Q2 2021 GasLog Partners LP Earnings Call
[music].
Good morning, My name is Liz and I will be your conference operator today.
At this time I would like to welcome everyone to the Gaslog partners second quarter 2021 results conference call.
All lines have been placed on mute to prevent any.
Any background noise.
After the Speakers' remarks, there will be a question and answer session.
As a reminder, this conference call is being recorded.
On today's call are Paul Wogan, Chief Executive Officer, Paolo a noisy chief operating officer, and accolades Tessie Atlas Chief Financial Officer Joseph.
The Belden head of Investor Relations will begin your conference.
Good morning, or good afternoon, and thank you for joining the Gaslog partners second quarter 'twenty 'twenty 1 earnings conference call for your convenience. This webcast and presentation are available on the Investor Relations section of our website Www Dot Gaslog MLP dotcom, whereas.
We will also be available.
Now turn to slide 2 of the presentation. Many of our remarks contain forward looking statements for factors that could cause actual results to differ materially from these forward looking statements. Please refer to our second quarter earnings press release. In addition, some of our remarks contain non-GAAP financial measures as defined by the SEC a.
Filiation of these measures is included in the appendix to this presentation.
Paul will begin today's call with a review of the Partnership's second quarter highlights following which Akalaitis will walk you through the partnerships' financials. Paul will then provide an update on the LNG shipping and LNG commodity markets. We will then take questions on the partnership's second quarter with that I will now turn it over to Paul.
Our reported CEO of Gaslog partners.
Thank you, Joe and good morning, or good afternoon to all of you.
Please turn to slide 4 for Gaslog partners second quarter highlights.
I'm pleased to report that the partnership continued to make good operational and commercial progress in the quarter.
Logan to fleet performed at approximately 100% availability, despite the ongoing challenges of Covid and the resulting crew change issues.
We took advantage of the seasonally slow second quarter to complete the dry docking of 3 vessels, which unfortunately encountered some delays due to the COVID-19 related issues.
Issues on the dry dock facilities.
In recent weeks, we signed 4 new multi month charters with high quality customers solidifying our financial position.
Last week, we released the partnership's sustainability report for 2020 detailing progress against our committed ambitions across.
Across environmental social and government on governance issues.
And we retired another $19 million of debt during the quarter, bringing the total to $55 million during the first 6 months of the year.
Turning to slide 5 which summarizes our recent chartering activity.
Okay.
The LNG shipping market has been counter seasonally strong in recent weeks, especially for 6 to 12 month charters.
We've taken advantage of the strength in since mid June we have announced 4 new multi month time charters, all with high quality counterparties and on attractive terms.
Activity together the charters on this slide increase our charter coverage to 100% for 2021, and 69% for 2022 and represent a combined $17 million of fixed rate EBITDA.
With the signing of these new charters the partnerships operating overhead on debt service.
Yes.
Now covered through at least 2022.
Further strengthening Gaslog partners financial foundations.
Turning to slide 6.
<unk> registered record chartering activity in Q2, 2021, with 99 spot and short term.
Cost is reported.
This continues on multiyear trend of rising market liquidity.
Commodity trading houses LNG portfolio players on the merchant to arms of large LNG producers were all active market participants.
In addition, a record 45 charters.
Greater than 6 months with fixed including 3 by Gaslog partners.
Headline spot rates have declined modestly in recent weeks, which as usual at this time of year, but the right on chart shows that they remain well above last year's levels.
LNG shipping spot rates have benefited from sustained.
<unk> LNG demand and increasing prices in Europe, and Asia as both region seek to meet summer cooling demand and refill depleted LNG inventories ahead of the winter.
LNG carrier spot rates have also benefited from persistent Panama can now congestion mainly.
Due to growing containership and LNG carrier traffic.
This is force some LNG carriers loading in the U S to sales to Asia via the Cape of good hope, adding an additional 8 days to each leg of the voyage, thus adding to ton mile demand.
We expect the LNG carrier.
Total market this year to continue to outperform outperform 2020, assuming continued global economic recovery. However, the recovery could still be affected by the rising level of COVID-19 infections related to the delta strength.
European gas storage levels are present.
At 54% compared to a 5 year average of 71% and 85% at this time last year.
We expect restocking in Europe, and Asia to continue to create high demand for U S. LNG, which is positive for LNG shipping in the coming months.
Slide 7 highlights our operational leverage.
The recent fixtures have increased our cash flow visibility as shown by the figure on the far left.
However, the partnership retaining meaningful exposure to sustained strengthening in the LNG carrier spot market.
Specifically each $10000 per day increase in TCE above our operating and overhead expenses generates approximately $8 million of incremental EBITDA in 2022.
Slide 8 presents some of the highlights from our sustainability report for 2020.
I'm pleased to report positive progress towards our ESG ambitions, despite the challenges of Covid.
The partnerships fleet consumed LNG, 93% of the time, helping to reduce Nox Sox and C O 2 emissions.
Our fleet is commercially and technically manage.
By our general partner Gaslog limited and the combined fleet achieved nearly 8 million man hours without lost time injury last year.
Testament to the dedication and skill of our seafarers.
We also continue to operate with high standards of corporate governance on a consistently achieving the highest ranking Marine Ltd.
Partnerships.
And with that I'll hand over to <unk> to take you through the partnerships Q2 financials. Thank you Paul.
Turning to slide 10, and the partnership's financial results for the second quarter.
As Paul mentioned earlier on the financial performance in quarter, 2.2021 was affected by a fee schedule.
Scheduled dry dockings as well as increased spot exposure in our fleet compared to the same quarter last year from the excavation of Saturday on and these are long term charter.
More specifically revenues for the second quarter was 70 million a 17% decline from the second quarter of 2020 net.
The decline year over year.
If you do the dry docking of the Gaslog, Greece, Gaslog, Glasgow and methane Rita Andrea always feel free to have completed within the second quarter, where we faced certain COVID-19 related delays.
Adjusted EBITDA was 45 million, while adjusted Ethnics was 10 cents per unit.
The clients and adjusted.
EBITDA and adjusted earnings per unit were due to lower revenues and higher operating costs related to the 3 dry dockings completed in the second quarter.
Looking for the book the partnership has 2 vessels scheduled for dry dock in the third quarter of 2021.
As Paul discussed earlier, we recently initiated.
Look new charters for our fleet on attractive terms and therefore expect other financial results to improve significantly during the third and fourth quarter of this year.
Turning to slide 11, and a discussion of our operating overhead and financing costs.
Operating expenses for the second quarter.
At 4 average $15734 per vessel per day on.
Operating expenses include the impact of 3 dry dockings of which $1109 per vessel per day of related costs were expensed as incurred the other things.
Water.
We also incurred additional expenses.
Related to Covid, 19 challenges, which increased the group costs.
On the overhead expenses were 2 hours on the $554 per vessel per day, a significant improvement over 2020.
As we look towards the full year, we expect our unit operating expenses to average for the.
$14850 per vessel per day.
This number includes costs for the remaining dry dockings as well as additional cost due to COVID-19 related factors.
We expect our overhead expenses to average 2600.
The vessel per day.
This guidance for a low structural improvements in our overhead costs, which we have discussed on previous calls.
Luckily declines in LIBOR as well as lower debt levels, but it usually does the expense on the unhedged portion of our secured vessel debt by nearly $4 million.
In the second quarter of 2021, compared with the first quarter of 2020.
Yeah.
Slide 12 shows other partnerships connected to profile continues to be resilient with net debt to total capitalization at 48 per cent.
The partnership ended the second quarter with 120.
1 million of cash and time deposits, which includes approximately $10 million of cash right. So our aftermarket equity offering program earlier in the second quarter.
With the partnerships cash flow visibility and liquidity much improved following the fourth new charter agreements discussed earlier, we do not have any immediate plan.
To issue additional equity.
It's important to note that Gaslog partners has no committed growth capex, but we will have 2 scheduled dry dockings in the third quarter of 2021 as I previously mentioned.
We expect to convenient setting because balance sheet, beginning with the scheduled retirement of approximately.
Lee you want had on $10 million of debt in 2010 due on at least an additional 110 million in 2022, which as Paul noted earlier is more than covered by our existing contracted revenues and cash flow over this period.
Using that balance sheet will reduce the partnership's cash flow breakeven levels over time, even though in.
Is the competitiveness of our fleet.
Turning to slide 15, and the discussion of how our focus on debt repayment creates equity value for our unit holders.
On this top with them on site, how amortizing our debt builds balance sheet capacity and equity.
The value using the Gaslog Glasgow as an example.
All other partnerships that he said the vessel level and this debt amortization roughly twice that aid all ships depreciate.
As you can see from the slide on loan to value ratio on the Glasgow declines by over 16%.
The city, yes periods from the end of 2020 through the end of standard on the Street.
Getting the same issue on book equity from the vessel net of depreciation on these projected to increase by $20 million with physical events and 9% compound annual growth rate in equity right.
As this compelling value creation on demonstrate.
You would think we believe that prioritizing debt reduction force with partners its future growth in equity value.
With that I will it doesn't over to Paul to discuss the LNG commodity and LNG shipping months.
Thank you.
Slide 15 presents LNG demand and supply for Q2.2020.
1.
Oh 10 reported LNG demand increased 11% in the second quarter of 2021 relative to Q2.2020 as shown by the left hand figure.
Asian demand was robust for much of the quarter due to a combination of cooling demand and restocking of inventories ahead.
The winter.
Demand from Latin America was also strong due to lower hydro electric output increasing demand for LNG fueled electricity generation.
For 2021, Woodmac Wood Mackenzie forecast LNG demand to grow by 5%.
On the supply side U S production in Q2 rose, 61% year over year to 18 million tons due to no shutdowns on the ramp up in production from the third trains at Freeport, Cameroon, and Corpus Christi LNG facilities.
Strong Asian demand met.
So bust U S supply met ton mile demand grew by 15% in the second quarter underpinning the strong shipping market.
Yeah.
<unk> 16 shows global gas price differentials.
The futures market presently implies a study and widening differential between U S ex.
Book and Asian import prices through at least the 2021 'twenty 'twenty 2 winter.
Further out the forward spread continues to be supportive through most of 2022 and 2023.
This should help ensure high levels of liquefaction utilize.
By Russian underpinning shipping ton miles.
Slide 17 illustrates our view of shipping supply and demand through 2022.
Demand is partly based on the number of vessels needed to export 1 million tonnes of LNG per annum expressed.
Your line as the shipping multiplier.
And the shipping multiplier is particularly strong for cargoes exported from the U S. A.
This analysis does not assume any vessel scrapping. Although there are currently 28 vessels or about 5 per cent of the global fleet over the age of 30.
And 6 vessels have already been scrapped so far this year.
As shown on the figure we project a relatively tight LNG shipping market over at least the next several quarters.
Slide 18 displays the LNG carrier order book and delivery schedule According to Poten.
Express, although we are encouraged by the high level of spot market activity and rates. This year. The LNG carrier order book remains high with 26 vessels scheduled to enter the fleet through the remainder of 2021.
84% on the order book has secured multi year employment and.
In just 5 unfixed vessels are schedule to deliver.
During the remainder of 2021 Nevertheless.
Nevertheless, these deliveries due to the global fleet and therefore have the potential to offset some of the volume on ton mile demand growth.
Slide 19 highlights.
Right some of the international Maritime organization on Imo's, new environmental regulations and that potential impact on the LNG trade.
In June the <unk> adopted to intermediate steps aimed at reducing the global fleet.
Oh, 2 emissions by 40% in.
T 30, when compared to 2008.
These are the energy efficiency existing ship index, all E X I on carbon intensity indicator or C. III.
These 2 proposed measures aimed to reduce emissions through.
And operational efficiency.
They mean that all vessels greater than 5000 gross tons, including LNG carriers will have to reduce it.
Net carbon intensity by at least 2% per annum from 2023 to 2026.
For the steam.
<unk> turbine vessels, which are the least efficient vessels in the global LNG fleet. The most effective way to meet the 2% per annum reduction is through reducing speed.
Steam turbine vessels comprised nearly 40% of today's LNG carrier fleet and will still represent over 30 percentage of the fleet.
By 2.
Ship on <unk> 5 on the current order book has delivered.
Slow steaming ships is the equivalent of removing shipping capacity from the market at a time, when we expect a tight shipping market.
This means this isn't LNG industry wide challenge with the potential to risk tonnage availability.
If not carefully implemented.
While we await further clarity from the I M. O for 2027 onwards, it's important to highlight the partnership's fleet will be compliant with E ex Si and C. III regulations, and we continue to investigate options to improve further their efficiency.
<unk> and prolonged their trading lines.
Slide 20 shows the LNG importing and exporting infrastructure currently on the construction.
As import terminals can be built much more quickly than production facilities. The data on the right only on.
Campuses 2024.
With many more planned additions for both production and Regasification. We expect these numbers to continue to increase.
The present remains 125 million tonnes per annum of LNG production under construction <unk>.
62 million.
Tons of which is in North America.
The REIT on chart shows 160 million tons per on them of Regasification capacity being built today, 70% of which is in Asia.
This again highlights the shipping intensive nature of this growth.
So turning to slide 21 and in summary.
Our financial Foundation is robust following the execution of the 4 new multi month charters with high quality customers in recent weeks.
Our contract revenues alone through 2020 to more than cover all operating.
Cash and debt service costs over this period.
With 30% of our operating day still opened in 2022, we maintained significant operational leverage to a sustained recovery in LNG shipping spot rates and we expect the shipping market to be tight through 2022.
Overall, our capital allocation plans for 2021 prioritize debt repayments and along with our cost reduction initiatives, we expect to improve our free cash flow capacity over time.
In addition, with our cash flow is improving on our balance sheet and liquidity.
Risking over the near and medium term, we are positioning the partnership to become an industry consolidator.
Strengthening balance sheet should allow us to opportunistically modernize our fleet through the purchase of new assets on the disposal of old assets.
And lastly, we anticipate continued growing.
D for LNG and hence for LNG shipping for many years to come as a complement to renewables as the world transitions to a carbon free future.
Yeah.
Before opening the call to questions I would like to advise that Paolo a noisy will also be joining us for the Q&A session.
Demand as you hopefully know from a previous press release on August 1st Paolo will take over as the CEO of glop.
I think this isn't hugely positive move for the partnership.
Power's focus on this business and his in depth understanding of the operational and commercial aspects.
Exactly what the partnership needs to execute on its strategy of reducing breakeven rates and looking to become a market consolidator.
With that I'd like to open the call for questions on.
Operator, Please go ahead.
If you'd like to ask a question at this time please press the star.
On the number 1 key on your Touchtone telephone.
To withdraw your question press the pound key.
Again that is star then 1 if you'd like to ask a question at this time.
Uh huh.
Uh huh.
Our first.
Question comes from the line of Chris Wetherbee with Citi.
Hey, guys. Good morning, James on for Chris So I think.
Based on what you said it seems like you're fairly positive on spot rates throughout the rest of the year, but it also seems like you don't have much left.
Leverage to the improvement in spot rates. So just wanted to understand a bit more.
Am I mischaracterizing anything or was the decision more around risk management, just trying to understand the puts and takes around that.
Yeah, Hi, James.
I think we do see a continued strong market, but I think also.
The charterers golf customers also saw continued strong market.
So the disconnect right now between the forward rates for 1 year and the spot rates in the market.
Many of the customers were left without shipping last winter I don't want to be in that same position again, especially when we see Henry hub trading at $4 and a J cam.
And theyre trading at $14, a huge arbitrage opportunities that so they were willing to pay.
Pay a premium to take ships for 12 months, which we found attractive so whilst we think that there will be a continued strong market. We felt that looking in that premium at this point made good sense for the partnership.
Yeah.
Got it and then on.
So you had comment around you made a comment around fleet renewal I just wanted to get an understanding of what that actually look like so what do you consider basically buying assets that are already on the water are you considering new orders, possibly maybe investing in the fleet.
For example, incrementally improve energy efficiency like what does the fleet renewal and as well as in the context of sort of the broader amo regulation and investing in the fleet really look like for you.
You may not have planes out there, but just what's the most likely case is it's sort of like what might book the most attractive.
Yeah I think.
Let me maybe 2 parts to that question James I'll take the first 1 on maybe invite Paolo to take the second 1 around.
Potential.
Ways to improve the existing fleet, but I do think.
With the way that we're strengthening the balance sheet I think with our operational on commercial.
The platform, we do believe that we can be consolidators in this market, especially for spot operating ships and so.
I think we could see.
Renewal through existing ships.
At the moment I don't think the way, we're not looking at Gaslog partners on new buildings, we havent found.
On the economics of those to be attractive at this point, but that's certainly an opportunity for us going forward and I think we continue to see strength in the spot market as I spoke about and if we opportunistically have the opportunity to sell out some of the steam vessels 2 projects.
<unk> or 2.
Companies that.
Utilization for them then we would also look at that so I think.
All of the above in terms of.
The the modernization of the fleet from from fleet sale and purchase, but maybe Pablo you want to give us a.
To view on what else we can achieve around.
Changes to the fleet.
Sure.
Thank you Paul and non James on the deal.
But on a macro regulations are being built in there, but I think what we see is as we mentioned before.
You can see the steam vessels.
And core and important slow steaming as of 2020 on.
And eventually having to deal with the hurdles.
A 2% increase per year.
Again slow steaming is probably there to stay even.
Per 2023.
As you can see from different development.
Getting placebo coalitions for us.
Development in club net zero, if you will.
We are going to be probably the most important game changer together with maybe important development like fuel cells that perhaps you reported that the FTE vessels.
It's going to be it's not going to be a silver bullet and I think the problem is it has.
Uh huh assets that can actually be used.
The technology as soon as day develop and cloth.
And then from an availability point of view.
Makes sense and then on 1 more.
You don't mind, just around the share issuance in the quarter just understanding.
The proceeds and the motivation.
On any sort of.
Detail beyond what was said previously it would be great and Thats all from me.
Thanks, I'll take that it's actually less so.
We took the decision to activate the ATM and.
1 as a form of insurance the spot market in.
Second quarter started off.
And we took the view that there remains quite a bit of uncertainty around COVID-19. So.
Since mid June, though our cash flow and liquidity profile. This includes dog lately. So we don't have any immediate last.
On equity.
Today, we have a slug of liquidity and a better visibility in our focus continues to be on deleveraging.
Got it thank you.
Thank you James.
Your next question.
It comes from Randy Gibbons with Jefferies.
Hey, guys. This is Chris Robertson on for Randy Thanks for taking our call.
Hi, Chris.
Alright, So you mentioned and of course the rates and the.
The rates are performing counter seasonally strong 1 question around you mentioned.
Asian demand.
We hang up for the cooling season as well as inventory rebuilding do you have a sense of if any of the fall kind of rebuilding period has been pulled forward into the summer how might that affect the <unk>.
Inventory restocking in the fall for the Asian region.
Yeah, Chris I.
Man, it's the there's not as much visibility about the stocks in Asia as there is in Europe, you know in Europe, we can get a very good real time view on on what's happening there.
But it does appear from the information we can pick up that they're actually the stocks have been slow to build again in both our career on Japan, I think Japan is.
I think back to something like a.
S requirement, but also in China, we understand you know there's been a very hot weather there are real pull on on electricity.
Demand and we think theres more restocking needs to be done so.
There's 2 things happening 1 that.
That continues to be a forecast for a colder winter again, the normal like we had last winter and that's been a very hot summer, which is pulling down existing LNG stocks. So I think he is setting itself up nicely to a you know to continue to have a strong LNG commodity market with the pricing on.
Getting.
A good LNG shipping market.
Okay great.
My next question was around the re charters add specifically on the on the steam turbine vessels. So obviously the market's open to operating the steam carriers can you shed some light maybe on kind of the competitiveness on.
Maybe the discount on the steam turbine vessels guests compared to the others.
Can you quantify just talking about in the future regarding the Ci and the slow steaming do you have a sense of the average reduction and not that you would expect on the on the steam turbine vessels.
Yes, so what's interesting is.
Hence there further strength certain certain trade certain ports are restricted and need the sort of size. The steam turbines have on the advantage we have with the steam.
Bonds and the partnership is that basically the most modern and.
Most efficient ships.
Chips in that trade.
So when we were able to put that ship on on a charter it was basically only around $10000 a day lower than you would we would see for TMT vessels at that point and you know a very nice <unk>.
Strong rate. So some you know there are definitely opportunities way if you understand the trade.
<unk> can do well with the steam ships and I think not.
That certainly continues.
In terms of the effect of the regulations, all again pass that back to Paolo I think is probably better but able to answer that question on me power.
Sure.
Okay.
Do you think you you use partners well.
The per peripheral word this.
Slow speeding will be executed will be on the achievement on the acquiring.
The possibility to cooperate because that'd be fantasy.
Difficult to say exactly what the impact will be for.
The vessels, because you know size and type of plant or different but I would say that.
You can probably expect that.
Vessels that were added capacity to speed up to something that and put it to you on 99.
We will find themselves having to slow down to an equivalent of <unk>.
2.3 months.
No.
Below that threshold.
I think enough to cause C and probably a growing demand on the vegetables admire.
From especially from the busiest month of the year and that's only for a day.
Your line is.
It's a continuum.
Proven cycle slow speed will be there for not only for the vessels, but for every vessel.
1 per cheap emission reduction in addition, as we mentioned with other.
Uptake on technologies or alternative fuels.
Right Okay.
Question for Us.
Has there been any.
Any additional thoughts on changing the corporate structure or possible consolidation.
I think we reported.
A couple of quarters, there, Chris we've taken a look at that.
The corporate structure and the strategical opportunities for Gaslog partners.
It concluded that the best way to maximize value for the unit holders at this point, we're still continuing to operate as a Standalone company. We continue to see Optionality and continues in the MLP are you know right now the MLP market is not that but that doesn't mean that that will continue.
You Forever and I think you know what's interesting is having taken that view on having set out a strategy of how we want to develop the company since that point, we've probably doubled the share price has probably doubled so so far I think that strategy is is working well and we continue to look.
And how we can continue to.
Make gaslog partners thrive as a standalone company on continued to grow as a Standalone company.
Great. Thank you for taking my questions.
Youre welcome.
As a reminder, if you'd like to ask a question at this time that is star then.
On 1.
Our next question comes from Chris <unk> with Weber Research.
Yeah.
Hey, guys how are you.
Hello, Chris.
Hey, Paul Kelly.
Hello.
Wanted to ask right.
Earlier, I think someone mentioned about the Tam.
I may have missed the answer but what was the use of those proceeds around $10 million that you guys are able to raise.
Well usually.
Use them yet.
The balance sheet.
So as I said it was a problem of issuance and we have been quite successful in the past where.
He is on liquidity today, we don't have any intention in any immediate plans to continue using this.
Okay I think.
I believe that we continue our strategy to focus on deleveraging, reducing cogs break events and you know.
Moving to our cash flow.
Program on them, we don't know how are the net each other will be a dialogue we have seen a lot of volatility in the past so.
Today, we are in a good place I believe.
Okay great.
Alright, Thanks, and just another quick 1 for.
So nothing other Sally that rate is fixed or floating.
Yes, it's fixed.
Okay. That's it from me thanks, guys. Thank.
Thank you Chris.
Yeah.
I'm showing no further questions in queue at this time I'd like to turn the call back to Paul Wogan for closing remarks.
Thank you very much less well.
Well. Thank you everybody on todays call for listening. Thank you for your continued interest in Gaslog partners. We certainly appreciate it and I know that Paolo and Oculus look forward to speaking to you in the next quarter in the meantime, if you've got any questions. Please contact the investor.
Relations team and have a good rest of the day. Thank you.
Ladies and gentlemen, this concludes today's conference call.
You for participating you may now disconnect.
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Yes.
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