Teekay LNG Partners Reports Fourth Quarter 2018 and Annual 2018 Results

February 21, 2019

Highlights

• GAAP net income attributable to the partners and preferred unitholders of $6.6 million, GAAP net income per common unit of $0.00 and income from vessel operations of $65.2 million in the fourth quarter of 2018; and $28.4 million, $0.03 per common unit and $147.8 million, respectively, for fiscal 2018.
  
  
• Adjusted net income attributable to the partners and preferred unitholders⁽¹⁾ of $32.6 million and adjusted net income per common unit⁽¹⁾ of $0.32 in the fourth quarter of 2018 (excluding items listed in Appendix A to this release); and $87.7 million and $0.76 per common unit, respectively, for fiscal 2018.
  
  
• Generated total cash flow from vessel operations⁽¹⁾ (CFVO) of $150.1 million in the fourth quarter of 2018 and $515.3 million for fiscal 2018.
  
  
• Since late-December 2018, repurchased over 1.1 million common units at an average price of $11.38 per unit for a total cost of approximately $13 million.
  
  
• Completed the financing of the Yamal Spirit LNG carrier newbuilding, which delivered and commenced its 15-year charter on January 31, 2019.
  
  
• Estimated fiscal 2019 guidance⁽²⁾ for adjusted net income per common unit⁽¹⁾ of approximately $1.85 to $2.20⁽²⁾ and total CFVO⁽¹⁾ of $635 million to $660 million.

HAMILTON, Bermuda, Feb. 21, 2019 (GLOBE NEWSWIRE) — Teekay GP L.L.C., the general partner of Teekay LNG Partners L.P. (Teekay LNG or the Partnership) (NYSE: TGP), today reported the Partnership’s results for the quarter and year ended December 31, 2018.

Consolidated Financial Summary

Fourth Quarter of 2018 Compared to Fourth Quarter of 2017

GAAP net income and non-GAAP adjusted net income attributable to the partners and preferred unitholders for the three months ended December 31, 2018, compared to the same quarter in the prior year, were positively impacted by an increase in earnings due to the deliveries of 12 liquefied natural gas (LNG) carrier newbuildings in the Partnership’s consolidated fleet and equity-accounted joint ventures between October 2017 and December 2018, and higher earnings from the Magellan Spirit, which was chartered-in from the Partnership’s 52 percent-owned joint venture with Marubeni Corporation (the Teekay LNG-Marubeni Joint Venture) commencing in September 2018. These increases were partially offset by a decrease in earnings in 2018 on seven multi-gas carriers following the termination of their previous charter contracts, the sale of three conventional crude oil tankers during 2018, an increase in off-hire days during 2018 for certain of the Partnership’s vessels due to repairs, and an increase in general and administrative expenses, a portion of which is non-recurring.

In addition, GAAP net income attributable to the partners and preferred unitholders was negatively impacted in the three months ended December 31, 2018, compared to the same quarter of the prior year, by various items, including unrealized losses on non-designated and designated derivative instruments and unrealized foreign currency exchange losses.

CEO Commentary

“Once again this quarter, our cash flows and adjusted earnings were up significantly over the prior quarter as the Partnership’s LNG segment grew and certain existing vessels commenced new contracts at firm rates,” commented Mark Kremin, President and Chief Executive Officer of Teekay Gas Group Ltd. “This segment continued its expansion in early-2019 with the delivery of two additional newbuilding LNG carriers, including the Yamal Spirit, which delivered on January 31, 2019, soon after finalizing its dedicated financing facility.” Mr. Kremin continued, “With this latest financing facility now in place, we have completed all of the necessary financings to take delivery of our entire newbuilding orderbook which, at its peak, amounted to approximately $3 billion.”

“We expect our LNG segment results to be significantly higher in 2019 primarily due to the delivery of 15 newbuilding LNG carriers during 2018 and throughout 2019 as well as the start-up of the Bahrain LNG regasification terminal in 2019. Collectively, the cash flow associated with these deliveries will allow the Partnership to execute on its balanced capital allocation strategy which will see the Partnership meaningfully delever its balance sheet over the next few years while simultaneously return significant cash flow to unitholders in the form of common unit repurchases and common unit distributions, which will increase by 36 percent commencing this upcoming quarter.” Mr. Kremin continued, “Today, we announced fiscal 2019 financial guidance that would represent increases in adjusted net income per common unit and total CFVO ranging from 143 percent to 190 percent and 23 percent to 28 percent, respectively, compared to our fiscal 2018 results.”

2019 Guidance

Today, the Partnership is providing the below supplementary information relating to the outlook for the Partnership’s estimated fiscal 2019 results which are expected to be significantly higher than fiscal 2018 primarily due to newbuilding deliveries and higher charter rates earned from the vessels trading on short-term contracts:

Summary of Recent Events

Torben Spirit Charter

The Torben Spirit LNG Carrier commenced its minimum three-year charter on January 1, 2019 at a charter rate in excess of $100,000 per day for the duration of the contract.

LNG Carrier Newbuilding Deliveries

In December 2018, the Partnership took delivery of one M-Type, Electronically Controlled, Gas Injection (MEGI) LNG carrier newbuilding, the Sean Spirit, which immediately commenced its seven-year charter contract with BP Gas Marketing Limited.

In January 2019, the Partnership’s 20 percent-owned joint venture with China LNG Shipping (Holdings) Limited (China LNG), CETS Investment Management (HK) Co. Ltd. (an affiliate of China National Offshore Oil Corporation (CNOOC)) and BW LNG Investments Pte. Ltd. (the Pan Union Joint Venture), took delivery of one LNG carrier newbuilding, the Pan Africa, which immediately commenced its 20-year charter contract with Royal Dutch Shell (Shell).

In January 2019, the Partnership took delivery of one MEGI LNG carrier newbuilding, the Yamal Spirit, which immediately commenced its 15-year charter with Yamal Trade Pte Ltd. Concurrent with the delivery, the Partnership entered into a $159 million, 15-year sale-leaseback financing arrangement with a lessor, which added approximately $30 million of liquidity to Teekay LNG.

Crude Oil Tanker Dispositions

In January 2019, the Todelo Spirit, a Suezmax tanker that was chartered-in by the Partnership under a capital lease from the charterer, was sold to a third party. Upon the sale of the vessel, the Partnership’s charter contract for this vessel was terminated and the remaining capital lease obligation was extinguished. During 2018, the Partnership completed similar transactions for three other Suezmax tankers, the Teide Spirit in February 2018, the African Spirit in October 2018, and the European Spirit in November 2018.
Operating Results

The following table highlights certain financial information for Teekay LNG’s three segments: the Liquefied Natural Gas Segment, the Liquefied Petroleum Gas Segment and the Conventional Tanker Segment (please refer to the “Teekay LNG’s Fleet” section of this release below and Appendices C through E for further details). During 2018, the Partnership’s Teekay Multi-Gas Pool, including its seven directly-owned multi-gas carriers, commenced operations. As part of this initiative, the Partnership completed an internal reorganization and revised its internal reporting, as these changes resulted in management viewing the gas fleet and its components separately. Consequently, it was determined that there had been a change in reportable segments whereby the Partnership’s LPG and multi-gas carriers are reported in a separate segment apart from its LNG carriers. All segment information for comparative periods has been retroactively adjusted to conform with the change in segment presentation adopted in 2018.

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.

Liquefied Natural Gas Segment

Income from vessel operations and CFVO from consolidated vessels for the liquefied natural gas segment for the three months ended December 31, 2018, compared to the same quarter of the prior year, were positively impacted primarily by: the deliveries of seven LNG carrier newbuildings (the Macoma, Murex, Magdala, Myrina, Megara, Bahrain Spirit and Sean Spirit) between October 2017 and December 2018; and earnings from the Magellan Spirit chartered-in from the Teekay LNG-Marubeni Joint Venture commencing in September 2018. These increases were partially offset by an increase in off-hire days during 2018 for certain of the Partnership’s LNG carriers due to repairs; and an increase in general and administrative expenses attributable to this segment.

Equity income and CFVO from equity-accounted vessels for the liquified natural gas segment for the three months ended December 31, 2018, compared to the same quarter of the prior year, were positively impacted by: deliveries of two ARC7 LNG carrier newbuildings between January 2018 and September 2018 in the Partnership’s 50-percent owned Yamal LNG Joint Venture, the deliveries of three LNG carriers between October 2017 and July 2018 in the Partnership’s Pan Union Joint Venture, with the Partnership’s ownership interest in these vessels ranging from 20 to 30 percent, and higher fleet utilization in the Teekay LNG-Marubeni Joint Venture during the three months ended December 31, 2018 as certain of the joint venture’s vessels commenced short-term charter contracts at higher rates compared to the previous period. In addition, GAAP equity income was negatively impacted by unrealized losses on non-designated and designated derivative instruments in the Partnership’s equity-accounted investments.

Liquefied Petroleum Gas Segment

Loss from vessel operations and CFVO from consolidated vessels for the liquefied petroleum gas segment for the three months ended December 31, 2018, compared to the same quarter of the prior year, were negatively impacted by lower earnings on seven of the Partnership’s multi-gas carriers following the Partnership’s termination of their charter contracts in the fourth quarter of 2017 due to non-payment by the charterer, which includes recognition of prepaid lease payments of $10.7 million in the fourth quarter of 2017 received from the previous charterer in prior periods.

GAAP equity loss for the liquified petroleum gas segment for the three months ended December 31, 2018, compared to the same quarter of the prior year, was positively impacted by vessel write-downs in the Exmar LPG Joint Venture during the three months ended December 31, 2017, partially offset by unrealized losses on non-designated derivative instruments in the Partnership’s equity-accounted investments. CFVO from equity-accounted vessels for the liquefied petroleum gas segment for the three months ended December 31, 2018, was comparable to the same quarter of the prior year.

Conventional Tanker Segment

Income from vessel operations and CFVO from consolidated vessels for the conventional tanker segment for the three months ended December 31, 2018, compared to the same quarter of the prior year, were negatively impacted by the sales of the Teide Spirit, African Spirit and European Spirit conventional tankers during 2018.

Teekay LNG’s Fleet

The following table summarizes the Partnership’s fleet as of February 1, 2019. The Partnership also has a 30 percent interest in the Bahrain regasification terminal which is under construction and is expected to commence operations in the summer of 2019.

1. Includes vessels accounted for as vessels related to capital leases under which the Partnership is the lessee.
2. The Partnership’s ownership interests in these vessels and newbuildings range from 20 percent to 100 percent.
3. The Partnership’s ownership interests in these newbuildings is 50 percent.
4. The Partnership’s ownership interests in these vessels range from 50 percent to 99 percent.

Liquidity

As of December 31, 2018, the Partnership had total liquidity of $324.6 million (comprised of $149.0 million in cash and cash equivalents and $175.6 million in undrawn credit facilities).

Conference Call

The Partnership plans to host a conference call on Thursday, February 21, 2019 at 11:00 a.m. (ET) to discuss the results for the fourth quarter and year-ended December 31, 2018. All unitholders and interested parties are invited to listen to the live conference call by choosing from the following options:

• By dialing (800) 263-0877 or (647) 794-1827, if outside North America, and quoting conference ID code 3163252.
• By accessing the webcast, which will be available on Teekay LNG’s website at www.teekay.com (the archive will remain on the website for a period of one year).

An accompanying Fourth Quarter and Fiscal Year 2018 Earnings Presentation will also be available at www.teekay.com in advance of the conference call start time.

About Teekay LNG Partners L.P.

Teekay LNG Partners is one of the world’s largest independent owners and operators of LNG carriers, providing LNG, LPG and crude oil marine transportation services primarily under long-term, fee-based charter contracts through its interests in 49 LNG carriers (including four newbuildings), 22 mid-size LPG carriers, seven multi-gas carriers, and one conventional tanker. The Partnership’s ownership interests in these vessels range from 20 to 100 percent. In addition, the Partnership owns a 30 percent interest in a regasification terminal, which is currently under construction. Teekay LNG Partners is a publicly-traded master limited partnership formed by Teekay Corporation (NYSE: TK) as part of its strategy to expand its operations in the LNG and LPG shipping sectors.

Teekay LNG Partners’ common units and preferred units trade on the New York Stock Exchange under the symbols “TGP”, “TGP PR A” and “TGP PR B”, respectively.

For Investor Relations
enquiries contact:

Ryan Hamilton
Tel: +1 (604) 609-2963
Website: www.teekay.com

Definitions and Non-GAAP Financial Measures

This release includes various financial measures that are non-GAAP financial measures as defined under the rules of the U.S. Securities and Exchange Commission. These non-GAAP financial measures, which include Cash Flow from Vessel Operations, Adjusted Net Income Attributable to the Partners and Preferred Unitholders, and Distributable Cash Flow, are intended to provide additional information and should not be considered a substitute for measures of performance prepared in accordance with GAAP. In addition, these measures do not have standardized meanings across companies, and therefore may not be comparable to similar measures presented by other companies. These non-GAAP measures are used by management, and the Partnership believes that these supplementary metrics assist investors and other users of its financial reports in comparing financial and operating performance of the Partnership across reporting periods and with other companies.

Non-GAAP Financial Measures

Cash Flow from Vessel Operations (CFVO) represents income (loss) from vessel operations before depreciation and amortization expense, amortization of in-process revenue contracts, vessel write-downs, goodwill write-downs, gain and losses on the sales of vessels and adjustments for direct financing leases to a cash basis, but includes realized gains or losses on a derivative charter contract. CFVO from Consolidated Vessels represents CFVO from vessels that are consolidated on the Partnership’s financial statements. CFVO from Equity-Accounted Vessels represents the Partnership’s proportionate share of CFVO from its equity-accounted vessels. The Partnership does not control its equity-accounted vessels and as a result, the Partnership does not have the unilateral ability to determine whether the cash generated by its equity-accounted vessels is retained within the entities in which the Partnership holds the equity-accounted investments or distributed to the Partnership and other owners from equity-accounted investments. In addition, the Partnership does not control the timing of such distributions to the Partnership and other owners. Consequently, readers are cautioned when using total CFVO as a liquidity measure as the amount contributed from CFVO from Equity-Accounted Vessels may not be available to the Partnership in the periods such CFVO is generated by its equity-accounted vessels. CFVO is a non-GAAP financial measure used by certain investors and management to measure the operational financial performance of companies. Please refer to Appendices D and E of this release for reconciliations of these non-GAAP financial measures to income (loss) from vessel operations and income from vessel operations of equity-accounted vessels, respectively, the most directly comparable GAAP measures reflected in the Partnership’s consolidated financial statements included in this release.

Adjusted Net Income Attributable to the Partners and Preferred Unitholders excludes items of income or loss from GAAP net income that are typically excluded by securities analysts in their published estimates of the Partnership’s financial results. The Partnership believes that certain investors use this information to evaluate the Partnership’s financial performance, as does management. Please refer to Appendix A of this release for a reconciliation of this non-GAAP financial measure to net income, and refer to footnote (4) of the Consolidated Statements of Income for a reconciliation of adjusted equity income to equity income, the most directly comparable GAAP measure reflected in the Partnership’s consolidated financial statements included in this release.

Distributable Cash Flow (DCF) represents GAAP net income adjusted for write-down of vessels, depreciation and amortization expense, deferred income tax and other non-cash items, estimated maintenance capital expenditures, unrealized gains and losses from non-designated derivative instruments, ineffectiveness for derivative instruments designated as hedges for accounting purposes, distributions relating to equity financing of newbuilding installments, distributions relating to preferred units, adjustments for direct financing leases to a cash basis and foreign exchange related items, including the Partnership’s proportionate share of such items in equity-accounted for investments. Maintenance capital expenditures represent those capital expenditures required to maintain over the long-term the operating capacity of, or the revenue generated by, the Partnership’s capital assets. DCF is a quantitative standard used in the publicly-traded partnership investment community and by management to assist in evaluating financial performance. Please refer to Appendix B of this release for a reconciliation of this non-GAAP financial measure to net income, the most directly comparable GAAP measure reflected in the Partnership’s consolidated financial statements included in this release.

Teekay LNG Partners L.P.
Consolidated Statements of Income
(in thousands of U.S. Dollars, except unit and per unit data)

Teekay LNG Partners L.P.
Consolidated Balance Sheets
(in thousands of U.S. Dollars)

Teekay LNG Partners L.P.
Consolidated Statements of Cash Flows
(in thousands of U.S. Dollars)

Teekay LNG Partners L.P.
Appendix A – Reconciliation of Non-GAAP Financial Measures
Adjusted Net Income
(in thousands of U.S. Dollars)

Teekay LNG Partners L.P.
Appendix B – Reconciliation of Non-GAAP Financial Measures
Distributable Cash Flow (DCF)
(in thousands of U.S. Dollars, except units outstanding and per unit data)

Teekay LNG Partners L.P.
Appendix C – Supplemental Segment Information
(in thousands of U.S. Dollars)

Teekay LNG Partners L.P.
Appendix D – Reconciliation of Non-GAAP Financial Measures
Cash Flow from Vessel Operations from Consolidated Vessels
(in thousands of U.S. Dollars)

Teekay LNG Partners L.P.
Appendix E – Reconciliation of Non-GAAP Financial Measures
Cash Flow from Vessel Operations from Equity-Accounted Vessels
(in thousands of U.S. Dollars)

Teekay LNG Partners L.P.
Appendix F – Summarized Financial Information of Equity-Accounted Joint Ventures
(in thousands of U.S. Dollars)

Forward-Looking Statements

This release contains forward-looking statements (as defined in Section 21E of the Securities Exchange Act of 1934, as amended) which reflect management’s current views with respect to certain future events and performance, including statements, among other things, regarding: estimated guidance for 2019 for the non-GAAP measures of adjusted net income attributable to partners and preferred unitholders, limited partners’ interest in adjusted net income per common unit, cash flow from vessels operations from consolidated vessels and total cash flow from vessel operations; the expected timing of newbuilding vessel deliveries and completion of the Bahrain regasification facility, and the commencement of related contracts; the effects of future newbuilding deliveries and commencement of operations at the regasification facility on the Partnership’s 2019 operating results; future delevering of the Partnership’s balance sheet; further potential repurchases under the Partnership’s common unit repurchase program; and the timing and amount of increases to quarterly distributions on the Partnership’s common units. The following factors are among those that could cause actual results to differ materially from the forward-looking statements, which involve risks and uncertainties, and that should be considered in evaluating any such statement: potential shipyard and project construction delays; newbuilding specification changes or cost overruns; changes in production of LNG or LPG, either generally or in particular regions; changes in trading patterns or timing of start-up of new LNG liquefaction and regasification projects significantly affecting overall vessel tonnage requirements; changes in the size of the global LNG or LPG fleets; changes in applicable industry laws and regulations and the timing of implementation of new laws and regulations; the potential for early termination of long-term contracts of existing vessels in the Partnership’s fleet; higher than expected costs and expenses; changes in the number of the Partnership’s outstanding common units; actual levels of quarterly distributions approved by the general partner’s Board of Directors; the inability of charterers to make future charter payments; the inability of the Partnership to renew or replace long-term contracts on existing vessels, including new charters at higher rates; allocations of cash to repay indebtedness or to repurchase common units; the trading price of the Partnership’s common units; the Partnership’s or the Partnership’s joint ventures’ ability to secure or draw on financings for its vessels; and other factors discussed in Teekay LNG Partners’ filings from time to time with the SEC, including its Report on Form 20-F for the fiscal year ended December 31, 2017. The Partnership expressly disclaims any obligation to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Partnership’s expectations with respect thereto or any change in events, conditions or circumstances on which any such statement is based.