GasLog: High Returns in LNG

06/17/2015 8:00 am EST


Elliott Gue

Editor and Publisher, Energy and Income Advisor and Capitalist Times

Given investor sentiment toward the energy sector and the potential for a rerating of midstream master limited partnerships (MLP) as growth slows, we've diversified into growth stories that don't depend entirely on US onshore oil and gas production, explains Elliott Gue, editor of Energy & Income Advisor.

The marine-transport segment of the MLP universe offers robust yields for conservative and aggressive investors alike. One of our favorites in this area is GasLog Partners LP (GLOP).

The parent company, GasLog (GLOG) founded GasLog Partners as a means of recycling capital. This virtuous cycle involves GasLog selling LNG carriers in its fleet to GasLog Partners at prices that are accretive to the MLP’s distributable cash flow.

The parent then deploys some of the proceeds into ordering or acquiring new vessels that can be dropped down to the MLP once these ships obtain longer-term contracts.

GasLog has amassed a portfolio of 15 specialized ships—about 2.5 times the size of GasLog Partners’ existing fleet—that transport liquefied natural gas (LNG). All these vessels operate under contracts that are at least five years in length.

This queue of potential dropdowns provides a clear path to the average annual distribution growth of 10% to 15% that management has targeted for the next three to five years.

Equally important, GasLog and GasLog Partners enjoy strong relationships with BG Group (BRGYY) and Royal Dutch Shell (RDS-A), two of the LNG market’s leading players.

Prior to its initial public offering, GasLog managed BG Group’s fleet of LNG tankers. The shipowner also has acquired vessels from both of these major oil and gas companies.

The stock has pulled back since the MLP filed a shelf registration statement to issue up to $600 million worth of equity. Although the market has reacted negatively to this potential dilution, the move signals that GasLog Partners is gearing up for another dropdown transaction.

GasLog Partners’ stock has returned about 24% since its initial public offering in May 2014, but has given up about 30% of its value from the high reached on July 1, 2014.

With a yield of 7.2%, a supportive general partner and a clear path to annual distribution growth of 10% to 15%, GasLog Partners LP rates a buy up to $28 per unit in our Conservative MLP Portfolio.

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