Q3 2022 GasLog Partners LP Earnings Call
Yeah.
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
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The conference will begin shortly.
Raise your hand during Q&A, you can dial star one one.
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Yeah.
Good morning, My name is Chris and I will be your conference operator today at this time I would like to welcome everyone to the Gaslog partners third quarter 2022 results conference call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there'll be a question and answer session.
As a reminder, this conference call is being recorded.
On today's call are Paolo and noisy Chief Executive Officer, and <unk> <unk> Chief Financial Officer.
Robert Greenberg from a relevant company will begin your conference.
Thank you and good morning, or good afternoon, and thanks to all for joining the Gaslog Partners' third quarter 2022 earnings conference call.
For your convenience this webcast and presentation are available on the Investor Relations section of our website Gaslog MLP Dot com, where a replay will also be available.
If youre participating via webcast. Please note that the slide presentation as user controls and we encourage you to advance to the presentation engineered prompted too.
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 third quarter earnings press release. In addition, some of our remarks contain non-GAAP financial measures as defined by the SEC.
A reconciliation of these measures is included in the appendix to the presentation Paolo.
Paolo will begin today's call with a review of the partnerships third quarter highlights following with the affiliates will walk you through the partnerships' financials. Palo will then provide an update on the LNG shipping and the LNG commodity markets. We will then take questions on the partnerships third quarter with that I will now turn the call over to Paolo noisy CEO .
Gaslog partners.
Thank you, Rob and welcome everyone to our third quarter conference call.
Please turn to slide four for Gaslog partners third quarter highlights.
The LNG market over the third quarter has continued to be volatile as the tragic situation in Ukraine continues to develop.
The natural gas market has suffered significant disruption of pipeline imports from Russia with flows of Ukraine, and approximately 30% of the five year average and flow to northwest Europe floating to data, creating a significant supply deficit.
So far the deficit has been met to increase LNG import controls by 63% year over year in the January to September period.
The LNG shipping market has benefited from increased seaborne LNG volumes. Despite the nearly 6% drop in ton mile demand reflected the increased flow through Europe as charterers seek term coverage against price volatility and market uncertainty.
This was quickly trained the basket of available tonnage.
And supercharge, both the spot and term markets.
Today, no independently owned vessels that opened for previous requirement and charterers are hesitant to release vessels from their portfolio for any significant length of time.
Under these exceptional circumstances, we have continued to take advantage of the strength of the LNG shipping market and have secured term charters for three of our vessels at attractive rates and duration.
I will disclose shortly.
Including these new fixtures, our total contracted revenue backlog as of $616 million.
We haven't seen that in the market cut it to the SMP is we've also completed the previously announced sale of the steam LNG carrier methane Shirley Elisabeth.
Net proceeds of approximately 20 million net of debt repayment.
We also agreed the sale and leaseback of the maintain heater Sally with a financial institution with no purchase obligations our option at the end, which is expected to net 17 millions of incremental liquidity in a great match with the charter we have fixed for her.
Including the debt repayment related to the vessel sale, we retired $69 3 million in aggregate of debt and lease liabilities in the quarter.
We did purchase another $20 million of our preference units in the open market, bringing the total repurchases through the first nine months of the year to $38 7 million.
The result of reductions in our oil breakeven levels, which further enhances our free cash flow generation potential.
And continued progress in our leverage ratio towards our targets as the killers will present shortly.
With enhanced cash flow visibility through the balance of 2022 and into 2023, we plan to use our healthy cash flow to continue optimizing and de risking our balance sheet.
Yes.
On slide five we highlight the charters I referenced earlier.
All of which are with high quality counterparts, and add an aggregate EBITDA contribution of approximately $134 million during their contract terms.
With these charters and assuming the option declaration, we have significant near term cash flow visibility as well as a good deal of exposure in 2020 in seasonally strong periods.
Slide six shows our contracted revenues by quarter and highlights the enhanced visibility of our cash flow. Thanks to the simply conclude charters.
As you can see from the chart on the left we have managed our exposure to the spot market over the next 12 months, while still maintaining exposure to the seasonally strong fourth quarter of the year.
This provides significant downside protection given the recent vaca drives in the market.
For every 10000 per day increase in that in the chart that equivalent on that open days will increase adjusted EBITDA by approximately $12 million.
I will speak more about our market outlook shortly but first let me turn the call over to Oculus will review, the partnership's third quarter financial performance.
Thank you Paolo.
Turning to slide eight and the partnership's financial results for the first quarter of 2022.
Revenues for the headquarter with 96 million, a 19% increase from the third quarter of 2021.
Primarily due to an increasing revenues from our vessels operating in the spot market as well as from now Duncan off hire days since the first quarter of 2022 compared to 59 off hire days in the same quarter last year.
Adjusted EBITDA was $73 million, an increase of approximately $16 million of 28% from the third quarter of 2021.
Really the year to a $15 million year over year, increasing revenues and a decrease in operating expenses of $1 9 million.
The decrease in operating expenses was primarily due to the favorable movement of the Euro USD exchange rate in the third quarter of 2022 fully absorbing the inflationary pressures on our costs as well as the in house management of the <unk> following the vessels with delivery in April 2022, a consult.
Finally I'd.
Adjusted earnings were <unk> 68 per unit, which increased by eight 5% compared to the third quarter of 2021.
Overall, we are pleased with our performance in the quarter as we continue to successfully tapped out our fleet at healthy rates, achieving an overall stable performance from the partnership with improved visibility on our 2020 free cash flows.
Turning to slide nine had a look at our cost base.
Daily operating expenses per vessel.
<unk> thousand $276 in the third quarter, a decrease of 2001 dot com.
Compared to the third quarter of 2021 due to the factors I just described earlier.
General and administrative expenses increased by 1 million or seven patents have been $9 per vessel per day in the third quarter of 2022 compared to the third quarter of 2021.
This increase was primarily related to an increase in the administrative service fees paid to gaslog entity that has been effective since January <unk> 2022.
A reminder, that changes in the vessel management commercial management and administrative service fees on the line with a comment that in the previous quarters and are disclosed in detail in our 20-F filed with the SEC in March 2012.
Our results were also impacted by a $4 million increase in interest expense due to an increase in LIBOR rates compared to the first quarter of 2021, partially offset by the deleveraging achieved during the last 12 months.
During the third quarter of 2022, which had a weighted average interest rate of four 3% compared to an average of two four.
During the third quarter of 2021.
For the balance of the year, we maintain our previous guidance on costs and expect our unit operating expenses to average approximately 14000 per vessel per day.
Total operating expenses will be impacted by foreign exchange movements. Finally, I'll look at the expenses are expected to average approximately 3250 per vessel per day for the full year.
Looking forward into 2020, Fay will have for the vessels that will undergo scheduled drydocking, which.
Will it result in off hire days already factored into the EBITDA sensitivity analysis, Paul spoke to.
On the call.
Slide 10 illustrates the progress the partnership has continued to make in express LNG unit repurchase program.
During the third quarter, we repurchased an aggregate of.
$20 million of our percentage of units in the open market.
Since the program was initiated in August 2010, due on the partnerships assets more than $57 million in preference units in aggregate at an average price close to $25 per unit that add value.
Purchases shepherded used brass LNG unit distributions by approximately $4 8 million or nine cents per common unit on an annualized basis based on the number of preference units outstanding as of today.
We expect to continue Opportunistically repurchasing preference units in the open market as conditions dictate and $88 7 million in series B preferred units outstanding as of today puts us collaborate annual alone.
Hotspot in March 2020.
Slide 11 shows the progress we have made towards our leverage target, which we first introduced in the third quarter of 2021.
We have made good progress on these goals.
That last the last four quarters. Despite the impairment charges. We took during these previous quarters on book values of our teams.
During the first quarter of 2022, we repaid $37 million of debt and leases on scheduled amortization and 94 million in the first three quarters of this year.
In addition, we repaid $32 $2 million of debt outstanding in relation to the sale of methane simply Elizabeth in quarter three 2022.
As a result, our gross debt to total capitalization one other to leverage targets. We have set has been reduced from 53, 1% as of the end of the third quarter of 2021% to 53% as of the end of this past quarter.
Furthermore, our net debt to trailing 12 months EBITDA has been reduced from four nine times to three three times, which is currently below our long term target.
It is important to remember that our net debt to EBITDA may fluctuate based on the spot market performance in the future.
We expect to continue strengthening our balance sheet, beginning with the scheduled retirement of approximately $111 million of debt and lease baseball payments in aggregate over the next four quarters.
Which is more than covered by our contracted cash flows over this period.
They've using debt balances and making opportunistic repurchases of preference units will further review the partnership's cash flow all in breakeven levels over time and increases our future three.
Free cash flow generation potential and passing the partnerships equity value.
With that I will turn it over to Paul.
To discuss the LNG commodity and LNG shipping markets.
Thank you Nicholas.
Turning to slide 13.
The forces that have impacted the LNG commodity market since the beginning of 2022 did not abate this past quarter.
The resulting volatility and uncertainty was a significant driver for charterers, leading to a scarcity of independently owned vessels.
This in turn led to the continued escalation in term charter rate and significant interest with charters, one year or longer.
The same interest in this conversion is coast charter is to have a strong preference for being long shipping and keeping vessels under their control.
Order to ensure security for their cargos and retain the ability to capture opportunities as they arise.
This time continues to be reflected in fixing activities with term charters, representing about 54% of the total activity compared to 33% last year.
It is also reflected in the decline in the spot fixture activity, which was down 37% year over year.
Slide 14 presents LNG demand and supply during the third quarter of 2022.
European demand continues at high levels and is forecast to increase by 56% in 2022.
Patient demand continues to underperform and is forecast to fall by 3% in 2022.
U S LNG supply remains static quarter on quarter, despite the Freeport outage.
Small increase from other regions due to seasonal increase exports or a cooperative from outages led to an overall increase of 6% in the LNG supply compared to the third quarter of 2021.
For the full year overall supply is forecast to rise by five 4%.
Slide 15 demonstrates more clearly the continued volatility in the LNG prices and a positive relationship between volatility and demand for term vessels.
Despite the stop of flows by the North Sea, one and much lower volume to Ukraine Europe has managed to fill its inventory is above 90%.
This has led to a steep downturn in commodity prices tanks also in part to our inventory levels in Asia as a result of more widespread use of coal.
Europe in the meantime, we will continue to need <unk> LNG flows throughout the winter and possible cold winter sales in Asia could increase competition postcards LNG.
It is also worth noting that record levels of floating storage, particularly in the Atlantic had tied up more than 30 vessels globally.
Reducing vessels availability.
This shortage is a testimony of how the need for energy security combined with a lack of infrastructure developing have created the external ordinary market condition, we're all seeing.
On slide 16, we show a constructive outlook for LNG carrier supply and demand through the end of 2023.
Despite higher than historical flows forecast from the U S to Europe . The press in the U S export multi player the market balance in 2023 is forecast to be tight.
Where normal seasonal supply deficit can be surpassed by the favor of term business driven by LNG supply security interests.
Slide 17 displays the LNG carrier order book and delivery schedule. According to firm these.
The order book has risen to 255 confirm orders.
As a result of continued high level of ordering in a number of vessels being award and also the Qataris vendor.
The order book is mostly tied to long term charters with only 14% being uncommitted.
New vessels are being contracted prices more than 245 million and the earliest delivery dates or in the end of 2026.
The impact of this ordering will not be felt until all the vessels are delivered in a number of factors could affect both the final number of vessels being delivered and the data delivered including availability of financing and late completion of connected infrastructure projects.
Turning to 19 and in summary.
We are hoping for a faster resolution of the situation in Ukraine. However, it is clear that European reliance on Russia energy has ended.
In alternatives are being sought in the immediate future, especially from new U S exports.
Discuss with you of independently owned vessels and likelihood of continued uncertainty and volatility is likely to keep the LNG shipping market tight for the foreseeable future.
The partnership is being able to monetize the strong market through profitable term charters and maintained spot exposure in the seasonal strong period next year.
Finally, we continue to execute well on our strategy targets building equity value to our shareholders.
Managing a residual risk on steam carriers and strengthening our balance sheet will position the partnership to enhance total unit holder return.
With that I'd like to open the call for questions.
Thank you Sir.
Ask a question you will need to press star one one on your phone. Please standby as we compile the Q&A roster.
One moment for our first question.
Our first question will come from Ben Nolan of Stifel. Your line is open.
Yes, good morning.
So I have a couple of hopefully thats okay.
The first relates to.
The vessels that you have coming open next year, obviously the market is really robust at the moment and gives you opportunity to contract.
Things as they come to you, but the first one on the list.
On page 22, there are the presentation is the methane Jane Elizabeth Although there is a there is an option.
On that I'm curious.
How you think about that vessel both in terms of.
When youre talking about spot rate sensitivity.
Table Thats in there, but more importantly.
Whether it would appears though that option is likely to be exercised or not.
Hi, Ben.
It's Paolo.
So addressing your question the Jane has an option as you've seen.
And equity has an option plus an option.
These charters are let's say pre 2021 fixture that accurately fixtures in the Covid period. So we consider likely that these options will be confirmed.
Okay, and so when you when youre talking about your spot rate sensitivity in the cash flows that that could be.
Associated is that included as is.
It assumed that the option is exercised or is that.
Not.
Yes in that assumption.
Okay.
And then.
And then I guess for my second question.
Sure.
You've obviously made really good strides on delevering the balance sheet is.
As was noted and I believe that you even already reached.
The goal from a net debt to EBITDA perspective, and are not too far away from the target on capitalization. So.
And certainly I know you called out paying down $111 million I believe it was next year.
And debt payments of which I would imagine would get you to below your target.
At what point I guess do you think.
Pivot.
Away from.
Balance sheet oriented capital activities and more towards.
Either replacement of ships or growth.
And.
I guess along with that.
Yeah.
Do you feel like this is the time from.
LNG shipping market.
In asset values everything else to be doing that or are you better off irrespective of sort of the balance sheet to simply wait and find a better opportunity.
Good question Ben.
So let me start and then pass on to our killers.
I think we're really happy that we have made important headway on.
Our targets.
And that PD has been.
Thanks for this boy a marker that we discussed.
So I think thats.
Destiny and much more comfortable position that we have been in the past years and quarters.
With regards of replacement and growth I think the point we are in today is.
These where market is definitely not only affected the charter rate is the fact that the S&P market with much more liquid.
Situation that we've ever seen it's far away from being liquid like other commodity markets, but it has probably never seen so much interest in transactions of assets like the one we have carried out for our steam vessels.
That trend do you also see in the new buildings with price recording close to $250 million for.
Standard LNG carriers and the hurdle of ordering an asset that will only generated cash basically in 2027. So I think the next step for US is we still believe that the partnership wants to look at taking advantage of this strength in the <unk>.
Market from from our asset.
Management point of view.
I think we look with a b.
Eight of skepticism on the opportunity to jump on such high New building.
Orders.
But the beauty is that our cash position not only allows us to to manage our priorities, which is achieving the targets and strengthening our balance sheet and lowering our breakeven, but also allows us to look at growth maybe also in different ways than just ordering new buildings or a quieting.
<unk>.
Secondhand vessels.
Could you elaborate on that last point.
Well I think.
As we mentioned in the last quarter, we are looking very favorably at one <unk> development.
Indeed in the port of Adelaide, and Thats, a very cash intensive projects. So thats. Just one example, following your question.
Okay perfect I appreciate it thanks.
Thank you.
One moment please for our next question.
Hello, Amit.
Okay.
Our next question will come from Chris Chung of Webber Research. Your line is open.
Hi, good afternoon, Paula how are you.
Hi, Chris.
I wanted to just ask about the sale leaseback and then.
Usually a financing decision, but I noticed there's no.
The purchase option attach it sounds like it's just a really smart way to offload in Asian training vessel carrying a sales rate and also a charter that you're able to get three year charter is that right.
Certainly.
Q.
Yes.
Thanks.
You have is it well it is.
Yes.
And nice way to manage out and it is a value of these with his teams would need to add direct sale. The S&P market on the Ekati is not very developed so theyre not there.
There are plenty of opportunities and the sale and leaseback offers us the opportunity practically.
To do that further let's say there is no purchase obligation at the end all option.
In this respect.
At the end of the leaseback.
The vessels will grow from our fleet we have matched.
<unk>.
<unk> two <unk> with a very good charter. So it is all back to back and it represents a different way of reducing our steam exposure.
Great. Good evening also increasing also the liquidity today of course and without really changing our breakeven on the specific vessels, because the the sale and leaseback and the debt repayment.
Those intense of documents.
Alright. Thank you so the bareboat charter rate.
Is that kind of goes into the next question on slide five you guys talking about the estimated EBITDA I just wanted to confirm for the methane Sally.
The estimated <unk> to confirm this is for the term rate like $38 million clinical 34 months, it's not like an annual figure.
It is for the applicators.
Okay great.
Thanks, Tom.
One more question on slide six.
I was surprised to see the vessel demand below supply.
Sure.
Given all that we're hearing I wasn't quite sure I understand it.
And on that a little bit.
Can you what was slightly are you referring to.
Slide 16.
So the vessel demand in vessel supply.
Yes.
Well I think what we're showing here is.
We still recognize that there is a seasonal.
Shoulder months effect.
Expected in the supply demand scenario for next year.
Sure.
And of course this is a speculation on where flows of cargoes will go because the biggest multiplier discussion around whether it is how much of this logo stay in the Atlantic and a much of this flow will go back to the Pacific and the far east but in general.
Think we see that there is an extremely strong market in the quarter, one and quarter four.
And as we commented.
In the shoulder months the effect that we've had today is that.
<unk>.
Call. It the shoulder months have been covered by a general increase of term business rather than spot.
We have seen inefficiencies in the trades with vessels waiting employed through the summertime.
Because of the uncertainty of what would have laid ahead for operator and traders.
I see okay. Thank you Pablo thanks for the color.
Opex in Q4.
Thank you.
One moment. Please go to our next question.
Okay.
Our next question will come from Chris Wetherbee of Citi. Your line is open.
Hey, Thanks, guys for taking the question.
Wanted to come back to the earlier comments about sort of strategy Big picture strategy post deleveraging. So obviously strong market good progress on working the balance sheet back towards your target some cases better than your targets.
I guess since we can sit here and sort of thinking about the company who's been set through some challenges over the course of the last several years, if we think out over a multiyear perspective.
How should we be thinking about sort of the growth potential of that what do you think your fleet could be in a few years from now I guess.
It would be helpful to sort of have a pretty clear picture of sort of.
Step two past deleveraging in terms of what the strategy for Gaslog will be.
Yes, Thank you Chris.
Look I think the step two.
Is what we have in mind.
Step one is just to repeat again and not not for the sake of repetition, but because it's an important point.
What we have seen coming out of the 2020 difficulties, we definitely want to make.
Gaslog partners as sustainable through the cycle as we can.
That means that we need to be more competitive and more profitable every year and with a stronger balance sheet and I think that's exactly what we're doing right now and.
We take for granted that.
Because of the growth and the steps we've taken so far this is going to come very early and we're very pleased to see that but we're still not there to where we want to be so I think the immediate future is for us to continue on that score that step one and two.
<unk> all the advances.
And the progress that we want to make on these various steps on this very improvements.
Step two as we mentioned before in the answer to Ben.
<unk>.
One are we going to be in a position to execute.
Growth in or two.
Whatever form or shape will take and if the market continue to like this and if we are.
In a way call it as good as we have done so far and I believe there will be definitely room for us to execute on this how exactly.
This is going to take shape and form I think it's difficult for now to say.
We characterize our comments on the Newbuild market. We have that we are definitely keen on infrastructure projects because I think they match the step one of looking at some of our aging assets and developing long term infrastructure investments around it.
But then it will also depend on how the market will look like and what the other opportunities will come. So unfortunately, that's all the color we're able to give you right now.
Okay I appreciate the time thank you.
Thank you.
Thank you.
This will end the Q&A session for this conference I would now like to turn the conference back to Paolo and noisy for closing remarks.
Thank you Chris.
And thank you everyone today for listening and for your continued interest in Gaslog partners. We definitely appreciate it and we look forward to speaking to you next quarter and at strengthening has now become a much safer experience. We look forward to seeing again many of you in person soon.
Stay safe and if you have any questions contact the investor relationship team. Thank you.
This.
Today's conference call.
You all for participating you may now disconnect and have a pleasant day.
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
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