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Edited Transcript of TGP earnings conference call or presentation 23-Feb-17 4:00pm GMT

Thomson Reuters StreetEvents

Q4 2016 Teekay LNG Partners LP Earnings Call

Hamilton Feb 23, 2017 (Thomson StreetEvents) -- Edited Transcript of Teekay LNG Partners LP earnings conference call or presentation Thursday, February 23, 2017 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Unidentified Participant

* Mark Kremin

Teekay LNG Partners L.P. - President and CEO

* Brody Speers

Teekay LNG Partners L.P. - CFO of Teekay Gas Group

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Conference Call Participants

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* Michael Webber

Wells Fargo Securities - Analyst

* Ben Nolan

Stifel Nicolaus - Analyst

* Spiro Dounis

UBS Securities - Analyst

* Fotis Giannakoulis

Morgan Stanley - Analyst

* Kyle Chung

PineBridge Investments - Analyst

* Thomas Lindsey

- Investor

* Espien Landmark

Fern Lee - Analyst

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Presentation

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Operator [1]

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Welcome to the Teekay LNG Partners fourth-quarter of FY16 earnings results call.

(Operator Instructions)

As a reminder, this call is being recorded. Now for opening remarks and introductions, I'd like to turn the call over to Mr. Mark Kremin, Teekay LNG Partners President and Chief Executive Officer. Please go ahead.

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Unidentified Participant, [2]

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Before Mr. Kremin begins, I would like direct all participants to our website at www.TeekayLNG.com where you will find a copy of the fourth-quarter and annual 2016 earnings presentation. Mr. Kremin will review this presentation during today's conference call.

Please allow me to remind you that our discussion today contains forward-looking statements. Actual results may differ materially from results projected by those forward-looking statements. Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements is contained in the fourth-quarter and annual 2016 earnings release and earnings presentation available on our website. I will now turn the call over to Mr. Kremin to begin.

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Mark Kremin, Teekay LNG Partners L.P. - President and CEO [3]

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Thank you, Scott. Good morning, everyone, and thank you for joining us on the fourth-quarter investor conference call for Teekay LNG Partners.

I am joined today on will be my first Teekay LNG quarterly conference call by Brody Speers, the newly appointed CFO of Teekay Gas Group. Brody has worked for Teekay for nine years in progressive financial positions and as of February 1 was appointed CFO of Teekay Gas Group. Brody has focused most of his time on Teekay LNG over the past several years and has been leading our recent financing initiatives, including securing long-term financings for our growth projects. In addition, for the Q&A session we are joined by Vince Lok, Teekay Corporation's CFO.

During our call, I will be taking you through the earnings presentation, which can be found on our website. Turning to slide 3 of the presentation, I will review some of Teekay LNG's recent highlights. For the fourth quarter of 2016, the Partnership generated distributable cash flow, or DCF, of $50 million and cash flow from vessel operations, or CFVO, of $115 million.

The Partnership continued to generate stable cash flows during the quarter, including a full-quarter contribution from the delivery of our second MEGI LNG carrier new building, the Oak Spirit, which commenced its five-year charter contract with Cheniere Energy in early August. We generated DCF per limited partner common unit of $0.63 per unit, resulting in a strong distribution coverage ratio of 4.4 times.

During the fourth quarter, we completed approximately $1.7 billion in debt and equity financings, including approximately $1 billion in long-term financings relating to our committed growth projects. We are currently on track to complete the remaining long-term financings within the second half of 2017. Brody will provide more detail on these financings later in the presentation.

I'm pleased to advise that last week we held the naming ceremony for our third MEGI LNG carrier, the Torben Spirit, named after Teekay's late founder, Torben Karlshoej. The vessel is expected to deliver from DSME in South Korea at the end of February and immediately began its 10-months charter, plus an extension option to a major energy company.

Lastly, we continued to bolster our liquidity and currently maintain a strong liquidity position of $446 million as at December 31, 2016, which includes the $36 million five-year NOK bond add-on issuance in January 2017 and a February 2017 cash distribution from the RasGas 3 joint venture related to its refinancing completed in September 2016.

Turning to slide 4, as we mentioned during our last quarterly update, the Partnership has now secured charter contracts with strong counter parties for all of its new building LNG carriers. In total, the Partnership has 19 new building LNG carriers and a 30% interest in the Bahrain regasification facility, which are scheduled to commence operations between now and early 2020. All will commence fixed-rate charters upon delivery. Combined with Teekay LNG's existing portfolio of fixed-rate charters, the Partnership's committed growth projects contribute to a market-leading forward-fixed-fee revenue backlog of approximately $12 billion, with a weighted average remaining contract duration of 13 years before taking into account extension options.

Turning to slide 5, we have provided an update on the Yamal LNG project, which is sponsored by NovaTech, Total, CNPC, CNOOC, and Silk Road Fund. The Partnership will provide this strategically important project with both icebreaker and conventional LNG transportation through its 50% interest in six ARC 7 LNG carriers with the joint venture partner China LNG shipping, chartered for 26 to 28 years and 100% interest in a MEGI LNG character chartered for 15 years. Overall, we continue to see this project derisk and achieve milestones according to the initial timeline.

Train 1 is now 88% complete and on track for startup in Q3 2017. Meanwhile, the overall project, including all three trains, is 75% complete. In addition to remaining on schedule, the Yamal LNG project has sold 96% of its LNG capacity through long-term SPAs and is now fully financed through over $13 billion in equity contributed by the Yamal sponsors and $19 billion in external debt from Chinese, Russian and, more recently, Japanese and Italian financiers.

The first ARC 7 LNG carrier new build Samoylovich sailed away from DSME in South Korea in November 2016 and has now commenced ice trials. In January 2017, our joint ventures first ARC 7 vessel, the Eduard Toll, was launched at the shipyard in Korea and remains on track for delivery in January 2018. We continued to make good progress on delivering these vessels on schedule and on budget at the parent for operations. Throughout the construction process, all ARC 7 ship owners have been collaborating on predelivery construction and operation plans. Finally, the financing of our joint venture's ARC 7 vessels has made significant progress, which we will discuss in more detail later on in the presentation.

Turning to slide 6, we look at developments in the LNG shipping market. Global LNG exports grew by approximately 20 million tons, or 8%, in 2016 as new liquefaction projects came online. Global LNG exports are expected to increased by a further 35 million tons, or 13%, during [2007] and new projects in Australia, the United States and Malaysia come online and start ramping up production. This trade growth of 13% should exceed fleet supply growth of approximately 10% and lead to an increase in vessels utilization as we move through 2017.

In addition, an increase in Asian LNG spot prices has, at times, reopened the Arbitrage for long-haul LNG movements from the Atlantic basin to Asia further, supporting LNG vessel demand. The combination of more cargos among the voyage distances has supported short-term LNG shipping rates, which have averaged over $40,000 per day so far this year compared to an average of $33,000 per day in 2016. Would like to note, however, the actual time chart equivalents, or TCEs, for vessels trading on the spot market are significantly lower than the stated spot charter rates due to low vessel utilization. Teekay LNG currently has limited exposure to the short-term market through four vessels in our 52% owned joint ventured with Marubeni Corporation.

Turning to slide 7, we look at the long-term fundamentals for LNG shipping. 12 new LNG projects are currently under construction, with more than 120 million tons per annum of new export capacity coming online by 2020. As a result, we estimate that global LNG trade will grow by approximately 36% by the end of the decade, compared to expected fleet growth from the current order book of approximately 27%. We therefore believe that the current order book is sufficient -- is insufficient, excuse me, to meet LNG shipping demand in the coming years and we estimate that a further 20 to 30 additional new build orders will need to be placed for delivery by 2020 in order to meet this demand.

Looking further ahead, the long-term outlook for LNG remain strong. The latest long-term forecast from BP and Exxon Mobil show global LNG trade growing by around 2.5 times from current levels over the next 20 to 25 years. Meeting this growth will require a great deal of new LNG liquefaction capacity and we believe that recovering oil and LNG prices may lead to an uptick in project FIDs in the coming years as energy companies look ahead to meeting the world's growing energy needs. This would create further upside to LNG shipping demand as new projects get sanctioned.

In summary, we believe that the market will tighten as LNG trade growth outstrips vessel supply in the coming months. In the longer term, we believe that a recovery in global energy prices and the need for more gas supply will lead to the sanctioning of more projects, creating new demand for LNG shipping. I will now turn the call over to Brody to provide an update on the Partnership's financing activities.

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Brody Speers, Teekay LNG Partners L.P. - CFO of Teekay Gas Group [4]

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Thank you, Mark, and hello everyone. Turning to slide 8, during the fourth quarter the Partnership made significant progress in completing long-term financings for our growth projects, corporate financings and refinancings. In total, since October 2016 we have raised approximately $1.7 billion in capital as we remain focused on building liquidity and executing on the Partnership's financial plan.

In October 2016, we accessed the capital markets by raising $125 million in perpetual preferred equity and $110 million in a five-year NOK bond that was subsequently upsized through an add-on bond offering in January 2017, increasing the total proceeds to $146 million. In addition, the Partnership successfully refinanced and upsized it unsecured corporate revolving credit facility in November 2016 from $150 million to $170 million, bringing in two additional banks into our corporate unsecured lending group.

Over the past few quarters we have been focused on completing financings for our committed growth projects. We are pleased to have now completed several important financings for this growth, including through our 50-50 EXMAR LPG joint venture, we've completed the final two sales-leaseback facilities for our midsized LPG carrier new building vessels, which we'll deliver through Q1 2018 and Bahrain regasification terminal, which was financed through a $740 million 20-year non-recourse facility, of which Teekay LNG's 30% portion was approximately $220 million, and a $685 million 10-year sale-leaseback financing with ICBC Leasing for four of our MEGI LNG carriers delivering in 2017 and 2018, including the Torben Spirit which is scheduled to deliver at the end of this month.

Finally, in December 2016, our RasGas 3 joint venture, where Teekay LNG has a 40% ownership interest, took advantage of an opportunity to refinance and upsize the long-term debt facility through a bilateral loan with a Qatari bank. This transaction released $40 million in equity to TGP in February 2017.

Turning to slide 9, I will provide an update on our progress in securing long-term financing for our growth projects. I am pleased to report that we've completed nearly all of the long-term financings for our 2017 vessel deliveries, with the last 2017 delivery expected to be financed within the next few months. We also continued to make significant progress on the financing for our remaining projects with deliveries from 2018 onwards. As highlighted in previous quarters we continue to see strong interest from financing institutions for our projects, particularly out of Asia, and are progressing our remaining financing on a parallel track.

Starting at the top of the slide, the financings for our remaining four MEGI LNG carrier new buildings, which are all employed on long-term charter contracts to Shell, BP and the Yamal LMP project and deliver starting late 2017 through early 2019, are progressing well. Three of these vessels are expected to be financed through sale-leaseback facilities, which are now credit approved and in the documentation stage. The fourth vessel, which delivers in early 2019, is in the term sheet negotiation stage.

Moving down the list, as mentioned in the previous slide, we have completed a $740 million nonrecourse long-term financing with commercial banks and an export credit agency for the Bahrain regasification terminal, of which Teekay LNG's 30% portion was approximately $220 million. This was a major milestone for the project and provides momentum for us to now progress the financing of our 100%-owned FSU new building, which will go on charter to the Bahrain LNG project for 20 years. We are currently negotiating the term sheet to the new building FSU.

The four LNG carrier new buildings delivering in 2017 through 2019 on long-term charter with Shell, formerly the BG Group, are already fully financed through a long-term nonrecourse debt facility. Together with our 50-50 joint venture partner China LNG Shipping, or CLNG, we continue to make significant progress and are in the final documentation stage of completing the financing on our first two ARC 7 LNG carrier new building vessels delivering in 2018. Financing of our joint venture's remaining four ARC 7 vessels delivering in 2019 and 2020 also reached an important milestone in January, when our joint ventures signed a term sheet with a major Chinese bank to finance all four vessels.

Finally, with our 50-50 joint venture partner EXMAR we have now completed financing for all of our midsize LPG new carrier new building vessels which will deliver through Q1 2018. As you can see at the bottom of the slide we have now completed approximately $1.2 billion in financing for our growth projects and anticipate completing a further $1.7 billion within the second half of 2017.

Turning to slide 10, we have provided an update on Teekay LNG's projected run rate CFVO, including the proportionate share from its equity-accounted investments. We start with the annualized Q4 2016 run rate CFVO of approximately $475 million, which includes an adjustment to the temporary deferral of hire relating to our vessels chartered to Skaugen of $4.5 million in Q4. From here, we expect CFVO to see a feel to grow moderately in 2017, with the delivery of four LNG carrier new buildings in which the Partnership owns between 30% and 100% and three midsized LPG carrier new buildings in our 50-50 EXMAR LPG joint venture, partially offset this year by the assumed sale of two conventional tankers.

As a result of this deferral agreement with Yemen LNG, the end of 2017 run rate CFVO also excludes approximately $25 million in CFVO which is the Partnership's share a deferred hire from these two vessels on an annualized basis. Given the backend-loaded nature of Teekay LNG's new building deliveries, we expect run rate CFVO will begin to ramp up post 2017 when we expect to add an incremental $250 million of annual run rate CFVO by 2020.

Thank you all for joining us on the call today. Operator, we are now available to take questions.

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Questions and Answers

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Operator [1]

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Thank you.

(Operator Instructions)

Michael Webber, Wells Fargo.

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Michael Webber, Wells Fargo Securities - Analyst [2]

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Hey. Good morning, guys. How are you?

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Mark Kremin, Teekay LNG Partners L.P. - President and CEO [3]

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Hey, Mike.

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Michael Webber, Wells Fargo Securities - Analyst [4]

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Hey, Mark, Brody. Welcome to what I'm sure is the first of many TGP calls. I wanted to start off on probably the biggest question for TGP around the dividend, or the distribution, and how you guys think about your forward liquidity mix. Looking at kind of the landscape of (inaudible) bullets and CapEx requirements, it seems like in order to get comfortable with increasing the distribution the bullets basically from 2017 to 2019 need to be looked and refinanced. I'm curious, one, is that right interpretation in terms of look at the major milestones for a 2018 dividend reset or something like that. If that's the case, how much of those bullets do you think you need to refinance before you could get comfortable with starting to increase your payouts again?

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Mark Kremin, Teekay LNG Partners L.P. - President and CEO [5]

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Thanks for the question, Mike. Mike, let's start with the cash flows, foremost. Our cash flows are going to continue to grow as projects deliver and as mentioned, we expect approximately $250 million of EBITDA growth in the period you mentioned, 2018 and onward.

The dividend capacity is obviously going to be increased on our part as these projects deliver. As previously highlighted in my comments of last quarter, increase in distributions at the appropriate time is an important priority for TGP, but we need to look at a number of things and we're going to be doing that with our Board this year. At this time we are not able to provide much more specific items on it.

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Michael Webber, Wells Fargo Securities - Analyst [6]

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Okay. No, that's helpful. Just around -- I guess, in conjunction with that, you've got a number of projects delivering and you've made a lot of progress in financing that CapEx, but how does the process of reevaluating that distribution and kind of securing the remainder of your CapEx financing impact your ability to go out and aggressively look at new projects here? It seems like the sweat equity needed to get involved in, say, new regas projects seems like it's going up with consortiums kind of coming together earlier needing to take an equity stake in the project. Are you guys on the sidelines of that stuff right now, or is there a point in time where you think you can meaningfully go out and look at sourcing new, higher-spec projects?

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Mark Kremin, Teekay LNG Partners L.P. - President and CEO [7]

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I wouldn't say that we are on the sidelines. Obviously when it comes to the financing, we are definitely focused on completing what Brody mentioned in the second half of 2017 and also looking at the refinancings we have coming up in 2018. But no, we're not on the sidelines, Mike, and I'm not sure we're missing too much.

We do have an increased focus on long-term charters. There haven't been a lot of those coming out. The requirements that we have seen coming out and they're not necessarily for new CapEx. We have some ships, whether it's our joint venture with Marubeni or with the Torben Spirit, which will come off charter perhaps as early as next year, that were still able to bid into these projects and compete against others. So I don't think we're necessarily missing too much here, Mike.

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Michael Webber, Wells Fargo Securities - Analyst [8]

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That's interesting. So when you say there's an uptick in activity and I guess requests for, say, older tonnage with a lower transportation plug for kind of the export Arbitrage, are you seeing an increase in demand for those older asset specifically?

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Mark Kremin, Teekay LNG Partners L.P. - President and CEO [9]

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Well, we've seen, for instance, if you look at India there are a couple of projects that we expect to come out shortly. Those projects, those tenders or requests were supposed to come out much earlier last year. They didn't. They were all pulled and they were intended to be new builds. Now that those new building tenders have been pulled, they're coming out in a different form of shorter term charters, which are probably more suitable for existing tonnage. I'm not saying steam ships necessarily, but TFDEs or even MEGIs will -- existing ships will compete for those bridging contracts and we're seeing a fair amount those.

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Michael Webber, Wells Fargo Securities - Analyst [10]

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Okay. That's helpful. One more for me and I'll turn it over. You ran through some updates on Yamal and Samoylovich seemed like they made progress with the first one. Just around that Arctic group, there was some scuttle I guess over the winter around that Arctic channel needing some additional dredging. It's hard to find a whole lot of information on it. But the implication there could be that it could pull forward maybe a heavier load under that kind of conventional side of that business. Has there been any sort of shift in that in those plans that you can see and/or any that conventional tender being forwarded a bit or anything to that at all?

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Mark Kremin, Teekay LNG Partners L.P. - President and CEO [11]

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We haven't seen that yet, Mike. I mean in terms of dredging, or actually just in terms of ice we have some decent news. We as you know, this first Samoylovich ship has been searching for ice and it seems to have found some. That ship has been in approximately one meter of ice with a half meter of snow on top and cutting through quite nicely and we expect to see the 1.5 meters or so that were looking for, hopefully soon.

In terms of dredging in conventional shift, I haven't seen that. I haven't heard about that. We of course have one conventional carrier onto the project and we haven't heard anything like that.

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Michael Webber, Wells Fargo Securities - Analyst [12]

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Okay. That's helpful. I'll stop there and turn it over.

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Operator [13]

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Ben Nolan, Stifel.

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Ben Nolan, Stifel Nicolaus - Analyst [14]

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Yes. Thanks. I have a couple of follow-on questions. Number one, and Mike mentioned this, but could you just maybe remind or refresh after having done the refinancings lately what bullets our remaining or what refinancings need to be done for 2018 and 2019?

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Brody Speers, Teekay LNG Partners L.P. - CFO of Teekay Gas Group [15]

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Yes, I'll start with 2017 where we have bullet in March with our Marubeni joint venture on our Malt vessels and that the facility is, the refinancing is credit approved now and we expect to close that in March. Then we have about $73 million of our NOK bond due in May, which we've already essentially pre-financed with our October issuance in January following.

In 2018, there's a number of bullets. There more of kind of back ended towards the end of the year and those refinancings are supported by long-term charters to strong counter parties, low load to values on vessels, or two of them relate to vessels which have purchase obligations from the charter at amounts that exceed the loan refinance. In 2019, we just have one small loan for conventional tankers, a bullet of about $30 million and then a refinancing in one of our joint ventures with EXMAR for about $130 million.

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Ben Nolan, Stifel Nicolaus - Analyst [16]

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Okay. So my sense of it from that is you feel that it's all pretty easily manageable and just sort of a matter of course in time rather than really challenging negotiations or anything else?

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Brody Speers, Teekay LNG Partners L.P. - CFO of Teekay Gas Group [17]

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Yes. Like I said, the bulk of them are in 2018 and they're supported by long-term charters to strong counterparts. Yes, we think it's manageable.

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Ben Nolan, Stifel Nicolaus - Analyst [18]

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Okay. That's helpful. I had another question on, again, following on what Mike was saying with respect to sort of your participation in incremental projects. To the extent that there are, and I appreciate that a number of the new requirements or updated requirements might be for existing tonnage, but to the extent that there are tenders out there for new buildings, is that something that you're currently participating in or contemplating being involved in or are you focused a little bit more on finding employment for the existing equipment first?

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Mark Kremin, Teekay LNG Partners L.P. - President and CEO [19]

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We have, again -- to sort of reiterate the point, we have seen a limited amount of new building projects for which were interested at this point and those projects are the ones that come with long-term charter parties to strong counter parties. We have participated to some extent in those, but they haven't really come off. We're not seeing a lot of opportunities right now that would require new CapEx that we're too interested in this point. As the liquefaction comes online, which we certainly expect it to and we start to see more and more of the longer term and steadier projects come out, I think we'll be in a position to participate.

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Ben Nolan, Stifel Nicolaus - Analyst [20]

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Okay. Lastly -- well, actually I have two more questions, but on the Yamal project and around the term sheets that you have for the financing, are there any limitations with respect to the project itself actually starting up or -- and frankly with respect to your contracts, if there were to be a delay, and I appreciate right now it's on time and on budget, but if there were to be a delay similar to what happened in Angola or something else, is there any contingency built into those contracts and also the financing that sort of pushed back those -- the payments of those until the project itself is actually up and operational?

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Brody Speers, Teekay LNG Partners L.P. - CFO of Teekay Gas Group [21]

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Yes, sure, on the financing side there's essentially a delay period built in. There's a long stop date. It's also predelivery financing. So there's a delay in the project it won't prevent us from drawing down on those facilities and there's a fairly generous long stop period in there for the project to come back, come on stream in the event there were delays. On the contract side, we get paid on delivery from Yamal and so if there are delays, we would expect payment during that delay period.

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Ben Nolan, Stifel Nicolaus - Analyst [22]

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Okay. That's great. Lastly for me, you guys have those two smaller older river vessels and I think there's been talk about finding some new sort of regional employment on those. Is that continuing to progress or how do you envision the future of that equipment playing out?

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Mark Kremin, Teekay LNG Partners L.P. - President and CEO [23]

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I'll perhaps step outside of my boundaries a bit. Those ships are actually on charter to Teekay through April or so of 2018. However, I think I can say that the Arctic, one of the ships is currently in lay up and the other is idle after a short term charter for PETRONAS last quarter. We are tendering both ships into multi-year contracts starting this year, primarily for niche terminals with smaller -- I wouldn't call them river, as you say, but certainly shallow-draft terminals in China. That's the current status of those two vessels for Teekay and perhaps ultimately for TGP.

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Ben Nolan, Stifel Nicolaus - Analyst [24]

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Okay. Great. That's very helpful and I appreciate you taking the questions. Thanks, guys.

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Operator [25]

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Spiro Dounis, UBS Securities.

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Spiro Dounis, UBS Securities - Analyst [26]

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Good morning, gentlemen. Thanks taking the question. Just wanted to start of on the leverage, just as you sort of look forward, thinking about maybe what pro forma leverage looks like for you guys. You've probably still got the maturities coming up and some amortization. Should we assume that you sort of just basically pay that down? How do you see yourselves ending up from a leverage standby by the end of the decade? You obviously made the decision to issue preferred equity last quarter. Do you do that is a way to sort of supplement the debt or that really more of a growth vehicle when you think about capital?

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Brody Speers, Teekay LNG Partners L.P. - CFO of Teekay Gas Group [27]

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Yes, obviously we are focused on maintaining a strong balance sheet, especially as we take delivery of all of our new building projects. As you mentioned, we issued the $125 million in preferred equity in October as a way to delever the balance sheet. Were going to remain focused on keeping the balance sheet strong and keeping leverage at reasonable levels going forward as we take delivery of all these ships.

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Ben Nolan, Stifel Nicolaus - Analyst [28]

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Is there a target level you're looking to achieve? I mean, is a below five times? Obviously, you've got a lot of charter coverage so you can run that a little bit higher than a typical MLP, but is there a number you've got in mind that you can share?

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Brody Speers, Teekay LNG Partners L.P. - CFO of Teekay Gas Group [29]

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There's not a number that I think we want to share at the moment, but as you mentioned we have strong contracts, long-term contracts, in place with strong counter parties and so we think where were sitting now is reasonable when you consider the contract coverage that we have in place, but as I said, we're going to continue to monitor it and ensure we carry a strong balance sheet going forward.

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Ben Nolan, Stifel Nicolaus - Analyst [30]

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Got it. Second one, just wanted to walk through some of the assumptions on slide seven where you refer to the 20 to 30 vessel shortage. I think that's more or less along the same lines as some of your peers. Just wondering what you assume in terms of trade route, because I think obviously a lot of the concern is that a lot of US Gulf LNG maybe goes to Europe or to LAT AM and then a lot of the Australia cargoes go to Asia, which is obviously bad from a ton mile perspective. Now with saving paths well underway, are you seeing that trade route and maybe what's baked into your assumptions there?

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Mark Kremin, Teekay LNG Partners L.P. - President and CEO [31]

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Actually our assumptions are probably more conservative than most, just for starters. When we look to some of the peers that I think you are referring to, whether it's GTT or Wood Mackenzie, POET, Morgan Stanley, (inaudible), all those guys are looking at 50 or more new builds needed by 2020, so I think we're a bit conservative in that regard. But more to your point, yes, we are looking at primarily the US and Australia. Malaysia will come online and then the trades will hopefully see a little bit more of the trust to us to Australia going forward. Sorry, to Asia going forward.

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Ben Nolan, Stifel Nicolaus - Analyst [32]

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Okay, got it. Last one and maybe it's question for Kenneth if he's on, but obvious a lot has changed since Teekay last capital markets day and that includes the Management Team, of course. Just wondering if there's any thoughts on coming back to investors this year to revisit the strategy and communicate that vision?

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Mark Kremin, Teekay LNG Partners L.P. - President and CEO [33]

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Well, that certainly a good question for Kenneth. I would suggest you bring it up on the Teekay Corp. call, which is going to happen tomorrow.

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Ben Nolan, Stifel Nicolaus - Analyst [34]

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Sounds good. Appreciate it. Thanks, guys.

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Operator [35]

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Fotis Giannakoulis, Morgan Stanley.

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Fotis Giannakoulis, Morgan Stanley - Analyst [36]

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Yes, hi, gentlemen and thank you for the opportunity. I would like to follow up on the previous questions about the debt financing and if you can give us, especially for (inaudible) financings for 2018 your view of what's going to be the repayment for (inaudible) financing? If you have an estimate of long-term post delivery of the Yamal vessels -- of all the new buildings, what would be the annual debt repayment that you're expecting versus the depreciation?

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Brody Speers, Teekay LNG Partners L.P. - CFO of Teekay Gas Group [37]

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Sure. For the 2018 balloons, it is obviously going to vary by facility, in large part linked to the contracts that are in place. These are all existing vessels with remaining contracts of anywhere from 5 to 10 years and we would expect repayment profiles to kind of near the remaining firm period that we have. For the Yamal vessel repayments, we're looking at profiles of approximately 16 to 20 years, depending on the facility.

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Fotis Giannakoulis, Morgan Stanley - Analyst [38]

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Can you give us an estimate of the annual debt repayments, excluding the balloons, on the financings when all the new building LNG carriers will be on the water?

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Brody Speers, Teekay LNG Partners L.P. - CFO of Teekay Gas Group [39]

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Well, we can't really estimate that now until we've actually completed these refinancing, so I think it's a bit early for that, to provide that on this call.

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Fotis Giannakoulis, Morgan Stanley - Analyst [40]

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Thank you. Would it be reasonable to assume something very similar to the depreciation or are you expecting that it's going to have a lower -- you're going repayments lower than depreciation?

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Brody Speers, Teekay LNG Partners L.P. - CFO of Teekay Gas Group [41]

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We depreciated vessels over a 35-year use of life and the financing repayment profile will be shorter than that.

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Fotis Giannakoulis, Morgan Stanley - Analyst [42]

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Okay. Thank you very much. One last question. I think during your presentation you talked about your confidence that more FIDs are going to be coming. Are there any specific projects that you think they have a priority? Do you see in the market more (inaudible) the long-term agreements that will support these new FIDs or you are expecting some of these FIDs to be even without effects?

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Brody Speers, Teekay LNG Partners L.P. - CFO of Teekay Gas Group [43]

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One of the ones that comes up, I am always a bit unclear on is whether (inaudible) an actual FID in Mozambique, but that might be one that, to your point, which is next. In terms of the supply side, we did see that Shell announced just I guess this week that things are fairly balanced and actually most of the off takes in existing projects is actually bought up or committed to already, so it's fairly balanced. Going forward, certainly with energy prices like they are, I think that, that will be continue to be that case. Most FIDs will only be taken if the majority of the LNG is committed to prior to the FID

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Fotis Giannakoulis, Morgan Stanley - Analyst [44]

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Thank you and one last question regarding what gives you the long-term normalized rate for LNG carriers and how has this been impacted by the fact that according to some of the brokers you believe prices, they have declined versus what we used to know, over $200 million now they talk about kind of a [$70 million -- $90 million]. Is there a similar adjustment in your expectation for a new normalized rate or a rate that these additional new buildings, that they will be purchased at the lower price will also drive the long-term rate down and how does this impact the existing vessel size of steamer carriers or the PSD vessels?

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Brody Speers, Teekay LNG Partners L.P. - CFO of Teekay Gas Group [45]

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Were not real sure yet how much rates will change over time here. You're correct that new building prices seem to be have dropped quite sharply. Regardless, we haven't seen many orders. So this goes to the point we mentioned earlier that even though prices are probably well below even $190 million, there haven't been a lot of opportunities for ordering, as evidenced by the fact that only five orders have taken place since October 2015.

In terms of how those rates are going to look when those opportunities arise, the folks do want to go back out in order the cheaper ship again. I think they could be offset by the higher equity costs that some folks have, volatility and interest rates going forward, et cetera. So in terms of the actual overall time charter rate, it's probably, it may not change much. What will change, obviously, is the unit freight cost. When we see ships like our MEGIs coming out, they're going to deliver a much lower unit freight cost than the steamships that you mentioned going forward.

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Fotis Giannakoulis, Morgan Stanley - Analyst [46]

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Thank you very much.

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Operator [47]

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Kyle Chung, PineBridge Investments.

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Kyle Chung, PineBridge Investments - Analyst [48]

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Good morning. Can you hear me?

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Mark Kremin, Teekay LNG Partners L.P. - President and CEO [49]

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Yes.

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Kyle Chung, PineBridge Investments - Analyst [50]

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Great. When TGP cut its dividends or distributions, Peter mentioned that they will be this restored once the debt financing for growth projects are complete, but he also said at the time that they may be restored earlier if capital market conditions improve. Both you and your competitors have done a number of transactions, so the capital markets seem like there opened. Do you share Peter's view that distributions could be restored before TGP closes on all of its debt financing for growth projects?

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Mark Kremin, Teekay LNG Partners L.P. - President and CEO [51]

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To kind of go back to the point that we discussed with Mike, there are numerous factors we're going to be considering with our Board next this year in terms of to what extent and when we start to reintroduce or increase the distribution. You've mentioned financing but the other thing that we've mentioned is our increased dividend capacity that will only come when our projects start to deliver in 2018. There are other things we'd have to consider at the time, other metrics we have to consider at the time, even when we consider this.

It's not necessarily tied to the fact that Brody's doing a great job on the progress of the financing. Again, we do hope to complete most, if not all, of that within the end of the year, but that's not the single determinant and we need to have a discussion with our Board before we can go into any more guidance on it.

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Kyle Chung, PineBridge Investments - Analyst [52]

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Okay. If I could ask about distribution, maybe a different angle. A lot of your peers have a coverage ratio target of 1.125, although they've been running at sort of 1.25 times. When you restore your distributions, would your recommendation to the Board be -- would you be competitive relative to your peers or would you want to have more cash to deleverage or to restart your growth pipeline?

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Mark Kremin, Teekay LNG Partners L.P. - President and CEO [53]

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You mentioned a different angle. Were going at this a lot of different angles but I'm basically an account with the same answer. I will be drawn just slightly. Obviously, our coverage ratio right now, 4.4, is very high and it was perhaps a little low when -- before we cut our distribution. We will be looking at that as one of the metrics and we will probably be discussing with the Board to increase our coverage ratio, but were not going to get into specifics of how much. That's really all I can say at this point on the distribution.

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Kyle Chung, PineBridge Investments - Analyst [54]

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Thank you.

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Operator [55]

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Thomas Lindsay, an investor.

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Thomas Lindsey, - Investor [56]

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Yes. Thank you very much. My question is regarding the Yamal LNG project. I've had a close look at it. It's -- has a rather amazing project risk profile given the country of risk elements, the Putin situation, the sanctions, the physical challenges on the Arctic construction. I want to focus in on the technology and operational risks of the ARC 1 LNG carriers. I've heard your comments that the sea trials are ongoing in the ice at the moment.

But I'm looking at these ships. They have revolutionary technology, basically untested, or being tested for the first time now, the reinforce, the steel hull, the new propulsion systems and the configuration of the prow literally requiring the ship to go in reverse to break the ice. It seems that these ships are going to be taking a beating over a 25-year charter period. Crunching through the ice up through seven feet of Arctic ice seems that, that's going to take a lot of wear and tear that can't be modeled by the shipbuilders. What is your long-term view of this technological risk, which no one really seems to be addressing?

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Mark Kremin, Teekay LNG Partners L.P. - President and CEO [57]

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Well, it's absolutely been addressed and it's been addressed for many years. The Russians and even Canada and other countries, but particularly Russia, have a tremendous amount of experience in this Arctic ice. The vessels that they've been running up in the Arctic for many years, they've certainly put that into the design of these ships. So actually there's nothing that's untested on these particular ships, whether it's the (inaudible) or the general configuration of the hull itself is not too dissimilar from an LNG carrier or other ships that are in the ice.

The ice risk, and just to kind of go a bit further, my understanding is during the ice trials, I'll call them, we did already do sea trials, but during the ice trials, we've already struck a hard ridge of ice which is good and we got to see the results that of that and the results were good. The ice risk itself, however, is for the charter for the most part. So they understand the issue and specific ice issues are contracted -- the liability is contracted to the charter on this. Again, it's certainly not something that -- folks have put a lot of effort to this and we're very confident in the technology on it.

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Thomas Lindsey, - Investor [58]

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Yes, but you'd never want to have your charter in a distressed financial condition then you've got -- then you have a similar situation to the Yemen LNG when people say, well, we're just not getting paid and you're not getting paid. I don't care what the contract says.

The larger point here regarding the ship is this is a brand-new configuration. Yes, the Soviets have done a lot of work but they're basically going headfirst into the ice. This is a new technology, going in reverse into the ice with the propulsion system exposed to the ice. All of that is -- models very well, I'm sure, in the lab, but this is where the rubber meets the road, to use a bad analogy.

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Mark Kremin, Teekay LNG Partners L.P. - President and CEO [59]

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Okay. Well, to your point, model's one thing in actual life trials are another. Will get a good look at this Samoylovich ship in the ice right now and then there will be some other vessels also delivering prior to ours in 2018. If there are any issues, which we certainly don't expect and haven't seen thus far, we will be able to take a better view of it at that time.

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Thomas Lindsey, - Investor [60]

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Yes. Well, you're still looking at a different configuration than the Russians have used in the Arctic with their ships, so to compare it to the Russian experience is only partially correct. It seems to me that there's a great unanswered question.

To follow up, this is the first ARC 7 being delivered to the project. Is it anticipated that every single ship has to go through Arctic ice trials prior to delivery or are you going to basically say they're all the same design so if it's good for one, it's good for all?

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Mark Kremin, Teekay LNG Partners L.P. - President and CEO [61]

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It's to be determined. They all are basically all of the same design. We'll probably see as all -- I wouldn't call this an entirely new design. A lot of the things are the same as we see in all of our ships, the membrane system and those things. But to the extent there is any [teeting] or issues that we see on the first ship, and hopefully the improvements will be applied to the second and third and so forth.

If were uncomfortable with the ice trials, the results of those, we do have the opportunity to, of course, do our own ice trials on each occasion. I'm not sure yet what the value will be. We'll have to take a look at these ice trials and determine whether that would be useful and also perhaps if there's a second ice trial by the other owners or a third ice trial before we deliver, we'll be taking a close look at all those results. As we said, the partners collaborate closely and we'll determine whether we want our own ice trials at that time.

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Thomas Lindsey, - Investor [62]

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Isn't this a matter of contract, though? Isn't this built into the contract before hand? It seems to me that this thing would be settled well in advance, either ice trials or no ice trials or some sort of contingency planned in between.

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Mark Kremin, Teekay LNG Partners L.P. - President and CEO [63]

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Yes, it is in the contract. Yes, we have that ability.

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Thomas Lindsey, - Investor [64]

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The charter has the ability to demanded or you have the option to do the trials or not?

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Mark Kremin, Teekay LNG Partners L.P. - President and CEO [65]

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We have the ability to do ice trials if we wish.

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Operator [66]

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[Espien Landmark, Fern Lee].

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Espien Landmark, Fern Lee - Analyst [67]

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Just wondering if you can just walk us through the assumptions for the Yemen and the Skaugen vessels. How much -- starting with Yemen, how much is deferred and how much -- I mean what is the outside on the $25 million and on the Skaugen, there was a $4.5 million deferral in 4Q. What is the assumptions for 2017?

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Brody Speers, Teekay LNG Partners L.P. - CFO of Teekay Gas Group [68]

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For 2017, we've agreed to defer a significant portion of the Yemen LNG charter hire. For TGP's share, that's about $25 million per year. But as we've mentioned, we can trade these ships for our own account in the short-term market, so we expect to be mitigate the portion of that. For the Skaugen vessels in Q4, we deferred $4.5 million and we're expecting a deferral in Q1 as well in the range of $3 million to $4 million.

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Espien Landmark, Fern Lee - Analyst [69]

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All right. That's helpful. On the debt side, there seems to be some kind of larger movements on both repayments and drawing. Is there any specific items you would highlight in the quarter?

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Brody Speers, Teekay LNG Partners L.P. - CFO of Teekay Gas Group [70]

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Not really. I think the main reason it looked high maybe is we drew down on our unsecured revolver and then refinanced it and subsequently repaid it, but it was just a temporary draw, so I think that's why it looks I in the quarter.

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Espien Landmark, Fern Lee - Analyst [71]

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All right. Just to kind of sum up some of the other questions regarding the bullets coming, I think you previously highlighted there will be some capital calls on the RasGas vessel, but is it fair to assume that beyond that, there's not going to be any capital outlays on the refi side?

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Brody Speers, Teekay LNG Partners L.P. - CFO of Teekay Gas Group [72]

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On the RasGas vessel there's not good in a capital calls. We actually took $40 million of equity out of that structure upon refinancing in December. In the 2018 refinancings, yes, we don't expect any significant pay downs on any of those balloons. The one where we do have a capital injection required is the Malt refinancing with our Marubeni joint venture, which is occurring next month and we expect about $35 million for TGP share to be injected to pay down the balloon there.

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Espien Landmark, Fern Lee - Analyst [73]

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Yes, I was referring to the Malt. That's helpful. Thank you.

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Operator [74]

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That concludes today's question-and-answer session. I would like to turn the conference over to Mr. Mark Kremin for any additional or closing remarks.

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Mark Kremin, Teekay LNG Partners L.P. - President and CEO [75]

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Thank you very much. We look forward to seeing you at the next quarter -- or hearing from you, I guess. Thank you.

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Operator [76]

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That does conclude today's conference. Thank you for your participation.