GasLog Ltd.
Q4 2014 Earnings Call Transcript

Published: 27 Feb 2015

[Operator:]

Good day and welcome to the GasLog Ltd. Full-Year 2014 Conference Call. Today's conference call is being recorded. At this time, I would like to turn the conference over to Jamie Buckland, Head of Investor Relations. Please go ahead, sir.

[Jamie Buckland:]

Thanks very much. Good afternoon and thank you for joining us for our fourth 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. There will also be a Q&A session at the end of this call. As shown on Slide 2 of the presentation, many of our remarks contain forward-looking statements. Let me refer you to our Q4 press release and our reports filed with the SEC where you will 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. If we now turn to Slide 3, an overview of 2014, I will handover to Paul Wogan, GasLog's Chief Executive.

[Paul Wogan:]

Thank you, Jamie. Good afternoon and good morning to all of you in the United States. Thanks to everyone for joining us on our Q4 results call. I will start today's call by presenting a brief review of 2014. Simon will follow this with our fourth quarter highlights, and a review of our financial results, and I will then give an update on global gas LNG and shipping markets, and we'll conclude with a summary and outlook for 2015. So to Slide 3, where I would like to spend a couple of minutes looking back on 2014, as I think it highlights the scale of GasLog's ambitions and sets the tone for the year we have ahead of us. We started the year with eight ships on the water, and seven on order. At the end of the year, we had 18 ships on the water, and 9 on order. This includes the eight vessels we acquired from BG over the course of the year, as well as four newbuildings we ordered to take advantage of favorable yard prices. And we're currently discussing a number of opportunities to put these newbuildings into longer-term contracts. At the end of 2013, we had a market capitalization of just over $1 billion and contracted revenue backlog of $2.5 billion. We now have a market cap of around $1.6 billion and contracted revenue of around $3.2 billion. In 2014, we were active in both the debt and equity capital markets, including the launch of GasLog Partners in May, and I'd like to thank all of our capital providers for their support last year. As we grew the business, we were also able to reward our shareholders, by raising our quarterly dividend, which increased 16% year-on-year. But perhaps, most importantly, we achieved all this whilst maintaining a focus on safety, as we surpassed 11 million man hours without a lost time incident, an industry leading statistic. We expect 2015 to be another busy and exciting year for GasLog. Despite the weaker short-term markets, we expect to continue to deliver on our strategy of expanding the fleet to securing attractive medium and long-term charters. With that, I'll hand over to Simon, who will take you through the fourth quarter in more detail.

[Simon Crowe:]

Thanks, Paul, and good morning and good afternoon to you all. Despite the recent volatility in the energy and shipping markets, I'm delighted to be reporting another very good quarter for GasLog. On Slide 4, we've set out the fourth quarter highlights. It was another busy time for GasLog and we continue to successfully execute on our business plan. Personally, I'm very proud of what we've achieved in Q4 and for the whole of 2014. In December, we announced that we were acquiring two vessels from BG for $460 million with 10-year average charters back to a subsidiary of BG. For me one of the key reasons for doing the transaction was to further increase our backlog of long-term contracted revenue and add to the GasLog Partners dropdown pipeline. Post completion of that transaction, which is expected around the end of Q1, we will have around $3.2 billion of secured revenue locked in, which further solidifies our robust financial platform. With this transaction we're already making good progress towards the GasLog 40

[Paul Wogan:]

Thank you, Simon. So if you now turn to Slide 10, the LNG markets, given the ongoing volatility in the LNG markets since our Capital Markets Day in December, we thought it was worth giving an update on the LNG and the LNG shipping markets. Just last week BP published its Annual Energy Outlook and the charts on this page are from that with a link to the full document at the bottom of the slide. This forecast was obviously developed to the time when prices of our coal and oil were falling. But even against this backdrop, you can see from the chart on the left that gas is forecast to be the biggest growth market across the global energy sector through to 2035. BP still forecasts that both coal and oil will lose significant market share over the same period. The chart on the right shows the development of the global gas market with LNG, the key growth driver, rising from around 10% consumption today to over 15% by 2035. So after 2035, overall gas consumption is expected to grow by 1.9% per annum unchanged from last year, whilst LNG consumption is forecast to grow by 4.3% per annum, an increase from the 3.9% per annum forecast last year. This figure is set to be significantly high after 2020, with average annual LNG supply growth of 7.8% per annum. Turning now to Slide 11, we've looked at some of the specific LNG developments in the fourth quarter. In Australia, the Queensland Curtis project started production and loaded its maiden cargo on to the Methane Rita Andrea, a GasLog Partners vessel. In the U.S., the Freeport and the Cove Point projects commenced construction and the Corpus Christi project announced that it had secured financing and expected to take FID in the first half of 2015. Exxon announced that they have signed an MoU with the Papua New Guinea government potentially to expand the PNG facility from 2 trains to 3 trains. And these positive developments occurred, despite the weaker oil and gas price environment. However we have also see some projects delayed or canceled in recent weeks. In Australia, the Arrow project was cancelled, but this was never in our forecast. And in the U.S., the Lake Charles project announced that they would probably delay FID from 2015 into 2016. However as I will demonstrate later in this presentation these short-term headwinds do not materially impact GasLog's conservative ship requirement forecast. So if you turn to Slide 12, many of you would have seen these charts when we presented the Capital Markets Day in December. The charts are provided by Clarksons, the world's largest ship broker and were updated this month with our latest ship demand and order book assumptions. What is interesting is despite the volatility in the energy market, the total ship demand number of 309 is only marginally lower than the 322 forecast at the beginning of December. But real changes in the current order book, which has increased, as some of the projects start to lock in their shipping requirements ahead of start-up. Based on this data Clarksons estimates a shortfall of roughly a 145 ships over the current order book. Turning now to Slide 13, you can see our own conservative forecast which predominantly include the Australian and U.S. projects that we outlined in this slide. We remain confident that these projects will happen, because they are either under construction, have taken FID, or have sold the majority of their volumes. Under this conservative forecast, we still project a shortfall of around a 100 ships by 2020 which is why we remain confident we will be able to achieve our vision of a consolidated 40 vessel fleet by 2017. Turning now to Slide 14, since before our IPO in 2012, we have believed in the long-term secular growth trend in LNG. But we have also made clear that within this upward trend there will be periods of weakness. The short-term market in 2015 is one of those periods of weakness and once we do have a small amount of exposure to the spot market, our strategy of building the business with a majority of our assets matched with long-term fixed-rate business is proving to be the correct one. Let's now turn into short-term market, also has some potentially positive knock-on effects for established companies such as GasLog. It dissuades speculative newbuilding orders, at the time when shipyards are eager for new business. The fall in oil price has given capital allocation even greater importance for many of the oil and gas majors. As many of these companies look at their overall portfolios we expected to see divestment in non-core assets from the balance sheet, such as LNG carriers. Finally, once we have seen volatility in the short-term market, the medium and long-term rates for new vessels placed against the new projects have remained solid, as I would be disappointed if we were not able to place more vessels against attractive longer-term contracts in the near future. And of course we are able to do this through the recycling of capital through GasLog Partners. Unlike many of the marine MLPs, the robust pipeline have dropped down vessels, mean that GasLog Partners continues to trade well, and is currently trading at a yield that is most favorable than when we IPOed that business in May last year. We believe that adding more vessels roughly with attractive contracts with first class counterparties, will drive significant future value for GasLog and our shareholders. And we expect 2015 to be another active year for the company. With that, I would like to open the call to questions.

[Operator:]

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

[Jon Chappell:]

I just want to ask a couple strategy questions again, basically rehashing from the Capital Markets Day and then probably last quarter, but just to get an update on thought. So when you think about the most likely acquisition candidates for GasLog, you would think that the easiest or low hanging fruit might be speculatively built ships by companies that didn’t have the platform in place that might order these ships directly post-Fukushima. But it would also appear that probably most of those ships don't have contracts attached with them, otherwise those orders would keep them. So how do you think about being able to acquire these ships from let's call it less well-capitalized owners without contracts, and you need to get a contract on the back of those before you bring them into the GasLog fleet?

[Paul Wogan:]

Yes, I mean as we look at that, Jon, you're absolutely right, it's that the uncontracted vessels which will probably come open. I mean, I think as we showed with the GasLog Chelsea we are there to take vessels, if we feel that there is real value in to be had in those vessels. And so I think we look at each one of them on a case-by-case basis. But I think it would have to be compelling economics for us to go and take a ship which didn't have a contract against it at this point in the market. But as we saw with the GasLog Chelsea, those opportunities do arise, if the pricing point that people want for those assets is in our view too high then we won't to be tempted to take them.

[Jon Chappell:]

Okay. And then the second part to that question, it seems like lot of the new facilities that are supposed to come online in 2017 or 2018 that may not have ships on order for them today are having ships built by the off-takers directly for those projects. So when you think about your opportunity set for kind of a longer tail projects is it mainly kind of an Australia type event where may be the traders are taking that gas or do you see potential for U.S. projects or maybe you can build directly for the off-takers as opposed to GAIL or TEPCO or KOGAS building ships directly for their own off-take?

[Paul Wogan:]

Yes, I mean actually well GAIL is an interesting look. I mean GAIL has been in the market for a while looking for vessels, they will take them from third-parties. So I think they are an example of a company where as they take their U.S. volumes they will need to put shipping in place for that. And I think there's a number of companies like that, as I was saying in the prepared remarks, Jon, I would be disappointed if we weren't able to find some longer-term contracts in the near future for our ships based around the projects which been developed and coming on stream. So I think you will see certain off-takers building for themselves especially in the Japanese. But I think that given the scale of what we're seeing, the build out we're seeing in, especially in the U.S. I think there's going to be a number of opportunities for companies like GasLog.

[Simon Crowe:]

Yes, just to add to that Jon, we’re seeing quite a lot of [indiscernible] activity internally and we're looking at that and it is in response to people looking at their shipping needs in the next couple of years and getting in early to secure that tonnage and I'm quite pretty excited about what we see, but remains to be seen if we win those or not but certainly quite busy.

[Jon Chappell:]

All right. Great. And then just the last one has to do with the financing. I mean, Paul, you mentioned I think your last remark was about GasLog Partners and how your basically attractive cost of capital there. Just as we think about equity versus debt you can probably get still pretty decent bank financing as long as there's a contract in place. So should we just think about GasLog Partners as being the conduit to the equity markets? You talk about recycling capital and having GasLog Limited taking that capital from GasLog Partners as you sell assets down there and then using debt, just roundabout way of saying no using GasLog Limited equity to finance this growth strategy?

[Paul Wogan:]

So that's exactly how we think about it. You put it in one. The reason we set the GasLog Partners up for two reasons; it was to recycle capital up to GasLog Limited so there will be no equity needed at GasLog Limited, and also to enhance the valuation at GasLog Limited as obviously as the GP grows and the splits are reached with the enhanced valuation but primarily to fund the growth that we see, so your analysis and your synopsis is exactly right. Of course if we see just very compelling opportunity though there we will have to evaluate them on a case-by-case basis and we're growing GasLog Partners it's relatively small at the moment. But you hit the -- you hit it absolutely correctly that is the strategy that we're focused on, raise - use GasLog Partners to recycle capital and use debt at GasLog Limited. And actually the debt market with - we were very pleased with the response we got on the $460 million recently the financing we did for our -- the two BG ships we announced for Christmas. Very much the market is there and the pricing is good and its competitive and we're seeing increased interest in the GasLog name from other banks as well, so I'm pretty happy about that.

[Operator:]

And we'll now take the next question from Fotis Giannakoulis of Morgan Stanley. Please go ahead. Your line is open.

[Fotis Giannakoulis:]

I want to ask you about if you can explain to us what happened in the fourth quarter, we saw that the spot rate moved above $80,000 that was quite a surprise to a lot of us that we are -- with the understanding that the market is currently oversupplied. What drove the market much higher and if you can give us a description of how the market is right now, how many of the newbuildings they were delivered last year and early this year, they still do not have contracts and when do you expect that these vessels will be absorbed?

[Paul Wogan:]

Yes, I mean, I think, as we look at the rates sort of in the fourth quarter and what happened, on average they were in the $80,000. But it's -- the spot market is such a small part of the overall LNG market and it doesn't need too much to happen to suddenly you find a somebody who needs a ship, there isn't one there that's called or whatever and so you can get spikes in that market and I think we saw that again in the fourth quarter. And I think what happened this quarter though as we've seen -- approximately the same number of fixtures so far into this quarter as we did this time last year, what's changed has been the duration of the fixtures, it's probably below half year, average last year was around 40 days per voyage, this year it's under 20 days. And what's driving that is that the product is tending to stay within the either the Atlantic Basin or the Pacific Basin rather than sort of crossing between, because you've seen the very mild winter in the Far East, which has brought down the pricing there and so we haven't seen that price arbitrage moving between the two. And I think that's why you've seen the rates falling this quarter. There are a number of ships delivered into the market, a number of ships open. But we're also just on the cusp of seeing the new production coming on stream, the new production started in Algeria, we've got the Curtis I train in Australia, and then as you move through the year, you have two more projects coming on in Australia. So I think as we see, as we go through the year, you will see the -- so the oversupply in the market gradually absorbed. And so I think as you go into the second half of the year we will see these rates increasing.

[Simon Crowe:]

I think if you look at the sort of order book and how it delivers, there are about 30 delivering this year and 40 delivering in 2016. And this year, our calculation is about sort of seven or eight on fixed this year, and there's only about four or five on fixed or even less about two or three on fixed in 2015. So with this quite a good when you look forward through to 2019 a lot its fixed tonnage. So I think, as Paul said in his prepared remarks, you're seeing some short-term volatility in the spot rates, but we hope and I think it will adjust in the second half of this year.

[Fotis Giannakoulis:]

Its seems that with all the projects that are coming in 2016/2017 that are going to be quite a good demand for all the vessel you've raised still do not subcontract. But given the gas oil and gas prices, what we see today is that Asian gas prices are even lower than European gas prices, which personally I don't remember I have seen that before. Can you explain why is that? And if you think that the gas prices they can have any impact on the timeline of the projects that -- on the projects that you have demonstrated in your presentation?

[Paul Wogan:]

Yes. I mean, I'll take the second question first. I think the projects that we're putting in our conservative view, I think, well we're pretty confident we'll go ahead on the timing. I think the pricing that we're seeing may have an effect later in the decade and through past 2020. But obviously, these prices change very quickly. So it depends on how these -- the prices change in the coming months. But in terms of -- I agree with you, we're now seeing a situation where the pricing in the east is actually lower than in the west. So for example, there was a tender for some product to recently out of Australia, where a number of traders were looking to take the Australian product into the Atlantic Basin. There is quite a bit of demand in South America right now. So we may actually start to see the swap bound where we're seeing cargo from the east actually been taken out to the west.

[Fotis Giannakoulis:]

And this question is mainly for Simon. And Simon, you mentioned earlier in -- and you have a slide in your presentation about the sum-of-the-part valuation. But unlike the Investor Day, you haven't given us any data. Would you able to give us your estimate of what is the sum-of-the-part of the company right now?

[Simon Crowe:]

Well, we've laid it out pretty clearly I think at the Investor Day. And we're talking about $30 to $40 per share. I seem to recall in the Investor Day and that's just got better with the pipeline being extended on the two BG ships that we added just before Christmas. So we're still very, very committed to that sum-of-the-part valuation. And we're just shown that we can get to the first split, the first pair. The GP valuations starts to increase. So that's all very, very positive. The MLP has been trading extremely well in the volatile markets, we think it's one of the premier shipping MLPs in the space, it’s a better yield now than it was at the time of the IPO investors have made some money. And we remain committed to that 10% to 15% growth forecast that we got. So that's all positive for GasLog Limited. All very, very positive, as I said, in the answer to the questions earlier. It's all about recycling capital, but it's all about enhancing that valuation as well. So we have not took the MOP. We've taken great care about who we've done it. We've done great care about the dropdown about the prices. We've done everything we think the right way. And we think that's paying off now. And we think that will pay off going forward as we look to dropdown and recycle capital and built towards our 40

[Fotis Giannakoulis:]

Thank you. That's very helpful. One last question. And it has to do about your capital structure. The way that you've approached your growth so far has been through bank debt and financing with low cost bank debt, the acquisitions but at high levels, which -- that means that you have very high debt repayment. And I want to ask in relations to your dividend. Are there any thoughts about potentially funding our additional growth with more equity or with lighter amortization or even with bonds or any other instrument that will allow you to increase your free cash flow after debt repayments and that will allow you to raise your dividend even further? How shall we think of the dividend at the parent level?

[Simon Crowe:]

Well, the simple answer to that one is to look at the GP cash flows and look at the growth from GasLog Partners in terms of funneling that cash flow through to GasLog Limited at dividend shareholders. So that's a sort of -- that's a good place to start, Teekay have done that recently. We're at very early stage in terms of our GasLog Partnership. But I think in terms of capital structure, we're constantly reviewing that because we've been growing so quickly. We view local bank debt. We've got some very good terms and long amortizations. We did the GasLog Partners refinancing and got 20-year amortization, so -- which matches the life of our asset. This is what we're trying to do. We've mixed in a little bit of a bond there with the $140 million roughly of Norwegian bond that we got in there that's non-amortizing. But the strategy is very much the same as it was; it's the same as it was at the Investor Day. To look, to recycle capital up to the parent, not issue equity at GasLog Limited, use GasLog Partners as the equity provider, use the debt markets and the capital markets more broadly to put pieces of capital to work and put that in clearly with deleveraging when we dropdown which we like which now allows to do things like the BG transaction we did before Christmas, because we've got the headroom to do that. So it's all, it's very dynamic, and we're constantly looking to see how we can do the next deal better and cheaper and driving our cost of capital down, and as I said earlier, GasLog Partners provides us with a very low cost of capital. And it's all about risk adjusted returns; it's about making sure that we've got the firepower, the dry powder to act on these opportunities. The volatility in the energy market is definitely throwing up a lot more opportunities and we're looking to see how we can make those work and fund those, but based on our strategy recycling capital from GasLog Partners using debt, and using other debt instrument, as and when we can do that. So it's a very dynamic situation but very acutely aware of the drivers and the valuation that we need to be focused on.

[Fotis Giannakoulis:]

Thank you, Sam. And if you allow me to insist a little bit on that because you see that your dividend is quite much lower than your earnings. And in my model it seems that you're delevering at the same time through your cash flows since your debt repayments are higher than your deprecation. Are there any thoughts to at least that you will, you can get some non-amortized debt portion or to bring your debt repayments closer or what up to levels of your deprecation? And if I understand that the long-term goal about the BK strategy and linking after you have done a lot of dropdowns, your zippy was your dividend but until then what is your thinking about dividend growth at the parent level?

[Simon Crowe:]

Well again we're very committed to growing the dividend. We've grown it quite considerably over the last couple of years. We've always been to raise the divined. We're committed to that. We obviously have to take a view and see what's in front of this. In terms of non-amortizing debt, we got if you think about the two BG transactions we put on with non-amortizing debt and then we refinanced part of that GasLog Partners we've just put on the third BG transaction with non-amortizing debt. We've got on non-amortizing bond. But there is a balance to be had there. We're trying to balance off the depreciation with the amortization. We're trying to get those free cash flow in line but we're still early days in our growth and we've been able to deliver consistently the growth and the dividend, we're committed to that. But we're also committed to having a robust conservative capital structure that allows us to go and execute on acquisitions newbuilds things like the Chelsea as and when they come along. So there's always a healthy balance and there's a healthy debate of the goes-on, but we're very committed to growing that dividend as and when we see an opportunity to do that.

[Operator:]

We will now take the next question from Michael Webber from Wells Fargo. Please go ahead your line is open.

[Michael Webber:]

I just wanted to follow-up on a couple of those questions. And first, for Paul, you kind of talked around the tender environment and you gave a lot of really good detail in debt. Just curious if you could kind of quantify at least right now the kind of tendering activity you're seeing just on a vessel-by-vessel basis?

[Paul Wogan:]

I would say if you're looking at, without giving too much away, right now probably in the market there is -- there active tender is out for probably close to around 20, 25 ships.

[Michael Webber:]

In terms of how that would breakdown without getting into specifics, are we talking three or four ship tenders, is there a big chunk of that especially with --?

[Paul Wogan:]

I think it sort of -- there is a bit of both. There are one or two larger tenders and then there are somewhere you're getting as you say three to four ships even down to one to two ships for some of the tenders. So a cross-section really is the best way. But I mean one of the ones that's been quite active in the market is obviously the GAIL tender which is the nine shifts for example so.

[Michael Webber:]

Right. And they just got pulled away because of the built in any of your component. So to imagine they've certainly hit the mark, but that's within that 25 vessel tender number?

[Paul Wogan:]

Exactly. I mean they pulled it because of they weren't getting interest because of some of the terms in that tender, they will be back, they need the shipping for that business, so they have to come back and find ships to move that cargo.

[Michael Webber:]

Okay. Fair enough. Simon, you had kind of touched on this, I guess in different ways but may be a bit more directly, just around your thought process for valuation for M&A, and then I guess acquisitions I guess the parent level on them in terms of the feasibility of dropdowns. I'm just curious when you think about the valuation on newbuild -- other second carrier to newbuild, what the BG shifts. Has the thought process or framework change at all just given the bump and volatility down at the MLP, the broader MLP level and the associated volatility I guess with the cost of capital down there? Does that bring your hurdles down a bit? Has it changed your thought process at all where it is something you kind of look past and kind of think about on I guess on a longer-term basis?

[Simon Crowe:]

I think we look when these ships going on for 35 years. So I think what the volatility has done it's thrown off opportunities. Now way we've tried to be very disciplined about hurdle rates, about our cost of capital, driven that cost of capital down, but our hurdle rates remain pretty robust and pretty similar to what we've seen in the past. Obviously we look everything on a case-by-case basis depending on who it is, what the ship is, what the technology is, whether how long is the contract on it. So it's all on a case-by-case basis. But broadly speaking, if you do -- if you take the overview in high level mode, not a lot of change in terms of the discipline, in terms of the analysis, in terms of the economics of these transactions. But I do believe that the volatility has thrown up some interesting opportunities that perhaps wouldn't have come across our desk have we not seen the fall in the oil price. So I think we need to be at cost of capital, we don't need to shy away from that. We know what our cost of capital is roughly, and we need to beat that, and be sure that we're derisking our business as much as we can. And we remain committed to that long-term strategic goal of getting long-term cash flow. That's the key here. Our strategy has always been focused on that, one or two open ships around that, but very much build the solid financial base, feed the pipeline to dropdown into GasLog Partners that and so feeds the valuation of GasLog Limited and we carry on and drive toward our 40

[Michael Webber:]

Sure. And not to believe at the point but if I think about the entry multiples at the parent level would dictate a certain required cost of capital at the MLP so as to make the dropdown are feasible. If you kind of go back to those entry multiples that volatility is going to cut those ways in terms of the way people think about these transactions. Has there been any change in terms of when you're talking to GE or anyone else in terms of the way they think about valuing these carriers or these projects to where you might be able to bring the entry multiple at the parent level, down a quarter, or half current, which makes a pretty sizeable difference obviously when you're talking about a dropdown map. I'm just curious as to whether that that particular point whether there's been any movement or change in thought process by either you guys or your potential counterparties?

[Paul Wogan:]

No, I think, Mike, saying in the opening remarks a little bit but may be not answering the question that you were asking. But just saying that the -- as we look at it the sort of medium long-term business seems very sold, seems to be holding at the rates that we've been doing in the past. And as I said, I would be disappointed if weren't able to take long-term contracts against those kinds of rates. But we -- so that's been I would say very, very interesting, very kind of -- given the volatility was see around the short-term market, very stable position on those contracts both neither sort of up nor down at this point.

[Simon Crowe:]

Yes. And I agree. I mean, if you're sort of asking people drop that price expectations, well --

[Michael Webber:]

Basically, yes.

[Simon Crowe:]

Not really. Yes. Not really. And also strong --

[Michael Webber:]

Much better way to put that question. Thank you.

[Simon Crowe:]

Thank you. I thought where we're going. But -- and not drop the day rates, as well as Paul said, it's been very, very stable, very, very stable and that sort of expectation. No doubt about volatility in the spot market. But when you look at the long-term, as Paul said, it's very consistent, very solid. And again, we think it's going to get very tight in the coming years. So not a lot of change. But it has flushed out opportunities that wouldn't have been there before. And obviously, we hope something like a Chelsea comes along now and again in -- you see real discounts coming and expectations. But they need sort of events to happen in individual companies and you need some sort of distracts to really flush that out and we haven't seen that yet too much. So we just see more and more opportunities.

[Michael Webber:]

Okay. Fair enough. One more for me and I'll turn it over. And it's a bit I would imagine a bit more theoretical. But in terms of looking outside the carrier space and new opportunities, would you say that there you're more likely you're further along with that with moving into different arena or tangential arena today than you were to say six months ago? And then specifically, when you think about things like FSRUs, or other assets, is there a possibility to the degree of kind of reverse integration now in terms of taking a stake in another pipelines or one of these projects that could kind of give you a foot in the door to participate from a carrier perspective kind of at the ground level which I think was the previous question? Just curious as to where you guys stand on that and whether something like that, specifically in terms of kind of that reverse integration is feasible?

[Paul Wogan:]

I think that when we look at the possibility though into us. We've been actually very busy on the LNG shipping carrier side and enjoyed the fruits of that and the returns from that. But certainly as we look at it, Mike, I think the -- for us the FSRUs base is interesting and becoming more interesting because you may have seen a couple of days ago the European Union with the energy policy trying to win themselves off the Russian gas and talking about how do they get more gas from other areas into the EU, for example. And we're seeing along independent projects where they are wanting to have fast solutions for power plants et cetera with floating regasification. So that for us has been something that we have looking at and we've been moving along the line, I think that's an area of interest and potential growth going forward. In terms, I think the anything we do that will be very much based around the marine side of it. Because from our point of view that's where we think we have the core competence and a bit of a competitive advantage things like pipelines et cetera. Don't really -- I don't think we have anything to add in and anything that sort of on the land based side as such.

[Simon Crowe:]

Yes, I think we're looking just outside the core and I would say we're further along in our sort of thinking. And as Paul says the -- some of those marine LNG adjacent business are attractive and where we continue to evaluate them.

[Operator:]

And we will now take our next question from Chris Wetherbee from Citi. Please go ahead. Your line is open.

[Chris Wetherbee:]

Yes. I was reading through the press release and I was little surprised to sort of see on the BG acquisition vessels that there was the potential to try to change the omnibus agreement on those specific ships to kind of delay the potential option for partners and the potential dropdown there. I guess when I think about sort of the delivery day and then sort of the expected sort of time window beyond that a figure that would get you out closer towards midyear or may be something from an equity raise perspective would be a little bit more feasible at GLOP and particularly with the dividend or the yield being a little bit more attractive relative to IPO. I guess, how should I think about that, I mean, when you think about sort of what the hurdle is at the partners I guess specifically to those two ships, is there something else we should be thinking about. I just want to kind of understand that a little bit better.

[Paul Wogan:]

Well, I suppose, you look at the omnibus agreement for ships that we buy with basically the way it works is that the partner has 30 days to declare whether they want to buy those ships from us. The MLP is obviously is not a year old yet, it isn't a shelf filer. We think it just makes sense for us to give some more optionality to the MLP to give optionality around their ability to buy those ships from us. That's the sort of the way we think about it and we think it's advantageous for both parties to do that.

[Chris Wetherbee:]

So you're just sort of looking at a timeline if you got to play it out, it only gives you I guess may be about 30 days post sort of being a more seasoned filer, so it's just sort of the optionality of time to not force their hand is kind of the thinking behind that, I'm guessing.

[Paul Wogan:]

Yes. Exactly right.

[Operator:]

[Operator Instructions]. We will now take the next question from Herman Hildan from Klaus and Platou Securities. Please go ahead. Your line is open.

[Herman Hildan:]

Hi, just a few short questions. I mean, looking ahead now you have a pretty meaningful way when you would expect from last year starting from -- and this year 2016 and 2017. There has been some optimism in relation to that. Do you see any signs of that in the charter market? And kind of how do you think about the few vessels you have spot expose, will you kind of keep some spot exposure regardless of how the market develops just so kind of that additional volatility in your earnings or will just fix out all vessels for the MLP?

[Paul Wogan:]

Yes, I think it is interesting. As we have talked about, I think you're absolutely right. We're seeing quite a lot of new capacity coming on in 2015, 2016, 2017 and I think that market will tighten quite quickly as those projects come on. We've always said that we'd like to keep flexibility around those open ships. The value we have with our long-term portfolio and our fixed cash flows means that with those open ships we can be a little bit more opportunistic, if you like, around what we do with them. So having them in a spot market I think has been very helpful for us because it helps to introduce our product, if you like, to other customers as well, and so we've liked that side of it. But I think it is also fair to say that when you see spot markets move quickly that sometimes means that you can lock in contracts at a quite good rate. And so we'd be open to doing that as well, Herman, as that market develops. So I think the best way to say is we would be opportunistic with those ships as they go but having some exposure to the spot market I think is interesting for us and does give us the potential for upside.

[Herman Hildan:]

Thank you. And just the final short question. I mean, one of the opportunities that could arise or I mean, if you look at the yards it doesn’t seem to be a lot of offshore oil rig activity in the near future and clearly there's been a lot of the questions about what will happen to the yard pricing. I mean, the LNG space its slightly different though because of the limited market for yards, but do you see any indications or do you feel comfortable or see it likely that in that -- in the next, call it, year or so you would be able to get a better prices up the yards in light of that situation?

[Paul Wogan:]

Yes, I mean obviously, the yards have been struggling for orders. What's been interesting really is I think in a way what we're seeing in the short-term market has been helpful because what it's done is it has actually stemmed the speculative orders from people just to grab and order ships without contract. So I think there are, as we talked about, there is this need for ships. We quoted Clarksons Research about 145 ships through to 2020, and I think the yards see that and so to certain extent would try to keep their prices. But if there's capacity there, there may be the ability to see some lowering of those prices over the next year or two, but I don’t see that being any meaningful move at the moment. I think the yards are working hard to try to keep those prices. I don’t think there's huge amount of margin in it as it stands. So I'm not expecting huge downward price movements in the yard prices.

[Herman Hildan:]

Yes. And just respond to get it on record, if you went to yards to order new ships you so you wouldn’t look at 2020 deliveries, right?

[Paul Wogan:]

Yes, that’s correct.

[Simon Crowe:]

Yes.

[Operator:]

Thank you. There are no further questions in the queue at this time.

[Paul Wogan:]

Okay. Well thank you very much for joining us everybody. It's been a pleasure and look forward to speaking again at the end of the next quarter.

[Simon Crowe:]

Yes, thank you very much.

[Operator:]

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