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: Fourth quarter and full year ended December 31, 2010.
Business Overview: A master limited partnership providing LNG, LPG, and crude oil marine transportation services under long-term, fixed-rate charters. As of February 24, 2011, the fleet consisted of 17 LNG carriers, 5 LPG/Multigas carriers (3 under construction), and 11 conventional tankers.
Key Financial Metrics
| Metric | Q4 2010 | Q4 2009 | Full Year 2010 | Full Year 2009 |
|---|---|---|---|---|
| Distributable Cash Flow (Non-GAAP) | $39.3 million | $33.5 million | N/A | N/A |
| Adjusted Net Income to Partners (Non-GAAP) | $26.2 million | $18.5 million | $95.8 million | $78.3 million |
| Net Income to Partners (GAAP) | $76.4 million | $41.3 million | $87.6 million | $47.3 million |
| Cash Distribution per Unit | $0.63 | $0.60 | N/A | N/A |
| Total Liquidity | $459.7 million | N/A | N/A | N/A |
| Cash and Cash Equivalents | $81.1 million | N/A | N/A | N/A |
| Undrawn Credit Facilities | $378.6 million | N/A | N/A | N/A |
Material Changes vs. Prior Period
- Distributable Cash Flow: Increased 17% in Q4 2010 compared to Q4 2009. Growth was driven by the November 2010 acquisition of a 50% interest in two LNG carriers (Excelsior and Excalibur), reduced off-hire days, and higher profit-sharing revenue.
- Net Income: GAAP net income attributable to partners rose 85% in Q4 2010 ($76.4M) versus Q4 2009 ($41.3M). This increase was significantly influenced by a $27.1 million unrealized gain on derivative instruments in Q4 2010, compared to a $0.5 million gain in Q4 2009.
- Segment Performance:
- Liquefied Gas Segment: Cash flow from vessel operations increased slightly to $53.3 million (from $52.2 million), aided by lower operating expenses.
- Conventional Tanker Segment: Cash flow from vessel operations doubled to $15.0 million (from $7.5 million), driven by the acquisition of three tankers in Q1 2010 and higher profit-sharing revenue.
- Asset Transactions: Sold the LPG carrier Dania Spirit for $21.5 million, realizing a gain of $4.3 million. Acquired a 50% interest in two LNG carriers for a net purchase price of approximately $72.5 million.
Guidance, Outlook, and Risks
- Future Growth: Management expects near-term benefits from three Skaugen LPG carriers scheduled for delivery in 2011 under 15-year fixed-rate charters.
- Angola LNG Opportunity: In February 2011, Teekay Corporation offered the Partnership the opportunity to acquire a 33% interest in four newbuilding Angola LNG carriers. The offer is under review by the Board and Conflicts Committee.
- Liquidity Strategy: With over $450 million in liquidity, the Partnership is actively seeking to acquire quality assets with long-term contracts from third parties.
- Risks and Contingencies:
- Derivative Accounting: Significant volatility in GAAP net income due to unrealized gains/losses on derivative instruments (interest rate swaps and time-charter derivatives), which do not affect cash flow.
- Project Delays: Risks regarding the timing of newbuilding deliveries and potential delays in LNG/LPG projects.
- Contract Termination: Risk of early termination of long-term contracts and inability to renew or replace them.
Investor Verification Checklist
- Derivative Impact: Verify the reconciliation of GAAP net income to Adjusted Net Income to understand the magnitude of unrealized derivative gains/losses ($27.1M gain in Q4 2010).
- Angola LNG Acquisition: Monitor the outcome of the Board's review regarding the acquisition of the 33% interest in the four Angola LNG newbuildings.
- Debt Obligations: Review the $206 million debt secured by the Excelsior and Excalibur Joint Ventures, of which the Partnership guaranteed 50%.
- Non-GAAP Reconciliations: Review Appendix A and B for detailed reconciliations of Adjusted Net Income and Distributable Cash Flow to GAAP measures.
- Delivery Schedule: Confirm the delivery timeline for the three Skaugen LPG carriers and the four Angola LNG vessels to assess future cash flow ramp-up.