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: Quarter ended March 31, 2013
Date of Report: May 9, 2013
Teekay LNG Partners is a master limited partnership and the world's third-largest independent owner and operator of LNG carriers. The company operates in the Liquefied Gas and Conventional Tanker segments, providing marine transportation services primarily under long-term, fixed-rate charter contracts. As of May 1, 2013, the fleet consisted of 69 vessels (29 LNG carriers, 29 LPG/Multigas carriers, and 11 conventional tankers), with ownership interests ranging from 33% to 100%.
Key Financial Metrics
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Distributable Cash Flow (DCF) | $53.7 million | $50.8 million |
| Net Income (GAAP) - Attributable to Partners | $54.4 million | $24.7 million |
| Adjusted Net Income (Non-GAAP) | $39.1 million | $35.6 million |
| Net Voyage Revenues | $96.7 million | $99.0 million |
| Cash Flow from Vessel Operations (Total) | $107.6 million | $98.9 million |
| Total Liquidity | $301.2 million | $495.0 million (Dec 31, 2012) |
| Cash Distribution Declared | $0.675 per unit | N/A |
Material Changes vs. Prior Period
- Strategic Acquisition: On February 12, 2013, the Partnership completed a 50/50 joint venture with Exmar NV (Exmar LPG BVBA), acquiring a 50% interest in 25 LPG carriers (20 owned, 5 chartered-in). This involved an equity investment of approximately $134 million and the assumption of $108 million in pro rata debt.
- Revenue Trends: Total Net Voyage Revenues decreased slightly to $96.7 million from $99.0 million in Q1 2012. The Liquefied Gas segment saw a decrease in cash flow from consolidated vessels due to the scheduled drydocking of the Arctic Spirit (41 days off-hire).
- Conventional Tanker Segment: Cash flow from vessel operations decreased to $13.6 million from $15.8 million, primarily due to charter contract amendments on two Suezmax tankers that temporarily reduced daily hire rates by $12,000.
- Equity Income Growth: Cash flow from equity-accounted vessels in the Liquefied Gas segment increased significantly to $42.0 million (from $26.2 million), driven by the MALT LNG acquisition (Feb 2012) and the new Exmar LPG joint venture.
- Liquidity Reduction: Total liquidity declined from $495.0 million at year-end 2012 to $301.2 million at March 31, 2013, largely due to the Exmar acquisition and newbuilding installments.
Guidance, Outlook, and Risks
- Market Outlook: Management notes that 100% of the LNG fleet is under fixed-rate contracts, insulating the company from short-term rate declines. Demand for new LNG carrier capacity is expected to increase following the start-up of new liquefaction projects in late 2015.
- Future Projects: The Partnership is bidding on several LNG and floating regasification projects with start-up dates between late 2015 and 2017, specifically targeting employment for two fuel-efficient LNG newbuildings scheduled for delivery in the first half of 2016.
- Risks and Contingencies:
- Volatility in demand for new LNG carrier capacity in the short term.
- Reliance on the financial ability of charterers to pay charter payments.
- Foreign exchange exposure, though partially hedged via cross-currency swaps for NOK-denominated bonds.
- Unrealized gains/losses on derivative instruments impacting GAAP net income but not cash flow.
Investor Verification Checklist
- Verify the impact of the Exmar LPG joint venture on future cash flows and debt service obligations.
- Confirm the status of bids for new LNG projects scheduled for 2015-2017 to ensure employment for newbuildings.
- Review the terms of the amended Suezmax tanker contracts to understand the duration and potential upside of the reduced hire rates.
- Monitor the schedule for the drydocking of the Tangguh project LNG carriers in Q2 and Q4 2013.
- Assess the liquidity position relative to upcoming newbuilding payments and debt maturities.