SEAL-PA

Seapeak LLC Form 6-K Summary: Period Ended June 30, 2023

Business Context and Reporting Period

This Form 6-K reports the unaudited consolidated financial results for Seapeak LLC and its subsidiaries for the three and six months ended June 30, 2023. Seapeak is an international provider of marine transportation services focusing on liquefied natural gas (LNG) and natural gas liquid (NGL) carriers. The company operates a fleet of vessels under medium to long-term fixed-rate charters and holds interests in joint ventures. Significant developments in the period included the acquisition of Evergas (completed in late 2022, impacting 2023 results), the commencement of a 23-year charter for the Seapeak Creole, and the sale of four vessels.

Key Financial Metrics (Six Months Ended June 30, 2023)

Note: All figures in millions unless otherwise noted. Free Cash Flow calculated as Operating Cash Flow less Expenditures for vessels and equipment.

Material Changes vs. Prior Period

• Revenue Growth: Voyage revenues increased 18% year-over-year (YoY) for the six months, driven primarily by the inclusion of Evergas assets in the NGL segment and higher utilization in the LNG segment.
• Profitability Surge: Net income increased 34% YoY. This was significantly boosted by a $36.0 million gain on sales and write-downs of vessels in 2023, compared to a $43.8 million loss in the same period in 2022. The 2022 loss included a $44.0 million impairment charge on two LNG carriers.
• Segment Performance:
  • LNG Segment: Income from vessel operations increased 125% YoY ($159.8M vs $71.0M), largely due to the absence of prior-year impairments and restructuring charges, and higher charter rates.
  • NGL Segment: Income from vessel operations turned profitable ($23.3M vs $0.5M loss), driven by the Evergas acquisition.
• Interest Expense: Increased 51.5% YoY to $93.4 million due to higher benchmark interest rates (LIBOR/SOFR) and the addition of Evergas debt, partially offset by debt repayments.
• Derivative Gains: Realized and unrealized gains on non-designated derivatives decreased to $19.8 million from $40.7 million in the prior year, reflecting changes in the long-term interest rate yield curve.

Guidance, Outlook, and Risks

• Outlook: Management expects liquidity combined with operating cash flows to be sufficient to meet obligations for the next 12 months. The company plans to finance remaining newbuilding costs ($967.1 million total commitment) through existing liquidity, operating cash flow, and future debt financing.
• Capital Allocation: The company issued 11.4 million common units to Stonepeak in March 2023 in exchange for $215.5 million in equity contributions to fund newbuilding installments. A preferred unit repurchase plan remains active with $24.5 million remaining.
• Risks and Contingencies:
  • Geopolitical: Ongoing risks related to the Russian invasion of Ukraine, including potential sanctions and trade disruptions, though no material adverse impact has been experienced to date.
  • Interest Rate: Exposure to floating-rate debt is hedged via interest rate swaps, but significant rate increases could impact results.
  • Internal Controls: A material weakness regarding the accounting of unrealized gains on interest rate swaps in joint ventures was identified in Q1 2023. Management states this has been remediated as of June 30, 2023, and prior periods have been restated.
  • Tax: Uncertainty regarding freight taxes in various jurisdictions and the impact of UK corporate tax rate increases on lease arrangements.

Investor Verification Checklist

• Restatement Impact: Verify the specific impact of the Q1 2023 restatement regarding the classification of unrealized derivative gains (Equity Income vs. Other Comprehensive Income) on historical comparability.
• Derivative Valuation: Review Note 10 to understand the sensitivity of the $19.8 million derivative gain to future interest rate movements.
• Debt Covenants: Confirm continued compliance with vessel-value-to-loan-principal ratios, which ranged from 139% to 461% as of June 30, 2023.
• Newbuilding Commitments: Assess the funding strategy for the $967.1 million in remaining newbuilding installments, particularly the reliance on future debt financing.
• Equity Income Volatility: Analyze the composition of equity income, noting the significant impact of unrealized credit loss provisions and derivative gains within joint ventures.