GasLog Partners LP
Q3 2019 Earnings Call Transcript

Published: 30 Oct 2019

[Operator:]

Good morning, my name is Shannon, and I will be your conference operator today. At this time, I would like to welcome everyone to GasLog Partners LP Third Quarter 2019 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question answer session. As a reminder, this conference call is being recorded.Today's speakers will be Andy Orekar, Chief Executive Officer; Alastair Maxwell, Chief Financial Officer; and to commence the call, Joseph Nelson, Deputy Head of Investor Relations.Mr. Nelson, you may begin your conference.

[Joseph Nelson:]

Good morning, and thank you for joining GasLog Partners third quarter 2019 earnings conference call. For your convenience, this call, webcast and presentation are available on the Investor Relation's section of our website, www.gaslogmlp.com, where a 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 third quarter earnings press release. In addition, some of our remarks contain non-GAAP financial measures as defined by the SEC. A reconciliation of these is included in the Appendix of this presentation.I will now hand over to Andy Orekar, CEO of GasLog Partners.

[Andrew Orekar:]

Thank you, Joe. Good morning, and thanks to everyone for joining GasLog Partners third quarter earnings call.Before I begin this morning, those of you who participated in our previous calls will undoubtedly notice our new presentation format. This is part of a larger rebranding initiative we’ve begun rolling out at GasLog and GasLog Partners to emphasize our priorities of safety, operational excellence and customer focus and we are delighted to be sharing this with you today.Moving ahead to today’s call, I’ll begin with our highlights for the quarter. Our CFO, Alastair Maxwell will follow with a review of our financial performance and dropdown pipeline, after which I will conclude with an update on the LNG and LNG shipping markets, as well as our distribution growth outlook. Following our presentation, we’d be very happy to take any questions you may have.Turning to Slide 3, you can see our highlights. After another strong quarter of operational and financial performance, today we reported our highest ever partnership performance results for revenues, EBITDA and distributable cash flow.During the third quarter, our dropdown pipeline increased to 14 vessels as our parent chartered the GasLog Singapore for 10 years as a floating storage unit. We repurchased $10 million of our common units at an average price under $20.We declared a distribution of $0.55 per unit or $2.20 on an annualized basis, an increase of nearly 4% over the third quarter of 2018. And today, we are reiterating our guidance of 2% to 4% distribution growth for 2019.Lastly, it gives me enormous pride to share that the crew of the Methane Alison Victoria was awarded “Crew of the Year” at this year’s IHS Markit Safety at Sea Awards. Remarkably, this vessel has had zero loss time incidents since their delivery in 2007.Turning to Slide 4, our record third quarter results reflected full quarter’s contribution from several strategic actions the Partnership has executed in the last twelve months including two accretive vessel acquisitions, the elimination of our GP’s incentive distribution rights, a new 3.5 year charter for the GasLog Shanghai and most recently, the accretive repurchasing of our common units.Taken in combination, these steps have significantly improved our financial performance as you can see from the figures on this slide. In particular, our EBITDA has increased by 22% year-over-year, while our per unit DCF growth has been stronger as 28% over the third quarter of 2018. With no IDRs, we expect future dropdown acquisitions can continue to deliver meaningful growth.Turn to Slide 5 and the impact of our recent unit repurchases, since the inception of our buyback authority, we’ve repurchased $20 million of common units retiring nearly 1 million units or approximately 2% of our total notes outstanding.As you can see from the figure on the left, these repurchases has been accretive to our per unit distributable cash flow. During the third quarter of 2019, we generated $0.72 of DCF per common unit, a figure which reflects approximately 1.5% growth as a result of the repurchases we have made this year using only a modest amount of capital.On the right, you can see these repurchases have had a dramatic effect on the capital returned to our unitholders inclusive of our Q3 distribution, we’ve now returned a total of $2.64 per unit over the last 12 months, an increase of 25% over the prior 12 months period.More specifically, unit repurchases has amounted to approximately $0.44 per unit of that total. As we look ahead, we expect returns to our unitholders to remain principally in the form of quarterly cash distribution.However, we plan to continue opportunistic repurchases of our common units as market conditions dictate, which as you can see make a meaningful impact to both our coverage ratio and total unitholder returns.With that as introduction, I’ll now turn it over to Alastair.

[Alastair Maxwell:]

Thanks, Andy, and good morning to everyone. I am delighted to report another strong quarter in terms of the operational and financial performance of the Partnership.Please turn to Slide 6 for our financial and operational highlights. In the third quarter of 2019, we achieved record quarterly Partnership performance results for revenues, EBITDA, and distributable cash flow, which showed robust year-over-year increases of 18%, 22% and 26% respectively.Our strong financial performance was due to our two vessel acquisitions in 2018 and one in 2019, as well as a full quarter’s contribution from the GasLog Shanghai’s market-linked charter to Gunvor, which offers us exposure to the current strong market to LNG Shipping and 100% utilization and which delivered a significantly improved performance compared to Q2, when she was primarily trading in the crew pool.Operationally, our fleet continues to perform exceptionally with uptime of 100% during the quarter and year-to-date unit OpEx of $14,468 per vessel per day, a reduction of $427 from the $14,895 we reported in the first nine months of 2018. While we are benefiting partially from a stronger U.S. dollar exchange rate, we are also continuing to make progress with our cost reduction initiatives.As you can see in the bottom of the table, our reported distribution coverage for the third quarter was 1.3 times, but this increase is just a 1.33 times when adjusting for several days of scheduled dry docking for the Solaris, which was primarily undertaken in Q2 but carried over into the beginning of the third quarter.Looking forward, we have one scheduled dry docking in the fourth quarter, which we anticipate will take up to 40 days to complete due to the need to install a balanced water treatment system on the vessel. Looking further ahead, we have four dry docking scheduled in 2020, all of which will also have balanced water treatment systems installed.Please turn to Slide 7, where I will discuss our recent fleet developments. The chart on this slide shows the 15 vessels comprising the Partnership’s fleet. Our revenue backlog continues to be robust at over $1 billion, which only includes the minimum rate of hire for the GasLog Shanghai.As a reminder, our first open steam vessel, the Methane Jane Elizabeth is scheduled to commence a new one year charter to Trafigura in November. The Partnership’s newest upcoming charter expiry is for the Methane Alison Victoria, which maybe redelivered late in the fourth quarter of this year or in early January.Looking forward to 2020, we already enjoy locked in charter cover of 81% with over 75% of our open days falling in the second half of the year and we anticipate a very strong LNG shipping market as Andy will discuss shortly.We are confident that the strengthening LNG shipping market through 2020 and into 2021 will create opportunities to recharter our open ships and to further penetrate from the market-linked charter of the GasLog Shanghai.Turning to Slide in our balance sheet, in the chart on this slide we set out our year-to-date and future scheduled amortization during 2019 and 2020. Our debt amortizes at roughly twice the rate of ships depreciate, building equity value and balance sheet capacity.For future growth for the Partnership as a whole, we expect to amortize approximately $220 million of debt over 2019 and 2020 equivalent to almost one-times annual EBITDA and 9% of total cash.More specifically, you can see that our net debt-to-total cap in our net debt-to-EBITDA remain healthy at 51% and 4.5 times respectively. Our total available liquidity including revolver capacity and short-term investments is approximately $133 million as of the end of Q3.Turning to Slide 9 and look at the Partnership’s sources and cost of capital. The chart on this slide lays outthe current trading yields for GasLog and GasLog Partners listed debt and preferred equity securities. As you can see, the GasLog Group has securities trading at attractive levels in the U.S. and Norwegian bond markets and in the U.S. retail preferred equity markets.In addition, GasLog Partners continues to evaluate financing options in the private debt and preferred equity markets with a number of financial parties. We are confident that we will be successful in securing cost competitive capital to fund our next acquisition without requiring access to common equity in the public markets.Turning to Slide 10, while I’ll discuss our future growth opportunities, the chart shows the 14 vessels with multi-year charters owned by our parent GasLog Limited, our dropdown pipeline increased during the third quarter after GasLog chartered at the GasLog Singapore Sinolam LNG for ten years as a floating storage unit. The vessel is GasLog’s first FSU project and underscores the benefits of the Group’s scale, fleet diversity and commercial innovation.In addition, GasLog took delivery of the GasLog Warsaw at the end of July and should immediately commence a 22 months charter with Cheniere ahead of a eight year charter to investor beginning in mid-2021.Together, the charter periods in our dropdown pipeline extends from 2025 to 2032, and represents approximately $3 billion in contracted backlog and some $300 million in total annual EBITDA with an average charter duration of approximately eight years.These vessels provide visible future growth opportunities for GasLog Partners and will contribute positively to the average charter length of our fleet, as well as to our distributable cash flows taken in combination with our strong balance sheet, and access to diverse sources of debt and equity capital, GasLog Partners remains poised for continued growth.And with that, I’ll turn it back to Andy to discuss the outlook for the LNG commodity and LNG shipping markets.

[Andrew Orekar:]

Thank you, Alastair. Turning to Slide 11 and trends in LNG demand. This slide shows the increase in LNG imports by country on a trailing 12 month basis. LNG demand grew by 43 million tons year-over-year, an increased to 14%. China posted the largest increase in absolute volumes importing 11 million tons more LNG or an increase of approximately 22% year-on-year.Natural gas continues to grow as a percentage of the country's overall energy mix and recently Sinopec stated that China’s gas demand to increase by more than 80% from 2018 to 2030. While Chinese demand continues to be strong, LNG growth has been broad based, particularly in Europe, where demand in the region grew by nearly 36 million tons over the period, an increase of 105% year-over-year.European demand is been bolstered by a combination of declining production, continued coal to gas switching for power generation and inventory restocking.Turning to Slide 12 and the future outlook for LNG demand by geographic region. In total, Wood Mackenzie expects net LNG demand to grow by 150 million tons between 2018 and 2025. Although China’s imports have been significant in recent years, it’s important to note that other countries in Southeast Asia together with Europe accounts for nearly two-thirds of the projected LNG demand growth through 2025.Turning to Slide 13, which shows the new LNG supply coming online. Next year, over 22 million tons of new LNG capacity is planned to begin production, mostly from projects in the U.S., which are expected to have a significant impact on ton miles. In particular, the second and third trains at Cameron and Freeport are expected to begin production and ramp throughout 2020 and into 2021.Further ahead, there is approximately 94 million tons of new capacity scheduled to start production in 2021 through 2024 including Venture Global's Calcasieu Pass in Louisiana, which took FID in the third quarter of 2019.Turning to Slide 14 and a look at future supply growth. The LNG supply outlook continues to be dynamic and growing. While 2019 is already a record year for new project sanctions, Wood Mackenzie expects an additional 7 million tons of LNG capacity to reach FID prior to year end followed by another 61 million tons in 2020 and 21 million tons in 2021.These proposed supply expansions have been supported by continued momentum and new long-term LNG sale and purchase agreements where over a 170 million tons per annum have been signed since the beginning of 2017.On Slide 15, we discuss our U.S. exports have positively impacted shipping demand. According to Poten, 119 cargoes were exported from the U.S. in the third quarter, 38 cargos delivered into the Asia plus another 7% to the Middle East destinations that can require more than two ships per each million tons of LNG exported per annum compared to a historical global average of 1.3 ships needed for LNGs in the rest of the world.Since exports out of the U.S. began in 2016, an average of 1.8 ships have been required for each million tons, a positive development for shipping demand, particularly considering the significant amount of liquefaction capacity expected to be online in The States by the end of 2020, approximately half of which has been sold to Asian buyers.On Slide 16, we discuss of the mantra LNG impacts the supply and demand balance for LNG carriers. This slide illustrates our view of shipping supply and demand through the end of 2021, based on Wood Mackenzie and Poten data.As you can see, the market is expected to be structurally tighter through at least the end of 2020 based on Wood Mackenzie’s latest quarterly LNG supply growth estimates and the on-the-water shipping fleet plus scheduled vessel deliveries.As a reminder, the Partnership’s fleet is 98% contracted through the end of this year and our nearest exposure to the spot market is not expected until December or January and we expect shipping demand to be strong.In 2020, the Partnership suite is 81% contracted and 75% of our open days are weighted towards the second half of the year when shipping demand is expected to be similarly robust.On Slide 17, we discuss the rate trends in the LNG shipping market. The left panel shows the monthly average headline spot rates for TFDE carriers during 2018 and 2019 while the right panel shows the average headline rate by month for the period beginning in 2011 through 2018.While the absolute values may differ from the historical monthly averages, the trend in 2018 and 2019 has closely followed previously observed seasonal patterns.The headline spot rates generally bottoming in early spring and peaking in the fourth quarter. As you can see from the figure, headline spot rates have risen sharply in recent weeks predominantly as a result of two factors, one, increased demand for LNG ahead of the winter heating season in the Northern Hemisphere. And two, the continued start-up of new LNG production facilities, particularly in the U.S.On Slide 18 and a discussion of recent developments in the multi-year chartering market. As the chart on this slide shows, periods of strength and weakness in the spot market have historically influenced activity for multi-year charters.Most recently, 14 charters between six months and three years in duration were reported in the third quarter of 2019, the most since Q2 of 2018. Of these 14charters, six TFDEs and 16 ships were fixed on charters greater than six months.In addition, brokers currently assess the one year time charter rate at $84,000 per day for a TFDE and $50,000 per day for a steam vessel. Although we would note that the term charter market for on-the-water ships and steams in particular has limited liquidity for charters of greater than one year.Over the last 18 months, we’ve utilized the period to strengthen the spot market to build on our customer relationships and fixed three of our TFDEs for multiple years, as well as one of our steam ships for one year. Our strategy remains to pursue similar opportunities to reach out to our ships as the LNG markets improve through 2020.Turning to Slide 19 and a recap of our growth history and distribution guidance. As the far left panel shows, our distributions have now grown at an 8% annual rate since our IPO, by a coverage ratio which is average more than 1.1 times.Today, we are declaring a third quarter distribution of $0.55 per unit or $2.20 annualized, which represents a nearly 4% increase over Q3 of 2018.As shown on the far right panel of the slide, we are reiterating our guidance of 2% to 4% year-on-year distribution growth for 2019. This guidance is supported by our accretive vessel acquisitions and positive outlook for the LNG shipping market, while also reflecting our one dry docking in the fourth quarter and one vessel scheduled to end its charter in December.Now turning to Slide 20, in summary, in the third quarter, the Partnership continued to execute the strategy delivering record quarterly financial performance. Our access to multiple sources of debt and equity capital remains strong, and our 14-vessel dropdown pipeline represents highly visible future growth.We reiterate our target to deliver 2% to 4% distribution growth for 2019, while maintaining prudent coverage and opportunistically repurchasing our common units.Finally, looking longer-term, steady progress of new liquefaction facilities and increasing LNG demand should result in strong fundamentals for LNG shipping and create additional opportunities to recharter our ships.With that, I’d like to now open it up for Q&A. Shannon, could you please open the call for any questions?

[Operator:]

[Operator Instructions] Our first question comes from Greg Lewis with BTIG. Your line is open.

[Greg Lewis:]

Yes, thank you and good morning and good afternoon. Andy, it’s been interesting to watch the distribution coverage ratio kind of go up a little bit here. I think when you guys went public, it was more in the 1.1, 1.2 range, now we are up in the 1.3 range.How should we be thinking about that in the medium-term, as you think about balancing maybe some vessels rolling off contract over the next year. Should we be thinking more along the lines of we are going to up to be in kind of a new distribution range coverage type level in sort of the near medium-term?

[Andrew Orekar:]

Yes, Greg, thanks for the question. I think, couple observations. One, clearly, the challenges with MLP market seems or several years now have manifested in hovered seeming to be valued at a premium to incremental distribution growth. So, for several years now, it sounds like we could have grown the distribution by more than we have, but have begun to prioritize coverage in a more meaningful way.Having said that, I think you are right, that we have some ships that over the next few years are ending their current charters and I think out of prudence may recharter at lower rates than they are earning today. And so it feels that, having the substantial level of coverages is both the right thing to do from a market valuation perspective and the conservative thing to do for our distribution sustainability.So, that’s one of the reasons really the reason the unit repurchase program has been our focuses. It’s been adding to coverage and rather than paying that incremental dollar out in distributions, spending it on buying back our stock at these levels has been more effective in our view.

[Greg Lewis:]

Okay, great. And then just one more for me. On some of these vessels that are rolling off charter over the next 12 months means clearly, the rate market has improved as we think about some of these vessels that are rolling off, primarily the steam vessels, should we be thinking about those getting rechartered before they roll-off contract?Or should we be thinking about, maybe some idle time or downtime in between when they are going to be winning their next contracts?

[Andrew Orekar:]

Sure, so I think, the honest answer is, we are still quite a ways away from a number of them ending there in their current periods and it’s generally difficult to fix a ship until you know where she is re-delivering and that’s sometimes is not known 30 days – more than 30 days in advance of the period ending. So, it’s still early days on a number of these ships.I think the Jane Elizabeth is a good example of the ship who is ending its charter with Shell and then, going into a dry dock and then immediately coming out of dry dock onto a new charter with Trafigura as Alastair mentioned in his remarks. And so, that was really well done by our commercial team in minimizing the time in which it’s earning revenues.I think most likely there will be a number of months where these ships are in a spot market, but we of course, in many ways it’s possible, we’ll try to get them back-to-back with their listing charters. Having said that, as well, the second half of next year, we expect to be quite strong and so if they are in a spot market for some period of time, it’s likely to be a strong one.

[Greg Lewis:]

Okay, perfect, and thank you for the time everybody.

[Operator:]

Thank you. Our next question comes from Jon Chappell with Evercore. Your line is open.

[Jon Chappell:]

Thank you. Good morning. Andy, first question has to do with the capital return. I think that’s really interesting in the slide you laid out equating your share buybacks to a distribution equivalent. Are you still trading at nearly 11% yield and if we kind of do some rough math on where you’ve used the ATM versus where you’ve purchased units. It’s pretty widespread, close to 9% on ATM and 11% on buybacks.So you are still kind of in that sweet spot. You said you will be opportunistic, but you only have about $5 million left I think on the authorization. So, does this seem like the time where you kind of not getting credit for a 1.3 times coverage ratio in the balance sheet, et cetera, and you’d still be more aggressive on the repurchase front?

[Andrew Orekar:]

Yes, thanks, Jon. I think we are – to put it simply, I think we are more buyers of our stock than sellers anywhere near these levels, that’s for sure and I think we’ve consistent since we have initiated the buyback program we have been consistent in the amount we have repurchased in each quarter.In terms of the remaining authorization, I think we’ll – my guess is, sometime in the New Year, we can refresh that with the Board. So that’s not really a limitation. But it’s – but as you noted, we are some waves away from where issuing common equity would be attractive.But as Alastair mentioned in his remarks, we feel we’ve got other growth capital alternatives with respect to preferred equity and/or unsecured debt. So, we feel there is capital available to us, but it’s very unlikely to be common equity anywhere near these share prices.

[Jon Chappell:]

That makes sense. And my second question is kind of along those line, as well. So you laid out the – maintaining the 2% to 4% distribution growth this year which you are centrally there. I know it’s too early to kind of “guidance” on 2020.But it seems like distribution growth isn’t being rewarded in the MLP space, we’ve talked to your yields specifically or the broader group. So, do you really need kind of further dropdowns? And when you think about dropdowns, whether – regardless if I can finance them, do you think about them as funding ongoing distribution growth? Or kid of more fleet replacement especially as some of the existing charters roll off?

[Andrew Orekar:]

It’s a good question. I think, for us, our philosophy for some time has been, as an MLP, it is just fundamental to who we are that we continue to grow our asset base through dropdown and third-party acquisitions, which we’ve evaluated as well. And so, I expect that to continue.The distribution growth itself as you’ve noted is somewhat subject to the way in which the units are being valued and what feels like it’s being rewarded as sufficient growth, but my view is generally been that, if you grow assets, you often grow your distribution as well, perhaps not by a like amount, but by a non-zero amount.And so, even though we are not throughout within the 11% yield, that’s why we are continuing the guidance we’ve given for 2019. It is too early to talk about 2020. I think 2020, there is worth bearing in mind that we do have four dry dockings in 2020. So there will be some ships out-of-the water in Q2 and Q3 as it stands right now.And of course, the number of acquisitions we can do influence significantly the amount of EBITDA growth and then ultimately how we think about distributions as well. So, still some time to come to think about that. But we certainly believe that growing assets at the partnership level is critical and we plan to continue doing that.

[Jon Chappell:]

That makes sense. One last one if I could, just a follow-up to Greg’s question. If we think about the three steam ships that are rolling off in the next 12 months and think about why the units maybe trading at 11% yield, I think that’s probably one of the top reasons.And so, I understand that you don’t know where the last voyage is going to and therefore, it’s hard to kind of get the next charter in advance in a perfect world. But given that the rates are much stronger than probably anybody thought at this point, and I understand that you are optimistic on 2020, but we don’t know and here we are in kind of our time to shine.Have you thought about maybe just taking a little bit of a discount just to guarantee that 100% utilization? Because clearly, that’s been very impactful with the new charter with Gunvor just locking in that 100% utilization as opposed to be maybe squeezing every last dollar out of the contract rate.

[Andrew Orekar:]

You are absolutely right and I think that here is the way we are thinking about it. I would expect that, of the ships that we have exposure, where we have exposure in 2020, it would be a combination of some ships in the spot market for a period of time. Hopefully some ships on term charters that as you say, ensure a 100% utilization or perhaps market-linked structures.And I would remind you that the ships, our steam ships have very little debt at the asset level. Most are only levered about 40% versus sort of 50% for the Partnership as a whole. And so, rate levels that are, say start with the four, comfortably above their breakevens, because of all the debt we paid down on them over time.So, we feel we have some flexibility there and certainly share your view that utilization can be very powerful and we’ll be looking to put some away to take advantage of that.

[Jon Chappell:]

All right. That’s super helpful. Thank you, Andy.

[Andrew Orekar:]

Thanks, Jon.

[Operator:]

Thank you. Our next question comes from Chris Wetherbee with Citi. Your line is open.

[Chris Wetherbee:]

Yes, hey. Thanks for taken the question. I just want to make sure I sort of understand the moving pieces as you see them to – that may influence how you think about distribution growth in 2020. Obviously, you have a few ships coming off charter that need to be restarted. It sounds like you have some dry docking if you can give us the days, that would be great again in 2Q and 3Q next year.And so, at least, those dynamics influence it and obviously the market and how it sort of value the units, I think are things to think about their coverage is kind of up relative to what it has been historically. When I pool all those together, number one, am I missing anything?Number two, how does that sort of influence your thoughts directionally about distribution growth compared to what has been, say for the last 12 to 24 months?

[Andrew Orekar:]

Sure, I think you’ve captured all the moving parts, Chris, I think, again with no IDRs, continued access to growth capital, even if it’s not common equity, we feel we have some very visible growth ahead of us with the dropdown pipeline we have and our sort of funding model. So, that kind of continues through 2020. Clearly, you have seen us moderate growth over time since our IPO.And I think generally, the MLP sector as a whole has embraced a kind of lower growth, higher coverage model. And having growth that is non-zero with good coverage and in our mind especially in our – within our peer group feels like a pretty compelling combination. So, I think our growth history is – it’s not likely to revert to our early years of double-digit and then high-single-digit growth.But I think that’s more in keeping with the overall sort of investor dynamic we’ve been experiencing. And then as you say some of the idiosyncratic elements of 2020, where we have some maintenance CapEx to perform on some of our vessels.

[Chris Wetherbee:]

Okay. Now that makes sense. Do you have a number for the dry dock days that you are projecting? I know it’s early before 2Q or 3Q?

[Alastair Maxwell:]

We can get you some more specific data, Chris, but it will be a little bit longer than usual, because of the balanced water treatment system installation and we usually allow 30 including a bit of sailing time from the dry docks. So it might be somewhere around 40. But we can get you a bit more information on that in a clearly specific time.

[Chris Wetherbee:]

Okay. That makes sense. I appreciate that. Thank you. I guess, maybe, one other question, when you think about the fleet more broadly and then that you have currently at the Partnership and then you think about what, the potential dropdowns look like.Is there a thought around potentially selling some of the steam ships just to kind of completely freshen up the fleet as you think out over the course of the next several years, obviously the dropdowns are more modern vessels.You have a high degree of modern vessels already in the fleet. Does it makes sense to sort of – there is not a continued that sort of flow through a company at your stage in its lifecycle.We have really seen vessel sales and I am just kind of curious as you look out over the next couple of years, if that’s going to be something that we should be considering just potentially sort of premium up with charter coverage premium up sort of the asset base?

[Andrew Orekar:]

Yes, it’s something we clearly study and unfortunately, your observation is correct, Chris. There is essentially now liquidity for second-hand vessels in LNG carriers right now. Now, I think, that is likely to change and certainly it’s going to change over time.We are hopeful that it may be changes in the next 12 to 24 months with the strong market that we are envisioning and people trying to be able to enter the business without having to secure a new building and a new building charter.So, I think we are hopeful that asset sales in our market are possible, but today, just to manage expectations, I think there is very little real out there that I think could be explored on that front. But that’s something we monitor very closely and again hope develops with the strength in the market in the next couple of years.

[Chris Wetherbee:]

Okay, okay. That’s very helpful. I appreciate the time. Thank you.

[Andrew Orekar:]

Thanks.

[Operator:]

Thank you. Our next question comes from Randy Giveans with Jefferies. Your line is open.

[Randy Giveans:]

Hey, gentlemen. How is it going?

[Alastair Maxwell:]

Good morning, Randy.

[Andrew Orekar:]

Good morning Randy

[Randy Giveans:]

So, looking at chart 17, there is obviously been some extreme kind of seasonality with rates rising in the fourth quarter back in 2017, falling short in the first quarter, first half of 2018. Same thing rising in the fourth quarter of 2018 falling sharply in the first quarter of 2019.We are already seeing strong 4Q 2019. That said, what if anything will kind of keep these seasonal decline in the first half of 2020, more moderate than in recent years.

[Andrew Orekar:]

Yes, so, I think there is a natural seasonality as part of this, really any natural gas business. So, I think that is a feature of our market. I would highlight though in most previous seasons, JKM has peaked in December and this year while the JKM prices are a bit lower than they have been in years past the peak is expected in February at this time.So, there is certainly a thesis that the winter could last longer, so to speak with more trading opportunities into the New Year. Also you have really just a sort of steady drumbeat of liquefaction being added and being added here in the states time schedule. So, it will be brought on as soon as some of these commissioning exercises can be completed.So I think you’ve got a slightly different dynamic than years past where we will have by this time next year, Randy, probably prices much LNG they or thereabouts being exported from the U.S. that we have today and much of that is ramping in the early part of next year including some projects like Alba. So, I think there is reason to imagine that the fall-off won’t be as significant.But I do think it’s realistic to expect the market maybe a little bit lower during that shoulder period of March to May than it is right now.

[Randy Giveans:]

Got it. All right. And then, I guess one more question for the GasLog Shanghai and what was the average TCE that it earned in the third quarter? And again what’s the most tenor in the fourth quarter? I know there is a ceiling rate, but it’s likely boiled $120,000 they are seeing today.

[Andrew Orekar:]

Sure, so, first that the terms of the charter are confidential. So I can’t give you a lot of precision on that. But I will give some guidance. It’s linked to a series of broker quoted rates with a bit of a lag at a percentage.So if you think about the average rate for the third quarter being in and around $60,000 a day as quoted by the leading brokers, it was at sort of a modest discount to that level for the quarter. And that will carry on to the fourth quarter as you say with the ceiling, but the ceiling and the floor are fairly widespread.So it can certainly earn nicely above what we’d say are mid-cycle rates even if that’s not $140,000 a day. It can earn nicely above the mid-cycle numbers you are used to looking at.

[Randy Giveans:]

Nicely above, okay. Sounds good. That’s it for me and yes, congrats again on the Methane Alison Victoria for the “Crew of the Year”. I know it’s a big award to win.

[Andrew Orekar:]

Thank you very much. Appreciate that.

[Operator:]

Thank you. Our next question comes from Mike Weber with Weber Research. Your line is open.

[Mike Weber:]

Hey, good morning guys. How are you?

[Andrew Orekar:]

Good morning, Mike.

[Alastair Maxwell:]

Good morning, Mike.

[Mike Weber:]

Hey, lot of this have already been picked over. But, Andy, I want to go just a little back to actually to the Sydney. So it’s one of the prior deals you guys have rolling off next year with Cheniere. I know that at the end of that term it’s going to be little fuzzy, because there is going to be some optionality in the back of it.But the Cheniere has a six months advance notice in terms of when they would pick up that option. So that’s something you would know about whether that hits the spot market by yearend?

[Alastair Maxwell:]

No, Mike. It’s not six months. I have a feeling it’s 260 or 360 days, I think it’s not 60 days.

[Andrew Orekar:]

Yes. But you are right, that it’s a six month extension option.

[Mike Weber:]

Okay. Okay. Now so we have clarity on that by end of Q1 the terms will extend. Most of the few questions kind of picked over, but in the past, when you guys have had or when the space has had tonnage kind of rolling into a market that I know it’s from now there is some things around kind of 2021, 2022, you help form the cool pool, which is, predominantly dry fuel assets.Is there – when you look around the landscape, are there other owners with steam tonnage that are going to be market exposed where you maybe as an alternative to kind of term out 13-year old, 14-year old assets you are kind of get looking on that, but you could fund sort of – or develop some sort of a pool employment for steam tonnage and maybe service some shorter haul or kind of discounted lanes?

[Andrew Orekar:]

It’s certainly something we consider and we’ve had some brands turning around pools for various vessel classes. So, it’s a good thought. Today, there is nothing sort of on the board for that so to speak, but there is no reason that that couldn’t be similarly effective as the TFDE pool we had with Golar and Dynagas.But I think that the interesting thing about the relative compression in gas prices globally is, that actually suits the steams on a relative basis vis-à-vis the TFDEs if you got some shorter distances, smaller ports casting and basin, the unit freight cost advantage of a TFDE or even the two-stroke ship is using a much a smaller in my comparison.So, I think that’s why you’ve seen steams have a fair bit of activity here in the third quarter, with the caveat you are not seeing a lot of three year deals for a steam. You are saying six months to a year and sometimes shorter voyages. So, that the sort of market dynamics that were around gas prices is actually a bit advantageous to steams on a relative basis.

[Mike Weber:]

Gotcha. All right. That’s helpful. Alastair, and I guess, Andy, I think I forget who, someone earlier kind of mentioned the fact that it takes a lot for an LNG carrier to actually clear on the market. There might not be that an active S&P market now are really in any real point for LNG tonnage.But when you think about what to do with those steam assets, I know in the past, Alastair, that GasLog is kind of always support for the LP and we’ve talked about asset swaps or finding ways we are going to be supportive of the LP structure. That was all kind of pre-IDR stake out.So, just curious within that sort of context, is it fair to see the same level of support ultimately if they are from GasLog parent with regards finding a workable solution for the steam assets, as they maybe swapping them back to the parent or something with term, presuming you can get the valuation right on both ends?

[Alastair Maxwell:]

So, Mike, I think you first commented, actually, you are right, there is – there continues to be full support from the GP for the – for GasLog Partners and we do continue to believe that the Partnership has access to different pools of capital which can be valuable to the Group going forward. In terms of using the steams as currency, if you like the funding dropdowns, I think nothing is ruled out, but there is nothing underactive discussion today.And so, yes it’s definitely a possibility. It’s something that we have had some compensations around. And so, it certainly wouldn’t rule it out. But I would think of, at GasLog Partners, I think we are primarily focused on accessing, what you might call more conventional sources of capital both private and public, debt and preferred. And I think that that would be our first choice as a means to fund the growth.

[Mike Weber:]

Okay, all right. That’s helpful. I just thought, we hadn’t really addressed that kind of post-IDR restructuring. So it’s good to hear. I’ll turn it over. Thanks for the time guys.

[Alastair Maxwell:]

Thanks, Mike.

[Andrew Orekar:]

Thanks, Mike

[Operator:]

And our next question comes from Chris Snyder with Deutsche Bank. Your line is open.

[Chris Snyder:]

Hey, good morning guys. So, just another one following up on the steam fleet outlook. So you’ve been in this relatively tight LNG shipping market and one that, I guess, actually we are pretty supportive of steam with the low commodity price. We are still only seeing one year term opportunities at the most for the steam fleet.So I was just wondering, if you see any opportunities here for conversion into either floating storage units or other applications where term employment is usually much larger, the GasLog parent recently announced a conversion of a younger and larger vessel.And so I guess, my question is, do you see potential opportunities here for the steam fleet? Or are they too small or old for such applications where there is a very long contract associated?

[Andrew Orekar:]

Yes, hi, Chris. No, I think you are spot on and in fact, I think the FSU market might actually be a better fit for steams than the FSRU market given the power requirements of the latter business model. So, I think there are other uses for steams rather than carriers that have a relatively low capital to cost in the project that our parent is pursuing in Panama, a great example of a market that’s just getting going.But I do think, I want to be a little careful, because we are in a market today, where there is essentially no ships available as you would see from the rates. And you’ve got an on-the-water fleet size of about 500 ships and more than 40% of that number are steam ships and in fact, about 70 of that number are steams that were built before 2000.So, we are in a market where potentially every ship has required – with of course some seasonality during the year. And so, I think, while I would agree that you are probably not likely to see a seven to ten year deal for an on-the-water steam ship as a carrier, there does very much still like a place in the market for these assets.And we, in fact did get in an opportunity for a multi-year charter for a steam ship to a very well known customer that’s one of our competitors unfortunately won. So, they are out there, but they are – you are right in saying that they are likely to be shorter term opportunities, but they are absolutely essential for the market that’s being serviced today.

[Chris Snyder:]

Okay, yes, it makes sense. And then, just kind of following up on the tight market, so, the spot rates are tracking extremely, almost yearly similar to what we saw last year. Despite a much lower LNG commodity price, so you guys, how do you compare what you are seeing in the market today, versus this time last year?And how do you think about the recent Q4 day rate inflection, despite a still sluggish commodity price? Does this add like an incremental positive to kind of the underlying fundamentals you see in the market?

[Andrew Orekar:]

Yes, thanks for the question. I think, I’ve been a little lost in the narrative around weak global gas prices is - were threatening the record high freight rates in a market where JKM is $6 in December and not $11. And so, to us that signifies that you’ve got some real underlying demand and a structural shortage of ships that’s driving freight rates high despite not as many trading efforts introduced for our customers.So, I think it’s really many of these long awaited themes of particularly U.S. liquefaction finally producing on a meaningful scale that we expect to continue for the next 12 months. And hopefully, we will – we had a bit of a tailwind in months and quarters to come with higher gas prices than Europe and Asia.But even with this muted environment, you are seeing close to record rates again. So, it feels like a corroboration of the demand trends we’ve been discussing.

[Chris Snyder:]

And just one last quick one, if I can, Andy, I thought it was very interesting what you said earlier about the LNG forward curve peaking in February 2020 when normally the commodity peaks out in December. So, I guess the question is, what’s causing this?

[Andrew Orekar:]

If I knew, I’d probably wouldn’t be on this phone call. But I think there has been a couple issues we’ve seen. I think, last year and it’s in previous years, there was storage built up ahead of a winter demand and the expected cold weather that never really came through in Japan and China. So hopefully, we're reverting to a more to a more normalized weather pattern this year.And so, I think that’s part of the dynamic that last year was really an exception to the rule of the seasonal timing of that demand. And then, I do think you had a number of these projects that delay and now are finally reaching close to nameplate capacity.Especially, here in the States we saw, I think it was a week ago, we saw a record feed gas for the U.S. LNG projects of 7 BCF a day, which is a good indication of the trains actually producing what they are supposed to be. So there is just the opportunity for more gas to be sold later in the year as we – as kind of as we move to the winter and schedule cargos. So, other than that, hard to say for sure.

[Chris Snyder:]

Well, interesting. I appreciate the color. Thanks for the time guys.

[Andrew Orekar:]

Thanks, Chris.

[Alastair Maxwell:]

Thanks, Chris.

[Operator:]

[Operator Instructions] Our next question comes from Ben Nolan with Stifel. You may begin.

[Ben Nolan:]

Hey, good morning, guys. I have a couple of questions and one is through capital allocation, but really is more on the debt side. I think, Alastair, you said that the plan over the next two years was to repay about $200 million of debt and in the release you said, around $110 million for this year. Is that incorporating in summary financing or is it – just to be clear, is the target really pretty aggressive actual reductions of the debt balance?

[Alastair Maxwell:]

No, Ben, it’s a scheduled amount. So, it’s about roughly $110 million per year and then that’s just – it’s obviously built on a per vessel basis. But you aggregated it up to the consolidated fleet of the Partnership. That’s just what was due to pay on an annual basis over 2019 and 2020. So there is no refinancing in that.

[Ben Nolan:]

I understand. To that end, or just kind of doing the math, if you are paying that down and then given the current distributions as they stand now, does it really leave a whole lot left for distribution growth or buybacks unless there is some other element of growth or something else that works in there. So is that, is that sort of also an important element and how to think about where you stand going forward and sort of what the capital needs are relative to the capital ones?

[Alastair Maxwell:]

So I think the important thing like we – I know is, we said this on a number of different calls now is the amount scheduled is – the profile is roughly sort of 15, 16, 17 years and the ships have a trading life of the ships that are trading with 40 years of life, somewhere between 30 and 40 years. So, what the amount does for is, is it creates incremental balance sheet capacity and what we are not going to do is, is relever the business to levels which are not appropriate.It does give us an additional lever that we can pull on in terms of accessing capital and then how we allocate that capital as you say is correct. That goes towards growing the asset base and growing the underlying cash flows as it goes towards repurchasing units. And that's where we have some choice around what we do with that capital. But that I think is the message around the amount and the impact of our amount.

[Ben Nolan:]

Okay. That’s helpful. And then, Alastair, another thing I wanted to just touch on a little bit that you mentioned briefly was that, you are undergoing some cost-cutting efforts and finding ways to do things efficiently.I was wondering if you could just maybe put some color around what that entails? And ultimately, what – if it’s possible to put some sort of a number around how much, you might be able to – how much blood might be in the rock here?

[Alastair Maxwell:]

So, at the Investor Day in 2018, we talked about looking for savings of approximately $1500 per vessel per day over the time horizon between 2017 through 2022, end of 2017 through 2022. I think that based on what we know today, and that was across G&A and OpEx. Based on what we know today, we are very confident that we will hit that target and I think actually we’ll do better than that target.If you look at the cost today, our total cost base is roughly two-thirds OpEx and one-third G&A and so, I would expect savings to be roughly proportional to the cost base that we have in the business as a whole today.Some of it is coming through a relentless focus on just the blocking and tackling in the business around procurements, negotiating contracts, maintenance arrangements, maintenance scheduling, leverage over yards, the dry docking, really, really basic stuff which individually doesn’t make massive contributions.But when you add it all up, it has a significant impact. The other fact there is growth in the fleet, because we look at this very much on a unit basis. And if the fleet grows, we are not adding G&A proportionately. We are not adding vessel management cost proportionally. So some of this is underlying cost reduction, some of it is the effect of scale over time. Does that help?

[Ben Nolan:]

Okay. Now that is very detailed and I really appreciate it. It does it for me. Thanks guys.

[Alastair Maxwell:]

Thanks, Ben.

[Andrew Orekar:]

Thanks, Ben.

[Operator:]

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

[Espen Landmark:]

Hey, good morning. Thought if you keep going on with these steam turbines, but as you know, it’s obviously important for the long-term story. So, the first question, I guess, we can pretty much calculate this ourselves, but that the cash but the cash breakeven on the turbines when you include the operating cost, debt service, dry dockings and whatnot, what’s that number of it?

[Alastair Maxwell:]

Espen, I would say it's probably in the high 20s, low 30s. It depends a little bit on the vessel and it depends on how much debt she has got and so on. But high 20s, low 30s.

[Espen Landmark:]

Okay. And secondly, probably a bit more difficult question, but there has been a few ship owners seeking price syndications for their TFDEs this year. And it seems probably stocks a bit lower what typically be broker quote. So, I was wondering what you think are fair values for the steam turbine on a charter free basis? I know you have them in the books for around 130.

[Andrew Orekar:]

Yes, hi, it’s Andy. I wouldn’t want to comment on that. Obviously, every quarter, we go through a very rigorous process for what our assets are worth as of our LNG date and that’s scrubbed internally and externally. And so, we are comfortable with the asset value that we have today.I am not surprised to hear that that maybe if others are trying to sell assets in a market that’s rather liquid that maybe some low prices are required to get them to move. But, other than that, we haven’t seen a lot of those opportunities, nor seeing a lot of evidence as transactions happening. So, hard to say, other than we are very comfortable with the values that we are reporting in our balance sheet.

[Espen Landmark:]

Fair enough. And if I lean, so to say that the cash breakeven is 30-day. How many of those could you kind of put away on the profits that’s contract similar to one year long or what we’ve seen elsewhere in this space recently?

[Alastair Maxwell:]

You mean, things which are not just fixed rate term charters, right?

[Espen Landmark:]

This is to say, you are locking your 30-day for cash breakeven and then there is a profit split on top. Could you do that on some of these steam turbines?

[Alastair Maxwell:]

It’s interesting question. We haven’t done that. I am not saying we couldn’t or wouldn’t. What we have done is with the GasLog Shanghai as you know entered into a market linked to rates. We continue to look with our customers at quite a large number of different options which may be related to the shipping rates, or that maybe related to commodity prices and differentials that may have flexibility around seasonal usage and so on.So, I think there is a quite a lot of different options and we are been quite proactive in exploring those options with the customers. Clearly, what we are trying to do ultimately is to align the interest of our customers in having access to efficient shipping when they need it.And for us, it is getting the utilization as high as we can on the vessels which don’t have long-term charters. So I think the answer is, not saying yes or no to that particular structure. But we are very much – we are trying to be as creative as we can in terms of the commercial employment of our ships.

[Espen Landmark:]

All right. Okay, that’s interesting. Thank you very much.

[Alastair Maxwell:]

Thanks, Espen.

[Operator:]

Thank you. And I am currently showing no further questions at this time. I’d like to now turn the call back over to Andy Orekar for closing remarks.

[Andrew Orekar:]

Thank you, Shannon. Thank you to all very much for listening. We very much appreciate your continued interest in GasLog Partners and we look forward to speaking to you again next quarter. Thanks very much.

[Operator:]

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.