Teekay LNG Partners' CEO Discusses Q2 2012 Results - Earnings Call Transcript

Teekay LNG Partners L.P. (TGP)

Q2 2012 Earnings Call

August 10, 2012, 11:00 am ET

Executives

Scott Gayton - IR

Peter Evensen - CEO

David Wong - MLP Controller

Analysts

Paul Jacob - Raymond James

TJ Schultz - RBC Capital Markets

Jeff Lewis - Venture Publishing

Presentation

Operator

Welcome to Teekay LNG Partners second quarter 2012 earnings results conference call. During the 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 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 second quarter 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 second 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 on our second quarter of 2012 investor conference call. I am joined today by Teekay Corporation’s CFO Vince Lok; Chief Strategy Officer, Kenneth Hvid and MLP Controller David Wong. This quarter’s call will be brief as we recently provided a comprehensive presentation at our mid-June Investor Day in New York.

Turning to slide number three of the presentation, I will review some recent highlights. The Partnership generated distributable cash flow of $56.8 million in the second quarter of 2012, up 51% from the same quarter last year when we generated $37.6 million of distributable cash flow. The year-over-year increase highlights the growth our fleet has experienced over the past year including the recent deliveries of our new building gas carriers and our accretive acquisition in February of this year of a 52% interest in the six mass LNG carriers.

For the second quarter, we declared and today paid a cash distribution of $0.675 per unit which is consistent with last quarter. We entered into a new three year forward start time charter for the Magellan Spirit which will commence in September 2013 upon the expiry of the vessel’s current time charter.

Importantly, this new time charter is at a day rate which is approximately 20% higher than the current charter rate. As we discussed at our Investor Day, we continue to see backward-ization in the market where medium-term charters with a forward startup being done closer to the long term charter level. In that light, we consider this picture to be strong.

Turning to slide number four, you can see that the big growth in LNG supply and therefore LNG transport will be in 2015 and beyond. There isn’t much liquefaction growth until then that does not have dedicated LNG transport.

Our customer discussions and tenders for new LNG transport are focused on moving the new LNG supply that will come online from 2015 till the end of the decade as can be seen in the graph at the bottom of the slide, with Australia expected to take the lead with approximately 80 million tons per annum by 2020, but also projects in Russia and Africa.

The ultimate demand for U.S. exports is still an unknown at this point. However, it is encouraging that there are over 100 million tons per annum of planned projects. However, it’s an open question how much of this will come online and when. If all the incremental gas does come online by 2020, we anticipate there will be a need for approximately an additional 170 LNG carriers. For this reason we are bullish on the long-term fundamentals of LNG shipping and believe Teekay LNG is well positioned to take advantage of this expected growth which will ramp beyond 2015.

Turning to slide number five, I will review our consolidated operating results for the quarter comparing an adjusted Q2 income statement against an adjusted Q1 income statement which includes the items listed in appendix say of our earnings release and reallocates realized gains and losses from derivatives to their respective income statement line item.

Net voyaged revenues decreased by $2.7 million mainly as a result of a scheduled dry docking of one of our LNG carriers during the second quarter. For the third quarter of 2012, no off hire from dry docking our schedule. Vessel operating expenses decreased slightly as a result of lower crew manning due to foreign exchange fluctuations. We expect higher vessel operating expenses next quarter due the timing of certain repairs and maintenance.

Depreciation and amortization remained relatively consistent from Q1 as expected. General and administrative expenses decreased by $600,000 due to the timing of expenses. Net interest expense increased by $1.1 million primarily due to interest expense related to the Norwegian Kroner bonds that we issued in May 2012. Equity income increased by $7.6 million primarily as a result of a full quarter of our income from our 52% interest in six LNG carriers which were acquired on February 28 as well as increase in the charter rate on the methane spirit which took effect in April.

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