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: Fourth Quarter and Fiscal Year ended December 31, 2016
Date of Report: February 24, 2017
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 interests in 50 LNG carriers (including 19 newbuildings), 28 LPG/Multigas carriers, and 6 conventional tankers. The company primarily operates under long-term, fee-based charter contracts.
Key Financial Metrics
| Metric (in thousands USD) | Q4 2016 | Q4 2015 | Full Year 2016 | Full Year 2015 |
|---|---|---|---|---|
| Voyage Revenues | $100,774 | $103,642 | $396,444 | $397,991 |
| Income from Vessel Operations | $38,010 | $50,222 | $153,181 | $181,372 |
| GAAP Net Income (Partners & Preferred) | $84,411 | $72,224 | $140,451 | $200,883 |
| Adjusted Net Income (Non-GAAP) | $28,958 | $39,537 | $148,982 | $160,041 |
| Total Cash Flow from Vessel Ops (CFVO) | $114,534 | $121,062 | $480,063 | $473,965 |
| Distributable Cash Flow (DCF) | $50,199 | $61,541 | $234,995 | $254,608 |
| DCF per Common Unit | $0.63 | $0.77 | $2.94 | $2.89 |
| Total Liquidity (as of Dec 31, 2016) | $369.8 million (Cash: $126.1M; Undrawn Credit: $243.7M) |
Material Changes vs. Prior Period
- GAAP Net Income: Q4 2016 GAAP net income increased to $84.4 million from $72.2 million in Q4 2015, driven primarily by a $43.2 million unrealized gain on non-designated derivative instruments and a $15.5 million foreign currency exchange gain. Full-year GAAP net income decreased to $140.5 million from $200.9 million in 2015.
- Adjusted Net Income: Q4 2016 adjusted net income decreased to $29.0 million from $39.5 million in Q4 2015. Full-year adjusted net income decreased to $149.0 million from $160.0 million in 2015.
- Segment Performance:
- Liquefied Gas Segment: Income from vessel operations increased to $43.9 million in Q4 2016 from $37.7 million in Q4 2015, aided by new MEGI LNG carrier deliveries (Creole Spirit and Oak Spirit). This was partially offset by deferred charter payments from the Yemen LNG project and lower LPG spot rates.
- Conventional Tanker Segment: Recorded a loss of $5.9 million in Q4 2016 compared to income of $12.5 million in Q4 2015. This decline was due to vessel sales (Bermuda Spirit, Hamilton Spirit), lower Suezmax spot rates, and an $11.5 million write-down on the Asian Spirit.
- Equity Income: Decreased to $9.7 million in Q4 2016 from $23.6 million in Q4 2015, impacted by the Yemen LNG deferral and lower LPG spot rates in the Exmar joint venture.
Guidance, Outlook, and Risks
Management Commentary and Outlook
- Contract Portfolio: The partnership holds approximately $12 billion in forward contracted revenue with a weighted average remaining contract length of 13 years.
- Financing Progress: Secured approximately $1.2 billion in long-term financing for growth projects delivering through early 2020. Completed $1.0 billion in new financings in Q4 2016 for MEGI LNG newbuildings, the Bahrain regasification terminal, and Exmar LPG newbuildings.
- Liquidity: Pro-forma liquidity as of December 31, 2016, is estimated at approximately $446 million following a $36 million bond issuance in January 2017 and distributions from the RasGas 3 joint venture.
- Future Deliveries: Scheduled to take delivery of the third MEGI LNG carrier, the Torben Spirit, in late February 2017.
Risks and Contingencies
- Yemen LNG Deferral: Due to the political situation in Yemen, the Yemen LNG plant remains closed. Charter payments for two 52% owned LNG carriers (Marib Spirit and Arwa Spirit) have been temporarily deferred for 2016 and extended into 2017. The joint venture is entitled to trade these vessels for its own account during the deferral.
- Vessel Sales: The Asian Spirit Suezmax tanker was sold for net proceeds of $20.6 million, resulting in an $11.5 million write-down recognized in Q4 2016. Delivery is expected in mid-March 2017.
- Derivative Volatility: Significant fluctuations in GAAP net income were driven by unrealized gains/losses on non-designated derivative instruments and foreign currency exchange revaluations, which do not impact cash flow.
Investor Verification Checklist
- Yemen LNG Recovery: Verify the timeline for the resumption of operations at the Yemen LNG plant and the collection of deferred charter payments for the Marib Spirit and Arwa Spirit.
- Financing Completion: Confirm the status of the remaining long-term financings required for growth projects, which management expects to complete in the second half of 2017.
- Derivative Exposure: Review the reconciliation of GAAP to Non-GAAP measures to understand the magnitude of unrealized derivative gains/losses impacting reported net income versus cash flow.
- Asset Disposition: Monitor the final delivery and proceeds from the sale of the Asian Spirit and the impact on the conventional tanker segment's future earnings.
- Liquidity Position: Validate the pro-forma liquidity figure of $446 million against actual cash balances and credit facility availability post-January 2017 bond issuance.