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, 2013
Date of Report: February 21, 2014
Teekay LNG Partners is the world's second-largest independent owner and operator of LNG carriers. The partnership operates primarily under long-term, fixed-rate charter contracts. As of February 1, 2014, the fleet consisted of 77 vessels (34 LNG carriers, 33 LPG/Multigas carriers, and 10 conventional tankers), with ownership interests ranging from 33% to 100%.
Key Financial Metrics
| Metric | Q4 2013 | Q4 2012 | Full Year 2013 | Full Year 2012 |
|---|---|---|---|---|
| Distributable Cash Flow (DCF) | $63.4 million | $53.6 million | N/A | N/A |
| Adjusted Net Income (Partners) | $46.2 million | $38.5 million | $175.0 million | $156.3 million |
| GAAP Net Income (Partners) | $47.5 million | $28.2 million | $201.2 million | $123.7 million |
| Cash Distribution per Unit | $0.6918 | $0.6750 | N/A | N/A |
| Total Liquidity | $332.2 million | N/A | N/A | N/A |
| Net Voyage Revenues | $104.0 million | $97.9 million | N/A | N/A |
Liquidity Composition (as of Dec 31, 2013): $139.5 million in cash and cash equivalents and $192.7 million in undrawn credit facilities.
Material Changes vs. Prior Period
- Distributable Cash Flow: Increased 18% in Q4 2013 compared to Q4 2012. This growth was driven by the acquisition of a 50% interest in Exmar LPG BVBA (Feb 2013) and the acquisition and charter-back of two LNG carriers from Awilco LNG (Sept and Nov 2013). The increase was partially offset by reduced cash flow following the sale of the Tenerife Spirit conventional tanker in December 2013.
- Net Income: GAAP net income attributable to partners increased significantly year-over-year for both the quarter and the full year, primarily due to the aforementioned acquisitions and the 2012 acquisition of a 52% interest in six LNG carriers from A.P. Moller-Maersk.
- Segment Performance:
- Liquefied Gas Segment: Cash flow from vessel operations (CFVO) increased to $115.9 million (consolidated and equity accounted) in Q4 2013 from $105.9 million in Q4 2012.
- Conventional Tanker Segment: CFVO decreased to $11.0 million in Q4 2013 from $13.1 million in Q4 2012, due to the sale of the Tenerife Spirit and scheduled dry docking of two Suezmax tankers.
Guidance, Outlook, and Risks
Management Commentary: CEO Peter Evensen highlighted steady growth in 2013, noting that 100% of the on-the-water LNG carrier fleet operates under fixed-rate contracts with an average remaining duration of 12 years. This structure insulates the partnership from recent declines in spot LNG shipping rates. Only two LNG carriers (52% owned) are scheduled to roll off contracts through 2016.
Outlook and Projects:
- Newbuildings: The partnership expects three currently unchartered MEGI LNG carrier newbuildings (delivering in 2017) to be well-positioned for strong LNG shipping fundamentals starting in 2016. Two MEGI newbuildings are already chartered to Cheniere starting in 2016.
- Exmar LPG JV: In late January 2014, the Exmar LPG joint venture secured two five-year (up to 10-year) fixed-rate contracts with Statoil ASA and two 10-year fixed-rate contracts with Potash Corporation.
- Expansion: In November 2013, the partnership exercised an option for one additional MEGI LNG carrier newbuilding (delivery 2017) and delayed delivery dates for two other newbuildings to 2017 to align with new project start-ups.
Risks and Contingencies:
- Derivatives: The partnership recognizes unrealized gains/losses on derivative instruments not designated as hedges in net income, which does not affect cash flow but impacts reported earnings.
- Forward-Looking Risks: Potential shipyard construction delays, cost overruns, inability to secure charter contracts for newbuildings, and changes in global LNG supply/demand dynamics.
Investor Verification Checklist
- Contract Duration: Verify the specific terms and remaining duration of the fixed-rate contracts covering the LNG fleet to confirm insulation from spot rate volatility.
- Newbuilding Chartering: Monitor progress on securing long-term charter contracts for the three unchartered MEGI LNG newbuildings scheduled for 2017 delivery.
- Liquidity Position: Confirm the utilization of the $192.7 million in undrawn credit facilities and the status of the Continuous Offering Program (COP).
- Joint Venture Performance: Review the operational performance and contract execution of the Exmar LPG BVBA joint venture following the recent contract awards.
- Non-GAAP Reconciliations: Review Appendix A and B in the full filing to understand the specific adjustments made to GAAP net income to arrive at Adjusted Net Income and Distributable Cash Flow.