GasLog Ltd.
Q4 2016 Earnings Call Transcript

Published: 17 Feb 2017

[Operator:]

Good morning. My name is Chelsea, and I'll be your conference operator today. At this time, I would like to welcome everyone to the GasLog Limited's Fourth 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 your conference.

[Jamie Buckland:]

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

[Paul Wogan:]

Thank you, Jamie. Good morning or good afternoon to you all. Thank you for joining us for GasLog's fourth quarter results. I'll start today's presentation with a review of 2016 and then hand over to Simon to take you through the financials and the quarter in more detail. I'll then conclude the presentation with an update on the LNG and LNG shipping sectors before opening the call for Q&A. 2016 was a year of significant market volatility across the energy sector. However, against this very challenging backdrop, we achieved our strategic objectives for the year. We signed long term contracts with two new customers - Total and Centrica - adding over 350 million of contractor revenue to our backlog. We took delivery of four new buildings, all of which delivered on-time and on-budget. The vessels all commenced 7-10 year charters with Shell and we will see the full financial impact of these charters in 2017. We made real progress on our FSRU strategy. We are well-positioned on a number of ongoing projects and as a result, we took the decision to secure long-lead items for a vessel conversion, and also acquired a 20% interest in gas trade for the development of a Greek FSRU project. We reopened access to our equity in the maritime MLP market, dropping the GasLog Seattle to GasLog Partners for $189 million, successfully recycling capital from the MLP to the parent. We proactively managed our balance sheet, successfully completing a number of important refinancings and finally, we maintained our dividend in a year when many companies in both the energy and shipping sectors were cutting theirs. The measures we took in 2016 enabled GasLog to continue growing through time when many companies were struggling to survive and have positioned the company to take advantage of an expanding range of growth opportunities. With that, I'll hand over to Simon for the final time to take you to the quarter in more detail.

[Simon Crowe:]

Thank you, Paul, and good morning and good afternoon, to all of you. Thank you for joining us today. Please turn to Slide 4 for the financial highlights. Revenue in EBITDA were higher for the quarter and the year, reflecting the contracts for the new vessels delivered during 2016. This was partially offset by higher OpEx depreciation and financing costs against these vessels, as well as a higher number of vessels in the spot market in the fourth quarter of 2016, versus the same period last year. Debt increased year-on-year due to the four vessels delivered in 2016 and all of these vessels have attractive long term contracts and committed funding in place from the $1.3 billion newbuild facility. Adjusted EPS for the quarter was impacted by the increase in the non-controlling interest, following the GasLog Seattle drop down in November. As a reminder, the non-controlling interest increases every time we drop a vessel into the MLP, so why is [indiscernible] drop down is very positive from a cash flow perspective? There is an impact on GasLog Limited's consolidated P&L. Turning to Slide 5 which shows GasLog's debt maturities from now until 2021. Following a number of successful refinancings in 2016, our focus has now turned to the maturities in Q2 '18. The only other facility which matures before 2021 is the GLOP $450 million facility which falls due in late 2019. We expect the loan to value on this facility to be less than 40% at that time and we anticipate that both of these maturities will be refinanced well before the due date. Turning now to Slide 6. During the fourth quarter, we complete the drop down of the GasLog Seattle to GasLog Partners for $189 million. GasLog Limited received $68 million of cash from the transaction which will be used for our future LNG carrier and FSRU growth activities. In January, GasLog Partners raised around $76 million from a follow-on equity offering and we are currently negotiating the next drop down which we expect to be a modern TFDE with a long term contract. We're seeing a lot of interesting opportunities in both the LNG carrier and the FSRU markets at the moment and the capital received from the MLP positions us very well to take full advantage of these future growth initiatives. Turning now to Slide 7. Here we can see in more detail the drop down history for the two companies since the IPO of GasLog Partners in 2014. Despite the volatility in the energy and the MLP markets in the last two years, GasLog has consistently looked to GasLog Partners as an efficient cost-effective funding vehicle to provide the equity capital for GasLog Limited's growth. The chart on the left shows that since IPO, we have dropped six cycles into the MLP with the total transaction value of around $1 billion and over $330 million of which has been recycled back to GasLog as equity for fleet growth. At GasLog, we have 13 vessels with long term contracts, eligible for future drop downs, so expect the growth of the MLP and the supply of capital for GasLog Limited to continue. As you can see on the right hand side of this slide, as we drop more assets down, GasLog Limited will continue to move to the ideal splits, receiving a greater share of the GLOP cash flows going forward. Following the completed drop down of the GasLog Seattle, GasLog Partners' management plans to recommend the quarterly distribution of approximately $0.50 per unit in Q1 2017, or $2 per unit annualized. This would equate to an annualized cash flow to GasLog Limited of around $24 million. A drop down funded with the capital recently raised at GLOP would further increase its amount and this growing stream of GP and ideal cash flows further increases the value of our interest in the MLP, enhancing our some of the parts valuation. Turning now to Slide 8. During the fourth quarter, we executed on two new FSRU opportunities. Firstly, we announced the long-lead items for a vessel conversion that's been ordered. Early access to these items significantly reduces the time needed to deliver a converted ship into an FSRU project. Speed-to-market is one of the main advantages of choosing a conversion over a newbuild or on-shore facility. Having these long-lead items in place will allow us to complete a conversion in six to eight months, meaning we could have an FSRU delivery by the second half of 2018. We feel this gives GasLog a competitive advantage in future FSRU activity where customers are looking for a high quality quick-to-market solution. Secondly, in December, we announced that GasLog have signed a sale and purchase agreement to acquire a 20% interest in Gastrade, a company that is developing an FSRU project in Alexandropolis in Greece. As can be seen on the map on this slide, this project is a major strategic importance to the region as the gas on the project will go into the expanding regional pipeline network, providing countries in South East Europe with increased diversity of gas supply. It has the backing of a number of governments including Greece, Bulgaria and the U.S. and the project is expected to take FID later this year. This is one a number of FSRU opportunities GasLog is looking at and we look forward to updating the market over the course of the year. So in summary, we had a busy Q4 which closed down a very fruitful 2016 for GasLog. We refinanced the balance sheet on attractive terms; our new vessels were delivered on-time and on-budget with long term contracts; and we won new business with new customers and make good progress with our FSRU ambitions. In my role as CFO at GasLog and GasLog Partners, it was particularly pleasing the see the MLP accessing the capital markets again. With the recent equity rates in significant drop down pipeline, both companies are very well-placed to continue growing over many years to come. Following the news of my planned departure, I would like to take this opportunity to thank all those that I've worked with during my time at GasLog and who have supported both myself and the company. It has been a real privilege to be part of something so very special and it has been an incredible four years, and I wish Alastair the best of luck when he takes over as CFO in March. I'll look forward to watching the company continue to flourish. And with that, I'll hand back to Paul to take you through the industry section.

[Paul Wogan:]

Thank you, Simon. Please turn to Slide 9, 'The Improving Industry Fundamentals.' 2016 saw the beginning of a new wave of LNG production with the startup of major projects in Australia and the U.S. such as Sabine Pass, Gorgon and Gladstone LNG. This new supply has been matched by significant demand growth from existing markets such as China and India, which both grew by approximate 30% in 2016, but also from relatively new markets such as Poland. The increase in demand has also been enabled by the increasing use of FSRUs with relatively new importing countries such as Pakistan, Egypt, Colombia and Lithuania, all choosing to import LNG to its floating terminals. This growing demand from FSRUs which in 2016 was around 30 million tons, is set to rise sharply with plans for seven new installations announced in 2016. New producers, new customers and new traders provide buyers and sellers with increased optionality and make trading patterns more complex, increasing ton mile demand. Vessel orders remain at multi-year lows, which we believe will lead to a shortage of ships and an increasingly tight market based on the expected LNG supply and current vessel order book. These improving fundamentals has started to positively impact LNG shipping spot rate, which are up year-on-year. Slide 10 shows the build out of LNG supply from projects that have taken FID. In 2016, all facilities that were due to start came online during the year, whilst in 2017 Sabine Pass Train 3 is now in the commissioning phase and expected to start production shortly. At Gorgon, all three trains needs to be fully operational by mid-2017. About [indiscernible] are expected online later in the year. In fact, GasLog continues to be one of the leading LNG transporters of these new volumes in general. We handled more than 400 load-and-discharge operations in 2016, including 71 loadings in Australia, many from the new projects in the region. Slide 11 uses Poten data and shows the destination of all of Sabine Pass cargoes since the facility started production in early 2016. The facility which has shipped LNG to 17 different countries hit new record production levels in each of the last three months - with 10 shipments in November, 12 in December and 15 in January, showing the aggressive ramp up in production and a strong demand for U.S. gas. Of the 48 shipments made from Sabine Pass in 2016, GasLog was the most active owner, transporting eight of these cargoes. Based on the distances traveled and time taken for each voyage, Poten calculates the requirements so far of approximately 1.75 ships to transport 1 million tons from Sabine Pass. Applying this multiple to the 53 million tons per annum of additional U.S. volumes not yet online would create demand for over 90 ships. To date, not only has Sabine Pass exports traveled significant distances on some routes. For example cargoes have gone from the terminal to Mexico via Cape Horn rather than through the Panama Canal and to India via the Cape of Good Hope instead of the Suez Canal, but they have also done so after relatively slow average speed of around 13.5 knots. Historically, LNG ships have been designed to operate at speed of 18 to 20 knots. The customer now slow steam to maintain greater destination flexibility. The aim is profit maximization, not shipping efficiency. This often leads to longer voyages, sub-optimal routing and greater waiting time. This not only increases ton miles, but also ton time - the time it takes for a cargo to reach its final destination. These increases in both ton miles and ton time lead to incremental shipping demand and is another reason why we expect the LNG shipping market to continue to tighten. Slide 12 shows Wood Mackenzie's estimate that approximately 50 ships still need to be secured to transport volumes from the projects that have already taken FID, including some large U.S. projects such as Cameroon, Freeport and Corpus Christi. Some of this demand will be fulfilled by vessels in the existing fleet, but some of this demand will require newbuildings. And Slide 13 shows newbuilding orders by year since 2011. Since September 2015, there have only been five new LNG carry orders including the GasLog vessel ordered for Centrica during Q4. If sustained lack of new ordering continues, it will certainly tighten the supply and demand balance in future years. Limited ordering today means limited newbuilding deliveries in 2019. We do not expect a wave of speculative orders and we do expect that the newbuilding orders will largely be placed against long term contracts. This is primarily due to the limited capital, availability of capital to all of the highest quality owners such as GasLog. Now turning to Slide 14. At the Capital Markets Day in June, we explained how we expect the number of surplus ships to fall over time. We have already seen evidence of rates moving higher through the second half of 2016 and we expect that tightening to continue to 2017. From my over 30 years of experience in several shipping sectors, tightening markets usually reach an inflection point when rates turn sharply upwards. Whilst we can't predict exactly when that inflection point will happen, when it does, we expect rates to move higher quickly, especially as we expect charters, we'll then look to locking tonnage often for multi-year periods. The chart shows the continuing expansion of LNG shipping spot market. In 2016, there were 273 fixtures, an increase of over 50% versus 2015 and this was matched by an increase of over 50% in Clarksons quoted headline spot rates from $28,000 a day this time last year to $43,000 a day today. In effect in the market, it's also necessary to look at the headline rate alongside utilization, [indiscernible] bonuses and positioning cost. In the current market, a number of spot charters are starting to achieve round trip economics, which in turn improves the time charter equivalent rate. GasLog's five spot ships are in the Cool Pool, which currently commercially manages a fleet of 18 vessels. The pool continues to develop tailor-made solutions for its growing number of customers, enabling them to take trading positions because the pool can provide them with access to a large and global fleet to ships, which its competitors are unable to replicate. Turning now to Slide 15, I would like to give a summary and outlook for 2017. I started today's presentation demonstrating how we met up 2016 strategic objectives despite a very challenging macro environment. With the energy shipping at capital markets all now starting to gather momentum, we're seeing more opportunities aided by our presence in both the LNG carrier and the FSRU sectors. Looking forward this year, our objectives are to grow our revenue backlog through the addition of charters with new and existing customers, to continue to progress our FSRU ambitions, targeting FID on the Greek FSRU project later this year and also we aim to be chosen as an FSRU provider for at least one additional project during the year. With five ships now operating in the spot market, we believe we are very well-placed to take advantage of an expected tightening in the LNG shipping market. And we aim to use our access-to-capital at GasLog Partners to pursue these attractive growth opportunities that we're seeing both in our carrier and FSRU business. And finally, we remain focused on delivering value to our shareholders through the ongoing execution of these strategic objectives. And that brings me to the end of today's presentation, but before I open up the Q&A, I just like to take this opportunity to thank Simon Crowe. GasLog and GasLog Partners have accomplished a great deal in the four years since Simon joined the company - in large part due to Simon's efforts. I've enjoyed very much working with Simon. His enthusiasm and passion for the business is infectious and he will be missed. However, he leaves GasLog in a great position to continue his growth and development and I know I speak for all my colleagues in wishing Simon well in his next endeavors. I'm also very much looking forward to working with Alastair Maxwell when he takes over the CFO range from Simon in March. And with that, I'd like to hand back to the operator for Q&A.

[Operator:]

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

[Christian Wetherbee:]

Great. Thanks, and good afternoon, guys.

[Paul Wogan:]

Hey, Chris.

[Christian Wetherbee:]

Hey. So I wanted to ask the first question on the FSRU process and potential there. I think, Simon, you talked about the potential and move forward maybe into the second half of 2018. Just wanted to get a sense of sort of what are the benchmarks or processes along the way towards that type of deed that we should be looking for? Other words, how do we think about contracting, how soon do we know what the process there to get us some clarity on how that might be playing out?

[Paul Wogan:]

Hi, Chris. It's Paul here. I think these eight projects are sort of vary individual and each project will take its own time line. So there's a lot of work going on in the background on a number of projects at the moment. The timing of those is not easy to predict. It wasn't easy to predict the way you would put the Gastrade projects together when we did. I think the great thing for us though is that we have been able to get - not only get into the [indiscernible] of business, but also get ourselves into a favored position for a number of projects as we develop the business. I'm confident that we will be able to deliver on those projects. The timing there, it's really difficult to say at this point.

[Christian Wetherbee:]

Is it fair to say that there is sufficient opportunities that you think that it's likely that something in the second half of '18 or maybe in early 2019 has a high probability of getting done?

[Paul Wogan:]

Yes. I think we certainly are aiming that for example, the FID on the Greek project, we're aiming to be done in 2017 and projects that we're seeing, we would hope we were taking FID and then getting those done pretty quickly. One of the things we have done that we talked about is get the long-lead items in place, which means we can get to market very quickly with a solution which we think gives us a competitive advantage. Looking at the ability to have an FSRU on station in the second half of 2018 is definitely something that's possible for us.

[Simon Crowe:]

Yes and Chris, we will give a number of on-market and off-market opportunities and having the long-lead items ordered. It just puts us in a very unique position today where to execute on a conversion should a suitable customer come along and as Paul said, the timing of that is a bit difficult to predict.

[Christian Wetherbee:]

Okay. Now that certainly makes sense. I appreciate that. And then, Paul, you said something interesting, I think on the state of the carrier market itself, that in inflection point that ultimately hit in shipping markets when supply demands starts to work in your favor. As the question is probably hard to answer, but when you think about the rate dynamic improving through 2017, can you give us some sense of what your expectations right in utilization might be towards the end of the year? Obviously, it sounds like it's moving in the right direction, but do you get a sense of maybe what the magnitude could be?

[Paul Wogan:]

Yes. I think one thing that I've learned through the 30 years of being in shipping business is never to predict the rates because we're likely to be wrong. I think when we're looking at the supply and demand at the Capital Markets Day, we did see quite a tightening through 2017. Now it is obviously dependent on the production coming through on time on things like that, which is why I think it's hard to give a prediction where that inflection point comes. I think I want to take up on your point, the utilization rate, I think is very important in terms of driving that. I think we will continue to see the utilization rate picking up. Despite the fact that we're seeing the markets improving, it's still probably around about 50% utilization rate for the business. I would hope that we'd be picking up quite a lot during the year. Whether that drives the inflection point in 2017, we'll have to wait to see, but certainly, I think all the signs are that that certainly is moving in the right direction.

[Christian Wetherbee:]

That's helpful and my last question before I turn it over. Just your comments around Sabine Pass and sort of routing of vessels and the speed of vessels. Do you think it's some more of the liquefaction production comes online that we will see similar types of dynamics stretching length of hall in a way that maybe is more normal than just sort of where the geography to the projects are versus where the consumption is. I'm just trying to get a sense if we're seeing sort of aversion of 'slow steaming' or something dynamic going on within LNG.

[Paul Wogan:]

Yes. I think you've got to be careful not to just extrapolate some information and say that's definitely going to happen in the future. But I think we were actually predicting that this would happen as you see more availability of cargo to be actually traded in the shorter term market as opposed to contracted to go if you like on rails between the load and the discharge pool. That would actually have an effect on both ton miles and as we call it, ton time. So as we see more U.S. volumes coming on, a lot of it which can be traded, then yes I do think you will continue to see those dynamics in play. As I said in the prepared remarks, what the customers are really doing now is saying, 'Well, how do I maximize my profit on this cargo rather than how do I maximize shipping efficiency?' And to maximize the profit is the one that always takes the precedent. Yes, I think it is something that we'll continue to see and just the variety that we're seeing of low discharging ports, new routes coming on, the added complexity, I think is all sort of pushing us towards greater ton miles.

[Christian Wetherbee:]

Okay. That's very helpful. I appreciate the time and Simon has said this on the last call, but this is probably my last opportunity to say it again, but a pleasure and good luck with everything in the future. Look forward to staying in touch.

[Simon Crowe:]

Thanks a lot, Chris.

[Paul Wogan:]

Thanks, Chris.

[Operator:]

Thank you. And our next question comes from the line of Jon Chappell with Evercore ISI. Your line is now open.

[Jonathan Chappell:]

Thank you. Good afternoon, guys.

[Paul Wogan:]

Hi, Jon.

[Jonathan Chappell:]

Hey, Paul. I wanted to ask a couple of follow-up questions, a little bit more detail around the two new initiatives you've announced in the last two months. First, just the quicker and simpler one. On the long lead items, are those kinds of cookie-cutter items? Are they specialized in specific shift and the reason I asked is just trying to figure out if those are items that you can potentially use for both steam and a TFDE vessel? Or are they set for one of those types of assets?

[Paul Wogan:]

Yes. I think the items that we've got are fairly generic. They have applicability to a number of ships across our fleet. So we could use them on a number. It depends upon the project, really and where we want to place the ships.

[Jonathan Chappell:]

Okay. And then on the gas trade - sounds pretty interesting, but I think there's a lot of open ends here. First of all, I guess it's not really clear. Are you providing an FSRU to this? You're saying that you're doing the [indiscernible] you actually doing the conversion of a vessel and/or doing a newbuild, I guess and applying it to that? Or are you just managing the asset once it's delivered there?

[Paul Wogan:]

We are now part of the Gastrade Company. The Gastrade has to decide on what vessel it needs, where it wants to place it, et cetera. It could be one of our ships or just putting it for conversion, but also it could be a newbuilding that goes into that project. Could be either, but we'll obviously be very actively involved in looking at what's required for that project.

[Jonathan Chappell:]

Okay. And I understand there are still FID and other partner that have to come into the mix. But could you tell us what your 20% stake cost you? And did that fall into the fourth quarter financial statements or is that something that's going to come out of the cash flow statement in the first quarter?

[Paul Wogan:]

I can't actually give a number because it's confidential in terms of our partners. But that will be in the Q1 figures.

[Jonathan Chappell:]

All right. So we'll see it there. And then finally, once again to the extent that you can, I'm just trying to get my head around the economics for GasLog specifically and something like this. I guess if you were to provide the FSRU, that would be a simple structure for us to understand as it's quite common to the rest of your business, but as an owner of a 20% stake as well, are you taking commodity price risk associated with this? Is there fixed hauling? I know it's still a 2019 event, but how do we think about the risk reward and economics to you as an owner in this project?

[Paul Wogan:]

Yes. There isn't commodity risk in it, Jon. We'll be set up on a fixed hauling basis.

[Jonathan Chappell:]

Okay. And the rest of the question to the extent that you could answer it, the economics, risk reward, et cetera, et cetera?

[Paul Wogan:]

So as we look at this at the Capital Markets Day, we talked about the FSRU projects and saying we would be looking at somewhere between an 11% to 15% levered IRR for those projects, depending obviously upon the risk factors involved in it, kind of party risk - things like that. I don't think we've moved away. So as you look at this project, we would look upon it in a risk adjusted way and say in a way that we think what is the right pricing et cetera as we looked for the FSRU in place et cetera to give us a risk adjusted return within those sort of parameters, if that help?

[Jonathan Chappell:]

Yes and look forward to hearing more about it as it continues to develop. All right, very helpful. Thanks a lot, Paul.

[Paul Wogan:]

Thanks, Jon.

[Operator:]

Thank you. And our next question comes from the line of Noah Parquette with JPMorgan. Your line is now open.

[Noah Parquette:]

Hey, thanks. I thought it was interesting, the comment about the vessel that came out of the gulf and went to Mexico around the Canal. Can you talk a little bit about why you think that was? Was it just the fee is too high? Was it too much congestion, or is that something you think would be normal going forward?

[Paul Wogan:]

Probably a couple of potential reasons, Noah. First of all, if you don't have to get the cargo there at a certain time, then it may well be better to go around the Cape, but there has also been a lot of demand for use of the Panama Canal from all types of shipping, but also from LNG, we saw a lot of new cargoes going out to Asia in December and January, particularly going through the Canal. So there's also the opportunity of having delayed there. But basically at the end of the day, the customers are looking at what's the best routing in terms of their return on that cargo? Where are they going to make the most money out? How do you route it to make the most money in terms of the timing, et cetera?

[Noah Parquette:]

Yes. That's what I'm getting at. It makes sense with fuel cost going up a little bit and rates still very depressed, that you're not in a rush to go fast or do a short route. But how much of a feedback will it present? As the market recovers, how much of that goes away? LNG vessels are portion of the commodity price.

[Paul Wogan:]

I think as you look at the market, people are going to keep making decisions based around how they see the pricing of the cargo, the time, the timing of the ships, et cetera, the time that they have to get the cargo to the destination. It's difficult to say how are the customers are making their decisions. What I am saying though is the customers are making decisions on profit maximization at any given point in the market.

[Noah Parquette:]

All right. This is what I'm worried about, is that if you're doing profit maximization, your shipping cost are so high and you start to speed up. But I wanted to ask just regarding Gastrade, can you talk a little bit about what specific capital requirements do you guys have for that and what the timing is of those?

[Paul Wogan:]

Specific cash flow requirements? Capital requirements. Yes, obviously we're going through a fee process at the moment, aiming to do FID by the end of this year. There will be some capital required for the [indiscernible] etcetera, but not in meaningful amounts. That then starts to kick in once we take the FID and start to make the decisions around the infrastructure on the FSRU that's going to be put into place. And if you took something like a couple of million dollars on the fleets, therefore it would be it.

[Noah Parquette:]

Okay, awesome. Thanks.

[Paul Wogan:]

Thanks.

[Operator:]

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

[Fotis Giannakoulis:]

Yes. Hello, guys, and thank you, Simon. Good luck to your new challenges and Alastair, welcome to GasLog.

[Simon Crowe:]

Thanks, Fotis.

[Fotis Giannakoulis:]

I want to follow-up on Jonathan's question and try to understand the company that you have invested in. Does it have any asset or right now? It has just the licenses? Pretty much trying to understand how much of a capital you are going to spend for this acquisition?

[Paul Wogan:]

It doesn't have assets to search. It has the great asset, the ability to put an FSRU in place in a really strategic area of the world where we think diverse is applied importance. So in a sense, it has got great asset in having those licenses and that capability. But in terms of hard assets, very little. Say, if you look at how much the investment is going to be for us, to make that initial investment, it's not a high number. Unfortunately, I can't give you the number because it's confidential. But if you look at a company, that's not a meaningful number for us.

[Fotis Giannakoulis:]

I fully understand and thank you for this answer. Can you give us a little bit more color of where this project stands? Have you been in discussions about the supply of the gas? Is there any particular supplier? Any particular country? And in terms of the financing of the project, what are the components that this project will have to do to finance apart from the FSRU vessel?

[Paul Wogan:]

I think in terms of supply, what's interesting is that I the really easy bit of equation. There are a lot of people queuing up to put supply into it. We're talking about FSRUs are a great enabler for people with gas molecules to get to markets. A number of suppliers that are showing interest in putting the supply in. The other side of the equation of course is the off-take agreements. Recently, only a couple of days ago in international New York Times, there's an article quoting, saying how interested they were in becoming involved in this project - I think partly because GasLog has become involved in it, but partly because they can see the huge benefits of being involved. Working with the off-takers and getting those in place I think is one of the important things that we're doing right now. Where we are in terms of this, we're doing the fleet study for this at the moment. Assuming that all goes well, which we think it will, then we're looking at putting in some infrastructure. There would be some pipeline that has to go in place as well as the FSRU itself.

[Fotis Giannakoulis:]

Is this subject also to the progress of the top pipeline [indiscernible] have to provide access to Italy in order to take the FID? This can go as said even without it?

[Paul Wogan:]

No. There are a number of pipelines in the area, so it's not contingent on the top pipeline to go ahead for this project.

[Simon Crowe:]

Fotis, it's Simon. It's on the finance. We're looking at project financing this and obviously securing the off take is the most key part of that and once we've got that in parallel, we'll be exploring different project finance opportunities. The funding, I think potentially available to us as well, which is very, very encouraging. It has got the U.S. government support as we said on the call. So we think we're better to provide some comprehensive and competitive financing package together to be insured of the ship and the associated infrastructure is well-funded.

[Fotis Giannakoulis:]

Thank you very much, Simon, for this answer. I want to follow-up on the growth of the partial infrastructure. We obviously have a lot of projects there which is all great for the shipping market. What we have been missing the last year and-a-half is the element of upside, surprise, with more FIDs. Do you think that we can see more FID for now or relive floating with $60 per barrel? Is this something that it can happen during 2017 or early 2018? Or this is something [indiscernible]?

[Paul Wogan:]

Very good question, Fotis. I'll close the stuff to the answer by saying very difficult to tell, but I think we're just in a very different environment now than we were this time last year. So you are hearing people talking much more optimistically about taking FID on projects and then thinking in particular things like Golden Pass where Exxon [ph] and that partners in Qatar are moving forward. You're looking at Mozambique where BP underwrote the off-take and allowed ENI to take FID on that part of the Mozambique. And I think [indiscernible] Partners are working very hard now to develop that. My personal view is that I think we will see more movement in FIDs and more interest in it, because there's definitely a view that yes, we may be a little bit oversupplied in LNG through 2020-2021, but post that, there is going to be a need for new projects. I would imagine that we'll see people moving towards that. It has a better feel to it, certainly, than it did this time last year.

[Fotis Giannakoulis:]

And if you can explain to us what this mean for shipping because the Golden Pass project, I assume, it could take the FID without the off-take. Do you see that the project that you just mentioned could go ahead without off take? Or you also see off-take? What does this mean for shipping? Because if a project like Golden Pass go ahead without having secured long term agreement, would these projects provide opportunities for new long term contracts for your shipping fleet?

[Paul Wogan:]

Yes. I think if you have strong enough companies that are willing to go ahead without off-take agreements, I think probably it's unlikely that the project would go ahead without securing at least a large proportion of their off-take. But if you see that handling, I'm sure in the background, they'll be working very hard to secure those off-takes as they're developing the project as well. I think we're likely to see in future projects a bit of a recurrence of what we're seeing on the latest projects where we'll see maybe, I don't know, 70%, 75% of the project contracted away, a lack proportion 20%-25% available for trading. That's how I see it. I think you're going to see an increasing trading market in LNG, but I certainly don't think the requirement for long term fixed shipping is going away any time soon.

[Fotis Giannakoulis:]

Thank you, Paul. Can you remind us or give us your view, what are the levels that this off-takes are being discussed today? We used to remember a few years ago something like 14% or 15% of oil. What is this number today?

[Paul Wogan:]

I don't know for the specific projects, but you're right. It depends though especially on the U.S. ones. It's really not going to be on the basis of the oil indexation, it's going to be on the basis most likely of Henry Hub. What's interesting is we're seeing a lot more oil production coming back in the U.S. based upon the improving oil price environment if you get a lot of associated gas with that. If you look out on Henry Hub, it's looks as so it's going to be a competitive source of gas for many years to come. I think that's probably where those projects out of the U.S. will be based. Now, how are the other projects then compete against in Mozambique and whether they have to have some element of the Henry Hub pricing in there whether they go back to an element of oil indexed pricing. That's going to be interesting to see how that pricing model globally develops.

[Fotis Giannakoulis:]

Thank you, Paul. One last question for Simon. Simon, you are leaving and you have put already together a lot of financings for the company and there isn't offering or deal OP. When soon will we expect the new drop down? Is this something that will happen before your departure? And what is the path for drop downs to GLOP?

[Simon Crowe:]

Yes, thanks, Fotis. We obviously rate the funds and we're very pleased with that. I would expect it to be done in the first part of this year, hopefully sooner rather than later. We're just getting the consent in going through the different committees and boards to settle on the price. As we've done before, it takes a few months after the proceeds for us to organize the drop down, but expect that sometime soon.

[Fotis Giannakoulis:]

Okay. Can you disclose which vessel is going to be dropped down and when is going to be the following or when do you think is going to be the following drop down?

[Simon Crowe:]

Not at this point, Fotis, but we did say it would probably be a modern TFDE with a long term contract. That is what we're saying at this point.

[Paul Wogan:]

And the great thing, Fotis, is we've got 13 ships in the pipeline, so we have a nice choice in which to drop down this.

[Fotis Giannakoulis:]

That looks very interesting. Thank you very much, both of you.

[Paul Wogan:]

Thanks, Fotis.

[Operator:]

Thank you. And our next question comes from the line of Ben Nolan with Stifel. Your line is now open.

[Ben Nolan:]

Great, thanks. I guess I have two questions. The first is obviously a follow-on to the last question. You've done a drop down, there will be another one coming soon that obviously puts some cash in the hands of the sponsor company here. Everything in terms of what's on order already has contracts on it. I knew in the past you have been a little hesitant lately about ordering vessels without contracts or on a speculative basis. But with a little bit more momentum in your favor, a little bit more cash on the balance sheet, is that something that now you might would consider doing or sort of still sticking with, waiting till you have a contract before placing an order?

[Paul Wogan:]

Well, you've seen it develop in the past. We've had ships that we voted when we felt it was the right time to do it, which didn't have long term contracts against them and lots of cases we put those long term contracts against them. You've seen in the last quarter, waiting till we have a contract with Centrica and then go out and order the ships. I think what is safe, Ben, right now, is I don't feel a huge need to go out and order ships speculatively. I think one of the great advantages we have in this market right now is the discipline is being shown around newbuilding ordering. We have a great relationship with the shipyards, we have very good optionality with them and access to the boats. I don't see the prices going up there any time soon. So I don't think we need to be in a rush to make a speculative order at this stage. I think we can get access to ships as and when we want them. I think given our fleet, we have great opportunities to sort of maximize with the fleet that we have right now.

[Ben Nolan:]

Okay. That's helpful. Certainly also with respects to the market color and that competitive environment, but the second thing - and I want to get back to you talking about people slow-steaming effectively are taking rather secure those routes to the end destination. How much does the improved nature of the ships play into that? In other words, I know modern ships have much lower boil off. Does that impact the economics in a meaningful way and to the extent that it does, is that something that could continue to be the case, even if say, shipping rates were to go up a little bit? Effectively wasting their cargo maybe have been the case with an older ship?

[Paul Wogan:]

Yes, absolutely right, Ben. The advancements both in two areas - one, in terms of the boil off breaks falling, which means that you're not having with boil off as the cargo; and two, the efficiency of the engines improving are the two factors which allow you to do that slow steaming. Obviously as you see the old steamed ships going out of the market being replaced by the more modern TFDEs and then the [indiscernible] XTF vessels. That definitely gives more optionality to the customers to be able to slow steam.

[Ben Nolan:]

Okay. And sort of just last little bit here to follow onto that. Are you seeing the gap widening between the older steam-powered ships and the TFDE vessels as these market dynamics are coming to bear?

[Paul Wogan:]

If you've seen the market, a lot of the spot market has been done on TFDE vessels, spot ships recently. But I think a big factor is the number of TFDE vessels which are open, quite a few of these steamed vessels are still on contracts, et cetera. You look at Clarksons, there is a definite divergence in terms of rates. For Clarksons at the moment, it' showing a $43,000 a day rate for TFDE and something I think in the early 20s from memory for the steamed ship. So there definitely is that difference in rates for those two ships. Now what happens when the market improves this, we expect it to and people have less ships as you probably see that difference start to disappear because at the end of the day, if you have the marginal ship, you can charge at higher rates. It is also a factor of where you are in sort of the market dynamics.

[Ben Nolan:]

Okay. I'll turn it over to somebody else. Thanks a lot, guys.

[Paul Wogan:]

Thanks, Ben.

[Simon Crowe:]

Thanks, Ben.

[Operator:]

Thank you. And our next question comes from the line of Herman Hildan with Clarksons Platou. Your line is now open.

[Herman Hildan:]

Good afternoon, gentlemen.

[Paul Wogan:]

Hi, Herman.

[Simon Crowe:]

Hi, Herman.

[Herman Hildan:]

Hi. So my first question is on the new opportunity that you're guiding on the 2017. How far developed will that project be compared to the Gastrade project? Is that also going to be a similar structure, or will it be something - let's call it more [indiscernible] visible for the outside?

[Paul Wogan:]

I think we're in a good position on two or three projects that we're looking at for the moment. The structure is slightly different in each one of them, ranging from being just a straightforward provider of an FSRU into a project to sort of being a similar planet structure to the Gastrade. So a little difficult to say, but could be either of those. I think what's interesting, Herman, is as this FSRU market develops, we do believe it's going to be a market where partnerships are really quite important. There will be projects where you can just roll up with your FSRU and plug them into the infrastructure, but I think a lot of the new projects are looking at 'can we provide power into the market as well?' How do the producers look at how they get molecules into the market? I think you'll see partnerships between various people in that power to gas production trade getting together to utilize FSRUs. You could well see us doing other partnerships in the future.

[Herman Hildan:]

And also obviously, it has been quite a few entrance into the FSRU space in recent timing including yourself. Do you still feel that the market is more than large enough, growing strongly so it doesn't really have a major impact on your expectations for economics? Or do you see that there's more attention around price than you expected?

[Paul Wogan:]

Well, it's interesting. I think historically, we've seen this as a sort of two to four FSRUs a year market. When we were asked about this, when we first said we are getting into it, I kind of said, 'Well, somewhere probably between a four to eight a year market if we look at it.' It was interesting, in 2016, we saw seven new FSRU projects confirmed. I think if the market develops as we think, if that momentum continues, then I think there's room for a number of people. I think that actually amount of capital that you need to bring into it is quite considerable and I think someone like ourselves are very credible new [indiscernible] is actually going to be very beneficial for the market. If we're part of a growing market, I am very hopeful you don't see us having be comprised. And certainly so far as we're very pleased about how effective we've been at getting into, getting accepted, doesn't know [indiscernible] getting accepted, but being taken into the last, well, not to people in terms of being able to provide the FSRU.

[Herman Hildan:]

And also switching over to your deal on the current market. I agree with you that 2017, I think you call it, is going to be productive. Have you started seeing more an increased level of long term contracts by the charter as a result of expectations for higher spot rates? Or how do you describe the long term LNG carrier markets?

[Paul Wogan:]

Yes. What we're seeing so far is we're seeing a number of charters coming in for the multi-month contracts with options three, six months, with options behind them. We are starting to now see people coming in and looking for one year plus. Might come around the inflection point. What I've seen before is when charter suddenly wake up to the fact that there is an inflection point on the markets moving, then they often scramble to actually lock in the shipping at that point and that's when I think you'll start to see more multi-year contracts coming into play. And in fact that then helps drive the market because you're suddenly sucking those ships out of the short term market. If it follows the pattern that I've seen a number of times in my shipping career, then that's how I would see it developing.

[Herman Hildan:]

And the price point, where you think were multi-year [indiscernible] is interesting. Where would you put that? I guess maybe you can say on relative basis to your current fixed portfolio. Is it above the average rates or below?

[Paul Wogan:]

We always talk about the outreach long term average rate being in the $70,000 to $80,000 a day range. I think if you start to get in striking distance of that and people are seeing a tightening market, you'll definitely see people starting to want to take cover.

[Herman Hildan:]

And then I guess your new dividend, that's been unchanged for the last and obviously moving in to hopefully stronger. Unlikely I would say stronger LNG environment and throughout the deliveries, do you discuss the dividends on your board meetings? Is that something that maybe leave the message to go to [indiscernible] and you use that capital for growth?

[Paul Wogan:]

No, I can definitely - with a large shareholder in the company. The dividends and return to shareholders is very much on our agenda all the time, Herman. As it should be because what we want to do is make sure that we get the best value back to our shareholders. We have to balance off the dividend against the growth opportunities that we see. So if we see really good growth opportunities that we think will be better, create better value for the shareholder, then I think we have to go after those. If we can't see those great opportunities, then definitely returning cash to shareholders through dividends is something we would do. We've always thought about the fact that we certainly don't want to grow for growth's sake. We only want to grow when we can see good accretive transactions. Definitely on our radar screen and I think a balanced return to our shareholders through growth and through dividends is something that we will continue to focus on.

[Herman Hildan:]

I guess with a very prosperous future for the FSRU and LNG market, we shouldn't expect any dividend hikes in the near future?

[Paul Wogan:]

I will leave that to my board.

[Herman Hildan:]

Okay. Thank you very much and thank you very much, Simon. It has been pleasure and I hope you stay in the shipping business.

[Simon Crowe:]

Thanks, Herman.

[Operator:]

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

[Espen Landmark:]

Hey. Good afternoon, guys. Two quick ones. Firstly on kind of the visible demand for the LNG carriers, I guess it has been consensus these days. Just curious to hear your thoughts on how many of those would be taken by newbuild and how many would be taken by the selling suite. And I guess related, if you sum up the '17 and '18 requirements, that is the realm. 39 vessels which it might be even more than the current spot range mostly this year to exclude the Angola and Yemen vessel.

[Paul Wogan:]

Yes. I think those number of ships, I think that was a fleet of newbuilding board of about 110. I think we have something like 12 ships which are unfixed at the moment or not suited for contracts [indiscernible] and I think there are number of ships which are operating in the spot market right now which we may go into that. I think if you're looking at somewhere, maybe around about - and these are very rough because in my mind, that's somewhere around sort of 20 ships that could potentially be used into those longer term projects and probably in other 30 coming from the new building market. That really is me putting my finger in the air and saying a rough estimate, but I think that's kind of how we would see that working out.

[Espen Landmark:]

Right. And then on the propulsion system, I guess with the MEGIs [ph] now being delivered, there's around 35 in the order books. That's around one-third of the order book. Is it going to be a quality-tier market with tier volumes and the [indiscernible] are getting a discount from the MEGIs [ph] in terms of the rate?

[Paul Wogan:]

I think most of the MEGIs [ph] and XTFs that are being built including ours are being put out on long term contracts. I think what you'll see, those ships that certainly in terms of the shorter term market won't be competing in that market for many years to come. I think you'll continue to see the steam ships and some of the TFDEs driving in that market and having a two-tier market. But I think we're some way off the three-tier market in the short term market for some time.

[Espen Landmark:]

All right. That's helpful. Thank you.

[Paul Wogan:]

Thank you.

[Operator:]

Thank you. [Operator Instructions] And our next question comes from the line of Michael Webber with Wells Fargo. Your line is now open.

[Michael Webber:]

Hi. Good morning, guys. How are you?

[Simon Crowe:]

Hey, Mike. Good.

[Michael Webber:]

Hey. A lot of this has been ticked over, but I wanted to touch on the Greece FSRU again and I guess specifically, Simon, I think you mentioned some of the near term priority being funding off-take and which seems relatively doable. But curious as to how much or what kind of utilization level or throughput you guys would really need to hit FID on a project like that? What I'm getting at is we've seen with other consortium-based projects where they're moving forward with an FSRU utilization level. The rate is fine, but the utilization level that it's actually a bit under name plate and there is some latent optionality or some upside associated with those projects. I'm just curious as to how you see that shaping up or whether you think it's something where you'll need to get effectively, fall throughput our utilization signed on contract before you guys move forward?

[Paul Wogan:]

Yes. I think the way we're looking at this as if you take this out of sudden 50 vessel, if you had 50% utilization of that, you could probably go ahead with this project, Mike.

[Michael Webber:]

Okay. With the way we're to think about in that scenario is be that not to expect additional capital [indiscernible] on that point, you'd be paying for full utilization and you'd be waiting upside like you've seen in other projects to where you could potentially grab better economics down the line?

[Paul Wogan:]

Yes. That makes the project viable and I think you're going to have good return. And then obviously if you're able to improve, increase and improve on that, then it just improves your project economics.

[Michael Webber:]

Right. Okay. That's helpful. I wanted to touch on I guess a couple conventional business questions and then Herman highlighted this in his question, but in terms of the existing business, the business you guys are shaping right now in terms of physical long term business, can you add a bit of context to what that tender process or what that business looks like in terms of term, the number of assets needed? We're inching closer to a two or three-year forward start date for some of these projects, so I would imagine that business is starting to pick up in our [indiscernible] in the preliminary basis. So how that differs year-on-year or anything notable about the kind of business you're seeing right now just on the traditional long term carrier side.

[Paul Wogan:]

Yes. It's interesting, actually. Hasn't much as you said. The best thing I would say, there's a big difference year-on-year, which is quite interesting and the fact that a lot of these people have been putting up decisions and actually putting themselves into situation where they can't actually take newbuildings for that and have to take ships from the existing fleet, which I think is going to be helpful for us. I think if you look at the projects which we have on the slide which haven't yet taken all that shipping requirements, there's a number on there where they're in the market starting to look for those ships. So I wouldn't say there's been a huge pick up in the number of tenders recently, but I think that's actually going to have to change pretty quickly if people want to secure the shipping ahead of time. If they don't and they go spot, I think it's going to be a very, very interesting spot market.

[Michael Webber:]

Got you. Okay. That's helpful. I guess I got one more and that answer kind of colors my view on I guess the next question, but if I think about the asset-base of the MLT, I think every public LNG company that's going at some degree of well-over risk if we look one to two years out, it's certainly manageable, just given the suite of assets. As rates move higher, it makes the decision to - asset swaps have been a possibility. It seems like at least along the market between GasLog Partners and GasLog and while the improving markets certainly makes everyone feel better about the rollover risk, it makes that question a lot more interesting as we get a year to further down the line and you've actually got an older scheme asset that's coming up for renewal. At that point, the driving factor behind whether or not you try to resign it versus swap it a function of rate, or is it more of a function of term and whether you can find a five-year to seven-year contract for [indiscernible]. If you can help us think about how you manage that exposure in a slightly improving environment?

[Paul Wogan:]

Yes. Later in the [indiscernible], we certainly would look at asset swaps if it work for both companies. Certainly it's much easier for GasLog Limited to take some of the risk on its balance sheet than it is for GLOP and given where we see the market moving, that may be a very advantageous for us to do it. You're also correct in that. If we can see longer term contracts for those ships, then there's obviously no need to and we do see the tightening in the market creating that demand for longer term ship. It's a bit of - we're definitely keeping an open mind on it, but we're also, I think willing to look at those asset swaps if it makes sense for both companies.

[Michael Webber:]

Right. I guess the better way to phrase it is that map is pretty one-sided for the past two years, but it's getting a bit more interesting, certainly, if you think about over the next year or two. And what's the driving factor behind that decision would be? Whether it would be denominal rate or backlog? Or whether it would be the absolute term of the charter that's available?

[Paul Wogan:]

I think in terms of the MLP, you're always looking to make sure that you have long term cash flow. The MLP, I think, and I can't really think around. Probably would be willing to give up some near term cash flow for longer term contracts, that would certainly makes sense and over the opportunities to do that. I think from GasLog Limited point of view, it's really about the total cash flow you get from the contract itself. If it's a shorter term contract, but there's very high cash flow at the front end of it, then that may be a better option than locking in for longer term with much lower cash flow. We'll definitely be doing the math on those. I think as you're pointing out quite rightly, Mike, you have to look at that from each company's point of view.

[Simon Crowe:]

Yes. It's driven by relationship, Mike. You know that's good for GasLog Partners, good for GasLog Limited. So we balance the strike as the market strengthens.

[Michael Webber:]

That makes sense. I appreciate it. I have one more and I'll turn it over. Paul, we've seen spot rates improve to the back half of '16. It looks like we're consolidating a bit here in the mid-to-high 40s. But I think that would be a pretty discernible pattern in terms of taking a leg up off the bottom or off from the rates for the recent level and saw higher. But it would stand to reason that at a certain point, that moves stops being quite so linear and we actually are of allowing - we move in more of a parabolic fashion in terms of rate and I wouldn't suggest we're there now. But you've been in the market for a long time. What are the signs are you looking for that kind of an environment? Is it just simply a function of where the ton looks like, is it charter attitudes, or if you were to think about when that point of that curve where we stop being linear, begin to be helpful?

[Paul Wogan:]

I think you probably put it in a much better way than I try to put it in my prepared comments, Mike. So thanks for that. I think it does stop in linear at some point. I think it is very much a supply and demand-driven thing. So as you look at the surplus ships and as that surplus falls, in historically in the - when we have over 80% utilization, the market was picking up over 85%, it was a good market. When you go to over 90% utilization, then you really wear off to the races. So I think that's something that we would be following quite closely. Outside of that supply and demand basics, if you like, psychology also plays a really important parting and as we're talking about earlier, what happens in that market is suddenly charters customers start to realize that they could be sat on the wrong end of the curve and then they move quite quickly to take longer term contract. It's a combination, I think of just we're looking at that supply-demand balance and I think as you work through the overcapacity, if you like, as you start to get utilization rates up into the 80%s, I think you'll see that's the point at which I would expect to see the market turning very sharply.

[Michael Webber:]

Okay. You see, that was a better way to put it for both of ours. So there you go. I appreciate the time, guys. Thank you very much.

[Paul Wogan:]

Thanks very much, Mike.

[Simon Crowe:]

Thanks, Mike.

[Operator:]

Thank you. And this concludes today's question-and-answer session. I would now like to turn the call back to Paul Wogan, Chief Executive Officer for any closing remarks.

[Paul Wogan:]

Well, thank you very much. Thanks to everybody for your time on the call today. Much appreciated and look forward to seeing you all either and speaking to you between the calls or the next call.

[Simon Crowe:]

And thanks again everybody for all your support. This is Simon saying over and out.

[Paul Wogan:]

Thank you.

[Operator:]

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everybody have a great day.