Business Context and Reporting Period
This Form 6-K filing by Teekay LNG Partners L.P. (NYSE: TGP) reports third-quarter results for the period ended September 30, 2012. Teekay LNG is the world's third-largest independent owner and operator of LNG vessels, operating a fleet of 43 vessels (27 LNG carriers, 5 LPG/Multigas carriers, and 11 conventional tankers) primarily under long-term, fixed-rate charter contracts.
Key Financial Metrics
- Distributable Cash Flow (DCF): $57.8 million for Q3 2012, a 32% increase from $43.7 million in Q3 2011.
- Net Income (GAAP): $33.1 million attributable to partners for Q3 2012, compared to $27.6 million in Q3 2011.
- Adjusted Net Income: $41.7 million for Q3 2012, excluding specific non-cash items totaling $8.6 million.
- Cash Flow from Vessel Operations (CFVO): Total CFVO was $111.7 million, driven by a significant increase in equity-accounted vessels ($40.6 million vs. $15.2 million prior year).
- Liquidity: Total liquidity stood at approximately $559 million as of September 30, 2012, comprising $91.9 million in cash and $467.0 million in undrawn credit facilities.
- Debt: Long-term debt and capital leases totaled $1.73 billion as of September 30, 2012.
- Distributions: Declared cash distribution of $0.675 per unit for the quarter.
Material Changes vs. Prior Period
The increase in distributable cash flow and adjusted net income is primarily attributed to incremental cash flow from recent acquisitions, including a 52% interest in six LNG carriers (MALT LNG) acquired in February 2012 and a 33% interest in four LNG carriers servicing the Angola LNG Project. The Liquefied Gas segment's CFVO from equity-accounted vessels rose significantly to $40.6 million from $15.2 million year-over-year. Conversely, GAAP net income was impacted by unrealized losses on derivative instruments ($9.9 million) and foreign exchange losses ($6.2 million) in Q3 2012.
Guidance, Outlook, and Risks
Management anticipates significant new demand for the global LNG shipping fleet starting in 2015 due to new liquefaction projects. The Partnership is actively bidding on several LNG and floating storage and regasification projects with start-up dates between 2015 and 2017. With $182.2 million in net proceeds from a September 2012 follow-on equity offering, the company states it is well-positioned for growth investments. Key risks include the availability of growth opportunities, changes in LNG production and trading patterns, the ability to secure new contracts, and foreign currency fluctuations affecting debt service costs.
Investor Verification Checklist
- Verify the reconciliation of Distributable Cash Flow to GAAP Net Income in Appendix B to understand the impact of non-cash adjustments.
- Review the specific items affecting net income in Appendix A, particularly the unrealized losses on derivative instruments and foreign exchange.
- Confirm the status of active bids for LNG projects scheduled for 2015–2017 start-ups.
- Monitor the utilization of the $467 million in undrawn credit facilities and the impact of the recent equity offering on capital structure.
- Assess the exposure to foreign currency risk, specifically regarding the NOK-denominated bonds issued in May 2012.