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Teekay LNG Partners L.P. (NYSE:TGP)
Q2 2020 Earnings Call
Aug 13, 2020, 1:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to the Teekay LNG Partners Second Quarter 2020 Earnings Results Conference Call. [Operator Instructions]

Now for opening remarks and introduction, I would like to turn the call over to the Company. Please go ahead.

Scott Gayton -- Chief Financial Officer, Teekay Gas Group Ltd.

Before Mr. Kremin begins, I would like to direct all participants to our website at www.teekaylng.com where you'll find a copy of the second 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 second quarter of 2020 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, Teekay Gas Group Ltd.

Thank you, Scott. Good morning, everyone, and thank you for joining us on our second 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's CFO.

Before getting into our results, we will take a moment to thank all our seafarers and shore-based staff for their continued dedication to maintain business continuity and bringing energy to the world with Teekay Spirit. While COVID-19 is having an unprecedented impact on the world and it's clearly a major focus for us, our long-term contract cover with our high quality customers has ensured it has had a minimal impact on Teekay LNG's operations and cash flows. We are truly proud of how our on-shore colleagues and especially our seafarers have continued to respond to COVID-19 while maintaining consistently safe and efficient operations for our customers.

We have a number of slides to get through this quarter, each of which we believe is important for current and future investors to consider when evaluating Teekay LNG. Therefore, we will only briefly touch on each slide, which will provide more time for Q&A at the end.

Turning to Slide 3 of the presentation, we review some of Teekay LNG's recent highlights as well as a few key takeaways. Our second quarter adjusted net income increased to a record $62.6 million and our total adjusted EBITDA also reached a new record level of $192.3 million, the eighth consecutive quarterly increase, owing primarily to the delivery of our newbuilding program, which was completed late last year.

Three of our 52% owned LNG carriers recently commenced new charters ranging from 8 months to 12 months. With these, our LNG fleet is 99% or essentially 100% fixed for 2020 at attractive rates. As we will discuss, the current spot LNG carrier market is weak with brokers assessing rates at $35,000 to $40,000 per day, which does not account for utilization. On a utilization or time charter equivalent or TCE basis, spot fixtures today are earning owners closer to $30,000 per day all-in, compared to our average expected LNG TCE rate of over $80,500 per day for all of 2020.

Our strategy of maximizing utilization and thus the revenues of our LNG fleet is set to continue with 94% fixed rate LNG coverage in 2021. Importantly, each of the contracts within our portfolio of long-term charter contracts is backed by high-quality customers and each has been operating as expected. Because of this, we are able to reaffirm our previously provided 2020 financial guidance. We have recalibrated our earnings per unit or EPU guidance slightly to account for the precise timing of the units issued to settle the IDR buyout completed in May. As a result, we expect EPU to be in the range of $2.40 to $2.90 per unit in 2020. Further details can be found in the appendix to the presentation.

We believe we have a strong financial foundation as our leverage continues to decrease. We have no remaining growth capex, no debt maturities in 2020, and those maturing in 2021, we believe, are well in hand.

Lastly, we have been actively returning capital to investors in a sustainable manner, which has included distribution increases of over 30% in each of the last two years, and opportunistic buybacks. Our current distribution is well-covered with a DCF coverage ratio of over 4 times and representing only 35% to 40% for our adjusted 2020 net income guidance range.

We will finish this slide by acknowledging the excellent work of our shore and sea-based HR professionals, who have made significant progress relieving a substantial portion of our colleagues at sea. This is no small feat given the logistical challenges that COVID has brought to worldwide travel. We still have work to do, and we will not stop until everyone has been relieved and returned to their families, but this must be done safely as it has been completed to date with no current or past cases of COVID reported on board.

Looking to Slide 4. We mentioned upfront that this was another record quarter for Teekay LNG. With the 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. This is leading to year-over-year and quarter-over-quarter growth, which has continued for the past two years as you can see in each of these graphs. We took delivery of six LNG carriers and the Bahrain Regas terminal over the past year and we have enjoyed higher midsize LPG rates in our 50% owned JV with Exmar, all of which contributed to increased earnings and cash flow.

Please note that we are expecting higher-than-normal repairs and maintenance and scheduled dry-docking activity in Q3, which we expect will impact earnings next quarter. However, we expect this to be temporary and we expect to finish the year strong. The impacts of this activity can be seen in the appendix on Slide 18.

We have been including Slides 5 and 6 in our presentations for many quarters now. Perhaps this quarter, more than any previous quarters, these slides set us apart from nearly everyone in our universe. Our take-or-pay contracts have no unilateral provisions for a change in the terms or charter rates. As we'll review in a moment, we have witnessed a number of cargo cancellations. But as expected, we continue to receive revenue per the terms of our charters. As stated last quarter, 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.

Slide 6 details the LNG vessel names, our ownership percentage, former propulsion customers, fixed contract links of our LNG fleet, which is held within joint ventures where we have shared control and thus are accounted for using the equity method. Combining this fleet and our consolidated fleet detailed on Slide 5, all told, we're now essentially 100% fixed for the remainder of 2020 and 94% fixed for 2021.

Although our exposure to the spot LNG carrier market is extremely small for the rest of 2020 and into 2021, we thought it might be interesting to provide our views on the current weakness in the spot markets on Slides 7 and 8, and the possible green shoots we may be witnessing on Slide 9.

Turning to Slide 7. This is a graph of current spot LNG carrier rates as quoted by brokers. As mentioned earlier, this is not necessarily what the vessels are earning on a full utilization basis, which is generally less. 2020 started seasonally similar to 2019, with a strong, albeit short winter spike, led by relatively robust demand for LNG, before declining into the spring. In February and March of this year, the impact of a warmer-than-anticipated winter, combined with the global slowdown as COVID really took hold, resulted in anemic demand for LNG that is still working to recover. As a result, spot LNG rates have not materially moved off their lows for the better part of the past six months.

Looking now to Slide 8. The weakness in rates discussed on the previous slide is particularly evident when looking at actual LNG trade flows as measured by the number of daily LNG cargoes into four major Asian and South Asian LNG demand centers, namely Japan, South Korea, China and India. The number of daily cargoes into these nations in 2018 and 2019 followed fairly similar seasonal patterns, increasing in an anticipation of colder winters and reducing during the summer months. However, once COVID really took hold in Asia, in later January and February, the number of daily LNG cargos decreased substantially, and in Japan, South Korea and India below 2018 and 2019 levels. There have been a few bright spots in the Far East and India over the past few months, as buyers have looked to take advantage of cheap LNG prices, but significant uncertainty still remains as some lockdowns have been reinstated and businesses have reopened sporadically. And while these graphs are only highlighting the experience in Asia, European natural gas consumption, down 7% year-on-year during the first five months of this year, cratering gas prices in the region that has become a balancing point for the LNG trade.

On Slide 9, there were a number of U.S. LNG cargo cancellations in June, July and August. However, so far, they are projecting 40% fewer cancellations for September. Before we move on to discuss the rest of this slide, as a reminder, cargo cancellations have no impact on our revenues. If our ship is ready to load and the customer cancels the cargo, we continue to be paid. We believe the very recent slight uptick in the price of LNG, as shown in the graph to the left, may lead to an uptick in charting activity levels for spot LNG carriers. Very recently, we have seen a reopening of the arbitrage window, as graph to the top right, assuming delivery into Japan in October or as shown at the bottom right, into Europe, whereby traders have been able to make a small operating profit on this contango, which may be behind the recent uptick in chartering activity the market has experienced. It's still too early to predict how this year's winter spot LNG market will develop. And while we do not have exposure until this December at the earliest, and even then for only half a ship, we hope that these early signs do in fact become green shoots to greater LNG shipping activity and rates.

We haven't presented Slide 10 for a while and we've updated it to June 30, 2020. Our forward fee-based revenues, of which LNG-based revenue make up 99% of Teekay LNG's total, amount to $9.3 billion. Importantly, most of this translates directly to cash flow with an EBITDA margin of 75% or $7 billion of forward EBITDA. This level of EBITDA compares favorably to our current total adjusted net debt balances of $4.5 billion, which includes our proportionate net debt of our joint ventures. Importantly, on average, our LNG has remained fixed contract life in excess of 11 years, and these contracts are servicing the needs of what we would refer to as blue chip customers, whether they be household energy names like Shell, BP and Cheniere to name a few, government-backed projects like our investments in ships, which serves the needs of Qatar and Bahrain, and projects which are strong commercially and technologically, like our Yamal icebreaking LNG carriers.

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

Scott Gayton -- Chief Financial Officer, Teekay Gas Group Ltd.

Thank you, Mark.

Turning to Side 11, we have discussed our balanced capital allocation plan in the past and it's been about nine months since reviewing it at our Investor Day. So, we'd like to take a moment to discuss the progress made on each initiative since November of last year. As we reviewed with you in the past and as I will do on the next slide, we're making good progress with our de-levering efforts. We have reduced our total adjusted net debt by $428 million or nearly 10% since the end of 2019, which helps keep us on track to be within our targeted leverage range in 2021.

We have been returning capital to investors in multiple sustainable ways. We've increased distributions by over 30% in each of the last two years. However, as Mark mentioned earlier, our current distribution of $1 per unit is still many times covered by both stable earnings and cash flow. And we have repurchased nearly $45 million of our own LP units at attractive prices. However, with the continued uncertainty in the broader financial markets, I expect additional unit repurchases will remain on hold at this time.

And the last pillar of our balanced capital allocation plan is the potential for disciplined growth. We completed our growth program in late 2019 and with most project tenders delayed 6 months to 12 months due to COVID, any future newbuilding deliveries has been pushed out to 2025 at the earliest, which suits us fine because we have lots of options to continue executing on the first two pillars in the meantime.

Turning to Slide 12 and looking at the graph to the top of the slide, our leverage continues to decrease. Looking at the blue line, our leverage, as measured by net debt-to-total adjusted EBITDA on a proportionate basis continues to reduce. We have moved from an annualized 6.7 times one year ago to 5.9 times as of the end of Q2 2020 on an annualized basis. And we expect our de-levering efforts will continue into the future due to scheduled amortization. This de-levering benefits investors by building financial flexibility through a higher equity base, and through interest expense savings. While a significant portion of our interest rate exposure has been hedged, should interest rates remain low, the interest cost on our floating rate debt will also decline. As indicated in the appendix wherein we expect Q3 consolidated net interest expense to decline by an estimated $3 million or nearly 8% compared with consolidated adjusted net interest expense in Q2 2020.

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. We have current liquidity of over $305 million and no further debt maturities in 2020. We have two commercial debt facilities and one Norwegian bond that mature in 2021. And we have now agreed terms with the existing banks and are expecting to refinance both, 2021 bank debt maturities over the next few months. And as for the NOK bond, it doesn't mature until October '21. So, we have time before needing to address this maturity. However, I note the U.S. high-yield bond market is currently very strong with attractive pricing, but we are hopeful that the Norwegian market reopens after summer holidays next week, it will be equally constructive.

In summary, we have strong liquidity balance, a very manageable debt profile and a strong bank group. And therefore, we believe Teekay LNG has a strong financial foundation, which benefits all stakeholders.

I will now turn the call back to Mark to conclude.

Mark Kremin -- President & Chief Executive Officer, Teekay Gas Group Ltd.

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

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

Questions and Answers:

Operator

Thank you. [Operator Instructions] We'll take our first question from Randy Giveans with Jefferies.

Randy Giveans -- Jefferies -- Analyst

Howdy, gentleman. How is it going?

Mark Kremin -- President & Chief Executive Officer, Teekay Gas Group Ltd.

Good morning, Randy.

Randy Giveans -- Jefferies -- Analyst

Morning. So, looking, I guess, at Slide 12, not much due or nothing due really for the remainder of 2020. I guess, what are your plans for those kind of larger repayments of the balloons in 2021, are you looking to refi those, or possibly even repay some or most with kind of cash on hand? And then, I know you mentioned unlikely to repurchase common units. Any appetite for the preferred units?

Scott Gayton -- Chief Financial Officer, Teekay Gas Group Ltd.

Hi, Randy. It's Scott here. So yeah, for the '21 maturities, we've got the Norwegian bond which we will continue to monitor. We do have time on that one, but as I noted in my remarks, that market, I think, is going to open up strong next week and we'll see a number of issuances which will give us some flexibility to look at that market. For both of the '21 maturities, one of them is in our Exmar joint venture and I would say that one is in the final stages. We're just getting one bank over the hump and then we expect to have a fully committed deal there. So, work through documentation and that should be done within the next few months. And then on the Tangguh deal, that is a long-term charter backed by BP. It goes out till '29, I believe, and our lead bank has already committed and we've agreed terms. And so again, I expect that one to be tackled in the next few months here.

So, we're feeling pretty good about all of our '21 maturities. And then, as for paying some of it down with cash, we have a $147 million remaining on the Norwegian bond in '21 and as I've said in previous remarks, I do expect that that will be renewed albeit at a smaller level. So, we will actually be de-levering when we do look to refinance that one.

Randy Giveans -- Jefferies -- Analyst

Got it, OK. And then, I guess, just looking at long-term charters and kind of possible expansion, you stayed away from making any offers for the recent 14 LNG new buildings with Shell. Is that just because you're not looking at expansion at all right now or did you just not like the terms either the rates or the duration of those newbuilding contracts?

Mark Kremin -- President & Chief Executive Officer, Teekay Gas Group Ltd.

Well, there is a few things, Randy. One is, Shell is a great credit, but they're also already our largest customer. So, we'd like to keep the portfolio to be around 20% revenues per customer and Shell already exceeds that. So, again a good investment-grade credit, but we've got a fair amount of them. The charters that we have are similar to ones that are being offered. They're relatively short-term, six years, seven years or so or maybe even five years in this case, and we are in the future hoping to get longer-term contracts. So that's another thing.

And finally and we've mentioned it a few times both Scott and myself over the quarters, de-levering is a focus. So, that's a Number 1 thing and we're going to -- we've been taking a pause for the last year or so because we want to get net [Phonetic] that leverage down before we order again. These are relatively near-term deliveries and you can see that there's good headway on the de-levering.

So we're not -- we didn't take advantage of those. We opted out of Mozambique. We opted out of Arctic 2. So we have opted out of things, but that doesn't mean that in the future as we see this fairly certain de-levering path, we wouldn't be taking a look to grow this part of our capital allocation program.

Scott Gayton -- Chief Financial Officer, Teekay Gas Group Ltd.

Got it. All right. Well, hey, thanks for the color and congrats again on another record quarter.

Mark Kremin -- President & Chief Executive Officer, Teekay Gas Group Ltd.

Thanks, Randy. Take care.

Operator

We'll take our next question from Ben Nolan with Stifel.

Ben Nolan -- Stifel -- Analyst

Yeah, thanks. Hey, Mark, Scott. Mine sort of goes to that -- it's a bigger picture sort of evolution type question. It seems like the LNG market is shifting smaller and smaller scale and I appreciate you guys have two relatively smaller vessels. But as you look out into the future and eventually growing or doing whatever, do you still anticipate being primarily an asset provider on the basis of long-term contracts to big clients? Or is there some thinking that maybe the business is evolving maybe you can be in smaller businesses or smaller, I don't know, small scale delivery or any of the other areas in which the LNG market is maybe a little bit less commoditized but also growing quite a lot.

Mark Kremin -- President & Chief Executive Officer, Teekay Gas Group Ltd.

Certainly those -- I think there's small scale and is within the LNG adjacency wheelhouse that we would look at. Just to kind of -- so, we have a conventional business, it's primarily standard size ships as you know and it's against long-term contracts. It's not too far field for us to eventually look at things like FSRUs or small scale. If you look at a small-scale in particular right now, we do have two small scale LNG carriers and I hope the market is listening because we're always quietly marketing those. They're 12,000 cubic meters each.

And even now, we look at -- today, we look at small scale opportunities for those, which we already have, they're at sea. The problem with the small scale right now, I think it's a growing business, but -- and if it is then, we certainly hope to be a part of it with the ships we have, they can also trade ethylene fortunately, but it does take a while to -- it's taken a while to develop in the market and it's relatively small investments compared to -- if you look at a Yamal ship which costs around $350 billion [Phonetic] for one, which we have a joint venture partner on that, we could become obviously the thousand-pound gorilla of small scale for that amount invested in small-scale.

And in terms of moving the needle for TGP, small scale is interesting. The profits could be better, but right now it's taking a while to develop and I would probably just take it one step further to say the same thing about FSRUs. It's certainly not the kind of rocket science that may be FLNG is. We could do the FSRUs, but you'd have to find a right entry point, have to make the market -- make sure the market's mature for you. And so, no, not really now any type of growth, but -- and not in neither [Phonetic] of those, but I'm not sure right now if is it time to get in any deeper than we already are.

Ben Nolan -- Stifel -- Analyst

Okay. And then switching a little bit as it relates to your LPG business, specifically around the joint venture that you have with Exmar. I know they are really good operators, although have recently fallen on some hard times with their own FLNG unit having some challenges, but how do you see that relationship evolving. Is there any possibility that you might would want to buying the entire position on those LPG assets or is it just status quo?

Mark Kremin -- President & Chief Executive Officer, Teekay Gas Group Ltd.

We like that franchise. It's been a good one for us over the years. It's been a good investment. We've made good money on that. So long may that continue. So we're not -- no, we're not necessarily looking as you said, they have some -- they have an issue right now with YPF, they need the sword, perhaps gun bore. Our expectation and our hope, and as Scott mentioned in terms of financing going with the LPG coming along pretty well is that, long may this continue. They're good operators and it's not something where at this point we feel the need to do any more in. We just want to continue that good business that it is. There is a big difference and you didn't mention it, but we will always say that the ethylene fleet is non-core. So, that's a much smaller investment to us and that's more something that is we look at from time to time as a potential divestment. Now Exmar, I hope and I expect them to get back on their feet from this current dispute they have.

Ben Nolan -- Stifel -- Analyst

Okay. And then lastly for me, again in the past and even now you kind of have given guidance with respect to distribution growth. As you're looking into next year, I know it's early and I'm not asking for anything official, but just maybe update us on sort of how you're thinking about the 2021 distributions?

Mark Kremin -- President & Chief Executive Officer, Teekay Gas Group Ltd.

It's to be seen. We review this with our board every quarter as you can imagine. There's a lot of uncertainty due to COVID right now. As Scott mentioned, we've been returning capital in various ways. We've bought back almost $45 million worth of common. And as I've just mentioned, there is a potential -- if growth looks better than a higher distribution, if we can get those selective growth and maybe that's an alternative. So we really -- we haven't made a decision yet and won't be doing so. We'll meet again with the Board and continue to keep you guys posted on that.

Ben Nolan -- Stifel -- Analyst

Okay, I appreciate it. Thanks, guys.

Operator

[Operator Instructions] We'll take our next question from J Mintzmyer with Value Investor's Edge.

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

Hi. Good morning, gentlemen. Congrats on a fantastic result during tough market times.

Mark Kremin -- President & Chief Executive Officer, Teekay Gas Group Ltd.

Thank you very much, J.

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

Yeah. So I think picking up from -- Ben Nolan had some good questions on your LPG fleet. Exmar, of course, tighter on equity capital for their own reasons. I did see they had two VLGCs, large ships ordered via Exmar. Is that part of your joint venture? Can you confirm that? And if so, what sort of capital commitments would those entail?

Mark Kremin -- President & Chief Executive Officer, Teekay Gas Group Ltd.

It's not part of our joint venture. They are fully refrigerated and -- which is our joint venture. So, our joint venture typically covers off fully refrigerated ships. Obviously, we specialize, we focus on mid-size, but they do have the two VLs as you know on order, you've just mentioned. Without getting into too much details, they haven't delivered yet and they will deliver next year those two. They do go onto charters against Equinor. I think there's some financing to be done still. It's the kind of, what I mentioned, potential growth. That's the kind of thing we could possibly look at. It's not in our joint venture, but it is -- it's closely aligned to how they operate. And as you've probably seen, ships at Jungnang or anywhere else pretty much Korea typically get a VL like that which burns LPG is typically -- their order book price is around $75 million or so, just to give you an indication.

And I guess the nice thing about -- I'm not trying to pitch these, but the nice thing about our JV in general is that, it's one of those places where we can look at an alternative fuel. The JV in Exmar maybe one of the places where we look at an LPG burning ship for fuel earlier than we might do outside of the Teekay Group. So that's -- hopefully that's some color on that J.

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

Yeah, that makes sense. Looking also at your fixed coverage, you've always had these mid-sized ships, at least more recently, on sort of short-term charters. Is there any opportunity in the market to fix some of those on longer terms or is it just still a challenging environment that doesn't really lend itself to that?

Mark Kremin -- President & Chief Executive Officer, Teekay Gas Group Ltd.

We're seeing time charters for these even today that typically the time charters are holding up. For MGCs, they're around the $700,000s [Phonetic] per calendar month. I don't know why LPG does calendar month, but as you know, that's what they do. And so yeah, the JV will continue to look at those. But in general, as you say, you're not going to see more than three years or so on the time charter for LPG. The VLGCs that Exmar has on order a little unusual and after five years even. So, we don't expect to see five years, seven years or longer years on LPG very much.

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

Yeah, it just makes sense. I mean you look at like Slide 10 for instance and you can see that LNG is clearly, I mean, it's 99% right of your backlog even though it's 93% of your invested capital, right. So, just a different type of business and wondering if there's any ways to split the difference on those. Looking at your leverage, you have this 4.5 times to 5.5 times [Phonetic] balance and you've had it out there for a while and it looks like you're going to land in there in 2021. I know there's a lot of questions the last few quarters looking at growth, right, and what your sort of hurdle rate is and I know we've previously talked about your share valuations as well. What is sort of the way to look at your equity -- what's the correct way to look at your equity hurdle rate? Is it some sort of like DCF yield or is it just like a net income yield or because I mean as you can see, your DCF yield is in the 30% range, right. So that's a huge equity hurdle, right. So at what point or what sort of metrics do you guys look at internally?

Scott Gayton -- Chief Financial Officer, Teekay Gas Group Ltd.

Yeah. Hey, J. It's Scott here. I think that we'll obviously put everything in, all of the various parts of our balanced capital allocation plan that we've talked about and try and analyze the returns of each, which one is going to take up the liquidity, which is going to help to either grow the franchise or grow shareholder value. I don't know that we have any one particular metric that we can talk about here. It does depend a little bit where we are at the point in time and what the future market is going to look like and what our coverage is.

There's just so many things that go into that decision. But I think for the next, at least for this year, and while we're still living in fairly uncertain financial times, I don't think Teekay LNG is uncertain, but I think in the financial markets, there's uncertainty. And really, cash is king and we've been doing a number of investor calls these last couple of days at one of the conferences and time and time and time again what we're hearing is just the leverage is just got to keep coming down and this is something that we hear across the energy space. So that is our focus. We've done buybacks in the past and we know how to turn those on very quickly if we need to, but right now, I think it's really just going to be on that leverage.

Mark Kremin -- President & Chief Executive Officer, Teekay Gas Group Ltd.

Can I just add one thing, it's a little [Indecipherable], Scott. But if you look at -- you mentioned growth and leverage. If you look at our big or most likely our bigger potential for growth is the LNG. Just to kind of reiterate, I know you know this, J, but for other investors who may be on the call, if you look at the -- probably the only tender that's going to come out in the near term is Qatar, and I probably wouldn't expect them to have a commercial offer requirement even this year, but next year. Certainly, I would think, they will. And if someone would order a ship next year, that ship earliest is probably for an LNG carrier against a long-term contract, probably not going to deliver till 2025 earliest. And so by that time, you can see a de-levering path for us, which is clearly lower even below the range that we're talking about now.

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

Yeah. That definitely makes sense. It's a reminder that even if you talk about growth, say, next year, there's actually still four years left of deleveraging and potential shareholder returns. Sort of last question there on the financial balance of things. With the interest rates coming down significantly across the board, we're seeing a lot of companies, of course, increasing their hedges, right, their LIBOR swaps. Can you remind us what's the current kind of balance of what's free-floating still and what's hedged? I know you had about half of hedged last year. Is there any potential for more fixtures of those swaps or are you pretty much maxed out on those already?

Scott Gayton -- Chief Financial Officer, Teekay Gas Group Ltd.

Yeah, we're actually upwards of 75% to 80% hedged. And so, there isn't a ton more room. I think we've got one more vessel in the mall joint venture, which could be hedged and obviously that's been good to have waited. But it is something that we're discussing with our joint venture partners there, but I would say that we're probably at pretty close to our limit maybe once that last ship is done.

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

Makes sense, Scott. I had a quick one, will sneak it in there. On your repurchase, I know you have the common authorized, but you've paused it to be conservative for the COVID environment and all that. My understanding is that, the preferred are not part of that initial authorization, is that correct? And if so, is there any way to add those on to that authorization so that if we see some sort of weird dip or crash in those preferreds that you can take advantage of getting rid of that high cost instrument?

Scott Gayton -- Chief Financial Officer, Teekay Gas Group Ltd.

Yeah. Thank you. I realized I answered only half of Randy's question after we've moved on. So Randy, this one's a little bit for you as well, but it is something that we look at. We could add it on very quickly or else add in another authorization that would give us the approval to buy back A's and B's. and you're right. I think that's part of what you're hearing from us is that we need to make sure that the balance sheet is strong, liquidity position is good and then maybe we wait for opportunities.

We saw some unbelievable volatility in our common, in our prefs, in our bonds, everything obviously got thrown out of the window in that March time period and not that we ever wish to go through that again. But if it does then -- and we've got the cushion and we've got the cash balance, I think you'll see us at least trying to make some inroads there to reduce some of those higher cost items. So no, it's on the table but we just need to make sure we're taking care of that balance sheet and that cash position first, make sure its super strong, can get through anything and then we can be a little more opportunistic.

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

Excellent. Great to hear Scott and then thanks for your time Mark as well. Congrats again on an excellent result.

Mark Kremin -- President & Chief Executive Officer, Teekay Gas Group Ltd.

Thank you very much, J.

Operator

Thank you. This concludes the question-and-answer session. I will now turn it back to the Company for any additional remarks.

Mark Kremin -- President & Chief Executive Officer, Teekay Gas Group Ltd.

Well, I'd just like to thank all the investors and analysts for their support and we look forward to updating you next quarter. And just to kind of say one more time, thanks so much to the seafarers. That's it. Thanks.

Operator

[Operator Closing Remarks]

Duration: 38 minutes

Call participants:

Scott Gayton -- Chief Financial Officer, Teekay Gas Group Ltd.

Mark Kremin -- President & Chief Executive Officer, Teekay Gas Group Ltd.

Randy Giveans -- Jefferies -- Analyst

Ben Nolan -- Stifel -- Analyst

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

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