Q1 2021 GasLog Partners LP Earnings Call

[music].

Good morning.

My name is an error and I'll be your conference operator today.

At this time I would like to welcome everyone to the Gaslog partners first quarter 2021 results conference call.

All lines have been placed on mute to prevent any background noise.

After the speaker's remarks, there will be a brief question answer session. As a reminder, this conference call is being recorded on today's call are all Wogan, Chief Executive Officer, and Ah Chiliast to see the Ulysse Chief Financial Officer.

Joseph Nelson head of Investor Relations will begin your conference. Please go ahead.

Good morning, or good afternoon, and thank you for joining the Gaslog partners first quarter, 20th 21 earnings Conference call for your convenience. This webcast and presentation are available on the Investor Relations section of our website Www Dot Gaslog M. L. P. Dot com wherever replay will also be available.

Please know turn to slide two of the presentation.

Many of our remarks contain forward looking statements from factors that could cause actual results to differ materially from these forward looking statements. Please refer to our first quarter earnings press release. In addition, some of our remarks contain non-GAAP financial measures as defined by the S. C. C. A reconciliation of these measures is included in the appendix to this presentation.

I will begin today's call with your view of the partnerships first quarter highlights following with Jackaway. So I'll walk you through the partnership financial.

Oh, well then provide an update on the LNG shipping and commodity markets and we will then take questions on the partnership's first quarter.

With that I will now turn it over to Paul Wogan C E O of Gaslog partners.

Sheet with approximately $110 million of debt due to be retired this year and pay the $18 million related to our five dry dockings.

Slide six highlights our operational leverage.

The chart on the left shows that although we have taken steps to secure our revenue and cash flow visibility in recent months.

Partnership maintains meaningful exposure to a continued recovery in the LNG carrier spot market.

Specifically, each $10000 per day increase above our operating and overhead expenses generates approximately $10 million of incremental EBITDA over the remainder of 2021.

With that I'll hand over to accolades to take you through the partnerships Q1 financials.

Thank you Paul.

Turning to slide eight and the partnerships financial results for the first quarter.

Revenues from the first quarter were 87 million a 5% decline from the first quarter of 2020.

However, adjusted EBITDA was $64 million approximately unchanged with respect to the first quarter of <unk>, while adjusted earnings per unit was 50%.

19% increase year over year.

Alright, then so the partners sixth grade to fight continues to be resilient with net day to total capitalization up 50% and 125 million of available liquidity, which includes $95 million of cash.

It is reported to note that GAAP apartment has not committed growth capex, but we will get five scheduled day of darkness in 2021, I said previously mentioned.

We expect to continue strengthening our balance it beginning with a diagnose of approximately 110 million of that in 2021, which is Paul noticed earlier is more of a covered by our existing projected revenues and castro's for this year.

Using that balances with a user partnerships cash flow breakeven levels over time, improving further the competitiveness of our fleet.

With that I will turn it over to Paul to discuss the LNG commodity and talent discipline methods. Thank you oculus.

So I think to slide 12.

Potent reported 93 spot fixtures in the first quarter, continuing a multiyear trend of rising market liquidity.

Commodity trading houses LNG portfolio players and the merchant arms of Lodge LNG producers were all active in the market.

In addition, a record 18, one year time charters were fixed during Q1.

Headlines spot rates have risen sharply in recent weeks.

It is shown by the right on charter now above the upper band of that five year range.

LNG shipping spot rates have benefited from sustained LNG demand and increasing prices and the major import markets of Europe and Asia is both regions refilled depleted LNG inventories full in the cold Northern Hemisphere winter.

We expect to LNG carrier spot market to improve through 2021 relative to 2020, assuming the global economy continues to recover with a worldwide rollout of COVID-19 vaccines.

However, this is by no means certain as many countries continue to experience high levels of infections.

C O two emitting marine fuel available today.

However, the international Maritime organization is proposing to adopt to intermediate steps on the way to the target of reducing sales to emissions from the global fleet by 40% in 2030, when compared to 22008.

These are the energy efficiency existing chip index and the carbon intensity indicator.

Together. These two proposed measures will attempt to reduce emissions by addressing chip design and operations.

These measures could potentially impact the steam turbine ships as the least efficient vessels in the global LNG fleet.

While these new rules have yet to be finalized they have the potential to impact the remaining useful life and residual value of the partnerships steam fleet and we are currently investigating mitigation measures, which may include operating these vessels are slower speeds, all making efficiency modifications.

It's important to remember the steam turbine vessels comprised nearly 40 per cent of today's LNG carrier fleet, making this an industry wide challenge with the potential to risk tonnage availability, if not carefully implemented.

Slide 15 shows monthly regional LNG demand over the last 12 months.

According to Poten LNG demand increased 1% in the first quarter of 2021 relative to Q1 2020.

Asian demand was robust for much of the quarter due to a colder than average winter.

However, European imports declined sharply as the region drew down inventories as record high gas prices in Asia pulled LNG away from Europe.

The 2021 wood Mackenzie forecast LNG demand to grow by 4% with Grub with most of this growth showing in the second and third quarters.

Slide 16 shows quarterly U S exports, which totaled 17 million metric tons in Q1, 2021, or a record 248 cargos According to Poten.

U S exports are very shipping intensive as the day.

Since the most major discharged destinations is above the global average.

During the first quarter approximate two ships were needed for every 1 million tonnes of LNG exported from the U S. Nearly twice the global average.

Wood Mackenzie is forecasting 69 million metric tons of U S exports this year.

Up from 48 million metric tons in 2020.

Slide 17 shows gas price differentials between export and import markets.

The futures market presently implies a steady and widening differential between U S export and agent input prices through at least the 20th book.

'twenty, one 'twenty two winter.

This should keep liquefaction terminals operating at high levels of utilization and expand shipping ton miles.

Slide 18 shows wood Mac's forecast LNG demand growth of 97 million tonnes between 2021, and 2026 or four per cent per annum.

This is a 9 million metric tons increase from their previous growth estimates of 88 million tons.

Nearly 85% of this demand growth will be in Asia, while it's much of the new production is likely to come from North America underpinning the ship and intensity of the growth in the years ahead.

Slide 19 illustrates the LNG importing and exporting infrastructure cut them currently under construction.

As a reminder, import terminals can be built much more quickly than production facilities.

And so the data on the right only encompasses 2024.

With many more planned additions for both production and Regasification. We expect these numbers to continue to increase.

Although total recently halted construction of the LNG project in Mozambique that presently remains 120 million tons per annum of LNG production under construction.

Two 6 million tonnes of which is in North America.

The right hand chart shows 126 million tonnes per annum of regasification capacity being built.

Two thirds of which is in Asia again, highlighting the shipping intensive nature of this growth.

However, the postponement of the Mozambique project also underscores the risks to the future of shipping supply and demand balance as LNG projects are often delayed while vessels almost always deliver on time.

Turning to slide 20 and in summary.

We delivered a solid financial performance in Q1, as our cost control initiatives and the strong winter market offset revenue declines from several vessels ending their initial multiyear charters in 2020.

We aim to deliver further cost base improvements as we seek to reduce our fleet cash breakeven.

Our cash flows from the first quarter, along with our 75% charter coverage for the balance of the year more than cover our debt service and maintenance capital expenditures for 2021.

Our capital allocation plan for 2021 prioritizes debt repayment further improving our free cash flow capacity over time.

In addition, as our financial position improves over time, we expect to Opportunistically modernize and grow our fleet through the purchase of new assets and the disposal of older assets, particularly considering new environmental regulations, which are expected to take effect in the years ahead.

And lastly, we anticipate continued growing demand for LNG for many years to come as a complement to renewables as the world transitions to a carbon free future.

With that I'd like to open the call for questions.

Accurately come true.

Here.

We will now begin the question answer session. If you have a question. Please press Star then one on your Touchtone phone.

Using a speakerphone you may need to pick up the handset first before pressing the numbers.

Once again, if you have a question. Please press Star then one on your Touchtone phone.

Waiting on standby for any questions.

And our first question comes from Randy Devin from Jefferies. Please go ahead. Your line is open.

Thanks, Operator, Howdy, gentlemen, how's it going.

Randy very good how are you.

Good good all right. So I guess looking at LNG rates, obviously, there was a strong start to the year followed some normal seasonal weakness and then has surprisingly now kind of bounce back pretty robustly, so with that where do you see these kind of spot rates going from here into the summer and then as it relates to Gaslog.

With the improved cash flow any chance of unit repurchases or increasing the distribution. This year are you only focused on further delevering the balance sheet.

Yeah. Thanks Randy.

It's really really interesting to see what's happening this year I think the the real key is in.

What we're seeing in terms of the inventories and in terms of the pricing for the LNG.

So we you know we had a cold winter, which we.

We haven't had for the last couple of years and in it.

You know drained the stock's very quickly you know and.

And as we talked about in Europe at the moment.

Five year average is around 42%. This year, we're at 30%. So a lot of restocking to go on and I think that's sort of the.

Supporting that the fact that we're seeing the the large differential in pricing between Henry hub and both the European pricing and the Asian pricing is you know then allowing that to those cargoes to move which is why we believe that we won't see shut ins this year in the U S.

Yes.

I think in terms of this.

This winter, we will probably see people moving as we have done to replace stocks earlier.

So I think that would be positive for the pricing for the earnings of the ships, but it may mean that we don't see this sort of massive jump up in rates that we saw last winter.

The spot market.

And then finally, what it's done is I think last year people seeing that.

At times.

If they were cargoes available in the U S and they literally couldn't find shipping to take them out to the far east to take advantage of that price arbitrage.

Looking to take cover over the winter. So that I think is why are we seeing the 18.

One year fixtures done in the first quarter, you know people trying to make sure they're in position for that so I think as we said in the remarks, we see this as being a stronger year than last year.

Probably more ratable.

Having this sort of the swings that we saw in the winter.

But behind all that we're still kind of saying and that's assuming that we say the rollout of the COVID-19 vaccines going well and we we see things sort of stabilizing.

We are a little concerned by what we've seen in India recently in terms of the six cargoes being moved away the force.

The biggest.

A consumer of LNG and that's the one thing you know still is the uncertainty that we're feeling pretty good but there's still a lot of uncertainty there around what we're doing with COVID-19 and stuff.

I'll hand, it over to <unk> for the second question I don't think.

So.

Excess liquidity I guess is that we won't have any CFO.

As my father would tell you better have it before you spend it.

So as Paul said it well.

Every day, so our market is comedy and.

There is still some uncertainty.

In the future so definitely the focus of days on deleveraging as we keep on saying consistently the last quarters and to improve our fleet.

Free cash flow breakeven.

Ultimately obviously the overall goal is to improve the unit called the value and at that.

The last time the board will decide.

What is that.

I think to do in Pennsylvania that zone.

So extra cash flow tends to unitholders.

Okay.

And then I guess, while I have you on the expense side. It's <unk> 21, a good run rate for vessel Opex G&A depreciation and interest expense or is there any kind of squarely one off items that led to reductions there for the first quarter that we won't see going forward.

It is on the low side I would say so the target that we have on the operating expenses is around 14550.

On the DNA.

The daily around that.

So in a half thousand approximately so we have seen some one offs here, we believe that this normalize later.

So I would I would not go that low.

Sure.

Alright, I guess when you put it all together with the recent charters with a little bit of the timing on the cost side.

Whats the expectation I guess for <unk> relative to <unk>.

I think.

We had a very strong one curious you said quite rightly.

The beginning of Q2, we saw some of the Reits coming off from and now we're saying coming back up again in the last three weeks. So I would share I would view that Q2 is not likely to be as strong as Q1, but we're still very hopeful around it that way.

Much better position than we were this time last year.

Yeah in terms of the spot market.

Yeah.

I think the writing on the wall for them. So that's a good time, but thanks so much.

Thank you very much.

Yeah.

Thank you. Our next question comes from Ben Nolan from Stifel. Please go ahead. Your line is open.

Thank you very much.

I wanted to dig in a little bit on on a well a couple of things but.

You now have 75% of the remainder of the year book, obviously, a lot of that had already been in place, but there are a few new.

Shorter term contracts I was curious if if there are give and I. Appreciate that you don't get the vessel specific data, but any color as to sort of where you were able to kind of lock those.

Short term rates for the balance of the year.

Yeah, I mean, I think if you look at you know.

If you look at where we are with the with the T. F D. As in the AR on the steam ships.

We've been.

The market I think in the last year was averaging somewhere around about.

On earning somewhere in the 30 is for those things early thirties per the steamships and the high.

Hi, <unk> for the T ftes.

We've been able I am on the ships that we have been doing being able to sort of beat.

Beat those type of numbers, but not by a significant amount but.

Okay. That's helpful.

And then with respect to the handful of ships that are either in the spot market are coming off contract as.

Yes, the aspiration here, well and maybe even beyond aspiration is the ability.

You guys. In this current market is there I guess is there some capacity to be able to put those on contract and is that what we should expect it.

We're trying to do.

That's.

This.

Partially to put them on for I would say one year, maybe sort of 18 months things like that not a capacity to put them on for sort of three year plus charters at the moment so.

We see the right pricing I think we would look at those are those sort of.

One to two year charters.

But we haven't seen much beyond that at the moment.

Okay and right pricing is in the same context.

<unk> indicated you had been able to do sort of a mid maybe mid thirties first name and high Forty's Fifty's for.

Is that fair to think sort of that sort of your threshold I think.

But we are seeing we are also seeing a step up in the pricing at the moment I think if you look at the one year assessments right now.

From a per.

<unk> 10 is that kind of giving it like low seventy's for <unk> and in the Forty's full force.

Steam vessels are sort of people looking to scrambling to take ships. So I think if we were if we were looking to do it.

Moment, we would be trying to get those type of rates.

Okay perfect.

And then lastly for me I owe you an apology.

Paul you talked a little bit about some of the regulatory changes in that Mike.

I mean, you have to think a little bit differently about your steam ships, but.

The flip side of that I suppose well, obviously, there is a probably a positive supply impact but.

And in terms of your steamships.

You know you've done some work around using them for floating storage or possibly converting them or or things like that.

Dave on that front.

Have you seen any progress do you think that that is an area that especially for the steamships that.

You know maybe even over the course of this year he might have.

Some some positive momentum.

Yeah, I mean, we continue to look at those four.

For the fleet as a whole.

We talked about in the past couple of the ships, we have steamships that we'd go operating at the moment are operating more or less.

End of <unk>.

In the logistics chain and a lot of floating storage or moving short distances.

Then supply into sort of restricted area. So that's starting to happen already I think it's something that we will continue to.

Push and find opportunities the good thing about the steam ships that we have all the kind of most modern willful fives fairly.

Modern and fairly efficient so.

If there are opportunities. So those type of thoughts steamships I think we are in a very good place to be able to put those away and that certainly stays very high on our wish.

Wishlist.

Perfect and I guess, maybe another way to phrase that last question I mean, obviously, we've seen as you pointed out at a pretty decent uptick in demand for LNG.

Is that also translated into an uptick in demand from what you've seen per for that type of project at all.

Okay put in Mozambique on hold.

I believe there were some new build.

Slots associated with that project.

Realizing it's only like it's been about a week to do we have any sense for what's gonna happen to those slots at this point. There's been marketed are those owners gonna move forward with those in any kind of color around that.

And having.

Yeah, you're right. There was 17 shops in the shipyards, I and I and some some which were allocated to that those were always options, which would declarable in may.

I'm not sure exactly when it may they were declarable.

Obviously with the.

With.

Hotel, saying that they have to spooning it for at least a year.

My guess is they will try to sort of hold on to those.

Slots in case, they are able to revive the the the project whether or not they will be able to do that or whether or not the individual owners, who were slated against that would would take a risk on that I don't know.

Little bit early to tell at the moment, but that could I think open open up some shipping.

There are no declared or if the shipyards decided not to extend on those options.

Okay, Great and then just another question I had was realizing that LNG shipping at that day. So it seems like it's really still early days.

I guess two things one is it do you have any sense for what the volume or the notional volume of of that market is right now and and and and really what I'm wondering is with that out there now it it kind of gives [laughter], maybe it gives us a potential customer.

More comfort around time charters like have we <unk>, we're in a counter seasonal a part of the market you know I am.

Yeah, I think most of the consensus is that Q for winter market is going to be solid.

That kind of like a <unk> or we seen.

Any noticeable increases you know it just seems like it seems like there's a culmination of factors that seems that should increase the number of.

Term charters that are out of the market is is that <unk> I.

I guess, if that's something that we're close to all day on the cost Bob.

And just so I understand the question, Greg you're asking whether around the Ffa's, where the people who are using that as a sort of way for the.

<unk>, Yeah, <unk> really what I'm wondering is it seems like there's multiple factors matter.

And thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.

[music].

[music].

[music].