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Teekay LNG Partners Reports Higher First Quarter 2019 Results

Teekay GP L.L.C., the general partner of Teekay LNG Partners L.P., reported the Partnership’s results for the quarter ended March 31, 2019.

Consolidated Financial Summary

In the first quarter of 2019, the Partnership made certain changes to its non-GAAP financial measures to more closely align with internal management reporting and annual reporting filed with the U.S. Securities and Exchange Commission (SEC) under Form 20-F. Cash Flow from Vessel Operations (CFVO) from Consolidated Vessels and Total CFVO are replaced with Consolidated Adjusted EBITDA and Total Adjusted EBITDA, respectively, and CFVO from Equity-Accounted Vessels is replaced with Adjusted EBITDA from Equity-Accounted Vessels. Please refer to “Definitions and Non-GAAP Financial Measures” in this release for definitions of these non-GAAP financial measures and information about the changes made.

(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).

First Quarter of 2019 Compared to First Quarter of 2018

GAAP net income (loss) and non-GAAP adjusted net income attributable to the partners and preferred unitholders for the three months ended March 31, 2019, compared to the same quarter in the prior year, were positively impacted by: earnings from the 10 liquefied natural gas (LNG) carrier newbuildings delivered into the Partnership’s consolidated fleet and equity-accounted joint ventures between February 2018 and January 2019; higher earnings from the Torben Spirit due to a higher charter rate on a new three-year charter contract which commenced in December 2018; higher earnings from the Magellan Spirit, which is currently chartered-in from the Partnership’s 52 percent-owned joint venture with Marubeni Corporation (the Teekay LNG-Marubeni Joint Venture) and has been employed and chartered-out since October 2018 to March 2019; and higher earnings from the Partnership’s seven multi-gas carriers. These increases in earnings were partially offset by lower earnings from the Partnership’s conventional tanker fleet for the three months ended March 31, 2019 due to the sales of four conventional tankers between February 2018 and January 2019.

In addition, GAAP net income (loss) attributable to the partners and preferred unitholders was positively impacted in the three months ended March 31, 2019, compared to the same quarter of the prior year, by various items, including a decrease in write-down of vessels, partially offset by increases in unrealized losses on non-designated derivative instruments.

CEO Commentary

“During the first quarter, the Partnership continued to report significant cash flow growth mainly driven by recent newbuild deliveries and the contract start-up of various LNG carriers at higher rates,” commented Mark Kremin, Teekay Gas Group Ltd.’s President and Chief Executive Officer. “Looking ahead, we expect contract start-up of four additional LNG carrier newbuildings and the Bahrain LNG terminal in the second half of 2019, which we anticipate will continue to drive further growth in total adjusted EBITDA throughout the rest of 2019 and into 2020.”

Mr. Kremin added, “Despite the near-term weakness in the spot LNG carrier market since the start of the year, we have recently been able to take advantage of the improving medium-term fundamentals by securing multiple attractive charters on our LNG carriers for periods ranging from one to three years. This has allowed us to lock-in charters at attractive rates and maximize utilization, thereby further enhancing our earnings stability and improving our cash flows.”

Mr. Kremin continued, “We remain committed to our balanced capital allocation plan, which returns additional capital to unitholders, including the recent 36 percent cash distribution increase, while also creating equity value through continued delevering of our balance sheet. The new charters that we recently secured are expected to enable Teekay LNG to delever faster and with better visibility, which provides us with greater flexibility to allocate excess capital in the future.”

Summary of Recent Events

Re-chartering Activities

In April 2019, the Partnership secured a three-year, fixed-rate charter contract for the Magellan Spirit LNG carrier, which is expected to commence at the end of May 2019, and concurrently extended the charter-in contract of the Magellan Spirit from the Teekay LNG-Marubeni Joint Venture to cover the same three-year period.

In May 2019, the Partnership extended its fixed-rate charter contract of the Polar Spirit LNG carrier for three additional years at a charter rate in excess of the previous fixed rate. The charter extension commenced on May 7, 2019.

In addition, in May 2019, the Partnership secured one-year, fixed-rate charter contracts on the Arwa Spirit and Marib Spirit LNG carriers, which are expected to commence mid-June and early-July 2019, respectively, both of which are owned by the Teekay LNG-Marubeni Joint Venture.

Commercial Management Agreement for Multi-Gas Vessels

In February 2019, the Partnership entered into a commercial management agreement with Lauritzen Kosan A/S (Manager), a third-party commercial manager, pursuant to which the Manager will commercially manage the Partnership’s seven multi-gas vessels. In May 2019, the Partnership completed the transition of the commercial management of all seven multi-gas vessels to the Manager.

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 D and E for further details).

Liquefied Natural Gas Segment

Income from vessel operations and Consolidated Adjusted EBITDA for the liquefied natural gas segment for the three months ended March 31, 2019, compared to the same quarter of the prior year, were positively impacted primarily by: the deliveries of six wholly-owned LNG carrier newbuildings (the Magdala, Myrina, Megara, Bahrain Spirit, Sean Spirit and Yamal Spirit) between February 2018 and January 2019; higher earnings from the Torben Spirit due to an increased charter rate from a new three-year charter contract which commenced in December 2018; and earnings from the Magellan Spirit which has been employed on a charter-out basis since October 2018 to March 2019. These increases were partially offset by an increase in off-hire days in the first quarter of 2019 for certain of the Partnership’s LNG carriers due to repairs and a scheduled dry docking.

Equity income and Adjusted EBITDA from equity-accounted vessels for the liquefied natural gas segment for the three months ended March 31, 2019, compared to the same quarter of the prior year, were positively impacted primarily by: the deliveries of three LNG carrier newbuildings between January 2018 and January 2019 in the Partnership’s joint venture with China LNG Shipping (Holdings) Limited, CETS Investment Management (HK) Co. Ltd. and BW Investments Pte. Ltd. (the Pan Union Joint Venture), with the Partnership’s ownership interest in these vessels ranging from 20 to 30 percent; and the delivery of the second ARC7 LNG carrier newbuilding in September 2018 in the Partnership’s 50 percent-owned Yamal LNG Joint Venture. These increases were partially offset by the sale of the S/S Excelsior in the Partnership’s 50 percent-owned joint venture with Exmar NV (the Excelsior Joint Venture) in January 2018. In addition, GAAP equity income was negatively impacted by unrealized losses of $3.9 million on non-designated derivative instruments in the Partnership’s equity-accounted investments in the first quarter of 2019 compared to gains on designated and non-designated derivative instruments of $10.5 million in the first quarter of 2018, and due to a gain of $5.6 million recognized on the sale of the Partnership’s 50 percent investment in the Excelsior Joint Venture during the first quarter of 2018.

Liquefied Petroleum Gas Segment

Loss from vessel operations and Consolidated Adjusted EBITDA for the liquefied petroleum gas segment for the three months ended March 31, 2019, compared to the same quarter of the prior year, were positively impacted by higher earnings from the Partnership’s seven multi-gas carriers which earned higher spot revenues during the first quarter of 2019. In addition, GAAP equity loss for the liquefied petroleum gas segment for the three months ended March 31, 2019 was negatively impacted by unrealized losses of $0.5 million compared to unrealized gains of $1.0 million during the same quarter of the prior year on non-designated derivative instruments in the Partnership’s equity-accounted investment.

Conventional Tanker Segment

Loss from vessel operations and Consolidated Adjusted EBITDA for the conventional tanker segment for the three months ended March 31, 2019, compared to the same quarter of the prior year, were negatively impacted by the sales of the Teide Spirit, European Spirit, African Spirit and Toledo Spirit between February 2018 and January 2019. In addition, loss from vessel operations was positively impacted compared to the same quarter of the prior year due to write-downs of $18.7 million for the Alexander Spirit, European Spirit and African Spirit conventional tankers to their estimated fair values recorded during the first quarter of 2018.

Liquidity

As of March 31, 2019, the Partnership had total liquidity of $322.1 million (comprised of $122.6 million in cash and cash equivalents and $199.5 million in undrawn credit facilities).

Full Report

Source: Teekay LNG Partners L.P.

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