SEAL-PA

Business Context and Reporting Period

Company: Teekay LNG Partners L.P. (NYSE: TGP)

Filing Type: Form 6-K (Earnings Release)

Reporting Period: Second Quarter ended June 30, 2011

Date of Report: August 16, 2011

Teekay LNG Partners L.P. is a master limited partnership providing LNG, LPG, and crude oil marine transportation services under long-term, fixed-rate charter contracts. The fleet consists of 31 delivered vessels and 6 committed newbuildings as of August 1, 2011.

Key Financial Metrics

Note: GAAP net loss for Q2 2011 was primarily driven by unrealized losses on derivative instruments and foreign exchange revaluations, which do not impact cash flow.

Material Changes vs. Prior Period

• Distributable Cash Flow: Increased 4% year-over-year to $37.6 million. Growth was driven by the November 2010 acquisition of a 50% interest in two LNG carriers and the June 2011 acquisition of a Multigas carrier. This was partially offset by the sale of the Dania Spirit LPG carrier and increased off-hire days due to scheduled drydockings.
• GAAP Net Income: Decreased significantly from $22.8 million in Q2 2010 to a loss of $3.1 million in Q2 2011. This variance is attributed to a $26.7 million negative impact from specific items, primarily unrealized losses on derivatives ($27.3 million) and foreign exchange losses ($8.9 million).
• Liquidity: Total liquidity increased to $551.1 million as of June 30, 2011, up from $437.6 million at March 31, 2011. This increase was primarily due to net proceeds of $161.7 million from a follow-on equity offering in April 2011.
• Segment Performance:
  • Liquefied Gas: Cash flow from vessel operations decreased slightly to $50.2 million (from $51.6 million) due to the Dania Spirit sale and drydockings.
  • Conventional Tanker: Cash flow from vessel operations decreased to $12.9 million (from $13.8 million) due to increased off-hire days for drydockings.

Guidance, Outlook, and Management Commentary

• Fleet Expansion: The Partnership took delivery of the first of two Multigas carriers in mid-June 2011, commencing a 15-year fixed-rate charter with Skaugen. Two additional carriers (one LPG, one Multigas) are expected in the second half of 2011.
• Angola LNG Project: The Partnership holds a 33% interest in four newbuilding LNG carriers for the Angola LNG Project. Deliveries are expected in late 2011 and early 2012, with vessels chartered at fixed rates with inflation adjustments.
• Outlook: Management expects steady growth in distributable cash flows over the next few quarters as new vessels enter service. The CEO highlighted strong LNG market fundamentals and high project activity.
• Financial Position: With over $550 million in liquidity, the Partnership is positioned to pursue additional projects and acquisitions.
• Risks: Forward-looking statements are subject to risks including project delays, shipyard production delays, changes in LNG/LPG production, and the ability to secure financing.

Investor Verification Checklist

• Derivative Accounting Impact: Verify the reconciliation of GAAP net loss to Adjusted Net Income and Distributable Cash Flow to understand the magnitude of unrealized derivative and FX losses.
• Newbuilding Delivery Schedule: Confirm the delivery timelines for the remaining Skaugen carriers and the four Angola LNG vessels to assess future cash flow growth.
• Liquidity Composition: Review the breakdown of the $551 million liquidity ($74.5 million cash vs. $476.6 million undrawn credit facilities) to assess financial flexibility.
• Off-Hire Days: Monitor the impact of scheduled drydockings on vessel availability and cash flow in subsequent quarters.
• Equity Offering Proceeds: Confirm the utilization of the $162 million raised in April 2011 for the acquisition of new vessels.