Teekay LNG Partners L.P. (TGP)

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Teekay LNG Partners LP. (TGP)

Q1 2013 Earnings Call

May 10, 2013 11:00 am ET

Executives

Ryan J. Hamilton

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

Vincent Lok - Chief Financial officer, Principal Accounting Officer and Executive Vice President

Analysts

Fotis Giannakoulis - Morgan Stanley, Research Division

Paul Jacob

TJ Schultz - RBC Capital Markets, LLC, Research Division

Presentation

Operator

Welcome to Teekay LNG Partners First Quarter 2013 Earning Results Conference Call. [Operator Instructions] As a reminder, this call is being recorded. Now for opening remarks and introductions, I would now like to turn over the call to Mr. Peter Evensen, Teekay LNG Partners' Chief Executive Officer. Please go ahead, sir.

Ryan J. Hamilton

Before Mr. Evensen begins, I would like to direct all participants to our website at www.teekaylng.com, where you'll find a copy of the first quarter of 2013 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 first quarter of 2013 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, Ryan. Good morning, everyone, and thank you for joining us on our first quarter 2013 investor conference call. I'm joined today by Teekay Corporation's CFO, Vince Lok; it's Chief Strategy Officer, Kenneth Hvid; and it's MLP Controller, David Wong.

If you turn to Slide 3 of the presentation, I will review some recent highlights. The partnership generated distributable cash flow of $53.7 million in the first quarter, up 6% from the same quarter last year when we generated $50.8 million of distributable cash flow. The year-over-year increase was mainly due to the partnership's fleet growth over the past 12 months, including our accretive acquisition of the 52% interest in the 6 Maersk LNG carriers at the end of February 2012. In February 2013, the partnership completed the acquisition of a 50% interest in a new joint venture with Exmar, named Exmar LPG, which controls a fleet of 25 LPG carriers and is primarily focused on the Midsize Gas Carriers or MGC segment. This accretive acquisition is expected to contribute approximately $10 million to Teekay LNG's distributable cash flow in 2013. However, on a run rate basis, the contribution of this fleet is expected to increase as new buildings deliver between 2014 and 2016, partially offset by lower cash flows due to the sale of one of the MGCs in April, subsequent to completing the transaction. As a result, the Exmar LPG fleet currently stands at 24 vessels, including new buildings.

For the first quarter, we declared and paid a cash distribution of $0.675 per unit, which was consistent with the previous quarter. Since the start of 2013, we've seen a significant increase in the amount of tendering activity for new LNG carriers and floating storage and regas units or FSRU contracts, driven by the large number of new liquefaction projects scheduled to come on line starting in 2016.

To provide an indication of the current activity levels, right now our gas business is bidding on 4 LNG projects and 3 FSRU projects. We look forward to reporting back on these initiatives in future quarters.

Turning to Slide 4, I'll discuss the recent developments in the LNG market. LNG shipping rates have weakened since the start of the year with spot shipping rates dropping below $100,000 per day for the first time since August 2011. The decline is primarily due to a reduction in LNG cargoes, as the result of production outages in Nigeria, Algeria and Indonesia. In addition, interbasin trade between the Atlantic and Pacific declined by approximately 10% year-on-year during the first quarter of 2013 due to a narrowing of the arbitrage between European and Asian natural gas prices.

Looking at the remainder of the year, LNG supply issues are expected to ease in the coming months, which should lead to more cargo availability. However, 21 new LNG carriers are due to be delivered by the end of 2013, with a further 28 delivering in 2014. With little in the way of new LNG supply coming online prior to 2016, this could lead to downward pressure on LNG shipping rates in the coming months. However, when we look further ahead, the outlook for LNG shipping demand from 2016 onwards look significantly better, with a number of liquefaction projects coming on stream, primarily from Australia, but also from North America, Africa and Russia. U.S. liquefaction projects have so far been slow to materialize, but we believe that more projects will gain approval in the coming months, providing potential upside to our demand estimates. TGP is well positioned to take advantage of these market dynamics as our LNG fleet is fully fixed through the expected weak market between now and 2015. In 2016, TGP will take delivery of 2 173,000 cubic meter vessels with fuel-efficient MEGI engines. And in addition, we have 3 options we can use in LNG tenders. These ships are expected to deliver into a strong demand environment as new liquefaction plants come on stream and the high fuel savings offered by these ships should make them very attractive to prospective charterers looking for vessels.

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