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Teekay LNG Partners L.P. (NYSE:TGP)
Q1 2020 Earnings Call
May 21, 2020, 1:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to today's Teekay LNG Partners' First Quarter 2020 Earnings Results Call. [Operator Instructions].

And now for opening remarks and introductions, I'd like to turn the call over to the company. Please go ahead.

Scott Gayton -- Chief Financial Officer

Before Mr. Kremin begins, I would like to direct all participants to our website at www.teekaylng.com, where you will find a copy of the first quarter of 2020 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 fourth quarter and fiscal 2019 earnings release and earnings presentation available on our website.

I will now turn the call over to Mark to begin.

Mark Kremin -- President & Chief Executive Officer

Thank you, Scott. Good morning everyone and thank you for joining us on our first quarter of 2020 earnings conference call for Teekay LNG Partners. We hope that you and your families are all safe and healthy. I'm joined today by Scott Gayton. Teekay Gas Group CFO.

Before we get into our results, we will take a moment to say thank you to all our seafarers and shore based staff for their extraordinary dedication to maintain business continuity. While COVID-19 is having an unprecedented impact on the world and is clearly a major focus for us, our long-term contract cover has ensured it has had minimal impact on Teekay LNGs operations and cash flows. We are truly proud of our seafarers and our onshore colleagues, how they have responded to COVID-19, implementing new standards, which focus on the health and well-being of everyone involved in our organization, especially our colleagues at sea, while maintaining consistently safe and efficient operations for our customers.

Turning to slide 3 of the presentation; we will review some of Teekay LNG's recent highlights, as well as a few key takeaways that summarize how we believe Teekay LNG is uniquely positioned today, and not just against our LNG shipping peers, but also how we are uniquely compared against most energy related companies out there.

Our first quarter adjusted net income increased to over $52 million, the seventh consecutive quarterly increase, and as we will discuss in a moment, we expect our adjusted net income will increase again next quarter. With the recent charter of the Marib Spirit, our LNG fleet is now 100% fixed for 2020, which is in line with our strategy of optimizing utilization of our fleet, which we think benefits all our key stakeholders.

As announced last week, we agreed with our sponsor, Teekay Corporation, to eliminate their their incentive distribution rights or IDRs. We believe this creates greater alignment between Teekay Corporation and the rest of our investors and removes one of the primary uncertainties for new and existing TGP investors. And importantly, we believe we are trading at attractive multiples of earnings and cash flow that aren't reflective of the strength of our business, and therefore represents a compelling opportunity for new investors.

During these last few months, the energy LNG shipping and equity markets have experienced enormous volatility, but our business and the partnership as a whole, have largely been insulated from this volatility. On this slide we have listed five key takeaways that we believe make Teekay LNG unique in the markets today and a compelling investment for existing and new investors. First, Q1 2020 was another record quarter for Teekay LNG and our total adjusted, EBITDA up nearly 20% over the same quarter one year ago. Second, our LNG fleet is 100% fixed for 2020% and 94% fixed for 2021, and as we will discuss in a moment, all of our fixed rate charters are take or pay in nature.

Third we have a strong financial foundation, with leverage decreasing, a strong liquidity position, no remaining debt maturities in 2020 and no growth capex needs. Fourth, based on the stability of our business, we are reaffirming our 2020 financial guidance and we expect this year's adjusted earnings will increase by nearly 50% over 2019's.

Fifth, we continue to increase returns to our investors in the form of increasing distributions and buybacks. In combination, this puts Teekay LNG in a unique category of companies, that only a few if any of our peers in the broader shipping space can match.

Before reviewing each of these key takeaways in more detail, we would like to turn to slide 4 to discuss our experiences, while operating in today's COVID-19 environment. Operationally, we have transitioned each of our vessel smoothly into environment and everyone onshore is working officially -- efficiently from home. We have not experienced any impact on our vessel availability, owing in part to no cases of COVID on board in any of our vessels.

Our focus remains on the safety and health of our crews and, while we have been unable to affect crew changes, except for extraordinary cases, we are working with both industry and intergovernmental organizations to allow for the safe passage of crews. At the same time, we are hopeful that borders will be reopening soon. We were able to stock up on critical spares prior prior to travel restrictions being put in place, and our 2020 drydock schedule was already back-end loaded. For the few drydocks we were expecting in Q1 and Q2, we have been able to delay them, as needed, until later this year. And lastly, all of our fixed rate charters are operating as expected. We have not had any impact on our business, as a result of cargo cancellations that may have been taking place, and all of our fixed rate contracts are operating as expected. Similar to previous downturns in the spot LNG shipping markets, we have received no request for contract cancellations, and none are expected.

Looking to slide 5; we mentioned upfront, that this was another record quarter for Teekay LNG, with the final delivery of our $3.5 billion growth program in December of last year. We are now beginning to recognize the associated cash flow and earnings, which is leading to year-over-year and quarter-over-quarter growth. We took delivery of six LNG carriers, and the Bahrain regas terminal over the past year and we have enjoyed higher LPG rates in our 50% owned JV with Exmar, all of which contributed to a nearly 20% increase in total adjusted EBITDA, and a 57% increase in adjusted net income, comparing the first quarter of 2020 to the same quarter of the prior year.

And comparing the same cash flow and earnings items in the first quarter of 2020 to the fourth quarter of 2019, we experienced sequential increases due to deliveries late in 2019 and receiving terminal use payments for Bahrain in early January. Importantly, as you can see in the appendix on slide 5, we are expecting that Q2 2020's results will exceed this first quarter's. We have been including slide 6 and 7 in our presentations for many quarters now and perhaps this quarter more than any previous quarters, these slide set us apart from nearly everyone in our sector.

Looking first to slide 6 and focusing on the text to the left, we would like to take a moment to discuss the key characteristics of our fixed rate contracts. Our contracts are take-or-pay and there are no provisions for a unilateral change in terms or charter rates. Take-or-pay means that we get paid every day that the vessel is available for operation, irrespective of how the customer uses the vessel. If our ship is full of LNG cargo and steaming to its destination, we get paid. If it is empty and en-route to pick up an LNG cargo, which the customer subsequently with the producer, we get paid. If it is empty while waiting for a cargo, we get paid. If it is full and there is nowhere to offload the cargo due to on-land storage or gas transportation issues, we get paid. If the spot LNG market drops or rises, and is significantly different than our contracted rate, we continue to receive the contracted rate. For these reasons, we do not foresee that any of our fixed rate contracts, which are detailed on the slide, are in jeopardy of being canceled, despite the uncertainty in today's energy environment.

Turning to slide 7; as announced today, we fixed our final remaining LNG carrier up for renewal in 2020 on contract last week. Looking at the top three bars on this chart inside the red dash box. Today, we have announced a six-month fixed rate contract on the 52% owned Marib Spirit commencing on June 21, which follows on from the announcement last month that we had fixed this 52% Methane Spirit on an eight-month contract and the 52% owned Araw Spirit on a 12-month contract. All told, we are now 100% fixed for the remainder of 2020 and 94% fixed for 2021. Importantly, two of the charters are in direct continuation of their existing charters, which means that no days of off hire, while waiting for the new contracts to commence. This is great work by our chartering team to maximize the utilization, and thus the earnings of these vessels.

I will now turn over to Scott, who will discuss the next two slides before we conclude.

Scott Gayton -- Chief Financial Officer

Thank you, Mark. Turning to slide 8, another one of the key takeaways we hope you take from this call, is our strong financial foundation. As can be seen to the top right of this slide, and looking at the blue line, our leverage, as measured by net debt to total adjusted EBITDA on a proportionate basis, continues to decrease. We have moved from an annualized 7.6 times as of the first quarter of 2019, to 6.1 times, as of the end of Q1 2020, on an annualized basis, and we expect our delevering efforts will continue into the future with approximately $300 million in scheduled amortization per year. This delevering benefits investors by building financial flexibility, through a higher equity base and through interest expense savings. We expect annualized interest savings of $20 million to $25 million per year, simply due to interest savings resulting from scheduled debt amortizations, and savings from repaying our 2020 NOK bond with existing cash. While a significant portion of our interest rate exposure has been hedged, shared interest rates remain low, the interest cost on our floating rate debt will also decline.

Looking at the chart to the bottom right, we also believe that our financial foundation is strong, because of our very manageable debt repayment profile. After repaying our NOK bond, which matured this past Tuesday with cash, we have current liquidity of over $260 million and no further debt maturities in 2020. We have three facilities that mature in 2021, and we are already negotiating term sheets with the existing lenders on the Tangguh LNG and Exmar LPG joint venture facilities. Each of these facilities are backed by attractive vessels and in the case of Tangguh, contracts with BP that extend out to 2029. The 2021 NOK bond doesn't mature until October of next year, and so we have over a year, before we would need to refinance this maturity. Our expectation is that we will refinance this bond prior to its maturity, albeit, at a reduced amount. In summary, we have a strong liquidity balance, a very manageable debt maturity profile and a strong bank group, and therefore we believe Teekay LNG has a strong financial foundation, which benefits all stakeholders.

Turning to slide 9, we continue to believe TGP represents a compelling investment, with a 10.5-year fixed rate contract revenue backlog of approximately $9.3 billion, while trading at a 2020 adjusted earnings multiple of four times, a cash flow multiple of 7.7 times, and with a dividend yield of over 9%. Teekay LNG has already raised distributions by over 30% for two consecutive years, and we have reaffirmed our 2020 financial guidance range today. We took advantage of the weakness in our unit price by repurchasing shares during the quarter, repurchasing 810,000 units Since reporting earnings in late February, at an average price of $9.75 per unit, which brings our total repurchases to nearly $45 million, or 4.6% of our outstanding unit count, since the start of the program in late 2018. However, going forward, I expect maintaining a healthy balance sheet and strong liquidity balance will outweigh additional unit repurchases.

Before I turn the call back to Mark to conclude, and looking at the chart at the top of this page, adjusted net income and total adjusted EBITDA in 2020 are expected to be up materially over 2019, which is already up significantly over 2018, which as Mark mentioned earlier, makes us truly unique and among our peers in LNG shipping and the energy markets at large.

I would now like to turn the call back to Mark to conclude.

Mark Kremin -- President & Chief Executive Officer

Thank you, Scott. Before we open up the call for questions, we would like to close out today by recognizing the unprecedented volatility and uncertainty that has occurred in the natural gas and LNG markets, both from a demand, supply and pricing point of view and the impact this has had on LNG shipping and the outlook for new projects. As economies begin to reopen and hopefully return to the same for some level normalcy, more will become clear to us. However, during these uncertain times, we take comfort in our robust business models, which, with a fully fixed LNG fleet, a strong financial foundation and dedicated staff seafarers who will keep everyone safe, as we plan to reorient around the new normal.

Thanks for your time today, and operator, we are now available to take questions.

Questions and Answers:

Operator

[Operator Instructions]. And first, we'll hear from the line of Randy Giveans with Jefferies.

Randy Giveans -- Jefferies -- Analyst

Howdy, gentlemen, how is it going?

Mark Kremin -- President & Chief Executive Officer

Hi Randy. Good.

Randy Giveans -- Jefferies -- Analyst

Obviously nice work on eliminating the IDRs, getting the NOK bond paid off. Question on the NOK bond, was that more of a deleveraging decision or kind of has the market really dried out, and that the pricing was exorbitant, makes you want to refinance that? And then kind of going forward, is the plan to kind of reenter recap that market or kind of staying away for the time being?

Scott Gayton -- Chief Financial Officer

Yes. Thanks Randy, this is Scott. No, that market, we believe is open. It obviously went through some pretty significant volatility like we saw in the U.S. But similarly, now that we've seen a ton of issuances in both the investment grade and high yield space and in the energy space in the U.S. I would say that -- I would imagine that the same is achievable in Norway. We have talked to a number of our investors that we have good relationships with as well as a number of our bankers that ultimately helped issue these bonds and we do believe that we could have issued in that market today. But I think that the pricing that we would have received is probably not one that we would have expected to be attractive and really just not required, as we're sitting on over $250 million of liquidity today, when -- given that we don't have any capex looming, for an operating company, that's as fixed note as we are we just looked at that as being rather expensive insurance, I think is maybe one way to think about it. And then I said in my remarks, we do have a maturity in October of next year, so we've obviously got a lot of time to chip away of that. It is about $147 million that matures and I think it will be maturing that for a smaller dollar value. And I think that if you see a window open up later this or early next year then or maybe open up wider and see some better pricing then I think you'll see us look at chipping away that maturity well in advance of October.

Randy Giveans -- Jefferies -- Analyst

Perfect. Thanks for the color there. And then on LNG shipping side, any kind of charters in this environment are basically a win. With that can you give a little more clarity in terms of rates on Marib Spirit, the Arwa Spirit and Methane Spirit? I just kind of see kind of sensitivities around modeling obviously not massively impactful as you reiterate your guidance just kind of seeing where rates are today for those, let's call it short term time charters?

Mark Kremin -- President & Chief Executive Officer

Sure, Randy. There -- they're all around the 30s or 40s per day. In terms of the market we probably see that already a little lower today for the next six months or so. We've been seeing TFTEs and megis are getting a bit of a premium so you recall that these are actually not the two-stroke, they're the DFD or TFDE but that's the kind of rate we're getting and the interesting thing about these charters as we mentioned to some extent in the headline and in the scripted remarks is that they are if not continuous in two cases we basically go off in year to another major trader on an absolute continuous basis. The third is very close. So there's very little waiting time or repositioning cost to us in any of these or none in these charters and that's really important for us over the next quarters or two.

Randy Giveans -- Jefferies -- Analyst

Yes. That makes sense. And then you mentioned briefly that the vessel has a cargo on it you're getting paid, if it doesn't have a cargo, you're getting paid; if someone's using it for a waiting you're getting paid. Well have you seen a lot of kind of changes in fleet function, functionality with all the newly production shut ins and some of these other things? Is there more vessels kind of balancing for longer? I know it doesn't affect your payment and your receipt of those contracts, but just looking at the operations of the vessels.

Mark Kremin -- President & Chief Executive Officer

Yes. This is something I read about in the news a lot, but it doesn't necessarily align with what we see with our own fleet. We get a pretty good look at a cross-section of LNG with our 47 LNG carriers. We know where they're all going. We're not seeing floating storage to the extent that others are referring to. I'll just pre-empt any discussions they're going to have. It's kind of difficult to make those economics work and along the same lines, we're not seeing necessarily a slowdown in our ships. So we've seen a couple from, we'll call it Australia that have slower speeds than we usually have on those trades, but for the most part we're not doing a lot of slow steaming. We have seen some cancellations. They don't really impact us as I said typically another charter maybe picks up the cargo or goes elsewhere. We have seen a fair amount of sub charters, so what I always refer to is shadow inventory.

We have 47 LNG carriers chartered out but we can also see whose sub charter because of the operational orders and whatever will change. So there is a fair amount of sub chartering that we can see in the market right now, but to kind of reiterate, no, we're not seeing an operational change for the most part in how we're steaming and certainly not in how we're sitting yet.

Randy Giveans -- Jefferies -- Analyst

Got it. All right, great. Thanks again, and keep up the great work.

Mark Kremin -- President & Chief Executive Officer

Thank you very much Randy.

Operator

Moving on, from Stifel, we have Ben Nolan.

Mark Kremin -- President & Chief Executive Officer

Hi Ben, hope you are doing better.

Ben Nolan -- Stifel -- Analyst

Yeah. I am. I appreciate that. So I have a few questions and I'll try to go through pretty quick here, but the first is I was just hoping is it possible to give any, now that everything has been delivered, the capex has done a lot of the refinancing, it has been taken care of. Any color on what you're thinking about with respect to the pace of distribution growth going forward? I realize it's a board level decision and whatnot but just in any color as to what you're thinking about there?

Scott Gayton -- Chief Financial Officer

Yeah. Hey, Randy. Sorry, Ben. Yes. It is nice to obviously to have that removed and I think that does give us some additional flexibility to consider how we allocate capital. And I think as we've highlighted before and again on this call is that we're really prioritizing that the balance sheet delevering and that's probably going to last for at least the next few years and we have been returning capital obviously in the form of buybacks and in dividend increases over the last couple of years -- but I think looking ahead it is a very uncertain environment and so we are going to continue to prioritize balance sheet delevering now and we'll see where we are once we have gained back some of that financial flexibility through the delevering to see what it is that we are going to do with any excess capital. But I think really it's too tough for us to tell at this point or give any type of distribution guidance because there's just too much uncertainty.

Ben Nolan -- Stifel -- Analyst

Understand that, but that yet given that it sort of leaves me scratching my head a little bit on the timing of the IDR buyout. I mean obviously you expect the share price to increase over time as the leverage falls as do I, but this -- not only it is diluted earnings but there's dividend or distributions being paid on that. So it's dilutive to your ability to repay debt. And can you maybe talk through why -- what the motivation was to do this now relative to maybe waiting a few years until the debt is paid down and you have a little bit better line of sight on distribution growth?

Scott Gayton -- Chief Financial Officer

Sure. Maybe I'll take a stab at it and see if Mark's got any follow-ups. I think from an overall delevering point of view I don't think this really impacts us too much. Like I said in my remarks, we do advertise around $300 million in debt per year and the distributions that are being paid on the new units is at $1 anyway is $10.75 million per year. So I don't think that it really has a huge detrimental impact on our delevering efforts. And then from a valuation point of view and a timing point of view, I think one way to maybe think about it is -- it is a discounted value and so when the valuation would have been performed, there would have been a discounting factor that would have gone along with it and so I actually look at it, that it was probably cheaper today because of that discounting factor than it would have been in a couple of years, once we were in a delevered position and maybe it would have been easier to have that line of sight directly on to a value in the IDR. So yes, I don't like issuing a lot of stock at these levels, but I also think that you get it coming the other way which is just an overall lower valuation.

And then the last part from the timing is we've seen a lot of carnage across the energy space, across the LNG shipping space and I think for the most part due to a lot of prudent actions taken over the last number of years Teekay LNG is really going to be the one of the only LNG shipping companies that is available for investors to really invest in. And what we heard from a lot of investors was that with the IDRs in place and given some of the atrocities we've seen with respect to these IDR transactions in particular the midstream space, people were not willing to invest and TGP was kind of uninvestable. So I think as the world recovers, as the energy markets recover and people look to put their money hopefully in the LNG shipping companies then what these IDRs removed over $9.5 billion of cash flow and steadily increasing returns to investors that they're going to put their money into TGP. And so I think that this actually was an opportune timing to do it. So they set this up well for recovery.

Ben Nolan -- Stifel -- Analyst

Okay. That's very helpful and clear. You mentioned sort of the discounting factor on how you're thinking about valuation, but could you maybe -- it wasn't initially in the release, could you maybe talk through the economics of how you got to the price that you got to in terms of both the timing of how long you were discounting and sort of what day -- what you were assuming for let's call it a fully baked buyout price.

Mark Kremin -- President & Chief Executive Officer

We mentioned on the Teekay Call but will mention again. We don't have direct access to that, Ben. That's -- this went through a robust project process, as we say, with the conflict committee which is independent board members. So we don't have the actual valuation that they have but what we can't see is the compelling way forward. I mean this was -- there was a lot of uncertainty as Scott said around the stock which has been removed. And so everyone's on the same playing field going forward and that includes Teekay. So we talked about alignment, there was no cash here. They've taken all shares and so we've got that going forward and they like everyone, I think should be not so focused on the distribution right now, but it's the PE that we have, which is it's unbelievably mispriced in my opinion. We have a pre IDR transaction PE of around a little bit at the high threes and we've gone to around four. So as we all are on the same playing field together, including Teekay, that's what I look forward to and that's the valuation that I see that is very mispriced.

Ben Nolan -- Stifel -- Analyst

Yes, no, from my point of view, I agree. There's no question, the units are undervalued here. But I'll turn it over at this point and let somebody else take. Thanks guys.

Operator

Next question will come from J Mintzmyer with Value Investor's Edge.

Mark Kremin -- President & Chief Executive Officer

Good morning J.

J. Mintzmyer -- Value Investor's Edge -- Analyst

Hi. Good morning, gentlemen. Congrats on an excellent call. Very excellent quarter.

Mark Kremin -- President & Chief Executive Officer

Thank you.

J. Mintzmyer -- Value Investor's Edge -- Analyst

So we'll start off with little housekeeping questions as I move bigger picture. So first of all, a little bit of a quarterly slip, it was a great quarter, but a little bit of a quarterly slip I think in revenues and income. But if you look at your Q2 outlook, it seems like that bounces back in Q2. There's a line item for reduction in claims. Can we talk about what that means and what that net back is?

Scott Gayton -- Chief Financial Officer

Yes, so on a -- basically every quarter there are operational claims that we may receive from charters and sometimes they're a little bit higher, sometimes a little bit lower. And I think what you saw on Q1 was, there was a little bit of a catch up of some claims maybe from last year or previous quarters that were reported this year. And then -- sorry this quarter. And then we actually expect that a number of those will likely get reversed next quarter. So there is some movement around but it's all on what I would say, just general LNG shipping operations.

Mark Kremin -- President & Chief Executive Officer

If I could add, just some slight color to that may or may not be useful. But most of these LNG charters, most claims come in the way of fuel performance and most LNG charters you price your fuel according to what the fuel equivalent of high sulfur today -- excuse me, low sulfur oil is. And if you look at Q1 in particular, we had this spike of pricing and going forward in already in fact, as you know from your tanker discussions, high sulfur fuel both prices and spreads have really come down. So that will hopefully be as we say a headwind -- sorry, a tailwind for us in any future claims.

J. Mintzmyer -- Value Investor's Edge -- Analyst

Excellent. Thanks. Then just one other thing. When I look at slide six and seven, looking at your fleets, we're looking into 2020 and 2021 to see exposure. And I see an Excalibur popup. It's a 50% own steam vessel, it's a financing transaction. I believe you sold the sister Excelsior, I think it was off a couple of years ago. Is Excalibur also sort of non-core and for sale or do you continue to hope to roll that one?

Mark Kremin -- President & Chief Executive Officer

It is all the steam shifts are relatively non-core. It's a smaller part of our business as you know, certainly from a revenue side already. It's not as material as our TFDEs or maybe or any of other propulsions. As you say, it's the first of our steam ships to come off, I think it doesn't come off until 2020 -- 2021. And so we have a little bit of time with our joint venture partner, Exmar to think about that. The sister ship was a little bit different. That was a small FSRU that we sold. But, we have to figure out like everyone else in the world our scheme ship strategy here in terms of whether we divest or whether we continue to roll over, it's not going to roll over to accelerate, which is the current charter whether we redeploy in some way. The good news is that, when it comes to Teekay LNG, we have very limited steamship exposure. Our roll off is very staggered and it doesn't come for a few years as you've already pointed out. But it's not a business; we're going to be growing. Put it that way.

J. Mintzmyer -- Value Investor's Edge -- Analyst

Thanks. Mark, you mentioned in the prepared remarks that deleveraging would continue to outweigh repurchases and of course that makes sense, you have $300 million of scheduled memorization, you took out the NOK bonds. Look, we see this stuff in 2021 coming up. Does that mean repurchases are pause are off the table or are you just saying they're going to be a lower priority to you?

Mark Kremin -- President & Chief Executive Officer

I'm going to hand this over to Scott, but I just want to clarify one thing. I think I had said 2021, but actually it's 2022 before the Excalibur, we'll -- at the very least slightly late, late, late December on an earliest redelivery. So it's let's just think about that as 2022 and I apologize for that, I'll turn over to Scott.

Scott Gayton -- Chief Financial Officer

Yes. And then the other point I was going to make on that vessel, Mark, is that actually when it does roll, it's got extremely minimal debt on it. And so it won't be much of a drag for us from an operational point of view or a revenue point of view. I think, Jay, with respect to buybacks I would probably look at it is more of a pause like we're seeing going on across the space. We still believe the stock is undervalued. We've done it before. We've now got greater alignment with the parent to look at things like buybacks, but I just think that given all the uncertainty that we just need to give it a pause and see where thing shake out.

J. Mintzmyer -- Value Investor's Edge -- Analyst

Understandable, Scott with COVID-19 I think investors do understand that. I think investors bigger concern and I brought this up on the T&K call as well, it's something I hear literally every day is that capital is going to be squandered on new growth on new investments at a time when the stock trades at frankly ridiculous valuation right. I mean we can argue at how big a discount but whether it's 30% or 50%. I know you made sort of, we have a podcast and we kind of talked about capital allocation and stuff, at quarterly call, it's kind of a different place here but are you willing to reiterate the fact that, no, we are not looking for growth at this time that we will not commit to growth unless it makes sense on an ROE basis as in it was more accretive than repurchasing units.

Mark Kremin -- President & Chief Executive Officer

No. We are not committed to growth at this time. We will not do it unless it makes sense in ROE basis. Absolutely, Jay, that is not the first priority for us as you've heard many times delevering and other things will take priority. Even if we want it to grow, it's going to be tough. So we'll just, I know this is a bit off topic but as you probably know as you do the FIDs, the financial investment decisions have been pushed back by most if not everyone for at least six months or probably a year and even fundamentally we'll have to look at where this all goes.

I think it's hard it might still come out this year. It's a bit on uncertain. I've seen the bids from Nigeria but we're uncertain about who might even come out this year. I just said all FIDs are likely to be delayed. So, yes, the first priority is not -- is certainly not growth and but we'll see what happens with these opportunities. It's not -- it's not anytime soon is my guess.

J. Mintzmyer -- Value Investor's Edge -- Analyst

Excellent, Mark. Thanks for clarifying that. It's literally number one concern of all investors that I talked to. Final question for you, look, we had a lot of heat on the Teekay call about the GP IDR. I think we had a good discussion earlier on this call. There's sort of that, hey, it's not us it was this conference committee that did it. And yes, I get the legal perspective that it's hands off, it's an independent committee. Is there any potential or a chance for that report or for that valuation is to be filed or disclosed somewhere in the future, so folks can reference that exhibit right, because right now it's like black box, it's not us; don't blame us. Yes and we get that but people still want to see some sort of valuation, some sort of connection albeit?

Mark Kremin -- President & Chief Executive Officer

My understanding, Jay, is no. The devaluation will not be or the process of evaluation will not be disclosed. So that's the short of it all. I would just urge everyone, first of all, I think it's a good deal because before I was hearing that the biggest uncertain from every investor that I spoke to did the biggest uncertainty was whether had an IDR deal done or not. And now I've just heard that the biggest shift is moving on to whether we're going to grow. So we've already managed in some part what we've been dealing with for the last year or two. And so that's fortunate itself. As we move forward and we talk about growth and things other than the IDR, I just remind everyone how well we're trade or how poorly I should say we're trading on PE basis and I think it's a great. So, Scott, do you have anything?

Scott Gayton -- Chief Financial Officer

No.

J. Mintzmyer -- Value Investor's Edge -- Analyst

All right. Thanks Mark, thanks Scott. Congrats on a good quarter. We are looking forward to more.

Mark Kremin -- President & Chief Executive Officer

Thank you very much J.

Operator

Moving on, looks like we have a question from Mike Webber with Webber Research.

Michael Webber -- Webber Research -- Analyst

Hey, good morning guys. How are you?

Mark Kremin -- President & Chief Executive Officer

Good morning Mike.

Michael Webber -- Webber Research -- Analyst

So I'm going to dig back into the IDRs, if you don't mind. So I know Jay just touched on this and there seems to be some degree of kind of conflating of independent versus something being secret. Irrespective of whether that's secret you guys are seeing I assume that you get an independent assessment of the valuation and then you would decide does that make sense. Do we think that's a good deal or not? So it implies you guys would have done your own work. All right. So maybe if you can't get into what the independent assessment came up with. What did you use when you were evaluating whether or not you thought that they came up with those a good deal and whether or not you thought you wanted to pull the trigger on it?

Mark Kremin -- President & Chief Executive Officer

Well we are not able to pull the trigger. No, I'm not trying to brush this off or do. But it's again, it's got an independent committee that's who decides whether or not this is going to be done and what -- and at what price.

Michael Webber -- Webber Research -- Analyst

But you said they decide whether you're going to do, is that right?

Mark Kremin -- President & Chief Executive Officer

Teekay puts an offer to the independent committee which then makes a recommendation and to the board and that's how that that works.

Michael Webber -- Webber Research -- Analyst

But then you get the number and you get to know that you have evaluate it, right, so they came up with $500 million, you wouldn't be stuck paying $500 million. You would say OK, maybe I don't want to do that right now, right. So you had to do your own work at some level right.

Mark Kremin -- President & Chief Executive Officer

No. This goes to -- this doesn't involve Scott or myself or this is done by independent directors who together form the conference committee. And it's their decision as to whether recommend this deal or not and it doesn't involve management but I'm happy to speak to what Scott and I see which is as you've heard from the same thing is from Teekay Corporation. We've got very visible predictable cash flows. Everyone I spoke to was talking about the overhang and the uncertainty fortunately by the way those stocks been trading since we've done the deal that seems to have been somewhat relieved. We traded a low PE which is...

Michael Webber -- Webber Research -- Analyst

I understand that but just to go back so you commit to the deal before you have any idea what the prices basically, it goes in to connect you say you want to do it, it goes into independent committee and you have --you ends or you have no say over from that point on?

Mark Kremin -- President & Chief Executive Officer

To some extent that is correct. We were helpful -- [Multiple Speakers] any of the assumption, so that's it.

Michael Webber -- Webber Research -- Analyst

So you were helpful but in the assumptions I guess in terms of what your cash would be, OK. So you would, it wasn't in Teekay's hand, it wasn't in your hand, it's unclear who actually made the decision. I guess in terms of like when they come up with the price, if I -- against some of the recent deals, I guess maybe first of all are the units restrictive at all at Teekay and is there any kind of earnout provision like we've seen in recent deals?

Scott Gayton -- Chief Financial Officer

No. There is not. We're completely aligned. Everyone is a common unit holder all the same total alignment.

Michael Webber -- Webber Research -- Analyst

Right. So considering how far out of the money they are right having an earnout structure where add the distribution to rest and do things, it would similar to what we saw with gas law in terms of I guess given the same -- the same level and through the being the same kind of unit holder, but you don't get the distributions until you actually got to a level where the ideas would've been in the money, the earnout structures are pretty common. Was there an opportunity to go back and say, hey, there's a chance we might not raise our distribution by 160% and it might not actually be a headwind? Can we put some protections in there just to make sure that not paying for something that we never going to use?

Mark Kremin -- President & Chief Executive Officer

No. I think the deal was done and we're all looking forward already to what's next. When I look at some peer, I'm not even sure we have great visibility on how those different structures work. They're going to be talking about those structures for some time and how they work, now from our standpoint we're looking forward to what's next for trading at a very attractive value. We're looking at growth prospects eventually and we're all-- we're not looking to recut this deal.

Michael Webber -- Webber Research -- Analyst

Okay. I guess if I think about it as a use of capital, right, like I think you mentioned on one of the earlier questions around you're not looking to go out and grow for growth's sake and I guess I'm taking liberty but I assume going out and ordering a couple LNG carriers on spec right now is not something you guys would swing at the moment right. Is that fair?

Mark Kremin -- President & Chief Executive Officer

Yes. Fair.

Michael Webber -- Webber Research -- Analyst

So if I think about this definitely use of capital right, would you guys take $123 million of equity by two LNG carriers that don't have contracts on them, so you're not sure if that deal is actually going to be in the money in three years or not, but if you can -- we can do that with steel that actually has an inherent value. I'm trying to decide why this is a good time when you're focused on deleveraging to take $123 million of equity and allocate it to something that you're not sure is going to have any value in the years.

Mark Kremin -- President & Chief Executive Officer

So to your point exactly, Mike, I don't know exactly what the LNG carrier is going to trade in three years or two and a half years when it delivers, but I do know what our cash flows will be. We've got certainty for the next ten and so it's a very different analogy I think you're pointing to.

Michael Webber -- Webber Research -- Analyst

All right. So I'm going to juxtapose that with the fact that there's the message on the earnings call today is delevering don't expect distribution growth or significant distribution growth over the next handful of years but we're going to spend $123 million, $124 million on IDRs that are so far out of the money that we have no idea whether they're actually going to be -- there's going to be any real value to them in -- I'm just trying to think about that from a capital deployment perspective.

Mark Kremin -- President & Chief Executive Officer

I'm not sure...

Michael Webber -- Webber Research -- Analyst

[Multiple Speakers] developing activity between the risk profile.

Mark Kremin -- President & Chief Executive Officer

I'm not sure that everyone shares that you Mike, there will be a fairness opinion involved in this and so another's...

Michael Webber -- Webber Research -- Analyst

I think the math implies there is not the money or is there the distribution at a level where the IDRs are actually hanging out right now.

Scott Gayton -- Chief Financial Officer

Hey, Mike, maybe another way to think about it is we're sitting here right now with the coverage ratio of around 4x and we do expect that this will be sustained well into the future. This isn't a spot tanker company as Mark says. You got 10 year contracts and $9.5 billion. So our cash flow profile and our delevering is actually extremely certain. I think if we look at some of the other similar transactions, I think we can all admit that this one is rather unique. Other IDR monetization transactions in shipping midstream whatever they were paying out all their cash flow. So it made it very easy to throw multiple on it and everybody sits back and says, OK, was that a good multiple or not.

The problem is and what we've seen since is that they were paying around one times. So therefore the monetize, the IDR get monetized off of that extremely high level. Well then what happened? So that benefits the GP enormously but then what happens? As we've seen they cut their distributions and that actually impacts the LPs enormously. So they have to shore up their analogy...

Michael Webber -- Webber Research -- Analyst

[Multiple Speakers] out the middleman basically. So whatever happening, bump the distribution, you still get the monetizing? I mean it at least in the former scenario LP orders get the distribution along the way right.

Scott Gayton -- Chief Financial Officer

Sure, maybe they get the distribution along the way and it would have been easier. We could have-court could have jacked the distributions get to one 1x, do the monetization and then as we've seen other people do they turn around and they cut the distributions and that kills the LP value. Right now Teekay LNG is on an upswing. We're generating a lot of cash flow. We're generating a lot of earnings or trading it up what we think is very attractive multiple for investors and I would far rather be on that path and have these IDRs behind us. Then to go through some level of financial engineering just so that it makes it easier to show the value of the IDRs make you happy because you can put a multiple on it and then ultimately that you have to cut the distribution like that to me just does not make any sense.

Michael Webber -- Webber Research -- Analyst

I think the notion of removing the idea other than one thing but making people happy by putting a multiple on that's just the math right. So I think people generally, it's using an analogy on a previous call, it's like standing on the APP box and just taking a gimmick [Phonetic] and giving us whole lot, assuming you got there, where at the last several years would show, there's a degree of veritability and things change and maybe something that part of the money. Maybe it's not -- maybe valuing it like a forward start annuity might not be accurate. But anyway, I hope the valuation work would be helpful in the notion that there's a -- that there was some variability price into that, I think that's the biggest thing that catches people's eye, cutting out the middleman and saying it's going to be dilutive for LP holders, doesn't matter -- well just take the money now. I don't think it particularly intellectually satisfying answer. But we can kind of -- we can move on. I think I've got, [Indecipherable] that's all my questions. I appreciate it guys.

Mark Kremin -- President & Chief Executive Officer

Happy to discuss on the 19th hole, Mike.

Michael Webber -- Webber Research -- Analyst

I am sorry?

Mark Kremin -- President & Chief Executive Officer

Happy to discuss on the 19th hole.

Michael Webber -- Webber Research -- Analyst

Yeah sure.

Operator

Ladies and gentlemen, at this time I'd like to turn the floor back to Mark Kremin for any additional or closing remarks.

Mark Kremin -- President & Chief Executive Officer

Well, I'd just like to thank everyone on behalf of everyone at Teekay LNG. We look forward to seeing many of you many in person again hopefully sooner rather than later. So thank you very much. Take care.

Operator

[Operator Closing Remarks].

Duration: 48 minutes

Call participants:

Scott Gayton -- Chief Financial Officer

Mark Kremin -- President & Chief Executive Officer

Randy Giveans -- Jefferies -- Analyst

Ben Nolan -- Stifel -- Analyst

J. Mintzmyer -- Value Investor's Edge -- Analyst

Michael Webber -- Webber Research -- Analyst

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