Teekay LNG Partners L.P. (TGP)

TGP 
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Teekay LNG Partners LP. (TGP)

Q4 2012 Earnings Call

February 22, 2013 11:00 am ET

Executives

Scott Gayton

Peter Evensen - Chief Executive Officer of Teekay GP LLC, Chief Financial Officer of Teekay GP LLC, Principal Accounting Officer of Teekay GP LLC and Director of Teekay GP LLC

David Wong

David Drummond

Analysts

Michael Webber - Wells Fargo Securities, LLC, Research Division

Paul Jacob

Fotis Giannakoulis - Morgan Stanley, Research Division

John K. Tysseland - Citigroup Inc, Research Division

Presentation

Operator

Welcome to Teekay LNG Partners' Fourth Quarter and Fiscal 2012 Earnings Results Conference Call. [Operator Instructions] As a reminder, this call is being recorded. Now for opening remarks and introductions, I would like to turn the call over to Mr. Peter Evensen, Teekay LNG Partners' Chief Executive Officer. Please go ahead, sir.

Scott Gayton

Before Mr. Evensen begins, I would like to direct all participants to our website at www.teekaylng.com, where you will find a copy of the fourth quarter of 2012 earnings presentation. Mr. Evensen will review this presentation during today's conference call. Please allow me to remind you that our discussion today contains forward-looking statements. Actual results may differ materially from results projected by those forward-looking statements. Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements is contained in the fourth quarter of 2012 earnings release and earnings presentation available on our website.

I will now turn the call over to Mr. Evensen to begin.

Peter Evensen

Thank you, Scott. Good morning, everyone, and thank you for joining us in our Fourth Quarter and Fiscal Year 2012 Investor Conference Call. I'm joined today by Teekay Corporation's CFO, Vince Lok; its Chief Strategy Officer, Kenneth Hvid; and its MLP Controller, David Wong.

Turning to Slide 3 of the presentation, I will review some recent highlights. The partnership generated distributable cash flow of $53.6 million in the fourth quarter of 2012, up 22% from the same quarter last year when we generated $44.1 million of distributable cash flow. The year-over-year increase highlights the partnership's fleet growth over the past year, which includes newbuilding LNG and LPG carrier deliveries in late 2011 and early 2012, and our accretive acquisition of a 52% interest in the 6 Maersk LNG carriers in February of 2012.

For the fourth quarter, we declared and paid a cash distribution of $0.675 per unit, which was consistent with the previous quarter. On February 12, we completed our previously announced acquisition of a 50% interest in Exmar LPG, our joint venture with Belgium-based Exmar. In December 2012, we placed an order for 2 fuel-saving LNG carrier newbuildings from Daewoo Shipbuilding and Marine Engineering or DSME of South Korea, for delivery in the first half of 2016, with options to order an additional 3 vessels. Over the past several months, we've seen a significant increase in the number of new LNG liquefaction projects. We continue to find the [indiscernible] to be attractive and are bidding on several LNG [indiscernible] storage and regasification unit [indiscernible] on the water assets with contracts. With approximately $360 million of available liquidity, the partnership is well-positioned for investment in future growth opportunities.

Finally, despite the solid medium to long-term outlook for LNG shipping in the near term, we do not -- we do expect to see a softening in spot LNG shipping rates in 2013 and 2014, as a large number of newbuilding vessels without charters deliver into a weaker near-term demand picture. This is consistent with our market view last year and our decision to secure charters early at attractive rates for the 2 Maersk LNG vessels that were previously on short-term charters, and which are now fixed on charter until 2015 and 2016, as well as scheduling the delivery window of our 2 newbuildings to be the first half of 2016. With the remainder of our LNG carriers operating on long-term, fixed-rate charter contracts, Teekay LNG has no exposure to weakening near-term spot LNG shipping rates.

Turning to Slide 4, I'll take a moment to update you on our recent LPG joint venture with Exmar. On February 12, we -- Teekay LNG completed the accretive acquisition of a 50% interest in a new joint venture with Exmar, named Exmark LPG BVBA, which controls a fleet of 25 LPG carriers and is primarily focused on midsized gas carriers or MGCs. The new joint venture fleet consists of 19 on-the-water LPG carriers, including 10 owned MGCs, 2 owned very large gas carriers are VLGCs, and 5 chartered-in LPG carriers. In addition, the joint ventures has 8 newbuilding MGCs on order, including 4 vessels being constructed at Hyundai in South Korea, scheduled for delivery in 2014. The joint venture also recently placed an order for 4 additional MGC newbuildings, which are expected to deliver between April 2015 and June 2016. This latest order includes options to order an additional 4 vessels. The combination of the 19 on-the-water LPG carriers, and 8 firm LPG carrier newbuildings provides our joint venture with control over one of the world's largest MGC fleets.

For our 50% interest in Exmar LPG, we made an equity investment of $134 million, which includes approximately $10 million for working capital and newbuilding installments made to-date. And we assumed a pro rata share of existing debt and capital lease obligations of approximately $108 million, resulting in an enterprise value of $242 million for our 50% interest. It's important to note that this acquisition is 50% owned, and therefore, will be equity accounted for in our financial statements. This accretive acquisition is expected to contribute approximately $10 million to Teekay LNG's distributable cash flow in 2013. However, the run rate contribution is expected to increase as newbuildings deliver between 2014 and 2016. By partnering with Exmar, our strategy is to provide Teekay LNG with immediate access to Exmar's LPG shipping franchise, which has well-established commercial, technical and operational operations in the LPG sector, including a sizable contract of affreightment or COA portfolio, which is difficult to replicate by potential new entrants to the space. In addition, the Exmar LPG joint venture is a natural extension of Teekay LNG's gas shipping business and provides a new channel for distributable cash flow growth.

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