Business context and reporting period
The supplied filing is Teekay LNG Partners L.P.’s Form 20-F annual report for the fiscal year ended December 31, 2011, filed April 11, 2012. It is not a standalone 2011 fourth-quarter report, and the filing does not identify Seapeak LLC as the registrant. The financial statements use U.S. GAAP and U.S. dollars.
Teekay LNG Partners transports LNG, LPG and crude oil, principally under long-term, fixed-rate charters. At year-end, its fleet included 20 LNG carriers, five LPG/multigas carriers and 11 conventional tankers; some LNG vessels were held through equity-method joint ventures.
Financial and operating highlights
Amounts below are in millions of U.S. dollars, except per-unit data. Annual comparisons are 2011 versus 2010.
| Metric | 2011 | 2010 |
|---|---|---|
| Voyage revenue | $380.0 | $374.0 |
| Net income | $97.4 | $92.9 |
| Income from vessel operations | $173.5 | $179.0 |
| Operating cash flow | $122.0 | $175.0 |
| EBITDA (non-GAAP) | $233.2 | $225.8 |
| Adjusted EBITDA (non-GAAP) | $291.7 | $277.3 |
| Cash distributions declared per unit | $2.52 | $2.37 |
| Cash and cash equivalents at year-end | $93.6 | $81.1 |
| Total debt and capital lease obligations at year-end | $1,962.3 | $2,137.2 |
Revenue increased 1.6%, while net income rose 4.7%. Vessel-operations income declined 3.1%; its margin, calculated as vessel-operations income divided by voyage revenue, was approximately 45.7%, compared with 47.8% in 2010. Operating cash flow fell 30.2%, reflecting, among other items, the Madrid Spirit swap settlement, higher dry-docking expenditures and affiliate repayments. The reported $63.0 million derivative loss was smaller than the $78.7 million loss in 2010; much of the period-to-period derivative fair-value movement is non-cash, but 2011 also included substantial realized swap losses.
Year-end total assets were $3.58 billion and total equity was $1.14 billion. Restricted cash was $495.6 million, largely associated with lease financing and not freely available for general use. Reported total liquidity, including cash and undrawn medium-term facilities, was $538.7 million; undrawn revolving capacity was $445.1 million. The partnership reported a $107.3 million working-capital deficit and stated it expected to manage it primarily with 2012 operating cash flow and available facilities.
Material changes and significant developments
- Two 2011 public common-unit offerings generated approximately $341.2 million in net proceeds, primarily used to repay revolving-credit borrowings. Common units outstanding rose to 64.9 million at year-end from 55.1 million a year earlier.
- The partnership acquired two multigas newbuildings and one LPG carrier in 2011; the multigas vessels began 15-year charters. It also acquired a 33% interest in three Angola LNG carriers, which began 20-year fixed-rate charters.
- After year-end, the final Angola LNG carrier was delivered in January 2012. On February 28, 2012, a jointly controlled venture with Marubeni acquired six Maersk LNG carriers for about $1.3 billion. Teekay’s economic interest is 52%; the venture used about $1.06 billion of secured borrowing and $266 million of partner equity, of which Teekay funded about $138 million by drawing existing facilities. Four ships had long-term charters; two had about three years of firm charter term remaining.
- Operating cash distributions paid during 2011 were approximately $159.4 million. The quarterly distribution increased to $0.63 per unit during 2011; a $44.3 million fourth-quarter distribution was declared and paid in February 2012.
Outlook, risks and unusual items
- Management’s strategy is to grow LNG and LPG shipping through long-term charters, acquisitions and joint ventures, while using conventional tankers as a source of contracted cash flow. The filing provides no numerical earnings or cash-flow guidance.
- Distribution capacity depends on operating cash, maintenance and expansion spending, debt service, working capital, reserves and financing covenants. Management cautions that distributions are not guaranteed and that earnings do not equal cash available for distribution.
- Leverage, secured-vessel financing and debt covenants may constrain borrowing and distributions. Contractual obligations totaled approximately $2.97 billion, including debt and lease commitments, before specified future interest payments; certain lease obligations are supported by restricted cash.
- Customer concentration is material: Ras Laffan accounted for 18% of 2011 revenue, Repsol 14%, Tangguh contractors 12%, and CEPSA 12%. The partnership also relies on Teekay Corporation for management services and has related-party transactions and governance conflicts.
- A UK tax challenge to tax-benefit lease structures for three LNG carriers could lead to increased payments or termination costs. The filing estimates the partnership’s 70% share of potential exposure at $54–$77 million; management disputed the challenge, while noting a relevant court decision could be appealed.
- The partnership disclosed political and counterparty risks tied to Angola LNG, including an unrated charterer, and noted that its Tangguh joint-venture partner’s parent had suspended trading and sought bankruptcy protection. Management believed a $10.2 million advance remained collectible based on expected joint-venture cash flows.
- Other risks include interest-rate and currency volatility, vessel off-hire and dry docking, fuel and crewing cost inflation, environmental regulation, piracy, insurance limits, charter renewals and uncertain LNG/LPG market demand. A ballast-water system requirement, if adopted, was estimated at $2–$3 million per tanker.
Important facts for investors to verify
- Confirm the issuer identity: this filing is for Teekay LNG Partners L.P., not Seapeak LLC, and reports a full fiscal year rather than Q4-only results.
- Reconcile the $538.7 million liquidity figure with restrictions on cash, facility availability, covenants and borrowing needs following the Maersk acquisition.
- Review the drivers and cash implications of the $63.0 million derivative loss, including the Madrid Spirit swap settlement and the distinction between realized and unrealized amounts.
- Assess the $54–$77 million potential UK lease-tax exposure and the credit, political and charter risks associated with Angola and other concentrated customers.
- Check the Maersk venture’s post-close financing, charter coverage and refinancing requirements, particularly for the two ships with shorter remaining firm charters.
- Evaluate distribution coverage against operating cash flow, maintenance requirements, debt service and the partnership’s working-capital deficit; non-GAAP EBITDA and Adjusted EBITDA are not substitutes for cash flow.