GasLog Partners LP (GLOP) Q2 2021 Earnings Call Transcript

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GasLog Partners LP (GLOP)
Q2 2021 Earnings Call
Jul 27, 2021, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, my name is Liz, and I will be your conference operator today. At this time, I would like to welcome everyone to the GasLog Partners Second Quarter 2021 Results Conference Call. [Operator Instructions]. On today's call are Paul Wogan, Chief Executive Officer; Paolo Enoizi, Chief Operating Officer; and Achilleas Tasioulas, Chief Financial Officer.

Joseph Nelson, Head of Investor Relations will begin your conference.

Joseph E. Nelson -- Head of Investor Relations

Good morning or good afternoon, and thank you for joining the GasLog Partners second quarter 2021 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 second 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.

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

With that, I will now turn it over to Paul Wogan, CEO of GasLog Partners.

Paul A. Wogan -- Chief Executive Officer and Director

Thank you, Joe, and good morning or good afternoon to all of you. So please turn to Slide 4 for GasLog Partners second quarter highlights. I'm pleased to report that the Partnership continue to make good operational and commercial progress in the quarter. The fleet performed at approximately 100% availability, despite the ongoing challenges of COVID and the resulting crew change issues. We took advantage of the seasonally slow second quarter to complete the dry docking of three vessels, which unfortunately encountered some delays due to the COVID-related issues at the dry-dock facilities.

In recent weeks, we signed four new multi-month charters with high quality customers solidifying our financial position. Last week, we released the Partnership sustainability report for 2020, detailing progress against our committed ambitions across environmental, social, and governance issues. And we retired another $19 million of debt during the quarter, bringing the total to $55 million during the first six months of the year.

Turning to Slide 5, which summarizes our recent chartering activity. The LNG shipping market has been counter-seasonally strong in recent weeks, especially for 6 to 12 month charters. We've taken advantage of the strength, and since mid-June we have announced four new multi-month time charters all with high quality counterparties and on attractive terms. Together the charters on this slide increased our charter coverage to 100% for 2021 and 69% for 2022, and represent a combined $17 million of fixed rate EBITDA. With the signing of these new charters, the Partnership's operating, overhead and debt service costs are now covered through at least 2022, further strengthening GasLog Partners financial foundations.

Turning to Slide 6. Potent registered record chartering activity in Q2 2021 with 99 spot and short-term fixtures reported. This continues a multi-year trend of rising market liquidity. Commodity trading houses, LNG portfolio players, and the merchant arms of large LNG producers were all active market participants. In addition, a record 45 charters greater than six months were fixed, including three by GasLog Partners. Headline spot rates have declined modestly in recent weeks, which is usual at this time of year, but the right-hand chart shows that they remain well above last year's levels. LNG shipping spot rates have benefited from sustained LNG demand and increasing prices in Europe and Asia, as both regions seek to meet summer cooling demand and refill depleted LNG inventories ahead of the winter.

LNG carrier spot rates have also benefited from persistent Panama Canal congestion, mainly due to growing containership an LNG carrier traffic. This has forced some LNG carriers loading in the U.S. to sail to Asia via the Cape of Good Hope, adding an additional eight days to each leg of the voyage thus adding to ton-mile demand. We expect the LNG carrier spot market this year to continue to outperform 2020, assuming continued global economic recovery. However, the recovery could still be affected by the rising level of COVID infections related to the delta strike. European gas storage levels are presently at 54% compared to a five-year average of 71% and 85% at this time last year. We expect restocking in Europe and Asia to continue to create high demand for U.S. LNG, which is positive for LNG shipping in the coming months.

Slide 7 highlights our operational leverage. The recent fixtures have increased our cash flow visibility as shown by the figure on the far left. However, the Partnership retains meaningful exposure to sustained strengthening in the LNG carrier spot market. Specifically each $10,000 per day increase in TCE above our operating and overhead expenses generates approximately $8 million of incremental EBITDA in 2022.

Slide 8 presents some of the highlights from our sustainability report for 2020. I'm pleased to report positive progress toward our ESG ambitions despite the challenges of COVID. The Partnership's fleet consumed LNG 93% of the time, helping to reduce NOx, SOx and CO2 emissions. Our fleet is commercially and technically managed by our general partner GasLog Limited, and the combined fleets achieved nearly 8 million man-hours without a lost-time injury last year, a testament to the dedication and skill of our seafarers. We also continue to operate with high standards of corporate governance and are consistently achieving the highest ranking of marine limited partnerships.

And with that, I'll hand over to Achilleas to take you through the Partnership's Q2 financials.

Achilleas Tasioulas -- Chief Financial Officer

Thank you, Paul. Turning to Slide 10, and the Partnership's financial results for the second quarter. As Paul mentioned earlier our financial performance in quarter two 2021 was affected by rescheduled dry-dockings, as well as increased spot exposure in our fleet compared to the same quarter last year from the expiration of certain initial long-term charters. More specifically, revenues for the second quarter were $70 million, a 17% decline from the second quarter of 2020. The revenue decline year-over-year is primarily due to the dry-docking of the GasLog Greece, GasLog Glasgow, and Methane Rita Andrea all three fleet who have completed within the second quarter where we face certain COVID-19 related delays.

Adjusted EBITDA was $45 million, while adjusted earnings was $0.10 per unit. Declines in adjusted EBITDA and adjusted earnings per unit were due to lower revenues and higher operating costs related to the three dry-dockings completed in the second quarter. Looking forward, the Partnership there is two vessels scheduled for dry-docking in the third quarter of 2021. In addition, as Paul discussed earlier, we recently initiated four new charters for our fleet on attractive terms and therefore expect our financial results to improve significantly during the third and fourth quarter of this year.

Turning to Slide 11 and to discussion of our operating, overhead and financing costs. Our operating expenses for the second quarter averaged $15,734 per vessel per day. Operating expenses include the impact of three dry-dockings of which $1,109 per vessel per day of related costs were expensed as incurred during the quarter. We also incurred additional expenses related to COVID-19 challenges, which increased the group costs. Our overhead expenses were $2,554 per vessel per day, a significant improvement over 2020.

As we look toward the full year, we expect our unit operating expenses to average for the year $14,850 per vessel per day. This number includes costs for the remaining dry-dockings as well as additional costs due to COVID-19-related factors. We expect our overhead expenses to average $2,600 per vessel per day. This guidance follows structural improvements in our overhead costs, which we have discussed on previous calls. Lastly, declines in LIBOR as well as lower debt levels have reduced the interest expense on the unhedged portion of our secured vessel debt by nearly $4 million in the second quarter of 2021 compared with the first quarter of 2020.

Slide 12 show that the Partnership's credit profile continues to be resilient with net debt to total capitalization at 48%. The Partnership ended the second quarter with $122 million of cash and time deposits, which includes approximately $10 million of cash raised through our at the market equity offering program earlier in the second quarter. With the Partnership's cash flow visibility and liquidity much improved following the four new charter agreements discussed earlier, we do not have any immediate plans to issue additional equity. It is important to note that GasLog Partners has now committed growth capex, but we will have two scheduled dry-dockings in the third quarter of 2021 as I previously mentioned.

We expect to continue strengthening our balance sheet, beginning with the scheduled retirement of approximately $110 million of debt in 2021 and at least an additional $110 million in 2022, which as Paul noted earlier, is more than current by our existing contracted revenues and cash flows over this period. Reducing debt balances will reduce the Partnership's cash flow breakeven levels over time, improving further the competitiveness of our fleet.

Turning to Slide 13 and the discussion of how our focus on debt repayment creates equity value for our unitholders. On this chart, we demonstrate how amortizing our debt with balance sheet capacity and equity value using the GasLog Glasgow, as an example. All the Partnership's debts is at the vessel level and this debt amortizes at roughly twice the rate how its depreciate.

As you can see from this slide, our loan to value ratio on the Glasgow declined by over 15% during the three-year period from the end of 2020 through the end of 2023. During the same period, our book equity for the vessel, net of depreciation is projected to increase by $20 million, which represents a 9% compound annual growth rate in equity value. As this compelling value creation demonstrates, we believe that prioritizing debt reduction support the Partnership's future growth and equity value.

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

Paul A. Wogan -- Chief Executive Officer and Director

Thank you, Achilleas. Slide 15 presents LNG demand and supply for Q2 2021. Poten reported LNG demand increased 11% in the second quarter of 2021 relative to Q2 2020, as shown by the left-hand figure. Asian demand was robust for much of the quarter due to a combination of cooling demand and restocking of inventories ahead of the winter. Demand from Latin America was also strong due to lower hydroelectric output increasing the demand for LNG fueled electricity generation. The 2021 Wood MacKenzie forecast LNG demand to grow by 5%.

On the supply side, U.S. production in Q2 rose 61% year-over-year to 18 million tonnes due to no shut-ins and the ramp up in production from the third trains at Freeport, Cameron and Corpus Christi LNG facilities. Strong Asian demand met by robust U.S. supply ton-mile demand grew by 15% in the second quarter underpinning the strong shipping market.

Slide 16 shows global gas price differentials. The futures market presently implies a steady and widening differential between U.S. export and Asian import prices through at least the 2021-2022 winter. Further out, the forward spread continues to be supportive through most of 2022 and 2023. This should help ensure high levels of liquefaction utilization underpinning shipping tonne miles.

Slide 17 illustrates our view of shipping supply and demand through 2022. Demand is partly based on the number of vessels needed to export 1 million tonnes of LNG per annum, expressed as the shipping multiplier. And this shipping multiplier is particularly strong for cargoes exported from the USA. This analysis does not assume any vessel scrapping although there are currently 28 vessels or about 5% of the global fleet over the age of 30 and 6 vessels have already been scrapped so far this year. As shown in the figure, we project a relatively tight LNG shipping market over at least the next several quarters.

Slide 18 displays the LNG carrier order book and delivery schedule according to Poten. Although we are encouraged by the high level of spot market activity and rate this year, the LNG carrier order book remains high with 26 vessels scheduled to enter the fleet through the remainder of 2021. 84% of the order book has secured multi-year employment and just five unfix vessels are scheduled to deliver during the remainder of 2021. Nevertheless these deliveries do add to the global fleet and therefore have the potential to offset some of the volume and tonne mile demand growth.

Slide 19 highlights some of the International Maritime Organization or IMO's new environmental regulations and their potential impact on the LNG trade. In June, the IMO adopted two intermediate steps aimed at reducing the global fleet CO2 emissions by 40% in 2030 when compared to 2008. These are the energy efficiency existing ship index or EEXI and carbon intensity indicator or CII. These two proposed measures aim to reduce emissions through ship and operational efficiency. They mean that all vessels greater than 5,000 gross tonnes including LNG carriers will have to reduce their carbon intensity by at least 2% per annum from 2023 to 2026.

For the steam turbine vessels, which are the least efficient vessels in the global LNG fleet, the most effective way to meet the 2% per annum reduction is through reducing speed. Steam turbine vessels comprise nearly 40% of today's LNG carrier fleet and will still represent over 30% of the fleet by 2025 when the current order book has delivered. Slow steaming ships is the equivalent of removing shipping capacity from the market at a time when we expect a tight shipping market. This means this is an LNG industrywide challenge with the potential to risk tonnage availability if not carefully implemented.

While we await further clarity from the IMO for 2027 onwards, it's important to highlight that the Partnership's fleet will be compliant with EEXI and CII regulations and we continue to investigate options to improve further their efficiency and prolong their trading lives.

Slide 20 shows the LNG importing and exporting infrastructure currently under construction. As import terminals can be built much more quickly than production facilities, the data on the right only encompasses 2024. With many more planned additions for both production and regasification, we expect these numbers to continue to increase. The present remains 125 million tonnes per annum of LNG production under construction, 62 million tonnes of which is in North America. The right-hand chart shows 160 million tonnes per annum of regasification capacity being built to-date, 70% of which is in Asia. This again highlights the shipping intensive nature of this growth.

So turning to Slide 21, and in summary. Our financial foundation is robust, following the execution of the four new multi-month charters with high-quality customers in recent weeks. Our contract revenues alone through 2022 more than cover all operating overhead and debt service costs over this period. With 30% of our operating days still open in 2022, we maintain significant operational leverage to a sustained recovery and LNG shipping spot rates, and we expect the shipping market to be tight through 2022. Our capital allocation plans for 2021 prioritize debt repayments and along with our cost reduction initiatives, we expect to improve our free cash flow capacity over time.

In addition, with our cash flows improving, and our balance sheet and liquidity derisking over the near and medium term, we are positioning the partnership to become an industry consolidator. Our strengthening balance sheet should allow us to opportunistically modernize our fleet, through the purchase of new assets and the disposal of older assets. And lastly, we anticipate continued growing demand for LNG, and hence for LNG shipping for many years to come, as a complement to renewables as the world transitions to a carbon free future.

Before opening the call to questions, I would like to advise that Paolo Enoizi will also be joining us for the Q&A session. As you hopefully know from a previous press release on August the 1st, Paolo will take over as the CEO of GLOP. I think this is an hugely positive move for the Partnership. Paolo's focus on this business and his in-depth understanding of the operational and commercial aspects of shipping are exactly what the Partnership needs to execute on its strategy of reducing breakeven rates and looking to become a market consolidator.

With that, I'd like to open the call for questions. Operator, please go ahead.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from the line of Chris Wetherbee with Citi.

James Monigan -- Citigroup -- Analyst

Hey guys, good morning. James on for Chris. So I think based on what you said, it seems like you're fairly positive on spot rates throughout the rest of the year, but it also seems like you don't have much leverage to the improvement in spot rates. So just wanted to understand a bit more. Am I miss characterizing anything or was the decision more around risk management? Just trying to understand the puts and takes around that.

Paul A. Wogan -- Chief Executive Officer and Director

Yeah. Hi, James. It's Paul here. I think, we do see a continued strong market. But I think also the charters -- customers also saw a continued strong market. And there is a disconnect right now between the forward rates for one year, and the spot rates in the market. Many of the customers were left without shipping last winter, don't want to be in that same position again, especially when we're seeing Henry Hub trading at $4 and JKM for example, trading at $14 there's huge arbitrage opportunities there. So they were willing to pay a premium to take ships for 12 months, which we found attractive. So, while we think that there will be a continued strong market, we felt that locking in that premium at this point make good sense for the Partnership.

James Monigan -- Citigroup -- Analyst

Got it. And then also you had comment around -- you made a comment around fleet renewal, I just wanted to get an understanding of what that actually look like? So what do you consider basically buying assets that are already on the water? Do you considering new orders possibly maybe investing in the fleet incrementally improved energy efficiency like, what is the fleet renewal and -- as well as in the context of sort of the broader IMO regulation and investing in the fleet really look like for you, obviously, you may not have plants out there, but just what the most likely cases and sort of like what might look the most attractive?

Paul A. Wogan -- Chief Executive Officer and Director

Yeah, I think there's probably maybe two parts to that question, James. I'll take the first one and maybe invite Paulo to take the second one around potential ways to improve the existing fleet. But I do think with the way that we're strengthening the balance sheet, I think with our operational and commercial platform, we do believe that we can be consolidators in this market, especially for spot operating ships. And so I think we could see fleet renewal through existing ships.

At the moment, I don't think the -- we're not looking at GasLog Partners at new buildings, we haven't found the economics of those to be attractive at this point, but that certainly an opportunity for us going forward. And I think, we continue to see strength in the spot market that I spoke about, and if we opportunistically have the opportunity to sell out some of the steam vessels to projects or to companies that have utilization for them, then we would also look at that. So I think all of the above in terms of the modernization of the fleet from fleet sale and purchase, but maybe Paolo you want to give us a view on what else we can achieve around changes to the fleet.

Paolo Enoizi -- Chief Operating Officer

Sure. Thank you, Paul, and hi, James. The environmental regulations are being built now. But I think what we see as we mentioned before, we definitely see the steam vessels going in for an important slow steaming as of 2023 onwards, and eventually having to deal with the hurdles of the 2% increase per year. Again slow steaming is probably there to stay even after 2023. And as you can see from different developments where you could get into zero coalition for instance, development of net zero fuels are going to be probably the most important game changer together with maybe important developments like fuel cells especially for the FTE vessels.

So it's going to be -- there's not going to be a silver bullet. And I think, the Partnership has assets that can actually use these kind of technology as soon as they develop in a cost-efficient way and from an availability point of view.

James Monigan -- Citigroup -- Analyst

Makes sense. And then I'm one more if you don't mind, just around the share issuance in the quarter just understanding the proceeds and the motivation and any sort of detail beyond what was said previously would be great. And that's all from me.

Achilleas Tasioulas -- Chief Financial Officer

Thanks. I'll take that. This is Achilleas. So we took a decision to reactivate the ATM in quarter one as a form of insurance, the spot market in the second quarter started off, and we took the view that there remains quite a bit of uncertainty around COVID. So since mid-June, though our cash flow and liquidity profile has improved greatly. So we don't have any immediate plans to issue more equity. Today, we have stronger liquidity and better visibility, and our focus continues to be on deleveraging.

James Monigan -- Citigroup -- Analyst

Got it. Thank you.

Paul A. Wogan -- Chief Executive Officer and Director

Thank you, James.

Operator

Our next question comes from Randy Giveans with Jefferies.

Chris Robertson -- Jefferies -- Analyst

Hey guys, this is Chris Robertson on for Randy. Thanks for taking our call.

Paul A. Wogan -- Chief Executive Officer and Director

Hi, Chris.

Chris Robertson -- Jefferies -- Analyst

So you mentioned, of course, the rates and the rates performing counter-seasonally strong. One question around, you mentioned Asian demand being up for the cooling season as well as inventory rebuilding. Do you have a sense of if any of the fall kind of rebuilding period has been pulled forward into the summer, how might that affect the inventory restocking in the fall for the Asian region?

Paul A. Wogan -- Chief Executive Officer and Director

Yeah. Chris, I think the -- there's not as much visibility about the stocks in Asia, as there is in Europe. In Europe, we can get a very good real time view on what's happening there. But it does appear from the information we can pick up that actually the stocks have been slow to build again in both Korea and Japan or I think, Japan is getting back to something like its requirement. But also in China, we understand, there has been very hot weather there, a real pull on electricity demand, and we think there's more restocking needs to be done. So there's two things happening. One there continues to be a forecast for a colder winter again the normal like we had last winter, and there has been a very hot summer, which is pulling down existing LNG stocks. So I think, it's setting itself up nicely to continue to have a strong LNG commodity market with the pricing and hence a good LNG shipping market.

Chris Robertson -- Jefferies -- Analyst

Okay, great. My next question it's around the recharters specifically on the steam turbine vessels. So, obviously, the markets open to operating the steam carriers, can you shed some light maybe on kind of the competitiveness or the -- maybe the discount that the steam turbine vessel gets compared to the others? And can you quantify just talking about in the future regarding the CII, and the slow steaming, do you have a sense of the average reduction in knots that you would expect on the steam turbine vessels?

Paul A. Wogan -- Chief Executive Officer and Director

Yeah. So what's interesting is further certain trade, certain ports are restricted and need -- so the size that the steam turbines have, and the advantage we have with the steam turbines and the Partnership is they're basically the most modern and most efficient ships in that trade. So when we were able to put that ship on charter, it was basically only around $10,000 a day lower than we would seeing for TFDE vessels at that point and a very nice strong rate. So some -- there are definitely opportunities where if you understand the trade, you can do well with the steam ships, and I think that certainly continues.

In terms of the effect of the regulations. I'll again pass that back to Paolo, I think he's probably better able to answer that question than me. Paolo?

Paolo Enoizi -- Chief Operating Officer

Sure. Chris, I think. you spot very well the first hurdle were the slow speeding will be -- executed will be on the achievement or let's say acquiring the possibility to operate after 2023. Difficult to say exactly what the impact will be for steam vessels because size and type of plant were different, but I would say that you can probably expect that vessels that were -- had a capacity to speed up to something around 20 or 19 knot will find themselves having to slow down to an equivalent of 2-3 knots below that threshold. And I think enough to see and probably growing demand on the vessel multiplier from -- especially from the busiest month of the year. And that's only for the -- excited for the CII, it's a continuous improvement cycle. Slow speed will be there for not only for the steam vessels, but for every vessel that will want to achieve emission reduction. In addition, as we mentioned with other uptake on technologies or alternative fuels.

Chris Robertson -- Jefferies -- Analyst

Right. Okay, last question for us, has there been any additional costs on changing the corporate structure or possible consolidation?

Paul A. Wogan -- Chief Executive Officer and Director

I think, we reported a couple of quarters there, Chris, we've taken a look at the corporate structure, and the strategic opportunities for GasLog Partners, and concluded that the best way to maximize value for the unitholders at this point was to continue to operate as a stand-alone company. We continue to see optionality and continuous as an MLP. Right now the MLP market is not there, but that doesn't mean that that will continue forever. And I think, what's interesting is having taken that view and having set out a strategy of how we want to develop the company since that point we've probably doubled -- the share price has probably doubled. So, so far I think that strategy is working well, and we continue to look at how we can continue to make GasLog Partners thrive as a stand-alone company, and continue to grow as a stand-alone company.

Chris Robertson -- Jefferies -- Analyst

Great, thank you for taking our questions.

Paul A. Wogan -- Chief Executive Officer and Director

You're welcome.

Operator

[Operator Instructions] Our next question comes from Chris Tsung with Webber Research.

Chris Tsung -- Webber Research. -- Analyst

Hey, guys. How are you?

Paul A. Wogan -- Chief Executive Officer and Director

Hello, Chris.

Achilleas Tasioulas -- Chief Financial Officer

Hi.

Chris Tsung -- Webber Research. -- Analyst

Hi Paul, Achilleas, and Paolo wanted to ask...

Paolo Enoizi -- Chief Operating Officer

Hi.

Chris Tsung -- Webber Research. -- Analyst

Earlier I think someone mentioned about the ATM program, and I may have missed the answer, but what was the use of those proceeds around $10 million that you guys were able to raise?

Achilleas Tasioulas -- Chief Financial Officer

Well, we haven't use them yet, they are on our balance sheet. So I said it was a problem of insurance, and we have been quite successful in the past. Where is our liquidity today, we don't have any intention, any immediate plans to continue using this program. I think -- I believe that we continue our strategy to focus on our deleveraging, reducing our breakeven, and improving our cash flows. So we don't know how the future will develop, we have seen a lot of volatility in the past. So today, we are in a good place I believe in terms of...

Chris Tsung -- Webber Research. -- Analyst

Okay. All right, thanks. And just another quick one for the netting of the salary that rate is fixed, right, it's not floating?

Paul A. Wogan -- Chief Executive Officer and Director

Yes, it's fixed.

Chris Tsung -- Webber Research. -- Analyst

Okay, cool. That's it from me. Thanks, guys.

Paul A. Wogan -- Chief Executive Officer and Director

Thank you, Chris.

Operator

I'm showing no further questions in queue at this time. I'd like to turn the call back to Paul Wogan for closing remarks.

Paul A. Wogan -- Chief Executive Officer and Director

Thank you very much Lis. Well, thank you everybody on today's call for listening. Thank you for your continued interest in GasLog Partners. We certainly appreciate it. And I know that Paolo and Achilleas, look forward to speaking to you in the next quarter. In the meantime, if you've got any questions, please contact the Investor Relations team, and have a good rest of the day. Thank you.

Operator

[Operator Closing Remarks]

Duration: 36 minutes

Call participants:

Joseph E. Nelson -- Head of Investor Relations

Paul A. Wogan -- Chief Executive Officer and Director

Achilleas Tasioulas -- Chief Financial Officer

Paolo Enoizi -- Chief Operating Officer

James Monigan -- Citigroup -- Analyst

Chris Robertson -- Jefferies -- Analyst

Chris Tsung -- Webber Research. -- Analyst

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