Business Context and Reporting Period
This Form 6-K filing by Teekay LNG Partners L.P. (NYSE: TGP) reports second-quarter and first-half results for the period ended June 30, 2006. The Partnership operates a fleet of LNG carriers and Suezmax crude oil tankers under long-term, fixed-rate time charters. As of June 30, 2006, the fleet consisted of 12 delivered vessels (7 LNG carriers, 8 Suezmax tankers) and 3 committed LNG newbuilding carriers.
Key Financial Metrics
| Metric | Q2 2006 | Q2 2005 | YTD 2006 | YTD 2005 |
|---|---|---|---|---|
| Voyage Revenues | $42.5 million | $35.7 million | $86.7 million | $70.5 million |
| Net (Loss) Income | ($15.5) million | $16.0 million | ($14.8) million | $57.9 million |
| Distributable Cash Flow | $14.2 million | N/A | N/A | N/A |
| Operating Cash Flow (YTD) | N/A | N/A | $35.1 million | $25.0 million |
| Cash and Equivalents (End of Period) | $18.9 million | N/A | $18.9 million | $55.9 million |
| Total Debt (Current + Long-term) | $974.9 million | N/A | $974.9 million | N/A |
Quarterly Distribution: Declared $16.5 million ($0.4625 per unit), payable August 14, 2006.
Material Changes vs. Prior Period
- Net Loss vs. Income: The Q2 2006 net loss of $15.5 million contrasts with Q2 2005 net income of $16.0 million. This swing is primarily driven by a $20.3 million unrealized foreign exchange loss in 2006 (vs. a $30.3 million gain in 2005) related to Euro-denominated debt.
- Revenue Growth: Voyage revenues increased 19% year-over-year in Q2 2006 ($42.5M vs $35.7M).
- Cash Flow Decline: Distributable cash flow decreased to $14.2 million in Q2 2006 from $17.6 million in Q1 2006. This was caused by a $2.2 million reduction in voyage revenues due to one LNG carrier being off-hire for 33 days for extended drydocking and repairs.
- Balance Sheet: Total assets increased to $2.27 billion from $2.07 billion at year-end 2005, driven by an increase in restricted cash and long-term debt related to newbuilding vessels.
Outlook, Risks, and Unusual Items
- Unusual Items: The reported net loss includes significant non-cash foreign exchange translation losses ($20.3M in Q2, $28.2M YTD) due to the revaluation of Euro-denominated debt. Management notes these do not impact cash flow or distributable cash flow.
- Acquisition Activity: Teekay LNG agreed to acquire a 70% interest in Teekay Nakilat Corporation from its parent, Teekay Shipping Corporation. This includes three LNG newbuilding carriers scheduled for delivery in late 2006 and early 2007 under 20-year fixed-rate charters with RasGas II.
- Future Projects: The Partnership has been awarded contracts for six additional LNG newbuilding carriers (RasGas 3 and Tangguh projects) with deliveries scheduled between 2008 and 2009. Teekay is required to offer its interest in these vessels to the Partnership prior to delivery.
- Risks: Forward-looking statements highlight risks including shipyard production delays, changes in LNG production, potential early termination of long-term contracts, and foreign currency fluctuations.
Investor Verification Checklist
- Verify the reconciliation of Distributable Cash Flow to Net Income to confirm the exclusion of non-cash foreign exchange losses.
- Confirm the status and delivery schedule of the three RasGas II vessels being acquired from the parent company.
- Review the impact of the extended drydocking on future voyage revenue projections for the affected vessel.
- Assess the Partnership's liquidity position given the decrease in unrestricted cash and cash equivalents to $18.9 million.
- Monitor the timing of the required offers for the RasGas 3 and Tangguh project vessels to ensure alignment with delivery schedules.