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, 2021

Date of Report: August 5, 2021

Teekay LNG Partners is a master limited partnership and one of the world's largest independent owners and operators of LNG carriers. As of August 1, 2021, the fleet consisted of 47 LNG carriers and 30 LPG/Multi-gas carriers (total 77 vessels), with ownership interests ranging from 20% to 100%. The Partnership also holds a 30% interest in an LNG regasification terminal in Bahrain.

Key Financial Metrics

Note: Liquidity as of June 30, 2021, comprised $144.2 million in cash and cash equivalents and $237.7 million in undrawn credit facilities.

Material Changes vs. Prior Periods

Q2 2021 vs. Q1 2021

• Decrease in Net Income: GAAP and Adjusted Net Income declined primarily due to an increase in scheduled dry dockings and the timing of planned repairs and maintenance in Q2.
• Derivative Impact: GAAP Net Income was negatively impacted by changes in unrealized gains/losses on non-designated derivative instruments compared to Q1.

Q2 2021 vs. Q2 2020

• Decrease in Net Income: Driven by increased scheduled dry dockings, the redeployment of an LNG carrier under a market-linked contract in March 2021, and timing of vessel operating expenditures.
• Offsetting Factors: Decreases were partially offset by lower operational claims on charter contracts, lower net interest expense, and positive impacts from unrealized gains on derivatives and foreign currency exchange.
• Segment Performance:
  • LNG Segment: Income decreased due to dry dockings and lower earnings from the MALT Joint Venture (lower charter rates on redeployed vessels).
  • LPG Segment: Loss from vessel operations increased due to the dry docking of one LPG carrier, partially offset by higher spot LPG rates.

Guidance, Outlook, and Management Commentary

• Market Fundamentals: Management expects strong LNG shipping fundamentals to persist through the remainder of 2021 and into 2022. Spot and term charter markets have been counter-seasonally strong.
• Contract Coverage: The LNG fleet is 98% fixed for the remainder of 2021 and 89% fixed for 2022.
• Dry Docking Schedule: Q3 2021 results are expected to be impacted by a heavy dry dock schedule. However, Q4 2021 is expected to see a "bounce back" due to a substantially reduced number of dry dock days.
• Future Opportunities: Market strength is viewed as a tailwind for 2022 as several LNG carriers roll off current contracts in the first half of the year. The Creole Spirit is on a market-linked contract until mid-February 2022.
• Risks: Key risks include changes in LNG/LPG production, regulatory changes, early termination of charters, higher than expected dry docking costs, and the potential impact of the COVID-19 pandemic on operations and demand.

Investor Verification Checklist

• Dry Docking Impact: Verify the specific schedule and cost implications of the "heavy" dry dock schedule in Q3 2021 versus the expected recovery in Q4 2021.
• Derivative Valuations: Review the reconciliation of unrealized gains/losses on non-designated derivative instruments, which significantly impacted GAAP Net Income volatility between quarters.
• Joint Venture Performance: Assess the performance of equity-accounted vessels (specifically the MALT Joint Venture) and the impact of lower charter rates on redeployed vessels.
• Liquidity Position: Confirm the utilization of the $237.7 million undrawn credit facility and the sustainability of the $381.9 million total liquidity position.
• Contract Roll-offs: Monitor the re-chartering of vessels rolling off contracts in the first half of 2022 to validate management's outlook on market-linked opportunities.