Teekay LNG Partners L.P.
Q4 2018 Earnings Call Transcript

Published: 21 Feb 2019

[Operator:]

Welcome to the Teekay LNG Partners' Fourth Quarter and Fiscal 2018 Earnings Results Conference Call. During the call, all participants will be in a listen-only mode. Afterwards, you will be invited to participate in a question-and-answer session. [Operator Instructions] As a reminder, this call is being recorded. Now for opening remarks and introductions, I would like to turn the call over to Mr. Mark Kremin, Teekay Gas Group's President and Chief Executive Officer. Please go ahead, sir.

[Scott Gayton:]

Before Mr. Kremin begins, I would like to direct all participants to our website at www.teekaylng.com, where you'll find a copy of the fourth quarter and fiscal 2018 earnings presentation. We will review this presentation during today's conference call. Please allow me to remind you that our discussion today contains forward-looking statements. Actual results may differ materially from results projected by those forward-looking statements. Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements is contained in the fourth quarter and fiscal 2018 earnings release and earnings presentation available on our website. I will now turn the call over to Mark to begin.

[Mark Kremin:]

Thank you, Scott. Good morning, everyone, and thank you for joining us on the fourth quarter 2018 investor conference call for Teekay LNG Partners. I am joined today by Scott Gayton, Teekay Gas Group's CFO. Turning to Slide 3 of the presentation, we will review some of Teekay LNG's recent highlights. This quarter's results were significantly stronger than last quarter. We generated total cash flow from vessel operations or CFVO, of $150.1 million, which was up 13% over the last quarter. Adjusted net income of $32.6 million, up 68%, and adjusted EPU or earning per unit up $0.32 per unit, up 100%. Our fourth quarter results were primarily up due to the delivery of LNG carriers and the commencement of new shorter-term charters at higher rates for two of our LNG carriers. Since reporting earnings in November, we have taken delivery of three LNG carrier newbuildings, all on long-term charters. This includes the Yamal Spirit MEGI LNG carrier, which delivered on January 31st, soon after we completed our dedicated long-term financing. We are pleased to report that we have now financed our entire orderbook, which up one point stood at over $3 billion. Importantly, we achieved this without issuing any common equity, thereby passing on the entire benefit of our growth program to our existing unitholders. We also added value for long-term unitholders through the repurchase of units at prices below our intrinsic value. We were able to take advantage of the volatility around yearend and enter the New Year with the repurchase of 1.1 million common units at an average price of $11.38 per unit, for a total cost of $13 million. And as announced last quarter, our distributions are slated to increase by 36% commencing this upcoming quarter, which we believe represents a substantial increase and allows our investors to directly benefit from the build out of our LNG portfolio. This quarter as part of our ongoing efforts to improve transparency, we are also introducing forward earnings and cash flow guidance, which will allow investors to better predict our future earnings strength. With our fleet over 90% fixed for 2019 and 2020, we are confident in achieving these targets. We are excited as we progress through 2019, which will see all of our new buildings deliver onto their respective charter contracts, adding significant value for unitholders. We see earnings per unit between $1.85 and $2.20 per unit, up 143% to 190% in 2018. We see total cash flow from vessel operations, which includes our proportionate share of our joint ventures that Scott will detail later of between $635 million and $660 million, up 23% to 28% from 2018, and consolidated cash flow, including only those vessels consolidated in our financial statements are between $420 million and $440 million. On a go-forward basis, we intend to update market directionally on our progress relative to the guidance provided today. Looking at Slide 4, we've presented these charts before. However, we think this type of key information cannot be said to many times. Our forward revenue book stands at over $10 billion, and for the first time we are translating this into cash flow. Given the nature of our business with the cash flow margin that exceeds 70%, we also expect to generate some $7.5 billion of forward cash flows that we can use to execute on our capital plan, namely to service our debt commitments, continue returning capital of unitholders and depending on the relative value of returning additional capital versus growth, servicing our customers for new price. Our fleet is over 90% fixed for the next two years, and with an average contract length in excess of 10 years, we expect our revenue and cash flow base will continue to provide us with stability and flexibility for many years into the future. Importantly, as Scott will detail, the substantial majority of this revenue and cash flow comes from our LNG segment, which makes up over 92% of our invested capital base. None of these stats would be relevant if it weren't for our high quality customer base, as can be seen at the bottom of this slide, with investment grade customers and projects making up the lion's share of our revenue backlog. In addition as for our diversity, we lift LNG from countries all over the world, including United States, Qatar, Australia, Papua New Guinea and Angola to name a few. Turning to Slide 5. We will now look at the LNG shipping market for 2019 and 2020. Although we are currently seeing softness in the market due to the approaching seasonal low period and higher than anticipated LNG stock levels in Asia, we expect 2019 to be strong overall. Tonne-mile demand is anticipated to increase by 10% this year, due to the ramp up in export projects that started in late 2018, such as Yamal Train 3, and [indiscernible], as well as the startup of new export projects in 2019 such as Cameron, Corpus Christi, Elba Island, Freeport and Sabine Train 5. Overall, we expect demand growth for LNG vessels will exceed anticipated fleet supply growth of approximately 8% this year, leading to a further increase and fleet utilization and charter rates. Looking ahead to 2020, we expect that fleet supply and demand growth will be roughly balanced, which should sustain the long-term charter rates – sorry the strong charter rates expected in second half 2019. Looking at our own fleet, we expect to take further advantage of the markets strength as three of our conventional LNG carriers come off their existing charter contracts during this time. Turning to Slide 6. We turn our attention to the fundamentals for 2021 and beyond. Despite a strong 2019 and 2020, we expect the market could soften in 2021, due to fewer new export projects start-ups and ongoing high-level of newbuild deliveries. For example, after strong LNG export capacity growth of more than 20 million tonnes per annum per year between 2017 and 2020, we expect a slowdown in incremental export capacity in 2021, which overlaps with the final deliveries from the record level of newbuild ordering seen in 2018, including many uncommitted new buildorders. However, we believe this weakness will be temporary, and the strength of the market will return in the longer term, driven by new export projects that have recently made a positive financial investment decision or that are expected to do so this year. In fact, some analysts anticipate that 2019 could be the largest year ever for LNG project financial investment decisions. With many of these projects targeting start-up in 2023 and 2024 timeframe, we expect this will leads to another strong growth phase for the global LNG industry. Furthermore, in the longer term, we remain encouraged by the strong outlook for global LNG trade. According to BP's recent energy outlook, LNG trade is forecasted to more than double by 2040 with exports driven by North America, the Middle East, Africa and Russia, whereas Asia is expected to remain at dominant driver import growth. In summary, we expect strong charter rates in the second half of this year with the temporary softening after 2020, due to recent record orders and a temporary slowdown in new LNG export growth. However, we maintain an overall positive outlook long-term due to the increasing financial investment decision activity and the expected strong long-term growth in global LNG supply and demand. I will now turn the call over to Scott who will review some of our financial information and new disclosures I mentioned at the start of our call.

[Scott Gayton:]

Thank you, Mark. Last quarter we introduced our balanced capital allocation plan and we have been successfully executing on it since our conference call last quarter. Looking at Slide 7, as Mark mentioned previously, we took delivery of Yamal Spirit on January 31st of this year and in advance we completed a dedicated financing. With the final newbuild financing now complete, we have successfully completed all of the financings necessary to take delivery of our remaining orderbook. This was no small feat and our finance team did a tremendous job during some challenging times. As mentioned last quarter, delevering our balance sheet remains job number one. We took delivery of our newbuilding book without issuing common equity, which resulted in an elevated levered position for Teekay LNG. However, now that the majority of our vessels have delivered with a few is still to deliver in 2019, our leverage will naturally decline into our targeted leverage range of 5 to 5.5 times on a net debt cash flow basis, as the cash flows are fully reflected in our financial statements. And this delivering benefits unitholders as the $185 million of annual amortization on a GAAP basis or approximately $300 million on a proportionately consolidated basis builds equity value for our investors. Looking at the second pillar, returning capital to unitholders. We are committed to returning capital and we'll try to do so in a manner that creates the most value for our unitholders. As announced previously, we intend to increase our distribution in the first quarter of 2019 by 36% to $0.76 per unit on an annualized basis, commencing with the first quarter distribution payable in May, representing a 5.7% forward yield based on yesterday's closing unit price. And we announced unit repurchase program in late December, and Mark mentioned, we had made good headway with over $13 million in repurchases at an average price which is well below our current trading price. The last pillar of our balanced capital allocation plan is growth, and this is not entirely relevant for Teekay LNG at this time for two reasons. First, we have just come through a big build out of our fleet and as a result our financial leverage is high, but the average age of our fleet is very young. And second, we do not believe the returns we can generate by ordering new vessels in today's market exceed that acquiring our own fleet. This third pillar of our balanced capital allocation strategy requires us to be disciplined and analyze the relative return of growth, not just to grow for growth sake. This is a significant departure from our old strategy to focus more on growth, which was valued by MLP investors at the time, and one that we think adds long-term value for our unitholders. Also part of our financial strategy for the next couple of years is to enhance our public disclosure so that all stakeholders can fully appreciate the various facets of our business. The first part of this enhanced disclosure, as can be seen on Slide 8, is the 2019 financial guidance we are providing today. Last quarter we introduced our target leverage range of 5 to 5.5 times on a net debt to cash flow basis, and this quarter we are also providing earnings and cash flow guidance, both of which are projected to increase materially over 2018, as can be seen on these charts. With one of the youngest fleets in the industry, world class operations, a blue-chip customer base and over 10 years of fixed-rate contract remaining, and over 90% of our business fixed for the next two years, we believe Teekay LNG makes a compelling investment for new investors, trading at above 6.6 times 2019 earnings and about 9.5 times 2019 cash flow. The second layer of added disclosure we made this quarter is the further segmentation of our businesses as can be seen on Slide 9. Our LNG fleet has been growing materially over the past number of quarters, however, because it was previously reported together with our LPG fleet, which has been significantly weaker over the past year, it was difficult for investors to actually see the strength of our LNG business. Consistent with the manner in which our internal reporting has evolved in 2018, we are hopeful that with this added segment disclosure, investors will be able to fully appreciate the strength of our LNG fleet, which as can be seen on these charts make up the vast majority of our cash flow. In addition, this chart also shows the potential for upside as LPG rates revert to longer term norms in the future. And before I hand it back to Mark to conclude, on Slide 10, we have detailed a significant portion of our business that due to accounting rules only shows up as a single line item of equity income and equity investment in our financial statements. Our equity accounted joint ventures were substantial and by the time all of the vessels are delivered later this year, these JVs will make up over 40% of our total business. I won't walk through the detailed data on this slide, however, I'd like to make few key points. First, our largest joint venture is the investment we have alongside or Japanese partner Marubeni Corporation. Our 52% ownership in six fairly modern vessels is set to provide increased earnings to us as the two Yemen vessels will soon roll off their current below market charters into the spot market, while currently extending the charters with Yemen. And the Magellan Spirit continues to be employed by the charter in excess of $100,000 per day before going into drydock next month. Second, our next largest joint venture investment is our 50% in six ice-breaking purpose-built vessels servicing the Yamal LNG project which is fully operational and delivering earlier than expected. Importantly, due to the ice-breaking technology of these vessels, they are an integral part of the logistic chain and therefore crucial for the continued success of the projected. And the last JV I would like to point out is our sizable investment alongside the government of Qatar in Exxon. As a reminder, our 40% investment in RG3 which owns four LNG carriers is off balance sheet whereas our 70% investment in three LNG carriers in Qatar is on balance sheet. The Qataris were some of the first to embrace foreign partnerships to help with their LNG shipping needs and has been widely publicized that they are looking for another round of joint partnerships as they continue with their massive buildout of LNG projects. When totaled together, the book value of our joint venture investments represents over $1.1 billion of equity value making our JV book larger than the market cap of many of our publicly traded peers. And with better diversification, a high-quality customer base, contract cover of over $5.9 billion and a favorable debt maturity profile with our next maturity still a couple of years away. This fleet which is only about 50% of TGP's entire operations, alone represents over $14 per TGP common unit. With that, I'll now turn the call back to Mark to conclude.

[Mark Kremin:]

Thank you, Scott. Looking forward, we will continue to progress on our business strategy. This includes executing on the delivery of our fully financed order book including our four remaining Yamal newbuildings and the Bahrain regasification facility, all of which are set to deliver through 2019. Our strategy also includes providing flawless operations for our customers, while optimizing our existing asset portfolio, as evidenced by the sale of our remaining conventional oil tankers to become a pure play on liquefied gas carriers. Delivering on these initiatives will allow Teekay LNG to significantly strengthen its balance sheet while simultaneously returning capital to unitholders. Operator, we are now available to take questions.

[Operator:]

[Operator Instructions]. Our first question will come from Michael Webber with Wells Fargo Securities.

[Michael Webber:]

Hey, I wanted to touch on rates first. You know your exposure to the spot market is [indiscernible] is relatively limited. But something worked against you in the back half of last year to a degree, but it seems a bit better today just given the weakness we've seen to start the year and it certainly pays that three year charter you guys did at 100K in Q4 in a particularly positive light. Can you talk about what – I guess first and foremost where do you think that rate would be today, relative to where you signed it?

[Mark Kremin:]

Well, just turning back to Q4, I think we actually did have some – although the ships are fixed, we had some unexpected good exposure. What happened is Q4 was a lot of the charters that we had fixed long started to deliver earlier, because charters need those and we ended for instance on the Sean Spirit making a rate well in advance of our long-term charter prior to going out to BT. In terms of, it was certainly much better than as you say Mike. We as you know, reported, we fixed at over $100,000 for three years. That's certainly not where the levels are today. I'm not sure that there if it is – but let's split them into two, what are the spot rate today and what's a three year rate today? I think three year rate is down a little bit. The spot rate certainly is down. We've seen in the 50s or so in Q1 for better or for worse. We don't have any ships available in Q1. But in Q2, we'll have to see that the spot rates can remain lower. I think that the long-term rate is for the three years is probably somewhere under 100 now based on where we are today, if that's your questions.

[Michael Webber:]

Yeah, I was hoping maybe just a bit, I know it's tough, but maybe a bit more specific around – are we – if you guys are looking to re-sign a vessel today for three year, would you be – would 80 get it done, would it be somewhere in the 90s considering there is still a bulk of a pretty firm window baked into that three year rate. Just trying to get a sense on where you think the three year rate is today, basically?

[Mark Kremin:]

I would say the range that you just mentioned. If you had to do a deal today for three years prompt, it's somewhere between that 80 to 100 is my guess is for three year.

[Michael Webber:]

That's right. I appreciate that. You mentioned 2021, and you know if all the – if every FID and construction process happens on time, then we could see a bit of a lull in new capacity, but obviously that doesn't really happens, but you guys aren't the first ship-owner to kind of talk about kind of watching 2021 closely and anticipating maybe that's when we see maybe more material easing of the spot market. Is there – when you think about re-letting your business, now re-signing these vessels are you actively trying to avoid that period, you know the three year rate you signed in Q4 to deliver into 2021, so I'm just thinking as you are looking at new business, or you kind of look at five and longer and whether that's available?

[Mark Kremin:]

Yeah, we might have taken a contrarian view on the market here, Mike. You are right. We see you know – I guess the second half of call it, 2020 or more so 2021 has been lean until the products start up in 2023 and 2024 as you know, projects tend to get delayed. So, I guess from our perspective to the extent we can see cover for those years, we'll probably be interested in taking it. The issue is, there is not – it's still pretty far out. You know we're looking at two years from now almost, and the extent of the cover that's available now for that period of time, we're not seeing too much. In terms of the medium term charters that might cover that and they tend to come out later, the seven years or so, the returns on those are not great as we see them today. Yeah, there was a coverage available for that period of time, the end of 2020 and 2021 at a decent rate. It's something we would consider.

[Michael Webber:]

So, just perhaps taking what the market can give you at this point still? Mark Kremin Yeah, that's right.

[Michael Webber:]

Okay. So, just one more from me. I guess let's focus on the Artic for a second and your Arc 7 exposure, when you think about – you got Artic 2, that seems like it's progressing. Do you think about your exposure there in the idea, do you think that in the context it's going to maintain your market share within the Arctic trade? And I guess the reason I'm asking is it, it seems like they are moving the train shipment point from Norwegian waters into Russian waters, which is going to bring some cabotage loss into play and it seems like it's a little unclear to what degree international owners will be able to participate in that. It's really, really early, but I'm just – one, I'm just curios do you guys have any insight into that and two, is that something you even necessarily would think about in the context of maintaining share to particular region like that?

[Mark Kremin:]

We think about it a lot, so one of the parts that we try to advertise and promote about TGP is our diversity and that's the customers and that's where we – the countries that we work in. So, when we talk about Russia, we typically try to keep a threshold of about 20% for our total revenues and in some cases we might have exceeded that for instance in Shell, which is investment grade. But it's something we look at. And when we look at the Arctic 2 project or we look at Yamal, Yamal has been great. It's come off/on I think it exceeded everyone's expectations. And it's very different obviously from Arctic 2 and that we're able to order ships from Korea and is – the financing from China was available and it's probably a different scenario from Arctic 2. So, with that said, we are probably – when we look at where we are with Russia and our current exposure, Arctic 2 is not the highest on our list. I think it's going to happen, I think that Russia did a great job with Yamal 2 and Novatek and I think we're going to do a great job with – sorry with Yamal, and I think we're going to repeat that on Arctic 2. But for us in terms of a diversity of our portfolio, I think we hopefully got the better projects in the first time around.

[Michael Webber:]

Okay, that's fair. I will stop there and turn it over. Thanks for the time guys.

[Operator:]

And our next question will come from Noah Parquette with JPMorgan.

[Noah Parquette:]

Thanks. I just wanted to ask about the unit repurchases. I mean you guys have been very clear and upfront about deleveraging and the dividend policy, I mean when we think about the unit purchases that were done Q4, was that more of a one-time thing because of the dip in the price, was that going to be regular part of restraining capital, or is the deleveraging still absolute priority?

[Mark Kremin:]

I think you are right, the delevering is still going to be our number one priority. And I would say that if we look at our stock buybacks, we are well positioned at the end of the year. Obviously there is a lot of volatility and we're able to take advantage of that through some repurchases that would now look like very attractive levels and so, I think going forward, you can maybe look at this as being more opportunistic in our repurchases.

[Operator:]

And our next question come from Randy Giveans with Jefferies.

[Christopher Robertson:]

Hey good morning. This is Christopher Robertson on for Randy. Thanks for taking our call. With regards to the distribution, do you have any color around how you are thinking about the timing and scale of the next increase and what the catalyst would be to make that decision?

[Scott Gayton:]

So, we do have a fairly sizable increase coming with the first quarter's distribution. We talked about on today's call and as always we talked about last year. And I think when asked us on the last quarter's call, Mark talked about modest increases. I think that we're just going to have to look at a number of different things where our units are trading, what's our leverage, what's the opportunity set that we have between those two things and then what is the sustainable distribution that sort of comes out of that map. I think that continuing with these types of increases that we this quarter is not to be expected, because if we do that, then sticking to our first priority which is delevering ourself to give us that flexibility would not be achievable. So, I think I'll echo Mark's comments from last quarter that we will look at it you know very holistically, but I would expect them to be modest.

[Christopher Robertson:]

Makes sense. Thanks. Now that you've sold the Suezmax vessel, are there any immediate plans regarding the MR?

[Mark Kremin:]

Well, the ship comes off charter from its time charter in September of this year. So, that would be a time that we would consider the sale of that last MR.

[Christopher Robertson:]

Okay. And then in terms of the four remaining vessels in 2019, can you talk about the kind of the cadence of deliveries, sort so scheduled delivery that you expect?

[Scott Gayton:]

Sure. Give me half a second here. You know let me – I'm just going to find that, why don't we just turn to the next question and then I'll answer it as soon as I can find the exact dates here.

[Christopher Robertson:]

No problem. My last question is regarding the LPG carriers in terms of your strategy this year for time charter coverage versus spot, and kind of what are you seeing in the segment with regards to time charter opportunities?

[Scott Gayton:]

Sure, maybe before we pass one, I found it here. So, the next Yamal is June 4, August 9, October 11, and November 25.

[Christopher Robertson:]

Alright, thanks for that.

[Mark Kremin:]

On the LPG question, if I could…

[Operator:]

I'm sorry go ahead sir.

[Mark Kremin:]

If I could just clarify on the LPG question, we have two fairly distinct LPG business, one is the Exmar JV which is a fully refrigerated mid-sized sector and the other is the ethylene carriers that we took back from the previous charterer. Which one are you referring to?

[Christopher Robertson:]

The ethylene carriers?

[Mark Kremin:]

The ethylene carriers. So, the ethylene carriers we really don't consider core business, and so we were always looking at something we might do with them next. In terms of the time charter possibilities, we have begun to see some good opportunities. We've been kicking gas for the last year or so, and we now see some opportunities to take some chemicals. We're seeing finally some LNG opportunities that might arise this year that are term charters, so things seem to be improving slightly, but again this is a fairly small part of business and so, we'll be considering what to do with it in terms of commercial management over the coming quarters or so I would say.

[Operator:]

And the next question will come from Chris Snyder with Deutsche Bank.

[Chris Snyder:]

Hey good morning guys. So, the JVs are ramping EBITDA pretty aggressively over the next couple of years. You know, obviously you guys are amortizing that, you know both consolidate and you know the JV debt pretty quickly. Could you just maybe talk about how much capital from the JVs could actually be returned to TGP in 2019, 2020?

[Scott Gayton:]

Yeah. You are right that there is a lot of amortization happening, but also with lot of the joint ventures, as the ships are so new and so young, you got not only heavy amortization, but you've also got heavy interest expense upfront. So, the distributions that will be spinning out of the joint ventures is going to be net, net probably lower in the beginning and then that will ramp up over time. But I think if you look over the next couple of years, you're probably in that call it $65 million to $75 million range.

[Chris Snyder:]

Thank you for that. Then just kind of staying on topic of debt amortization, you know clearly you guys are really focused on deleveraging, I think that consolidated amortization of about $185 million a year. You guys potentially given all the newbuilder finance and what not, have capacity to kind of potentially even accelerate that? That's something I'd be interested in, if the cash flows kind of even maybe surprised the upside, we some of these debt obligations pull look forward?

[Scott Gayton:]

Not really, I think that the existing facilities that we have, have all got their own stated amortization on them. And so, I don't think that you would look to prepaying those unless there is some massive windfall that I just can't predict right now. Where I think you could see us potentially playing around with the leverage of debt is on the bond maturities that we have. So if you go back to August of last year, we had $150 million bond maturing in early September and we refinance that in August for $100 million. We've also got a bond of about $135 million that matures next year. And what you might see us do is to dial that up dial or dial down depending on both our leverage and then also what are use of proceeds for that capital maybe. So you could see us repaying some of that, maybe bringing that down into the $75 million range, or if we see a good use of proceeds, we could probably increase that to $150 million. So I think that's where you would see some movement on the leverage side.

[Chris Snyder:]

Okay. Fair enough. Thanks for that. And next question is on the spot market. I know you guys have only just minimal spot market exposure, but I do think it kind of drives a lot of sentiment in the space. It seems like the spot market now is kind of paying for the Q4 strength when the Asian buyers are raising inventory levels. How should we think about current inventory levels in Asia? I know the data is seems to be pretty hard to come by. Have you seen these inventories comes down to normalize levels or is destocking going to be a headwind over the next few months?

[Mark Kremin:]

Well we certainly saw the storage. We had ourselves a couple of ships doing storage in Asia for quite some time. And we are no longer doing that storage, so that in itself might be an indicator that or seeing even storage opportunities that the stock levels are coming down. I don't have – we don't have good information on the stock levels unfortunately. You are probably better off getting that elsewhere.

[Chris Snyder:]

But you said that you are seeing some storage opportunities?

[Mark Kremin:]

No, the opposite. We were seeing and you're taking part and we are earning good money from storage actually on a couple of our ships, but we're no longer seen the opportunity. So that might be an indicator that as a ship owner, as a ship operator, that we have, we are no longer seeing the storage opportunities, but again I would point you elsewhere to the – to the – what the stockpile in Asia is, I don't have – we don't have a good answer for it.

[Chris Snyder:]

Okay. Fair enough. I appreciate that. And then just kind of last, quickly on the guidance. You know, you do have – obviously high contract coverage, but you do have some LNG spot exposure and then a lot of the – you know the consolidated LPG vessels have spot exposure, can you just kind of talk about the underlying assumption you guys are using and whether it be re-pricing for the LNG or just kind of the trend in the smaller LPG vessels as we move throughout the year that you kind of used to formulate your EPS guidance?

[Scott Gayton:]

Sure. If you look at one of the footnotes that we have on the bottom of Slide 3, what we did was, we did provide some sensitivity to current rates and so we were using the TFDE which is roughly 60,000 today and that was used to develop the EBITDA and the EPU guidance that you see. And then we give it sensitivity there of plus or minus $0.05 roughly per unit for a 10% change in that 60,000 number. So as rates continue throughout the year, everybody in the analyst community should be able to move those guidance numbers as they need to base on the spot market.

[Chris Snyder:]

Well, thank you. It does it for me. I appreciate the time guys.

[Operator:]

And the next question will come from Fotis Giannakoulis with Morgan Stanley.

[Fotis Giannakoulis:]

Yes. Hi gentlemen, and thank you. You mentioned earlier about Qatar, your strong relations with Qatar and potential of getting new business with them from the new wave of newbuilding orders that we are planning to place. Can you give us a little bit with more color on how many ships do you think that they will be looking to order? Are they going serve the new leads for tonnage only from newbuildings or they are speaking of employing existing vessel as they are not contracted. And also how do you view the financing over these potential deals if they arrived, your capital allocation between delevering return in capital to shareholders and funding these potential growth?

[Mark Kremin:]

Well, let's start way back. So we have seven ships now with that are JV with Qatar. And the first one is we did were 70% ownership on our part, and then went down to 40%. And after it went down to 40%, we thought oh jeez, we'll probably never do a joint venture again, and we have that idea for some time. And it's just recently come up that they sit in joint ventures. Obviously with the boycott, they might have better uses of capital than spending it all on their own ships. I'm not sure why, but there is – does seem to be an openness on the part as we talk. In terms of how many ships they'll need, you've seen 60. I can't add to that, that's what was said by the minister and it's been confirmed a couple of times. So that's what our understanding is that they are in discussions with the yard 4, I should say yards. And so in terms of what the project are going to be used for, you've obviously seen the FID at Golden Pass, but the ramp up is going to be unbelievable, if we see that. The ramp up to 100 million tons including there's another 10 million or so of debottlenecking could be easily used for the ships. So, I think that at least both of those initiatives, both Qatar and Golden Pass could be used, although we are not sure. And the other thing that were seen in Qatar is they have ideas for what they will do with their existing vessels. So we'll be interested in and how they might modify their existing fleet. It's another idea, but certainly they look to be building a lot of ships, and they seem to be open to partnerships again.

[Fotis Giannakoulis:]

And kind of give us a comment about how many vessels do you think that your balance sheet allows or your willingness to deploy capital on newbuildings with Qatar or other potential long-term charters. Are we talking a couple of ships, or there might be a significantly larger growth potential for 40 GP. I am trying to balance – to see how you are planning to balance between increasing your dividend in the future. And funding an additional growth as they are going to be many opportunities from what you said?

[Mark Kremin:]

Sorry, I meant to ask your question Fotis – answer your question, but in terms the – we consolidate in our ability to take part in it. The interesting thing about this project like most is it probably won't start up until 2023, 2024, the debottlenecking is probably first, the Qatari ramp-up in due course, but these projects are happening a little later. And so, even though even if the Qataris end up ordering a big slug of ships from Korea or elsewhere, it doesn't necessarily mean that the joint venture partners if they are going to invite them, or come immediately either. So, it's going to be a while before the installments are made and certainly before the main installments on delivery are happening here. So the other thing I would mentioned about is, when we first went into business with Qatar, they were a huge part of our book and we have since grown and diversified our portfolio a lot and they've become investment grade since we first done this. So, in terms of what I said to Mike earlier, diversity is important to us, but now that we've grown so much in Russia, in United States, and elsewhere, we've opened up more portfolio basis for Qatari ships again, so on an overall basis. So, hope that answered your question. I think we're going to have capacity for them, both on a diversity basis, on a cash basis, because they are little bit further out. And hope that answered your question. Scott, you can add to that?

[Scott Gayton:]

Yeah, I think for us maybe just tying the other, a few of the themes that we've talked about, if we look at Slide 15 where we've provided, what we think is our delevering profile. By the time we get into that sort of 2021, 2022 timeframe that Mark has talked about, when we actually would have to go out and put capital to work in order to service these contracts that would start up in 2023 and 2024. We definitely will and predict to be within our target leverage range. And then, I think what we would do at that point is revert back to balance capital allocation plan that I spoke about earlier in the presentation, and we would look at really those last two pillars and say, you know, is this attractive growth, what are the returns that we have versus other opportunities to us available at that time. And so we are going try to be fairly formulaic if you will and really look at ourselves on a valuation basis not just on a growth for growth basis.

[Mark Kremin:]

Hey just, I want to add one more thing, Fotis. I don't want to focus too much on Qatar, it's just one of the opportunities, just like we are going to have a capital allocation program where we look at different opportunities, so we will look at different projects. So it might be Mozambique, it might be Papua New Guinea, it might be any number of projects, and Qatar is just one possibility and we are not saying we're necessarily going to be invited or do that, but it's one of the ones that we are going to certainly look at hopefully.

[Fotis Giannakoulis:]

Thank you. That was extremely very helpful. And one more clarification, and thank you for providing us more information about your JVs. This is extremely helpful for us analysts and for investors. You mentioned earlier about the $65 million to $70 million can be returned to TGP the next couple of years. Is this number where anticipated, dividend that's you're going to pay or this number is in the free cash flow. I am just trying to understand how much cash you can distribute because obviously there is going to be some cash that they will – it will stay at the JV level. How shall we see the – forward this number, is it relatively stable or we should see that's an increasing number after interest paying and some of these debt on the JV level is decreasing.

[Scott Gayton:]

Sure. No, the number that I spoke of earlier is strictly the dividends that we expect to be paid out of our joint ventures, and so those are after obviously all of the OpEx and financing commitments both amortization and interest within the joint ventures. So, that is essentially free cash flow to TGP that we will then flow through our overall cash flow in order to figure out what capacity we have for dividends buybacks growth, what have you that's out of Africa, free cash flow calculation. And how is the ramp going forward. I think of that, I think I said sort of 65 to 75 range is probably a decent number for at least the forecast period that we can see.

[Fotis Giannakoulis:]

Okay. Thank you. That's very helpful. Thank you.

[Operator:]

And our next question comes from Ben Nolan with Stifel.

[Ben Nolan:]

Thanks guys. So I had a couple of questions. Number one is, there is been a little bit of noise in the market lately that Yemen is hoping to restart their liquefaction facility this year. Just curious if that would happen, can you maybe walk through what that might mean in terms of – whether it would have much of or any impact on your cash flows.

[Mark Kremin:]

I think we should take it with a slight grain of salt, Ben. We recently met with the shareholders of Yemen, and there is still some concerns about when the project might start up. So I know there is been some statements from the government about the potential projects restart this year, but we are being much cautious than that, and I think the shareholders are too. What can happen in the meantime however for us is that we will – the ships that we've been – should have been or would have been on time charter to Yemen will hopefully begin to enjoy a better spot market rate. We are very close to finalizing an agreement with Yemen, whereby we will keep the cash flows of whatever we are going to earn on the spot market until the project restarts. And hopefully as we've mentioned today, those are going to be a good cash flows for at least the end of 2019 and 2020. And so, the project could start at 2021 instead of now, we'd be probably just as happy.

[Ben Nolan:]

Okay. That's helpful. And then shifting gears a little bit, I know earlier you talked a little bit to the LPG fleet and kind of maybe deemphasizing it a little bit or calling it a little noncore. I suspected now as maybe not the right time for this, but given that framework should – I don't know the LPG market improved. Is that a business that you might think about exiting entirely going forward?

[Mark Kremin:]

We would. And again I just want to clarify, we are talking about the ethylene fleet we have the seven ships, not the franchise we have with Exmar which is cyclical and we are very happy with. On the ethylene fleet, its seven ships, they are relatively low value and it is something where we would consider exiting. At this point we tend to agree with you. From what we can see it's relatively illiquid S&P market. But from the offers that are being made value that seem to be getting done at, it's not something that we need to do. So, we don't need to exit this point. However, from a commercial management standpoint, it's something we should consider. For us to manage seven ships, I am not sure that we have the scale and the consolidation that we might be able to get by putting the commercial management elsewhere, but we are not in any rush to sell. Hopefully that answers the question and hopefully we'll have more to say about that. Within, I said in the coming quarters, but actually I think we like to say something about that within the coming months, so hopefully we can do that.

[Ben Nolan:]

Okay. That's very helpful, and I appreciated. That does it for me. Thanks guys.

[Operator:]

And that does conclude the question-and-answer session. I'll now turn the conference back over to Mark Kremin for any additional or closing remarks.

[Mark Kremin:]

Well, once again I'd like to thank everyone for their support this quarter. And that said, goodbye and have a great day.

[Operator:]

Well thank you. That does conclude today's conference. We do thank you for your participation. Have a wonderful day.