GasLog Partners Expects LNG Freight Rates to Increase
GasLog Partners LP, an international owner and operator of liquefied natural gas (“LNG”) carriers, reported its financial results for the three-month period ended March 31, 2019.
·Announced and, post quarter-end, completed the acquisition of the GasLog Glasgow from GasLog Ltd. (“GasLog”) for $214.0 million, with attached multi-year charter to a subsidiary of Royal Dutch Shell plc (“Shell”).
·Entered into a new five-year amortizing revolving credit facility on February 20, 2019 (the “2019 Partnership Facility”), which successfully refinanced $354.4 million of current debt, due in November 2019, and delivered $90.0 million of incremental liquidity.
·Authorized a unit repurchase programme of up to $25.0 million of the Partnership’s common units.
·Drop-down pipeline increased to 13 vessels following successful chartering by GasLog of the GasLog Warsaw and Hull No. 2274 to subsidiaries of Endesa S.A. (“Endesa”) and JERA Co., Inc. (“JERA”), respectively.
·Post quarter-end, announced the appointment of Paolo Enoizi as Chief Operating Officer (“COO”) Designate with effect from August, 2019.
·Quarterly IFRS (as defined below) and Partnership Performance Results(2) for Revenues, Profit, Adjusted Profit(1) and EBITDA(1) of $86.3 million, $20.4 million, $27.0 million and $62.9 million, respectively.
·Cash distribution of $0.55 per common unit for the first quarter of 2019, unchanged from the fourth quarter of 2018 and 3.8% higher than the first quarter of 2018.
·Distribution coverage ratio(3) of 1.03x.
(1) Adjusted Profit and EBITDA are non-GAAP financial measures and should not be used in isolation or as a substitute for GasLog Partners’ 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 III at the end of this press release.
(2) Partnership Performance Results represent the results attributable to GasLog Partners which are non-GAAP financial measures and should not be used in isolation or as a substitute for GasLog Partners’ financial results presented in accordance with 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.
(3) Distribution coverage ratio represents the ratio of Distributable cash flow to the cash distribution declared. For the definition and reconciliation of Distributable cash flow to the most directly comparable financial measure calculated and presented in accordance with IFRS, please refer to Exhibit III at the end of this press release.
Mr. Andrew Orekar, Chief Executive Officer, commented: “In the first quarter, GasLog Partners continued to execute our strategy, announcing the accretive acquisition of the GasLog Glasgow and expanding our fleet to 15 LNG carriers. This transaction is the Partnership’s third completed drop-down in the last 12 months, and significantly increases our contracted Revenues, EBITDA, Distributable cash flow and contracted days to 91% in 2019 and 74% in 2020. As previously communicated, no new common equity was issued to fund this acquisition.
During the quarter, we refinanced in full our 2019 debt maturity with a new loan agreement at a reduced margin above the London Interbank Offered Rate (“LIBOR”) compared to the previous facility. The refinancing provides $90.0 million of incremental liquidity for the Partnership with an improved covenant package. Following the transaction, the Partnership’s next debt maturity is not until 2021.
Looking ahead, GasLog’s recent commercial successes, including new, multi-year charters with Endesa and JERA, have increased our drop-down pipeline to 13 vessels. Despite seasonal weakness in spot LNG shipping markets due to warmer than normal winter temperatures combined with high inventory levels, we expect the spot market to strengthen as we move through 2019, supported by the expected increase in new LNG supply over the balance of the year, especially from U.S. projects. With the GasLog Glasgow acquisition now closed, we are reiterating our year-on-year distribution growth guidance of 2% to 4% in 2019. Our guidance reflects the positive outlook for the LNG shipping market and our recently completed accretive acquisitions, while also considering our two scheduled dry-dockings and one vessel coming off charter in late 2019.
In addition, while we expect distributions to continue serving as our primary means of returning capital to unitholders, in the first quarter GasLog Partners authorized a unit buyback programme of up to $25.0 million, and we expect to opportunistically repurchase common units as market conditions warrant.”
Acquisition of the GasLog Glasgow
On March 13, 2019, we entered into an agreement with GasLog to acquire 100% of the shares in the entity that owns and charters to Shell the GasLog Glasgow, a 174,000 cubic meter (“cbm”) tri-fuel diesel electric (“TFDE”) LNG carrier built in 2016 and operated by GasLog since delivery. The vessel is currently on a multi-year time charter with Shell through June 2026 and Shell has an option to extend the charter for a period of five years.
The aggregate purchase price for the acquisition was $214.0 million, which included $1.0 million for positive net working capital balances transferred with the vessel. GasLog Partners financed the acquisition with cash on hand, including proceeds from the 8.500% Series C Cumulative Redeemable Perpetual Fixed to Floating Rate Preference Units (the “Series C Preference Units”) public offering in November 2018, and the assumption of the GasLog Glasgow’s outstanding indebtedness of $134.1 million. The acquisition closed on April 1, 2019.
On February 20, 2019, GasLog Partners entered into a credit agreement with Credit Suisse AG, Nordea Bank Abp, filial i Norge and Iyo Bank, Ltd., Singapore Branch, each an original lender and Nordea acting as security agent and trustee for and on behalf of the other finance parties mentioned above, of up to $450.0 million, in order to refinance the existing indebtedness due in November 2019 on five of its vessels. Subsequently, on the same date, the Development Bank of Japan, Inc. entered the facility as lender via transfer certificate. The agreement provides for an amortizing revolving credit facility which can be repaid and redrawn at any time for a period of five years. The total available facility amount will be reduced on a quarterly basis, with a final balloon amount payable concurrently with the last quarterly installment, if any, in February 2024. The vessels covered by the 2019 Partnership Facility are the GasLog Shanghai, the GasLog Santiago, the GasLog Sydney, the Methane Rita Andrea and the Methane Jane Elizabeth. Interest on the 2019 Partnership Facility is payable at a rate of LIBOR plus 2.0%-2.2%, which represents a reduced margin above LIBOR compared to the previous facility.
On March 6, 2019, the Partnership drew down $360.0 million under the 2019 Partnership Facility, out of which $354.4 million was used to refinance the outstanding debt of GAS-three Ltd., GAS-four Ltd., GAS-five Ltd., GAS-sixteen Ltd. and GAS-seventeen Ltd, the respective entities owning the GasLog Shanghai, the GasLog Santiago, the GasLog Sydney, the Methane Rita Andrea and the Methane Jane Elizabeth.
Unit Repurchase Programme
On January 29, 2019, the board of directors of GasLog Partners authorized a unit repurchase programme of up to $25.0 million covering the period from January 31, 2019 to December 31, 2021. Under the terms of the repurchase programme, we may repurchase common units from time to time, at our discretion, on the open market or in privately negotiated transactions. Any repurchases are subject to market conditions, applicable legal requirements and other considerations. We are not obligated under the repurchase programme to repurchase any specific dollar amount or number of common units, and the repurchase programme may be modified, suspended or discontinued at any time or never utilized. As of April 25, 2019, GasLog Partners has not purchased any common units.
Appointment of COO Designate
On April 23, 2019, GasLog and GasLog Partners announced that Paolo Enoizi has been appointed as COO Designate with effect from August 2019. Mr Enoizi was most recently Managing Director of Stolt Tankers BV Rotterdam, a subsidiary of Stolt Nielsen Limited (“Stolt Nielsen”), where he was responsible for the operation of over 100 chemical tankers, 200 people ashore and over 4,000 seafarers. His previous roles also included Director of Technical & Innovation and General Manager of Newbuilding & Technical. At Stolt Nielsen, he led major business transformations, integration of company acquisitions and operational improvement initiatives in areas such as process optimization, cost reductions, digitalization and business intelligence. Mr Enoizi will be based in Piraeus, Greece and will initially work alongside our current COO Richard Sadler to ensure a smooth transition of responsibilities.
ATM Common Equity Offering Programme (“ATM Programme”)
On May 16, 2017, GasLog Partners commenced an ATM Programme under which the Partnership may, from time to time, raise equity through the issuance and sale of new common units having an aggregate offering price of up to $100.0 million in accordance with the terms of an equity distribution agreement entered into on the same date. Citigroup Global Markets Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Credit Suisse Securities (USA) LLC and Morgan Stanley & Co. LLC agreed to act as sales agents. On November 3, 2017, the size of the ATM Programme was increased to $144.0 million and UBS Securities LLC was included as a sales agent. On February 26, 2019, the size of the ATM Programme was further increased from $144.0 million to $250.0 million.
No issuances of common units were made under the ATM Programme in the first quarter of 2019. Since the commencement of the ATM Programme through March 31, 2019, GasLog Partners has issued and received payment for a total of 5,291,304 common units, with cumulative gross proceeds of $123.4 million at a weighted average price of $23.33 per unit and net proceeds of $121.2 million. In connection with the issuance of common units under the ATM Programme during this period, the Partnership also issued 107,987 general partner units to its general partner. The net proceeds from the issuance of the general partner units were $2.5 million.
There were 1,254 operating days for the quarter ended March 31, 2019 as compared to 1,220 operating days for the quarter ended December 31, 2018 and 1,258 operating days for the quarter ended March 31, 2018.
The decrease in profit in the first quarter of 2019 as compared to the same period in 2018 is mainly attributable to a $12.0 million decrease in gain from the mark-to-market valuation of derivatives and a $5.5 million decrease in revenues due to the expirations of the initial time charters of the GasLog Shanghai, the GasLog Santiago and the GasLog Sydney in May, June and September 2018, respectively. Following the expirations of their initial charters, the GasLog Shanghai has been trading in the spot market, the GasLog Santiago began a new multi‑year charter in August 2018 and the GasLog Sydney began a new 18‑month charter in December 2018. As a result, the average daily hire rate decreased from $72,954 for the three-month period ended March 31, 2018 to $68,840 for the three-month period ended March 31, 2019.
The decrease in profit in the first quarter of 2019 as compared to the fourth quarter of 2018 is mainly attributable to the reduced profits from operations and a write-off of unamortized loan fees of $1.0 million due to the refinancing of existing debt maturities by entering into the 2019 Partnership Facility, partially offset by a decrease of $4.8 million in mark-to-market loss on derivatives.
Following the implementation of IFRS 16 Leases on January 1, 2019, the Partnership’s leases on vessels’ equipment are recognized as a right-of-use asset and a corresponding liability on the date when the leased assets are available for use by the Partnership. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease period to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis. Historically, the respective expenses were included in Vessel operating costs ($0.2 million and $0.1 million for the three months ended March 31, 2018 and December 31, 2018, respectively).
LNG Market Update and Outlook
Despite LNG demand in the first quarter of 2019 being negatively impacted by warmer than usual weather in the Northern Hemisphere winter, global LNG imports during the period totalled 88 million tonnes (“mt”), compared to 79 mt in the first quarter of 2018, or 11% growth, according to Poten. In particular, China’s LNG imports totalled 15.3 mt, 24% growth over Q1 2018. Europe’s LNG imports in the first quarter more than doubled to 22 mt, compared to 10 mt in Q1 2018, as lower LNG prices made gas fired power generation more competitive than coal, indigenous gas production declined and LNG gained market share from pipeline imports. This more than offset import declines from major North East Asian consumers in Japan, South Korea and Taiwan (10%, 22% and 6% declines year-on-year, respectively), demonstrating the increasingly diverse and broad-based nature of LNG demand growth.
The longer-term outlook for natural gas demand continued to strengthen in the first quarter of 2019. Natural gas is increasingly seen as complementary to renewable energy in the transition away from fuels which emit high levels of carbon dioxide and other harmful emissions. LNG is expected to be the fastest growing hydrocarbon supply source. In its recent LNG Outlook 2019, Shell, one of the largest players in the global LNG market, forecasts that natural gas would satisfy 41% of global energy demand growth over the 2018-2035 period, with renewables satisfying 30%. Over this period, Shell forecasts that LNG will be the fastest growing gas supply source, with demand potentially reaching approximately 700 mt in 2035, compared to delivered volumes of 319 mt in 2018.
According to Wood Mackenzie, global LNG supply totalled 88 mt in the first quarter of 2019, 10% growth on the first quarter of 2018, principally driven by new supply additions in the U.S., Australia and Russia. For 2019, as a whole, supply is estimated by Wood Mackenzie to be 365 mt, or 38 mt (12%) higher than 2018, driven by the continued ramp-up of 2018 supply additions and new project start-ups in the U.S. (Cameron, Freeport, Elba Island and Corpus Christi Train 2) and Australia (Prelude). After a brief lull following the elevated levels of new offtake agreements seen in the second half of 2018, activity has recently picked up again with nine new long-term supply agreements agreed or signed for over 10 mt per annum (“mtpa”), according to Wood Mackenzie. Similarly, the approval process for major new liquefaction projects continues to build momentum, with Wood Mackenzie estimating that, in addition to the Golden Pass project which reached Final Investment Decision (“FID”) in February 2019, 50 mtpa of new capacity should be sanctioned in 2019, encompassing Arctic LNG-2 (Russia), Mozambique Area 1, Calcasieu Pass, Sabine Pass Train 6 (both U.S.) and Woodfibre LNG (Canada). A further 90 mtpa of capacity could also reach FID in 2019 or 2020, including the Qatar Megatrain expansion, Driftwood LNG and Freeport Train 4 (both U.S.), Rovuma LNG (Mozambique), Costa Azul (Mexico) and the expansion of the PNG LNG facilities in Papua New Guinea.
In contrast to these positive longer-term trends, the first quarter saw relatively weak LNG commodity and shipping markets. A combination of high inventory levels in key North East Asian gas markets ahead of the 2018-2019 winter and relatively mild temperatures during the winter period have led to reduced gas consumption and Asian LNG prices reaching their lowest levels since April 2016. Low LNG prices, particularly in North Asia, have reduced the incentive in recent months to ship LNG cargoes from the Atlantic Basin to the Pacific Basin, reducing tonne miles – a key driver of demand for LNG spot shipping. Furthermore, front-end weighting of 2019 LNG carrier newbuilding deliveries and unscheduled downtime at facilities in Australia and Malaysia all added to prompt shipping availability. Poten estimates that the number of monthly LNG cargo imports declined by 19% between December 2018 and February 2019, compared to an 11% decline between December 2017 and February 2018. There were 57 spot fixtures in the first quarter of 2019, a 19% decrease on the 70 spot fixtures in the same period in 2018. Independent shipowners accounted for 47% of spot fixtures in the first quarter, down from 51% in the same period in 2018, while the average duration of a spot fixture in the first quarter was broadly unchanged year-on-year at 28 days (29 days in the first quarter of 2018).
As a result of these trends in the first quarter, there was ample prompt vessel availability against a backdrop of weaker than expected demand due to warmer than normal winter temperatures. This in turn impacted headline spot LNG shipping rates, fleet utilization, positioning fees and ballast bonuses leading to a marked decline in spot vessel earnings in the first quarter of 2019 relative to the fourth quarter of 2018. TFDE headline rates, as reported by Clarksons, averaged $60,000 per day in the first quarter of 2019, compared to $68,000 per day in the first quarter of 2018 and $150,000 per day in the fourth quarter of 2018. Headline TFDE spot rates are currently assessed at $34,000 per day, with rates having stabilized in recent weeks as charterers look to capitalize on the recent fall in rates to lock in shipping capacity for the remainder of 2019 and into 2020. We expect that prompt vessel availability will decline throughout 2019 and 2020 given the significant forecasted LNG supply additions outlined above. As a result, we expect spot shipping rates to rise from current levels, with the magnitude and duration of that recovery dependent on several factors, particularly the pace and location of demand growth and cooling and heating demand during the Northern Hemisphere summer and winter respectively.
According to Poten, as of April 17, 2019, the LNG fleet and orderbook (excluding floating storage and regasification units (“FSRUs”) and vessels with capacity below 100,000 cbm) stood at 491 and 110 vessels respectively. Of the LNG carriers in the orderbook, 67, or 61%, are chartered on long-term contracts. 14 vessels were ordered in the first quarter of 2019, compared to 17 and 20 vessels in the first quarter of 2018 and the fourth quarter of 2018, respectively. These figures provide early indications that newbuild ordering may be slowing somewhat compared to newbuild ordering in 2018. This is a positive development which we believe is necessary to avoid an overbuilt market in 2021 and 2022, a period when LNG supply additions are forecast to slow before increasing again in 2023 and 2024.Full Report
Source: GasLog Partners LP