay and easily explained that it is to try and slam them. Both together and then and then end up with two strategies in one company two strategies to companies that that's at least how I see it from this perspective that makes sense. Thanks. Thanks for that Peter the second question is on buyback for both entities.
He has done so gaslog partners is has a lot of liquidity now going forward and post the distribution cuts.
And it's certainly going to open today at a at a much lower level. So maybe andes views on buyback I get the deleveraging is a focus but there's a lot of liquidity freed up and then for Gaslog limited I mean, I assume you guys were kind of.
Holding pattern because you had this major news coming in the distribution, Todd maybe Paul or Peter specifically from not even just a corporate buyback from an insider buying perspective, what you think the cadence will be on buyback across the Gaslog limited entity in the coming months in years.
Well look I think theres.
Thank.
Theres compelling value at Gaslog limited.
And and.
We have been buying shares and we will continue to do so.
I have I have a very strong belief in the sustainability and long term future of of this group.
And like very much so why wouldn't I do that.
In terms of.
Corporate buybacks you I'm much more in favor in Gaslog limited.
Of distributing the money to shareholders lay them go by their own shares I think that I think that that that that sends a stronger message to the loyal shareholders that we happened and we have some and we have some very loyal shareholders at least with my family was the largest shareholder.
And the analysis Foundation has been with me since the beginning.
As opposed to two to deploying money into into share into share buyback programs.
Andy has us has a slightly different perspective on it.
No and I'll, let him answer the second I know he's compete he is very focused and his board.
He is very focused on on debt and reduction of debt on the basis that it makes his entire fleets simply more cost effective and that's the right place to be when you're in a more opportunistic sector lower your the lower your operating and cost SAR terms of charting the ships and the more value will have so so.
I think thats, what his focus will be whether we opportunistically buying back shares.
Is going to be a decision that he and the board will look like over time, but let me add turn it over to Andy as he has some thoughts well sure.
So John and we're very cognizant that the total return.
The result of our new capital allocation plan is lower with a lower common distribution.
We did repurchase what we were describing a meaningful amount of units last year as an additional component of that return and we think it's important to continue that.
And as you say we.
Expect that there'll be some volatility in unit pricing and hope that having.
Yes.
The increase the authority back to 25 million won't allow us to take advantage of that on an opportunistic basis, but but absolutely our first priority with our capital in 2020 as debt reduction.
Okay, Thanks, Sandy and thanks, a lot Peter.
Yes.
Thank you and then following question comes from Chris Chris Wetherbee.
Citi. Your line is open.
Okay, great. Thanks.
Peter could I ask you to expand a little bit more on the two companies strategy Im not sure I understand completely the nuances between the two public entities at this 0.41, we care a better understand sort of the reason.
The strategy that differs between two companies out there.
This point.
Okay.
Effectively.
We will be maintaining to balance sheets.
And two strategies so the Gaslog partners strategy is around.
More opportunistic fleet.
By virtue of where it sits with its fleet today and where it sits with its chart long term charter commitments running off and the Gaslog limited strategy is right around the delivery of the new ships into these long term charters and the recouping of the revenues from the successful performance of these long term.
From charters there.
In a funny sort of way the two companies have flipped and what Gaslog partners did in the past in terms of his strategy of long term charters is now would gaslogs doing and Gaslog limited Gaslog partners is now doing what Gaslog limited due to be more opportunistic.
Yes I.
I'd like to leave leave a little bit more to say at the Investor day on May 7th, which I hope to have a chance to come and join us on where we will be where we will be able to give you. Some you know some very clear direction projections et cetera in terms of how we see these two.
Energy is playing out over the next several years.
But it's in my mind it makes complete sense.
To keep these two balance sheets separate.
And so and to treat them in different ways in terms of how we look at our strategy towards LNG shipping.
Okay.
And if I think about the.
I guess, my thinking about where gaslog partners might treat in the market post the distribution reduction.
How do you view the value potential of that.
Group of assets.
In the context, you talked about.
As a potential opportunistic M&A in the future people, who might be in a scenario, where they might need itself you would seem to me with the equity value implied this morning that that might be the most attractive set of assets on the market over the course of the next several months I don't know your perspective on that and how you think about.
If that's even something you can consider after taking this action.
I'll answer that and I'll turn it over to Andy.
I definitely looking at this over the next several years on over the next several months I think the next several months will be a period of a flux.
In terms of.
In terms of where the share where the sheer trades.
But as that as the situation stabilizes.
The the value proposition for Gaslog partners is compelling in terms of its of its cost effective fleet.
And.
In terms of its.
Strengthened balance sheet it should be in a position to be viewed to be able to do accretive purchases going forward and did you want to add to that knowing you covered.
Good.
Thank you.
Thank you and our next question comes from the line.
Randy.
Given with Jefferies. Your line is open.
Okay, gentlemen, how's it going.
All right.
All right. So following the sell off in dialogue shares and distribution cut and Gilat you know the Gaslog limited yield is currently higher than Gilat. So.
So how do you view the dividend at Gaslog parent into investors be comfortable that this will be maintained at 15 cents per quarter going forward.
Very comfortable.
Next exit.
All right next question.
I notice you removed the slide showing the charter backlog at Gaslog.
Partners. So what is the status of the methane Allison Victoria and then looking at the methane Rita Andrea with the charter running off in the next I guess two mines have you been in talks for maybe a one year time charter and I guess, a lower rate than expected or just kind of play on trading then spot market.
Sure Iranian.
Andy here, the nothing else Victoria, they've been in the spot market since January.
He's actually worked a couple quite interesting spot charters for work in the in the Pacific.
And there continues to be as I mentioned my prepared remarks, a steady a group of steam ships that are being chartered.
On a spot basis call less than one year.
So there, particularly for some of the older projects with with smaller cargo size and things like North West shelf in Australia and others.
There's there's absolutely a place in the market for the steam ships.
But not on one plus termeer term charter basis as I mentioned.
So we're.
We're continuing to too.
Examined both term in spot opportunities for both of those ships.
As you mentioned the next month.
Back to us in April.
If I may just add a little bits would and he said I believe that we will see a short C market developing where the steam.
Ships.
We will be less challenged in their competitiveness.
Middle East India.
As a market that is going to start to move as India puts in more downstream infrastructure.
There is actually currently a requirement of.
Interestingly going from was it Abu Dhabi to Kuwait, Abu Dhabi to Kuwait, which is like a two Dave wedge no is short which is play to the to the strengths of the steam ships in terms of their ability to move them without having to big a disadvantage on fuel consumption or size.
So.
So those markets will develop our there are there are.
40% of fleet is isn't deeds theme that simply cannot go away anytime soon and so you'll see a two tier market developing around steam and modern.
Diesel electric.
And medium speed diesel ships.
And the rates will be lower for the teams. So the key is to get the competitive level cost levels, who seems down enough. So they can trade in the short see opportunities.
Okay that makes sense and since the first question was only a one word answer quickly a third question.
Look you know historically the growth vehicle Gilat the income vehicle, so any thoughts on switching some assets from the spot exposed assets from GE lob backup to the parent and then dropping down some longer term charters to the partnership.
Sounds a little bit Rube Goldberg to me.
We're trying to keep it simple I think there isn't there is great value.
And having a very simple easy to explain strategy for each of these companies over the next couple of years.
And we're certainly we're focused on on primarily on cost cost reduction and.
Breakeven lowering breakeven levels, but we're also focused on on simplicity and transparency and I think thats really really important particularly in a world that is sadly lacking of simplicity and transparency.
Excellent. Thank you.
Thank you and our next question comes from the line of Ben Nolan with Stifel. Your line is open.
Thanks.
Thanks.
Actually I was going to ask about the shortage see LNG stuff and you addressed a little bit, but just a follow on with add a little bit as it relates to steam ships.
The it does a really low LNG price, which obviously impacts the you know.
Voyage length, oftentimes, but also the boil off.
Is that.
Creating something of a Renaissance perhaps for for maybe some of these smaller older steam power ships, but the but would not be the case if.
Onto parcels were $10.
Renaissance might.
Just a little bit too.
Yes.
However, what I would I would say that the the delta on competitiveness shrinks, obviously with the lower fuel cost.
Delta on competitiveness.
In terms of size shrinks with the relatively.
The shorter distances and so.
Moving those assets into the most optimum area for them would be against short see short haul wages.
But the but the the low gas price.
That means what we're really seeing is that.
We're we're.
Basically using gas to move these ships all the time, because it's cheaper than using diesel fuel and that's that's really interesting because its lowering the the breakeven costs of running these ships on the day to day basis. So even when the ship is not on charter we try to keep as much he'll as we can and the ships.
So that we can burn that gas on our balanced legs, while we're looking for other employment.
You know every little bit helps and that and that and that has been a meaningful the advantage of being able to burn gas at this stage.
I appreciate that Peter and I I think they the strategic part of it has been touched on as much as I think it.
Can be so I'll stick to another sort of industry question. It there's a lot of noise in the market about tenders from Qatar, Exxon et cetera on new projects.
Yeah, but currently freight rates pretty low and I think the expectation is not going to pick up immediately is there any any.
Tivity or or are you guys potentially looking to you tenders some existing equipment I'm into some of those companies rather than having.
Adding more to the to the new build or <unk>.
And to the extent to the extent the tenders allow us to to tender existing equipment.
We look at it when we will be doing that and we're encouraging the people who put these tenders out based on the flattening the flattening.
Technology curve to to allow existing ships to come in.
And if you again I think that we're gonna have to be very thoughtful about the rule.
The the useful life of the asset going into 2050, and what does that mean in terms of the of the costs at which you can tender and do a new a new ship in a newbuilding delivery and 2026.
Yes, there's a difference if you have to write the ship off at 25 years or like we are riding the ship.
Often 30 years were where where where we have line of sight to infuse.
Yes, all right well I appreciate it I'll turn it over thanks.
Thank you.
Thank you and your next question comes from Liam Burke with B. Riley. Your line is open yes. Thank you Andy I'm wondering is slide highlights the.
So are you opportunity for the for go up.
How do you look at this market vis-a-vis to traditional carrier market do you have it is better return or do you look at this is a way too.
Change the direction of the of the fleet.
Well, Liam identity or that it was actually when Paul.
I'll fly, but I'll comment first they've all you can you can add on.
We we have in success at the Gaslog limited level on the FSRU market, which is developing I think there's only two or three project in operation today globally, but theres. Many more that are on the on the drawing board and the interesting thing about the efforts you versus FSRU.
Theres lots of capital required to convert an existing vessel and often there is a shore based power solution. So both themes and TFT it can be applicable.
And so that that market as Peter mentioned I think we'll we'll look at Opportunistically I think our core business will be shipping.
Under spot in term charters for for very long.
But it but it is a developing market for the types of assets, we have far enough you done anything to that.
Yeah, I think the other thing I would add is it's very interesting I'm, having a secured the Panama project, we actually got a couple of phone calls from people, saying Oh, you're in the FSRU trade you know, how about helping us with X y and side. So.
What's interesting is once you go into that market. It does start to open up some possibilities, but I wouldn't I wouldn't overplay that I think like the FSRU there will be a limited number of projects around that probably will be able to move quicker than the FSRU. It because the this the permitting side of it et cetera will.
Probably be less onerous, but even so I think where you need to be is pretty island opportunistic in that market to see where you can place youre your assets rather than basing your strategy on it and I think we've begun to base our strategy, especially with.
The old a variable.
Ships on getting out costs down as far as possible, Brent breaking down the space and bringing down as breakevens and having it commercial strategy, which really drives the best earnings from those ships.
Great. Thank you.
Thank you.
And once again, ladies and gentlemen, that's true.
I wanted to ask a question. Our next question comes from Mark Sollecito with Barclays. Your line is open.
Hi, good morning.
Maybe asking one of the earlier questions a bit differently is there a minimum leverage level at the MLP that you'd buy to achieve before looking to resume dropdowns and is there maybe like a max level that you.
I have in mind that you'd be willing to go too.
I don't think that there is a a doesn't actually the rate of minimum or maximum clearly the trend we see as having downwards.
I think if you look at what you might go best practice, but it's kind of business with this kind of.
Operational and commercial profile I think it probably in the threes.
So the three mid three something like that.
Which I think a gets you you will cost no breakevens down to where you'd like them to be to be competitive.
Be it gives you a little bit of headroom to be opportunistic if opportunities come along so I.
Dozens any from targets, but.
Clearly with the direction of travel were on at the partnership I definitely see us having done.
Into this reason.
Great and then just to clarify is the plan the fund any future acquisitions at the MLP with retained cash balance sheet capacity really how should we thinking about the funding strategy going forward.
I think it's a good question I think it's difficult to tell at this stage.
It depends has a highly units trade over time.
We've always said in the past and we continue to believe it's true.
That we have access to multiple sources of capital.
We're very established issuer in the press market.
And as Andy said several times in his prepared remarks overtime.
We will create additional financing capacity on the on the balance sheet I think it's very difficult to say at this stage.
What opportunities might arise and what might be the optimum way of financing them.
Yes, if I may add I think it would be wrong do assume.
That's the strategy is to rapidly get to the old model of Dropdowns Gaslog partners is moving into a new world and its ability to do accretive acquisitions, what may be for ships that do not.
I've committed charters against them.
And that requires for our strong balance sheet and Thats, what and that's what Andy's objectives is to get is too is to be able to find value accretive deals without the hindrance of having to look at clear line of sight revenue streams as he has had to do in the past.
Asked.
Understood. Thanks.
Thank you I'm not showing any further questions at this time.
I'd like to turn the call back to your speakers.
Thank you Sydney. Thank you to everyone for listening in and your continued interest in Gaslog limited and Gaslog partners today. It is.
Really been a challenging period for all of us and like Peter I'm I'm simply frustrated by our unit price performance, but I very strongly believe the steps we have announced today will meaningfully secure the future success of our business.
If you have any further questions. Please feel free to contact our investor relations team.
Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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