GasLog Ltd.
Q2 2015 Earnings Call Transcript

Published: 6 Aug 2015

[Operator:]

Good morning. My name is Brie, and I will be your conference operator today. At this time, I would like to welcome everybody to the GasLog Ltd. Second Quarter 2015 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 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, we may begin your conference.

[Jamie Buckland:]

Thanks very much. Good afternoon, and thank you for joining us for our second quarter results call. As a reminder, this call, webcast, and presentation, are available on the Investor Relations section of our Web site, gaslogltd.com where a replay is also available. As shown on Slide 2 of the presentation, many of our remarks contain forward-looking statements. Let me refer you to our Q2 press release and our results filed with the SEC where you'll find factors that could cause actual results to differ materially from those 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 3, the introduction, where I'll handover to Paul Wogan, GasLog's Chief Executive.

[Paul Wogan:]

Thank you, Jamie. Good afternoon, and good morning to all of you in the United States. Thank you to everyone for joining us for our Q2 results call. I’d like to take you through what has been a busy quarter for GasLog both from a business development and financing perspective. As many of you know, we announced a transaction with a subsidiary of BG Group in Q2 where they will charter three of the four unfixed newbuilds that we have on order for an average of 9.5 years at attractive rates. This transaction adds 845 million of contracted revenue to our backlog. We now stand at approximately $4 billion, a figure that has been growing steadily over the last few quarters. Also in the quarter, we announced our second dropdown transaction with GasLog Partners in which GasLog sold three vessels into the MLP for 483 million. Last week, GasLog Partners management announced that it intends to recommend a 10% increase in distribution, which if approved by the Board of GasLog Partners would take the IDR into the 25% splits. Also in Q2, we launched and completed a preference share offering raising $115 million to a rate of 8.75% further broadening our capital structure. Our financials were in line with our expectations and Simon will discuss these in more detail. We were also pleased to announce a quarterly dividend of $0.14 per share, which is payable on the 20th of August. With that, I’ll hand you over to Simon to take you through the financials in more detail.

[Simon Crowe:]

Thanks, Paul, and good morning and afternoon to you all. Turning now to Slide 4, the revenue and EBITDA both showed significant increases to reflect growth in the fleet this quarter versus a year ago. We experienced very high utilization across our total fleet, which is partly offset by the weakness in the current spot market. Adjusted profit and adjusted EPS were both lower year-on-year reflecting the number of dry docks in the period from positioning costs, the accounting related to the increased profits at the MLP and the preference share dividend. We also adjust interest rates and FX swaps and both adjusted numbers were in line with our expectations. As we drop more vessels into the MLP, the profit attributable to third-party unitholders grows, and we released more capital to GasLog Ltd. to reinvest in the growth of the business. Every time we do this, we add more value to the increase in the IDR. The MLP takes more of the earnings, but GasLog Ltd. is able to recycle capital and enhance its valuation. As I’ve said before, as the MLP grows, the GasLog Ltd. EPS becomes less meaningful as it is impacted by this non-controlling interest line in the P&L. What is important when you look at value in GasLog are the building blocks to get to the sum of the parts valuation, which I’ll come on to talk to you about later. Turning now to Slide 5, the key balance sheet items. There was a significant increase in tangible fixed assets versus year end, as we took delivery of the GasLog Salem and completed the acquisition of the two vessels from BG at the end of the first quarter. There’s also a sizable increase in the cash balance largely reflecting the proceeds from the preference share offering and the MLP equity offering, which feeds into the consolidated balance sheet. Total debt has increased over the period as a result of the new vessels added to the fleet. And as a reminder, most of our debt is long-term amortizing debt where we look to match the amortization profile against the life of the contract cash flows of the vessel. Turning now to Slide 6. Well, I’d like to spend a minute on the recent dropdown transaction that we announced at the end of the quarter that completed just after quarter end. GasLog sold three ships to GasLog Partners for 483 million, which includes 3 million of positive working capital. The EBITDA multiple on sales is approximately 9.4x, which is in line with the previous two vessel transactions we completed in the autumn of last year. GasLog Partners announced its results last week and that it expects to raise its distribution by approximately 10%, which is at the top of the 7% to 10% guidance they gave at the time of the transaction. A 10% increase would push the distribution to the 25% IDR tier, which will result in greater incremental cash flow for GasLog going forward. Getting to this important milestone is a very good achievement in the short period since the MLP launched its IPO. At the time, we had a pipeline of 12 additional dropdown candidates with contracts in place that settles around 83 years. Today, we still have a pipeline of 12 vessels with contracts that total around 100 years. The visible pipeline of attractive dropdown candidates will allow GasLog Partners to continue to grow for a number of years to come. The transaction continues to enhance with sum of the parts valuation that we set out last year. Turning now to Slide 7, you can see how we set out on sum of the parts valuation methodology at the Capital Markets Day in December. We continue to believe that this is the right way to look at the business, especially as we drop more and more ships down into GasLog Partners and we move through the IDR tiers into the high splits. Taking each of the building boxes in turn, first we expect the GLOP IDR cash flow to reach the 25% split resulting in increased value for GasLog Ltd. The value of the LP and GP units held by GasLog Ltd. is broadly the same as before, as is the delivered cost of the GasLog fleet. The GasLog net debt excluding GasLog Partners net debt has increased by about 200 million but the present value of outstanding CapEx has decreased by about 400 million. We don’t use NAV when looking at our fleet. It’s one of the building blocks of value but it ignores our long-term contracts and future deliveries. A number of analysts do calculate a NAV or steel value of the fleet, and we believe that this should represent a flow to our stock price. Our shares are currently trading at a discount to the average of these estimates. This means that at today’s stock prices, we’re getting the value of our long-term contracts, the GasLog Partners stake and the IDR for free. A number of research analysts who cover GasLog already uses sum of the parts valuation, as I’ve outlined. They have an average valuation of around $25 per share or a 74% premium to where we’re trading at the moment. We also calculate our own internal sum of the parts valuation and believe there is significant upside from where our stock is trading today. Turning now to Slide 8, I’d like to conclude the financial section of the presentation. GasLog has a very strong financial platform built around our $4 billion of contracted revenue. Much of that revenue comes from seven newbuild vessels that will start to deliver in Q1 '16, all of which have 7 to 10-year contracts. We’ve also established a strong track record of accessing cost competitive capital. For example, we’re currently progressing syndication out of our 1.3 billion eight newbuild facilities, which is well oversubscribed. We’ve been extremely happy with the demand for our secured debt from a large number of banks, many of whom are new to GasLog. We’re in the documentation stage now but hope to announce the completion of this financing before the end of Q3. Periods of market weakness often create periods of opportunity for stronger, well-established players such as GasLog. We began a strategy to consolidate the market in 2013 and we believe there are further opportunities to continue that trend in the current market. We will look to capitalize on our track record of doing value-enhancing transactions for our shareholders. While equity currencies make typical M&A conversations that move points right now, we believe that for the right accretive opportunity, the funding and investment support will be there for us, as has been the case in the past in both our public and private shareholders. There’s been plenty of interest in the private capital teaming up with companies to acquire assets when equities have been impaired. Well, that’s probably not the best long-term solution. We think it’s worth reminding everyone that our insiders [ph] and largest shareholders remain as committed as ever to our value proposition and have participated in very meaningful ways historically in optimizing financing for both companies. Access to alternative financing coupled with our belief that we still remain the consolidator of choice within the sector should benefit our cost of capital more better than others in the marine sector. A current example is GasLog Partners. GasLog Partners could in theory merge with a number of other public LNG shipping MLPs to make it accretive day one without having to issue new shares to the public at current levels. This is because of the attractive relative cost of capital versus our comps. We believe the differentiation will continue to give the pipeline visible growth assets we have at cash flow. The weak market also has affected the deterring new entrants and we’ve not seen any new players in the market recently, and almost no ordering of vessels without contracts. None of the new entrants that came into the market in 2012 have committed to order new vessels. And this bodes very well for the upturn that we foresee when the market starts to tighten. LNG is not part of the commodity shipping space, as the barriers to entry are high. The key idiocies [ph] continue to contract the shipping and progress their liquefaction facility build out. In fact, many of the companies building LNG facilities are now looking to expand their existing projects, and we believe the current low commodity prices will ultimately stimulate a great demand to gas and LNG, which will lead to an increased requirement for LNG shipping. So to sum up for me, GasLog has again been very busy in the second quarter doing accretive transactions and driving value through the MLP with our second dropdown. We’ve been active in the capital markets with the preference share issue and we’re busy working on other financings and other opportunities. The current short-term markets are challenging but we have limited exposure to this part of the market, and we’ve continued to develop new customer relationships and have fixed a number of spot charters during the period. GasLog remains focused on the long-term charter market and we have a significant amount of contracted revenue being added to the business as our newbuildings deliver over the coming years. We continue to focus on driving shareholder value as we look for attractive opportunities to further grow the fleet. With that, I’ll hand back to Paul to take you through the sector updates in more detail.

[Paul Wogan:]

Thank you, Simon. Please turn to Slide 10, which shows current LNG trade flows and expected additional trade flows by 2030, by which time global LNG supply volumes are set to double. As we observe volatility in the short-term market, it’s easy to lose focus on the considerable growth forecast over the medium to long term. On this slide, the dark green arrow show the current LNG volumes in trade groups whilst the light green arrow show the future planned and expected volumes and routes. The new volumes are likely to significant increase the average ton miles per voyage. So we could require a global fleet of up to 1,000 ships by 2030 versus the current fleet of 400 vessels and an order book of 150. Now please turn to Slide 11. So looking much nearer term, we continue to believe the order book is substantially undersupplied given the volumes of new LNG coming on stream. Our conservative forecast, which we have shared with you a number of times, projects around 140 million tons of additional LNG coming on stream by 2020. This equates to a requirement between 80 to 100 ships over the current order book. This does not include projects like Elba, Exxon’s Golden Pass, Magnolia or any of the large Canadian or African liquefaction projects. We expect some of these projects will happen during this timeframe but we’ll only add them to our forecast when we have greater certainty over that timing. We have also updated this slide for the recent activity we have seen. In the second quarter, Cheniere took FID on Corpus Christi and also train five at Sabine Pass. Sabine Pass remains on track to produce LNG around year end. Also in the U.S., Kinder Morgan acquired from Shell the interest in the Elba project that it didn’t already own for around $600 million suggesting that they will be keen to progress this project further. As you can see from the table on this slide, Elba is not currently in our LNG supply forecast. Also during the quarter, Samsung Heavy Industries said that Shell placed a multibillion-dollar order for three floating liquefaction vessels to be built in Geoje, Korea. Shell is currently building the world’s largest ever vessel, the Prelude at the same yard. In Australia, during the quarter, we saw the second train at BG’s Curtis plant commence production and we expect to waive other projects to start up in Australia in the coming months. Now please turn to Slide 12 where we highlight the global growth in demand. Since 2008, 10 additional countries, including Brazil, Lithuania, Israel and Thailand have become LNG importers with several other countries announcing plans to build import terminals. Over the next decade, Barclays forecast that 48 countries will import LNG up from 29 today. We expect these new nontraditional markets to drive significant LNG demand. As an example, in July, Brazilian LNG imports were up 28% year-on-year. We expect that low LNG prices will continue to stimulate demand, as countries look to diversify energy supply and take advantage of these lower prices. Over 60 million tons per annum of additional regasification capacity is currently under construction and scheduled to be completed by the end of 2016. China, India, Chile and Poland are currently constructing LNG terminals and a number of countries finished regasification projects early this year. Now turning to Slide 13 on the current market, 16 of our 19 on-the-water vessels are on long-term contracts as our seven of our eight newbuildings. So the spot market continues to represent a small part of our business. In the first half of this year, we have seen a 50% increase in the total number of spot fixtures versus the same period last year. GasLog has been active in this market with our ships. But our calculations, in 2015, we have fixed around 8% of all spot market fixtures despite only having around 2.5% of the spot fleet over that period. We have secured fixtures with a number of new high quality customers and all of our three spot vessels are currently booked for future employment. Under the current softness in the market, there’s a lack of [ph] price arbitrage between the Pacific and Atlantic basins, which means that average spot charter voyage distances and utilization rates have come down. We believe that utilization rates should start to pick up through the remainder of the year, as production from Australia and Angola comes online. This could accelerate further if the increased seasonable demand that we normally see in the northern hemisphere winter leads to the return of price arbitrage between the basins. So on Slide 15, and before I conclude today’s presentation, I just wanted to take a step back and look at GasLog, our long-term strategy and what we’ve achieved since the company’s IPO in 2012. GasLog has always had the strategy of placing the majority of its ships on long-term contracts with strong counterparties. And we have delivered on this strategy as illustrated by the tables on this slide. At the time of the IPO in March 2012, we had two ships on the water and eight on order, six of which have long-term contracts. Today, we have a consolidated fleet of 19 vessels on the water, 16 of which are in long-term contracts. We also have eight vessels on order, seven of which are on long-term contracts. GasLog has transformed itself since the IPO and with the opening of the Singapore office, we now have operations in five different countries on three continents. This gives us better access to the global LNG market and to our rapidly expanding customer base. On the financing side, since IPO we have materially broadened our access to capital and now have a number of different accessible pools of capital including the MLP. We are extremely pleased with the progress that GasLog Partners has made since its IPO just over a year ago. We have done a number of accretive transactions since 2012, which we believe have created and delivered value to our shareholders. We continue to look for attractive accretive deals with new and existing customers to continue this growth and to create additional value for our stakeholders. So please now turn to Slide 16, summary and outlook. The second quarter has been a very active quarter for GasLog, fixing three of our open newbuilds with excellent long-term business, which brings our long-term revenue to almost $4 billion giving us a solid platform for future growth. We launched a second dropdown transaction in the quarter selling the three vessels to GasLog Partners. GasLog Partners has indicated it will recommend an increase in distribution of approximately 10%, which drives the distribution through the 25% IDR split enhancing the sum of the parts valuation at GasLog. We have also seen a number of positive developments across the LNG space in recent weeks, which will ultimately lead to a greater need for LNG vessels. GasLog will have an important part to play in the significant expansion of the global fleet. With all of that, we are confident that our GasLog 40

[Operator:]

Thank you. [Operator Instructions]. We can now take our first question from Jon Chappell from Evercore ISI. Please go ahead. Your line is open.

[Jonathan Chappell:]

Thank you. Good afternoon, guys.

[Paul Wogan:]

Hi, Jon.

[Jonathan Chappell:]

Simon, I want to start with just a broad update of sum of the parts. I think in the Investor Day in December you put a number around it, maybe just a very wide range starting with the three handle. Things have clearly changed since December; obviously lower commodity prices, weaker shipping market, MLP valuations getting slammed. Is there any type of number or range you can put around where you kind of view the sum of the parts today? And maybe if it helps, you can even put it around kind of the numbers that you talked about as being a Street consensus on sum of the parts?

[Simon Crowe:]

Yes, Jon, I think you’re right. A lot of change, but I think a lot of good things have happened. And we’ve added ships. We’re progressing further forward to our newbuild deliveries. We’re increasingly seeing opportunities. So I think – I referred to in the text, the analyst consensus on sum of the parts is sort of around $25 to $30. Around that kind of range is a good place to think about it. We obviously run our own estimations and calculations, but I think it is – we’re getting through those splits – the fleet is building, the steel value is building. Clearly, obviously, the MLP price is down, but we’re doing what we said we would do and we’re absolutely on track. So we really do believe that is the way to think about it. But I think the analyst consensus number is a good one to focus on.

[Jonathan Chappell:]

All right, good. So given that range and where the stock is trading today and obviously there’s some broader market issues. I think the MLP is having some negative read-through just on GP valuations. I understand the desire for growth and the strategies there, but maybe it doesn’t have to be mutually exclusive with other uses of capital you talked about, recycling capital and increase the value. It seems to me that potentially one of the best uses of value today given that sum of the parts range would be share buybacks, is it something that you’re considering given how the times have changed in the last three to six months?

[Simon Crowe:]

Yes, Jon, it is. The cheaper ships and the best value we can see in the sector of our ships are in the form of stocks [ph]. So, yes, we obviously consider and have conversations around them. It’s all part of our capital allocation decisions around potential M&A and consolidation opportunities. So we’re trying to see what drives the most value for our shareholders. And obviously we’ve got a number of things that we look at and we need to focus on those. So it’s around that consideration of capital allocation. So we have a lot of discussion around that, yes.

[Jonathan Chappell:]

All right, that’s good to hear. I agree with you. That is probably the best use of capital right now. Two more quick ones. One, I just want to clarify some comments from your text, Simon. You said you’re kind of in syndication right now for the eight newbuild vessels facility, about 1.3 billion. The press release says about 1.5 billion of remaining capital commitments. So if we were to assume that this syndication were to go through by the end of the quarter, does that just mean that the remaining equity component in the entire newbuild program is about 200 million?

[Simon Crowe:]

Yes, something like that, Jon. I mean we feel – once we get this deal done and we’re working hard to do that, and we’re very pleased with the progress but it’s not done yet. We’re fully funded go forward and we think we’re in good shape for the go-forward basis. We’ve got a few stage payments to come, but we factored those into our forecast and our plan. So we’re in good shape.

[Jonathan Chappell:]

Right. On the balance sheet as it stands at 6/30 that doesn’t even include the latest dropdown, because that was completed on July 1, so there’s even more liquidity there than it shows as of 6/30 accounts?

[Simon Crowe:]

Well, the liquidity should be in the balance sheet, the cash is there but obviously the dropdown we’ve completed on July 1, which is Q3. So there’s a bit of a difference in the timing there.

[Jonathan Chappell:]

Right. So final thing Paul mentioned all the spot vessels are booked for future employment, which is great considering the broader I guess fleet utilization. Two parts here, are the rates roughly equivalent to kind of broker commentary kind of in the 30,000 a day range to the extent you can say, but more importantly what are the – how far into the third quarter are these booked? I mean are we looking at potentially more than 50% utilization for the three spot ships this quarter?

[Paul Wogan:]

I think if you take – we talk about Clarkson and use them as a view for where this market is at the present time, Jon, and I think that that’s coming out with around 30,000 at the moment. So I think that’s a fairly good view of the market. Our vessels that we have are fixed on short-term requirements at the moment, so not taking these out a long way into the third quarter. So I would – as we look at it, we think that we may well see a tightening into the third and the fourth quarter. So we would hopefully see those headline rates going up. The other thing we have done as well is we don’t talk about sort of individual projects and such, but we have also booked some of our days into the next year with one of our open ships as well, which has the potential to turn into a multi-month requirement. So, I think the message really is we are seeing more and more activity in that market, which is what we were kind of expecting going into the second half for the year.

[Jonathan Chappell:]

All right, that’s helpful. Thanks, Paul. Thanks, Simon.

[Paul Wogan:]

Thank you.

[Simon Crowe:]

Thanks, Jon.

[Operator:]

Thank you. We can now take our next question from Chris Wetherbee from Citi. Please go ahead. Your line is open.

[Prashant Rao:]

Good afternoon. This is Prashant in for Chris.

[Paul Wogan:]

Hi, Prashant.

[Prashant Rao:]

Hi. My first question, given the newbuilding prices have been kind of sticky here, what’s your incremental appetite for secondhand vessels, the opportunity in the market? It sounds like from some of the commentary that you may be looking and without having asking you to tip your hand, just if you could maybe give us a little bit of color on maybe some of the transactions that you might be considering or the opportunities that are out there in the current market?

[Paul Wogan:]

Yes, I mean I think – just looking at sort of the existing ships in the current market, as Simon alluded to during his comments, we haven’t seen any new entrants coming to this market since 2012. We saw a number of people coming in at that point. Think thinking that this was a similar market, other shipping markets. And as we talked about, a very big barrier to entry, we haven’t seen those new entrants going out and ordering additional ships and really committing to this. So, the great thing about a market like this is I do think it throws up opportunities for established companies, companies like ourselves with very good reputations. But I think and I don’t want to by individual deals either, but just to sort of emphasize a point. We do see quite a lot of deals coming across our desk and quite a lot of opportunities, and we’re very selective about which of those deals we will do. And if we see secondhand deals, which we feel are [Technical Difficulty]

[Prashant Rao:]

Hello?

[Operator:]

Ladies and gentlemen, please stand by as we’re experiencing a momentary interruption in today’s conference call. Thank you for your patience and please continue to hold. Please go ahead. Your line is now back open.

[Paul Wogan:]

Yes. Sorry about that. There seem to be a technical glitch with our operators there. Did that answer the question?

[Prashant Rao:]

I think you were talking about – I lost you around the point you were talking about getting into specific deals, what was coming across your desk?

[Paul Wogan:]

Yes, I’d say without getting into specific deals, we do see a number of opportunities and I was just talking about the new entrants that we had seen coming into the market. Since 2012, we haven’t seen those new entrants ordering new vessels or committing to this market as I see how difficult it is with experienced players like ourselves with the reputation of the go-to people for ships. So we will see continued I think opportunities. But I was also stressing the fact that we do see a lot of opportunities but those opportunities have to be in the right price, they have to be accretive to our shareholders, and we’ll continue to be selective around those.

[Simon Crowe:]

Yes, I’ll just add to that. In times of volatility and low prices, we do see more and more opportunities at the strong companies like GasLog with a great track record. The barriers to entry are high and we want to take advantage of that and add accretively to our fleet.

[Prashant Rao:]

All right. That’s very helpful. And in terms of financing for acquisitions, obviously some changes and some diversification in the capital structure this quarter. Is there any update to how you’re thinking in terms of financing, especially given where the equity value of the share prices right now given that there’s preferred as well. Should we be thinking about things differently in terms of future vessel acquisitions in the near term?

[Simon Crowe:]

I mean we’ve been very successful, the track record has been there for diversifying our capital sources. We’re always looking for the best value. Getting secured debt is a very good place to start, but we’ve diversified into bonds and into preference share issues. Obviously, we have the GLOP pipeline, which we’ve just successfully achieved our second dropdown, which is absolutely in line and ahead of expectations quite frankly on that front. We’re looking to recycle that capital. So I think we’re looking to continue to diversify our banking group, our sources of capital with a keen eye on that cost of capital, so with a view to bring it down. And I always think – if you have the right transaction and the right sort of circumstances and it’s accretive and it makes sense, then I always believe the funding will follow both from a public and private equity and debt source. So I strongly believe if we find the right opportunity, if we put it together in the right sort of way both public and private money will be attracted to it and we remain confident that that will be the case going forward.

[Prashant Rao:]

Great, that’s helpful. And just one final one, guys, kind of housekeeping. G&A expense took like a $3 million step-down sequentially. How should we be thinking about our run rate for that quarterly in the back half of the year? Anything outstanding that we may not be modeling in there. I know it’s a more minor item, but just doing a little bit housekeeping on the model.

[Simon Crowe:]

Yes, I think for modeling purposes we still got a run rate now, it’s probably a reasonable place to be. Clearly, we got impacted by FX and one-off items as we execute on transactions. But it’s probably a reasonably good place to be.

[Prashant Rao:]

Excellent. Thanks for the time guys. I appreciate it.

[Paul Wogan:]

Thank you.

[Simon Crowe:]

Thank you.

[Operator:]

Thank you. We can now take our next question from Noah Parquette from JPMorgan. Please go ahead. Your line is open.

[Noah Parquette:]

Thanks. I just wanted to follow up on your spot ships and the color you gave was really helpful. I mean, as you look farther out, are you comfortable with that spot closure and the optionality given your view on the market kind of improving or would you want to fix those, are you in discussions now? Maybe some insight there would be helpful. Thanks.

[Paul Wogan:]

Yes, I think for us we’ve been comfortable having some ships open in the spot market. I think what it has really allowed us to do is to showcase our capabilities to other customers. We’ve been very successful in doing that and in fixing the ships away with new customers. But as we talk about – really since we did the IPO, the strategy of GasLog has been to have ships on long-term charters. And as we look to continue to develop the pipeline for the MLP, as we put longer term contracts on ships, it increases the pipeline for those vessels. So having the capability to trade in the spot market gives us the option to be able to keep the ships there until we see a trade, which looks attractive to us. When we see those longer-term attractive opportunities, then we’ll move to put those ships on longer-term contracts.

[Noah Parquette:]

Okay, it makes sense. And as you look to the dropdown vessels at the partnership, given where the stock price is at GLOP, has that affected your timing of future dropdowns?

[Simon Crowe:]

Yes, it’s a good question. Just to remind this is a GasLog Ltd. call but we just completed our second dropdown with absolutely no rush in terms of our growth target of 10% to 15% per annum. Clearly, we would all like prices to recover. But we have a number of levers that we can pull in terms of future dropdowns, but we’re in no rush at the moment. We’ve achieved it – we’re ahead of schedule in terms of our state today and about 10% to 15% growth targets did reaffirm, myself and Andy, on the call last week. So, clearly, we’ll observe the market and make decisions based on what we can see at the time.

[Noah Parquette:]

All right. That’s all I have. Thanks.

[Paul Wogan:]

Thank you.

[Simon Crowe:]

Thanks.

[Operator:]

Thank you. We can now take our next question from Fotis Giannakoulis from Morgan Stanley. Please go ahead. Your line is open.

[Fotis Giannakoulis:]

Yes. Hello, guys. Thank you.

[Paul Wogan:]

Hi, Fotis.

[Fotis Giannakoulis:]

Paul, I would like to ask you about your comments about the long-term strength of the market. Obviously, this is very encouraging on the one hand. On the other hand, I’m wondering whether the industry is always running ahead on the demand expectations. And if you can give me a comment on how many vessels do you think right now they are sitting either idle or underutilized? I remember the last conference call of Golar talking about 40 idle vessels. And how long do you think that is going to take for the market to balance given all this liquefaction capacity that is coming on line in the next few years?

[Paul Wogan:]

Yes, I think if you look at the spot market, there are probably anywhere between 40 to 60 ships operating in that market at the moment. But as you’re probably pointing out, a lot of those ships have been built against projects which are going to come on stream and come on stream fairly shortly. So you’ll see that capacity being absorbed by those new projects. I think as you look at – so at any given time – 30 to 40 ships is probably not an incorrect way of looking at it at the moment. But we’ve seen the liquefaction ramp up come fairly quickly now through the rest of 2015 into 2016. If you look ahead, you have Angola which is expected to come back on; you have Yemen which we think – the last I heard was being rescheduled for November. You have Australia Pacific, Gorgon which actually is now being put into the first quarter of 2016 which as an aside by the way we always had its first course 2016 in our model. Gladstone coming on, Curtis too and Sabine. That will tighten the market in my opinion very quickly as we go into the second half of this year and through into 2016. The second thing that’s having the effect, Fotis, is obviously the arbitrage. And so at the moment with flat pricing, we’re not seeing very many cargos being moved west or east as we were before. In fact, I think we were probably – we did actually fix one ourselves and we’re probably one of the few ships to do that in the last quarter. But that is obviously price driven. And so spot market, we’ve seen 50% more fixtures so far this year but the miles have been down. If we see a pickup in pricing as we go into the seasonal upturn for demand in the northern hemisphere winter, then I think you could see that moving very quickly and absorbing some of those excess ships. So I think the production is one side that’s going to take it, but I think when you start to see that arbitrage coming back and the ton miles coming back, that market could tighten much more quickly than anybody is giving it credit for right now.

[Fotis Giannakoulis:]

Thank you, Paul. I want also to ask about your growth strategy, your vision of 40 vessels by 2017. If this has changed or delayed this plan and given the fact that between now and 2017, there are plenty of vessels over supplied or even if it has accelerated this plan in case there are distressed opportunities out there. When you’re talking about expanding, are you talking about mainly secondhand vessels from owners that they cannot find employment right now? And also if you can comment on your latest long-term transaction with BG. How indicative this is for the market? We all know that you have a very special relationship with BG. You have done sale and leasebacks and other business. Does this rate reflect the real market out there?

[Paul Wogan:]

Just to take your first question, Fotis, the 40 '17, we always viewed that we would reach that through a combination by existing on-the-water ships as you’ve seen us do either opportunistically from owners [ph] or by taking ships from the majors with long-term contracts against them and newbuildings. When we talked about 40 '17 as well, we’ve been talking about having a four ship fleet on the water or on order by the end of '17. Now when you look out to 2020, as we’ve showed there, with a three-year time between ordering and taking the ships, then you would have to be ordering ships for 2020 in 2017. We still believe that there’s between 80 and 100 additional ships needed on top of the order book. And so when we look at that, a company such as ours with the reputation we have for safety and for quality operations I think, we believe that’s still a realistic target for us. As you said, we were very pleased in the last quarter to be able to put three of our ships away on long-term contracts to a subsidiary of BG at rates, which are in line with what we’ve been achieving before. We’re not privy to exactly what’s been fixed elsewhere in the market, but I think when we look at it, we have always viewed that the long-term multiyear rates have been between sort of $75,000, $85,000 a day. And I think that’s probably still a good kind of rule of the thumb view on where we would see the pricing. I think we have at times been able to obtain better rates than other people in the market, because I think people have been willing to pay for what they see is our reliability, our quality. The fact that we can go to hundreds of ports around the world because we’ve actually been there, operated in those environments, I think is a huge advantage for us. So I think it’s good times that we can get premium pricing on that. But I think the longer-term pricing is probably within that band [ph] that I was talking about, the 75 to 85 a day.

[Fotis Giannakoulis:]

Thank you, Paul. Can you also give us your estimate about the other type of vessels you – I assume you’re talking about PSD vessels? And what would be the discount for the steam turbine and whether there are going to be re-chartering opportunities in the period market for steam turbine vessels at the time had given the new technologies that they are coming on line. And if you are thinking of expanding – except some of the PSD vessels into MEGI vessels in the future, and how do you see customers responding to the different technologies?

[Paul Wogan:]

Yes, I think first of all, the four newbuildings that we have – we have eight newbuildings on order, four of which, the latest four, are all XDF [ph] engine vessels and I think one of the things that we are very keen to do is to keep the cutting edge of technology. And you may have seen we put a press release out recently where we were part of the LNG green initiative with Hyundai, with DNV and with GTT to sort of look at what does that LNG shipping vessel in the future, what does that look like? And I think you will see us constantly looking at how we can continually improve on that. And that’s a good thing. You got the existing fleet of vessels. Right now, you have 250-odd, 260 steam vessels which make up over 60% of the world’s fleet. When we’re talking about the additional ships that we need, we’re not assuming any of those get scrapped. If those get scrapped, then this become an incredibly tight market and in fact there won’t be enough ships to move the cargo. So, there will be in my opinion a place for the steam vessels and the PSD vessels for quite some time to come. And there will be markets for those. The other side of that as well is that you’re seeing I think growing opportunities for steam vessels in other parts of the market such as the conversions we’re seeing in FSRUs and such is the conversions that we’re seeing in FLNG at the moment. So I think there are a number of places where you’ll see those vessels go. And then the final thing I think is that from our point of view, of those 260-odd steam vessels we have probably the most modern, the most efficient, the largest cubic, those I think will continue to be required for many years to come. How the market turns out over the next five years in terms of the opportunities, I think, is difficult to tell. But one thing I know is there will be a lot of opportunities because this market changes incredibly quickly.

[Fotis Giannakoulis:]

Thank you, Paul. And one last for me. I want to ask you the same thing that I asked Andy and Simon a week ago. I see that your presentation is constantly expanding and on Page 12, you added a slide about regasification and this time you’re talking about FSRUs playing a key role. I wonder whether this is a sector that you are exploring right now and whether you have any projects that you are looking, and if you have the capability. And last, if during the next call we shall expect a slide about floating liquefaction.

[Paul Wogan:]

Thanks, Fotis. I think FSRUs are a very interesting space right now. We’re seeing a number of countries using it as a very quick and cost effective way to go into the market, which I think is great for demand for LNG and also then very positive for shipping demand. So I think we’re pleased to see how that’s developing. In answer to your questions, yes, I think we have the capabilities on FSRU. I think the capabilities that we have in the LNG shipping space, our focus on safety, our operational excellence, our reliability, all I think move very well into the FSRU space. We said over the last couple of quarters that that’s something that we’re evaluating. I think we find that business to look very attractive and I think we will explore ways to find – ways for us to enter into that business.

[Fotis Giannakoulis:]

And about floating liquefaction and even if you can comment about some blueprints that we have seen and heard about gas to electricity and floating gas to electricity power plants, whether these are part of your long-term goals apart from shipping and FSRUs?

[Paul Wogan:]

Yes, I think as you look at where do we see our competitive advantage I think is how we can operate marine assets in the LNG space. And so as we look at what’s across the spectrum of that. And obviously LNG is one of those things. Now as you say, if we look out over the long term, that may be something that we look at. It’s not something that’s on our radar right now. However, we really hope that the FLNG is successful and takes off, because again like the FSRUs it creates demand for our shipping. And I think this idea of linking of either the regasification units or the FLNG into power plants is something again which looks to me to be gaining traction in the market, and I think could be a very interesting development over the next few years.

[Fotis Giannakoulis:]

Thank you very much, Paul. Thank you, Simon.

[Paul Wogan:]

Thank you.

[Simon Crowe:]

Thank you.

[Operator:]

Thank you. We can now take our next question from Michael Webber from Wells Fargo. Please go ahead, sir.

[Michael Webber:]

Hi, guys. How are you doing?

[Paul Wogan:]

Hi, Mike.

[Simon Crowe:]

Hi, Mike.

[Michael Webber:]

A lot of stuff’s already been covered and then some, but Paul I kind of ask you this every quarter. I don’t think you’ve actually touched on it yet, but just around the tendering activity that you guys are seeing in the market, which tends to be a bigger factor than where spot rates are. If you can quantify kind of the tender activity you’re seeing in terms of the number of vessels? And then maybe any shift we’ve seen quarter-on-quarter in terms of whether these are one or two vessel tenders, if there’s anything larger on block that is kind of popping up? And just how should we think about the opportunities set for you moving forward if we kind of ignore some of the pressure on MLP currencies right now?

[Paul Wogan:]

Right now, we are looking at or actively in discussions on five separate long-term requirements, which would need depending on options, Mike, would meet somewhere between 10 and 20 ships. Some of those are sort of single – one or two requirements, some of those are multi requirements. So as we’re seeing this build out as we talk about through 2020, those projects need to find ships and we’ve seeing that right now.

[Michael Webber:]

And so, Paul, just to be clear the size of separate I guess tenders 10, 20 ships, would that be what you guys think you would be participating in or is it the overall size of the tender and they could end up carving that up among separate owners [ph]?

[Paul Wogan:]

Well, that’s the overall size of the tender but when we’re bidding for these tenders, normally we would bid for the whole lot of it. So it depends as they – that may be split or between different owners. But that’s what we’re actively negotiating right now.

[Michael Webber:]

Okay, that’s helpful. And I think Jon touched on it, I guess 15-20 minutes ago around your liquidity and the ability to handle the [indiscernible] you have in terms of newbuilds or in terms of new growth. I’m just curious around your ability to go after those tenders and clearly it doesn’t seem like you’re impaired to any degree. But given the pressure on the MLP currency, has that had any impact at all around your thought process or ability to go out and be aggressive with tenders here? Does it factor into the equation yet or has it? And I guess what’s your internal thought process around that in terms of how much could you add at the parent or are you comfortable adding at the parent while the MLP currency is wide enough that it doesn’t necessarily allow for the dropdown to work?

[Simon Crowe:]

Yes. Mike, as I said earlier, we’re ahead of schedule on the MLP. We’ve just done our dropdown. We’re in good shape. We’ve affirmed our growth targets. We strongly believe that’s going to come to fruition. It’s all relative – the relative trading of GasLog Partners is pretty good. As I said in my comments, the merge map works and it can work at the MLP today, it’s all relative from that perspective. There are a number of levers we can pull if we needed to [indiscernible] solutions that we think about. But we obviously hope that improves. There is no rush. The pacing of our dropdown has always been important in getting that right and making sure that we do what we said we’re going to do and we’re ahead of schedule. So we continue to monitor it and we continue to see if it improves.

[Paul Wogan:]

I think the other thing to bear in mind, Mike, as well is cost of these projects when we’re ordering ships, we’re ordering three years out, I think one of the things that we’ve been very successful at is building good relationships with the shipyards and having the ability to have very detailed heavy payments on those. So, I don’t foresee that we see the energy sort of complex, if you like, in this place for a long time. I think you see our share price coming back strongly over the period, and I think that would not stop us looking at these long-term accretive transactions that we can bring about to shareholders.

[Simon Crowe:]

Yes, Mike, nothing’s really changed. The opportunities have gotten greater. As I said earlier, I’m a strong believer. We’re a strong believer and that public and private capital will be available to us if we find the right opportunity and can put that together in the right way. We’ve got very supportive reference shareholders, we’ve got dialogues with a number of providers of private capital and that we’ve been very successful in the public equity markets. So it’s about creating optionality, about creating a range of different options at different times and different pools of capital to suite different opportunities and that’s the key here and that’s what we’ve been busy doing, and we’ll continue to do so.

[Michael Webber:]

That makes total sense. Just one more for me and I’ll turn it over and you kind of already touched on this, I mean some other stuff, just around regas and kind of diversifying the fleet. And when you think about maybe within the context of entering multiples with the parent and kind of diversifying that dropdown pipeline. When you think about different avenues and it seems like those were kind of a lower probability or lower priority rather than I guess your kind of bread and butter kind of carrier business. If you were to think about looking at regas in a more serious way or other assets, would that be something you think you’d want to build out organically or is that something where you would want to really kind of zero in on kind of integrating as a platform or kind of an expertise that we’ve seen some others kind of look at?

[Paul Wogan:]

Yes, I think as we explore that it could be either or both of those. As we said, we have the ability I think in-house to look at a much broader range of opportunities across the LNG marine platform including FSRUs. Again, if the right opportunity comes up from existing companies then obviously we would look at that as well. So I think as we look to enter into that market, you’ll see us looking at both those options.

[Simon Crowe:]

Yes, I mean it’s a very interesting market. It’s doubled since – I think in 14 countries it’s doubled in number since 2010 and around 70% to 80% of new markets where LNG has been opened by FSRU since 2007. It’s just a very interesting market and fits very uniquely into our skill set, I think.

[Michael Webber:]

Okay, all right. That’s all I’ve got. I appreciate the time, guys. Thank you.

[Paul Wogan:]

Thanks, Mike.

[Operator:]

Thank you. [Operator Instructions]. Ladies and gentlemen, we have no further questions in the queue. I’d like to turn the call back over to you for any additional comments.

[Paul Wogan:]

Okay. Thank you very much, operator. Thank you very much to everyone on the call for taking the time to share our earnings release with us today. Thank you to the analysts for their questions, and we look forward to speaking to you all again in the near future.

[Simon Crowe:]

Thank you very much.

[Paul Wogan:]

Bye-bye.

[Operator:]

Thank you. That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.