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: Third Quarter ended September 30, 2014
Date of Report: November 6, 2014
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 primarily under long-term, fixed-rate charter contracts with an average remaining duration of approximately 13 years. The fleet consists of LNG carriers, LPG/Multigas carriers, and conventional tankers.
Key Financial Metrics
Revenue and Income:
- Net Voyage Revenues (Q3 2014): $100.3 million (Liquefied Gas: $76.4M; Conventional Tanker: $23.9M).
- GAAP Net Income Attributable to Partners (Q3 2014): $90.6 million (vs. $29.6 million in Q3 2013).
- Adjusted Net Income Attributable to Partners (Q3 2014): $46.7 million (vs. $48.2 million in Q3 2013).
- GAAP Net Income (Nine Months 2014): $172.5 million (vs. $153.7 million in Nine Months 2013).
Cash Flow and Distributions:
- Distributable Cash Flow (Q3 2014): $64.2 million (vs. $64.6 million in Q3 2013).
- Cash Distribution Declared: $0.6918 per unit for Q3 2014, payable November 14, 2014.
- Net Operating Cash Flow (Nine Months 2014): $135.2 million.
Liquidity and Debt:
- Total Liquidity (as of Sept 30, 2014): Approximately $326.3 million ($97.5 million cash and cash equivalents + $228.8 million undrawn credit facilities).
- Long-Term Debt (as of Sept 30, 2014): $1.60 billion.
- Total Assets (as of Sept 30, 2014): $4.36 billion.
Material Changes vs. Prior Period
Decrease in Adjusted Net Income (Q3): Adjusted net income decreased slightly from $48.2 million to $46.7 million. This was primarily due to the sale of three conventional tankers (Tenerife Spirit, Algeciras Spirit, and Huelva Spirit) between December 2013 and August 2014 and related restructuring charges. This decline was partially offset by contributions from two LNG carriers acquired from Awilco in late 2013.
Segment Performance:
- Liquefied Gas Segment: Cash flow from vessel operations (consolidated) increased to $62.5 million from $58.8 million, driven by the delivery of two Awilco LNG carriers. Cash flow from equity accounted vessels decreased slightly to $51.8 million due to the sale of older LPG carriers and dry docking activities.
- Conventional Tanker Segment: Cash flow from vessel operations decreased significantly to $8.9 million from $14.5 million, directly resulting from the sale of three Suezmax tankers.
GAAP Volatility: GAAP net income increased significantly year-over-year ($29.6M to $90.6M) largely due to a $23.5 million unrealized foreign exchange gain in Q3 2014, compared to a $16.1 million loss in the prior year. These unrealized items do not affect distributable cash flow.
Guidance, Outlook, and Management Commentary
Management Commentary: CEO Peter Evensen highlighted stable cash flows generated from a portfolio of long-term, fee-based charter contracts despite equity market volatility. The company continues to pursue accretive growth opportunities.
Recent Transactions and Growth Pipeline:
- Acquisition: Agreed to acquire the Norgas Napa, a 2003-built LPG carrier, from I.M. Skaugen for approximately $27 million, with a five-year bareboat charter-back. Expected delivery in mid-November 2014.
- Newbuildings: The company has over $2.5 billion in committed fleet growth, including:
- Five MEGI LNG carrier newbuildings (delivering 2016-2017).
- Six icebreaker LNG carriers for the Yamal LNG project (delivering 2018-2020).
- Four LNG carrier newbuildings for BG Group (delivering 2017-2019).
- Nine LPG carrier newbuildings via the Exmar joint venture (delivering 2015-2018).
- Equity Offering: Completed an offering of 3.1 million common units in July 2014, raising net proceeds of $140.5 million to fund newbuilding installments.
Risks and Contingencies:
- Forward-looking statements are subject to risks including shipyard delays, cost overruns, and the potential failure of the Yamal LNG project due to sanctions against Russia.
- Unrealized gains/losses on derivative instruments and foreign currency revaluations create volatility in GAAP net income, though these do not impact cash flow.
Investor Verification Checklist
- Verify the reconciliation of Distributable Cash Flow (DCF) to GAAP Net Income in Appendix B to understand the impact of non-cash items.
- Confirm the status and expected delivery dates of the $2.5 billion committed newbuilding pipeline, particularly the Yamal LNG icebreakers.
- Review the terms of the new Norgas Napa acquisition and charter-back agreement for accretion details.
- Monitor the impact of unrealized foreign exchange gains/losses on GAAP earnings versus the stability of DCF.
- Check the utilization of the $228.8 million undrawn credit facilities and the company's leverage ratios.