Seapeak LLC Form 6-K Summary: Period Ended September 30, 2022
Business Context and Reporting Period
This Form 6-K covers the quarterly period ended September 30, 2022, for Seapeak LLC (formerly Teekay LNG Partners L.P.). Seapeak is an international provider of marine transportation services for liquefied natural gas (LNG) and liquefied petroleum gas (LPG). As of September 30, 2022, the company operated a fleet of 46 LNG carriers and 26 LPG/multi-gas carriers with ownership interests ranging from 20% to 100%. The reporting period includes the impact of the "Stonepeak Transaction," completed in January 2022, where Seapeak was acquired by an investment vehicle managed by Stonepeak Partners L.P. and converted from a limited partnership to a limited liability company.
Key Financial Metrics
| Metric (in thousands USD) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 |
|---|---|---|
| Voyage Revenues | $459,492 | $448,148 |
| Net Income | $350,690 | $217,671 |
| Net Income (Company/Limited Partners) | $315,317 | $185,267 |
| Operating Cash Flow | $187,132 | $137,697 |
| Total Assets | $4,945,474 | $4,798,585 |
| Total Debt (Principal) | $1,219,664 | $1,394,856 |
| Cash and Cash Equivalents | $113,825 | $92,069 |
| Total Liquidity (Cash + Undrawn Credit) | $348,800 | $327,500 |
Material Changes vs. Prior Period
- Revenue Growth: Voyage revenues increased 2.5% year-over-year for the nine-month period, driven by higher management fees and cost reimbursements following the acquisition of Teekay subsidiaries, partially offset by vessel off-hire days and redeliveries.
- Profitability Surge: Net income increased 61% to $350.7 million. This was significantly boosted by a $63.4 million unrealized gain on non-designated derivative instruments (interest rate swaps) due to rising LIBOR rates and a $29.6 million foreign currency exchange gain.
- Equity Income: Equity income from joint ventures rose 131% to $243.5 million, primarily due to unrealized gains on derivatives within joint ventures and lower credit loss provisions.
- Asset Impairments: The company recorded a $44.0 million write-down on two LNG carriers (Seapeak Arctic and Seapeak Polar) due to changes in future commercial expectations after their charters expired. This was partially offset by a $0.2 million gain on the sale of the Sonoma Spirit.
- Debt Reduction: Total debt principal decreased by approximately $175 million due to scheduled repayments and prepayments, despite new borrowings.
Guidance, Outlook, and Risks
Management Commentary and Outlook: Management expects liquidity to be sufficient to meet obligations for the next 12 months. The company secured several new fixed-rate charter contracts in late 2022, including a Floating Storage Unit contract for the Seapeak Hispania and a ten-year contract for the Oak Spirit. The company anticipates bidding on future LNG projects and expanding its fleet through newbuilds or second-hand purchases.
Subsequent Events: On October 24, 2022, Seapeak agreed to acquire Evergas (Greenship Gas Trust) for $244.0 million in cash. The acquisition includes two Very Large Ethane Carriers and eight Multi-Gas/LNG carriers, all on long-term fixed-rate charters to Ineos Group Limited. The deal is expected to close before the end of 2022.
Risks and Contingencies:
- Geopolitical Risk: The Russian invasion of Ukraine poses risks through potential sanctions, trade embargoes, and retaliatory measures, though no material negative impact has been experienced to date.
- Interest Rate Risk: While rising rates generated derivative gains in 2022, significant increases in LIBOR, NIBOR, or EURIBOR could adversely affect debt servicing costs.
- Covenant Compliance: The Angola Joint Venture experienced debt service coverage ratio breaches but obtained a waiver valid until December 31, 2022, subject to dividend withholding.
- Market Volatility: Vessel values are volatile and used to calculate loan-to-value covenants; estimates may not reflect actual sale prices.
Investor Verification Checklist
- Derivative Gains Sustainability: Verify the sustainability of the $63.4 million unrealized gain on interest rate swaps, which heavily influenced net income, and assess exposure to future rate fluctuations.
- Evergas Acquisition Financing: Confirm the funding sources for the $244 million Evergas acquisition and the impact of assuming Evergas' debt obligations on Seapeak's leverage ratios.
- Vessel Valuation Assumptions: Review the methodology used for the $44 million vessel write-down and the current charter-free valuations used for credit loss provisions.
- Covenant Compliance: Monitor the Angola Joint Venture's compliance with debt covenants following the temporary waiver and the impact of dividend withholding.
- Charter Contract Renewals: Track the execution of new charter contracts for vessels that redelivered in 2022 (e.g., Seapeak Arctic, Seapeak Polar) to ensure utilization rates remain high.