Teekay LNG Partners L.P. (TGP)

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Teekay LNG Partners LP. (TGP)

Q2 2013 Earnings Call

August 09, 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

Analysts

Michael Webber - Wells Fargo Securities, LLC, Research Division

Fotis Giannakoulis - Morgan Stanley, Research Division

Presentation

Operator

Welcome to Teekay LNG Partners Second Quarter 2013 Earning 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.

Ryan J. Hamilton

Before Mr. Evensen begins, I'd like to direct all participants to our website at www.teekaylng.com, where you'll find a copy of the second quarter 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 the 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 second quarter 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 second quarter of 2013 investor conference call. I'm joined today by Teekay Corporation's CFO, Vince Lok; Chief Strategy Officer, Kenneth Hvid; and 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 $55.4 million in the second quarter of 2013, down slightly from the same quarter last year when we generated $56.8 million of distributable cash flow.

The year-over-year decrease is mainly due to the heavy schedule of planned dry dockings, lower rates earned on 2 of the partnership's conventional tankers, partially offset by cash flows from the partnership's 50% investment in Exmar's LPG fleet and higher fixed charter rates earned on certain of our LNG carriers.

For the second quarter, we declared and paid a cash distribution of $0.675 per unit, which was consistent with previous quarter. We entered into an accretive purchase leaseback transaction with Awilco LNG, a Norwegian shipowner, for up to 2 LNG carriers that will provide near-term distributable cash flow growth, as I will detail on the next slide.

There continues to be a significant amount of LNG and LPG project tender activity, and our business development group is actively evaluating and bidding on several of these. As I'll detail on the following slides, we position the partnership to be in a position to take advantage of these opportunities by ordering new buildings, and gaining fixed rate options on berths that will meet charterer's requirements.

As we match this tonnage with charters, this will result in accretive growth for investors in Teekay LNG Partners.

And our strategy is already meeting success. As we announced in June, we expanded our long-term fixed rate portfolio with a new charter contract award by Cheniere. Teekay LNG was successful in securing charters for its 2 first fuel-efficient MEGI newbuildings, which we ordered in December 2012. The vessels will be chartered for a period of 5 years, commencing upon delivery of the vessels in early 2016.

These LNG carriers will be used to transport gas from Cheniere's Sabine Pass terminal in Louisiana. Due to their size and efficiency, these ships are perfectly suited to transport gas from the United States, and we believe this LNG export market is poised to grow significantly in the future and require more LNG vessels.

Our finance people have also been busy finding ways to diversify our sources of capital. And since the start of the second quarter, we've raised approximately $1 billion in new capital to finance our future growth and refinance existing loan facilities. I will highlight some of these financings later in the presentation.

Slide #4 gives greater detail on our recently announced acquisition from Awilco LNG, a transaction which provides near-term accretive growth to Teekay LNG, and which is a great complement to our LPG newbuildings, which begin to arrive next year, and our LNG newbuildings, which begin to arrive in 2016.

When you put all 3 growth initiatives together, it provides the partnership with accretive growth in distributable cash flow for the next 5 years.

With that as a lead in, let me talk about the transaction. Teekay LNG has agreed to acquire up to 255,000 cubic meter LNG newbuildings from Awilco for a net price of $155 million each. Awilco LNG has agreed to sell the first ship, which is expected to deliver from DSME shipyard in September of this year to Teekay LNG and charter it back under a fixed rate bareboat charter for a firm period of 5 years, with an option to extend for 1 additional year.

At the end of the 5- or 6-year charter, Awilco has an obligation to purchase the vessel back from Teekay LNG at a predetermined price. The purchase and leaseback of the first vessel is expected to provide incremental distributable cash flow to the partnership of approximately $7.5 million per annum for the 5- or 6-year term of the arrangement.

In addition, Teekay LNG has offered to acquire the second ship from Awilco under identical terms to the first vessel, at Awilco's option. If accepted, this option must be declared by Awilco no less than 2 months prior to the delivery of the second ship, which is scheduled to deliver later in the fourth quarter or latest early in 2014.

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