GasLog Ltd.
Q3 2014 Earnings Call Transcript

Published: 20 Nov 2014

[Operator:]

Good day everyone. My name is Suzanne and I will be your conference operator today. At this time I would like to welcome everyone to the GasLog Limited third-quarter 2014 results conference call. [Operator Instructions]. As a reminder, this conference call is being recorded. Today's speakers are Paul Wogan, the Chief Executive Officer; Simon Crowe, Chief Financial Officer; and to commence the call, we have Jamie Buckland, Head of Investor Relations at GasLog. Mr. Buckland, you may begin.

[Jamie Buckland:]

Thank you, Suzanne. Good afternoon and thank you for joining us for our third-quarter results call. As a reminder, this call, webcast and presentation are available on the investor relations section of our website, GasLogLTD.com where a replay will also be available. As shown on slide two of the presentation, many of our remarks contain forward-looking statements. Let me refer you to our Q3 press release and our reports filed with the SEC where you will find factors that could cause actual results to differ materially from those forward-looking statements. In addition, some of our remarks this afternoon contain non-GAAP financial measures as defined by the SEC. A reconciliation of these is attached as an annex to the presentation. If we now turn to slide three, the highlights for the presentation, I will hand over to Paul Wogan, GasLog Limited's Chief Executive.

[Paul Wogan:]

Thank you, Jamie. Good afternoon and good morning to all of you in the United States and thank you to everyone for joining us for our Q3 results call. On today's call I will present our third-quarter highlights as well as review our recent drop-down transaction with GasLog Partners. Simon will then follow this with a review of our financial results and I will conclude with an update on trends in the LNG and LNG shipping markets. It has been another good quarter for GasLog. We continued successfully to execute on our business plan and have again produced strong operational and financial results. In the quarter we announced and completed the sale of two vessels to GasLog Partners for $328 million. The GasLog Chelsea was extended for a further 75-day period by the Exxon led Papua New Guinea project at the same rate as for the original firm period. The extension of strong rates is particularly pleasing and demonstrates that the service and quality of our operations can differentiate GasLog in the eyes of new customers. On the back of the continued strengthening of our key financial metrics, we are increasing our dividend by $0.02 to $0.14 per quarter. On an annualized basis, this would give a dividend of $0.56 per share. Whilst we continue to see attractive growth opportunities, we also believe that it is important to balance our investments in new vessels with rewarding our shareholders through increased dividends. Simon will run through the financials in more detail but in summary, we achieved increases in EBITDA, earnings per share and profit as new ships have delivered into the fleet. If we now turn to slide four, the main use for the quarter was the successful drop-down transaction of two vessels from GasLog Limited to GasLog Partners. As we stated at the time of the MLP launch, the principal reason for creating the MLP was to recycle capital to GasLog. We expect GasLog Partners with its attractive cost of capital to play a crucial role in the funding of the growth of GasLog over the coming years in what we believe will be attractive LNG shipping markets. As a result of the transaction, GasLog Partners management intends to recommend to their Board an increase in distribution of approximately 15%. This would place a distribution in the first IDR tier meaning that GasLog, as owner of the general partner and 100% of the IDRs, will receive a greater share of any future incremental cash flow. This is an important first step for us moving through the IDR tiers toward the higher split and increasing the value of the general partner. With that, I will turn the call over to Simon to take you through the financials.

[Simon Crowe:]

Thank you, Paul. Good morning, good afternoon to everyone and thank you for joining us today. It has been another solid quarter for GasLog. We performed strongly in quarter three with significant quarter-on-quarter growth as the financials now include the full impact of the BG ships acquired at the end of the last quarter. Our key financial metrics continue to be in line with our expectations as we now have 15 ships on the water in our consolidated fleet, post the BG transaction. We remain on track for the full-year. I am very pleased to have announced today that we have raised the dividend by $0.02 which is in line with our continued growth and associated profitability. We also recently announced an amendment to our Norwegian bond which will give us more flexibility when considering further dividend increases going forward. If we now turn to slide five, you can see in more detail the impact of the additional ships in the fleet. You may remember that we closed the second BG transaction on June 25 so it had the benefit of both vessels for the whole of quarter three. Our solid operational platform has ensured that we have had high utilization rates on all of our vessels across the quarter. The GasLog Chelsea remains on charter with the PNG project and will now continue to do so well into quarter one following her recent charter extension. Our EBITDA margin for the nine months of 65% is very consistent with the full-year 2013 and our adjusted EPS of $0.26 per share is in line with our expectations. Turning now to slide six, you can see the assets on the balance sheet have grown considerably in line with our acquisitions and fleet deliveries. At the beginning of the year, our consolidated fleet consisted of eight ships on the water and seven on order. We now have 15 ships on the water and 10 on order. You will also see a significant increase in the cash balance and this largely reflects the IPO and subsequent equity raise undertaken by GasLog Partners to pay for the ships acquired from GasLog Limited. Turning to slide seven, you can see here that we are consolidating GasLog partners into our accounts and show the public ownership of the MLP under the non-controlling interest line. Our consolidated debt stands at approximately $1.8 billion reflecting the recent vessel acquisitions. Please now turn to slide eight of the presentation. We have laid out here the contractual revenue going forward. We have approximately $94 million of revenue forecast for quarter four and included in this figure are two dry dockings for approximately 30 days each. We have good contract cover going forward into 2015 and 2016 and beyond and these percentages of total fixed days do not include any of the optional periods that the charters can use to further increase the length of the contract. If you now turn over to slide nine, for 2014, we have today reported the revenue for the nine months of the year and you can see that we have $94 million of revenue contracted for quarter four. Adding these two numbers together should give you a reasonable full-year estimate. Our EBITDA margin for the nine months year-to-date and the full-year 2013 was approximately 65%. We believe this is a good approximation for our full-year expectations at this time. For EPS calculations, there are two things that you should think about for Q4. Firstly, GasLog Partners just completed its $450 million refinancing and the release of the GasLog guarantee from this facility. This refinancing moves us from individual asset backed facilities to one single facility for the GasLog Partners' fleet of five ships. It simplifies the structure and extends the amortization profile to better match the Partnerships cash flows. We are very pleased with this transaction. As a result of the refinancing, there will be a non-cash write off of the original loan fees in the fourth quarter totaling approximately $6 million and this will be consolidated into the GasLog Limited account. Secondly in the fourth quarter, GasLog Partners management intends to recommend to its Board an increase in distribution of approximately 15%. If its Board approves this increase, there will be the associated increase in payments to minority's line in the consolidated GasLog Limited accounts which will impact the EPS. This line item will also reflect the increase in GasLog Partners units as a result of the recent equity raise. Non-GasLog common units in GasLog Partners now total 14.2 million and all of these units will be eligible for the increase in distribution if it is approved by the GasLog Partners Board. So in summary, we have delivered another good quarter, raised the dividend, increased our financial flexibility and have continued to build on our strong operational and financial base. We see further exciting growth ahead. And with that, I will hand back to Paul to take you through the rest of the presentation.

[Paul Wogan:]

Thank you, Simon. If you now turn to slide 10, we have continued to see heightened volatility in the global equity markets in recent weeks with energy-based stocks particularly hard hit on the back of a falling oil price. GasLog has been caught in this market downdraft but it is important to stress that we continue to execute to plan and perform strongly. Our current on the water fleet is fixed through the remainder of this year with the majority of our fleet fixed through 2015 and well into the future meaning that our cash flow has been increasing as we brought new ships into the fleet. So what does a drop in oil prices mean to LNG shipping in the medium-term? Well firstly, there is over 16 million tons of new production that is scheduled to come on stream in Australia over the next two to three years from the likes of Curtis, Gladstone, Australia Pacific, Wheatstone Gorgon, Prelude and Ichthys. These Australian plants are well into their construction phase and a lot of the capital has already been invested. We believe these plants will be completed and will operate at capacity. Secondly in the United States, we are factoring the following projects into our supply and demand analysis up to 2020. Sabine Pass Trains 1 to 5, Cameron, Freeport, Cove Point, Lake Charles and Corpus Christi. We believe we take a relatively conservative view on the North American projects as for example we do not include the likes of Golden Pass, Jordan Cove, Gulf LNG, Magnolia or Sabine Pass Train 6 in our projections. While many industry commentators predict that they will be built. Neither do we assume that any Canadian projects will be built. But what of the competitiveness of this US production? I think it will be helpful here to run through the math. If we make the following assumptions, gas price at Henry hub at $4 per MMBTU, liquefaction costs of roughly $3. $2 to $2.50 for shipping to Asia and regasification of $0.50, this gives a landed cost for shipping to Asia of $9 to $10. Applying a factor of 5.8 is an oil price equivalency of $52 to $58. So we believe that the US product will continue to be competitive and therefore will need to be shipped. Now putting together the above, if the Australian-US projects are built, the ongoing need for shipping out to 2020 continues to be compelling and is why we continue to be optimistic around the growth opportunities for LNG shipping. Slide 11 highlights some of the recent developments particularly in the US demonstrating the momentum we have been seeing in the LNG build out. We continue to see large US projects receiving FERC approval or reaching FID. Cameron, Freeport and Cove Point are all such examples. Elsewhere we expect BG's Curtis plant in Australia to commence production in Q4 and there was also positive news from Algeria last week with the announcement that a new LNG plant there had entered production. On slide 12, I just want to highlight the increasing number of fixtures in the shorter-term market. The statistics on this page show the significant increase in activity versus this time last year. The rates have continued to improve from their summer lows and we remain optimistic about the market as we enter the northern hemisphere winter. The high liquidity that we are currently seeing in the shorter-term market means we are optimistic and well-positioned to fix the two new vessels that we have delivering in the next few months. Having some exposure to the shorter-term market keeps us in the deal flow and allows us to showcase our expertise and quality to new customers. In this vein, we were very pleased to have the GasLog Chelsea contract extended for an additional 2.5 months at a rate that is in excess of our fleet's average multiyear rates. We see the LNG shipping market tightening through 2015 and 2016 and we therefore feel it is beneficial to have some exposure to the short-term market. If you now turn to slide 13, you can see our fleet list updated for the recent transaction with GasLog Partners. We now have a combined consolidated fleet including new buildings on order of 25 ships with the majority of long-term - with the majority on long-term fixed-rate contracts. Now turning to slide 14, an advertisement. I want to bring to your attention that we will be holding a GasLog Limited and GasLog Partners Investor Day on December 2, in New York City at the Pierre Hotel. All of the GasLog executive management will be there as well as Peter Livanos, our Chairman and largest shareholder. Management will present in more detail our thoughts around the current market dynamics, what this means for GasLog and the opportunities we see in the market and our vision for the future. If you would like to attend and haven't already done so, please register with Jamie Buckland, our Head of Investor Relations at [e-mail]. We really hope to see you all there. That brings us to the end of the presentation. Operator, could you please open the call for questions?

[Operator:]

[Operator Instructions]. We will now take our first question from Jon Chappell of Evercore ISI. Please go ahead.

[Jon Chappell:]

Thank you. Good afternoon, guys. Three questions, three different time horizons. First, in the third-quarter revenue came in much higher than our expectations. I know you had all 15 ships on the water for the full quarter but utilization wasn't even 100%. Was there any profit share or any kind of short-term benefits to any of the contracts in the third quarter given the tightening and improving market?

[Simon Crowe:]

Jon, it is Simon. No, I mean we were on track basically. All of our fleet delivered. Very pleased with the utilization and everything sort of panned out as we hoped, so very pleasing quarter. Just so you would know that we have got a couple of dry docks next quarter as I just said in my remarks so don't get too ahead of yourself but there are two dry docks forecast for Q4 but we are very pleased with the quarter. It was nothing special to report there.

[Jon Chappell:]

Okay, what vessels are those for the fourth quarter?

[Paul Wogan:]

It is Savannah and I think it is the Lydon Volney.

[Simon Crowe:]

I think that is right. Definitely Savannah. I think it is the Lydon Volney.

[Jon Chappell:]

Okay. Medium-term, Paul, you mentioned in your comments that you think you are well-positioned to charter the two new builds that don't have contracts yet. Can you talk a little bit about the market for different durations of contracts right now? Clearly that was on a slide where you were talking about more shorter term fixing activity. Is there any liquidity in the three to five-year market and how do you kind of view how you are going to charter those ships as you take delivery?

[Paul Wogan:]

Yes, Jon, there is. We have been talking on those ships on a number of durations. I think what we stressed from a while ago is that we could actually be fairly opportunistic in how we traded those ships. I think there are opportunities for longer contracts on those vessels but really we need to see a rate that makes good sense to us before we commit to anything. So from our point of view, we are happy to trade those ships in the shorter-term market. We do think there will be opportunities to put those ships on longer-term contracts and increase the pipeline for the GasLog Partners eventually but we need to see the right value point for that to happen. I talked about how we see this market panning out 2015, 2016. We do see with the new production coming on stream certainly in Australia and what we have been seeing in other places like Papua New Guinea, Algeria coming on that we will see an increase in production in a tightening market. I think as you see us going into that, there will be opportunities for us to put those ships on longer-term contracts if we so choose.

[Jon Chappell:]

Okay, so reading between the lines then the market is just not there yet at rates similar to what you have already contracted the existing [indiscernible]?

[Paul Wogan:]

Yes, I think the fair comment is the rates are not there at what we think are attractive prices for locking into longer-term at the moment, Jon, but I believe that they will be at some point.

[Jon Chappell:]

All right. Understood. And then longer-term, you raised the dividend this quarter post the MLP IPO and the drop-down. As you think about longer-term as you execute further drop-downs of your pipeline into the Partnership and what you were just able to achieve with the Norwegian bond as far as dividends are concerned, how do you think of the longer-term dividend strategy matching up the dividends from GasLog Limited to the distributions from the Partnership?

[Simon Crowe:]

Jon, it is Simon here. It is a great question. What we are trying to do is balance the growth that we see ahead of us with the opportunity to increase dividends for the shareholders. We are all very cognizant of the TK announcement recently to link LP distributions to the dividend at the parent but I can't be definitive about that at this point but that is certainly in our mind as we move forward in the next couple of years and beyond that. But it is a balance now, Jon, it really is about focusing on the growth. We still see plenty of growth there and it is about driving the value for our shareholders through that growth whilst maintaining a very open mind about increasing the dividend going forward. It is about delivering value to our shareholders and continuing to grow and continuing to do that. So we have reviewed that with our Board very regularly and try and get that balance right. So it is at the forefront of our mind but as I said, the growth is there, so as long as the growth is there we will continue to invest and reward our shareholders accordingly. I think the NOK bond as you say, that gives us increased flexibility going forward and that has got to be a good thing.

[Jon Chappell:]

Okay. Thank you, Simon. Thank you, Paul.

[Operator:]

We’ll now take our next question from Nish Mani of JPMorgan. Please go ahead.

[Nish Mani:]

Hey. Good morning, guys. Just wanted to ask you kind of really quickly about counterparty exposure and how you are thinking about diversifying that base for Hull 2043 and 2044 given that the sole two counterparties right now are BG and Shell and wanted to get a sense of how we could diversify here?

[Simon Crowe:]

I will take a run at that and Paul I am sure will add something. We are very conscious that we are focused on BG and Shell at the moment. We enjoy a great relationship with those guys and long may it continue and long may it expand that relationship. But we are also very cognizant about other counterparties. We have got on to PNG and the Exxon led project there in Papua New Guinea and we are very pleased with that developing relationship and obviously they just extended good rates at, at rates that we think are attractive. We would like to expand our number of counterparties. We would like to expand the franchise. I do think about some of the other big oil and gas majors and our commercial teams are out there working with those guys. We had a lot of success with the Chelsea as you recall onto a different set of counterparties, the RWEs and Northwest Shelf and others and had voyages there and I think that helped demonstrate to them the value and the quality that we could bring to their operations. We are looking all the time to expand our franchise with our existing counterparties but also expand it into others. We do try and get a balance and we will try to contract with other strong credit quality counterparties where we can.

[Paul Wogan:]

I think you are right. We mentioned it in the speech there that 2043, 2044 coming in, those get us into the deal flow, it does get us in front of other customers and I think that is very healthy for us. I think those ships give us an opportunity to widen our customer base which I think is something that we would be happy to do but I would just reiterate what Simon is saying. When you are doing business with probably two of the premier people in the LNG shipping business, I think that is a very good place to be anyway but I think you will see us increasing our customer base as time goes on and these ships give us the opportunity to do that.

[Nish Mani:]

And that is fair. No one is going to push back on the blue-chip nature of your counterparties. Just one quick follow-up. For the two open vessels coming in later this year in 2015, Jon had touched on this earlier but I just want to get a sense of your appetite for profit-sharing agreements if the rate environment doesn't materially improve for that medium-term fixture, is there some optionality you would consider with a profit share or is your bias still towards short-term employment with longer-term charters down the road when the market picks up?

[Paul Wogan:]

I think the great thing as I said, we have the $2.7 billion of backlog which gives us a great base to work off which means we can be opportunistic with these vessels so therefore I think we look at every deal on its merits. And if we saw something that we felt made sense in terms of profit-sharing basis, then we would be very happy to do that. But we look at that in the overall package and say does that make sense with what we can do trading these ships shorter-term? Does that make sense with what we think we can do as this market tightens if we want to put the ships on longer-term and create pipeline for the MLP? So I think we are very open and because we have this strong platform we can be opportunistic and take advantage of opportunities like that.

[Nish Mani:]

Understood. Thank you so much guys for the time. Appreciate it. I will turn it over.

[Operator:]

Our next question comes from Chris Wetherbee of Citi Research. Please go ahead.

[Chris Wetherbee:]

Great, thanks. Good morning, guys. Wanted to come back to the two vessels obviously a popular topic of conversation so far this morning. But just want to touch on something you said earlier, Paul, about the Chelsea outperforming some of the multi-your contracts. Just want to get a rough sense. Do you think if you take delivery of the two new vessels coming without charters, is there opportunity to also outperform with these? Does that short-term market feel that strong as these vessels are coming in? Just want to get a rough sense of how you think about that?

[Paul Wogan:]

Yes, I think I have been in shipping nearly 30 years and what I don't do is forecast what the short-term market is going to be doing. I think we have done very well on the GasLog Chelsea and I think the fact that we have been able to deliver a good service has been great in being able to extend that. I think the bigger factor for us as we go into the spot market with the two vessels is really about utilization, it is about getting the opportunity to fix those ships. As long as we get that opportunity and we can fix those ships at decent rates, we will do. Where those rates pan out, it is very difficult to tell and it depends on a lot of different factors. The market right now has been strengthening since the summer, continues to do so but we will have to see how that plays out over the next few months. But given the fact that we are seeing a lot of liquidity in the market, given the fact that we are seeing good rates, we are fairly confident that we will put those ships away at what will be good prices for us.

[Simon Crowe:]

Chris, it is Simon. I think that Paul says the liquidity has been - we have been really delighted with the number of spot fixtures so far to date this year and that gives us quite a lot of confidence. As Paul said where the rates pan out remains to be seen but we do have this optionality in terms of having a very strong backlog and it is all about getting the right value and picking the right time, short- or medium- or long-term contracts. So we are working hard at it and we will update the market as and when we have news.

[Chris Wetherbee:]

Sure. That certainly makes sense. I guess thinking about sort of the market evolution and as we have seen the liquidity in the spot or short-term charter market improve, I guess for the first time as we are seeing that become a more robust spot market, do you think that sort of the evolution in the market we will see a bigger portion going forward even in a tighter market still stay in the spot side as opposed to the contract side? Or is this just really indicative of sort of where the market is with a little bit of looseness with extra capacity until you feel liquefaction come online? I guess I just want to get a rough sense of is this an evolutionary change in the market as it is following sort of the other shipping markets or it is just something that is being caused by the supply-demand dynamic that we are seeing right now?

[Paul Wogan:]

I personally think it is an evolutionary change and the reason I say that is if you look at the Australian projects which are coming on, historically projects were selling as close as possible to 100% of their production at fixed-rate and have done with it. Whereas the Australian projects that are coming on are much more around 70%, 80% of production which is being sold and a factor of 15%, 20%, 25% of production is available for more opportunistic arbitrage trading. And I think as you see that feed into the market, that will help the liquidity and the shorter-term market and I certainly think as you start to see the US projects come on, they are going to have a similar sort of profile you see the same thing there. So I am not saying it is going to jump overnight and be a massively liquid spot market but I do see this as an evolutionary change over the next few years that we will continue to see this increasing liquidity in that shorter-term market.

[Chris Wetherbee:]

Okay, that makes sense. My last question would just be if you think about a profit-sharing type of arrangement with a term charter, is there any reason to think that that would not be a good candidate for drop-down into the MLP? Is profit-sharing something that you guys would be comfortable putting into the MLP?

[Simon Crowe:]

Yes, I think we think about all different constructs, Chris, if it made sense from a cash flow perspective, we could see the value and we had the right sort of caps and colors on it and it made sense. And why wouldn't we consider about that, there is lots of different alternatives. The key is growing the drop-down pipeline. We have got a fleet of 25 now [indiscernible] in the MLP, 20 ships to go. We do see a lot of growth there. The drop-down we accelerated that recently as you know. We are looking to get Board approval for an increase in our distribution at GasLog Partners and that ultimately drives we think value enormously up at GasLog Limited with the growth in the distribution from the LP but more importantly, that GP appreciation over time and the value driving out there. So I think we are mindful with the MLP these days of any commercial contract. That ultimately is the destination for our ships over time and we need to be very thoughtful about how that works in the context of the MLP. So I don't think we would rule anything out at this stage.

[Chris Wetherbee:]

Okay, that makes sense. Thanks very much for the time, guys. I appreciate it.

[Operator:]

[Operator Instructions]. Our next question is from Michael Webber of Fargo. Please go ahead.

[Michael Webber:]

Simon or Paul, the spot market has already been kind of picked over but I wanted to touch on what you guys are seeing in terms of long-term tenders now. We have been talking about Yamal for a while. But Paul, I think you touched on this last call and it was actually very helpful. Can you maybe quantify maybe in terms of number of vessels, the total long-term tender environment right now maybe incorporating anything, any of the smaller tenders beyond those two major ones that have already listed? What is the opportunity set right now even out over the next year in terms of long-term tenders?

[Paul Wogan:]

If I look, as you look at tenders which are sort of being pushed around or about to being pushed around, you are probably looking at something around 50 to 60 vessels I would guess in terms of totals. And all lot of that is going to be focused on export from the US and I think there will be more after that but just as I look at kind of the opportunities set either looking at the market or coming into the market soon, that is the kind of quantum I think we are seeing.

[Michael Webber:]

Got you. So roughly 20 to 30 additional vessels beyond Yamal conventional and GAIL?

[Paul Wogan:]

Yes, I think as I said I think you will see more but if you look at it right now, I think that is kind of a good view of it.

[Michael Webber:]

That makes sense. Something I asked [indiscernible] that is certainly relevant for you guys as well, your platform at this point is much stronger than most around you both on the public side and the private side and even with crude rolling in and some uncertainty in the energy space, your currency is still going to be stronger than most within the broader LNG space. So I am just curious as to whether there has been an uptick in M&A discussions without getting too specific just whether the volume has gone up and it would certainly seem that you all and maybe just one or two others would really be in a position to kind of benefit from that. And kind of as a sidebar to that question, we have talked about the pocket of strength we are seeing now in spot rates kind of amid this bigger air pocket that we are maybe halfway through. Do you need to see those roll over at some point in 2015 before M&A becomes a more realistic opportunity?

[Simon Crowe:]

It is Simon here. I think you are right. I think we have definitely seen in the energy space an uptick in M&A. Just if you look out at the Halliburton, Baker Hughes, I think Technip announced this morning they had a run at one of the seismic companies. My theory is that weakness in the commodity price always creates events in companies and that often presents opportunities that otherwise may not be there in a much stronger commodity environment. We spend a lot of time thinking about what might be a good fit with GasLog from a M&A perspective whether that be from a single asset to multiple assets to companies and I think we have always got our radar up and we can't comment specifically but we believe we have the currency, we have the balance sheet strength. And again, it is all about trying to consolidate the industry which we strongly believe in. It is about looking to take assets from the oil majors if they are available. We have demonstrated we can do that and we would love to think we can do that going forward. But also consolidating some of those smaller players. So my expectation is that there will be more conversations. We will see I could be very wrong but I think I would be surprised if we don't personally but I think - and we remain open to ideas about creating value between us. We have equity currency, we have debt currency and ultimately it goes to feed the MLP pipeline and growing the MLP, growing the GP and growing ultimately the value to all of our stakeholders. So yes, we are very keen on that, very interested in that. We've got a proven track record of doing deals, doing transactions, going the public markets, raising debt and equity and I think that will just continue.

[Michael Webber:]

That makes sense. Related to that, when you think about the natural extension of your business that you are not in yet so FSRUs, kind of other areas within that LNG train, would you look at M&A as a realistic opportunity to move into those avenues or is that something you would rather develop organically to development an expertise?

[Paul Wogan:]

This is going to sound like a politician's answer and it is not meant to be but we would definitely do both I think on this. I think there is the opportunity for us to grow organically but we would definitely not be adverse to using M&A as a way to sort of if you like increase the width of the platform that we have in the LNG markets provided we saw something that had value there. It has to be obviously value accretive to the shareholders but we would be very open to looking at that.

[Michael Webber:]

Good politician's answer. One more for me, just a modeling question and I will turn it over and forgive me, Simon, if you mentioned this already within the deck or maybe last quarter. But I know you guys are moving some operations from Monaco to London just curious whether or not we will see - we would notice any bleed through in G&A through I guess it would be early 2015?

[Simon Crowe:]

You might see a bit of bleed through in G&A. That is there but I think it is in the grand scheme of things not material. We have talked a little bit about Q4 but there might be a bit of bleed through into 2015 and we will talk about 2015 early on in 2015 and try and give you a better steer for where we are as and when we complete that move.

[Michael Webber:]

Fair enough. Great. Thanks for the time, guys.

[Operator:]

Our next question comes from Fotis Giannakoulis of Morgan Stanley. Please go ahead.

[Fotis Giannakoulis:]

Hello, guys and thank you. I want to ask you about the drop-down schedule to GLOP. If the decline in the stock price is of both companies especially GLOP, it has changed your plans and the speed of a potential drop-down or if you think that there is still value to the drop-down vessels at the same speed that you had planned before?

[Simon Crowe:]

Look, the market is down at the moment clearly as a result of many factors but our plan and our strategy remains intact. We've got an excellent pipeline of growth for the MLP internally and we remain very focused on our plans. We did accelerate one of the drop downs I think the market was expecting us to drop in 2015 and obviously we just completed that first drop recently. So our stated aim and goal is this 10% to 15% compound annual growth rate going forward and we remain very focused on that and very comfortable with that and we can see our way forward in delivering that over the foreseeable future. It is all about delivering the value. We have debt capacity down at the MLP. We just successfully refinanced down there as you know. So I think we consider all the options but we remain firmly committed to that 10% to 15% growth, compound annual growth rate and we have already demonstrated our ability to do that and that is really where we are focused. We are also committed to looking as I said at M&A opportunities both at the GLOP level and GLOG and where appropriate driving further growth into both vehicles. Again, it is about that 10% to 15% of GasLog Partners and it is also about growing that GP value at GasLog Limited. We believe that has tremendous value in the coming years and if GasLog Partners grows, GasLog Limited grows as well so it is a symbiotic relationship and we absolutely remain on track and focused on that.

[Fotis Giannakoulis:]

Thank you. Paul, obviously we have sent 10% to 15% has been consistent since GasLog Partners became public. Of course this range is a little bit wide and given the fact that you already have 10 vessels with long-term contracts which are drop-down candidates and there is certainty on the cash flows is practically zero at this point, will you be able at some point give us some more narrow expectation about what the dividend of GasLog Partners will be when these 10 drop downs will materialize the next couple of years so we can see what is the value of the GP as well?

[Paul Wogan:]

Yes, we are going to talk about that I am sure at the Investor Day and going forward but the 10% to 15% is a very comfortable - it is a very appropriate range for us. We have done a lot of - been very thoughtful about that and we believe that is the right sort of pace. I think it is best in class in MLP. If you look at the growth rates of a lot of the other MLPs, I think a lot of them are struggling to deliver that sort of growth. We feel very comfortable with that growth. We have the pipeline and as and when we are ready and we will announce those drop downs and it is sustainable growth for the foreseeable future which we think is really important. And we will continue to work on additional opportunities to sustain that growth and fill that pipeline. So I think we tried to be conservative. We tried to deliver beyond what we say but I think we are very comfortable with that range. We stated that range at the IPO. We have continued to state that sort of range during our earnings call and what is good for GLOP is good for GLOG going forward and we remain comfortable with that range.

[Fotis Giannakoulis:]

Thank you, Paul. I want to ask also about your capital allocation process and you decided to increase the dividend. Obviously your cash flows are increasing very rapidly but except of increasing the dividend or increasing your asset base right now you have a stock price which is trading below your replacement cost. Are there any thoughts of potentially starting a buyback program or investing - instead of investing only in ships buying your stock?

[Paul Wogan:]

I think as we look at this, we will keep all our options open. Certainly something that is open to us, we hope this is a short-term trend in our share price. I think as we continue to deliver, as we continue to grow the business, I think the share price is not indicative of where we will be. So whilst we will obviously consider that I think while we continue to see good growth opportunities, that is obviously very attractive to us as well so we will balance those two things off against them but at the moment we are not actively looking at share buybacks.

[Fotis Giannakoulis:]

Thank you. One last question. I want to go a little bit about this contradiction between the weak energy markets and the lower oil prices and the increase in spot chartering activity. What have been the factors that have driven this significant increase in the spot chartering activity this year despite all this negative news about the energy market? And you mentioned that all these facilities as they come online, they have already put - spent most of their CapEx. Up until what year do you think that the projects are not affected by the lower CapEx of the majors in the energy sector? Is that in 2017, 2016? And what is the balance later on between future growth beyond these projects that are already under construction and you expect that they will come online versus expectations of the ship owners in placing new building orders?

[Paul Wogan:]

I will take the first question which is really why are we seeing this shorter-term increase in short-term liquidity trading. I think it is just very much a factor of seeing a return to normality in the production that we are getting from the various facilities. If you looked at 2013, there were quite a lot of times when Yemen was having problems or Snohvit was having problems or various places. What we are seeing at the moment is a lot of these plants are now producing at full capacity and being able to take if you like at the offtake extra offtake off from that which is then being able to be traded which I think is obviously good for us. And I think if you look as we go out, that is why we are actually very optimistic about the short-term market because we see more of these projects coming on and we see them running at capacity and we are definitely going to see more of this product in the short-term market. So I think that is how we see it. If you look at the investment, quite often we are looking at sort of a four or five year timeframe from taking FID and then delivering these new production plants. So anything which is sort of had investment on the ground now really looking out to I think 2018, probably beyond that is going to get built. The US is slightly different in that it is brownfield sites so they don't take quite so on but certainly in Australia, you look at any of those projects even [indiscernible] in 2018, there has been significant investment already and we would definitely see those as going ahead. So you're probably looking at a four- to five-year time horizon on starting these projects and finishing them. I think we look out to 2020 at the moment as we look at the demand for ships and why we are optimistic about the growth opportunities that will be there. How that pans out after 2020 I think is difficult to tell. One thing I am pretty certain on though is that the oil price that we are seeing today will not be the oil price necessarily that we are seeing in a year's time. I think there's some very different factors there. The other thing is if you look back at 2008, 2009 when the oil price dropped down to about $50 a barrel, from that point on you have seen massive increases in LNG capacity coming on stream. So there is not necessarily I don't think a perfect correlation there either. So I think these are very long-term decisions which the energy companies are making. I don't think they will be making those very long-term decisions based upon a short-term movement in oil price. So I think we probably as an industry we feel very comfortable as a Company, we feel very comfortable about the industry going out to 2020. I think beyond that we will see what happens but I would be very surprised if the short-term movement in the oil price has big effects on what is happening in the energy infrastructure after that point.

[Fotis Giannakoulis:]

Paul, that was very helpful. Just a quick follow-up, the order book extends mostly until 2017. Do you see that there are enough ships right now to cover the demand for this facility that you mentioned that they will come throughout 2018 or there is going to be need for more new building orders? And how do you see the shipping industry responding to this potential incremental demand vis-a-vis the risks of lower refactoring [ph] capacity after 2018?

[Paul Wogan:]

Yes, I think as we model this out on a base case scenario, we are looking at probably through to 2020 an additional 80 to 90 vessels probably required over and above what we have on the order book already. So that is a lot of investment which has to go into, that. But I think that will be supported by the people developing this coming out. We will see in my view, we will continue to see companies willing to give long-term contracts against those new buildings and I think if that is there, provided that is there, then I think you will see companies like ourselves with the ability to go out, finance those and put those ships on long-term contracts. So there is in our view a significant shortfall through 2020 in the shipping space. That is why we are so excited about it. That is why we think the growth is going to be there, that is why we think we as one of the major players can take advantage of that growth.

[Fotis Giannakoulis:]

Thank you very much, Paul.

[Operator:]

And our next question from Herman Hildan of RS Platou Markets.

[Herman Hildan:]

Good afternoon, guys, and thank you very much for higher dividends and better results. I just have one question and that is given the recent share price decline, how do you weight increasing dividends versus share buybacks kind of adding further growth potential for drop downs to the MLP out in time?

[Simon Crowe:]

I think, Herman, this is Simon here, we weigh those all together. It is all about creating value. We still see tremendous growth. We see opportunities all the time and we want to go and execute on those opportunities if and when they come to fruition. So we need to be sure that we are ready to do that. We also see a need and it is right to reward our shareholders and increase our dividends going forward as and when we can. So there is a balance to be struck there. Our share buybacks is something that we discuss and think about as well but we are in a growth industry. We are growing. Paul just outlined in his answers to Fotis, the opportunity set out there we think is tremendous. We think there is a shortage of ships. We think our share price is depressed. It is nowhere near where we think we can get to and beyond so we definitely see that growth coming. And this is a short-term oil price in our view fall and decline and people are asking all sorts of questions which is right and proper but the growth there and we are a quality company, we have consolidated parts of the industry. We just see more and more of that coming and we want to make sure we've got the balance sheet and the capacity to execute on what we think are very attractive opportunities. So it is just a constant balance with what we see in front of us, what we have achieved so far, the balance sheet capacity that we have and rewarding shareholders.

[Paul Wogan:]

Herman, Paul here. Just to reiterate something that we try to say at regular times, we talk a lot about growth but when we talk about growth, we are talking about growth that is accretive to the Company. We are not looking to build an empire here. We are looking to create value for the shareholders. So where your question is a good one is that if we can't find growth at good returns, then we won't invest in it and that is when we would be looking to do other things with our capital, returning it to shareholders, it could be dividends, could be share buybacks, etc. But we truly believe that we will see continued growth at good returns, good accretive returns for our shareholders and that is where we will try to focus.

[Herman Hildan:]

Thank you very much for that.

[Operator:]

There are no further questions over the telephone at this time.

[Paul Wogan:]

Okay. Thank you very much to everybody for joining us and look forward to seeing you all in New York on December 2.

[Operator:]

Thank you. Ladies and gentlemen, that will conclude today's conference call. Thank you for your participation and you may now disconnect.