GasLog Partners LP
Q3 2018 Earnings Call Transcript

Published: 25 Oct 2018

[Operator:]

Good morning. My name is Chris and I will be your conference operator today. At this time, I would like to welcome everyone to GasLog Partners Third Quarter 2018 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. As a reminder, this call is being recorded. Today's speakers are 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 2018 earnings conference call. For your convenience, this call, webcast and presentation are available on the Investor Relations section of our website, www.gaslogmlp.com where a replay will also be available. Please now turn to Slide 2. 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. I'll begin today's call with our highlights for the quarter. Our CFO, Alastair Maxwell, will follow with a review of our financial performance and drop-down 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 for the third quarter. Following strong operating performance across our fleet, today, I'm delighted to report our highest ever quarterly partnership performance result for revenues and EBITDA. Since the end of the second quarter, we raised approximately $58 million in common equity through our at-the-market program, including $53 million of funds managed by Tortoise Capital Advisors, a leading investor in energy infrastructure. This morning, we announced the acquisition of the Methane Becki Anne from our parent GasLog Ltd. The Methane Becki Anne is operating on a multi-year charter with a subsidiary of Royal Dutch Shell. And we expect this accretive acquisition to close in the fourth quarter. We declared a distribution of $0.53 per unit for the third quarter or $2.12 on an annualized basis, unchanged from the second quarter and an increase of 2.4% from the third quarter of 2017. Our coverage ratio for the quarter was 1.06 times. Lastly, today we are reiterating our year-over-year distribution growth guidance of 5% to 7% for 2018. And I'm pleased to present our guidance of an additional 2% to 4% distribution growth in 2019. Turning now to Slide 4, where I'll discuss our most recent vessel acquisition, as shown on the right hand panel, today we've announced the acquisition of the Methane Becki Anne for $207.4 million, which will be funded with cash on hand, plus the assumption of the vessel's existing debt. The Methane Becki Anne is a 170,000 cubic meter modern TFDE propulsion vessel, operating under an attractive time charter to Shell through March 2024. The purchase price is in line with the vessel's book value at closing. And we estimate the charter will generate $22 million in EBITDA over the next 12 months. The acquisition is expected to be immediately accretive to our distributable cash flow per unit, increases the partnership's wholly owned fleet to 14 ships, extends our average remaining charter duration and increases our contracted days to 91% in 2019 and 70% in 2020. With that as introduction, I will now hand it over to Alastair to take you through our financials.

[Alastair Maxwell:]

Thanks, Andy, and good morning to everyone. I'm delighted to report a record quarter in terms of the operational and financial performance of the partnership. Please turn to Slide 5. In the third quarter of 2018, we achieved record quarterly partnership performance result for revenues and EBITDA, which showed substantial increases of 11.7% and 9.9% respectively over Q3 2017, due to the acquisitions of the GasLog Geneva, the Solaris and the GasLog Gibraltar. All of which were also accretive to our distributable cash flow and to our distributions per unit. Operationally, our fleet continues to perform exceptionally well, with up-time of 100% during the quarter and unit OpEx of $14,216 per vessel per day, compared to $14,747 in the same quarter last year. As you can see in the bottom row of the table, our distribution coverage for the third quarter was 1.06 times, which reflects the new units issued to Tortoise and other investors through our ATM program. But clearly, it does not include any contributions from the Methane Becki Anne. Even including the impact of the two extended dry-dockings in Q2, our coverage ratio during 2018 year-to-date has been 1.04 times. Looking forward, I would note that the GasLog Seattle is scheduled to carry out her dry-docking and special survey later this quarter. We anticipate the dry-docking will take up to 30 days to complete. And we expect the related off-hire will have a limited impact on our coverage ratio for the fourth quarter. Moving to Slide 6, we've set out the GasLog Shanghai's performance in the Cool Pool. As you will recall from our second quarter conference call, the GasLog Shanghai has been operating in the spot market as part of the Cool Pool since May 18 of this year. And she continued to trade in the pool for all of the third quarter. We have discussed the accounting for the pool's revenues and expenses previously. And you'll note them on this slide and in our 6-K. More specifically, you'll note that our total net pool performances improved significantly in the third quarter in comparison with the second quarter, primarily the result of higher spot rates and higher utilization achieved during the third quarter. Consequently, the GasLog Shanghai TCE rates for Q3 was more than double Q2 and we are optimistic about further improvements in the performance of the GasLog Shanghai in the fourth quarter and into early 2019. Turning to Slide 7 and the financial position of the partnership, as you can see, our leverage at quarter end is still modest at 50% of total cap. And our reported net debt to EBITDA is 4.2 times. When adjusting for the acquisition of Methane Becki Anne, our net debt to EBITDA rises to 4.6 times. While our total - our debt to total cap rises to just 52%, owing to the relatively low debt on the vessel. Further adjusting for the ATM proceeds our debt to total cap falls to 51%. In the bottom chart, you can see that the partnership has raised approximately $218 million in equity capital during 2018 year to date from a variety of sources, including $115 million in preferred equity, $45 million in common units to our parent GasLog Ltd. And approximately $58 million from our ATM program, including the $53 million in new common units placed with Tortoise. Our balance sheet capacity, liquidity and capital market access leave us well positioned to fund future growth. Turning to Slide 8, where I'll discuss recent developments within our fleet. The top chart of this slide shows the 14 vessels comprising the partnership's fleet, assuming closure of the Methane Becki Anne acquisition later this quarter. When considering the acquisition of the Methane Becki Anne, the partnership's average charter duration increases to over 3 years. On Slide 9, you'll see our acquisitions and new multi-year charters this year have contributed positively to our cash flow visibility. On the left chart, you'll see that our contracted backlog with increased of approximately $1.1 billion from $886 million at the start of the year, the result of the acquisitions of the GasLog Gibraltar and the Methane Becki Anne as well as the rich [ph] offering of the GasLog Santiago and the GasLog Sydney. On the right hand chart, you'll see that on charter coverage for 2019 with increase to 91% from 72%, and our coverage for 2020 has returned to 70% from 47%. Turning to Slide 10, we will discuss our future growth opportunities. The top panel shows the 12 vessels on multi-year charters owned by our parent GasLog Limited. Together, the charter period ranges from 2019 to 2029 and represents over $2.3 billion in contracted backlog and $200 million in total annual EBITDA. These vessels provide visible future growth opportunities to GasLog Partners and it would contribute positively to the average charter length of our fleet as well as to our distributable cash flows. Most recently, our parent GasLog Limited ordered to 174,000 cubic meter carriers with XDF propulsion at Samsung, secured by new seven year charters with Cheniere. This is our parent's first new-build charter award with Cheniere and further extends the drop down pipeline for GasLog Partners. 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 now to Slide 11, which shows the new LNG supply coming online. This year approximately 27 million tonnes of new liquefaction capacity is scheduled to start up, an increase of 8% over 2017. Projects expected to commence production later this year include the Yamal Train 3 as well as the first train of Cheniere's Corpus Christi facility. In 2019, an addition of 47 million tonnes of new LNG capacity as planned to come online, including initial trains of large projects such as Cameron and Freeport, which are expected to have a significant impact on tonne mile as more gas is exported from the U.S. Further ahead, there is approximately 38 million tonnes of new capacity scheduled to start production in 2020 through 2022, including the first 2 trains of Shell's LNG Canada project, which took FID earlier this month. Turning to Slide 12, 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 23 million tonnes of the 12-month period ending September 30, an increase of 8%. China posted the largest increase in absolute volumes importing over 15 million tonnes more LNG, or an increase of 44% year-on-year as the country continues to increase with natural gas consumption. While Chinese demand has been strong, LNG growth has been broad-based, particularly in Asia, as demand from South Korea, Pakistan, India and Taiwan has grown by a combined 14% year-over-year or approximately 11 million tonnes. Turning to Slide 13, and the future outlook for LNG demand by geographic regions. In total, Wood Mackenzie expects LNG demand to grow by over 150 million tonnes between 2017 and 2025. Although, Chinese LNG imports have grabbed the headlines over last year, it is important to note that Southeast Asia and Europe together accounted for 57% of the projected demand growth through 2025. Turning to Slide 14, where we discussed the supply of LNG carriers. According to data from Poten, there are approximately 96 LNG carriers on order today, nearly two-thirds of which are backed by long-term charters. When taking into consideration, deliveries schedule for 2018 and 2019, we expect the orderbook as a percentage of the fleet to decline to approximately 9% by the end of next year, a low level by historical standards. It takes between 2.5 and 3 years to construct an LNG carrier, meaning a vessel order today will have an earlier possible delivery date of 2021. With this visible to supply outlook we expect the LNG shipping market to continue to strengthen in 2019 and 2020. On Slide 15, we discuss the demand for LNG and the current orderbook impact 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. The shaded area represents low and high vessel demand scenario based on a range of 1.5 to 1.7 ships required per 1 million tonnes of LNG for U.S. volumes and 1.3 to 1.4 ships required for non-U.S. volumes. The solid dark blue shows vessel supply based on ships on the water today and the current orderbook with no assumptions made for scrapping or FSRU conversion. The dotted dark blue line represents a scenario where all older vessels built before 2000 and without charters are either laid up or scrapped. As you can see the market is expected to be extremely high between now and 2021 based on Wood Mackenzie's latest demand growth estimates, and on the water fleet plus current orderbook. As a reminder, a ship order today won't be delivered until 2021. As we said previously, when fleet utilization rises above 80% to 85%, freight rates and cash flows improved considerably, as we are observing in the spot market today. Looking out to 2022, we estimate that the market may require between 35 and 63 incremental ships, but we would note there is more than sufficient time and yard capacity for these vessels to be delivered in time to meet this demand. Turning to Slide 16 now, where we look at recent spot market development. This slide shows a development of TFDE spot rate from the period we're getting in 2011 through today as well as the number of spot fixtures reported during each quarter from 2015 through the third quarter of 2018. The green shaded area highlights the peak years of 2011 to 2014. As can be seen in the chart, spot rates have increased dramatically since the beginning of September. Clarksons is now reporting headline TFDE rates of $147,000 per day, as compared to $51,000 during this time last year, an increase of over 180%. The sharp increase in spot rates observed in the recent weeks has been the result of a limited number of prompt ships available to fix. As can be seen in the chart in the top right corner, there were 76 spot fixtures reported during Q3, a decline from the record of 110 reported in Q2. Many of the ships fixed in Q2 were from multi-voyage and multi-month charters beginning in late Q3 through Q4, as charterers look to lock in tonnage ahead of the seasonally strong winter months. As the ships pick during the spring and summer, begin their charters in the fall, tonnage with full out of the spot market. We think relatively limited number of available ships are fixing over the next couple of months. GasLog Partners exposure to the spot LNG shipping market is through one vessel to GasLog Shanghai. In light of the strengthening rate environment observed in recent month, we expect to GasLog Shanghai contribution to our results to be a rate above mid-cycle on the fourth quarter. While we are pleased by this development, our strategy as an MLP remains to find multi-year employment for the vessel, and you remain the subject to multiple customer increase. We expect to continued strength in the spot shipping market to create attractive multi-year charter opportunities in 2019. Turning to Slide 17, and a recap of our growth track record and distribution guidance. You can see on the far left hand panel, we have now grown our cash distribution by an 8% compound annual rate since IPO. Today, we are maintaining our quarterly distribution at $0.53 per unit or $2.12 annualized, which represents a 2.4% increase on a year-on-year basis. As shown on the far right panel of the slide, we're reiterating our guidance of 5% to 7% year-on-year distribution growth for 2018, and introducing guidance of 2% to 4% year-on-year growth for 2019. This guidance is supported by our accretive acquisitions of the GasLog Gibraltar and the Methane Becki Anne as well as the GasLog Shanghai trading in a strengthen in spot markets, while also reflecting our dry-docking schedule and one vessel coming off charter in late 2019. Lastly, at our Investor Day, we announced the GasLog and GasLog Partners were undertaking a review of our current IDR structure, with the goal of reaching a conclusion on any modification by year-end 2018. Both companies continue to work towards this timeline and we look forward to providing a further update and due course. Now turning to Slide 18. In summary, in the third quarter, GasLog Partners continue to execute its strategy, rising nearly $16 million in growth capital and announcing the accretive acquisition of the Methane Becki Anne, our 11th vessel drop down since IPO. We continue to believe 5% to 7% distribution growth remains achievable target for 2018, and with our pipeline of visible growth opportunity and continue to access the capital. I'm pleased to introduce guidance of 2% to 4% for 2019. Finally, looking longer-term, steady progress of new liquefaction and strong LNG demand should result and continued strength in LNG shipping rates and create opportunities to recharter our ships on attractive terms. With that, I'd like to open it up for Q&A. Chris, could you please now open the call for any questions.

[Operator:]

Thank you. [Operator Instructions] And our first question comes from Jon Chappell with Evercore. Your line is now open.

[Jonathan Chappell:]

Thank you. Good morning, Andy.

[Andrew Orekar:]

Good morning, Jon.

[Jonathan Chappell:]

I just want to ask a strategic question on the chartering front. So you mentioned that Shanghai will obviously have a greater contribution in the fourth quarter, but that your aim is to lock in charters. I'd say one of the most frequently asked questions that we get about the strength in market today is had that translated into multi-year charters. So can you just give us a little bit of insight as to the demand for multi-year charters and what a good benchmark might be for a rate for those ships versus maybe even nine months ago before we had the super-spike?

[Andrew Orekar:]

Sure. We've seen I would say a slow and steady increase in enquiry, first starting with multi-voyage and then multi-months, and now, the first lines of additional multi-year charters. We of course, have had some success with two customers on ships that were - came off their initial charters here in 2018, one for a deal for 3.5 years and then more recently a deal for 1.5 years. So I would say that we're beginning to see more enquiries for charters in the 1- to 3-year range. Beyond 3 years still remains quite rare, although with the same strength in the spot market this winter we hope to see more of those opportunities at rates that we would find attractive. Jon, our general strategy with the ships we fix today is, of course, trying to target rates that are in and around that mid-cycle that we've been able to achieve on our longer-term business. And so, if we had the opportunity to put the Shanghai or another ship away in and around that level for longer than a year, we would certainly strongly consider it. But again, it does feel like time is a bit on our side as we move through the fourth quarter and the first to maybe have more opportunities with similarly high credit quality counterparties that we have today.

[Jonathan Chappell:]

So if I can just follow up on those two different time horizons, I mean, ship broker reports are putting out 6 figures estimates for 1-year charters. I'm not sure there is a lot of liquidity behind that market, if it's just kind of a guesstimate based on what the spot-market's done. But you've spoken about mid-cycle now a couple of times. Would you kind of categorize a 3-year as the long-term average mid-cycle and 1 year is probably a little bit or maybe significantly above that because of the strength of the spot market?

[Andrew Orekar:]

Yes, so I think it - clearly, I think the range of rates you're probably seeing in broker reports is a little bit all over the map. I'd say the general guidance I give, which won't be a surprise, is the spot rates you're reading about are higher than the rates one could achieve on a 1-year deal, which are higher than could be achieved on a 3, which are higher than could be achieved on a 5. And so, I think there is certainly more frequency of 1-year deals in the market today than they were 6, 9 months, and beginning to see more for 3. I think clearly if that the 1-year deals are at a comfortable premium to mid-cycle rates. And there is a bit of price discovery going on about where the 3-year rate ought to be.

[Jonathan Chappell:]

Okay. And sorry to just kind of beat this dead horse here. But it's kind of important. So the Methane Jane is really kind of an excellent - after the Shanghai that's due. And then the Rita Andrea and Shirley Elisabeth are right behind it. So has it been a 2-tiered market that's kind of expanded for steam ships as part of the recent strengthening in the market or is it kind of been the rising tide where there has been just as much interest in steam ships for maybe 1 to 3 year, or multi-voyage or multi-month as there are for TFDEs?

[Andrew Orekar:]

Yes, the first - the sense there is depending on the day or the week there is often zero ships or a low-single-digit number available on the position with these days. Steams are very much part of the discussion. You're right in that, if you just take a look at the Clarksons' data that we quote, the sort of 147 number for a tri-fuel and 82 for steam, it doesn't make much sense from a unit freight cost perspective. That delta certainly shouldn't be sustainable. So I think you're seeing the steam is lagging a bit, but also coming up quite nicely here. We have had some term enquiry for our steams already, even though as you note, there - the first exposure is really over a year from now. And again, I think our view is generally that that type of enquiry will continue and will be in a stronger position as the coming quarters go by as opposed to taking action now. But, yes, we expect we'll see both, an active spot market involving the steams as well as term business.

[Jonathan Chappell:]

Okay. That's very helpful. Thanks for the insight, Andy.

[Andrew Orekar:]

Thanks, Jon.

[Operator:]

And our next question comes from Greg Lewis with BTIG. Your line is now open.

[Greg Lewis:]

Yes, hey, thank you and good morning.

[Andrew Orekar:]

Hi, Greg.

[Greg Lewis:]

Hi. Andy, just in thinking about the guidance for 2019, thank you for that, just trying to understand, does that imply - what does that imply? Does that imply a drop-down? Does it just imply your outlook for resetting charters higher? Any kind of color you could give around how you back into that 2% to 4% distribution growth?

[Andrew Orekar:]

Sure, so I think it's based - if you look at our history, we've been fortunate to execute anywhere from one to three drop-downs in each year since we went public. And so, I think our strategy remains to target that, call it, average of few drop-downs per year. Clearly, we're sensitive to capital availability, and feel like we've been able to achieve some creative financings at attractive costs to enable drop-downs. And so, I think our view is that that's - we continue to have access to that sort of capital which will allow drop-downs to occur. And in light of a few of our ships who are now on new charters at modestly lower rates than their initial charters out of the yard and the rechartering that you mentioned in our strategy around the Shanghai, the 1 TFDE we have in the spot market. So taken as a whole, that's how we landed in the 2% to 4% range.

[Greg Lewis:]

Okay, great. And then, just one quick one for me, you talk a little bit about the order book. The 100-ish orders, I guess, 96. Curious as you're counting ships, you mentioned 65% of those, of that orderbook is already booked out. As we look at maybe late 2018, I guess, not much is left in 2018, and then - I guess, we'll just focus on maybe 2019, of those orders that are coming in 2019, any sort of sense for how many of those are already spoken for in terms of already on contract?

[Andrew Orekar:]

Yes, so in the book. And I don't have the - I'm sure we can probably get you the exact numbers. But in the book as you would sort of logically expect, the ships that are delivering sooner are - make up a greater proportion of that 65% with chartered. And in fact, the newbuildings entering the market in 2019 are almost all committed to projects at a greater percent than we thought here in 2018. But I think next year the deliveries are - certainly, in the first half of the year are very well covered by existing commitments. And then, of course, those of us including our parent, who ordered ship for delivery in late 2020 or even stretching it to 2021, of course, have more time to put those ships on charters while they're still being built.

[Greg Lewis:]

Okay. Hey, thank you very much for the time, guys, have a great day.

[Andrew Orekar:]

Thanks, Greg.

[Operator:]

And our next question comes from Chris Wetherbee with Citi. Your line is now open.

[Unidentified Analyst:]

Hey, guys, good morning. James on for Chris. Just wanted to sort of follow up on that question about the future guidance and also to get a sense of maybe how you're thinking about the coverage ratio when you're walking through, sort of thinking through that 2% to 4% guidance.

[Andrew Orekar:]

Sure, I missed the first part of your question, but I'll answer the part in the coverage ratio and maybe you can repeat the first part. So our view on the 2% to 4%, and we don't have a hard target for coverage. But clearly, our view is we want to be delivering growth at 1 times coverage or better. And so that's something we'll continue to focus on. And we're very, very sensitive to the importance of coverage in today's MLP market. And so, that's one of the reasons you're seeing the growth rate and guidance come down a bit, is to ensure quite sound coverage going forward.

[Unidentified Analyst:]

Okay, so presumably this would actually increase coverage. So with that additional capital, how would you think about allocating that or managing it?

[Andrew Orekar:]

Well, there is, of course - each quarter has its own pluses and minuses. As Alistair mentioned in his remarks, we have a dry-docking next quarter - I'm sorry, in this quarter, the fourth quarter of 2018. We will have a dry-docking in 2019. Obviously, the ship that - the Shanghai will be earning as long as it is in the spot market, that rate will have some variability. So hard to say, right now, what each quarters coverage will be other than saying we're targeting 1 times are greater at the 2% to 4%.

[Unidentified Analyst:]

Okay. And just one last question on the same topic, the - I presume, part of the reason the guidance is coming down a little bit is for - it's coming down from this year is your view on how you might be [more driven] [ph] getting credit for this. So what would it look like if - potentially you were getting rewarded for growth like how would you think about your yield and where you - sort of the value?

[Andrew Orekar:]

Sure. You're right. I mean, we feel like many MLPs who have been growing, but we have not received dollar for dollar credit for that in the unit price. However, we do think, it's quite important that as an MLP, we grow assets and grow the distribution, which is really our reason for existing. So we're, of course, trying to strike the right balance between low- to mid-single-digit growth, that is quite realistic to achieve. And then, of course, the value that we believe that we receive in the unit price, and Alistair took you through in the presentation, we have a very extensive drop-down pipeline over $200 million of EBITDA, upstairs, that's apparent. And so, to the extent that growth is being more rewarded, it would be relatively straight forward for us to the increase that growth rate. But again, it's been sometime since we felt like that was reflected in our unit price and we hope it returns. But until it does, we're moving forward with somewhat more conservative strategy.

[Unidentified Analyst:]

Got it. So more specifically, what sort of level it would have to come down to for you to think about increasing the growth in the distribution market?

[Andrew Orekar:]

I think it's hard to say. I mean, I think we have a very regular dialogue with our investors. And I think when there's perhaps improved access to capital in the MLP market and a greater dataset of the higher growing MLPs, having commensurately higher valuation, I think it will - we'd be able to graph. But it's hard to give you a specific yield number. But suffice it say, it's certainly a tighter yield than we have today or had over the past couple of years.

[Unidentified Analyst:]

Got it. That's helpful. And then, with the Methane Becki Anne, in the financing package you basically did not include shares in the specific ones. Previously, it was something that you had done. Now, is that because of the recent Tortoise transaction or had you made consideration to move away from that because of another condition in the market?

[Andrew Orekar:]

No. You're correct, because we have raised the capital externally with Tortoise, we felt good about our equity position, and had a quite significant cash balance on hand following that transaction. So it just made sense to use the proceed-rates from the Tortoise share.

[Unidentified Analyst:]

Okay, great. Thank you.

[Andrew Orekar:]

Thank you.

[Operator:]

And our next question comes from Michael Webber with Wells Fargo. Your line is now open.

[Michael Webber:]

Hey, good morning, guys. How are you?

[Andrew Orekar:]

Good. Hey, Mike.

[Michael Webber:]

Hey, Andy, forgive me if you mentioned this and I missed it. But with regards to the 2019 guidance, the - that does not contemplate any form of IDR reset, correct?

[Andrew Orekar:]

Yeah. So that guidance is consistent with our current IDR structure and we would expect it to continue following a modification that we may pursue.

[Michael Webber:]

Okay. That's helpful. And then, more broadly on the market, if I think about the business you guys have been able to layer on, there has been a decent amount of term business, kind of ones and twos getting done. And it seems like - if I can't bear this cycle or the last cycle, the new entrants into this cycle as opposed to say a goal are placing an order for 10, 12 spot ships without financing them. It doesn't seem like that capital is available right now. So you've got newer entrants or just kind of smaller [Greek owners or larger Greek] [ph] owners kind of placing an order for 2, if 8 or 10 vessel option strings, then kind of diving into that term market, which you guys typically play in, trying to get 2 done, finance those and exercise 2 more options, and kind of slowly build up their exposure to the sector. I'm curious, do you think that dynamic is weighing on longer-term return starting to drift up into the like the - the reference rate on a 5-year deal or 3- or 5-year deal maybe being a bit weighed down by some of those players kind of being price-takers in the low-60s?

[Andrew Orekar:]

I think there is - right now, there is a little bit of two different markets. There is the - the comments you're making, obviously, reference the newbuilding market. And the newbuilding market return have been generally consistent, but because yard prices had fallen somewhat precipitously prior to the past three to six months. You were seeing day rates for newbuildings at lower level, but roughly the same return. So it'd be certainly the businesses that are apparent with doing with the similar returns. Now, those yard prices, with all the orders you're seeing for VLCCs and then others are certainly moving up and the yards are more confident on term. And so, I think it's not a coincidence, that in the past three months or so, you've seen some of those orders flatten out and not quite the same activity. So that market, I think is, you're going to see rates moving up with the newbuilding prices. In the - on the water market, it's - if you've listened to my comments a few moments ago, it's really just more about supply and demand and people feeling like they're getting cut short of spot ships. I mean, right now, every ship in the market is moving, because of the cargo demand. And that ought to lead the term opportunities for people who don't want to feel that they're overpaying so to speak for the spot voyages they need. So I don't - I think there - the new entrants are a little bit more of a phenomenon on the newbuilding side, but again, even that seems to have slowed a bit with yard prices heading back upward.

[Michael Webber:]

All right, but you're not seeing - say, if Cheniere comes out with two vessel tender, you're not seeing the rate on that getting dragged down a little bit, because there are couple of players in the market willing to take kind of 62, 63 just to get the order printed and kind of move on to kind of build out the rest of the exposure.

[Andrew Orekar:]

We certainly haven't seen that yet.

[Michael Webber:]

Okay.

[Andrew Orekar:]

Yeah. And I think our parent did the most recent newbuilding deals that Cheniere did, so not yet.

[Michael Webber:]

Okay, great. All right, I'll stop there and turn it over. Thanks, guys.

[Andrew Orekar:]

Thanks, Mike.

[Operator:]

And our next question comes from Randy Giveans with Jefferies. Your line is now open.

[Randy Giveans:]

Hey, thanks, guys. And congrats on another record quarter there. You mentioned just now the IDR modification and on the last earnings call, you said it's probably something you will be pursuing towards the end of the year. Should we expect that possibly to come on next week's GasLog Pinnacle [ph] or is that something an additional announcement in the next few months?

[Andrew Orekar:]

Hi, Randy. It's Andy here. No, as I mentioned, it's something we're still working towards our year-end goal that we set for ourselves, so I would expect it prior to yearend.

[Randy Giveans:]

Year end, okay. And then looking specifically at the Shanghai, what is that - what rate is that currently earning on its current charter or its current Cool Pool voyage?

[Andrew Orekar:]

Yes. So the Cool Pool rates are not something that we disclose. But as I mentioned, given the strength of the market that we're all seeing, we do expect that to be above the mid-cycle rate in terms of its contribution for the fourth quarter.

[Randy Giveans:]

Got it. Thought I'd try. Okay. And then, one more question for today's drop-down, it looks like the price is slightly higher than the Gibraltar, although the Becki Anne is a little smaller, it's about six years older, slightly lower annual EBITDA. So can you explain the kind of valuation methodology and why you chose the Becki Anne versus some of the other LNG carriers like GasLog parent with even longer contracts attached?

[Andrew Orekar:]

Sure. Well, as I'm sure you're going to appreciate, each vessel that we evaluate we use a variety of metrics to assess its valuation. And now it's EBITDA multiple is an easy short-hand. But it's just one of several metrics that we look at. And there is different capital requirements from each vessel give its dry-docking schedules and what's been done on the ship prior to our ownership. So I think the delta in valuation you mentioned is really sort of de minimis. It is a ship that we were excited to own, given its relatively low leverage and the capital we had raised. So as Alastair mentioned even following this deal, we've got about 50-50 debt to cap ratio. And significant balance sheet capacity, so to look at other alternative besides equity for our future drop-down. So that is something we found quite compelling. And it is a charter with 5.5 years, give or take left on it. And we have, as you mentioned, several other ships that we expect to buy with even longer charter. So with sort of the right ship at the right time, and again, I would say the valuation was essentially identical for the Gibraltar.

[Randy Giveans:]

Perfect. And lastly, ATM, it's still about $85 million that's left on the current authorization?

[Alastair Maxwell:]

It's a little bit less than that. So I think it's closer to $25 million to $30 million.

[Randy Giveans:]

$25 million to $30 million left on the authorization.

[Alastair Maxwell:]

Yeah.

[Randy Giveans:]

Got it. All right. Well, thanks so much.

[Andrew Orekar:]

Thanks, Randy.

[Operator:]

Our next question comes from Ben Nolan with Stifel. Your line is now open.

[Benjamin Nolan:]

Yeah. Thanks, Andy and Alastair. Actually maybe just push back a little bit on Randy's last question - or second to last question about the drop-down. I appreciate the contract is about the same and the duration is about the same. But the ship is six years older, and as a result has materially different residual value. How do you bake that in to your calculations, when it comes time to paying for these things?

[Alastair Maxwell:]

Hey, Ben. It's Alastair. Look, I think, as Andy said there were number of things that we look at when we think about the value of the ship. And looking at EBITDA multiple is one metric. We look at cash flows over the life of the ship. We look at things like breakeven, and obviously with a lower amount of leverage on the vessels you had a lower breakeven than the ship that would have proportionally higher deck. And she has an attractive charter - has an attractive charter rate. And so, for all of those reasons, we were comfortable with the value at which we were buying the ship.

[Benjamin Nolan:]

Okay. I mean - and I understand that, although I think you could always an asset has a good contract and low debt, you could always refinance or do - I mean, the financial aspect of - or how an asset is financed doesn't usually play into the purchase price. Or I don't know that it should, again, I'm just, it feels a little on the higher end. And I was curious, if there was anything unique about the ship itself that makes it more valuable.

[Alastair Maxwell:]

No. I don't think there was anything that was unique about the ship. Again, recognizing that there are multiple ways of evaluating the asset, I think that all the underlying assumptions and the implied metrics of the valuations were in line with the prices we paid for other vessels in the past.

[Benjamin Nolan:]

Okay. And then moving over to the IDRs, I know, obviously, you don't have anything really to say about it yet. But it's - you're clearly pretty far into the process. I'm curious, if there's any, as you've studied it out, if there is anything that may be ruled out in terms of the various paths that that might take. Any color that you might be able to give us without specific numbers or anything? Just in general about how you think that might make sense for you?

[Andrew Orekar:]

Sure, Ben. It's Andy here. As I said, the process is still ongoing, so I don't want to share too much in the way of detailing. I think one, I guess, point of distinction as you've probably been following the MLP sector and simplifications, where there has been essentially pure-play GPs that were listed as a way to have to exposure to the IDR steam and their related LP combining, in some cases GP buying LP or vice versa. I think, as an example for us, that really isn't relevant and sort of optimal for us at this time. So I would be very surprised, if that was an outcome of our study. I think it's pretty clear of that both GasLog and GasLog Partners have access to capital, have access to incremental shareholder basis. And there's a complement to having the two securities there to perhaps achieve a slightly different objectives, growth in capital appreciation at the parent, and a yield - stable to the yield story at the LP. But I think that's one way, where I think we feel that we're different, but beyond that, probably don't want to say too much more at this time.

[Benjamin Nolan:]

Okay. And I appreciate that. And the color you gave there, Andy, is helpful. Just in knowing sort of at least directionally, how you're thinking. So I appreciate that. But I'll turn it over for other people. Thanks.

[Andrew Orekar:]

Thanks, Ben.

[Operator:]

And our next question comes from [Mac Scheares] [ph] with Morgan Stanley. Your line is now open.

[Unidentified Analyst:]

Hi, guys. Thank you. Andy, you always do a really good job of laying out kind of view of the LNG market. And you mentioned Qatar expansion in your release. Just wondering, how many ships you think that would create demand? Have they started tendering and how many of those ships would be charter owner ships?

[Andrew Orekar:]

Yeah. It's an interesting question. The short answer is that they have not started as far as we're aware tendering for new ships. The latest figures that I have seen is that, they expect to sanction up to over 30 million tonnes. And that may happened by prior to the yearend, next year. So if you kind of use the historical multiplier of tonnage required to move that incremental gap you'd be at about 45 ships. Obviously, we've seen some periods here where they average voyage distances have been longer than that. So that is clearly - we get asked a lot about what next projects going to happen or where the next incremental gap is going to come from. And I think clearly those Qatari volumes are quite significant and will be a reality of this next wave of liquefaction in a very significant way. But it's too early to say when they'll be coming to the market for ships to [reach] [ph] that's something that us sort of western owners would really even get a look at.

[Unidentified Analyst:]

Sure, so let's say maybe there is 30 million tonnes there and then a few other projects, what do you expected to call on U.S. LNG, let's say, out to 2025?

[Andrew Orekar:]

When you say the call on U.S. LNG, how much more incremental U.S. LNG will there be?

[Unidentified Analyst:]

Yeah, exactly. How much more U.S. LNG do we need, how many more projects do we need to take FID to kind of meet demand by 2025?

[Andrew Orekar:]

Well, my rough rule of thumbs is that you got essentially 15 million to 20 million tonnes as incremental demand spread out over that period. It may happen a bit more lumpy than that on a year by year basis. And so, that's - but three or four trains in a place like Sabine [ph] or the incremental trains at Cheniere is building at Corpus and it's talking about adding in terms of the mid-scale project there. The fourth train is, 3, 4, as that gets off the ground is sort of another 4 million or 5 million tonnes. So I think there is - the first place I'd look is number of these brownfield expansions where they have sort of a running start on the other U.S. projects. We can get you what that total U.S. number will be. But clearly, it's a substantial part of what we're projecting as the incremental supply over the next 6, 7, 8 years.

[Unidentified Analyst:]

Sure, and then just on that - I think we actually saw one U.S. cargo go to China despite tariff, so have you seen maybe any more cargoes or any kind of update on what's going on there?

[Andrew Orekar:]

No, I think, I mean, clearly, it's kind of interesting. When the China and U.S. LNG tariff talks began, rates were in kind of the 70s and now the spot rates are in the 140. But I think clearly it's having an effect if you're a U.S. project, looking for a Chinese equity investor and off-taker to help get the projects financed. I think clearly that it's something that is perhaps more challenge today. But in terms of the actual cargoes moving an existing contract, we haven't seen it interrupt any already agreed business. And clearly as I mentioned earlier, that the rates for ship term are really moving just purely because of the sheer volume of LNG, that needs to be transported around the world, whether it's going to China or anywhere else. So nothing really more to add other than we continue to expect that energy and LNG to be part of any U.S. and China solution. And clearly, the U.S. has that as a very important chip to offer in whatever broader economic deal was reached, which I'm sure will be reached in time.

[Unidentified Analyst:]

All right, that's all for me. Thank you, guys.

[Andrew Orekar:]

Thank you.

[Operator:]

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

[Chris Snyder:]

Hey, good morning, guys. So my first question is how you guys view the steam vessel fleet. All of the ships come off contract by year end 2020. Would you be comfortable operating these older vessels in the spot market or would you consider taking advantage of the current tight market to potentially unload these vessels and reinvest it to younger assets?

[Andrew Orekar:]

Sure, so we continue to think about the steam vessels, just like we think about any other vessel, which is to say the overall supply and demand texture suggest that our vessels and many other vessels that are far less efficient than ours will be needed in the market through 2021. And so, as you know with the strong spot rate environment, it's listening of course not only to your [D rates, but C rates] [ph]. And we have already had enquiry for some term opportunities on the steam ships. But I think our judgment is done that the rate at which you can do those deals will get better here in time. But every ship right now is expected to be employed and if that's in the spot market for some period of time for some of our vessels, I think that's something we'll be happy to do. If there really was a true third-party sale and purchase market for LNG carriers. I think we wouldn't be doing our job if we didn't look closely of that for any vessel we owned. Today, that hasn't really developed. But hopefully, in this environment with stronger rates and just simply more ships on the water and a bigger LNG market in terms of cargos, perhaps it will. So wouldn't rule something like that out. But today, it's not really a realistic option for us.

[Chris Snyder:]

Okay, but you guys are kind of already, it sounds like in the - potentially discussing follow-on opportunities for these vessels, even though they're all, I guess, kind of a year out before we see them re-price.

[Andrew Orekar:]

Yes, it's still early. Your intuition is right. It's still early days, given that it's a year away. But that those conversations are beginning in earnest kind of as we speak.

[Chris Snyder:]

Okay. And then, just kind of following up on previous questions around term contracts, which is obviously important for you guys. Just given the strength that we're seeing currently in kind of the expectations of continued tightening over the next two years, are you surprised that charters have not been a little more aggressive in going after three year contracts and just kind of to lock up some term here, just given all the supply those guys are bringing on over the next two years?

[Andrew Orekar:]

Yeah, so I mean, I think it's logical to expect to say would. Clearly, this most recent move in rates has been quite dramatic. But I would also argue that it's the - on a very small number of available ships to fix. And so, I think we'll need to see this sustain for a little bit longer for more deals to be offered to us. But it in fact has happened, and right now, we are seeing a much greater amount of enquiry for one year and a bit for three. And again, for us, we're hopeful that we'll see more for three and potentially three plus that rates that are attractive as we move through the winter.

[Chris Snyder:]

Okay. I appreciate the commentary. That's it for me. Thanks guys.

[Andrew Orekar:]

Thank you.

[Operator:]

And that does conclude today's question-and-answer session. I would now like to turn the call back to Joseph Nelson for any further remarks.

[Andrew Orekar:]

I'll take that one, but thanks, Chris. It's Andy here. Thank you to everyone today for listening and your continued interest in GasLog Partners. We certainly do appreciate it and look forward to speaking to you again next quarter.

[Operator:]

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect and everyone have a great day.