UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________________________________________________
FORM 6-K
_____________________________________________________________
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 under
the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2022
Commission file number 1-32479
_____________________________________________________________
SEAPEAK LLC
(Exact name of Registrant as specified in its charter)
_____________________________________________________________
2000, 550 Burrard Street, Vancouver, BC, Canada, V6C 2K2
(Address of principal executive office)
_____________________________________________________________
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
Form 20-F ý Form 40-F ¨
SEAPEAK LLC AND SUBSIDIARIES
REPORT ON FORM 6-K FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2022
INDEX
| | | | | |
| |
PART I: FINANCIAL INFORMATION | PAGE |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
ITEM 1 – FINANCIAL STATEMENTS
SEAPEAK LLC AND SUBSIDIARIES (note 1)
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(in thousands of U.S. Dollars)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| | $ | | $ | | $ | | $ |
Voyage revenues (notes 6 and 10a) | | 146,524 | | 146,577 | | 459,492 | | 448,148 |
Voyage expenses | | (13,368) | | (7,221) | | (27,829) | | (20,764) |
Vessel operating expenses (note 10a) | | (45,296) | | (30,426) | | (139,046) | | (93,051) |
Time-charter hire expenses (note 10a) | | — | | (5,665) | | (9,053) | | (17,382) |
Depreciation and amortization | | (32,763) | | (33,002) | | (96,463) | | (97,253) |
General and administrative expenses (note 10a) | | (5,555) | | (12,619) | | (19,643) | | (26,707) |
Write-down and gain on sale of vessels (note 14) | | — | | — | | (43,802) | | — |
Restructuring charges (note 15) | | — | | — | | (2,651) | | — |
Income from vessel operations | | 49,542 | | 57,644 | | 121,005 | | 192,991 |
| | | | | | | | |
Equity income (notes 7 and 10a) | | 87,737 | | 39,238 | | 243,512 | | 105,694 |
Interest expense | | (35,048) | | (29,513) | | (96,700) | | (89,249) |
Interest income (note 7) | | 2,114 | | 1,315 | | 5,097 | | 4,623 |
Realized and unrealized gain on non-designated derivative instruments (note 11) | | 22,732 | | 101 | | 63,397 | | 3,849 |
Foreign currency exchange gain (notes 8 and 11) | | 9,403 | | 2,767 | | 29,560 | | 6,884 |
Other income (expense) (notes 1 and 3b) | | 14,029 | | 1,000 | | (8,396) | | (3,857) |
Net income before income tax expense | | 150,509 | | 72,552 | | 357,475 | | 220,935 |
Income tax expense (note 9) | | (2,280) | | (2,226) | | (6,785) | | (3,264) |
Net income | | 148,229 | | 70,326 | | 350,690 | | 217,671 |
Non-controlling interest in net income | | 6,329 | | 3,352 | | 15,080 | | 9,818 |
Preferred unitholders' interest in net income | | 6,408 | | 6,425 | | 19,241 | | 19,275 |
General partner's interest in net income | | — | | 1,062 | | 1,052 | | 3,311 |
Company / Limited partners' interest in net income | | 135,492 | | 59,487 | | 315,317 | | 185,267 |
Related party transactions (note 10)
Subsequent events (note 17)
The accompanying notes are an integral part of the unaudited consolidated financial statements.
SEAPEAK LLC AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (note 1)
(in thousands of U.S. Dollars)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| $ | | $ | | $ | | $ |
Net income | 148,229 | | 70,326 | | 350,690 | | 217,671 |
| | | | | | | |
Other comprehensive income: | | | | | | | |
Other comprehensive income before reclassifications | | | | | | | |
Unrealized gain on qualifying cash flow hedging instruments, net of tax | — | | 2,942 | | — | | 24,001 |
Amounts reclassified from accumulated other comprehensive loss, net of tax | | | | | | | |
To equity income: | | | | | | | |
Realized loss on qualifying cash flow hedging instruments | 3,668 | | 5,096 | | 12,034 | | 15,174 |
To interest expense: | | | | | | | |
Realized loss on qualifying cash flow hedging instruments (note 11) | 596 | | 840 | | 1,952 | | 2,480 |
Other comprehensive income | 4,264 | | 8,878 | | 13,986 | | 41,655 |
Comprehensive income | 152,493 | | 79,204 | | 364,676 | | 259,326 |
Non-controlling interest in comprehensive income | 6,508 | | 3,664 | | 15,666 | | 11,343 |
Preferred unitholders' interest in comprehensive income | 6,408 | | 6,425 | | 19,241 | | 19,275 |
Company / General and limited partners' interest in comprehensive income | 139,577 | | 69,115 | | 329,769 | | 228,708 |
The accompanying notes are an integral part of the unaudited consolidated financial statements.
SEAPEAK LLC AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS (note 1)
(in thousands of U.S. Dollars, except unit data)
| | | | | | | | | | | | |
| | As at September 30, 2022 | | As at December 31, 2021 |
| | $ | | $ |
ASSETS | | | | |
Current | | | | |
Cash and cash equivalents | | 113,825 | | 92,069 |
Restricted cash – current (note 13) | | 42,065 | | 11,888 |
Accounts receivable, including non-trade of $14,975 (2021 – $25,247) | | 49,261 | | 45,505 |
Prepaid expenses | | 17,503 | | 14,950 |
Vessel held for sale (note 14a) | | — | | 9,813 |
Current portion of derivative assets (note 11) | | 14,319 | | 672 |
Current portion of net investments in direct financing leases, net (notes 3b and 6) | | 16,004 | | 14,860 |
Current portion of advances to equity-accounted joint ventures, net (notes 3b and 7) | | — | | 17,500 |
Advances to affiliates (note 10b) | | 20,911 | | 4,153 |
Other current assets | | 2,127 | | 6,033 |
Total current assets | | 276,015 | | 217,443 |
| | | | |
Restricted cash – long-term (note 13) | | 10,603 | | 38,100 |
| | | | |
Vessels and equipment | | | | |
At cost, less accumulated depreciation of $688,483 (2021 – $801,725) | | 1,108,160 | | 1,186,968 |
Vessels related to finance leases, at cost, less accumulated depreciation of $244,521 (2021 – $206,161) (note 5) | | 1,615,308 | | 1,637,815 |
Operating lease right-of-use assets | — | | 6,747 |
Total vessels and equipment | | 2,723,468 | | 2,831,530 |
Investments in and advances to equity-accounted joint ventures, net (notes 3b and 7) | | 1,333,811 | | 1,136,374 |
Net investments in direct financing leases, net (notes 3b and 6) | | 475,135 | | 480,508 |
Other assets | | 34,886 | | 26,710 |
Derivative assets (note 11) | | 37,703 | | 7,425 |
Intangible assets, net | | 19,012 | | 25,654 |
Goodwill | | 34,841 | | 34,841 |
Total assets | | 4,945,474 | | 4,798,585 |
LIABILITIES AND EQUITY | | | | |
Current | | | | |
Accounts payable | | 3,118 | | 10,197 |
Accrued liabilities and other (note 11) | | 74,955 | | 71,864 |
Unearned revenue (note 6) | | 25,702 | | 19,973 |
Current portion of long-term debt (note 8) | | 218,452 | | 156,064 |
Current obligations related to finance leases (note 5) | | 75,537 | | 73,953 |
Current portion of operating lease liabilities | | — | | 6,747 |
Current portion of derivative liabilities (note 11) | | 23,485 | | 15,581 |
Advances from affiliates (note 10b) | | 31,142 | | 12,426 |
Total current liabilities | | 452,391 | | 366,805 |
Long-term debt (note 8) | | 990,097 | | 1,223,578 |
Long-term obligations related to finance leases (note 5) | | 1,138,070 | | 1,195,037 |
| | | | |
Other long-term liabilities (notes 3b, 6 and 12b) | | 68,730 | | 60,853 |
Derivative liabilities (note 11) | | 26,722 | | 23,289 |
Total liabilities | | 2,676,010 | | 2,869,562 |
Commitments and contingencies (notes 5, 7, 8, 11 and 12) | | | | |
Equity | | | | |
Common units (88.6 million units issued and outstanding at September 30, 2022) (Limited partner common units at December 31, 2021 – 87.0 million) | 1,947,832 | | 1,583,229 |
Preferred units (11.9 million units authorized; 11.8 million units issued and outstanding at September 30, 2022) (Limited partner preferred units – 11.9 million units authorized; 11.8 million units issued and outstanding at December 31, 2021) | | 284,397 | | 285,159 |
General partner | | — | | 48,286 |
Accumulated other comprehensive loss | | (39,763) | | (53,163) |
Equity | | 2,192,466 | | 1,863,511 |
Non-controlling interest | | 76,998 | | 65,512 |
Total equity | | 2,269,464 | | 1,929,023 |
Total liabilities and total equity | | 4,945,474 | | 4,798,585 |
The accompanying notes are an integral part of the unaudited consolidated financial statements.
SEAPEAK LLC AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of U.S. Dollars)
| | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | 2022 | | 2021 |
| | $ | | $ |
Cash, cash equivalents and restricted cash provided by (used for) | | | | |
OPERATING ACTIVITIES | | | | |
Net income | | 350,690 | | 217,671 |
Non-cash and non-operating items: | | | | |
Unrealized gain on non-designated derivative instruments (note 11) | | (70,768) | | (34,178) |
Depreciation and amortization | | 96,463 | | 97,253 |
Write-down and gain on sale of vessels (note 14) | | 43,802 | | — |
Unrealized foreign currency exchange gain | | (37,470) | | (13,125) |
Equity income, net of distributions received and return of capital $70,128 (2021 – $39,089) | | (173,384) | | (66,605) |
Amortization of deferred financing issuance costs included in interest expense | | 5,507 | | 4,134 |
Change in unrealized credit loss provisions included in other income (expense) (note 3b) | | (8,800) | | 3,117 |
Other non-cash items | | 4,973 | | 3,823 |
Change in operating assets and liabilities: | | | | |
Receipts from direct financing leases | | 12,094 | | 11,108 |
Expenditures for dry docking | | (20,191) | | (10,818) |
Other operating assets and liabilities | | (15,784) | | (74,683) |
Net operating cash flow | | 187,132 | | 137,697 |
FINANCING ACTIVITIES | | | | |
Proceeds from issuance of long-term debt | | 177,709 | | 237,691 |
Scheduled repayments of long-term debt and settlement of related swaps (note 11) | | (79,164) | | (174,415) |
Prepayments of long-term debt | | (197,836) | | (136,543) |
Financing issuance costs | | (2,200) | | (2,631) |
| | | | |
Scheduled repayments of obligations related to finance leases | | (55,383) | | (53,878) |
| | | | |
Cash distributions paid | | (19,241) | | (92,306) |
Repurchase of preferred units (note 16) | | (785) | | — |
Acquisition of Teekay Subsidiaries, includes assumed cash of $5.7 million (note 1) | | 10,674 | | — |
Contribution from Stonepeak (note 1) | | 6,035 | | — |
Repurchase of restricted unit awards (note 1) | | (5,964) | | — |
Dividends paid to non-controlling interests | | (4,180) | | (2,923) |
| | | | |
Net financing cash flow | | (170,335) | | (225,005) |
INVESTING ACTIVITIES | | | | |
Expenditures for vessels and equipment | | (18,693) | | (25,338) |
Proceeds from repayments of advances to equity-accounted joint ventures | | 7,500 | | 10,330 |
Proceeds from sales of investment in equity-accounted joint venture and vessel (notes 7c and 14a) | | 18,832 | | — |
Net investing cash flow | | 7,639 | | (15,008) |
Increase (decrease) in cash, cash equivalents and restricted cash | | 24,436 | | (102,316) |
Cash, cash equivalents and restricted cash, beginning of the period | | 142,057 | | 257,943 |
Cash, cash equivalents and restricted cash, end of the period | | 166,493 | | 155,627 |
Supplemental cash flow information (note 13)
The accompanying notes are an integral part of the unaudited consolidated financial statements.
SEAPEAK LLC AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN TOTAL EQUITY
(in thousands of U.S. Dollars and units)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | TOTAL EQUITY |
| | Unitholder Equity (note 1) | | | | |
| | Company /Limited Partner Common Units (note 1) | | Company /Limited Partner Common Units (note 1) | | Company /Limited Partner Preferred Units (note 1) | | Company /Limited Partner Preferred Units (note 1) | | General Partner (note 1) | | Accumulated Other Comprehensive Loss | | Non- controlling Interest | | Total |
| | # | | $ | | # | | $ | | $ | | $ | | $ | | $ |
Balance as at December 31, 2021 | | 87,010 | | | 1,583,229 | | | 11,800 | | | 285,159 | | | 48,286 | | | (53,163) | | | 65,512 | | | 1,929,023 | |
Cancellation of restricted unit awards (note 1) | | — | | | (3,254) | | | — | | | — | | | (59) | | | — | | | — | | | (3,313) | |
Contributed capital from Stonepeak (note 1) | | | | 5,926 | | | | | | | 109 | | | | | | | 6,035 | |
Acquisition of Teekay Subsidiaries (note 1) | | — | | | (2,701) | | | — | | | — | | | (50) | | | — | | | — | | | (2,751) | |
Distributions declared: | | | | | | | | | | | | | | | | |
Preferred units Series A ($0.5625 per unit) | | — | | | — | | | — | | | (2,812) | | | — | | | — | | | — | | | (2,812) | |
Preferred units Series B ($0.5313 per unit) | | — | | | — | | | — | | | (3,613) | | | — | | | — | | | — | | | (3,613) | |
Net income prior to conversion to limited liability company (note 1) | | — | | | 57,395 | | | — | | | 3,998 | | | 1,052 | | | — | | | 2,495 | | | 64,940 | |
Conversion to limited liability company (note 1) | | (87,010) | | | (1,640,595) | | | (11,800) | | | (282,732) | | | (49,338) | | | — | | | — | | | (1,972,665) | |
Issuance of Company common & preferred units (note 1) | | 88,565 | | | 1,689,933 | | | 11,800 | | | 282,732 | | | — | | | — | | | — | | | 1,972,665 | |
Net income post conversion to limited liability company (note 1) | | — | | | 29,965 | | | — | | | 2,427 | | | — | | | — | | | 2,686 | | | 35,078 | |
Other comprehensive income | | — | | | — | | | — | | | — | | | — | | | 4,551 | | | 206 | | | 4,757 | |
Dividends paid to non-controlling interest | | — | | | — | | | — | | | — | | | — | | | — | | | (502) | | | (502) | |
Balance as at March 31, 2022 | | 88,565 | | | 1,719,898 | | | 11,800 | | | 285,159 | | | — | | | (48,612) | | | 70,397 | | | 2,026,842 | |
Net income | | — | | | 92,465 | | | — | | | 6,408 | | | — | | | — | | | 3,570 | | | 102,443 | |
Other comprehensive income | | — | | | — | | | — | | | — | | | — | | | 4,764 | | | 201 | | | 4,965 | |
Distributions declared: | | | | | | | | | | | | | | | | |
Preferred units Series A ($0.5625 per unit) | | — | | | — | | | — | | | (2,800) | | | — | | | — | | | — | | | (2,800) | |
Preferred units Series B ($0.5313 per unit) | | — | | | — | | | — | | | (3,608) | | | — | | | — | | | — | | | (3,608) | |
Repurchase of preferred units (note 16) | | — | | | (23) | | | (32) | | | (762) | | | — | | | — | | | — | | | (785) | |
Balance as at June 30, 2022 | | 88,565 | | | 1,812,340 | | | 11,768 | | | 284,397 | | | — | | | (43,848) | | | 74,168 | | | 2,127,057 | |
Net income | | — | | | 135,492 | | | — | | | 6,408 | | | — | | | — | | | 6,329 | | | 148,229 | |
Other comprehensive income | | — | | | — | | | — | | | — | | | — | | | 4,085 | | | 179 | | | 4,264 | |
Distributions declared: | | | | | | | | | | | | | | | | |
Preferred units Series A ($0.5625 per unit) | | — | | | — | | | — | | | (2,800) | | | — | | | — | | | — | | | (2,800) | |
Preferred units Series B ($0.5313 per unit) | | — | | | — | | | — | | | (3,608) | | | — | | | — | | | — | | | (3,608) | |
| | | | | | | | | | | | | | | | |
Dividends paid to non-controlling interest | | — | | | — | | | — | | | — | | | — | | | — | | | (3,678) | | | (3,678) | |
Balance as at September 30, 2022 | | 88,565 | | | 1,947,832 | | | 11,768 | | | 284,397 | | | — | | | (39,763) | | | 76,998 | | | 2,269,464 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
SEAPEAK LLC AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN TOTAL EQUITY
(in thousands of U.S. Dollars and units)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | TOTAL EQUITY |
| | Partners’ Equity | | | | |
| | Limited Partners | | | | | | | | |
| | Common Units | | Common Units | | Preferred Units | | Preferred Units | | General Partner | | Accumulated Other Comprehensive Loss | | Non- controlling Interest | | Total |
| | # | | $ | | # | | $ | | $ | | $ | | $ | | $ |
Balance as at December 31, 2020 | | 86,951 | | | 1,465,408 | | | 11,800 | | | 285,159 | | | 46,182 | | | (103,836) | | | 53,357 | | | 1,746,270 | |
Net income | | — | | | 79,740 | | | — | | | 6,425 | | | 1,426 | | | — | | | 3,476 | | | 91,067 | |
Other comprehensive income | | — | | | — | | | — | | | — | | | — | | | 42,461 | | | 1,343 | | | 43,804 | |
Distributions declared: | | | | | | | | | | | | | | | | |
Common units ($0.25 per unit) | | — | | | (21,738) | | | — | | | — | | | (389) | | | — | | | — | | | (22,127) | |
Preferred units Series A ($0.5625 per unit) | | — | | | — | | | — | | | (2,812) | | | — | | | — | | | — | | | (2,812) | |
Preferred units Series B ($0.5313 per unit) | | — | | | — | | | — | | | (3,613) | | | — | | | — | | | — | | | (3,613) | |
Equity-based compensation | | 13 | | | 336 | | | — | | | — | | | 6 | | | — | | | — | | | 342 | |
Balance as at March 31, 2021 | | 86,964 | | | 1,523,746 | | | 11,800 | | | 285,159 | | | 47,225 | | | (61,375) | | | 58,176 | | | 1,852,931 | |
Net income | | — | | | 46,040 | | | — | | | 6,425 | | | 823 | | | — | | | 2,990 | | | 56,278 | |
Other comprehensive loss | | — | | | — | | | — | | | — | | | — | | | (10,897) | | | (130) | | | (11,027) | |
Distributions declared:
| | | | | | | | | | | | | | | | |
Common units ($0.2875 per unit) | | — | | | (25,002) | | | — | | | — | | | (447) | | | — | | | — | | | (25,449) | |
Preferred units Series A ($0.5625 per unit) | | — | | | — | | | — | | | (2,812) | | | — | | | — | | | — | | | (2,812) | |
Preferred units Series B ($0.5313 per unit) | | — | | | — | | | — | | | (3,613) | | | — | | | — | | | — | | | (3,613) | |
Dividends paid to non-controlling interest | | — | | | — | | | — | | | — | | | — | | | — | | | (2,670) | | | (2,670) | |
Equity-based compensation, net of withholding tax of $0.2 million | | 20 | | | 664 | | | — | | | — | | | 12 | | | — | | | — | | | 676 | |
Balance as at June 30, 2021 | | 86,984 | | | 1,545,448 | | | 11,800 | | | 285,159 | | | 47,613 | | | (72,272) | | | 58,366 | | | 1,864,314 | |
Net income | | — | | | 59,487 | | | — | | | 6,425 | | | 1,062 | | | — | | | 3,352 | | | 70,326 | |
Other comprehensive income | | — | | | — | | | — | | | — | | | — | | | 8,566 | | | 312 | | | 8,878 | |
Distributions declared: | | | | | | | | | | | | | | | | |
Common units ($0.2875 per unit) | | — | | | (25,008) | | | — | | | — | | | (447) | | | — | | | — | | | (25,455) | |
Preferred units Series A ($0.5625 per unit) | | — | | | — | | | — | | | (2,812) | | | — | | | — | | | — | | | (2,812) | |
Preferred units Series B ($0.5313 per unit) | | — | | | — | | | — | | | (3,613) | | | — | | | — | | | — | | | (3,613) | |
Dividends paid to non-controlling interest | | — | | | — | | | — | | | — | | | — | | | — | | | (253) | | | (253) | |
Equity-based compensation, net of withholding tax of $0.3 million | | 26 | | | 107 | | | — | | | — | | | 2 | | | — | | | — | | | 109 | |
Balance as at September 30, 2021 | | 87,010 | | | 1,580,034 | | | 11,800 | | | 285,159 | | | 48,230 | | | (63,706) | | | 61,777 | | | 1,911,494 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of the unaudited consolidated financial statements.
SEAPEAK LLC AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, unless otherwise indicated)
1.Basis of Presentation
On October 4, 2021, the Company (as Teekay LNG Partners L.P.), entered into an agreement and plan of merger with Teekay GP L.L.C (or the General Partner), an investment vehicle (or Acquiror) managed by Stonepeak Partners L.P. (or Stonepeak), and a wholly-owned subsidiary of Acquiror (or Merger Sub). On January 13, 2022, Stonepeak completed its acquisition of the Company, with Merger Sub merging with and into the Company, and with the Company surviving the merger as a subsidiary of Stonepeak (or the Merger). Pursuant to the Merger and related transactions (collectively referred to as the "Stonepeak Transaction"), (a) each issued and outstanding common unit of the Company, including approximately 36.0 million common units owned by Teekay Corporation (or Teekay) (but excluding any common units owned by the Company, Acquiror or the Company’s or Acquiror’s respective wholly-owned subsidiaries), was converted into the right to receive cash in an amount equal to $17.00 per common unit, (b) Teekay sold to Acquiror all of the outstanding ownership interests in the General Partner for $26.4 million, which price consisted of $17.00 for each of the approximately 1.6 million common unit equivalents represented by the economic interest of the General Partner's general partner interest in the Company and (c) the Company acquired certain restructured subsidiaries of Teekay (or the Teekay Subsidiaries) that provide, through services agreements, comprehensive managerial, operational and administrative services to the Company and its subsidiaries and joint ventures and as a result of this acquisition, Teekay paid the Company $4.9 million. The Company incurred fees of $18.0 million relating to professional services provided in connection to the Stonepeak Transaction which are included in other income (expense) in the Company's consolidated statements of income for the nine months ended September 30, 2022. On January 24, 2022, the Company's common units were delisted from the New York Stock Exchange. The Company's Series A and Series B Preferred Units remain outstanding and continue to trade on the New York Stock Exchange following the Merger.
As a result of the concurrent acquisition of both the Company and the Teekay Subsidiaries by Stonepeak, where the Teekay Subsidiaries became subsidiaries of the Company on completion of the Stonepeak Transaction, the acquisition of the Teekay Subsidiaries was accounted for by the Company as the acquisition of a business between entities under common control of Stonepeak. As such, the assets acquired and liabilities assumed by the Company on January 13, 2022 in connection with the acquisition of the Teekay Subsidiaries are recognized at their fair values. Due to negative working capital of the Teekay Subsidiaries on closing, Teekay paid the Company $4.9 million for the purchase of the Teekay Subsidiaries. The excess of the net recognized liabilities of the Teekay Subsidiaries over the amount paid by Teekay to the Company has been reflected as a decrease to equity of $2.8 million.
Additionally, at the effective time of the Merger on January 13, 2022, each restricted unit award granted pursuant to the Teekay LNG Partners L.P. 2005 Long-Term Incentive Plan that was outstanding immediately prior to the effective time, whether or not vested, was automatically vested, cancelled and converted into the right to receive an amount in cash equal to $17.00 multiplied by the number of common units subject to such restricted unit award held by the holder thereof, less applicable taxes. The amount of compensation cost for these restricted unit awards as measured at the grant date but not yet recognized as of the cancellation date was $2.7 million and has been expensed on such date. The total cash cost, including taxes, was $6.0 million and was accounted for as a direct reduction to equity. Such amount of $6.0 million was paid for with funds advanced by Stonepeak and this funding has been accounted for by the Company as a $6.0 million increase to equity.
On February 25, 2022, Teekay LNG Partners L.P. converted from a limited partnership formed under the laws of the Republic of the Marshall Islands (or the Partnership) into a limited liability company formed under the laws of the Republic of the Marshall Islands (or the Conversion). The Conversion is deemed a continuation of the existence of the Partnership in the form of the Company, as a Marshall Islands limited liability company, with the existence of the Company deemed to have commenced on the date the Partnership commenced its existence. Upon the Conversion, all of the rights, privileges and powers of the Partnership, and all property of and all property and debts due to the Partnership, became vested in the Company and the property of the Company. In addition, all rights of creditors and all liens upon any property of the Partnership were preserved unimpaired and all debts, liabilities and duties of the Partnership automatically attached to the Company. Concurrently with the Conversion, the Company changed its name to Seapeak LLC and changed the ticker symbols for its Series A Preferred Units and Series B Preferred Units from “TGP PRA” and “TGP PRB” to “SEAL PRA” and “SEAL PRB,” respectively.
Pursuant to the Conversion:
•each outstanding common unit of the Partnership was converted into one issued and outstanding, fully paid and non-assessable common unit of the Company;
•each outstanding Series A Preferred Unit and Series B Preferred Unit of the Partnership was converted into one issued and outstanding, fully paid and non-assessable Series A Preferred Unit or Series B Preferred Unit of the Company, as applicable; and
•the general partner interest in the Partnership was converted into 1,555,061 common units of the Company (which number is equal to the notional common units of the Partnership represented by such general partner interest immediately prior to the Conversion) and the Company, as a limited liability company, no longer had a general partner.
The unaudited interim consolidated financial statements (or unaudited consolidated financial statements) have been prepared in accordance with United States generally accepted accounting principles (or GAAP). These unaudited consolidated financial statements include the accounts of the Company, which is a limited liability company formed under the laws of the Republic of the Marshall Islands, its wholly-owned and controlled subsidiaries and any variable interest entities (or VIEs) of which it is the primary beneficiary.
Certain information and footnote disclosures required by GAAP for complete annual financial statements have been omitted and, therefore, these unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2021, which were included in the Company’s Annual Report on Form 20-F for the year ended
SEAPEAK LLC AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, unless otherwise indicated)
December 31, 2021 filed with the U.S. Securities and Exchange Commission (or SEC) on April 4, 2022. In the opinion of the management of the Company, these unaudited consolidated financial statements reflect all adjustments consisting solely of a normal recurring nature, necessary to present fairly, in all material respects, the Company’s consolidated financial position, results of operations, changes in total equity and cash flows for the interim periods presented. The results of operations for the interim periods presented are not necessarily indicative of those for a full fiscal year. Significant intercompany balances and transactions have been eliminated upon consolidation.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. It is possible that the amounts recorded as derivative liabilities and derivative assets could vary by material amounts prior to their settlement.
2.Accounting Pronouncements
In March 2020, the Financial Accounting Standards Board (or FASB) issued ASU 2020-04 - Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting (or ASU 2020-04). This ASU provides optional guidance for a limited period of time to ease potential accounting impacts associated with transitioning away from reference rates that are expected to be discontinued, such as the London Interbank Offered Rate (or LIBOR). This ASU applies only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued. The Company adopted this update effective January 1, 2022. The Company does not expect any material impact from the adoption of ASU 2020-04.
In July 2021, the FASB issued ASU 2021-05 - Leases (Topic 842) Lessors — Certain Leases with Variable Lease Payments (or ASU 2021-05). Pursuant to ASU 2021-05, lessors should classify and account for a lease with variable lease payments that do not depend on a reference index or a rate as an operating lease if, without reference to ASU 2012-05, the lease would have been classified as a sales-type lease or a direct financing lease and a day-one loss would have been recognized. On January 1, 2022, the Company adopted ASU 2021-05 prospectively to leases that commence or are modified on or after January 1, 2022.
3. Fair Value Measurements and Financial Instruments
a) Fair Value Measurements
For a description of how the Company estimates fair value and for a description of the fair value hierarchy levels, see Item 18 – Financial Statements: Note 3a to the Company’s audited consolidated financial statements filed with its Annual Report on Form 20-F for the year ended December 31, 2021. The following table includes the estimated fair value and carrying value of those assets and liabilities that are measured at fair value on a recurring and non-recurring basis, as well as the estimated fair value of the Company’s financial instruments that are not accounted for at fair value on a recurring basis.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | September 30, 2022 | | December 31, 2021 |
| | Fair Value Hierarchy Level | | Carrying Amount Asset (Liability) $ | | Fair Value Asset (Liability) $ | | Carrying Amount Asset (Liability) $ | | Fair Value Asset (Liability) $ |
Recurring: | | | | | | | | | | |
Cash and cash equivalents and restricted cash (note 13) | | Level 1 | | 166,493 | | | 166,493 | | | 142,057 | | | 142,057 | |
Derivative instruments (note 11) | | | | | | | | | | |
Interest rate swap agreements – assets | | Level 2 | | 50,668 | | | 50,668 | | | 3,896 | | | 3,896 | |
Interest rate swap agreements – liabilities | | Level 2 | | (599) | | | (599) | | | (26,802) | | | (26,802) | |
Cross currency swap agreements – assets | | Level 2 | | 1,354 | | | 1,354 | | | 4,201 | | | 4,201 | |
| | | | | | | | | | |
Cross currency swap agreements – liabilities | | Level 2 | | (49,893) | | | (49,893) | | | (14,654) | | | (14,654) | |
| | | | | | | | | | |
Non-recurring: | | | | | | | | | | |
Vessel held for sale (note 14a) | | Level 2 | | — | | | — | | | 9,813 | | | 9,813 | |
| | | | | | | | | | |
Equity-accounted joint ventures | | Level 2 | | — | | | — | | | 10,418 | | | 10,418 | |
Other: | | | | | | | | | | |
Loans to equity-accounted joint ventures (note 7) | | (i) | | 111,959 | | | (i) | | 115,637 | | | (i) |
Long-term debt – public (note 8) | | Level 1 | | (257,999) | | | (250,765) | | | (317,860) | | | (325,873) | |
Long-term debt – non-public (note 8) | | Level 2 | | (950,550) | | | (944,565) | | | (1,061,782) | | | (1,093,400) | |
Obligations related to finance leases (note 5) | | Level 2 | | (1,213,607) | | | (1,180,012) | | | (1,268,990) | | | (1,332,044) | |
(i)The advances to equity-accounted joint ventures together with the Company’s equity investments in the joint ventures form the net aggregate carrying value of the Company’s interests in the joint ventures in these unaudited consolidated financial statements. The fair values of the individual components of such aggregate interests are not determinable.
SEAPEAK LLC AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, unless otherwise indicated)
b) Credit Losses
For a description of the Company's exposure to potential credit losses under ASC 326, see Item 18 – Financial Statements: Note 3b to the Company’s audited consolidated financial statements filed with its Annual Report on Form 20-F for the year ended December 31, 2021.
The following table includes the amortized cost basis of the Company’s direct interests in financing receivables and net investment in direct financing leases by class of financing receivables and by period of origination and their associated credit quality as at September 30, 2022 and December 31, 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | As at September 30, 2022 | | As at December 31, 2021 |
| | Period of Origination | | Credit Quality Grade (1) | | Amortized Cost Basis $ | | Credit Quality Grade (1) | | Amortized Cost Basis $ |
| | | | | |
Direct financing leases | | | | | | | | | | |
Tangguh Hiri and Tangguh Sago | | 2017 and prior | | Performing | | 309,517 | | Performing | | 319,799 |
Seapeak Bahrain (formerly Bahrain Spirit) | | 2018 | | Performing | | 207,622 | | Performing | | 209,569 |
| | | | | | 517,139 | | | | 529,368 |
Loans to equity-accounted joint ventures | | | | | | | | | | |
Exmar LPG Joint Venture | | 2017 and prior | | Performing | | 24,766 | | Performing | | 32,266 |
Bahrain LNG Joint Venture | | 2017 and prior | | Performing | | 87,193 | | Performing | | 83,371 |
| | | | | | 111,959 | | | | 115,637 |
| | | | | | 629,098 | | | | 645,005 |
(1)For a description of how the Company's credit quality grades are determined see Item 18 – Financial Statements: Note 3b to the Company’s audited consolidated financial statements filed with its Annual Report on Form 20-F for the year ended December 31, 2021. As at September 30, 2022 and December 31, 2021, all direct financing and sales-type leases held by the Company and the Company’s equity-accounted joint ventures had a credit quality grade of performing.
Changes in the Company's allowance for credit losses for the three and nine months ended September 30, 2022 and 2021 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Direct Financing Leases (1) (2) $ | | Direct Financing and Sales-Type Leases and Other within Equity-Accounted Joint Ventures (1) (2) $ | | Loans to Equity-Accounted Joint Ventures (1) $ | | Guarantees of Debt (1) $ | | Total $ |
Three and Nine Months Ended September 30, 2022 | | | | | | | | | |
As at January 1, 2022 | 34,000 | | 58,300 | | 4,100 | | 1,700 | | 98,100 |
Provision for potential credit losses | 4,900 | | 500 | | 200 | | — | | 5,600 |
As at March 31, 2022 | 38,900 | | 58,800 | | 4,300 | | 1,700 | | 103,700 |
Provision for (reversal of) potential credit losses | 200 | | (1,200) | | (200) | | (200) | | (1,400) |
As at June 30, 2022 | 39,100 | | 57,600 | | 4,100 | | 1,500 | | 102,300 |
Reversal of potential credit losses | (13,100) | | (14,100) | | (300) | | (300) | | (27,800) |
As at September 30, 2022 | 26,000 | | 43,500 | | 3,800 | | 1,200 | | 74,500 |
| | | | | | | | | |
Three and Nine Months Ended September 30, 2021 | | | | | | | | | |
As at January 1, 2021 | 30,177 | | 54,937 | | 4,726 | | 2,080 | | 91,920 |
Provision for (reversal of) potential credit losses | 4,436 | | 6,677 | | (981) | | 218 | | 10,350 |
As at March 31, 2021 | 34,613 | | 61,614 | | 3,745 | | 2,298 | | 102,270 |
Provision for (reversal of) potential credit losses | 787 | | 722 | | 255 | | (298) | | 1,466 |
As at June 30, 2021 | 35,400 | | 62,336 | | 4,000 | | 2,000 | | 103,736 |
(Reversal of) provision for potential credit losses | (1,400) | | (1,736) | | 300 | | (200) | | (3,036) |
As at September 30, 2021 | 34,000 | | 60,600 | | 4,300 | | 1,800 | | 100,700 |
(1)For a description of how the credit loss provision for direct financing leases, direct financing and sales-type leases and other within equity-accounted joint ventures, loans to equity-accounted joint ventures and guarantees of debt was determined for the three and nine months ended September 30, 2022 and 2021, see Item 18 – Financial Statements: Note 3b to the Company’s audited consolidated financial statements filed with its Annual Report on Form 20-F for the year ended December 31, 2021.
SEAPEAK LLC AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, unless otherwise indicated)
(2)The change in credit loss provision of $(13.1) million and $(8.0) million for the Company's consolidated vessels' direct financing leases for the three and nine months ended September 30, 2022, respectively ($(1.4) million and $3.8 million for the three and nine months ended September 30, 2021, respectively), was included in other income (expense) in the Company's consolidated statements of income. The change in the credit loss provision for the three and nine months ended September 30, 2022 primarily reflects an increase in the estimated charter-free valuations for certain types of its liquefied natural gas (or LNG) carriers at the end of their respective time-charter contracts, which are accounted for as direct financing leases in the Company's consolidated balance sheets. These estimated future charter-free values are subject to change based on the underlying LNG shipping market fundamentals.
The change in credit loss provision of $(14.1) million and $(14.8) million for the three and nine months ended September 30, 2022, respectively ($(1.7) million and $5.7 million for the three and nine months ended September 30, 2021, respectively), relating to the direct financing and sales-type leases and other within the Company's equity-accounted joint ventures was included in equity income in the Company's consolidated statements of income. The change in credit loss provision for the three and nine months ended September 30, 2022 primarily reflects an increase in the estimated charter-free valuations for certain types of LNG carriers at the end of their respective time-charter contracts, which are accounted for as direct financing and sales-type leases within investments in equity-accounted joint ventures in the Company's consolidated balance sheets.
The changes in the credit loss provision for the Company's consolidated vessels and the vessels within the Company's equity-accounted joint ventures for the nine months ended September 30, 2022 do not reflect any material change in expectations of the charterers' ability to make their time-charter hire payments as they come due compared to the beginning of the period.
4. Segment Reporting
The following tables include results for the Company’s segments for the periods presented in these unaudited consolidated financial statements.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, |
| | 2022 | | 2021 | |
| | LNG Segment $ | | LPG Segment $ | | Total $ | | LNG Segment $ | | LPG Segment $ | | Total $ | |
Voyage revenues | | 135,339 | | 11,185 | | 146,524 | | 133,754 | | 12,823 | | 146,577 | |
Voyage expenses | | (7,015) | | (6,353) | | (13,368) | | (1,778) | | (5,443) | | (7,221) | |
Vessel operating expenses | | (41,900) | | (3,396) | | (45,296) | | (25,326) | | (5,100) | | (30,426) | |
Time-charter hire expenses | | — | | — | | — | | (5,665) | | — | | (5,665) | |
Depreciation and amortization | | (31,170) | | (1,593) | | (32,763) | | (31,294) | | (1,708) | | (33,002) | |
General and administrative expenses (i) | | (5,393) | | (162) | | (5,555) | | (11,691) | | (928) | | (12,619) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Income (loss) from vessel operations | | 49,861 | | (319) | | 49,542 | | 58,000 | | (356) | | 57,644 | |
Equity income (note 7) | | 83,367 | | 4,370 | | 87,737 | | 35,241 | | 3,997 | | 39,238 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | 2022 | | 2021 |
| | LNG Segment $ | | LPG Segment $ | | Total $ | | LNG Segment $ | | LPG Segment $ | | Total $ |
Voyage revenues | | 423,921 | | 35,571 | | 459,492 | | 411,934 | | 36,214 | | 448,148 |
Voyage expenses | | (10,702) | | (17,127) | | (27,829) | | (4,748) | | (16,016) | | (20,764) |
Vessel operating expenses | | (126,359) | | (12,687) | | (139,046) | | (78,169) | | (14,882) | | (93,051) |
Time-charter hire expenses | | (9,053) | | — | | (9,053) | | (17,382) | | — | | (17,382) |
Depreciation and amortization | | (91,734) | | (4,729) | | (96,463) | | (92,186) | | (5,067) | | (97,253) |
General and administrative expenses (i) | | (18,655) | | (988) | | (19,643) | | (24,562) | | (2,145) | | (26,707) |
(Write-down) and gain on sale of vessels (note 14) | | (43,996) | | 194 | | (43,802) | | — | | — | | — |
Restructuring charges | | (2,551) | | (100) | | (2,651) | | — | | — | | — |
Income (loss) from vessel operations | | 120,871 | | 134 | | 121,005 | | 194,887 | | (1,896) | | 192,991 |
Equity income (note 7) | | 228,215 | | 15,297 | | 243,512 | | 94,180 | | 11,514 | | 105,694 |
(i) Includes direct general and administrative expenses and indirect general and administrative expenses (allocated to each segment based on estimated use of corporate resources).
SEAPEAK LLC AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, unless otherwise indicated)
A reconciliation of total segment assets to consolidated total assets presented in the Company's consolidated balance sheets is as follows:
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
| $ | | $ |
Total assets of the LNG segment | 4,587,059 | | 4,449,598 |
Total assets of the LPG segment | 244,590 | | 252,765 |
Unallocated: | | | |
Cash and cash equivalents | 113,825 | | 92,069 |
Advances to affiliates | — | | 4,153 |
Consolidated total assets | 4,945,474 | | 4,798,585 |
5. Obligations related to Finance Leases
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
| $ | | $ |
Total obligations related to finance leases | 1,213,607 | | 1,268,990 |
Less current portion | (75,537) | | (73,953) |
Long-term obligations related to finance leases | 1,138,070 | | 1,195,037 |
As at September 30, 2022 and December 31, 2021, the Company was a party to finance leases on nine LNG carriers. These nine LNG carriers were sold by the Company to third parties (or Lessors) and leased back under 7.5 to 15-year bareboat charter contracts ending in 2026 through 2034. At inception of these leases, the weighted-average interest rate implicit in these leases was 5.1%. The bareboat charter contracts are presented as obligations related to finance leases on the Company's consolidated balance sheets and have purchase obligations at the end of the lease terms.
The obligations of the Company under the bareboat charter contracts for the nine LNG carriers are guaranteed by the Company. The guarantee agreements require the Company to maintain minimum levels of tangible net worth and aggregate liquidity, and not to exceed a maximum amount of leverage. As at September 30, 2022, the Company was in compliance with all covenants in respect of the obligations related to its finance leases.
As at September 30, 2022, the remaining commitments related to the financial liabilities of these nine LNG carriers, including the amounts to be paid for the related purchase obligations, approximated $1.5 billion, including imputed interest of $286.2 million, repayable through 2034, as indicated below:
| | | | | | |
| Commitments as at September 30, 2022 | |
Year | $ | |
Remainder of 2022 | 34,008 | |
2023 | 135,459 | |
2024 | 132,011 | |
2025 | 129,725 | |
2026 | 305,457 | |
Thereafter | 763,184 | |
SEAPEAK LLC AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, unless otherwise indicated)
6. Revenue
The Company’s primary source of revenue is from chartering its vessels to its customers. The Company primarily utilizes two forms of contracts consisting of time-charter contracts and voyage charter contracts. For a description of these contracts, see Item 18 – Financial Statements: Note 6 in the Company's audited consolidated financial statements filed with its Annual Report on Form 20-F for the year ended December 31, 2021.
The Company also generates revenue from the management and operation of vessels and the Bahrain LNG import terminal owned by the Company's equity-accounted joint ventures, as well as providing corporate management services to certain of these entities. Such services may include the arrangement of third-party goods and services for the vessel’s owner. The performance obligations within these contracts will typically consist of crewing, technical management, insurance and potentially commercial management. The performance obligations are satisfied concurrently and consecutively rendered over the duration of the management contract, as measured using the time that has elapsed from commencement of performance. Consideration for such contracts will generally consist of a fixed monthly management fee, plus the reimbursement without markup of crewing costs for the vessels being managed. The monthly management fee and reimbursement of crewing costs are typically invoiced and paid on a monthly basis.
Revenue Table
The following tables contain the Company’s revenue for the three and nine months ended September 30, 2022 and 2021, by contract type and by segment.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
| 2022 | | 2021 |
| LNG Segment $ | | LPG Segment $ | | Total $ | | LNG Segment $ | | LPG Segment $ | | Total $ |
Time charters | 113,963 | | 893 | | 114,856 | | 131,366 | | 3,084 | | 134,450 |
Voyage charters | — | | 10,292 | | 10,292 | | — | | 9,739 | | 9,739 |
Management fees and other income | 21,376 | | — | | 21,376 | | 2,388 | | — | | 2,388 |
| 135,339 | | 11,185 | | 146,524 | | 133,754 | | 12,823 | | 146,577 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2022 | | 2021 |
| LNG Segment $ | | LPG Segment $ | | Total $ | | LNG Segment $ | | LPG Segment $ | | Total $ |
Time charters | 360,574 | | 6,623 | | 367,197 | | 404,792 | | 6,890 | | 411,682 |
Voyage charters | — | | 28,948 | | 28,948 | | — | | 29,324 | | 29,324 |
Management fees and other income | 63,347 | | — | | 63,347 | | 7,142 | | — | | 7,142 |
| 423,921 | | 35,571 | | 459,492 | | 411,934 | | 36,214 | | 448,148 |
SEAPEAK LLC AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, unless otherwise indicated)
The following table contains the Company’s revenue for the three and nine months ended September 30, 2022 and 2021, by contracts or components of contracts accounted for as leases and those not accounted for as leases:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| $ | | $ | | $ | | $ |
| | | | | | | |
Lease revenue | | | | | | | |
Lease revenue from lease payments of operating leases | 110,653 | | 124,312 | | 345,897 | | 382,615 |
Interest income on lease receivables | 12,008 | | 12,348 | | 35,888 | | 36,877 |
Variable lease payments - cost reimbursements(1) | 1,116 | | 1,541 | | 3,869 | | 4,686 |
| | | | | | | |
| 123,777 | | 138,201 | | 385,654 | | 424,178 |
Non-lease revenue | | | | | | | |
Non-lease revenue - related to direct financing leases | 1,371 | | 5,988 | | 10,491 | | 16,828 |
Management fees and other income | 21,376 | | 2,388 | | 63,347 | | 7,142 |
| 22,747 | | 8,376 | | 73,838 | | 23,970 |
Total | 146,524 | | 146,577 | | 459,492 | | 448,148 |
(1)Reimbursements for vessel operating expenditures and dry-docking expenditures received from the Company's customers relating to such costs incurred by the Company to operate the vessel for the customer pursuant to charter contracts accounted for as operating leases.
Net Investments in Direct Financing Leases
As at September 30, 2022 and December 31, 2021, the Company had three LNG carriers, excluding the vessels in its equity-accounted joint ventures, that are accounted for as direct financing leases. For a description of the Company's LNG carriers accounted for as direct financing leases, see Item 18 – Financial Statements: Note 6 to the Company's audited consolidated financial statements included in its Annual Report on Form 20-F for the year ended December 31, 2021.
As at September 30, 2022, estimated lease payments to be received by the Company related to its direct financing leases in each of the next five years were approximately $16.3 million (remainder of 2022), $64.0 million (2023), $64.3 million (2024), $64.2 million (2025), $64.2 million (2026) and an aggregate of $382.3 million thereafter. Two leases are expected to end in 2028 and the remaining lease is scheduled to end in 2039.
Operating Leases
As at September 30, 2022, the minimum scheduled future rentals to be received by the Company in each of the next five years for the lease and non-lease elements related to charters that were accounted for as operating leases are approximately $106.7 million (remainder of 2022), $372.5 million (2023), $309.0 million (2024), $231.6 million (2025), and $162.7 million (2026). Minimum scheduled future rentals on operating lease contracts do not include rentals from vessels in the Company’s equity-accounted joint ventures, rentals from unexercised option periods of contracts that existed on September 30, 2022, variable or contingent rentals, or rentals from contracts which were entered into or commenced after September 30, 2022. Therefore, the minimum scheduled future rentals on operating leases should not be construed to reflect total charter hire revenues for any of these five years.
Contract Liabilities
As at September 30, 2022, the Company had $34.8 million of advanced payments recognized as contract liabilities included in unearned revenue (December 31, 2021 – $22.2 million, September 30, 2021 – $18.6 million and December 31, 2020 – $28.4 million). The Company recognized $28.8 million and $15.5 million of revenue for the three months ended September 30, 2022 and 2021, respectively, that was recognized as a contract liability at the beginning of such three-month periods. The Company recognized $22.2 million and $28.4 million of revenue for the nine months ended September 30, 2022 and 2021, respectively, that was recognized as a contract liability at the beginning of each such nine-month period.
7. Equity-Accounted Joint Ventures
For a description of the Company's equity-accounted joint ventures, see Item 18 - Financial Statements: Note 7a in the Company's audited consolidated financial statements filed with its Annual Report on Form 20-F for the year ended December 31, 2021.
The Company's potential credit losses associated with its equity-accounted joint ventures are described in Note 3b and are excluded from the amounts in this note.
a) As of September 30, 2022, the Company had advanced $24.8 million to the Exmar LPG Joint Venture (December 31, 2021 – $32.3 million), in which the Company has a 50% ownership interest. These advances bear interest at LIBOR plus 0.50% and have no fixed repayment terms. For the three and nine months ended September 30, 2022, interest earned on these loans amounted to $0.2 million and $0.3 million, respectively (three and nine months ended September 30, 2021 – $0.1 million and $0.3 million,
SEAPEAK LLC AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, unless otherwise indicated)
respectively), and is included in interest income in the Company's consolidated statements of income. As of September 30, 2022 and December 31, 2021, the interest receivable on these advances was $nil). These advances were included in investments in and advances to equity-accounted joint ventures, net in the Company’s consolidated balance sheets.
b) As of September 30, 2022 and December 31, 2021, the Company had advanced $73.4 million to the Bahrain LNG Joint Venture, in which the Company has a 30% ownership interest. These advances bear interest at 6.0%. For the three and nine months ended September 30, 2022, interest earned on these advances amounted to $1.3 million and $3.8 million, respectively (three and nine months ended September 30, 2021 – $1.2 million and $3.6 million, respectively), and is included in interest income in the Company's consolidated statements of income. As of September 30, 2022 and December 31, 2021, the interest receivable on these advances was $13.8 million and $10.0 million, respectively. Both the advances and the accrued interest on these advances were included in investments in and advances to equity-accounted joint ventures, net in the Company’s consolidated balance sheets.
c) In September 2022, the Company sold its 50% ownership interest in the Excalibur Joint Venture, an LNG-related joint venture which owns one LNG carrier that was included in the Company's LNG segment. At the time of the sale, the Company's ownership interest had a net book value $5.3 million. The Company received net proceeds of $8.8 million, resulting in a gain on sale of $3.5 million, which is included in equity income for the three and nine months ended September 30, 2022 in the Company's consolidated statements of income.
d) The Company guarantees its proportionate share of certain loan facilities and obligations on interest rate swaps for certain of its equity-accounted joint ventures for which the aggregate principal amount of the loan facilities and fair value of the interest rate swaps as at September 30, 2022 was $1.2 billion. As at September 30, 2022, with the exception of debt service coverage ratio breaches for two of the vessels in the Angola Joint Venture, all of the Company's equity-accounted joint ventures were in compliance with all covenants relating to these loan facilities that the Company guarantees. In October 2022, the Angola Joint Venture obtained a waiver for the covenant requirements that were not met at June 30, 2022, with such waiver being valid until the next compliance test at December 31, 2022. The waiver is subject to the condition that dividends are withheld from the joint venture partners until such time that the loan facilities mature.
8. Long-Term Debt
| | | | | | | | | | | | | | |
| | September 30, 2022 | | December 31, 2021 |
| | $ | | $ |
U.S. Dollar-denominated Revolving Credit Facility due in 2023 | | 60,000 | | 165,000 |
U.S. Dollar-denominated Term Loans and Bonds due from 2024 to 2030 | | 812,913 | | 791,271 |
Norwegian Krone-denominated Bonds due from 2023 to 2026 | | 261,798 | | 323,193 |
Euro-denominated Term Loans due in 2023 and 2024 | | 84,953 | | 115,392 |
Total principal | | 1,219,664 | | 1,394,856 |
Unamortized discount and debt issuance costs | | (11,115) | | (15,214) |
Total debt | | 1,208,549 | | 1,379,642 |
Less current portion | | (218,452) | | (156,064) |
Long-term debt | | 990,097 | | 1,223,578 |
As at September 30, 2022, the Company had one revolving credit facility, which provided for borrowings of up to $295.0 million (December 31, 2021 – two revolving credit facilities, which provided for borrowings of up to $400.4 million), of which $235.0 million (December 31, 2021 – $235.4 million) was undrawn. Interest payments are based on LIBOR plus a margin of 1.40%. The amount available under the revolving credit facility will be reduced by $295.0 million in December 2023, when the revolving credit facility matures. The revolving credit facility is unsecured and may be used by the Company for general company purposes.
As at September 30, 2022, the Company had six U.S. Dollar-denominated term loans and bonds outstanding, which totaled $812.9 million in aggregate principal amount (December 31, 2021 – $791.3 million). Interest payments on the term loans are based on LIBOR plus a margin, where margins ranged from 1.85% to 3.25%, and interest payments on the bonds are fixed and range from 4.11% to 4.41%. The six combined term loans and bonds require quarterly interest and principal payments and five have balloon or bullet repayments due at maturity. The term loans and bonds are collateralized by first-priority mortgages on the 14 Company vessels to which the loans relate, together with certain other related security. In addition, as at September 30, 2022, all of the outstanding term loans were guaranteed by either the Company or the ship-owning entities within the RasGas II Joint Venture, in which the Company has a 70% ownership interest.
As at September 30, 2022 and December 31, 2021, the Company had Norwegian Krone (or NOK) 2.9 billion of senior unsecured bonds in the Norwegian bond market that mature through 2026. As at September 30, 2022, the total amount of the bonds, which are listed on the Oslo Stock Exchange, was $261.8 million (December 31, 2021 – $323.2 million). The interest payments on the bonds are based on Norwegian Interbank Offered Rate (or NIBOR) plus a margin, where margins ranged from 4.60% to 5.15%. The Company entered into cross currency rate swaps, to swap all interest and principal payments of the bonds into U.S. Dollars, with the interest payments fixed at rates ranging from 5.74% to 7.89% and the transfer of principal fixed at $331.0 million upon maturity in exchange for NOK 2.9 billion (see Note 11). In connection with the Stonepeak Transaction, the Company also changed its trading symbols for its NOK-denominated bonds as follows: SPK05 (formerly TKLNG05), SPK06 (formerly TKLNG06) and SPK07 (formerly TKLNG07).
SEAPEAK LLC AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, unless otherwise indicated)
As at September 30, 2022, the Company had two Euro-denominated term loans outstanding, which totaled 86.7 million Euros ($85.0 million) (December 31, 2021 – 101.5 million Euros ($115.4 million)). Interest payments for one of the term loans are based on the Euro Interbank Offered Rate (or EURIBOR) plus a margin. Interest payments on the remaining term loan are based on EURIBOR where EURIBOR is limited to zero or above zero values, plus a margin. Margins on the term loans ranged from 0.60% to 1.95%. The term loans require monthly and semi-annual interest and principal payments. The term loans have varying maturities through 2024. The term loans are collateralized by first-priority mortgages on two of the Company vessels to which the loans relate, together with certain other related security and are guaranteed by the Company and one of its subsidiaries.
The weighted-average interest rates for the Company’s long-term debt outstanding as at September 30, 2022 and December 31, 2021 were 5.40% and 3.22%, respectively. These rates do not reflect the effect of related interest rate swaps that the Company has used to economically hedge certain of its floating-rate debt (see Note 11).
All Euro-denominated term loans and NOK-denominated bonds are revalued at the end of each period using the then-prevailing U.S. Dollar exchange rate. Due primarily to the revaluation of the Company’s NOK-denominated bonds, the Company’s Euro-denominated term loans and restricted cash, and the change in the valuation of the Company’s cross currency swaps, the Company incurred foreign exchange gains of $9.4 million and $2.8 million for the three months ended September 30, 2022 and 2021, respectively, and gains of $29.6 million and $6.9 million for the nine months ended September 30, 2022 and 2021, respectively.
The aggregate annual long-term debt principal repayments required under the Company's revolving credit facility, loans and bonds subsequent to September 30, 2022 are $30.9 million (remainder of 2022), $276.7 million (2023), $131.7 million (2024), $174.8 million (2025), $394.5 million (2026) and $211.1 million (thereafter).
Certain loan agreements require that (a) the Company maintains minimum levels of tangible net worth and aggregate liquidity, (b) the Company maintain certain ratios of vessel values related to the relevant outstanding loan principal balance, (c) the Company not exceed a maximum amount of leverage, and (d) certain of the Company’s subsidiaries maintain restricted cash deposits. As at September 30, 2022, the Company had four credit facilities with an aggregate outstanding loan balance of $455.9 million that require it to maintain minimum vessel-value-to-outstanding-loan-principal-balance ratios of 110%, 120%, 120% and 135%, which as at September 30, 2022, were 132%, 136%, 164% and 245%, respectively. The vessel values used in calculating these ratios are the appraised values provided by third parties, where available, or prepared by the Company based on second-hand sale and purchase market data. Since vessel values can be volatile, the Company’s estimates of market value may not be indicative of either the current or future prices that could be obtained if the Company sold any of the vessels. The Company’s ship-owning subsidiaries may not, among other things, pay dividends or distributions if the Company's subsidiaries are in default under their term loans and, in addition, one of the term loans in the RasGas II Joint Venture requires it to satisfy a minimum vessel value to outstanding loan principal balance ratio to pay dividends. As at September 30, 2022, the Company was in compliance with all covenants relating to the Company’s credit facilities and other long-term debt.
9. Income Tax Expense
The components of the provision for income tax expense are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| | $ | | $ | | $ | | $ |
Current | | (733) | | (1,285) | | (5,367) | | (3,935) |
Deferred | | (1,547) | | (941) | | (1,418) | | 671 |
Income tax expense | | (2,280) | | (2,226) | | (6,785) | | (3,264) |
Included in the Company's current income tax expense are provisions for uncertain tax positions relating to freight taxes. The Company does not presently anticipate that its provisions for these uncertain tax positions will significantly increase in the next 12 months; however, this is dependent on the jurisdictions in which vessel trading activity occurs. The Company reviews its freight tax obligations on a regular basis and may update its assessment of its tax positions based on available information at that time. Such information may include additional legal advice as to the applicability of freight taxes in relevant jurisdictions. Freight tax regulations are subject to change and interpretation; therefore, the amounts recorded by the Company may change accordingly.
SEAPEAK LLC AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, unless otherwise indicated)
10. Related Party Transactions
a) The following table and related footnotes provide information about certain of the Company's related party transactions for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| | $ | | $ | | $ | | $ |
Voyage revenues (i)(ii) | | 28,971 | | 9,869 | | 84,600 | | 29,285 |
Vessel operating expenses (iii) | | — | | (451) | | (181) | | (5,609) |
Time-charter hire expenses (iv) | | — | | (5,665) | | (9,053) | | (17,382) |
General and administrative (expenses) recoveries (v) | | — | | (9,382) | | 92 | | (18,374) |
Restructuring charges (vi) | | — | | — | | (2,651) | | — |
Equity income (vii) | | 610 | | 609 | | 1,808 | | 1,808 |
(i)In September 2018, the Company’s Floating Storage Unit, the Seapeak Bahrain, commenced its 21-year charter contract with the Bahrain LNG Joint Venture. Voyage revenues from the charter of the Seapeak Bahrain to the Bahrain LNG Joint Venture for the three and nine months ended September 30, 2022, amounted to $7.6 million and $21.3 million, respectively ($7.5 million and $22.1 million for the three and nine months ended September 30, 2021, respectively). In addition, the Company has an operation and maintenance contract with the Bahrain LNG Joint Venture relating to the LNG regasification terminal in Bahrain. Fees received in relation to the operation and maintenance contract from the Bahrain LNG Joint Venture for the three and nine months ended September 30, 2022, were $2.8 million and $8.2 million, respectively ($2.4 million and $7.2 million for the three and nine months ended September 30, 2021, respectively), and are included in voyage revenues in the Company's consolidated statements of income.
(ii)Commencing in January 2022, following the acquisition of the Teekay Subsidiaries (as described in Note 1), the Company provides ship management and corporate services to certain of its equity-accounted joint ventures that own and operate LNG carriers on long-term charters. In addition, the Company was reimbursed for costs incurred by the Company for its seafarers operating these LNG carriers. During the three and nine months ended September 30, 2022, the Company earned management fees and cost reimbursements pursuant to these management agreements of $18.6 million and $55.1 million, respectively, which are included in voyage revenues in the Company's consolidated statements of income.
(iii)Prior to the Stonepeak Transaction, the Company and certain of its operating subsidiaries were parties to service agreements with certain subsidiaries of Teekay pursuant to which the Teekay subsidiaries provided to the Company and its subsidiaries crew training and technical management services. All costs incurred by these Teekay subsidiaries related to these services were charged to the Company and recorded as part of vessel operating expenses.
(iv)From September 2018 to June 2022, the Company chartered the Magellan Spirit LNG carrier from the MALT Joint Venture. The time-charter hire expenses charged for the nine months ended September 30, 2022 were $9.1 million ($5.7 million and $17.4 million for the three and nine months ended September 30, 2021, respectively).
(v)Prior to the Stonepeak Transaction, general and administrative expenses included administrative, advisory, business development, commercial and strategic consulting services charged by Teekay and reimbursements to Teekay and the Company's General Partner for costs incurred on the Company's behalf for the conduct of the Company's business. Following the Stonepeak Transaction for a period of approximately one year, Teekay and the Company have agreed to provide to each other certain limited administrative services to complete the separation of the Company's administrative services from Teekay's shared services function.
(vi)In January 2022, the Company incurred restructuring charges of $2.7 million from Teekay related to severance costs resulting from the reorganization and realignment of employees supporting the Company as a result of the Stonepeak Transaction.
(vii)During the three and nine months ended September 30, 2022, the Company charged fees of $0.6 million and $1.8 million, respectively ($0.6 million and $1.8 million for the three and nine months ended September 30, 2021, respectively), to the Yamal LNG Joint Venture relating to the successful bid process for the construction and chartering of six ARC7 LNG carriers. The fees are reflected in equity income in the Company’s consolidated statements of income.
b) As at September 30, 2022 and December 31, 2021, non-interest-bearing advances to affiliates totaled $20.9 million and $4.2 million, respectively, and non-interest-bearing advances from affiliates totaled $31.1 million and $12.4 million, respectively. These advances are unsecured and have no fixed repayment terms.
c) For other transactions with the Company's equity-accounted joint ventures not disclosed above, please refer to Note 7.
11. Derivative Instruments and Hedging Activities
The Company uses derivative instruments in accordance with its overall risk management policy.
Foreign Exchange Risk
From time to time, the Company economically hedges portions of its forecasted expenditures denominated in foreign currencies with foreign currency forward contracts. As at September 30, 2022, the Company was not committed to any foreign currency forward contracts.
The Company entered into cross currency swaps concurrently with the issuance of its NOK-denominated senior unsecured bonds (see Note 8), and pursuant to these swaps, the Company receives the principal amount in NOK on maturity dates of the swaps in exchange for
SEAPEAK LLC AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, unless otherwise indicated)
payments of a fixed U.S. Dollar amount. In addition, the cross currency swaps exchange a receipt of floating interest in NOK based on NIBOR plus a margin for a payment of U.S. Dollar fixed interest. The purpose of the cross currency swaps is to economically hedge the foreign currency exposure on the payment of interest and principal of the Company’s NOK-denominated bonds due in 2023, 2025 and 2026, and to economically hedge the interest rate exposure. The following table reflects information relating to the cross currency swaps as at September 30, 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Floating Rate Receivable | | | | | | |
Principal Amount NOK | | Principal Amount $ | | Reference Rate | | Margin | | Fixed Rate Payable | | Fair Value / Carrying Amount of Asset (Liability) $ | | Weighted- Average Remaining Term (Years) |
850,000 | | 102,000 | | NIBOR | | 4.60% | | 7.89% | | (23,131) | | 0.9 |
1,000,000 | | 112,000 | | NIBOR | | 5.15% | | 5.74% | | (10,595) | | 2.9 |
1,000,000 | | 117,000 | | NIBOR | | 4.90% | | 6.37% | | (14,813) | | 4.1 |
| | | | | | | | | | (48,539) | | |
Interest Rate Risk
The Company enters into interest rate swaps which exchange a receipt of floating interest for a payment of fixed interest to reduce the Company’s exposure to interest rate variability on certain of its outstanding floating-rate debt. Effective January 1, 2022, the Company removed the hedge accounting designation for all interest rate swaps that the Company and its equity-accounted investments were previously applying hedge accounting for.
As at September 30, 2022, the Company was committed to the following interest rate swap agreements:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Interest Rate Index | | Principal Amount $ | | Fair Value / Carrying Amount of Asset (Liability) $ | | Weighted- Average Remaining Term (years) | | Fixed Interest Rate (i) |
LIBOR-Based Debt: | | | | | | |
U.S. Dollar-denominated interest rate swaps (ii)(iii) | | LIBOR | | 694,577 | | 35,836 | | 2.5 | | 2.2% |
U.S. Dollar-denominated interest rate swaps (ii)(iv) | | LIBOR | | 235,202 | | 14,796 | | 4.0 | | 1.7% |
EURIBOR-Based Debt: | | | | | | |
Euro-denominated interest rate swaps (v) | | EURIBOR | | 39,493 | | (563) | | 0.9 | | 3.9% |
| | | | | | 50,069 | | | | |
(i)Excludes the margins the Company pays on its floating-rate term loans, which, at September 30, 2022, ranged from 0.60% to 3.25%.
(ii)Principal amount reduces quarterly.
(iii)Two interest rate swaps are subject to mandatory early termination in 2024 whereby the swaps will be settled based on their fair value at that time.
(iv)Forward-starting interest rate swaps with inception dates ranging from October 2023 to April 2024.
(v)Principal amount reduces monthly.
As at September 30, 2022, the Company had multiple interest rate swaps and cross currency swaps with the same counterparty that are subject to the same master agreement. Each of these master agreements provides for the net settlement of all swaps subject to that master agreement through a single payment in the event of default or termination of any one swap. The fair value of these derivative instruments is presented on a gross basis in the Company’s consolidated balance sheets. As at September 30, 2022, these interest rate swaps and cross currency swaps had an aggregate fair value asset of $50.6 million (December 31, 2021 – $7.1 million) and an aggregate fair value liability of $39.5 million (December 31, 2021 – $36.9 million). As at September 30, 2022, the Company had $14.3 million (December 31, 2021 – $2.9 million) on deposit as security for swap liabilities under certain master agreements. The deposit is presented in restricted cash – current and long-term on the Company's consolidated balance sheets.
Credit Risk
The Company is exposed to credit loss in the event of non-performance by the counterparties to the interest rate swap agreements. In order to minimize counterparty risk, the Company only enters into derivative transactions with counterparties that are rated A- or better by Standard & Poor’s or A3 or better by Moody’s at the time of the transactions. In addition, to the extent practical, interest rate swaps are entered into with different counterparties to reduce concentration risk.
SEAPEAK LLC AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, unless otherwise indicated)
The following table presents the classification and fair value amounts of derivative instruments, segregated by type of contract, on the Company’s consolidated balance sheets.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Current portion of derivative assets $ | | Derivative assets $ | | Accrued liabilities $ | | Current portion of derivative liabilities $ | | Derivative liabilities $ |
As at September 30, 2022 | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Derivatives not designated as a cash flow hedge: | | | | | | | | | | | | | |
Interest rate swap agreements | | | | | 12,965 | | 37,703 | | (36) | | (563) | | — |
Cross currency swap agreements | | | | | 1,354 | | — | | (249) | | (22,922) | | (26,722) |
| | | | | 14,319 | | 37,703 | | (285) | | (23,485) | | (26,722) |
As at December 31, 2021 | | | | | | | | | | | | | |
Derivatives designated as a cash flow hedge: | | | | | | | | | | | | | |
Interest rate swap agreements | | | | | — | | — | | (67) | | (2,451) | | (3,081) |
Derivatives not designated as a cash flow hedge: | | | | | | | | | | | | | |
Interest rate swap agreements | | | | | — | | 3,896 | | (2,177) | | (10,327) | | (8,699) |
Cross currency swap agreements
| | | | | 672 | | 3,529 | | (342) | | (2,803) | | (11,509) |
| | | | | 672 | | 7,425 | | (2,586) | | (15,581) | | (23,289) |
Realized and unrealized gains (losses) relating to non-designated interest rate swap agreements are recognized in earnings and reported in realized and unrealized gain on non-designated derivative instruments in the Company’s consolidated statements of income. The effect of the gain (loss) on these derivatives on the Company’s consolidated statements of income is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, |
| | 2022 | | 2021 |
| | Realized gains (losses) | | Unrealized gains (losses) | | Total | | Realized gains (losses) | | Unrealized gains (losses) | | Total |
| | $ | | $ | | $ | | $ | | $ | | $ |
Interest rate swap agreements | | (361) | | 23,093 | | 22,732 | | (3,919) | | 4,020 | | 101 |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | 2022 | | 2021 |
| | Realized gains (losses) | | Unrealized gains (losses) | | Total | | Realized gains (losses) | | Unrealized gains (losses) | | Total |
| | $ | | $ | | $ | | $ | | $ | | $ |
Interest rate swap agreements | | (7,371) | | 70,768 | | 63,397 | | (12,317) | | 34,178 | | 21,861 |
Interest rate swap agreement termination | | — | | — | | — | | (18,012) | | — | | (18,012) |
| | (7,371) | | 70,768 | | 63,397 | | (30,329) | | 34,178 | | 3,849 |
Realized and unrealized gains (losses) relating to cross currency swap agreements are recognized in earnings and reported in foreign currency exchange gain in the Company’s consolidated statements of income. The effect of the gain (loss) on these derivatives on the Company's consolidated statements of income is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, |
| | 2022 | | 2021 |
| | Realized gains (losses) | | Unrealized gains (losses) | | Total | | Realized gains (losses) | | Unrealized gains (losses) | | Total |
| | $ | | $ | | $ | | $ | | $ | | $ |
Cross currency swap agreements | | (843) | | (21,485) | | (22,328) | | (1,595) | | (3,952) | | (5,547) |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
SEAPEAK LLC AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, unless otherwise indicated)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | 2022 | | 2021 |
| | Realized gains (losses) | | Unrealized gains (losses) | | Total | | Realized gains (losses) | | Unrealized gains (losses) | | Total |
| | $ | | $ | | $ | | $ | | $ | | $ |
Cross currency swap agreements | | (2,587) | | (38,180) | | (40,767) | | (4,233) | | (1,085) | | (5,318) |
For the periods indicated, the following table presents the gains or losses on interest rate swap agreements designated and qualifying as cash flow hedges and their impact on other comprehensive income (or OCI) (excluding such agreements in equity-accounted investments):
| | | | | | | | | | | | | | | |
Three Months Ended September 30, 2022 | | | Three Months Ended September 30, 2021 |
Amount of Loss Reclassified from Accumulated OCI to Interest Expense $ | | | Amount of Gain Recognized in OCI $ | | Amount of Loss Reclassified from Accumulated OCI to Interest Expense $ |
(596) | | | 1,040 | | (840) |
| | | | | |
| | | | | |
| | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | | | | | | | | | | | |
Nine months ended September 30, 2022 | | | Nine months ended September 30, 2021 |
Amount of Loss Reclassified from Accumulated OCI to Interest Expense $ | | | Amount of Gain Recognized in OCI $ | | Amount of Loss Reclassified from Accumulated OCI to Interest Expense $ |
(1,952) | | | 5,080 | | (2,480) |
12. Commitments and Contingencies
(a)During September 2022, the Company's 50%-owned Exmar LPG Joint Venture entered into contracts with Hyundai Mipo Dockyard for the construction of two 45,000 cubic meter LPG fueled LPG carriers for scheduled deliveries in 2024 and 2025, respectively. The Company's proportionate share of the total fully built-up cost is approximately $74.3 million. As at September 30, 2022, the Company's proportionate share of costs incurred under these newbuilding contracts totaled $6.9 million and the estimated remaining costs to be incurred are $8.8 million (2023), $37.3 million (2024), and $21.3 million (2025). The Exmar LPG Joint Venture intends to finance the remaining estimated costs with its existing liquidity and future operating cash flow, as well as long-term debt financing to be arranged for the vessels prior to their scheduled deliveries.
(b)The Company has a 30% ownership interest in the Bahrain LNG Joint Venture which has an LNG receiving and regasification terminal in Bahrain. As at September 30, 2022, the Company's proportionate share of the estimated remaining final construction installment on the LNG terminal is $11.3 million and is expected to be incurred in 2023. The Bahrain LNG Joint Venture intends to finance the final construction installment through its undrawn debt financing, of which $7.2 million relates to the Company's proportionate share, its existing liquidity, and its future operating cash flow.
(c)The Company owns 70% of the Tangguh Joint Venture, which is a party to operating leases whereby the Tangguh Joint Venture is leasing the Tangguh Hiri and Tangguh Sago LNG carriers (or the Tangguh LNG Carriers) to a third party, which is in turn leasing the vessels back to the joint venture. The Company’s minimum charter hire payments to be paid and received under these leases are described in more detail in Item 18 – Financial Statements: Note 14c to the Company’s audited consolidated financial statements filed with its Annual Report on Form 20-F for the year ended December 31, 2021. Under the terms of the leasing arrangement for the Tangguh LNG Carriers, whereby the Tangguh Joint Venture is the lessee, the lessor claims tax depreciation on its lease of these vessels. As is typical in these types of leasing arrangements, tax and change of law risks are assumed by the lessee. Lease payments under the lease arrangements are based on certain tax and financial assumptions at the commencement of the leases. If an assumption proves to be incorrect, the lessor is entitled to increase the lease payments to maintain its agreed after-tax margin. As at September 30, 2022, the carrying amount of this estimated tax indemnification obligation relating to the leasing arrangement through the Tangguh Joint Venture was $4.8 million (December 31, 2021 – $5.2 million) and was included as part of other long-term liabilities in the consolidated balance sheets of the Company.
SEAPEAK LLC AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, unless otherwise indicated)
13. Supplemental Cash Flow Information
The following is a tabular reconciliation of the Company's cash, cash equivalents and restricted cash balances for the periods presented in the Company's consolidated statements of cash flows.
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 | | September 30, 2021 | | December 31, 2020 |
| $ | | $ | | $ | | $ |
Cash and cash equivalents | 113,825 | | 92,069 | | 109,596 | | 206,762 |
Restricted cash – current | 42,065 | | 11,888 | | 8,840 | | 8,358 |
Restricted cash – long-term | 10,603 | | 38,100 | | 37,191 | | 42,823 |
| 166,493 | | 142,057 | | 155,627 | | 257,943 |
The Company maintains restricted cash deposits relating to certain term loans, collateral for cross currency swaps (see Note 11), performance bond collateral and amounts received from charterers to be used only for dry-docking expenditures and emergency repairs.
14. Write-down and Gain on Sale of Vessels
a) In November 2021, the Company signed a memorandum of agreement for the sale of its wholly-owned multi-gas carrier, the Sonoma Spirit. The vessel was classified as held for sale at its net book value of $9.8 million on the Company's consolidated balance sheet as at December 31, 2021. The vessel was delivered to its buyer in June 2022 for net proceeds of $10.0 million resulting in a gain on sale of $0.2 million, which is included in write-down and gain on sale of vessels for the nine months ended September 30, 2022 in the Company's consolidated statements of income.
b) In March 2022, the carrying values of two of the Company's LNG carriers, the Seapeak Arctic (formerly Arctic Spirit) and Seapeak Polar (formerly Polar Spirit), were written down to their estimated fair values, using appraised values, as a result of changes in the Company's expectations of these vessels' future opportunities subsequent to the completion of their time-charter contracts in April 2022. The total impairment charge of $44.0 million is included in write-down and gain on sale of vessels for the nine months ended September 30, 2022 in the Company's consolidated statement of income.
15. Restructuring Charges
During the nine months ended September 30, 2022, the Company incurred restructuring charges of $2.7 million. The restructuring charges primarily related to severance costs resulting from the reorganization and realignment of employees supporting the Company as a result of the Stonepeak Transaction.
16. Preferred Unit Repurchases
In March 2022, the Company established a plan which authorized the repurchase of up to $30.0 million of its Series A and Series B Preferred Units. As at September 30, 2022, the Company had repurchased 22,715 Series A Preferred Units and 8,811 Series B Preferred Units for $0.6 million and $0.2 million, respectively, and the remaining dollar value of Series A and Series B Preferred Units that may be repurchased under the plan was $29.2 million.
17. Subsequent Events
a)On October 24, 2022, the Company entered into a sale and purchase agreement with affiliates of Jaccar Holdings (or Jaccar) whereby the Company agreed to acquire 100% of the equity interests in Greenship Gas Trust and Greenship Gas Manager Pte. Ltd. and their subsidiaries (collectively, Evergas) from Jaccar for a cash purchase price of $244.0 million, subject to certain potential adjustments when the transaction closes. The Company expects to finance the cash purchase price with its existing liquidity. As part of the acquisition, the Company will assume the existing financing obligations of Evergas, none of which matures until 2025. Evergas owns and operates two Very Large Ethane Carriers and eight Multi-Gas/LNG carriers that were built between 2015 and 2020. These vessels are employed on fixed-rate time-charter contracts to Ineos Group Limited that expire between 2026 and 2030. Evergas also in-charters six LPG carriers under bareboat charter contracts scheduled to end in 2024. The acquisition is subject to standard closing conditions and is expected to close before the end of 2022.
b)On November 11, 2022, the Company secured a fixed-rate charter contract for the Seapeak Hispania LNG carrier to operate as a Floating Storage Unit until June 2024 with two one-year extension options, which is expected to commence in December 2022.
SEAPEAK LLC AND SUBSIDIARIES
SEPTEMBER 30, 2022
PART I – FINANCIAL INFORMATION
ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the unaudited consolidated financial statements and accompanying notes contained in "Item 1 – Financial Statements" of this Report on Form 6-K and with our audited consolidated financial statements contained in "Item 18 – Financial Statements" and with "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in "Item 5 – Operating and Financial Review and Prospects" of our Annual Report on Form 20-F for the year ended December 31, 2021. Included in our Annual Report on Form 20-F is important information about items that you should consider when evaluating our results, information about the types of contracts we enter into and certain non-GAAP measures we utilize to measure our performance. Unless otherwise indicated, references in this Report to “we,” “us” and “our” and similar terms refer to Seapeak LLC and its subsidiaries.
OVERVIEW
Seapeak LLC is an international provider of marine transportation services for liquefied natural gas (or LNG) and liquefied petroleum gas (or LPG). As of September 30, 2022, we had a fleet of 46 LNG carriers and 26 LPG/multi-gas carriers. Our ownership interests in these vessels range from 20% to 100%. In addition to our fleet, we have a 30% ownership interest in an LNG receiving and regasification terminal in Bahrain.
SIGNIFICANT DEVELOPMENTS IN 2022
Stonepeak Transaction
On October 4, 2021, we (then known as Teekay LNG Partners L.P.) entered into an agreement and plan of merger (or the Merger Agreement) with Teekay LP L.L.C. (or the General Partner), an investment vehicle (or Acquiror) managed by Stonepeak, and a wholly-owned subsidiary of Acquiror (or Merger Sub). On January 13, 2022, Stonepeak completed its acquisition of us, with Merger Sub merging with and into us, and with us surviving the merger as a subsidiary of Stonepeak (or the Merger). Please read "Item 1 – Financial Statements: Note 1 – Basis of Presentation" for details of this transaction.
Evergas Acquisition
On October 24, 2022, we entered into a sale and purchase agreement with affiliates of Jaccar Holdings (or Jaccar) whereby we agreed to acquire 100% of the equity interests in Greenship Gas Trust and Greenship Gas Manager Pte. Ltd. and their subsidiaries (collectively, Evergas) from Jaccar for a cash purchase price of $244.0 million, subject to certain potential adjustments when the transaction closes. We expect to finance the cash purchase price with our existing liquidity. As part of the acquisition, we will assume the existing financing obligations of Evergas, none of which matures until 2025. Evergas owns and operates two Very Large Ethane Carriers and eight Multi-Gas/LNG carriers that were built between 2015 and 2020. These vessels are employed on fixed-rate time-charter contracts to Ineos Group Limited that expire between 2026 and 2030. Evergas also in-charters six LPG carriers under bareboat charter contracts scheduled to end in 2024. The acquisition is subject to standard closing conditions and is expected to close before the end of 2022.
LNG Carriers Charter Contracts
In January 2022, the charterer of the Creole Spirit LNG carrier exercised its one-year extension option at a fixed rate, which commenced in April 2022.
In January 2022, the 52%-owned joint venture with Marubeni Corporation (or the MALT Joint Venture) secured three-year, fixed-rate charter contracts for the Seapeak Arwa and Magellan Spirit LNG carriers, which commenced in May 2022 and June 2022, respectively.
In July 2022, the Seapeak Polar LNG carrier commenced a fixed-rate charter contract until March 2023 with a two-month extension option.
In July 2022, the Oak Spirit LNG carrier commenced a ten-year, fixed-rate charter contract.
In October 2022, the charterer of the Macoma LNG carrier exercised its three-year extension option at a fixed rate, which commences in October 2023.
In November 2022, we secured a fixed-rate charter contract for the Seapeak Hispania LNG carrier to operate as a Floating Storage Unit until June 2024 with two one-year extension options, which is expected to commence in December 2022.
In November 2022, the MALT Joint Venture secured a nine-month, fixed-rate charter contract for the Seapeak Marib LNG carrier with three nine-month extension options, which is expected to commence in mid-2023, once the vessel redelivers from its current charter contract.
Vessel and Equity-Accounted Investment Sales
In June 2022, we sold our wholly-owned multi-gas carrier, the Sonoma Spirit, for net proceeds of $10.0 million.
In September 2022, we sold our 50% interest in an LNG-related joint venture with Exmar NV (or the Excalibur Joint Venture), which owns one LNG carrier, for net proceeds of $8.8 million.
Russian Invasion of Ukraine
The sanctions announced in February and March 2022 by President Biden and several European and world leaders and nations against Russia as a result of its invasion of Ukraine, and any further sanctions related to the invasion that may be announced in the future, may adversely impact our business given Russia’s role as a major global exporter of crude oil and natural gas. Our business could be harmed by trade tariffs, trade embargoes or other economic sanctions by the United States or other countries against Russia, Russian companies or the Russian energy sector and harmed by any retaliatory measures by Russia in response. While much uncertainty remains regarding the global impact of Russia’s invasion of Ukraine, it is possible that the hostilities could adversely affect our business, financial condition, results of operations and cash flows. Furthermore, it is possible that third parties with whom we have charter contracts or business arrangements may be impacted by events in Russia and Ukraine, which could adversely affect our operations and financial condition. We have not experienced any material negative operational or financial impact as a result of the Russian invasion of Ukraine.
RESULTS OF OPERATIONS
The following includes a comparison of the components of our results of operations for the three and nine months ended September 30, 2022, as compared to the same periods of the prior year.
Liquefied Natural Gas Segment
As at September 30, 2022, our liquefied natural gas segment fleet included 46 LNG carriers and one LNG regasification terminal in Bahrain, in which our interests ranged from 20% to 100%.
The following table compares our liquefied natural gas segment’s operating results, revenue days, calendar-ship-days and utilization for the three and nine months ended September 30, 2022 and 2021, and compares its net voyage revenues (which is a non-GAAP financial measure) for the three and nine months ended September 30, 2022 and 2021 to income from vessel operations, the most directly comparable GAAP financial measure. With the exception of equity income, all data in this table only includes the 22 LNG carriers that are accounted for under the consolidation method of accounting, the ship management and corporate services we provide to certain of our equity-accounted joint ventures and the Magellan Spirit chartered-in from the MALT Joint Venture. A comparison of the results from vessels and assets accounted for under the equity method is described later in this section under "Equity Income".
| | | | | | | | | | | |
(in thousands of U.S. Dollars, except revenue days, calendar-ship-days and percentages) | Three Months Ended September 30 | % Change |
2022 | 2021 |
Voyage revenues | 135,339 | 133,754 | 1.2 |
Voyage expenses | (7,015) | (1,778) | 294.5 |
Net voyage revenues | 128,324 | 131,976 | (2.8) |
Vessel operating expenses | (41,900) | (25,326) | 65.4 |
Time-charter hire expense | — | (5,665) | (100.0) |
Depreciation and amortization | (31,170) | (31,294) | (0.4) |
General and administrative expenses(1) | (5,393) | (11,691) | (53.9) |
| | | |
| | | |
Income from vessel operations | 49,861 | 58,000 | (14.0) |
Equity income | 83,367 | 35,241 | 136.6 |
Operating Data: | | | |
Calendar-ship-days (B) | 2,023 | 2,116 | (4.4) |
Less: | | | |
Scheduled dry-docking days | — | 99 | (100.0) |
Unscheduled off-hire and idle days | 187 | 20 | 835.0 |
Revenue days (A) | 1,836 | 1,997 | (8.1) |
Utilization (A)/(B) | 90.8% | 94.4% | |
| | | | | | | | | | | |
(in thousands of U.S. Dollars, except revenue days, calendar-ship-days and percentages) | Nine Months Ended September 30 | % Change |
2022 | 2021 |
Voyage revenues | 423,921 | 411,934 | 2.9 |
Voyage expenses | (10,702) | (4,748) | 125.4 |
Net voyage revenues | 413,219 | 407,186 | 1.5 |
Vessel operating expenses | (126,359) | (78,169) | 61.6 |
Time-charter hire expense | (9,053) | (17,382) | (47.9) |
Depreciation and amortization | (91,734) | (92,186) | (0.5) |
General and administrative expenses(1) | (18,655) | (24,562) | (24.0) |
Write-down of vessels | (43,996) | — | 100.0 |
Restructuring charges | (2,551) | — | 100.0 |
Income from vessel operations | 120,871 | 194,887 | (38.0) |
Equity income | 228,215 | 94,180 | 142.3 |
Operating Data: | | | |
Calendar-ship-days (B) | 6,160 | 6,279 | (1.9) |
Less: | | | |
Scheduled dry-docking days | 168 | 183 | (8.2) |
Unscheduled off-hire and idle days | 356 | 24 | 1,383.3 |
Revenue days (A) | 5,636 | 6,072 | (7.2) |
Utilization (A)/(B) | 91.5% | 96.7% | |
(1)Includes direct general and administrative expenses and indirect general and administrative expenses (allocated to each segment based on estimated use of resources). See the discussion under “Other Operating Results” below.
For the nine months ended September 30, 2022, our liquefied natural gas segment's total calendar-ship-days were 6,160 compared to 6,279 days for the same period of the prior year. The decrease in total calendar-ship-days is due to the redelivery of the Magellan Spirit LNG carrier to the MALT Joint Venture at the end of its in-charter contract in June 2022.
Net Voyage Revenues. Net voyage revenues decreased by $3.7 million for the three months ended September 30, 2022 and increased by $6.0 million for the nine months ended September 30, 2022, compared to the same periods of the prior year, primarily as a result of:
•increases of $18.6 million and $55.3 million for the three and nine months ended September 30, 2022 due to the reimbursement of seafarers costs (offset in operating expenses) and ship management and corporate service revenues from certain of our equity-accounted joint ventures following the acquisition of certain restructured subsidiaries from Teekay Corporation (or the Teekay Subsidiaries) on January 13, 2022 (see "Item 1- Financial Statements: Note 1 - Basis of Presentation"); and
•an increase of $4.2 million for the three months ended September 30, 2022 due to 69 off hire days for scheduled dry dockings of the Macoma and Magdala LNG carriers during the third quarter of 2021;
partially offset by:
•decreases of $9.0 million and $11.1 million for the three and nine months ended September 30, 2022 due to off hire days for unscheduled repairs and crew changes on certain of our LNG carriers during 2022;
•decreases of $7.1 million and $10.0 million for the three and nine months ended September 30, 2022 due to the redelivery of the Magellan Spirit LNG carrier in June 2022;
•decreases of $4.6 million and $7.2 million for the three and nine months ended September 30, 2022 due to layup of the Seapeak Arctic LNG carrier following redelivery from its charterer in April 2022;
•decreases of $3.3 million and $5.9 million for the three and nine months ended September 30, 2022 due to layup of the Seapeak Polar LNG carrier following redelivery from its charterer in April 2022 and the vessel earning a lower charter rate upon commencement of a new charter contract in July 2022;
•decreases of $2.0 million and $11.8 million for the three and nine months ended September 30, 2022 due to 42 off hire and idle days for a scheduled dry docking and repositioning of the Seapeak Vancouver LNG carrier during the first quarter of 2022 and the vessel earning a lower charter rate upon redeployment in March 2022;
•a decrease of $1.7 million for the nine months ended September 30, 2022 due to 143 off hire days for scheduled dry dockings of the Seapeak Hispania, Myrina, Megara, Tangguh Hiri and Tangguh Sago LNG carriers during the second quarter of 2022, partially offset by 69 off hire days for scheduled dry dockings of the Macoma and Magdala LNG carriers during the third quarter of 2021; and
•a decrease $1.2 million for the three and nine months ended September 30, 2022 due to the Seapeak Creole LNG carrier earning a lower charter rate during the third quarter of 2022.
Vessel Operating Expenses. Vessel operating expenses increased by $16.6 million and $48.2 million for the three and nine months ended September 30, 2022, compared to the same periods of the prior year, primarily as a result of seafarers costs incurred for LNG carriers in certain of our equity-accounted joint ventures (offset in net voyage revenues) following the acquisition of Teekay Subsidiaries on January 13, 2022 (see "Item 1- Financial Statements: Note 1 - Basis of Presentation").
Time-Charter Hire Expense. Time-charter hire expense decreased by $5.7 million and $8.3 million for the three and nine months ended September 30, 2022, compared to the same periods of the prior year due to the redelivery of the Magellan Spirit LNG carrier to the MALT Joint Venture at the end of its in-charter contract in June 2022.
Write-down of Vessels. During the nine months ended September 30, 2022, two of our LNG carriers, the Seapeak Arctic and Seapeak Polar, were written down to their estimated fair values, as a result of changes in our expectation of these vessels' future opportunities subsequent to the completion of their time-charter contracts in April 2022. These two 1988-built 88,000 cubic meter specialized LNG carriers were both placed into layup in Far East Asia based on their near-term commercial prospects. In July 2022, the Seapeak Polar commenced a fixed-rate charter contract until March 2023 with a two-month extension option.
Equity Income. Equity income was $83.4 million and $228.2 million for the three and nine months ended September 30, 2022, compared to $35.2 million and $94.2 million for the same periods of the prior year, primarily as a result of:
•increases of $32.8 million and $106.8 million for the three and nine months ended September 30, 2022 primarily due to unrealized gains on non-designated derivative instruments as a result of removing the hedge accounting designation for interest rate swaps in certain of our equity-accounted joint ventures effective January 1, 2022, combined with an increase in long-term forward LIBOR benchmark interest rates;
•increases of $12.5 million and $20.5 million for the three and nine months ended September 30, 2022 related to lower unrealized credit loss provisions recorded in certain of our equity-accounted joint ventures primarily due to higher estimated charter-free vessel fair values in the third quarter of 2022 for vessels servicing time-charter contracts accounted for as direct financing or sales-type leases;
•an increase of $9.0 million for the nine months ended September 30, 2022 due to higher earnings from our 50%-owned joint venture with China LNG Shipping (Holdings) Limited (or the Yamal LNG Joint Venture) primarily due to an increase in estimated reimbursements of dry docking expenditures as a result of a projected increase in future dry docking costs and lower operational claims during the first quarter of 2022; and
•increases of $2.2 million and $3.9 million for the three and nine months ended September 30, 2022 due to higher charter rates earned on new time-charter contracts and extension options for certain vessels in the MALT Joint Venture during 2022;
partially offset by:
•a decrease of $4.9 million for the nine months ended September 30, 2022 due to the redelivery of the Excalibur LNG carrier, which has been idle since completion of its time-charter contract in December 2021, partially offset by a gain on the sale of our 50% interest in the Excalibur Joint Venture in September 2022.
Liquefied Petroleum Gas Segment
As at September 30, 2022, our liquefied petroleum gas segment fleet included 20 LPG carriers, in which we own a 50% interest, and six multi-gas carriers which are wholly-owned.
The following table compares our liquefied petroleum gas segment’s operating results, revenue days, calendar-ship-days and utilization for the three and nine months ended September 30, 2022 and 2021, and compares its net voyage revenues (which is a non-GAAP financial measure) for the three and nine months ended September 30, 2022 and 2021 to loss from vessel operations, the most directly comparable GAAP financial measure. With the exception of equity income, all data in this table only includes the seven multi-gas carriers that are accounted for under the consolidation method of accounting. A comparison of the results from vessels and assets accounted for under the equity method are described below under "Equity Income".
| | | | | | | | | | | |
(in thousands of U.S. Dollars, except revenue days, calendar-ship-days and percentages) | Three Months Ended September 30, | % Change |
2022 | 2021 |
Voyage revenues | 11,185 | 12,823 | (12.8) |
Voyage expenses | (6,353) | (5,443) | 16.7 |
Net voyage revenues | 4,832 | 7,380 | (34.5) |
Vessel operating expenses | (3,396) | (5,100) | (33.4) |
Depreciation and amortization | (1,593) | (1,708) | (6.7) |
General and administrative expenses(1) | (162) | (928) | (82.5) |
| | | |
Loss from vessel operations | (319) | (356) | (10.4) |
Equity income | 4,370 | 3,997 | 9.3 |
Operating Data: | | | |
Calendar-ship-days (B) | 552 | 644 | (14.3) |
Less: | | | |
Scheduled dry-docking days | — | — | — |
Unscheduled off-hire and idle days | 83 | 25 | 232.0 |
Revenue days (A) | 469 | 619 | (24.2) |
Utilization (A)/(B) | 85.0% | 96.1% | |
| | | | | | | | | | | |
(in thousands of U.S. Dollars, except revenue days, calendar-ship-days and percentages) | Nine Months Ended September 30, | % Change |
2022 | 2021 |
Voyage revenues | 35,571 | 36,214 | (1.8) |
Voyage expenses | (17,127) | (16,016) | 6.9 |
Net voyage revenues | 18,444 | 20,198 | (8.7) |
Vessel operating expenses | (12,687) | (14,882) | (14.7) |
Depreciation and amortization | (4,729) | (5,067) | (6.7) |
General and administrative expenses(1) | (988) | (2,145) | (53.9) |
Gain on sale of vessel | 194 | — | 100.0 |
Restructuring charges | (100) | — | 100.0 |
Income (loss) from vessel operations | 134 | (1,896) | 107.1 |
Equity income | 15,297 | 11,514 | 32.9 |
Operating Data: | | | |
Calendar-ship-days (B) | 1,818 | 1,911 | (4.9) |
Less: | | | |
Scheduled dry-docking days | — | 33 | (100.0) |
Unscheduled off-hire and idle days | 198 | 124 | 59.7 |
Revenue days (A) | 1,620 | 1,754 | (7.6) |
Utilization (A)/(B) | 89.1% | 91.8% | |
(1)Includes direct general and administrative expenses and indirect general and administrative expenses (allocated to each segment based on estimated use of resources). See the discussion under “Other Operating Results” below.
For the nine months ended September 30, 2022, our liquefied petroleum gas segment's total calendar-ship-days were 1,818 compared to 1,911 days for the same period of the prior year. The decrease in total calendar-ship-days is due to the sale of the Sonoma Spirit in June 2022.
Net Voyage Revenues. Net voyage revenues decreased by $2.5 million and $1.8 million for the three and nine months ended September 30, 2022, compared to the same periods of the prior year, primarily due to the sale of Sonoma Spirit in June 2022 and higher off-hire and idle days during 2022.
Equity Income. Equity income from the Exmar LPG Joint Venture increased by $0.4 million and $3.8 million for the three and nine months ended September 30, 2022, compared to the same periods of the prior year, primarily due to higher charter rates earned in 2022 and higher unrealized gains on non-designated derivative instruments in 2022 due to an increase in long-term forward LIBOR benchmark interest rates; partially offset by fewer revenue days due to the sales of the Touraine and Temse LPG carriers during the third quarter of 2021 and the Brussels LPG carrier during the first quarter of 2022. Equity income for the nine months ended September 30, 2022 also increased due to a gain on the sale of the Brussels LPG carrier during the first quarter of 2022; partially offset by a write-down of the Bastogne LPG carrier during the second quarter of 2022 upon its classification as held for sale and gains on the sales of the Touraine and Temse LPG carriers during the third quarter of 2021.
Other Operating Results
The following table compares our other operating results for the three and nine months ended September 30, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, | | |
(in thousands of U.S. Dollars) | 2022 | | 2021 | | 2022 | | 2021 | | | | |
General and administrative expenses | (5,555) | | (12,619) | | (19,643) | | (26,707) | | | | |
| | | | | | | | | | | |
Restructuring charges | — | | — | | (2,651) | | — | | | | |
Interest expense | (35,048) | | (29,513) | | (96,700) | | (89,249) | | | | |
Realized and unrealized gain on non-designated derivative instruments | 22,732 | | 101 | | 63,397 | | 3,849 | | | | |
Foreign currency exchange gain | 9,403 | | 2,767 | | 29,560 | | 6,884 | | | | |
Other income (expense) | 14,029 | | 1,000 | | (8,396) | | (3,857) | | | | |
Income tax expense | (2,280) | | (2,226) | | (6,785) | | (3,264) | | | | |
Other comprehensive income | 4,264 | | 8,878 | | 13,986 | | 41,655 | | | | |
| | | | | | | | | | | |
General and Administrative Expenses. General and administrative expenses were $5.6 million and $19.6 million for the three and nine months ended September 30, 2022, as compared to $12.6 million and $26.7 million for the same periods of the prior year. The decreases primarily relate to costs incurred in connection with the Stonepeak Transaction during the third quarter of 2021.
Restructuring Charges. Restructuring charges were $2.7 million for the nine months ended September 30, 2022 and primarily relate to severance costs resulting from the reorganization and realignment of employees as a result of the Stonepeak Transaction in January 2022.
Interest Expense. Interest expense was $35.0 million and $96.7 million for the three and nine months ended September 30, 2022, as compared to $29.5 million and $89.2 million for the same periods of the prior year. Interest expense primarily reflects interest incurred on our long-term debt and obligations related to finance leases. The increases were primarily due to an increase in LIBOR for the three and nine months ended September 30, 2022, compared to the same periods of the prior year, partially offset by a lower debt balance as a result of debt repayments.
Realized and Unrealized Gain on Non-designated Derivative Instruments. We enter into interest rate swaps which exchange a receipt of floating interest for a payment of fixed interest to reduce exposure to interest rate variability on certain of our outstanding U.S. Dollar-denominated and Euro-denominated floating rate debt. Our interest rate swaps typically require settlements every three months and the receipt of floating interest is based on the prevailing LIBOR rate at the beginning of the settlement period. Item 1 – Financial Statements: Note 11 – Derivative Instruments and Hedging Activities" provides details of our current derivative positions and a breakdown of realized and unrealized gains (losses) relating to these non-designated interest rate swap agreements for the three and nine months ended September 30, 2022 and 2021. Realized gains (losses) during a period reflect prevailing LIBOR rates that are higher (lower) than the average fixed rates of our interest rate swaps. Unrealized gains (losses) will primarily reflect an increase (decrease) in the long-term LIBOR yield curve during each relevant period. Realized and unrealized gain on non-designated derivative instruments for the three and nine months ended September 30, 2022 increased from the same periods in 2021, primarily due to increasing LIBOR rates in the three and nine months ended September 30, 2022.
Foreign Currency Exchange Gain. Foreign currency exchange gains were $9.4 million and $29.6 million for the three and nine months ended September 30, 2022, as compared to $2.8 million and $6.9 million for the same periods of the prior year. These foreign currency exchange gains were primarily due to the relevant period-end revaluation of our NOK-denominated debt and our Euro-denominated term loans for financial reporting purposes into U.S. Dollars, net of the realized and unrealized gains and losses on our cross currency swaps. Gains and losses on NOK-denominated and Euro-denominated monetary liabilities reflect a stronger (gains) or weaker (losses) U.S. Dollar against the NOK and Euro on the date of revaluation or settlement compared to the rate in effect at the beginning of the period. Our cross currency swaps economically hedge all of the foreign currency and interest rate exposure on our NOK-denominated debt. Our Euro-denominated debt was used to purchase two vessels that are on long-term charters which entitle us to payment of charter-hire in Euros. As such, our Euro-denominated debt is being repaid with these fixed Euro charter hire receipts and consequently our Euro currency exposure is limited by this arrangement.
Other Income (Expense). Other income (expense) was $14.0 million and $(8.4) million for the three and nine months ended September 30, 2022 as compared to $1.0 million and $(3.9) million for the same periods of the prior year. The change in other income (expense) for the three and nine months ended September 30, 2022, was primarily due to a decrease in unrealized credit loss provisions as a result of higher estimated charter-free vessel fair values during the third quarter of 2022 for certain of our LNG vessels, which are servicing time-charter contracts accounted for as direct financing leases, and the impact of such declines on our expectation of the value of such vessels upon completion of their existing charter contracts. The change in other income (expense) for the nine months ended September 30, 2022 was also due to $18.0 million in fees relating to professional services provided in connection with the Stonepeak Transaction during the first quarter of 2022.
Income Tax Expense. Income tax expense was $2.3 million and $6.8 million for the three and nine months ended September 30, 2022, as compared to $2.2 million and $3.3 million for the same periods of the prior year primarily due to changes in current and deferred tax balances related to the change in timing of deductions in the Tangguh Joint Venture, in which we have a 70% ownership interest.
Other Comprehensive Income. Other comprehensive income was $4.3 million and $14.0 million for the three and nine months ended September 30, 2022, as compared to $8.9 million and $41.7 million for the same periods of the prior year. The change in other comprehensive income for the three and nine months ended September 30, 2022, was primarily due to removing the hedge accounting designation for interest rate swaps held in the RasGas II Joint Venture and in certain of our equity-accounted joint ventures effective January 1, 2022.
Liquidity and Capital Resources
Sources and Uses of Capital
For a description of our sources and uses of capital, please read “Item 5 – Operating and Financial Review and Prospects – Liquidity and Capital Resources” in our Annual Report on Form 20-F for the year ended December 31, 2021.
Our sources of funds include borrowings from debt facilities and borrowings from obligations related to finance leases, which are described in "Item 1 – Financial Statements: Note 5 – Obligations related to Finance Leases and Note 8 – Long-Term Debt". We also guarantee our proportionate share of certain loan facilities and obligations on interest rate swaps for our equity-accounted joint ventures. As at September 30, 2022, this proportionate share, based on the aggregate principal amount of the loan facilities and fair value of the interest rate swaps, was $1.2 billion. As at September 30, 2022, with the exception of debt service coverage ratio breaches for two of the vessels in the Angola Joint Venture, all of our equity-accounted joint ventures were in compliance with all covenants relating to these loan facilities that we guarantee. In October 2022, the Angola Joint Venture obtained a waiver for the covenant requirements that were not met at June 30, 2022, with such waiver being valid until the next compliance test at December 31, 2022. The waiver is subject to the condition that dividends are withheld from the joint venture partners until such time that the loan facilities mature.
Certain of our credit facilities and obligations related to finance leases require us to maintain financial covenants. If we do not meet these financial covenants, the lender or lessor may limit our ability to borrow additional funds under our credit facilities and accelerate the repayment of our revolving credit facilities, term loans and obligations related to finance leases, which would have a significant impact on our short-term liquidity requirements. The terms of and compliance with these financial covenants are described in further detail in "Item 1 – Financial Statements: Note 5 – Obligations related to Finance Leases and Note 8 – Long-Term Debt" included in this Report. Certain of our debt facilities and obligations related to finance leases require us to make interest payments based on LIBOR, NIBOR or EURIBOR. Significant increases in interest rates could adversely affect results of operations and our ability to service our debt; however, as part of our strategy to minimize financial risk, we use interest rate swaps and cross currency swaps to reduce our exposure to market risk from changes in interest rates. Our current positions are described in further detail in "Item 1 - Financial Statements: Note 11 – Derivative Instruments and Hedging Activities" included in this Report and the extent of our exposure to changes in interest rates is described in further detail in "Item 11 – Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 20-F for the year ended December 31, 2021.
Liquidity
Our total liquidity, which consists of cash, cash equivalents and undrawn credit facilities, was $348.8 million as at September 30, 2022, compared to $327.5 million as at December 31, 2021, an increase of $21.3 million. This increase was primarily due to an increase in cash and cash equivalents of $21.8 million (as detailed in "Item 1 - Financial Statements: Unaudited Consolidated Statements of Cash Flows" excluding an increase in restricted cash of $2.7 million) and a decrease in the amounts available and undrawn on our revolving credit facilities of $0.5 million.
The following table summarizes our contractual obligations as at September 30, 2022, excluding those of our equity-accounted joint ventures. We expect our liquidity at September 30, 2022 plus the operating cash flow we expect to generate from customer contracts in place at September 30, 2022, will be sufficient to pay our obligations coming due in the next 12-month period. Our ability to pay our obligations, refinance our long-term debt and finance leases coming due subsequent to September 30, 2022 will depend on, among other things, our ability to continue to service our long-term charter contracts, our financial condition and the condition of credit markets in the months leading up to the maturity dates. In addition, as at September 30, 2022, we did not have any significant capital commitments related to the acquisition of new or second-hand vessels. However, we expect to bid on selected LNG projects in the future and if we are awarded any of such contracts, it is expected that we would concurrently enter into construction contracts related to new vessels. In addition, we may expand the size of our fleet through the purchase of second-hand vessels. Our ability to continue to expand the size of our fleet over the long-term is dependent upon our ability to generate operating cash flow, obtain long-term bank borrowings, sale-leaseback financings and other debt, as well as our ability to raise debt or equity financing through public or private offerings. In October 2022, we entered into a sale and purchase agreement to acquire 100% of the equity interests in Evergas for a cash purchase price of $244.0 million, subject to certain potential adjustments related to when the transaction closes. We expect to finance the cash purchase price with our existing liquidity, upon closing of the transaction, which is expected before the end of 2022. For additional information relating to this transaction, see "Item 1 - Financial Statements: Note 17 – Subsequent Events" included in this Report.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Total | | 12 Months Following September 30, 2022 | | Remainder of 2023 | | 2024 | | 2025 | | 2026 | | Beyond 2026 |
| | (in millions of U.S. Dollars) |
U.S. Dollar long-term debt: | | | | | | | | | | | | | | |
Scheduled repayments | | 439.1 | | | 86.9 | | | 22.0 | | | 85.2 | | | 82.9 | | | 59.9 | | | 102.2 | |
Repayments at maturity | | 433.8 | | | — | | | 60.0 | | | 22.1 | | | — | | | 242.8 | | | 108.9 | |
Euro long-term debt (1) | | 85.0 | | | 53.5 | | | 7.1 | | | 24.4 | | | — | | | — | | | — | |
Norwegian Kroner long-term debt (1) | | 261.8 | | | 78.1 | | | — | | | — | | | 91.9 | | | 91.8 | | | — | |
Commitments related to finance leases (2) | | 1,499.8 | | | 135.8 | | | 33.7 | | | 132.0 | | | 129.7 | | | 305.5 | | | 763.1 | |
Commitments related to operating leases (3) | | 160.8 | | | 24.6 | | | 6.1 | | | 25.0 | | | 25.0 | | | 24.6 | | | 55.5 | |
Totals | | 2,880.3 | | | 378.9 | | | 128.9 | | | 288.7 | | | 329.5 | | | 724.6 | | | 1,029.7 | |
(1)Euro-denominated and NOK-denominated obligations are presented in U.S. Dollars and have been converted using the prevailing exchange rates as of September 30, 2022.
(2)Includes, in addition to lease payments, amounts we are required to pay to purchase the leased vessels at the end of their respective lease terms.
(3)We have corresponding leases whereby we are the lessor and expect to receive approximately $138.2 million under these leases from the remainder of 2022 to 2029.
In addition to the commitments in the table above, our equity-accounted joint ventures have commitments to fund newbuilding and other construction contract costs all of which are non-recourse to us. See "Item 1 - Financial Statements: Note 12 – Commitments and Contingencies" included in this Report.
Critical Accounting Estimates and Risk Factors
We prepare our consolidated financial statements in accordance with GAAP, which require us to make estimates in the application of our accounting policies based on our best assumptions, judgments and opinions. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could materially differ from our assumptions and estimates, and such differences could be material. Accounting estimates and assumptions discussed in "Item 5 – Operating and Financial Review and Prospects – Critical Accounting Estimates" of our Annual Report on Form 20-F for the year ended December 31, 2021, are those that we consider to be the most critical to an understanding of our financial statements, because they inherently involve significant judgments and uncertainties. For a further description of our critical accounting policies, please read "Item 5 – Operating and Financial Review and Prospects – Critical Accounting Estimates" and "Item 18 – Financial Statements: Note 1 – Summary of Significant Accounting Policies" in our Annual Report on Form 20-F for the year ended December 31, 2021. Other than what has been disclosed in "Item 1 – Financial Statements: Note 2 – Accounting Pronouncements", there have been no significant changes in accounting estimates and assumptions from those discussed in our 2021 Annual Report on Form 20-F.
In addition to the other information set forth in this Report on Form 6-K, you should carefully consider the risk factors discussed in Part I, “Item 3. Key Information-Risk Factors” in our Annual Report on Form 20-F for the year ended December 31, 2021, which could materially affect our business, financial condition or results of operations.
FORWARD-LOOKING STATEMENTS
This Report on Form 6-K for the three and nine months ended September 30, 2022 contains certain forward-looking statements (as such term is defined in Section 27A of the Securities Act of 1933 as amended, and Section 21E of the Securities Exchange Act of 1934, as amended) concerning future events and our operations, performance and financial condition, including, in particular, statements regarding:
•the expected timing and completion of dry docking activities;
•our liquidity needs, including our anticipated funds and sources of financing for liquidity and working capital needs and the sufficiency of cash flows and our expected debt refinancing, and our expectation that we will have sufficient liquidity for at least a one-year period;
•the expected timing and completion of the transactions contemplated by our sales and purchase agreement with Jaccar relating to Evergas;
•the expected commencement of certain charter contracts;
•the expected timing of deliveries and cost relating to the LPG carrier newbuildings in the Exmar LPG Joint Venture;
•expected exposure to interest rate volatility;
•the consideration we generally receive in connection with vessel management and other contracts;
•our expectation to bid on selected LNG projects in the future and our expectation to enter into any awarded construction contracts related to new vessels;
•expected interest payments; and
•expectations regarding the impact of uncertain tax positions.
Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and may contain the words believe, anticipate, expect, estimate, project, will be, will continue, will likely result, plan, intend or words or phrases of similar meanings. These statements involve known and unknown risks and are based upon a number of assumptions and estimates that are inherently subject to significant uncertainties and contingencies, many of which are beyond our control. Actual results may differ materially from those expressed or implied by such forward-looking statements. Important factors that could cause actual results to differ materially include, but are not limited to: the competitive factors in the markets in which we operate; changes in the financial stability of our charterers; changes in our expenses; higher than expected costs and/or delays associated with the drydocking of our vessels; potential delays in the deliveries and potential increases in costs relating to the LPG carrier newbuildings in the Exmar LPG Joint Venture; potential for early termination of long-term contracts and our ability to renew or replace long-term contracts; our ability to secure charter contracts for our vessels; loss of any customer, time-charter contract or vessel; changes in production or price of LNG or LPG; potential development of active short-term or spot LNG or LPG shipping markets; spot market rate fluctuations; our ability to generate and access additional cash and capital during the next 12 months; our and our joint ventures’ potential inability to raise financing, to refinance our or their debt maturities, or to purchase additional vessels; the timing and satisfaction of closing conditions to our sales and purchase agreement with Jaccar relating to Evergas and performance by us and Jaccar of our respective obligations thereunder; our exposure to inflation, interest rate and currency exchange rate fluctuations; conditions in the public equity and debt markets; political, governmental and economic instability in the regions and markets in which we operate; changes in laws or regulations, including those relating to the regulation of greenhouse gases; the application of sanctions to us or any of our counterparties or joint venture partners; LNG or LPG project delays or abandonment; the duration and extent of the COVID-19 pandemic and any resulting effects on the markets in which we operate; the impact of the COVID-19 pandemic (including any variants) on our ability to maintain safe and efficient operations; the impact of Russia's invasion of Ukraine on our business given Russia's role as a major global exporter of crude oil and natural gas; the impact of the events in Russia and Ukraine on third party counterparties to our charter contracts or business arrangements; and other factors detailed from time to time in our periodic reports filed with the SEC, including our Annual Report on Form 20-F for the year ended December 31, 2021. We do not intend to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with respect thereto or any change in events, conditions or circumstances on which any such statement is based.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | | | | | | | | | | |
| | | | SEAPEAK LLC |
| | | |
Date: November 18, 2022 | | | | By: | /s/ Scott Gayton |
| | | | Scott Gayton |
| | | | Chief Financial Officer |
| | | | (Principal Financial and Accounting Officer) |
Teekay Lng Partners (NYSE:TGP)
Historical Stock Chart
From Jul 2024 to Aug 2024
Teekay Lng Partners (NYSE:TGP)
Historical Stock Chart
From Aug 2023 to Aug 2024