GasLog Ltd. and its subsidiaries, an international owner, operator and manager of liquefied natural gas (“LNG”) carriers, reported its financial results for the quarter and the year ended December 31, 2018.
Highlights of the Quarter and the Year
• Record quarterly Revenues, Profit, Earnings per share(1), record EBITDA(2), record Adjusted EBITDA(2), record Adjusted Profit(2) and record Adjusted Earnings per share(1)(2) of $188.6 million, $30.4 million, $0.14, $145.0 million, $145.0 million, $62.5 million and $0.54, respectively.
• Record annual Revenues, record Profit, Earnings per share(1), record EBITDA(2), record Adjusted EBITDA(2), record Adjusted Profit(2) and Adjusted Earnings per share(1)(2) of $618.3 million, $126.4 million, $0.47, $447.5 million, $447.7 million, $134.8 million and $0.57, respectively.
• Highest ever quarterly 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 and utilization.
• Signed two seven-year charter parties with a wholly-owned subsidiary of Cheniere Energy, Inc. (“Cheniere”), for two newbuild LNG carriers. The vessels, 180,000 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 the second and third quarters of 2021.
• Completed the sale of the Methane Becki Anne to GasLog Partners LP (“GasLog Partners” or the “Partnership”) for $207.4 million on November 14, 2018 with attached multi-year charter to a subsidiary of Royal Dutch Shell plc (“Shell”).
• GasLog Partners completed a public offering of 8.500% Series C Cumulative Redeemable Perpetual Fixed to Floating Rate Preference Units (the “Partnership’s Series C Preference Units”), raising gross proceeds of $100.0 million and net proceeds of $96.3 million.
• Modified the Partnership Agreement with GasLog Partners to reduce GasLog’s incentive distribution rights (“IDRs”) on quarterly distributions above $0.5625 per unit from 48% to 23% and waive IDRs on assets or businesses acquired by the Partnership from third parties in exchange for a cash consideration of $25.0 million.
• Special dividend of $0.40 per common share paid on December 17, 2018.
• Quarterly dividend of $0.15 per common share payable on March 14, 2019, an increase of 7.1% over the fourth quarter of 2017.
• Announced share repurchase programme of up to $50.0 million.
(1) Earnings/(loss) per share (“EPS”) and Adjusted EPS are net of the profit attributable to the non-controlling interests of $16.6 million and the dividend on preferred stock of $2.5 million for the quarter ended December 31, 2018 ($20.8 million and $2.5 million, respectively, for the quarter ended December 31, 2017) and net of the profit attributable to the non-controlling interests of $78.7 million and the dividend on preferred stock of $10.1 million for the year ended December 31, 2018 ($68.7 million and $10.1 million, respectively, for the year ended December 31, 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: “GasLog delivered another set of record results in the fourth quarter of 2018 driven in large part by very strong earnings from our spot vessels against a backdrop of extreme tightness in the LNG shipping market. These spot earnings, combined with our fleet growth during the year, our strong operational performance and strict cost control, delivered record annual results for Revenues, EBITDA and Profit and allowed us both to increase our common dividend by 7.1% and to declare our first special dividend in November.
During 2018, we continued to execute our growth strategy. We announced seven newbuild orders, six of which are committed to long-term charters, four with Cheniere and two with a wholly owned subsidiary of Centrica plc (“Centrica”). We are very pleased to continue to develop and strengthen our relationship with these two important customers.
GasLog Partners issued over $320.0 million of new equity in 2018, of which over $200.0 million was recycled to GasLog as consideration for the two dropdowns and the modification of the IDRs which will permanently reduce the Partnership’s expected cost of capital. The equity recycled to GasLog and our declining leverage mean that we are well placed to fund our newbuild vessels under construction.
The continued growth of our fleet, the improvement in spot earnings and our cost control measures mean we have made significant progress towards meeting our target of more than doubling consolidated annualized EBITDA over the 2017-2022 period.
While spot rates have recently moderated from fourth quarter peaks, in line with historical seasonal trends, we expect tightness in LNG shipping markets to return given forecast LNG supply growth through 2020 and relatively few uncommitted newbuild vessels delivering in that period.
As we look beyond 2020, additional shipping capacity will be required if consensus LNG demand and supply forecasts are realized. However, whilst we now believe that the LNG shipping market is heading towards a balanced state early next decade, the long-term secular growth of LNG supply and demand mean that, over the medium and long-term, GasLog will continue to serve a dynamic and growing industry.
LNG Market Update and Outlook
LNG demand, as estimated by Wood Mackenzie, is expected to have increased by 9%, from 288 million tonnes per annum (“mtpa”) in 2017 to 313 mtpa in 2018. According to China’s General Administration of Customs, China’s LNG imports increased by approximately 16 mtpa, or 41%, to 54 mtpa in 2018, driven mainly by continued coal-to-gas switching in the industrial, commercial and residential sectors. South Korea, Pakistan, Thailand and Mexico also experienced strong growth in LNG imports during 2018. The outlook remains robust, with Wood Mackenzie forecasting compound annual growth in global LNG demand of 6% between 2018 and 2025. This growth is expected to be broad-based, with Wood Mackenzie forecasting that South East Asia and Europe will account for approximately 70% of the 148 mtpa net increase in demand between 2018 and 2025.
According to Wood Mackenzie, global LNG supply in 2018 totaled 326 million tonnes (“mt”), or a 9% increase on 2017. Several new LNG supply projects and the ramp-up of existing facilities contributed to the increase in LNG production in 2018. During the year, new production started in the United States (Cove Point, Corpus Christi Train 1 and Sabine Pass Train 5), Australia (Wheatstone Train 2, Ichthys), Russia (Yamal Trains 2 & 3) and Cameroon Floating LNG. Supply from existing liquefaction facilities in Egypt, Trinidad and Tobago and Oman also increased following successful efforts to raise domestic gas production. Downtime at existing facilities in Malaysia and Russia partially offset these gains.
Based on Wood Mackenzie’s current forecasts, 2019 is anticipated to be the strongest year ever for supply growth in the LNG market, with supply expected to increase by 40 mtpa to 366 mtpa, a 12% increase on 2018. This includes new LNG production from Elba Island, Cameron, Freeport and Corpus Christi Train 2 in the United States, the Prelude floating LNG project offshore Australia, further increases in Russia’s output and the continued ramp-up of projects which were brought onstream in 2018.
During 2018, three new LNG liquefaction projects reached Final Investment Decision (“FID”), underpinning further LNG supply growth during the next decade. LNG Canada (14 mtpa) in western Canada, Corpus Christi Train 3 (4.5 mtpa) in the United States and the Greater Tortue Ahmeyim project offshore Mauritania and Senegal (2.5 mtpa) were all approved during the year. In February 2019, the Golden Pass (16 mtpa) project in the United States also reached FID. According to Wood Mackenzie, proposed projects (including Golden Pass) in the United States with a combined capacity of approximately 35 mtpa are expected to gain investment approval in 2019. Outside the United States, Qatar is aiming to take FID on an expansion of existing facilities from 77 to 110 mtpa. New projects offshore Mozambique (28 mtpa) and the Arctic LNG-2 project (20 mtpa) in Russia are also expected by Wood Mackenzie to be approved in 2019.
In parallel with the progress on new supply FIDs, in 2018 there was a significant increase in the number of announced long-term LNG off-take contracts. According to Wood Mackenzie and company disclosures, 95 mtpa of long-term (defined as greater than 5 years’ duration) off-take commitments have been agreed since the beginning of 2018, compared to 25 mtpa in 2017. The nature of the LNG marketplace also continued to evolve. According to the Financial Times, the top three independent commodity traders increased their delivered LNG volumes by almost 40% to 31 mt in 2018, taking market share from traditional participants such as national oil companies and major integrated oil and gas companies.
In the LNG shipping spot market, tri-fuel diesel electric (“TFDE”) headline rates, as reported by Clarksons, averaged $89,000 per day in 2018, a 93% increase on 2017 levels. Headline TFDE rates rose significantly in the fourth quarter of 2018 and reached all-time highs of $190,000 per day in November 2018 following a marked decrease in spot ship availability. Average headline TFDE rates in the fourth quarter of 2018 were $150,000 per day. Headline rates for steam propulsion (“Steam”) vessels also reached multi-year highs of $98,000 per day in late 2018. In recent weeks however, relatively mild winter weather and ample inventory levels in key Asian markets have resulted in falling Asian LNG prices, reducing the incentive to move LNG cargoes from the Atlantic to the Pacific Basin and resulting in a seasonal rise in prompt vessel availability and falling spot rates. Headline TFDE spot rates are currently assessed at $60,000 per day. Notwithstanding this recent fall and the likelihood of continued seasonality in the spring shoulder months, we continue to believe that the medium-term outlook for spot rates through 2019 and 2020 is positive given supportive LNG commodity fundamentals and LNG shipping supply and demand. However, spot rates may be prone to further periods of seasonality and volatility similar to that seen in 2018.
During 2018 there was a significant increase in term chartering activity. Based on Poten data, charters between 181 days to seven years duration increased to 19% of total fixtures in 2018, from 5% in 2017. Our expectation of structural tightness in the LNG carrier market, combined with increasing spot vessel availability, could result in this trend continuing in 2019 and beyond.
According to Poten, there were 61 orders for dedicated LNG carrier newbuilds in 2018, an all-time high. The orderbook now totals 105 dedicated LNG carriers (>100,000 cbm), of which 63% are backed by long-term contracts. The positive outlook for LNG commodity and LNG shipping markets, as well as historically low newbuild prices, resulted in both existing LNG carrier owners and new entrants ordering new vessels. Based on 2018 newbuilding orders and current forecasts of LNG supply growth, we now believe that the LNG shipping market is heading towards a balanced state early next decade. As such, the requirement for additional shipping capacity in this period has now been largely addressed. This implies that newbuilding order activity in 2019 needs to slow relative to 2018 levels in order to reduce the risk of vessel oversupply.
Completion of the Sale of the Methane Becki Anne
On November 14, 2018, GasLog completed the sale of 100% of the ownership interest in GAS-twenty seven Ltd., the entity which owns the Methane Becki Anne, to GasLog Partners for an aggregate purchase price of $207.4 million, which includes $1.0 million for positive net working capital.
GasLog Partners’ Issuance of Series C Preference Units
On November 15, 2018, GasLog Partners completed a public offering of 4,000,000 8.500% Series C Preference Units, liquidation preference $25.00 per unit, at a price to the public of $25.00 per preference unit. The net proceeds from the offering after deducting underwriting discounts, commissions and other offering expenses were $96.3 million. The Partnership’s Series C Preference Units are listed on the New York Stock Exchange under the symbol “GLOP PR C”. The initial distribution on the Partnership’s Series C Preference Units will be payable on March 15, 2019.
On November 27, 2018, GasLog and GasLog Partners entered into an agreement to modify the partnership agreement with respect to GasLog’s IDRs. The modification reduces GasLog’s IDRs on quarterly distributions above $0.5625 per unit from 48% to 23%. GasLog has further agreed to waive IDR payments resulting from any asset or business acquired by GasLog Partners from a third party. In exchange for these modifications, the Partnership paid $25.0 million to GasLog which was sourced from available cash.
Share Repurchase Programme
On November 28, 2018, the board of directors of GasLog authorized a share repurchase programme of up to $50.0 million covering the period from January 1, 2019 to December 31, 2021. Under the terms of the repurchase programme, we may repurchase common shares 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 shares and the repurchase programme may be modified, suspended or discontinued at any time or never utilized. Any common shares repurchased by us under the programme will be held in treasury. As of February 14, 2019, GasLog has not purchased any shares.
Additional Vessels and New Charter Agreements
On December 26, 2018, GasLog announced the order of two 180,000 cbm LNG carriers (Hull Nos. 2311 and 2312) with LP-2S propulsion and GTT Mark III Flex Plus containment systems from Samsung that are scheduled to be delivered in the second and third quarters of 2021. The vessels will be chartered to Cheniere for a firm period of seven years pursuant to an option for the charter of one or two additional newbuild vessels negotiated in 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 fourth quarter of 2018, GasLog Partners issued and received payment for an additional 259,104 common units at a weighted average price of $24.06 per common unit for total gross proceeds of $6.2 million and net proceeds of $6.0 million.
Since the commencement of the ATM Programme through December 31, 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 December 31, 2018, the cumulative net proceeds were $121.2 million.
Alexandroupolis Project Update
In early January 2019, Gastrade S.A. (“Gastrade”) announced the successful completion of the first phase of the solicitation of commitments to take capacity in the project (the “Market Test”), with 20 companies submitting a non-binding Expression of Interest for a total of up to 12.2 billion cubic metres (“bcm”) a year of regasification capacity from the Alexandroupolis FSRU. The non-binding phase of the Market Test surpassed the 5.5 bcm/year technical capacity of the project. Planning for the binding phase of the Market Test is well advanced.
Gastrade also announced in January 2019 that the deadline for the initial phase of the procurement of the Alexandroupolis FSRU had been extended to February 15, 2019. Gastrade is targeting FID in mid-2019; however, this timetable assumes significant near-term progress on critical path items, including decisions by various regulatory bodies.
DEPA, the Greek state natural gas utility, and Bulgartransgaz, the Bulgarian national gas transmission system operator, continue to work towards the formalisation of their respective shareholdings in Gastrade.
On November 15, 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 January 2, 2019 to holders of record as of December 31, 2018. GasLog paid the declared dividend to the transfer agent on December 31, 2018.
On November 28, 2018, the board of directors declared a special dividend of $0.40 per common share, or $32.3 million in aggregate, which was paid on December 17, 2018.
On February 13, 2019, the board of directors declared a quarterly cash dividend of $0.15 per common share, or $12.1 million in aggregate, payable on March 14, 2019 to shareholders of record as of March 4, 2019.