Q2 2021 Teekay LNG Partners LP Earnings Call

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Welcome to Teekay LNG partners second quarter 2021 earnings results Conference call.

The call all participants will be in a listen only mode. Afterwards, he will be invited to participate in a question and answer session.

If you.

Participants will be.

The 2 press Star 1 to register for a question.

For assistance during the call. Please press star zero on your touch tone.

As a reminder of this call is being recorded.

Now for opening remarks, and introductions I would like to turn the call over to the company. Please go ahead.

Before Mark begins I would like to direct all participants to our website at www Dot Teekay LNG Dot Com, where you will find a copy of the second quarter of 2021 earnings presentation. We will review of 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 of the forward looking statements is contained in the second quarter of 2021 earnings release and earnings presentation available.

On the website.

I'll now turn the call over to Marc Goodman, Teekay gas group's president and CEO to begin.

Thank you Scott.

Good morning, everyone and thank you for joining us on our second quarter earnings conference call for Teekay LNG partners.

I'm joined today by Scott Gayton, Teekay gas group's CFO.

Before getting into our results will take a moment to thank all of our staff for the.

Dedication to maintain business continuity during the Covid global pandemic.

We are especially proud of how our seafarers and dry docking supervisors have continued to respond to ongoing restrictions, while maintaining consistent me safe and efficient operations.

Turning to slide through the presentation.

We will briefly review some of Teekay Lng's recent highlights.

The second quarter of 2021 was another good for US all of these down slightly from last quarter, primarily due to an increase in our scheduled dry dockings in the second quarter.

We generated adjusted net income of $57 million or <unk> 57 per unit and total adjusted EBITDA, which includes our proportionate share of EBITDA at the joint venture the level $184 million.

Looking ahead to the second half of the year.

As most of the case this quarter, we expect to undertake a higher than normal number of scheduled dry dock days in the third quarter, which will impact of our third quarter results.

However, we are anticipating very few dry dock days in the fourth quarter. As a result, we expect our fourth quarter earnings and cash flow we rebound accordingly.

With over 98% of our LNG fleet fixed for the remainder of 2021 and 89% fixed for 2022.

Are you anticipating that Teekay LNG continued to enjoy fairly consistent results through the rest of the year and into next with upside.

From our 1 spot market charter contract.

And the last bullet of this slide states. The LNG shipping market is firm for reasons, we will review in a moment.

While the vast majority of our LNG fleet. The sixth we do have some exposure to this market strength, which we anticipate will continue well into 2022.

Turning to slide for being our consolidated suite and similarly on slide 5 B and our joint venture fleet, the bars toward the middle and the bottom of the slides indicate how our LNG fleet for portfolio is largely fixed long term twice the first group of high quality force.

With an average remaining contract term in excess of 10 years.

However, as the red dotted circles indicate on these 2 slides we have the Cds vessels available in 2022, which should be well positioned to take advantage of the expected strength in the LNG carrier market as we will review on slide 7.

So, let's now skip cash slide slide, which we just discussed the slide 6 where we will discuss a few of the commodity and chartering dynamics, which we believe will impact LNG charter rates going forward.

Looking first to the left hand, slide left hand side of the slide.

The demand for the supply of LNG is leading to much higher pricing than we typically see during this time of the year.

The Asian benchmark GKN has recently passed surpassed $15 per million Btu of level well has experienced during the cold winter last year and based on the forward curves as depicted by the dotted lines much of the strength in pricing is expected to continue throughout the year.

Strong industrial demand and low inventories have been supportive of higher gas prices with China accounting for much of the incremental Matt over the past year.

Just last month, China surpassed Japan, as the largest importer of LNG.

And as we will discuss in the moment stronger internet pricing that arbitrage trading opportunities are helping to support LNG carrier rates.

This counter seasonal strength and pricing is also into an uptick in the number of term charters being entered into as seen in the graph to the middle of the slide.

As the LNG carrier rates begin to firm counter seasonally in March 13th.

The charters for completed followed by 10 in the April and another 8 in June.

As you can see the chart just 3 month total equals the number of term charters completed over the prior 20 months combined.

We believe this rush to charter vessels is due in part to the LNG carrier rate spikes experienced last year.

When rates briefly surpassed $200000 per day.

This year, some charters are preferring to lock in tonnage early to avoid another potential spike in rates. This winter.

These are just 2 of the factors that we see having an impact on LNG carrier rates, which had been plotted for the right of the slide.

The Blue and Gray line supply average monthly.

Rates experienced in 2019 and 2020, respectively.

While the Red line plus rates experienced to date in 2021 with.

With the dotted Red line flattening out the forward rates according to the Baltic LNG curve.

An increase in project startups low inventories, particularly in Europe weighted it's Chris the only at 44% of being full and 25% below the average credit standing here.

And long haul trades from the U S.

As we just mentioned.

All coming together to fundamentally support spot and term LNG carrier rates.

Our last slide today's slide 7.

We're not planning to review all of the factors impacting rates and for the future whether it be increased volumes out of the U S. As you can see in the chart at the top left strong demand out of Asia and South Asia.

<unk> seen in the Panama, and Suez Canal or seasonal just such as droughts in Brazil or the hot summer in the northern Hemisphere.

But what we think is important is help all of these factors are coming together to positively impact carrier rates.

And this positive sentiment is also shared by others.

If you look through the top line of this slide we've plotted out potent partners. Some of the base case rate predictions. When you will notice. The most recent base case rates from the July 2020, or 21 port.

<unk> by the dark Dubai are higher than the base case rates and the April 2021 report indicated by the Gray line.

And the July 2021 by case rates are even higher as illustrated by the light Blue line.

And before we turn it over to questions. The chart to the bottom right plus an average of the forward Baltic LNG index rates of summarized by affinity.

These forward current rates has similarly been increasing over the past couple of months.

The in July rate indications for this year and next as indicated by the dark Blue bars are the same or in most cases.

The the indications for they released in early June of this year.

As depicted by the light blue bars.

Thanks for your time today.

Operator, we are now available to take questions.

Yes, Sir Thank you and if you would like to ask you.

Question. Please.

The star 1 on your telephone keypad.

If you are using a speakerphone. Please make sure your mute function is turned off to allow your signal.

Again, Thats Star 1 of you would like to ask a question.

And we will now take a question from Ben Nolan with Stifel.

Great. Thanks first on the list.

So I've got a couple.

First of all is it possible.

Mark or Scott to I I know you said that there is a heavy drydock schedule in 2 or 3 key relative to what would normally be the case.

Is it possible to quantify that at all in terms of of what you know what the financial impact would be say relative to what we saw in the second quarter.

Yeah, Thanks, Andrew I'll take the.

That's.

Yeah sure I think the best place to look.

Unfortunately, my print of it doesn't have slide numbers, but the best place to look.

Is on slide 12 been where we do lay out how we expect to see the various line items moving.

The Q2 versus Q3.

And then on the next slide I guess, it's on 13, we have laid out the incremental dry docks that we see so we've got 97 of off hire days in the second quarter.

131, so pretty close into the third quarter. So I'd say a combination of slide 12 of 13 of the best places Okay.

Okay, Yeah I can.

Back end of that I appreciate it.

And then just thinking a little bit strategically obviously.

Yeah. This is Ben.

You guys have been focusing almost all of your cash flow on.

Debt repayments coming downs moving in the right direction, we have conversation every quarter about you know what are opportunities for growth or what have you.

And Oh, and I think you're still sort of in the process of of getting to where you need to be getting closer all the time, but.

And I'm curious about maybe 1 of the areas, possibly being taking a greater ownership stake and some of the partially owned vessels that you already have them.

Well now and Youre not sort of going out of competing against anything I'm. Just curious if that is something that is possible and if it is it something that you would look at and then maybe along those line some of those assets.

With respect of efficiencies and so forth.

Maybe I'll take a shot at that Scott.

We'll go from there I guess first of all Ben we are as you know, we're we're happy with our fleet as indicated by the buybacks we were doing.

Previously the more of we have of our own fleet. The half of you are with respect to the the partially owned fleet. It's the same thing we do look at opportunities too.

So you should look to buy into the good opportunities. If the partner wanted to sell out I don't think for is concerned about the balance the.

Cash balance sheet treatment as we used to be all the things are equity accounted so to the extent that might shift things 1 way or the other it's not a huge deal I just haven't seen a lot of opportunities for many of our partners are our strategic.

Theyre not theyre not sellers.

In fact, if we just as we look at opportunities to buy were are also opportunities to sell if they wanted to.

2.

Side, we're not married to any piece of steel.

But we do look for contracts, but right now we are not currently any seen any opportunities to consolidate even within our R. R.

Don't speak to be honest with you bet.

Okay, well that's helpful and just I guess to wrap it up I mean, you kind of.

Hinted at it a little bit there are no asset values are higher for steel prices being higher as well as just sort of the underlying fundamentals and cash flow as being better.

Yeah.

Or would I don't know is it fair to categorize your guys is perhaps a better seller than a buyer right now.

When it comes we're probably at or sell it and the buyer to be honest with you, but the thing that we look at for our fleet.

Obviously enjoy we've got.

About 9 billion revenues.

Over about 10 years on average.

When we look at our opportunities to buy it is sort of.

The less related to any of those.

Of those contracts those contracts have a long way to play out still for the most part.

So it's really about value in the.

The contract strength steel and if someone is willing to pay more than we think.

It's worth the sellers.

Open the paying less for buyers.

3 of the cap this balanced capital allocation, we've been talked about from the.

Timed out I mean, obviously, we're number 1 we're focused on delevering.

For the case, but we can see of past, yes, clearly you can see of path and it's nir.

And as it was before on the Delevering side.

So then as you say, we've been look back into buying our own fleet. We have looked at return of capital to shareholders and a lot of that was through buybacks, but we've also.

<unk> been pretty aggressive on the distributions. So as you know we've been increasing every every year.

We're up over 100% for the last 3 years of elite.

So.

Anyway long story short we are.

Our.

<unk>.

We'd be interested.

We'd be interested in buying or selling the whether it be direct price.

Okay, Alright, I appreciate it thanks Mark.

Yeah.

Our next question from Chris Tsung of width.

Gotcha.

Hey, Bart case that how are you guys.

Hi.

Hi, just wanted to just touch on the.

The reduced number of Drydocking day, I noticed the Techy, the Q1 presentation and the Q.

It's down by nearly 50% I just wanted to understand what kind of drove the.

Hey, Chris I'm disconnected, so youre, saying you compare back to the presentation last quarter versus the days that we have now.

Yes.

Yeah. It would look like a lot of that is just gonna be the <unk>.

Timing of.

Of what Theyre going to do whether I should it go into dry dock.

And then you know we may have pushed some of the buyout.

Okay.

It's the only get some odd date pushed out to 2022.

Yeah, I think that would be right yes.

That's correct Yep.

Okay.

Well I may follow up off line it seems like 'twenty.

'twenty 1 vessel.

The quarterly amounts of 'twenty, but the number of days come on line.

That's fine I'll move on from my second question.

Just looking at your outlook I think everyone's outlook.

Spot market, it's incredibly from a low in terms of the.

From 2 winter.

How has that translated into term coverage of the time charter.

Looking at the full COVID-19 kind of tapering down towards the end of Q1 of 2022, which is I think of parcel of land some of the charters of rolling off So I guess I will call.

Will you guys be able to <unk> zone.

The contract World.

That's the kind of cool sizes of the tiny or the.

The strength of the market at that point, so hoping to get all the KOL day okay.

I'm happy to try to field that.

I think we're fairly conservative typically and what our earnings calls and growth for our peers.

With that context.

The scene.

Almost sit on premise the press.

The net amount of term charter interest.

Right now for starting 2022.

The ranges everywhere from let's call it 3 years to 10 years.

So and it ranges from from.

From Asian buyers to European buyers in.

And others of LNG so.

I think youre going to see more term charters.

It gets fixed.

By the market.

In Q4 core suite like the 1.

But there seems to be as I said.

Yes.

We can we can currently see half of half dozen.

From charter requirements for next year.

Okay.

Yes.

Just on timing on when you guys or the beginning tuck school.

Yes.

Contract when you try to.

Well as I said it could be as early as Q for our first chip.

Actually are are the first ship is the steamship, we own 50% of with ex Mark called the Excalibur.

That will come off probably around Christmas or more likely in Q1.

I think that should give us a little fix the little.

Around that time.

But it's not a term charter for say you'd have to find the project and we will be competing for others to find projects for for that first steam ship, we have it rolls out of 50% of it.

For the next ship, which I think we really anticipate being available thats not available until until February.

And.

Given the interest that we're seeing right now.

I can I can possibly see is fixing forward of our history Teekay LNG is that we're not afraid to do that.

If the.

As of the Iron is hot.

Go for it and so thats, possibly we could possibly see a for.

With fixture in Q4 for that first ship by sea become available or not.

February of <unk>.

2022, so fingers fingers crossed.

If the the market is not there that's fine we have so much coverages. We've discussed today, we've got already 89% fixed in 2022, so we don't need the jump at any charter.

It's not going to impact us too much.

We're seeing strength in the market with you on this so we don't need the fixed but how.

Or we are free to for fixed so let's see what happens in Q4.

Alright, great. Thanks, Thanks for the color and good luck guys.

Thanks.

Yes.

Reminder of that is star 1 of you would like to ask a question.

We will now take a question from Randy <unk> with Jefferies.

Howdy gentlemen of the gone.

Good day Randy.

Hey.

I guess following up on that last question around the vessels rolling off charters are these likely fixed rate charters are you kind of more interested in the market linked charters like your your recent when you did.

They're more likely to be fixed rate that said, we're happy with SaaS floating rate charters of the Baltic is doing well right now I think in August.

The Baltic current curve for the.

All of us around $77000 for the 2 stroke behalf.

And thats after net of brokerage fees et cetera.

So we were definitely happy that we took the the footing in the.

Yes on that 1 in the.

As you know you may have seen ready the the index in Q4 as it has over $100000.

No. That's that's that's definitely been way to go versus when we fix that that ship I think and Mark yourself, it's worked out but the general principle.

Teekay and that a full utilization so keep in mind, we say, we have 98% 6 on our on our LNG fleet of 100% fixed in terms of use utilization.

So it's just that 2% that's floating around on the revenue side. So we are we believe always towards utilization over rate typically because we think it provides a better time charter equivalent.

So we'll be open to.

Loading rates, but that is not our plan at this point, we would hope to fix the rate.

If we can that instead of us are.

Our preference, even though we don't pay out of full distribution of our or whatever it is still.

It's still a that solidity that we have is a hallmark that people rely on I think they like like our stability in our business. So we will try to fix the rate is there a preference Randy.

Got it okay.

And then you kind of mentioned this earlier as well, but just looking at the <unk>.

Consolidation in the industry, it's happening pretty prevalent across some of your peers.

S. T. G. P interested in that in terms of secondhand consolidation or are you focusing growth only on new builds specifically the cutter.

So we were more focused on the ladder for a couple of different reasons number 1 as we.

Again, it's not so much the steel we love its contracts people out. So we have this this huge amount of this.

For the portfolio, that's what we want to do a lot not just shifts for the sake of ships and what's been available in the market typically doesn't come with.

Long term contracts I shouldn't say typically we haven't they haven't been with long term contracts.

Those of you have to originate yourself you have to develop yourself and that's why we've been a little bit towards adults.

The second reason is 1 of the kind of discussed on an earlier Q&A, but she is.

Our first priority has been Delevering and as you said, we're doing we're doing pretty well in my opinion here.

But when we look at the new build that would be delivered today, it's the labor, saying, let's 20 for 2020 for 2025 by which time, we have the delever. So.

The the that lines up more with our first priority goal of tracking of the deleverage just the or adults.

In 2 long term contracts commencing around those little bit for dates.

Sure sure.

That's it for me thanks again.

Thanks Ryan.

And that will conclude our question and answer session for today I'd like to turn the conference back over to Mr. Quinlan for any additional or closing remarks.

Just like to thank everyone for their as always for your continued support and we should be 1 of great afternoon. Thanks Bye.

Okay.

And once again that does conclude today's conference for me. Thank you all for your participation you may now disconnect.

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