GasLog Ltd.
Q1 2016 Earnings Call Transcript

Published: 6 May 2016

[Operator:]

Good morning. My name is Terrie, and I will be your conference operator today. At this time, I would like to welcome everyone to the GasLog Limited First Quarter 2016 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; Simon Crowe, Chief Financial Officer and to commence the call, Jamie Buckland, Head of Investor Relations at GasLog. Mr. Buckland, you may begin.

[Jamie Buckland:]

Thanks, very much. 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, gaslogltd.com where a replay is also available. As shown on slide two of the presentation, many of our statements 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 this afternoon contain non-GAAP financial measures as defined by the SEC, and a reconciliation of these is attached as an annex to the presentation. Please now turn to slide three, the introduction, while I’ll handover to Paul Wogan, GasLog’s Chief Executive Officer.

[Paul Wogan:]

Thank you, Jamie. Good morning or afternoon to all. Thank you for joining us for GasLog’s first quarter results. Following this introduction, Simon Crowe, GasLog’s CFO, will take you through the quarter’s numbers. I will conclude this presentation with an update on the LNG shipping sector before opening the call for Q&A. So whilst LNG shipping markets have remained challenging, at GasLog, we have continued to execute on our strategy. The financings we completed during the first quarter mean we have a robust balance sheet to manage cyclicality in the sector. We have no debt maturities until 2018 and our focus now is on pushing average maturities beyond 2018. We have committed debt funding in place for our newbuild program and the first draw down took place concurrent with the delivery of the first newbuilding in March. Seven of our eight newbuilds are contracted between seven and ten years, providing us with significant in-built growth, especially in 2016. Our existing and newbuild fleet is largely contracted a multiyear contracts to the world leading counterparty, Shell. And we see significant value in supporting GasLog Partners, our primary equity funding source. And again, we are declaring a dividend of $0.14 for the quarter. So, taking these actions in what has been turbulent energy, shipping and capital market means that GasLog remains well-placed to prosper today and in the future. With that, I will hand over to Simon to take your through the quarter and the financials in more detail.

[Simon Crowe:]

Thank you, Paul. Good afternoon and good morning to all of you. Please now turn to slide four for the highlights of the quarter. We completed two important financings in the quarter, which push out our maturities to 2018 and beyond, and I’ll talk about these in more detail on the following slide. We took delivery of the GasLog Greece at the end of March, and the vessel was delivered on time and on budget, and has now commenced the 10-year charter to Shell. We have also initiated the pre-engineering study at Keppel, which focuses on converting an LNG carrier into an FSRU. On the financials, GasLog had revenue of $104 million and adjusted EBITDA of $62 million in the quarter. Finally, we are very pleased to be paying a dividend of $0.14 for the quarter. The dividend is an important part of the GasLog investment case, and we have consistently paid our dividend through the challenging market conditions we have seen in the last 18 months. Turning now to slide five, revenue was lower than in previous quarter, as we had the Methane Jane Elizabeth in dry dock and the short-term market continues to be challenging. In the current quarter, Methane Rita Andrea is in dry dock. So, there will be a similar revenue and OpEx on the financials during Q2. On OpEx, we had a 36,000-hour engine overhaul for one of our vessels in the quarter. This was planned and our OpEx remains on budget for the year. Profit and EPS were impacted by the one-off write-off of some loan fees associated with the refinancing. On the balance sheet, debt and net debt has increased as a result of the vessel addition during the quarter. Turning now to slide six, I’d like to spend a minute or two on our most recent delivery, the GasLog Greece. At the end of March with Samsung Heavy Industries in Korea, we started a 10-year charter with subsidiary of Shell. The vessel is a 174,000 cubic meter tri-fuel diesel electric LNG carrier. And we have committed that financing against all of our newbuild and the GasLog Greece eligible for future drawdown into GasLog Partners. Turning now to slide seven, we completed two major financings during the quarter, both of which we communicated on our last results, mainly the five vessel refinancing and the sale and leaseback with Mitsui. We were very pleased with contingency of the transaction and we thank our bank for their continued support. Turning to slide eight, and you can see the impact of this financing. So, we now have no debt maturing at all through ‘16 and ‘17, and our focus now move towards pushing out the other maturities we have through ‘18, ‘19 and ‘20, and we are making very good progress. Managing our balance sheet well in advance of any maturities is a priority for the Company and it enables GasLog to manage any market cyclicality and pursue further opportunities. Turning now to slide nine, a slide you’ve seen before but updated for recent activity. Through the delivery of the GasLog Greece, our outstanding capital expenditures come down. There will be three additional deliveries in 2016 with the next scheduled at the end of this quarter. Each of these deliveries will contribute meaningfully to GasLog as the vessels enter our fleet. We anticipate that any additional capital expenditure will be financed through cash balances and cash flow generated from operations. Turning now to slide 10, which shows the new EBITDA coming into the fleet from these new vessels. In 2016, we expect to add around $90 million of incremental EBITDA from our four newbuilding deliveries. This in-built growth is an important part of the GasLog story, as it demonstrates the ability to grow our underwater fleet in difficult markets and will generate meaningful cash flow, which over time will further strengthen our balance sheet. On our eighth newbuilding, we remain in active discussions with a number of potential charters. Please now turn to slide 11. Last week in their results call, GasLog Partners stressed the importance of the relationships between the GP and the LP in maximizing value for both entities. I’d like to reiterate these messages today, as we believe the GasLog group of companies offers investors a unique and differentiated value proposition in the marine sector. GasLog Limited has 12 vessels with long-term contracts. When dropped down to GasLog Partners, these vessels will provide liquidity and cash flow to further strengthen the balance sheet and to grow our business. This significant and differentiated pipeline of assets with long-term contracts, not only provides GasLog Partners with a number of years of future distribution growth through dropdown but also it allows GasLog Limited to support GasLog Partners’ existing cash flow. Examples of this could include swapping GasLog Partners’ existing ships to GasLog ships with longer duration charters, or taking GasLog Partners’ ship back on time charter. However, I must stress two points. Firstly, we do not expect that we will need to provide such support, especially as we expect the LNG shipping market to continue to improve and tighten through the next few years. Secondly, we will only undertake transactions with GasLog Partners that are beneficial to both companies. The MLP market has improved significantly in recent weeks. And if the improvement continues, GasLog Partners could resume its role of a cost effective funding source for the Group. In summary, we remain very supportive of GasLog Partners and have been encouraged by the recent rally in the MLP market. So, that concludes the financial section of this quarter’s results. And with that, I’ll hand over to Paul.

[Paul Wogan:]

Thank you, Simon. Please turn to slide 12, the LNG market. It’s been a mixed quarter for new liquefaction production. Cheniere Sabine Pass became the first of a number of new U.S. liquefaction projects to explore natural gas. It has shipped cargos to Brazil, Dubai, India and Portugal, highlighting the destination flexibility of U.S. supply. The GasLog Salem was the third vessel to lift the cargo from Sabine, delivering it to Brazil. And even though LNG prices in Asia and Europe remained low, U.S. LNG export continued to be competitive due to Henry Hub prices of around $2 per mmbtu. However, the expected new wave of LNG continues to drop back, and is largely the reason that the short-term market has continued to underperform our expectations. Chevron’s Gorgon project shipped its maiden LNG cargo but then experienced technical issues, and is currently out of service with a projected restart date of the end of this month. And Chevron’s Angola project also remained offline, but is expected to restart in the near future. Combined, these projects control around 13 ships that have operated in the spot market, awaiting restart of the production facilities. First production for Australia Pacific Train 2 and Gladstone Train 2 has also dropped back to later in the year. So, for 2016, we expect LNG producing trains with a total annualized capacity of approximately 40 million tons to come on line. However, the ongoing postponement of production from new projects has delayed the expected upturn in the short-term LNG shipping markets. The order book is gradually falling, partly due to the ongoing delivery of newbuildings and largely due to the lack of new orders. The chart on the right of this slide looks at the number of new orders per quarter in 2015 and 2016. 19 new orders were placed in the first three quarters of 2015. But since then, there hasn’t been a single LNG carrier ordered. LNG carriers typically take around three years to build. So, no new orders today will mean no new deliveries in 2018. When we already expect to see a much tighter market, the present lack of orders is creating the ideal conditions for a strong bounce back in LNG shipping rate. Turning now to slide 13, new LNG production from the U.S. and Australia is delivering new to customers via new routes, creating additional ton mile demand. The destination flexibility, particularly the U.S. volumes creates optionality and with it greater inefficiencies that ultimately will require more ships. Many of the new routes, highlighted on the slide, are significantly longer than the recent historical sailing distances of around 4,000 nautical miles. The average distance of the voyages on this page for example is almost 7,000 nautical miles. Turning to slide 14 where the impact of this LNG volumes can be seen in the increased number of spot market fixtures. The number of spot fixtures was up over 60% year-on-year for the first quarter. However, rates and utilization remained low, largely due to project ships being active in this market whilst waiting for project startup or restart. GasLog currently has two ships trading in the spot market, both of which are operating in the Cool Pool. And we continue to be pleased with the performance of the pool in very challenging markets. Turing now to slide 15, GasLog continues to push ahead with its FSRU developments. We expect the first draft of the pre-engineering study we commissioned from Keppel to be in the next couple of weeks. The chart on this slide shows that from 2014 to 2017, 8 of the 10 projects for new LNG importing nations will utilize an FSRU. Wood Mackenzie believes that up to 60 additional nations could look to import LNG by 2025. And we believe, many are likely to use FSRUs. Since expressing interest in the space, we have looked at the number of potential projects and we’re in active dialogue on some very interesting opportunities. Our extensive experience in the NLG shipping sector combined with our recent new hires meant the GasLog is well placed to take advantage of what we believe will be rapidly growing market. So, please now turn to slide 16 and a summary of the key highlights from today’s presentation that we believe make GasLog a compelling investment opportunity. We have seen positive momentum return to the LNG shipping equities and the recovery in the MLP market. We’ve taken actions to strengthen our balance sheet that allow us to not only weather the present challenging market conditions, but also positions us to take advantage of future growth opportunities. Our newbuilding orders provide inbuilt growth especially in 2016 with the first of these vessels already delivered. We see significant value in supporting GasLog Partners, our funding equity source primarily equity source funding -- funding equity source. New LNG volumes are coming to market, creating new customers and new routes which we believe in time will drive utilization and spot market rates. We’ve seeing increased FSRU opportunities. And finally, alongside our MLP, GasLog Partners, we believe we have the differentiated platform in place to create significant value for our shareholders. Now, before I open the call up to Q&A, I would like you to turn to slide 17 and bring your attention to the GasLog and GasLog Partners’ investor update on the 20th of June at the Pierre Hotel in New York. The executive management of both companies will give presentations to our analysts and investors, and we hope to see you there. If you’d like to attend, please do not hesitate to get in touch with our IR department, to register. And with that, I would like to hand back to operator for Q&A.

[Operator:]

Thank you. [Operator Instructions] Our first question comes from Chris Wetherbee of Citi. Your line is now open.

[Chris Wetherbee:]

I wanted to touch just sort of on your thoughts around dropdowns. That’s obviously an important dynamic, as we think about the next several quarters. As you guys rightly highlighted, we’ve seen a rebound in the MLP market, at least from an equity perspective at least to some extent. How are you guys thinking about that now? And maybe, what should we expect if we stay sort of in this sluggish LNG market, but with a little bit of a better sort of equity market dynamic?

[Paul Wogan:]

Yes. Thanks, Chris. I think it’s been very encouraging to see the improvement in the MLP market. And we are encouraged by what we’ve seen at GasLog Partners, but I think as Andy said on his call last week, despite the recent increase in the unit price, he doesn’t think it reflects the appropriate value for Partners and neither do we at the moment in order to be issuing units into today’s market. But, we are seeing good momentum there. We saw the Phillips 66 market move the yesterday. You’ve seen $6 billion of new equity capital raised in that market very recently. So, I think as we see -- we except to see that momentum continuing, then we would expect over time to be able to continue with our dropdown.

[Chris Wetherbee:]

Okay. So, not just yet but something to keep an eye on?

[Paul Wogan:]

Absolutely.

[Chris Wetherbee:]

One of the other questions I had was on the debt maturity. So, you’ve done a good job clearing the decks kind of to 2018. You have 2018 and ‘19 some more material maturities. I guess how quickly do you think you can address that? Is that something we can maybe see in the next quarter or two, or is it something that maybe takes a little bit longer to play out and we need to be in ‘17 before you start to see the ability to push that out? Just kind of curious how to think about the timing of that.

[Simon Crowe:]

Sure, Chris. It’s Simon here. We’ve been very successful with the refinancings last quarter. And we’ve now -- proactively turning our attention to the maturities in ‘18, ‘19 and ‘20, have to do those but we think it’s a prudent and a proactive approach. So, I’ve got -- we’ve got very good feedback; we’re working well; things are progressing. As and when we’re ready to communicate something, we’ll do that. But, I’m very encouraged by the progress and the support that we’re getting on looking at those maturities.

[Chris Wetherbee:]

And then, just a specific question when I think about revenue. So, when I looked at the first quarter, you had a step up in operating days, 289 something like that. The revenue upside, growth was in the $7 million range, give or take. So, the implied sort of incremental revenue per day seemed awfully low for some -- you probably had some new contracts that came in there. I guess, I just want to get a sense of sort of what the spot market really looks like right now. Did you have ships that maybe weren’t employed for the entire quarter? I’m trying to make sure I understand how to bridge that gap in days relative to revenue.

[Simon Crowe:]

A couple of things; we had to dry dock in Q1, so that impacted revenue, we had 20 to 30 days of kind of dry dock. We also have the GasLog Greece delivering in Q1, so again that would have just kicked in and given us some revenue uplift. But, as you rightly say we also have the spot market, which was weak. So, we -- a combination of those effects just impacts that revenue. But, as we go forward, we’ll be delivering a vessel each quarter this year with strong EBITDA and obviously strong associated revenue there. So, you can see -- expect to see an uptick. But, again as Paul said in his remarks, and I’ll let him comment further, the spot market is weak and impacted by those project shifts.

[Chris Wetherbee:]

And then, just one point of clarity. From a dry dock perspective, does that make it into operating days or does that stay in ownership days? I just want to make sure I understand that.

[Simon Crowe:]

Operating days, but we take it out of that. So, it comes out -- come out of our days.

[Chris Wetherbee:]

So, operating days reported is less dry dock right?

[Simon Crowe:]

Less dry dock.

[Operator:]

Thank you. Our next question comes from Jon Chappell of Evercore ISI. Your line is now open.

[Jon Chappell:]

Super quick follow-up to Chris’s last question; is it possible to provide the rate -- the uncharted ships earned and the utilization of those ships in the first quarter?

[Paul Wogan:]

We don’t tend to comment on individual ships or individual returns especially with them being sitting in the Cool Pool with our partners. I think there’s two things being happening in the spot market, one is we’ve seen pressure from the project ships that are in there; and two, we’ve seen shorter duration, and that’s put pressure on the utilization of the ships in particular. So, the rates themselves have held up pretty well but it’s all about getting the ships onto cargos straight away and keeping the ship moving. And if the utilization I think more than the headline rates, that’s affected us this time. We are I think looking forward to the new projects coming on either restarting or starting because I believe once we start to see those project ships that are operating in the spot market right now, taken out and going back into the projects, then I think we will see that utilization improving and you’ll the time charter rates improving.

[Jon Chappell:]

And then, you’ve been mentioning now I think for a couple calls at least kind of improved tendering activity. And we’ve obviously seen it in the amount of spot fixtures. However, that’s obviously not translating into the rates necessarily. But can you give a little bit more detail on the tendering activity in regards to what type of durations are you seeing out there; are these just kind of one year short-term contracts? Is there increased tendering activity for three to five years or even beyond that? How that looks relative to kind of rates versus kind of the fixed rates that we’ve seen that you have on your vessels for multiyear periods or are they more kind of floating or rates more associated with the market today? And then finally, kind of the breakdown between, are these really for the excess vessels in the fleet -- the global fleet today or are these tenders for newbuild activity for kind of very future year deliveries, ‘19 or ‘20, I guess at this point?

[Paul Wogan:]

I think that you can break the market down into two really on that, Jon. One is the shorter term business where we are starting to see some of the projects that are up and running, discussing their ongoing requirements as they ramp up. And so, we’re seeing people there thinking about taking ships for multi-month multi-voyage charters but not for long-term not for sort multi-year charters at the moment. But, I think that’s actually quite optimistic for the market because as they are looking at it, I think they see that the present supply that’s there is not always going to be there. So, for them to lock in would make sense. As you look forward to the build out of the U.S. project, there are a number of tenders which we’ve been talking about now for a number of quarters for ships to move the additional production that will come on as the U.S. projects build out. Those tenders have been slow to move forward.. I think there’s been some concern from the charters where is the product going to go, exactly how many ships they’re going to have. But actually that I think played very nicely into our hands because what’s not happening as we highlighted in the presentation is nobody is going out and ordering new ships. Some of these projects are coming on in 2018-2019; we’ll struggle to get new ships against them. What we are seeing is people actually being willing to look at existing ships for these new projects, which again I think is very encouraging. As we look at those two markets in terms of the rates, which is your next question, in the sort of shorter term market, then people are trying to lock into shorter term rates that we’re seeing in the markets right now. In the longer term, tendering business where you’re talking about ships for ‘17, ‘18, ‘19, then we’re talking about the long-term sort of returns that we’ve had before in the business where you’re looking at those long-term rates roundabout the sort of 75,000 to 85,000 range that we’ve always guided on is around where those people are looking at the moment.

[Jon Chappell:]

So the then -- I’m sorry for the multilevel question there, but as translates into your strategy and how you think about the three unchartered ships today, are you thinking about kind of those shorter-term multi-voyage contracts that seem to be a little bit more liquid today to kind of bridge the gap then into kind of the longer term periods that start in ‘18 or ‘19?

[Paul Wogan:]

Well, we have -- two of those three ships are trading in the Cool Pool. And so, one of the things we talk about in Cool Pool quite extensively is how much do we put on charter and how much do we keep in the spot market. But, I think there is some interest in having a balanced portfolio within that within the Cool Pool, definitely.

[Jon Chappell:]

And then final thing and then I’ll turn it over, just as you assess the risk reward -- and I know the feed study is not done yet, but as you think about longer-term, the risk reward on the FSRUs, on the one hand, it seems like a phenomenal opportunity with very few players and a lot of long-term demand potential; on the other, you still have some significant capital commitments outstanding and on an absolute basis, a pretty hefty debt level. What’s the risk profile or on the other hand aversion, that you’re willing to think about as you decide whether to move forward with this type of business or not?

[Paul Wogan:]

I think as we look at this business, we see the FSRU business as definitely something that we would want to enter with contracts. I think the strategy we’ve laid out of looking at a conversion and potentially looking at some long lead items at a minimum amount of capital expenditure, would allow us to get to market quick enough that we could wait and put a contract against that. And then anything that we would do beyond that, we would make sure that we were very well funded for it. And again, you wouldn’t see us going out and doing something that where we didn’t have a very robust funding plan in place to do it.

[Jon Chappell:]

So, just to be clear, you want both sides. You want a long-term contract in place with a decent counterparty as well as committed financing before you are even to move forward with placing an order at yard?

[Paul Wogan:]

At this point in the market, yes, that would be what we’d be looking for. But as I said, Jon, I think we -- I think the strategy we have around our conversions and shortening the lead time to getting the ships to market could allow us to do that in a pretty effective way.

[Operator:]

Thank you. Our next question comes from Noah Parquette of J.P. Morgan. Your line is now open.

[Noah Parquette:]

I just had a question on just to confirm, the delivery schedule for your newbuilds, hasn’t changed. The reason I ask is on slide nine, you have three vessels coming in Q1 2018 the way it was, but then on slide 10, it looks it’s more drawn out; three being delivered in 2019, what am I missing there?

[Paul Wogan:]

No, it hasn’t changed, Noah. We have three ships. We have three ships, additional ships coming in 2016; we have three ships coming beginning in 2018 and one ship in 2019.

[Simon Crowe:]

Some of the contracts have -- some contracts are slightly later than the delivery date. That’s why you see a slight mishmash.

[Noah Parquette:]

So, the charters come on line according to slide 10 and then -- but the delivery is…

[Simon Crowe:]

Unchanged.

[Noah Parquette:]

And then, the last ship is the one that still is unchartered, right?

[Simon Crowe:]

Yes, that’s correct. And as I said in my remarks, we’re in active discussions and continue to be in discussions with a number of long-term charterers on those.

[Noah Parquette:]

And then, I just wanted to talk about -- that slide you showed is interesting at the new trade routes. Now that you have Europe, you have India, Brazil, what do we need to see to some ships go to Asia? Is it just a widening spread, oil coming up and -- or is it -- will the Panama Canal help; I mean, what do you think gets some cargoes to go to Asia from the U.S.?

[Paul Wogan:]

Well, I suppose in one sense we’ve seen the first one go there, going into India. But, I think the Panama Canal is definitely an enabler shortening the duration of the voyage and making much easier for cargos to go into Asia. I think we are seeing very competitive U.S. gas to $2 per mmbtu with Henry Hub. You’ve seen markets like India able to take gasoline at those prices. You’ve seen increased gas import into China right now. So, we feel that seeing the Panama Canal come on line that will actually be a good impetus seeing cargo starting to move that way.

[Noah Parquette:]

And then just lastly, I want to ask -- there hasn’t been that much scrapping, which is a little surprising given where rates are. And there is descent amount of older ships. What is your thought there? Is that something that could be imminent or what the catalyst that we can see at different scrapping?

[Paul Wogan:]

I think there are two things, there is scrapping and there is a layup. And we believe that probably about between 20-25 ships in layup at the moment, most of them old first generation ships. And you’re very, very unlikely to see those ships coming out of layups to trade in the market. There is some optionality around those ships, so I think in terms of people thinking they maybe conversion candidate, able to be used as FSRUs et cetera. But for those vessels to come back as trading vessels is pretty unlikely. So, over time, if they don’t come back, you may see those ships scrap but they’re actually not active in the market right now, no.

[Noah Parquette:]

So, if we see scrapping, it’s not going to -- there isn’t pretty much non-factor already because of what you’re seeing…

[Paul Wogan:]

Those ships are out. You may see people taking a view with additional ships just put them straight to the scrap rather than going to the cost of the layup as well. So, [indiscernible] ships coming out of the layup, it scrapped or shipped which is trading has been scrapped. So, I think we need to just keep an eye on that.

[Operator:]

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

[Fotis Giannakoulis:]

Paul, I want to ask you about slide 14 if you can clarify a little bit more. You are talking about the 19 vessels available in the spot market. Can you give -- can you tell us how many cargo do we have every month in the spot market versus how many vessels? I had the impression that the number of excess vessels was much larger; people were talking about 40 vessels, but this 19 seems quite optimistic there to me.

[Paul Wogan:]

Sorry, if it’s not clear, Fotis. What we’re showing on slide 14 is the number of fixtures per month. So, for example, in March this year, there were 19 short term fixtures as opposed to March 2015 when there were 15. And so, it’s a growth in the number of short term fixtures that we’re showing and that graph, rather than the amount of ships available.

[Fotis Giannakoulis:]

And how many ships available there are, trying to compete for these fixtures?

[Paul Wogan:]

At any given time, we’ve been seeing around about 30 ships open and operating in that spot market or looking for cargos, which is why we’re quite optimistic that as we see the project ships being taken back, getting going to projects, we hope Gorgon comes on, we hope Angola comes on. Between those two projects, only are talking about 13 ships. If you pull those ships out of that market say around 30 ships at any one time looking for cargos; that starts to have a significant effect we believe.

[Fotis Giannakoulis:]

So it seems that this number is considerably lower than what it was three and six months ago. I think you were talking about 40 instead of 30. Is that correct?

[Paul Wogan:]

Yes, that is correct. But we are seeing -- the last I’ve got from the Cool Pool is we’re seeing around 30 ships per month open and looking for cargo in the spot market.

[Fotis Giannakoulis:]

And I want to go back again to the FSRU effort. If you can give us -- I know that you cannot talk about specific projects, but if you can tell us how many projects are you considering right now, you are in discussions? If you can give us geographic area of this project, and when do you think that these kinds of decisions will be taken and when these projects are expected to start to come on line?

[Paul Wogan:]

We’re looking at -- there is a number of opportunities, but we’re actually in active dialog for just a couple of those. I mean based on the fact that we’re moving relative newcomers into this, but there are couple. I’d rather not going into the geography of where they are but there are very serious opportunities for us. But, I don’t want to sort of if you like boost of expectations. FSRU projects by their very nature, take awhile to come to fruition. And so being able to put something together and come with an announcement on that will take time. But we’ve been encouraged by the amount of business we’ve been shown by the seriousness in which we’ve been taken and by the fact that we’re able to sort of have this deep discussions on a couple of projects in a very short period of time.

[Fotis Giannakoulis:]

And can you comment, if these projects -- they are new importers or existing importers, and if these projects are linked with power generation and new power plants that they are also considered?

[Paul Wogan:]

Yes, I think in general, the projects that we’re seeing and turning to be linked into new power plants. We’re talking to people about new importers with projects but also in places where there are existing facilities for importing LNG, so a number of different opportunities. But I don’t really want to draw too much into specifics of the ones that we’re kind of talking to closely at this point, Fotis.

[Fotis Giannakoulis:]

And, I know that perhaps you are not ready to answer that, but is there a possibility that we see GasLog getting into any of these power projects? We saw that TK has invested in one of these power projects together with the building of FSRU? Golar is looking a similar project. Have you considered making an investment in the power sector and try to connect the LNG market with power?

[Paul Wogan:]

I think what’s interesting about the FSRU market, Fotis, and we’ve been discussing this quite a bit internally is that I think it’s going to be developed through partnerships. I think you’re going to see people with LNG supply, you’re going to see people with the shipping with the FSRU with potential off-take with that power of gas, combing to provide a solution. And within that, you may have -- I believe you may have some cross kind of shareholdings or some cross interest. But, we think that’s going to be a very interesting way to get into that market through partnership. So, while that’s not our strategy necessarily to go and invest in other bits of the chain; to bring those partnerships together that’s something that we think would be advantageous, then we would certainly look at it.

[Fotis Giannakoulis:]

Thank you, Paul. One last question; I know that there aren’t -- the market does not believe that there are going to be any FIDs in the near-term, but it seems that there are some projects that they might have a higher probability, even in today’s market to get FIDs, like Shell’s Lake Charles or even Magnolia. Do you have any view on these projects? And, can you explain to us at what point we have the discussions for chartering vessels that they will serve these projects start during the process? Is it after the FID or it can be even before that? And, I’m talking about not only on the contracted volume, the volume that has off-take but also the spot volume that the facility might need.

[Paul Wogan:]

It tends to be the shipping would be taken after FIDs been taken and generally is what we’ve seen. I think in terms of where we see potential new projects, it really comes down to the competiveness of the gas. And so places what you’ve talked about Lake Charles et cetera, the U.S. Gulf does have very competitive cost of production of LNG and cost of gas. So, as we see new production come on, I think the cost drivers we’re seeing in the industry are going to drive towards that low cost of gas. Obviously in Mozambique, you have again potential low cost and you have some people there, such as ENI, who are keen to develop the LNG there. So, I think really as you’re looking at it, it comes down to that cost of production. In terms of our projections for new building, we’ve been very conservative we only assume that the projects that have actually taken FID and are being built at the moment will be built. And so, if we did see new FIDs being taken, that would be very additive for our supply and demand outlook.

[Operator:]

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

[Ben Nolan:]

I have a couple of questions. One, with respect to the three vessels that are in the spot market, I’m just curious why all three of them aren’t in the Cool Pool, why only two of them are currently employed there?

[Paul Wogan:]

The reason is what happened was that we actually had one of the ships fixed forward for a business outside the Cool Pool before we actually put the Cool Pool in place. So that ship operated in the Cool Pool for a few months and then came out to do this piece of business that she’s fixed on, and so that’s why she’s operating outside. It was a heritage I think before the Cool Pool was put together.

[Ben Nolan:]

Okay. So, is one of the three of those vessels then on some sort of a term employment rather than in the spot market?

[Paul Wogan:]

Yes, it was. Sorry, I wasn’t clear there. Yes, it is.

[Ben Nolan:]

What’s the duration of that?

[Paul Wogan:]

And if and when she finishes the term employment, Ben, and goes back to spot market and the ship would go back into the Cool Pool, just to be clear.

[Ben Nolan:]

What’s the term on that employment; how long should we think about it being occupied?

[Paul Wogan:]

She was put on for multi-months with some options around that. So, I can’t give you a specific time on that, but multi-month to start with.

[Ben Nolan:]

The next question, it gets back to a question I think maybe that Noah had earlier, asking about the -- or that you Paul were mentioning that the older 125,000 cubic meter vessels, the better part of which are currently laid up. I know that there are a fair number of additional vessels of that size that are currently closing in on the end of their long-term contracts. I’m curious, and I would suspect that those will be replaced by more modern, larger vessels as those contracts roll off. I’m curious how you would envision that happening, though. Is this something where there should be some new tenders for existing projects that are just looking to replace older tonnage or do you think that it’s likely that a lot of that gas is going to be moved in the spot market, going forward?

[Paul Wogan:]

I don’t know, Ben, but I think they’ll likely to see a combination of the two while you see some of that potentially going, and the spot market some will look I think to take tonnage against that. Especially I think if the projects have a long term SPAs themselves, then they’re much more likely I think to want to sort of lock the shipping into that. But, I think it will be interesting as those older ships come off. It seems like they’ve boil off their speed and consumptions, the size of the vessels make them uncompetitive with the modern vessels today, their unit freight cost is much higher. So, I do that you will see those ships replaced by ships from the existing fleets.

[Ben Nolan:]

Any idea in terms of the context of how many ships that might constitute or what you think incrementally that might add to demand for more modern vessels?

[Paul Wogan:]

I don’t have those exact figures to hand, Ben, but it is actually something that we’re actually working through at the moment. So, I will revert to you on that.

[Ben Nolan:]

And then lastly, I just wanted to touch on the FSRU business a little bit, as well. In the press release you talked about the feed study contemplating conversions of both the TFDs and also steam powered ships. And I believe all the steam-powered ships that you have are still on long-term contracts to Shell. So, if it came out that that was the way to go, I mean is that a situation where you would probably swap out a TFD for a steam power to do a conversion? And then, sort of the other thing is has it all been thought of with respect to the one spot new building that you have? Has there been any thoughts about potentially converting that or changing the contract to a FSRU rather than moving forward with a traditional LNG vessel?

[Paul Wogan:]

Yes. So to take the first question, yes, you’re exactly right. I think if we had business for the same vessels which we have on long-term charters on Shell, then we would be asking Shell to swap those vessels out for -- our more modern TFD, which we think they would be very receptive to. In terms of the existing new buildings, certainly swapping that into an FSRU is an option that something that we have been looking at, but also as we said, we’re also continuing to negotiate our ship for existing tenders. So, the optionality for that is nice to have, but at the moment we continue to also look at the tenders that we have.

[Operator:]

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

[Michael Webber:]

It’s been a long call, I’ll keep it quick. Just one more on regas, and then, Paul, a question for you just on new project economics on the carrier side. But on the regas side, what are the odds that you guys would actually end up going into something like that solo versus having either a financial partner or an operating partner?

[Paul Wogan:]

I think we could do either. I think what we’re doing is we’re looking at -- as I said, I think partnerships are going to be really quite crucial. And as this FSRU market develops and we’re open to partnerships with the right people to do that but also we’re happy with the organic growth in a way that we’re doing it, we’re making I think good headway. We’re showing that we have the ability to get into that market but we would stay open for both. And I think on any given project, Mike, we would just look at kind of the risk reward that we would get either from partnering up with somebody else than doing that alone.

[Michael Webber:]

You mentioned something, this was a while ago, one of your answers around speed to market for your pre-feed work and I just wanted to make sure I heard that correctly. You’re competing against some players that either have that -- have shelves. Now, whether or not they’re going to get higher return shelves or not, that’s a different question, but the [indiscernible] capacity. So speed to market is obviously a pretty big factor. So, are you saying that your pre-feed work -- there’s something about your pre-feed work that will allow you to lock in a contract and financing and then order long lead items and still compete with those that would have a naturally shorter lead time, simply because they are long, some excess tonnage or are you saying that to compete with those players you might need to get a little bit step on long lead items, if you’re far enough along in the process?

[Paul Wogan:]

So, I think the conversion -- doing a conversion is quicker than doing a new building. You’re probably looking at -- you went from a point today two years for the conversion, three-years plus for the new building. If you commit to certain amounts of the long lead items, then every day that goes by you’re bringing that down because your conversion probably is only going to take you a few months. So, you can probably bring that down to about a year where you are able to get our ship to market. So for -- and this is part of the pre-engineering study we’re doing to look at what would we need to have as long lead items. And then if you want to make -- if we wanted to make a commitment to taking those long lead items on, then we could get that ship much more quickly. And that would be a very limited amount of capital expenditure compared to either committing to a straight out to a conversion or committing to a new building.

[Michael Webber:]

No, that makes sense; I just wanted to make sure that I heard that correctly and that that is where expectations were. I guess maybe just from a high level perspective and then I’ll turn it over. I think in one of your earlier -- Paul, you mentioned that you are starting to see interest in existing tonnage for slightly longer term work, and would imagine at a rate that could start to slowly drift higher but you’re also seeing long term rates that are kind of still in the 70 to 75 pay range. And it would stand to reason over time as the market clears some of that excess tonnage and that they do actually go on to long-term work that you start to see those rates converge. So, I guess my question is if long-term returns for LNG carriers are around say 8% on volume [ph] and that’s my number; you don’t see necessarily as your number, but do you think that the spot tonnage ends up dragging that in a bit as those two markets converge and we start to clear that excess tonnage?

[Paul Wogan:]

I think it depends which way -- the spot market can work both ways, Mike. When you’re seeing a lower return at the moment psychologically, it probably have an effect on the market, so you can see that market turn very quickly and become much more expensive than the long-term market. And I think what we’ve seen through couple of cycles in the LNG space where we’ve seen the market stands at 30,000 a day, we’ve seen back up to 150, we’ve seen it back down to 30,000 a day as those long-term kind of rates and the returns you get staying very stable and very steady. And I don’t think we’re going to see any big changes in this cycle, especially as I think we’re going to be seeing a tightening market over the next few months and couple of years.

[Operator:]

Thank you. And at this time, I’m showing there no further participants in the queue. I would like to turn the call back to management for any closing remarks.

[Paul Wogan:]

Okay. Thank you very much everybody for your time and attention. And we look forward to seeing you, as many of you as possible at the Pierre Hotel on the 20th of June.

[Operator:]

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