A Quick Take on Gaslog

Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

A few weeks back, someone privately queried me on whether I knew, or followed Gaslog, (NYSE: GLOG).
I confirmed that I knew a little bit about Gaslog, mentioned a few items about the company and its activities, and pointed him towards another source for articles that might give him additional data.  Gaslog, Ltd (GLOG), is a relative newbie as a publicly traded company, having only started trading on March 30, 2012, or nine months ago.  This Monaco-based company started out primarily as a fleet manager of Liquefied Natural Gas (LNG) tankers for third parties.

In 2010, Gaslog took delivery of two owned vessels.  These are the first pair of sister vessels (same design characteristics, built at the same shipyard), of a set of 10 LNG tankers.  The other vessels are newbuilds, and most (five of them) start delivering this year, 2013, followed by two in 2014, and one in 2015.  Though LNG tanker prices have dropped slightly in the last two years, at about $200 million a pop, these aren't the cheapest baubles either.  As mentioned earlier, Gaslog currently is mainly a fleet manager.  That activity is more a fee-for-service type of activity, and isn't going to pay for this huge capex requirement, about $1.5 billion on the remaining newbuilds.  Though there is some financing in place, the company needed to fill the gap.  Hence, the share offering. 

Gaslog's current fleet consists of 14 LNG tankers- 2 owned vessels and 12 managed vessels.  The managed vessels include a partially owned vessel (Gaslog owns a 25% stake).  One customer, BG Group, ... for all the vessels.  It actually isn't nearly as ominous as it seems.  This is the Gaslog fleet list--

See something in common about the vessel names in the managed subgroup? To my knowledge, BG Group is the owner of all those "Methane XYZ"-named tankers.  Or in the case of at least one vessel, majority
owner.  A vessel owner being different from fleet manager is actually not that unusual in the LNG
transportation side.  Other examples of this include Qatar Gas Transportation Company (Nakilat) and Royal Dutch Shell (NYSE: RDS-A).  But in Gaslog's case, it means all its revenue is coming from a single customer.  It doesn't get better.  At least, not immediately.  Four of the next six LNG newbuilds that deliver have BG Group as the vessel charterer.  The remaining two, one delivering in late 2013, have Shell as vessel charterer.

Okay, onto the operational side.  Unlike the crude oil and refined products tanker markets, with much spot/single-voyage activity, the LNG transport side has very little spot activity.  Contracts are usually long term (10, 15, even 25 years), medium term (3-7 years), and some shorter term (12-15 months).  Many of the charter arrangements have extension options.  So the two owned vessels have medium term charters with 5 or 6 years longevity.  One nice aspect about a small owned fleet is, one can figure out the charter rate reasonably well.  In the case of two vessels, Gaslog indicates the contracted revenue is $56 million for the full year based on 365 days of service.  Given the vessels delivered in the same year, and are chartered by the same entity, I get $76,712/day as the charter rate.  This seems consistent with the $80K/day rate secured by Tsakos Energy Navigation (NYSE: TNP) earlier this year for a 4-year charter.

I am not really sure how they account for the revenue of the partially owned, managed vessel.  But my guess would be Gaslog consider it part of the managed fleet revenue.  Their Q3 presentation is the first link--http://www.gaslogltd.com/investor-relations/presentations

(Slide 5) Backing out the $14 million from the two owned vessels, I get $2.9 million of revenue from the managed fleet (3 months), and $8.2 million in revenue from the managed fleet (9 months).  One notices the profit difference in the quarterly results- this appears to be the result of higher "Net Financials."  But are the higher "Net Financials" due to operational reasons or financing reasons?  A later slide (Slide 9), shows some financing and hedging details for the newbuild vessels.  I suspect the swaps came into play after the company initial public offering (IPO), but don't know for sure.  Either way, it bears watching.  The next slide (Slide 10) indicates that Gaslog has two newbuild options, but these two options expire at the end of 2012.  I have no idea if the company exercised those options. 

The two owned vessels are fitted with modern, TFDE (Tri Fuel Diesel Electric) systems.  These are supposed to be more fuel-efficient systems than the earlier generation, steam powered LNG tankers.  Since the newbuilds are sister ships to these two vessels they should also have this fuel efficiency advantage.  Unlike other sectors in shipping, the LNG tanker market does not have a glut of vessels.  All things being equal, I am sure a vessel charterer would want a newer vessel ahead of an older vessel.  However, if the fuel efficiencies are significant, this could create a two rate chartering system with a higher rate for the vessels with the TFDE systems.  For now, this supposed advantage is muted.

Gaslog already has most financing in place for all their newbuilds.  Company management also indicated they would have higher costs related to training and crew ramp up costs in late 2012 and 2013.  That is another item that bears watching.  The company paid its first dividend, $.11/sh in November 2012.  During the Q3 earnings call, company management indicated revenue will ramp up steadily, and they look towards paying a significant portion of their net profit (70%) as a dividend.  But then, they back-pedaled a little, and said it would depend on multiple factors including financial results, outstanding commitments and obligations, etc.  As an instance of this, the company has to refinance one of its operating vessels in 2014.

To summarize, Gaslog is a young public company that appears ready to ramp up its owned fleet with financed new vessels, and charters in place for most of these vessels.

Chris Mascarenhas does not currently own shares of GLOG or RDS-A.  He does own shares of TNP. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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