SEAL-PA

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: Second Quarter ended June 30, 2012
Date of Report: August 9, 2012
Business Overview: The Partnership is the world's third-largest independent owner and operator of LNG vessels, providing marine transportation services for LNG, LPG, and crude oil primarily under long-term, fixed-rate charter contracts. As of August 1, 2012, the fleet consisted of 43 vessels (27 LNG carriers, 5 LPG/Multigas carriers, and 11 conventional tankers).

Key Financial Metrics

Note: Liquidity as of June 30, 2012, comprised $114.9 million in cash and cash equivalents and $288.0 million in undrawn credit facilities.

Material Changes vs. Prior Period

• Distributable Cash Flow: Increased 51% year-over-year to $56.8 million, driven by full-quarter contributions from six Maersk LNG carriers acquired in February 2012 and other recent acquisitions (Multigas, LPG, and Angola LNG carriers).
• Net Income: GAAP net income attributable to partners turned positive ($37.7 million) compared to a loss of $3.1 million in Q2 2011. Adjusted net income rose 72% to $40.5 million.
• Segment Performance:
  • Liquefied Gas Segment: Cash flow from vessel operations (CFVO) increased to $92.3 million from $64.7 million, primarily due to new vessel acquisitions.
  • Conventional Tanker Segment: CFVO increased to $16.7 million from $12.9 million, attributed to 72 off-hire days in Q2 2011 for dry dockings versus zero off-hire days in Q2 2012.
• Liquidity: Total liquidity increased to $402.9 million from $318.1 million at March 31, 2012, largely due to a NOK 700 million ($125.0 million) bond offering completed in May 2012.

Outlook, Management Commentary, and Risks

Management Commentary: CEO Peter Evensen highlighted strong fundamentals in the LNG shipping market. The Partnership successfully secured a new three-year time-charter for the Magellan Spirit commencing September 2013 at a rate approximately 20% higher than the existing charter. Management stated the Partnership is well-positioned for further accretive acquisitions with approximately $400 million in available liquidity.

Guidance and Outlook: The Partnership is actively assessing opportunities for additional investments in new LNG-related projects and existing assets with long-term contracts. No specific numerical guidance for future quarters was provided in this filing.

Risks and Contingencies:

• Derivative Accounting: GAAP net income is significantly impacted by unrealized gains/losses on derivative instruments (interest rate swaps and cross-currency swaps) and foreign exchange revaluations, which do not affect cash flow.
• Market Risks: Potential changes in LNG/LPG production, trading patterns, and vessel tonnage requirements.
• Contract Risks: Possibility of early termination of long-term contracts or inability to renew/replace them.
• Financing Risks: Ability to raise financing for future vessel purchases.

Key Facts for Investor Verification

• Non-GAAP Reconciliations: Verify the reconciliation of Distributable Cash Flow and Adjusted Net Income to GAAP measures in Appendices A and B, noting the significant impact of unrealized derivative losses ($18.1 million in Q2 2012) on GAAP net income.
• Debt Structure: Confirm the terms and maturity of the NOK 700 million bond issued in May 2012 and the associated cross-currency swap hedging strategy.
• Acquisition Integration: Assess the operational integration status of the six MALT LNG carriers acquired in February 2012 and their contribution to the reported cash flow increase.
• Charter Renewals: Monitor the execution of the new Magellan Spirit charter starting September 2013 and the rate differential compared to the expiring contract.
• Liquidity Utilization: Track the deployment of the $403 million liquidity balance for potential future acquisitions or debt refinancing.