GasLog Ltd. and its subsidiaries, an international owner, operator and manager of liquefied natural gas (“LNG”) carriers, reported its financial results for the three-month period ended September 30, 2019.
• On August 27, 2019, signed a 10-year time charter to provide an LNG floating storage unit (“FSU”) for a gas-fired power project being developed in Panama. The time charter is expected to be fulfilled through the conversion of the GasLog Singapore and to commence in late 2020.
• Delivery of the GasLog Warsaw on July 31, 2019, a 180,000 cubic meter (“cbm”) Mark III Flex Plus carrier with low pressure dual fuel two-stroke (“X-DF”) propulsion. The vessel was immediately delivered into a charter with a wholly-owned subsidiary of Cheniere Energy Inc. (“Cheniere”) for the period prior to the commencement of her long-term charter with a subsidiary of Endesa S.A. (“Endesa”) in May 2021.
• Exited the Cool Pool (the “Cool Pool”) and assumed commercial control of the vessels operating in the LNG carrier spot market.
• Revenues of $165.6 million, Profit of $8.9 million and Loss per share of ($0.20)(1) for the three-month period ended September 30, 2019 ($158.4 million, $39.3 million and Earnings per share of $0.19, respectively, for the three-month period ended September 30, 2018).
• EBITDA(2) of $114.2 million, Adjusted EBITDA(2) of $115.0 million, Adjusted Profit(2) of $25.5 million and Adjusted Earnings per share(2) of $0.01(1) for the three-month period ended September 30, 2019 ($114.1 million, $114.2 million, $32.3 million and $0.11, respectively, for the three-month period ended September 30, 2018).
• Quarterly dividend of $ 0.15 per common share payable on November 21, 2019.
(1) Earnings/(loss) per share (“EPS”) and Adjusted EPS is net of the profit attributable to non-controlling interests of $22.4 million and the dividend on preferred stock of $2.5 million for the quarter ended September 30, 2019 ($21.0 million and $2.5 million, respectively, for the quarter ended September 30, 2018).
(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: “A recovery in the LNG shipping spot market during the third quarter of 2019, as well as the continued contribution of our newbuild vessels with long-term contracts, allowed GasLog to generate solid year-on-year growth in Revenues and EBITDA for 2019 year-to-date. Our two ships on charter to Gunvor Group Ltd. (“Gunvor”) have delivered strong performances under their market-linked charters, underpinned by their 100% utilization. Based on the tightening spot LNG shipping market since the end of the third quarter and the accompanying rise in freight rates, we expect to deliver a further uplift in our financial performance during the fourth quarter. Elsewhere, we are making good progress towards the financing of our newbuild programme.
A key focus for GasLog is to enhance the earnings and cash flow visibility of our tri-fuel diesel electric (“TFDE”) and steam turbine propulsion (“Steam”) vessels. I am therefore pleased to report that we signed a ten-year charter during the quarter for one of our TFDEs to act as an FSU for a power project being developed in Panama. In tandem with these commercial successes, we continue to focus on our market-leading operations and safety record, and I am very proud that the crew of the Methane Alison Victoria was recently selected as “Crew of the Year” at the prestigious IHS Safety at Sea 2019 awards.
We have been predicting a tighter LNG shipping market, as increasing United States (“U.S.”) LNG output combines with a seasonal uptick in demand for gas, resulting in rising demand for shipping and higher utilization of the global fleet. These underlying trends in the LNG commodity and shipping markets point towards a structurally tighter market through 2020 and into 2021. We believe this will positively impact our efforts to secure term business for several of our on-the-water vessels. As we benefit from these positive trends we will continue to look for opportunities to reward our shareholders.”
LNG Market Update and Outlook
According to Wood Mackenzie, global LNG supply totaled 90 million tonnes (“mt”) in the third quarter of 2019, a 2% increase from the second quarter and 11% growth year-on-year. During the third quarter, growth from new U.S. projects (Cameron, Corpus Christi Train 2 and Freeport) and the ramp-up of the Prelude project in Australia offset continued underperformance from plants in Indonesia and Malaysia and maintenance activities at PNG LNG, Sakhalin-2, Peru LNG and Sabine Pass. Compared to the third quarter, supply is expected to grow by 6%, to 95 mt, in the fourth quarter of 2019, principally reflecting a full quarter of production from the U.S. projects mentioned above, as well as initial production from the Elba Island facility. For 2019, Wood Mackenzie estimates annual LNG supply at 364 mt, which represents 12% growth over 2018. Supply is expected to grow by a further 7% in 2020 with the addition of further trains at the Cameron, Freeport and Yamal LNG (Russia) projects.
During the third quarter, the Calcasieu Pass project (10 million tonnes per annum, or “mtpa”) in the U.S. and Arctic LNG-2 reached a Final Investment Decision (“FID”). Arctic LNG-2, at 19.8 mtpa of nameplate capacity, is the single largest project sanction in the history of the LNG industry. Combined with projects approved earlier in the year, 2019 has set a record for LNG FIDs, totaling 63 mtpa year-to-date and surpassing the 2005 record of 46 mtpa. In addition, the 2.1 mtpa Woodfibre LNG project in Canada is expected to reach FID by the end of 2019, while ExxonMobil recently awarded engineering contracts for the 15.2 mtpa Rovuma LNG project ahead of an expected FID in 2020. In total, Wood Mackenzie expects 115 mtpa of new capacity to commence production between 2020 and 2024.
Global LNG demand was 87 mt in the third quarter of 2019, compared with 78 mt in the third quarter of 2018, an increase of 10%, according to Poten. European imports accounted for much of the growth, rising 8 mt year-over-year (or approximately 100%), while demand from Northeast Asia (Japan, China, South Korea and Taiwan) was approximately flat. For the twelve months ending September 30, 2019, LNG demand was 351 mt, compared with 308 mt for the twelve months ending September 30, 2018, an increase of 14%. Demand from Europe was particularly strong, growing by 36 mt, or 105%, while China’s demand growth was also noteworthy, rising 11 mt, or 22%.
The global gas market remains well-supplied, given the combination of ample inventories following higher-than-average temperatures in the 2018/19 winter and LNG supply growth so far this year. This has resulted in further inventory builds, notably in Europe where storage is currently at 98% of capacity, according to Gas Infrastructure Europe, and sustained pressure on gas pricing, with European and U.K. gas prices recently touching their lowest levels since 2009. Similarly, Asian LNG prices are currently c.40% below 2018 levels. However, the combination of low gas prices and rising carbon prices have improved the competitiveness of gas as a fuel for power generation compared to coal, particularly in Europe. During the third quarter of 2019, gas-fired power generation in Europe increased 31% year-on-year, accounting for 21% of total power generation compared to 16% a year earlier, according to Bloomberg. Notably, Spain’s gas demand for power in September was up 128% year-on-year, as gas accounted for 27% of the power mix, with coal at just 2%, according to Spain’s national grid operator Enagás. A similar trend in the Netherlands has prompted German utility company RWE AG to re-commission a 1.1 gigawatt (“GW”) gas-fired power plant by 2020.
A deteriorating macroeconomic outlook, particularly in China, could present a near-term headwind for LNG demand by reducing natural gas consumption growth. However, the long-term fundamentals for gas and LNG demand growth remain very attractive, underpinned by continued energy demand growth and the significantly better emissions profile of gas versus coal. The most recent example of this was a proposal by the South Korean government to address air pollution by significantly reducing coal-fired power generation from December 2019 to March 2020. In addition, Wood Mackenzie recently forecast that Europe’s gas import dependency and call on LNG imports will continue to grow, due to falling domestic production in many countries and declining pipeline flows from North Africa and Central Asia, as well as potential limits on Russia’s share of European gas imports.
Headline spot rates for TFDE LNG carriers (“LNGCs”), as reported by Clarksons, averaged approximately $64,000 per day in the third quarter of 2019, a 31% increase over the second quarter of 2019 but below the $82,000 per day in the third quarter of 2018. Low gas pricing during the quarter kept the arbitrage window between the Atlantic and Pacific basins closed, resulting in reduced demand for spot fixtures and lower average voyage distances. According to Poten, there were 75 spot (single voyage and multi-month) fixtures in the third quarter of 2019, compared to 84 and 81 in the second quarter of 2019 and the third quarter of 2018, respectively. However, longer-term (over 181 days according to Poten) fixture activity remained healthy in the third quarter, totaling 24 fixtures compared to 19 and 12 fixtures in the second quarter of 2019 and the third quarter of 2018, respectively. Furthermore, according to Poten data, there have been at least 178 spot fixtures (defined as up to six months in duration) for Steam vessels since the beginning of 2017, implying continuing demand for Steam vessels in the short-term charter market.
Clarksons currently assesses headline spot rates for TFDE and Steam LNG carriers at $140,000 per day and $100,000 per day, respectively. These figures represent significant increases of 128% and 138%, respectively, since mid-September, with prompt vessel availability falling as new supply projects such as Cameron and Freeport ramp up and as the market anticipates a seasonal increase in LNG commodity and vessel demand ahead of the Northern Hemisphere winter. As a result, prompt vessel availability, as reported by Poten, has declined in recent weeks to fewer than three vessels across all basins, the lowest levels since December 2018. With high gas inventories in Europe and Asia, charterers are either slow-steaming vessels and/or utilizing LNG carriers as floating storage until regasification capacity and winter demand and price signals emerge.
Poten currently estimates the one-year time charter rate for TFDE and Steam LNG carriers at $84,000 per day and $50,000 per day, respectively, although the current term charter market for on-the-water ships, and Steams in particular, has limited liquidity for charters greater than one year. We continue to anticipate that the ongoing LNG shipping market tightening should persist through at least early 2021, which may result in further term charter opportunities for on-the-water vessels as their existing charters expire.
As of October 28, 2019, the LNG fleet and orderbook (excluding floating storage and regasification units (“FSRUs”)) and vessels with capacity below 100,000 cbm) stood at 507 and 110 vessels, respectively, as estimated by Poten, with the orderbook representing 22% of the on-the-water fleet, unchanged from the beginning of 2019. Out of the LNGCs in the current orderbook, 68, or 62%, are chartered on multi-year contracts. There have been 37 vessels ordered thus far in 2019, including 13 during the third quarter, compared to a total of 63 in 2018, suggesting that the pace of newbuild ordering continues to moderate.
FSU Panama Power Project
On August 27, 2019, GasLog signed a 10-year time charter with Sinolam LNG Terminal, S.A. (“Sinolam LNG”) for the provision of an LNG FSU to a gas-fired power project being developed in Panama.
The time charter is expected to be fulfilled through the conversion of the GasLog Singapore, a 155,000 cbm TFDE LNG carrier built in 2010. The required modifications are such that, as well as being FSU ready, the vessel will still be able to trade as an LNG carrier following the conversion work. The conversion will take place in conjunction with the vessel’s scheduled 5-year dry-docking and special survey in the third quarter of 2020, enabling both time and cost synergies. The charter commences on delivery of the FSU in Panama, which is scheduled for late 2020.
Since September 2016, the GasLog Singapore has been trading in the LNG carrier spot market. The FSU contract is for a fixed period, thereby delivering 100% utilization for the duration of the charter. The FSU will also incur lower operating expenses than if the vessel was trading as an LNG carrier, with GasLog estimating that the charter will generate approximately $20 million of EBITDA per annum over its 10-year life.
The FSU will receive, store and send out LNG to a gas-fired power plant currently being developed near Colón, Panama, by Sinolam Smarter Energy LNG Power Company, a subsidiary of private Chinese investment group Shanghai Gorgeous Investment Development Company. The power project has signed long-term power purchase agreements with leading Panamanian utility companies as well as a 15-year LNG sale and purchase agreement with Royal Dutch Shell plc (“Shell”).
Delivery of the GasLog Warsaw
On July 31, 2019, GasLog took delivery of the GasLog Warsaw. Upon delivery, the vessel immediately commenced a time charter with Cheniere until May 2021, when the vessel is contracted to commence an eight-year time charter with Endesa.
Cool Pool Exit
On June 6, 2019, GasLog entered into a termination agreement with the Cool Pool and Golar LNG Ltd. (“Golar”), whereby GasLog assumed commercial control of its six vessels operating in the LNG carrier spot market through the Cool Pool at that time. Following expiry of their commitments, GasLog vessels were withdrawn from the Cool Pool in June and July 2019.
Retirement of Director
Mr. William Friedrich retired from the board of GasLog, effective November 5, 2019. Mr. Friedrich has been a director since October 2011 and was Chairman of the Company’s HSSE Committee from 2016 until his retirement.
On September 17, 2019, 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 October 1, 2019 to holders of record as of September 30, 2019. GasLog paid the declared dividend to the transfer agent on October 1, 2019.
On November 5, 2019, the board of directors declared a quarterly cash dividend of $0.15 per common share, or $12.1 million in the aggregate, payable on November 21, 2019 to shareholders of record as of November 15, 2019.