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, 2010
Filing Date: November 12, 2010
Teekay LNG Partners L.P. is a master limited partnership providing LNG, LPG, and crude oil marine transportation services under long-term, fixed-rate time-charter contracts. The fleet consists of LNG carriers, LPG/Multigas carriers, and conventional tankers.
Key Financial Metrics
| Metric | Q3 2010 | Q3 2009 |
|---|---|---|
| Distributable Cash Flow (Non-GAAP) | $36.7 million | $29.2 million |
| Adjusted Net Income Attributable to Partners (Non-GAAP) | $23.9 million | $17.6 million |
| Net Loss Attributable to Partners (GAAP) | ($40.0 million) | ($27.4 million) |
| Cash Distribution Declared | $0.60 per unit | N/A |
| Total Liquidity (as of Sept 30, 2010) | $487.2 million | N/A |
| Cash and Cash Equivalents | $73.1 million | N/A |
| Undrawn Credit Facilities | $414.1 million | N/A |
Segment Operating Results (Three Months Ended Sept 30, 2010)
| Segment | Net Voyage Revenues | Cash Flow from Vessel Operations |
|---|---|---|
| Liquefied Gas | $66.6 million | $53.7 million |
| Conventional Tanker | $24.8 million | $12.9 million |
| Total | $91.4 million | $66.6 million |
Material Changes vs. Prior Period
- Distributable Cash Flow: Increased 25.7% year-over-year to $36.7 million, driven by the acquisition of two LNG carriers and one LPG carrier in late 2009, and the addition of two Suezmax oil tankers and one Handymax product tanker in March 2010.
- GAAP Net Loss: The reported GAAP net loss of $40.0 million includes significant non-cash charges, primarily a $39.8 million unrealized foreign exchange loss and $33.4 million in realized and unrealized losses on derivative instruments.
- Adjusted Net Income: Excluding non-cash items, adjusted net income attributable to partners increased to $23.9 million from $17.6 million in the prior year.
- Operating Expenses: Vessel operating expenses decreased in the Liquefied Gas segment due to fewer off-hire days for scheduled drydockings.
Guidance, Outlook, and Management Commentary
Recent Transactions
- Exmar Acquisition: Agreed to acquire a 50% interest in two LNG carriers (Excalibur and Excelsior) for $70 million net of assumed debt. Expected to add $10 million in annual distributable cash flow. Completion expected mid-November 2010.
- Dania Spirit Sale: Agreed to sell one LPG carrier for $21.5 million, resulting in an approximate $4.3 million gain. Completion expected mid-November 2010.
Future Projects
- Skaugen LPG/Multigas: Three carriers under construction, scheduled for delivery in 2011, to be chartered on 15-year fixed-rate contracts.
- Angola LNG: One-third interest in four newbuilding LNG carriers scheduled for delivery in 2011 and 2012, chartered for 20 years to the Angola LNG Project.
Risks and Contingencies
- Derivatives and FX: Significant volatility in GAAP earnings due to mark-to-market accounting on derivative instruments and foreign currency revaluation, which do not impact cash flow.
- Forward-Looking Risks: Potential delays in newbuilding deliveries, changes in LNG/LPG production, early termination of long-term contracts, and financing availability.
Investor Verification Checklist
- Verify the completion of the Exmar acquisition and the Dania Spirit sale by mid-November 2010.
- Review the reconciliation of Distributable Cash Flow to Net Loss (Appendix B) to understand the impact of non-cash adjustments.
- Monitor the delivery schedule for the Skaugen and Angola LNG newbuildings to assess future cash flow growth.
- Assess the impact of foreign exchange rates on future GAAP earnings, given the significant unrealized FX losses in Q3 2010.
- Confirm the status of the revolving credit facilities and liquidity position as the company pursues further acquisitions.