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Edited Transcript of GLOG earnings conference call or presentation 3-May-19 12:30pm GMT

Q1 2019 GasLog Ltd Earnings Call

Monaco May 9, 2019 (Thomson StreetEvents) -- Edited Transcript of GasLog Ltd earnings conference call or presentation Friday, May 3, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Alastair Maxwell

GasLog Ltd. - CFO

* Paul A. Wogan

GasLog Ltd. - CEO & Director

* Phil Corbett

GasLog Ltd. - Head of IR

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Conference Call Participants

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* Benjamin Joel Nolan

Stifel, Nicolaus & Company, Incorporated, Research Division - MD

* Christian F. Wetherbee

Citigroup Inc, Research Division - VP

* Christopher M. Snyder

Deutsche Bank AG, Research Division - Research Associate

* Donald Delray McLee

Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst

* Fotis Giannakoulis

Morgan Stanley, Research Division - VP, Research

* Jonathan B. Chappell

Evercore ISI Institutional Equities, Research Division - Senior MD

* Michael Webber

Wells Fargo Securities, LLC, Research Division - Director & Senior Equity Analyst

* Randall Giveans

Jefferies LLC, Research Division - Equity Analyst

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Presentation

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Operator [1]

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Good morning. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to GasLog Limited's First Quarter 2019 Results Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded.

Today's speakers are: Paul Wogan, Chief Executive Officer; Alastair Maxwell, Chief Financial Officer; and to commence the call, Phil Corbett, Head of Investor Relations. Mr. Corbett, you may begin your conference.

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Phil Corbett, GasLog Ltd. - Head of IR [2]

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Good morning or good afternoon to everyone and thank you for joining GasLog Limited First Quarter 2019 Earnings Conference Call. For your convenience, this webcast and presentation are available on the Investor Relations section of our website, www.gaslogltd.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 first quarter earnings press release. In addition, some of our remarks contain non-GAAP financial measures as defined by the SEC. A reconciliation of these is included in the appendix of this presentation.

I will now hand over to Paul Wogan, CEO of GasLog Limited.

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Paul A. Wogan, GasLog Ltd. - CEO & Director [3]

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Thank you, Phil. Good morning or good afternoon, and thank you for joining our first quarter earnings call. I'll begin by outlining why I think GasLog offers a compelling investment case in large part due to the continued execution of our strategy throughout the quarter. I'll then hand over to Alastair, who will take you through our financial position and performance. I will then review the current trends in the LNG and LNG shipping markets before opening the call for questions.

Turning to Slide 3. Let me explain to you, why I believe, GasLog today presents a compelling investment case. Firstly, we continued to execute on our strategy and deliver on our promises. During the first quarter, we chartered up 2 previously uncommitted new buildings to JERA and Endesa, 2 new high-quality customers. We took delivery of the GasLog Gladstone, a state-of-the-art new building, which immediately commenced its 10-year charter to Shell. We dropped down the GasLog Glasgow to GasLog partners as we continued the strategy of using our MLP to recycle capital to the parent. And GasLog Partners refinanced its upcoming debt maturity on better terms.

We also made further progress on the Alexandroupolis FSRU project in Greece. Secondly, we believe that spot shipping rates will increase markedly from their seasonal lows and deliver a significant increase in earnings and cash flows from our 6 [booked] ships. And finally, if our expectations of a strong recovery in spot shipping rates during the second half of 2019 is correct, we should be well positioned to further enhance shareholder returns, following on from a special dividend we paid in November last year and recent buybacks of almost $5 million in aggregate by GasLog and GasLog Partners.

Slide 4 illustrates our continued progress during Q1 2019 towards our target of more than doubling run rate EBITDA over the 2017 to '22 period. While the spot market was weak in the first quarter, on an annual basis, spot rates more than doubled in both 2017 and 2018. We believe this longer-term trend is symptomatic of a tightening LNG carrier market. As a result, we remain confident that a recovery to at least mid-cycle spot rates remains on track. All vessels in our 2018 to 2021 newbuilding program now have turn charters, providing value-enhancing returns. We also remain committed to further reductions in OpEx and G&A and improvements in our financing terms, following our successful efforts over the past 12 months.

Please turn to Slide 5. In the first quarter, we continued to execute on our customer diversification strategy. We [made] a 12-year time charter with Japan's JERA, one of world's largest LNG buyers for one of our stock -- state-of-the-art newbuildings. The charter commences on vessel delivery in April 2020 and it's particularly noteworthy as GasLog is one of the first non-Japanese LNG owners to secure a long-term charter with a Japanese energy company. We also chartered the GasLog Warsaw to Endesa, a leading European utility. The charter will commence in May 2021.

As the vessel is due to deliver to GasLog in July this year, it will be available during an expected stronger spot market spanning the next 2 winters. The vessel's extremely competitive transportation cost should make it particularly attractive to potential short-term charters, and we received several inquiries about her availability since the investor announcement. We've been developing these and other new customer relationships for some time. We are proud to add both JERA and Endesa to our list of high-quality customers, which already include Cheniere, Centrica, Total and Trafigura, in addition to our largest customer Shell.

Turning to Slide 6. We continued to execute on our newbuilding program. In March, we took delivery of the GasLog Gladstone, the fourth of our vessels with XDF proportion and Mark III Plus containment and she immediately commenced the 10-year charter with Shell. GasLog has been responsible for the construction of 26 out of the 27 vessels in our consolidated on-the-water fleet with an enviable track record of delivering these ships safely, on time and on budget. This does not happen by chance. It's achieved by excellent coordination between a highly experienced newbuilding and operations teams along with numerous other people in the company. Our experience and knowledge provide our stakeholders with confidence that our 8 newbuildings will also deliver safely, on time and on budget and seamlessly commence their long-term charters.

As it concerns the broader GasLog team, we also look forward to welcoming Paolo Enoizi when he joins us as COO designate in August this year. Now let me hand over to Alastair to take you through the quarter's financials.

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Alastair Maxwell, GasLog Ltd. - CFO [4]

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Thank you, Paul, and good morning or good afternoon to you all. I am delighted to report another strong quarter in terms of our operating and financial performance and our progress towards achieving our financial objectives.

Please turn to Slide 7 where I'd like to take you through our first quarter results. Operationally, our fleet performed exceptionally well with 100% uptime and the delivery of our latest newbuilding, the GasLog Gladstone. During the quarter, despite the expiry of the initial charters on 3 of our TFDEs and a slightly weaker spot market in Q1 2019 compared to Q1 2018, our revenues net of voyage expenses and commissions increased by 8% compared to the same period last year driven primarily by fleet growth.

As you can see from the chart on the left, our EBITDA growth was even stronger at 15% year-on-year, largely as a result of continued success in reducing our unit cost per vessel per day with first quarter unit OpEx and unit G&A declining by 12% and 21% year-on-year, respectively. The reduction in unit OpEx was driven by a combination of a decrease in vessel taxes of $0.5 million and a decrease of $0.6 million in employee costs, crew wages and technical maintenance expenses due in part to the favorable movements of the euro/dollar exchange rate.

The reduction in unit G&A cost was due to cost control, fleet growth and the same movement in FX rates. In full year 2019, we continue to anticipate that unit OpEx will be around $15,000 per vessel per day, which excludes minor one-off cost associated with tank cleaning activities to comply with IMO 2020. We expect unit G&A cost in 2019 to be slightly below 2018 levels. As always, our OpEx and G&A cost will be subject to movements in FX rates, particularly the euro/dollar exchange rate.

Please turn to Slide 8 where I'll discuss our financial position. Although we saw a net debt to trailing 12-month EBITDA increase at the end of Q1 as we took delivery of the GasLog Gladstone, the increase was modest and our leverage continues to trend downwards with our current ratio of 6.3x EBITDA remarkably down on the March 2018 level of 7.6x.

While our total debt will continue to increase as we take delivery of our newbuild vessels through 2021, we still anticipate that the overall deleveraging trend will continue as these vessels start to generate EBITDA and as we amortize our debt at over $200 million per annum.

On Slide 9, during the quarter, we signed and completed the new 2019 GasLog Partners facility for $450 million, replacing the existing facility, which was due to mature in November of this year. The new facility provides incremental liquidity of $90 million, matures in 2024, has significant and more favorable covenants and a spread to LIBOR which is approximately 50 basis points lower than the previous facility.

As you can see on the slide, the loan syndicate includes 2 leading Japanese banks, taken together with our new charter [at JERA]. We are extremely proud to be developing meaningful and mutually beneficial relationships with key industrial and financial players in the world's largest LNG market.

Moving to Slide 10. We've updated the chart, illustrating our capital commitments. We currently forecast accumulative future cash payments for the equity in the ships represented by that light blue tranches at the top of each column to be $305 million, assuming 70% loan-to-value for the financing of each new vessel. We plan to fund this from unrestricted cash balances of approximately $80 million and available RCF capacity of $190 million at the end of Q1 as shown by the thick green line, plus free cash flow generation from our growing on-the-water fleet, a stronger spot market and further drop downs. We're also well advanced in discussions for the financing of the GasLog Warsaw, which delivers in July of this year.

Turning to Slide 11. This chart shows the evolution of our contracted revenue backlog with the inclusion of the JERA and Endesa charters. Our backlog at the end of the first quarter increased above $4 billion for the first time. This represents approximately 19% compound annual growth since the end of 2012, the year in which we IPOed. This backlog underpins our future earnings and cash flow generation as well as our unrivaled access to cost-effective capital, at both GasLog and GasLog Partners.

Slide 12 sets out the backlog and contracted EBITDA that our 2018 to 2021 new growth program was expected to deliver. In total, our on-the-water XDFs and newbuilding accounted for $2.6 billion of our existing backlog and should generate approximately $260 million in annualized EBITDA by 2022. In line with our strategy, our current priority is to continue to deliver our existing newbuilding program. And in future, we will look to balance carefully further growth with our strong focus on balance sheet strengthening and shareholder returns.

Slide 13 updates our data on the capital raised and recycled by GasLog Partners to GasLog, following the sale of the GasLog Glasgow in early April. In total, since the IPO, GasLog Partners has raised nearly $1.2 billion of equity from diverse sources and GasLog has received over $2.3 billion of gross proceeds from the partnership, including debt transferred on drop down and the consideration for the modification of the IDRs in November last year. GasLog Partners remains our preferred source of equity, and we continue to have confidence in its ability to raise funding for growth through both traditional and nontraditional pockets of debt and equity capital.

Finally, turning to Slide 14, which illustrates our leverage to the spot market with 6 ships now trading spot. All other factors being equal, each $20,000 per day increase in TCE rates over and above Q1 2019, results in $44 million of aggregate incremental consolidated EBITDA and cash flow for our spot ships on an annualized basis. As Paul will discuss shortly, we anticipate a significantly stronger market in the second half of 2019 and through 2020, which should facilitate the funding of our committed CapEx, continued deleveraging, the rechartering of our open ships, and the potential for additional return to shareholders as evidenced by our recent buyback activity at both GasLog and GasLog Partners.

Now let me hand back to Paul.

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Paul A. Wogan, GasLog Ltd. - CEO & Director [5]

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Thank you, Alastair. Turning to Slide 15, which shows LNG imports by country on a trailing 12-month basis. LNG demand grew by 31 million tonnes year-over-year a 10% increase. China posted the largest absolute increase, importing over 13 million tonnes more LNG at 31% increase year-on-year. However, LNG growth was (inaudible) particularly in Europe with France, the U.K., the Netherlands and Belgium increasing their combined imports by 14 million tonnes year-on-year.

Slide 16 focuses in on Q1 '19 versus Q1 '18 and shows year-on-year demand growth of 11%, despite a warm Northern Hemisphere winter in both Europe and Asia. The European figures demonstrate clear evidence of a price-led LNG demand response, further supported by declines in indigenous gas production. We believe that competitively priced LNG will continue to remain attractive and find markets, maintaining production levels and stimulating the need for shipping.

Slide 17 shows how consensus LNG demand forecast continue to rise. The green band is the LNG demand forecast range at the time of our Investor Day last year. The solid gray, dark blue and light blue lines represent the updated analysis, which have increased as LNG consumption continues to surprise to the upside. As a result, the consensus forecast is for 6% compound growth in LNG demand between 2018 and 2025 from a broad range of countries.

Slide 18 demonstrates how U.S. exports continue to positively impact shipping demand. According to Poten, the U.S. exported 110 cargoes in Q1. 45% of these cargoes, which is very much in line with the contracted off-take, delivered to North Asia. A destination that requires more than 2 ships for each million tonnes of LNG exported per annum. This is the case, despite that in periods when there was little or no arbitrage opportunity between the Atlantic and Pacific markets.

Since 2016, when U.S. exports commenced, an average of 1.8 ships have been required for each million tonnes of LNG per annum, positively impacting shipping demand. In total, approximately 90 million tonnes of new capacity scheduled to start production in 2019 through 2024 with 56 million tonnes of this capacity in the U.S. Furthermore, Wood Mackenzie forecast an additional 50 million tonnes of LNG capacity will reach FID this year.

Based on this demand picture, Slide 19 illustrates our view of shipping supply and demand on a quarterly basis through the end of 2020, based on underlying data from Wood Mackenzie and Poten. If there's a key message from today's presentation, then it's the one on this slide. The market is expected to tighten significantly as we go through the second half of 2019 and into 2020, which will be very positive to ship demand for GasLog and for our shareholders.

Slide 20 illustrates the number and average duration of spot fixtures since the beginning of 2018. A number of factors exacerbated the usual spot market seasonality so far this year, including pre-buying ahead of last winter by Chinese importers, a warmer-than-average winter in Asia, unplanned downtime at several LNG export terminals and the majority of newbuildings delivering in the first half of 2019 as only one uncommitted vessel delivery remains between now and year-end. Taken together, these dynamics significantly impacted both the number and average duration of spot fixtures.

Poten estimates that the average duration in February was 13 days down from 94 days in November last year. These trends will also impact spot vessel earnings during the current quarter of 2019, which are unlikely to exceed the level of the first quarter. However, in recent weeks, market activity has begun to pick up with both the number of fixtures and the average duration beginning to increase. In our view, a leading indicator of stronger spot vessel earnings in the months ahead.

Slide 21 reinforces this point. The gray line on this chart shows the weekly average headline TFDE spot rates and the blue line show the number of immediately available ships in the spot market. As you can see, there's a clear inverse relationship where spot rates tend to rise as shipping availability declines. You can also see that over the last few years, following the seasonally weak period in late winter and early spring, the number of available prompt ships in the spot market has declined, despite the growth in the global LNG shipping fleet. Importantly, fewer ships now need to be removed from a spot market at this point in the year relative to previous years to lead to a significant recovery in rates. As the dotted green circle highlights, as available prompt shipping capacity has declined in recent weeks, spot rates for LNG carriers have stabilized in response and we anticipate they will begin to move higher in the coming weeks.

So turning to Slide 22. Let me reiterate why I believe GasLog is a compelling investment case. Irrespective of the market backdrop, GasLog has continued to deliver on all aspects of its strategy and through our continued focus on operational excellence, I'm very confident of further commercial and financing success throughout 2019 and 2020. The trends we have highlighted in this presentation lead us to believe we are on the cusp of a significant spot market recovery, which would lead to a materially positive impact on our earnings and cash flow. In turn, this could pave the way to further enhancement of shareholder returns later this year.

With that, I'd like to ask the operator to open the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from Michael Webber with Wells Fargo.

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Michael Webber, Wells Fargo Securities, LLC, Research Division - Director & Senior Equity Analyst [2]

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Paul, I wanted to start off with active tenders. There's been a lot of headlines around non-U. S. projects specifically starting to come out with some pretty large tenders. And at the same time, we've seen, what seems like a pretty healthy escalation in pricing for term business as well as I think you mentioned some -- just longer terms and some interesting kind of option strings in the back of it. So if you could maybe give a little bit more detail around just the amount of -- number of ships that are available for tender right now. How you guys are attacking -- kind of attacking that without having necessarily a formal foothold in the yard at the moment? And then I guess, I'll save my follow up for kind of that option pricing structure, but just a bit of color on the tenders would be helpful.

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Paul A. Wogan, GasLog Ltd. - CEO & Director [3]

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Yes. Thanks, Mike. As you say, it remains very active. We still have the buildout of the U.S. production, not all of which has taken vessels at this point. And I think there will be the opportunity for existing vessels to take some of that slack up. But looking forward, there is so much interest in LNG, and we're starting -- in LNG as the commodity, and you're starting to see the pickup in FIDs, LNG Canada, Mozambique, Golden Pass, the Qatargas, all of which are going to need new vessels.

From our point of view, I think we're in a very comfortable place, having got all our newbuildings put away on what we believe are good charters. We remain very much open to looking at business with good counterparties at good rate. But we don't feel compelled at the moment to be in the shipbuilding market. I think we want to see when those new projects will come out. We do think there will be a hiatus in projects potentially for a year or 2 -- end '22, '23 as the -- before the new production comes in. So whilst we'd be very happy to look at them and there's plenty of time for us to do that, we don't feel compelled to go out and order speculatively at the moment. In fact -- we don't think that's the right thing to do.

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Michael Webber, Wells Fargo Securities, LLC, Research Division - Director & Senior Equity Analyst [4]

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Got you. Okay. That's helpful. And just in terms of some of the structure we're seeing in the market, I have -- again, I believe you guys signed [8 plus 6] with kind of a delayed start, which seems like it's about as good as you could have possibly hoped for. And we've seen that, I believe, [3 plus 2 plus 2]. And in the past, you've talked about -- you've been pretty outspoken about your expectations for a firm 2019 and a firm 2020, at least seasonally. And then maybe getting a bit more measured in your -- in terms of what you -- your exposure to be to 2021. Are you seeing that reflected in the term structures, in some of these option structures that we're hearing about in the market? Or -- and if not, is that an opportunity maybe to -- I guess, maybe what kind of escalators are we seeing, if any, on those options strings and a bit of color there would be helpful.

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Paul A. Wogan, GasLog Ltd. - CEO & Director [5]

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Yes. I mean you definitely see increases in the -- on the optional periods, but we have to be sort of, I think, also realistic about that because those options are usually at the behest of the charters. So if those are options are out of the money, they wouldn't necessarily take them. But what they does do I think is allow you to have the discussion. If they're in the money, they definitely will. So -- and we're always realistic about those options, but the fact that you're able, I think, to put them into place at higher rates, covers you if the market continues to be very, very strong because you're happy with the returns but it also gives you that opportunity, I think, to talk to your customers. In terms of the length of the charters that are available, I think it's really interesting to see a real range of charter periods. As you said, we just did the 12-year with JERA but there are other people who are there looking for sort of 3-year periods. I think a lot of it backs into what the customer needs in terms of them feeling comfortable that they've got coverage on their SPAs that they have. JERA's very comfortable to stay at longer terms. Some of the [ship] -- traders are taking -- trying to look for sort of 3-plus years because they've got the shorter SPAs, et cetera. So I think we'll continue to see that sort of width of charter availability, which actually is quite positive for ship owners because it allows you to then say, well -- how do we want to place our ship? How do we want to place our portfolio? Because we don't want all our ships coming off at the same time. And I think the ability to slow -- be a bit choosy on it, I think is helpful.

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Operator [6]

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And our next question comes from Jon Chappell with Evercore.

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Jonathan B. Chappell, Evercore ISI Institutional Equities, Research Division - Senior MD [7]

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Alastair, probably first one for you. I think Slide 10 is incredibly important as you lay out pretty limited equity requirements to fulfill the newbuild program. But I just want to be clear about one point. The drop downs to GasLog Partners, clearly at the current yield, it seems that may be prohibitive from the MLP to go out and raise funds for new drop down. So this sub-$50 million of equity commitments through 2021, is that under the assumption that there is no further drop downs to GasLog Partners? Or is there an assumption that you do want to do more and that's how you get to that lower level?

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Alastair Maxwell, GasLog Ltd. - CFO [8]

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So Jon, the chart doesn't assume any drop downs. That's just if you like, based on the existing available cash balances -- both cash balances and RCF capacity. That is the gap if you like. It doesn't assume any drop downs in that. We -- as we set eyes on the right of that chart, we think we have a number of different options to fund that delta, which is pretty modest delta as you think about it. And we're not counting on GasLog Partners. We do think that the market will come back to GasLog Partners.

We think, as we said on the call last week that, that record a little bit in the eye of the storm of what's going on in the broader MLP space at the moment in the performance some of our peers as well as the current softness in the spot market. Maybe all those factors have an impact, and we believe that they will all go away and that the headwinds will turn into tailwinds. But funding the gap that we show on the page is not predicated on being able to do more drop downs. We have other options in terms of funding that difference, including for example, taking the LTV on newbuilds often 70% to 75%. That would effectively deal with that in one go and for ships with 8-year charters and 12-year charters. I see no reason why we wouldn't be able to do that.

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Jonathan B. Chappell, Evercore ISI Institutional Equities, Research Division - Senior MD [9]

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Right. That make sense. And the follow-up question a little bit of lead into that. On Slide 14, then we talk about the leverage on the ships and the comment in that bar at the bottom about further enhancement of shareholder returns. Obviously, last year, in a superstrong winter market, you decided to go the special dividend route. But now it seems like you've been a bit more active on the buyback. So if we were to have a winter similar to one of the last 2 maybe not as great as last year's, but maybe in line or better than 2 years ago and you think about capital return, how do you feel about that special dividend route? Maybe a little bit Monday-morning quarterback on how that worked versus buyback versus maybe deleveraging or building that liquidity buffer. So you don't need to raise the LTV to meet the equity requirements on new ships?

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Alastair Maxwell, GasLog Ltd. - CFO [10]

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Yes, good question, Jon. So I think you are quite right. There were 3 factors that led into the payments of the special dividend in Q4 of last year. I think those were: first of all, the strong spot market which you referenced; and secondly, we did a drop down to GasLog Partners in November; and thirdly, we reached agreement on one of (inaudible) the IDRs and there was a small payments of consideration -- cash consideration between GasLog Partners and GasLog as you will recall. So all of those factors went into us feeling comfortable with the payment of the special dividend last year.

I think it's feasibly, we probably would lean more towards special dividends as opposed to buybacks. We have bought buybacks, bought shares back shares recently and bought back units in the partnership since the results last week. In part that was to cover LTIP vestings this year and next year at GasLog. But I definitely think, again, as we said on the call and reference to GasLog Partners last week, I definitely don't think that GasLog is being paid for the current competitive positioning, growth prospects of the business in terms of where the shares are trading today and so I certainly wouldn't rule out further share repurchases as well as or instead of special dividends. You're also right to say, and I said in my remarks, that we are also focused on the balance sheet, and I think we would like to see leverage continue to trend down over time. I've also got one eye on the balance sheet and one eye on the charter portfolio. And I think as we pick ships over time, the [ship-to-shore] that are open today are coming back from charter at the end of this year and into next year. Again, that plays into how we feel about both the balance sheet and ability to make -- pay for dividends or repurchase shares.

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Operator [11]

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And our next question comes from Randy Giveans with Jefferies.

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Randall Giveans, Jefferies LLC, Research Division - Equity Analyst [12]

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So Asian LNG prices have clearly come under some significant pressure in recent months. Although, has risen recently back to around on 550 per mmbtu. Now do you ascribe this solely to seasonality? Or is it also due to some structural weaknesses? Maybe Chinese regas infrastructure is not expanding as fast as expected or desired?

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Paul A. Wogan, GasLog Ltd. - CEO & Director [13]

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Yes. Randy, it's Paul. I think a lot of it -- I think is seasonal factors. Yes. We saw -- 2017, very cold winter and the move from coal to gas and not enough gas available for some of the residential and industrial users. So the Chinese moved really quickly last year to make sure that they had enough gas. And that they were a driver in the really high rates of the last quarter 2018 was that movement. They then had an unseasonably warm winter and so you saw then if you like taking (inaudible) that they have, not having to bring more in. So I don't think those 2 things necessarily play out over the coming year.

I think the second thing is that in terms of -- you say, in terms of pricing, we've seen it come off the bottom the last few weeks anywhere between 15%, 25% up from the bottom that we saw earlier in the year. As there is sort of -- it's normalizing. This year, I think we've seen already quarter-on-quarter, 11% increase in Chinese demand from the Q1 2018. So the demand continues there. Certainly, I think from the work that we've done from our time in China, I think it's almost like you have an infinite demand there. So getting the infrastructure is definitely going to play a part in that as well. And I think if we see more infrastructure going in, you will see more demand. But I think in terms of the actual pricing right now, it's more around the -- some of the seasonal factors than just the fact that they can't handle the infrastructure to bring it in.

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Randall Giveans, Jefferies LLC, Research Division - Equity Analyst [14]

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Sure. Okay. Yes, that all makes sense. And then clearly, short-term spot rates falling recent months around $35,000 a day or so. But when your time charter rates are still in the, let's call it mid-$70,000 day range. So how many deals are actually getting done at these kind of 1-year levels? Is it a pretty robust time-charter market? And then to you specifically, is GasLog looking at moving some of its, maybe spot vessels out of the Cool Pool and then into 1- to 3-year time charters?

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Paul A. Wogan, GasLog Ltd. - CEO & Director [15]

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Yes. Great question. Yes. I think that happen to be honest, Randy, there's a mismatch right now. You're exactly right. The lower headlines spot rates against the future rate. And there has been, I think, a bit of a Mexican standoff between owners and charters in terms of where they see the market. I think what's happening -- what we're seeing anecdotally in the last couple of weeks is the market is starting to pick up, the amount of inquiry we're going through on the spot charters, et cetera, is picking up. And I think the 1-year rates are moving very quickly towards where the owners see them. So hasn't been a great amount of transactions done,

I think, in the first quarter, true to say, but I think you're going to see that changing. And we've -- again anecdotally had a couple of reports to us which I can't give you of other companies who have actually started to -- whether transactions have been done at markedly high prices for the period, especially as you getting to cover this coming winter.

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Operator [16]

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And our next question comes from Ben Nolan with Stifel.

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Benjamin Joel Nolan, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [17]

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So I wanted to follow up on Mike's question as it relates to the tenders a little bit. And specifically, as you look at it and this seems like there is an awful lot of, be it Exxon or Qatar or the Russians, people who are looking to lock in equipment for their longer-term projects. I was curious what you think is your real capacity to be able to do that without needing incremental equity capital? And maybe at the risk of throwing an enormous number of questions, in one question, would you maybe do business with the Russians as kind of -- an aside?

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Paul A. Wogan, GasLog Ltd. - CEO & Director [18]

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Yes. Ben I'll take that. I think what's interesting is, of course, that the project that we're talking about, Mozambique, Qatar, Russian Arctic, et cetera. These are all projects which are going to be taking FID and needing and being up and running and needing shipping '23, '24, '25. So it's not something that's kind of there immediately. I think you've seen we've been fairly disciplined in our growth, making sure that we're able to fund that. We've been very -- it's been very helpful having the MLP to help us fund that growth. But I think as you see us looking forward, we will be very -- again, very careful to make sure that any growth that we have for those sort of future projects out -- out in '23, '24, '25 that we're able to fund those without necessarily having to go for (inaudible) equity, that's the last thing.

We've got -- we think -- you look at the growth that we have in-built into the company right now. We've got $2.6 billion worth of backlog from our newbuilding program from 2018 to '22. That's going to throw off about $260 million worth of EBITDA per year where -- as our ships deliver. We've got a lot of in-built cash flow coming into this business, which if we decide that the growth is the right thing to do, we think we're able to place that long term, fixed rate, definite cash flow to do that. So we don't have quite a lot of options for those kind of the forward-looking projects that we're talking about.

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Alastair Maxwell, GasLog Ltd. - CFO [19]

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And I want to add one thing to that, Ben, which is -- we have a number of different sources of capital and people often focus on common units or common shares as the only way you'll raise equity and I think the other way to raise equity both for GasLog and for GasLog Partners, [and] so better demand.

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Benjamin Joel Nolan, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [20]

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Okay, helpful. Appreciate it. And I'll leave the Russian bit for contemplation. But the -- to just switch gears for my second question. Obviously, the Alexandroupolis project, FSRU project, that's kind of taking time, and I realize that, that's somewhat out of your control and when it happens, it happens. But just thinking through, perhaps, the FSRU market in general. I believe that you guys ordered equipment for FSRU conversions several years ago. I don't know what just happened with that, but is there any discussion about or thoughts about maybe stepping back into that in terms of conversions with some of the older either steam-powered ships or TFDEs as a way to get long-term employment on those? And in a market where you are not really seeing at least long duration business for those kind of assets?

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Paul A. Wogan, GasLog Ltd. - CEO & Director [21]

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Yes. Remember, Ben, we did buy long-lead items absolutely, which we still have (inaudible) conversion of a ship. Our view is that having those long-lead items puts us in a good position for the Alexandroupolis project when it takes FID and as you say, creates the ability for us to -- for long-term business on one of our existing ships. So yes, that I think -- it all plays to be good. We haven't been as active in the FSRU market over the last 12 to 18 months because we just feel that, that market is over tonnage, we've seen a number of people committing capital to it ordering vessels speculatively and then driving down the pricing to a point where we don't think the risk/reward is necessarily good when we compare to what we can do by putting our money to work on LNG carriers. However, I do think over time that will change. I do think that what we're seeing in terms of the low pricing for LNG will stimulate demand and (inaudible) a quick way to get access to that. So having our hand in that market, I think and being able to, as you say quite rightly, convert some of our ships for [that thing], I think is very useful. But we're not going to change that market at any price.

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Operator [22]

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And our next question comes from Chris Wetherbee with Citi.

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Christian F. Wetherbee, Citigroup Inc, Research Division - VP [23]

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Wanted to come back to an earlier conversation you were having about the spot market. And sort of how you're thinking about deploying assets out of the Cool Pool potentially to maybe the 1- to 3-year market. I think -- you sounded like you were talking a little bit more generally about what you might think could happen across the industry, wanted to get a -- maybe get a little bit more specific, do you think there's an opportunity whether it be in the next 6 or maybe even up to 18 months for you guys deploy some of those asset out of the Cool Pool into some of the shorter-term charters?

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Paul A. Wogan, GasLog Ltd. - CEO & Director [24]

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Yes. Chris, it's Paul here. We -- in the past we've talked about the fact that we'd like to have some play in the spot market, some exposure to it because it gives us the opportunity to showcase our capabilities to a larger number of customers. And I think that's been helpful as we increased our customer base over the last few years -- being able to show that. So we'd like I think to have at least 2 or 3 ships in that spot market, but at the moment, we have 6 ships. I think if we see opportunities for some of those ships in the 1- to 3-year market, we would certainly look at that very closely. But we will keep 1, 2, 3 ships trading in that market as well to give us that showcase and that window on it.

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Christian F. Wetherbee, Citigroup Inc, Research Division - VP [25]

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Okay. That makes sense certainly in adding incremental charters to the portfolio has been, I think, pretty helpful over the course of the last couple of years, so that might make sense from my perspective. Maybe a follow-up here just on the leverage, a helpful chart in the deck there. Wanted to get a sense of, if you can think out -- assuming the market plays out according to plan because I know that what sort of the comment you had to take in a market dynamic in consideration when thinking about where you want to be from a financial leverage perspective. If I were to look out into potentially robust market into 2020 or beyond, what would you like that number to be, what do you sort of think it is? If you can give us sort of intermediate-term leverage target it would be helpful.

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Alastair Maxwell, GasLog Ltd. - CFO [26]

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Yes. We don't have a set target, Chris. Clearly the factors which are going to play into this, as I said in my remarks, so first of all, we will take on incremental debts as we take delivery of new ships. And we have one more ship to deliver this year. We don't have 5 ships delivering in 2020. So if you think about 5 ships will finance roughly 70%, 75% debt to equity. So it will give a little bit of step up in the total amount of debt in 2020. Most of the debt that we paid for our last 2 deliveries in '21 it probably -- that will be offset largely by amortization during '21. So -- and you will see the total debt go up.

That will be offset by the EBITDA from those ships as they hit the water and start to generate cash flow. And as you rightly say, another thing -- one of the significant swing factor is this had spot ships to trading in the spot market or at what rates they are rechartered but over time as I said in my remarks, we will expect those numbers to trend downwards but maybe a tick up during 2020, particularly in Q2. But then after that going into 2021 beyond, I'd expect them to continue to trend downwards. And I would like to head down -- go down into (inaudible) range.

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Operator [27]

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And our next question comes from Fotis Giannakoulis with Morgan Stanley.

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Fotis Giannakoulis, Morgan Stanley, Research Division - VP, Research [28]

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Paul, I would like to ask you about the facts of the market and how do you see they developing -- how many vessels out of the 500 ships have arrived now in the water? And 120 under construction if they operate under long-term contracts. And how many vessels they are operating under up to 1-year employment or in the spot market? And how do you view this developing in the future as a new liquefaction capacity comes online. And especially, what -- how LNG price -- this actual LNG price is, given the reduction in the cost of construction of raising new projects impact the LNG shipping market?

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Paul A. Wogan, GasLog Ltd. - CEO & Director [29]

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Yes. Fotis. Yes, on the ships, if you look at the order book right now, I think as you go through '19 and '20, the vast majority of the ships which are due to come out are against projects. So for example, in '19, we have just one uncommitted ship delivering in. If you go further out into '22, there are number of open ships. I think order book then it's something like 65% are against committed, 35% are noncommitted. And I think that's where we -- as owners are saying, we need to be a little bit careful, which is why we would not be going out and ordering speculative ships right now. Now those -- I don't believe we've necessarily over tonnaged the market now, but there is the opportunity for other shipowners to do so if we're not careful in how we look at the market.

There are a number of ships operating in the spot market right now and I don't know the exact figure who are waiting for their projects to come online. So for example, Cameron and Freeport, which is due to come on this year, those ships were taken up into their projects -- as those projects get up and running and expand. So over time, you see a natural decrease in the amount of available spot tonnage. And I think that the supply and demand that we showed, shows you that as these new projects coming on, I see the demand of volume that's coming is actually much greater than the ships that are available. So we see that spot market and the number of ships available in the spot market tightening quite quickly, and we think that forces other charters to want to take ships on 1, 2, 3 charters at that point.

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Fotis Giannakoulis, Morgan Stanley, Research Division - VP, Research [30]

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And can you also discuss about the residual risk when you buy vessels and you put them in 5- to 7-year charter so the vessels that they will come off charters from the legacy projects. What -- how do you view the earning capacity of the vessels in the second stage of its useful life? And what kind of returns on your capital are you expecting to get when you make the decision to invest in a newbuilding vessel?

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Paul A. Wogan, GasLog Ltd. - CEO & Director [31]

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Yes. I mean I think in terms of residual value, it really comes down to, do we think we have a use for that ship at the end of its contract. We -- I think if you've seen it in the last few years, we haven't done 5-year charters. We've only done 7-year plus. And as I said the last one that we did was a 12-year charter, which -- I think it's helpful. But in terms of -- if you look at the shipping market right now and how we see this coming -- panning out, we need all the ships that we have in the fleet to meet the demand that's coming down the track.

And so if we start to see ships being taken out of the market, as people are talking about, then we're going to have a much -- a much, much tighter market than we have now. So there's a home for those ships without a doubt. And so as we look at our returns, I think we've been fairly open in the past. If you imagine a ship, which say roughly $200 million give or take and you're throwing off $21 million, $23 million of EBITDA, that gets you into the high single figures for -- [unless] return and gets you into sort of the mid -- low to mid-teens in the [leverage] return. And that's how we look at the investment. We think given the charters we have it's a very nice risk/reward return.

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Alastair Maxwell, GasLog Ltd. - CFO [32]

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Fotis, the only thing I'd like to add to that is on -- you asked about residual risk and the earnings. The power of the ship really in the 12 years after a ship is delivered and it's been on long-term charter, it's really the breakevens on that ship are significantly lower at the end of that charter than they are once you first delivered.

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Operator [33]

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And our next question comes from Donald McLee with Berenberg.

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Donald Delray McLee, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [34]

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Could you talk a bit about your order book financing strategy? And is there any factors that prevent you from more proactively raising financing ahead of the vessel delivery, given the long-term charters attached to them?

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Alastair Maxwell, GasLog Ltd. - CFO [35]

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Donald, Alastair. So as I said in my remarks, we're well on the way towards putting in place the financing for GasLog Warsaw, which delivered in July of this year. The GasLog Gladstone, which delivered in the middle of March was the last ship to be financed by our 8x newbuild ECA facility. The next ship to deliver is not until 2020 and you obviously need to get the right balance between paying commitment fees on the one hand, but on the other hand ensuring that you have financing in place for the pipeline of new deliveries that we have coming over 2020 and 2021, which is why we decided to do the GasLog Warsaw as a standalone financing. But we're not standing still. We've already started working on financing terms for the remaining newbuilds in 2020 and 2021, and I would anticipate having something further to report later on this year in terms of that financing. But I think we're not concerned it, I think what we are really focused on is making sure that we optimize the terms of that financing.

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Donald Delray McLee, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [36]

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Okay. That's helpful. And then one more follow up to Jon's earlier question around drop down. Could you talk more -- a bit more about some of the alternatives you would consider at the parent level in the event that -- the MLP continues to trade near the current yield for an extended period?

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Paul A. Wogan, GasLog Ltd. - CEO & Director [37]

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I mean, so first of all, Jon just made the point that I think where GasLog Partners units are trading today is clearly not helpful in terms of raising common equity at GasLog Partners, but as we demonstrated with -- our [freight issue] in November of last year and with the refinancing of the $450 million facility just now. We believe that GasLog Partners has other -- sources to other pockets of capital, both in the private and in other markets in addition to common units. So this makes the point, we're not selling or we don't want further drop down, which is probably in today's conditions not funded by drop downs, it's rather funded by common equity.

In terms of other opportunities at the parent, we -- again, as I said, we amortized $200 million per year of debt, where debt amortize is roughly twice as fast as the ships depreciate and that creates balance sheet capacity over time. We have bonds trading in the NOK bond market. We have bonds trading in the U.S. market. We have preference shares at the parent. I think we have multiple pockets that we can potentially tap into if we need to.

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Operator [38]

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And our next question comes from Chris Snyder with Deutsche Bank.

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Christopher M. Snyder, Deutsche Bank AG, Research Division - Research Associate [39]

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So the first question is around the uptick in market activity. Is this the result of just low age and LNG prices driving a new round of inventory building or charters maybe trying to take advantage of counter seasonality to take on more vessels?

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Paul A. Wogan, GasLog Ltd. - CEO & Director [40]

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I think it's actually the underlying demand for LNG this is -- we really what we would always call the [Golden] months at this point, Chris where you come off the winter demand. You haven't seen the summer cooling season -- Northern Hemisphere cooling season demand kick in, but that's starting to pick up again. So this is -- if you look at -- this is almost exactly following the same trend that we saw last year. Around the same time, we started to see the activity pick up. So I think it's more -- just the normal seasonal trend driving at this point. And then I think what you're seeing here is the customer saying, "My goodness, last year, this moved so quickly that some of us got caught at the wrong end of it when we were trying to take ships." So people I think are anticipating that and saying, "Okay, let's start talking about what ships now so that we don't get caught out if we see this market moving in the same way that it did last year."

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Christopher M. Snyder, Deutsche Bank AG, Research Division - Research Associate [41]

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Yes. It certainly feels like when the peak season can get pulled forward. So just following up, as this uptick in activity shown through to improved utilization in the Cool Pool relative to maybe 2 or 3 months ago? And could this allow for a better capture rate compared to Q1 even if just maybe Q2 average headline rates are lower just kind of -- because it's starting from a much lower point?

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Paul A. Wogan, GasLog Ltd. - CEO & Director [42]

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I think it's a bit early in the second quarter. But so far, no, it hasn't increased in the utilization rate. I think that will see through, but at this point, I wouldn't see a high utilization rates than we saw in Q1.

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Christopher M. Snyder, Deutsche Bank AG, Research Division - Research Associate [43]

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Okay. And then just lastly. I guess I find -- I'm a little surprised that maybe you guys don't sound more interested on the newbuild market. Just in light of all the success you've had in marketing your existing programs and it seems like newbuild rates maybe are kind of picking up a little bit and there's certainly a lot of demand with all the FID momentum. Is this impacted at all by just that the drop down pipeline getting a little bit more difficult?

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Paul A. Wogan, GasLog Ltd. - CEO & Director [44]

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I think there are 2 things. Actually, whilst we try to make it look fairly effortless, taking in a huge number of new ships it actually takes a lot of work. We need to have employed seafarers and make sure we have the high-quality seafarers that we want to have on the ships. We need to have -- and make sure we have the right people ashore. And once we have fantastic operational team in Greece, really good seafarers on our vessels we want to make sure that we keep our quality up. So there's a certain amount of actually just making sure that we absorb that in-built growth that we have.

And we believe that there's going to be huge opportunities for us in this great secular growth trend for LNG. We don't have to rush into doing all that growth in one period and potentially putting our operational excellence at risk. So I think we see as in a lots of ways we've been very measured, but we talked a lot this quarter about execution. And execution is around commercial success, financing success but it's also around safety and operational success as well. And we won't put that at risk just to chase after growth.

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Christopher M. Snyder, Deutsche Bank AG, Research Division - Research Associate [45]

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Yes. I mean certainly feels like the operational side is somewhat overlooked from our seat. But I appreciate that and thanks for the time.

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Operator [46]

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And this concludes our Q&A session for today. I would like to turn the call back over to Mr. Paul Wogan for his closing remarks.

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Paul A. Wogan, GasLog Ltd. - CEO & Director [47]

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Thank you, Tiffany, and thank you to everyone for listening and your continued interest in GasLog Limited. We certainly appreciate it and we look forward to speaking to you next quarter. In the meantime, if you do have any questions, please contact the Investor Relations team. Thank you.

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Operator [48]

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Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Everyone, have a great day.