GasLog Ltd.
Q4 2015 Earnings Call Transcript

Published: 25 Feb 2016

[Operator:]

Good morning. My name is Liz, and I will be your conference operator today. At this time, I would like to welcome everyone to the GasLog Limited Fourth 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 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 Liz. Good morning, and welcome to the GasLog Limited fourth quarter results call. As a reminder, the call, webcast, and presentation, are available on the Investor Relations section of our website, gaslogltd.com where a replay is 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, and a reconciliation of these is attached as an annex to the presentation. Please now turn to Slide 3, the introduction, while I'll handover to Paul Wogan, GasLog's Chief Executive Officer.

[Paul Wogan:]

Thank you, Jamie. Good morning or afternoon to all. Thank you for joining us for GasLog's fourth quarter results. Following this brief introduction, I will hand over to Simon Crowe, GasLog's CFO, to take you through the quarter's numbers and the two financing transactions we announced last week. I will then conclude the presentation with an update on the LNG shipping sector and GasLog’s operational performance before opening up the call for question and answers. Before looking to the quarter, I think it's worth taking a few moments to review 2015 another busy year for GasLog. Despite the challenging markets, we continue to execute on our strategy of growing our business through adding high quality assets with long term contracted revenue from high quality customers. We concluded three 9.5 year charters with BG, now Shell, adding another 845 million of contracted revenues through our backlog which now stands at 3.7 billion. In the short term, we established the Cool Pool with Golar and Dynagas to manage our spot market exposure and provide customers with innovative and flexible solutions for their near term shipping requirements. On the financing side, we were active in the equity debt and MLP markets during the year launching 115 million preferred equity offering in March dropping down three vessels to GasLog Partners in July and closing over $1.3 billion newbuild facility in October. And finally our operational platform continued to excel. At the same time as we drove down operational cost per vessel, we maintained high levels of safety and enjoyed over 99% up time from our contracted fleet. Turning now to Slide 4, I would like to run you through the recent actions we have taken. We have rate over $2 billion of financing in the last four months putting our balance sheet in the strong position to manage through a prolonged downturn if required. Following the five vessel refinancing and the Japanese sale and leaseback announced last week. We now have no debt maturities until 2018. The $1.3 billion financing complete in October means our newbuilds all have fully committed debt financing with the remaining CapEx expected to come from balance sheet cash and operational cash flow. Our existing and newbuild fleet is largely contracted on multiyear contracts to the world's leading counterparty show. Of the 7 of our 8 newbuild deliveries contracted are between 7 and 10 years we have significant inbuilt growth for multi year period. And finally we are again declaring our dividend of $0.14 per share. Taking these actions in what has been turbulent energy, shipping and capital markets means that GasLog is well placed today and for the future. And with that, I will now hand over to Simon to take your through the quarter and the financials in more detail.

[Simon Crowe:]

Thank you, Paul and good afternoon and good morning to all of you. Please turn to Slide 5 for the highlights of the quarter. GasLog had adjusted EBITDA of $69.2 million and adjusted profit of $14 million which is in line with our expectation. In recent months we've been very busy from a funding perspective and in October last year we closed the $1.3 billion newbuilds vessel facility. This transaction gives us committed bank financing for all of our 8 newbuild deliveries. The debt to these ships will be drawn on delivery of each record from now through 2019. We talked about this transaction in our last quarter results but as a reminder it is fully committed with attracted terms. Last week we announced that we'd completed two more significant funding transaction, a five vessel refinancing and a 7 leaseback with Mitsui. I will talk about this transactions in more detail on the following slides but the key takeaway from these two deals is that they will move any near term debt maturities to GasLog and GasLog Partners, the next debt maturity not until 2018. We also are pleased to be paying a dividend of $0.14 to the fourth quarter which is payable on the 17 of March. Turning now to Slide 6, our financials for the quarter are very much in line with the third quarter of 2015 as we had no fleet additions or dry-docking and the recent finance transactions took place after the quarter end. The key 116 we expect one of our vessels to go into a scheduled and planned drydock for approximately 30 days. We also have a few less days in Q1 versus Q4 due to February being a shorter month and spot rates in utilization continued to be weak which may impact our three throughput offset. All of these factors will have an effect on Q1. During 2016 we have four fully contracted ship delivering roughly at the end of each quarter. This brings inbuilt growth and further strengthens our cash flow. Turning now to Slide 7 where I'd like to spend a minute on the recent five vessel refinancing. The transaction was structured with the senior tranche of approximately $400 million, the two year $180 million junior tranche. The terms of 30 are affected with a blended margin that is in line with GasLog's existing secured debt, the senior tranche of the 21 year profile from the time of vessel delivery. We were very pleased with the appetite from these indicated banks from these transactions that lend the GasLog, the seventh additional bank. These logos you can see on the slide a large well known international institution with the meaningful presence in global ship finance. Our strategy have being focused on long term charters with high quality counterparts means that banks are keen to lend to GasLog. Our fleet of modern vessels with visible cash flow from one the world's largest oil and gives us access to attractively priced financing and purchasing good shape going forward. Turning now to, Slide 8. We’ve been in discussions with Mitsui for several months on the transaction that we announced alongside the Five Vessel facility. We’ve agreed to sell and leaseback the Methane Julia Louise, a vessel that we acquired from BG Group in 2015. Consideration for this transaction is in line with the vessel's book value, which takes into account around a year of depreciation from the $230 million purchase price in March 2015. The transaction which has been structured by the finance lease gives GasLog the option to buy the vessel back on a number of pre-agreed date, pre-arranged amount over the course of the same leaseback period. This is a great transaction for GasLog, because it gives us 20 years financing at an attractive interest rate and broadens our access to another source of capital. The future cash flows are eligible for dropdown into the GasLog partners which means there is minimal change for the pipeline of future dropdown opportunities when the MLP market reopens. The Japanese market is a leading global market to LNG, and this transaction marks GasLog’s first major step into the region. We see a lot of future opportunities in the far east both on the financing and the new business front. This new working partnership with Mitsui, one of the world’s main LNG players should yield opportunities to both parties going forward as we continue to expand. Turning now to, Slide 9. This slide shows our debt profile post the completion of these three transactions. You can see that following the Five Vessel facility and the sale and leaseback with Mitsui. We have no debt maturities until the second quarter of 2018. And we’re already in active Discussions with a number of parties around pushing out any 2018, 2019, and 2020 maturities further into the future. The light green on this slide represents our debt amortization. The dark blue is the balloon repayment, and the grey is on the region bond. The vast majority of our financing is long term amortizing mortgage debt, which we paid down over the life of the vessel. Turning now to, Slide 10. Where we've graphically illustrated GasLog’s total capital expenditure program. This CapEx relates to our eight future vessel delivery, all of which will deliver in 2016, three in 2018, and one in 2019. And as a reminder, seven of these eight newbuilds have long term charters between 7 and 10 years. All of the debt financing in blue on this slide is fully committed and we will draw down on it as each vessel delivered. The light green is the cash component of our future CapEx. You can see from the box on the slide that from an overall CapEx requirement of around $1.45 billion, $1.3 billion is committed from the newbuild facility we recently completed. It is anticipated that the remainder will be funded from balance sheet cash and operational cash flow. At the end of the fourth quarter, we had approximately $400 million on the balance sheet. The cash payments on the chart represents the stage payments on the future vessel deliveries, we will pay through 2016, 2017, and 2018 in line with the new ships coming into the fleet. We now turn to, Slide 11. We’ve mentioned that GasLog has a total of $3.7 billion, firm fixed rate revenue. It is not impacted by commodity price movement or project start up delays. The chart on this slide shows the new incremental cash flow we expect to get from our future vessel delivery. Each red block represents approximately $22 million $23 million of annualized EBITDA and is shown on this slide when the vessels contract in. The key message on this slide is that GasLog has a significant amount of built in growth which is coming now. Four of these ships deliver into GasLog’s fleet during the course of 2016, with the first one arriving at the end of this quarter. This ¸as we saw on the previous¸ is well financed with fully committed bank financing already in place. We have seven newbuilds, six on long term contracts, which deliver over the next three years. The red box to the right of the slide represents the eight newbuilds that's currently on sale, which we aim to fix well in advance delivery. Without placing any new vessel orders and we've no seen future M&A, GasLog has around a has around $160 million of additional contracted EBITDA coming into our fleet from the ships we have on order. I'd conclude the financial section of this quarter's results. But before I hand over to Paul, I'd like to sum up our recent activity. We have closed three major transactions which provide GasLog with over $2 billion in new financing. These transactions ensure that our future growth is funded and any near-term maturities have been pushed out to 2018 at the earliest. Maintaining a strong financing platform is a priority for GasLog, and these transaction alongside the new deliveries we have starting this quarter put the Company on a firm financial footing. So, in summary, we have a strong balance sheet, good contract cover, and no maturities until 2018. We have in-built funded growth, and we are in a good position to manage prolonged downturn if required. And with that, I'll hand it back over to Paul.

[Paul Wogan:]

Thank you, Simon. Please turn to Slide 12, the LNG market. This slide only lists projects that have taken FID, and are in the process of being built out. We believe other projects such as Lake Charles and Golden Pass may eventually be built. We have not included them in our supply and demand analysis. And even under this conservative case, we still believe there will be a shortage of LNG vessels through 2020. In Australia, Gladstone and Australia Pacific started production at the end of 2015 and showed ramp up production through this year. We also expect the giant Golden project to start production in the coming months. Rest in the U.S. despite some minor delays, Sabine Pass is expected to load its worst cargo this week. With the supplies from these projects and the scheduled restart of Chevron's Angola facility, we fully expect the LNG shipping market will start to tighten as these volumes begin to deliver. Turning to the chart on the right, if you are seeing 1.5 ships per million metric tons of LNG, the 140 million tons of new annualized production will require approximately 210 vessels. With the new building order book of around 135 ships, that's still a shortfall of around 75 vessels. Even assuming that 20 to 30 of these vessels come from existing oversupply and are used for these new volumes, it still leaves around 40 to 50 ships needing to be ordered by 2020. This estimate takes no account of potential deletions from the fleet even through scrapping or layout, both of which are highly possible. Given a three-year build cycle for an LNG vessel, anything ordered today is unlikely to deliver until early 2019, giving us good visibility on the global fleet size over the next three years. And it's the reason we expect the short-term market to tighten significantly. Turning now to, Slide 13. Today's volatile energy, shipping, and financial market, should create opportunities for the well operated and well capitalized companies. The current challenging conditions mean there have been no specific ordering of LNG vessels for a number of months now. And we expect this to continue under present market conditions. This lack of new investment and ordering should allow the LNG shipping market to tighten through the rest of the decade. And despite the current low spot market, tendering activity continues for the new LNG volumes especially from the U.S. These tenders are assessing both new buildings and existing tonnage and we expect to see at least some existing vessels fixed against these requirements. Increased LNG availability and low prices are creating increased demand from both new and existing importing nations. For example, Egypt, Pakistan, and Jordan, all recently started importing LNG through FSRUs. The number of new nations looking to import LNG is set to expand significantly and we expect many of them to use FSRUs rather than land based terminals. GasLog continues to believe this sector has great potential and we've recently signed a Front End Engineering & Design or FEED study with [Kettle] [ph] in Singapore. That explores the possibility of converting some of our vessels into existing vessels into FSRUs. Turning to, Slide 14 of the Cool Pool. The current spot market continues to be disappointing, a warm northern hemisphere winter means we did not get the expected seasonal increase in demand. And we still face an oversupply of ships in the short-term market. Against these challenging backdrops the ships in the Cool Pool have been active and since inception have concluded approximately 30% of the total spot fixes with just over 20% of the available ships in the spot market. While it is still early days, customers continue to discuss new and innovative price of charters but are only possible if you go after a large and flexible fleet, and we look forward to further developments. Please turn to Slide 15. Following the Shell acquisition of BG, and the spot delivery of newbuildings, GasLog will be the largest supplier of LNG tonnage to Shell with 23 ships. Each of these vessels are contracted with the corporate entity rather than an individual project, which means that not only do we have a very strong counterparty, we also do not take risk against project delays or closes. We are very pleased to have Shell as our major customer. Given that commitment to LNG, we expect to see a number of opportunities within the enlarge group and we believe we are well-placed to grow with them. Please now turn to Slide 16 for the summary, where I’d like to reiterate the messages we have made during this presentation. We have a balance sheet structured to whether the current volatility in the LNG markets with no debt maturities until 2018. On newbuilt CapEx is financed with fully committed debt financing, and we expect to remain as it comes from balance sheet cash and operational cash flow. Our fleet is larger contracted on multi-year contracts to the world’s leading counterparty, Shell. We have a significant demand for in-built growth over the next few years. We are again delivering a dividend of $0.14 per share. And finally our world class LNG shipping operating platform continues to derive maximum value from the assets we have, and continues to make us an attractive partner for our existing and future customers. And with that, I’ll ask the operator to open up the line for questions.

[Operator:]

[Operator Instructions] Our first question comes from the line of Michael Webber with Wells Fargo. Your line is now open.

[Unidentified Analyst:]

Hi. This is Hilary calling in for Mike. Thanks for taking my question. I have a quick question regarding the cash required for the delivery. I know you have $1.3 billion facility, but you are also going to use some of your own cash and operational cash flow. I was wondering if you could talk about how much of your own cash would be using per quarter this year to fund the delivery?

[Simon Crowe:]

Yes sure. I mean, Hilary, the slide in the back that really outlines the cash. As we said early, we had $400 million on the balance sheet each on-delivery typically sort of 85% is paid off the 15% over the course of the build out program. So I don’t have the exact numbers but that slide pretty much details that the cash that we’ll need, and in total, it’s about 150 million over the course of the next 3 years. So if you divide that by 8, you’d get the rough cash per vessel per delivery, if that make sense.

[Unidentified Analyst:]

Okay. So pretty much evenly, right, okay, I see the slide.

[Simon Crowe:]

We have some overseas CapEx progress payments that we have made, again, detailed on that slide. You can see those small progress payments in 2017.

[Unidentified Analyst:]

Okay, great. There is one more question regarding the conversion of your vessels. Are you restricted in any way by the covenants underlying these vessels to convert in your team shift at all or no?

[Paul Wogan:]

The answer is I expect not to have any problems with covenants. I think if we confined good FSRU projects for our existing same ships or even our TFTEs, then I think that would be a very easy thing for us to have discussions with our banks about. And I think they would see that as being a very positive especially, given that this likely the long term contracts against those vessels.

[Unidentified Analyst:]

Okay. But it is still something that you just need to have a conversation with your lenders about once, when you do decide to go forward with the conversion.

[Paul Wogan:]

Yes. I mean, we always speak very closely with our lenders. You can see we have great relationships with banks, the support they give us. And part the reason for that is that we keep them very well-informed about what we are doing and we’d do the same thing with the FSRUs.

[Unidentified Analyst:]

Okay.

[Simon Crowe:]

Absolutely right, Paul, that's no issue with covenants. As long as we are keeping our lenders informative anticipate any issues at all with it.

[Unidentified Analyst:]

Okay, great. Thank you, thanks for taking my questions. That's it for me.

[Operator:]

Our next question comes from Jon Chappell with Evercore ISI. Your line is now open.

[Jon Chappell:]

Thank you. Good morning and good afternoon. Simon, you mentioned in your comments about the utilization remains weak. Can you give us sense of what the utilization for the three non-contracted ships was in the fourth quarter and how you are anticipating the first quarter compared to that?

[Simon Crowe:]

I will jump on that one Jon. I think if you look what the brokers are saying, because it's difficult for us to comment on the Cool Pool and so we have to be a little bit careful. But if you look at what the brokers have been reporting on utilization. I think they are talking between 40% to 50% utilization, which I think is a good proxy for where the market is right now.

[Jon Chappell:]

And no real change between 4Q and 1Q?

[Simon Crowe:]

We don’t expect that now.

[Jon Chappell:]

Okay. And then Paul as the Savannah and the Singapore contract expirations come up later this year, does Shell have an option to extend those contracts and has there been any preliminary discussions or so?

[Paul Wogan:]

Yes. Shell does have an option to extend those contracts. And I think you remember we on the Savannah we restructured that last year with BG and that has some attractive options on it. We haven't had discussions on those vessels yet. It's obviously very early in the day in terms of the takeover, but we will be speaking to Shell in the near future about their overall requirements, how we can help them to sort of optimize that shipping, et cetera. So those discussions will be taking place in the next week or two.

[Jon Chappell:]

Okay. And then Paul, you also mentioned the tender activity. Just how active is that today? I mean we read that NG has pushed back a tender, to [Gale] [ph] tender seems to be taking forever. What's the real kind of liquidity in that market today and then as you are looking at that, how realistic is it that some of your existing ships could potentially fill those tenders as opposed to having go out and order new ships specifically for them?

[Paul Wogan:]

Yes. It's a very good question Jon. The tenders are all still very much active because people have committed to taking the cargos from the U.S. projects and we fully expect them to lift those. So then - I think the issue for the customers right now is getting some visibility on where the product is going to go, is it going to go, how much it's going to go east, how much it's going to go into Europe, what does that mean in terms of their requirements. And so I think as looking at that, I'm trying to make a decision that pushing back their decision on the shipping. I think I see that's quite positive right now, because I think we will see some of those people as we talk about three-year build out and may be not having the ability to take new building ships. I think they will take ships from the market as I said in my prepared comments. And so I know, they will definitely take ships. My guess is some of them will take newbuilding ships, but some of them will take existing vessels from the fleet, which I think is positive for the market.

[Jon Chappell:]

Definitely. Last, real quick one, if I remember correctly, you guys have provided kind of cost outlooks in the past and didn't see in this presentation. Obviously, you expect OpEx, D&A and interest expense to kind of walk up as take delivery as a new shifts in each core this year. But the G&A - I believe the prior guidance is about $10 million a quarter. It seems like last two quarter it's been about $11 million. Should we use that $11 million going forward or is there kind of extra ordinary -

[Simon Crowe:]

Yes. That's the reasonable place to be Jon. That $11 million is reasonable expectation. We sort of - but it's pretty steady now. We got this fleet deliver and we know where we are. We have done -- taken actions to recruit that $11 million is probably a good place to be.

[Jon Chappell:]

Okay. Thanks Simon, thanks Paul.

[Operator:]

Our next question is from Omar Nokta with Clarksons. Your line is now open.

[Omar Nokta:]

Hi, thank you. Just wanted to maybe ask a bit of a bigger picture, broader question. When we think about where GasLog is and what you guys have done especially with the refinancing last week in a sale leaseback. What's the market outlook and some of the uncertainty ahead with respect to say LNG prices and export out of the U.S.? How does the management sort of see itself operating in this environment? Are you taking more of a defensive stance or you're looking may be to play offence? And what I mean by that is defensively we've seen already with the refinancing and that type of thing. And then offence I'm thinking more growth acquisitions whether it's companies or vessels, how do you see yourself operating in this environment for the next 12 to 24 month.

[Paul Wogan:]

Yes. Thanks Omar, it's a very good question. Well, we spend a lot of time thinking about it, I can tell you. I think in these markets, our priority has been as you seen to maintain a strong balance sheet. So else we are not predicting a lower for longer market that we make sure that we are able to deal with so to like that's our focus on going back part of the defense. But coming out this for the downturn in good financial health I think would put us in a great position to then play the offence. So I would characterize it first of all, you've seen what we have been doing in terms of showing up and strengthening our balance sheet. And that I think will put us in a very good position as we come out of these markets.

[Omar Nokta:]

Great. And Simon, you had mentioned that you are looking at right now - you are visiting the 2018, '19 and '20 maturity. Is that something actually ongoing right now that you are exploring?

[Simon Crowe:]

Yes. I mean we closed the Mitsui deal today. So yes, we have been actively thinking about the future maturities and now we are turning our attention to that. Now that we have got the five vessel and seven leaseback behind it. So yes, we don't invest in a lot of full, we are looking at all of our financing needs going forward and are financing and making sure that we can optimize those and potentially do something to improve those. So, we’re delighted with what we've done we think to settle leaseback is a great piece of financing. It was 20 - less than 5%, which we think is very attractive. It diversified our capital needs. And maybe we could repeat that going forward. We very much hope so that's a very good relationship that we have started to be with Mitsui. And I think more importantly it's also in the door in Japan for us to really explore some of the commercial opportunities around LNG and their requirements and their ownership around the world. So we are very excited from a financing perspective to have done this. And the opportunities just present themselves are also very excited about the commercial opportunities that the wider, the wider relationship will bring. So yes, we are pretty busy as you know. We never stand still at GasLog where we have been busy and we continue to be busy. And we got a lot of support from our banks as well. We have been delighted with the appetite that they have shown us in the past. And there is no diminishing that appetite. Obviously, each deal stands in full on its own merit. But the things that we have been discussing, we are encouraged by. So you can expect more activity in the GasLog family.

[Omar Nokta:]

Great. That's really helpful. And that Mitsui deal definitely seems very attractive. Is that - and you did mention you are looking to hopefully repeat that. Is that something realistic that can happen? Obviously, there is the sister ship to it I believe and you have several other assets that are under long-term contract. Do you get the sense of Mitsui thirsty for this?

[Simon Crowe:]

I think there is an opportunity there to do and look at more transactions. I mean I think with any capital structure you want to diversify. You don't want to put - all of your axe in one basket. But I think we got a great relationship with those guys. They were here yesterday and I think there is an appetite to do some more transactions. So we'll continue to look at that and work on that.

[Paul Wogan:]

I think it's also - it's repeatable, which is great and the other - very positive, I think Simon explained it very well about the commercial side that it opens up. The other great thing about that deal is that it maintains the pipeline for dropdown into GasLog Partners as well. So, if we do repeat that, that's great. I guess it's a very good way to finance the vessels and it maintains the pipelines for GasLog Partners.

[Omar Nokta:]

Yes. That's it. Well, good stuff. Thanks guys. Thanks Paul and Simon. Have a good one.

[Operator:]

Our next question is from Chris Wetherbee with Citi. Your line is now open.

[Unidentified Analyst:]

Hi, this is [Eric Tone] [ph] in for Chris. Quick question on trade, how do you see that trending at the moment and perhaps you're expecting some liquefaction come online this year. And we are wondering [indiscernible] will deviate from 30,000 a day level?

[Paul Wogan:]

Yeah, I think as we see -- my view is as we see the new capacity coming on stream, what will happen first is that we'll get utilization improving and we will get the terms around the contracts improving. By that I mean, more of the balancing costs paid for in repositioning cost, cooling down cost. And I think what you’ll see -- probably move later will be the actual head line rate. But the amount you get from each fixture, I think improves as that happens. So, as we see the market tightening and the new products coming on, I think you'll see the terms improving first, followed by the rates. But we do see that tightening this year.

[Unidentified Analyst:]

Okay. That’s helpful. Also just on the longer term outlook for LNG, that seems to be positive but how do you view shorter term dynamic? It seems like liquefaction has to catch up with your current order book and how long do you think it'll take for the market to balance and see any re-chartering risk for your vessels that are redelivering in 2017 to 2020?

[Paul Wogan:]

I think what we see this year is the wave of new LNG coming on stream. So, as I talked about, I think we will see a tightening in the market as we go through this year. And because of the great visibility that we have for the LNG ships, three years to build one of these ships, so, if you want to order one now, you're likely looking at early 2019 delivery. So, we can see what’s coming. We can see what's coming in terms of liquefaction, and so I think as we look out 2017, 2018, we feel that we're going to have a tight market for LNG shipping at that point. So, I think it’s going to be an interesting period. As we talked about, what’s happening right now in the market means nobody is going out and making speculative orders. And what that's doing is that’s helping the story as we go out further into the decade and just making it a tighter market and probably a better market.

[Unidentified Analyst:]

All right, yeah, that was helpful. I’ll turn it over.

[Operator:]

[Operator Instructions] Our next question is from the line of Ben Nolan with Stifel. Your line is now open.

[Ben Nolan:]

Thanks. So, I had a couple of questions for you guys. The first one goes back to the FSRU idea that you guys have been talking about. It sounds like you’re making progress on in terms of now having a FEED study with Capital. Two questions along those lines. First of all, are you actively participating and bidding on any projects at the moment or is this still sort of in a theoretical stage? And then, the second part of that is, would you move forward with the conversion only with the project in hand or is it something that you might do in advance of having a contract in place?

[Paul Wogan:]

Thanks, Ben. We're in discussions on a number of potential projects. We're not bidding right now. Part of what we need to be able to bid on these projects is to understand the cost and timing from the FEED study. So, that will help us to do it. But we're already speaking to a number of people who have forward requirements. In terms of going for a conversion without a contract, I think what's the great advantage of a conversion is two things. One, you can do a conversion much quicker than new building. Even from a standing start you can probably do a conversion in a couple of years rather than new building in three years. The other thing you can do is you can order long league items, which is not a huge cost, and have those available so that you could in time be able to get to market within a year. So, I think we validly get a great advantage and it gives you fast enough speed to be able to not commit to doing that conversion until you have a contract in place, and so that's very much how we would be looking at that market at the moment.

[Ben Nolan:]

Okay. And then my next question is sort of, I suppose is part of something that Omar was asking, just maybe in a different way. So, clearly in this environment, the capital markets are -- elusive to say the least, and I think even the bank debt market, you really have to be a major player in order to get favorable terms. The lack of capital, how would you envision the lack of capital availability playing out in terms of how the LNG market progresses? Do you think it will eventually drive consolidation smaller players? Will it be a competitive disadvantage or do you think capital will be there when it is needed to be?

[Paul Wogan:]

I think the capital question is a very good one. I think you're absolutely right. I think the larger players with good fleets, good customers, good contract coverage, are able to access capital, which is not necessarily the case for people who are going out, trying to look at ordering ships without contracts et cetera. So, I think it’s almost impossible for someone to go out now and order a new building vessel without having any long term contract against it, and have a hope to finance that through the capital and the banking markets. And so I think that does play into the larger well-capitalized companies. And so I think over time -- I’m not sure what that period would be Ben, but I think over time that will lead to further consolidation in the market.

[Simon Crowe:]

And I’ll just sort of add to it. I think for GasLog, we don't want to get ahead of ourselves, but we feel we're one of those very strong companies that are very attractive to, particularly the bank market, but also you’ve seen it with the sale and leaseback market, and we’ve done other different forms of capital as well. So, I think we feel we are in a very good position. So this kind of dislocation in the capital market I think ultimately will be a good thing for companies like us slogging in the market going forward, because as Paul said, it prevents those new orders, prevents that ill-discipline in the market. There haven’t been any new orders, there haven’t been any one entering the market, there hasn't been any speculative orders. So that ultimately will be a very good thing for shipping rates as we go forward, because the capacity is coming on, the gas is there, it will need to move, it'll want to move. Gas is cheap, people want that gas now. So, if there aren’t enough ship, that will be extremely positive for people like us, who are strong and are thinking about the future.

[Ben Nolan:]

Okay. And then my last question. 23 of your vessels are in long term contracts to Shell, it's the only counterparty that you have long term contracts with at the moment. Obviously, they are fantastic counterparties still, but now that the BG merger is being concluded, how are you thinking about concentration risk? Do you sort of ignore its function as a higher credit quality of Shell or is it important factor? And how do you think about your business going forward?

[Paul Wogan:]

Yeah, I mean I think the concentration, it is correct. Right now, I'd much rather be concentrated with BG-Shell merger, with Shell rather than with a large number of smaller, less well capitalized company's. So, from that point of view, it’s obviously very positive to us. But yes, you're correct, Ben. I mean, we are very much looking to expand our customer base over time. We think we’ll do more business with Shell and we'd be very happy to do more business with Shell. But we will broaden that customer base out as we grow up later I think.

[Ben Nolan:]

Okay, great. That's it from me. Thanks guys.

[Operator:]

Our next question comes from Fotis Giannakoulis with Morgan Stanley. Your line is now open.

[Fotis Giannakoulis:]

Thank you for the opportunity. Sorry if I missed out earlier but did you give a number about what is going to cost to convert any of these vessels into FSRU? Is there any difference between converting steam turbine and dirty vessel?

[Simon Crowe:]

We didn’t give any numbers, Fotis. And that’s part of what we're looking at with the FEED study that we’re undertaking right now with Capital. So we haven’t got specific numbers against that at this point.

[Fotis Giannakoulis:]

Is there a range that you can give us or compare it with cost of annual FSRU, except of the timing difference which is obviously a little bit faster is there any cost or difference?

[Paul Wogan:]

I think there will be, I'm pretty certain but I'm rather not speculating on what that will be until we got that study but it will certainly be a much more cost competitive solutions to do the conversion in my opinion.

[Fotis Giannakoulis:]

Thank you. And Paul I want to ask you about the overall market, there is a lot of the discussion about the oversupplying LNG market and that thoughts that oil prices and LNG prices kept on down, it has open again to discussion whether there is a home for this LNG. And if you can share your opinion about the LNG oversupply and its ability to absorb the markets the - good also in supply and also if you can talk to us about the reliance of the buyers more on spot volume compare to long term contract, how do you see the new long term SPA developing and what are going to be implications for the ability of shipping companies to secure long term contracts?

[Paul Wogan:]

Yes, thanks Fotis. I think, sorry to do a clean shave herebut the back yield for low prices, is low prices because it stimulates demand and I think we have been seeing that with the LNG. So, if you look at the Middle East at the movement and, places like Pakistan, Egypt and particularly Jordan the amount of LNG that they're taking in compared to 12 to 18 months ago is quite a significant uptick. And the fact that there is plentiful LNG available and the fact there is low prices is allowing people to look it as a viable option especially around power plants et cetera. So I think the low prices are going to stimulate quite a lot of demand for the LNG. I think it's correct in terms of what will happen I think is we will see a an increase in the shorter term spot market and I think that will be advantages for the smaller kind of projects looking to bring in LNG. But I was meeting with some trade as recently and they told me that while in the short term it’s looking difficult to put away long term SPAs, in the longer term, on forward delivery we’re seeing some of this with the Chinese ENN recently, that there is an appetite to do longer term deals, post 2019, 2020 as people see that the markets starting to tighten against. So, just a very interesting sort of view from a trader who is saying, yes, I think I’m able to put long term contracts together later in the decade which I think, means we’ll see – in my opinion will see a market that has a significant amount of long terms business dealing but a growing amount of shorter term traded business.

[Fotis Giannakoulis:]

Thank you, Paul that's very useful. One last question about the way you that this sales of LNG take place, there is a lot of discussion about flexibility about new payment terms. How connected do you think that LNG will remain on oil and if you see any changes in the way that you charter the vessels obviously we know that the most of the vessels are under longer term contracts and there is a spot market but in reality most of this employments are under short term time charters. Do you see an actual spot market developing instead of having time charter agreements having all your charters like it happens in the dry bulk and tankers. And also do you see any pricing schemes for LNG carriers where your revenue will be more linked to the commodity rather than a flat number that we have been experiencing until now.

[Paul Wogan:]

Very good question, Fotis. I think in terms of that the kind of the pricing I also sat next to a - someone from a large Japanese utility recently. We were talking about have they saw the pricing of gas. Their view is that they would like to see a mixture where they can take some of it and price – and [indiscernible] Europe, some of it against the JCC oil linked in Japan and they see that as a good way for them to spread their risk. So I think you will see and of course they are also looking at an Asian market as well. So, I think you will see a variety of ways of LNG being priced and I think some of those pushing much more towards LNG being prices only commodity rather than just against oil. Whether we will see - how we will see that developing in terms of pricing and ships and whether that will be against some of those markets, we intended not to see that in other areas of shipping. If you look at bulk tankers for example where a lot of trading around that, still tends to be more around the actual cost of the ship and the market for the ships rather than the commodities. So I think it's an interesting concept and something that we will certainly be open to looking at. And then finally in the spot market, I think the difference between the LNG ships and the bulk carriers and tankers, is it really around the boil offand around using this boil-off as fuel for your ship et cetera makes it very difficult to go to straight forward spot job as opposed to time job at trips. So even though we will see sort of I think - continue to see a growth in the short term market, I think that will be more around time charter trips than against [indiscernible] or whatever spot fixtures.

[Fotis Giannakoulis:]

Thank you very much Paul.

[Operator:]

I am showing no further questions in queue at this time. I'd like to turn the call back to Paul Wogan, for closing remarks.

[Paul Wogan:]

Well, thank you very much everybody for joining us. Pleasure talking to you today and look forward to speaking next quarter if not before. Thank you.

[Simon Crowe:]

Thank you.

[Operator:]

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