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: Three months ended March 31, 2018
Date of Report: May 17, 2018
Teekay LNG Partners is a master limited partnership and one of the world's largest independent owners and operators of LNG carriers. The fleet consists of 49 LNG carriers (including 11 newbuildings), 29 LPG/Multigas carriers (including 2 newbuildings), and 4 conventional tankers. The company operates primarily under long-term, fee-based charter contracts.
Key Financial Metrics
| Metric (in thousands USD) | Q1 2018 | Q4 2017 | Q1 2017 |
|---|---|---|---|
| Voyage Revenues | $115,306 | $126,307 | $101,180 |
| Income from Vessel Operations | $25,142 | $62,378 | $46,078 |
| GAAP Net (Loss) Income | ($6,894) | $39,877 | $29,057 |
| Adjusted Net Income (Non-GAAP) | $22,058 | $33,972 | $21,093 |
| Distributable Cash Flow (DCF) | $35,341 | $52,054 | $43,227 |
| DCF per Common Unit | $0.44 | N/A | $0.54 |
| Total Cash Flow from Vessel Ops (CFVO) | $117,595 | $126,833 | $109,211 |
| Total Liquidity | $463,500 | N/A | N/A |
Note: Liquidity as of March 31, 2018, comprised $197.0 million in cash and cash equivalents and $266.5 million in undrawn credit facilities.
Material Changes vs. Prior Period
- GAAP Net Loss: The Partnership reported a GAAP net loss of $6.9 million for Q1 2018, compared to net income of $29.1 million in Q1 2017. This decline was primarily driven by a $53.0 million tax indemnification guarantee liability provision and a $18.7 million write-down of three conventional oil tankers.
- Adjusted Net Income: Excluding non-recurring items, Adjusted Net Income increased to $22.1 million from $21.1 million in the prior year, reflecting stable operational performance.
- Segment Performance:
- Liquefied Gas Segment: Income from vessel operations increased to $44.5 million (from $43.3 million in Q1 2017) due to the delivery of four LNG carrier newbuildings.
- Conventional Tanker Segment: Reported a loss of $19.4 million (compared to income of $2.7 million in Q1 2017) due to vessel write-downs, restructuring charges from the sale of the Teide Spirit, and lower rates on expiring charters.
- Equity Income: Increased significantly to $26.7 million from $5.9 million in Q1 2017, driven by higher utilization in joint ventures and unrealized gains on derivative instruments.
Outlook, Management Commentary, and Risks
Management Commentary
CEO Mark Kremin highlighted that despite non-recurring items and lower LPG utilization during a transition to the Teekay Multigas Pool, the Partnership continues to generate stable cash flows. Significant progress was made on refinancing initiatives, with a $90 million facility secured in May 2018. The company successfully re-chartered the Arctic Spirit (4 years) and Polar Spirit (1 year) to service the growing LNG import market in China.
Guidance and Future Events
- Newbuildings: The Partnership expects to deliver the remaining vessels of its 18 LNG carrier newbuilding program through early 2020. Management anticipates an incremental $310 million in annual cash flow from vessel operations once the program is fully delivered.
- Refinancing: Remaining 2018 refinancings are on track to be completed within the third quarter of 2018.
Risks and Contingencies
- Tax Indemnification Liability: A significant contingency exists regarding the Teekay Nakilat Joint Venture. The UK taxing authority (HMRC) challenged the tax treatment of capital leases. As of March 31, 2018, a total liability of $65.6 million (46.9 million GBP) has been recognized, with $53.0 million added in Q1 2018. Discussions with HMRC and the lessor are ongoing.
- Market Risks: Risks include potential shipyard delays, changes in LNG/LPG production, charterer payment defaults, and the inability to renew long-term contracts.
Investor Verification Checklist
- Tax Liability Resolution: Verify the status of discussions with HMRC regarding the $65.6 million tax indemnification liability and the potential for further adjustments.
- Conventional Tanker Disposal: Monitor the sale process for the two conventional tankers classified as "held for sale" and the impact of write-downs on future earnings.
- Newbuilding Delivery Schedule: Confirm the timeline for the delivery of the remaining 11 LNG newbuildings to validate the projected $310 million annual cash flow increase.
- Refinancing Completion: Track the completion of the remaining 2018 debt refinancing to ensure liquidity stability and interest rate management.
- LPG Charter Rates: Assess the impact of the transition of LPG carriers into the Teekay Multigas Pool on spot market exposure and revenue stability.