Q2 2020 GasLog Ltd and GasLog Partners LP Earnings Call
[music].
Good morning.
Anthony and that will be a conference operator today at this time I would like to welcome everyone to be Gaslog limited and Gaslog partners second quarter 2020 of results conference call.
All lines have been placed on mute to prevent any background noise.
After the speaker's remarks, there will be question and answer session.
As a reminder, this conference call it's being recorded.
On today's call, our Paul Wogan, Chief Executive Officer of Gaslog Limited.
Andrew a recur Chief Executive officer of Gaslog partners.
And at the latest Tassiopoulos Chief Financial Officer.
Just some Nelson head of Investor Relations will begin your conference. Please go ahead Sir.
Thank you Stephanie good morning, or good afternoon. Thank you for joining the Gaslog Limited Gaslog partners second quarter 2020 earnings conference call for your convenience. This webcast presentation are available on the Investor Relations section of our website Www Dot Gaslog LTV dotcom and W.
Gaslog MLP dotcom, where replay will also be available.
Please now turn to slide two of the presentation.
<unk> remarks contain forward looking statements for factors that could cause actual results to differ materially from these forward looking statements. Please refer to our second quarter earnings press releases. In addition, some of our remarks contain non-GAAP financial measures as defined by the FCC. A reconciliation of these is included in the appendix of his presentation.
Paul will begin today's call with a discussion of Gaslog second quarter highlights and results after which Andy will walk you through the partnership second quarter ACA last will then discuss the group's financial position and financing activity and finally, Paul will conclude with an update of the LNG commodity and shipping markets. We will then be happy to take your questions with that I'll now turn it over.
Paul Wogan CEO of Gaslog limited.
Thank you Joe Please can't dislike full.
Although the covert 19 pandemic continues to present challenges and uncertainties for our industry I'm pleased to report cash both continued operational and financial progress in the second quarter.
Since we last reported in early May we refinanced all the group's debt that was due in twentytwenty loan.
And how its liquidity to the private placement a common equity the majority of which was purchased by directors and affiliates.
We take a deliberate three new build vessels on time and on budget that together with cost reductions produced adjusted EBITDA growth in Q2.
Continue to deliver a reliable high level of service to our customers, we fleet uptime of approximately 100%.
Published are no real sustainability report for 2019.
Finally, we declared a five cents to shed dividends the Q2.
Looking ahead, our charter coverage for of approximately 80% for the second half of Twentytwenty provides us with revenue and cash flow visibility. During this time of continued uncertainty.
Turning to slide five and an update of how we are dealing with the impact to covert 19.
We remain fully focused both on the safety of our personnel on delivering reliable high quality service to our customers.
This focus has allowed us to maintain a high degree of uptime and fleet utilization a testament to the dedication of our crews and show based employees.
Unfortunately, the impact of Cobot 19 has extended the gas looks of on this dry docking as a series of nationwide look downs in Singapore created delays. The vessel is now shed you'll to leave the yard at the end of this month.
Well, we've experienced some dry docking delays I'm pleased to report that despite the pandemic on new build vessels continued to deliver on time on budget and immediately can commence the long term fixed rate contracts.
And also during the quarter, we successfully implemented a phase return of employees to the Pirates office.
In recent weeks, we have also been able to accelerate crew changes on our vessels despite significant ongoing challenges.
Our crews continued to deliver a much needed clean energy to the world during this difficult period.
And we will continue to be lumpy governments, an industry bodies to try to ameliorate the difficulties the whole shipping industry faces in returning these dedicated men and women to that families.
Slide six highlights the additional steps, we have taken to reduce costs on streamline decision making.
Gaslog has grown significantly since going public in 2012.
As we look to complete our latest phase of growth our focus has shifted toward operational excellence efficiency and cost reductions.
Last November we announced our intention to relocate most of our senior management into perhaps office.
Having seen the tangible benefits of this initiative, we have decided to expanded to include cash flow partners.
As a result, we will close our Stamford office, resulting in a reduced presence in the U.S.
Unfortunately, Andy has decided not to relocate accretion will therefore step down from his role as CEO of Gaslog partners effective September 15.
In addition, we've taken steps to reduce the size of the partnership's board to five members from seven.
Joe Nelson will remain in his role as head of HR for the group based out of the us.
When taken together with last year's organizational changes, we expect these steps to reduce twentytwenty, one jana expenses by $9 million or approximately 20% when compared with 2019.
Please turn to slide seven.
The two charts on the left show the company's consolidated revenues and EBITDA on the contribution from Gaslog partners.
The delivery of Gaslog, Windsor, and Gaslog whales in Q2, combined with the strategy maximizing the utilization of vessels trading in the spot market delivered revenue growth, a 3% compared to Q2 2019.
While operating an overhead cost savings meant adjusted EBITDA grew by over 4% year on year.
In addition, adjusted earnings of two cents per share in Q2 was aided by lower interest expense following declines in LIFO.
Slide eight highlights the fleet approximately 80% charter coverage for Twentytwenty.
The high degree of revenue and cash flow Visibilities, especially welcome during this uncertain period underpins our resilient business model.
The vast majority of our contracted revenues are fixed Alex attractive fixed daily rates of high up with no commodity price exposure.
While our long term customers some of the LNG markets major participants.
Slide nine details our new build latest generation X the fleet, which to date has experienced no cobot 19 related delays.
The seven vessels delivering in Twentytwenty 2021, we'll all go on charter to high quality customers.
In aggregate, they will generate an incremental $145 million of annualized EBITDA once fully delivered.
Since the end of Q1, we've taken delivery of Gaslog Windsor, Gaslog Wales, and most recently the Gaslog Westminster all of which entered immediately into multi year fixed rate charters.
We expect to take delivery of our latest Newbuilding in October of this year.
In total the 12 vessels on this slide comprising the largest fleets of modern highly efficient two stroke fdx ex DFE vessels.
With a contracted revenue backlog of over $2.5 billion on an annual EBITDA contribution of $265 million once fully delivered.
Please turn to slide 10.
In June Gaslog, and Gaslog partners issued that first sustainability report laying the foundation for our environmental social and governance initiatives.
The reports and to provide clear emissions and efficiency data for our fleet.
Outline our ESG roadmap and identify the K P ice, which we will benchmark ourselves against.
We received much positive feedback on these reports and we look forward to further developing an improving them.
With our board strong commitment toward SG I'm confident we have charter the course toward achieving our sustainability ambitions.
With that I'll turn it over to R&D to discuss the partnership second quarter.
Thank you Paul.
Turning now to slide 12, and a summary of second quarter highlights for Gaslog partners.
During the quarter the partnership delivered a solid operating and financial performance. Despite the challenges resulting from covered 19.
Our focus remains on maximizing fleet utilization, while continuing to reduce unit Gn AG and opex costs.
Gaslog partners capital allocation strategy has evolved in 2020 to prioritize debt repayment and further improve the resilience of our business.
And the partnership balance sheet is stronger following the refinancing we completed in July with our nearest debt maturity now pushed out to 2024.
Turning to slide 13 for review of the Partnership's financial performance.
During the second quarter, we reported revenues of $84 million.
Adjusted EBITDA of $60 million and adjusted earnings per unit of 38.
A stable top and bottom line performance. Despite a significant increase in our fleet spot exposure relative to Q2 2019.
The partnership signed a new to your charter for one of our steam vessels Jumbo a leading independent energy company in China with a growing LNG business.
And we retired approximately $23 million debt.
Slide 14 illustrates the impact of our rebalanced distribution.
For the second quarter, we declared a common distribution of 12, and a half side, which represents a 33% payout of our adjusted the view.
Significantly lower percentage than previous quarters.
In total dollars are declared distribution represents a quarterly cash outflow of 6 million, enabling us to focus our capital allocation on debt repayment.
While we are pleased by our performance during the second quarter to cope with 19 pandemic has created a high degree of uncertainty in the commercial environment.
Our fleet and 86% charted for the remainder of 2020 and 59% for 2021 and the partnership will continue to seek ways to maximize definitely utilization in the near term.
Turning to slide 15, and a discussion of our debt balances at the vessel level.
On this chart, you'll see the toll that per vessel for the partnerships. We noted by the bars as well as the years of charter duration for each of our ships.
As a reminder, gaslog partners have no corporate level debt.
Following the recent refinancing we've improved our balance of operational and financial leverage.
The average that outstanding on our steamship has been reduced to approximately 45 million to better match their average six months of charter duration and aging 13 years.
In contrast, Rts between the younger at roughly 60 years of age with an average debt balance of 111 million against an average charter duration of four years on our one seven being 170 fours and one year on our 155.
We believe it's prudent for our shipped some greater spot exposure to carry lower debt balances and the partnership expects to continue this de leveraging trend over time.
Slide 16 sets out our balance sheet metrics planned debt repayment over the next several years and capital commitments.
The partnership's credit profile with solid with net debt to trailing 12 month adjusted EBITDA of 4.7 times.
Our net debt to capital remains a strong 53%.
It's important to note the Gaslog partners had no committed growth capex, but we will spend $14 million in maintenance capital related to our three remaining drydockings in 2020, including the installation of ballast water treatment systems as required by regulatory compliance.
We plan to continue strengthening our balance sheet over the remainder of 2020, the total debt repayment expected to equal nearly $100 million for the year.
Reducing debt balances will lower the partnership's cash flow breakeven levels over time, improving the competitiveness of our fleet.
As Paul mentioned today will be my last earnings call Gaslog partners the show.
Leaving the partnership since its IPO has been extraordinary honor for me and immensely were warning personal and professional experience.
I want to thank all of the incredible Gaslog employees on our ships and in our offices as well as our investors and analysts for your support over the many quarters in years.
I look for staying in close touch with all of you.
With that I'll now turn over to ACA last to review the group's cost performance and balance sheet action.
Thank you I'd.
Turning to slide 18, and you can see that the looks at it benefited a meaningfully from of course deductions that is how do I left over 19 related savings.
Operating expenses for the first half of the yet so I've added just under 10000 for haven't or less than lessons to be right. Now overhead expenses went up as currently $2700 per vessel per day, both significant improvement over 2019.
That's an improvement but going into operating until the third expensive have come from a previously announced organizational changes and the delivery of for the vessels go out of consolidated fleet say that beginning correspondent banking, which will improve the scale of thought that's a seat and maintenance agreements.
In addition, the covenant infant then that's also presented favorable my transitory impact thoughts costs, including foreign exchange rates and lower than expected timing related expense.
We expect some movies, but with 19 savings to the best in the second half for the year, primarily excludes Andy and his team vessels, making an effort density starting phase.
As we look forward to full year, we now expect our unique operating expenses, what private it's for $2000 per vessel per day.
You didn't affect the specs sold and Goldman.
Our operating costs as well as the best sell some favorability games he had live yet.
Lastly, the plants collaboratively to use the index expanse across it feels like a bit by approximately 9 million. During the first couple of things Dundee Despite the growth of our fleet.
Slide 19 sets out our consolidated balance sheet metrics as over the end of corporate to scheduled debt repayments over the next Evolent, yes liquidity and capital expenditures for the for the remainder of two independent.
We ended the second quarter with that opens up the lately some 63% inclusive of the approximately 22 million noncash impairment that we too well informed of steam vessels.
Okay. That's equivalence identify corporate tool was why haven't seven to 10 million.
Since the end of the second quarter of liquidity has been pheasant boasted by that lease with an additional 27 million of customer that though the lazy quality that afraid that got his hubs.
The some sort of financing profile play the trend due on that much weight. This has created an approximately 50 million of additional liquidity to the group.
Looking quotable, while our total debt will increase I think they live video cloud Newbuildings literally almost I think our bank that I said eight of approximately 260 million set on them. When the fleet is fully believe it.
Over the PV 10 to 20 to 20 to 23 inclusive with limited diet over 1 billion of that.
There's some will take some payments.
Underpinned by our consult consolidated top 10 backlog of 3.7 billion.
Lastly, we have approximately 17 million a few building cash equity payments remain you. This year, we expect to meet these capital commitments with cash on hand, Glatopa taking customers.
Moving to slide 20, when it will discuss Oh affordable bed facility the financing all the groups, but anything you want that much with it.
I'm proud to say that over the last several weeks whose of closed on approximately 1.1 billion of note that he suddenly month. Despite the the unprecedented dismally that global credit and biking methods.
These forward new facilities fully refinance all the phone that or these and then you looked at London caught the two of next year.
Oh, Okay that couldn't give attracted to the size of at least on just the yes.
You felt that says is caused by at least 5 million pet animal study approximately 70 million incremental liquidity and 50, if I know that facility. This type of vessels entity in capital partners.
These are saying nothing so participations on Monday, that's collection of leading financial institutions from around the world, there's someone to gaslog scale and that lead to attract new capital.
We very much appreciate the convenience of both from a biking toughness and to closer look we're working with them for many years to come.
With that I was doesn't though that the boat for an update over the LNG commodity and see method.
Thank you actually last slide 22 looks at the LNG commodity market in Q2.
The chart on the left shows year on year LNG demand growth by region.
Overall, LNG demand declined by approximately 2 million tons or 2% in Q2 as regional demand reflected Tobin 19 related lockdown restrictions.
For example, you repeat LNG demand declined 3% in Q2 as many countries in the region entered look down.
Well Chinese demand grew 20% as a country began exiting is locked down measures in early Q2.
Looking ahead wood Mackenzie expects LNG demand to grow 2% this year.
This is stark contrast to the higher levels of demand destruction experienced by other hydrocarbons.
Longer term LNG demand projections remain robust and globally diverse forecast to grow 73 million tons from twentytwenty through 2025 or 3% per annum.
Slide 23 shows the impact of U.S. exports on global LNG supply growth.
During the second quarter LNG supply grew 2% year over year.
However, you esupply grew by 39% or over 3 million tons. Despite the reported cancellation of 33 U.S. cargos in June as new trains at Cameron and Freeport began production.
In Q2, almost half of old U.S. cargoes were exported to Asia, the highest percentage in almost two years, resulting in counter seasonal high increased shipping demand the reflected both longer trading distances and slower speeds.
As shown by the right on chart Q3, U.S. supply growth will be impacted by approximately 110 reported cargo cancellations.
However, the number cancellations is expected to decline dramatically by the end of this quarter as we head into the northern Hemisphere winter.
Turning to slide 24, and the LNG carriers spot market.
For the second quarter of Twentytwenty potent reported a record 128 spot on short term charters a slight increase on the previous record of 122 fixtures in Q1 Twentytwenty.
So in total spot market activity is up 64% year on year in the first half of Twentytwenty.
Although headline spot rates for LNG carriers are low at present, reflecting the seasonably weak time of year and lower global economic activity. We are encouraged by this record fixing activity as we continue to focus our commercial efforts on maximizing fleet utilization.
Turning to slide 25 and in summary.
We have continued to take material actions to strengthen the business increased its resilience and deliver a reliable high quality service to our customers.
We have strengthened the group's liquidity by refinancing our twentytwenty, one debt maturities and releasing additional cash collateral.
And we'll growth and cost reduction initiatives delivered adjusted EBITDA growth in Q2.
These cost reduction initiatives.
Combined with operational efficiencies are set to reduce gionee by at least $9 million in 2021, when compared with 2019.
Our Newbuilding program continues to deliver all the time and on budget and the seven vessels scheduled to delivering 2020, and 2021 will generate an additional $145 million a fixed rate EBITDA.
And finally, despite the near term challenges and uncertainties presented by Cobot 19, the longer term fundamentals of the LNG business remain intact.
LNG continues to replace coal as a primary energy source remains the ideal partner for renewable energy at the world transitions towards the low carbon economy, the growing demand for LNG will produce a growing demand for LNG shipping.
And Gaslogs scale operational platform and reputation mean, we are ideally placed to benefit from these favorable industry trends.
[noise] before I open the call up to Q in a as Andy mentioned this will be his final Gaslog <unk> earnings call.
In his role as Gaslog partners CEO, Andy has been a wonderful business partner.
Much of the growth and development to Gaslog over the past few years has been down to Andy.
And he is quite simply a great colleague and friend and I will certainly Miss his wise counsel.
But I'm also confident he will go on to achieve great success and the next stage of his life.
So thank you Andy for me I know your colleagues for all you have done for Gaslog. It is very much appreciated.
With that I'd like to open up the Q in eight operator could you. Please now open the call for any questions.
At this time I would like to remind everyone. If you would like to ask your question. Please press star and the number one on your telephone keypad again that is still our wine well pause for a moment to come how the two I'd roster.
Your first question comes from the line up and Mike Webber with Webber.
Hi, Good morning, guys how are you.
Hi, Mike Hi, Mike.
Yeah, well first off or want to echo false Ah sentiment Randy started so you go and ER and best of luck.
The a handful question.
I guess rules first on on the LP.
It's considering it pretty topical if I kind of back away and look at you know obviously, it's been a difficult.
Seven eight months or are the LP after a pretty unprecedented wrong.
But if I if we look at you know your shuttering or U.S. pregnant Imogen Frank the board what's.
What kind of future for for Gaslog partners days of it being an equity Bible equity for your or behind that now should we expect.
You know some from operate got a shift in terms of the operational paradigm for that unit worth taking on essentially taking on more more spot a residual value risk.
There's just so many.
Moving pieces. It does that has to be who I think seven month kind of Baird. The question of whats.
I sort of whats the purpose of it because pricing risk, there's always going to make sense to some degree, but you know in some sort of formal pivot in that regard by in the car next couple of years.
[noise] or maybe I'll say that Mike. Thanks.
I think we know over the last few quarters on this so set out a strategy for glut, which was very much.
Around strengthening its balance sheet, bringing down the breakeven cost so for the vessels and extracting the maximum value for the vessels.
As the or some other ships come off charter.
I think not very much remains the focus for US right now I think in terms of well the way Gaslogs developed we will continue to sort of.
Look at all options and opportunities for that.
Right now to be honest, given where we are in the middle of covert as on the operational.
She was the continuing focus really endowments continuing.
To operate the business in the most effective and efficient way that we Oh, we kinda I think some of those most strategic questions are things that will.
Take a look out hopefully where we get to the other side of the or the these issues.
Okay.
Yeah, I guess in the Paul along those lines you know it's been a very busy six seven months for you guys no matter, how you counted kogut.
But we have seen a decent amount of new build orders and business getting done I'm, albeit at one looks like pretty narrow returns.
I think shall recently took down six hasten Caroline JPM.
Just curious one if you could have been quite is active in that process in the first half of the year just given what you know a this quite by restructuring as part of your business in the first half of the year.
And then too when you look at though.
Does the profitability of new business. It certainly feels like we're kinda back or the return that we saw kind of.
2000, and Oh, I guess, if they need maybe late 17, where you saw from Newbuilds getting done it you know in the low low to mid Sixty's.
Is that kind of pricing and returned dynamic fully in France, or more and is that it you know that one of the reason why you might not be of active in the first happened here.
[noise] yeah. Thanks, Mike I think you know.
Our mantra has been I think from the start that works we wanted to grow cash flow. If we would do is there any price and he has to be.
Matt or returns that make sense for our investors and I think we've been fairly.
Consistent with that I think we've been able to grow the fleet. If you look at the new buildings. We have is coming what wasn't low fixed price contracts all of them at attractive rates that were happy with but there has been business that we passed up a various times, which didnt make our hurdle requirements and.
And we'll continue to do that so if we can't say new business that meets our hurdle requirements, we simply won't we won't do equipment and we're happy that we have to platform that we can find business.
Oh that meets our requirements or you know from the right customer.
What direction as that trending right now are you seeing more business today that you better we simply because it doesn't fit your return hurdle, just given the pricing pressure or what direction to that moving.
Yes, I think its I think ebbs and flows Mike. So I think you know we saw periods as you rightly pointed out where it's at the away from us and we didn't do very much and then he came back and we did business I would say right now a there is that the way we asked for a while them. So.
Happy to just six on our hands I think the other side of it as though as well well Swiss we are seeing some newbuildings coming for some of the based.
Confected business.
The positive sign for the shipping Mark is we're not seeing any speculative newbuilding orders as well so.
Well first cases, I think that you're in that case I think that's very good and has just said, yes, it's probably added being at the moment, but I think as it has in the past there'll be if their peers. When it comes back and we'll be able to no requirement [laughter].
That's a.
And then finally on on some of the legacy seem tonnage.
I don't even even even putting some of the the more modern stuff away you mentioned Docomo, which has got to see again, particularly in book behind it.
But the.
In terms of maybe some of the stuff you guys are doing are looking at that might be further downstream.
Hey, any update there in terms of maybe getting great of in terms of ways to play so that that from a from a storage or an FSRU perspective, any any any denny I know some even gradually working on putting tonnage away and kind of entering your way downstream to develop a core competencies very measured just curious is there any update.
You know through Q2 in anything.
Yeah, I mean, I think what's interesting right now is you're seeing.
Because of the go low pricing and availability of LNG, you're seeing a lot of interest in those kinds of projects Mike.
No I think the deal what we did we signed a lot of in Panama is a great example of being able to.
Executes on how it wasn't I would say.
Most of those opportunities showing like now given the commodity pricing et cetera. So nothing that we would want to report on in this period, but I do think this inserts and interesting on potentially growing a area.
That's a.
And I actually like to do up one more it and then correct me if I'm wrong, but I believe I saw during the quarter that you guys are working happened work on.
I believe its fuel cells I'm not going to integrate that into maybe some some some nexgen design and that is that that's something you guys are working on it means that block about a bit right now.
Yeah, I think we publish the E.S.G. report or vis.
In this quarter and you know we are very much focused on how we can deliver on some of the.
The carbon sort of initiatives. So we're working usually we though the industry partners on a variety of different ways to do that and fuel cells is actually one of them, but again I think you know.
Nothing that we would want to respond to this point, but you know, it's well known as a number of indicative that wherever that we're looking after the moment a Mike. So that we can continue to sort of will prove up I kind of carbon footprint in line. We will take you guys, we're setting ourselves.
Okay.
Alright, Thanks again for the time guys I appreciate it.
Thank you.
Your next question comes from the line, that's Graco Lewis with BT I T.
Yes, Thank you and good morning, good afternoon, everybody, Yeah, I guess, Andy Hey, it's been a pleasure and and all the best.
Paul as I look at one is that slide 24, 25, you kind of outlined the pick up in the spot market liquidity, you know really in the first half of 20, Twond and really picked up in Q2.
Could you talk a little bit about what's driving that.
And really I'm kind of curious if it's more a function all cancellations of contracts whether screen to cargos or is this is the mark is the LNG spot market kind of just much more and is this something that we think is going to go higher over time.
Yeah, Yeah. Thanks, Greg.
I think it's probably a combination of both those factors I think this market is maturing and becoming more liquid and I think that's incredibly helpful in terms of.
Maximizing utilization and therefore capture rate on the vessels.
So some of that I think just just just from the fact that we're seeing more remote production coming online or a lot of it will not a lot, but usually sort of 2025, 30% of which is not necessarily contracted out.
I think some of it may well be a way you've seen people scaling back on the I knew will call off from that from that contracts and you see produces actually producing now and then selling your tone, which again is part of the flexibility which comes from.
Australian but primarily U.S. production. So I think it's a little bit of both but I think the major factor is just the fact that we are getting yes, it's a growing market with more moderately product available.
In the spot market and that's helping not market to mature I think quite quickly.
Okay, Great and then just one more for me clearly the company's kind of that into this.
You know focusing on the balance sheet.
Just to make sense, where we are in the cycle. Yeah, I guess I'm wondering it seems like work you know we're focused a lot more on on the bank debt then.
We look kind of like public.
Whether you look at that.
The corporate debt or maybe even perhaps those are kind of that.
These are.
Double digit type yields.
Just kind of curious like as you think about.
Being opportunistic is that something we should be thinking about it and really what I'm kind of curious is as we look at the you know the public data at Gaslog amount, that's not until Q1 up 22.
But sometimes the markets are an open sometimes they're open you know just kind of curious how we should be thinking about.
That piece of data as you know I get its.
Yeah, I guess six quarters away, but that time hazard pack on seems like it's just supplying them by maybe that's goes locked in without power but.
[laughter] <unk>.
It's a pay this dangerous thing right I mean, it I feel like that's going to hopefully be here or do you now it.
So that kind of curious your deal.
I'll take that connect and based on your life time flies and but and was if I'd have to add to deal with the.
If you say once that by the time, we leave behind that total about anything new on that are much what he sees a we'd be great focus on the cash collateral the weekend or are they leave.
About the idle or at the glass me and the fact that let them.
So my that was exposed on the Intellisafe crops.
And we will delay was 70 bond and financing in mind or you still a relatively soon but that again, let me say.
And we don't have 'em, we need to them and to do outside magazine other to see when the window would be open. So and now is the time tool to stop thinking then Watson is that and ER, we will not Pennsylvania.
Okay. All right guys say, thank you very much on that.
Thank you Greg.
Your next question comes from the line ups on working with Evercore.
Hey, guys I also want to wish Andy well I'm.
I had a question.
The spot market activity, you you've talked about on slide 20, 464% growth year over year and I see that's helping to absorb some of the some of the steam ships there not on long term contracts, but I guess my question when I'm wondering is yes.
Obviously nice to have the higher amount of spot activity that kind of relying on but does that also is there a bit of a double edged sword, where it's going to make it harder and harder to put away those older vessels to the point, where maybe because because there are customers are more flexibility in terms of being able to step in in the spot markets fine.
The fun.
Short term target when they when they when they want them that theyre, there's really not going to be much activity in long term charters for these older vessels going forward.
Yeah, I mean I think.
We will you're right to think to differentiate between some of the older but some of the new vessels.
We're still seeing 70% to 80% of ER volumes in this business contracted in its you know if you look at a our fleet. It has a sort of similar Oh look about in terms of the contracted volumes, but you're right in the fact that the the.
Older ships are likely to be the ones that trade more in the spot market.
That I would rather have a very liquid spot market, where we can try those ships and then illiquid one where people are then trying to chase whatever kind of longer term business for older ships that they can and I think the teams did a great example of where actually you know the the markets are opening up into China.
In India for example.
Before the Lockdown, India was was going great guns intense LNG.
Shorter distances will vote worked well on those steam ships, and that's where you're seeing the growth in the in that number also fixtures. So it kind of plays into that and as I said I think having that it's sort of self reinforcing because people know that there will be the ability to potentially work in the spot.
Market, a happy to do it that grows the spot market, which grows the liquidity, which means that you can up the utilization rate on up the capture right and that's being I think the problem for the spot market a foot quite a while so.
Net net I see it as a positive that where we're seeing that this increase and you know I think then we can use that to a to improve the earnings out of these older vessels.
Okay. So that's kind of an interesting concept that you're bringing up so I mean would you say then.
Increased liquidity on the spot market because before you had that you know that level liquidity your especially for the older vessels you might be taking a pretty aggressive discount in order to get to get the contract coverage that over like a three or four year period, you might actually be earning a higher economic return by placing them in the spot market.
Then you would have had you been kind of forced to to look for whatever charter you could fund.
Yeah, I mean, you know that the the.
I have that ability to so then say well do I want to putting in spot market into the contract not because I need to do because I think that's a good thing to do as opposed to I really want to put it in this contract because that no spot markets. Felicia I think is very net adds to the optionality that you have around them and you've seen.
So we have put one of our ships steamships on a two year charter to Joe, but when I think that's quite interesting because I'm Joe vote. They you know and LNG.
In Florida, but also logistics company, we feel that that's a very strategic or a customer to have in China. So having the ability to sort of look at both sides of the calling the spot market and the longer term I think is is advantageous and as I said I think for the steam ships.
Good luck is that we're seeing India, and China and you know the short duration voyages from the AG into India for example, and and from Australia up into China actually a much more suited to the older steam ships then the long hole voyages are you know from the U.S. et cetera.
Okay.
And then you talked a little bit about Europe demand, so we're falling off with the locked down.
But I'm just wondering if that is part of that storage constraints or.
And how much it because we think of Europe nickel a lot of just utility demand, which should be kind of more fixed even a middle locked down so the or what are your how are you sort of looking at at the at the winter soared season, and you're kind of typical seasonality in light of coded and potentially storage limits in Europe and maybe.
The demand in Asia.
Yeah, I actually was if I think what is what is interesting really around I storage levels are high right now in Europe, but I was having this conversation with a.
Fairly senior commodity Gyn and investment bank of body recently, and who pointed out to that and the last two winters that being in the northern hemisphere have been very well.
He was saying if we see a cold winter in the northern Hemisphere, which you know load average is what we should be do you are fairly soon.
You know the he sees the drawdown of those stocks are happening quite quickly and actually being able to pull back into a sort of more normalized market quite quickly. So.
No I think Oh, we.
We are seeing high stocks at the moment I don't I think not is partly driven by economic activity in Europe I'm you know there's no doubt about it didn't know power generation continues for homes et cetera, you know some of the industrial complex has certainly slowed down which is led I think two an increase in in the storage levels.
But I think two things you know and it comes back a little bit shown to this uncertainty around cobot you know do we.
Continue to come out of the Cove. It a lock down do we have a quick rebound in industrial activity and.
No. The uncertainty really is if you are we going to have a cold winter. This year in terms of being able to Ah to pull those stocks are down quite quickly and then attract LNG Buck in from a certainly from the U.S.
Okay, all right. Thanks, Paul in the and good luck Andy.
Thank you.
Your next question comes from the line of Brandy Gibbons Jefferies.
Oh determinant has gone.
Hi, Wendy very well anyway.
Good. Good first question can you give some additional color on the 36 million dollar private placement specifically regarding the timing of it on why that's specific amount a work it needed to complete the got Recon and then also with different creek recruiting and following the recall I.
And grant to repurchase preferred or even your unsecured notes treating has just now.
I'll take the first a bit and then I'll handover to actually last.
I think in terms of the equity right.
What we're really focused on run days, making sure we have a resilient business at all times and and when we raised that money. There was a huge amount of uncertainty I'm also around two we know we were still doing the refinancing it wasn't.
Hey, Rick requirements of the refinancing, but you know were which uncertainty around the refinancing given all the.
Or turmoil in the capital and banking markets. So we just felt it was prudent the you know frozen at all times, we want to make sure we have a resilient business I'm. So we're pleased very pleased that I referenced shareholders were willing and able to provide the funds or that point to make sure that we were always you know of prudence.
Ration and.
You know pleased that we will then able to to affect the rest of the ER.
Things that we did in the quarter to make sure that we Oh, we were in a good position. So I think for US. It was it was definitely around just making sure that we were a kind of as we would like to put it resilient still times and now I'll hand over to a calculation for the forget a question. Thanks. So.
We actually that are they a that look attractive and they seem to be below the value. According to our view.
I focus on homes right now is on the making sure we I think resilient as possible in this difficult and that's hasn't they did we know we don't know exactly how you know the conversations would like it will develop.
And that to be honest, we would be more than clients, what he said and.
To the shareholders regular dividends on a you know.
Bye bye.
Actual bone or whatever.
[noise] or guard, but part of the current repurchase program does allow for preferred dividends are preferred our repurchases.
Yep.
Okay.
You know.
Okay.
Alright.
Good morning, one thing I don't if you heard as the answer was yes, it does or doesnt allow for pre purchase of the preferred as well so yes, you're correct.
Okay. Good good.
Our looking at the at the for years any updates on the gas food, our core droplets surface or year, where the Philippines efforts are you and also how's the Singapore office or your conversion progressing.
And so we have a with the gas trade well, we kind of what we said previously is that when we had the information we would we would come back to the market to let them know the got strike or FSRU project continues to make good progress.
And we hope you.
You know to be able to bring some good news to the market on that Oh before the end of this year.
In terms of other potential projects, we continue to look at those yes or no major updates at the moment the sign alum and fish Axis. You project that we were ER, we have Randy we put in the 6K that dropped back a little bit because of the co.
<unk> basically there haven't been able to get a the workers on site or to.
Work on the power station and so Thats dropped back six months. So we are on the back inside of also pushed by the timing of our conversion to the vessel back six months to to line up with that.
But as it was saying earlier you know this quite interesting at the moment I think the a low prices for LNG.
And the fact that a sort of available and plentiful there are a number of people looking at how they can utilize that in the energy mix, if they especially whether you still using fuel oil.
Total et cetera, so interesting opportunities, but nothing that we would want to sort of reporting at this point given the fact that we'd like to come to the market. When we have a very concrete news rather than just a speculation.
Perfect.
Alright, and then just quickly I think Mike alluded to earlier, but obviously for steps we can make your kind of consolidate or might you log ins drop a kind of roll them back is that a an expectation over for possible timing for this combination.
And as I said earlier I think you know.
We will continue to look at all the different options for the company is.
With the latest movies really around the fact that we do see great benefits from the measures we've already taken to.
Bring management into pyroclastic to shorten if you like decision, making made the company more efficient and more cost effective and so those were the real drivers in terms of or the decision around the partnership this sort of structural questions. We really are kind of putting up for a different day one.
With pastas Kobin situation and we have the time to kind of think about those strategic issues because right now.
I can.
Bromine issue that we're spending just about every waking day working out a waking hours sorry, working at how do we get our crews on an off the ships how do we keep the maintenance up without we don't forget service engineers on the ship how do we get space the ship when that the a you know the airlines are not moving in the post the close et cetera. So a huge focus on the day today.
Hey, a which we really want to kind of make sure. We continue to deliver on because that allows us to deliver results and so that those sort of most strategic questions I think with with where sort of saying, okay. We can come back to that was we can keep options open and come back to those when with through this or the Kobe challenges and uncertainty.
Perfect all right well that's it for me in here and it definitely a pleasure working with you and best of luck on for.
Thank you Randy.
I think Dan if you want to ask a question. Please press Star then the number one your next question comes from the line of Chris Wetherbee That's <unk>.
Thanks, Good morning, guys and Andy Yeah Best of luck, it's been it's been a pleasure.
Yeah, maybe two questions for your first just on the Opex reductions are we kind of done would that process you just mentioned how much.
Time and effort, you're putting into managing the day to day, given the sort of view, which is understandable given the circumstances that you're dealing with but is there more opportunity beyond what we've seen so far to streamline the cost structure a bit here.
The simple answer Chris is yes, we believe that there is more opportunity. It's something that we will continue to work on we think there's potential opportunity both the gionee and at the Opex side.
But we do you know we need to talk to carve out the time to be able to sort of really do the opex in a very a measured way and again, you know sort of getting caught up in the day today with a keeping the should running but certainly we would be very hopeful that we can put more cost reduction into that.
Business without.
Affecting the service levels in the safety of the business that are the way I think I've got a good reputation for so yes.
If you just on the back of that do you think that they're currently cost being incurred around the Cobra disruption I don't know if you called out specific cost related to that but your point about.
Maintenance and spare parts in crude changes all of that you do you have cost been elevated or has it been you guys a bit manage that relatively well you'd argue that you kind of kept cost it relatively in line versus what was Ben.
Yeah, I think actually it's probably a little bit the other way, Chris the cost of probably lower than they would have been and in the normal circumstances be we haven't been able to change our crews as we'd like Oh, we haven't been able to get spares on ships and we haven't been able to get service engineers on chips, our crews have done an amazing amazing job off.
Reaping the vessels running by doing you know repairs and maintenance that would normally be done by third parties themselves and you know.
Each quarter that I'm able to come and say, we got 100% uptime is just a huge testament to those crews, but thats has saved as money. So the run rate right. Now is is lower than it would it being I think if we hadn't beating covert we sort of saying you know we're leading to also the 14000 update for the vessels for.
The <unk> by the end of the thinking that we if we returned to some sort of normality a though those.
Cost would go up a come a little bit more in line, but generally there has been a saving or because of covert.
Okay, I guess or do you think from that from a capital perspective, whether it be just dry docking standpoint, or otherwise that there are some cost accruing through this process that might ultimately need to be incurred when we get more of the sort of normalized environment, whether it be from a yard perspective or otherwise once things kind of open back up is there a crude.
Cost or some of these cost efforts that you've made kind of maybe potentially smoothed all of that outs, we won't necessarily see a quarter.
Two quarters down the road, where there might be something where we kind of have to pay off.
I think the which we for the second half the year. We're thinking that you know we may have higher costs than the first off the but still those costs would come in quite a long way below the cost for 2000, the opex cost for 2019, and we think going forward Chris that way.
We can continue with that and actually take have some more cost. So we are not expecting at this point that you will suddenly see a cultural two quarters, where you would see a huge increase a in our opex cost. We think we can continue to keep them under control and in fact to keep them bring them lower overtime.
Okay, Okay understood and we said last time on the call getting questions about sort of the potential consolidation of the two entities and you know I guess any wanted to sort of asked the question from the other angles. So.
What do you see it sort of the greatest benefit of having the company's separate so what's sort of the on that side of the ledger, what's the most compelling argument in your mind.
Well I think you know.
Till now, which I think the they've done a great job complementing each other you know would be able to raise the capital through glop and I'm due to the Newbuilding some projects through GLOG I think as you look at it going forward actually what's interesting is you now not by any kind of design, but you now have the more fixed rate business.
In the parent company in Gorgon in global you have the you know the lower cost the vessels, which can take advantage of the the the spot market and you know when youre trading in the spot market. It really is all about your your cost so Andy.
Being able to drive down the financing costs, having lower debt et cetera. You know those vessels are then you know able I think to be more competitive in the spot market. So there are some you know some advantages in having knows the those two are different types of business and being able to react too.
To a to eat a market, but as I said you know we will continue to remain open once we get through these are these times to see you know.
What we think the ideal structure is for a for gaslog into feature.
Okay. That's very helpful. Appreciate the time, thanks, so much.
Thanks, Chris.
Your next question comes from the line of Ben Nolan.
Oh.
Great.
Thanks, So I haven't I've got a couple here number one you're.
Spot performance looks to have been better actually both entities than I always anticipating.
Maybe.
ER and seems like probably better than the market or what is that maybe attributable to better utilization, that's sort of my inclination or or did you have some just pretty exceptionally good spot rates and also maybe tying into that.
Maybe talk through some floating storage of thing yeah, probably averaged 20 ships in the market were floating storage in the second quarter him is that something that you guys wearable participant.
Yes so.
I think in terms of the the spot rates than we are.
Very much how to focus on utilization of the shakes and we've kept the ships.
That being available, noting drydock or whatever.
Oh operating basically all the time you know very show.
ER validating and show times, when they weren't on higher and I think not probably asked because we had the structure you to do that too to maximise utilization. The partly comes back to a little bit Ross talking about in terms of the.
Spot market be more liquid the more liquid market is the easier it is to to be able to do that so I think it's a combination of those two things our strategy and on the deepening and liquidity at the spot market.
The second question do you see.
Floating storage just it whether that was it something a benefiting.
We didnt have we we didnt have a if you like.
Actual floating storage where people just ask everyone to take this cargo and sit for three weeks before you go anywhere with it but what we did what will you how are seeing and I looked a little bit in the remarks prepared remarks is.
How did the U.S. or you know <unk> a lot of the volumes in the second quarter went to Asia, but a lot of them were slow steaming and so it kind of it's almost the same thing a story so instead of taking let's say.
20 days to get out to the sorry, you're going a 40 knocks you may do some deviations and you end up taking 30 days to get there before you go in and you discharge. So you have this sort of floating storage around the fact that the voyages are being done a slow speed that some wanting to keep optionality around.
The ships are going and we seen quite a bit of that actually where.
Charterers are changing.
The low discharge ports.
Quite quickly to take advantage of back to arbitrage opportunities and so we're thinking you know if you think about in terms of some time. It's a combination is that how much calling you're carrying whereas going but then the speed at which you go out and so the storage we've been seeing is being or more around the fact that we'd been.
Slow steaming and potentially I'm waiting a couple of days to go into politics, cetera, rather than us being able to actually you know just sit that pleasing and store this cargo for isn't.
And those dynamics are continuing thus far in the third course organs, though.
Yes, that's correct.
All right helpful. The my next question sort of goes around.
Do you have to Sir you and I think thats been or FSRU assets, you. How you know the potential projects and I've noticed that you guys had been shortlisted on several I think a incremental projects which is.
Yeah, we'll see how they develop but my my question is really how are you thinking about allocating resources to that given that you're really.
Or whether you're talking a t., if these or steamships or whatever you have baffled available in both GLOG and glop.
They're very similar and and as far as I can tell and sort of their design and everything else. We're if you're successful in winning those who you know who gets too.
See the benefit of that.
Yeah.
Until you have a very much as we look at FSR years, an f. issues. It's very much for us is looking at using existing ships for that rather than new building. So you're correct in that in terms of where would those go I do think it to a large extent it depends on the type of vessel when its available at tetra so sometimes.
It's pretty obvious you know where where it's a gun to fit in the structure.
I think we just we stay fairly flexible not you know we don't have a.
You know we don't have a set view that you know if it's a TFT should going to close all going to close we'll just sort of see which of those are you know entities is best placed with the ship on other time, you know to to make that Ben as far as the the main thing is to be able to a you know to Youtube.
Like those ships, yeah, well in some way shape or form from which our whichever entity.
Okay, Perfect and then last for me.
With respect to well.
Congrats on the refinancing, but oh as it relates to that debt.
Can you maybe talk through if you had done any interest rate hedging or have a you know if that's something that you're looking.
Looking to do given its true that the state of rates at the moment.
Okay for the moment, they will have not done new into say hey, this it was a focused on the or tactical at that on any lease. So we're doing that and optimization of out at that age in order to be able to release, a kasper, let that and but it's something that are we at facility.
Because the limelight quite low we'll see how this would allow develop.
Okay perfect I appreciate it and again.
Having trail see Andy hopefully will bump into each other and airports once people start bumping into each other in airports again.
[laughter]. Thank you Ben same same deal about.
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And at this time I'm currently showing no further questions in queue I will now I'll turn the call back over to Mr., Paul Wogan for any closing remarks.
Thank you typically and thank you to everyone today for listening and for your continued interest in Gaslog limited and got football and as we certainly appreciate it and we look forward to speaking to next quarter in the meantime, see if you have any questions. Please contact the investor relations team. Thank you very much.
Thank you for participating this concludes today's conference call you May now [laughter].
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