GasLog Partners LP
Q4 2020 Earnings Call Transcript

Published: 22 Feb 2021

[Operator:]

Good morning. My name is Michelle and I'll be your conference operator today. At this time, I would like to welcome everyone to the GasLog Limited and GasLog Partners Fourth Quarter 2020 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question-and-answer session. As a reminder, this conference is being recorded. On today's call are Paul Wogan, Chief Executive Officer of GasLog Limited and GasLog Partners; Achilleas Tasioulas, Chief Financial Officer; and Alexandros Laios, General Counsel. Joseph Nelson, Head of Investor Relations, will begin your conference.

[Joseph Nelson:]

Good morning or good afternoon. And thank you for joining the GasLog Limited and GasLog Partners fourth quarter 2020 earnings conference call. For your convenience, this webcast and presentation are available on the Investor Relations section of our websites, www.gaslogltd.com and www.gaslogmlp.com, where replay will also be available. Please now turn to slide 2 of the presentation. Many of our remarks contain forward-looking statements. For factors that could cause actual results to differ materially from these forward-looking statements, please refer to our fourth quarter earnings press releases. In addition, some of our remarks contain non-GAAP financial measures as defined by the SEC. A reconciliation of these measures is included in the appendix to this presentation. The agenda for today's call is shown on slide three. Paul will begin with a brief discussion of today's transaction with BlackRock's Global Energy & Power Infrastructure Fund, following which Achilleas will then walk you through GasLog's fourth quarter financials. Paul will then review the partnership's fourth quarter results and outlook and Achilleas will present its financial position. The call will conclude with Paul providing an update on the LNG shipping and LNG commodity markets. There will be no question-and-answer session, following GasLog Limited's presentation today. However, we will take questions on the partnership's fourth quarter following the prepared remarks. With that, I will now turn it over to Paul Wogan, CEO of GasLog Limited.

[Paul Wogan:]

Thank you, Joe. And welcome to everyone on the call. Turning to slide 5, we announced today that GasLog has entered into a private transaction with BlackRock's Global Energy & Power Infrastructure Fund. They will acquire approximately 45% of our common shares, representing all the outstanding common shares that are not held by certain wholly owned affiliates of the Livanos family and the Onassis Foundation, collectively referred to as the rolling shareholders. The rolling shareholders will continue to hold approximately 55% of our outstanding common shares. The highlights of the transaction are as follows. BlackRock has agreed to pay $5.80 per common share or a 17% premium to Friday's closing price and a 22% premium to the 30-day volume weighted average share price. Acting on the recommendation of a special committee comprised solely of independent and disinterested board members, GasLog's Board of Directors unanimously approved the merger agreement and the transaction and recommend that non-rolling shareholders vote in favor of the transaction.

[Achilleas Tasioulas:]

Thank you, Paul. Turning to slide 7 for a review of GasLog Ltd.'s fourth quarter and fiscal year. As you can see from the table on this slide, our fleet performed with approximately 100% uptime during 2020 despite the challenges presented by COVID-19. Our revenues and adjusted EBITDA for the fourth quarter, excluding those attributable to GasLog Partners vessels, were approximately $108 million and $78 million respectively. For the full year, revenues and adjusted EBITDA, again excluding contributions from the partnership's vessels, were approximately $340 million and $275 million, respectively. Adjusted earnings per share for the fourth quarter were $0.24 per share, taking the total for 2020 to $0.40 per share. Our dividend was maintained at $0.05 per share for the fourth quarter. And for the full year, we returned $0.30 per share as a cash dividend. Operating expenses were $14,975 per vessel per day, in line with our guidance for 2020. Slide 8 presents our consolidated balance sheet. We ended the year with $367 million of cash, which includes approximately $148 million related to the drawdown of our newbuild ECA facility ahead of the delivery of the GasLog Galveston in early January. Our leverage, as measured by net debt to trailing 12-month adjusted EBITDA, was 7.7 times at the end of 2020, while our net debt to capital was 62%. With that, I will then turn over to Paul to review the partnership's strategy and outlook.

[Paul Wogan:]

Thank you, Achilleas. On slide 10, I'll discuss GasLog Partners' fourth quarter highlights. It's been an active several months since our last call. And during that time, the strategic review was completed. And the board concluded that the partnership's existing corporate structure and strategy is in the best interest of unitholders. We concluded a new two-year charter for the Methane Alison Victoria with Cheniere, increasing our 2021 charter coverage to approximately 80%. We repaid $19 million of debt, bringing our total debt repayments in 2020 to approximately $107 million. And finally, we expect our capital allocation this year to focus on debt repayment to reduce our financial leverage and improve our fleet breakeven and cash flow capacity over time. Turning to slide 11. Following a thorough review of the partnership's corporate structure, assets, financial position, competitive environment, and current and expected LNG shipping market, the board, with the assistance of an independent financial adviser, determined that maintaining our existing corporate structure and strategy is in the best interest of the unitholders. The LNG market is commoditizing as it matures. As a result, the trading of LNG on a spot and short-term basis is growing much faster than the overall demand for LNG. The top right hand graph shows that more than 20% of all LNG movements last year were traded on vessels with a shorter duration of less than three years. Similarly, the number of spot and short-term fixtures for LNG carriers has grown by over 130% since 2015 and 19% compound annual growth rate. We expect continued growth in the short-term activity in the years ahead. With a leading commercial and operational platform through our relationship with GasLog Ltd., along with our scaled fleet of 15 LNG carriers. We believe the partnership can become a leading operator in the spot and short-term transportation of LNG. For example, last year, the partnership and parent combined concluded the highest number of spot and short-term fixtures of all independent shipowners according to the data from shipbrokers, Fearnleys. In addition, the partnership has no debt maturities until 2024 and no corporate level debt. With our focus on debt repayment this year, we expect to continue to strengthen our financial position. Taken together, we believe our financial stability, operational and commercial leadership and a growing market for our services present a compelling investment proposition.

[Achilleas Tasioulas:]

Thank you, Paul. Turning to slide 15 and the partnership's financial results for the fourth quarter. Revenues for the fourth quarter were $85 million, adjusted EBITDA was $59 million and adjusted earnings per unit were $0.38 per unit, 12%, 13% and 17% declines respectively compared with the fourth quarter of 2019. Financial results for the fourth quarter of 2020 compared with the fourth quarter of 2019 were impacted by the expiration of the initial multi-year chapters of four of the partnership's steam turbine vessels. However, revenues, adjusted EBITDA and adjusted EPU show increases of 16%, 26% and $0.27 per unit respectively compared to the third quarter of 2020, primarily due to a recovery in the LNG carrier spot rates as Paul will discuss later.

[Paul Wogan:]

Thank you, Achilleas. Turning to slide. Poten reported 113 spot fixtures in the fourth quarter and a total of 450 for 2020, an increase of approximately 50% over 2019. The increased spot market liquidity was underpinned by the increasing volumes of spot LNG, aided by the growing participation of traders in this market and by resilient LNG demand. Rising spot market liquidity should create opportunities for us to maximize the utilization of our fleet, whilst looking to use periods of market strength to fix vessels on term charters, a strategy we successfully used this winter. The chart on the right shows the decline in headline spot rates in recent weeks as the northern hemisphere winter subsides and we enter the seasonally slow show shoulder months. Further ahead, should the global economy continue to recover with the rollout of COVID-19 vaccines, we expect the LNG carrier spot market to improve in 2021 relative to 2020. In particular, we expect many electric US cargoes to be shut-in during the upcoming summer months. European gas storage levels are presently at around 40% compared to a five-year average of 46% and 64.5% at this time last year. We expect European restocking to create opportunities for US LNG, and hence for LNG shipping throughout the coming months. However, we must caution that the order book for LNG carriers remains high, with deliveries peaking this year, which may offset an increase in LNG demand or ton mile growth. Slide 19 shows LNG demand during 2020 and early 2021. Despite the COVID pandemic, LNG demand proved resilient and increased 1% in 2020, according to Poten. This is in stark contrast to the absolute demand destruction for oil last year.

[Operator:]

. Our first question comes from Greg Lewis with BTIG.

[Gregory Lewis:]

Paul, I guess some of my questions might be related to GasLog. So, I guess I apologize for that in advance. And you touched on it. Clearly, the GasLog fleet – we'll call it GLOP, it eventually – there will be times to renew it. And so, as we think about that, and knowing that, I believe the parent will still own shares – the distribution ownership part of GLOP? How should we think about the ability for GLOP to acquire assets? And just really – yeah, I'm kind of curious about that because. And just bouncing around here, should we expect GasLog Partners to be ordering newbuilds as well? I guess that'd be my first kind of question.

[Paul Wogan:]

I think we've been on a somewhat of a divergence strategy between GasLog Ltd. Gaslog Partners for some time now. And GasLog Partners I think is more and more standing on its own as a company. I think we see opportunities for the purchase of secondhand vessels, opportunities through GasLog Partners for consolidation. And, of course, I wouldn't rule out, because it's open to it, that it could place orders itself for newbuildings. What's interesting, I think, right now that when we look at the newbuilding space is two things, I think. One, we're not really seeing the returns that we would like to see there. We've seen a couple of shipowners being willing to fix that rate which wouldn't make sense, I don't think, for the partnership. And I think for us to order newbuildings, we will be very focused on the potential life of those newbuildings. Historically, writing down ships over 30, 35 years. I think if you order shipping 2025, 25 years later, we're at the IMO 2050 regulations. So, whilst I think the partnership would definitely look at newbuildings, I think we would have to be, one, writing the ships down over a reasonable period of time; and two, making sure that we were making returns on those vessels which were commensurate with our requirements. But certainly, that's an option for GasLog Partners in the future.

[Gregory Lewis:]

A question on the market. Thank you for the slide deck. Always very helpful. Clearly, there was an uptick in spot activity this year. I guess what I'm wondering is, were the cancellations that were widespread in the middle of the year, did that kind of overinflate the actual percentage of the market that is going spot? And on multiple levels, was there a vessel that traditionally moves cargo that did not and then that that cargo – just kind of how we should thinking about – realizing that the spot market is gaining in depth every – breadth and depth every year. Was this year a little bit of an anomaly? Or do we think this is kind of the new normal?

[Paul Wogan:]

It's a really good question, Greg. We took a look at that and the commercial team. And originally, we felt it may have been due to the fact that we were seeing some cancellations, shut-ins in the US. But we kind of came out at the end of it thinking, actually, no, we don't think that was necessarily a major factor that we just are seeing with the growing production in both Australia and the US more cargoes which are not contracted in and which are open to be fixed and more trader activity coming in, buying cargoes and then trading those cargoes. I think the sort of the depth of liquidity we saw this year, we don't think is a one-off or anomaly. We think it continues, and in fact, we think it increases.

[Operator:]

Our next question comes from Ben Nolan with Stifel.

[Benjamin Nolan:]

I wanted to get a few things and I know I don't want to monopolize time. But the one thing – and again, apologizing. I don't want to overstep into the GasLog Ltd. territory. But as you do think about, let's say, things about, like FSRU projects, for instance, the Alexandroupolis or whatever, and where, let's say, conversion vessels are appropriate, does this transaction at all – or does the public versus private or whatever, does it change how that process works in terms of what vessels go where?

[Paul Wogan:]

I don't believe it does, Ben, because apart from the transaction we talked about GasLog, the relationship between GasLog and GasLog Partners remains the same. So, if you like, we've had those issues around which ships, et cetera, get allocated previously. You're keeping the same management team in place, who I think are focused on doing the best service for both companies. And it's very rare that you have a situation where you have one vessel – you have two vessels which are exactly the same position and exactly in the same place to do a cargo or to do a conversion. There's always a reason why one is better than the other. And so, we'll do that. And of course, the conflicts committee of GasLog Partners will continue to operate and make sure that everything is done in the correct way. So, I don't see that the transaction that we've announced today would change that in any meaningful way.

[Benjamin Nolan:]

Maybe I'll smash two into one here. Let's do it this way. Knowing that you don't usually give much color around specific rates, with the Methane Jane Elizabeth with a two-year contract, any at least rough context, just because we don't see a lot of two-year steam contracts? And again, a completely separate question, but we'll merge them here. As we look into the summer months and last year, as Greg was talking about, with downtime, but this year, it potentially could be a little bit different or at least we sell differences with respect to Asian demand and the limitations around the Panama Canal. Could you maybe talk through sort of what you would envision that ratio of number of ships per cargo to look like over the course of this summer, assuming that we don't have massive shut-ins or whatever out of US liquefaction and whether ships go through the Panama Canal or Africa or whatever. So, appreciate there's a lot in that. But if you could maybe shed some light on those two things.

[Paul Wogan:]

First of all, in terms of the steam vessels in GasLog Partners, we can't really talk about commercial terms because we do it privately with the charters. I think what I would say is that what we've been focused on with our ships, as we look at it, kind of a portfolio for GasLog Partners is, making sure that we cover our kind of costs, OpEx and financing costs on those vessels and then leave a couple open that we're open to the market where we can hopefully do quite well as we did with a couple of ships in the quarter. So, that's as we focus on it – if you think about making sure that we're above breakeven on those vessels, that kind of can give you a sort of view to the pricing on the last ship that we did. In terms of Asian demand and Panama, to be honest, Panama trying to increase the amount of availability slots for LNG ships that are also going to be moving to ships going through nighttime, et cetera. I think that's really positive because, in a sense, the Panama Canal contributed to the strength in the market. There were points in the winter when there were 10, 12 days delay for LNG ships going through. But LNG ships going through Panama is still double the average duration/distance than for ships generally in the LNG trade. And so, what I wouldn't like to do is for the problems in the Panama Canal to start to crimp demand in Asia. So, yes, if a ship goes via Cape of Good Hope, it's a lot longer, 3000 miles longer, takes longer time. But I think having a well-functioning Panama Canal for LNG is really quite important for the long term. And we have been, I think, heartened by the fact that the Panama Canal are looking to make these changes to increase capacity through there because I think having the ability to be more ratable, I think, will be helpful to the flow of cargoes to the Far East in the longer term.

[Operator:]

Our next question comes from Randy Giveans with Jefferies.

[Randy Giveans:]

I guess, quickly on that follow-up for that Jane Elizabeth, is that a fixed or floating rate charter?

[Paul Wogan:]

Fixed rate.

[Randy Giveans:]

Fixed rate, okay. Just confirming that. And I know it kind of touches on to GasLog, but was there any kind of bid for GLOP as well from BlackRock? And then, it sounds like there's still some open options for future strategies at GLOP? Is it planned to remain an MLP even with the relatively small distribution payout?

[Paul Wogan:]

On the first question, Randy, unfortunately, I can't talk about the deal and what was discussed and what wasn't on that part of it. But in terms of GasLog Partners remaining an MLP, at the moment, I think the intention is that that we will maintain as MLP. We already do our tax filings in such a way that it's not disadvantageous. Its tax filings as a C Corp. And we still believe that there could be opportunities in the MLP market in the future as a way to raise money. So, to keep that optionality I think is fine. We have brought down the cost there for GasLog Partners quite considerably. And also, we've taken out the IDRs. So, all of those things, I think at the moment make us believe that maintaining as an MLP is the right thing to do for GasLog Partners.

[Randy Giveans:]

Is there going to be a call on the BlackRock deal and GasLog to ask questions on that?

[Paul Wogan:]

We don't plan for that at the moment, Randy.

[Operator:]

Our next question comes from Chris Wetherbee with Citi.

[Christian Wetherbee:]

I think we kind of need to understand a little bit better sort of the differentiation between the two companies and sort of the strategic process that was run to kind of get a clearer picture why sort of GLOP is on the outside, while GLOG is sort of on the inside with this transaction. So, maybe you can avoid talking about GLOG to some degree, but I think it would be really helpful to kind of understand the strategic process for GasLog Partners and sort of why it sort of ended in a scenario without progress. I guess we're kind of just trying to understand what the differences were here. We understand the ownership differences, but outside of that, is there something we should be thinking about between the two companies.

[Paul Wogan:]

I think in terms of progress, Chris, I would say I think GLOP has been making quite a lot of progress over the last couple of years as it's been deleveraging, bringing down its costs, putting itself into a position where it can be competitive in what we see as an interesting spot market going forward. And I think the strategic review was pretty complete. The board worked with independent company, advisors to look at that, and determined that given the nature of the fleet and the structure of the business that actually there was a very good future for GasLog Partners as a standalone entity, taking advantage of what we think in the longer run will be a stronger market for the spot fleet. Slightly different. In a sense, the two companies have changed positioning, a lot more fixed rate business in GasLog Ltd. and more open exposure, but a lot less debt, et cetera, in GasLog Partners. So, as I talked about earlier, we've seen those two companies sort of diverging. We don't think that the right thing to do right now with GasLog Partners is to take it out of the capital markets.

[Christian Wetherbee:]

I guess in terms of the progress in terms of deleveraging further, I know you have just north of $100 million of annual amortization over the course of the next three years, I think, which will continue to sort of move that leverage number down. Where do you think you need to get to before it makes sense to start sort of – maybe pivoting more to a more of an offensive position, whether it be sort of acquisitions either in the secondhand market or potentially newbuilds, like you talked about a little bit earlier. Sort of what's that trigger point for you? Where's the threshold where you feel more comfortable?

[Paul Wogan:]

I'll maybe ask Achilleas to answer that one.

[Achilleas Tasioulas:]

I think, Chris, we have a plan to follow our scheduled debt amortization. That is about $370 million from 2021 to 2023. This is a significant amount of debt being paid down that will reduce the net debt to EBITDA. Of course, this also depends on how the spot market will develop. I think as we move on, we implement our plans, we delever, we reduce our breakevens, we become very competitive, there will be opportunities out there. And depending on the market and the nature of these opportunities we will be able to act fast and take advantage of them, either accelerating the deleveraging even further or taking opportunities on the growth side. So, it remains to be seen, I think, how the spot market will develop as we examine our basic options going forward.

[Christian Wetherbee:]

One last quick one. Obviously, GasLog owns a large chunk of GasLog Partners. Is there an expectation of what that ownership might look like going forward? Is it something that they're going to continue to own? Or should we expect that to come to the market at some point?

[Paul Wogan:]

No, I think we're very happy with our ownership in GasLog Partners right now.

[Operator:]

. Our next question comes from Omar Nokta with Clarksons Platou.

[Omar Nokta:]

I'll stick with GasLog Partners. And you did talk about this quite a bit in your comments and, obviously, in the Q&A. Your strategy is, I think, very key. And one of the options that you discussed or one of the items is kind of the idea of entertaining all value enhancing options for the MLP. And so, obviously, the main focus for now is leveraging. But in terms of strategy, what do you think is in store for the partnership from an asset based perspective? Do you still view GasLog Partners as being an LNG shipping company, or does it potentially change into other sectors or other assets?

[Paul Wogan:]

I think, right now, where we see our core competency is around the movement of LNG. So, I think for the foreseeable future, we see that. But I also think we have a core competence within GasLog as a whole, which is around moving very difficult, dangerous cargoes around the world. And I think we see LNG as a long-term complement to renewables, but I think as the world changes towards potentially hydrogen economy, carbon capture, et cetera, I think there will be opportunities for GasLog Partners within that area. I think the operating platform gives us the opportunity to look at those. But, certainly, for now, the focus is very much on LNG. I think there are some great opportunities which will present itself for us to create value for the unit holders, be that secondhand opportunities, consolidation opportunities, and just remodernizing the fleet at the right time with a potential sale of some of our existing ships. So, that's where the focus will be. But I think we have a very good platform on which to continue to develop GasLog Partners in the future.

[Omar Nokta:]

Just a follow-up. This has been a question that you've addressed in the past, and I think it came up on the last call, which is the residual value of the steam vessels, in general, whether it's for GasLog or for the industry. The steam ships don't make up a pretty significant piece of the overall fleet. And my question is, based off of what we saw this past winter and the spikes that we saw, have you seen any new developments with potentially what the residual value could look like for this sector or the segment of the vessel pie? Is the residual value, you think, improve from here? Is it still kind of wishy washy based off what you've talked about in the past?

[Paul Wogan:]

What's interesting, of course, is when you see reports of steamships earning in excess of $100,000 a day for two or three months, you can do the math and work out very quickly the earnings capacity of those ships. But, certainly, on the other side of that, as we do transition towards the sort of the IMO regulations and things, there is going to be, I think, a finite life for those vessels as well. So, I think we have probably have some of the – we have the most modern steam ships out there. We've shown that we have the ability to put those ships away on longer-term contracts and secure the utilization of them. But I think a strengthening market will be helpful for the residual value, but of course, we have to be mindful of – there will be a finite life for those vessels as well. So, I think balancing those two things up. We feel very comfortable with them at the moment, but it is going to be dependent, I think, on us making sure – or on the spot market developing in the way that we believe it will.

[Operator:]

Our next question comes from Michael Webber with Webber Research.

[Michael Webber:]

Just a couple quick ones. First, Paul, along the lines of the previous question, you guys have started doing a little bit more work downstream at GasLog prior to the deal? Obviously, it's a pretty small market. We've obviously seen some consolidation there already. I know that work has been incubated thus far at GasLog Partners. So, might be a little bit – putting the cart a little bit ahead of the horse here. But I'm just curious, as you think about that market specifically and potential opportunities out there, is there any indication at all as to whether that work would continue with the parent or whether that would be something you could potentially look at with – at least within the public – in the public sphere?

[Paul Wogan:]

I think it will remain, of course, that the commercial and operational technical service for GasLog Partners will remain with GasLog Ltd. But I think what's interesting, of course, is that you look at the fleet of vessels which GasLog Partners have, as we look at those infrastructure type projects, that's a very interesting – the assets which GasLog Partners have, it makes it a very interesting place. So, I think we'd continue to see us working on projects using those GasLog Partners assets. And an example, a couple of steamships we've got now are really not operating in the LNG carrier market as such, but operating in LNG carriers and operating as motherships and offloading and things like that. Those type of projects are really well suited to the GasLog Partners ships, and those will continue to be a big focus for us as we look to maximize the returns. So, no big changes there, Mike.

[Michael Webber:]

And just one more on the nuts and bolts of the transactions. The equity rollover, is it fair to say the existing holdings of the entities listed in the deck, it's the entirety of existing holdings or is it just a portion of those existing holdings that are going to be rolling over?

[Paul Wogan:]

As we put in the press release, what it will be is 55% will be rolled over and 45% will be offered to be taken out by BlackRock.

[Operator:]

There are no further questions. I would like to turn the call back over to Paul Wogan for any closing remarks.

[Paul Wogan:]

Thank you, Michelle. And thank you to everyone today for listening for your continued interest in GasLog Ltd. and GasLog Partners. We certainly appreciate it. And we look forward to speaking to you next quarter. And in the meantime, if you have any questions, please contact Joe Nelson. Thank you very much. Bye-bye.

[Operator:]

Ladies and gentlemen, this does conclude the program. You may all disconnect. Everyone, have a great day.