SEAL-PA

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, 2014

Date of Report: May 15, 2014

Teekay LNG Partners is the world's second-largest independent owner and operator of LNG carriers. The Partnership operates primarily under long-term, fixed-rate charter contracts. As of May 1, 2014, the fleet consisted of 74 vessels (34 LNG carriers, 31 LPG/Multigas carriers, and 9 conventional tankers), with ownership interests ranging from 33% to 100%.

Key Financial Metrics

Liquidity Breakdown (as of March 31, 2014): $94.8 million in cash and cash equivalents plus $321.2 million in undrawn credit facilities.

Material Changes vs. Prior Period

• Distributable Cash Flow: Increased 12% to $60.1 million. Growth was driven by the February 2013 acquisition of a 50% interest in Exmar LPG and the late-2013 acquisition of two LNG carriers from Awilco. This was partially offset by the sale of two conventional tankers (Tenerife Spirit and Algeciras Spirit) in late 2013 and early 2014.
• GAAP Net Income: Decreased to $38.2 million from $54.4 million. The decline was primarily due to unrealized losses on derivative instruments and foreign exchange fluctuations, which are non-cash items excluded from Adjusted Net Income.
• Segment Performance:
  • Liquefied Gas Segment: Cash flow from vessel operations increased to $106.7 million (up from $93.9 million) due to new vessel deliveries and Exmar LPG contributions.
  • Conventional Tanker Segment: Cash flow decreased to $12.9 million (down from $13.6 million) due to vessel sales, partially offset by higher spot rates on remaining vessels.

Guidance, Outlook, and Management Commentary

Management Commentary: CEO Peter Evensen highlighted that 100% of the on-the-water LNG fleet operates under fixed-rate contracts with an average duration of 12 years, insulating the Partnership from short-term rate volatility. The LPG segment continues to report stable results.

Strategic Developments:

• Yamal LNG Project: In March 2014, Teekay LNG signed a letter of intent through a new 50/50 joint venture to provide six icebreaker LNG carriers for the Yamal LNG project (start-up expected late 2017). Final contracts are expected in 2014.
• LPG Growth: In April 2014, the Exmar LPG joint venture took delivery of the first of 12 mid-size LPG carrier newbuildings.
• Market Outlook: Management expects short-term volatility in the LNG shipping market to continue through 2016 prior to the start-up of new liquefaction projects. The Partnership has limited exposure to market weakness over the next three years, with only two 52%-owned LNG carriers scheduled to expire.

Risks and Contingencies: Forward-looking statements are subject to risks including shipyard delays, financing availability, and potential failure of the Yamal LNG project due to sanctions against Russia or funding issues.

Investor Verification Checklist

• Derivative Accounting Impact: Verify the reconciliation between GAAP Net Income ($38.2M) and Adjusted Net Income ($41.8M) to understand the magnitude of unrealized derivative losses and foreign exchange impacts.
• Yamal LNG Contract Finalization: Monitor the status of the letter of intent for the six icebreaker carriers, as finalization is expected in 2014 but subject to negotiation and potential geopolitical risks.
• Liquidity Position: Confirm the $416 million liquidity figure ($94.8M cash + $321.2M credit facilities) remains sufficient to cover upcoming newbuilding installments and debt obligations.
• Conventional Tanker Fleet Reduction: Assess the long-term impact of the sale of the two Suezmax tankers on the Conventional Tanker segment's revenue base.
• Non-GAAP Reconciliations: Review Appendix A and B in the full filing for detailed adjustments to Distributable Cash Flow and Adjusted Net Income.