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: Three months ended March 31, 2021

Date of Report: May 13, 2021

Teekay LNG Partners is a master limited partnership and one of the world's largest independent owners and operators of LNG carriers. The fleet consists of 47 LNG carriers and 30 LPG/Multi-gas carriers (including in-chartered vessels), with ownership interests ranging from 20% to 100%. The Partnership also holds a 30% interest in an LNG regasification terminal in Bahrain.

Key Financial Metrics

Material Changes vs. Prior Periods

Q1 2021 vs. Q1 2020

• Profitability Surge: GAAP net income swung from a loss of $33.0 million to a profit of $87.6 million. This was driven by a decrease in operational claims, higher rates on 50%-owned LPG carriers, and unrealized gains on derivatives.
• Offsetting Factors: Gains were partially offset by more scheduled dry dockings, redeployment of certain LNG carriers at lower rates, and a realized loss on the termination of an interest rate swap agreement.
• Asset Write-downs: Unlike Q1 2020, which included $45.0 million in vessel write-downs, Q1 2021 had no such charges.

Q1 2021 vs. Q4 2020

• Operational Efficiency: Net income increased primarily due to lower operational claims, reduced repairs and maintenance expenses, and lower net interest expense.
• Market Conditions: Increases were partially offset by unscheduled off-hire for repairs and redeployment of vessels at lower rates.
• Derivatives: Q1 2021 benefited from unrealized gains on derivatives and foreign currency exchange, contrasting with losses in Q4 2020.

Guidance, Outlook, and Management Commentary

Chartering and Fleet Utilization

The Partnership secured three LNG charters in March and April 2021. As a result, the LNG fleet is now 98% fixed for the remainder of 2021 and 89% fixed for 2022. This provides significant forward visibility on cash flows despite recent volatility in the spot market.

Distribution Increase

Teekay LNG increased its common unit distribution by 15% to $1.15 per unit annually, effective with the Q1 2021 distribution paid in May 2021. This marks the third consecutive annual double-digit increase.

Capital Allocation and Liquidity

Management emphasized a balanced capital allocation strategy, utilizing stable long-term contracts to support distributions while continuing to delever the balance sheet. Liquidity decreased to $406.2 million from $461.6 million in Q4 2020, primarily due to swap termination payments, refinancing fees for the Tangguh Joint Venture, and drydocking expenditures.

Risks and Contingencies

Forward-looking statements highlight risks including changes in LNG/LPG production, regulatory changes, potential early termination of contracts, higher-than-expected costs (off-hire/dry-docking), and customer payment defaults.

Investor Verification Checklist

• Charter Coverage: Verify the specific terms and commencement dates of the three new charters secured in March/April 2021 to confirm the 98% fixed rate for 2021.
• Derivative Exposure: Review the reconciliation of unrealized gains/losses on non-designated derivative instruments, which significantly impacted GAAP net income ($6.6 million gain in Q1 2021 vs. losses in prior periods).
• Joint Venture Performance: Assess the performance of equity-accounted vessels (e.g., MALT Joint Venture), which saw lower earnings due to redeployment at lower rates and increased off-hire days.
• Liquidity Runway: Monitor the reduction in liquidity ($55.4 million decrease QoQ) against upcoming capital expenditure requirements for dry dockings.
• Debt Refinancing: Confirm the impact of the Tangguh Joint Venture refinancing ($191.5 million term loan) on future interest expense and maturity profiles.