Business Context and Reporting Period
Company: Teekay LNG Partners L.P. (NYSE: TGP)
Filing Type: Form 6-K (Earnings Release)
Reporting Period: Third quarter ended September 30, 2011
Date of Report: November 10, 2011
Teekay LNG Partners L.P. is a master limited partnership providing LNG, LPG, and crude oil marine transportation services. The partnership operates a fleet of LNG carriers, LPG/Multigas carriers, and conventional tankers, primarily under long-term, fixed-rate charter contracts.
Key Financial Metrics
| Metric | Q3 2011 | Q3 2010 | 9M 2011 | 9M 2010 |
|---|---|---|---|---|
| Distributable Cash Flow (DCF) | $43.7 million | $36.7 million | N/A | N/A |
| Adjusted Net Income (Partners) | $29.7 million | $23.9 million | $79.1 million | $69.6 million |
| GAAP Net Income (Partners) | $27.6 million | ($40.0) million | $49.5 million | $11.3 million |
| Net Voyage Revenues | $96.9 million | $91.4 million | N/A | N/A |
| Cash Flow from Vessel Operations | $70.4 million | $66.6 million | N/A | N/A |
| Total Liquidity (as of Sept 30, 2011) | $477.7 million | N/A | N/A | N/A |
| Long-Term Debt & Capital Leases | $1.87 billion | N/A | N/A | N/A |
Note: GAAP Net Income for Q3 2010 included a significant unrealized loss on derivative instruments.
Material Changes vs. Prior Period
- Distributable Cash Flow: Increased 19% to $43.7 million in Q3 2011 compared to Q3 2010. Growth was driven by the acquisition of new vessels (Multigas, LPG, and LNG carriers) and fewer off-hire days due to drydockings.
- GAAP Net Income: Improved significantly from a loss of $40.0 million in Q3 2010 to a profit of $27.6 million in Q3 2011. The prior year loss was heavily impacted by unrealized losses on derivative instruments and foreign exchange fluctuations.
- Segment Performance:
- Liquefied Gas: Cash flow from operations rose to $56.0 million (from $53.7 million) due to new vessel acquisitions.
- Conventional Tanker: Cash flow from operations increased to $14.4 million (from $12.9 million) primarily due to reduced off-hire days.
- Liquidity: Total liquidity decreased to $477.7 million from $551.1 million in Q2 2011, reflecting capital expenditures for new vessel acquisitions.
Guidance, Outlook, and Management Commentary
- Maersk LNG Acquisition: In October 2011, the Teekay LNG Marubeni Joint Venture agreed to acquire ownership interests in eight LNG carriers from A.P. Moller-Maersk A/S for approximately $1.4 billion. The transaction is expected to close in early 2012.
- Financing: Completed a public offering of 5.5 million common units in November 2011, raising net proceeds of approximately $179.5 million to fund the $146 million pro rata equity contribution for the Maersk deal.
- Dividend Outlook: Management intends to recommend a 7% increase in the quarterly distribution to $0.675 per unit, commencing with the Q1 2012 distribution payable in May 2012, subject to the completion of the Maersk transaction.
- Fleet Expansion: Took delivery of three LNG carriers and two Multigas/LPG carriers between late-August and late-October 2011. All are operating under long-term fixed-rate charters.
- Liquidity Position: Management stated the partnership remains financially well-positioned with approximately $460 million of total liquidity on a pro forma basis after the Maersk transaction and recent acquisitions.
Investor Verification Checklist
- Maersk Transaction Closing: Verify the completion of the $1.4 billion acquisition of eight LNG carriers and the associated debt financing structure.
- Dividend Increase: Confirm the Board's approval of the proposed 7% distribution increase to $0.675 per unit for Q1 2012.
- Derivative Accounting: Review the reconciliation of GAAP net income to Adjusted Net Income and Distributable Cash Flow to understand the impact of unrealized derivative losses and foreign exchange gains/losses.
- Charter Renewals: Monitor the status of short-term charters on the Maersk vessels to assess potential upside from rate renewals.
- Liquidity Utilization: Track the drawdown of credit facilities and cash reserves as the Maersk transaction closes and new vessels are integrated.