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Teekay LNG Partners: New LNG Shipping Contracts Lift Results

Teekay GP L.L.C., the general partner of Teekay LNG Partners L.P. reported the Partnership’s results for the quarter and year ended December 31, 2018.

Consolidated Financial Summary

(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) All estimates are as of the date hereof, are approximations and based on current information (including the number of outstanding common units). Actual results may differ materially from these estimates, and the Partnership expressly disclaims any obligation to release publicly any updates or revisions to any such estimates, including to reflect any change in the Partnership’s expectations with respect thereto or any change in events, conditions or circumstances on which any such estimates are based.

Fourth Quarter of 2018 Compared to Fourth Quarter of 2017

GAAP net income and non-GAAP adjusted net income attributable to the partners and preferred unitholders for the three months ended December 31, 2018, compared to the same quarter in the prior year, were positively impacted by an increase in earnings due to the deliveries of 12 liquefied natural gas (LNG) carrier newbuildings in the Partnership’s consolidated fleet and equity-accounted joint ventures between October 2017 and December 2018, and higher earnings from the Magellan Spirit, which was chartered-in from the Partnership’s 52 percent-owned joint venture with Marubeni Corporation (the Teekay LNG-Marubeni Joint Venture) commencing in September 2018. These increases were partially offset by a decrease in earnings in 2018 on seven multi-gas carriers following the termination of their previous charter contracts, the sale of three conventional crude oil tankers during 2018, an increase in off-hire days during 2018 for certain of the Partnership’s vessels due to repairs, and an increase in general and administrative expenses, a portion of which is non-recurring.

In addition, GAAP net income attributable to the partners and preferred unitholders was negatively impacted in the three months ended December 31, 2018, compared to the same quarter of the prior year, by various items, including unrealized losses on non-designated and designated derivative instruments and unrealized foreign currency exchange losses.

CEO Commentary

“Once again this quarter, our cash flows and adjusted earnings were up significantly over the prior quarter as the Partnership’s LNG segment grew and certain existing vessels commenced new contracts at firm rates,” commented Mark Kremin, President and Chief Executive Officer of Teekay Gas Group Ltd. “This segment continued its expansion in early-2019 with the delivery of two additional newbuilding LNG carriers, including the Yamal Spirit, which delivered on January 31, 2019, soon after finalizing its dedicated financing facility.” Mr. Kremin continued, “With this latest financing facility now in place, we have completed all of the necessary financings to take delivery of our entire newbuilding orderbook which, at its peak, amounted to approximately $3 billion.”

“We expect our LNG segment results to be significantly higher in 2019 primarily due to the delivery of 15 newbuilding LNG carriers during 2018 and throughout 2019 as well as the start-up of the Bahrain LNG regasification terminal in 2019. Collectively, the cash flow associated with these deliveries will allow the Partnership to execute on its balanced capital allocation strategy which will see the Partnership meaningfully delever its balance sheet over the next few years while simultaneously return significant cash flow to unitholders in the form of common unit repurchases and common unit distributions, which will increase by 36 percent commencing this upcoming quarter.” Mr. Kremin continued, “Today, we announced fiscal 2019 financial guidance that would represent increases in adjusted net income per common unit and total CFVO ranging from 143 percent to 190 percent and 23 percent to 28 percent, respectively, compared to our fiscal 2018 results.”

2019 Guidance

Today, the Partnership is providing the below supplementary information relating to the outlook for the Partnership’s estimated fiscal 2019 results which are expected to be significantly higher than fiscal 2018 primarily due to newbuilding deliveries and higher charter rates earned from the vessels trading on short-term contracts:

(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 GAAP.
(2) All estimates are as of the date hereof, are approximations, are based on current information (including the number of outstanding common units). Actual results may differ materially from these estimates, and the Partnership expressly disclaims any obligation to release publicly any updates or revisions to any such estimates, including to reflect any change in the Partnership’s expectations with respect thereto or any change in events, conditions or circumstances on which any such estimates are based.

Summary of Recent Events

Torben Spirit Charter

The Torben Spirit LNG Carrier commenced its minimum three-year charter on January 1, 2019 at a charter rate in excess of $100,000 per day for the duration of the contract.

LNG Carrier Newbuilding Deliveries

In December 2018, the Partnership took delivery of one M-Type, Electronically Controlled, Gas Injection (MEGI) LNG carrier newbuilding, the Sean Spirit, which immediately commenced its seven-year charter contract with BP Gas Marketing Limited.

In January 2019, the Partnership’s 20 percent-owned joint venture with China LNG Shipping (Holdings) Limited (China LNG), CETS Investment Management (HK) Co. Ltd. (an affiliate of China National Offshore Oil Corporation (CNOOC)) and BW LNG Investments Pte. Ltd. (the Pan Union Joint Venture), took delivery of one LNG carrier newbuilding, the Pan Africa, which immediately commenced its 20-year charter contract with Royal Dutch Shell (Shell).

In January 2019, the Partnership took delivery of one MEGI LNG carrier newbuilding, the Yamal Spirit, which immediately commenced its 15-year charter with Yamal Trade Pte Ltd. Concurrent with the delivery, the Partnership entered into a $159 million, 15-year sale-leaseback financing arrangement with a lessor, which added approximately $30 million of liquidity to Teekay LNG.

Crude Oil Tanker Dispositions

In January 2019, the Todelo Spirit, a Suezmax tanker that was chartered-in by the Partnership under a capital lease from the charterer, was sold to a third party. Upon the sale of the vessel, the Partnership’s charter contract for this vessel was terminated and the remaining capital lease obligation was extinguished. During 2018, the Partnership completed similar transactions for three other Suezmax tankers, the Teide Spirit in February 2018, the African Spirit in October 2018, and the European Spirit in November 2018.
Operating Results

The following table highlights certain financial information for Teekay LNG’s three segments: the Liquefied Natural Gas Segment, the Liquefied Petroleum 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). During 2018, the Partnership’s Teekay Multi-Gas Pool, including its seven directly-owned multi-gas carriers, commenced operations. As part of this initiative, the Partnership completed an internal reorganization and revised its internal reporting, as these changes resulted in management viewing the gas fleet and its components separately. Consequently, it was determined that there had been a change in reportable segments whereby the Partnership’s LPG and multi-gas carriers are reported in a separate segment apart from its LNG carriers. All segment information for comparative periods has been retroactively adjusted to conform with the change in segment presentation adopted in 2018.

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 Natural Gas Segment

Income from vessel operations and CFVO from consolidated vessels for the liquefied natural gas segment for the three months ended December 31, 2018, compared to the same quarter of the prior year, were positively impacted primarily by: the deliveries of seven LNG carrier newbuildings (the Macoma, Murex, Magdala, Myrina, Megara, Bahrain Spirit and Sean Spirit) between October 2017 and December 2018; and earnings from the Magellan Spirit chartered-in from the Teekay LNG-Marubeni Joint Venture commencing in September 2018. These increases were partially offset by an increase in off-hire days during 2018 for certain of the Partnership’s LNG carriers due to repairs; and an increase in general and administrative expenses attributable to this segment.

Equity income and CFVO from equity-accounted vessels for the liquified natural gas segment for the three months ended December 31, 2018, compared to the same quarter of the prior year, were positively impacted by: deliveries of two ARC7 LNG carrier newbuildings between January 2018 and September 2018 in the Partnership’s 50-percent owned Yamal LNG Joint Venture, the deliveries of three LNG carriers between October 2017 and July 2018 in the Partnership’s Pan Union Joint Venture, with the Partnership’s ownership interest in these vessels ranging from 20 to 30 percent, and higher fleet utilization in the Teekay LNG-Marubeni Joint Venture during the three months ended December 31, 2018 as certain of the joint venture’s vessels commenced short-term charter contracts at higher rates compared to the previous period. In addition, GAAP equity income was negatively impacted by unrealized losses on non-designated and designated derivative instruments in the Partnership’s equity-accounted investments.

Liquefied Petroleum Gas Segment

Loss from vessel operations and CFVO from consolidated vessels for the liquefied petroleum gas segment for the three months ended December 31, 2018, compared to the same quarter of the prior year, were negatively impacted by lower earnings on seven of the Partnership’s multi-gas carriers following the Partnership’s termination of their charter contracts in the fourth quarter of 2017 due to non-payment by the charterer, which includes recognition of prepaid lease payments of $10.7 million in the fourth quarter of 2017 received from the previous charterer in prior periods.

GAAP equity loss for the liquified petroleum gas segment for the three months ended December 31, 2018, compared to the same quarter of the prior year, was positively impacted by vessel write-downs in the Exmar LPG Joint Venture during the three months ended December 31, 2017, partially offset by unrealized losses on non-designated derivative instruments in the Partnership’s equity-accounted investments. CFVO from equity-accounted vessels for the liquefied petroleum gas segment for the three months ended December 31, 2018, was comparable to the same quarter of the prior year.

Conventional Tanker Segment

Income from vessel operations and CFVO from consolidated vessels for the conventional tanker segment for the three months ended December 31, 2018, compared to the same quarter of the prior year, were negatively impacted by the sales of the Teide Spirit, African Spirit and European Spirit conventional tankers during 2018.

Teekay LNG’s Fleet

The following table summarizes the Partnership’s fleet as of February 1, 2019. The Partnership also has a 30 percent interest in the Bahrain regasification terminal which is under construction and is expected to commence operations in the summer of 2019.

Includes vessels accounted for as vessels related to capital leases under which the Partnership is the lessee.
The Partnership’s ownership interests in these vessels and newbuildings range from 20 percent to 100 percent.
The Partnership’s ownership interests in these newbuildings is 50 percent.
The Partnership’s ownership interests in these vessels range from 50 percent to 99 percent.
Liquidity

As of December 31, 2018, the Partnership had total liquidity of $324.6 million (comprised of $149.0 million in cash and cash equivalents and $175.6 million in undrawn credit facilities).

Full Report

Source: Teekay LNG Partners L.P.

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