Teekay LNG Distribution Up 32%, 2020 Guidance Looks Better

Summary

• Teekay LNG is making substantial progress on all fronts (as expected).
• The distribution increased by 32%. This is the second consecutive year of distribution growth in excess of 30%.
• TGP was able to fund all of growth projects (the world's largest LNG order book!) without issuing a single common unit.
• Not only that, the unit count has actually decreased by ~2.8% as a result of unit repurchases.
• TGP will end this year at the high end of the guidance range and 2020 guidance looks better. Strong total returns ahead.

Teekay LNG (TGP) is the world's 3rd largest independent LNG carrier owner/operator, moving 8% of the world's seaborn gas. TGP owns 79 vessels and the Bahrain regasification project, generating contracted backlog of $~9.8bn (forward-fee based revenues) with average remaining contract duration of ~10.8 years, backed by strong counterparties (a diverse portfolio of blue chip customers including Shell, BP, Total, Cheniere and ConocoPhillips). In other words, TGP enjoys substantial quality cash flow visibility, allowing the Partnership to pursue a disciplined and balanced capital allocation approach, including deleveraging, progressive distribution policy and unit repurchases. This kind of model resonates well with me, as it follows my core philosophy of internally generated operating cash flow sufficient to cover most or all of the following:

• returning capital to shareholders (dividends and/or buybacks)
• maintenance CAPEX (sustaining current revenues/profits)
• growth CAPEX (selective/accretive asset purchases)
• balance sheet improvements - increasing the cash balance (total cash and short-term investments) and/or paying down debt

The above model is a recipe for success and has served me well. Essentially, it is a self-funded model whereby internally generated cash flow is enough to cover most (ideally all) strategic considerations. This currently applies to TGP. It also applies to some other positions of mine in the energy and shipping space like Energy Transfer (ET) and Navios Maritime Partners (NMM). That said, if TGPs' unit price were to revisit levels prior to the distribution cut in 2015 (in the $30+ zone), I would advocate raising accretive equity for measured growth and accelerated deleveraging purposes. But I want this to happen from a position of strength, not close to rock-bottom unit prices - as is still the case today.

Excellent Q3 2019 results & interesting Investor Day

On Wednesday 13 November, TGP reported solid Q3 2019 earnings results after the market closed, and the next

Analyst’s Disclosure:I am/we are long TGP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I am also long TK, TGP's General Partner.