Home / Shipping News / Hellenic Shipping News / GasLog Ltd. Warns That The combined Impact of COVID-19 and Normal Seasonality May Lead To Greater Volatility In Spot Rates And To Lower Utilization Of LNG Vessels

GasLog Ltd. Warns That The combined Impact of COVID-19 and Normal Seasonality May Lead To Greater Volatility In Spot Rates And To Lower Utilization Of LNG Vessels

GasLog Ltd. and its subsidiaries, an international owner, operator and manager of liquefied natural gas (“LNG”) carriers, yesterday reported its financial results for the quarter ended March 31, 2020.

Highlights

• Dedicated COVID-19 task force established to manage the impact of COVID-19 on all aspects of our business and operations and to review and update our business continuity plan as required, including strict guidelines regarding access to all vessels and a company-wide “work from home” policy.
• Delivery of the GasLog Windsor on April 1, 2020, a 180,000 cubic meters (“cbm”) LNG carrier with dual fuel medium speed propulsion (“X-DF”) and commencement of its seven-year time charter agreement with a wholly owned subsidiary of Centrica plc. (“Centrica”).
• Announcement by Gastrade S.A. (“Gastrade”) of the successful conclusion of the binding phase of the market test for reservation of capacity at the floating LNG terminal being developed in Alexandroupolis. This reservation of up to 2.6 billion cubic meters (“cbm”) of capacity for periods out to 15 years represents a key milestone for the project.
• Repurchase and cancellation of NOK 434,000 of the outstanding senior unsecured bonds due in May 2021 (the “NOK 2021 Bonds”).
• Scheduled delivery for May 11, 2020, of the GasLog Wales, a 180,000 cbm LNG carrier with X-DF propulsion and commencement of its 12-year time charter agreement with the principal LNG shipping entity of Japan’s Jera Co., Inc. (“JERA”).
• Contracted time charter revenues of approximately $430.0 million for the remainder of 2020, representing 77.0% charter coverage.
• Quarterly Revenues of $165.9 million, Loss of ($39.4) million and Loss per share of ($0.67)(1) for the quarter ended March 31, 2020.
• Quarterly Adjusted EBITDA(2) of $114.0 million, Adjusted Profit(2) of $26.8 million and Adjusted Earnings per share(2) of $0.15(1) for the quarter ended March 31, 2020.
• Reduced quarterly dividend of $0.05 per common share payable on May 28, 2020.

(1) Earnings/(loss) per share (“EPS”) and Adjusted EPS are net of the profit attributable to the non-controlling interests of $12.0 million and the dividend on preferred stock of $2.5 million for the quarter ended March 31, 2020 ($16.8 million and $2.5 million, respectively, for the quarter ended March 31, 2019).

(2) Adjusted EBITDA, Adjusted Profit and Adjusted EPS are non-GAAP financial measures and should not be used in isolation or as a substitute for GasLog’s financial results presented in accordance with International Financial Reporting Standards (“IFRS”). For the definitions and reconciliations of these measures to the most directly comparable financial measures calculated and presented in accordance with IFRS, please refer to Exhibit II at the end of this press release.

CEO Statement

Paul Wogan, Chief Executive Officer, stated: “GasLog’s business model and strategy demonstrated its resilience in the first quarter of 2020, despite the challenges imposed by the COVID-19 outbreak. Our proactive approach to mitigating the impact of the outbreak on our seafarers and onshore staff allowed the Company to deliver uninterrupted service for our customers with fleet availability of close to 100%. I have been deeply impressed with the dedication and hard work of our employees, and I am especially grateful to our seafarers for their commitment and professionalism while apart from their loved ones.

In light of the uncertainties created by the current environment, we have taken actions to improve our liquidity, including drawing on our existing revolving capacity of $100.0 million as well as reducing our dividend for the first quarter of 2020 to $0.05 per share. We continue to expect to realise approximately $6.0 million of general and administrative cost reductions in 2021, resulting from the personnel relocations and headcount reductions announced earlier this year. We also anticipate finding additional ways to reduce meaningfully our operating and overhead expenses.

Although the COVID-19 outbreak creates an uncertain outlook for near term economic activity and LNG demand, underlying demand for LNG has held up well in 2020 to date and I have been pleased with the utilisation we have achieved with our vessels operating in the spot market. We have also had several positive commercial and operational developments in recent weeks, including the delivery of the GasLog Windsor which delivered last month on time and on budget. The vessel is chartered for seven years to Centrica, providing added visibility for our future revenues and cash flows. In addition, the Alexandroupolis Floating Storage and Regasification Unit (“FSRU”) project in northern Greece successfully completed its second and binding market test, an important milestone toward the sanctioning of the project.”

COVID-19 Update

Source(s): ABS, GasLog

Operational update

GasLog’s main focus is on securing the health and safety of our employees and ensuring safe and reliable operations for our customers. To date, there have been no confirmed cases of COVID-19 infection amongst sea-going or shore-based personnel. During 2020 to date, extensive measures have been taken to limit the impact of COVID-19 on GasLog’s business. These include:

A dedicated task force established to manage the impact of COVID-19 on all aspects of our business and operations and to review and amend our business continuity plan as required;
A company-wide “work from home” policy instituted for all onshore employees; and
Strict guidelines imposed, restricting access to all vessels and suspending shore leave and crew changes from mid-March 2020.
As a result of these measures and the dedication of our employees onshore and aboard our vessels, approximately 100% of our fleet continues to be available for commercial use. These measures have also allowed GasLog to opportunistically bring forward the scheduled dry-dockings of three vessels such that their dry-dockings were completed entirely during the slowdown of LNG trade in February and March 2020.

Commercial update

Given the continuing impact of COVID-19 on economic activity and energy demand, there is uncertainty regarding future LNG demand and, consequently, near-term LNG shipping requirements.

To date, we have not experienced any disruption to the charter parties, including contracted revenues, for our term- or spot-chartered vessels, as a result of COVID-19;
Our vessels operating in the spot and short-term market are currently chartered through to at least June 2020; and
The combined impact of COVID-19 and normal seasonality may lead to greater volatility in spot rates and to lower utilization of vessels trading in the spot and short-term markets.

Financial update

COVID-19 has had a significant impact on the global capital and bank credit markets, including access to and cost of liquidity.

The recent fall in interest rates and the Norwegian Krone/U.S. Dollar exchange rate as a result of central bank measures to support economies affected by the COVID-19 pandemic and the significant fall in oil prices, respectively, have resulted in an increase in the mark-to-market derivative liabilities with respect to our derivative instruments and a significant increase in cash collateral posted with our swaps counterparties which amounted to $81.2 million as of March 31, 2020; and
There have been no other material impacts to date of the COVID-19 pandemic on our financial position and we are continuing the process of refinancing our bank loans maturing in April and July 2021. We are also in discussion with our swaps counterparties in order to identify and execute measures to reduce cash collateral posted under the existing interest rate and cross-currency swaps.
LNG Market Update and Outlook

LNG demand faced several headwinds in the first quarter of 2020 including a warmer than average winter in the northern hemisphere, high inventory levels of natural gas and LNG in several of the largest end markets for LNG and the outbreak of COVID-19, the impact of which has had an uneven distribution around the world during the year to date. For example, Chinese demand was 15 million tonnes (“mt”) in the first quarter of 2020, a decrease of 5% over the first quarter of 2019, according to Poten, but apparent demand in April has increased year-on-year based on vessel tracking data, including several cargoes exported from the U.S.. Meanwhile, demand from Northern Asia more broadly (Japan, China, South Korea and Taiwan) grew by approximately 1 mt in the first quarter or 3% year-over-year. In addition, demand from India grew by nearly 2 mt in the first quarter of 2020 (or 37%) as the country looked to take advantage of historically low gas prices, although apparent demand in April is likely to be lower year-on-year based on vessel tracking data. Finally, demand from Europe grew by over 4 mt (or 37%) as gas pricing favored coal-to-gas switching for power generation and LNG replaces indigenous gas production. In total, LNG demand was 98 mt in the first quarter of 2020, compared to 89 mt in the first quarter of 2019, or an increase of 10%.

Wood Mackenzie currently expects global LNG demand to grow 21 mt or 6% this year, slower than the 26 mt or 7% it anticipated earlier this year prior to the global outbreak of COVID-19. Nonetheless, the demand for LNG over the near-term continues to be uncertain as many LNG importing countries either continue to have in effect shelter-in-place orders which prevent the operation of businesses deemed to be “non-essential” or are in the early stages of reopening their economies. Consequently, measures of global economic activity have declined significantly from comparable periods in 2019. However, the longer-term outlook for LNG demand remains favorable with demand growth of 92 mt estimated over the 2019-2025 timeframe, or compound annual growth of approximately 4%, according to Wood Mackenzie.

Global LNG supply was approximately 98 mt in the first quarter of 2020, an increase of 10 mt over the first quarter of 2019 (or 11%), primarily due to new supply additions in the U.S. (Cameron T1 and T2, Freeport T1, T2 and T3 and Elba Island), according to estimates from Wood Mackenzie. LNG supply is estimated to grow by 22 mt this year as the third train of Cameron begins operations and recent capacity additions continue to increase production. Further ahead, approximately 97 mt of new LNG capacity is expected to begin production during 2021-2025. However, Wood Mackenzie expects the pace of new project sanctions to slow significantly in 2020 due to the uncertainties caused by the COVID-19 outbreak in long-term demand for LNG and low global energy prices, in particular crude oil prices due to oversupply following a collapse in oil demand due to the COVID-19 virus.

In the LNG shipping spot market, tri-fuel diesel electric vessel (“TFDE”) headline rates, as reported by Clarksons, averaged $57,000 per day in the first quarter of 2020, a decrease from the averages of $108,000 in the fourth quarter of 2019 and $59,500 in the first quarter of 2019. Headline spot rates for steam turbine propulsion (“Steam”) vessels averaged $40,000 per day in the first quarter of 2020, a decrease from the average of $78,000 per day in the fourth quarter of 2019 but approximately in line with the $39,000 per day observed in the first quarter of 2019. Slower than expected LNG demand growth due in part to the impact of COVID-19 (as detailed above), high global inventories of natural gas and LNG following a warmer than average winter in the Northern Hemisphere and limited opportunities for LNG arbitrage trading between Atlantic and Pacific basins impacted headline spot rates in the first quarter of 2020.

Clarksons currently assesses headline spot rates for TFDE and Steam LNG carriers at $32,500 per day and $23,000 per day, respectively. The COVID-19 outbreak has introduced significant uncertainty regarding demand for LNG, and consequently, demand for LNG shipping over the near term. The combined impact of the COVID-19 outbreak and normal seasonality may lead to greater volatility in spot rates and to lower utilization of vessels trading in the spot and short-term markets, in particular Steam vessels. In addition, global gas prices and gas price differentials remain near historic lows in the key markets of North Asia and Europe, limiting the opportunities for inter-basin arbitrage trading and likely reducing average voyage distances as well as potentially reducing global output of LNG over the near-term, particularly in the U.S., where a number of cargo deferrals and/or cancellations have been reported for this summer.

As of May 5, 2020, the orderbook totals 118 dedicated LNG carriers (>100,000 cbm), according to estimates from Poten, representing 22% of the on-the-water fleet. Of these, 74 vessels (or 63%) have multi-year charters. The pace of newbuild ordering has slowed significantly relative to 2018-19, with only 4 newbuildings ordered so far in 2020 and all of them ordered against multi-year contracts, an encouraging development for the future supply and demand balance of LNG carriers.

Alexandroupolis Project Update
On 23 December 2019, the board of directors of the Public Gas Corporation in Greece (“DEPA”) approved the acquisition of a 20% stake in Gastrade, which was completed in early 2020. Through this participation, DEPA assumes an active role in the implementation of the project together with the existing shareholders.

On March 26, 2020, Gastrade announced the successful conclusion of the binding phase of the market test for reservation of capacity at the floating LNG terminal being developed at Alexandroupolis in northern Greece. This reservation of up to 2.6 billion cbm of capacity for periods out to 15 years represents a key milestone for the project.

Delivery of the GasLog Windsor
On April 1, 2020, GasLog took delivery of the GasLog Windsor, a 180,000 cbm LNG carrier with X-DF propulsion constructed by Samsung Heavy Industries Co., Ltd. (“Samsung”). Despite the industrial disruption in South Korea caused by the COVID-19 outbreak, the vessel was delivered on time and on budget. Upon delivery, the vessel immediately commenced its seven-year charter with Centrica.

Delivery of the GasLog Wales
On May 11, 2020, GasLog is scheduled to take delivery of the GasLog Wales, a 180,000 cbm LNG carrier with X-DF propulsion constructed by Samsung. Upon delivery, the vessel will immediately commence its 12-year charter with JERA.

Dividend Declaration

On March 12, 2020, the board of directors declared a dividend on the Series A Preference Shares of $0.546875 per share, or $2.5 million in the aggregate, payable on April 1, 2020 to holders of record as of March 31, 2020. GasLog paid the declared dividend to the transfer agent on April 1, 2020.

On May 6, 2020, the board of directors declared a quarterly cash dividend of $0.05 per common share, or $4.0 million in the aggregate, payable on May 28, 2020 to shareholders of record as of May 18, 2020.

Office Relocation Update

In November 2019, GasLog announced plans to relocate more of its employees including several members of senior management to Piraeus, Greece, home of our operational platform, in order to enhance execution, efficiency and operational excellence and to reduce overheads. These plans are being executed as scheduled and will be fully implemented in the second half of 2020, generating annualized general and administrative savings of $6.0 million with effect from 2021. For the quarter and the year ended December 31, 2019, the Group had recognized total restructuring costs of $4.7 million, the majority of which will be paid in 2020. In the three months ended March 31, 2020, additional restructuring costs of $0.4 million were recognized.

Chief Financial Officer (“CFO”) Transition

Alastair Maxwell, CFO of GasLog and GasLog Partners, has informed the Company that, as a result of the relocation of his role to Piraeus, Greece, he will be stepping down from his position on June 30, 2020. Achilleas Tasioulas, currently Deputy CFO, will assume the responsibilities of CFO of GasLog and GasLog Partners on July 1, 2020. Please see the separate press release of today’s date on this matter.

Financial Summary

There were 2,250 revenue operating days for the quarter ended March 31, 2020, as compared to 2,350 revenue operating days (including 540 days in the LNG carrier pooling agreement (the “Cool Pool”) for the quarter ended March 31, 2019. The decrease in revenue operating days was mainly driven by the increased unchartered days from the vessels operating in the spot market, including the vessels whose initial time charters have expired and the increased off-hire days for dry-dockings, partially offset by the increased operating days from the delivery of the GasLog Gladstone on March 15, 2019 and the delivery of the GasLog Warsaw on July 31, 2019.

Following the exit from the Cool Pool, management allocates vessel revenues to two categories: (a) variable rate charters (“VR Revenues”) and (b) fixed rate charters (“FR Revenues”). The variable rate charter category contains vessels operating in the LNG carrier spot and short-term market or those which have a variable rate of hire across the charter period. The vessels in this category during the first quarter of 2020 were the GasLog Savannah, the GasLog Singapore, the GasLog Shanghai, the GasLog Skagen, the GasLog Saratoga, the GasLog Salem, the GasLog Chelsea and the Methane Alison Victoria.

Revenues were $165.9 million for the quarter ended March 31, 2020 ($166.5 million for the quarter ended March 31, 2019). The decrease was mainly driven by the expiration of the initial time charters of the Gaslog Saratoga, the Methane Jane Elizabeth and the Methane Alison Victoria, increased off-hire days for scheduled dry-dockings and a further decrease in revenues from our vessels operating in the spot market in both periods. The above decreases were partially offset by the full operation of the GasLog Gladstone, delivered on March 15, 2019, the GasLog Warsaw, delivered on July 31, 2019, and the increased revenues from the remaining vessels in our fleet.

Contracted Charter Revenues

As of March 31, 2020, the total future firm contracted revenue stood at $3.8 billion(1), including the 15 vessels currently owned by GasLog Partners.

(1) Contracted revenue calculations assume: (a) 365 revenue days per annum, with 30 off-hire days when the ship undergoes scheduled dry-docking; (b) all LNG carriers on order are delivered on schedule; (c) no exercise of any option to extend the terms of charters; and (d) where charters are based on a variable rate of hire within an agreed range during the charter period, the lower end of the range.

Liquidity and Capital Resources

As of March 31, 2020, GasLog had $252.2 million of cash and cash equivalents, of which $150.4 million was restricted cash, in relation to the amount drawn for the delivery of the GasLog Windsor until her delivery from the shipyard on April 1, 2020, $52.6 million was held in time deposits and the remaining balance in current accounts. In addition, an amount of $81.2 million was held as cash collateral with respect to our derivative instruments and is included in Other non-current assets and Prepayments and other current assets.

On January 13, 2020, GasLog completed the partial exchange of $10.0 million of the outstanding 8.875% senior unsecured notes due 2022 (the “8.875% Senior Notes”) for new senior unsecured bonds due in 2024 (the “NOK 2024 Bonds”). On January 31, 2020, GasLog repurchased and cancelled NOK 434,000 of the outstanding senior unsecured bonds due May 2021 (the “NOK 2021 Bonds”) at a price of 104.0% of par value, resulting in a loss of $1.9 million.

On February 13, 2020, on March 13, 2020 and on March 18, 2020, GasLog drew down $23.3 million, $50.7 million and $26.0 million, respectively under the revolving credit facility of up to $1.1 billion entered into on July 19, 2016 (the “Legacy Facility Refinancing”). On March 26, 2020, GasLog drew $152.5 million under the facility signed on December 12, 2019 with an Export Credit Agency-backed debt financing of $1.1 billion with 13 international banks to provide the debt funding for its current newbuilding program (the “Newbuilding Facility”), to partially finance the delivery of the GasLog Windsor.

As of March 31, 2020, there was undrawn available capacity of $900.3 million under the Newbuilding Facility. In addition, there was unused availability of $2.0 million under the five-year amortizing revolving credit facility entered into by the Partnership on February 20, 2019 (the “2019 Partnership Facility”).

As of March 31, 2020, GasLog had an aggregate of $3.2 billion of indebtedness outstanding under its credit facilities and bond agreements, of which $214.7 million was repayable within one year, and $203.1 million of lease liabilities, of which $9.7 million was payable within one year.

As of March 31, 2020, the total remaining balance of the contract prices of the seven LNG carriers on order was $1,085.4 million (including the GasLog Windsor which was delivered on April 1, 2020), which GasLog expects to be funded with the Newbuilding Facility, cash balances and cash from operations.

As of March 31, 2020, GasLog’s current assets totaled $320.6 million, while current liabilities totaled $381.4 million, resulting in a negative working capital position of $60.8 million. Management monitors the Company’s liquidity position throughout the year to ensure that it has access to sufficient funds to meet its forecast cash requirements, including newbuilding and debt service commitments, and to monitor compliance with the financial covenants within its loan and bond facilities. Taking into account current and expected volatile market conditions, we anticipate that our primary sources of funds over the next twelve months will be available cash, cash from operations and bank borrowings under existing, refinanced or new debt facilities, as well as public equity or debt instruments subject to a significant recovery in capital market conditions. We are continuing the process of refinancing our bank loans maturing in April and July 2021 and we are in discussion with our swaps counterparties in order to identify and execute measures to reduce cash collateral posted under the existing interest rate and cross currency swaps. We believe that these anticipated sources of funds will be sufficient to meet our liquidity needs and to comply with our bank loan and bond covenants for at least twelve months from the end of the reporting period, although there can be no assurance that we will be able to obtain such debt or equity financing or release of collateral on terms acceptable to us.

GasLog has hedged 42.4% of its expected floating interest rate exposure on its outstanding debt (excluding the lease liability) as of March 31, 2020.
Full Report

Source: GasLog Ltd.

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