SEAL-PA

Seapeak LLC Form 6-K Summary: Period Ended June 30, 2022

Business Context and Reporting Period

This Form 6-K covers the quarterly period ended June 30, 2022, for Seapeak LLC (formerly Teekay LNG Partners L.P.). The company is an international provider of marine transportation services for liquefied natural gas (LNG) and liquefied petroleum gas (LPG). As of June 30, 2022, the fleet consisted of 47 LNG carriers and 26 LPG/multi-gas carriers, with ownership interests ranging from 20% to 100%. The company also holds a 30% interest in an LNG terminal in Bahrain.

A significant corporate development occurred on January 13, 2022, when Stonepeak Partners L.P. completed its acquisition of the company. Consequently, the company converted from a limited partnership to a limited liability company and changed its name to Seapeak LLC. Common units were delisted from the NYSE, while Series A and Series B Preferred Units continue to trade.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Voyage revenues increased by 3.8% ($11.4 million) for the six months ended June 30, 2022, compared to the prior year. This was driven by higher management fees and cost reimbursements from equity-accounted joint ventures following the acquisition of Teekay subsidiaries, partially offset by lower utilization and idle days for certain vessels.
• Profitability: Net income increased by 37.4% to $202.5 million. This significant increase was primarily driven by a $40.7 million gain on non-designated derivative instruments (due to rising LIBOR rates) and a $20.2 million foreign currency exchange gain. These gains offset a $44.0 million impairment charge on two LNG carriers (Seapeak Arctic and Seapeak Polar) and $2.7 million in restructuring charges.
• Segment Performance:
  • LNG Segment: Income from vessel operations decreased by 48.1% to $71.0 million due to the vessel write-downs and restructuring charges. However, equity income surged 145.8% to $144.8 million, largely due to unrealized gains on derivatives in joint ventures.
  • LPG Segment: Turned a profit of $0.5 million from vessel operations compared to a loss of $1.5 million in the prior year, aided by a $0.2 million gain on the sale of the Sonoma Spirit vessel.
• Utilization: LNG segment utilization decreased to 91.9% (from 97.9% in 2021) due to scheduled dry-docking and idle days for vessels awaiting new charters.

Guidance, Outlook, Risks, and Unusual Items

• Unusual Items:
  • Impairment: A $44.0 million non-cash write-down was recorded for two specialized LNG carriers placed in layup following the completion of their time-charter contracts.
  • Restructuring: $2.7 million in charges related to employee severance following the Stonepeak acquisition.
  • Derivative Gains: Significant unrealized gains on interest rate swaps ($47.7 million) and foreign currency swaps ($20.2 million) boosted net income but are non-operating in nature.
• Liquidity and Debt: Total liquidity stands at $306.0 million. The company has $130.0 million undrawn on revolving credit facilities. A subsequent event in July 2022 involved borrowing $84.9 million on a new term loan to prepay a maturing revolving credit facility.
• Risks and Contingencies:
  • Geopolitical: The Russian invasion of Ukraine poses risks to global energy markets and trade, though no material negative impact has been experienced to date.
  • Covenant Compliance: The Angola Joint Venture experienced debt service coverage ratio breaches but expects to obtain a waiver valid until December 31, 2022, subject to dividend withholding.
  • Interest Rates: The company is exposed to interest rate volatility, though it utilizes swaps to hedge floating-rate debt.
• Outlook: Management expects sufficient liquidity to meet obligations for the next 12 months. The company plans to bid on selected LNG projects and may expand its fleet through second-hand purchases or new construction.

Investor Verification Checklist

• Derivative Valuation: Verify the sustainability of the $40.7 million gain on non-designated derivatives, as this is highly sensitive to LIBOR rate fluctuations and hedge accounting designations.
• Vessel Impairment: Assess the commercial prospects of the Seapeak Arctic and Seapeak Polar vessels following their write-down and subsequent chartering of the Seapeak Polar.
• Joint Venture Covenants: Monitor the status of the Angola Joint Venture's debt service coverage ratio waiver and the potential impact of dividend withholding on cash flows.
• Debt Maturities: Review the schedule of debt repayments, particularly the $393.5 million due in 2023, and the company's refinancing strategy.
• Geopolitical Exposure: Evaluate the potential long-term impact of sanctions on Russia and global energy trade on charter rates and vessel utilization.