Teekay LNG Partners Reports First Quarter 2017 Results

Announced Date :  May 18, 2017


Teekay GP L.L.C., the general partner of Teekay LNG Partners L.P. (Teekay LNG or the Partnership) (NYSE:TGP), reported the Partnership's results for the quarter ended March 31, 2017.
CEO Commentary

"During the first quarter, the Partnership's results were in-line with our expectations," commented Mark Kremin, President and CEO of Teekay Gas Group Ltd. "This included a one-month contribution from the delivery of our third MEGI LNG carrier newbuilding, the Torben Spirit, named after Teekay's late-founder, J. Torben Karlshoej, which commenced its charter contract in early-March 2017."

"Since reporting earnings in February 2017, we continued to execute on our portfolio of committed growth projects and opportunistically acquired a mid-size LPG carrier newbuilding through our 50 percent-owned Exmar LPG joint venture," Mr. Kremin continued. "In addition, we have now completed or are nearing completion of financing for all the Partnership's committed growth projects delivering through mid-2018 with the recent progress on approximately $640 million in new long-term financings. We expect to secure the remainder of the required long-term financings for the Partnership's committed growth projects within the second half of 2017."

Summary of Recent Events

Debt Financing Update

In April and May 2017, the Partnership completed approximately $355 million in new long-term financings for its committed growth projects, including: (i) a $175 million sale-leaseback transaction for one of the Partnership's MEGI LNG carrier newbuildings scheduled to deliver in 2017, and (ii) a $180 million sale-leaseback transaction for one of the Partnership's MEGI LNG carrier newbuildings scheduled to deliver in 2018. Furthermore, the Partnership is nearing completion on a $285(1) million sale-leaseback transaction for two of the Partnership's 50 percent-owned ARC7 Ice-Class LNG carrier newbuildings for the Yamal LNG project, which are scheduled to deliver in 2018.

In March 2017, the Partnership's 52 percent-owned joint venture with Marubeni Corporation (MALT LNG Joint Venture) completed a refinancing of four LNG carriers with a new $335 million debt facility.

MALT LNG Joint Venture Secures 18-month Firm Charter Plus One-Year Option

In May 2017, the MALT LNG Joint Venture signed an 18-month charter contract (plus one-year extension option) with a major Japanese utility company, commencing in the fourth quarter of 2018. This charter contract will be serviced by one of the MALT LNG Joint Venture's existing vessels currently trading in the short-term market.

Exmar LPG Joint Venture Acquires Mid-Size Gas Carrier Newbuilding

In April 2017, the Partnership's 50/50 joint venture with Exmar (Exmar LPG Joint Venture) agreed to acquire an existing mid-size LPG carrier newbuilding, which is scheduled to deliver in mid-2018. The acquisition is consistent with the Exmar LPG Joint Venture's strategy of fleet renewal to preserve its market share and contract of affreightment (CoA) franchise with its customers in both the Ammonia and LPG trade. The installment payments on the vessel are expected to be financed by the Exmar LPG Joint Venture's existing liquidity and the joint venture expects to secure long-term financing prior to delivery.

Charter Contracts with Skaugen

On April 20, 2017, in lieu of receiving cash on a portion of the charter hire on six LPG carriers on charter with I.M. Skaugen SE (Skaugen), the Partnership took over Skaugen's 35 percent ownership interest in a 2003-built LPG carrier, the Norgas Sonoma. As part of this transaction, the Partnership also acquired the remaining 65 percent ownership in this vessel from the other shareholders for a total purchase price of approximately $13 million (including Skaugen's 35 percent ownership interest that was transferred to the Partnership). The vessel is currently trading in the Norgas pool. Giving pro forma effect for this transaction, Skaugen owed the Partnership approximately $8.3 million in outstanding charter hire and accrued interest thereon as of March 31, 2017.

Charter Contracts with Awilco LNG

In April 2017, the Partnership commenced charter extension and deferral negotiations with Awilco LNG regarding two modern LNG vessels chartered to Awilco LNG, which include purchase obligations for Awilco LNG to acquire the vessels in November 2017 and September 2018. These negotiations are expected to conclude in the second quarter of 2017.

Liquefied Gas Segment

Income from vessel operations and cash flow from vessel operations from consolidated vessels increased for the three months ended March 31, 2017 compared to the same quarter of the prior year primarily due to the deliveries of the Creole Spirit and Oak Spirit MEGI LNG carrier newbuildings, which commenced their five-year charter contracts with Cheniere Energy in late-February 2016 and early-August 2016, respectively; the delivery of the Torben Spirit MEGI LNG carrier newbuilding, which commenced its 10-month plus one-year option charter contract with a major energy company in early-March 2017; and additional revenue recognized in the first quarter of 2017 relating to the accelerated dry docking of two LNG carriers, the costs of which are reimbursed by the charterer. These increases were partially offset by lower revenues from the Partnership's six LPG carriers on charter to Skaugen as a portion of the first quarter revenue was not recognized as a result of a temporary deferral agreement and the scheduled dry docking of an LNG carrier in the first quarter of 2017.

Equity income and cash flow from vessel operations from equity-accounted vessels decreased for the three months ended March 31, 2017 compared to the same quarter of the prior year primarily due to lower redeployment rates for certain LPG carriers and the sale of an older LPG carrier (net of the additions of three LPG carrier newbuildings which delivered between February to November 2016) in the Exmar LPG Joint Venture; a further deferral of a portion of the charter payments for the Marib Spirit and Arwa Spirit, effective August 2016; and lower spot rates earned on the redeployment of the Magellan Spirit and Methane Spirit after their short-term charter contracts ended in June and July 2016, respectively, in the Partnership's 52 percent-owned MALT LNG Joint Venture. Equity income was also impacted by unrealized gains on non-designated derivative instruments during the three months ended March 31, 2017, compared to unrealized losses in the same period of the prior year.

Conventional Tanker Segment

Income from vessel operations for the three months ended March 31, 2017 compared to the same quarter of the prior year increased primarily due to the loss on the sales of the Bermuda Spirit and Hamilton Spirit recorded in the first quarter of 2016, partially offset by lower revenues in the three months ended March 31, 2017 due to the sale of the Asian Spirit in March 2017 and the sales of the Bermuda Spirit and Hamilton Spirit in 2016. Cash flow from vessel operations also decreased due to these vessel sales.

Liquidity

As of March 31, 2017, the Partnership had total liquidity of $395.0 million (comprised of $181.2 million in cash and cash equivalents and $213.8 million in undrawn credit facilities).

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