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: Second Quarter ended June 30, 2019

Date of Report: August 1, 2019

Teekay LNG Partners is a master limited partnership and one of the world's largest independent owners and operators of LNG carriers. The fleet includes 49 LNG carriers (including three newbuildings), 29 LPG/multi-gas carriers, and one conventional tanker, with ownership interests ranging from 20% to 100%. The Partnership also holds a 30% interest in a regasification terminal in Bahrain under construction.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Voyage revenues increased by approximately 25% year-over-year, driven by the delivery of nine LNG carrier newbuildings between May 2018 and June 2019 and higher charter rates on redeployed vessels (e.g., Torben Spirit).
• Profitability: GAAP net income improved significantly from a loss of $(0.05) per unit in Q2 2018 to $0.12 per unit in Q2 2019. This was aided by lower vessel operating expenses and reduced general and administrative costs.
• Segment Performance:
  • LNG Segment: Strong performance due to newbuilding deliveries and higher rates, partially offset by increased off-hire days for drydocking.
  • LPG Segment: Adjusted EBITDA improved due to higher spot revenues for multi-gas carriers and the absence of the $33 million impairment charge recorded in Q2 2018.
  • Conventional Tanker Segment: Results were negatively impacted by the sale of three conventional tankers between late 2018 and early 2019.
• Non-GAAP Adjustments: GAAP results were impacted by unrealized losses on non-designated derivative instruments and foreign currency exchange losses, which were excluded from Adjusted Net Income.

Guidance, Outlook, and Management Commentary

• 2019 Guidance: Management expects 2019 results to remain within earnings and Adjusted EBITDA guidance ranges. The Total Adjusted EBITDA guidance for 2019 was increased by approximately $30 million to a range of $665–$690 million to include non-controlling interest portions from joint ventures.
• Outlook: CEO Mark Kremin anticipates continued improvement in the second half of 2019 due to higher utilization, fewer drydocks, and the expected delivery of three additional 50% owned Yamal ARC7 LNG newbuildings. The start-up of the Bahrain LNG regasification terminal is also expected to contribute.
• Capital Allocation: The Partnership continues a deleveraging trend. In Q2 2019, distributions were increased by 36%. Additionally, the Partnership repurchased 1.43 million common units for $16.9 million under a $100 million program approved in December 2018.
• Risks: Forward-looking statements are subject to risks including shipyard delays, cost overruns, changes in LNG/LPG production, charterer payment defaults, and regulatory changes.

Investor Verification Checklist

• Newbuilding Deliveries: Verify the timing and charter commencement of the fourth ARC7 LNG carrier expected in mid-August 2019 and the three additional Yamal vessels.
• Derivative Exposure: Review the reconciliation of unrealized losses on non-designated derivative instruments ($7.8 million loss in Q2 2019) and foreign currency exchange impacts ($7.2 million loss) to understand volatility in GAAP earnings.
• Liquidity Position: Confirm the $337.4 million liquidity figure ($124.9 million cash + $212.5 million undrawn credit) against upcoming capital expenditure requirements for newbuildings.
• Joint Venture Performance: Assess the contribution of equity-accounted vessels (Total Adjusted EBITDA of $48.0 million) and the impact of the Bahrain LNG terminal construction progress.
• Unit Repurchases: Monitor the remaining capacity of the $100 million unit repurchase program and the average repurchase price ($11.86 per unit).