HAMILTON, BERMUDA — (Marketwired) — 11/06/14 — Teekay LNG Partners L.P. (NYSE: TGP) –
Highlights
Teekay GP L.L.C., the general partner of Teekay LNG Partners L.P. (Teekay LNG or the Partnership), today reported the Partnership–s results for the quarter ended September 30, 2014. During the third quarter of 2014, the Partnership generated distributable cash flow(1) of $64.2 million, compared to $64.6 million in the same quarter of the previous year. The slight decrease in distributable cash flow was primarily due to the sale of three 2000 and 2001-built conventional tankers between December 2013 and August 2014 and related restructuring charges, which were partially offset by the Partnership–s acquisition and charter-back of two liquefied natural gas (LNG) carriers from Awilco LNG ASA (Awilco) in September and November 2013.
On October 3, 2014, the Partnership declared a cash distribution of $0.6918 per unit for the quarter ended September 30, 2014. The cash distribution is payable on November 14, 2014 to all unitholders of record on October 17, 2014.
“In contrast to the recent volatility in the equity markets, the Partnership continues to generate stable cash flows from our growing portfolio of long-term, fee-based charter contracts which have an average remaining contract duration of approximately 13 years,” commented Peter Evensen, Chief Executive Officer of Teekay GP LLC. “With strong fundamentals in the liquefied gas market, the Partnership continues to add to its existing pipeline of over $2.5 billion of committed fleet growth, most of which is scheduled to deliver between 2016 and 2020, including 15 LNG carrier newbuildings and nine LPG carrier newbuildings.”
Mr. Evensen continued, “The Partnership–s efforts to pursue additional accretive growth opportunities continue to yield results. Last week, we agreed to acquire from I.M. Skaugen a 2003-built LPG carrier, the Norgas Napa, along with a five-year charter back to Skaugen at a fixed-rate plus potential upside through a profit sharing component. This directly-owned on-the-water vessel will be immediately accretive to the Partnership–s distributable cash flows and provide near-term growth, which builds upon and complements our existing pool of committed longer-dated growth investments.”
Recent Transaction
Acquisition and Bareboat Charter-Back of an LPG Carrier
In late-October 2014, Teekay LNG agreed to acquire a 2003-built 10,200 cubic meter (cbm) liquefied petroleum gas (LPG) carrier, the Norgas Napa, from I.M. Skaugen SE (Skaugen) for approximately $27 million. The Partnership expects to take delivery of the vessel in mid-November 2014. Upon delivery, Skaugen will bareboat-charter the vessel back for a period of five-years at a fixed rate plus a profit share component based on actual earnings of the vessel, which is trading in Skaugen–s Norgas pool.
Future Growth Opportunities
LNG Carriers
Five MEGI LNG Carrier Newbuildings
In December 2012, Teekay LNG entered into an agreement with Daewoo Shipbuilding & Marine Engineering Co., Ltd., (DSME) of South Korea for the construction of two 173,400 cbm LNG carrier newbuildings for a total fully built-up cost of approximately $420 million. The newbuildings will be constructed with M-type, Electronically Controlled, Gas Injection (MEGI) twin engines, which are expected to be significantly more fuel-efficient and have lower emission levels than engines currently being utilized in LNG shipping. In June 2013, the Partnership was awarded two five-year time-charter contracts with Cheniere Marketing LLC (Cheniere) for these vessels. Upon delivery in the first half of 2016, the vessels will each commence five-year charters with Cheniere exporting LNG primarily from Cheniere–s Sabine Pass LNG liquefaction facility in Louisiana.
In July and November 2013, the Partnership exercised a portion of its existing options with DSME to construct three additional 173,400 cbm MEGI LNG carrier newbuildings for a total fully built-up cost of approximately $650 million. The Partnership intends to secure long-term contract employment for these vessels prior to their deliveries in 2017. The Partnership currently holds options to order, prior to December 1, 2014, up to an additional three MEGI LNG carrier newbuildings from DSME.
Six Ice Breaker LNG Carrier Newbuildings
In July 2014, Teekay LNG, through a new 50/50 joint venture with China LNG Shipping (Holdings) Limited (China LNG), finalized agreements to provide six internationally-flagged icebreaker LNG carriers for the Yamal LNG project located on the Yamal Peninsula in Northern Russia. The Yamal LNG project is a joint venture between Novatek, Total and China National Petroleum Corporation, and will consist of three LNG trains with a total capacity of 16.5 million metric tonnes per annum, currently scheduled to start-up in early-2018. The LNG is expected to be transported from Northern Russia to Europe and Asia. The Yamal LNG joint venture has publicly indicated that nearly all of the expected LNG production output of the project has already been agreed to be purchased by affiliates of the Yamal LNG project sponsors and other third parties.
Under the agreements, the new joint venture will provide six 172,000 cbm ARC7 LNG carrier newbuildings to be constructed by DSME for a total fully built-up cost of approximately $2.1 billion. Each vessel will be constructed with maximum 2.1 meter icebreaking capabilities in both the forward and reverse direction. The vessels, which are scheduled to deliver between the first quarter of 2018 and the first quarter of 2020, will operate under time-charter contracts until December 31, 2045, plus extension options.
Four LNG Carrier Newbuildings for BG
In June 2014, Teekay LNG acquired from BG Group (BG) its ownership interests in four 174,000 cbm Tri-Fuel Diesel Electric LNG carrier newbuildings, which will be constructed by Hudong-Zhonghua Shipbuilding (Group) Co., Ltd. in China for a total fully built-up cost of approximately $1.0 billion. The vessels, which are scheduled to deliver between September 2017 and January 2019, will each operate under 20-year time-charter contracts with BG for initial periods of 20 years, plus extension options.
Through this transaction, the Partnership acquired a 30 percent ownership interest in the first two LNG carrier newbuildings, with the balance of ownership held by CETS Investment Management (HK) Co. Ltd (CETS) (an affiliate of China National Offshore Oil Corporation (CNOOC)) and China LNG, and a 20 percent ownership interest in the second two LNG carrier newbuildings, with the balance of ownership held by CETS, China LNG and BW Group.
LPG Carriers
Exmar LPG Carrier Newbuildings
Exmar LPG BVBA, the Partnership–s 50/50 LPG joint venture with Belgium-based Exmar NV, currently has nine mid-size gas carrier newbuildings under construction, which are expected to be delivered between the first quarter of 2015 and the first quarter of 2018, for a total cost of approximately $400 million, of which the Partnership–s 50 percent portion is approximately $200 million.
Financial Summary
The Partnership reported adjusted net income attributable to the partners(1) of $46.7 million for the quarter ended September 30, 2014, compared to $48.2 million for the same period of the prior year. Adjusted net income attributable to the partners excludes a number of specific items that had the net effect of increasing net income by $43.9 million and decreasing net income by $18.6 million for the three months ended September 30, 2014 and 2013, respectively, primarily relating to unrealized gains and losses on derivative instruments and unrealized foreign currency gains and losses, as detailed in Appendix A. Including these items, the Partnership reported net income attributable to the partners, on a GAAP basis, of $90.6 million and $29.6 million for the three months ended September 30, 2014 and 2013, respectively.
For the nine months ended September 30, 2014, the Partnership reported adjusted net income attributable to the partners(1) of $131.1 million, compared to $128.7 million for the same period of the prior year. Adjusted net income attributable to the partners excludes a number of specific items that had the net effect of increasing net income by $41.4 million and $25.0 million for the nine months ended September 30, 2014 and 2013, respectively, primarily relating to unrealized gains and losses on derivative instruments and unrealized foreign currency gains and losses, as detailed in Appendix A. Including these items, the Partnership reported net income attributable to the partners, on a GAAP basis, of $172.5 million and $153.7 million for the nine months ended September 30, 2014 and 2013, respectively.
Adjusted net income attributable to the partners for the three months ended September 30, 2014 decreased from the same period in the prior year, mainly due to the sale of three 2000 and 2001-built conventional tankers, Tenerife Spirit, Algeciras Spirit, and Huelva Spirit between December 2013 and August 2014, which were partially offset by the acquisitions of, and contributions from, the two Awilco LNG carriers acquired by the Partnership in late-2013.
Adjusted net income attributable to the partners for the nine months ended September 30, 2014 increased from the same period in the prior year, mainly due to the same factors affecting the results for the three month period ending September 30, 2014 noted above and higher earnings from the Partnership–s LPG carriers in the Exmar LPG BVBA joint venture.
For accounting purposes, the Partnership is required to recognize the changes in the fair value of its outstanding derivative instruments that are not designated as hedges for accounting purposes in net income. This method of accounting does not affect the Partnership–s cash flows or the calculation of distributable cash flow, but results in the recognition of unrealized gains or losses on the consolidated statements of income as detailed in notes 2, 3 and 4 to the Consolidated Statements of Income and Comprehensive Income included in this release.
Operating Results
The following table highlights certain financial information for Teekay LNG–s two segments: the Liquefied Gas Segment and the Conventional Tanker Segment (please refer to the “Teekay LNG–s Fleet” section of this release below and Appendices C through F for further details).
Liquefied Gas Segment
Cash flow from vessel operations from the Partnership–s Liquefied Gas segment, excluding equity accounted vessels, increased to $62.5 million in the third quarter of 2014 from $58.8 million in the same quarter of the prior year. The increase was primarily due to the delivery in late-2013 of two LNG carrier newbuildings acquired from Awilco, partially offset by the scheduled dry docking of one LNG carrier in the third quarter of 2014.
Cash flow from vessel operations from the Partnership–s equity accounted vessels in the Liquefied Gas segment decreased slightly to $51.8 million in the third quarter of 2014 from $51.9 million in the same quarter of the prior year. The decrease is primarily due to a decrease in cash flows from the Exmar LPG BVBA joint venture as a result of the sale of four older LPG carriers during 2014 and the scheduled dry docking of two LPG carriers during the third quarter of 2014, partially offset by the delivery of three newbuilding LPG carriers from April to September 2014 and lower vessel operating expenses for certain of the Malt LNG Carriers due to timing of repairs and maintenance.
Conventional Tanker Segment
Cash flow from vessel operations from the Partnership–s Conventional Tanker segment decreased to $8.9 million in the third quarter of 2014 from $14.5 million in the same quarter of the prior year, primarily due to the sale of three Suezmax conventional tankers, the Tenerife Spirit, Algeciras Spirit, and Huelva Spirit in December 2013, February 2014 and August 2014, respectively.
Teekay LNG–s Fleet
The following table summarizes the Partnership–s fleet as of November 1, 2014:
Liquidity and Continuous Offering Program Update
In mid-July 2014, the Partnership completed an equity offering of 3.1 million common units raising net proceeds of $140.5 million (including the general partner–s 2 percent contribution). The net proceeds from the offering were used to fund the first shipyard installment payments for the six icebreaker LNG carrier newbuildings for the Yamal LNG project, with the remaining proceeds used to fund a portion of the Partnership–s five MEGI LNG carrier newbuildings currently under construction.
In 2013, the Partnership implemented a continuous offering program (COP) under which the Partnership may issue new common units, representing limited partner interests, at market prices up to a maximum aggregate amount of $100 million. As at September 30, 2014, the Partnership had sold an aggregate of 124,071 common units under the COP, generating net proceeds of approximately $4.9 million (including the general partner–s 2 percent contribution and net of offering costs). The Partnership did not sell any units under the COP during the third quarter of 2014.
As of September 30, 2014, the Partnership had total liquidity of $326.3 million (comprised of $97.5 million in cash and cash equivalents and $228.8 million in undrawn credit facilities).
Conference Call
The Partnership plans to host a conference call on Friday, November 7, 2014 at 11:00 a.m. (ET) to discuss the results for the third quarter of 2014. All unitholders and interested parties are invited to listen to the live conference call by choosing from the following options:
A supporting Third Quarter 2014 Earnings Presentation will also be available at in advance of the conference call start time.
The conference call will be recorded and made available until Friday, November 14, 2014. This recording can be accessed following the live call by dialing (888) 203-1112 or (647) 436-0148, if outside North America, and entering access code 3939292.
About Teekay LNG Partners L.P.
Teekay LNG Partners is one of the world–s largest independent owners and operators of LNG carriers, providing LNG, LPG and crude oil marine transportation services primarily under long-term, fixed-rate charter contracts through its interests in 44 LNG carriers (including one LNG regasification unit and 15 newbuildings), 30 LPG/Multigas carriers (including four in-chartered LPG carriers and nine newbuildings) and eight conventional tankers. The Partnership–s interests in these vessels range from 20 to 100 percent. Teekay LNG Partners L.P. is a publicly-traded master limited partnership (MLP) formed by Teekay Corporation (NYSE: TK) as part of its strategy to expand its operations in the LNG and LPG shipping sectors.
Teekay LNG Partners– common units trade on the New York Stock Exchange under the symbol “TGP”.
Set forth below is a reconciliation of the Partnership–s unaudited adjusted net income attributable to the partners, a non-GAAP financial measure, to net income attributable to the partners as determined in accordance with GAAP. The Partnership believes that, in addition to conventional measures prepared in accordance with GAAP, certain investors use this information to evaluate the Partnership–s financial performance. The items below are also typically excluded by securities analysts in their published estimates of the Partnership–s financial results. Adjusted net income attributable to the partners is intended to provide additional information and should not be considered a substitute for measures of performance prepared in accordance with GAAP.
Description of Non-GAAP Financial Measure – Distributable Cash Flow (DCF)
Distributable cash flow represents net income adjusted for depreciation and amortization expense, non-cash items, estimated maintenance capital expenditures, unrealized gains and losses from derivatives, distributions relating to equity financing of newbuilding installments, equity income, adjustments for direct financing leases to a cash basis, and foreign exchange related items. Maintenance capital expenditures represent those capital expenditures required to maintain over the long-term the operating capacity of, or the revenue generated by, the Partnership–s capital assets. Distributable cash flow is a quantitative standard used in the publicly-traded partnership investment community to assist in evaluating a partnership–s ability to make quarterly cash distributions. Distributable cash flow is not required by GAAP and should not be considered as an alternative to net income or any other indicator of the Partnership–s performance required by GAAP. The table below reconciles distributable cash flow to net income.
Description of Non-GAAP Financial Measure – Net Voyage Revenues
Net voyage revenues represents voyage revenues less voyage expenses, which comprise all expenses relating to certain voyages, including bunker fuel expenses, port fees, cargo loading and unloading expenses, canal tolls, agency fees and commissions. Net voyage revenues is included because certain investors use this data to measure the financial performance of shipping companies. Net voyage revenues is not required by GAAP and should not be considered as an alternative to voyage revenues or any other indicator of the Partnership–s performance required by GAAP.
Description of Non-GAAP Financial Measure – Cash Flow from Vessel Operations from Consolidated Vessels
Cash flow from vessel operations from consolidated vessels represents income from vessel operations before (a) depreciation and amortization expense, (b) amortization of in-process revenue contracts included in voyage revenues, (c) gains or losses on derivative contracts and includes (d) adjustments for direct financing leases and two Suezmax tankers to a cash basis. The Partnership–s direct financing leases for the periods indicated relates to the Partnership–s 69 percent interest in two LNG carriers, Tangguh Sago and Tangguh Hiri, and the two LNG carriers acquired from Awilco in September and November 2013. The Partnership–s cash flow from vessel operations from consolidated vessels does not include the Partnership–s cash flow from vessel operations from its equity accounted joint ventures. Cash flow from vessel operations is included because certain investors use cash flow from vessel operations to measure a company–s financial performance, and to highlight this measure for the Partnership–s consolidated vessels. Cash flow from vessel operations from consolidated vessels is not required by GAAP and should not be considered as an alternative to net income or any other indicator of the Partnership–s performance required by GAAP.
Description of Non-GAAP Financial Measure – Cash Flow from Vessel Operations from Equity Accounted Vessels
Cash flow from vessel operations from equity accounted vessels represents income from vessel operations before (a) depreciation and amortization expense, (b) amortization of in-process revenue contracts, and (c) gain on sale of vessel, and includes (d) adjustments for direct financing leases to a cash basis. Cash flow from vessel operations from equity accounted vessels is included because certain investors use cash flow from vessel operations to measure a company–s financial performance, and to highlight this measure for the Partnership–s equity accounted joint ventures. Cash flow from vessel operations from equity-accounted vessels is not required by GAAP and should not be considered as an alternative to equity income or any other indicator of the Partnership–s performance required by GAAP.
This release contains forward-looking statements (as defined in Section 21E of the Securities Exchange Act of 1934, as amended) which reflect management–s current views with respect to certain future events and performance, including statements regarding: the fundamentals in the liquefied gas industry; the average remaining contract duration on the Partnership–s fleet; future growth opportunities and the effect on the Partnership–s operational results and distributable cash flow; the expected delivery dates for the Partnership–s newbuilding vessels, commencement of related time charter contracts and the effect on the Partnership–s distributable cash flows; the estimated cost of building vessels; the Partnership–s acquisition of an LPG carrier from Skaugen, including the timing, purchase price and certainty of completing the acquisition; expected fuel-efficiency and emission levels associated with the MEGI engines; the Partnership–s ability to secure charter contract employment for the three currently unchartered LNG carrier newbuildings prior to their deliveries; the timing and certainty of exercising any of the Partnership–s existing options to order additional MEGI LNG carrier newbuildings; and the timing of the start-up of the Yamal LNG project and the expected total LNG production capacity of the project, if completed. The following factors are among those that could cause actual results to differ materially from the forward-looking statements, which involve risks and uncertainties, and that should be considered in evaluating any such statement:
potential shipyard construction delays, newbuilding specification changes or cost overruns; availability of suitable LNG shipping, LPG shipping, floating storage and regasification and other growth project opportunities; changes in production of LNG or LPG, either generally or in particular regions; changes in trading patterns or timing of start-up of new LNG liquefaction and regasification projects significantly affecting overall vessel tonnage requirements; competitive dynamics in bidding for potential LNG, LPG or floating regasification projects; potential failure of the Yamal LNG project to be completed on time or at all for any reason, including due to lack of funding as a result of existing or future sanctions against Russia and Russian entities and individuals, which may affect partners in the project; changes in applicable industry laws and regulations and the timing of implementation of new laws and regulations; the potential for early termination of long-term contracts of existing vessels in the Teekay LNG fleet; the inability of charterers to make future charter payments; the inability of the Partnership to renew or replace long-term contracts on existing vessels; failure by the Partnership to complete the acquisition of one 2003-built LPG carrier from Skaugen; actual performance of the MEGI engines; failure by the Partnership to secure charter contracts for the unchartered LNG carrier newbuildings; the Partnership–s ability to raise financing for its existing newbuildings or to purchase additional vessels or to pursue other projects; and other factors discussed in Teekay LNG Partners– filings from time to time with the SEC, including its Report on Form 20-F for the fiscal year ended December 31, 2013. The Partnership expressly disclaims any obligation to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Partnership–s expectations with respect thereto or any change in events, conditions or circumstances on which any such statement is based.
Contacts:
Investor Relations enquiries
Ryan Hamilton
Tel: +1 (604) 609-6442
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