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Edited Transcript of GLOP earnings conference call or presentation 30-Oct-19 12:30pm GMT

Q3 2019 GasLog Partners LP Earnings Call

Nov 3, 2019 (Thomson StreetEvents) -- Edited Transcript of GasLog Partners LP earnings conference call or presentation Wednesday, October 30, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Alastair Maxwell

GasLog Partners LP - CFO

* Andrew J. Orekar

GasLog Partners LP - CEO & Director

* Joseph Nelson

GasLog Partners LP - Deputy 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

* Espen Landmark Fjermestad

Fearnley Securities AS - Partner of Equity Research

* Gregory Robert Lewis

BTIG, LLC, Research Division - MD and Energy & Shipping Analyst

* Jonathan B. Chappell

Evercore ISI Institutional Equities, Research Division - Senior MD

* Michael Webber;Webber Research

* Randall Giveans

Jefferies LLC, Research Division - VP,Senior Analyst & Group Head of Energy Maritime Shipping

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Presentation

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Operator [1]

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Good morning. My name is Shannon, and I will be your conference operator today. At this time, I would like to welcome everyone to GasLog Partners LP Third Quarter 2019 Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded. Today's speakers are Andy Orekar, Chief Executive Officer; Alastair Maxwell, Chief Financial Officer; and to commence the call, Joseph Nelson, Deputy Head of Investor Relations.

Mr. Nelson, you may begin your conference.

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Joseph Nelson, GasLog Partners LP - Deputy Head of IR [2]

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Good morning, and thank you for joining GasLog Partners Third Quarter 2019 Earnings Conference Call. For your convenience, this call, webcast and presentation are available on the Investor Relations section of our website, www.gaslogmlp.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 third 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 Andy Orekar, CEO of GasLog Partners.

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Andrew J. Orekar, GasLog Partners LP - CEO & Director [3]

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Thank you, Joe. Good morning, and thanks to everyone for joining GasLog Partners third quarter earnings call.

Before I begin this morning, those of you who participated in our previous calls, will undoubtedly notice our new presentation format. This is part of a larger rebranding initiative we've begun rolling out at GasLog and GasLog Partners to emphasize our priorities of safety, operational excellence and customer focus, and we are delighted to be sharing this with you today.

Moving ahead to today's call, I'll begin with our highlights for the quarter. Our CFO, Alastair Maxwell, will follow with a review of our financial performance and dropdown pipeline, after which I'll conclude with an update on the LNG and LNG shipping markets as well as our distribution growth outlook. Following our presentation, we'd be very happy to take any questions you may have.

Turning to Slide 3. You can see our highlights. After another strong quarter of operational and financial performance, today we reported our highest ever partnership performance results for revenues, EBITDA and distributable cash flow. During the third quarter, our dropdown pipeline increased to 14 vessels as our parent chartered the GasLog Singapore for 10 years as a floating storage unit. We repurchased $10 million of our common units at an average price under $20. We declared a distribution of $0.55 per unit or $2.20 on an annualized basis, an increase of nearly 4% over the third quarter of 2018. And today, we are reiterating our guidance of 2% to 4% distribution growth for 2019. Lastly, it gives me enormous pride to share that the crew of the Methane Alison Victoria was awarded Crew of the Year at this year's IHS Markit Safety at Sea Awards. Remarkably, this vessel has had 0 lost time incidents since our delivery in 2007.

Turning to Slide 4. Our record third quarter results reflected a full quarter's contribution from several strategic actions the partnership has executed in the last 12 months including 2 accretive vessel acquisitions, the elimination of our GP's incentive distribution rights, a new 3.5-year charter for the GasLog Shanghai, and most recently, the accretive repurchasing of our common units. Taken in combination, these steps have significantly improved our financial performance as you can see from the figures on this slide. In particular, our EBITDA has increased by 22% year-over-year while our per unit DCF growth has been even stronger at 28% over the third quarter of 2018. With no IDRs, we expect future dropdown acquisitions can continue to deliver meaningful growth.

Turning to Slide 5 and the impact of our recent unit repurchases. Since the inception of our buyback authority, we've repurchased $20 million of common units, retiring nearly 1 million units or approximately 2% of our total units outstanding. As you can see from the figure on the left, these repurchases have been accretive to our per unit distributable cash flow. During the third quarter of 2019, we generated $0.72 (sic) [$ 0.71] of DCF per common unit, a figure which reflects approximately 1.5% growth as a result of the repurchases we've made this year, using only a modest amount of capital.

On the right, you can see that repurchases have had a dramatic effect on the capital returned to our unitholders. Inclusive of our Q3 distribution, we've now returned a total of $2.64 per unit over the last 12 months, an increase of 25% over the prior 12-month period. More specifically, unit repurchases have amounted to approximately $0.44 per unit of that total.

As we look ahead, we expect returns to our unitholders to remain principally in the form of quarterly cash distribution. However, we plan to continue opportunistic repurchases of our common units as market conditions dictate, which, as you can see, make a meaningful impact on both our coverage ratio and total unitholder returns.

With that as introduction, I'll now turn it over to Alastair.

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Alastair Maxwell, GasLog Partners LP - CFO [4]

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Thanks, Andy, and good morning to everyone. I'm delighted to report another strong quarter in terms of the operational and financial performance of the partnership.

Please turn to Slide 6 for our financial and operational highlights. In the third quarter of 2019, we achieved record quarterly partnership performance results for revenues, EBITDA and distributable cash flow, which showed robust year-over-year increases of 18%, 22% and 26%, respectively. Our strong financial performance was due to our 2-vessel acquisitions in 2018 and 1 in 2019 as well as a full quarter's contribution from the GasLog Shanghai's market-linked charter to Gunvor, which offers us exposure to the current strong market for LNG shipping at 100% utilization and which delivered a significantly improved performance compared to Q2 when she was primarily trading in the Cool Pool.

Operationally, our fleet continues to perform exceptionally well with uptime of 100% during the quarter and year-to-date unit OpEx of $14,468 per vessel per day, a reduction of $427 from the $14,895 we reported in the first 9 months of 2018. While we are benefiting partially from a stronger U.S. dollar exchange rate, we are also continuing to make progress with our cost reduction initiatives. As you can see in the bottom of the table, our reported distribution coverage for the third quarter was 1.3x and this increases to 1.33x when adjusting for several days of scheduled dry docking for the Solaris, which was primarily undertaken in Q2, but carried over into the beginning of the third quarter.

Looking forward, we have one scheduled dry docking in the fourth quarter, which we anticipate will take up to 40 days to complete due to the need to install a ballast water treatment system on the vessel. Looking further ahead, we have 4 dry dockings scheduled in 2020, all of which will also have ballast water treatment systems installed.

Please turn to Slide 7 where I'll discuss our recent fleet developments. The chart on this slide shows the 15 vessels comprising the partnership's fleet. Our revenue backlog continues to be robust at over $1 billion, which only includes the minimum rate of hire for the GasLog Shanghai. As a reminder, our first open steam vessel, the Methane Jane Elizabeth, is scheduled to commence a new 1-year charter to Trafigura in November. The partnership's nearest upcoming charter expiry is for the Methane Alison Victoria, which maybe redelivered late in the fourth quarter of this year or in early January.

Looking forward to 2020, we already enjoyed locked-in charter cover of 81% with over 75% of our open days falling in the second half of the year, and we anticipate a very strong LNG shipping market, as Andy will discuss shortly. We're confident that the strengthening LNG shipping market through 2020 and into 2021 will create opportunities to recharge our open ships and to further benefit from the market linked charter of the GasLog Shanghai.

Turning to Slide 8 and our balance sheet. In the chart on this slide, we've set out our year-to-date and future scheduled amortization during 2019 and 2020. Our debt amortizes at roughly twice the rate our ships depreciate, building equity value and balance sheet capacity for future growth. For the partnership as a whole, we expect to amortize approximately $220 million of debt over 2019 and 2020, equivalent to almost 1x annual EBITDA and 9% of total cap. More specifically, you can see that our net debt to total cap and our net debt-to-EBITDA remained healthy at 51% and 4.5x, respectively. Our total available liquidity including revolver capacity and short-term investments is approximately $133 million as of the end of Q3.

Turning to Slide 9 and a look at the partnership's sources and cost of capital. The chart on this slide lays out the current trading yields, the GasLog's and GasLog Partners' listed debt and preferred equity securities. As you can see, the GasLog Group has securities trading at attractive levels in the U.S. and Norwegian bond markets and in the U.S. retail preferred equity markets. In addition, GasLog Partners continues to evaluate financing options in the private debt and preferred equity markets with a number of counterparties. We're confident that we will be successful in securing cost competitive capital to fund our next acquisition without requiring access to common equity in the public markets.

Turning to Slide 10 where I'll discuss our future growth opportunities. Chart shows the 14 vessels with multiyear charters owned by our parent, GasLog Limited. Our dropdown pipeline increased during the third quarter after the GasLog -- after GasLog chartered at the GasLog Singapore to sign [the land] LNG for 10 years as a floating storage unit. The vessel is GasLog's first FSU project and underscores the benefits of the group's scale, fleet diversity and commercial innovation. In addition, GasLog took delivery of the GasLog Warsaw at the end of July, and she immediately commenced the 22 months charter with Cheniere, ahead of her 8-year charter to Endesa beginning in mid-2021.

Together, the charter periods in our dropdown pipeline extend from 2025 to 2032 and represent approximately $3 billion in contracted backlog and some $300 million in total annual EBITDA with an average charter duration of approximately 8 years. These vessels provide visible future growth opportunities for GasLog Partners and would contribute positively to the average charter length of our fleet as well as to our distributable cash flows. Taken in combination with our strong balance sheet and access to diverse sources of debt and equity capital, GasLog Partners remains poised for continued growth.

And with that, I'll turn it back to Andy to discuss the outlook for the LNG commodity and LNG shipping markets.

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Andrew J. Orekar, GasLog Partners LP - CEO & Director [5]

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Thank you, Alastair. Turning to Slide 11 and trends in LNG demand. This slide shows the increase in LNG imports by country on a trailing 12-month basis. LNG demand grew by 43 million tonnes year-over-year, an increase of 14%. China posted the largest increase in absolute volumes, importing 11 million tonnes more LNG or an increase of approximately 22% year-on-year. Natural gas continues to grow as a percentage of the country's overall energy mix, and recently, Sinopec stated it expects China's gas demand to increase by more than 80% from 2018 to 2030.

While Chinese demand continues to be strong, LNG growth has been broad-based, particularly in Europe, where demand in the region grew by nearly 36 million tonnes over the period, an increase of 105% year-over-year. European demand has been bolstered by a combination of declining production, continued coal-to-gas switching for power generation and inventory restocking.

Turning to Slide 12 and the future outlook for LNG demand by geographic region. In total, Wood Mackenzie expects net LNG demand to grow by 150 million tonnes between 2018 and 2025. Although China's imports have been significant in recent years, it's important to note that other countries in Southeast Asia, together with Europe, account for nearly 2/3 of the projected LNG demand growth through 2025.

Turning to Slide 13, which shows the new LNG supply coming online. Next year, over 22 million tonnes of new LNG capacity is planned to begin production, mostly from projects in the U.S., which are expected to have a significant impact on tonne miles. In particular, the second and third trains at Cameron and Freeport are expected to begin production and ramp throughout 2020 and into 2021. Further ahead, there is approximately 94 million tonnes of new capacity scheduled to start production in 2021 through 2024, including venture Global's Calcasieu Pass in Louisiana, which took FID in the third quarter of 2019.

Turning to Slide 14 and a look at future supply growth. The LNG supply outlook continues to be dynamic and growing. While 2019 is already a record year for new project sanctions, Wood Mackenzie expects an additional 7 million tonnes of LNG capacity to reach FID prior to year-end followed by another 61 million tonnes in '20 and 21 million tonnes in 2021. These proposed supply expansions have been supported by continued momentum in new long-term LNG sale and purchase agreements where over 170 million tonnes per annum have been signed since the beginning of 2017.

On Slide 15, we discuss how U.S. exports have positively impacted shipping demand. According to Poten, 119 cargoes were exported from the U.S. in the third quarter, [30 cargos delivered into a Asia] plus another 7% of the Middle East destinations that can require more than 2 ships per each million tonnes of LNG exported per annum compared to a historical global average of 1.3 ships needed for LNG [imported to] the rest of the world. Since exports out of the U.S. began in 2016, an average of 1.8 ships have been required for each 1 million tonnes, a positive development for shipping demand, particularly considering the significant amount of liquefaction capacity expected to be online in The States by the end of 2020, approximately half of which has been sold to Asian buyers.

On Slide 16, we discuss how the demand for LNG impacts the supply and demand balance for LNG carriers. This slide illustrates our view of shipping supply and demand through the end of 2021 based on Wood Mackenzie and Poten data. As you can see, the market is expected to be structurally tighter through at least the end of 2020 based on Wood Mackenzie's latest quarterly LNG supply growth estimates and the on-the-water shipping fleet, plus scheduled vessel deliveries. As a reminder, the partnership's fleet is 98% contracted through the end of this year. And our nearest exposure to the spot market is not expected until December or January, and we expect shipping demand to be strong. In 2020, the partnership's fleet is 81% contracted, and 75% of our open days are weighted towards the second half of the year when shipping demand is expected to be similarly robust.

On Slide 17, we discuss the rate trends in the LNG shipping market. The left panel shows the monthly average headline spot rates for TFDE carriers during 2018 and 2019 while the right panel shows the average headline rate by month for the period beginning in 2011 through 2018. While the absolute values may differ from the historical monthly averages, the trend in 2018 and 2019 has closely followed previously observed seasonal patterns with headline spot rates generally bottoming in early spring and peaking in the fourth quarter. As you can see from the figure, headline spot rates have risen sharply in recent weeks, predominantly as a result of 2 factors: one, increased demand for LNG ahead of the winter heating season in the Northern Hemisphere; and two, the continued start-up of new LNG production facilities, particularly in the U.S.

On Slide 18 and a discussion of recent developments in the multiyear chartering market. As the chart on this slide shows, periods of strength and weakness in the spot market have historically influenced activity for multiyear charters. Most recently, 14 charters between 6 months and 3 years in duration were reported in the third quarter of 2019, the most since Q2 of '18. Of these 14 charters, 6 TFDEs and 16 ships were fixed on charters greater than 6 months. In addition, brokers currently assess the 1-year time charter rate at $84,000 per day for a TFDE and $50,000 per day for a steam vessel, although we would note that the term charter market for on-the-water ships and steams in particular has limited liquidity for charters of greater than 1 year.

Over the last 18 months, we've utilized the periods of strength in the spot market to build on our customer relationships and fixed 3 of our TFDEs for multiple years as well as 1 of our steam ships for 1 year. Our strategy remains to pursue similar opportunities to recharter our ships as the LNG market improves through 2020.

Turning to Slide 19 and a recap of our growth history and distribution guidance. As the far left panel shows, our distributions have now grown at an 8% annual rate since our IPO, backed by a coverage ratio, which has averaged more than 1.1x. Today, we are declaring a third quarter distribution of $0.55 per unit or $2.20 annualized, which represents a nearly 4% increase over Q3 of 2018.

As shown on the far right panel of this slide, we are reiterating our guidance of 2% to 4% year-on-year distribution growth for 2019. This guidance is supported by our accretive vessel acquisitions and positive outlook for the LNG shipping market while also reflecting our 1 dry docking in the fourth quarter and 1 vessel scheduled to end its charter in December.

Now turning to Slide 20. In summary, in the third quarter, the partnership continued to execute the strategy, delivering record quarterly financial performance. Our access to multiple sources of debt and equity capital remains strong, and our 14-vessel dropdown pipeline represents highly visible future growth. We reiterate our target to deliver 2% to 4% distribution growth for 2019 while maintaining prudent coverage and opportunistically repurchasing our common units. Finally, looking longer term, steady progress of new liquefaction facilities and increasing LNG demand should result in strong fundamentals for LNG shipping and create additional opportunities to recharter our ships.

With that, I'd like to now open it up for Q&A. Shannon, could you please open the call for any questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Greg Lewis with BTIG.

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Gregory Robert Lewis, BTIG, LLC, Research Division - MD and Energy & Shipping Analyst [2]

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Andy, it's been interesting to watch the distribution coverage ratio kind of go up a little bit here. And I think when you guys went public, it was more in the 1.1, 1.2 range and now we're up in the 1.3 range. How should we be thinking about that in the medium term as you think about balancing maybe some vessels rolling off contract over the next year? Should we be thinking more along the lines of we're going to opt to be in kind of a new distribution range coverage-type level in sort of the near, medium term?

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Andrew J. Orekar, GasLog Partners LP - CEO & Director [3]

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Yes, Greg, thanks for the question. I think a couple of observations. One, clearly, the challenges that the MLP market's seen for several years now have manifested in coverage seeming to be valued at a premium to incremental distribution growth. So for several years now, it felt like we could have grown the distribution by more than we have, but have begun to prioritize coverage in a more meaningful way.

Having said that, I think you're right that we have some ships that, over the next few years, are ending their current charters, and I think out of prudence, may recharter at lower rates than they're earning today. So it feels that having the substantial level of coverages is both the right thing to do from a market valuation perspective and the conservative thing to do for our distribution sustainability. So that's one of the reasons, really the reason the unit repurchase program has been our focus is it's been adding to coverage and rather than paying that incremental dollar out in distributions, spending it on buying back our stock at these levels has been more effective in our view.

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Gregory Robert Lewis, BTIG, LLC, Research Division - MD and Energy & Shipping Analyst [4]

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Okay, great. And then just one more for me. On some of these vessels that are rolling off charter over the next 12 months, I mean, clearly, the rate market has improved. As we think about some of these vessels that are rolling off, primarily the steam vessels, should we be thinking about those getting recharted before they roll off contract? Or should we be thinking about maybe some idle time or downtime in between when they're going to be winning their next contracts?

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Andrew J. Orekar, GasLog Partners LP - CEO & Director [5]

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Sure. So I think the honest answer is, we're still quite a ways away from a number of them ending their current periods and it's generally difficult to fix the ship until you know where she's redelivering and that sometimes is not known, 30 days -- more than 30 days in advance of the period ending.

So it's still early days on a number of these ships. I think the Jane Elizabeth is a good example of a ship who is ending its charter with Shell and then going into a dry dock and then immediately coming out of dry dock onto a new charter with Trafigura, as Alastair mentioned in his remarks. And so that was really well done by our commercial team in minimizing the time in which it's earning revenues.

I think most likely, there'll be a number of months where these ships are in a spot market. But we -- of course, in many ways as possible, we'll try to get them back-to-back with their existing charters. Having said that as well, the second half of next year, we expect to be quite strong. And so if they're in a spot market for some period of time, it's likely to be a strong one.

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Operator [6]

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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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Andy, first question has to do with the capital return. I think that's really interesting in the slide you laid out equating your share buybacks to a distribution equivalent. You're still trading at nearly 11% yield. And if we kind of do some rough math on where you've used the ATM versus where you've purchased units, it's pretty widespread, like close to 9% on ATM and 11% on buybacks. So you're still kind of in that sweet spot.

You said you'll be opportunistic, but you only have about $5 million left, I think, on the authorization. So does this seem like the time where you've been not getting credit for a 1.3x coverage ratio and the balance sheet, et cetera, and you would still be more aggressive on the repurchase front?

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Andrew J. Orekar, GasLog Partners LP - CEO & Director [8]

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Yes. Thanks, Jon. I think we are -- to put it simply, I think we're more buyers of our stock than sellers anywhere near these levels, that's for sure. And I think we've been consistent -- since we've initiated a buyback program, we've been consistent in the amount we've repurchased in each quarter.

In terms of the remaining authorization, I think, we'll -- my guess is sometime in the new year, we can refresh that with the Board. So that's not really a limitation. But it's -- as you noted, we're some ways away from where issuing common equity would be attractive. But as Alastair mentioned in his remarks, we feel we've got other growth capital alternatives with respect to preferred equity and/or unsecured debt. So we feel there's capital available to us, but it's very unlikely to be common equity anywhere near these share prices.

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

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That makes sense. And my second question was kind of along those lines as well. So you laid out the -- maintaining the 2% to 4% distribution growth this year, which you're essentially there. I know it's too early to kind of give "guidance" on 2020, but it seems like distribution growth isn't being rewarded in the MLP space. You've talked to your yield specifically, or the broader group. So do you really need kind of further dropdowns? And when you think about dropdowns, whether -- regardless of how you can finance them, do you think about them as funding ongoing distribution growth or kind of more fleet replacement, especially as some of the existing charters roll off?

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Andrew J. Orekar, GasLog Partners LP - CEO & Director [10]

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It's a good question. I think for us, we've -- our philosophy for some time has been, as an MLP, it is just fundamental to who we are that we continue to grow our asset base through dropdown and third-party acquisitions, which we've evaluated as well. And so I expect that to continue. The distribution growth itself, as you've noted, is somewhat subject to the way in which the units are being valued and what feels like is being rewarded as sufficient growth. But my view has generally been that if you grow assets, you ought to grow your distribution as well, perhaps not by a like amount, but by a nonzero amount. And so even though we're not thrilled with an 11% yield, that's why we're continuing the guidance we've given for '19.

It is too early to talk about '20. I think '20, there's worth bearing in mind that we do have 4 dry dockings in '20. So there'll be some ships out of the water in Q2 and Q3 as it stands right now. And of course, the number of acquisitions we can do will influence significantly the amount of EBITDA growth and then ultimately, how we think about distributions as well. So still some time to come to think about that. But we certainly believe that growing assets at the partnership level is critical, and we plan to continue doing that.

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Jonathan B. Chappell, Evercore ISI Institutional Equities, Research Division - Senior MD [11]

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That makes sense. One last one, if I could, just to follow up to Greg's question. If we think about the 3 steamships that are rolling off in the next 12 months and think about why the units may be trading at 11% yield, I think that's probably one of the top reasons. And so I understand that you don't know where the last voyage is going to end, and therefore, it's hard to kind of get the next charter in advance in a perfect world. But given that the rates are much stronger than probably anybody thought at this point and I understand that you're optimistic on 2020, but we just -- we don't know. And here we are, and it's kind of our time to shine. Have you thought about maybe just taking a little bit of a discount, just to guarantee that 100% utilization because clearly, that's been very impactful with the new charter with Gunvor just locking in that 100% utilization as opposed to maybe squeezing every last dollar out of the contract rate?

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Andrew J. Orekar, GasLog Partners LP - CEO & Director [12]

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No, you're absolutely right. And I think that mirrors the way we're thinking about it. I would expect that of the ships that we have exposure -- where we have exposure in 2020, it will be a combination of some ships in the spot market for a period of time, hopefully some ships on term charters that, as you say, ensure 100% utilization or perhaps market-linked structures. And I would remind you that the ships -- our steamships have very little debt on them, at the asset level, most are only levered about 40% versus sort of 50% for the partnership as a whole. And so rate levels that are, say, start with a 4, are comfortably above their breakevens because of all the debt we've paid down on them over time.

So we feel we have some flexibility there and certainly share your view that utilization can be very powerful, and we'll be looking to put some away to take advantage of that.

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Operator [13]

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Our next question comes from Chris Wetherbee with Citi.

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Christian F. Wetherbee, Citigroup Inc, Research Division - VP [14]

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I just want to make sure I sort of understand the moving pieces as you see them to -- that may influence how you think about distribution growth in 2020. Obviously, you have a few ships coming off charter that need to be rechartered, sounds like you have some dry docking, if you can give us a date, that would be great like in Q2 and Q3 next year. And so at least those dynamics influence it, and obviously, the market and how it sort of values the units, I think, are things to think about there. Coverage is kind of up relative to what it has been historically. When I pull all those together, number one, am I missing anything? Number two, how does that sort of influence your thoughts directionally about distribution growth compared to what it's been, say, for the last 12 to 24 months?

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Andrew J. Orekar, GasLog Partners LP - CEO & Director [15]

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Sure. I think you've captured all the moving parts, Chris. I think again with no IDRs, continued access to growth capital, even if it's not common equity, we feel we have some very visible growth ahead of us with the dropdown pipeline we have and our sort of funding model. So that kind of continues through 2020.

Clearly, you've seen us moderate growth over time since our IPO. And I think, generally, the MLP sector as a whole has embraced a kind of lower growth, higher coverage model and having growth that is nonzero with good coverage in our minds, especially in our -- within our peer group, feels like a pretty compelling combination.

So I think our growth history is not likely to revert to our early years of double-digit and then high single-digit growth. But I think that's more in keeping with the overall sort of investor dynamic we've been experiencing. And then, as you say, some of the idiosyncratic elements of 2020 where we have some maintenance CapEx to perform on some of our vessels.

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Christian F. Wetherbee, Citigroup Inc, Research Division - VP [16]

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Okay. All right. No, that makes sense. Do you have a number for the dry dock days that you're projecting? I know it's early, but for Q2 or Q3?

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Alastair Maxwell, GasLog Partners LP - CFO [17]

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We can get you some more specific data, Chris, but I -- it will be a little bit longer than usual because of the ballast water treatment system installation, and we usually allow 30, including a bit of sailing time to and from the dry dock. So it might be somewhere around 40, but we can get you a bit more information on that including specific timing.

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Christian F. Wetherbee, Citigroup Inc, Research Division - VP [18]

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Okay. That makes sense. I appreciate that. I guess, maybe one other question. When you think about the fleet more broadly and then -- that you have currently at the partnership and then you think about what the potential dropdowns look like, is there a thought around potentially selling some of the steamships just to kind of completely freshen up the fleet as you think out over the course of the next several years? Obviously, the dropdowns are more modern vessels, you have a high degree of modern vessels already in the fleet. Does it make sense to sort of continue that sort of flow-through? A company at your stage in its life cycle, we haven't really seen vessel sales. And I'm just kind of curious, as you look out over the next couple of years, if it's going to be something that we should be considering just potentially sort of premium up the charter coverage, or premium up sort of the asset base?

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Andrew J. Orekar, GasLog Partners LP - CEO & Director [19]

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Yes, it's something we clearly study. And unfortunately, your observation is correct, Chris. There's essentially no liquidity for second-hand vessels in LNG carriers right now. Now I think that is likely to change. I'm certain it's going to change over time. We're hopeful that it maybe changes in the next 12 to 24 months with the strong market that we're envisioning and people trying to be able to enter the business without having to secure a new building and a new building charter.

So I think we're hopeful that asset sales in our market are possible. But today, just to manage expectations, I think there's very little real out there that, I think, could be explored on that front. But something we monitor very closely and again hope develops with the strength of the market in the next couple of years.

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Operator [20]

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Our next question comes from Randy Giveans with Jefferies.

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Randall Giveans, Jefferies LLC, Research Division - VP,Senior Analyst & Group Head of Energy Maritime Shipping [21]

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So looking at Chart 17, there's obviously been some extreme kind of seasonality with rates rising in the fourth quarter of -- back in 2017, falling sharply in the first quarter, first half 2018; same thing, rising in the fourth quarter of '18, falling sharply in the first quarter of '19. We're already seeing a strong 4Q '19. That said, what, if anything, will kind of keep the seasonal decline in the first half of 2020 more moderate than in recent years?

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Andrew J. Orekar, GasLog Partners LP - CEO & Director [22]

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Yes. So I think there is a natural seasonality as part of this -- really any natural gas business. So that that is -- that is a feature of our market. I would highlight though in most previous seasons, JKM has peaked in December. And this year, while the JKM prices are a bit lower than they've been years past, the peak is expected in February at this time. So there's certainly a thesis that the winter could last longer, so to speak, with more trading opportunities into the new year. Also, you have really just a sort of steady drumbeat of liquefaction being added and being added in here -- in The States behind schedule. So it will be brought on as soon as some of these commissioning exercises can be completed.

So I think you've got a slightly different dynamic than years past where we'll have, by this time next year, Randy, probably twice as much LNG or thereabouts being exported from the U.S. that we have today, and much of that is ramping in the early part of next year including some smaller projects like Elba. So I think there's reason to imagine that the falloff won't be as significant. But I do think it's realistic to expect that the market may be a little bit lower during that shoulder period of March to May than it is right now.

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Randall Giveans, Jefferies LLC, Research Division - VP,Senior Analyst & Group Head of Energy Maritime Shipping [23]

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Got it. That's fair. And then, I guess, one more question for the GasLog Shanghai. What was the average TCE that it earned in the third quarter? And I guess, what is the most it can earn in the fourth quarter? I know there's a ceiling rate but it's likely below the $120,000 a day we're seeing today.

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Andrew J. Orekar, GasLog Partners LP - CEO & Director [24]

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Sure. So unfortunately, the terms of the charter are confidential, so I can't give you a lot of precision on that, but I can give you some guidance. It's linked to a series of broker-quoted rates with a bit of a lag and at a percentage. So if you think about the average rate for the third quarter being in and around $60,000 a day as quoted by the leading brokers, it was at sort of a modest discount to not level for the quarter. And that will carry on through the fourth quarter, as you say, with a ceiling. But the ceiling and the floor are fairly widespread. So it can certainly earn nicely above what we'd say are mid-cycle rates, even if that's not $140,000 a day, it can earn nicely above the mid-cycle numbers you're used to looking at?

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Randall Giveans, Jefferies LLC, Research Division - VP,Senior Analyst & Group Head of Energy Maritime Shipping [25]

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Nicely above. Okay. Sounds good. Congrats again on the Methane Alison Victoria for the Crew of the Year. I know it's a big award to win.

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Andrew J. Orekar, GasLog Partners LP - CEO & Director [26]

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Thank you very much. We appreciate that.

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Operator [27]

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Our next question comes from Mike Webber with Webber Research.

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Michael Webber;Webber Research, [28]

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A lot of this has already been ticked over. But Andy, I wanted to look back to -- actually, to the -- actually the Sydney. So it's one of the tri-fuel you guys have rolling off next year. With Cheniere, I know at the end of that term is going to be a little fuzzy because there's going to be some optionality in the back of it. But does Cheniere has a 6-month advance notice in terms of when they would pick up that option? So that's something you would know about whether that hits the spot market by year-end?

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Alastair Maxwell, GasLog Partners LP - CFO [29]

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No, Mike, it's not 6 months. I have a feeling, it's 2 or 3, it's 60 days. No, I think it might be 60 days. But you're right that it's a 6-months' extension option.

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Michael Webber;Webber Research, [30]

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Okay. Okay. No, so we'll still get clarity on that by the end of Q1, if it sounds like.

Most of the steam questions, have been kind of ticked over, but in the past, when you guys have had or when the space has had tonnage kind of rolling into a market that I know it's [firm] now, there's some concern around kind of 2021, 2022, you've helped form the Cool Pool, which is predominantly tri-fuel assets. Is there -- when you look around the landscape, are there other owners with steam tonnage that are going to be market exposed or you maybe as an alternative to kind of term out, 13-year-old, 14-year-old assets are going to get lucky on that side, you could fund sort of -- or develop some sort of pool employment for 15 tonnage and maybe service some shorter haul or kind of discounted lanes?

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Andrew J. Orekar, GasLog Partners LP - CEO & Director [31]

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It's certainly something we consider, and we've had some brainstorming around pools for various vessel classes. So it's a good thought. Today, there's nothing sort of on the board for that, so to speak. But there's no reason that, that couldn't be similarly effective as the TFDE pool we had with Golar and Dynagas.

But I think that the interesting thing about the relative compression in gas prices globally is that actually suits the steams on a relative basis vis-à-vis the TFDEs, if you've got some shorter -- shorter distances, smaller ports, [that's] staying in-basin, the unit freight cost advantage of a TFDE or even a 2-stroke ship is much smaller by comparison. So I think that's why you've seen steams have a fair bit of activity here in the third quarter, with the caveat you're not seeing a lot of 3-year deals for a steam, you're seeing 6 months to a year and then sometimes shorter voyages. So the sort of market dynamic that we're in around gas prices is actually a bit advantageous to steams on a relative basis.

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Michael Webber;Webber Research, [32]

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Got you. All right. That's helpful. Alastair, and I guess, Andy, I think -- I forget, it was someone earlier kind of mentioned the fact that it takes a lot for an LNG carrier to actually clear on the market now, and there might not be an active S&P market now or really at any real point for LNG tonnage. But when you think about what to do with those steam assets, I know in the past, Alastair, that GasLog has kind of voiced support for the LP. And we've talked about asset swaps or finding different ways to kind of be supportive of the LP structure. That was all kind of pre IDR takeout.

So just curious, within that sort of context, is it fair to say the same level of support, ultimately, is there from GasLog parent with regards to finding a workable solution for the steam assets, or say maybe swapping them back to the parent for something with term, presuming you can get the valuation right on both ends?

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Alastair Maxwell, GasLog Partners LP - CFO [33]

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So Mike, I think that your first comment is absolutely right. That there is -- there continues to be full support from the GP for GasLog Partners, and we do continue to believe that the partnership has access to different pools of capital, which can be valuable to the group going forwards.

In terms of using the steams as currency, if you like, for funding dropdowns, I think nothing is ruled out, but there's nothing under active discussion today. And so yes, it's definitely a possibility, it's something that we have had some conversations around. So I certainly wouldn't rule it out. But I think that we're -- at GasLog Partners, I think we're primarily focused on accessing what you might call more conventional sources of capital, both private and public, both debt and preferred. And I think that, that will be our first choice as means to fund -- to growth.

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Operator [34]

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Our next question comes from Chris Snyder with Deutsche Bank.

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Christopher M. Snyder, Deutsche Bank AG, Research Division - Research Associate [35]

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So just another one following up on the steam fleet outlook. So even in this relatively tight LNG shipping market and one that, I guess, actually, be pretty supportive of steam with the low commodity price. We're still only seeing 1-year term opportunities at the most for the steam fleet. So I'm just wondering if you see any opportunities here for conversion into either floating storage units or other applications where term employment is usually much larger. The GasLog parent recently announced a conversion of a younger and larger vessel. So I guess, my question is, do you see potential opportunities here for the steam fleet? Or are they too small or old for such applications where there's a very long contract associated?

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Andrew J. Orekar, GasLog Partners LP - CEO & Director [36]

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Yes. No, I think you're spot on. And in fact, I think the FSU market might actually be a better fit for steams than the FSRU market given the power requirements of the latter business model. So I think there are other uses for steams rather than carriers at a relatively low capital cost in the project that our parent is pursuing in Panama, a great example of a market that's just getting going.

But I do think I want to be a little careful because we're in a market today where there's essentially no ships available, as you would see from the rates, and you've got an on-the-water fleet size of about 500 ships and more than 40% of that number are steamships, and in fact, about 70 of that number are steams that were built before 2000. So we're in a market where potentially every ship is required -- with, of course, some seasonality during the year. And so I think while I would agree that you're probably not likely to see a 7- to 10-year deal for an on-the-water steamship as a carrier, there does very much feel like a place in the market for these assets. And we, in fact, did bid on an opportunity for a multiyear charter for a steamship to a very well-known customer that one of our competitors, unfortunately won.

So they're out there, but they are -- you're right in saying that they're likely to be shorter-term opportunities, but they're absolutely essential for the market that's being serviced today.

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Christopher M. Snyder, Deutsche Bank AG, Research Division - Research Associate [37]

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Okay. Yes, makes sense. And then just kind of following up on the tight market. So the spot rates are tracking extremely, almost eerily similar to what we saw last year despite a much lower LNG commodity price. So I guess, how do you compare what you're seeing in the market today versus this time last year? And how do you think about the recent Q4 day rate inflection despite a still sluggish commodity price? Does this add like an incremental positive to kind of the underlying fundamentals you see in the market?

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Andrew J. Orekar, GasLog Partners LP - CEO & Director [38]

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Yes, thanks for the question. I think what's been a little lost in the narrative around weak global gas prices is we're threatening the record high freight rates in a market where JKM is $6 in December and not $11. And so to us, that signifies that you've got some real underlying demand and a structural shortage of ships that's driving freight rates high despite not as many trading opportunities for our customers.

So I think it's really -- many of these long-awaited themes of particularly U.S. liquefaction are finally producing on a meaningful scale that we expect to continue over the next 12 months. And hopefully, we'll have a bit of a tailwind in months and quarters to come with higher gas prices in Europe and Asia. But even with this muted environment, you're seeing close to record rates again. So it feels like a corroboration of the demand trends we've been discussing.

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

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And just one last quick one, if I can. Andy, I thought it was very interesting what you said earlier about the LNG forward curve peaking in February 2020 when normally the commodity peaks out in December. So I guess a question, what's causing this?

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Andrew J. Orekar, GasLog Partners LP - CEO & Director [40]

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If I knew, I probably wouldn't be on this phone call, but I think there's been a couple of issues we've seen, I think, last year, and it's in previous years, there was storage built up ahead of a winter demand and expected cold weather that never really came through in Japan and China. So hopefully, we're reverting to a more normalized weather pattern this year. And so I think that's part of the dynamic that last year was really an exception to the rule of the seasonal timing of that demand.

And then I do think you're -- you've had a number of projects that delay and now are finally reaching close to some nameplate capacity, especially here in The States, we saw, I think it was a week ago, we saw a record feed gas for the U.S. LNG projects of 7 Bcf a day, which is a good indication of the trains actually producing what they're supposed to be. So there's just the opportunity for more gas to be sold later in the year as we move -- as kind of as we move through the winter and schedule cargoes. So other than that, hard to say for sure.

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Operator [41]

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(Operator Instructions) Our next question comes from Ben Nolan with Stifel.

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Benjamin Joel Nolan, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [42]

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I have a couple of questions. One is sort of capital allocation-related, but really is more on the debt side. I think, Alastair, you said that the plan over the next 2 years was to repay, about $200 million of debt, and in the release, it said around $110 million for this year. Is that incorporating in some refinancing? Or is -- just to be clear, is the target really pretty aggressive actual reductions of the debt balance?

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Alastair Maxwell, GasLog Partners LP - CFO [43]

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No Ben, it's just scheduled amort. So it's roughly $110 million per year and that's just -- it's obviously moved on a per vessel basis, but if you aggregate it up to the -- for the consolidated fleet of the partnership, that's just what we're due to pay on an annual basis over 2019 and 2020. There's not been any -- there's no refinancing in there.

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Benjamin Joel Nolan, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [44]

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I understand. To that end, or just kind of doing the math, if you are paying that down and then given the current distributions as they stand now, doesn't really leave a whole lot left for distribution growth or buybacks unless there is some other element of growth or something else that works in there? So is that sort of also an important element in how to think about where you stand going forward and sort of what the capital needs are relative to the capital wants?

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Alastair Maxwell, GasLog Partners LP - CFO [45]

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So I think the important thing like the amort, and we've said this on a number of different calls now is that the amort schedule is -- the profile is roughly sort of 15, 16, 17 years, and the ships have a trading life -- there are ships that are trading with 40 years of life, but somewhere between 30 and 40 years. So what the amort does for us is it creates incremental balance sheet capacity. Now what we're not going to do is relever the business to levels which are -- which are not appropriate. But it does give us an additional lever that we can pull on in terms of accessing capital. And then how we allocate that capital, as you say, is correct, does that go towards growing the asset base and growing the underlying cash flows or does it go towards repurchasing units. So that's where we have some choice around how -- what we do with that capital. But that, I think, is the message around the amort and the impact of the amort.

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Benjamin Joel Nolan, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [46]

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Okay. That's helpful. And then, Alastair, another thing I wanted to just touch on a little bit that you mentioned briefly, was that you're undergoing some cost-cutting efforts and finding ways to do things efficiently. I was wondering if you just maybe put some color around what that entails. And ultimately, what -- if it's possible to put some sort of a number around how much you might be able to -- how much blood might be in the rock here?

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Alastair Maxwell, GasLog Partners LP - CFO [47]

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So at the Investor Day in 2018, we talked about looking for savings of approximately $1,500 per vessel per day over the time horizon between '17 through '22 -- i.e., the end of '17 through '22. I think that based on what we know today -- and that was across G&A and OpEx. Based on what we know today, we're very confident that we will hit that target. And I think, actually, we'll do better than that target. If you look at the costs today, our total cost base, it's roughly 2/3 OpEx and 1/3 G&A. And so I would expect savings to be roughly proportional to the cost base that we have in the business as a whole today.

Some of this is coming through a relentless focus on just the blocking and tackling in the business around procurement, negotiating contracts, maintenance arrangements, maintenance scheduling, leverage over yards for dry docking, really, really basic stuff, which individually doesn't make massive contributions, but when you add it all up, it has a significant impact.

The other factor is growth in the fleet because we look at this very much on a unit basis. And as the fleet grows, we're not adding G&A proportionately, we're not adding vessel management costs proportionately. So some of this is underlying cost reduction, some of it is the effect of scale over time. Does that help?

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Benjamin Joel Nolan, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [48]

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Okay. No, that is very detailed, and I really appreciate it. So it does for me.

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Alastair Maxwell, GasLog Partners LP - CFO [49]

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Thanks.

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Operator [50]

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Our next question comes from Espen Landmark with Fearnley.

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Espen Landmark Fjermestad, Fearnley Securities AS - Partner of Equity Research [51]

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Sorry if we keep going on with these steam turbines, but it's obviously important for the long-term story. So first question, I guess, we can pretty much calculate this ourselves, but the cash breakeven on the turbines when you include operating costs, debt service, dry dockings and whatnot, what's that number roughly?

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Andrew J. Orekar, GasLog Partners LP - CEO & Director [52]

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Espen, I would say it's probably in the high 20s, low 30s. It depends a little bit on the vessel, and it depends on how much debt she's got and so on, but high 20s, low 30s.

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Espen Landmark Fjermestad, Fearnley Securities AS - Partner of Equity Research [53]

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Okay. And secondly, probably a bit more difficult question, but there's been a few shipowners seeking price indications for their TFDEs this year. And it seems price talks a bit below what would typically be broker quotes. So I was wondering what you think are fair values for the steam turbine also on a charter-free basis? I know you have them in the books for around 130?

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Andrew J. Orekar, GasLog Partners LP - CEO & Director [54]

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Yes, Espen, it's Andy. I wouldn't want to comment on that. Obviously, every quarter, we go through a very rigorous process for what our assets are worth as of our balance sheet date. And that's scrubbed internally and externally. And so we're comfortable with the asset values that we have today. I'm not surprised to hear that maybe if others are trying to sell assets in the market that's rather illiquid that maybe some low prices are required to get them to move. But other than that, we haven't seen a lot of those opportunities, nor seen a lot of evidence of transactions happening. So hard to say, other than we're very comfortable with the values that we're reporting in our balance sheet.

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Espen Landmark Fjermestad, Fearnley Securities AS - Partner of Equity Research [55]

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Fair enough. And finally, so to say that the cash breakeven is 30 a day. How many of those could you kind of put away on a profit split contract, similar to one you have on -- or what we have seen elsewhere in the space recently?

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Alastair Maxwell, GasLog Partners LP - CFO [56]

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You mean sort of things which are not just fixed rate term charters, right?

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Espen Landmark Fjermestad, Fearnley Securities AS - Partner of Equity Research [57]

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This is to say you're logging your 30 a day for cash breakeven, and then there's a profit split on top. Could you do that on some of these stream turbines?

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Alastair Maxwell, GasLog Partners LP - CFO [58]

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Interesting question. We haven't done that. I'm not saying that we couldn't or wouldn't. What we have done is with the GasLog Shanghai, as you know, entered into a market-linked rate, we continue to look with our customers at quite a large number of different options, which may be related to the shipping rates, that may be related to commodity prices and differentials, that may have flexibility around seasonal usage and so on.

So I think there's quite a lot of different options. And we're being quite proactive in exploring those options with customers. Clearly, what we're trying to do ultimately is to align the interest of our customers in having access to efficient shipping when they need it. And for us, it is getting utilization as high as we can on the vessels, which don't have long-term charters. So I think the answer is, I'm not saying yes or no to that particular structure, but we're very much -- we're trying to be as creative as we can in terms of the commercial employment of our ships.

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Operator [59]

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Thank you. And I'm currently showing no further questions at this time. I'd like to now turn the call back over to Andy Orekar for closing remarks.

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Andrew J. Orekar, GasLog Partners LP - CEO & Director [60]

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Thank you, Shannon. Thank you all very much for listening. We very much appreciate your continued interest in GasLog Partners, and we look forward to speaking to you again next quarter. Thanks very much.

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Operator [61]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.