Teekay LNG Partners L.P. (TGP)

TGP 
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Teekay LNG Partners L.P. (TGP)

Q3 2012 Earnings Call

November 9, 2012 11:00 am ET

Executives

Peter Evensen – Chief Executive Officer and Chief Financial Officer

Analysts

Michael Webber – Wells Fargo

Presentation

Operator

Good day, ladies and gentlemen and welcome to Teekay LNG Partners Third Quarter 2012 Earnings Results Conference Call. During this call, all participants will be in a listen-only mode. Afterwards, you will be invited to participate in a question-and-answer session. (Operator Instructions) As a reminder, this call is being recorded.

Now, for opening remarks and introduction, I would like to turn the call over to Mr. Peter Evensen, Teekay LNG Partners’ Chief Executive Officer. Please go ahead Mr. Evensen.

Unidentified Company Representative

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 third 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 third 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, Ryan. Good morning everyone and thank you for joining us on our third quarter of 2012 investor conference call. I’m joined today by Teekay Corporation’s Chief Financial Officer, Vince Lok; Chief Strategy Officer, Kenneth Hvid, and MLP Controller David Wong. If you turn to slide number 3 of the presentation, I will review some recent highlight. The partnership generated distributable cash flow of $57.8 million in the third quarter of 2012, up 32% from the same quarter last year when we generated $43.7 million. The year-over-year increase highlights the growth of our fleet that has been experienced over the past year, including the recent deliveries of our new building gas carriers and our accretive acquisition in February 2012 of the 52% interest in the six mass LNG carriers.

And that last point, I’m pleased to report that the technical management of those six LNG carriers has been fully integrated into Teekay in September. For the third quarter, we declared and today paid the cash distribution of $0.675 per unit, which is consistent with the last quarter. In September, we successfully raised a $182 million of net proceeds and follow-on equity offering, which is targeted for future investment.

Over the past several months, we’ve seen a significant increase in the number of LNG project tenders in the marketplace. We’re actively bidding on several on the water and new building LNG projects, as well as floating storage and regas projects or FSRU. And with available liquidity of $559 million, which includes proceeds from the September equity offering, the partnership is well positioned for investment in one or more of these quality growth opportunities.

Turning to slide number 4, we want to take a look at recent developments in the LNG shipping market. LNG shipping spot rates are currently around a $110,000 per day, a decline from a high of over a $140,000 per day earlier in the year, but still well above the long-term average. The recent decline in rates is partly due to seasonally lower demand for LNG, but it’s also due to lower LNG supply as a result of production outages and plant maintenance. In addition, the arbitrage in LNG prices between the Atlantic and Pacific has narrowed, with Asian prices falling to around $13 per million Btu from $18 million Btu earlier in the year. With European prices currently around $10, the reduced arbitrage does not support the large movement of spot cargoes from the Atlantic to the Pacific.

On the fleet supply side, there has been a noticeable slowdown in new vessel orders during 2012. A total of 19 LNG carriers have been ordered since the start of the year, down from 53 orders in 2011. The LNG carrier order book currently stands 77 vessels, which appears sufficient to meet demand requirements over the next three years and could even lead to an oversupply of vessels if new projects are slow to come on line, which is common with liquefaction projects.

However, from 2015 onwards, we believe that the demand for LNG shipping will ramp up significantly once new LNG liquefaction projects in Australia and North America start production. We estimate that up to a 100 additional LNG vessels over and above the current order book could be required in order to satisfy the demand that will come post 2015.

With the time to delivery for a new ship of around three years, some of these vessels will need to be ordered in the coming months if they are to be ready in time to serve new LNG project. In fact, as I noted at the start of the call, we are already starting to see an increase in tendering activities for some of these new plants coming online, and we expect more LNG shipping tenders to emerge in 2013.

Tuning to slide number 5, I will review our consolidated operating results for the quarter, comparing an adjusted Q3 income statement against an adjusted Q2 income statement, which excludes the items listed in Appendix A of our earnings release, and reallocates realized gains and losses from derivatives to their respective income statement line item.

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