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Teekay LNG Partners Reports Record Second Quarter 2020 Results

Teekay GP L.L.C., the general partner (the General Partner) of Teekay LNG Partners L.P. (Teekay LNG or the Partnership) (NYSE: TGP), yesterday reported the Partnership’s results for the quarter ended June 30, 2020.

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) The previously provided 2020 Guidance Range for Earnings per unit has been recalibrated to account for the timing of the issuance of new units to Teekay Corporation in exchange for eliminating its Incentive Distribution Rights.

Second Quarter of 2020 Compared to Second Quarter of 2019

GAAP net income and non-GAAP adjusted net income attributable to the partners and preferred unitholders were positively impacted for the three months ended June 30, 2020, compared to the same quarter of the prior year, by: earnings from six liquefied natural gas (LNG) carrier newbuildings which delivered into the Partnership’s consolidated fleet and equity-accounted joint ventures last year; fewer dry docking and repair off-hire days; and higher earnings by certain of the Partnership’s joint ventures as their individual projects commenced or certain of their vessels commenced charters at, or earned, higher rates. These increases were partially offset by a reduction in earnings upon the sales of two LNG carriers in January 2020, and an oil tanker in October 2019.

Second Quarter of 2020 Compared to First Quarter of 2020

GAAP net income and non-GAAP adjusted net income attributable to the partners and preferred unitholders were positively impacted for the three months ended June 30, 2020, compared to the three months ended March 31, 2020, by a reduction in operational performance claims; higher earnings in one of the Partnership’s joint ventures due to higher LPG rates; and a decrease in income tax expense. These decreases were partially offset by an increase in vessel operating expenses due to the timing of repairs and maintenance and an increase in general and administrative expenses due to additional professional fees incurred in the second quarter of 2020. In addition, GAAP net income was higher in the second quarter of 2020 as a result of a write-down recorded in the first quarter of 2020 and decreases in unrealized losses on non-designated derivative instruments and credit loss provision adjustments in the second quarter of 2020, including within the Partnership’s equity-accounted joint ventures. These increases were partially offset by unrealized foreign currency exchange losses incurred in the second quarter of 2020 as compared to gains in the first quarter of 2020.

CEO Commentary

“We are pleased to report that this was another record quarter for Teekay LNG,” commented Mark Kremin, President and Chief Executive Officer of Teekay Gas Group Ltd. “While COVID-19 continues to have an unprecedented impact on the world and is a major focus for us, we have been able to fully service our charter contracts and have continued to receive contracted cash flows from our high quality customers. As a result of the pandemic, the overall maritime industry has experienced significant challenges related to crew changes, but I am pleased to report that we have safely changed-out a number of crew members on all of our vessels. We continue to work hard with both the industry and inter-governmental organizations to tackle this challenge and bring our remaining overdue colleagues home safely as soon as possible. I am truly proud of how our seafarers and onshore colleagues have responded to ensure safe and successful transitions with no reported COVID-19 cases, while providing uninterrupted service to our customers.”

Mr. Kremin continued, “Following the completion of our growth program late last year, our focus has been primarily on delevering our balance sheet, which also reduces interest costs, and maximizing our fleet utilization, which provides us with stable, predictable cash flows. This focus, in combination with consistent operational performance and competitive costs, driven by our economies of scale, has resulted in record Adjusted Net Income(1) and Total Adjusted EBITDA(1) for Teekay LNG this quarter.”

Mr. Kremin continued, “Our LNG fleet is fully-fixed for the remainder of 2020 and 94 percent fixed for 2021, largely insulating Teekay LNG from the current weak short-term LNG shipping market. Furthermore, all of our charter contracts are currently operating in-line with our expectations, which allows us to reaffirm our previously provided financial guidance for 2020.”

(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).

Summary of Recent Events

In July 2020, the Partnership entered into a new commercial management agreement with the current manager of its seven wholly-owned multi-gas vessels. The new agreement has a two-year term effective September 2020 and is in direct continuation of the expiry of the current commercial management agreement.

In May 2020, Teekay Corporation and the Partnership eliminated all of the Partnership’s incentive distribution rights held by the General Partner in exchange for 10.75 million newly-issued common units. Following the completion of this transaction on May 11, 2020, Teekay Corporation now beneficially owns approximately 36 million of the Partnership’s common units and remains the sole owner of the General Partner, which together represents an economic interest of approximately 42 percent in the Partnership.

In May 2020, on maturity, the Partnership repaid its 1 billion Norwegian Krone (NOK) -denominated bonds and the associated cross currency swap arrangement. This repayment amounted to $111 million, net of $23 million of cash collateral released on the associated cross currency swap.

In May 2020, the Partnership’s 52 percent-owned joint venture with Marubeni Corporation (the MALT Joint Venture) chartered the Marib Spirit to an international trading company for a period of six months, which commenced in mid-June 2020.

In April 2020, the MALT Joint Venture secured new charters for the Arwa Spirit and the Methane Spirit for periods of 12 and eight months, respectively. The new charters commenced upon completion and in direct continuation of their existing charters in May and July 2020, respectively.

Operating Results

The following table highlights certain financial information for Teekay LNG’s segments: the Liquefied Natural Gas Segment, the Liquefied Petroleum Gas Segment and until the sale of our last conventional tanker in October 2019, 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(1) for the liquefied natural gas segment for the three months ended June 30, 2020, compared to the same quarter of the prior year, decreased primarily by a reduction in earnings upon the sales of the WilForce and WilPride LNG carriers in January 2020. This decrease was partially offset by fewer off-hire days in the second quarter of 2020 due to scheduled dry dockings for certain of the Partnership’s LNG carriers.

Equity income and adjusted EBITDA from equity-accounted vessels(1) for the liquefied natural gas segment for the three months ended June 30, 2020, compared to the same quarter of the prior year, increased primarily due to: the deliveries of four ARC7 LNG carrier newbuildings between June and December 2019 to the Partnership’s 50 percent-owned joint venture with China LNG Shipping (Holdings) Limited (Yamal LNG Joint Venture); commencement of terminal use payments in January 2020 to the Partnership’s 30 percent-owned joint venture with National Oil & Gas Authority, Gulf Investment Corporation and Samsung C&T (the Bahrain LNG Joint Venture); higher earnings from the MALT Joint Venture as a result of the one-year charter contracts that were secured at higher rates for the Arwa Spirit and Marib Spirit in June and July 2019, respectively; and fewer off-hire days due to scheduled dry dockings and main engine overhauls for certain vessels in the second quarter of 2019.

Liquefied Petroleum Gas Segment

Income from vessel operations and consolidated adjusted EBITDA(1) for the liquefied petroleum gas segment for the three months ended June 30, 2020, compared to the same quarter of the prior year, was relatively stable.

Equity income (loss) and adjusted EBITDA from equity-accounted vessels(1) for the liquefied petroleum gas segment for the three months ended June 30, 2020, compared to the same quarter of the prior year, were positively impacted by higher LPG rates earned and fewer off-hire days in the Partnership’s 50 percent-owned LPG joint venture with Exmar NV (the Exmar LPG Joint Venture).

Conventional Tanker Segment

There were no results from vessel operations for the conventional tanker segment for the three months ended June 30, 2020, as the last of the Partnership’s conventional tankers, the Toledo Spirit and Alexander Spirit, were sold in January and October of 2019, respectively.

(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.

Teekay LNG’s Fleet

The following table summarizes the Partnership’s fleet as of August 1, 2020. In addition, the Partnership owns a 30 percent interest in a regasification terminal in Bahrain.

• Includes vessels leased by the Partnership from third parties and accounted for as finance leases.
• The Partnership’s ownership interests in these vessels range from 20 percent to 100 percent.

Liquidity

As of June 30, 2020, the Partnership had total liquidity of $306.3 million (comprised of $226.3 million in cash and cash equivalents and $80.0 million in undrawn credit facilities).
Source: Teekay LNG

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