GasLog Ltd. and its subsidiaries, an international owner, operator and manager of liquefied natural gas (“LNG”) carriers, reported its financial results for the quarter ended March 31, 2019.
• Signed a 12-year time charter with the principal LNG shipping entity of JERA Co., Inc (“JERA”) for Hull No. 2274, a newbuild 180,000 cubic meters (“cbm”) LNG carrier with low pressure dual-fuel two-stroke engine (“XD-F”) propulsion scheduled for delivery in the second quarter of 2020.
• Signed an eight-year time charter commencing May 2021 with a wholly owned subsidiary of Endesa, S.A. (“Endesa”) for the GasLog Warsaw, a newbuild 180,000 cbm LNG carrier with X-DF propulsion, scheduled for delivery in the third quarter of 2019.
• Announced and, post quarter-end, completed the sale of the GasLog Glasgow to GasLog Partners LP (“GasLog Partners” or the “Partnership”) 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 provided $90.0 million of incremental available liquidity.
• Delivery of the GasLog Gladstone on March 15, 2019, a 174,000 cbm LNG carrier with X-DF propulsion and commencement of its time charter agreement with Shell.
• Post quarter-end, appointment of Paolo Enoizi as Chief Operating Officer (“COO”) Designate with effect from August, 2019.
• Quarterly Revenues of $166.5 million, Profit of $5.9 million and Loss per share of $0.17(1) for the quarter ended March 31, 2019.
• Quarterly EBITDA(2) of $109.8 million and Adjusted EBITDA(2) of $109.9 million. Adjusted Profit(2) of $28.1 million and Adjusted Earnings per share(2) of $0.11(1) for the quarter ended March 31, 2019.
• Quarterly dividend of $0.15 per common share payable on May 23, 2019.
(1) Earnings/(loss) per share (“EPS”) and Adjusted EPS are net of the profit attributable to non-controlling interests of $16.8 million and the dividend on preferred stock of $2.5 million for the quarter ended March 31, 2019 ($23.2 million and $2.5 million, respectively, for the quarter ended March 31, 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: “GasLog continued to deliver on our strategy in the first quarter of 2019 as we contracted two of our newbuildings to JERA and Endesa for 12 and eight years respectively. We are honoured to have JERA and Endesa, with the former being one of the world’s largest LNG buyers, as new customers. We have now ordered and fixed seven newbuild vessels on long-term contracts with four high quality counterparties since our April 2018 investor day and have made excellent progress toward our target of more than doubling consolidated run-rate EBITDA over the 2017 to 2022 period.
We continued to drop vessels down to GasLog Partners with the sale to the Partnership of the GasLog Glasgow earlier this year. The JERA and Endesa charters have increased the drop-down pipeline to 13 vessels, reinforcing the Partnership’s growth potential. The successful debt refinancing during the quarter is further evidence of the Group’s ability to source attractively priced finance to fund GasLog’s newbuilding programme.
The first quarter saw spot LNG carrier rates fall from the historic highs of the fourth quarter of 2018 as unseasonal weather conditions led to low LNG prices and disincentivized long-haul LNG trade. Nonetheless, spot vessel earnings were roughly in line with those seen in the first quarter of 2018. We are confident that the fundamentals of the LNG shipping market are tighter than the evidence that the first quarter implies, and we believe that rates will improve in the second half of the year and through 2020. As a result, we continue to see the potential to deliver enhanced returns to our shareholders.”
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 an increase of 11%, according to Poten. In particular, China’s LNG imports totalled 15.3 mt, 24% higher than the first quarter of 2018. Europe’s LNG imports in the first quarter more than doubled to 22 mt, compared to 10 mt in the first quarter of 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, an increase of 10% 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 forecast 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.
New Charter Agreements
GasLog entered into a 12-year time charter agreement with JERA for GasLog’s existing newbuild vessel, Hull No. 2274. The vessel, a 180,000 cbm Mark III Flex Plus carrier with X-DF propulsion, previously referred to as LP-2S, is expected to deliver from Samsung Heavy Industries Co. Ltd. (“Samsung”) in April 2020, at which point it will commence its 12-year time charter.
GasLog also entered into an eight-year time charter agreement with a wholly owned subsidiary of Endesa for GasLog’s existing newbuild vessel, the GasLog Warsaw. The vessel, a 180,000 cbm Mark III Flex Plus carrier with X-DF propulsion, is expected to deliver from Samsung in the third quarter of 2019 and to commence its charter to Endesa in May 2021.
Sale of the GasLog Glasgow
On March 13, 2019, GasLog entered into an agreement with GasLog Partners to sell 100% of the ownership interest in GAS-twelve Ltd., the entity that owns the GasLog Glasgow. The vessel is currently on time charter with a subsidiary of Shell through June 2026, and Shell has a unilateral option to extend the term of the time charter for a period of five years.
The aggregate sale price was $214.0 million, which included $1.0 million of positive net working capital balances transferred with the entity. The sale 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 (“Nordea”) 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 a 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 U.S. dollar (“USD”) London Interbank Offered Rate (“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.
Delivery of the GasLog Gladstone
On March 15, 2019, GasLog took delivery of the GasLog Gladstone, a 174,000 cbm LNG carrier with X-DF propulsion constructed by Samsung. Upon delivery, the vessel commenced a 10-year charter with Shell.
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, 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. 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.
Alexandroupolis Project Update
During the first quarter, there was continued progress on the Alexandroupolis FSRU project workstreams. Preparation for the binding phase of the European-regulated capacity commitment process (the “Market Test”) continued during the period. Expressions of interest (“EOI”) for the procurement of the FSRU and the construction of the pipeline and offshore installation have been received and several EOIs have been shortlisted. Tenders for the two separate infrastructure elements of the terminal project are expected to be launched in May. DEPA, the Greek state natural gas utility, and Bulgartransgaz, the Bulgarian national gas transmission system operator, are both in the process of formalizing their respective shareholdings in Gastrade. The timing of an FID, which Gastrade had previously guided to mid-2019, is subject to successful conclusions of the workstreams described above, as well as successful completion of financing and state aid discussions, and decisions by various regulatory bodies. GasLog will provide further updates on project progress and timing of FID as appropriate.
Share/Unit Repurchase Programme
On November 28, 2018, the Company announced that its board of directors had approved a share repurchase programme of up to $50.0 million of the Company’s common shares, covering the period from January 1, 2019 to December 31, 2021. Under the terms of the repurchase programme, the Company may repurchase common shares from time to time, at the Company’s discretion, on the open market or in privately negotiated transactions. Any repurchases are subject to market conditions, applicable legal requirements and other considerations. The Company is 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 the Company under the programme will be held in treasury. As of March 31, 2019, 212,111 shares have been acquired at a total cost of $3.8 million and are included in treasury shares. The average cost of the repurchase was $17.69 per share inclusive of all fees and commissions.
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, the Partnership may repurchase common units from time to time, at its discretion, on the open market or in privately negotiated transactions. Any repurchases are subject to market conditions, applicable legal requirements and other considerations. The Partnership is 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 May 3, 2019, 50,000 units have been repurchased at a total cost of $1.0 million. The average cost of the repurchase was $20.89 per unit inclusive of all fees and commissions.
On March 7, 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 April 1, 2019 to holders of record as of March 29, 2019. GasLog paid the declared dividend to the transfer agent on March 29, 2019.
On May 2, 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 May 23, 2019 to shareholders of record as of May 14, 2019.