Business Context and Reporting Period
Company: Teekay LNG Partners L.P. (Note: Metadata listed "Seapeak LLC" is incorrect; the filing is for Teekay LNG Partners L.P.)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Quarter and nine months ended September 30, 2011
Business Overview: An international provider of marine transportation services for liquefied natural gas (LNG), liquefied petroleum gas (LPG), and crude oil. The fleet operates primarily under long-term, fixed-rate charters.
Key Financial Metrics
| Metric (in thousands USD) | 9 Months Ended Sep 30, 2011 | 9 Months Ended Sep 30, 2010 |
|---|---|---|
| Voyage Revenues | $282,722 | $276,492 |
| Net Income (Loss) | $54,232 | $9,271 |
| Net Income Attributable to Limited Partners | $41,417 | $6,111 |
| Net Income Per Unit (Common) | $0.72 | $0.05 |
| Cash Distributions Per Unit | $1.89 | $1.77 |
| Operating Cash Flow | $134,172 | $127,939 |
| Total Debt (Long-term + Current) | $1,391,601 | $1,399,115 |
| Cash and Cash Equivalents | $101,499 | $81,055 |
| Total Liquidity (Cash + Undrawn Credit) | $477,700 | $459,700 |
Material Changes vs. Prior Period
- Profitability Surge: Net income increased significantly from $9.3 million to $54.2 million. This was driven primarily by a reduction in unrealized losses on derivative instruments (from $105.8 million loss in 2010 to $54.3 million loss in 2011) and a substantial foreign currency exchange gain of $29.5 million in the quarter (vs. a $39.8 million loss in the prior year quarter) due to Euro revaluation.
- Revenue Growth: Voyage revenues increased 2.2% year-over-year for the nine-month period, aided by the strengthening of the Euro against the U.S. Dollar and the addition of new vessels (Norgas Unikum and Norgas Camilla).
- Segment Performance:
- Liquefied Gas Segment: Income from vessel operations remained flat ($108.6 million vs. $108.5 million) despite revenue increases, due to higher operating expenses and G&A.
- Conventional Tanker Segment: Income from vessel operations decreased slightly ($19.9 million vs. $20.1 million) due to a vessel being off-hire for dry docking, though utilization improved to 97.6%.
- Capital Structure: The company completed a public offering in April 2011 raising $161.7 million net, which was used to repay debt. Total debt decreased slightly due to repayments and prepayments.
Guidance, Outlook, and Risks
- Major Acquisition (Maersk): On October 12, 2011, the company entered an agreement to acquire ownership interests in eight LNG carriers from A.P. Moller-Maersk A/S for approximately $1.4 billion via a joint venture with Marubeni Corporation. The transaction is expected to close in early 2012. The company's equity contribution is estimated at $146 million.
- Subsequent Equity Offering: On November 2, 2011, the company completed an offering of 5.5 million common units at $33.40 per unit, raising approximately $179.5 million net to fund the Maersk acquisition and repay debt.
- Angola LNG Project: The company is acquiring Teekay Corporation's 33% interest in four newbuilding LNG carriers. Three vessels were delivered by October 2011; the fourth is expected in January 2012.
- Risks:
- Derivative Exposure: Significant volatility in net income due to unrealized gains/losses on interest rate swaps and foreign currency revaluation.
- Acquisition Risk: The Maersk acquisition is subject to regulatory approvals, charterer consents, and financing conditions. Failure to close could impact growth strategy.
- Market Risk: Exposure to interest rate fluctuations (LIBOR/EURIBOR) and foreign currency exchange rates (Euro/U.S. Dollar).
Investor Verification Checklist
- Derivative Valuation: Verify the impact of unrealized losses on derivatives ($54.3 million for the period) on reported net income versus cash flow.
- Maersk Acquisition Status: Confirm the closing of the $1.4 billion Maersk LNG acquisition and the associated $1.12 billion debt financing.
- Foreign Currency Impact: Assess the sustainability of the $29.5 million foreign exchange gain, which was driven by Euro revaluation and may reverse if currency rates shift.
- Debt Covenants: Review compliance with debt covenants, particularly regarding tangible net worth and liquidity, especially given the increased leverage from the Maersk deal.
- Angola LNG Deliveries: Confirm the delivery and charter commencement of the remaining Angola LNG carriers scheduled for late 2011 and early 2012.