Teekay LNG Partners Reports Fourth Quarter and Annual 2017 Results

Teekay-LNG

Teekay GP L.L.C., the general partner of Teekay LNG Partners L.P. (Teekay LNG or the Partnership), reported the Partnership’s results for the quarter and year ended December 31, 2017.

Three Months Ended Year Ended
December 31,
2017
September 30,
2017
December 31,
2016
December 31,
2017
December 31,
2016
  (in thousands of U.S. Dollars) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
GAAP FINANCIAL COMPARISON
Voyage revenues 126,307 104,285 100,774 432,676 396,444
Income from vessel operations 62,378 10,322 38,010 148,649 153,181
Equity income 2,992 1,417 9,728 9,789 62,307
Net income (loss) attributable to the partners and preferred unitholders 39,877 (18,896 ) 84,411 33,965 140,451
NON-GAAP FINANCIAL COMPARISON
Total cash flow from vessel operations (CFVO) (1) 126,833 107,254 114,534 449,550 480,063
Distributable cash flow (DCF) (1) 52,054 40,224 50,199 176,128 234,995
Adjusted net income attributable to the partners and preferred unitholders (1) 33,972 20,925 28,958 93,850 148,982

(1)   These are non-GAAP financial measures. Please refer to “Definitions and Non-GAAP Financial Measures” and the Appendices to this release for definitions of these terms and reconciliations of these non-GAAP financial measures as used in this release to the most directly comparable financial measures under United States generally accepted accounting principles (GAAP).
(2)   Based on the Partnership’s 50 percent ownership interests in the six ARC7 LNG carrier newbuildings.

GAAP net income and non-GAAP adjusted net income for the three months ended December 31, 2017, compared to the same period of the prior year, were positively impacted by the deliveries of six LNG and LPG carrier newbuildings between February and November 2017; commencement of short-term charter contracts for certain of the vessels in the Partnership’s 52 percent-owned joint venture with Marubeni (the Teekay LNG-Marubeni Joint Venture); and recognition of the prepaid lease payments of $10.7 million received from IM Skaugen SE (Skaugen) in prior periods. These increases were partially offset by the sale of a conventional tanker in the first quarter of 2017; lower rates earned on two conventional tankers upon the expiration of their fixed-rate charter contracts ending in 2017; and lower spot rates earned for certain of the vessels in the Exmar LPG Joint Venture. Additionally, GAAP net income was also impacted in the fourth quarter of 2017, compared to the same period of the prior year, by various non-cash items, such as the write-down of a conventional tanker in the fourth quarter of 2016; a decrease in unrealized gains on derivative instruments; and an increase in unrealized foreign currency exchange losses relating to the Partnership’s Euro and NOK-denominated debt.

CEO Commentary

“During the fourth quarter of 2017, the Partnership continued to generate stable cash flows and execute on its growth projects and financing plans,” commented Mark Kremin, President and Chief Executive Officer of Teekay Gas Group Ltd.

“In December 2017, our 50/50 joint venture with China LNG Shipping secured a long-term debt facility to finance all six ARC7 LNG carrier newbuildings and in mid-January 2018, we took delivery of our first ARC7 vessel, the Eduard Toll, two weeks ahead of schedule,” Mr. Kremin continued. “In total, since October 2017, the Partnership has taken delivery of six LNG carrier newbuildings over a four-month period, all of which immediately commenced their respective long-term charter contracts. Looking ahead to the remainder of 2018, we expect to take delivery of another five LNG carrier newbuildings and a further three mid-sized LPG carrier newbuildings in our 50/50 joint venture with Exmar, all of which we expect will provide further cash flow growth to the Partnership.”

“We also continue to make good progress on refinancing our debt maturities,” commented Mr. Kremin. “I am pleased to report that in November 2017 we refinanced and upsized our unsecured corporate revolving credit facility and in February 2018, we refinanced one of our 2018 loan maturities with a new five-year, $197 million long-term debt facility.”

Mr. Kremin added, “Finally, in January 2018, we completed an opportunistic sale of the 50 percent-owned 2005-built S/S Excelsior at an attractive price.”

Summary of Recent Events

LNG Carrier Newbuilding Deliveries

In October 2017 through February 2018, the Partnership took delivery of three MEGI LNG carrier newbuildings, the Macoma, Murex and Magdala, all of which immediately commenced their respective charter contracts with Shell ranging between six to eight years in duration, plus extension options.

In October 2017 through January 2018, the Partnership’s 30 percent-owned joint venture with China LNG Shipping (Holdings) Limited (China LNG) and CETS (an affiliate of China National Offshore Oil Corporation (CNOOC)) took delivery of two LNG carrier newbuildings, the Pan Asia and the Pan Americas, both of which immediately commenced their respective 20-year charter contracts with Shell.

In January 2018, the Partnership’s 50 percent-owned joint venture with China LNG (the Yamal LNG Joint Venture) took delivery of its first ARC7 LNG carrier newbuilding, the Eduard Toll, which immediately commenced its 28-year charter contract with Yamal LNG.

New Teekay Multigas Pool

In November 2017, the Partnership terminated its charter contracts with Skaugen due to non-payment of charter hire and established the Teekay Multigas Pool, a new in-house commercial management solution for ethylene-capable LPG and small-scale LNG vessels. The Teekay Multigas Pool now manages the Partnership’s seven directly-owned ethylene-capable LPG carriers, some of which are also capable of small-scale LNG shipping, which were previously part of the Norgas Carriers Pool operated by Skaugen.

Sale of the S/S Excelsior

In January 2018, the Partnership sold its 50 percent interest in the S/S Excelsior to Excelerate Energy for net proceeds of approximately $44 million after repaying external debt obligations.  The Partnership originally acquired its 50 percent interest in the S/S Excelsior in 2010 through an acquisition from Exmar NV and expects to record a gain of approximately $2 million on the sale in the first quarter of 2018.

Debt Financing Update

In November 2017, the Partnership completed a refinancing and upsizing of its 364-day, unsecured corporate revolving credit facility from $170 million to $190 million.

In December 2017, the Yamal LNG Joint Venture completed an $816 million(1) long-term debt facility to finance all six of the Yamal LNG Joint Venture’s ARC7 LNG carrier newbuildings delivering through early-2020, the first of which was delivered in January 2018.

In February 2018, the Partnership refinanced the full amount of a revolving credit facility maturing in 2018 secured by the Hispania Spirit and Galicia Spirit with a new $197 million revolving credit facility maturing in 2022.

(1)   Based on the Partnership’s 50 percent ownership interests in the six ARC7 LNG carrier newbuildings.

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 E for further details).

Three Months Ended
December 31, 2017 December 31, 2016
  (in thousands of U.S. Dollars) (unaudited) (unaudited)
Liquefied
Gas
Segment
Conventional
Tanker
Segment
Total Liquefied
Gas
Segment
Conventional
Tanker
Segment
Total
GAAP FINANCIAL COMPARISON
Voyage revenues 114,605 11,702 126,307 86,188 14,586 100,774
Income (loss) from vessel operations 60,395 1,983 62,378 43,918 (5,908 ) 38,010
Equity income 2,992 2,992 9,728 9,728
NON-GAAP FINANCIAL COMPARISON
 CFVO from consolidated vessels(i) 86,667 4,122 90,789 70,889 7,490 78,379
 CFVO from equity-accounted vessels(i) 36,044 36,044 36,155 36,155
 Total CFVO(i) 122,711 4,122 126,833 107,044 7,490 114,534

(i)   These are non-GAAP financial measures.  Please refer to “Definitions and Non-GAAP Financial Measures” and the Appendices to this release for definitions of these terms and reconciliations of these non-GAAP financial measures as used in this release to the most directly comparable financial measures under GAAP.

Liquefied Gas Segment

Income from vessel operations and cash flow from vessel operations from consolidated vessels for the three months ended December 31, 2017, compared to the same quarter of the prior year, were impacted primarily due to higher revenues earned on the deliveries of three MEGI LNG carrier newbuildings between February and November 2017 and recognition of the prepaid lease payments of $10.7 million received from Skaugen in prior periods, which were previously deferred and then recognized in the fourth quarter of 2017 upon the termination of the charter contracts for five of the Partnership’s LPG carriers on charter with Skaugen. These increases were partially offset by lower revenues earned for two of the Partnership’s LNG carriers on charter with Awilco LNG ASA (Awilco) as the charter contracts for these two LNG carriers were amended in 2017, which have the effect of deferring a portion of the charter hire until December 2019.

Equity income and cash flow from vessel operations from equity-accounted vessels for the three months ended December 31, 2017, compared to the same quarter of the prior year, were impacted primarily due to lower spot rates earned in 2017 on certain vessels in the Exmar LPG Joint Venture. This decrease was partially offset by deliveries of two mid-size LPG carriers in the Exmar LPG Joint Venture between March and July 2017; the delivery of the Partnership’s 30 percent-owned LNG carrier newbuilding on charter to Shell in October 2017; and the commencement of short-term charter contracts for certain of the vessels in the Teekay LNG-Marubeni Joint Venture that were previously earning lower spot rates. Equity income was also impacted by a decrease in net unrealized gains on designated and non-designated derivative instruments and an increase in vessel write-downs in the Exmar LPG Joint Venture during the three months ended December 31, 2017, compared to the same period of the prior year.

Conventional Tanker Segment

Income (loss) from vessel operations increased for the three months ended December 31, 2017, compared to the same quarter of the prior year, primarily due to the write-down of the Asian Spirit recognized in the three months ended December 31, 2016. This increase was partially offset by lower rates earned on the European Spirit and African Spirit conventional tankers upon the expiration of their fixed-rate charter contracts in August and November 2017, respectively.  Cash flow from vessel operations for the three months ended December 31, 2017, compared to the same quarter of the prior year, decreased primarily due to the lower rates earned on the European Spirit and African Spirit conventional tankers.

Teekay LNG’s Fleet

The following table summarizes the Partnership’s fleet as of February 15, 2018, excluding the Partnership’s 30 percent interest in a regasification facility currently under construction:

Number of Vessels
Owned and
In-Chartered Vessels
(i)
Newbuildings Total
LNG Carrier Fleet 37(ii) 12(iii) 49
LPG/Multigas Carrier Fleet 26(iv) 3(v) 29
Conventional Tanker Fleet 4(vi) 4
Total 67 15 82

(i)       Owned vessels includes vessels accounted for as vessels related to capital leases.
(ii)      The Partnership’s ownership interests in these vessels range from 30 percent to 100 percent.
(iii)     The Partnership’s ownership interests in these newbuildings, which includes a floating storage unit (FSU), range from 20 percent to 100 percent.
(iv)     The Partnership’s ownership interests in these vessels range from 50 percent to 99 percent.
(v)      The Partnership’s ownership interests in these newbuildings is 50 percent.
(vi)     Two of the Partnership’s conventional tankers are held for sale.

Liquidity

As of December 31, 2017, the Partnership had total liquidity of $433.6 million (comprised of $244.2 million in cash and cash equivalents and $189.4 million in undrawn credit facilities).

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