Q2 2022 GasLog Partners LP Earnings Call
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Good morning, My name is Vanessa and I will be your conference operator today at this time I would like to welcome everyone to the Gaslog partners second quarter 2022 results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks.
There will be a question and answer session. During the question and answer session to queue up with your question you can press zero then one on your Touchtone phone and these instructions will be repeat it for you as a reminder, this conference call is being recorded.
On today's call are Apollo and them easy Chief Executive Officer, and <unk> Chief Financial Officer.
Robert Greenberg from Rosen company well now begin your conference. Please go ahead Sir.
Good morning, or good afternoon, and thank you for joining the Gaslog partners second quarter 2022 earnings call for your convenience. This webcast and presentation are available on the Investor Relations section of our website Gaslog MLP dot com or a replay will also be available.
Please now turn to slide two 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.
And that's in some of our remarks contain non-GAAP financial measures as defined by the SEC. A reconciliation of these measures is included in the appendix of this presentation Paolo will begin today's call with a review of the Partnership's second quarter highlights followed which Kelly will walk you through the partnerships' financials Paolo will then provide an upper.
On the LNG shipping and commodity markets.
Take questions on the partnership second quarter with that I will turn the call over to Paula <unk> CEO .
C O of Gaslog partners.
Thank you, Rob and welcome everyone to our second quarter conference call from very warm Athens.
Please turn to slide four.
For Gaslog partners second quarter highlights.
The LNG market has become increasingly dynamic as demand for LNG and LNG shipping has been positively impacted by energy security concerns in Europe .
Sadly the sanction situation in Ukraine was the catalyst for heightened energy security concerns.
While we are hopeful that a resolution will be reached soon we believe the market dynamic has been permanently altered.
Spot rates in Q2 were volatile due to uncertainty on short term supply following the fire at the Freeport LNG facility.
At the same time the term market has remained strong with one year time charter rates well above historical ranges throughout the first half of the year.
Tom fixing up supported by strengthening available tonnage has chocolate is locking available vessels in anticipation of winter demand.
Now against this backdrop, we recently secured two new charters one for the steam vessels and the other for the TSV both at effective sites, bringing our total contracted revenue backlog to 513 million.
We previewed the upside to our contract coverage during our last earning call and we are realizing it.
Further upside remains with 460 opened north spot linked days in 2022.
We were also able to take advantage of an improved S&P market values to the agreement to sell the steam vessels methane Shirley Elisabeth for a sale price of approximately 54 millions.
The vessel sale is complete that will further enhance our liquidity and provide us with additional flexibility as we continue to execute our strategy.
Our steam vessels represent both a potential source of revenues and liquidity and we are also pursuing a sale and leaseback for us to sister vessels.
We expect to continue to generate healthy cash flow from a tight LNG market, which we are on using to optimize and derisk our balance sheet.
In the second quarter, we retired 20 millions of debt and lease liabilities and it purchased another $8 7 million of our preference units in the open market, bringing the total repurchases to $37 1 million since the repurchase program was initiated last summer.
The result in a reduction in oil breakeven levels, which enhances our free cash flow generation potentials and continued progress in our leverage ratio towards our targets.
Yeah.
Turning to slide five.
I have seen that we recently published our 2021 sustainability of apples.
Now you'll be able to view the floor. Therefore in the Gaslog partners' websites.
In the report we provide all DSD related kpis in accordance to the SaaS based standards and we outlined three time any areas to focus on the partnership, which our decarbonization safety well being in DNI.
It is clear that the LNG shipping is being viewed favorably from an environmental perspective, and this is reflected in the decision made by the European Parliament to have natural gas to its green taxonomy, starting in 2023.
Setting aside the near term focus on energy security LNG remains one of the cleaner sources of energy and we will definitely play a role in the clean energy transition for decades to come.
Okay.
On slide six.
We are like the two charters I referenced earlier.
Both charters are with high quality counterparts, and add an aggregated EBITDA contribution of approximately $52 million during their contract term.
And the reminder of 2000 did do and full 2023, we have a good mix of contracted revenues in spot exposure to a market we expect to remain tight.
Slide seven shows the potential we have to enhance our free cash flow in 2022, and 2020 due to our market exposure.
The cost deposits, we've generated in the first half of the year combined with our charter coverage through year end more than covers the overhead than debt service obligation for 2022.
As you can see from the chart in the left we have approximately 17% of our remaining operating days open or on spot linked contacts.
In the fourth quarter, which is typically the strongest quarter of the year, we have market disclosure on 21% of operating days.
For the balance of the year every 10000 Boes per day increase in the time charter equivalent would increase of adjusted EBITDA by approximately $4 6 million.
And looking ahead in 2023, our spot market exposure in once again weighted towards the back half of the year.
I will speak about our market outlook shortly but first let me turn the call over to <unk>, who will review the partnership second quarter financial performance over to you Okay.
Thank you Bella.
Turning to slide nine and the partnership's financial results for the second quarter of 2022.
Revenues for the second quarter were 85 million a 21.
<unk> increased for the second quarter of plants can do on these was primarily with Youtube and net increasingly that we use from all the vessels operating in the spot market as well as from 82 off hire days related to dry dockings in the second quarter of 'twenty to 'twenty one.
Adjusted EBITDA was 59 million and decrease of approximately 14 million or 51% from the second quarter of 'twenty to 'twenty, one die Miami used to have $14 5 million out of it yet English English.
Going back to the quarter on plans of trying to do EBITDA was slightly than it used to because of the actual operating cost of financing for that is that we took in house following daily delivery for themselves.
Finally, our adjusted <unk> was 37 cents.
Better unit, which increased by 270% compared to the second quarter of two I understand you on.
All of that all we are pleased without that 12 months in the quarter as we continue to successfully manage out explosives in the spot market and it's out there I think our fleet up to calculate AIDS and achieving another of those payables. Therefore the months for the pumps.
Yeah.
Turning to slide 10, and look at our cost base.
Daily operating expenses, but as I said, we added $1729 lower in the second quarter of 2022 compared to the second quarter I was trying to trying to do on and slightly above the full year guidance that we gave on our last call due to inflationary pressures. We have started to observe me not expense.
This is not some quarter over quarter was primarily due to any 1 million decrease in technical maintenance expenses and a decrease in vessels management fees, partially offset by an increase in group plus with a lot there's lots of them related to the in house management over this hilarious. After he had a delivery in the manner in the into the managed.
On <unk> <unk> 2022, I'll say mentioned Elliot.
General and administrative expenses increased by nine kind of paragon or $657 per vessel per day in the second quarter of 210 to two compared to the second quarter of 2021.
This increase was primarily related to an increase you can get munis as we've said in this case to gaslog and could be that could be an effective January 1st 'twenty to 'twenty two.
The change is going to the vessel management commercial mindless wins and that initiative Saturdays fees are in line with our comment that in the previous call that <unk> disclosed in detail in our 20-F filed with the SEC in March then tend to do.
Yes.
Yeah.
For the balance of it yes, we expect our unit operating expenses drive and it's approximately 14000 per vessel per day, while we continue to evaluate the inflationary pressures now if we've got an estimate as mentioned fabienne.
Finally, I'll, let COVID-19 expenses I would expect it to have added approximately 3250 per vessel per day for the full yet.
Slide 11 illustrates the progress the partnership has continued to make in each but you'll need to repurchase program.
During the second quarter, we repurchased an aggregate of $8 7 million on the phone.
It's in the open market.
Since the program was initiated in August and then do you on the partnership kitchens that says most of our 37 million units in aggregate at an average price of slightly above $25 per unit.
A lot of value.
Pest species shepherded used unit distributions by approximately three point blank million or six cents per common unit.
I'm not annualized second quarter distributions to preferred unitholders and seven cents per common unit based on the number of 500 units outstanding as of June 32022.
We expect to continue Opportunistically accessing pack I think limits in the open market as conditions dictate and that at $95 6 million impact in <unk>.
So starting as of today, which are callable any at all.
In March and you're trying to say.
Slide 12 shows the progress we have made towards our leverage target, which we first introduced in the first quarter of 'twenty to 'twenty one.
We have made good progress on these goals. Despite the one 4 million noncash impairment charge, we took in the first quarter of Transcon duodenal mouse beams and that the final payment of 28 million in the second quarter of 222 in connection with the two schemes that we have classified as held for sale as mentioned by Paolo I haven't yet.
Inclusive of $20 million of debt and lease principal repayments made in the second quarter of <unk> 22, we have repaid 12 million in aggregate over the last four quarters as a result, our gross debt to total capitalization one of the two levers that we have said he has been reduced from 53, 9%.
As of the end of the second quarter of 221 to 52, 3% as of the end of this past quarter.
When combined with our long island, and 57 million of cash and short term cash deposits on the balance sheet, our net debt to capitalization and he has been infused from 48, 6% to 44, 7% over the same period.
In addition, our net debt to trailing 12 months EBITDA has been reduced from five.
Three times to three nine times, which is currently marginally below our long term targets.
It is important to note that our net debt to EBITDA at May fluctuate based on the spot market by far enough into the future.
Okay.
We expect to continue staffing with Alibaba.
Beginning with the scheduled retirement of approximately 114.
$14 million of debt and lease principal payments in aggregates in 'twenty to 'twenty, two which is more than covered by out contracted cash flow over this period.
Using molasses and making opportunistic repurchases of preferential needs will further reduce the partnerships cash flow all in breakeven levels, all the time and increase our free cash flow generation potential enhancing the partnership's equity values.
With that I wouldn't have been tougher to Paolo to discuss the LNG commodity and LNG shipping markets.
Thank you Nicholas.
Turning to slide 14.
Market volatility uncertainty of supplies and the continued scarcity for independently owned vessels that are able to offer charters the duration and flexibility did acquire has kept the term market at a premium to the spot market.
This has allowed independent elements to secure multiyear deals had a strong rates. Despite the current weaknesses on the spot market.
During the first half of 2022, a total of 104 to six term charters have been concluded and the market is on pace to surpass the 165 turns off the record set last year.
The dip in one year time charter rates in the second quarter, which has been as high as 120000 barrel per day was related to the fire at the Freeport LNG export facility that had used the number of cargoes available for exports and increased the number of Readouts now.
This dynamic is not expected to persist or sleep with exports are scheduled to return to normal levels by the end of the year and absorbed the vessels tied to its contract.
This dynamic do support the industry view for strong term market fundamentals.
Okay.
Slide 15 presents LNG demand and supply during the second quarter of 2022.
The LNG demand increased by 4% this past quarter compared to a year ago with Europe , making the largest increase at 35%.
This came at the expense of imports into Asia as Europe continues to struggle to replace these dropped at the Russian pipeline imports.
In addition to previous curtailments, Russia as recently reduced exports by our notes seem one which were previously stable.
LNG supply grew by six 9% with U S supply growing at 16, 5% narrowing the gap between the U S. Qatar in Australia is the largest export LNG.
U S supply growth will be supported by the high number of <unk> anticipated in the next two years due to high prices and interest in the long term contract.
Thus far in 2020 to Corpus Christi phase III and Plaquemines I've taken.
But as you can see in slide 16, those two approaches are far from the only ones. We can anticipate to take <unk> over the next few years.
In fact, we can expect nearly 95 million tonne per annum of capacity to take just from the U S. With an estimated commercial operation date in 2027 it was before.
This is driven by continued success in signing long term SBA with reputable come to pass a favorable price environment is structural supply deficit as well as a constructive public and political climate as the world focuses more on both energy prices and energy security.
U S dollar does make up about 53% of the total universe.
Projects.
The price volatility as shown on slide 17 supports healthy demand for vessels due to supply shortages in the LNG market as well as the recent impact of geopolitical events.
Heat up demand for continuous LNG imports remains driven by planned to reduce dependence on Russian gas and invented these have largely normalized due to increased LNG flows. However flows to JK D. C continues to dominate the LNG market at about 48% of total LNG imports.
Eight 5% from the second quarter of 2021.
The impact on LNG demand is not expected to be significant as the majority of flow to Jake ATC are contracted and therefore heavily into money compared to spot prices.
On slide 18, we show a constructive outlook for LNG carrier supply and demand through the end of 2023.
The calculated multiplier for U S exports normalized is export to Europe decline from their peak and I would expect it to continue to be a smaller portion of global trade as Asia.
Now Asia will likely soon begin to actively compete for LNG cargoes, increasing ton mile. The notice will feel soon as loan demand and restocking needs.
This is expected to deliver a strong boost in demand into early 2023.
Slide 19 displays the LNG carrier order book and delivery schedules according to Poten.
The order book has continued to expand to 219 vessels by the end of June filling out increasingly scarfs yard slots in driving places up to 240 to 145 millions.
86% of the order book is committed and few if any slots remaining available for delivery in 2026 as many yards that I'm willing to take orders for delivery beyond 2006, due to currency and steel prices because closure.
In terms of fleet growth the impact of recent north I mean, it's not expected to impact the fleet before 2026, and 297, assuming no slippage in production delays and cancellations.
This will give the market time to recalibrate to better match increased tonnage with LNG volumes from these projects.
Turning to slide 21 and in somebody.
LNG is increasingly recognized as a reliable and flexible source of energy security and a stepping stone for energy transition.
We are hoping for the fastest solution to the situation in Ukraine, but it is clear that the energy market has been fundamentally changed by Russian invasion.
Such focus on reliable sources of energy keeps driving LNG shipping demand.
Turning in strong rates and generally a positive outlook as additional capacity get sanctioned in the next two years.
The partnership has been able to monetize the brand market through profitable term charters and keeps an upside two opened in spot linked days in the seasonally strong period.
Finally, we continued to execute well on our strategy targets build equity value to our shareholders, but the evidence in our balance sheet. The purchasing a prep units opportunistically and positioning the partnership to evaluate opportunities for fleet modernization in this dynamic market.
With that I'd like to open the call for questions.
Thank you we will now begin our question and answer session.
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And we have our first question from Chris Tsung with Weber Research. Please go ahead.
Hi, Good morning, good afternoon, Paolo and accuse how are you.
I like this where good how are you.
Okay. Thanks I am.
Wanted to just ask if you're able to extend on the decision to sell and leaseback steam vessels compared to perhaps another option to just converting to unnecessary.
Sure. Thank you okay.
We I think we have to start from the fact that the pause.
The ship has five sister vessels in the water and and I think the the overriding comment is that we are taking a portfolio approach to manage.
Is it your value.
And the opportunity to employ the vessels in the different parts of the market.
We are pursuing as we mentioned in infrastructure projects like the FSU project. The one that we are publicly.
Following and any synergy in Adelaide.
We're working on a few.
Yet interesting opportunities for FSU, we have decided to monetize this tight market by fixing.
Favorable charter rates as we reported.
And at the same time also.
Take advantage of more liquid mark S&P market with higher valuation than sell the Shirley Elisabeth. So you know I think we showed that.
There are many avenues that we are following and we believe all of them are <unk>.
Accretive to the usage of the steam vessels in the partnership.
Okay. Thanks that makes that makes sense.
And just moving on to a couple of vessels that you guys have rolling off with an option.
Typically the Santiago.
Mary Jane Elizabeth.
At what point will the charter need to notify you guys.
Exercise.
Gotcha.
Chris just to clarify are you asking.
When does the charter need to declare their option.
Yes.
Then.
Okay. So on the on the Santiago.
The next.
Charter periods needs to be declared by the end of August .
And on the Jane Elizabeth the discussion is in the first quarter of 2023.
Got it. Thank you and just one final one for me and I'll jump back in the queue, if anything else just on slide.
Slide 18 of your deck I was just curious how did you guys forecast or estimate that that's a demand or is it just something from one of the sources.
Sorry can you say that again, because you broke up a little bit.
Sorry about that just on your slide 18, I was just curious how you guys are able to forecast or what you guys were thinking about forecast the vessel demand.
Yes.
I think the demand we take the the demand is.
With different sources as we mentioned we use both and we use wood Mackenzie and we use catheter and then we.
We overlaid with wide own estimates our own estimates however is mostly connected to the supply side, but we also take a view on the <unk>.
Amount of budgets that will be sanctions and we apply some some filters onto it.
I see yeah, just just curious just thinking about like the ton mile multiplier, where if europe's absorbing a lot more of the LNG.
Much shorter distances going to Asia.
Just kind of curious on that but that's fine I can take that correctly. Thanks a lot.
No no, but I think if you go to slide 15.
I think you'd see that U S shipping multiplier in Q2 still remained quite high and 197.
I apologize I don't have the previous ones, but I remember that we are in our forecast we normally use as a reference.
A number that is close to $2 13 to 15 for multiplier that take most of the courage to east.
When.
One thing that I can I can comment on is.
We have seen at <unk>.
The modest drop in intermodal player even though.
More volume has flown into Europe , because still a lot of volume goes to China and the volume that doesn't flow from Russia to Europe is automatically.
Creating an additional need for tonnage because it actually flows into too much farther distances. So it's not a simple model and more than happy to take it offline with you at any point in time.
Yeah no. Thanks, Thanks for the color that's helpful. That's it for me thanks, guys.
Thank you Sir.
And thank you Sir I am standing by for further questions you can enter the queue with your question by pressing zero then one on your Touchtone phone.
Okay.
At this time I see no questions in queue.
Patrick do we have any closing remarks.
Thank you well if there's no other questions. Thank you Vanessa for assisting us and thanks.
Everyone today for listening and for your continued interest into Gaslog partner, we really appreciate it we look forward to talking to you in the next quarter and in the meantime stay safe and again, if you have any further questions. Please contact the investor relationship team and Rob at Roseland Cove.
Have a nice day bye.
And thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.
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