Business Context and Reporting Period
This Form 6-K filing by Teekay LNG Partners L.P. (NYSE: TGP) is dated December 6, 2006. The registrant is a publicly-traded master limited partnership providing marine transportation services for liquefied natural gas (LNG), liquefied petroleum gas (LPG), and crude oil under long-term, fixed-rate time charters. The filing announces a strategic expansion into the LPG shipping market.
Key Financial Metrics and Transaction Details
- Acquisition Cost: Total cost of $106 million for four LPG carriers.
- Projected Cash Flow: Expected to generate approximately $11.6 million per annum in cash flow from vessel operations once all vessels are delivered.
- Financing: Acquisition will be initially financed through borrowings under revolving credit facilities, cash balances, or both.
- Fleet Composition: The partnership currently operates 13 LNG carriers, 4 LPG carriers, and 8 Suezmax class crude oil tankers.
Material Changes and Transaction Structure
The filing details the acquisition of four LPG carriers, marking a material expansion into a new market segment:
- Newbuildings: Three carriers are under construction and will be purchased from IM Skaugen ASA upon delivery between early 2008 and mid-2009. These vessels will be chartered back to Skaugen on 15-year fixed-rate time charters.
- Existing Vessel: The 2000-built carrier Dania Spirit will be acquired from Teekay Shipping Corporation in January 2007. It is currently chartered to Statoil ASA with a remaining nine-year term.
Outlook, Management Commentary, and Risks
Management views the transaction as accretive and a natural extension of its core LNG business. CEO Peter Evensen noted that the sea-borne trade in LPG is projected to grow by approximately 6% per annum through 2012. The filing includes standard forward-looking statement disclaimers regarding potential risks, including:
- Early termination or breach of charter contracts.
- Delays in the construction of new LPG carriers.
- Lower than anticipated LPG production.
- Changes in applicable industry regulations.
Investor Verification Checklist
- Verify the delivery schedules for the three newbuildings (early 2008 to mid-2009) and the January 2007 closing for the Dania Spirit.
- Confirm the credit facility capacity available to fund the $106 million acquisition.
- Review the specific terms of the 15-year time charters with IM Skaugen ASA and the remaining nine-year charter with Statoil ASA.
- Assess the impact of the 6% projected annual growth in LPG trade on future valuation.