GasLog's (GLOG) CEO Paul Wogan on Q1 2014 Results - Earnings Call Transcript

May.14.14 | About: GasLog (GLOG)

GasLog Ltd. (NYSE:GLOG)

Q1 2014 Results Earnings Conference Call

May 14, 2014, 8:30 AM ET


Jamie Buckland - Head of IR

Paul Wogan - CEO

Simon Crowe - CFO


Jonathan Chappell - Evercore

Christian Wetherbee - Citi

Herman Hildan - RS Platou Markets

Fotis Giannakoulis - Morgan Stanley


Good morning. My name is Ronald and I will be your conference operator today. At this time, I would like to welcome everyone to GasLog Ltd.’s First Quarter 2014 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 will be recorded.

Today's speakers are Paul Wogan, Chief Executive Officer; Simon Crowe, Chief Financial Officer; and to commence the call, Jamie Buckland, Head of Investor Relations at GasLog.

Mr. Buckland, you may begin.

Jamie Buckland

Thank you, and good afternoon, everyone, and thank you for joining us for our first quarter 2014 results call. As a reminder, this call webcast and presentation we're using this afternoon are available on the Investor Relations section of our website, where a replay will also be available.

As shown on page two of the presentation, many of our remarks this afternoon contain forward-looking statements. Let me refer you to our Q1 results press release and our reports filed with the SEC, where you’ll find factors that could cause actual results to differ materially from those forward-looking statements.

In addition, some of our remarks this afternoon contain non-GAAP financial measures as defined by the SEC. A reconciliation of these is attached as an annex to the presentation.

If we now turn to Slide 3, the agenda for the presentation, I'll hand over to Paul Wogan, GasLog Ltd.’s Chief Executive.

Paul Wogan

Thank you, Jamie. Good afternoon and good morning to all of you in the United States. Thank you to everyone for joining us today. On the call, I will give you an overview of our first quarter highlights and performance and provide a summary of GasLog’s achievements for the year-to-date. Simon will follow with review of the financial results and recent capital market activity, including the MLP. I will then discuss the trends in the LNG market so far in 2014, and give an overview of our fleet and charter information.

So please turn to Slide 4 of the presentation. The first quarter of 2014 was an exciting period for GasLog. We announced the agreement to acquire three ships from BG Group and raised equity to partially fund the transaction. The acquisition added three on-the-water ships to the GasLog fleet with six-year charters on average.

The follow-on equity raise that we launched to partly finance the purchase of the ships was upsized due to strong investor demand and significantly enhanced the liquidity and free flow to the company shares. In the same week that we announced the BG transaction, we also announced that we have filed a confidential registration statement with the SEC for the MLP.

Also, in the first quarter, we chartered out the GasLog Chelsea on a minimum seven-month contract which started in early May. For those of you who track our vessels, you can see that she recently arrived in Papua New Guinea where the ExxonMobil project is just starting up. So we’re delighted to add another great counter-party to our customer list.

Simon will discuss the financials in more detail. But in summary, EBITDA, profit -- revenue, EBITDA and profit were all higher year-on-year as we added more vessels to the fleet over the period. We also maintained our dividend for the quarter at $0.12 per share.

Please now turn to Slide 5 where you can see it has also been a very busy period for the company post the quarter end, concluding with the launch of GasLog Partners MLP. The MLP had its initial public offering last Wednesday on the New York Stock Exchange under the ticker GLOP. Also, after the quarter, we completed the acquisition of the three BG ships that we announced in January, and on the same day, announced the acquisition of a further three BG ships.

The price and charter rates for the second tranche of vessels are identical to those of the first transaction, which means all six ships will have six-year contracts on average. However, they will have staggered contract durations to ensure that we can optimize their redeployment when they come to the end of the contracts.

In addition, BG has the option on four of the six vessels to extend the term of the charter by three or five years. In the last few weeks, we’ve also completed a second Norwegian bond issue at a very attractive rate, and have signed a contract with Samsung for a further two new buildings. We’ll provide more information on these two items later in the presentation.

But now, let me hand over to Simon to take you through the financials.

Simon Crowe

Thank you, Paul. Good morning and good afternoon to everyone. For me, the first five months of 2014 have been transformational for GasLog and its prospects. The BG acquisitions, alongside the very successful equity follow-on, the second Norwegian bond, and more recently, the MLP IPO, have really positioned the company to take advantage of the significant growth to come in the LNG markets. I’m particularly proud of the series of financings that we’ve executed on the positive reception we received from investors in both the debt and equity markets.

I will now take you through the financial highlights for the quarter, talk about the recent announcements and provide some commentary on 2014 as a whole. Please now turn to Slide 6 of the presentation. We’ve produced another solid quarter in line with our plans and remain on track for the full-year 2014.

Revenues for the quarter increased significantly year-on-year due to the rollout of the fleet over the period. Compared to the previous quarter, revenue was slightly lower mainly due to some gaps in the employment of the GasLog Chelsea as we repositioned the vessel in preparation for our current seven to 12 month charter.

I think it’s important to add that whilst the rate and utilization were lower during the quarter, the rates we have achieved were very good given the softer spot market. We continue to be delighted with the performance of this ship and our ability to attract new customers. The vessel is expected to be contracted for most of the remainder of the year and possibly beyond. The solid total revenue figure is once again underpinned by the 100% utilization of all ships in our contracted fleet since delivery.

OpEx in the quarter of about $17 million was impacted by some planned engine maintenance on three of our vessels. As a result, we have taken engine overhaul costs in Q1 of around $3 million in total. We also had repositioning costs in the quarter of about $1.7 million as we moved the GasLog Chelsea in anticipation of the PNG charter. This produced an adjusted EBITDA of $34 million.

Interest for the quarter, excluding the impact of any mark-to-market on swaps, was approximately $13 million, and this reflects the $1.1 billion of debt we had for the eight vessels on the water during the quarter, and also include the interest on the first Norwegian bond. Adjusted EPS was $0.13 per share, reflecting the average outstanding number of shares for the period following the capital raise in mid-January.

Please now turn to Slide 7 of the presentation. This slide clearly shows the profitable growth that we’ve been experiencing and the associated increase in assets and vessel numbers. You can see that our EBITDA have more than doubled in just over a year.

Please now turn to Slide 8 of the presentation. Fixed assets have increased materially with the planned rollout of our fleet, and this will continue to increase as vessels move from the construction phase to delivery. The vessels under construction figure shows the stage payment that was made to Samsung for our ongoing newbuild program.

At the end of the quarter, we had $284 million of cash in the bank, which includes $199 million from the equity raised in January. $142 million of this was used as part payment for the initial three BG vessels --the three BG vessel acquisition when the transaction completed post quarter end. The balance of the purchase price was funded with debt drawn from a group of international banks.

If we turn over to Slide 9 of the presentation, you can see that the movements in equity reflect the first follow-on offering completed in January and the borrowings add up to about $1.1 billion, in line with the total at the end of 2013.

Please now turn to Slide 10 of the presentation. We have here, as usual, laid out the contractual revenue going forward. The table here includes the fixtures for the Chelsea from May this year for seven months and the six ships from the two BG transactions and takes our committed revenue out to 2026 to almost $2.9 billion.

We’ve assumed the second BG ships will be delivered early July. It should be noted that the committed revenue in the table for 2014 is for the remaining three quarters of 2014 and not for the full year. If you divide our overall committed charter revenue by our total contracted days, you get to a time charter rate of about $74,000 a day, which takes into account the recently acquired BG ships in the fleet.

Please now turn to Slide 11, the full-year update. Given that we’ve had so much going on in the quarter, we wanted to give you some more clarity about how to think about the full-year forecast. Revenues should be fairly straight forward to model. If you take the Q1 revenue number of $57 million and add to that the $264 million revenue figure shown in the contracted revenue table, and add in $3 million to $4 million for the BG managed vessel, you get around $325 million for the year. And this should be a reasonable assumption for the full year. Please note there may be some fluctuations to this number as we carry out maintenance on one or two of our vessels in the coming quarters.

On the cost side, we had an EBITDA margin of approximately 65% in 2013, which again should be a good assumption for full-year 2014. We have factored in a strengthening euro and some increases in G&A due to the fleet expansion and the MLP.

Depreciation for the year should total around $70 million for the full year but would depend on the exact timing of the delivery of the second three BG ships. Newbuilds have a useful life of 35 years and the purchased BG ships have a remaining useful life of about 27, 28 years as they were built in 2006 and 2007.

We’ve been busy on various on financings during the quarter. So I want to remind you on where we are. Outstanding debt at the quarter end was approximately $1.1 billion, made up of bank debt of just over $1 billion and for modeling purposes I would assume interest of around 4.5% and we also have bond debt of $83 million at 7.4%.

Since the quarter end, we have added the debt related to the first BG acquisition of around $326 million and again I would use an all-in rate of about 4.5% on that for modeling purposes. We also issued another NOK bond at 5.99% fixed rate and going forward, we expect to have drawn on the second BG acquisitions by early July and the second Shell ship will deliver in June with the associated draw on the $143 million facility at the same time. So, as of today, total debt is around $1.5 billion. We’ve also raised equity in the last few months and our share count now stands at around 81 million shares.

Turning now to Slide 12, I want to spend a couple of minutes on the MLP following the successful IPO last week. At launch, the MLP owned three vessels, the GasLog Santiago, Shanghai and Sydney. The MLP structure is very standard with GasLog parent owning the 2% general partner and approximately 50% of the LP unit, which will be subordinated for three years. The remaining 48% is owned by the public and insiders. The offering was priced at $21 per unit at the top end of the $19 to $21 range, raising total gross proceeds of $203 million.

During the MLP road show, investors asked us about the key strategic reasons to doing the MLP. For us, it’s very simple. We want to continue to profitably grow our fleet into what we see are attractive very markets for LNG shipping in the coming years. We believe the MLP will allow us to accelerate that growth by providing us with the ability to recycle cost-effective capital into further accretive growth opportunities. These opportunities will come from exercising newbuild options as well as executing on further vessel acquisitions when available.

We’ve recently announced the two shipbuilding options that we exercised last week with Samsung. For me, that is already evidence of us using capital generated by the MLP to grow the fleet at the parent. We will look to put long-term contracts against those vessels, which then add to the pipeline of vessels that we can drop down into the MLP.

Before I pass back to Paul, I’d like to summarize the past few months. It’s been an incredibly busy but very satisfying period. We have further strengthened our financial position and set ourselves up to take advantage of the forecasted strong growth in the LNG market.

Our two follow-on equity issues were priced well and the aftermarket performance has been very positive. We issued another senior unsecured NOK bond at an all-in fixed a cost of less than 6%, which I think is very attractive for GasLog today. And finally, we launched our MLP IPO at the top of our price range with very positive post-launch performance. We remain on track, on course and very well positioned for the future.

And with that, I’ll now hand back to Paul to take you through the rest of the presentation.

Paul Wogan

Thank you, Simon. Please turn to Slide 13 for market update. We’ve been encouraged by recent developments in the LNG industry as we anticipate increased liquefaction coming on stream, especially with the Exxon Mobil at Papua New Guinea projects starting up ahead of schedule. In addition, new LNG production is expected later this year from Algeria and BG’s first production train at Curtis in Queensland reportedly remains on track to produce its first cargo in 2014.

Elsewhere in early 2014, the 6 million tons per annum Jordan Cove project became the sixth U.S. project to receive Department of Energy approval to export to non-Free Trade Agreement Countries. Petronas took final investment decision, or FID, on a second floating production unit to be deployed offshore Malaysia.

This 1.5 million ton per annum unit is scheduled to commence production in 2018 and is the fourth floating LNG production facility to achieve FID. The use of floating liquefaction technology to develop stranded gas fields is an exciting development and supports the further growth in LNG carrier demand.

During the first quarter of 2014, short-term rates for LNG carriers declined as a number of newbuilds delivered into the global fleet. This softening of short-term rates has continued into Q2 as open newbuilds delivered prior to new liquefaction projects coming online.

GasLog’s long-term strategy has been to have its fleet largely contracted to high credit quality counterparties. This means that we have the vast majority of our vessels fixed through 2015 and beyond, thereby providing protection from near-term volatility.

In 2015, we expect to see additional production from further new projects in Australia, South East Asia North America. There is currently over 100 million tons of new LNG production capacity, for which FID has been taken but where production is yet to commence. This supports our expectation that the medium to long-term outlook for LNG shipping remains very positive.

Please now turn to Slide 14. I know that many of you have seen this slide before, but I think it’s worth showing you again as it continues to develop and expand quarter-on-quarter. We’re very pleased to have added a third customer logo to the slide with the Chelsea now on contract with the Exxon Mobil led Papua New Guinea projects for the next seven to 12 months. It also shows that we are now pretty much contracted for the remainder of 2014.

Since the last quarter results we have added an additional three BG ships, exercised two options and launched the MLP. The fully delivered fleet now numbers 23 ships in total. We said at the time of GasLog’s IPO in 2012 that we wanted to double the size of the fleet in five years. We have now achieved that and more in just over two years and we see further opportunities to continue to grow our fleet in the future.

I would like to add though that we are not growing for the sake of growth. We will only grow where there are accretive opportunities that meet our disciplined investment criteria. On this slide, I would also like to highlight that the MLP will have the right to acquire any vessels which have a contract of five or more years. This means that there are 12 additional drop-down vessels, including on-the-water vessels and newbuilds that form the immediate pipeline of growth for the MLP.

In terms of future growth, we continue to be excited about the potential for further industry consolidation and as we’ve demonstrated in the past few months, we intend to position ourselves to be ready as and when these opportunities arise, be it oil and gas majors divesting their existing fleets or smaller industry players exiting the market.

So now please turn to the summary on Slide 15. It has been a busy 4.5 months for GasLog. We have been pleased with the performance of our contracted fleet and delighted to have added the six BG ships with charters back for an average of six years.

We have again been very active in the capital markets raising over $300 million in equity to partially fund the BG transactions. We launched a tap to our NOK bond at very attractive rates and launched and completed an MLP in New York last week. We have very strong demand for all of our capital market offerings and we thank our shareholders, bondholders and unit-holders for their ongoing support.

We were delighted the MLP IPO priced at the top of the $19 to $21 range and with the subsequent market trading of the MLP units. We think the combination of dropping down assets into the MLP, so we can recycle capital to the parent company to grow the fleet further, will provide value accretion for both sets of shareholders. And as Simon mentioned, we’ve already executed on this strategy as we exercise two more options at Samsung to take the total GasLog fleet to 23 ships.

The forecast expansion of the LNG industry combined with GasLog’s experienced technical platform, proven track record of execution and willingness to drive consolidation in the market mean that we are confident that we will continue to see attractive growth opportunities that will benefit the shareholders of both GasLog Ltd. and GasLog Partners.

And that brings us to the end of the presentation. Operator, could you please open the call for questions?

Question-And-Answer Session


(Operator Instructions) We will now take our first question from Jonathan Chappell from Evercore. Please go ahead.

Jonathan Chappell - Evercore

So lot of the focus here on growth opportunities going forward, and I want to attack two sides of that, but attack it nicely. First, on the newbuilds, these charter -- these options that you just exercised, I’m just curious, most of your fleet you were kind of involved with from supervision with the BG fleet all the way back to 2000 or whatever, and you have a very strong relationship with BG, and now with Shell, and now even with Exxon, when you think about the exercise of these options do you have any conversations with some of your current counterparties about the potential employment of these? Are you being a little bit more -- I hate to use respected but you’re ordering these without kind of guaranteed employment going forward, how do you think about the balance of that now that you have a bigger fleet?

Paul Wogan

Paul here, John. I think as we look at that, there are a couple of things. I think you will see the customers that we have at the moment looking to expand their fleets as they expand in their liquefaction and I think that’s certainly one very important avenue for us on the growth side. But I think there are a number of people looking for vessels, especially as we see the liquefaction coming on in the U.S. and people who are taking the SPAs to take offtakes from those who are already in the market looking for vessels to control to take their product.

So, I think when we look at this, we think there are quite a few opportunities for those ships that were off and as we’ve said our view is that these are going to be good ships, have a good price, good payment terms in what we think is going to be a very interesting point in the market. And we think we will look to put long-term contracts against those ships to increase the pipeline for the MLP. So I think you could see us looking at either existing customers or new customers and I think there’s huge opportunities in both areas for us.

Jonathan Chappell – Evercore

And you’ve kind of laid out some of the projects that are coming online, but obviously there is a heck of a lot more that are coming on over the next several years. And ’17, ’18 seem to be years where a lot of the U.S. and Australian production comes online. When you think about exercising these options, are you kind of targeting specific projects that may require asset specialty of that, the size of 170 plus cubic meters or are you just thinking at some point there’s going to be a demand for these ships and let’s proactively order them?

Paul Wogan

Well, I think if you look at the projects in the U.S. Gulf already have the sort of okay from the Department of Energy, such as Sabine, Freeport, Lake Charles, Cameron, all these projects, I think, were waiting for FERC and then will take FID.

When you look at the size of the ships that we have ordered, I think those ships are pretty good for the long-haul trade, which we think will happen between there and the Far East. So we don’t have a specific project in mind, but when I look at the amount of cargo which we think will be coming out of the U.S., I think these are going to be pretty attractive vessels for that type of business.

Jonathan Chappell - Evercore

And then, on the second-hand, potential consolidation of the business, six of the second-hand ships you’ve bought were BGs, you know those guys really well, you sounded like you are very pleased with the performance of the Chelsea so far, but how do you think about consolidating with ships that maybe yards that you haven’t worked with in the past, you haven’t been involved with the supervision of those, and they were ordered speculatively from people who were just kind of taking advantage of a strong rate environment at the time, how are you comfortable with those types of assets and putting them in the portfolio of assets that you’re very -- have been very close to in terms of [your DNA] (ph)?

Paul Wogan

Yes. It was I think -- it’s one of the things that we thought long and hard about with the GasLog Chelsea because obviously that ship wasn’t built in Samsung. We’ve weren’t involved in her production, but I think if we see ships which are coming from good yards then I think we would be willing to look at them, but obviously one of the things that we do is we would go and inspect the vessels, look at the specification, make sure that they meet our requirements.

And so we have a pretty switched on technical team who I know would throw the red flags if we’re trying to buy ships that they thought were substandard, because from our point of view buying a substandard ship doesn’t make sense. But primarily I think if you’re buying ships from the recognized yards who have built these vessels previously then I think you can be fairly comfortable that those ships would be acceptable.

Simon Crowe

I think I would just add to that Jon. We’ve spent years over a decade building our technical platform now working for BG and Shell, and I think we feel very privileged and very proud of that technical and operational platform. And as Paul says, we’ve now proven out that we can take in a second-hand ship and I think it took us, Paul If I’m not mistaken, two days to turn around -- two or three days, four days to turn her around and get her on a contract which I think speaks to our platforms. So that’s because I think our technical guys are very experienced, long history, long track record and would certainly us if we were to take a ship that didn’t meet their high-quality spec.

Jonathan Chappell - Evercore

One just quick follow-up on that same topic, a lot of these speculative ships were ordered at time when spot rates were almost double where they are today, so obviously delivering into a much different market, have you seen any panic or any proactive -- or approach proactively by maybe people who only have a handful of ships and didn’t realize what they’re getting into, realize that you’ve been a consolidator and have the access to capital and kind of looking to complete a transaction in the very near future?

Paul Wogan

I think these things -- I would -- the very near future is a difficult one to say, Jon, because these things sort of happen and come around when they come around, the trick is to be ready for them, but in answer to your question, yes, I think there are people out there who realize that this industry is different to bulk shipping. You have to have the technical platform, you have to have the reputation and the experience to be involved in it.

And yes, we have seen people thinking that maybe this is not the right place for them. But, as I said in the presentation, we are also fairly disciplined, we want to make sure that if we’re doing projects, if we’re buying vessels but we’re doing at the right price and it’s not just growth for growth’s sake. So we would need to see those opportunities at the right price before we would move on them.


Thank you. We will now take our next question from Christian Wetherbee from Citi.

Christian Wetherbee - Citi

I guess I wanted to take a step back and think for a second about sort of the potential of the business now particularly now that you have the MLP in place which should help with sort of the equity funding of future expansion. You talked about sort of the long-term goal when you announced the - when you launched the IPO, the first goal around for GasLog at the parent, about doubling the fleet over time, you guys have clearly done that and then some -- I guess when you think about where you stand today with 23 vessels and what the sort of market opportunity is next five years or through the end of the decade, how should we think about that pace of growth, what really is the opportunity here now that you have sort of the MLP in place? It seems like there is a potential for a lot more growth, I guess, if you can maybe put some context around it, it would be helpful for us.

Simon Crowe

Yes, Chris, it’s Simon here. I get quite passionate about this, I mean being on the road we’re certainly talking about this, but we see the pace of liquefaction et cetera, I think we see the build-out completing. We’re delighted PNG have taken us with a project they’ve got delivered early. There are about [270] (ph) vessels around at the moment.

We can see any conservative forecast can add another 150, 200 to that and some. Would we love to think about having a 10% market share of a 500 fleet -- 500 vessel fleet? Of course, we would. But I think, as Paul said, we are very disciplined about it. We are going to take a careful look at all of these opportunities, but I think they will come.

So it’s very difficult to sort of judge the pace of that. I mean, as Paul says, we were looking to on the IPO, initial GasLog IPO is about doubling the fleet in five years. We obviously did that, it’s a lot sooner than we thought, so it’s about being ready, it’s about having the dry powder to execute, and I think the technical platform to execute.

And I think with the MLP, with some of the things we’ve just done recently with our proven track record with the Chelsea and our track record with BG and others, I think we have that platform. So it’s about being ready, being disciplined and being able to transact whether that be on a newbuild, with an idea of who might want to contract it, with the yard and or being able to transact opportunistically on some acquisitions whether that be more divestment from oil and gas majors and you’ve heard me speak about that before that I think is a thesis of our growth, I think we’ll see increasingly showing itself over the coming years.

But also, as we were talking about with Jon earlier with those smaller operators who have perhaps brought one or two vessels and find themselves really not being able to operate those efficiently and effectively, so it’s about being ready with the platform, with the capital I think.

Christian Wetherbee - Citi

Do you see any sort of imbalance or any one area of potential growth being a little bit more attractive than another at the current market? You’ve obviously done some of the sale leasebacks from BG and then also sort of executed some options in the relatively recent past and so it appears that there is at least a couple of markets open that you feel comfortable with, but do any of those sort of growth avenues seem a little bit more interesting or likely to be more interesting over the course of next 6 to 12 months?

Paul Wogan

I think as we look at it, Christian, we like both those, we like the ability to consolidate, to have on-the-water ships to have immediate cash flow, but I think a big part of it is going to be our growth for the new buildings that we contract into new projects. And so I think we like to take a balanced view on both of those growth areas. I don’t think for us one is more attractive than the other, but being able to do those in concert with each other I think really works for us as a business.

Christian Wetherbee - Citi

And then, when you think about sort of the counterparties that you have, you mentioned adding another name to the list there, and we’re certainly happy to see that. Do you see this growth continue to ramp up? How much of a priority is that for you to may be diversify the customer, it was obviously a very high quality counterparty albeit concentrated, how do you think about that and where does that sort of rank on your priority list of getting other folks in there?

Paul Wogan

Yes. I think, as you say, we have a very high quality list at the moment, I think, with Shell and with BG and now with Exxon. You probably have three of the most dynamic people in the LNG market, so that’s a great place to be. But I think as we grow the fleet, it’s probably just going to happen anyway, beholden on this if you like to actually look for other customers.

And as we look at it, what we don’t want to do is have a large number of single ships to different customers because I don’t think you can then give the quality of service, you can’t sort of have that partnership relationship which we’re developing with our customers at the moment. And so, as we grow this fleet, I would imagine you see us putting another two, three additional high-quality customers on to that list going forward.

But whilst that will be nice to do, it’s a huge priority. I think as we talked about before with the BG transactions, when BG comes knocking on your door with aftermarket ability to do business with them, you have to take that very seriously.

Christian Wetherbee - Citi

And one final question I have just technically, Simon, I apologize, because I jumped on a little bit late, you had mentioned I think $3 million for an engine overhaul in the first quarter. I guess I just wanted to make sure I understood sort of where that stands in terms of the regular maintenance for the vessel or was there something outside of the regular maintenance schedule that caused that, how should we think about going forward?

Simon Crowe

Yes, Christian, it’s three ships that we did some engine overhauls in the first quarter and we are absolutely on track as you know in shipping it’s lumpy, we did these in Q1, they came after there, serviced them and we executed on them, so we are absolutely on track for the year just a bit of lumpiness in Q1.


Thank you. We will now take our next question from Herman Hildan from RS Platou Markets. Please go ahead.

Herman Hildan - RS Platou Markets

So now you obviously in a very unique or a very good position where, as you said it quite well, you were able to recycle the capital by dropping down to the MLP into the whole co., and used those funds for further growth you have under those two new buildings. Kind of what the science, how much is your, call it, interest in building out opportunistic fleets or trying to -- try to be in them, do you have a kind of a target level of how many open ships you’d like to have or how should we think about the potential proceeds from the GasLog Partners’ transactions going forward?

Paul Wogan

Yes. I mean I think you’ve seen the strategy we followed so far, Herman, it’s been very much around being largely contracted in the fleet and I think as we go forward, I think that’s something that we will probably continue to look at, because we love to put long-term contracts and then grow the pipelines for the MLP, but you’ve also seen that we have the ability to take on vessels like the GasLog Chelsea and look at those on the shorter term business and I think that’s something we would do.

And I think as we grow the fleet, that’s something you may see us doing as we add to our $3 billion of backlog revenue, you may see us do that. But we don’t have a specific target in mind. It’s not like we’re saying we want to move the needle a long way towards being more opportunistic on this. I think you will continue to us balancing that out and taking long-term contracts against good assets that we can drop into the MLP.

Herman Hildan - RS Platou Markets

So I think, Simon mentioned, you have on your current (indiscernible) longer than 12 years, that are obviously quite likely candidates for the MLP and kind of what I really want to better understand is will those proceeds from the dropdowns result in either call it further growth or higher dividend side of GasLog at the parent company or are you going to kind of (indiscernible) develops?

Simon Crowe

I think just to be clear we’ve got 12 vessels with five-plus year contracts that are option vessels for the MLP just to be clear on that. But I think you just described it very accurately. It’s about recycling capital as we see these opportunities in newbuilds, in consolidation, executing on those opportunities. If those opportunities are a bit slower than and the pace is a bit slower than we thought, then we would obviously of course look at ways of returning capital to shareholders.

But it’s about a balance, we spend a lot of time discussing this. The Board is always discussing this at our meetings, how do we get the best returns on capital having a major shareholder chairman keeps us all very disciplined and very focused on that, but it’s really about being good stewards of capital. We think the growth there is there in both newbuilds and in consolidation and MLP presents us with an ideal source of capital to invest in that opportunity.

Herman Hildan - RS Platou Markets

And a final question, given your extensive experience in running LNG ships, and I guess now you have obviously a very meaningful fleet and drop-down potentials to the partnership, have you considered entering into, for example, the FSRU space, where I guess you will have a smaller (indiscernible) than other players?

Paul Wogan

Yes. I think as we look at the LNG industry, I think it looks very attractive to us and there are certain areas in that which are very adjacent to what we do which I think are areas that we would like to explore. I think as you rightly say, Herman, the FSRU is one I think we have the technical platform already to take a look at that and I think with what we’ve seen happening in Russia and the Ukraine recently, I think is only adding to people understanding the strategic value of having re-gasification terminals.

So I think that’s quite an interesting place for us. I think you will see LNG being used much more as a bunker fuel for shipping going forward as the regulations tighten up on emissions, I think that could be an area for us, especially in or around the logistics of that and hub and spoke and making sure that that is available as a bunker fuel for ships. So I think there are a number of areas adjacent to what we do which really we could use our core competence, our technical platform to look to grow into and I think that’s something that we’re looking at at the moment.


Thank you. We will now take our next question from Fotis Giannakoulis from Morgan Stanley. Please go ahead.

Fotis Giannakoulis - Morgan Stanley

Yes. Thank you and congratulations for the successful IPO of the MLP. I want to focus on the MLP and if you can give us some guidance of how shall we think the breakdown schedule, how many vessels do you expect to drop every year and when can you legally start the drop-down process?

Simon Crowe

Fotis, it’s Simon here. On the road, we were talking about this a lot. I mean we have the 12 option vessels, we’re talking about doing one within six months either debt or equity or a mixture of both, that was something that is very much on the agenda now, after that, for the two to three vessels around about the anniversary date of the IPO, and then beyond sort of three to four per annum for the next several years.

Clearly, we’ve got the initial 12 as that option vessels and then there are further six in our fleet which don’t have five-year contracts at the moment, but again they could become candidates and we’ve also just exercised the two newbuilds, so again they will become candidates once they got five-year contracts or more.

So that’s the sort of pacing that we are thinking about. We won’t be self eligible as you know for 12 months and that would mean for the first drop in six months time, we have to do a prospectus which is not out of the question at all and the units have traded very well. But again we remain flexible. We’ve got that flexibility, that optionality and I’m working very hard now with Andy who is the CEO of the MLP and Kurt, the Chairman and we are just putting our plans together and making sure that we’ve got the optimal plan and optimal path going forward.

Fotis Giannakoulis - Morgan Stanley

Without trying to take away this flexibility that you mentioned, can you give us some guidance of how do you think at this point the composition between debt and equity for the drop downs, obviously the MLP has very low leverage at this point, is there a chance that the first drop-down will be without any equity offering? And also, going forward, how much stake does GLOG want to keep in this MLP? And if you can answer also trying to explain to us what you are going to do with all this process, you are in a pleasant position that you are going to receiving a lot of equity that you have invested in your vessels as the drop-down schedule develops?

Simon Crowe

Yes. I think debt-to-equity kind of structure is 50/50 going forward, I think about 4.5, 5 times sort of EBITDA, may be a bit higher than that for the first drop. In terms of the stake, I think we’re here, we’ve just launched it, again we will be looking at that as we go forward as things trade, that’s subordinated for three years. So we -- that’s the sort of time horizon the GasLog units that we earn in GLOG is subordinated for three years. So you got to factor that into the equation.

And in terms of the equity, we just -- the reason we’ve done this MLP is because we absolutely believe in the strong growth of the LNG market going forward. The capacity is coming online. We believe there is going to be a big demand for shipping and other peripheral businesses we think we’ve got a really high-class problem in terms of recycling that capital.

Fotis Giannakoulis - Morgan Stanley

Can you also elaborate on the market conditions right now, we saw one of your competitors charter a vessel of around $70,000, that was a little bit older vessel than the ones that you have, where do you see the market and where do the discussions for the chartering of the two new buildings that are open stand at this point?

Paul Wogan

Yes. I think if we look at the market, Fotis, your $70,000 a day for the spot market is probably where I would -- around where I would see that market as well. What’s interesting though is I think if you look at the longer-term market, I don’t think we’ve seen very much of a moment in those rates, and as we did when the market was 120,000, 150,000 a day and the spot rate stayed fairly stable and maybe drifted up a bit.

I think it’s the same this time if you are going for the longer term business I think there is a stickiness to those rates. Yes. I think on the two ships we’ve got coming right at the end of this year and into the first quarter next year, we’re starting to see a number of people looking actually for potentially longer-term business and I think what’s happening is people are thinking about positioning themselves for what they see as a tightness coming in the market as we go through 2015 and 2016. We are not in close negotiations on those ships at the moment, but I think there are some interesting opportunities which are starting to show.

Fotis Giannakoulis - Morgan Stanley

Do you think that based on what you know at this point these vessels will be able to start a contract right after they get delivered or there might be some period where they might stay idle?

Paul Wogan

Well, I hope as we showed on the GasLog Chelsea that if we haven’t put them on long-term contracts at that point that we are able to charter those vessels in the shorter-term market, so I certainly don’t -- hope they don’t remain idle, but it’s too early to say whether those ships will come out straight into the longer term business or on a more short-term basis.

But I’m pretty confident I think as we’ve demonstrated with the Chelsea and I think we have the ability because of the technical platform we have and the experience and the trading of our vessels, I think we are able to fix our ships when other people can’t because people want to come and actually take the ships from us, so that’s what I think puts us in a good position as we look forward.

Fotis Giannakoulis - Morgan Stanley

One last question, can you remind us how many vessels of BG you manage right now? And are there any thoughts of taking over, acquiring vessels? And last, except for buying ships that you mentioned that you plan to do and expanding further your shipping fleet, any thoughts about more exotic projects like FSRUs or floating liquefactions and anything else that is related to the LNG infrastructure?

Paul Wogan

Yes, we’ve -- at the moment, when the next tranche of BG ships delivered to us will be managing six ships for themselves, still six ships left on the BG fleet, interesting vessels, so I think we’ll see how BG look at their assets going forward.

In terms of looking at other opportunities, I was just talking to Herman, I think what we would do is we’d like to say what’s our core competence, what’s our real capability and I think our real capability is the technical platform that we’ve built up in this business and now we are able to support I think through being able to access capital to grow that.

So as we look at that platform, we think the real adjacencies to that are around the FSRUs, I think we have the capability there. I think it’s around looking at LNG as a bunker fuel as we see the emissions rules tightening for ships going forward. I think it’s around the logistics moving LNG by sea, whether it would be for bunkers or for other transportation means and getting it to those areas that require it.

So I think there are a number of interesting areas for us. We haven’t taken a look at the floating LNG at this point. I think it is a different sort of technical capability than some of the other stuff we’ve been talking about. I think it’s got more difficulties perhaps than others and so that’s not to say we wouldn’t look at that in the future, but at the moment, that’s not on our list.


(Operator Instructions)

Paul Wogan

Okay. Well, if there are no further questions, I would just like to say thank you to everybody for joining the call, thank you for your time and interest in GasLog and we look forward to speaking to you again soon. Thank you.

Simon Crowe

Thank you.


Thank you. That will conclude today’s conference call. Ladies and gentlemen, thank you for your participation. You may now disconnect.

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