Business Context and Reporting Period
Company: Teekay LNG Partners L.P. (NYSE: TGP)
Filing Type: Form 6-K (Earnings Release)
Reporting Period: Quarter ended March 31, 2015
Date of Report: May 14, 2015
Teekay LNG Partners L.P. is a master limited partnership and one of the world's largest independent owners and operators of LNG carriers. The company operates a diversified fleet of LNG, LPG, and conventional tankers, primarily under long-term, fixed-rate charter contracts.
Key Financial Metrics
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Distributable Cash Flow (DCF) | $66.2 million | $60.1 million |
| Net Income (GAAP) | $66.4 million | $43.1 million |
| Adjusted Net Income (Non-GAAP) | $43.9 million | $41.8 million |
| Net Voyage Revenues | $97.0 million | $100.2 million |
| Cash Flow from Vessel Operations (Total) | $119.0 million | $119.6 million |
| Total Liquidity (Pro-forma) | ~$370 million | N/A |
| Cash Distribution per Unit | $0.70 | N/A |
Note: Liquidity of $370 million includes pro-forma effect of a $130 million Norwegian Kroner bond offering completed in early May 2015. Reported liquidity as of March 31, 2015, was $239.6 million.
Material Changes vs. Prior Period
- Distributable Cash Flow: Increased 10% year-over-year to $66.2 million. Drivers included lower interest expense following the refinancing of three LNG carriers, fewer dry-dockings, and the acquisition of the Norgas Napa LPG carrier.
- Net Income: GAAP net income rose significantly to $66.4 million from $43.1 million, largely due to a $25.9 million foreign exchange gain and reduced interest expense, offset by unrealized losses on derivatives.
- Revenue: Net voyage revenues decreased slightly to $97.0 million from $100.2 million, primarily due to the sale of two conventional tankers in 2014 and the expiration of the Methane Spirit charter.
- Segment Performance:
- Liquefied Gas: Cash flow from consolidated vessels increased to $60.7 million (from $58.6 million) due to the new LPG carrier and fewer off-hire days. However, cash flow from equity-accounted vessels decreased to $46.3 million (from $48.1 million) due to the Magellan Spirit grounding incident and Methane Spirit charter expiration.
- Conventional Tanker: Cash flow decreased to $12.0 million (from $12.9 million) following the sale of two Suezmax tankers in 2014.
Guidance, Outlook, and Risks
Management Commentary and Outlook
Management highlighted a portfolio of approximately $11.2 billion in forward fixed-rate revenues with an average duration of 13 years, insulating the partnership from short-term spot rate fluctuations. While spot LNG rates have declined due to low Asian prices and speculative supply, management expects the supply/demand balance to tighten in the second half of 2015 as new liquefaction projects in the U.S. and Australia come online.
Growth Projects
- New Orders: Ordered one LNG carrier newbuilding in February 2015 with options for four more. Secured contracts for five MEGI LNG carriers for Shell (deliveries 2017-2018).
- Pipeline: Current growth project pipeline valued at $3.4 billion, including vessels for Cheniere, BG Group, and the Yamal LNG Project.
- LPG: Exmar LPG joint venture took delivery of the fourth of 12 newbuildings in January 2015.
Risks and Contingencies
- Magellan Spirit Dispute: The vessel was involved in a grounding incident in January 2015. The charterer claimed 59 days of off-hire and attempted to terminate the contract early. The partnership disputes both the off-hire claim and the termination right, with legal assistance engaged.
- Market Conditions: Spot and short-term LNG shipping rates remain under pressure due to production outages and speculative carrier deliveries.
- Project Execution: Risks include shipyard delays, cost overruns, and potential sanctions affecting the Yamal LNG project in Russia.
Investor Verification Checklist
- Magellan Spirit Resolution: Verify the status of the legal dispute regarding the grounding incident and the potential financial impact of the disputed off-hire days and contract termination claim.
- Charter Renewals: Confirm the terms and rates for the short-term employment secured for the Magellan Spirit and Methane Spirit starting September 2015, and progress on securing medium-to-long-term contracts.
- Derivative Accounting: Review the reconciliation of GAAP net income to Adjusted Net Income to understand the impact of unrealized foreign exchange gains ($25.9M) and derivative losses ($14.0M) on reported earnings.
- Liquidity Position: Confirm the final settlement and utilization of the $130 million Norwegian Kroner bond proceeds issued in May 2015.
- Newbuilding Costs: Monitor the $3.4 billion project pipeline for any cost overruns or delivery delays, particularly for the Shell and Yamal LNG vessels.