Seapeak LLC annual report, Q4 FY2012

Business context and reporting period

The filing is Teekay LNG Partners L.P.’s annual Form 20-F for the fiscal year ended December 31, 2012, prepared under U.S. GAAP. It describes an international marine transportation business focused on LNG, LPG and crude oil. The request identifies Seapeak LLC and 2012 Q4; neither matches the filing’s registrant and annual reporting period. The supplied text does not provide a clear standalone fourth-quarter financial result.

Key financial metrics

Amounts are U.S. dollars; financial statement amounts are in millions unless otherwise noted.

2012 voyage revenue increased 3.2% year over year. Vessel-operations income fell 14.8%, reflecting a $29.4 million impairment charge on three Suezmax tankers, higher depreciation and higher general and administrative costs. Net income rose 42.9%, supported in part by equity income increasing to $78.9 million from $20.6 million, largely following the acquisition of an interest in six LNG carriers. Operating margin was approximately 37.7%, versus 45.7% in 2011; net margin was approximately 35.5%, versus 25.6%.

Operating cash flow improved by $70.0 million, mainly due to fewer dry-docking off-hire days and lower dry-docking expenditures, as well as 2011 cash outflows related to settling interest-rate swaps. Investing activities used $202.4 million; financing activities provided $30.4 million. Year-end working capital was a deficit of $71.9 million. Restricted cash was $528.6 million and largely relates to lease financing arrangements; it should not be treated as freely available liquidity. The partnership reported $1,413.4 million of long-term debt and $637.6 million of capital lease obligations at year-end.

Material changes versus prior period

• Net income increased despite lower vessel-operations income, primarily as equity-method earnings grew following the MALT LNG joint venture acquisition and other LNG investments.
• Three CEPSA-chartered Suezmax tankers were written down by $29.4 million after management expected their charters to end early; the company anticipated the vessels would be sold to a third party.
• Cash distributions increased to $0.675 per unit quarterly beginning in the second quarter of 2012. A $53.0 million distribution for fourth-quarter 2012 was declared after year-end and paid in February 2013.
• The partnership issued 4.8 million common units for net proceeds of $182.3 million and NOK 700 million of bonds, with proceeds used mainly to repay revolving debt and for general purposes. Debt and lease obligations rose year over year.
• Investment in equity-accounted joint ventures rose to $409.7 million from $191.4 million, principally reflecting the MALT LNG carrier transaction.

Outlook, risks and unusual items

• No quantified earnings or distribution guidance is provided. Management’s stated strategy is to expand LNG and LPG shipping, generally using long-term, fixed-rate charters; it intended to secure employment for two LNG newbuildings due in 2016 before delivery.
• In February 2013, the partnership completed a 50% LPG joint venture with Exmar. Its reported contribution was approximately $134 million of equity and assumption of about $108 million of its share of existing debt and lease obligations. The joint venture was pursuing refinancing.
• The two LNG newbuildings ordered in December 2012 had a total contract cost of about $386 million; remaining installments were $347.4 million at year-end. They had no charters in place at filing, and future debt financing was expected.
• Management expected CEPSA to exercise cancellation options on three Suezmax charters, first exercisable in 2013 and 2014. Separately, two Suezmax charter rates were reduced by $12,000 per day for 24 months beginning October 2012.
• Liquidity and distributions are exposed to debt service, covenant restrictions, capital spending, customer concentration, charter termination, vessel off-hire, market and currency movements, and the ability to refinance or raise capital. Management reported compliance with debt covenants at December 31, 2012.
• Potential lease-related exposure includes an estimated $29 million share of costs if UK tax authorities successfully challenge the RasGas II lease tax benefits, plus an approximately $10 million share of a lessor’s claimed rental increase related to a letter-of-credit bank downgrade; the latter was under legal review.
• Other notable risks include the $71.9 million working-capital deficit, a $70.3 million current Suezmax lease obligation affected by purchase and cancellation options, and a $14.0 million advance to a Tangguh joint-venture partner whose parent entered court-supervised restructuring. The partnership believed the advance was collectible.
• Auditors issued unqualified opinions on the financial statements and internal control over financial reporting. Management also reported disclosure controls as effective at year-end.

Important facts for investors to verify

• Confirm the intended issuer and period: this document is Teekay LNG Partners L.P.’s 2012 annual report, not a Seapeak LLC filing or a standalone Q4 report.
• Check the status and timing of CEPSA charter cancellations, vessel sales, and the related Suezmax lease obligations.
• Review refinancing progress and funding requirements for the MALT and Exmar joint ventures and the two LNG newbuildings, including charter coverage before delivery.
• Assess unrestricted liquidity separately from restricted cash, upcoming debt maturities, covenant headroom, and the sustainability of distributions.
• Track the RasGas II lease claims, the Tangguh-related advance, and the effect of customer concentration and related-party arrangements on cash flows.