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 tankerIdeally, 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 20Fhttp://www.teekaylng.com/Theme/TeekayPartners/files/doc_fina...SeekingAlpha article on the Maersk dealhttp://seekingalpha.com/article/441821-teekay-lng-partners-l...HoHum
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