GasLog Partners LP (GLOP) 2022 Q1 法說會逐字稿

Good morning. My name is Brandon and I'll be your conference operator today. At this time, I would like to welcome everyone to the GasLog Partners First Quarter 2022 Results Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded.

On today's call are Paolo Enoizi, Chief Executive Officer; and Achilleas Tasioulas, Chief Financial Officer.

Robert Brinberg from Rose & Company will begin your conference.

Good morning, or good afternoon, and thank you for joining the GasLog Partners First Quarter 2022 Earnings Conference Call. For your convenience this webcast and presentation are available on the Investor Relations section of our website www.gaslogmlp.com, where a replay will also be available.

Please now turn to Slide 2 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 first quarter earnings press release. In addition, some of our remarks contain non-GAAP financial measures as defined by the SEC. A reconciliation of these measures is included in the appendix to this presentation.

Paolo will begin today's call with a review of the Partnership's first quarter highlights, following which Achilleas will walk through the Partnership's financials. Paolo will then provide an update on the LNG shipping and commodity markets. We will then take questions on the Partnership's first quarter.

With that, I will turn the call over to Paolo Enoizi, CEO of GasLog Partners. Paolo?

Thank you, Rob, and welcome, everyone, to our first quarter conference call. Please turn to Slide 4 for GasLog Partner's first quarter highlights.

I'm pleased to report the Partnership achieved another strong quarter. The Partnership generated strong financial results in a quarter with noticeable volatility in the spot market. Our fleet utilization remained high at approximately 99.4% despite the ongoing operational challenges created by the COVID-19 dynamic.

The Partnership is in good position to deliver results throughout 2022, both to our contracted cash flow and our spot market exposure in the seasonally strong months in the second half of 2022. We have, in fact, approximately $521 million in contracted revenue, including a recently signed 11-month charter for the GasLog Sydney at an attractive rate above mid-cycle.

And we have 851 open days remaining in 2022, which we believe represents a material upside potential given the tight market backdrop and our expectations for the balance of the year.

Finally, we retired $37 million of debt and lease liabilities in the quarter and repurchased another $10 million of our preference units in the open market, bringing the total repurchase to $28.4 million at par values on average since the repurchase program was initiated last summer. The result is a reduction in our breakeven levels, which enhances our free cash flow generation potential and continued progress in our leverage ratios towards our targets.

Turning to Slide 5. The global focus on the availability of LNG has never been higher. The tragedy unfolding in Ukraine has highlighted the importance of LNG, not just as a fuel that will enable the transition to a lower emission world, but also as a critical element of many countries' energy security plans. The situation is unfolding at a time when the LNG market is already tight after 2 cold winters in Asia.

Increased demand from Europe has caused gas prices to surge globally. This will likely lead to an increasing number of long-term supply agreements backed by a regulatory environment that will almost certainly help to drive new LNG projects to FID and support the continued growth of LNG site.

In the midst of these market dynamics, we should mention that GasLog priority is to support the safety and well-being of our Ukrainian seafarers and their families through an attentive care and support program managed by our operation teams. I will provide further commentary on the markets shortly, but first, let me review the opportunity to create for the Partnership.

On Slide 6, we highlight 2 charters we signed in recent months against an improved market backdrop. Both charters are with high-quality counterparts in Trafigura and Naturgy and will contribute the combined EBITDA of approximately $43 million during their contract terms. We have at least 6 vessels with contract expiring in 2023, and we expect to charter them at an attractive level.

Turning to Slide 7. You will see that the cash deposits generated in the first quarter, combined with our charter coverage for the year, more than covers our overhead and debt service obligations for 2022. This is, of course, before factoring in the potential upside for approximately 851 open days and 275 spot linked days, which will allow us to benefit from the strong term market and limited availability of independently owned vessels. In this environment, the Partnership will be able to take advantage of a excellent operation platform and deliver tangible results.

Slide 8 shows the potential we have to enhance our free cash flow in 2022 due to our near-term market exposure. As you can see from the chart on the left, approximately 85% of our open days are during the seasonally strong second half of the year. And 50% of our available days are open in the fourth quarter. As we continue to manage our cost base, our operating level increases and every $10,000 per day of revenue earned above our operating and overhead expenses will generate an incremental $11 million of EBITDA for the Partnership in 2022.

I will speak about our market outlook shortly, but first, let me turn our call over to Achilleas, who will review the Partnership's first quarter financial performance.

Thank you, Paolo. Turning to Slide 10 and the Partnership's financial results for the first quarter of 2022. Revenues for the first quarter were $85 million, a 2% decrease from the first quarter of 2021. The slight decrease in revenues was primarily due to 112 on spot days in 2022 compared to the first quarter of 2021 and lower daily time charter equivalent rates for these spot days as the premium window spot market ended earlier this year than in 2021.

Adjusted EBITDA was $61 million, a decrease of $3 million or 5% from the first quarter of 2021 due to higher operating expenses and general and administrative expenses both discussed in the next slide in detail.

Finally, our adjusted earnings was $0.41 per unit, which decreased compared to the first quarter of 2021 due to these higher expenses as well as a year-over-year increase in the number of common units outstanding. Overall, we are pleased with our performance in the quarter as we continue to successfully manage our exposure in the spot market, re-chartering our fleet at healthy rates and achieving an overall stable performance for the Partnership.

Turning to Slide 11 and a look at our cost base. Our daily operating expenses per vessel were higher in the first quarter than both the first quarter of 2021 and the full year guidance we gave on our last call. This was primarily due to a $1.4 million increase in crew costs mainly related to additional COVID-19-related costs in 2022 due to enhanced safety protocols, crew extension bonuses to support our seafarers traveling and extended guaranteed days for seafarers prior to embarkation. This increase was partly offset by a $400,000 decrease in the vessel management fees paid for our fleet in connection with the decrease of the annual vessel management fee payable to our manager.

General and administrative expenses increased by $1.5 million year-over-year. This increase was primarily related to an increase of $1 million in the administrative service fees to GasLog Ltd. for the full year and an increase in the public company expenditures compared to 2021, which were previously fell between GasLog Ltd. and GasLog Partners prior to our parent take private transaction last year.

Overall, direct public company expenses are now borne by the Partnership alone. The changes in the management and administrative fees are in line with our commentary in the previous quarter and are disclosed in detail in our 2021 20-F filed with the SEC in March 2022.

For the balance of the year, we expect our unit operating expenses to average approximately $13,800 per vessel per day, while we expect our overhead expenses to average approximately $3,250 per vessel per day.

Slide 12 illustrates the progress the Partnership has continued to make in its preference unit repurchase program. During the first quarter, we repurchased an aggregate of $10 million of our preference units in the open market. Since the program was initiated in August 2021, the Partnership has repurchased more than 28 million in preference units at an average price of approximately $25 per unit, the par value. These repurchases have reduced preference unit distributions by approximately $2.4 million or almost $0.05 per common unit on an annualized basis. We expect to continue opportunistically repurchasing preference units in the open market as conditions be paid.

Slide 13 shows the progress we have made towards our leverage target, which we first introduced in the third quarter of 2021. We have made good progress on these goals despite the S104 million noncash impairment charts on outstream vessels that we took in the fourth quarter of 2021.

Inclusive of $37 million of debt and lease principal payments made in the first quarter of 2022, we have repaid $111 million in aggregate over the last 4 quarters. As a result, and despite the impairment in the fourth quarter, as I mentioned before, our debt to total capitalization has been reduced from 55% as of the end of the first quarter of 2021 to 53% as of the end of this past quarter. When combined with our $136 million of cash on the balance sheet, our net debt to capitalization has been reduced from 50% to 46% over the same period.

In addition, our net debt to trailing 12-month EBITDA has been reduced from 5x to 4.3x. We expect to continue strengthening our balance sheet, beginning with a scheduled retirement of approximately $14 million of debt and lease principal payments in aggregate in 2022, which is more than covered by our contracted cash flow over this period, reducing the balances and making opportunistic repurchases of preference units will further reduce the Partnership's cash flow breakeven levels over time and to increase our free cash flow generation potential enhancing the Partnership's equity value.

With that, I will turn it over to Paolo to discuss the LNG commodity and LNG shipping markets.

Thank you, Achilleas. Turning to Slide 15. 72 term charters were fixed in the first quarter of 2022 according to Poten. This figure includes 42 picture for new buildings that have not yet been delivered.

Persisting concerns related to energy security and logistical bottlenecks around the world have led charter to seek term coverage and certainty of shipping capacity. As illustrated in the chart on the right of the slide, headline spot rates have remained relatively stable in recent weeks. And tightness in the market is reflected in the relatively strength period charter rates, which are well above last year's quarter 1 level as well as the 5-year range.

The strength of the pivot market is being exacerbated by the lack of availability of independently owned vessels, thanks to increased demand for period charter since last year. Currently, a year charter rates are assessed at $115,000 per day for the TFDE vessels and $62,000 for the steam vessel according to Clarkson. We believe this is indicative of charter's expectation for a tight market in the months ahead.

In addition, the forward curve for LNG spot rates in the case rising rates throughout 2022. And as also the fundamental drivers and frictional challenge, we expect the LNG cardio market to perform strongly through the next winter, as I'll discuss over the next several slides.

Slide 16 presents LNG demand and supply during the first quarter of 2022. Energy demand increased by 7% in the first quarter compared to the same quarter in 2021, according to Wood Mackenzie. Demand growth from Europe was exceptionally strong in the first quarter, increasing by 56% increase year-over-year. The combination of overreliance on renewables, low inventory and lower-than-anticipated info from Russia and Norway, pushed demand for LNG resulting in record high prices in the region, underscoring the need for natural gas and LNG as both transition fuel and important source of power generation in the evolving energy landscape.

In 2022, LNG demand is forecast to grow by 4.3% year-over-year. On the supply side, U.S. production rose by over 24% year-on-year to 20.5 million tons due to higher utilization in response to increased demand and the ramp-up in production at the Freeport, Cameron, Corpus Christi and most recently, Calcasieu Pass LNG facilities. U.S. exports are expected to continue to grow throughout the course of 2022 and beyond as new export infrastructure comes online.

Slide 17 demonstrates a significant cost increase for power generation in Europe and Asia since the end of 2020. Punctuated by high volatility during the past few months, energy prices in Asia and Europe recently hit record highs, highlighting the need to further investments in natural gas processing infrastructure.

In recognition of this reality, the European Commission has added gas and nuclear power to the green taxonomy. The classification of these sources is sustainable will help enable a steady and competitive supply of energy. Given its destination flexibility, LNG is the most versatile source of gas, it would be essential to help achieve global emission reduction goals over the long-term.

Europe entered this winter with relatively low inventory of natural gas, a situation made more tenures by the war in Ukraine. We expect this condition to continue to drive additional demand for LNG as countries begin to restock inventory and find a reliable alternative to Russian pipeline gas.

Slide 18 shows the forecast build in LNG infrastructure over the next several years. Remember that the growth in seaborne LNG trade is enabled by infrastructure. This applies equally to growth in the number of vessels required to transport LNG and to the growth in both export and re-gasification infrastructure.

By then -- by the end of 2026, export capacity is expected to increase by 130 million tons and re-gasification capacity expected to increase in almost lockstep by 128 million tons. Despite Western Europe plans to increase its LNG inputs, the majority of regas capacity is coming from Asia.

Coupled with widely acknowledged forecast that the majority of supply capacities comes from North America, ton mile demand growth is likely to exceed the nominal growth in volume. At the same time, there's at least 17 new import projects being considered by various Western European countries to increase import capacity.

Slide 19 displays the LNG carrier order book and delivery schedule according to Poten. Presently, the order book contains 186 LNG carriers with over 80% adding secured multiyear employment.

As I mentioned, there's no unfixed vessels scheduled for delivery in 2022 and only 2 in 2023. Due to various factors, including increased demand for container ships and lack of available slots to yards, delivery time for the new building order today is approximately 3 years, making the earliest delivery around 2026.

Competition for bird slots of the yard as well as cost inflation has also pushed prices above $220 million, up more than 10% compared to last year. Despite the seemingly large number of vessels in the order book, we expect there will be sufficient global demand for LNG to absorb these vessels as they are delivered without depressing the rate and bottom.

Slide 20 provides a forecast based upon 2 different statical multiplier of LNG vessel supply and demand by quarter to the end of 2023. The demand forecast are partly based on the number of vessels needed to export 1 million tons of LNG per annum expressed as a shipping multiplier.

I should note that this analysis does not assume any vessel scrapping. The multiplier using the high vessel demand forecast is based on the historical U.S. multiplier. And the low one is based on the first quarter 2022 vessel demand multiplier, which was impacted by the increased cargo going to Europe and the resulting decrease in ton mile.

Although there will be a relatively strong growth in global energy shipping capacity, we anticipate that a growth of interbasin trading will more than offset the scheduled deliveries over the next couple of years, resulting in a tight LNG shipping market through 2022 and 2023.

Turning to Slide 22 and in summary. LNG is now recognized more than ever, not only as the stepping stone for energy transition, but also as a reliable and necessary source of energy security. Therefore, we expect a strong LNG demand to persist throughout the year and beyond as trade expand facilitated by a significant infrastructure growth.

Now in this dynamic environment, we're not only able to cover all or fixed obligation as we showed before, but also our spot exposure provides the opportunity to generate incremental cash flows in the expected tight shipping market ahead of us.

Finally, we continue to execute well on our strategy to build equity value to our shareholders and deleveraging our balance sheet, repurchasing our pref unit, and we are opportunistically positioning the Partnership to evaluate opportunities for fleet modernization in this dynamic market.

With that, thank you for your attention, and I'd like to open the call for questions.

(Operator Instructions) And from Webber Research, we have Chris Tsung.

I wanted to just start off on Slide 7 from the deck. Just wanted to make sure I'm understanding it correctly. If we're starting with the Q1 '22 adjusted EBITDA, I mean the contracted EBITDA for the next 3 quarters around, let's call it, $140 million. Then the gray bars after that eats up about $160 million, which gets us to a full year 2022 contracted adjusted EBITDA for roughly $40 million. Am I looking at that right?

Yes. Actually, what we are trying to say this actually -- sorry. What we are trying to say here, Chris, is that our contracted EBITDA is enough to cover all of our fixed obligations. And then on the other side of the slide, we saw what is the number of non-contracted spot vessels, spot days. So we are able to cover our fixed obligations, debt OpEx and all that, without conducted EBITDA. And there is a lot of upside opportunity simply by having open days of 861 days in the seasonally strong part of the year. And we also have 275 days that are linked to the spot market, although they are fixed, but they have a floating element where there is an opportunity of upside by a stronger seasonal market later in the year.

And on to Slide 11 where you talked about cost control. I read in the 20-F that there were management agreements with GasLog of -- was it $46,000 a day for management fees and commercial management fee at $3.65 per year per vessel. Is that the numbers that were full year '22 estimate, and it's lower than what it was before, is that right?

Yes. We have rationalized the vessel management agreements, we reviewed all. And practically what we did is to reduce the vessel management fee and then increase the administrative fee that covers the G&A, but now that the Partnership is the only listed entity, it covers more public costs alone. So we have a decrease on the vessel management cost and an increase on the administrative costs. We also did a change on the commercial management fees obtained from a fixed fee to a commission. You will see it also in the 20-F.

Okay. And just one last final question. Just looking at your fleet list and vessels on charter, nearly half of them were charter to Shell, who has said that it intends to phase out Russian LNG purchases and also exit Sakhalin-2. Just wanted to know if that or if any of the vessels on time charter now or in the near term have they been impacted by the conflict that's currently going on in Ukraine and Russia?

Yes. It's Paolo here. No, we can answer positively, meaning we've had no exposure neither directly nor directly to Russian cargoes and hardly any exposure on the situation in Ukraine apart from, as we mentioned, the fact that we are supporting our seafarers who are exposed to it from a family point of view. But from a commercial point of view, we have no contract that brings us into Russia or impose us to call on Russia. So we have no exposure on this one.

And maybe if I could squeeze one last one in, just on your capital allocation. What happens when you reach your leverage targets on Slide 13? Could we see possibly an increase to your distribution?

Yes. Well, thanks for the call. And I think it's probably one of the I hate questions. And we look at it like this, the point is not just when we -- as you correctly mentioned, not when we achieve it, because that's a developing target. But when -- what does achieving this target do to the business. And as we mentioned, the target we have, we believe are the right one, because they sustain GasLog Partners through the cycle, because the shipping industry is still a very cyclical business. We can be more competitive and profitable every year and eventually we can have a very strong balance sheets at the end of all these targets being achieved.

And then our priorities are remaining these ones on the fact that eventually we'll have to look at opportunities as they come up in the market. And as we also look at the rejuvenating our fleets. But all in all, the first commitment is to deliver it, as we call it, equity value to our shareholders and we believe the combination of these targets is the best way to sort of visualize it for everyone.

From Jefferies, we have Chadd Tribo.

So you guys recently signed 2 new charters for the Sydney and Santiago for roughly a year each. So looking at the 6 vessels coming open in '22 is still remaining. Would you look to continue to look those on shorter-term charters or maybe look at some longer-term options?

It's Paolo. I think we're really looking at a combination. As you see now, the term market is relatively high. I mean, definitely higher than we've seen in the past years and surely in the past quarter 2021. The GasLog Sydney has been a testimonial of the fact that, if the opportunity arises then we are there to take it. And I think these opportunities will come to us even more frequently as we move into -- toward summer time and eventually quarter 3 -- quarter 2 and quarter 3 of this year. So I think the tactic is to evaluate, what is the best for the opportunity we have at hand and be open to take term business or spot business as it comes available. Given today's trends definitely term business is the most interesting of the 2.

And then maybe just a quick modeling question. Can you maybe quantify the expected annual savings from repurchasing the $10 million of preference in the first quarter?

Yes. We are taking this slide actually. Listen, on average we are paying half, let's call it, coupon. So for every $10 million it is slightly less than $1 million. Up to now, we have bought back $28 million. So this gives a $2.4 million annualized saving, which if you divide the $2.4 million with the number of common units that we have, it is $0.05 per unit.

From Citigroup, we have Chris Wetherbee.

It's Eli Winski on for Chris Wetherbee. Maybe we can just start a little bit broadly and you can walk me through the Russia-Ukraine impact. So how does it impact the day-to-day operations during the first quarter and how does it restrict the movement of LNG cargoes for you guys?

Hi, it's Paolo. The impact we have on the quarter one is really all due to the COVID-19 pandemic persisting and the Omicron behind, which has hit us for additional costs as Achilleas has already explained. So we haven't seen and then the Partnership has not, let's say, being exposed to any kind of impact, direct impact for the situation developing in Ukraine and for the sanctions and let's say, additional restrictions coming up in the market because of the Russian dynamics. So I think that's maybe part of the answer.

On the second part, from the LNG point of view. I mean I think we all see, as we mentioned, what's happening, energy security is now sort of top of mind together with LNG transition and LNG infrastructure are being looked at and deployed in Europe at an unprecedented rate. As you know, there is more than 90 million tons, which are being delivered every year of Russian pipeline gas, and the European Union has made important targets to achieve substantial reductions already at the end of 2022. And that only comes in by providing infrastructure developments, especially from FSRU on one side, and therefore importing a significant amount of LNG to this infrastructure.

I think one point on this is, last year, we closed up with an overhang of FSRU in the market, which was approximately 8 vessels. These vessels are now virtually all committed to being deployed in Europe. And keep in mind that, every one of these vessel not only will leave the LNG charter market, but will also need for a vessel that has a 5 million ton per year capacity approximately 5 vessels each. So I mean these are not fixed numbers, but I think it gives you the idea of what is the additional shipping capacity that we'll need to come if you only look at Europe alone.

And I heard you guys mention this, but maybe we can just -- I can get some more clarity from you in terms of securing capacity for the winter this year. What has been the strategies to make sure that you guys can do that?

Sorry, I lost you. Securing capacity for?

The winter of this year.

Okay. Well, as we mentioned, I mean if you see on the appendix, the amount of vessels or the vessels that we have open are actually coming open mostly on quarter 3 and quarter 4 this year. The vessel that we had open on early this -- well, that we had open around at that time was the Sydney and we fixed that already. The other vessels that are coming open, we have already entertaining inquiries and we see that there is an increasing plan of asking term business from quarter 3 and quarter 2 onwards.

So we believe that the market will definitely sustain healthy rate, whether on the spot, which is due to come up as we approach the seasonally strong months of fall and winter as well as term charter, because there's also a scarcity of independent ships available in the market and the amount of relapse will soon clean us as charterers and traders will eventually position themselves for winter.

From Stifel, we have Ben Nolan.

This is Frank Galanti on for Ben. I wanted to ask kind of a more market question on vessel speeds. So given the really high price of fuel, where does the market stand from a vessel speed perspective and is that sort of split between the more efficient and the older steam vessels?

I think what we can give you is the view from our deck. And the view from our deck is that the vessel speeds has maintained until now generally at the level that we've seen before. So our vessels are typically sailing at around between 14.3 and 14.8 not that was the consolidated figures that we also reported in our ESG record, so that's another source where you can find this information. That is not an even picture, however, typically older vessels are speeding up in the winter time and slowing down in the, let's say, quarter 2 and maybe quarter 3 months. We haven't seen any developments on this part. I think what we see is that charterers are instructing us to burn fuel oil or diesel oil when they need to move rather than burning heal. And I think it makes sense, because they are trying to utilize the molecules as much as they can for the saving rather for the fuel.

And then I guess more to the Partnership specifically, and this is sort of a 2-parter. But towards the end of the presentation, you mentioned fleet modernization. I just kind of wanted to get more color on what that sort of looked like. And then secondly, is there anything that you can do to improve steam vessels performance in order to better compete with newer equipment?

Okay. Yes. So fleet modernization is, I think, it's a topic that eventually is in the outlook for the Partnership. We believe that our steam vessels are above, let's say, our steam vessels are among the most modern and the largest of the steam vessels around there. And to remind you, the steam vessels are still accounted for 1/3 of the overall fleet. However, there's no hiding, these vessels are not as efficient in the overall trade as the modern 2-stroke engines, but there are terminals and place where these vessels makes sense are still very competitive. So I think from that point of view, eventually we'll be looking at the best way to deploy the steam vessels and eventually the modernization will start from, if not, accretive acquisitions, maybe sort of a changeover from the steam vessels to more modern tonnage. And that's something that I think it makes sense in the outlook for the Partnership.

And with regards of the efficiency, as I mentioned, our 145 steam vessels are on the largest we have, and they're relatively young. So we believe that they are a good alternative to compete, especially in ad hoc trades with the other vessels on par. So our vessels are very well maintained. You can see the emission statements also in the ESG part. There's also, I think, an interesting overall debt story, and I'll leave it to Achilleas to mention on this one. It's not specifically operational, but I think it's interesting.

It is interesting. It is thank you, Paolo. Because we have lower debt balances on these teams. And this means that they have lower breakeven levels and our strategy to reduce our balance sheet fast actually makes them even more competitive. So all this make these things operating with lower breakeven in a much more competitive LNG shipping market that we project the years ahead. So I think it works. I think Paolo that was another element on if we cannot make upgrades.

Can you hear us, Frank?

Yes, yes. I didn't know you had ended. I doubt it might have been cut out.

We will now turn it back to our speakers for closing comments.

Okay. Thank you. Thank you, everyone, for today. Thank you for the questions and for listening and for your continued interest in the Partnership. We really appreciate it. We look forward to speaking to you in the next quarter. And really, really looking forward to seeing you all in-person soon. In the meantime, stay safe and if you have any questions, please contact our Investor relationship teams and Rob. Thank you all and have a great day today. Bye.

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