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Another of those ideas in the "Tankers in 2012" theme.

Teekay LNG partners (TGP) is the Teekay offshoot that focuses on the gas side- both Liquid Natural
Gas (LNG) and Liquid Petroleum Gas (LPG). The TGP fleet also includes crude-carrying tankers and
a Handymax products tanker. TGP is a complicated entity, a little bit of a black box in some
issues. Some of those issues I leave alone, other issues just get fitted into my TGP model in
other ways.

TGP's fleet consists of
- 27 LNG tankers
- 5 LPG tankers
- 10 Suezmax (crude oil) tankers
- 1 Handymax products tanker
Ideally, it would have been nice to divide the fleet into three or four groups (like I do for FRO or SFL),
but that is not easily accomplished with TGP. For the LNG tankers, TGP's ownership interest in
each tanker ranges from 33% to 99% and full ownership of the Suezmax tankers, but with a bunch
of caveats.

So one needs a different approach with TGP. All the vessels are linked to either a project/production
area or a charterer. So, we have
- 4 LNG tankers linked to Spanish companies
- 3 LNG tankers tied to Teekay Nakilat II (70% interest)
- 2 LNG tankers tied to a BP project (69% interest)
- 2 LNG tankers originally tied to an Alaska project, but now chartered by Teekay Corp (TK) (99% interest, TK owns 1%)
- 4 LNG tankers tied to Teekay Nakilat III (40% interest)
- 2 LNG tankers affiliated with Exmar (50% interest)
- 4 LNG tankers tied to Angola LNG project (33% interest)
- 6 LNG tankers acquired from Maersk (joint venture with Marubeni with TGP holding a 52% stake)
- 5 Suezmax tankers tied to Spanish companies
- 3 Suezmax tankers linked with ConocoPhillips
- 2 Suezmax tankers chartered by Centrofin
- 1 Handymax tanker chartered by Caltex Australia
- 5 LPG tankers linked with I.M. Skaugen.

Awrighty, now I move along. Revenue is also a messy issue. TGP counts vessel revenue in some
instances, but recognizes revenue via the equity method in other instances. Parsing through
the 20F filing, it seems like TGP uses the equity method for instances where the ownership interest
is 50%-or-less. So the equity method was used for vessels associated with Teekay Nakilat III,
Angola LNG project and Exmar in 2011. I should add that one of the vessels involved with the
Angola LNG project did not deliver until this year. Also, the acquisition of the Maersk
vessels was not completed until 2012, though the deal was originally announced in 2011.

What one ends up with is revenue from the first 11 LNG tankers mentioned earlier, plus the
5 LPG tankers, generating around $270M revenue in 2011, fairly consistent with the 2010
revenue (Actuals were $269.4M in 2011 vs $264.8M in 2010). The slight bump can be attributed to
2 LPG tankers that delivered in mid 2011. The 10 Suezmax tankers and Handymax product tanker
(referred to as conventional tankers by TGP) show a similar revenue consistency ($110.6M in 2011
vs $109.2M in 2010). Can they keep that up? Well, the contracts on each of the LNG tankers run
another 6 - 21 years, while the conventional tanker contracts are each for at least three more years.
The LPG vessels each have contracts of 12 - 15 years, but they don't appear to be major revenue
producing assets.

Earlier, I had mentioned "a bunch of caveats". Some of the LNG tankers are on capital leases,
with TGP required to acquire the vessels if the lease is terminated. I think in some cases,
e.g. the two LNG tankers tied to the BP project, TGP has restricted cash to cover some or all
this requirement, but in others, TGP does not. Centrofin charters two Suezmax vessels from TGP,
and has purchase options on a 5-year declining scale i.e. the vessel acquisition cost gets
reduced over time. There is also some ongoing issue with the applicability of taxes on the
leases of some vessels.

So where does TGP go in 2012?
Well, the latest distribution (Q1 2012) was 67.5c/unit, a healthy bump up from 63c/unit each of the
preceding five quarters. This can be attributed to the LNG vessels acquired in the most recent
deal (the six Maersk LNG tankers acquired in the joint venture with Marubeni). TGP indicated
that the vessels acquired in this deal would result in about $40M in distributable cash flow
to the partnership. Given that the distributable cash ratio in 2011 was .99, this extra cash
will provide a nice buffer against other small hiccups.

TGP raised the cash necessary for its equity stake in the Maersk LNG tanker deal in late 2011,
and has also arranged the debt financing already. The cash raised ended up being higher than
necessary as the Maersk deal originally involved partial stakes in two additional LNG tankers.
The deal got reworked to just six LNG tankers reducing the joint venture's overall cost.
I mention this because four weeks ago TGP had a bond offering that raised $120M.
Why? No idea- the press release just says general partnership purposes.

Currently, I have smallish positions in three tanker entities- Ship Finance Intl (SFL),
DHT Tankers (DHT) and TGP. The complexity of TGP described above masks the fact that TGP is
relatively conservative in most of its deals e.g none of its LNG tankers were ordered or
acquired before a charter was in place for an asset. The conventional tankers were mostly drop-down
vessels from Teekay parent, but also came with attached charters. That said, at its current price
of $40-ish and its existing vessel charters, I don't think TGP has a lot of upside.

Helpful material:
TGP's 2011 20F

SeekingAlpha article on the Maersk deal

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