U.S. Markets closed

Edited Transcript of GLOP earnings conference call or presentation 25-Jul-19 12:30pm GMT

Q2 2019 GasLog Partners LP Earnings Call

Jul 30, 2019 (Thomson StreetEvents) -- Edited Transcript of GasLog Partners LP earnings conference call or presentation Thursday, July 25, 2019 at 12:30:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Alastair Maxwell

GasLog Partners LP - CFO

* Andrew J. Orekar

GasLog Partners LP - CEO & Director

* Joseph Nelson

GasLog Partners LP - Deputy Head of IR

================================================================================

Conference Call Participants

================================================================================

* Christian F. Wetherbee

Citigroup Inc, Research Division - VP

* Christopher M. Snyder

Deutsche Bank AG, Research Division - Research Associate

* Christopher Warren Robertson

Jefferies LLC, Research Division - Equity Associate

* Hillary Cacanando

Wells Fargo Securities, LLC, Research Division - Associate Analyst

* Liam Dalton Burke

B. Riley FBR, Inc., Research Division - Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good morning. My name is Darinda, and I will be your conference operator today. At this time, I would like to welcome everyone to the GasLog Partners Second Quarter 2019 Results Conference Call. After the speakers' remarks, there will be a question-and-answer session.

As a reminder, this conference call is being recorded.

Today's speakers will be 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.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Good morning, and thank you for joining GasLog Partners Second 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 second 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.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Thank you, Joe. Good morning, and thanks to everyone for joining GasLog Partners Second Quarter Earnings Call. I'll begin today's call 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 for the second quarter. After another strong quarter of operational and financial performance, today we reported our highest ever Partnership Performance Results for Revenues and EBITDA, with year-over-year increases of 23% and 27%, respectively.

During the second quarter, we closed the accretive dropdown acquisition of the GasLog Glasgow with its attached charter to Shell, rechartered the GasLog Shanghai for 3.5 years and eliminated our general partners' incentive distribution rights.

In addition, we repurchased approximately $10 million of our common units, and declared a distribution of $0.55 per unit, or $2.20 on an annualized basis, unchanged from the first quarter, but increase of nearly 4% over the second quarter of 2018.

And lastly, today we are reiterating our guidance of 2% to 4% distribution growth for 2019.

Turning to Slide 4. As you can tell from our busy second quarter, we continue to take strategic actions to enhance the investment proposition for GasLog Partners unitholders, and today we feel it is important to remind the market of what distinguishes us from our peers.

First, we are one of the few MLPs that checks the box for corporate tax reporting, and as a result, holders of our units receive a form 1099 with respect to the distributions we pay, not a burdensome K-1.

Second, we are one of only a handful of MLPs that offer pure play exposure to the large and growing market for LNG infrastructure.

Third, we delivered superior EBITDA growth since our IPO as well as continued distribution growth despite broader MLP market volatility. And most recently, we became the first of our peers to fully eliminate our general partners' incentive distribution rights.

Turning to Slide 5. This consistent performance of our business has been underpinned by our expanding customer relationships and track record of rechartering our vessels. Last month, our commercial success continued as we chartered the GasLog Shanghai for 3.5 years to Gunvor, one of the world's leading commodity traders with a large and growing presence in LNG.

The agreement marks our fourth new term charter in the last 15 months and further expands our customer base, which also includes Shell, Cheniere and Trafigura.

The new charter to Gunvor has a variable rate of hire based upon an agreed range. And the GasLog Shanghai will be 100% utilized during the charter period. We are excited to be working with Gunvor and look forward to being able to demonstrate our platform for another new and high quality counterparty.

Turning to Slide 6. This slide reviews how our new charter for the GasLog Shanghai and recent acquisition of the GasLog Glasgow have helped derisk our future financial performance. On the left panel, you can see that our contracted backlog at the end of Q2 has increased 9% to over $1.1 billion as a result of our 2 acquisitions since the second quarter of 2018 and the rechartering of the GasLog Santiago, Sydney, Shanghai and one of our steamships.

On the right-hand chart, you can see that our pro forma charter coverage for the second half of 2019 has increased to 99% from 91%, while our coverage for 2020 has now risen to 81% from 68%.

Turning now to Slide 7, where I'll discuss the elimination of our general partners' incentive distribution rights and how it positions the partnership for continued growth. As consideration for removing the IDRs, the partnership issued to GasLog approximately 2.5 million new common units and 2.49 million Class B units, which represented a cash flow neutral transaction with respect to the IDR payment GasLog received in Q1 2019. The newly issued Class B units have no voting rights and are not entitled to receive cash distributions until they convert into common units at a rate of 415,000 units beginning on July 1, 2020, and continuing each July 1, until 2025.

The transaction is immediately accretive to distributable cash flow per unit, reduces our expected cost of capital, increases potential accretion from future acquisitions and strengthens our alignment with our parent, who continues to be, by far, the largest unitholder of GasLog Partners with now a 35% ownership interest.

With our 13 vessel dropdown pipeline and no future IDR obligations, GasLog Partners remains well-positioned for continued success.

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

--------------------------------------------------------------------------------

Alastair Maxwell, GasLog Partners LP - CFO [4]

--------------------------------------------------------------------------------

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 8 for our financial and operational highlights. In the second quarter of 2019, we achieved record quarterly partnership performance results for revenues and EBITDA. We showed robust year-over-year increases of 23% and 27%, respectively, while our distributable cash flow increased by 28%. Our strong financial performance was due to our 2 vessel acquisitions in 2018, and 1 in 2019.

Operationally, our fleet continues to perform exceptionally well, with out time of 100% during the quarter and unit OpEx of $14,559 per vessel per day, which was approximately in line with the same quarter last year. Year-to-date, our unit OpEx has fallen to $14,672 from $15,128 in the first half of 2018.

While we are benefiting partially from a stronger U.S. dollar/euro exchange rate, we're also making good progress with our Investor Day cost reduction targets.

As you can see in the bottom row of the table, our reported distribution coverage for the second quarter was 1.1x. This increases to 1.16x when adjusting for the dry docking of the Solaris, which was completed ahead of schedule and under budget.

Looking forward, we have 1 scheduled dry docking in the fourth quarter, which we anticipate will take 30 days to complete.

Turning to Slide 9 and a discussion of our balance sheet and how our leverage naturally declines over time. In the top panel, we set out to demonstrate how our amortizing debt builds balance sheet capacity and equity value in our fleet, using the recent acquisition of the GasLog Glasgow as an example. As the table on the top left shows, we assumed $134 million of existing debt upon acquisition along with our multiyear charter to Shell, which generates approximately $23.5 million in EBITDA on an annual basis.

Our debt amortizes at roughly twice the rate our ships depreciate. And as the chart on the top right displays, our loan to book value ratio on the Glasgow declines by over 14% by the end of 2021, while our debt to EBITDA declines by over [a turn and a half] to approximately 4x. By the time the charter expires in June of 2026, the vessel will have depreciated by approximately 30%, while we will have amortized approximately 70% of the vessel's debt and the loan to book value ratio will be approximately 30%.

For the partnership as a whole during 2019 and 2020, we expect to amortize approximately $110 million per annum in debt, equivalent to almost 1x EBITDA and 9% of total cap over the period. A good example of how we're able to take advantage of this feature is our recent refinancing of the $450 million facility which delivered an incremental $90 million of liquidity over and above the amount due on the loan.

Please turn to Slide 10, where I'll discuss our recent fleet developments. The chart on this slide shows the 15 vessels comprising the partnership's fleet. With the GasLog Shanghai now on charter to Gunvor, the partnership's nearest upcoming charter renewal is for either of the Methane Alison Victoria or the Methane Jane Elizabeth in the fourth quarter of this year. As Andy will discuss later, we expect a strengthening LNG shipping market later this year and into 2020, to create opportunities to recharter our open ships.

Following the acquisition of the GasLog Glasgow, the partnership expects to meet its distribution growth guidance for the year without the need for additional dropdowns. However, we expect to continue to acquire assets from our parent at our historical pace of some 2 vessels per year.

Please turn to Slide 11, where I'll discuss our future growth opportunities. The chart shows the 13 vessels with multiyear charters owned by our parent. Together, the charter periods extend from 2025 to 2032 and represent approximately $2.8 billion in contracted backlog and some $280 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 will 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 both public and private debt and equity capital, GasLog Partners remains poised for continued growth.

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

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Thank you Alastair. Turning to Slide 12 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 38 million tonnes year-over-year, an increase of 13%.

China posted the largest increase in absolute volumes, importing over 13 million tonnes more LNG, or increase of approximately 31% year-on-year as the country continues to increase natural gas as a percentage of its overall energy mix. While Chinese demand continues to be strong, LNG growth has been broad-based, particularly in Europe, where demand in the region grew by 26 million tonnes over the period, an increase of 68% year-over-year. European demand has been bolstered by a combination of declining indigenous gas production and continued coal-to-gas switching for power generation.

Turning to Slide 13 and the future outlook for LNG demand by geographic region. In total, Wood Mackenzie expects net LNG demand to grow by nearly 150 million tonnes between 2018 and 2025. Although China's imports have been significant in recent years, it is important to note that other countries in Asia, led by Bangladesh, Thailand, Malaysia and Pakistan, plus Europe together, account for nearly 2/3 of the projected LNG demand growth through 2025.

Turning to Slide 14, which shows the new LNG supply coming online. This year, over 21 million tonnes of new LNG capacities plan to begin production, mostly from projects in the U.S., which are expected to have a significant impact on tonne miles. In particular, initial trains at Cameron, Freeport and Elba Island, have been production or their commissioning phase and are anticipated to ramp up through the end of the year.

Further ahead, there's approximately 107 million tonnes of new capacity scheduled to start production in 2019 through 2024, including Sabine Train 6 and Mozambique LNG, both of which took FID in the second quarter of 2019.

The LNG supply picture continues to be dynamic and growing. Between now and the end of this year alone, Wood Mackenzie expect an incremental 45 million tonnes of LNG capacity to reach FID.

On Slide 15, we discuss how U.S. LNG exports have positively impacted shipping demands. According to Poten, 116 cargoes were exported from the U.S. in the second quarter. 28% of these cargoes delivered into North Asia, a destination 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 each million tonnes.

Since exports out of the U.S. began in 2016, an average of 1.8 ships have been required for each million tonnes per annum, 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 on a multiyear basis 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 2020, 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 demand growth estimates and the on-the-water shipping fleet plus scheduled vessel deliveries.

On Slide 17, we discuss the seasonality in the LNG shipping market. The left panel shows the monthly average headline spot rates for TFD carriers during 2018 and 2019 year-to-date, while the right panel shows the monthly average from the period beginning in 2011 through 2018.

While the absolute values may differ from the historical monthly averages, the trend in 2018 and 2019 have closely followed previously observed seasonal patterns, with headline spot rates generally bottoming in early spring and peaking in the fourth quarter. There have been a number of factors that exacerbated the usual seasonality so far this year, including high inventory levels of LNG in Asia, the result of a warmer-than-average winter and cooler-than-average summer so far, unplanned downtime at several LNG export terminals and startup delays at several new projects, and new vessel deliveries. However, as the historical data on this chart suggests, we expect the market to return to higher LNG shipping activity levels and stronger spot rates as we move into the heating season in the Northern Hemisphere and new large LNG projects in our production, many of which are in the U.S., as I detailed earlier.

As a reminder, the partnerships' fleet is 99% contracted through the end of this year and our nearest exposure to the spot market is not expected until the final months of 2019, when we expect shipping demand to be strong.

Turning to 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. Last year was no exception, as a record number of charters greater than 6 months were reported, while spot rates for LNG carriers set all-time highs.

More recently, 13 charters between 6 months and 3 years in duration, were reported in the second quarter of 2019, despite the subdued spot rates I discussed on the previous slide. In addition, you'll note brokers currently assess the 1-year time charter rate at approximately $85,000 per day in contrast to the current headline spot rates of $64,000 per day, and potentially indicating a tighter market over the coming quarters.

Over the last 18 months, we've utilized the periods of strength in the spot market to build on our customer relationships and fix 3 of our TFDs for multiple years as well as one of our steamships for 1 year. We anticipate similar opportunities to recharter our ships as the LNG carrier market improves during the remainder of 2019 and through 2020.

Turning to Slide 19, recap of our growth history and distribution guidance. As the far left panel shows, our buyback program diversifies our means of returning capital to investors and underscores our focus on total unitholder returns, which have now grown by 14% per unit on a trailing 12-month basis.

Today we are declaring a second quarter distribution of $0.55 per unit or $2.20 annualized, which represents a nearly 4% increase on a year-on-year basis. As shown on the far right panel of the slide, we are reiterating our guidance of 2% to 4% year-on-year distribution growth for 2019.

This guidance is supported by our recently completed accretive acquisitions and positive outlook for the LNG shipping market, while also reflecting our dry docking schedule for the year and one vessel coming off charter in the fourth quarter.

Now turning to Slide 20. In summary, in the second quarter the partnership continued to execute its strategy, closing our 12th acquisition since IPO, rechartering the GasLog Shanghai for 3.5 years and becoming the first of our peers to eliminate our IDRs.

Our access to multiple sources of debt and equity capital remain strong, and our 13 vessel dropdown pipeline represents highly visible future growth for the partnership.

With the GasLog Glasgow acquisition now closed, 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 and increasing LNG demand should result in strong fundamentals for LNG shipping and create additional opportunities to recharter our vessels.

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

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) The first question comes from Chris Wetherbee from Citi.

--------------------------------------------------------------------------------

Christian F. Wetherbee, Citigroup Inc, Research Division - VP [2]

--------------------------------------------------------------------------------

Wanted to just touch base first on sort of the IDR relationship relative to the distribution growth rate. So I think you are confident in the ability to hit the numbers even without the potential dropdown, another potential dropdown later on this year. And when you think out beyond 2019, without the IDRs, is it reasonable to assume that you might get comfortable with sort of the higher end of the range kind of going forward? Or is there a new way to sort of think about what distribution growth profile might look beyond 2019?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Sure. I think, Chris, you've heard us say before and, unfortunately, it continues to be true, that it doesn't appear we're getting full credit in our valuation for the growth that we've been delivering, and it does appear that, perhaps, incremental distribution coverages is being valued at a premium to incremental growth.

So I think at this time, of course, we only give guidance for the year ahead in 2019 of 2% to 4%, that we're still very confident in. Looking beyond that, I think I'd only say that it feels like a low single-digit distribution growth with prudent coverage and a strong balance sheet is a pretty compelling combination of MLP investment characteristics at the moment.

And so I think that's generally where we're oriented. But of course, we'll be giving that some thought as we move closer to 2020 and beyond.

--------------------------------------------------------------------------------

Christian F. Wetherbee, Citigroup Inc, Research Division - VP [4]

--------------------------------------------------------------------------------

Okay. That's helpful and certainly understood. I guess in that context when you think about capital return to shareholders, obviously, you guys have been more diverse than just through your distribution with the repurchase of some units.

Is it fair to assume that relative to where valuations stand today, that that continues to be an option that you might explore?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Yes. I think we're -- thanks for pointing that out. It's something that we're excited about continuing to execute, because it does, at these levels, continue to be accretive and it is improving our distribution coverage as we go. So I think it's something we'll continue to do opportunistically. Of course, as an MLP, the vast majority of our return will be through the common distribution. But I would expect unit repurchases to remain an option for us, and we're pleased with the progress we've had so far and to date.

--------------------------------------------------------------------------------

Christian F. Wetherbee, Citigroup Inc, Research Division - VP [6]

--------------------------------------------------------------------------------

Okay. Got it. Makes sense. Then just one more. Just when you think about sort of the chartering market, obviously, the deal on the Shanghai has some variability to it, which is interesting and sort of brings a different twist to the portfolio. When you think about opportunities for incremental chartering, you have some -- I guess the next ships up are the steam vessels. Is that a potential probability for chartering for those ships? Or how do you think about that in the construct of the portfolio balancing? How much exposure do you want to have toward that variable rate environment, even if you can keep the utilization 100%?

--------------------------------------------------------------------------------

Andrew J. Orekar, GasLog Partners LP - CEO & Director [7]

--------------------------------------------------------------------------------

Yes, I think we'd very much consider this contract structure for future vessels again. As you mentioned, utilization really is king and has a significant impact on the earnings you're realizing from the vessels, which is what was so attractive to us about this agreement.

We also like this, because, as we said in our remarks, we think there will be an extremely strong period in the market here later in '19 and in through '20, and so we can retain some of that upside for what we hope is above mid-cycle earnings. And so the structure has a nice benefit at this time in the market as well.

--------------------------------------------------------------------------------

Operator [8]

--------------------------------------------------------------------------------

The next question comes from Hillary Cacanando from Wells Fargo.

--------------------------------------------------------------------------------

Hillary Cacanando, Wells Fargo Securities, LLC, Research Division - Associate Analyst [9]

--------------------------------------------------------------------------------

So obviously the demand from Northeast Asia has been weak during the first quarter -- first half of the year, and I guess stockpiling should begin maybe like September, October.

Do you envision that to be different this year just given the tariffs on China? Anything to be different this quarter or this year versus last year in terms of preparation for the peak season?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Sure. I think generally LNG inventory levels have been higher in Asia year-to-date, than they were in '18. But as you correctly note, we are now reaching that time of the year where importers are beginning to think seriously about volumes they need for the winter heating season. In fact, I think we're beginning to see that with South Korea beginning to arrange more cargoes for delivery.

So I think the general seasonal pattern where Asia demand increases around this time of year should hold. The magnitude of that compared to last year's hard for us to comment on right now. But the overall trend should be the same.

--------------------------------------------------------------------------------

Hillary Cacanando, Wells Fargo Securities, LLC, Research Division - Associate Analyst [11]

--------------------------------------------------------------------------------

Okay. And then we're hearing that the storage in Europe is getting pretty saturated. Are you seeing diversion of cargoes from Europe to somewhere else, to other parts of the world, maybe other than Northeast Asia? And do you expect that to impact the shipping rates any in the future, in the near future?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

No, I wouldn't say we're seeing cargoes diverted from Europe. I do think there are some potentially interesting trading opportunities that are arising from how strong demand has been in Europe, which I guess is currently experiencing its sort of second midyear heat wave of the summer, and so there's been some pretty consistent demand with even spikes in an already elevated level. And maybe there are some opportunities to deliver cargoes more profitably in Europe than their might be in the next few months in Asia.

But not seeing anything that is causing cargoes to be diverted from Europe because storage is full, just yet.

--------------------------------------------------------------------------------

Operator [13]

--------------------------------------------------------------------------------

(Operator Instructions) Next question comes from Chris Snyder from Deutsche Bank.

--------------------------------------------------------------------------------

Christopher M. Snyder, Deutsche Bank AG, Research Division - Research Associate [14]

--------------------------------------------------------------------------------

So I see from the filings that the Shanghai generated TC revenue about $1.9 million. I know it left the fleet, I think you said June 23rd, so maybe around 80 days. But the TC rate on that only comes in at like the $20,000 per day range.

Was there something going on specifically with the Shanghai? Or is this indicative of broader Q2 Cool Pool performance?

--------------------------------------------------------------------------------

Alastair Maxwell, GasLog Partners LP - CFO [15]

--------------------------------------------------------------------------------

Chris, it's Alastair. No, I think this is just indicative of a broad spot market performance in Q2, and the Shanghai, as you rightly say, traded in the Cool Pool for the vast majority of the second quarter. It was only the last 6 or 7 days that she was outside the Cool Pool. So it's just indicative, really, of market conditions in Q2, in terms of the combination, as we talked about in the past, of headline rates, utilization and the other factors which drive TCE.

--------------------------------------------------------------------------------

Christopher M. Snyder, Deutsche Bank AG, Research Division - Research Associate [16]

--------------------------------------------------------------------------------

Okay. Fair enough.

--------------------------------------------------------------------------------

Alastair Maxwell, GasLog Partners LP - CFO [17]

--------------------------------------------------------------------------------

The only thing I would say is, we definitely see an improving trend in Q2. So if you look at where the market was and where utilization levels and TCEs were in April and you compare that to where June was, June was at significantly higher levels and significantly higher levels than the average for the quarter. So certainly, as I think as Andy was saying in his remarks, we see an improving trend and we see that continuing into the second half of the year.

--------------------------------------------------------------------------------

Christopher M. Snyder, Deutsche Bank AG, Research Division - Research Associate [18]

--------------------------------------------------------------------------------

Okay. Fair enough. And then maybe just kind of touching on the index-linked contract. I think it obviously makes a lot of sense, takes out the utilization headwinds.

But from the charterer's perspective, why would they pick this structure over just taking vessels out of the Cool Pool? Because obviously in the Cool Pool, they can pick and choose when they want the vessel, effectively paying less over any sort of demand requirement.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Sure, Chris. It's Andy. I think there's different structures for different customers. I think in this case of Gunvor, we developed a relationship with them originally through a series of spot charters and they had a history of reliable delivery with the strength of the GasLog operating platform using GasLog Shanghai. So this specific ship they had familiarity with and were happy with. So I think it was as much as wanting to continue a very productive operational and commercial relationship around this vessel. As you say, they might use a variety of spot ships or spot charters for their other needs.

But I do think it's a good reminder that 85% of the shipping fleet today continues to operate under term charters, and that's because roughly a same amount of LNG is bought under term arrangements rather than spot. And so term shipping is a very key feature even for commodity traders who are very dynamic and are open to all sorts of creativity around their shipping needs.

--------------------------------------------------------------------------------

Christopher M. Snyder, Deutsche Bank AG, Research Division - Research Associate [20]

--------------------------------------------------------------------------------

Okay. Yes, makes sense. And then just lastly, you obviously got strong term on that contract, like 3.5 years. Is similar term opportunities [unavailable]? Should you have looked at a fixed rate? Or are charterers only really willing to go out that far on an index-linked contract? And then just how does the 3-year term market, if it's even available, how does that look to what we see kind of as the 1-year published time charter rates? And that does it for me.

--------------------------------------------------------------------------------

Andrew J. Orekar, GasLog Partners LP - CEO & Director [21]

--------------------------------------------------------------------------------

Sure. Just to answer your first question, no, I wouldn't say it was the market link -- the 3.5 years was only available because of the market link structure. I think that they'll probably continue [through the] opportunities for more and less term under both fixed rate and some sort of variable rate. So I think this is an interesting structure, and I expect we'll probably do more of these. But I also expect we'll do more fixed rate deals.

As you can see from our remarks, the rates being quoted for 1-year charters are quite a bit stronger than the current spot rates. I would say there's probably more liquidity in that part of the market than 3- to 5-year deals for on the water ships. But there are also many customers looking for that type of multiyear exposure, particularly among the U.S. off-takers, many of whom have not fully arranged their shipping for projects that, of course, have delayed it, but are now finally coming on line and producing.

So I'd say there's more liquidity for a 1-year deal than a 3- to 5-year deal. But there's 3- to 5-year deals that we're evaluating as well.

--------------------------------------------------------------------------------

Operator [22]

--------------------------------------------------------------------------------

Our next question comes from Randy Giveans from Jefferies.

--------------------------------------------------------------------------------

Christopher Warren Robertson, Jefferies LLC, Research Division - Equity Associate [23]

--------------------------------------------------------------------------------

This is Chris Robertson on for Randy. Congrats on the busy and successful quarter.

So it looks like there's quite a wide variety in terms of the dropdown pipeline in terms of contract expiration dates. I guess given the preference, how long would you expect the next dropdown contract duration be? When you're kind of ranking those possibilities, how would you rank kind of looking at contract expiration date versus the counterparty that the charter is with versus kind of the age and size of the vessel?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Sure. So I think we're, in a sense, we're spoiled for choice with the extensive dropdown pipeline we have, all of which have contracts greater than 5 years, some going out as far as nearly 10 years. And the counterparties are all of outstanding quality of Shell, Total, Cheniere, Jera, [Adesa] in the coming years.

And so they're really all very high-quality options. I think my only comment would really be, we'll continue to drop assets down with at least 5 years or more. Our more recent dropdowns have had quite a bit more than 5 years. And we have several to choose from. We have the good fortune of assuming the debt on the vessels, that Alastair's done a great job arranging, all of which is very low cost. Some vessels have a little bit more, more or less debt than others, which we evaluate as we think about our next dropdown candidates.

And so it's really, the economics of each dropdown are different, but the characteristics of the vessels in terms of their quality counterparties, are quite similar. But I would generally say that we have a history of dropping down vessels, our parent builds a new build and operates it for some number of years, and on the balance, we tend to drop it down and acquire it when it's 2 to 4 years old. There's a few exceptions to that, but as a general rule, that's probably where we'll focus first.

--------------------------------------------------------------------------------

Christopher Warren Robertson, Jefferies LLC, Research Division - Equity Associate [25]

--------------------------------------------------------------------------------

Got you. With regards to the Shanghai, can yes give us any detail or kind of update on kind of the earnings to date in the current quarter?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Yes. We certainly can't give a dollar figure on that, given it's only July 25. But I can share that we, as an industry and as a spot market, we clearly ended the second quarter in a much stronger place than where it began. And I think so far in July, that trend has continued.

So I wouldn't want to give you guidance, [other than] to say, it is a market-linked rate that's done on a voyage basis. So there's a bit of a lag from what you're seeing in your weekly broker reports. But as I said, generally, the trajectory has been more positive through the second quarter, and then that's continued so far here in July.

--------------------------------------------------------------------------------

Operator [27]

--------------------------------------------------------------------------------

(Operator Instructions) Our next question comes from Liam Burke from B. Riley FBR.

--------------------------------------------------------------------------------

Liam Dalton Burke, B. Riley FBR, Inc., Research Division - Analyst [28]

--------------------------------------------------------------------------------

Andy, your older steam vessels, the ones that are coming off charter first, the pipeline, the dropdown pipeline are all newer TFDE vessels.

Is there any thought to addressing the portfolio and divesting the older steam vessels in terms of refreshing the assets, rather than just re-upping the steam at lower charter rates?

--------------------------------------------------------------------------------

Andrew J. Orekar, GasLog Partners LP - CEO & Director [29]

--------------------------------------------------------------------------------

I think we would certainly never say never. I think there's been a disappointing lack of liquidity in the sale and purpose market for LNG carriers, and we do think that will, as an industry, improve over time.

Again I'd point out that we have very little, on a relative basis, debt on these steam vessels, and so they can be competitive at quite attractive rates. And we do expect the market to improve when, as you point out, when their current charters end, which is really kind of over the next year, year and a half, really.

So I think certainly wouldn't rule out an asset sale. But today, there just has not been a great opportunity to do that for, not just for GasLog, but for anyone in the industry. But these are vessels that are well-positioned for being competitive in the market that they're going to be exposed in.

--------------------------------------------------------------------------------

Operator [30]

--------------------------------------------------------------------------------

I'm showing no further questions at this time. I'm going to turn the call back over Andy Orekar for closing remarks.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Thanks, Darinda. Thank you to everyone today for listening and your continued interest in GasLog Partners; we certainly appreciate it, and look forward to speaking with you all next quarter. Thank you very much.

--------------------------------------------------------------------------------

Operator [32]

--------------------------------------------------------------------------------

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may disconnect and have a wonderful day.