GasLog Ltd.
Q1 2017 Earnings Call Transcript

Published: 5 May 2017

[Operator:]

Good morning. My name is Liz and I will be your conference operator today. At this time, I would like to welcome everyone to GasLog Limited's First Quarter 2017 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. As a reminder, this conference call is being recorded. Today's speakers are Paul Wogan, Chief Executive Officer; Alastair Maxwell, Chief Financial Officer and to commence the call, Jamie Buckland, Head of Investor Relations at GasLog. Mr. Buckland, you may begin your conference.

[Jamie Buckland:]

Thank you. Good afternoon, and welcome to GasLog Limited's first quarter results call. As a reminder, this call, webcast, and presentation are available on the Investor Relations section of our website, where a replay will also be available. As shown on Slide 2 of the presentation, many of our remarks contain forward-looking statements. Let me refer you to today's press release and our reports filed with the SEC where you'll find factors that could cause actual results to differ materially from these forward-looking statements. In addition, some of our remarks contain non-GAAP financial measures as defined by the SEC and a reconciliation of these is attached as an appendix to the presentation. Please now turn to Slide 3 for the highlights while I will handover to Paul Wogan, GasLog's Chief Executive Officer.

[Paul Wogan:]

Thank you, Jamie. Good morning or good afternoon to you all. Thank you for joining us for GasLog's first quarter results. I'll start today's presentation with the highlights of the quarter and then hand over to Alastair Maxwell to take you through the financials and the activity in the quarter in more detail. I'll conclude this presentation with an update on the LNG product and LNG shipping markets before opening the call for Q&A. Q1 2017 was an active quarter for GasLog. We continued to deliver on our strategy and have made a strong start to the year. In particular, the company reported record revenue and EBITDA thanks to the full benefit of the contracted earnings from the four new buildings delivered in 2016. We announced a dropdown of the GasLog Greece to GasLog Partners for a price of $219 million. We announced the completion of $250 million U.S. bond offering which enables a repayment of the company's 2018 debt maturities and gives us access to a new pool of capital. We completed the acquisition of 20% of Gastrade that we announced in Q4 2016 and we are pleased once again to be paying a dividend for the quarter of $0.14 per share. With that, I'll now hand over to Alastair to take you through the results and the activity for the quarter in more detail.

[Alastair Maxwell:]

Thank you, Paul. Good morning and good afternoon to all of you. It is a great pleasure for me to join the GasLog team and to be taking you through GasLog's first quarter results today. Please turn to Slide 4 for the financial highlights. As Paul mentioned, we reported record revenue and EBITDA for the quarter. Revenues benefited from a significant increase in vessel operating days compared to the first quarter of 2016 as a result of our four newbuildings delivered last year. Our operating expenses benefited from a decrease in technical maintenance expenses, but this is largely a timing effect. On the balance sheet debt has increased year-over-year to reflect the new vessels delivered in 2016. However, our gross debts and our cash balance at the end of the first quarter are also affected by the $250 million bonds issued in late March 2017 and both of these will come down as a result of a repayment in April 2017 of $150 million of the junior tranche of the five-vessel facility on when we repay our remaining 2018 maturities. I should also point out that interest costs in Q2 2017 are likely to be slightly higher than normal as a result of the timing difference between the issuance of the bond in March and the actual payments of the 2018 maturities. I also wanted to bring to your attention the GasLog Skagen contract which was mentioned in today's 6-K. As you may recall, the GasLog Skagen had a seasonal charter that was put in place with BG Group. We've been working with Shell to put in place a simpler structure and Shell will now take the vessel for the same number of operating days as the original charter but without the seasonal of our periods. The vessel will be on charter until the second half of 2019 and should redeliver into a much stronger market. With this amendment the GasLog Skagen has no near term spot exposure and no risk associated with the redelivery at the beginning and end of each seasonal period. Turning now to Slide 5, the chart shows our quarterly EBITDA since last year which has been rising steadily as we have added new vessels with long term charters to the fleet. As I said earlier, Q1 2017 was a record quarter for the company and we expect further growth in contracted revenues and EBITDA as we benefit both from the positive impact of the five ships we have on order for delivery in 2018 and 2019 and from an improving spot market and further progress with our FSRU activities should also drive incremental growth. Turning to Slide 6, during the quarter we announced the dropdown of the GasLog Greece to GasLog Parters. This is the fourth dropdown transaction between the two companies and the seventh vessel in total that GasLog has sold to the Partnership. The $219 million sale price represents a premium to book value and a multiple of nine times EBITDA. It delivers total equity to GasLog Limited of around $68 million net of the debt transfer to GasLog Partners and it will result in increasing distributable cash flows for GasLog Limited and for all the GasLog Partners common unit holders. Slide 7 shows the impacted days of the dropdowns to GasLog Partners. The left hand chart includes the completion of the GasLog Greece and shows that over $400 million of equity has been recycled to GasLog Limited since the IPO of the MLP in May 2014. The right hand chart shows the total annual LP and GP cash distributions from GasLog partners to GasLog Limited since the IPO. The far right column shows the full year impact of a $2.09 annual distribution which is what GasLog Partners would need to exceed by the end of 2017 to hit the bottom end of their guidance of 10% to 15% distribution growth from IPO as highlighted on the partnerships earnings call last week. I would emphasize that this is an illustrative annualized number and not what we expect to receive in distributions during calendar 2017. Turning to Slide 8, which shows the company's debt maturities from now until 2020. At the end of March we completed a $250 million bond offering which will enable the repayment of all GasLog's 2018 maturities. The majority of our debt is bank debt and as you can see from the chart we are consistently amortizating our debt at the same time as our EBITDA is expected to grow strongly as a result of the factors that I mentioned on the earlier slides. Turning to Slide 9, we announced during the quarter the closing of the acquisition of 20% of Gastrade. Gastrade has recently commenced the project FEED study and has appointed Wood Group. The FEED study funded by the European Commission demonstrating the importance of this project to regional energy security and is expected to be completed in the third quarter. We continue to target a final investment decision in late 2017. We are also involved in a number of other FSRU tenders and one-to-one discussions for the development of FSRU solutions and we remain encouraged by the number of potential for GasLog in the next sector. In summary, it has been a record quarter for the company and terms of our revenues and EBITDA. We have significant and visible growth still to come and the balance sheet is in very good shape to take advantage of the multiple opportunities we see ahead of us. And with that, I would like to hand back to Paul to take you through the industry section.

[Paul Wogan:]

Thank you, Alastair. Please turn to Slide 10 which shows over 110 million tons per annum of new liquefaction capacity scheduled to come on line through 2020 from projects that have already taken final investment decision or FID. In the first quarter of 2017 projects came on line pretty much on schedule continuing the trend seen in 2016. However, recently both Ichthys aand Cameron have announced slight delays to startup and are now expected in early and mid 2018 respectively. Major projects or offtakers still need to secure shipping for these new production including several U.S. projects such as Sabine Pass, Cameron, Freeport and Corpus Christi. We expect this shipping requirement to be fulfilled by combination of newbuildings and on the water vessels. Turning to Slide 11, which shows the contracted buyers from the six U.S. projects that have taken FID. Almost half of these buyers are based in Asia which should help to drive further increases in ton mile demand. The buyers are a diverse mix of end users, portfolio players and traders. Significant increase in diversity of buyers create new trade routes which have already been growing quickly over the past few years, with approximately 255 country to country trade routes in 2016 compared to 55 in 2005. We are quickly moving from a focus on shipping optimization to one of cargo optimization. Leading to the market becoming increasingly more complex and creating inefficiencies that drive additional shipping demand. Slide 12 uses portent data and shows the destination of Sabine Pass cargoes since production started through the end of Q1 2017. To date Sabine Pass has produced over 6 million tons of LNG exporting to 20 different countries. Based on the distances traveled and the time taken for each voyage port and calculus requirement so far of approximately 1.77 ships for every 1 million tons of LNG exported. In the past two weeks GasLog vessels have shipped the first U.S. exports to both Pakistan and Thailand, two markets with significant future growth potential. Slide 13 shows the growth in LNG demand year on year in Q1 with global LNG imports increasing 13% to 72 million tons. Japan, South Korea and China were the primary drivers of this increase, with Japan and South Korea's imports increasing approximately 15% and China's by over 20%. Chinese LNG imports are expected to continue to increase as the emission reduction policies drive increased demand for power generation. Please now turn to Slide 14. In recent months there has been an increase in positive news from projects yet to take FID but which are like just supply or the next wave of LNG post 2020. For example, Exxon acquired a 25% stake in Area 4 in Mozambique from ENI $2.8 billion. Exxon's involvement is likely to lead to FID during 2017 and Exxon is also looking to expand the Papua New Guinea project following another significant Gas found there. In the Middle East Qatar Petroleum lifted this moratorium on developing the North Field which is focused to increase the country's future production by around 10%. Western Australia Woodside and ConocoPhillips are looking to expand their existing Pluto and Darwin LNG facilities. We've also seen a number of positive FSRU project developments from new and existing importing nations who want either to start importing LNG or to increase their existing regasification capacities, both of which are positive for future demand. Shenyang noted in its results yesterday that 25% of their cargo shipped have been discharged into FSRUs despite floating terminals only making up 10% of all global regasification capacity. Turning to Slide 15 where we show the potential future shipping demand as additional FID liquefaction results come on stream. This is an in-house estimate where we've assumed that all new Asia-Pacific projects will require one vessel per million tons per annum. The U.S. projects will require multiplier of 1.5 which may be conservative based on the previous slide and for Yamal in Russia we've assumed 1.3 vessels per million tons. Using these assumed multipliers gives a requirement of around 44 vessels needed over and above the order book to 2020 before allowing for the impact of scrapping all FSRU conversions. Clearly some of these requirements will be met by existing tonnage which will help to tie in the spot market, but significant new capacity will also be required. Turning to Slide 16, the number fixtures in the LNG spot market in Q1 remained constant with the active market we saw in 2016. Whilst the chart on the bottom left of the slide shows that cargoes have been traveling greater distances, this has certainly been helped by cargoes from the U.S. which on average have been traveling around 6000 nautical miles per voyage compared to the recent averages of around 3800 nautical miles, another positive indicator for future vessel demand. The chart on the bottom right shows utilization in the spot market has been gradually improving over the last two years. We expect this trend to continue to move higher as the number of ships needed to transport new volumes outpaces the current order book. From my experience in several shipping sectors over the last 30 years markets usually tighten until they reach an inflection point when rates turn sharply upward. Whilst we can't predict exactly when that inflection point will happen when it does we expect rates to move higher quickly, especially as charters will look to lock in tonnage often for multiyear periods. Please turn to Slide 17, as mentioned on the previous slide, we're seeing increased utilization, longer average sailing distances, and a strong level of short-term fixtures, all of which we expect to drive rates higher. This slide shows GasLog is heavily exposed to this recovery. It shows the impact of rising rates against the five vessels we currently have exposed to the short term market. For every $10,000 daily increase in spot TCE rates each of our spot vessels will earn around $3.6 million of incremental EBITDA or $18 million in total for the five open vessels. If rates went from $30,000 a day to the longer term average of around $75,000 a day then the five open vessels will collectively earn around $80 million of incrementally EBITDA. With spot rates of $90,000 a day this number increases to well over $100 million. You've heard me say before that I will never try to forecast the future sport rates. However, I do think this is a useful way to illustrate the potentially significant impact of a rising rate environment for GasLog. As the market continues to tighten, GasLog has significant leverage to improving rates, spot rates, through these open vessels. So turning to Slide 18, GasLog generated record revenues and EBITDA in Q1 with further inbuilt organic growth from five contracted newbuildings to be delivered in 2018 and 2019. Whilst our five ships operating in the cool pool meaning we are well placed to benefit from a spot market recovery. We are already seeing early signs of this improving market and a renewed interest in multiyear vessel tenders. We continue to forge ahead with our FSRU strategy and are presently pursuing a number of exciting opportunities. And we are in a great position to pursue these new opportunities for both LNG carriers and the FSRUs because we have proven access to capital through GasLog Partners and other diverse sources of funding. With that, operator, I would like to open the call to questions.

[Operator:]

[Operator Instructions] Our first question comes from the line of Jon Chappell with Evercore ISI.

[Jonathan Chappell:]

Thank you, good afternoon guys.

[Paul Wogan:]

Hi, Jon.

[Jonathan Chappell:]

Paul very detailed outlook on the market I appreciate that, just kind of trying to boil it down though a little bit to more simply for us. You know, by our estimates there are may be about 40 ships too many in the spot market today and that’s what’s been weighing on the market and is the resulting in the 30,000 rate that you named. At what point, I know, you said you are not predicting rates, I'm not asking you to do that, but how many of those 40 ships need to be removed from the market absorbed by the market to get you back to that historical kind of 75,000 a day, day rate?

[Paul Wogan:]

Yes, it’s interesting, there was actually some work going on by Poten recently Jon, where they were looking at, they were trying to correlation between the number of open vessels trading between the spot market and the rates. Their analysis showed that if you went from today's market let's say it's around 40 ships to say around 20 ships, the market then moves from what they see as a $30,000 day market environment to around actually the mid-term average around $75,000 a day. So, based upon that Poten data you are probably looking at around 20 ships. And I think this factor what we’ve been seeing in the market with the seasonality, you know we saw in the winter months the market becoming tighter very quickly which suggests that there isn’t a lot of excess capacity. You know if you have lot of excess capacity seasonality gets taken out of the equation, because the market just stays at the low level. You know the fact that you are starting to see seasonality come back means that there is a tighter market there. So, those 20, you know that to me it feels about right when we start talking about those 20 ships. And you know, given as a percentage of the overall fleet of over 400 that’s not a lot of ships.

[Jonathan Chappell:]

And the curious thing for a follow up here is, if you look at your Slide 15 and you talked about a potential shortfall of 40 ships by 2020. Now the way that I understand it most of the shipyards spots for LNG carriers from the top yards are full through 2019, so we have very good visibility on the supply side for the next two and half years. And you know clearly there is most likely to be some delays going forward with the liquefaction projects, but the ones that you are accounting, the ones we are accounting are mostly full off take obviously under construction. So, what is it that the charters are kind of waiting for? You know it seems like a lot of the tender activity continues to be delayed or pushed off, but if we're are going from a period of maybe 20 ships too many today to talk about getting back to that 75,000 level to a 40 ship shortfall which would obviously make the rates pretty parabolic like we saw in 2011, 2012, what’s kind of the holdup? Why are they moving forward to lock in some of that excess capacity before you see the whites of the eyes that it's too late?

[Paul Wogan:]

Yes, I think there are a couple of things, I think the yards are not full in 2019. I think what’s happening though Jon is that what you are referring to the delay in people making a decision means that the delivery times for those vessels gets pushed back. So now you really average a 2019 for the delivery of a ship if you order today. You know, as the longer this goes on in 2019, yeah, this year, so you start then to push into 2020. So it’s really a factor of the build time for these vessels. I think what’s been holding people back from taking those decisions, so just being the general energy market sort of downturn and people having that uncertainty about how that was going to turn out, I think one of the things we tried to sort of reference in the remarks that we had to begin the conference was the fact that we think that sort of optimism is returning to the customers and I think we are starting, we expect to see more of those long-term demand from projects coming into the market. What’s been really good though I think is that nobody has been working program and actually ordering speculatively from owners and I think that’s really important. I think if we see newbuilds against projects and against actual real demand that’s great rather than people going out and placing speculative orders at this point. And again, I think that’s what has been holding down the newbuilding order book.

[Jonathan Chappell:]

Okay. I just wanted to ask one company specific question if I may, I didn’t plan on asking so many market questions, but your slides kind of led me that way. Is there any way to provide any type of transparency around the economics of the Gastrade project? And as I look through your cash flow statement I can't really identify what you paid for the 20% stake, so any type of visibility around what you paid, what the economics may look like? I know FID is still later this year, but it seems like we are getting closer and closer and hopefully you can reveal a little bit more at some point?

[Paul Wogan:]

Yes, we, I think in the 6-K actually we do refer to it that we paid around $13 million for that stake on Gastrade for the 20%. It is difficult for us to put sort of cash flows on it and if you look, I think we saw righteous recently so the quoting costs say around $400 million. You took that as an indicative rate, so if you know you want 70 to 30 debt equity ratio that kind of creates around $120 million of equity, up 20% gives you around $24 million of equity. So, you know we would then get sort of dividend paid upon that sort of size of project on that size of investment. But I think, so it’s not a huge figure for us Jon, but I think more important for us is really the strategic benefit of being involved in that project and the fact that for a very small investment if you like, it gets us into the FSRU business, it gives us the experience and it gives us the ability to call on that experience in future projects. Also, if the project decides that it needs a vessel to go in there, need to convert a vessel to go in and provide the FSRU, then I would hope we'll be very well placed to sell one of our vessels into that project as well, and you know we would benefit from that part of the project.

[Jonathan Chappell:]

Right, okay, that’s very helpful, thanks so much Paul.

[Paul Wogan:]

Thanks, Jon.

[Operator:]

Our next question comes from Michael Webber with Wells Fargo Securities.

[Michael Webber:]

Hey, good morning guys, how are you.

[Paul Wogan:]

Hi, Mike, well, how about you.

[Michael Webber:]

Good. Just a couple from me, I wanted the first jump into the Skagen, and it seems like the contract revision you are trading kind of small pocket, seasonal pockets of spot exposure for a larger block kind of starting at the backend of 2019, which you know optically, kind of certainly make sense depending on the economics. So I guess, I am just curious where the, how the new rate on the Skagen compares to what the effective earnings were for that asset, you know may be in 2016?

[Paul Wogan:]

Yes, I mean I think a lot of it will depend of course on where you placed the spot market in 2016, but we feel this will be beneficial to us in 2017 Mike. And I think you know for us taking away, we are happy to have exposure to the spot market where we talked about here you know we think that market is going to increase, but the problem is, I think transferring between a fixed period and a open period creates uncertainty and you have a lag between those two things. So, actually being able to put the ship on the continuous charter makes sense and being able to do so in a way that creates additional revenue for us in the short-term, obviously makes a lot of sense. So we are pleased to able to do that, and I think this is a very good example of us being able to work well with Shell in terms of coming up with solutions that work for both parties.

[Michael Webber:]

Right, that makes sense. May be just coming out from a different angle, I mean like the spot market is obviously relatively weak for sort of the bulk of last year, so I am just curious, if you already compare the relative economics of the new fixed rate on an annual basis versus kind of what it was earning, what it had to do with that kind of that clunky five months of spot exposure, do you think you are looking at parity or do you think you are looking at a step up or step down? And I mean again the transition from having spot exposure in 2019 and beyond it certainly seems like a positive, I'm just trying to get a sense on what kind of what the relative economics on that vessel really were relatively to what you are going to get now on a term basis?

[Paul Wogan:]

Yeah, I mean, we can’t really talk too much about the actual numbers, that’s the problem Michael. What I can say is for us it’s a big step up in terms of returns that we will get from that ship through having it on fixed period.

[Michael Webber:]

Okay, that’s helpful. Just wanted to shift to regas for a second, and I’ve asked this in different ways before, but you guys have been now, even looking at regas projects for probably for longer than a year and half to two years, but officially for about a year and half to two years. And I am just curious you know when you guys are looking at that spectrum of projects and obviously you got one that you kind of engaged in. You know has the, are you noticing any material difference in the level of difficulty for most of the projects you are seeing or the size or the general timeline with the idea of being that, I guess to frame it the more conventional lowering for may be becoming a bit thinner and you know the project was just kind of being dotted with projects that are good projects, but just kind of take a bit longer and they are a bit more intricate?

[Paul Wogan:]

Yes, I don’t think we’re seeing a trend and if you like the low hanging fruit being taken and the new projects being more complex. I think what’s true to say though Mike is that the FSRU projects themselves being infrastructure projects are more involved and more complex than just going out and doing it. You know customer being attended for new LNG carrier, so if you like the gestation period that you have for those projects is by referring it is longer. So, I think, you know all the suppliers into that market have to be patient, work through the process, but I think in general we haven’t seen any difference in the actual way that the projects have done, it’s just that these projects do take a longer time than the conventional carrier market.

[Michael Webber:]

Got you. Okay, that’s helpful. One more from me and I will turn it over, but you mentioned in an earlier, I think you were answering Jon’s questions around asset value and we’ve seen newbuild prices roll off to call it about a 180 breakeven at the yards seems to be around 175, although that’s certainly in question. And it doesn’t seem like its teased out any real spec orders, so maybe that we read about Marin was a couple, but do you think there is a price point that's tenable at the yards that would actually tease out speculative orders at this point, or do you think it’s just the nature of the business or we won’t see it with recent until may be kind of 2018?

[Paul Wogan:]

I think most interesting is the number of things that are happening. You know you’ve seen the price of the LNG carriers anywhere between 2$00 million give or take 10% up or down over the last 10 years. So it is not massive movements in the pricing of those. Perhaps more important right now is actually getting two things, it’s the financing for those vessels, which I think why you haven’t seen a lot of speculative newbuildings because you want to go out and finance the speculative LNG carrier probably the best that a lot of people would be able to get, would be 50% debt financing on it. So, you are already looking at putting a $100 million or $90 million whatever it is of equity into the business which is a big ask. That’s an advantage for companies like GasLog I think in the terms of our ability to go and access debt and to access - use our existing contracts if you like if we wanted to do that. So that would provide us with an advantage if we wanted to take advantage of that. The second thing is, the yards themselves have been struggling to get refund guarantees from the banks and those refund guarantees are that in case the yards don’t deliver the ship, you as the ship owner get their money back. The banks who give the refund guarantees have been much less willing to give those especially to people whom [indiscernible] to credit and especially where they are concerned about will the person actually come on and take the ship away when the ship is ready. And the yards have been burned especially in the drill ships et cetera where people have walked away from contracts. So, the price is one thing, but the actual ability to get refund guarantees and the ability to get the bank debt for people is also something that’s been holding people back. And so to be honest I don’t see people rushing out and building a lot of speculative ships at the moment.

[Michael Webber:]

Okay, that was very helpful, thanks for your time guys.

[Paul Wogan:]

Thanks.

[Operator:]

Our next question comes from Noah Parquette with JP Morgan.

[Noah Parquette:]

Hey, thanks. Paul, you made a statement in the presentation that you think the market is shifting more from shipping optimization to cargo optimization, can you just go into more color on that? You know what exactly do you mean by that and have you’ve seen anything and how your fleet has traded recently that what makes you comfortable with that? Thanks.

[Paul Wogan:]

Yes, I think, I know if you look at what LNG was originally you build the project, you sold the outlook from that project for 20 years to a big buyer, lets the project was build in Indonesia, the buyer was in Japan. All you would then do is run the ships backwards and forwards as quickly as you could between those two projects 19, 19.5 knots to deliver the product. What’s happening as the market changes and becomes more traded with more destination flexibilities and you can see it from the Sabine Pass data. People are not clear when they are loading necessarily where the product is going to go, where they are going to get the best price for the product. So, they are not sending the ship at 19 knots to a destination. They may send it at 15 knots, they may send it at midpoint between say going out at the far Eastern Europe, while they decide where they are going to get the best price for that product. What that does is it slows down a bit, if you like it creates inefficiencies and increases shipping demand. So it’s not movement away from long-term locked in SPAs to a more traded market which creates the market inefficiencies and increases shipping demand.

[Noah Parquette:]

Okay, all right. And I guess, my question is, you know that’s in a context of what freight is very cheap, and does that change at some point as the market recovers?

[Paul Wogan:]

I think, especially as traders are involved in this, and as lot of the bigger companies BP, Shell become aggregators of product and they are looking at, you know where do I get the best market, freight is still not such a big component in the overall picture. It really does come down to where I can get the best price for my cargo, take into account freight as well. So, I don’t think as the freight rate increases it necessarily changes that, it just becomes a case of where do I get the best return for shipping the cargo.

[Noah Parquette:]

Okay. And I do want to ask Paul, you know you also made a comment that the shipper capacity is open for 2019 so there is, I am sure now you have seen a ton of deals of sea orders lately, and lot of that is crane [ph] yards, has that changed the availability for LNG slots, have you seen a reduced availability for newbuilds in 2019?

[Paul Wogan:]

Well, I think you know in general the yards have been reducing capacity anyway. And I think in general if you look at the crane [ph] yards they are reducing by about a third, I think is across the board including LNG and you probably have one yard in couple of months ago telling us that they were reducing LNG capacity by up to 50%. The other side of it is across the more orders they take in other sectors such as the VLCC, the more comfortable they are with their backlog and the less aggressively, they market their existing LNG space. So, you know I don’t think it necessarily takes out LNG berths in particular, but I think that was already happening in the shipyards, but it does I think mean that where the yards become more comfortable with their order book they become less aggressive in the need if you would like to try the price LNG ships to attract people into the business.

[Noah Parquette:]

Okay, got it. That’s helpful, thank you.

[Paul Wogan:]

Thank you.

[Operator:]

Our next question comes from Chris Wetherbee with Citigroup.

[Christian Wetherbee:]

Hey, thanks, good afternoon guys. What if I pick like a little bit on that comment about, may be inefficiencies of trade and so the service part and the cargos and slower speeds, just trying to get a sense is, so it sounds like your answer is you don’t think that necessarily how sort of a shadow pocket of supply that could get eaten up or sort of dilute the market to the extent that it gets tired up, but you think that that, sort of inefficiencies sort of persists even in a tighter market, is that a fair characterization of how you guys think about it?

[Paul Wogan:]

Yes, I do, I mean because as we say it’s not a shipping optimization, it’s a cargo and a price optimization. So again in a tighter market, potentially the benefits of being able to sell your cargo and keep the flexibility is even stronger. I mean we saw the great example of this in the winter months this year when [indiscernible] went down there was a short of LNG in Asia and just about every cargo that came out of the shipping path that was able to trade went straight out to Asia chasing the higher rates. I think that happens in a tight market in the same way as it happens in a less tight shipping market Chris.

[Christian Wetherbee:]

Okay, that makes sense and then I guess, when I think about Slide 10 and the LNG supply growth and you think about sort of where crude prices have trended over the course of the last couple of months, you don't certainly in the near term 2017, 2018, I'm guessing really have little impact from that. But when you think out and sort of your LNG supply sort of model, how do you think about the sensitivity to the extent that we end up in the 40s for an extended period of time, how, what are your sensitivities on the economics of those around crude prices, just trying to get a sense of whether or not we start to see some slippage there?

[Paul Wogan:]

Yes, I just think yes. I don't think we see slippage on as you say on the projects to 2020. I think it is the projects post 2020. We talked in one of the slides about the fact that there's been quite a lot of new inquiry, new music you like about projects post 2020, Exxon buying into the Mozambique area, talk about Papua New Guinea increasing its production and Qatar is talking about increasing production of their North Field, et cetera. So, but I do think those are driven to certain extent by how people see the energy market. So, I think if you saw a big falloff in the energy pricing that may start to have people questioning those. But I think at the moment with this sort of around the sort of high $40s, $50 that we're seeing for the oil it does seem to be a place where people are happy to look at this. And the other side of what's happened is, that it actually has got people thinking very much about how do I keep the cost of further LNG production to a minimum? How do I make LNG competitive going forward? And so, I think a lot of work is going on by all these produces around keeping the cost per ton if you like, capital cost per ton of these projects much lower than what went before. So, people now are talking more around $500 per million metric tons rather than the $1000 perhaps on above of the last round. And I think that will help to keep LNG prices lower and how to keep it very competitive. And I think if you can solve that then the demand for LNG is going to rise very quickly.

[Christian Wetherbee:]

Okay, that's helpful. I appreciate that color. And I guess the last question is kind of putting back the FSRU opportunities and you think about sort of that, I guess, I just want to understand how much of certain gating factor Gastrade is to further success for GasLog in terms of the FSRU market? How much do you feel like through these bidding processes you need to wait to get success at one project before there's sort of a door open for multiple other opportunities there or is the kind of thing that you can competitively sort of fit within current tenders and have the potential to see something coming, closer to or maybe concurrent with Gastrade?

[Paul Wogan:]

Yes, I think were that the two things running parallel, it's not sort of like we need to Gastrade to looking at two was to deliver. I think what we've been very pleased about is that we've already qualified for a number of other projects. There was some suggestion from our competitors that we wouldn't be able to do that, that has not been a problem and given our experience and of the many years and our reputation in the LNG carrier market and lot of transfers that we've done against floating terminals et cetera is that hasn't happened. So, we don't need to wait for that and in fact we are in close dialogue on a number of projects in parallel with what we're doing with Gastrade Chris.

[Christian Wetherbee:]

Okay, that's helpful. All right, thanks very much for the time, I appreciate it.

[Paul Wogan:]

Thank you.

[Operator:]

Our next question comes from Fotis Giannakoulis with Morgan Stanley.

[Fotis Giannakoulis:]

Yes, how are you guys and thank you for taking my questions. Paul, I want to ask you about the Slide 14, you mentioned the Mozambique project [indiscernible] and the Qatar moratorium, how does this decision impact the market? And I’m talking about supply/demand for LNG and so far how have you see the demand developing if there is any pocket of demand that has surprised you either on the upside or on the down side that we should monitor?

[Paul Wogan:]

Yes, hi Fotis. I think in terms of the sort of demand out to 2020 the fact is that we show on Slide 14 will not really have an effect on that. These are post 2020. I think one of the things we were as a company we were looking to see was those signs that, we get to 2020 and we certainly would have a period where we weren’t seeing new projects coming on stream. I think what we're seeing here is the willingness and the ability to look at projects post 2020 and bring those on stream. I think where, that will just add over to the long term demand for LNG shipping. So, it's more that sort of post 2020 growth which I think these projects are focusing on. I think if you look at the second part of your question, so if you look at where is the increase in demand surprised. I think for me it's mainly in countries that have taken in FSRUs and then have used them very quickly and built up their imports very quickly around those in particular sort of Egypt and Pakistan. And I think Pakistan is a really interesting area where when you get a country where you got indigenous production which was going away which is being lost, and you replace it with LNG, they already have the infrastructure, the gas pipelines et cetera. It is just a matter of putting the LNG in there. So Pakistan we expect to continue to grow very quickly. Bangladesh we think is a market that will grow quickly because of that. Thailand, Indonesia, they have sort of become importers and exports as well. And so I think those are the areas where it's interesting to see indigenous production going down has been replaced very quickly by LNG. I think the other area of demand in the first quarter in particular was Japan, South Korea, bringing in additional volumes, partly because of the cold weather in Asia that year, but partly because of the slowness of nuclear restarts. And one of the things that's been sort of talked about over the last two or three years especially in Japan is the nuclear restarts. And we're really not seeing those nuclear restarts because of local opposition to those and the fear about what would happen if those restarts happened. And so that’s keeping up the demand in those traditional mature markets when, there had been suggestions that we would see a fall off in demand there.

[Fotis Giannakoulis:]

Thank you, Paul. I want to follow up about the shipping market which has been a little bit disappointing this year especially after the very good start of the year. And ask you how much of this weakness is the oversupply of vessels? If you can clarify first of all the oversupply because, I further heard that there are 40 vessels excess vessels spot and I think in the latest report they were talking about 12 to 15 vessels availability, how many vessels they are idle except of the ones are they are immediately available. How likely are these vessels to come back to the market and how much of that weakness is attributed to the low gas prices and the low energy prices and if gas prices come - moved higher we might see part of this oversupply shrinking further?

[Paul Wogan:]

Yes, I think the figures for how many ships are virtually trading in the short term market right now, I think that figure of around 40 is probably about correct. I think where the confusion sometimes comes is if you look out say 30 days, how many ships are actually available to charter, coming out with some cargos and I think that availability as that shrinks that's what tightens the market quite quickly and if you look out over the next 30 days I think you're seeing a limited number of ships in the Atlantic and in the Middle East. The Asian market still is tending to be a little bit oversupply, but I think your figure of around 12, 15 ships over the next 30 days is probably accurate in that sense. So it really is how many ships are virtually trading and then how many are actually open? I think what we need to see focus is those sort of 40 ships which are virtually trading. I don't think there's, there isn't if you like a structural oversupply. If you look at the fact that these ships are being built for projects and what's happened is the ships got built on time and the projects got delayed. And so, if you look at that as we try to do and you’ll see the projects coming out of 2020 we actually have we believe, a shortage of ships. It's the mismatch on the timing and so what you need I think is as these new production comes on, takes existing ships out of the market, that’s how, when you will see that market tightening. And I think a great example of that is that the volumes which Gail has taken, which they're going to come into the market and take existing ships for not build newbuildings against that ship and factors such as that people, they all take this from the U.S. projects who have left it too late to have newbuildings will absorb a lot of these ships from the spot market.

[Fotis Giannakoulis:]

Thank you, Paul. Also on about the supply and demand is there any lesson that we can get, any signal that we can get from the speed of the vessels, can you tell us, what is the average speed that the vessels are trading today and at what speed do you start seeing the rates start responding?

[Paul Wogan:]

Yes, I mean I think this is a real figure in that I haven't got the exact figures in front of me Fotis, but I think the last I'd seen that the fleet is trading around 16 knots at the moment with the capability of 19 knots. A lot of that though is as I was saying earlier driven by the charters one into rate retain and maintain flexibility. There's no point turning a ship off at 19 knots, if you want to have the opportunity to put it into a higher paying market at some time. And I think the inefficiencies we were talking about earlier, I mean that even in a strong market you're probably likely to see the ships maintaining a lower speed than necessarily going at 19, 19.5 knots because they want to keep that optionality open to them.

[Fotis Giannakoulis:]

Thank you, Paul. If you'll allow me one last question and that has to do about the strategic relationship with GasLog Partners. GasLog Partners is very close probably a couple of dropdowns away from reaching the high splits, how do you view the future dropdowns given that at some point you will maintain 50% of the cash flow which probably is going to make it a little bit harder to create accretion. Are there any thoughts about, have you thought about this positive otherwise problem that you might have to face?

[Paul Wogan:]

We have and what I will do at this point I think hand it over to Alastair to take that one because he has been giving a lot of thought to this?

[Alastair Maxwell:]

Hi, Fotis good morning. So, yes it's something we're very conscious of and off frequently you can imagine. In terms of dropdowns we've historically dropped down somewhere between one and three vessels per year, so average of two. I think that one to three range is probably pretty much what we would expect going forward. And if you assume that that's the way to reduce further dropdowns there is some time to go until we get into the high split, the 50% splits. And I think that was something which we are monitoring closely we're aware of it. We don't feel that it's something that we need to do anything about immediately, but I think it's also something which, we won't leave it until it is too late which actually is the implication of the question.

[Fotis Giannakoulis:]

Thank you very much Alastair. Thanking you both.

[Paul Wogan:]

Thank you.

[Operator:]

Our next question comes from Magnus Fyhr with Seaport Global.

[Magnus Fyhr:]

Yes, hi Just a few questions and if I may on the on the Cool Pool. I mean you have in the presentation utilization and spot rates for the quarter, can you share with us what your fleet did during the quarter, what the average spot rate was and utilization for your spot fleets in the Cool Pool?

[Paul Wogan:]

Fortunately Magnus, we don’t give that the returns of individual ships during the quarter. What we tend to do is refer back to the Clarksons rates if you look at the Clarksons rates over the quarter, they probably went from somewhere around about a $50,000 a day rate to around about $30,000 rate and in that period probably went from a sort of 60%, 70% utilization factor down to somewhere between 40% and 50% utilization factor. So we tend to point to those kinds of metrics to sort of give a feel for how we see the spot market.

[Magnus Fyhr:]

Right, you feel comfortable about where you are in line with those, with the Clarksons rates?

[Paul Wogan:]

Yes, I think one of the great things about the Cool Pool is that we've been able to put in place new kind of commercial structures with customers, able to fix forward, able to look at, but COA type structures et cetera, which help the utilization of the vessels. And really at this point utilization can be quite effective in terms of the earnings as well. So I think in terms as we look at the market, we think that the Cool Pool has been a great advantage to the ships we've got trading in there and is probably trading a little ahead of the market.

[Magnus Fyhr:]

And also referring to Slide 15, won't you argue that the tightness forms a bit earlier than expected given that you control, I mean about 17 ships, so if you think that rates are going to start moving at 20 ships, you would control basically all of the spot markets, so wouldn’t you make the case that if you get down to 25, 30 ships in the spot market that you would see rates moving up?

[Paul Wogan:]

Yes, I think the spot - that actually what's interesting is the spot market is sort of it's a mixture of ships which are trading in there more or less all the time, but also a number of project and oil company ships which trade in and out of that market depending what they're doing. So it's never a kind of a fixed number of ships if you like pieces were perpetually in there. I don’t think given, - given the fact that we've got over 400 ships in the fleet, I don't think the number of ships in the Cool Pool has in anyway the ability to sort of set prices or control the market. I think that just comes from the general tightening across the whole fleet rather than the number of ships that the Cool Pool has managed.

[Magnus Fyhr:]

Okay and just one last question on the - looking at you have five ships in the Cool Pool, you have all your ships basically chartered out, what are the opportunities to charter long term here over the next 12 to 18 months, would you use some of the ships in the Cool Pool or would they be from newbuilds?

[Paul Wogan:]

No, I feel the new builds we've got coming are all five of them are fixed on long term charter sort of seven to 10 years. So it's really for us it's the ships that we have open at the moment. I think we've made no secret of the fact that we believe that the LNG business is a long term business that being able to put the ships away on long term at good rates is the right thing to do at the right time. However, we also do believe having access to the spot market is really quite important for two reasons. One, it gives us window on the market. It gives us an opportunity to see what's happening in that space much more transparently and also gives us the opportunity to put our ships on charter to a number of different customers. And I think, if you like we believe by doing that, that we can actually then show the operational excellence, the flexibility that we have as an operator. So, we would very much like to keep ships in the spot market, but at the right time you will also see as putting ships away on longer term when the rates are good and give us a good return.

[Magnus Fyhr:]

Okay, thank you very much Paul.

[Paul Wogan:]

Thanks Magnus.

[Operator:]

Our next question comes from Ben Nolan with Stifel.

[Ben Nolan:]

Hi guys, so I have a couple and I know it's been a long call, so I’ll try to be quick. First just Alastair a quick modelling question, you mentioned that on the operating expenses they were pretty low, certainly lower than we had thought in the quarter, but that was a function of some timing differences. Any guidance as to how we might think of those going forward on a more normalized basis?

[Paul Wogan:]

Yes, I think it’s a one off thing Ben, it’s not a recurring thing. So, I think you might expect to go back to the levels that we were at sort of fourth quarter.

[Ben Nolan:]

Okay and then going over to the FSRU side and away from the project in Greece it sounds like you're participating in tenders and there's a lot of activity. Whether or not you're successful in those I was wondering Paul if you might be able to give us a sense of the timing of when those things are happening, when you would know or be able to announce if you're successful in any of these projects when moving forward, I mean is this a 2017 event or something a little bit more longer dated than that?

[Paul Wogan:]

Quite interesting, I think Ben. If you'd asked me I would say it's probably a 2017 event. However, given as I said earlier the complexity of the projects and these are infrastructure projects which people are putting in place. Its quite a few things have to drop into place. Whilst we expect sort of, to have something by fourth quarter 2017. We're really not in control of that timing, so that may move into 18, but that's kind of how we say to the movement.

[Ben Nolan:]

Okay, but so some of these tenders that you are participating in are active tenders that should have some announcements sooner rather than later I would say?

[Paul Wogan:]

Yes, I mean all we as I said, fourth quarter 2017 would probably look to be an interesting period, but dependent on quite a number of other things falling into place which could drop by which is why we cannot talk too much about when we expect on the FSRUs because it doesn’t have a more, longer and a more difficult gestation period those projects. So we expect something by the end of 2017, but we'll have to see.

[Ben Nolan:]

Okay and then lastly we've seen really in last few days a little bit of a pickup in rates in the Atlantic market, I think $35,000 a day or so. It looks like the - our charged window is close to being open. Any thinking as to sort of what's driving that, and if it's simply maybe just a flash in a pan or something a bit more, but potentially permanent or at least structural?

[Paul Wogan:]

I think what we believe we're seeing in the market right now Ben is a return to seasonality. We haven't seen this sort of seasonal pick up in rates over the last few years because there has been an oversupply of vessels which if you like has negated that. When you get to a point where there is a, you know that the supply and demand starts tightening, when you get a pickup in demand for the ships it very quickly starts to move the rates. We saw that in the winter period. We've seen over the last couple of months which we would see as the shoulder period where the rates have come down. But now as we're going into the Southern Hemisphere winter and we're going into the summer for the Northern Hemisphere with the air conditioning requirements et cetera, we're seeing the pickup in demand for LNG again which straightaway is having an effect on the rates. So, we think this is a return to seasonality which is actually indicative of the fact that the market isn't for ships as much tighter than people are realizing right now.

[Ben Nolan:]

I see, so you're actually over the next few months would be hopeful that we might get, without making any predictions optimistic that we might get a little bit of a seasonal upturn?

[Paul Wogan:]

Yes, if we're correct in our hypothesis that this is a return to seasonality then we would be hopeful. We'll see that coming through over the next few months as I say demand from the Southern Hemisphere winter, Northern Hemisphere summer air conditioning season kicks in.

[Ben Nolan:]

Perfect. All right that’s it from me, I appreciate it. Thanks.

[Paul Wogan:]

Thank you, Ben.

[Operator:]

Our next question comes from Gregory Lewis with Credit Suisse.

[Joseph Nelson:]

Thank you and good morning. This is Jon Elson on for Greg and thanks for taking the question. I know we're kind of getting late in the call, so, I'll make my quick.

[Paul Wogan:]

Hi Joe.

[Joseph Nelson:]

Paul, you mentioned, you kind of called out Gail - we're always being one of the sort of announced charterers looking to maybe fix a few ships a bit later this year. I mean as we think about the underlying economics for some of these tenders that are maybe on underway right now, I mean are they kind of similar to things we've seen in the past?

[Paul Wogan:]

Yes, I mean I think if you look at that the last couple that have been announced really on the longer term tenders have been ours in GasLog where the rates have been very consistent with a long term average rates. I think that’s - we don't see anything at the moment that suggests that is going to change. The spot market, obviously the shorter term market for ships has been very volatile. Our long term market has stayed pretty consistent.

[Joseph Nelson:]

Okay, thanks for taking the question guys. I know it's getting long here and I appreciate you taking the time.

[Paul Wogan:]

Thanks Joe.

[Operator:]

Our next question comes from Herman Hildan with Clarksons Platou.

[Herman Hildan:]

Good afternoon, guys.

[Paul Wogan:]

Hello Herman.

[Herman Hildan:]

Hi, so Paul I mean, obviously you are quite conservative about your promises for the future, but you're I would say you're more forward leaning than ever on how fast this market will improve when it first starts improving. And though we have them on the headline rates seen and the moved over the last couple of weeks there has definitely been some talks up, the terms on the call it dollar sponsors and so on has improved over the last couple of weeks. First of all, kind of the question I wanted to ask you is would you be bold enough to say that you think we are past the bottom of the market this time around?

[Paul Wogan:]

I think it will be some trend analysis actually. If you look at the trends both on utilization of vessels and on rates around, if you like the ups and downs, the trend is definitely up in both areas. I would be surprised not see that trend continue.

[Herman Hildan:]

Okay and kind of the next question for Alastair, kind of curious to understand if you, what you did on prepaying the you know facility on the five vessels, I think if you combine the senior caution as well you're reducing the average debt per vessel from $112.6 to $82.6 million. Is that something that you deem as an appropriate leverage level going forward or are you kind of just saving up some capacity for when real opportunities may arise to increase leveraging those ships again.

[Paul Wogan:]

And yes, I think will have to I see where we stand next year in terms of and absolutely we do not see it coming due until the late 2019. So, I think that the decision now was much more about getting ahead of 2018 maturities and we were able to do that by accessing the dollar bond market and I don't think it was driven by any other considerations around the value and so on.

[Herman Hildan:]

Okay and then I'm also kind of curious to hear your thoughts obviously if you take GasLog Partners as a proxy to how we could value GasLog at the parent, there's a big spread relative to where GasLog is trading at the moment. How do you think about kind of creating value through buying additional assets and then how do you kind of think about that in relation to the valuation of GasLog parent's in the equity markets? Are you, I mean obviously you don’t have a big tradition of buying back shares, but is that something that we should see as a consequence of you joining the team, kind of using the secondary market more?

[Paul Wogan:]

I mean, interesting question. Clearly the two companies are valued using very different methodologies and very different metrics, so it is difficult to make direct comparisons between the two of them. I think that the priority for us at the movement is really about making sure we're in a position to take advantage of the growth opportunities that we think are going to come on the carrier side and on the FSRU side over the next couple of years and I think that in terms of use of capital that will be our priority.

[Herman Hildan:]

Okay, thank you very much. That’s all from me.

[Paul Wogan:]

Thank you, Herman.

[Operator:]

I'm showing no further questions in queue at this time. I'd like to turn the call back to Mr. Wogan for any closing remarks.

[Paul Wogan:]

Thank you. And thank you very much everybody for taking the time to join us on today's earnings call. I look forward to speaking to you in the near future and to welcome you to our next earnings call for Q2. Thank you very much.

[Operator:]

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program and you may now disconnect. Everyone have a great day.