Business context and reporting period
The supplied filing is Teekay LNG Partners L.P.’s audited Form 20-F for the fiscal year ended December 31, 2017, filed April 16, 2018. It is not a Seapeak LLC filing, and it reports full-year results rather than standalone fourth-quarter results; the supplied text does not provide clear Q4-only financial values. The partnership provides LNG, LPG and crude-oil transportation, principally under charter contracts. Financial statements are prepared under U.S. GAAP.
Key financial metrics
| Metric | 2017 | 2016 |
|---|---|---|
| Voyage revenues | $432.7 million | $396.4 million |
| Income from vessel operations | $148.6 million | $153.2 million |
| Net income | $48.9 million | $158.0 million |
| Limited partners’ net income | $19.6 million | $135.0 million |
| Basic earnings per common unit | $0.25 | $1.70 |
| Net cash from operating activities | $194.5 million | $166.5 million |
| Cash and cash equivalents at year-end | $244.2 million | $126.1 million |
| Cash distributions declared per common unit | $0.56 | $0.56 |
Net investing cash use was $766.4 million, primarily reflecting newbuilding expenditures and joint-venture contributions; net financing cash flow was $690.1 million. At year-end, total debt and capital-lease obligations were approximately $2.81 billion. Total liquidity was $433.6 million, including $244.2 million cash and $189.4 million of undrawn revolving credit availability. Restricted cash was a further $95.2 million. The reported working-capital deficit was $484.6 million.
Material changes versus 2016
- Revenue increased 9%, supported by LNG carrier deliveries and charter commencements, while vessel-operation income edged lower.
- Net income fell substantially, reflecting $50.6 million in 2017 vessel write-downs, a $52.5 million decline in equity income, higher interest expense and a $26.9 million foreign-exchange loss. Equity income was $9.8 million versus $62.3 million in 2016; the prior year included a $20.3 million share of a joint-venture settlement.
- Operating cash flow rose by $28.0 million. Capital expenditures for vessels and equipment more than doubled to $714.5 million.
- Debt and capital-lease obligations increased from $2.18 billion to $2.81 billion, alongside fleet investment and sale-leaseback financing. The partnership raised approximately $164 million net through its Series B preferred-unit offering.
- Common-unit distributions remained $0.14 per quarter ($0.56 annualized), following the reduction from $0.70 to $0.14 per quarter effective with the fourth-quarter 2015 distribution.
Outlook, commentary, risks and unusual items
- Management’s near-term priorities were to fund committed projects and repay or refinance scheduled debt, rather than pursue additional growth. It expected liquidity to be sufficient for at least one year after issuance of the statements, conditional on operating cash generation and financing plans it considered probable.
- At year-end, contractual obligations totaled approximately $5.41 billion, including $1.89 billion of newbuilding and construction commitments, of which $1.12 billion was scheduled for 2018. Financing for two newbuildings was still being pursued. A $197 million revolving facility was refinanced in February 2018, after the reporting date.
- Charter-credit exposures include approximately $25 million of unpaid hire from Skaugen, not recognized as revenue because collection was uncertain. The partnership pursued legal claims; Skaugen filed a counterclaim.
- Two LNG carriers in the Marubeni joint venture were affected by Yemen LNG plant closures and deferred charter payments. Management estimated a 2018 reduction in equity income of $4 million to $5 million per quarter versus original charter rates, partly dependent on sub-chartering. Repayment of deferred hire and plant resumption were uncertain.
- Awilco agreed to defer hire and extend two LNG carrier charters and purchase obligations to December 2019. The filing cautions that Awilco’s capacity to meet deferred hire and purchase obligations is uncertain.
- The partnership recorded $50.6 million of conventional-tanker write-downs in 2017 following charter expirations or expected cancellations. It expected further tanker redeliveries and vessel sales; the Teide Spirit sale and charter termination occurred in February 2018.
- A potential UK tax-indemnity exposure was estimated at approximately $44 million for the partnership’s 70% share of a joint venture, if HMRC succeeds in a challenge. This is a contingent exposure, not a stated probable loss.
- Other key risks include refinancing and covenant requirements, dependence on a limited number of significant LNG customers, vessel rechartering and market-rate risk, large construction commitments, energy-market and geopolitical disruption, and environmental compliance costs. Management reported compliance with debt covenants at December 31, 2017. KPMG issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Confirm the issuer and period: the source is Teekay LNG Partners L.P.’s FY2017 annual report, not a Seapeak LLC filing or a standalone Q4 report.
- Review the full-year earnings decline and the bridge from operating income to net income, particularly equity income, interest and foreign-exchange effects, and vessel impairments.
- Assess the working-capital deficit, 2018 debt maturities, revolver availability, refinancing progress and whether committed construction financing was ultimately secured.
- Verify cash conversion and distribution coverage against operating cash flow, capital spending, debt service and preferred-unit distributions; do not treat non-GAAP Adjusted EBITDA as available cash.
- Track collection or legal outcomes for Skaugen arrears, Awilco obligations and Yemen-related deferred hire, together with the potential UK tax exposure.