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: Second Quarter ended June 30, 2017
Date of Report: August 3, 2017
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 partnership operates a diversified fleet of LNG, LPG, and conventional tankers, primarily under long-term, fee-based charter contracts. As of August 1, 2017, the fleet consisted of 85 vessels (64 owned/in-chartered and 21 newbuildings).
Key Financial Metrics
| Metric (in thousands USD) | Q2 2017 | Q2 2016 |
|---|---|---|
| Voyage Revenues | $100,904 | $99,241 |
| GAAP Net Loss (Attributable to partners) | $(16,073) | $43,071 |
| Adjusted Net Income (Non-GAAP) | $17,860 | $53,780 |
| Distributable Cash Flow (DCF) | $40,623 | $76,067 |
| DCF per Common Unit | $0.51 | $0.95 |
| Cash Flow from Vessel Operations (CFVO) | $106,252 | $135,127 |
| Total Liquidity (as of June 30, 2017) | $351.1 million | N/A |
Note: Liquidity comprised $191.1 million in cash and cash equivalents and $160.0 million in undrawn credit facilities.
Material Changes vs. Prior Period
The Partnership reported a GAAP net loss of $16.1 million in Q2 2017, a significant decrease from the $43.1 million net income in Q2 2016. Adjusted net income also declined from $53.8 million to $17.9 million. Key drivers for these changes include:
- One-time Prior Year Benefit: Q2 2016 included a favorable settlement of a disputed charter contract termination in the Teekay LNG-Marubeni Joint Venture ($20.3 million share).
- Operational Issues: Unscheduled off-hire in Q2 2017 for repairs on an LNG carrier and uncollected hire from six LPG carriers chartered to I.M. Skaugen SE.
- Asset Sales: Q2 2016 included proceeds from the sale of three conventional tankers, whereas Q2 2017 saw the sale of only one (Asian Spirit) in Q1 2017.
- Non-Cash Impairments: A $12.6 million write-down of the European Spirit conventional tanker in Q2 2017.
- Market Factors: Lower spot rates earned on certain vessels in joint ventures and increased unrealized foreign currency exchange losses on Euro and NOK-denominated debt.
Outlook, Management Commentary, and Risks
Management Commentary: CEO Mark Kremin highlighted stable cash flows supported by $11.4 billion in forward fixed-rate revenues with a weighted-average remaining contract duration of 13 years. The company successfully extended charter contracts for two LNG carriers (Wilpride and Wilforce) to December 2019 and refinanced approximately $180 million of debt maturing in 2018 to June 2020.
Recent Developments:
- Newbuildings: The Pan Asia LNG carrier (chartered to Shell) completed sea trials and is expected to deliver in Q4 2017. The Kruibeke LPG carrier was delivered to the Exmar LPG joint venture.
- Joint Ventures: The Teekay LNG-Marubeni Joint Venture secured short-term charters for the Magellan Spirit (6 months) and Awra Spirit (15 months).
Risks and Contingencies:
- Forward-Looking Risks: Potential shipyard delays, cost overruns on newbuildings, and changes in LNG/LPG production or trading patterns.
- Counterparty Risk: Inability of charterers to make future payments or renew long-term contracts.
- Financing: Ability to secure financing for committed growth projects delivering through early 2020.
Investor Verification Checklist
- Debt Maturities: Verify the terms and status of the $180 million debt extension for the Wilpride and Wilforce vessels to June 2020.
- Asset Impairment: Confirm the estimated fair value and sale timeline for the European Spirit conventional tanker, which was written down by $12.6 million.
- Joint Venture Performance: Review the impact of lower spot rates and the specific performance of the Teekay LNG-Marubeni and Exmar LPG joint ventures on equity income.
- Liquidity Position: Monitor the $351.1 million liquidity position against upcoming capital expenditures for newbuilding deliveries in late 2017 and 2018.
- Charter Extensions: Assess the financial impact of the deferred charter hire payments ($15,600/day per vessel) added to the purchase obligation price for the Awilco LNG vessels.