Monaco - 1 November 2018
GasLog Ltd. and its subsidiaries (“GasLog”, “Group” or “Company”) (NYSE: GLOG), an international owner, operator and manager of liquefied natural gas (“LNG”) carriers, today reported its financial results for the quarter ended September 30, 2018.
• Record Revenues of $158.4 million (Q3 2017: $131.2 million), Profit of $39.3 million (Q3 2017: $24.2 million) and Earnings per share of $0.19(1) (Q3 2017: Earnings per share of $0.03) for the quarter ended September 30, 2018.
• Record EBITDA(2) of $114.0 million (Q3 2017: $89.6 million), record Adjusted EBITDA(2) of $114.2 million (Q3 2017: $89.7 million), Record Adjusted Profit(2) of $32.3 million (Q3 2017: $21.1 million) and Adjusted Earnings per share(2) of $0.11(1) (Q3 2017: Adjusted Loss per share of $0.00) for the quarter ended September 30, 2018.
• Highest ever net pool performance from our vessels trading in the spot market under the LNG carrier pooling agreement (the “Cool Pool”) following a significant increase in LNG shipping spot rates during the third quarter.
• Signed two seven-year charter parties with a wholly owned subsidiary of Cheniere Energy, Inc. (“Cheniere”), for two newbuild LNG carriers. The vessels, 174,000 cubic meter (“cbm”) LNG carriers with dual fuel two stroke engine propulsion (“LP-2S”) and GTT Mark III Flex Plus containment systems, were ordered from Samsung Heavy Industries Co., Ltd. (“Samsung”) and are scheduled for delivery in late 2020.
• Post-quarter end, announced the sale of the Methane Becki Anne to GasLog Partners LP (“GasLog Partners” or the “Partnership”) for $207.4 million, with attached multi-year charter to a subsidiary of Royal Dutch Shell plc (“Shell”).
• Continued success of the Partnership’s At-The-Market Common Equity Offering Programme (“ATM Programme”) with net proceeds of $54.0 million raised during the quarter pursuant primarily to an agreement for the sale of 2,250,000 common units to funds managed by Tortoise Capital Advisors, L.L.C. (“Tortoise”), and total net proceeds of $121.4 million raised since inception of the programme.
• Quarterly dividend of $0.15 per common share payable on November 21, 2018, 7.1% higher than the third quarter of 2017.
(1) Earnings/(loss) per share (“EPS”) and Adjusted EPS are net of the profit attributable to the non-controlling interests of $21.0 million and the dividend on preferred stock of $2.5 million for the quarter ended September 30, 2018 ($18.9 million and $2.5 million, respectively, for the quarter ended September 30, 2017).
(2) EBITDA, 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.
Paul Wogan, Chief Executive Officer, stated: “The LNG shipping market tightened considerably in the third quarter, driving headline spot rates to multi-year highs and delivering a record result for our ships operating in the Cool Pool. This, together with the contribution of our three newbuild vessels delivered earlier in 2018, produced another set of record quarterly results for GasLog. With further strengthening of spot rates in October, we anticipate another significant increase in our spot earnings during the fourth quarter of 2018, despite the time lag for headline rates to manifest themselves in spot vessel earnings. Spot rate strength means our six open vessels are creating significant incremental cash flow which should allow us to consider increasing our returns to shareholders.
During the quarter, we announced two newbuild orders backed by seven-year charters with Cheniere, meaning we continue to be on track for our target to more than double consolidated run-rate EBITDA over the 2017-2022 period.
With the LNG carrier orderbook now essentially fixed until early 2021 and continuing strong growth in demand for LNG, our highly regarded LNG shipping platform means we are well positioned to benefit from the increased level of tender activity we are seeing from both new and existing customers. We are increasingly confident in the near-term outlook for LNG shipping markets and in our ability to secure new multi-year charters for our open ships on attractive terms.
I am also pleased to announce further progress on the Alexandroupolis Floating Storage Regasification Unit (“FSRU”) project. During the quarter, Gastrade S.A. (“Gastrade”) launched the tenders for the procurement of the FSRU vessel and associated pipeline infrastructure. Following regulatory approvals, the market test to solicit interest in committing to take throughput capacity in the project has also been launched. DEPA, the Greek state natural gas utility, and Bulgarian Energy Holding (“BEH”) continue to work towards formalisation of their respective shareholdings in Gastrade. These recent developments are encouraging and advance the project towards Final Investment Decision (“FID”), which is targeted for the first half of 2019.”
LNG Market Update and Outlook
LNG demand growth was strong and broad-based during the first nine months of 2018, growing 7% over the same period of 2017, according to data from Poten. LNG demand growth was led by China which grew approximately 42% year-over-year or nearly 11 million tonnes per annum (“mtpa”) as the country continued to grow its natural gas usage as a percentage of its total energy consumption. Moreover, demand from South Korea, India, Pakistan and Taiwan grew by 14%, 20%, 63%, and 8%, respectively, or a combined total of approximately 10 mtpa. The outlook for future demand growth continues to be robust, with over 6% per annum projected for 2018-2023, and with more than two-thirds of this demand growth coming from countries in South East Asia and Europe, according to estimates from Wood Mackenzie.
LNG supply grew by 8% year-over-year during the third quarter of 2018 and increased by 5% from the second quarter of 2018, according to estimates from Wood Mackenzie. Supply growth was driven by the start-up of Yamal Train 2 as well as the ramp-up of production from Wheatstone Train 2, Cameroon FLNG and Cove Point. In addition, the Ichthys LNG project in Australia began operations in October 2018 while Yamal Train 3 (Russia) and Corpus Christi Train 1 (United States, or “U.S.”) are expected to begin production by year end, underpinning Wood Mackenzie’s capacity growth estimate of 8% for this year. Looking ahead, an additional 44 mtpa of LNG production capacity (or 14%) is anticipated in 2019, primarily as a result of the start-up of new liquefaction facilities in the U.S. such as Freeport and Cameron.
In October 2018, Shell and its project partners (Petronas, PetroChina, Mitsubishi and KOGAS) announced FID on the first phase of the LNG Canada project located in British Columbia on Canada’s Pacific coast. The project is the first LNG project sanctioned in Canada and this first phase targets a total of 14 mtpa of capacity. In addition, Qatar Petroleum announced its intention to add a fourth liquefaction train of 8 mtpa of capacity to its expansion plans, taking its total planned LNG production capacity to 110 mtpa by the middle of the next decade.
Headline spot shipping rates for TFDE LNG carriers as reported by Clarksons averaged $82,000 in the third quarter of 2018, compared to $42,000 in the third quarter of 2017. Rates continued to exhibit counter-seasonal strength through the third quarter of 2018, rising to $95,000 per day in late September from $78,000 per day at the beginning of the quarter. Since the end of the third quarter, spot rates have continued to increase, now assessed at $150,000 and equal to the record high as reported by Clarksons in July of 2012. Inter-basin trading of LNG continued to support activity in the spot market and 76 fixtures were reported during the third quarter of 2018, bringing the total number of fixtures from January through September of this year to 255, an increase of 9% over the same period in 2017. According to Poten, charter durations have also increased, rising by nearly 50% this year to 43 days, compared with 29 days in 2017, with many multi-month or multi-voyage charters fixed in recent months. A natural outcome of this positive dynamic is that the number of ships available for charter has been reduced and, as such, near-term spot fixture activity may decline relative to the record levels seen earlier in 2018.
Looking ahead, in our view, strong LNG demand, new sources of supply coming onstream and limited availability of shipping capacity over the near-term are combining to create the potential for the recent strength in LNG shipping spot rates to be sustained through at least early 2019. While we may see a seasonal moderation in spot rates during the first half of 2019, we do not expect this to be as pronounced as was the case in early 2018.
According to Poten, 41 newbuild LNG carriers have been ordered so far in 2018, taking the total orderbook for LNG carriers to 96 vessels of which 65% are backed by long-term charters. Notwithstanding recent order activity, we believe the LNG shipping fleet is set to experience very high levels of utilisation in the near-term based on our current supply and demand projections and the build time of approximately two and a half years for new LNG carriers. We continue to believe that further shipping capacity will be needed over and above the current orderbook to satisfy projected demand from 2021 onwards. However, following the increase in newbuild ordering in 2018, we believe that a more measured pace of shipping capacity additions is needed in the future as a result of the time required to complete the construction and commissioning of new LNG production capacity, particularly if these projects experience delays in their completion.
Additional Vessels and New Charter Agreements
On August 20, 2018, GasLog announced the order of two 174,000 cbm LNG carriers (Hull Nos. 2300 and 2301) with LP-2S propulsion and GTT Mark III Flex Plus containment systems from Samsung scheduled to be delivered in late 2020. The vessels will be chartered to Cheniere for a firm period of seven years. GasLog has also negotiated with Cheniere an option for the charter of one or two additional newbuild vessels.
Sale of the Methane Becki Anne
On October 25, 2018, GasLog Partners announced an agreement with GasLog to purchase 100% of the ownership interest in GAS-twenty seven Ltd., the entity that owns the Methane Becki Anne. The vessel is currently on a multi-year time charter with a subsidiary of Shell through March 2024 and Shell has a unilateral option to extend the term of the time charter for a period of either three or five years.
The aggregate sale price will be $207.4 million, which includes $1.0 million for positive net working capital balances to be transferred with the entity. GasLog Partners expects to finance the acquisition with cash on hand, plus the assumption of the Methane Becki Anne’s outstanding indebtedness of $93.9 million. The sale is expected to close in November 2018.
GasLog Partners’ 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 value 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.
In the third quarter of 2018, GasLog Partners issued and received payment for an additional 2,293,775 common units at a weighted average price of $23.68 per common unit for total gross proceeds of $54.3 million and net proceeds of $54.0 million. The aforementioned units included 2,093,775 common units which were purchased by funds managed by Tortoise, a leading energy infrastructure investor.
In the period from October 1, 2018 through October 29, 2018, GasLog Partners issued and received payment for an additional 259,104 common units at a price of $24.06 per unit for gross and net proceeds of $6.2 million.
Since the commencement of the ATM Programme through October 29, 2018, 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. As of October 29, 2018, the cumulative net proceeds were $121.4 million.
Alexandroupolis Project Update
The Alexandroupolis FSRU project in Northern Greece continued to move forward in the third quarter. In September 2018, Gastrade issued Invitations for Expression of Interest (“IEOI”) for the supply of the FSRU and the pipeline infrastructure which will connect the FSRU vessel with the Greek natural gas transmission system. Following regulatory approvals, Gastrade launched the first phase of the market test in late October. During this phase interested parties, including DEPA, the Greek state natural gas utility, and BEH, are invited to submit proposals for offtake capacity from the Alexandroupolis project.
DEPA and BEH continue to work towards the formalisation of their respective shareholdings in Gastrade.
The launch of the FSRU and pipeline tenders by Gastrade, as well as the market test, are, we believe, significant milestones and advance the project towards FID, which is targeted for the first half of 2019.
On September 13, 2018, the board of directors declared a dividend on the Series A Preference Shares of $0.546875 per share, or $2.5 million in aggregate, payable on October 1, 2018 to holders of record as of September 28, 2018. GasLog paid the declared dividend to the transfer agent on September 28, 2018.
On October 31, 2018, the board of directors declared a quarterly cash dividend of $0.15 per common share, or $12.1 million in aggregate, payable on November 21, 2018 to shareholders of record as of November 12, 2018.
GasLog Ltd. press release