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: First Quarter ended March 31, 2017
Date of Report: May 18, 2017
Business Overview: Teekay LNG Partners is a master limited partnership and one of the world's largest independent owners and operators of LNG carriers. The fleet includes interests in 50 LNG carriers, 30 LPG/Multigas carriers, and 5 conventional tankers, primarily operating under long-term, fee-based charter contracts.
Key Financial Metrics
| Metric (in thousands USD) | Q1 2017 | Q4 2016 | Q1 2016 |
|---|---|---|---|
| Voyage Revenues | $101,180 | $100,774 | $95,771 |
| Income from Vessel Operations | $46,078 | $38,010 | $16,983 |
| GAAP Net Income (Partners & Preferred) | $29,057 | $84,411 | $(37,138) |
| Adjusted Net Income (Non-GAAP) | $21,093 | $28,958 | $34,151 |
| Distributable Cash Flow (DCF) | $43,227 | $50,199 | $54,404 |
| DCF per Common Unit | $0.54 | N/A | $0.68 |
| Total Cash Flow from Vessel Ops (CFVO) | $109,211 | $114,534 | $114,429 |
| Total Liquidity (as of Mar 31, 2017) | $395.0 million | N/A | N/A |
Note: Liquidity comprised $181.2 million in cash/cash equivalents and $213.8 million in undrawn credit facilities.
Material Changes vs. Prior Period
- Revenue Growth: Voyage revenues increased 5.6% year-over-year (Q1 2017 vs. Q1 2016) to $101.2 million, driven by the delivery of new MEGI LNG carriers (Creole Spirit, Oak Spirit, and Torben Spirit) and reimbursed dry docking costs.
- Profitability: GAAP Net Income attributable to partners was $29.1 million in Q1 2017, a significant improvement from a loss of $37.1 million in Q1 2016. The prior year loss was heavily impacted by a $27.4 million loss on the sale of vessels (Bermuda Spirit and Hamilton Spirit).
- Adjusted Net Income: Declined 38% year-over-year to $21.1 million, primarily due to lower equity income from joint ventures caused by lower redeployment rates and the sale of an older LPG carrier in the Exmar LPG Joint Venture.
- Segment Performance: The Liquefied Gas Segment contributed $43.3 million to vessel operating income, while the Conventional Tanker Segment contributed $2.7 million. The Conventional Tanker Segment's Q1 2016 results were distorted by the aforementioned vessel sale losses.
Outlook, Management Commentary, and Risks
Management Commentary
CEO Mark Kremin stated results were "in-line with expectations," highlighting the one-month contribution from the Torben Spirit newbuilding. Management confirmed the execution of growth projects, including the acquisition of a mid-size LPG carrier newbuilding via the Exmar LPG Joint Venture.
Financing and Growth Projects
- Financing Progress: Completed or nearing completion of approximately $640 million in new long-term financings for growth projects (MEGI LNG carriers and ARC7 Ice-Class carriers for Yamal LNG).
- Recent Transactions:
- Completed $355 million in sale-leaseback transactions for MEGI newbuildings in April/May 2017.
- Nearing completion of a $285 million sale-leaseback for two ARC7 Ice-Class carriers.
- MALT LNG Joint Venture refinanced four LNG carriers with a $335 million facility.
- Acquired 100% ownership of the Norgas Sonoma LPG carrier for ~$13 million, converting charter hire receivables into equity.
Guidance and Outlook
Management expects to secure the remainder of required long-term financings for committed growth projects within the second half of 2017. The MALT LNG Joint Venture secured an 18-month firm charter (plus one-year option) with a major Japanese utility, commencing Q4 2018.
Risks and Contingencies
- Charter Negotiations: Ongoing negotiations with Awilco LNG regarding charter extensions and deferrals for two vessels with purchase obligations in late 2017 and 2018.
- Forward-Looking Risks: Potential shipyard delays, cost overruns, changes in LNG/LPG production, charterer payment defaults, and inability to secure financing for newbuildings.
Key Facts for Investor Verification
- Financing Completion: Verify the final closing of the ~$285 million sale-leaseback for the Yamal LNG project vessels and the remaining growth project financings expected in H2 2017.
- Awilco LNG Negotiations: Monitor the outcome of charter extension/deferral talks with Awilco LNG, which could impact future revenue streams and vessel ownership transfer timing.
- Joint Venture Performance: Track the performance of equity-accounted vessels (MALT and Exmar LPG JVs), as lower redeployment rates and spot market volatility significantly impacted Q1 equity income.
- Liquidity Position: Confirm the utilization of the $213.8 million undrawn credit facility against upcoming newbuilding installment payments and maintenance capital expenditures.
- Derivative Exposure: Review the impact of unrealized gains/losses on non-designated derivative instruments, which fluctuated significantly between periods ($1.2M gain in Q1 2017 vs. $38.1M loss in Q1 2016).