Q3 2015 Teekay LNG Partners LP Earnings Call

Nov 05, 2015 AM EST
TGP - Teekay LNG Partners LP
Q3 2015 Teekay LNG Partners LP Earnings Call
Nov 05, 2015 / 04:00PM GMT 

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Corporate Participants
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   *  Peter Evensen
      Teekay GP L.L.C. - CEO, CFO, and Director
   *  Mark Kremin
      Teekay GP L.L.C. - Vice President, Teekay Gas Services

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Conference Call Participants
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   *  Michael Webber
      Wells Fargo Securities, LLC - Analyst
   *  Noah Parquette
      JPMorgan - Analyst
   *  Spiro Dounis
      UBS - Analyst
   *  Fotis Giannakoulis
      Morgan Stanley - Analyst
   *  Ben Brownlow
      Raymond James - Analyst
   *  Nick Raza
      Citigroup - Analyst
   *  Amit Mehrotra
      Deutsche Bank - Analyst

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Presentation
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Operator   [1]
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 Welcome to Teekay LNG Partners' third-quarter 2015 earnings results conference call. (Operator Instructions). As a reminder, this call is being recorded.

 Now, for opening remarks and introductions, I would like to turn the call over to Mr. Peter Evensen, Teekay LNG Partners' Chief Executive Officer. Please go ahead, sir.

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Unidentified Company Representative   [2]
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 Before Mr. Evensen begins, I would like to direct all participants to our website at www.teekay.com, where you'll find a copy of the third-quarter 2015 earnings presentation. Mr. Evensen will review 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 in the forward-looking statements is contained in the third-quarter 2015 earnings release and earnings presentation available on our website.

 I will now turn the call over to Mr. Evensen to begin.

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 Peter Evensen,  Teekay GP L.L.C. - CEO, CFO, and Director   [3]
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 Thank you, Cam. Good morning, everyone, and thank you for joining us on our third-quarter investor conference call for Teekay LNG Partners. I'm joined today by Teekay Corporation's CFO, Vince Lok; Mark Kremin, Vice President of Teekay Gas Services; and Teekay LNG Partners' Controller, Brian Fortier.

 During our call today, I'll be taking you through the earnings presentation which can be found on our website. Turning to slide 3 of the presentation, I will review some of Teekay LNG's recent highlights.

 For the third quarter of 2015, the partnership generated distributable cash flow of $61.1 million. We generated a coverage ratio of 0.95 times, primarily reflecting the premature termination of the Magellan Spirit charter contract in March 2015, which we are currently disputing. For the third quarter of 2015, the partnership declared a cash distribution of $0.70 per unit, consistent with the previous quarter.

 During the quarter, we continued to generate stable distributable cash flows, supported by the partnership's diversified portfolio of fee-based contracts, with no direct link to commodity prices, comprised of forward fixed-rate revenues of approximately $11.3 billion.

 In October, Teekay LNG's LPG joint venture with Exmar took delivery of the fifth of its 12 mid-size LPG carrier newbuildings, which form part of the joint venture's fleet renewal and growth strategy. This vessel is currently providing ammonia transportation services under a 10-year charter with Potash Corporation.

 Turning to slide 4, we continue to build on our book of forward fee-based revenues that support the partnership's stable and growing cash flows. On this slide, we've provided a breakdown of our existing contract portfolio of forward fee-based revenues of $11.3 billion, based on revenues attributable to our existing assets which are currently in operation, and which support our current cash distributions, and revenues attributable to our new growth projects, which are expected to provide incremental coverage and cash distribution growth in the future.

 Our portfolio of $5.8 billion of forward revenues related to our existing assets are contracted with oil majors and utility companies, and we are a critical component of their logistics chain. And importantly, this excludes extension options. We continue to focus on extracting maximum cash flows from our existing assets through cost and fleet efficiencies, including operating our assets with high fleet availability.

 Two of our 52%-owned LNG carriers, the Magellan Spirit and the Methane Spirit, recently commenced short-term charters which will keep the vessels earnings charter hire through mid-2016, while our chartering team works to secure medium to longer-term employment for both of these vessels.

 Our portfolio of new growth projects and associated forward fixed-rate revenues of $5.5 billion are scheduled to deliver and commence their respective long-term contracts between early 2016 through the first quarter of 2020. We expect this portfolio will grow as we secure new charter contracts for our three unchartered MEGI LNG newbuildings.

 Overall, our focus is to execute on our existing committed growth projects and ensure these projects deliver on time and on budget, while continuing to seek charters for our unchartered growth projects.

 Looking ahead, with weakness in the energy space and the MLP markets, including Teekay LNG's equity valuation, we've adopted a new approach to future growth, including implementing higher hurdle rates and prioritizing capital allocation.

 We've increased our hurdle return rates for new projects to take into account our slightly higher all-in cost of capital. As a reminder, we're able to debt-finance our assets up to 80%, the cost of which has declined over the past few years, which partially offsets the currently inflated cost of equity.

 With regards to prioritizing capital, we plan to allocate capital first to our existing uncontracted newbuildings, should they require upgrades for contracts, followed by high-quality on-the-water M&A opportunities over large organic growth projects.

 Turning to slide 5, I'll provide a brief update on the status of the world's first two MEGI LNG newbuildings. The picture on the top right is of the Creole Spirit leaving the harbor to commence sea trials in October, and the vessel remains on track to commence its 5-year charter contract late in the first quarter of 2016.

 The picture on the bottom right is of the Oak Spirit being launched from dry dock in August, and it remains on contract to commence its 5-year contract late in the second quarter of 2016. Both vessels will provide LNG transportation services for Cheniere Energy's Sabine Pass LNG export facility, which is expected to ship its first LNG cargo in early 2016 and will be the very first LNG export facility in the lower 48.

 We're also pleased to report that we've recently secured a new $360-million long-term finance lease facility for these two vessels upon their delivery.

 Turning to slide 6, I'll review our financial results for the third quarter of 2015 compared to the second quarter of 2015. For a reconciliation of distributable cash flow to net income, please refer to Appendix B of our earnings release.

 Distributable cash flow decreased in Q3 to $61.1 million for a coverage ratio of 0.95 times compared to $65.8 million and a coverage ratio of 1.03 times in the prior quarter.

 The main factors contributing to the decrease in the coverage ratio in the third quarter included lower equity income from our 33%-owned Angola joint venture due to the effect of one-time cumulative catch-up in Q2 upon finalization of the amended contracts; lower equity income from our 52%-owned joint venture with Marubeni due to off-hire related costs for the Magellan Spirit and Methane Spirit in the third quarter; and charter rate adjustments for the Arctic Spirit and Polar Spirit, which increased revenues in Q2, and the Polar Spirit and Toledo Spirit being off hire for 25 and 22 days respectively during the third quarter for scheduled drydockings. These decreases were partially offset by lower general and administrative expenses due to the timing of expenditures.

 In the fourth quarter we're currently expecting TGP's coverage ratio to increase to approximately 1 times, primarily as a result in an increase in revenue due to an estimated 2015 profit share relating to the Teide Spirit conventional tanker, due to strong crude spot tanker market rates during the year; fewer expected off hire days in the fourth quarter compared to the third quarter related to scheduled drydockings in our fleet; and commencement of the 6-month charter contracts for the Magellan Spirit and Methane Spirit in our 52%-owned joint venture with Marubeni.

 Wrapping up today's call on slide 7, Teekay LNG's distributable cash flow remains stable and growing, supported by our strong operating track record and a large diversified contract portfolio of fee-based contracts, with no direct link to commodity prices, and which total $11.3 billion of forward revenues with strong counterparties.

 Looking ahead, with continued growth in LNG trade and growing requirements for floating regasification, we continue to seek new opportunities for higher-return growth, including prioritizing capital first for redeployment of existing assets or upgrades onto new contracts, followed by high-quality on-the-water M&A that provide immediate accretion.

 Lastly, we continue to have access to competitive bank financing in multiple capital markets as evidenced by our recent $360 million long-term lease facility on our first two MEGI LNG newbuildings, and a new $150-million unsecured credit facility with a group of international banks that can be used to finance a portion of our remaining capital commitments.

 Thank you for joining us on the call today; and operator, I'm now available to take questions.

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Questions and Answers
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Operator   [1]
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 (Operator Instructions). Michael Webber, Wells Fargo.

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 Michael Webber,  Wells Fargo Securities, LLC - Analyst   [2]
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 Peter, just -- I wanted to touch first on the new approach you guys are taking to tendering with the new hurdles. Certainly makes sense.

 And I'm just curious, within the context of that new approach, can you help us think about how that might break down when we think about the current tendering activity? Does that put more of a focus on any individual region or any individual start date for the tender? Just, how do we think about how that could carve up the potential tender list for you guys in terms of where your focus is going to be?

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 Peter Evensen,  Teekay GP L.L.C. - CEO, CFO, and Director   [3]
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 Sure. Well, first of all, the emphasis is on contracting the three existing MEGI newbuildings that we have, that we think are delivering into a pretty good window. And so, we're actually using those existing newbuildings rather than ordering new ones when we get tenders. And we can upgrade those in order to meet various customer requirements; or, go off-specification and just say, here, we can give you a cheaper MEGI, which is what they want.

 So, there's a few good points here. The first is that we do see, still, a need for new -- for more LNG carriers than is in the existing fleet. And that's kind of weird, when you think about how low spot LNG rates are. But we can still see that you're going to need about 50 new ones for just the existing contracts.

 And the other thing we observe is that our customers prefer the MEGI rather than very low-priced existing DFDE ships, which are 155,000 cubic meters to 160,000 cubic meters rather than the 174,000 cubic meters, 175,000 cubic meters. So, that's what gives us optimism. But it's just a function of the reality right now, that we're trimming down our growth and focusing in on return on capital rather than capital allocation.

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 Michael Webber,  Wells Fargo Securities, LLC - Analyst   [4]
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 Got you. That makes sense. Is it -- does that approach -- do you think -- does that lend itself to any particular region, or is it relatively spread out in terms of the hurdle rates?

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 Peter Evensen,  Teekay GP L.L.C. - CEO, CFO, and Director   [5]
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 I don't really want to get caught on that from a competitive point of view, since I know people monitor this. But I would say that what we are observing in this low-gas environment is that there's been a pickup in LNG demand in South America and the Mid East, and less so in Asia.

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 Michael Webber,  Wells Fargo Securities, LLC - Analyst   [6]
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 Okay. That's helpful. And I guess maybe within the context of your customers, are they starting -- considering that -- I mean, it is a bit of a paradox that we see more long-term demands versus what's on the water now, and the market is where it is.

 Are you starting to see customers bend at all, or maybe kind of readjust slightly, their requirements, maybe looking a bit more at tonnage on the water, thinking they can get it on the cheap? Like, any change in the way they approach their tonnage needs at all yet?

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 Peter Evensen,  Teekay GP L.L.C. - CEO, CFO, and Director   [7]
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 We haven't seen that yet. And that was our concern, which was that existing ships would be priced lower in order to try to compete with our more fuel-efficient MEGIs.

 But the customers are saying -- they're thinking medium-term and saying that they would like the MEGI technology. And they also logistically want to get the same lots rather than have them all around the map.

 So, we expect the market will bifurcate into having a -- more of a spot fleet, and that's a natural consequence, we think, of the fact that you'll get more spot cargoes. And then there will be this long-term outlook going forward. Having said that, we think that in the future there will be more ships that will be built in China rather than necessarily Japan, linked in with Chinese import contracts.

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 Michael Webber,  Wells Fargo Securities, LLC - Analyst   [8]
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 Okay. That makes sense. You mentioned looking for some medium- to long-term charters for the handful of -- I guess, two vessels you have in the spot market now. Without pinning you down to a specific number and if we keep it general, what's the right way to think about, I guess, a hurdle rate for multi-year contracts for assets on the water right now? Maybe if I think about it on a -- like, a percentage of kind of the normalized --kind of mid-cycle rate of 75 to 80 on a general percentage basis, where do you think the market is right now for multi-year contracts for assets on the water?

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 Peter Evensen,  Teekay GP L.L.C. - CEO, CFO, and Director   [9]
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 Again, I don't want to be drawn on that for competitive reasons. Because when you talk about unlevered IRRs, it depends on people's contract price. We think we have a favorable contract price. So, when you compare our favorable contract price to other people's contract price, you aren't comparing apples with apples.

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 Michael Webber,  Wells Fargo Securities, LLC - Analyst   [10]
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 Got you. Yes. I wasn't sure if you [were saying it's] that or not.

 There's two more, one more long-term and theoretical and the other one around a project, but you guys have been pretty consistent around your support for Yamal, and lots of different press around financing, et cetera. You -- I believe you've got an April installment coming on your -- it's pretty long-dated exposure. It's a ways out. But is it fair to look at that April time period as an inflexion point for the way you guys think about that project, or no?

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 Peter Evensen,  Teekay GP L.L.C. - CEO, CFO, and Director   [11]
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 No. That's just a small installment we have as part of our shipyard contract that we have. We continue to work on the financing of that project, and there's a lot of work going on, on training up crews and preparing for the logistics of moving gas out of Yamal.

 So, we have a operating team that's working very hard there, and we're already getting mostly Russian-based crews to be trained up for that new trade route. And we expect that we will complete financing on that using mostly Asian banks.

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 Michael Webber,  Wells Fargo Securities, LLC - Analyst   [12]
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 Okay. That makes sense. Just one more from me. Around just kind of generally, as we see some US-based projects maybe moving forward with trains with a bit less forward cover than they had in the past, and the idea that we could see some players in the US get a bit more merchant and in the intermediate-term -- one, do you think that's realistic; and, two, does -- how does that necessarily manifest itself within the transportation space? Do you think we see more kind of CoA-based commitments down the line? I know this is a bit more of a long-term development question, but just any color on that would be helpful.

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 Peter Evensen,  Teekay GP L.L.C. - CEO, CFO, and Director   [13]
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 Well, I'm in the transportation side of it, but obviously we're looking at it. What everybody is seeing is, there's several projects all around Mozambique, not-US Gulf of Mexico, West Coast Canada, that we're scheduled to take FID that haven't taken FID.

 And my personal view is that's because they require longer-term contracts in order to go forward. And those longer-term contracts are being negotiated now. And without those long-term contracts, I don't think we will get more units necessarily taking FID, given the uncertainty that there is.

 But I would note that that's something that we're talking about, basically, 2019, 2020 and beyond. In the near term we can see a lot of projects coming on in 2015 and 2016.

 I was down in Australia myself about a month ago, and seeing these -- touring the LNG plants that are coming on Curtis Island. And that's really -- first-hand, you can see the amount of export capacity that is being put in place.

 And, for example, we were able to charter our -- the Magellan and the Methane in -- on one of those Australian projects. So, we can see it soaking up capacity as these contracts come back online -- or actually start up, excuse me.

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Operator   [14]
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 Noah Parquette, JPMorgan.

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 Noah Parquette,  JPMorgan - Analyst   [15]
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 I wanted to follow up on the question about increased spot market, and more kind of a merchant trading, with the lack of the destination clauses. How do you think that affects the fleet that's servicing those trades? I mean, is there room to increase the efficiency there through triangulation, or does that fleet slow down, or how does that change how we should think about the efficiency of the ships servicing those trades?

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 Peter Evensen,  Teekay GP L.L.C. - CEO, CFO, and Director   [16]
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 The realistic answer is that we don't know, because there has never really been a substantial spot trade that -- for ships. But what there has been, has been charterers -- not ship owners, but charterers, swapping cargoes in order to gain efficiencies. But right now we don't know.

 What we do see is trade -- changing trade routes. As I said, we see more -- we expect, actually, to see some Australian cargoes come into the Atlantic. And what's happening is the market is going from regional trade to a global trade. And so, as Asian contracts are priced off of oil and Atlantic projects will -- especially Gulf of Mexico will increasingly be priced off of Henry Hub, you will start to get arbitrage trading. And it's uncertain now if that will yield us more ton miles or less ton miles. We just don't know.

 But we do have some positive things that -- as I said, South America is taking more volumes. I expect Europe will reduce its dependence. And then we've seen the Mid East take a lot of volumes that we hadn't seen -- hadn't expected to go forward. And that could really be significant. And so, LNG imports have doubled into the Middle East with the startups in Egypt and Jordan, and in the Persian Gulf, just as an example.

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 Noah Parquette,  JPMorgan - Analyst   [17]
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 Okay. That's very helpful. And then just, last quarter you did a great job of letting us know what the minimum equity requirements are to fund your growth. Has that changed at all? I mean, we saw a little bit of issuance in their COP. I mean, maybe give us an update there. That would be helpful.

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 Peter Evensen,  Teekay GP L.L.C. - CEO, CFO, and Director   [18]
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 No. I didn't want to repeat that slide, because it hasn't really changed. The -- no, we're -- as I tried to say in our -- in my prepared remarks, we're minimizing the amount of equity given the low unit price. And that will continue to be our view.

 But what we're trying to stress to investors is the stability of our revenues which support the current distribution. And that remains where we're looking. And most of our CapEx is -- I showed last quarter, is back-ended, and is -- and we're relying on the debt markets, which remain open to us, given that most of the contracts are contracted -- or, most of the ships are contracted.

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 Noah Parquette,  JPMorgan - Analyst   [19]
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 Okay. That's all I had. Thank you.

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Operator   [20]
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 Spiro Dounis, UBS.

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 Spiro Dounis,  UBS - Analyst   [21]
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 Hey, Peter and Vince. Just wanted to get back to the new growth approach. Specifically, I guess, with on-the-water acquisitions. Obviously, with the newbuilds, not CapEx-[intensed] upfront, like you just mentioned, and 80% financing, makes those really accretive.

 But as far as on-the-water acquisitions goes, one, I guess I was just wondering if you could offer up, I guess, asset types that you'd be looking at specifically. And maybe just give us a sense of magnitude there, and whether or not this is one or two bolt-ons or more of a fleet you'd be looking at.

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 Peter Evensen,  Teekay GP L.L.C. - CEO, CFO, and Director   [22]
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 The short answer is both. I'm not going to get drawn on how much. But what each one has to have is contracts. We're not in the business of speculating on buying cheap LNGs that are trading spot.

 So, we're looking for opportunities from our customers or small competitors that -- where we can take in fleets that have already long-term contracts. That's what separates, we think, Teekay LNG from other LNG companies is our long-term contract book. And we -- and that's what we're looking for, because that's what our investors are looking for. With 13 years remaining on our existing LNG order book, that puts us in a good position.

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 Spiro Dounis,  UBS - Analyst   [23]
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 Okay. And then -- and so, the 80% financing would still hold in a situation like that?

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 Peter Evensen,  Teekay GP L.L.C. - CEO, CFO, and Director   [24]
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 I said up to 80% financing.

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 Spiro Dounis,  UBS - Analyst   [25]
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 Up to. Okay.

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 Peter Evensen,  Teekay GP L.L.C. - CEO, CFO, and Director   [26]
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 I didn't say that we would necessarily finance everything at 80%. We want to continue to make it accretive, and that means we want to be able to put equity to work. We can obviously use short-term more debt, and then supplement that with equity. But it is not our plan to move our leverage ratios higher than where they are in the medium term.

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 Spiro Dounis,  UBS - Analyst   [27]
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 Okay. And I guess, just if we're expanding the definition of assets you're looking at, it sounds like obviously LNG carriers are in there. Would -- are there any FSRUs that you'd potentially be able to make a move on? I know that's obviously been something you've talked about in the past.

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 Peter Evensen,  Teekay GP L.L.C. - CEO, CFO, and Director   [28]
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 Yes. We're looking at FSRUs, both as an M&A as well as from organic growth. So, those are things we're continuing to work on. And as I said earlier, what -- and I guess Mike Webber called it a paradox; but it is a paradox that we have short, very weak spot rates, but yet we have a strong customer tendering activity, because they can see that they ultimately will need more LNG carriers for just the existing liquefaction.

 And I've been very happy with our chartering team that the two 52%-owned ships that we had spot, they were able to re-employ on short-term charters. So, I think that's a testimony both to our team as well as how customers think about Teekay operations.

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 Spiro Dounis,  UBS - Analyst   [29]
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 Definitely. And just last quick one, as we think about the three newbuilds -- the three MEGIs that you have -- I'm not sure if this makes any sense at all, but could -- would it be too late to turn one of those into an FSRU if the tender made sense?

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 Peter Evensen,  Teekay GP L.L.C. - CEO, CFO, and Director   [30]
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 No, it wouldn't.

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 Spiro Dounis,  UBS - Analyst   [31]
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 Okay. Settles that question. Appreciate the color. Thanks, guys.

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Operator   [32]
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 Fotis Giannakoulis, Morgan Stanley.

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 Fotis Giannakoulis,  Morgan Stanley - Analyst   [33]
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 Peter, I want to ask you about the spot market. There is a lot of discussion that a big part of volume that is coming online is going to be sold spot.

 What are the requirements in order for the entire volume to reach the market and to be traded? What kind of pricing differentials we need to see between US and Europe, or Australia and Europe, or whatever, this volume is going to go?

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 Mark Kremin,  Teekay GP L.L.C. - Vice President, Teekay Gas Services   [34]
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 Hi. This is Mark Kremin. The answer is we're not quite sure. But there are a few things we're seeing right now. The idea that the two basins are going to come together in terms of spot market arbitrage parity is not happening yet.

 But as Peter said, we definitely are seeing a lot more cargoes go from, for instance, Asia to the Middle East and India; and we see sometimes more repositionings from the Atlantic to the Middle East as well. In terms of what's going to drive the actual -- what price unit's going to drive the basins to do that, I'm not quite sure.

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 Fotis Giannakoulis,  Morgan Stanley - Analyst   [35]
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 And regarding the future demand, do you have a view of how much this can be absorbed -- how much of this demand can come from Europe versus Middle East, or new countries that they are using FSRUs? There's a lot of discussion about European imports, and the decision of the EU to try to reduce dependency from Russian gas.

 Is this something that the 15% that Europe is importing right now, can double? What kind of volumes are we talking? And if you have any view of what is a realistic scenario for FSRU expansion, and the LNGs that can be absorbed by new buyers.

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 Mark Kremin,  Teekay GP L.L.C. - Vice President, Teekay Gas Services   [36]
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 It does appear that, yes, Europe is going to be the resort for most of this uncontracted gas. The Middle East is going very well, but there's just not enough infrastructure and demand right now. There are -- is -- for instance, if you look at the Middle East, it has FSRUs in Egypt and it has Pakistan and Jordan. There are more FSRUs being contracted into Egypt. But it's not going to be able to take a lot of that uncontracted gas. And so, we do see most of that going to Europe in the end.

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 Fotis Giannakoulis,  Morgan Stanley - Analyst   [37]
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 Okay. Thank you. And one last question about the financing capacity of Teekay LNG. One of the constraints that the -- or, it has in order to increase distribution is, of course, the general partner.

 Is there any thought of a potential adjusting the IDR splits for deals going forward? Or, in other words, if the capital markets do not come back, what are the alternatives for Teekay LNG in order to finance growth that will lead to dividend accretion?

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 Peter Evensen,  Teekay GP L.L.C. - CEO, CFO, and Director   [38]
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 Well, that isn't how we're thinking. How we're thinking is that we will prioritize projects that give us our hurdle rates, and that work with our new cost of capital. And that's our strategy. Rather than try to look at it differently. We continue to believe that with the dividend and with the stability that we have, we will continue to see the unit price come back as investors realize that we do have a stable distribution.

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 Fotis Giannakoulis,  Morgan Stanley - Analyst   [39]
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 Just to understand your answer, if there is a project that, on the one hand, it meets your capital -- your hurdle rates, and it's a good project, but it has difficulty in achieving accretion because of the IDRs -- is this something that you will go ahead, even if it doesn't -- if it -- even if it means that the dividend is not going to increase?

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 Peter Evensen,  Teekay GP L.L.C. - CEO, CFO, and Director   [40]
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 No. That is not our plan. And please don't attribute anything of what you said to our strategy. That is not our plan. Obviously, if there was a project and it wasn't accretive, it would not meet our hurdle rates. So, (multiple speakers) --

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 Fotis Giannakoulis,  Morgan Stanley - Analyst   [41]
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 Okay. That's very clear.

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 Peter Evensen,  Teekay GP L.L.C. - CEO, CFO, and Director   [42]
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 -- what we want to do.

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 Fotis Giannakoulis,  Morgan Stanley - Analyst   [43]
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 Okay. That's very clear. Thank you, Peter.

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Operator   [44]
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 Ben Brownlow, Raymond James.

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 Ben Brownlow,  Raymond James - Analyst   [45]
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 Most of my questions have been answered; but switching over to the LPG carrier rates, any color around the rate outlook or renewals there, especially given expected capacity additions in 2016 and the recent rate pressures on larger LPG carriers recently?

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 Peter Evensen,  Teekay GP L.L.C. - CEO, CFO, and Director   [46]
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 Well, we only have one VLGC in our joint venture that we have. And we have sold out of the rest of our VLGCs at a good profit. So, we think that, ultimately, the growth of the order book, which is well-documented in VLGCs, will put pressure on rates. 14 have delivered since July, and 12 more are scheduled to deliver by year-end.

 But I would contrast that with the market we're in, which is the -- not the VLGCs, but the medium-sized gas carriers of 38,000. There, we're seeing good regional trades on the LPG side, and we're seeing the ammonia trade pick up. And what's most important about that trade is it isn't spot-based; it's much longer-term charters, like the newbuilding we just took over, which has the 10-year charter.

 So, that's why we selected that area, which is a lot more niche-driven; less commodity-like. And that fits the MLPs' view of wanting more long-term contracts. So, what we have seen is the focus on environmentally-sensitive areas has meant that our newbuildings are preferred as they come off, and that's why they're getting good charters. So, that's how we see it. We're absolutely conscious of the huge amount of propane that's going to come out from the US. And we too are looking and seeing how the world will absorb that propane.

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 Ben Brownlow,  Raymond James - Analyst   [47]
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 Great. That's very helpful. And just touching on an earlier question -- and understandably you may not want to answer this, but I'll give it a shot anyway.

 On the Magellan and Methane, just from a more generalized statement, are the short-term charter rates you're getting there -- are they -- relative to the legacy rates, were they higher? Or just some -- any color there. And what's the interest level in terms of long-term charters on those two vessels?

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 Peter Evensen,  Teekay GP L.L.C. - CEO, CFO, and Director   [48]
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 So, first of all, the -- given the date -- they came off quite high contracts. The Methane came off one of the highest contracts ever done, a 3-year contract with BP that was in the 130,000s per day; whereas the Magellan Spirit -- we're disputing that. That was on charter till basically the end of 2016, and they're on lower charter rates, which is what gave us a lower coverage ratio. But we're in dispute with the charter around the Magellan Spirit, which may lead to us recovering many millions of dollars.

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 Ben Brownlow,  Raymond James - Analyst   [49]
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 And the Magellan -- that was off-charter until October. Is that correct?

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 Peter Evensen,  Teekay GP L.L.C. - CEO, CFO, and Director   [50]
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 No. It's now been re-chartered on a short -- both have been re-chartered and have started contracts, and those are on till mid-2016.

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 Ben Brownlow,  Raymond James - Analyst   [51]
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 And -- but those started in October, or were they operating in the third quarter as well?

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 Peter Evensen,  Teekay GP L.L.C. - CEO, CFO, and Director   [52]
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 We had off time in the third quarter. They were operating for part of it. And those charters started in early October.

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 Ben Brownlow,  Raymond James - Analyst   [53]
------------------------------
 Great. Thank you.

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Operator   [54]
------------------------------
 Nick Raza, Citigroup.

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 Nick Raza,  Citigroup - Analyst   [55]
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 Most of the questions I had have already been answered, but I had a few regarding just a macro picture. What are your -- what's your sense for a rebalancing of the market? Is it still what a lot of folks believe -- maybe 2017, 2018, in terms of just vessels out there and them being contracted?

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 Peter Evensen,  Teekay GP L.L.C. - CEO, CFO, and Director   [56]
------------------------------
 Sure. So, what we're -- so, I would say that we were of the view, about 6 months ago, that it would start to rebalance itself by late 2016. I think that has moved to 2017.

 And that is mostly because of the weaker demand that we've seen on LNG than what we had anticipated. And that's particularly in places like Japan, where we've seen LNG imports year-to-date decrease about 6%; and Korea, where they've also had mild weather and used more coal, and we've seen LNG imports decline about 12%.

 So, from that standpoint, we have seen that there's weaker demand than what we would have seen. But we're going to see, as I said earlier, about eight new projects come on, of which the biggest is clearly Sabine Pass, starting in early 2016. But we see Angola coming back as well. We see the three Gladstone QCLNG and APLNG coming on in Australia, and ramping up to full capacity. We see small projects in Malaysia and Indonesia. And that's going to bring out more LNG onto the market. And that's going to need more ships.

 When we look at the ships that are coming in the future, we only see -- in 2016, we only see six that are uncommitted. So, that's -- so, we can see the market is going to tighten. The -- and then the question is, to what degree does it have to tighten before you see ships' rates start to spike? And that's what we call the business.

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 Nick Raza,  Citigroup - Analyst   [57]
------------------------------
 Absolutely. That's all I had, guys. Thank you.

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Operator   [58]
------------------------------
 Amit Mehrotra, Deutsche Bank.

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 Amit Mehrotra,  Deutsche Bank - Analyst   [59]
------------------------------
 Peter, you've mentioned in the past, specifically on TGP, about past dislocations between the unit price, and the resiliency of the cash flows, and the duration of the charters, et cetera, et cetera. And specifically related to the period of late 2008 and early 2009, when the whole world was pretty much ending, and you guys were still doing the same thing.

 So, in that context, just would appreciate if you can compare and contrast the two stressful periods back then and then currently, and -- in the context of your view on the partnership's ability to deliver on the prospective growth targets or ambitions. Thanks.

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 Peter Evensen,  Teekay GP L.L.C. - CEO, CFO, and Director   [60]
------------------------------
 Sure. Well -- so, what we saw in 2008, 2009 -- and I'll pretty much restrict my comments to LNG -- is that -- is a lot of what we're seeing now. Which is that projects that should have taken FID in late 2008, 2009 -- they were deferred. And then we saw that they ultimately did go forward, but there was this pause. And we see this same pause going forward now, because the LNG price is primarily oil-linked.

 What's different now is we have, of course, a new source of LNG, which is out of the Gulf of Mexico, priced on Henry Hub rather than oil-linked. And the market is figuring out what the future contracts will be denominated in. Will they continue to be oil-linked? Will they continue to -- will there be some mix of Henry Hub? And that's what the -- so, that's the new wrinkle, if you will, going forward.

 But what we do see is that LNG continues to have a bright future. And when we go out and talk to our customers, be they buyers of LNG or suppliers, they continue to see that there will be a need for them.

 The difficulty is that a lot of LNG plants that were built, were built to a higher breakeven rate. And so, the industry is -- and this is across all of energy -- is finding a way to build units and take costs out of the whole stream -- out of the whole chain, whether it be liquefaction; regasification.

 And I think Teekay is very much working with its customers to try to lower its prices and become more relevant. And that's where the industry is taking itself. So, the only difference between 2008 and 2009 is, I don't think we'll get as quick a bounce-back in oil prices. And so, that's what leads us to believe things will, as I like to say, move to the right -- be more delayed. But people continue to work on their projects. They just won't take FID as quickly.

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 Amit Mehrotra,  Deutsche Bank - Analyst   [61]
------------------------------
 Right. Okay. That's very helpful. Can I just ask one follow-up? And it dovetails on the previous answer that you gave. And it's related to your comment about the market's need for additional ships, and trying to [foot] that with where spot rates are, or have trended year-to-date.

 And you talked about pushing from end of 2016 to end of 2017. But is there a perspective that you have on, at what point will the additional capacity that's coming online each half of the year -- at what point will we reach that tipping point on that supply-versus-supply equation? Because clearly -- it's not as relevant to your partnership, but I guess a shift or inflexion would clearly have a good effect on your cost of capital.

 So, if you could walk through first half 2016, second half 2016, what type of project incremental capacity do you see coming online that maybe would drive that tightening of demand/supply imbalance?

------------------------------
 Peter Evensen,  Teekay GP L.L.C. - CEO, CFO, and Director   [62]
------------------------------
 Well, I don't really want to punt the question; but you said the most important thing, which is that spot LNG rates and the tightening doesn't really have much effect on Teekay LNG. Because we have two 52%-owned ships that are trading spot. And so, it actually -- I mean, I understand you want to talk about it, but it actually doesn't have that much relevance to our partnership. So, I'm really going to punt on the question.

 I -- but what I will say is what I've said before, which is that we can see that our customers really want the new MEGI ships for their long-term requirements. And, as Mark said, there will continue to be a growth in the spot rate.

 But we have been pleased that our customers have been looking for long-term contracts, and I think that's important. Because people who are going to finance the buildout of new liquefaction plants are going to want to know that there's committed transportation.

 And I don't know -- and that's what we saw with Sabine Pass. That's what we saw with Yamal, certainly. And I think the new projects that take that will have to go back to the old style of having contracts, and having -- then that includes having dedicated transportation, if they're going to attract the debt financing which is crucial to taking FID.

------------------------------
 Amit Mehrotra,  Deutsche Bank - Analyst   [63]
------------------------------
 Right. Okay. That's very good. Thank you very much. Appreciate it.

------------------------------
Operator   [64]
------------------------------
 There are no further questions at this time. Please continue.

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 Peter Evensen,  Teekay GP L.L.C. - CEO, CFO, and Director   [65]
------------------------------
 All right. Thank you all for the good questions and interest, and we look forward to reporting back to you next quarter.

------------------------------
Operator   [66]
------------------------------
 Thank you. Ladies and gentlemen, this does conclude the conference call for today. You may now disconnect your line, and have a great day.




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