Teekay LNG Partners Reports Fourth Quarter and Annual 2017 Results

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GlobeNewswire 22-Feb-2018 2:05 AM
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Highlights
Reported GAAP net income attributable to the partners and preferred unitholders of $39.9 million and adjusted net income attributable to the partners and preferred unitholders(1) of $34.0 million in the fourth quarter of 2017.
Generated distributable cash flow(1) of $52.1 million, or $0.65 per common unit, in the fourth quarter of 2017.
Since September 2017, the Partnership has taken delivery of three M-Type, Electronically Controlled, Gas Injection (MEGI) liquefied natural gas (LNG) carrier newbuildings and two 30 percent-owned LNG carrier newbuildings, all of which commenced their respective charter contracts with Royal Dutch Shell (Shell) ranging between six and 20 years in duration, plus extension options.
Completed an $816 million(2) long-term debt facility to finance all six of the Partnerships 50 percent-owned ARC7 LNG carrier newbuildings delivering through early-2020, the first of which delivered and immediately commenced its 28-year charter contract in January 2018 with Yamal Trade Pte Ltd. (Yamal LNG).
In January 2018, the Partnership sold its 50 percent ownership interest in the 2005-built S/S Excelsior for net proceeds of approximately $44 million after repaying outstanding debt obligations.
In February 2018, the Partnership refinanced a 2018 loan maturity with a new $197 million long-term debt facility secured by two LNG carriers on long-term contracts.
HAMILTON, Bermuda, Feb. 22, 2018 (GLOBE NEWSWIRE) -- Teekay GP L.L.C., the general partner of Teekay LNG Partners L.P. (Teekay LNGor the Partnership) (NYSE:TGP), today reported the Partnerships results for the quarter and year ended December31, 2017.
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Three Months Ended Year Ended
December 31,2017 September 30,2017 December 31,2016 December 31,2017 December 31,2016
(in thousands of U.S. Dollars) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
GAAP FINANCIAL COMPARISON
Voyage revenues 126,307 104,285 100,774 432,676 396,444
Income from vessel operations 62,378 10,322 38,010 148,649 153,181
Equity income 2,992 1,417 9,728 9,789 62,307
Net income (loss) attributable to the partners and preferred unitholders 39,877 (18,896 ) 84,411 33,965 140,451
NON-GAAP FINANCIAL COMPARISON
Total cash flow from vessel operations (CFVO)(1) 126,833 107,254 114,534 449,550 480,063
Distributable cash flow (DCF)(1) 52,054 40,224 50,199 176,128 234,995
Adjusted net income attributable to the partners and preferred unitholders (1) 33,972 20,925 28,958 93,850 148,982
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(1) These are non-GAAP financial measures. Please refer to Definitions and Non-GAAP Financial Measures and the Appendices to this release for definitions of these terms and reconciliations of these non-GAAP financial measures as used in this release to the most directly comparable financial measures under United States generally accepted accounting principles (GAAP).(2) Based on the Partnerships 50 percent ownership interests in the six ARC7 LNG carrier newbuildings.
GAAP net income and non-GAAP adjusted net income for the three months ended December 31, 2017, compared to the same period of the prior year, were positively impacted by the deliveries of six LNG and LPG carrier newbuildings between February and November 2017; commencement of short-term charter contracts for certain of the vessels in the Partnerships 52 percent-owned joint venture with Marubeni (the Teekay LNG-Marubeni Joint Venture); and recognition of the prepaid lease payments of $10.7 million received from IM Skaugen SE (Skaugen) in prior periods. These increases were partially offset by the sale of a conventional tanker in the first quarter of 2017; lower rates earned on two conventional tankers upon the expiration of their fixed-rate charter contracts ending in 2017; and lower spot rates earned for certain of the vessels in the Exmar LPG Joint Venture. Additionally, GAAP net income was also impacted in the fourth quarter of 2017, compared to the same period of the prior year, by various non-cash items, such as the write-down of a conventional tanker in the fourth quarter of 2016; a decrease in unrealized gains on derivative instruments; and an increase in unrealized foreign currency exchange losses relating to the Partnerships Euro and NOK-denominated debt.
CEO Commentary
During the fourth quarter of 2017, the Partnership continued to generate stable cash flows and execute on its growth projects and financing plans, commented Mark Kremin, President and Chief Executive Officer of Teekay Gas Group Ltd.
In December 2017, our 50/50 joint venture with China LNG Shipping secured a long-term debt facility to finance all six ARC7 LNG carrier newbuildings and in mid-January 2018, we took delivery of our first ARC7 vessel, the Eduard Toll, two weeks ahead of schedule, Mr. Kremin continued. In total, since October 2017, the Partnership has taken delivery of six LNG carrier newbuildings over a four-month period, all of which immediately commenced their respective long-term charter contracts. Looking ahead to the remainder of 2018, we expect to take delivery of another five LNG carrier newbuildings and a further three mid-sized LPG carrier newbuildings in our 50/50 joint venture with Exmar, all of which we expect will provide further cash flow growth to the Partnership.
We also continue to make good progress on refinancing our debt maturities, commented Mr. Kremin. I am pleased to report that in November 2017 we refinanced and upsized our unsecured corporate revolving credit facility and in February 2018, we refinanced one of our 2018 loan maturities with a new five-year, $197 million long-term debt facility.
Mr. Kremin added, Finally, in January 2018, we completed an opportunistic sale of the 50 percent-owned 2005-built S/S Excelsior at an attractive price.
Summary of Recent Events
LNG Carrier Newbuilding Deliveries
In October 2017 through February 2018, the Partnership took delivery of three MEGI LNG carrier newbuildings, the Macoma, Murex and Magdala, all of which immediately commenced their respective charter contracts with Shell ranging between six to eight years in duration, plus extension options.
In October 2017 through January 2018, the Partnerships 30 percent-owned joint venture with China LNG Shipping (Holdings) Limited (China LNG) and CETS (an affiliate of China National Offshore Oil Corporation (CNOOC)) took delivery of two LNG carrier newbuildings, the Pan Asia and the Pan Americas, both of which immediately commenced their respective 20-year charter contracts with Shell.
In January 2018, the Partnership's 50 percent-owned joint venture with China LNG (the Yamal LNG Joint Venture) took delivery of its first ARC7 LNG carrier newbuilding, the Eduard Toll, which immediately commenced its 28-year charter contract with Yamal LNG.
New Teekay Multigas Pool
In November 2017, the Partnership terminated its charter contracts with Skaugen due to non-payment of charter hire and established the Teekay Multigas Pool, a new in-house commercial management solution for ethylene-capable LPG and small-scale LNG vessels. The Teekay Multigas Pool now manages the Partnerships seven directly-owned ethylene-capable LPG carriers, some of which are also capable of small-scale LNG shipping, which were previously part of the Norgas Carriers Pool operated by Skaugen.
Sale of the S/S Excelsior
In January 2018, the Partnership sold its 50 percent interest in the S/S Excelsior to Excelerate Energy for net proceeds of approximately $44 million after repaying external debt obligations. The Partnership originally acquired its 50 percent interest in the S/S Excelsior in 2010 through an acquisition from Exmar NV and expects to record a gain of approximately $2 million on the sale in the first quarter of 2018.
Debt Financing Update
In November 2017, the Partnership completed a refinancing and upsizing of its 364-day, unsecured corporate revolving credit facility from $170 million to $190 million.
In December 2017, the Yamal LNG Joint Venture completed an $816 million(1) long-term debt facility to finance all six of the Yamal LNG Joint Venture's ARC7 LNG carrier newbuildings delivering through early-2020, the first of which was delivered in January 2018.
In February 2018, the Partnership refinanced the full amount of a revolving credit facility maturing in 2018 secured by the Hispania Spirit and Galicia Spirit with a new $197 million revolving credit facility maturing in 2022.
(1) Based on the Partnerships 50 percent ownership interests in the six ARC7 LNG carrier newbuildings.
Operating Results
The following table highlights certain financial information for Teekay LNGs two segments: the Liquefied Gas Segment and the Conventional Tanker Segment (please refer to the Teekay LNGs Fleet section of this release below and Appendices C through E for further details).
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Three Months Ended
December 31, 2017 December 31, 2016
(in thousands of U.S. Dollars) (unaudited) (unaudited)
LiquefiedGasSegment ConventionalTankerSegment Total LiquefiedGasSegment ConventionalTankerSegment Total
GAAP FINANCIAL COMPARISON
Voyage revenues 114,605 11,702 126,307 86,188 14,586 100,774
Income (loss) from vessel operations 60,395 1,983 62,378 43,918 (5,908 ) 38,010
Equity income 2,992 2,992 9,728 9,728
NON-GAAP FINANCIAL COMPARISON
CFVO from consolidated vessels(i) 86,667 4,122 90,789 70,889 7,490 78,379
CFVO from equity-accounted vessels(i) 36,044 36,044 36,155 36,155
Total CFVO(i) 122,711 4,122 126,833 107,044 7,490 114,534
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(i) These are non-GAAP financial measures. Please refer to Definitions and Non-GAAP Financial Measures and the Appendices to this release for definitions of these terms and reconciliations of these non-GAAP financial measures as used in this release to the most directly comparable financial measures under GAAP.
Liquefied Gas Segment
Income from vessel operations and cash flow from vessel operations from consolidated vessels for the three months ended December 31, 2017, compared to the same quarter of the prior year, were impacted primarily due to higher revenues earned on the deliveries of three MEGI LNG carrier newbuildings between February and November 2017 and recognition of the prepaid lease payments of $10.7 million received from Skaugen in prior periods, which were previously deferred and then recognized in the fourth quarter of 2017 upon the termination of the charter contracts for five of the Partnerships LPG carriers on charter with Skaugen. These increases were partially offset by lower revenues earned for two of the Partnerships LNG carriers on charter with Awilco LNG ASA (Awilco) as the charter contractsfor these two LNG carriers were amended in 2017, which have the effect of deferring a portion of the charter hire until December 2019.
Equity income and cash flow from vessel operations from equity-accounted vessels for the three months ended December 31, 2017, compared to the same quarter of the prior year, were impacted primarily due to lower spot rates earned in 2017 on certain vessels in the Exmar LPG Joint Venture. This decrease was partially offset by deliveries of two mid-size LPG carriers in the Exmar LPG Joint Venture between March and July 2017; the delivery of the Partnerships 30 percent-owned LNG carrier newbuilding on charter to Shell in October 2017; and the commencement of short-term charter contracts for certain of the vessels in the Teekay LNG-Marubeni Joint Venture that were previously earning lower spot rates. Equity income was also impacted by a decrease in net unrealized gains on designated and non-designated derivative instruments and an increase in vessel write-downs in the Exmar LPG Joint Venture during the three months ended December 31, 2017, compared to the same period of the prior year.
Conventional Tanker Segment
Income (loss) from vessel operations increased for the three months ended December 31, 2017, compared to the same quarter of the prior year, primarily due to the write-down of the Asian Spirit recognized in the three months ended December 31, 2016. This increase was partially offset by lower rates earned on the European Spirit and African Spirit conventional tankers upon the expiration of their fixed-rate charter contracts in August and November 2017, respectively. Cash flow from vessel operations for the three months ended December 31, 2017, compared to the same quarter of the prior year, decreased primarily due to the lower rates earned on the European Spirit and African Spirit conventional tankers.
Teekay LNG's Fleet
The following table summarizes the Partnerships fleet as of February 15, 2018, excluding the Partnerships 30 percent interest in a regasification facility currently under construction:
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Number of Vessels
Owned andIn-Chartered Vessels (i) Newbuildings Total
LNG Carrier Fleet 37(ii) 12(iii) 49
LPG/Multigas Carrier Fleet 26(iv) 3(v) 29
Conventional Tanker Fleet 4(vi) 4
Total 67 15 82
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(i) Owned vessels includes vessels accounted for as vessels related to capital leases.(ii) The Partnerships ownership interests in these vessels range from 30 percent to 100 percent.(iii) The Partnership's ownership interests in these newbuildings, which includes a floating storage unit (FSU), range from 20 percent to 100 percent.(iv) The Partnerships ownership interests in these vessels range from 50 percent to 99 percent.(v) The Partnerships ownership interests in these newbuildings is 50 percent.(vi) Two of the Partnership's conventional tankers are held for sale.
Liquidity
As of December31, 2017, the Partnership had total liquidity of $433.6 million (comprised of $244.2 million in cash and cash equivalents and $189.4 million in undrawn credit facilities).
Conference Call
The Partnership plans to host a conference call on Thursday, February 22, 2018 at 11:00 a.m. (ET) to discuss the results for the fourth quarter and fiscal year 2017. All unitholders and interested parties are invited to listen to the live conference call by choosing from the following options:
By dialing (866) 548-4713 or (647) 484-0477, if outside North America, and quoting conference ID code 1441937.
By accessing the webcast, which will be available on Teekay LNGs website at www.teekay.com (the archive will remain on the website for a period of one year).
An accompanying Fourth Quarter and Fiscal Year 2017 Earnings Presentation will also be available at www.teekay.com in advance of the conference call start time.
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 49 LNG carriers (including 12 newbuildings), 29 LPG/Multigas carriers (including three newbuildings) and four conventional tankers. The Partnership's interests in these vessels range from 20 to 100 percent. In addition, the Partnership owns a 30 percent interest in a regasification facility, which is currently under construction. 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, "TGP PR A" and "TGP PR B", respectively.
For Investor Relations enquiries contact:
Ryan Hamilton Tel: +1 (604) 609-2963Website: www.teekay.com

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 across companies, and therefore may not be comparable to similar measures presented by other companies. The Partnership believes that certain investors use this information to evaluate the Partnerships financial performance, as does management.
Non-GAAP Financial Measures
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 sales of vessels and adjustments for direct financing leases to a cash basis, but includes realized gains or losses on a derivative charter contract. CFVO from Consolidated Vessels represents CFVO from vessels that are consolidated on the Partnerships financial statements. CFVO from Equity-Accounted Vessels represents the Partnerships 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 entities in which the Partnership holds the equity-accounted investments or distributed to the Partnership and other owners. In addition, the Partnership does not control the timing of such distributions to the Partnership and other owners. 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 Partnership in the periods such CFVO is generated by its 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 income from vessel operations and income from vessel operations of equity-accounted vessels, respectively, the most directly comparable GAAP measures reflected in the Partnerships consolidated financial statements.
Adjusted Net Income excludes items of income or loss from GAAP net income (loss) that are typically excluded by securities analysts in their published estimates of the Partnerships financial results. The Partnership believes that certain investors use this information to evaluate the Partnerships financial performance, as does management. Please refer to Appendix A of this release for a reconciliation of this non-GAAP financial measure to net income, and refer to footnote (2) of the statements of income (loss) for a reconciliation of adjusted equity income to equity income, the most directly comparable GAAP measure reflected in the Partnerships consolidated financial statements.
Distributable Cash Flow (DCF) represents GAAP net income adjusted for depreciation and amortization expense, 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, adjustments for direct financing leases to a cash basis and 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. DCF is a quantitative standard used in the publicly-traded partnership investment community and by 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 net income, the most directly comparable GAAP measure reflected in the Partnerships consolidated financial statements.

Teekay LNG Partners L.P. Consolidated Statements of Income (Loss) (in thousands of U.S. Dollars, except units outstanding)
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Three Months Ended Year Ended
December 31, September 30, December 31, December 31, December 31,
2017 2017 2016 2017 2016
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Voyage revenues 126,307 104,285 100,774 432,676 396,444

Voyage expenses (4,303 ) (1,466 ) (302 ) (8,202 ) (1,656 )
Vessel operating expenses (27,026 ) (26,724 ) (22,270 ) (103,139 ) (88,590 )
Depreciation and amortization (27,651 ) (24,980 ) (25,021 ) (105,545 ) (95,542 )
General and administrative expenses (4,949 ) (2,793 ) (3,634 ) (16,541 ) (18,499 )
Write-down and loss on sales of vessels(1) (38,000 ) (11,537 ) (50,600 ) (38,976 )
Income from vessel operations 62,378 10,322 38,010 148,649 153,181

Equity income(2) 2,992 1,417 9,728 9,789 62,307
Interest expense (23,333 ) (20,091 ) (15,934 ) (80,937 ) (58,844 )
Interest income 880 602 783 2,915 2,583
Realized and unrealized gain (loss) on non-designated derivative instruments(3) 3,066 (2,178 ) 43,245 (5,309 ) (7,161 )
Foreign currency exchange (loss) gain(4) (2,436 ) (5,104 ) 15,474 (26,933 ) 5,335
Other income 424 356 314 1,561 1,537
Net income (loss) before tax expense 43,971 (14,676 ) 91,620 49,735 158,938
Income tax recovery (expense) 319 (750 ) (251 ) (824 ) (973 )
Net income (loss) 44,290 (15,426 ) 91,369 48,911 157,965

Non-controlling interest in net income (loss) 4,413 3,470 6,958 14,946 17,514
Preferred unitholders' interest in net income (loss) 5,541 2,813 2,719 13,979 2,719
General Partner's interest in net income (loss) 687 (434 ) 1,634 400 2,755
Limited partners interest in net income (loss) 33,649 (21,275 ) 80,058 19,586 134,977
Weighted-average number of common units outstanding:
Basic 79,626,819 79,626,819 79,571,820 79,617,778 79,568,352
Diluted 79,839,231 79,626,819 79,705,854 79,791,041 79,671,858
Total number of common unitsoutstanding at end of period 79,626,819 79,626,819 79,571,820 79,626,819 79,571,820
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(1) The write-down and loss on sales of vessels for the three months ended September 30, 2017 and year ended December31, 2017 includes impairment charges on the African Spirit, Teide Spirit and Toledo Spirit Suezmax tankers. The charterer for the African Spirit notified the Partnership in August 2017 that it would redeliver the vessel to the Partnership upon its charter contract ending in November 2017, which resulted in a write-down of the vessel to its estimated market value. The African Spirit was redelivered to the Partnership in November 2017. The charterer for the Teide Spirit and Toledo Spirit, who is also the owner of these vessels, has the option to cancel the charter contracts 13 years following commencement of the respective charter contracts. In October 2017, the charterer notified the Partnership that it was marketing the Teide Spirit for sale and subsequently, sold the vessel on February 8, 2018. Upon sale of the vessel, the charterer concurrently terminated its charter contract with the Partnership. The charterers cancellation option for the Toledo Spirit is first exercisable in August 2018. Given the Partnership's prior experience with this charterer, the Partnership expects the charterer will cancel the charter contract and sell the Toledo Spirit to a third party in 2018. As a result, the Partnership wrote down the Teide Spirit and Toledo Spirit to their estimated market values. The write-down and loss on sales of vessels for the year ended December 31, 2017 also includes the write-down of the European Spirit Suezmax tanker to its estimated market value, as the Partnership commenced marketing the vessel for sale upon receiving notification from the charterer in late-June 2017 that it would redeliver the vessel back to the Partnership in August 2017. The write-down and loss on sales of vessels for the year ended December 31, 2016 relates to Centrofin Management Inc. exercising its purchase options, under the 12-year charter contracts, to acquire the Bermuda Spirit and Hamilton Spirit Suezmax tankers. In addition, the write-down and loss on sales of vessels for the three months ended December 31, 2016 includes the write-down of the Asian Spirit upon the Partnership reaching an agreement to sell the vessel in November 2016.
(2) The Partnerships proportionate share of items within equity income as identified in Appendix A of this release is detailed in the table below. By excluding these items from equity income, the Partnership believes the resulting adjusted equity income is a normalized amount that can be used to evaluate the financial performance of the Partnerships equity-accounted investments. Adjusted equity income is a non-GAAP financial measure.
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Three Months Ended Year Ended
December 31, September 30, December 31, December 31, December 31,
2017 2017 2016 2017 2016
Equity income 2,992 1,417 9,728 9,789 62,307
Proportionate share of unrealized (gain) loss on non-designated derivative instruments (4,404 ) (1,485 ) (8,078 ) (7,491 ) (6,963 )
Proportionate share of ineffective portion of hedge-accounted interest rate swaps 566 968 (364 ) 5,100 (372 )
Proportionate share of write-down and loss on sales of vessels 5,500 4,861 5,500 4,861
Proportionate share of other items 191 219 1,162 651 1,317
Equity income adjusted for items in Appendix A 4,845 1,119 7,309 13,549 61,150
[End Table]
(3) The realized (losses) gains on non-designated derivative instruments relate to the amounts the Partnership actually paid or received to settle non-designated derivative instruments and the unrealized gains (losses) on non-designated derivative instruments relate to the change in fair value of such non-designated derivative instruments, as detailed in the table below:
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Three Months Ended Year Ended
December 31, September 30, December 31, December 31, December 31,
2017 2017 2016 2017 2016
Realized (losses) gains relating to:
Interest rate swap agreements (5,012 ) (4,528 ) (6,190 ) (18,825 ) (25,940 )
Interest rate swaption agreements termination (610 )
Toledo Spirit time-charter derivative contract 152 646 (1,274 ) 678 (654 )
(4,860 ) (3,882 ) (7,464 ) (18,757 ) (26,594 )

Unrealized gains (losses) relating to:
Interest rate swap agreements 8,182 1,775 34,068 12,393 15,627
Interest rate swaption agreements 518 285 16,601 945 (164 )
Toledo Spirit time-charter derivative contract (774 ) (356 ) 40 110 3,970
7,926 1,704 50,709 13,448 19,433

Total realized and unrealized gains (losses) on non-designated derivative instruments 3,066 (2,178 ) 43,245 (5,309 ) (7,161 )
[End Table]
(4) For accounting purposes, the Partnership is required to revalue all foreign currency-denominated monetary assets and liabilities based on the prevailing exchange rates at the end of each reporting period. This revaluation does not affect the Partnerships cash flows or the calculation of distributable cash flow, but results in the recognition of unrealized foreign currency translation gains or losses in the Consolidated Statements of Income (Loss).
Foreign currency exchange (loss) gain includes realized losses relating to the amounts the Partnership paid to settle or terminate the Partnerships non-designated cross-currency swaps that were entered into as economic hedges in relation to the Partnerships Norwegian Kroner (NOK) denominated unsecured bonds and realized gains on NOK bond repurchases. Foreign currency exchange (loss) gain also includes unrealized (losses) gains relating to the change in fair value of such derivative instruments, partially offset by unrealized gains (losses) on the revaluation of the NOK bonds as detailed in the table below:
[Start Table]
Three Months Ended Year Ended
December 31, September 30, December 31, December 31, December 31,
2017 2017 2016 2017 2016
Realized losses on cross-currency swaps (2,125 ) (1,598 ) (2,160 ) (9,344 ) (9,063 )
Realized losses on cross-currency swaps termination (17,711 ) (25,733 ) (17,711 )
Realized gains on repurchase of NOK bonds 16,782 25,733 16,782
Unrealized (losses) gains on cross-currency swaps (9,081 ) 20,523 (6,053 ) 49,047 28,905
Unrealized gains (losses) on revaluation of NOK bonds 7,760 (17,906 ) 12,644 (47,076 ) (18,967 )

[End Table]

Teekay LNG Partners L.P. Consolidated Balance Sheets (in thousands of U.S. Dollars)
[Start Table]
As at December 31, As at September 30, As at December 31,
2017 2017 2016
(unaudited) (unaudited) (unaudited)
ASSETS
Current
Cash and cash equivalents 244,241 161,008 126,146
Restricted cash current 22,326 21,386 10,145
Accounts receivable 26,054 22,079 25,224
Prepaid expenses 6,539 4,345 3,724
Vessels held for sale 33,671 17,000 20,580
Current portion of derivative assets 1,078 1,759 531
Current portion of net investments in direct financing leases 9,884 9,683 150,342
Advances to affiliates 7,300 9,245 9,739
Total current assets 351,093 246,505 346,431

Restricted cash long-term 72,868 71,626 106,882

Vessels and equipment
At cost, less accumulated depreciation 1,416,381 1,316,234 1,374,128
Vessels related to capital leases, at cost, less accumulated depreciation 1,044,838 643,973 484,253
Advances on newbuilding contracts 444,493 492,800 357,602
Total vessels and equipment 2,905,712 2,453,007 2,215,983
Investment in and advances to equity-accounted joint ventures 1,094,596 1,114,709 1,037,726
Net investments in direct financing leases 486,106 624,122 492,666
Other assets 6,043 1,440 5,529
Derivative assets 6,172 9,324 4,692
Intangible assets net 61,078 63,293 69,934
Goodwill liquefied gas segment 35,631 35,631 35,631
Total assets 5,019,299 4,619,657 4,315,474
LIABILITIES AND EQUITY
Current
Accounts payable 3,509 2,240 5,562
Accrued liabilities 40,257 38,056 35,881
Unearned revenue 25,873 20,283 16,998
Current portion of long-term debt 552,404 516,232 188,511
Current obligations related to capital leases 106,946 108,592 40,353
Current portion of in-process contracts 7,946 9,050 15,833
Current portion of derivative liabilities 79,139 69,964 56,800
Advances from affiliates 12,140 9,864 15,492
Total current liabilities 828,214 774,281 375,430
Long-term debt 1,245,588 1,380,175 1,602,715
Long-term obligations related to capital leases 904,603 595,674 352,486
Long-term unearned revenue 9,358 10,332
Other long-term liabilities 57,594 58,432 60,573
In-process contracts 580 2,418 8,233
Derivative liabilities 45,797 59,312 128,293
Total liabilities 3,082,376 2,879,650 2,538,062

Equity
Limited partners common units 1,539,248 1,516,634 1,563,852
Limited partners preferred units 290,659 123,520 123,426
General partner 50,152 49,690 50,653
Accumulated other comprehensive income 4,479 1,747 575
Partners' equity 1,884,538 1,691,591 1,738,506
Non-controlling interest 52,385 48,416 38,906
Total equity 1,936,923 1,740,007 1,777,412
Total liabilities and total equity 5,019,299 4,619,657 4,315,474

[End Table]

Teekay LNG Partners L.P. Consolidated Statements of Cash Flows (in thousands of U.S. Dollars)
[Start Table]
Year Ended
December 31, December 31,
2017 2016
(unaudited) (unaudited)
Cash and cash equivalents provided by (used for)
OPERATING ACTIVITIES
Net income 48,911 157,965
Non-cash items:
Unrealized gain on non-designated derivative instruments (13,448 ) (19,433 )
Depreciation and amortization 105,545 95,542
Write-down and loss on sales of vessels 50,600 38,976
Unrealized foreign currency exchange gain and other (10,257 ) (42,009 )
Equity income, net of dividends received of $42,692 (2016 $31,113) 32,903 (31,194 )
Change in operating assets and liabilities 1,853 (20,669 )
Expenditures for dry docking (21,642 ) (12,686 )
Net operating cash flow 194,465 166,492
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 362,527 573,514
Scheduled repayments of long-term debt (168,504 ) (316,450 )
Prepayments of long-term debt (236,474 ) (463,422 )
Financing issuance costs (8,361 ) (3,462 )
Proceeds from financing related to sales and leaseback of vessels 656,935 355,306
Scheduled repayments of obligations related to capital leases (42,000 ) (21,594 )
Proceeds from equity offerings, net of offering costs 164,411 120,707
Decrease in restricted cash 20,385 4,651
Cash distributions paid (56,650 ) (45,467 )
Dividends paid to non-controlling interest (1,595 ) (3,402 )
Other (605 )
Net financing cash flow 690,069 200,381
INVESTING ACTIVITIES
Capital contributions to equity-accounted joint ventures (183,874 ) (120,879 )
Return of capital from equity-accounted joint ventures 92,320 5,500
Receipts from direct financing leases 13,143 23,650
Proceeds from sales of vessels 20,580 94,311
Expenditures for vessels and equipment (708,608 ) (345,790 )
Net investing cash flow (766,439 ) (343,208 )
Increase in cash and cash equivalents 118,095 23,665
Cash and cash equivalents, beginning of the year 126,146 102,481
Cash and cash equivalents, end of the year 244,241 126,146

[End Table]

Teekay LNG Partners L.P. Appendix A - Reconciliation of Non-GAAP Financial Measures Adjusted Net Income (in thousands of U.S. Dollars)
[Start Table]
Three Months Ended Year Ended
December 31, December 31,
2017 2016 2017 2016
(unaudited) (unaudited) (unaudited) (unaudited)
Net income GAAP basis 44,290 91,369 48,911 157,965
Less: Net income attributable to non-controlling interests (4,413 ) (6,958 ) (14,946 ) (17,514 )
Net income attributable to the partners and preferred unitholders 39,877 84,411 33,965 140,451
Add (subtract) specific items affecting net income:
Write-down and loss on sales of vessels(1) 11,537 50,600 38,976
Unrealized foreign currency exchange losses (gains)(2) 58 (17,783 ) 17,493 (14,699 )
Unrealized (gains) losses on non-designated and designated derivative instruments and other items from equity-accounted investees(3) 1,853 (2,419 ) 3,760 (19,433 )
Unrealized gains on non-designated derivative instruments(4) (7,926 ) (50,709 ) (13,448 ) (1,157 )
Ineffective portion on qualifying cash flow hedging instruments included in interest expense (15 ) (1,044 ) 740
Other items(5) (926 ) 1,215 (316 ) 1,215
Non-controlling interests share of items above(6) 1,051 3,750 1,056 3,629
Total adjustments (5,905 ) (55,453 ) 59,885 8,531
Adjusted net income attributable to the partners and preferred unitholders 33,972 28,958 93,850 148,982
[End Table]
(1) Write-down and loss on sale of vessels relate to the Partnership's impairment charges and sales of the African Spirit, Teide Spirit and Toledo Spirit during 2017 and the Bermuda Spirit, Hamilton Spirit and Asian Spirit during 2016. See Note 1 to the Consolidated Statements of Income (Loss) included in this release for further details.(2) Unrealized foreign exchange losses (gains) primarily relate to the Partnerships revaluation of all foreign currency-denominated monetary assets and liabilities based on the prevailing exchange rate at the end of each reporting period and unrealized (gains) losses on the cross-currency swaps economically hedging the Partnerships NOK bonds. This amount excludes the realized losses relating to the cross-currency swaps for the NOK bonds. See Note 4 to the Consolidated Statements of Income (Loss) included in this release for further details.(3) Reflects the unrealized (gains) losses due to changes in the mark-to-market value of derivative instruments that are not designated as hedges for accounting purposes, any ineffectiveness for derivative instruments designated as hedges for accounting purposes, and write-down and loss on sales of vessels within the Partnerships equity-accounted investments. See Note 2 to the Consolidated Statements of Income (Loss) included in this release for further details.(4) Reflects the unrealized gains due to changes in the mark-to-market value of derivative instruments that are not designated as hedges for accounting purposes. See Note 3 to the Consolidated Statements of Income (Loss) included in this release for further details.(5) Included in other items are deferred income tax expense (recovery), loss upon termination of interest rate swaption agreements and other items.(6) Items affecting net income include items from the Partnerships consolidated non-wholly-owned subsidiaries. The specific items affecting net income are analyzed to determine whether any of the amounts originated from a consolidated non-wholly-owned subsidiary. Each amount that originates from a consolidated non-wholly-owned subsidiary is multiplied by the non-controlling interests percentage share in this subsidiary to arrive at the non-controlling interests share of the amount. The amount identified as non-controlling interests share of items listed above in the table above is the cumulative amount of the non-controlling interests proportionate share of the other specific items affecting net income listed in the table.

Teekay LNG Partners L.P. Appendix B - Reconciliation of Non-GAAP Financial Measures Distributable Cash Flow (DCF) (in thousands of U.S. Dollars, except units outstanding and per unit data)
[Start Table]
Three Months Ended Year Ended
December 31, December 31,
2017 2016 2017 2016
(unaudited) (unaudited) (unaudited) (unaudited)

Net income: 44,290 91,369 48,911 157,965
Add:
Depreciation and amortization 27,651 25,021 105,545 95,542
Partnerships share of equity-accounted joint ventures' DCF net of estimated maintenance capital expenditures(1) 13,719 16,335 48,616 92,747
Distributions relating to equity financing of newbuildings 3,844 1,685 8,676 1,685
Direct finance lease payments received in excess of revenue recognized and other adjustments 2,142 5,363 14,326 20,445
Unrealized foreign currency exchange loss (gain) 58 (17,783 ) 17,493 (14,699 )
Write-down and loss on sales of vessels 11,537 50,600 38,976

Less:
Ineffective portion on qualifying cash flow hedging instruments included in interest expense (15 ) (1,044 ) 740
Equity income (2,992 ) (9,728 ) (9,789 ) (62,307 )
Deferred income tax and other non-cash items (4,061 ) (1,529 ) (6,463 ) (3,414 )
Distributions relating to preferred units (5,541 ) (2,719 ) (13,979 ) (2,719 )
Unrealized gain on non-designated derivative instruments (7,926 ) (50,709 ) (13,448 ) (19,433 )
Estimated maintenance capital expenditures (14,265 ) (12,212 ) (53,315 ) (48,221 )
Distributable Cash Flow before Non-controlling interest 56,904 55,586 197,913 256,567
Non-controlling interests share of DCF before estimated maintenance capital expenditures (4,850 ) (5,387 ) (21,785 ) (21,572 )
Distributable Cash Flow 52,054 50,199 176,128 234,995
Amount of cash distributions attributable to the General Partner (226 ) (229 ) (909 ) (910 )
Limited partners' Distributable Cash Flow 51,828 49,970 175,219 234,085
Weighted-average number of common units outstanding 79,626,819 79,571,820 79,617,778 79,568,352
Distributable Cash Flow per limited partner common unit 0.65 0.63 2.20 2.94
[End Table]
(1) The estimated maintenance capital expenditures relating to the Partnerships share of equity-accounted joint ventures were $8.4 million and $7.8 million for the three months ended December 31, 2017 and 2016, respectively, and $32.5 million and $30.3 million for the year ended December 31, 2017 and 2016, respectively.

Teekay LNG Partners L.P. Appendix C - Supplemental Segment Information (in thousands of U.S. Dollars)
[Start Table]
Three Months Ended December 31, 2017
(unaudited)
Liquefied Gas Segment ConventionalTanker Segment Total
Voyage revenues 114,605 11,702 126,307
Voyage expenses (1,356 ) (2,947 ) (4,303 )
Vessel operating expenses (22,717 ) (4,309 ) (27,026 )
Depreciation and amortization (25,386 ) (2,265 ) (27,651 )
General and administrative expenses (4,751 ) (198 ) (4,949 )
Income from vessel operations 60,395 1,983 62,378

Three Months Ended December 31, 2016
(unaudited)
Liquefied Gas Segment ConventionalTanker Segment Total
Voyage revenues 86,188 14,586 100,774
Voyage expenses (31 ) (271 ) (302 )
Vessel operating expenses (17,370 ) (4,900 ) (22,270 )
Depreciation and amortization (21,608 ) (3,413 ) (25,021 )
General and administrative expenses (3,261 ) (373 ) (3,634 )
Write-down and loss on sales of vessels (11,537 ) (11,537 )
Income (loss) from vessel operations 43,918 (5,908 ) 38,010

[End Table]

Teekay LNG Partners L.P. Appendix D - Reconciliation of Non-GAAP Financial Measures Cash Flow from Vessel Operations from Consolidated Vessels (in thousands of U.S. Dollars)
[Start Table]
Three Months Ended December 31, 2017 Year EndedDecember 31, 2017
(unaudited) (unaudited)
Liquefied Gas Segment ConventionalTankerSegment Total Total
Income from vessel operations (See Appendix C) 60,395 1,983 62,378 148,649
Depreciation and amortization 25,386 2,265 27,651 105,545
Write-down and loss on sales of vessels 50,600
Amortization of in-process contracts included in voyage revenues (1,256 ) (278 ) (1,534 ) (3,785 )
Direct finance lease payments received in excess of revenue recognized and other adjustments 2,142 2,142 14,326
Realized gain on Toledo Spirit derivative contract 152 152 678
Cash flow from vessel operations from consolidated vessels 86,667 4,122 90,789 316,013

Three Months Ended December 31, 2016 Year EndedDecember 31, 2016
(unaudited) (unaudited)
Liquefied Gas Segment ConventionalTanker egment Total Total
Income (loss) from vessel operations (See Appendix C) 43,918 (5,908 ) 38,010 153,181
Depreciation and amortization 21,608 3,413 25,021 95,542
Write-down and loss on sales of vessels 11,537 11,537 38,976
Amortization of in-process contracts included in voyage revenues (278 ) (278 ) (2,202 )
Direct finance lease payments received in excess of revenue recognized 5,363 5,363 20,445
Realized loss on Toledo Spirit derivative contract (1,274 ) (1,274 ) (654 )
Cash flow adjustment for two Suezmax tankers 1,966
Cash flow from vessel operations from consolidated vessels 70,889 7,490 78,379 307,254

[End Table]

Teekay LNG Partners L.P. Appendix E - Reconciliation of Non-GAAP Financial Measures Cash Flow from Vessel Operations from Equity-Accounted Vessels (in thousands of U.S. Dollars)
[Start Table]
Three Months Ended
December 31, 2017 December 31, 2016
(unaudited) (unaudited)
At Partnership's At Partnership's
100 % Portion(1) 100 % Portion(1)
Voyage revenues 129,526 57,493 125,372 56,426
Voyage expenses (3,653 ) (1,862 ) (6,542 ) (3,329 )
Vessel operating expenses and general and administrative expenses (48,617 ) (22,372 ) (41,499 ) (19,076 )
Depreciation and amortization (27,950 ) (13,984 ) (28,244 ) (14,141 )
Write-down and loss on sales of vessels (11,000 ) (5,500 ) (9,721 ) (4,861 )
Income from vessel operations of equity-accounted vessels 38,306 13,775 39,366 15,019
Other items, including interest expense and realized and unrealized gain (loss) on derivative instruments (23,690 ) (10,783 ) (7,491 ) (5,291 )
Net income / equity income of equity-accounted vessels 14,616 2,992 31,875 9,728

Income from vessel operations of equity-accounted vessels 38,306 13,775 39,366 15,019
Depreciation and amortization 27,950 13,984 28,244 14,141
Write-down and loss on sales of vessels 11,000 5,500 9,721 4,861
Direct finance lease payments received in excess of revenue recognized 10,621 3,802 9,475 3,438
Amortization of in-process revenue contracts (1,950 ) (1,017 ) (2,541 ) (1,304 )

Cash flow from vessel operations from equity-accounted vessels 85,927 36,044 84,265 36,155
[End Table]

[Start Table]
Year Ended
December 31, 2017 December 31, 2016
(unaudited) (unaudited)
At Partnership's At Partnership's
100 % Portion(1) 100 % Portion(1)
Voyage revenues 478,908 213,574 553,461 252,677
Voyage expenses (16,689 ) (8,534 ) (20,051 ) (10,121 )
Vessel operating expenses and general and administrative expenses (175,898 ) (81,416 ) (166,841 ) (77,496 )
Depreciation and amortization (109,135 ) (54,453 ) (104,098 ) (52,095 )
Write-down and loss on sales of vessels (11,000 ) (5,500 ) (9,721 ) (4,861 )
Income from vessel operations of equity-accounted vessels 166,186 63,671 252,750 108,104
Other items, including interest expense and realized and unrealized gain (loss) on derivative instruments (124,342 ) (53,882 ) (100,992 ) (45,797 )
Net income / equity income of equity-accounted vessels 41,844 9,789 151,758 62,307

Income from vessel operations of equity-accounted vessels 166,186 63,671 252,750 108,104
Depreciation and amortization 109,135 54,453 104,098 52,095
Write-down and loss on sales of vessels 11,000 5,500 9,721 4,861
Direct finance lease payments received in excess of revenue recognized 39,368 14,220 36,462 13,231
Amortization of in-process revenue contracts (8,327 ) (4,307 ) (10,697 ) (5,482 )

Cash flow from vessel operations from equity-accounted vessels 317,362 133,537 392,334 172,809
[End Table]
(1) The Partnership's equity-accounted vessels for the three months and year ended December31, 2017 and 2016 include: the Partnerships 40 percent ownership interest in Teekay Nakilat (III) Corporation, which owns four LNG carriers; the Partnerships ownership interests of 49 percent and 50 percent, respectively, in the Excalibur and Excelsior joint ventures, which own one LNG carrier and one regasification unit, respectively; the Partnerships 33 percent ownership interest in four LNG carriers servicing the Angola LNG project; the Partnerships 52 percent ownership interest in the Teekay LNG-Marubeni joint venture, which owns six LNG carriers; the Partnerships 50 percent ownership interest in Exmar LPG BVBA, which owns and in-charters 23 vessels, including three newbuildings, as at December31, 2017, compared to 23 vessels owned and in-chartered, including four newbuildings, as at December31, 2016; the Partnerships 30 percent ownership interest in one LNG carrier and one LNG carrier newbuilding as at December 31, 2017, compared to two LNG carrier newbuildings as at December 31, 2016, and the Partnership's 20 percent ownership interest in two LNG carrier newbuildings for Shell; the Partnerships 50 percent ownership interest in six ARC7 LNG carrier newbuildings in the joint venture between the Partnership and China LNG Shipping (Holdings) Limited; and the Partnership's 30 percent ownership interest in Bahrain LNG W.L.L., which owns an LNG receiving and regasification terminal under construction in Bahrain.

Teekay LNG Partners L.P. Appendix F - Summarized Financial Information of Equity-Accounted Joint Ventures (in thousands of U.S. Dollars)
[Start Table]
As at December, 2017 As at December 31, 2016
(unaudited) (unaudited)
At Partnership's At Partnership's
100 % Portion(1) 100 % Portion(1)
Cash and restricted cash, current and non-current 295,148 128,004 400,090 167,813
Current portion of derivative assets 1,594 785 69 34
Other current assets 53,068 22,661 72,368 33,783
Vessels and equipment, including vessels related to capital leases 2,202,418 1,133,804 2,174,467 1,121,293
Advances on newbuilding contracts 1,211,210 450,523 824,534 303,162
Net investments in direct financing leases, current and non-current 2,013,759 722,408 1,816,365 665,599
Derivative assets 4,602 2,259 4,928 2,413
Other non-current assets 86,167 54,060 68,886 41,764
Total assets 5,867,966 2,514,504 5,361,707 2,335,861

Current portion of long-term debt and obligations related to capital leases 162,915 73,975 209,814 99,994
Current portion of derivative liabilities 21,973 7,217 27,388 9,622
Other current liabilities 98,657 43,193 76,480 32,068
Long-term debt and obligations related to capital leases 3,023,713 1,231,433 2,677,447 1,087,425
Shareholders' loans, current and non-current 368,937 131,685 545,028 272,514
Derivative liabilities 73,454 24,235 82,738 27,526
Other long-term liabilities 77,297 39,855 80,170 41,500
Equity 2,041,020 962,911 1,662,642 765,212
Total liabilities and equity 5,867,966 2,514,504 5,361,707 2,335,861

Investments in equity-accounted joint ventures 962,911 765,212
Advances to equity-accounted joint ventures 131,685 272,514
Investments in and advances to equity-accounted joint ventures 1,094,596 1,037,726
[End Table]
(1) The Partnership's equity-accounted joint ventures as at December31, 2017 and December31, 2016 include: the Partnerships 40 percent ownership interest in Teekay Nakilat (III) Corporation, which owns four LNG carriers; the Partnerships ownership interests of 49 percent and 50 percent, respectively, in the Excalibur and Excelsior joint ventures, which own one LNG carrier and one regasification unit, respectively; the Partnerships 33 percent ownership interest in four LNG carriers servicing the Angola LNG project; the Partnerships 52 percent ownership interest in the Teekay LNG-Marubeni joint venture, which owns six LNG carriers; the Partnerships 50 percent ownership interest in Exmar LPG BVBA, which owns and in-charters 23 vessels, including three newbuildings, as at December31, 2017, compared to 23 vessels owned and in-chartered, including four newbuildings, as at December31, 2016; the Partnerships 30 percent ownership interest in one LNG carrier and one LNG carrier newbuilding as at December 31, 2017, compared to two LNG carrier newbuildings as at December 31, 2016, and the Partnership's 20 percent ownership interest in two LNG carrier newbuildings for Shell; the Partnerships 50 percent ownership interest in six ARC7 LNG carrier newbuildings in the joint venture between the Partnership and China LNG Shipping (Holdings) Limited; and the Partnership's 30 percent ownership interest in Bahrain LNG W.L.L., which owns an LNG receiving and regasification terminal under construction in Bahrain.

Forward-Looking Statements
This release contains forward-looking statements (as defined in Section 21E of the Securities Exchange Act of 1934, as amended) which reflect managements current views with respect to certain future events and performance, including statements regarding: the effects of recent and future newbuilding deliveries on the Partnerships future cash flows and earnings; the timing of newbuilding vessel deliveries and the commencement of related contracts; the gain on sale of the S/S Excelsior; and the Partnerships expectation that the charterer of the Toledo Spirit will cancel the charter contract and sell that vessel to a third party in 2018. 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; changes in production of LNG or LPG, either generally or in particular regions; changes in trading patterns or timing of start-up of new LNG liquefaction and regasification projects significantly affecting overall vessel tonnage requirements; changes in applicable industry laws and regulations and the timing of implementation of new laws and regulations; the potential for early termination of long-term contracts of existing vessels in the Partnership's 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 Partnerships or the Partnerships joint ventures ability to secure or draw on financings for its vessels; 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, 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 Partnerships expectations with respect thereto or any change in events, conditions or circumstances on which any such statement is based.