GasLog Partners LP
Q3 2017 Earnings Call Transcript

Published: 28 Oct 2017

[Operator:]

Good morning. My name is Amanda and I'll be the conference operator today. At this time, I would like to welcome everyone to the GasLog Partners' Third Quarter 2017 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 conference call is being recorded. Today's speakers are Andy Orekar, Chief Executive Officer; Alastair Maxwell, Chief Financial Officer; and to commence the call, Jamie Buckland, Head of Investor Relations. Mr. Buckland, you may begin your conference.

[Jamie Buckland:]

Thank you. Good morning and thank you for joining GasLog Partners third quarter 2017 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 two 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 and a reconciliation of these is included in the appendix of this presentation. I will now hand over to Andy Orekar, CEO of GasLog Partners.

[Andy Orekar:]

Thank you, Jamie. 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 and an overview of our recent acquisition. Our CFO, Alastair Maxwell, will follow with a review of our financial performance and dropdown pipeline, and I'll conclude with an update on the LNG shipping market and our distribution growth outlook. Following our presentation, we'd be very happy to take any questions you may have. Turning to slide three, you can see our highlights. In the third quarter, we've continued 100% utilization across our fleet. We delivered our highest ever results for revenue, EBITDA, and distributable cash flow and today we are declaring our fourth consecutive quarterly distribution increase. Our distribution now stands at $0.5175 per unit or $2.07 on an annualized basis, which represents growth of 1.5% from the second quarter and 8.3% from the third quarter of 2016. Even at this increased distribution level, our coverage ratio for the quarter was 1.2 times. In July, we completed the acquisition of the GasLog Geneva, and in September, we announced the acquisition of the Solaris. Both of these modern and strategically attractive vessels are operating under multiyear charters through a subsidiary of Royal Dutch Shell. Lastly, following reverse inquiry from new and existing unit holders, we raised gross proceeds of $45 million through our aftermarket common equity program. Gross proceeds from the program since its inception through the end of the quarter total $54 million at a weighted average sales price of $22.91 per unit. Turning now to slide four and more details on our recently announced dropdowns. We have completed two acquisitions in the past four months and a total of three dropdowns in 2017 year to date. We've closed the GasLog Geneva on July 3rd and the Solaris on October 20th, both of which were built at Samsung by our parent in 2016 and 2014 respectively. The Geneva is on charter to Shell for approximately six years, after which period Shell has the option to extend the charter by five to eight years. The charter is expected to generate approximately $23 million of annual EBITDA. The Geneva was financed with proceeds from our May preferred equity offering and the assumption of the vessel's existing debt. The Solaris is on charter to Shell through June of 2021, after which period Shell has options to extend the charter by five to 10 years. The charter is expected to generate approximately $20 million of annual EBITDA and increases our contracted days to approximately 90% for 2018 and 72% for 2019. The Solaris was financed with cash on hand, including proceeds raised through our ATM program, plus the assumption of the vessel's existing debt. These immediately accretive acquisitions expand the Partnership's fleet to 12 wholly-owned LNG carriers, extend our average remaining charter duration and significantly increase our contracted EBITDA and distributable cash flow. With that as introduction, I'll now turn it over to Alastair to take you through our financials.

[Alastair Maxwell:]

Thanks Andy and good morning to everyone. I'm pleased to report another excellent quarter in terms of the operating performance and financial strength of the partnership. Please turn to slide five. In the third quarter of 2017, we achieved our highest ever quarterly partnership performance results for revenues, EBITDA, and distributable cash flow. All three metrics show significant increases over Q2 2017 due to the acquisition of the GasLog Geneva which closed on July 3rd. Compared to the third quarter of 2016, our record results were due to the acquisitions of the GasLog Seattle in November 2016, the GasLog Greece in May 2017, and the GasLog Geneva in July 2017, all of which were accretive to our distributable cash flow and to our distributions per unit. We expect further growth in revenues, EBITDA, and distributable cash flows as a result of the acquisition of the Solaris, which closed last week. Turning to slide six. This slide shows our track record of growing our distributable cash flow and our distributions per unit since our IPO in May 2014, whilst maintaining a prudent level of distribution coverage throughout the period. The first chart shows the compound annual growth in our distributable cash flow since IPO, which has been a strong 43% per annum. On a per unit basis, this equates to approximately 11% compound annual growth. The second chart shows our distributions per unit since IPO, which have grown at a compound annual rate of 10%, consistent with the target we set at the time of IPO. Lastly, the bottom table shows our distribution coverage ratio for every quarter over the same time period. This has been consistently above 1.1 times, except of course as affected by dry-dockings or by the impact of the timing of raising equity relative to the timing of acquisitions. Since IPO, our cumulative coverage ratio has been a conservative 1.2 times. Looking forward, we would note that we have one dry-docking scheduled for Q4 of 2017 and three for 2018, and these are likely to have some impact on distribution coverage in their respective quarters. Turning to slide seven, the top panel of this slide shows the 12 vessels comprising the partnership's fleet, including the recently acquired Solaris. As you can see from the light blue bars, we have three ships that we'll redeliver in May, July, and September of 2018, respectively. All three of these ships continue to be the subject of reverse inquiry and ought to be offered into tenders for new-term charters at attractive rates compared to those available in the spot market today. In addition, the operating performance of two of the ships would have been improved by the investments we are carrying out at their next dry-dockings, which should make them even more attractive to potential customers. In light of the long lead-times to their redelivery dates, and given the strengthening tone in the spot market, we believe that the environment is increasingly supportive of our ongoing discussions to recharter these ships on attractive terms. The bottom panel shows the 11 vessels on multiyear charters owned by our parent, GasLog Limited. The charter periods range from 2019 to 2029 and represent well over $200 million in total annual EBITDA. 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. Turning to slide eight and the financial position of the company. On September 30th, 2017, we had total available liquidity including revolver capacity of $235 million. After factoring in the acquisition of the Solaris, we will have total available liquidity of approximately $180 million, which includes $30 million of additional revolver capacity that a company's -- the debt facility that we issued with this acquisition. As you will recall, we also have a $30 million debt maturity relating to the outstanding amount under the junior tranche of the five vessel refinancing facility, which is due in April 2018. Following the full repayment of the junior facility, all of our debt maturities through November 2019 will have been addressed. During the quarter 2017 to date, we have repaid $125 million of our debt, equivalent to 0.7 times last 12 months EBITDA and more than our total cash distributions in 2017 year-to-date. Finally, we're taking advantage of the dry-dockings in 2018 to make investments totaling approximately $26 million in certain of the vessels, leaving us with pro forma available liquidity of $124 million. This strong liquidity position, combined with the ongoing proceeds of our aftermarket program and growing debt capacity, leave us well-positioned to fund future growth. With that, I'll turn it back to Andy.

[Andy Orekar:]

Thanks Alastair. Turning now to slide nine and the market for LNG shipping, which we believe looks attractive for the next several years to come. Since last quarter, there have been a number of positive data points that demonstrate the recovery is now taking place. The wave of new LNG supply is coming online largely as expected, with production ramping up from new projects quickly, particularly in the U.S. and Australia. New demand for LNG continues to keep pace with this increase in supply with increased demand for gas in both new and existing markets. We have seen very few orders of new LNG carriers, which we believe will result in a shortfall of vessels relative to what the current order book will deliver by 2019. And then the shorter term shipping market, we continue to see a greater number of spot fixtures in 2017 compared to the same period in 2016 and increasing signs of seasonality, both of which point to a tightening market. Turning to slide 10 which shows the new LNG supply coming online. In 2017 to-date, nearly all of the projects which were due to come online have done so on time, often ramping up production quicker than expected. With substantial completion announced for Train 4 at Sabine Pass, Cheniere has now brought four liquefaction trains online in the past 17 months and has shipped over 200 cargoes since start up. Cameroon FLNG, Yamal Train 1, and Cove Point are all expected to start production by year end, meaning that over 30 million tons of new nameplate capacity will have come online during 2017. And finally, something you'll be familiar with as we've mentioned it on previous calls, a number of companies with committed offtake from these projects have yet to contract their shipping requirement, with a total expected shortfall of 40 to 60 vessels between now and 2020. A number which has not taken into account any potential vessel conversions or scrapping. Turning to slide 11, this slide shows the increase in LNG imports by country for the year-to-date over the same period in 2016. In the first nine months of 2017, global LNG trade continued to grow significantly, with total imports up 11% year-on-year to 215 million tons. China posted the largest year-on-year increase in absolute volumes, importing over seven million tons more this year, which represents an increase of 40%. South Korea and Japan, two of the world's largest consumers of LNG, were second and third with increases of 21% and 5% respectively. The increased demand has come from both traditional importers as well as emerging markets, such as Pakistan and Thailand. Turning now to slide 12 where we look at recent spot market developments. As can be seen from the chart in the bottom left corner, the number of spot fixtures in each quarter this year has been greater than last year with an increase of 22% year-to-date. The growth in spot fixtures has led to higher utilization during 2017 compared to 2016, which when combined with higher spot rates and the return of round trip economic underpins a spot market that is tightening at the right time for our 2018 redeliveries. Turning to slide 13, this slide shows the development of spot rates over the last 12 months versus the same period a year ago. There has been significantly greater seasonality in shipping rate as the market has started to improve. Rates become sensitive to seasonality when the market starts to balance, which can be seen with the TFDE rates on this chart. In the 2015 to 2016 period, as shown by the red line, rates were relatively flat due to the oversupply of vessels where demand for the incremental vessel had limited effect on rates. As the market becomes tighter and the availability of vessels declines, shipping rates tend to react to small changes in vessel demand and availability. This can be seen in the fall of 2016 when seasonal demand for LNG was low and shipping rates drop. There was then a sharp increase in rates and demand for LNG, and LNG shipping picked up through the winter months before falling again into the spring of 2017. What's interesting is that we are currently in a shoulder period when typically LNG demand falls and rates move lower. However, this hasn't happened in the fall of 2017, as shown by the blue line, where shipping rates have continued to move higher in anticipation of winter demand and lower vessel availability. Turning to slide 14 and a recap of the GasLog Partners investment proposition. This slide shows our distribution growth history and updated guidance going forward through 2018. You can see on the far left hand panel, we've now grown our quarterly distribution to $0.5175 per unit or $2.07 annualized. This represents a 10% compound annual increase since our IPO and an 8% increase on a year-on-year basis. We've consistently targeted 10% to 15% CAGR and distributions from IPO and we're proud to say that we've met our guidance in every quarter as a public partnership. We continue to expect to meet this guidance through the fourth quarter of 2017, which will result in an annualized distribution of greater than $2.09 by year end. As promised when we spoke to you last quarter and as shown on the far right hand panel of this slide, today we're providing new guidance of 5% to 7% year-on-year distribution growth for 2018. This guidance is supported by our three acquisitions completed to date in 2017, our dropdown pipeline, and our continued access to equity funding, while also reflecting our three scheduled dry-dockings and three vessels coming off charter next year. We believe 5% to 7% growth in distribution is a realistic target for 2018 and offers our investors a highly compelling total return opportunity. Now turning to slide 15. In summary, in the third quarter, GasLog Partners continued to execute its growth strategy. We delivered our highest ever quarterly results for revenue, EBITDA, and distributable cash flow, enabling us to increase our cash distribution for the fourth consecutive quarter, while maintaining appropriate coverage. The partnership's acquisitions have delivered significant growth in distribution since IPO, as well as year on year. And we believe 5% to 7% growth is an achievable target for next year when considering our extensive dropdown pipeline, planned dry-dockings, and rates we expect to earn on our ships in 2018. Were in active customer discussions for all three of our vessels whose contracts end next year, and we have substantial liquidity and debt capacity to help fund continued fleet growth. Finally, looking longer term, continued progress of new liquefaction, increased chartering activity, and a lack of new vessel orders support a continued recovery of LNG shipping rates. That brings us to the end of today's presentation. Amanda, could you please now open the call for any questions?

[Operator:]

Thank you. [Operator Instructions] And our first question is from the line of Randy Giveans of Jefferies. Your line is open.

[Randy Giveans:]

Thanks so much and congrats again on the record breaking quarter. A few quick questions. I know you mentioned the rechartering opportunities for those three vessels, so just kind of thinking your plans are at this time. Any chance you keep them operating in the spot market, or are you looking more either extending them on longer term charters or swapping them back to GasLog for maybe one or two vessels currently with longer term charters?

[Andy Orekar:]

Sure. Hi, Randy, it's Andy here. I think as we mentioned in our prepared remarks, we've offered all three of these vessels into several tender processes, as well as some bilateral discussions for term business. We think that that market, for those who have requirements in call it the middle of 2018 and the second half of 2018 where we have exposure is really just picking up at this time of the year. Now is really the time for our customers to be focusing on those requirements. So, I think our objective in the first instance is to put them away on multiyear contracts. If there's an opportunity for a multiyear contract to start in early 2019 say and we traded in the spot market for some period of time, given where the market is going, we think we could earn healthy rates in that scenario as well. But I think our strategy at the MLP typically is to take term over rate where we can and provide as much visibility to our investors as possible in terms of cash flow.

[Randy Giveans:]

Sure. Okay. And then in terms of future dropdown plans, it looks like you have maybe $45 million or so left in the ATM program. Do you think those proceeds, kind of with your current cash balance; will be enough to finance another dropdown here in the next one to five, six months?

[Andy Orekar:]

Yes. We've been very pleased with the ATM and the reverse inquiry we've received. We do have a very healthy liquidity position that Alastair took you through. I think our objective is likely to focus on dropdowns in the first half of 2018. I think we're in good position for 2017 to meet both our guidance for this year. In fact, the Solaris gives us a little bit of a running start on the 5% to 7% growth I mentioned for next year. So we're happy with the capital raising to-date, and we'll continue to focus on the next steps for growth in 2018.

[Randy Giveans:]

Sure. All right. Well that's it for me. I'll let others hop on. Thanks so much. Congrats again.

[Operator:]

Thank you. And our next question is from the line of Ben Nolan of Stifel. Your line is open.

[Ben Nolan:]

Yes, thanks. Andy, I have a couple questions, but my first relates to the Solaris. Seems like the dropdown multiple was a little bit above where the Geneva was, even though the vessel is a little bit older and the contract is a little bit shorter. Can you maybe walk me through how you're thinking through what is the right price to pay for assets and is that evolving?

[Andy Orekar:]

Sure. So, I guess I'd say a couple things. You've probably hear me say this before, Ben, but I think when we evaluate every dropdown, we look at a variety of metrics in terms of valuation, EBITDA multiple is really just one of them. But of course every ship that our parent builds has a different price from the yard and every charter is different and has some different features to it. And so we look at a range of valuations and ultimately felt that this was the fair price for the Solaris. It happened to be a very marginally, slightly higher EBITDA multiple in this case, but in our view, it was still the right valuation to pay. And I think it has a very beneficial impact in terms of cash flow accretion and coverage for 2018, 2019, and through 2020 where we have renewals in each of those years. So, I wouldn't extrapolate a trend line from any one deal. And again, I think we're showing that at the rate that we're raising capital, and the quantum of which we've been able to raise, we can pay fair market values for these chartered ships and still deliver we think is a very compelling level of growth. And so I think each -- we'll continue to evaluate each ship on its own merit, but where our model seems to be really working today is with our cost of equity and with the fair market values we're paying, and we're eager to continue that next year.

[Ben Nolan:]

That's helpful. And sort of along those same lines, when you talk through 5% to 7% distribution growth next year and assuming continued dropdowns and so forth and you mentioned that the coverage ratio probably dips a little bit with the dry-docking. Now, as you've grown a bit, how are you thinking through the coverage ratio going forward? Are you sort of wanting to allocate a little bit more money, or retain a little bit more capital for future growth, or his whatever, 1.1 times to 1.2 times sort of still the sweet spot for you?

[Andy Orekar:]

Sure. So, I think as Alastair mentioned in his comments, we've been a, I think a very conservative distributor of cash in our three and a half years as a public partnership. Having said that, I think we do -- the nature of our business, which you know well, Ben is we perform maintenance CapEx once every five years. And so when we take our ships out of the water for a month, which we have three ships dry-docking next year, that will have an impact on the coverage ratio. So, my guess is in those quarters where we have dry-dockings, we'll be lower than that historical 1.125 target we've had and quarters where there isn't a dry-docking, I expect we'll do better than that. But that really will vary by quarter. Hopefully taking a longer term view, our investors can see the cash flow stability we have in underlying our contracts, but we do have these lumpy events with dry-docking once every five years.

[Ben Nolan:]

Right. So, there's no change in how you're thinking about the distribution coverage and allocation capital.

[Andy Orekar:]

No. Not from our historical track record, no.

[Ben Nolan:]

All right. And then lastly from me and I'll turn it over. With respect to the tendering activity and you mentioned it a little bit in your answer to Randy's question, but you said that currently, obviously, and we've heard this from other parties that there has been a real surge in terms of the number of contracts being offered in the market. Trying to get a sense of what that might mean in terms of day rates and obviously we'll see and I appreciate that. But you I think had mentioned that you're expecting rates to come in at a premium to where the spot market is. Just trying to get a little bit more range on what that might be. I know today's spot -- this week you're over 60, but is that fair? I mean a little bit better than that do you think is doable?

[Andy Orekar:]

So, we quoted Clarksons, the world's largest ship broker, in our filings every quarter. We give an update on where they stand, and the number that they were quoting earlier this week was 51,000. I think you're right in that there are certain cargoes and trades going on clearly at a premium to that today, there's no doubt about that. And I think if you look at our -- we don't disclose the charter rate on any given ship, Ben, but if you look at the averages that we do disclose, our average rates for term contracts are in the 70s. And if you think about a spot market today in the call it the low 50s, I think we're seeing term business that would be clearly somewhere at a premium to that spot market rate and perhaps not quite at the level that a number of our current charters are on. So, we feel that that area, broadly defined, works well for our cash flow generation and our model. And if we can term out there and provide that visibility, that's something we're going to seek to do.

[Ben Nolan:]

That's excellent color, better than I would have guessed. I appreciate it. Thank you, Andy.

[Andy Orekar:]

Thanks Ben.

[Operator:]

Thank you. And our next question comes from the line of Michael Webber of Wells Fargo. And your line is open.

[Michael Webber:]

Hey good morning guys. How are you?

[Andy Orekar:]

Hey Mike.

[Michael Webber:]

Just to look back on the market indications for the open ties, kind of put a nice bow on I think a couple questions you've had already. In terms of rate and tenor you're expecting for those three open vessels, something in the 50s-ish. And in terms of tenor that's out there available for re-lets right now, where's that number?

[Andy Orekar:]

Yes. So, on the rate, I probably wouldn't want to give more color than I already have, but I think, as you mentioned, it's something we clearly see at a meaningful [Indiscernible] to the spot market. I think in terms of tenor, we're seeing anything from multi-month to three-plus year type inquiries for on-the-water tonnage. And that's just the simple fact. As you well know, Mike, that if you want to ship in 2018, 2019, early 2020, you're dealing with on-the-water tonnage, and so we're very well-positioned for that. So, I think something in and around that three-year number is probably our sweet spot for GasLog Partners. Doesn't mean we wouldn't consider something less than that because the market should still be strong a year from next summer and the like where we have other renewals. That is kind of the bulk of the inquiries we've seen so far.

[Michael Webber:]

That's helpful. Now, obviously, that's a fluid process. Alastair, from the parent perspective, what steps is the parent willing to publicly take to backstop those cash flows or to make sure the distributions at GLOP are uninterrupted?

[Alastair Maxwell:]

Mike, so we talked about this quite a lot in the past. We talked about two particular concepts. I think the first, which is disclosed in all of our filings around the Sydney, which we delivered at the end of next year. And there's an agreement between the two companies that if GLOP wishes to do so, the partnership wishes to do so, then we can enter into a [Indiscernible] arrangement or something equivalent to that, in order to maintain the distributable cash flow from that vessel for a period of approximately a year after she redelivers. So that arrangement is particular to that vessel. We have talked in the past about the possibility of doing swaps and so on. I would say that given where we think the market is today, the conversations that we're having with potential customers, I would think today that that's probably lower down the list of things that are likely to happen as we look at the market today.

[Michael Webber:]

Okay. It's always worth revisiting. I appreciate it. And then Andy, just to run back through the dropdown math around the Solaris and I appreciate the fact that you guys put those two dropdowns side-by-side in the decks -- you didn't have to do that. In terms of that multiple relative to the Geneva, I understand that -- I guess first and foremost, I would assume the cost base of the GasLog pay would be relevant from your perspective. But what specifically about the Solaris would warrant a modest premium, or even a par valuation, just given the obvious differences in age and contract tenor? So if every vessel has its own attributes, what specifically about the Solaris warranted that par?

[Andy Orekar:]

Sure. So, I guess, I think as I mentioned in my comment to Ben, I wouldn't just look at the EBITDA multiple as the one and only driving valuation metric, but certainly appreciate that that's critical in the MLP world and obviously, we're sensitive to it. I think one feature of the Solaris, which is quite interesting, is that the vessel is managed by Shell. And so it's a ship that we own, but is under their technical management. And Shell, who's got one of the largest shipping operation organizations in the world, has a desire to continue that type of expertise and develop it in-house to a large degree. And so our sense is that this ship will likely stay in Shell's program for many years to come. And so that's -- so while it is a slightly older ship, we do think that that is an interesting feature that is a bit unique. But again, I think on its own merits, this type of tonnage is going to be in very high demand and we're seeing it today from both our typical energy major customers, as well as the traders. So, we're very happy to own the ship at this valuation.

[Michael Webber:]

Okay, great. Thanks guys.

[Operator:]

Thank you. And our next question is from the line of Jon Chappell of Evercore. Your line is open.

[Jonathan Chappell:]

Thank you. Good morning. Andy, just two for me. First on the 5% to 7% growth guidance for next year, obviously there's a lot of one-time things happening at the company specifically with the three dry-dockings and the three contract renewals. How much of that new guidance range is somewhat temporary because of those, let's call them one-time events? And how much of it is more, as we think about guidance over a two to five-year period, more just a function of bigger trends in the MLP universe and lower growth rates at some of the bigger midstream MLPs and being compensated for that?

[Andy Orekar:]

Sure. Thanks Jon, good question. I guess I'd say in the first instance, it is just guidance for 2018 is what we're providing at this time, I think just to be crystal clear on that. It is taking into account all those factors you mentioned. So, we think 5% to 7%, as we mentioned, is quite realistic and achievable for 2018. I do think that there is a growing trend where those of us who have grown perhaps more than our peers don't appear to be getting that full value for a differential end growth which ought to translate into a differential and total return. And so we are sensitive to that and we think this mid to high single-digit number will still put us very much in the top quartile or maybe even the higher of the MLP universe, not just in our peers, but do it in a way that we actually hope to get value for. I guess what I'd say in the same breath is if it turns out through growth next year that we aren't getting value for that, I think we'll continue to grow our distributable cash flow per unit and maybe be a bit more strategic with the actual growth and distribution. My hope is that after several challenging years, we're due for a stronger year in the overall MLP market and I think growth will continue to return to a more valued position. But we feel very good about this forecast for 2018. As Alastair mentioned in his remarks, we've got over $200 million of EBITDA sitting up at our parent that we have rights to acquire. And so it really is how do we pace that growth and how do we get credit for it with the capital availability that we have. So, it is part of the overall MLP environment we're trying to be sensitive to, but we think it's an attractive rate and should put us right near the front of our peer group.

[Jonathan Chappell:]

Okay, that makes sense. The second thing I wanted to ask, kind of more of an industry question as it relates to slide 12, the bottom right hand chart, that utilization chart is really interesting, and it's obviously backed by the recent momentum in the spot rates. But the lighter shade, if you will, with the ballast bonus being over 100%, typically in shipping markets, 90% is kind of full utilization and you kind of get full pricing power when you reach that level. So, can you just explain the math behind this graph and what 100%-plus means for utilization with the ballast bonus? And although, like we said, we're in the six-handle market today, which is fantastic compared to the last couple years. You would think it would be almost more parabolic once you hit that type of utilization.

[Alastair Maxwell:]

Yes, Jon, hi, Alastair here. On the chart, the reason that you can sometimes go over 100% utilization is if you imagine a scenario where you have a charter deliver a cargo into wherever, Tokyo Bay and then you have a ballast bonus. At the same time, you're talking to a charter that will take the ship for the next cargo and you've been paid a ballast bonus which effectively might have got you back down to Australia, but instead you go into Malaysia let's say. And so you're picking up a cargo earlier than you might otherwise have done and starting on a new charter. So, in those circumstances, you can end up with effectively over 100% utilization, and that's what the chart shows.

[Jonathan Chappell:]

So, is that chart just for your fleet then or is that for the global fleet?

[Alastair Maxwell:]

No, that's global fleet and it's based on pertinent data.

[Jonathan Chappell:]

Okay. Because I'm just wondering if the entire fleet, global fleet then on average was above the 100%, that would essentially mean that there were no spot ships available. So, any new cargo that came to the market then, you could essentially name your price, which I guess is partially behind the move into the 60s this week. But if that were to stay the case, you could see significant upside from here. Am I thinking about that incorrectly?

[Alastair Maxwell:]

No, I think you're thinking about it correctly. I think that it's an exaggeration to say that it covers every vessel in the fleet. It's certainly true that vessel availability on a prompt basis has been very limited over the course of the last three or four weeks. Obviously depending on the week, you're actually depending on when vessels redeliver or taking off of short-term charters, that picture can change from week-to-week. But as Andy was saying in his remarks, the fact that the market is quite tight today and there's very little prompt availability in having a beneficial impact on rates.

[Andy Orekar:]

And Jon, you're not far off in the sense that Affinity, another large broker, is quoting this week one cold ship available in the Atlantic, one warm ship in the Gulf, and one cold in the Pacific. And again, as Alastair mentioned, that could change from week-to-week. But the position lists are quite short for spot cargoes these days.

[Jonathan Chappell:]

Right. And we're not even in the winter yet. Well, thanks for including that. Thanks, Alastair. Thanks, Andy.

[Andy Orekar:]

Thanks Jon.

[Operator:]

Thank you. Our next question is from the line of Chris Wetherbee of Citigroup. Your line is open.

[Unidentified Analyst:]

Hey, good morning. This is [Indiscernible] on for Chris. Thank you for taking our questions.

[Andy Orekar:]

Good morning.

[Unidentified Analyst:]

Hey, good morning. I was just wondering, on the expense side, it's a little bit higher than we expected. So, I was wondering, can you give us some color about expense in fourth quarter? Thank you.

[Alastair Maxwell:]

Are you talking about operating expenses or G&A?

[Unidentified Analyst:]

Both.

[Alastair Maxwell:]

I think OpEx was broadly flat quarter-on-quarter. Obviously in absolute dollar terms, OpEx increases as a result of adding vessels to the fleet. If you look at it on a day rate basis within a number of underlying moving items, there's been some increases in crew wages. There's been some slight decreases in maintenance costs as part of that vessel operating expense. But if you look at it in dollar terms, as absolute dollar terms, it's really driven by the number of vessels in the fleet. And the same goes for G&A, because based on the agreements in place between the two companies, as the fleet of GasLog Partners grows, then they pay a larger share, if you like, of the overall G&A for the GasLog Group.

[Unidentified Analyst:]

Okay. So, do you expect the fourth quarter to increase at the same pace like in third quarter?

[Alastair Maxwell:]

So, again, absolute dollar terms, there will be some increase in the fourth quarter as a result of the Solaris being added to the fleet. If you look at it on a per vessel per day basis, I wouldn't expect there to be any significant change.

[Unidentified Analyst:]

Got you. That's helpful. And one more follow up on the dry-docking. So, I think I heard a vessel will be dry-docked every five years for older vessels.

[Alastair Maxwell:]

Yes, it is correct.

[Unidentified Analyst:]

Okay. So, how do you expect the -- any days seen fourth quarter?

[Alastair Maxwell:]

So, there's one vessel which is being dry-docked in the fourth quarter which is the Shanghai and then there are three, all of which delivered in 2013, which will dry dock in the course of 2018.

[Unidentified Analyst:]

I see. All right. Thank you so much. That's my two. Thank you.

[Operator:]

Thank you. Our next question is from the line of Gregory Lewis of Credit Suisse. Your line is open.

[Gregory Lewis:]

Yes, thank you and good morning. Andy, thank you for all the slides, but just clearly there's something going on in the spot market. I mean rates are higher. You called out it's going up, despite typical seasonality softness. What is -- could you give us a sense for how many vessels at this point are in the spot market? Has there been a surge in demand in a specific area? Are there any disruptions, expansion at ton-miles? Just any kind of color you can give us around at least why the GasLog is kind of seeing or thinking about this seasonal, or counter-seasonal, uptick being to the magnitude that we're seeing?

[Andy Orekar:]

Sure. Hi Greg. I think it's really driven in large part by increased volumes from the project that we've all been long following and expecting to come on line. There's been, I think as we quoted in our remarks, 30 million tons of nameplate has come online this year, and there's still three more to go that are expected to start up before year end, which would bring that number above 40. So, it's the -- frankly, a long awaited buildout of liquefaction and then those volumes actually hitting the water. And I think the comments we made around some of the really big demand centers. Clearly China has been a phenomenal source of demand this year. And Japan and South Korea have, for various indigenous reasons there, have also performed I think better than probably most of us would have expected. So, it really feels demand driven, and then you've had the supply come online largely to schedule without any projects going down or new project ships getting sent back into the market. So, it's just been sort of a very orderly increase in volume that we've seen so far, especially in the past few months.

[Alastair Maxwell:]

The only thing I'd to that, Andy, is obviously the difference in gas prices between the U.S. and Europe and Asia. What has been significant increases both in Europe and in Asia has meant that the arbitrage opportunity between different basins has opened up again and for sure that has had some impact on ton miles and some impact on vessel availability.

[Gregory Lewis:]

Okay, great. And then just referring to the potential shortfall that we're seeing in the outer years, I think it's kind of a consensus view, which probably means that it's wrong that the industry is going to be short, call it 50 ships in three to four years. And just as we think about the lead-times for ordering new vessels, are potential customers or customers out in the market exploring new build opportunities, or are we still kind of a -- we're just getting off of the bottom and rates have been low for the last couple of years, so customers are in a holding pattern. Has there been any -- has GasLog or are you hearing of any new potential for new builds in these outer years at this point?

[Andy Orekar:]

No, absolutely. There's been several active tenders for new buildings, as well as on-the-water tonnage. But of course, as you say, the new buildings would be delivering in 2020 or perhaps later, depending on the project requirement. Customers are seeing these trends as well, and trying to get ahead of it with fixing tonnage on the water now for 2018 and 2019 and then locking in new buildings for 2020 and beyond. I think we can say that there's active tenders for certainly well over 10 ships, which would be a combination of new buildings and on-the-water tonnage, and that number seems to be growing.

[Gregory Lewis:]

Okay, great. And then I'll just squeeze it in just since it sounds like, as your conversations with shipyards. If we're able to go out and place an order for an LNG carrier next week, when could we realistically expect delivery?

[Andy Orekar:]

I think that the timeline has come down a little bit as the yards have been hungry for more business, but I think two and a half years is probably the best you could realistically hope to do. And that number was closer to three years when the yards were busier. But I think somewhere, if I had to cup it two and a half to three years is still the right figure.

[Alastair Maxwell:]

Based on the latest tender conversations that we've been having, we're talking late Q1 2020, early Q2.

[Gregory Lewis:]

Perfect. Hey guys thank you very much for the time.

[Andy Orekar:]

Thanks Greg.

[Operator:]

Thank you. Our next question is from the line of Fotis Giannakoulis of Morgan Stanley. Your line is open.

[Fotis Giannakoulis:]

Ys, hi guys. Thank you for taking my question. Andy I want to ask you if you can give us, from your discussion with your customers, if you can give us a range of potential time chart delays that one can get in today's market in the period -- for period contracts. And also if you can comment about the tender that India's Gail had announced in the past, if there is any update from this front.

[Andy Orekar:]

Sure. Hi Fotis. Of course those customer conversations we have are confidential, so I can't share with you precise numbers around rate. But as I mentioned in an earlier question, I think what we're seeing is a clear premium to that spot rate that Clarksons is quoting, and perhaps not quite the equal of what we have with a lot of our current charters that have still some time to go. But in any case, rates that we feel are very effective for the Partnership and our cash flow needs and where we can distribute and where we can grow our distributions. So, we're encouraged by that and as I mentioned, we'll probably take term before the last dollar of rate. Our parent might have a slightly different strategy, given their expertise in the spot market, but that's really the GasLog Partners, the Partner strategy. In terms of Gail, that -- it was a very well publicized tender that I don't think quite yielded the results that Gail was interested in. Really can't comment further on it today other than to say that they may be working some alternatives for those volumes that they have contracted to lift. And in any event, we see those volumes in the market next year, whether they're being transported by Gail or another off-taker and think very much that that'll be moving on ships that'll be increasing demand for the overall market. So, part of the overall attractive picture we see for 2018.

[Fotis Giannakoulis:]

Can you remind us, including Gail, if there are any offtakes that they have not secured vessels? Because as you mentioned earlier, there is not availability -- prompt availability in the spot market. And I was wondering what could be the immediate shortage when some of this imminent offtakes starts.

[Andy Orekar:]

In other words, what off-takers have not secured vessels for 2018 --?

[Fotis Giannakoulis:]

[Indiscernible]

[Andy Orekar:]

I think if you really go down the list of the U.S. projects in particular, when you think about Freeport and Cameron into 2018 and 2019, I think there's quite a lot of shipping there yet to be secured. And then of course a number of these projects are holding back marketing volumes for their own book, and those will be I'm sure served through the spot market or potentially term business, that if some of those U.S. owners have time to organize that. I really think that when we look about the U.S., the off-takers from the U.S. projects I think will continue to be an active customer for us and the industry.

[Fotis Giannakoulis:]

Do you have an estimate of how much of this volume does not have secured contracts, or how many vessels do you think that these offtakes, they will need to absorb?

[Andy Orekar:]

I don't have that in front of me, Fotis, but we can certainly follow-up with you. I think that the number that Wood Mack tends to quote is 40 to 50 vessels in total are required for the period over -- through to 2019 into 2020.

[Fotis Giannakoulis:]

Okay. Thank you, Andy. One more question. You mentioned in your press release a number of projects that they are looking to reach [Indiscernible] or looking for financing. What do you think that it will take in order to see these projects materialize? The matter of just the time passing by? Matter oil prices? How soon do you think that we are new FIDs, new projects for the post-2020, 2023 era?

[Alastair Maxwell:]

Fotis, its Alastair. I think the critical thing here is demand. And I think what's been encouraging over the course of the last quarter is that we started to see off-takers put their heads above the [Indiscernible] in terms of committing to new volume offtakes. And whether that is end customers, such as in Bangladesh, for example, Thailand, or whether it is aggregators and traders such as [Indiscernible] in West Africa, we're starting to see people commit to new volumes, and I think that's very, very encouraging. Because if you think about how long it takes to build a new LNG project, the brownfield facility will take at least three years. The Greenfield project will take four or five. And I think people are now starting to look towards, as you say, that time period of 2021, 2022 onwards and commit to the volumes that they see they're going to need for that time period. And I think that's what's key to unlocking the potential supply that's in the wings.

[Fotis Giannakoulis:]

Thank you very much Alastair. Thank you, Andy.

[Andy Orekar:]

Thanks Fotis.

[Operator:]

Thank you. [Operator Instructions] And our next question is from the line of Noah Parquette of J.P. Morgan. Your line is open.

[Noah Parquette:]

Thanks. Everything has pretty much been answered. I just wanted to ask about the improvements that you guys are investing in next year in those three vessels; I think you said the $25 million for the three ships. Can you perhaps quantify what you expect that will do in terms of perhaps fuel savings or boil off? And what that would mean for rate savings? And whether that's factored into the guidance you've given on rates? Thanks.

[Alastair Maxwell:]

Noah, its Alastair here. There's a number of things that go into determining unit freight cost, including, as you say, boil off, fuel consumption, size of the vessel and so on. And -- but this is partly about unit freight cost and it's partly about flexibility and the ability for charterers to, for example, slow steam in order to take advantage of different market opportunities, given that often for people these days, the most important thing is not getting to make a deal as quickly as possible, but it's about maximizing the value of a given cargo. And so these investments are designed to lower unit freight cost and increase trading flexibility of the vessels. We think that this will give us an advantage in terms of getting these vessels rechartered. The objective of the partnership, as Andy was saying, is if at all possible to put in place term fixtures for the partnership ships. Whether that -- how that translates into a higher rate, it's difficult to predict. But we're confident that we'll improve the marketability of the ships and we're very much expecting that we will get an interesting return on the capital that we're investing in the vessels.

[Noah Parquette:]

Okay. And is that something you guys expect to do on all your ships eventually over time?

[Alastair Maxwell:]

I think it's difficult to say, but it's certainly something that we're actively considering and doing on more -- I think we're currently planning for three ships within the GasLog fleet overall. I wouldn't be surprised if we were to do it on more of the vessels over time.

[Noah Parquette:]

Okay. And just really quick on the cost side. I think you guys mentioned on G&A expenses, that they went up quarter-over-quarter. They're just going to go up along with the fleet acquisitions as you take on more of the overall GasLog G&A expenses. Is that correct?

[Alastair Maxwell:]

That's correct, yes.

[Noah Parquette:]

Okay. That's all I have. Thanks.

[Operator:]

Thank you. And at this time, I'm showing no further questions. I'd like to turn the conference back over to Mr. Andy Orekar, Chief Executive Officer for closing remarks.

[Andy Orekar:]

Thanks Amanda. Thank you to everyone today for listening and your continued interest in GasLog Partners. We certainly appreciate it. And we look forward to speaking to you again next quarter. Thanks very much.

[Operator:]

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everybody, have a great day.