SEAL-PA

Seapeak LLC Form 6-K Summary: Quarter Ended September 30, 2023

Business Context and Reporting Period

This Form 6-K reports the unaudited consolidated financial results for Seapeak LLC and its subsidiaries for the three and nine months ended September 30, 2023. Seapeak is an international provider of marine transportation services focusing on liquefied natural gas (LNG) and natural gas liquid (NGL) carriers. The company operates a fleet of vessels under medium to long-term fixed-rate charters and holds interests in various joint ventures.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Voyage revenues increased by 18.6% year-over-year for the nine months ended September 30, 2023, driven primarily by the acquisition of Evergas in December 2022, which added significant NGL capacity.
• Profitability: Net income increased by 15.9% to $315.0 million. Income from vessel operations rose significantly to $251.3 million (from $121.0 million), aided by a $36.0 million gain on sales of vessels compared to a $43.8 million loss in the prior year.
• Interest Expense: Interest expense increased by 46.2% to $141.3 million, attributed to higher debt balances from the Evergas acquisition and rising floating interest rates.
• Derivative Gains: Realized and unrealized gains on non-designated derivative instruments were $67.3 million, compared to $63.4 million in the prior year, reflecting changes in interest rate curves.
• Equity Income: Equity income decreased by 30% to $115.6 million, largely due to lower unrealized gains on derivatives and credit loss provisions within joint ventures compared to the prior year.

Outlook, Risks, and Management Commentary

• Strategic Developments: The company secured new long-term charters, including a 23-year fixed-rate contract for the Seapeak Creole and extensions for the Myrina and Murex LNG carriers. The company also entered into an agreement to sell the Seapeak Napa for $9.8 million.
• Liquidity: Total liquidity stands at $299.3 million. Management expects operating cash flows and existing credit facilities to be sufficient to meet obligations for the next 12 months.
• Capital Expenditures: The company has commitments for five new LNG carriers (Samsung Heavy Industries) with a total cost of $1.2 billion, scheduled for delivery through 2027. Remaining estimated costs are approximately $963.4 million.
• Risks: Key risks include the impact of the Russian invasion of Ukraine on energy markets, potential sanctions, volatility in vessel values affecting loan covenants, and exposure to interest rate fluctuations despite hedging activities.
• Unusual Items: The prior year included $2.7 million in restructuring charges related to the Stonepeak acquisition, which were absent in the current period. The current period included a $43.8 million gain on the commencement of a sales-type lease for the Seapeak Creole.

Investor Verification Checklist

• Debt Covenants: Verify compliance with vessel-value-to-loan-principal-balance ratios, which ranged from 137% to 510% as of September 30, 2023.
• Derivative Exposure: Review the impact of interest rate swaps and cross-currency swaps on future earnings, noting the significant unrealized gains recognized in the current period.
• Newbuilding Costs: Monitor the $963.4 million in remaining commitments for new LNG carriers and the company's ability to finance these via operating cash flow or new debt.
• Joint Venture Performance: Assess the decline in equity income from joint ventures, specifically the impact of unrealized credit loss provisions and derivative valuations.
• Geopolitical Risk: Evaluate the potential for material adverse effects from sanctions or trade disruptions related to Russia and Ukraine on charterers and counterparties.