GasLog Ltd.
Q3 2017 Earnings Call Transcript

Published: 2 Nov 2017

[Operator:]

Good morning. My name is Nicole, and I will be your conference operator today. At this time, I would like to welcome everyone to GasLog Limited’s Third Quarter 2017 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be 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 morning or good afternoon, and welcome to GasLog Limited’s third 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, but I will hand over 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 third quarter results. I will start today’s presentation with the highlights of the quarter before handing over to Alastair to take you through the financials and activity in the quarter in more detail. I will then conclude with an update on the LNG commodity and LNG shipping markets. Following our prepared remarks, we’ll be happy to take any questions you may have. In Q3 2017, we continued to deliver on the company strategy against a strengthening market backdrop. We reported record quarterly revenue and EBITDA helped by the 100% availability of our contracted fleet and a gradual improvement in both rates and utilization from the spot vessels in The Cool Pool. During the quarter and post quarter, we completed the GasLog Geneva and Solaris dropdowns to GasLog Partners, providing increased liquidity for GasLog Limited. To fund the dropdowns, GasLog Partners has continued to be active raising some $290 million of equity so far in 2017. We’ve made further progress with our FSRU project in Greece with the FEED study completed and DEPA the Greek state energy company committing to take an equity stake in the project. As announced in August, I’m delighted that Richard Sadler, the former CEO of Lloyd’s Register has joined GasLog to take the role of COO following the retirement of Graham Westgarth. And we continue to pay a quarterly dividend of $0.14 a share. In addition the LNG shipping market fundamentals have continued to strengthen resulting in increased upward momentum in the spot market. A topic I will cover in more detail later in the presentation. With that, I’ll now hand over to Alastair to take you through a more detailed review of the financial results and activity for the quarter.

[Alastair Maxwell:]

Thank you, Paul. Good morning and good afternoon to all of you. Please turn to Slide 4 for the financial highlights. As Paul mentioned, we reported record revenue and EBITDA for the quarter. Revenues benefited from an increase in vessel operating days compared to the same period in 2016, as a result of the newbuilding that delivered last year, as well as a slight improvement in the trading of our spot ships in The Cool Pool. We would expect this trend in performance of our spot ships to continue. However most of the spot charges being executed at the higher rates today for forward fixtures, whether full effects may not be seen until Q1 2018. As a result, total Q4 revenue should be higher sequentially, although probably not materially based on pictures that were concluded in the last one to two months. Our total operating expenses were higher in absolute dollar terms due to the delivery of the new ships, but they were flat year-on-year on a dollar per vessel per day basis at approximately $14,600 per day in both Q3 2016 and Q3 2017. On the balance sheet, total debt has increased slightly year-on-year to reflect the new vessels delivered in 2016, partly offset by scheduled amortization and the repayment of the Junior Tranche of the Five Vessel Refinancing Facility and the 2018 NOK bond. The cash balance at the end of the third quarter reflects the impact of the equity rates by GasLog Partners during the year averaged across our fleet on a per vessel basis, net debt has fallen from approximately $125 million to approximately $105 million, a reduction of over 15%. Turning now to Slide 5. In July, we closed the sale of GasLog Geneva to GasLog Partners, which delivered equity to GasLog of $56 million. Also during the quarter, we announced the dropdown of the Solaris, which closed on the October 20 and delivered equity to GasLog of $69 million. This is the sixth dropdown transaction between the two companies and the ninth vessel in total the GasLog has sold to the partnership since IPO. The $186 million sale price represents a premium-to-book value and a multiple of 9.2 times EBITDA, which is consistent with the recent dropdowns that we have sold to GasLog Partners. In addition, the recently announced increase in the partnership distribution to $0.5175 per unit supported by the acquisition of the GasLog Geneva will result in increased LP and GP cash flows to GasLog. And we expect further growth in LP and GP cash flows based on the partnership guidance of 5% to 7% growth in distributions in 2018. Please turn to Slide 6. These charts show the effectiveness of GasLog Partners as a capital raising vehicle for the group since its IPO in May 2014. Despite often difficult energy and shipping markets the MLP as consistently raise capital for the group on attractive terms, allowing us to grow the business as well as to delever overtime. In total GasLog Partners has raised some $830 million of which over $500 million has been recycled back to GasLog. The bottom of chart shows that the partnership has continued to diversify its sources of capital. Since IPO it is raised common equity through a combination of marketed deals and through its ATM Programme, which continues to perform well. Since inception in May, we have raised the gross total of $57 million as a weighted average price of $22.93, which represents a discount of only 0.6% to the volume weighted average price on the day when new shares were issued. Earlier this year, GasLog Partners raised over $140 million of preferred equity, give you the access to another pool of attractive capital. At GasLog Limited, we’ve always view GasLog Partners as a critical part of our growth story and are disciplined and mutually beneficial approach to dropdowns and raising capital is key to the success of both companies. Turning now to Slide 7, I wanted to update you on our FSRU activity during the quarter and post quarter end. We continue to make excellent progress with our FSRU project in Alexandroupolis and have completed the FEED study, which confirmed our initial technical analysis and cost estimates. We are also making real headway on both financing and offtake. Most notably, DEPA announced in October that they have signed a participation agreement with Gastrade with the intention of taking an equity stake in the project. And Gastrade was in fact one of the areas of cooperation mentioned by President Trump and Prime Minister Tsipras at a joint press conference at the White House in mid-October, demonstrating the significant political backing enjoyed by the project. Elsewhere we continue to be actively engaged in a number of FSRU opportunities where GasLog is widely recognized as an owner with strong technical and financial capabilities. The long lead items we have under construction give us a meaningful competitive advantage in our speed to bring a project to market. At the same time, we retain the flexibility to amend the final specification of the FSRU, so it fits with the requirements of any specific project. In summary, GasLog has enjoyed strong operating and financial performance and our core carrier activity this quarter and in the year-to-date. We are also very encouraged by the excellent progress we’re making on the Alexandroupolis project and other FSRU opportunities. 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 8. Since the last quarter, there have been a number of positive data points demonstrating the recovery in the LNG shipping market. That’s been strong awkward momentum in LNG shipping spot rates in anticipation of the Northern Hemisphere winter. The way that new LNG continues to come online with production from new projects ramping up quickly. A new demand continues to absolve the increase in supply and we are seeing rising LNG prices in Europe and Asia ahead of the winter. Vessel ordering remains at multi-year lows, meaning there will be limited newbuildings delivering in 2019 and 2020, when we expect the market will be strong. With the current recovery of the LNG shipping market, growing LNG supply and demand and limited vessel new ordering – new vessel ordering, we believe the GasLog is very well place to take advantage of these improving market fundamentals. Please turn to Slide 9. As mentioned, the new LNG supply is being matched by significant growth in demand. The chart on this slide compares the LNG import growth by country for the first nine months of 2017, with the same period in 2016, and shows global imports up by 11% to 215 million tonnes. Over this period, seven countries increased imports by over 1 million tones, with a further five countries increasing imports by over 0.5 million tonnes. This growth has come both from conventional importers, such as South Korea, Japan and France and also from emerging LNG markets such as Pakistan, Thailand and China. Please now turn to Slide 10. China continues to significantly outperform market expectations, with LNG import up 44% year-on-year and up 62% in the period from July to September. The right hand side of the slide is an illustration from Wood Mac, of the key Chinese gas demand drivers in the first half of 2017. The growth in demand is a result of both macro and sector level factors, with demand increasing across the transportation, domestic, industrial and power sectors. With heightened environmental focus on emissions and air quality, the trend for more coal to gas switching in these sectors should continue with LNG imports being a key beneficiary. This LNG demand is being supplied from a variety of new sources, including multiple cargoes that have been shipped from the U.S. Gulf, which is positive for shipping ton miles. Please now turn to Slide 11, which looks at future LNG demand in China, we’ve further strong increases are expected over the next few years. The chart on the left shows that year-on-year LNG demand in both 2018 and 2019 is expected to rise sharply. As an example, the 8 million tonnes of forecast imports for December 2019 is more than France and the UK individually imported in the Hull of 2016. The chart on the right shows that Chinese LNG demand is expected to surpass contracted supply during 2018 and beyond. To satisfy this growing demand, China will have to enter into more long-term supply contracts, as well as taking more spot volumes, which should be positive for LNG projects looking to secure contracted offtake ahead of FID. Slide 12, focuses on the recent momentum we have seen in the signing of a new offtake contracts, with almost 13 million tonnes per annum of offtake agreements signed in recent weeks. As buyers have started to enter the market again after period are relative in activity. As shown in the slide, these contracts have been entered into by a wide range of buyers and sellers across the globe, demonstrating the increasing diversity and growing complexity of the LNG markets. Increased offtake activity should support the sanctioning of new projects in 2018 onwards. Slide 13 shows that only eight vessels have been ordered in 2017, the same as 2016, both of which are multi-year lows. Any vessels order today will not deliver until well into 2020. We estimate there is a need for 20 to 40 ships over the current order book by 2020 and with 2.5 to 3 year build time, there is a limited period to place orders to meet that’s additional demand. With this expected shortfall, we have been encouraged by the discussions we are having with several new and existing customers, who are looking to lock in shipping for that term requirement ahead of a perceived shortage of ships. This interest ranges from multi-month to multi-year charters and as for both underwater and new build vessels. Slide 14 shows seasonality returning to the LNG sector. Rates become sensitive to seasonal changes in demand, when the market starts to balance. In 2015 and 2016, rates were flat due to vessel oversupply. As the market tightens, vessel availability has fallen and rates have become more sensitive to small changes in vessel demand. In the fall of 2016, seasonal demand for LNG was low and the shipping rates dropped. Rates increased sharply as demand for LNG shipping picked up for the Northern Hemisphere winter months, before falling into the spring of 2017. We flagged that the last results that we thought rates would likely soften this fall ahead of a winter pick up. However, we’ve been positively surprised to see – the rates are continue to rise in the current shoulder period in anticipation of increased winter demand, showing a much tighter market both year-on-year and sequentially quarter-on-quarter. Turning to Slide 15, which shows the price spreads or arbitrage between basins. While efficient gas market prices are existed in the U.S. and northwest Europe in many years, we now starting to see the emergence of a reference gas price in Asia, currently based on JKM. While it’s still early days and liquidity is limited. It is very encouraging the efficient price signals are emerging to attract LNG volumes into Asia, when demand is strong. Based on today’s prices and forward curves into early 2018, there is a clear economic incentive for gas to move from the Atlantic basin into the core Asian markets. Slide 16 is an update of the activity in the LNG shipping spot market. The amount of LNG available for trading increases, the number of spot fixtures has grown significantly year-on-year. For example, the third quarter of 2017 is up 35% on the same quarter last year. The increased activity has absorbed much of the vessel oversupply leaving a limited number of vessels available, which is in turn driving the increase in rates. For the first time since its inception, all 18 of the Cool Pool vessels were on higher this week, which is consistent with prompt vessel availability shown in the table on the bottom right hand side of the slide. GasLog is able to benefit from a tightening market through the five vessels we have trading in the Cool Pool as shown on Slide 17. The top chart on Slide 17 shows that for GasLog, every $10,000 increase in spot TCE rates positively impact EBITDA by over $3.5 million per vessel $5 per vessel per annum. The chart at the bottom shows the additional EBITDA and cash flow that will accrued to GasLog as our contracted new build start to join the fleet in the first half of 2018, with over 100 million of contracted EBITDA delivering in 2018 and 2019. So turning to Slide 18, and in summary. We reported record revenues an EBITDA for the quarter. We have significant visible future revenue and EBITDA growth from our new build deliveries and the improving LNG shipping market. Our strategy of dropping down assets to our MLP and recycling equity to GasLog allowing us to grow and delever continues to serve as well. We continue to make good progress on our FSRU project in Alexandroupolis with DEPA expected to take an equity stake in the project. And finally, GasLog strong financial, operational and commercial platform positions as well to benefit from the rapidly improving market fundamentals. Before I open the call to questions, I just wanted to bring people’s attention to Slide 19 and the Analyst and Investor event we planned to hold in New York on the 27 of February. Senior management to both GasLog Limited and GasLog Partners will provide an update on the group’s business and strategy and on the wide LNG shipping markets and I hope to see you all that. However, one person you will not see that is Jamie. This is his last earnings result call before he leaves GasLog. I just like to thank Jamie for all his hard work and contribution he has made to the success of GasLog and wish him well in his future endeavors. And with that, operator I would like to open the call to questions.

[Operator:]

Thank you. [Operator Instructions] Our first question comes from the line of Ben Nolan, Stifel. Your line is now open.

[Ben Nolan:]

Great, thanks. And first let me just say as well it’s been a real pleasure working with Jamie and I’m sure he’ll do well, but he is an absolute pro and will be missed. My first question relates to some noise that we’ve heard into the market in the past week or so, that actually perhaps one of The Cool Pool vessels had been fixed on a spot contract over $100,000 today obviously that’s a huge premium to what’s being quoted is regular spot rates. First of all, is that something that you guys can add any color to? And secondly is this a unicorn or is there something that is more indicative of the market tightening as a function of that.

[Alastair Maxwell:]

Yes. Thanks very much, Ben. I think if you look at – we use it quite clock since and if you look at what they are quoting at the moment. They’re quoting a market of around $58,000 today. Once we never talk about specific fixtures or cargoes, I think where you find as this type of market develops and it becomes much tighter is there are periods and places when the market gets very tight. And then people want to move gas, then you’ll see those rates spike. So I think the tightening market is going to create opportunities for those kind of fixtures both now and in the future.

[Ben Nolan:]

Okay. So – and then I guess kind of maybe associated with that, I know Alastair you’d mentioned that a lot of the fixtures that you are currently fixing or more focused on the first quarter relative to the fourth quarter. But one of the things that it seem to like is happening is that the utilization levels are getting tighter and then there was a chart in there about that. Could you maybe compare where your utilization was in the third quarter as opposed to what you’re experiencing the fourth quarter for your spot vessels.

[Alastair Maxwell:]

Yes. I mean I think if you back to the fourth quarter, we were looking at somewhat around about 60% to 70% type level. And again I can use so that some clocks since day two for that. I think if you look forward into the latter stages of the fourth quarter, you’re looking at almost 100% utilization, because the system onto the ships, but overall I’m guessing that probably the quarter will come out somewhere 70% to 80% utilization something like that.

[Ben Nolan:]

Okay, that’s helpful. And then lastly for me and sort of along that same vein. We’ve been waiting forever for some of these longer-term contracts and tenders to be finalized now or so. There’s been a few here and there and you guys have one year for more than your fair share. Is this tightening on the market or are you getting a sense that the charter is out there are starting to feel the pressure and that we’re on the cusp of potentially a substantial wave of activity here, is this just hurry up in weighing.

[Alastair Maxwell:]

I think if you’re a charter over the last two, three years, having a show position in shipping has served you well. I think what’s happening right now is there is the perception that having a short in shipping. It probably won’t serve you well. And making your serving – other shipping guys started 20 of trade doesn’t that saying well. I can get hold of Henry Hub gas for $3 and it’s selling for $9 in Asia. I’d like to move in and say well, that would be great, but we don’t have a ship for you and the trade as well. I say that’s fantastic. We have – for going a huge amount of profit here. So suddenly having a short shipping is not serving people well and it’s really focusing people’s mind and I think you will see people looking to close out those for the short positions over the next few months.

[Ben Nolan:]

Okay, very helpful. Thanks a lot. Appreciate it.

[Operator:]

Thank you. Our next question comes from the line of Michael Webber of Wells Fargo. Your line is now open.

[Michael Webber:]

Hey, good morning, guys. How are you?

[Alastair Maxwell:]

Hi.

[Michael Webber:]

Great. Just first off congrats to Jamie and there is a pending move to the car. I wanted to start off with the follow-up I guess on with on Ben’s question on rates. And I guess you are to answer kind of how much coal asking I guess we need it around the 50K range. But I’m just curious for when we think about 2018, it seems as though we’re on a similar track to last year maybe just a bit amplified. Would you say that’s fair given new deliveries or do you think that the upside we’re seeing now would be sustainable in some way shape or form?

[Alastair Maxwell:]

Yes, I think – good question, Mike. I think what we’ve been seeing is we started talking about this two or three quarters ago when we saw the return to seasonality. And I think that will be remain some seasonality in these rights. As I said we’re surprised to see the strength it will – should be show the month now, which has been helpful. But we may after the winter period see some falloff in rate. But each time, we’re saying the rates moving higher, they are not coming down in the way they did before. And at some point, we will hit that inflection point where we see the rates staying up, now I wouldn’t necessarily say that this is – that’s the point now. But it could be as well. That you’re trying to kind of forecast where that inflection point comes in is always very difficult. So we are very I would say godly optimistic about what’s happening right now in the market. But we wouldn’t say that – that we wouldn’t see as sort of a seasonal falloff potentially in the spring next year. But it will be to a much higher level and this market continues to time in the way that we thought it would do and that inflection point is a lot closer than it was.

[Michael Webber:]

Okay. That makes sense. Paul how much of the strength I guess through the stronger season specifically with the U.S. attribute to The Cool Pool. Do you think we’d be sitting in the mid to high 50s if there wasn’t some kind of overarching management over the bulk of the stock capacity in the market right now?

[Paul Wogan:]

I would be nice to sort of say that we were able to do that. To be honest I think we can affect our cost of quite well with The Cool Pool and we can offer more innovative commercial contracts. But I don’t think we have the ability to push the market up. So I think the great news is that, this is fundamentally driven by market supply and demand economics more than has been able to I think with The Cool Pool to affect the pricing nice.

[Michael Webber:]

Okay, that’s helpful. Just two more and I’ll turn over, when you think about new entrants into this market, you highlighted the lack of new orders and the capital hurdles and everything else. We’ve seen if the Chinese come in and take a swab of ownership and some MOL vessel that are servicing Yamal. Costco doesn’t have a large presence yet. When you think about the players five years from now and who you’re competing with in terms of absorbing that four demand how big a president the Chinese will be?

[Paul Wogan:]

Yes, interesting question. I think what’s being quite interesting so far is the Chinese when they have been biased, have been keen to get Chinese content and which is usually being building those ships in China. I’m sure that the Chinese shipping groups would like to get more active in the LNG space and I’m sure they well. I think if you look out five years, you are not like to see them as major competitors in that timeframe, over the 10 years they made by I think become larger in it. But I – in general I think what’s been very positive about this market has been a lack of new entrants coming in, I think people got very frightened away by what happened last time when – in 2012, 2013, when people came in, who hadn’t be in the market before, took positions and then were unable to take long-term contracts and hope that took place those ships in the spot market since. So well, you could see some Chinese entrants. We’re not seeing – in other places, we’re not seeing those new entrants coming into the market at the moment which is very positive.

[Michael Webber:]

Fair enough. And finally I don’t want to pick all the questions on regas, but there’s one project in particular in China, – China like in power, but I know its tendering for regas assets that’s specifically designed new build asset, which seems like it’s a bit of a departure and there are number of players that are looking at that. When you think about the – I guess the returns for the conversion works, you’re already pursuing versus the project like this or something similar, have you seen any real degree of compression around returns for those build this new projects as we are kind of long – a couple of us are using the market to begin with.

[Paul Wogan:]

Yes. I think the interesting thing with the FSRU businesses that it’s actually often quite specific, so when you look at a certain project, it may be that the existing ships that are available in the market can sue that project. It may be that they need to do something different. So I think when you get the yield compression is where you have a number of ships which are able to meet the specific requirements of the project and in some cases that, that’s not happening. One of the reasons we went down the route we did of ordering the long lead items was so that we with a limited amount of investment. We were able to be quick to market, but we didn’t have an asset sitting there that we were desperate to place away. And the second thing is it does allow us – Alastair said in the prepared remarks to have a degree of bespoke design against the ship for the project. So both those things I think help us in terms of when we’re looking at a project saying what’s the – what are the returns we can get from it. And finally, we with the FSRU used base, we will look at each project on a risk reward basis against our options in the LNG sea market. And one of the things I hope we’ve been able to do over the last few years is show capital discipline and hold to the time for returns that we want to get for the risks that we’re taking and I think that should continue to be our mantra.

[Michael Webber:]

Got it. That’s helpful. Appreciate the time guys. Thanks.

[Paul Wogan:]

Thanks, Mike.

[Operator:]

Thank you. Our next question comes from the line of Espen Landmark of Fearnley. Your line is now open.

[Espen Landmark:]

Hi, good afternoon. Two questions from the LNG market, I guess the spot rate has improved. We’ve seen of literary indications for 6 months to 12 months features that low to mid 60. So I mean on the basis on the numbers you say 70%, 80% filtration now and I guess that number might be higher or lower. I mean how would you evaluate that charter versus trading the vessel spot next year?

[Paul Wogan:]

Yes. I mean I think as the market tightens we will continue to see pressure on rates both in the spot market and in the time charter market. So I wouldn’t like to kind of give our view on where we’re fixing. I’m sure some of our customers are listening into this, but there is as you say that the spot market go up, it certainly improved sentiment and it certainly improves the earnings you can achieve across the board in terms of the period of time. Of course we do have GLOG vessels which are due for renewal in 2018 and I’m sure GLOG will be looking closely at the market for a longer-term fixtures. But as well as the sort of 6 months to 12 months I think there’s the opportunity right now to look out for longer periods and secure cash flows for longer periods, which I think is very helpful for a company like GLOG.

[Espen Landmark:]

Right. And I guess you highlight the pricing differences between the base and there are increasing as in the last couple of years, the average filling distances has been declining. And I guess that’s been driven by arbitrage in both the Australian project. But are you seeing some changes to that now and if so, what’s the most relevant to arbitrage look at it, I mean in the past, so used to be the NBP to JKM. Is it more out of the U.S. now you think?

[Paul Wogan:]

Yes. I mean it’s really – I think it’s a really interesting question, because I think a couple of things are happening as we talked about in the prepared comments. JKM is becoming a very much in used in Asia and becoming quite liquid you can actually hedge against that now and it’s able to show the pricing against Henry Hub, so again, those pricing signals with a difference. So, as an example, if you look at Sabine Pass in October, 21 cargoes exported. We know 18 of them where the destination was. Of those 18 we know, the other three we’re not clear about. Those 18 we know, 14 of those cargoes 80% went to the far East, because there’s a difference in pricing between the so highly visible liquid JKM and Henry Hub. And that is obviously very good for ton mile demand. So I think you’re right in the last two or three years we’ve seen a falloff in ton mile demand, but as we see the U.S. volumes coming on, we see that picking up. And if you look at the Sabine Pass volumes so far of that falling of 200 cargoes, they’ve export today, I think you’re looking at something like 1.7 vessels per million metric tons of cargo exported from the U.S. Gulf.

[Espen Landmark:]

That’s interesting. Thank you, Paul.

[Paul Wogan:]

Thanks, Espen.

[Operator:]

Thank You. Our next question comes from the line of Chris Wetherbee of Citigroup. Your line is now open.

[Unidentified Analyst:]

Hi, guys this is William on for Chris. So I just wanted to talk a little bit about what your expectations are for drop downs to GasLog Partners in 2018. Should we still expect one to three drop downs on average for that year?

[Alastair Maxwell:]

William, hi. It’s Alastair here. So as we said on the GasLog Partners call last week, we’ve made a bit of a head start in terms of funding largely through to the ATM and what’s left of the preferred issue. So I think that we’re well positioned to execute on the next drop down, which I think we would expect to be, it’s a wide window but sometime at least in the first half of 2018. In terms of the run rate, part of this is driven by GasLog Partners’ ability to raise funds on the right terms to finance the acquisitions. Secondly about, in terms of the rates of growth for distributions and again we guided towards 5% to 7% for next year. I think we feel – historically we done an average of two year, I think an average of two is a good number to look at. This year we done three, because I think of some very good opportunistic fund raising and supportive markets. But I think you’re right. The range that we’re probably looking at next year is somewhere in that range and I think we can come to deliver the 5% to 7% distribution growth that we talked about with one or two drop downs.

[Unidentified Analyst:]

Great. That’s very helpful. Thanks for the color. And just one other follow-up question on Hull No. 2800. Is your intention to find a bridging charter forward or trading on the spot market before its charter commences in the first quarter of 2019.

[Paul Wogan:]

It could be either of those, William, we’ll – we’re actually – actively involved in discussions around that vessel. So we’d be comfortable putting it on a bridging charter or especially given the strength that we’re seeing in the spot market expect to continue through 2018 trading is spot. So we’ll kind of evaluated two options against each other and being fairly opportunistic on that shift.

[Unidentified Analyst:]

All right, great. Thank you very much for answering my questions.

[Paul Wogan:]

Thanks.

[Operator:]

Thank you. Our next question comes from the line of Fotis Giannakoulis of Morgan Stanley. Your line is now open.

[Fotis Giannakoulis:]

Yes, hi gentlemen and thank you. Obviously the market has tightened significantly and we hear that there are no vessels available in the Atlantic, which makes everybody quite excited. Paul, I wanted to ask you, given the lack of liquidity in the spot market and I talk that charter is always have the option to trigger some newbuilding order by providing some of the long-term contracts. Where shall we think the mid-cycle levels based on today’s newbuilding cost.

[Paul Wogan:]

Mid-cycle levels…

[Fotis Giannakoulis:]

For LNG carrier for the DFT LNG carrier.

[Paul Wogan:]

Okay. I think and if you look over the last sort of 10, 15 years, you’ve really been looking at prices for LNG carriers of 200 million plus or minus kind of 10%, 180, 220 type million for a vessel. I don’t see it moving much outside that range, there’s still – I think still continue downward pressure on prices, because the yards have not been taking orders from other parts of the shipping market. But likewise, I think also there’s a discipline within the – especially in Korea these days, not to be doing contracts at below costs, which is I think one in keeping the pricing up. The other end, I don’t see – we don’t see huge pressures at the moment on the yards to increase those prices. So I think if you took that sort of 200 million plus minus 10%, I think that gives you a view, where we believe the shipping rates are like – those newbuilding rates are likely to be.

[Fotis Giannakoulis:]

Thank you very much, Paul. I want to ask you about your comment in your press release about the new projects that they’re seeking to reach aside, if you have any insight there. What we will need to expect to see this project securing both financing and offtake agreements.

[Paul Wogan:]

Yes, I mean I think it’s – it is a simple as sort of some long-term fixed rate offtakes. I think the period of 20 year long-term SBA is probably gone. But I think some of these projects need to see at least five probably closer to 10 years of offtake, and I think a lot of them are going to be looking for 70%, 80% kind of offtake agreements before they’ll go ahead. So I think we’ve been encouraged by what we’ve been seeing just recently with some of these offtakes signs. And I think it’s a little bit like the shipping market right now. The pricing signals are telling you that there isn’t this huge oversupply of LNG, which everybody was worried about. Yes, there’s still more to come, but the demand has been soaking up the supply very quickly. So I think that’s starting to get people more focused on what happens after this next wave of supply and do I have the supply that I need. So I think that’s why you’re seeing people coming back. But I think I would say you’re looking for five to ten year off takes and you’re probably looking for people to have 70% or 80% certainty around the volumes.

[Fotis Giannakoulis:]

Do you see this tracksuit of the chartering market changing, obviously, we do not have the 20 years offtake agreements and the 20 year charter contracts, but the as this offtakes become charter, they become five years or ten years. Do you see this new chartering contracts that they will emerge from this new offtakes to be even shorter and then instead of talking about five to seven year long-term contracts to be talking about two to three years in the future. Is this something that concerns you?

[Paul Wogan:]

I think it will depend on – whether it’s an existing ship Fotis, or a newbuilding. I think on the newbuildings, owners have been fairly disciplined in saying, we really need seven to ten year contracts to make sense of newbuildings. And if you – the ships that we’ve built over the last two or three years have been against seven to ten year contracts. And I think, as I was saying that kind of mirrors if you like the SPAs that people are taking of the existing projects. So I think you’ll continue to see a proportion of the fleet under those type of contracts. But I do think as well that you will continue to see people looking for more flexibility with existing ships. And that will be partly to give them some flexibility about their spot rates. So you may want – they may want to take a portfolio approach and have a number of spot vessel or number of cargoes on spot vessels. But also I think, if they know that they have contractual commitments, they’ll also want to take in some charter. So on the existing business I think you’ll see a number of three to five year kind of periods coming open, as people want to sort of make sure that they’re locking tonnage against commitment. So I really see that people are going to be playing the portfolio going forward.

[Fotis Giannakoulis:]

Thank you very much, Paul. One last more householding question for Alastair. You still have outstanding a $45 million in their company loan. What is the plan for this loan, I think that GLOP right now has a the balance sheet and the cash flow to paid back. Are you planning to do that any time soon?

[Alastair Maxwell:]

So that loan if you like effectively mirrors the terms in terms of maturity and so on, the U.S. dollar bonds that we did not have this years, as you’ll recall. So there’s no pressure or need all plans of the moment to repay that. The next maturity that GasLog Partners had the remaining $30 million start on the junior tranche, which is due in April of next year. So clearly, we’ll make sure that we deal with that. But I think, otherwise, Fotis, I think that the priority for the partnership to the extent that it can continue to be successful in raising money on attractive terms, I think is to continue to fund drop downs from GasLog.

[Fotis Giannakoulis:]

Thank you very much, both for your answers.

[Alastair Maxwell:]

Thanks, Fotis.

[Operator:]

Thank you. [Operator Instructions] Our next question comes from the line of Gregory Lewis of Credit Suisse. Your line is now open.

[Joe Nelson:]

Thank you and good afternoon, this is Joe Nelson on for Greg today. First one from me, one of the things we’ve seen this year is the rise of the traders and the trading houses getting involved in LNG. Do you have any view and how this might impact some of the chartering dynamics you see in the future years, whether it’s either spot or whether they’re coming to you looking for term coverage.

[Paul Wogan:]

Yes. Hi, Joe. Yes, I think it is – it has been a factor in the market, as you say the trade is becoming involved. I think there’s two things, the trade is becoming involved. One I think it adds liquidity to the market. And we’ve talked in the past about the fact that, as a market becomes more traded. It becomes a little bit less efficient from a shipping point of view. So having them and being driven by price rather than point to point contract et cetera. I think is helpful in terms of ton mile and ton time. The second thing is that I think they’re quite focused on finding outlets for molecules and quite entrepreneurial. So a lot of the projects that are being move to around regasification et cetera, they’re looking out and becoming involved in. And so trying to open up new markets for the product that they can then trade into and I think that’s very helpful to the business as well. And finally I think as they maturing, we’re seeing them not only working around spot business, but also taking positions – longer term positions. And so therefore, I think you will see them also wanting to marry those positions against transportation. So I think we will see them as longer term charters in the market as well.

[Joe Nelson:]

Thanks, appreciate the color. And just one more for me, on the FSRU project in Greece, you completed the FEED study, I mean is there anything on GasLog and that’s left to complete before the project takes FID or is it really more now a matter of lining up the – or is it really more now a matter of lining up the project partners.

[Alastair Maxwell:]

Joe, it’s Alastair. I think that the – there are two key things, I think for the project, which – again which we referred to in the prepared remarks. Firstly the right offtake and entering into agreements offtake is under what’s called the tunnel use agreement, which is on the active negotiation today. And then in parallel with that but also on the back of that is financing. So I think those are the two key things, which are underway and which are critical to be able to take FID, which – as we said we expect to be in the 2018 – early 2018.

[Joe Nelson:]

Great, thank you for the time today, guys.

[Paul Wogan:]

Thanks, Joe.

[Operator:]

Thank you. And at this time I’m showing no further questions.

[Paul Wogan:]

Okay. Well, thank you very much everybody for participating today and for listening to our call, as always your time and attention is very much appreciated. And we very much look forward to seeing you all at our capital markets day on the 27 of February in New York. Thank you.

[Operator:]

Ladies and gentlemen, thank you for participating in today’s conference. That does conclude today’s program and you may now disconnect. Everyone have a great day.