Teekay LNG Partners Reports Fourth Quarter and Annual 2016 Results

HAMILTON, BERMUDA--(Marketwired - Feb. 23, 2017) -

Highlights

• Reported GAAP net income attributable to the partners and preferred unitholders of $84.4 million and adjusted net income attributable to the partners and preferred unitholders⁽¹⁾ of $29.0 million (excluding items listed in Appendix A to this release) in the fourth quarter of 2016.
• Generated GAAP income from vessel operations of $38.0 million and $153.2 million, respectively, and total cash flow from vessel operations⁽¹⁾ of $114.5 million and $480.1 million, respectively, in the fourth quarter and fiscal year 2016.
• Generated distributable cash flow⁽¹⁾ of $50.2 million, or $0.63 per common unit, in the fourth quarter of 2016.
• Completed approximately $1.0 billion of new long-term financings for the Partnership's growth projects to fund four MEGI LNG carrier newbuildings, the Bahrain regasification terminal and two LPG carrier newbuildings in the Exmar LPG joint venture.

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, 2016.

CEO Commentary

"During the fourth quarter, the Partnership continued to generate stable cash flows supported by a diversified portfolio of long-term contracts totaling approximately $12 billion in forward, contracted revenue⁽¹⁾ and with a weighted average remaining contract length of 13 years," commented Mark Kremin, President and CEO of Teekay Gas Group Ltd. "In the fourth quarter of 2016, our results included a full quarter of contribution from the delivery of our second MEGI LNG carrier newbuilding, the Oak Spirit, which commenced its five-year charter in early-August 2016, and we are scheduled to take delivery of our third MEGI LNG carrier, the Torben Spirit, at the end of February, which will commence its short-term charter contract with a major energy company."

"We continue to make significant progress on securing long-term financing for our growth projects and bolster our liquidity position," Mr. Kremin continued. "We have now secured approximately $1.2 billion⁽¹⁾ of long-term financing for our growth projects delivering through early-2020. Additionally, we have refinanced our 40 percent-owned RasGas 3 LNG carriers and completed a $36 million Norwegian Kroner bond add-on issuance in December 2016 and January 2017, respectively, adding approximately $80 million of liquidity to the Partnership. Looking ahead, we are on track to complete the remainder of the required long-term financings for the Partnership's growth projects within the second half of 2017."

Summary of Recent Events

Temporary Charter Payment Deferral Extended on Two 52 Percent-Owned LNG carriers

Teekay LNG owns a 52 percent interest in two LNG carriers, the Marib Spirit and Arwa Spirit, through its joint venture with Marubeni Corporation, which vessels currently are on long-term charters expiring in 2029 to the Yemen LNG project (YLNG), a consortium led by Total SA. Due to the political situation in Yemen, YLNG decided to temporarily close down the LNG plant in 2015. As a result of a possible extended plant closure, the Partnership's joint venture agreed to a temporary deferral of a significant portion of the charter payments for the two LNG carriers during 2016. At the end of 2016 the Yemen LNG plant remained closed and as a result, in January 2017, the Partnership's joint venture agreed to a further temporary deferral during 2017. During this temporary deferral period, the Partnership's joint venture with Marubeni Corporation is entitled to trade the Marib Spirit and Awra Spirit for its own account.

Sale of the Asian Spirit Suezmax Tanker

In November 2016, the charterer of the 2004-built Suezmax tanker, the Asian Spirit, decided not to declare its extension option, allowing the charter to expire in January 2017. As a result, Teekay LNG agreed to sell the vessel to a third party for net proceeds of $20.6 million which resulted in a write-down of $11.5 million recognized in the fourth quarter of 2016. The Asian Spirit is expected to be delivered to its new owner in mid-March 2017.

Completed Debt Financings

During the fourth quarter, the Partnership completed approximately $1.0 billion in new long-term financings for its committed growth projects, including: (i) sale leaseback transactions for two of its Exmar LPG joint venture newbuilding vessels totaling $56 million⁽¹⁾, (ii) approximately $685 million sale leaseback transaction for four of the Partnership's MEGI LNG carrier newbuildings delivering in 2017 and 2018 and (iii) approximately $220⁽¹⁾ million long-term debt facility relating to the Partnership's 30 percent interest in the Bahrain regasification facility.

In addition, the Partnership completed two refinancings during the fourth quarter, including: (i) refinancing and upsizing of the Partnership's unsecured corporate revolving credit facility from $150 million to $170 million, and (ii) refinancing a $244 million⁽¹⁾ long-term debt facility secured by four 40 percent-owned LNG carriers in the Partnership's RasGas 3 Joint Venture with a new $289 million⁽¹⁾ long-term debt facility.

Lastly, in October 2016, the Partnership completed a five-year Norwegian Kroner (NOK) 900 million ($110 million) bond issuance and in January 2017, a further NOK 300 million ($36 million) add-on issuance. All interest payments were swapped into U.S. dollar fixed-rate coupons of approximately 7.7%.

⁽¹⁾ Based on Teekay LNG's proportionate ownership interests in the projects

Operating Results

The following table highlights certain financial information for Teekay LNG's two segments: the Liquefied 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).

Liquefied Gas Segment

Income from vessel operations and cash flow from vessel operations from consolidated vessels for the three months ended December 31, 2016 compared to the same quarter of the prior year increased primarily due to the deliveries of the Creole Spirit and Oak Spirit MEGI LNG carrier newbuildings, which commenced their five-year charter contracts with Cheniere Energy in late-February 2016 and early-August 2016, respectively, which was partially offset by lower revenues from the Partnership's six LPG carriers chartered out to I.M. Skaugen SE (Skaugen) as a portion of the fourth quarter revenue was not recognized as a result of a temporary deferral agreement.

Equity income and cash flow from vessel operations from equity accounted vessels for the three months ended December 31, 2016 compared to the same quarter of the prior year decreased primarily due to: a loss on the sale of an older LPG carrier, lower mid-sized LPG carrier spot rates, and the redelivery of an in-chartered LPG carrier (partially offset by the additions of three LPG carrier newbuildings delivered from February to November 2016) in the Partnership's 50 percent-owned joint venture with Exmar (Exmar LPG Joint Venture); and the temporary deferral during 2016 of a portion of the charter payments for the Marib Spirit and Arwa Spirit LNG carriers in the Partnership's 52 percent-owned joint venture with Marubeni Corporation as YLNG temporarily closed its LNG operations in Yemen in 2015. Equity income was impacted positively by an increase in unrealized gains on non-designated derivative instruments in certain of the Partnership's equity accounted investments and lower combined interest expense and realized losses on non-designated derivative instruments due to the maturity of the interest rate swaps held in the Partnership's 40 percent-owned joint venture with Qatar Gas Transport Company (Nakilat) in the fourth quarter of 2016.

Conventional Tanker Segment

Income (loss) from vessel operations and cash flow from vessel operations for the three months ended December 31, 2016 compared to the same quarter of the prior year decreased primarily due to the sales of the Bermuda Spirit and Hamilton Spirit in April and May 2016, respectively, and lower revenues earned by the Teide Spirit relating to its profit sharing agreement as Suezmax spot rates decreased in 2016. Income from vessel operations was also impacted by the $11.5 million write-down recognized in the fourth quarter of 2016 for the Asian Spirit which was sold in the first quarter of 2017.

Teekay LNG's Fleet

The following table summarizes the Partnership's fleet as of February 1, 2017:

1. Owned vessels includes vessels accounted for under capital leases and vessel held for sale.
2. The Partnership's ownership interests in these vessels range from 20 percent to 100 percent.
3. The Partnership's ownership interests in these vessels range from 50 percent to 99 percent.
4. The Partnership's interest in these vessels is 50 percent.

Liquidity

In January 2017, the Partnership issued in the Norwegian bond market NOK 300 million (equivalent to approximately $36 million) in new senior unsecured bonds through an add-on to its existing NOK bonds due in October 2021, priced at 103.75% of face value. All payments have been swapped into a U.S. Dollar fixed interest rate of 7.69%.

As of December 31, 2016, the Partnership had total liquidity of $369.8 million (comprised of $126.1 million in cash and cash equivalents and $243.7 million in undrawn credit facilities). Giving pro-forma effect to the distribution from our RasGas 3 joint venture in February 2017 as a result of its refinancing completed in December 2016 and the NOK 300 million bond issuance completed in January 2017, the Partnership's total liquidity as at December 31, 2016 would have been approximately $446 million.

Conference Call

The Partnership plans to host a conference call on Thursday, February 23, 2017 at 11:00 a.m. (ET) to discuss the results for the fourth quarter and fiscal year 2016. All unitholders and interested parties are invited to listen to the live conference call by choosing from the following options:

• By dialing (866) 233-4566 or (416) 642-5210, if outside North America, and quoting conference ID code 8118173.
• By accessing the webcast, which will be available on Teekay LNG's website at www.teekay.com (the archive will remain on the web site for a period of 30 days).

An accompanying Fourth Quarter and Fiscal Year 2016 Earnings Presentation will also be available at www.teekay.com in advance of the conference call start time.

The conference call will be recorded and made available until Thursday, March 9, 2017. This recording can be accessed following the live call by dialing (888) 203-1112 or (647) 436-0148, if outside North America, and entering access code 8118173.

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 50 LNG carriers (including 19 newbuildings), 28 LPG/Multigas carriers (including four newbuildings) and six conventional tankers. The Partnership's interests in these vessels range from 20 to 100 percent. Teekay LNG Partners L.P. is a publicly-traded master limited partnership (MLP) 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 symbol "TGP" and "TGP PR A", respectively.

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, 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, and may not be comparable to similar measures presented by other companies. The Partnership believes that certain investors use this information to evaluate the Partnership's financial performance, as does management.

Cash Flow from Vessel Operations

Cash flow from vessel operations (CFVO) represents income from vessel operations before depreciation and amortization expense, amortization of in-process revenue contracts, vessel write-downs, losses on the sale of vessels and adjustments for direct financing leases to a cash basis, but also 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 has been included as a component of the Partnership's total CFVO. 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 equity accounted investments or distributed to the Partnership and other shareholders. In addition, the Partnership does not control the timing of such distributions to the Partnership and other shareholders. 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 Company in the periods such CFVO is generated by the 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 the most directly comparable GAAP measures reflected in the Partnership's consolidated financial statements.

Adjusted Net Income

Adjusted net income excludes from net income items of income or loss that are typically excluded by securities analysts in their published estimates of the Partnership's financial results. The Partnership believes that certain investors and management use this information to evaluate the Partnership's financial performance. Please refer to Appendix A of this release for a reconciliation of this non-GAAP financial measure to the most directly comparable GAAP measure reflected in the Partnership's consolidated financial statements.

Distributable Cash Flow

Distributable cash flow (DCF) represents net income adjusted for depreciation and amortization expense, vessel write-downs, loss on sale of vessels, equity income, 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 unrealized 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. Distributable cash flow is a quantitative standard used in the publicly-traded partnership investment community and 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 the most directly comparable GAAP measure reflected in the Partnership's consolidated financial statements.

Forward Looking Statements

This release contains forward-looking statements (as defined in Section 21E of the U.S. Securities Exchange Act of 1934, as amended) which reflect management's current views with respect to certain future events and performance, including statements regarding: the Partnership's expected forward, contracted revenues and weighted average remaining contract length; the timing of newbuilding vessel deliveries and the commencement of related contracts; the Partnership's access to capital markets and the timing and certainty of securing financing for the Partnership's remaining committed growth projects; the charter payment deferral on the Partnership's two 52 percent-owned LNG carriers on charter to the Yemen LNG project and six LPG carriers on charter to Skaugen, and including the temporary nature of such deferrals; and the sale of the Asian Spirit conventional tanker. 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; the potential for early termination of long-term contracts of existing vessels in the Teekay LNG fleet; the inability of charterers to make future charter payments; the inability of the Partnership to renew or replace long-term contracts on existing vessels; the Partnership's and the Partnership's joint ventures' ability to secure financing for its existing newbuildings and projects; factors affecting the resumption of the LNG plant in Yemen; the inability of the Partnership to collect the deferred charter payments from the Yemen LNG project and from Skaugen; a delay in, or failure to complete, the sale of the Asian Spirit; 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, 2015 and Form 6-K for the quarters ended March 31, 2016, June 30, 2016 and September 30, 2016. 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.