Business Context and Reporting Period
Company: Teekay LNG Partners L.P. (Note: Input metadata listed "Seapeak LLC," but the filing text identifies the registrant as Teekay LNG Partners L.P.)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Quarterly period ended June 30, 2017 (Six months ended June 30, 2017 also presented)
Business Overview: An international provider of marine transportation services for liquefied natural gas (LNG), liquefied petroleum gas (LPG), and crude oil. As of June 30, 2017, the fleet included 50 LNG carriers, 30 LPG/Multigas carriers, and five conventional tankers.
Key Financial Metrics
| Metric (in thousands USD) | Six Months Ended June 30, 2017 | Six Months Ended June 30, 2016 |
|---|---|---|
| Voyage Revenues | $202,084 | $195,012 |
| Net Income (Loss) | $20,047 | $11,743 |
| Net Income Attributable to Limited Partners | $7,212 | $5,814 |
| Net Income Per Common Unit (Basic/Diluted) | $0.09 | $0.07 |
| Operating Cash Flow | $83,965 | $82,428 |
| Cash and Cash Equivalents (End of Period) | $191,110 | $127,498 |
| Total Debt (Principal) | $1,833,862 | $1,804,483 |
| Total Liquidity (Cash + Undrawn Facilities) | $351,100 | $369,800 |
Material Changes vs. Prior Period
- Profitability: Net income increased to $20.0 million for the six months ended June 30, 2017, compared to $11.7 million in the prior year period. This improvement was driven by the absence of a $27.4 million loss on vessel sales recorded in 2016 and the addition of new vessels (Creole Spirit, Oak Spirit, Torben Spirit).
- Segment Performance:
- Liquefied Gas Segment: Income from vessel operations increased slightly to $83.4 million (from $82.7 million), aided by new vessel deliveries and higher revenue days, partially offset by uncollected hire from Skaugen.
- Conventional Tanker Segment: Loss from vessel operations improved significantly to $(7.4) million (from $(18.1) million), primarily due to the absence of the $27.4 million loss on sale of vessels recorded in 2016. However, the segment recorded a $12.6 million write-down on the European Spirit in 2017.
- Equity Income: Equity income dropped sharply to $5.4 million (from $39.1 million). This decrease was largely due to the absence of a one-time $20.3 million settlement payment received in 2016 regarding the Magellan Spirit and deferred charter payments from the MALT LNG Carriers due to the Yemen LNG plant closure.
- Derivatives and FX: Realized and unrealized losses on non-designated derivatives decreased to $6.2 million (from $55.4 million). Foreign currency exchange losses increased to $19.4 million (from $10.6 million) due to the revaluation of NOK and Euro-denominated debt.
Guidance, Outlook, Risks, and Unusual Items
- Unusual Items:
- Vessel Write-down: Recorded a $12.6 million write-down on the European Spirit Suezmax tanker after the charterer notified the company it would not exercise an extension option.
- Impairment of Receivables: Did not recognize $9.4 million of revenue for the six months ended June 30, 2017, related to unpaid charter hire from Skaugen due to uncertainty of collection.
- Liquidity and Financing:
- The company reported a working capital deficit of $174.8 million, primarily due to revolving credit facilities maturing in late 2017 and mid-2018 and capital lease obligations.
- Management anticipates sufficient liquidity for the next 12 months through operating cash flows, dividends from joint ventures, and refinancing efforts. Significant capital commitments remain for newbuildings ($1.3 billion for wholly-owned LNG carriers and $1.3 billion for joint ventures).
- Key Risks and Contingencies:
- Charterer Credit Risk: Uncertainty regarding Skaugen's ability to pay future charter hire and Awilco's ability to meet purchase obligations and charter payments.
- Yemen LNG Project: Continued deferral of charter payments for the MALT LNG Carriers due to the closure of the Yemen LNG plant; no assurance of resumption or repayment.
- Tax Litigation: Potential exposure of approximately $42 million (70% share) related to a UK tax authority challenge regarding capital allowances on former RasGas II LNG Carrier leases.
Investor Verification Checklist
- Refinancing Progress: Verify the status of refinancing for loan facilities maturing in late 2017 and mid-2018 to ensure the working capital deficit is managed.
- Skaugen Receivables: Monitor the collectability of the $13.9 million in unpaid charter hire and the potential impact on future revenue recognition.
- Awilco Solvency: Assess the financial stability of Awilco LNG ASA and its ability to fulfill purchase obligations for the two chartered LNG carriers.
- Yemen LNG Resumption: Track developments regarding the Yemen LNG plant to evaluate the likelihood of recovering deferred charter payments for the MALT LNG Carriers.
- European Spirit Sale: Confirm the sale price and timing for the European Spirit to determine if the $12.6 million write-down will be fully recovered.