Before Mark begins, I would like to direct all participants to our website at www.teekaylng.com, where you will find a copy of the second quarter of 2021 earnings presentation. We 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 second quarter of 2021 earnings release and earnings presentation available on our website. I will now turn the call over to Mark Kremin, Teekay Gas Group's President and CEO, to begin.

Thank you, Scott. Good morning, everyone, and thank you for joining us on our second quarter earnings conference call for Teekay LNG Partners.

I'm joined today by Scott Gayton, Teekay Gas Group's CFO. Before getting into our results, we will take a moment to thank all our staff for the continued dedication to maintain business continuity during the COVID global pandemic.

We are especially proud of how our seafarers and dry docking supervisors have continued to respond to ongoing restrictions while maintaining consistently safe and efficient operations. Turning to Slide 2 of the presentation.

We will briefly review some of Teekay LNG's recent highlights. The second quarter of 2021 was another good quarter for us, albeit down slightly from last quarter, primarily due to an increase in our scheduled dry dockings in the second quarter.

We generated adjusted net income of $57 million or $0.57 per unit. And total adjusted EBITDA, which includes our proportionate share of EBITDA at the joint venture level, $184 million.

Looking ahead to the second half of the year, as was the case this quarter, we expect to undertake a higher than normal number of scheduled dry dock days in the third quarter, which will impact our third quarter results. However, we are anticipating very few dry dock days in the fourth quarter.

As a result, we expect our fourth quarter earnings and cash flow will rebound accordingly. With over 98% of our LNG fleet fixed for the remainder of 2021 and 89% fixed for 2022, we are anticipating that Teekay LNG continue to enjoy fairly consistent results through the rest of the year and into next, with upside from our one spot market-linked charter contract.

As the last bullet of this slide states, the LNG shipping market is firm for reasons we will review in a moment. And while the vast majority of our LNG fleet is fixed, we do have exposure to this market strength, which we anticipate will continue well into 2022.

Turning to Slide 4. Being our consolidated fleet.

And similarly, on Slide 5, being our joint venture fleet, the bars towards the middle and the bottom of these slides indicating how our LNG fleet portfolio is largely fixed long-term to a diverse group of high-quality customers with an average remaining contract term in excess of 10 years. However, as the red doted circles indicate on these two slides, we have a few vessels available in 2022, which should be well positioned to take advantage of the expected strength in the LNG carrier market as we will review on slides and 6 and 7.

So let's now skip past Slide 5, which we just discussed, to Slide 6, where we will discuss a few of the commodity and chartering dynamics, which we believe will impact LNG charter rates going forward. Looking first to the left-hand slide -- the left-hand side of the slide, the demand for and supply of LNG is leading to much higher pricing than we typically see during this time of the year.

The Asian benchmark, JKM, has recently surpassed $15 per million BTU, a level last experience during the cold Asian winter last year. And based on the forward curves, as depicted by the dotted lines, much of this strength in pricing is expected to continue throughout the year.

Strong industrial demand and low inventories have been supportive of higher gas prices, with China accounting for much of the incremental demand over the past year. Just last month, China surpassed Japan as the largest importer of LNG.

And as we'll discuss in a moment, stronger international pricing and arbitrage trading opportunities are helping to support LNG carrier rates. This counter-seasonal strength in pricing is also leading to an uptick in the number of term charters being entered into, as seen in the graph to the middle of this slide.

As LNG carrier rates begin to firm counter-seasonally in March, 13 term charters were completed, followed by 10 in April and another 8 in June. As you can see from the chart, this 3-month total equals the number of term charters completed over the prior 20 months combined.

We believe this rush to charter vessels is due in part to the LNG carrier rate spikes experienced last year when rates briefly surpassed $200,000 per day. Whereas this year, subcharters are preferring to lock in tonnage early to avoid another potential spike in rates this winter.

These are just 2 of the factors that we see having an impact on LNG carrier rates, which have been plotted to the right of this slide. The blue and gray lines plot average monthly TFE rates experienced in 2019 and 2020, respectively.

While the red line plot rates experienced to date in 2021, with the dotted red line plotting out the forward rates according to the Baltic LNG curve. An increase in project start-ups, low inventories, particularly in Europe, where inventory is only at 44% of being full and 25% below the average for this time of the year, and long-haul traits from the U.S.

and Asia, as we just mentioned, are all coming together to fundamentally support spot and term LNG carrier rates. Our last slide today is Slide 7.

We're not planning to review all the factors we see impacting rates into the future, whether it be increased volumes out of U.S., as you can see in the chart at the top left, strong demand out of Asia and South Asia, congestion in the Panama and Suez canals. Or seasonal factors such as droughts in Brazil or a hot summer in the Northern Hemisphere.

But what we think is important is how all these factors are coming together to positively impact LNG carrier rates. And this positive sentiment is also shared by others.

If you look to the top right of this slide, we've plotted out Poten & Partners base case rate predictions, where you will notice the most recent base case rates from the July 2021 report, depicted by the dark blue line, a higher than their base case rates in their April 2021 report indicated by the gray line. End of July 2021, high case rates are even higher, as illustrated by the light blue line.

And before we turn it over to questions, the chart to the bottom right plots an average of the forward Baltic LNG index rates as summarized by Affinity. These forward curve rates have similarly been increasing over the past couple of months.

The end July rate indications for this year and next, as indicated by the dark blue bars are the same, or in most cases, higher than the indications they released in early June of this year, as depicted by the light blue bars. Thanks for your time today.

Operator, we are now available to take questions.

So I've got a couple. First of all, is it possible, Mark or Scott, to -- I know you said that there is a heavy dry dock schedule in 2Q or 3Q relative to what would normally be the case.

Is it possible to quantify that at all in terms of what the financial impact would be, say, relative to what we saw in the second quarter?

Yes. I'll take that.

Yes, sure. I think the best place to look, unfortunately -- my printout doesn't have slide numbers, but the best place to look is on Slide 12, Ben, where we do lay out how we expect to see the various line items moving Q2 versus Q3.

And then on the next slide, I guess it's on 13, we have laid out the incremental dry docks that we see. So we've got 97 off-hire days in the second quarter and 131.

So pretty close into the third quarter. So I'd say a combination of Slide 12 and 13 are the best places to look at.

Okay. I can back into that.

I appreciate it. And then just thinking a little bit strategically, obviously, this has been -- you guys have been focusing almost all of your cash flow on debt repayments coming down, moving in the right direction.

We have a conversation every quarter about what are opportunities for growth or what have you. And I think you're still sort of in the process of getting to where you need to be and getting closer all the time.

But I'm curious about maybe one of the areas possibly being taking a greater ownership stake in some of the partially owned vessels that you already have. Those are well known.

You're not sort of going out and competing against anything. I'm just curious if that is something that is possible.

And if it is, it's something that you would look at. And then maybe along those lines, some of those assets might not be TF -- or they might not be XDF or whatever there might be older steam ships or TFDEs.

And is there any sort of reticence or hesitancy to look at something that maybe is not the latest and greatest with respect to efficiencies and so forth.

Maybe I'll take a shot at that, Scott, and go from there. I guess, first of all, Ben, we are -- as you know, we're happy with our fleet as indicated by the buybacks we were doing previously.

The more we have of our own fleet, happy we are. With respect to the partially owned fleet, it's the same thing.

We do look at opportunities to look -- to buy into good opportunities if a partner wanted to sell-out. I don't think we're as concerned about the balance -- the off balance sheet treatment as we used to be and how things are equity accounted.

So to the extent that might shift things one way or the other, it's not a huge deal. I think we just haven't seen a lot of opportunities.

Many of our partners are strategic. They're not sellers.

In fact, if we -- just as we look at opportunities to buy, there are also opportunities to sell if they wanted to decide. We're not married to any piece of steel.

But we do look for contracts. But right now, we are not currently seeing any opportunities to consolidate even within our own fleet, to be honest with you, Ben.

Okay. Well, that's helpful.

And just, I guess, to wrap it up, and you kind of hinted that a little bit there. Asset values are higher for steel, the prices being higher as well as just sort of the underlying fundamentals and cash flow is being better.

Are you -- I don't know, is it fair to categorize you guys as perhaps a better seller than a buyer right now?

When it comes to -- we're probably a better seller than a buyer, to be honest with you. But the thing that we look at for our fleet, we obviously enjoy -- we've got about $9 billion of revenues over about 10 years on average.

So when we look at our opportunities to buy, it's a little less related to the steel buy-only contracts. Those contracts have a long way to play out still for the most part.

So it's really about valuing the contracts rather than the steel. And if someone is willing to pay more than we think it's worth, we're sellers.

And if they're open to paying less, we're buyers. Through this balanced capital allocation we've been talking about for a long time now.

I mean, obviously, we're -- #1, we're focused on delevering. That's the case, but we can see a path.

Clearly, you can see a path, and it's near than it ever was before on the deleveraging side. So then, as you say, we've been looking back into buying our own fleet.

We've looked at return of capital to shareholders. And a lot of that was through buybacks, but we've also been pretty aggressive on distributions.

So as you know, we've been increasing every year, and we were up over 100% over the last 3 years, I believe. So anyway, long story short, we are -- we'd be interested as we'd be interested in both buying or selling in whatever we can get the right price.

I just wanted to just touch on the reduced number of dry docking date. I noticed compared to the Q1 presentation, in Q2, it's down by nearly 50%.

I just wanted to understand what kind of drove this.

Chris, I'm just going to -- so you're saying you compared back to the presentation last quarter versus the days that we have now?

Yes.

Yes. It would look like a lot of that is just going to be the timing of when they're going to do -- when they're actually going to dry dock.

And then we may have pushed some of them out.

Okay. So just -- some of them might get pushed out to 2022?

Yes. I think that would be right.

That's correct, yes.

Okay. Well, I may follow up off-line.

It seems like you had 21 vessels last quarter, now it's 20, but the number of days come down a lot. But that's fine.

I'll move on to my second question. Just looking at your outlook, and I think everyone's outlook on the spot market, that's incredibly firm right now and consensus is to continue to firm through winter.

How has that translated into term coverage -- in term charter rather? Because looking at the forward curve kind of tapering down towards the end of Q1 of 2022, which is, I think, approximately when some of your charters are rolling off.

So I guess at what point will you guys be able to begin talks on contract renewals? And that kind of coincides the timing or the strength of the market at that period.

So I was hoping to get a little color there.

I'm happy to try to field that. I think we're fairly conservative typically in what -- in our earnings call and those of our peers.

With that context, I think we're seeing almost an unprecedented amount of term charter interest right now for starting 2022. And it ranges everywhere from, let's call it, 3 years to 10 years.

And so -- and it ranges from Asian buyers to European buyers and others of LNG. So I think we're going to see more term charters get fixed by the market in Q4 or certainly Q1.

But there seems to be, as I said, we can currently see half a dozen term charter requirements for next year.

Okay. And just on timing on when you guys are beginning talks for the contract returning?

Well, as I said, it could be as early as Q4. Our first ship, actually, our first ship is a steamship we own 50% of with Exmar called the Excalibur.

That will come off probably around Christmas or more likely in Q1. I think that ship gets a little – fixed a little around that time, but it’s not a term driver per se.

You have to find a project, and we will be competing for others to find projects for that first steamship we have that rolls out 50% of it. For the next ship, which I think we really anticipate being available, that’s not available until February.

And given the interest that we’re seeing right now, I can possibly see us fixing forward. And our history at Teekay LNG is that we’re not afraid to do that.

If the iron’s hot, we’ll go forward. And so that’s possibly – we could possibly see a solid fixture in Q4 for that first ship as it become available and not in February of 2022.

So fingers crossed. If the market’s not there, that’s fine.

We have so much coverage as we’ve discussed today. We’ve got already 89% fixed in, I think, 2022.

So we don’t need to jump at any charter. And it’s not going to impact us too much.

We’re seeing strength in the market around us. So we don’t need to fix, but we’re not afraid to forward fix.

So we’ll see what happens to Q4.

I guess following up on my last question around the vessels rolling off charters. Are these likely fixed rate charters?

Are you kind of more interested in the market linked charters like your recent one you did?

They're more likely to be fixed rate. That said, we're happy with that floating rate charter.

The Baltic is doing well. Right now, I think in August, where we -- the Baltic current curve for -- in August is around $77,000 for the 2 stroke that we have.

And that's after net brokerage fees, et cetera. So we were definitely happy that we took the footing index on that one.

And the -- as you know -- as you may have seen, Randy, the FX in Q4 is over $100,000. So that's definitely been a way to go versus when we fix that ship, I think, in March yourself.

It's worked out. But as a general principle, Teekay -- and that is full 100% utilization.

So keep in mind, we say we have 98% fixed on our LNG fleet. We're 100% fixed in terms of use utilization.

So this is that 2% that's floating around on the revenue side. So we are -- we believe always towards utilization over rate typically because we think it provides a better time charter equivalent.

So we'll be open to floating rates, but that is not our plan at this point. We would hope to fix the rate, if we can, that is our preference.

Even though we don't pay out on full distribution or whatever. It's still -- that solidity that we have is a hallmark that people rely on.

I think they like our stability in our business. So we will try to fix the rate, is our preference, Randy.

Got it. Okay.

And then you kind of mentioned this earlier as well. But just looking at consolidation in the industry, it's happening, it's pretty prevalent across some of your peers.

Is TGP interested in that in terms of secondhand consolidation? Or are you focusing growth only on new builds, specifically with cutter?

We're more focused on the latter for a couple of different reasons. #1 is we -- consolidation is interesting.

But again, it's not so much the steel we love. It's the contracts we love.

So we have this huge amount -- the portfolio. That's what we want to build it on, not just ships for the sake of ships.

And what's been available in the market typically doesn't come with long-term contracts. And I shouldn't say typically, we haven't ever have long-term contracts.

So those you have to originate yourself. We have to develop yourself, and that's why we lean a little bit towards front builds.

The second reason is what we kind of discussed on an earlier Q&A, which is our first priority has been delevering. And as I said, we're doing pretty well in my opinion here.

But when we look at a new build that would be delivered today, it delivers on lets say '24, 2024, 2025, by which time we have that delevered. So the -- that lines up more with our first priority goal of tracking of deleverages to [indiscernible] into long-term contracts commencing around those a little bit forward base.

I’d just like to thank everyone for their – as always, for their continued support, and wish everyone a great afternoon. Thanks.

Bye.