Teekay LNG Partners Review
Board: Value Hounds
After revisiting Golar LNG (GLNG), it sorta makes sense to review another LNG tanker play.
Unlike Golar, Teekay LNG partners (TGP) owns vessels other than LNG tankers, and is therefore
not a pure-play LNG company. The entity also owns crude oil tankers, a product tanker and has
a stake in some Liquified Petroleum Gas (LPG) tankers. My previous review of TGP is here--
My previous lament on TGP being a bit of a black box remains. However, if one parses through
the data that TGP provide, it is possible to compare some aspect of LNG tanker operations
with Golar's operational numbers. I have also resolved my issues on how to parse TGP's fleet
in a way that makes sense. No change in the number of vessels. TGP's fleet consists of
- 27 LNG tankers
- 5 LPG tankers
- 10 Suezmax (crude oil) tankers
- 1 Handymax products tanker
However, TGP does not own 100% in each of the vessels. In fact, TGP does not own 100% interest
in a majority of the LNG tankers in its fleet. I parsed the fleet previously, and had the
makings of groups and did not recognize it then. So the groupings are-
A. LNG vessels and LPG vessels where TGP is majority owner
B. conventional crude oil tankers and product tanker
C. LNG vessels with TGP as a non-majority owner or LNG joint venture.
- 4 LNG tankers linked to Spanish companies (A)
- 3 LNG tankers tied to Teekay Nakilat II (70% interest) (A)
- 2 LNG tankers tied to a BP project (69% interest) (A)
- 2 LNG tankers originally tied to an Alaska project, but now chartered by Teekay Corp (TK) (99% interest, TK owns 1%) (A)
- 5 LPG tankers linked with I.M. Skaugen. (A)
- 5 Suezmax tankers servicing to Spanish oil companies (B)
- 3 Suezmax tankers linked with ConocoPhillips (B)
- 2 Suezmax tankers chartered by Centrofin (B)
- 1 Handymax tanker chartered by Caltex Australia (B)
- 4 LNG tankers tied to Teekay Nakilat III (40% interest) (C)
- 2 LNG tankers affiliated with Exmar (joint venture, 50% interest) (C)
- 4 LNG tankers tied to Angola LNG project (33% interest) (C)
- 6 LNG tankers acquired from Maersk (52% stake, joint venture with Marubeni) (C)
TGP reports in such a way that one can at least identify revenue produced by the
different groupings (that's actually what forced me to put LPG tankers in group A). Remember
my black-box comment? Well, I have no way of separating LNG revenue from LPG revenue.
Golar's revenue also has issues- the FSRU (Floating Storage Regasification Unit) revenue is included
in total revenue. In this case, at least the annual report can provide some idea. GLNG
typically identify the largest customers, so a Petrobras (with 2 FSRUs leased from GLNG) can
be identified. In a nutshell, figure out how to back out the LPG revenue from TGP group A
revenue, and the FSRU revenue from GLNG's revenue, adjusting for vessels count, one can
then compare the two companies (if that was the goal- not mine, I'm just the parser :) )
TGP is a lot more conservative than GLNG. Parent company and General Partner (GP), Teekay Corp.,
will not order a vessel without a contract in place. So typically, a pending deal is signaled
ahead of time when TGP announces an offering. Guess who had an offering last month? :)
Offering is 4.6M units, plus 700K over-allotment, so potentially about 5.3M units. I haven't
seen any newbuild announcement from TGP or Teekay, but that can be misleading. The last
three events that led to fleet additions were equity or joint venture type deals. So maybe
some other company placed the order, and now needs a partner.
The black box again. Earlier I had broken out the fleet into different projects. I suppose
that's a start when trying to figure out if there are any potential mines that could blow
up. Okay, to some degree it removes the group C vessels from the risk equation. Hmm! maybe
"removes" is the wrong word, "reduces" might be more appropriate. For each new project,
it almost seems like there's also a "location risk factor" to consider e.g. originally, two
LNG tankers were assigned to Kenai, Alaska. That facility was due to close in 2011. At least
one of the LNG tankers assigned to that facility was sent elsewhere. But then there was
the Tsunami in Japan, and now LNG export has resumed.
The last deal that TGP was involved with had Marubeni as a joint venture partner, in a
bid to acquire eight LNG tankers from Maersk. The offering was announced in Q4 2011, but
did not get finalized until 2012. The final deal got scaled back to six LNG tankers.
I think TGP's distribution coverage ratio (DCR) dropped below 1 for that quarter, but was back
over 1, once the deal was finalized. I think TGP's last DCR was over 1.2, if I crunched the
numbers right. The latest offering was less than 10% dilution, so things are probably still
okay with regards to the distribution.
I had a small stake in TGP through early August 2012. The price had reached my target and
I couldn't convince myself that, including the new deal, TGP had a lot of upside from there.
I think it is a good entity to own, but probably a bit on the over-valued side here.
While I might be concerned about the Q3 dividend for other tanker companies, I think TGP's
distribution is reasonably safe.
Still wondering on the reason for the most recent offering.