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, 2017
Date of Report: February 22, 2018
Teekay LNG Partners is a master limited partnership and one of the world's largest independent owners and operators of LNG carriers. The fleet consists of interests in 49 LNG carriers, 29 LPG/Multigas carriers, and 4 conventional tankers, with ownership ranging from 20% to 100%. The company primarily operates under long-term, fee-based charter contracts.
Key Financial Metrics
| Metric (in thousands USD) | Q4 2017 | Q4 2016 | Full Year 2017 | Full Year 2016 |
|---|---|---|---|---|
| Voyage Revenues | $126,307 | $100,774 | $432,676 | $396,444 |
| Income from Vessel Operations | $62,378 | $38,010 | $148,649 | $153,181 |
| GAAP Net Income (Partners & Preferred) | $39,877 | $84,411 | $33,965 | $140,451 |
| Adjusted Net Income (Non-GAAP) | $33,972 | $28,958 | $93,850 | $148,982 |
| Distributable Cash Flow (DCF) | $52,054 | $50,199 | $176,128 | $234,995 |
| DCF per Common Unit | $0.65 | $0.63 | $2.20 | $2.94 |
| Total Liquidity (as of Dec 31, 2017) | $433.6 million ($244.2M cash + $189.4M undrawn credit) |
Material Changes vs. Prior Period
- Revenue Growth: Q4 2017 voyage revenues increased 25.3% year-over-year, driven by the delivery of six new LNG and LPG carriers between February and November 2017 and the recognition of $10.7 million in prepaid lease payments from Skaugen.
- GAAP Net Income Decline: Full-year GAAP net income dropped significantly from $140.5 million in 2016 to $34.0 million in 2017. This was primarily due to a $50.6 million write-down and loss on sales of vessels in 2017 (compared to $39.0 million in 2016) and a decrease in unrealized gains on derivative instruments.
- Adjusted Net Income: Adjusted net income for the full year decreased 37% to $93.9 million, reflecting lower spot rates in the Exmar LPG Joint Venture and higher unrealized foreign currency exchange losses.
- Segment Performance: The Liquefied Gas segment saw increased income from vessel operations due to newbuilding deliveries. The Conventional Tanker segment income improved in Q4 2017 compared to Q4 2016, largely because the prior year included a significant write-down of the Asian Spirit.
Outlook, Management Commentary, and Risks
Management Commentary
CEO Mark Kremin highlighted stable cash flow generation and the successful execution of growth projects. Key milestones include the delivery of the first ARC7 LNG carrier (Eduard Toll) in January 2018, two weeks ahead of schedule, and the completion of an $816 million debt facility for the Yamal LNG Joint Venture.
Guidance and Outlook
- Newbuildings: The Partnership expects to take delivery of five additional LNG carrier newbuildings and three mid-sized LPG carrier newbuildings in 2018, all expected to commence long-term charter contracts.
- Debt Refinancing: Management continues to refinance maturities, including a new $197 million five-year facility in February 2018.
Risks and Contingencies
- Charter Contract Cancellations: The Partnership expects the charterer of the Toledo Spirit to cancel its contract and sell the vessel in 2018, which may impact future cash flows.
- Derivative and FX Exposure: Results were impacted by unrealized losses on foreign currency exchange (Euro and NOK-denominated debt) and derivative instruments.
- Forward-Looking Risks: Potential shipyard delays, cost overruns, changes in LNG production, and charterer payment defaults are cited as material risks.
Investor Verification Checklist
- Newbuilding Delivery Schedule: Verify the timing and cost of the five LNG and three LPG newbuildings expected in 2018.
- Debt Maturity Profile: Review the terms of the new $197 million facility and the $816 million Yamal LNG facility to assess refinancing risks.
- Asset Write-Downs: Monitor the status of the Toledo Spirit and other conventional tankers held for sale to confirm expected gains or losses.
- Joint Venture Performance: Assess the impact of spot rate fluctuations on the Exmar LPG Joint Venture and Teekay LNG-Marubeni Joint Venture.
- Liquidity Position: Confirm the utilization of the $189.4 million undrawn credit facility against upcoming capital expenditure requirements.