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: Third Quarter ended September 30, 2013
Date of Report: November 7, 2013
Teekay LNG Partners L.P. is a master limited partnership and the world's second-largest independent owner and operator of LNG carriers. The company provides LNG, LPG, and crude oil marine transportation services primarily under long-term, fixed-rate charter contracts. As of November 1, 2013, the fleet consisted of 77 vessels (55 owned, 5 in-chartered, 17 newbuildings).
Key Financial Metrics
| Metric | Q3 2013 | Q3 2012 | 9M 2013 | 9M 2012 |
|---|---|---|---|---|
| Distributable Cash Flow (DCF) | $64.6 million | $57.8 million | N/A | N/A |
| Adjusted Net Income (Partners) | $48.2 million | $41.7 million | $128.7 million | $117.8 million |
| GAAP Net Income (Partners) | $29.6 million | $33.1 million | $153.7 million | $95.5 million |
| Voyage Revenues | $100.7 million | $98.8 million | $294.4 million | $294.7 million |
| Cash Flow from Vessel Ops (Total) | $125.2 million | $111.7 million | N/A | N/A |
| Liquidity (Pro Forma) | ~$400 million | N/A | N/A | N/A |
| Cash Distribution per Unit | $0.675 | N/A | N/A | N/A |
Note: Liquidity of $400 million includes pro forma proceeds from a $145 million common unit public offering completed in early October 2013. Reported liquidity as of September 30, 2013, was $256.4 million.
Material Changes vs. Prior Period
- Distributable Cash Flow: Increased 12% to $64.6 million in Q3 2013 compared to Q3 2012. Growth was driven by the acquisition of a 50% interest in Exmar LPG BVBA (Feb 2013) and the acquisition/charter-back of an LNG carrier from Awilco (Sept 2013).
- Revenue Mix: Net voyage revenues increased to $100.3 million (Q3 2013) from $98.0 million (Q3 2012). The Liquefied Gas segment saw increased cash flow from vessel operations ($58.8M vs $55.7M), while the Conventional Tanker segment decreased ($14.5M vs $15.4M) due to renegotiated lower charter rates on two Suezmax tankers.
- GAAP vs. Adjusted Income: GAAP net income for Q3 2013 ($29.6M) was lower than Q3 2012 ($33.1M) primarily due to a $3.8 million loan loss provision and unrealized foreign exchange losses. Adjusted net income, which excludes these non-cash items, showed growth.
- Debt and Liquidity: The Partnership issued NOK 900 million (~$150 million USD) in senior unsecured bonds in September 2013. Total liquidity improved significantly following the October 2013 equity offering.
Guidance, Outlook, and Management Commentary
- Distribution Increase: Management intends to recommend a 2.5% increase in the quarterly cash distribution, commencing with the Q4 2013 distribution payable in February 2014.
- Forward Fixed-Rate Revenues: Recent transactions (Awilco acquisitions and Cheniere Marketing time-charters) have increased estimated forward fixed-rate revenues to approximately $6.9 billion.
- Growth Projects:
- Four LNG carrier newbuildings scheduled for delivery in 2016.
- Twelve LPG newbuildings (via Exmar JV) scheduled for delivery between 2014 and 2018.
- Active participation in LNG shipping and floating regasification project tenders with expected start-ups in 2016-2017.
- Risks and Contingencies:
- Loan Loss Provision: A $3.8 million provision was recorded regarding advances to P.T. Berlian Laju Tanker, a non-controlling shareholder in the Teekay Tangguh Joint Venture, due to restructuring proceedings in Indonesia.
- Derivatives: Significant unrealized losses on derivative instruments ($11.1 million in Q3 2013) impacted GAAP net income but did not affect cash flow.
- Forward-Looking Risks: Potential shipyard delays, inability to secure long-term contracts for newbuildings, and changes in global LNG/LPG production patterns.
Key Facts for Investor Verification
- Transaction Execution: Verify the delivery and charter-back status of the second Awilco LNG carrier (expected late November 2013) and the impact on cash flow.
- Loan Loss Recovery: Monitor the status of the $3.8 million loan loss provision related to P.T. Berlian Laju Tanker and potential future impairments.
- Contract Securing: Confirm the Partnership's ability to secure long-term employment for the two additional LNG newbuildings ordered in July 2013 prior to their 2016 delivery.
- Distribution Approval: Verify Board approval of the proposed 2.5% distribution increase for Q4 2013.
- FX and Derivative Exposure: Review the reconciliation of GAAP net income to Adjusted Net Income to understand the magnitude of unrealized foreign exchange and derivative losses impacting reported earnings.