Business Context and Reporting Period
Company: Teekay LNG Partners L.P. (NYSE: TGP)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: First Quarter ended March 31, 2016
Date of Report: May 19, 2016
Teekay LNG Partners L.P. is a master limited partnership and one of the world's largest independent owners and operators of LNG carriers. The partnership operates primarily under long-term, fixed-rate charter contracts. As of May 18, 2016, the fleet consisted of 85 vessels (50 LNG carriers, 29 LPG/Multigas carriers, and 6 conventional tankers), with approximately 97% of the LNG fleet fixed for 2016.
Key Financial Metrics
| Metric | Q1 2016 | Q1 2015 |
|---|---|---|
| Distributable Cash Flow (DCF) | $54.4 million ($0.68 per unit) | $66.2 million ($0.73 per unit) |
| Total Cash Flow from Vessel Operations (CFVO) | $114.4 million | $119.0 million |
| Net Voyage Revenues | $95.3 million | $97.0 million |
| GAAP Net (Loss) Income | ($35.0) million | $66.4 million |
| Adjusted Net Income | $34.2 million | $43.9 million |
| Cash Distribution Declared | $0.14 per unit | $0.14 per unit |
| Total Liquidity | $264.1 million | N/A |
Note: Liquidity as of March 31, 2016, comprised $114.1 million in cash and cash equivalents and $150.0 million in an undrawn credit facility.
Material Changes vs. Prior Period
- Decrease in DCF: Distributable cash flow declined 18% year-over-year. Primary drivers included lower revenues from the 52% owned Malt LNG joint venture, lower charter rates on two Suezmax tankers due to extension options, and reduced capitalized distributions from newbuilding equity financing.
- GAAP Net Loss: The partnership reported a GAAP net loss of $37.1 million attributable to partners, compared to net income of $63.1 million in Q1 2015. This was largely due to a $27.4 million accounting loss on the sale of two Suezmax tankers, unrealized losses on derivative instruments ($38.1 million), and foreign currency exchange losses ($10.1 million).
- Segment Performance:
- Liquefied Gas Segment: CFVO from consolidated vessels increased to $63.1 million (from $60.7 million) due to the commencement of the Creole Spirit charter, partially offset by lower equity-accounted vessel revenues.
- Conventional Tanker Segment: CFVO decreased to $10.5 million (from $12.0 million) due to lower charter rates on extension options and profit share adjustments.
Guidance, Outlook, and Management Commentary
Management Commentary: CEO Peter Evensen stated that results were in line with expectations despite energy market volatility. The business remains stable with 97% of the LNG fleet fixed for 2016. Management highlighted positive long-term fundamentals and a low pace of new LNG newbuilding orders.
Key Developments and Outlook:
- Newbuildings: The Creole Spirit (first MEGI LNG carrier) commenced its five-year charter with Cheniere Energy in late February 2016. The second vessel, Oak Spirit, is on track to commence its charter in Q3 2016. Each vessel is expected to generate approximately $50 million in annual CFVO.
- Yamal LNG Project: In April 2016, Yamal LNG secured approximately $16.2 billion in long-term plant financing. Steel cutting on the first ARC7 Ice-Class LNG carrier newbuilding (joint venture with China LNG Shipping) occurred in April 2016, with delivery scheduled for Q1 2018.
- Vessel Sales: The Bermuda Spirit and Hamilton Spirit Suezmax tankers were sold to charterer Centrofin for approximately $94 million. Proceeds were used to repay associated term loans.
Risks and Contingencies: Forward-looking statements are subject to risks including shipyard delays, cost overruns, changes in LNG production/trading patterns, potential early termination of contracts, and the outcome of the dispute regarding the Magellan Spirit charter contract.
Investor Verification Checklist
- Derivative Impact: Verify the reconciliation of the $38.1 million unrealized loss on non-designated derivative instruments and its exclusion from DCF calculations.
- Accounting Loss on Sale: Confirm the details of the $27.4 million loss on the sale of the Bermuda Spirit and Hamilton Spirit, specifically the timing difference between amortization periods and upfront payments.
- Yemen LNG Deferral: Monitor the status of the temporary deferral of charter payments for the Marib Spirit and Arwa Spirit (52% owned) effective January 2016.
- Newbuilding Financing: Track progress on securing financing for the remaining newbuildings, particularly the Yamal LNG Ice-Class carriers.
- Liquidity Position: Review the utilization of the $150 million undrawn credit facility and cash burn rate relative to upcoming capital expenditures.