Teekay LNG Partners L.P. (TGP) Q1 2021 Earnings Call Transcript

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Teekay LNG Partners L.P. (TGP)
Q1 2021 Earnings Call
May 13, 2021, 1:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Welcome to the Teekay LNG Partners' First Quarter 2021 Earnings Results Conference Call. [Operator Instructions]

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

Scott Gayton -- Chief Financial Officer

Before Mark begins, I would like to direct all participants to our website at www.teekaylng.com, where you'll find a copy of the first 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 first 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.

Mark Kremin -- President and Chief Executive Officer

Thank you, Scott. Good morning, everyone and thank you for joining us on our first quarter 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 staff for their continued dedication to maintain business continuity during COVID global pandemic. We're 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 3 of the presentation. We will review some of Teekay LNG's recent highlights. The first quarter of 2021 was another solid quarter for us, generating adjusted net income of $60.5 million or $0.61 per unit, slightly higher than last quarter's results and higher than the same quarter one year ago. In March and April, we secured charters for three of our LNG carriers, as we will detail on the next two slides. Overall, we are now 98% fixed for the remainder of 2021 and 89% fixed for 2022.

Currently, LNG shipping markets are enjoying counter-seasonal strength for numerous reasons, but primarily due to fundamental demand, which gives us confidence that this strength should continue. Importantly, we are still months away from the lead up to the winter seasonal demand period that is caused upward momentum and volatility in LNG shipping rates in previous years. Later in today's presentation, we will take a moment to highlight the long-term strength expected for natural gas, and more importantly LNG. This long noted trend has been already happening for many years, and we expect continued strength for multiple decades as the world is transitioning to a more sustainable energy mix.

Before moving on, there are few other Teekay LNG highlights to note. First, TGP's distribution increased this quarter by 15% to $1.15 per unit -- per year as announced on last quarter's earnings call. This marks the third annual consecutive double-digit increase to our distributions, and reflects the continuation of the balanced capital allocation approach we have implemented for Teekay LNG over the past few years. This distribution level will also enable us to continue delevering and building further flexibility to continue optimally allocating capital in the future.

Second, we refinanced the Tangguh LNG joint ventures $190 million debt facility, taking advantage of strong demand from the lending markets and lower base rates to reduce the overall cost of this financing from approximately 6% to just under 3%. The lower cost to service this new debt facility will contribute to higher earnings going forward. Over the past year, we have reduced our total proportionate net debt by over $200 million and this delevering along with lower base rates has helped to reduce our total proportional interest expense by over $9 million year-on-year.

Finally, and perhaps most importantly, we continue to operate COVID free across our fleet. To date, we have not had the COVID case on board any of our vessels, and this has contributed to our high uptime and ability to service our customers. We continue to follow strict safety protocols and we are proud of the diligence shown by our seafarers to keep everyone on board safe.

We now look to slides 4 and 5 which summarize Teekay LNG's long-term contract coverage, which we believe sets us apart in our space. As mentioned in the highlights, our LNG fleet is now 98% fixed for the rest of 2021 and 89% fixed for 2022. Thanks to great work by our commercial team to adapt to a rapidly evolving market. As shown on slide 4, the charter of the 52% owned Arwa Spirit recently exercised their option to extend by one year to May 2022, adding to our industry leading $8.8 billion forward revenue book and $6.3 billion of total forward adjusted EBITDA.

Moving to slide 5. The Creole Spirit completed its five-year charter in late February, and immediately proceeded to its scheduled five-year dry-docking. Our commercial team was able to secure a floating rate charter, which ensures 100% utilization, while retaining potential upside to an improving spot market, which is actually what we've been seeing recently on a counter-seasonal basis as we will detail in a moment. Finally, as the term market continue to strengthen in late March and into April, we were able to secure a forward starting fixed rate charter for the Oak Spirit which is scheduled to complete its current charter and five-year dry-dock later in the third quarter of this year. It's unusual to secure charters five or six months in advance, which speaks to the current strength in the spot and term markets.

Turning to slide 6. We have witnessed a substantial rise in spot and term LNG shipping rates over the past few months, which continue to demonstrate counter-seasonal strength as shown in the graph at the top left of this slide. Although recent spot LNG shipping rates moderated from the seasonal spike last winter as the red line shows, they began to increase again in March, and remain elevated compared to the rates experienced during the previous four years.

The spot-based charter of the Creole Spirit, which commenced mid-March was well timed for us to benefit from a strengthening spot market. This recent spot market strengthening has also had a positive impact on the one-year time charter rate as can be seen in the graph at the top right of this slide, which is different from the previous winter spike where spot rates increased significantly, while the term charter market they have muted. We were able to take advantage of this increased demand for term charters by securing the one-year charter on the Oak Spirit nearly six months ahead of the actual charter commencement date.

There are many factors supporting this recent counter-seasonal strength in LNG shipping spot and term charter rates, including the rebound in global gas demand with the easing of COVID restrictions in many parts of the world, growth in LNG trade as export projects are starting up, and an increase in ton mile demand as long haul US exports are being directed to Asia, and the impact of stronger Asian LNG pricing in contango.

Increased global demand and a colder spring in Europe had contributed to a drawdown in European inventories to levels well before that of the last couple of years as seen in red on the bottom right of this slide. This dynamic has led to increased demand for LNG carriers to rebuild inventories ahead of the summer, when LNG prices have historically been higher. Only time will tell these positive demand dynamics are enough to fully offset the elevated vessel deliveries in 2021, but LNG carrier newbuild deliveries in '22 are expected to be less than half of this year's, which gives us confidence that much of the strength should be maintained.

Turning to slide 7. We will touch on some of the longer-term dynamics, which give us confidence, the demand for natural gas, and LNG, in particular, will continue to grow meaningfully over the next two decades. According to the forecast provided by Shell at the top left of the slide, global gas demand is expected to grow by over 40% over the next 20 years, outpacing all other energy sources. As this chart indicates, renewables are expected to grow by 33% during the forecast period and will make up a sizable share of the growth in energy demand by 2040. However, gas is expected to grow by even more in part because it can function as a reliable backup to renewables, which can be interpreted.

As we reviewed with you last quarter during the same period, coal demand is expected to decline as it is replaced by cleaner burning fuel sources, such as gas. The opportunity to displace coal is massive. For example, Japan currently uses coal for 30% of their power generation needs, creates up to 40%, and China is over 50%. At Teekay LNG, we are excited to be part of this transition to a cleaner future.

Looking at the chart on the top right, LNG demand growth is expected to outpace gas but almost two to one between 2020 and 2040. Gas transported as LNG is more flexible for the buyer, and really the only solution that addresses gas supply security and diversification issues. As such, a larger percentage of natural gas is expected to be transported seaborne in the future.

Looking at the bottom of this slide. Global imports of LNG are expected to nearly doubled by 2040, reaching 700 million tons per year. This will be mainly driven by demand from Other Asia depicted here in red, which is primarily made up of China, India and other South Asian countries, which are expected to increasingly transition to LNG as a feedstock for power generation and industrial processes as we bridge to a cleaner future. We will walk through this on the next slide.

Turning to slide 8, our final slide today. We have summarized the main uses of natural gas today and how each is projected to grow over the next 20 years. Power generation is expected to grow the most at 35% of overall growth. As we said earlier, gas as a fuel for power generation is expected to grow as it displaces the many dirty coal-fired plants still in operation, and even continuing to be built today. Due to its reliability and flexibility, gas will also serve as a complement to the growth in renewables as a power source.

In addition, gas is expected to continue growing as a fuel for both industrial processes and in residential and commercial heating, particularly in China, India and other countries that are seeking to reduce air pollution from an energy intensive industries. With many countries now having adopted net-zero emission policies, gas must increase as a share of the energy mix, while coal is to decrease for these targets to be achieved. The other main sector in which we see a growing use of natural gas is transportation. For Teekay LNG, this is nothing new, given that nearly all of our ships already burn LNG as fuel. However, it's encouraging that many other types of recently ordered vessels, including container ships and oil tankers are being constructed and converted to burn LNG. We think this trend will only continue as our industry moves toward more stringent environmental regulations.

Wrapping up, we have been actively taking advantage of the strengthening market to benefit all our shareholders. We are glad to see that vaccines have been rolled out at a good pace in many countries around the world and that positive knock-on effect of higher demand for natural gas has translated into higher demand for LNG transportation services. However, we acknowledge we're not out of the woods yet with COVID, especially in countries like India, which have been grappling with devastating third wave of the virus, and we will continue to be vigilant to ensure the continued health and safety of our crews and partners around the world.

Looking ahead, TGP's unique portfolio of long-term fixed-price contracts positions us to continue to generate consistent cash flows, further reduce our leverage, and return capital to our shareholders. The unique tailwinds in the global LNG industry provide a strong outlook for our business in 2021 and beyond, and we believe the steps we are taking today to further strengthen our financial foundation, position us well for the future.

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

Questions and Answers:

Operator

Thank you, sir. Our first question comes from Randy Giveans, Jefferies.

Randy Giveans -- Jefferies -- Analyst

Gentlemen, how's it going?

Mark Kremin -- President and Chief Executive Officer

Hi, Randy.

Randy Giveans -- Jefferies -- Analyst

I guess, first question, just looking at the distribution growing it to $1.15, was there some kind of a formula involved, a methodology there, and then just thinking about the distribution going forward? Is it contingent on further charters, further growth, like, how should we think about growth trajectory from here?

Mark Kremin -- President and Chief Executive Officer

Randy, I'm glad you asked that question, because Scott got out of prepared remarks today. So Scott, I'm going to hand it over to you. There you go.

Scott Gayton -- Chief Financial Officer

Thanks a lot, Mark. Yeah, Randy, as we said in the prepared remarks, our third year of double-digit increases, the first ones were off a pretty low base. And as we start to get up, the percentages are just going to decrease due to the law of bigger numbers. I think, really, we look at a lot of things. Given the fixed rate nature of the business, I wouldn't say that is contingent time in certain charters, we have so few rollovers and we have such a stable business that one or two rollovers is really not going to change things.

I think it just has to do with that balanced capital allocation plan that Mark talked about earlier, and I know we've been banging the drum for last couple of years, but it really does. We just look at what else is available, what other uses of capital that we have, and what do we think is a reasonable return. And importantly for us, we look at our payout on a percentage of net income, as well as cash flow generated not a DCF basis, kind of, using older MLP economic.

So I know it's not much of an answer, but we try and put a whole bunch of things in and figure out what is a return that we think is a reasonable and we really do want to set ourselves apart from other LNG companies, as well as other MLPs, and really other companies out there that we can look back and say that we've been able to increase it by a reasonable return over the last number of years and people start to count on that.

And I think as we add new ships, maybe we add cash flow over the next number of years here that will provide incremental growth for us to be able to increase our payouts as well. So there's a lot of things we deal, and hopefully my non-answer is an answer not for you.

Randy Giveans -- Jefferies -- Analyst

Satisfactory. Yeah, the ones you think goes right. That's fair. And then. I guess, second question, just looking at that capital allocation in growth, clearly there's a lot of -- Scott on the markets, cutter with all the tenders they're going, apparently there were 37 shipping companies that put in tenders for that. How active are you all in -- maybe that deal or other deals? Are you participating in growth that way?

Scott Gayton -- Chief Financial Officer

Yes, Randy, we have expressed interest in that tender. As you said, there are lot of ship owners invited. I think, ultimately, we'll see a fair amount of those shipowners perhaps joining or bidding as consortiums. So the actual number of bidders might be less than those invited, and I'm not sure that even all invited will bid. So it will certainly be more selective, I think, then what you've said. That tender, in particular, is an interesting one in that -- the landed cost is almost unbeatable, which should land -- LNG should land around $5, and that's after if we understand things correctly. It will be carbon and the -- a really carbon conscious process. The carbon capture and sequestration of the project looks good.

And then, I guess, the third thing that's interesting about that project -- not only with their buying power, but also the timing. It looks like the Qataris have reserves lots set up at a decent price. And so, if they do know weight those two successful bidders at that price, it should reflect in reduce residual risk for the owners. So yes, it is something we expressed interest in, but the bids will be for couple of months.

Randy Giveans -- Jefferies -- Analyst

Got it. Makes sense. That's pretty much it for me. Great job, studying the ship after creating this last year and good to see the stock price going strong. So thanks again.

Scott Gayton -- Chief Financial Officer

Thank you.

Operator

Our next question comes from Ben Nolan, Stifel.

Ben Nolan -- Stifel -- Analyst

Great. I've got a few. First of all, a real quick, just on the charters. I'm curious, if you -- well, first, can you maybe give a little bit of context, I know you don't give specific numbers, but after the fixed rate contracts, any sense as sort of what is an appropriate range at least for where those might be? But also, especially for the MEGI vessel any ability -- it's cool that you're able to charter in advance of that redelivery, but any ability or what's the appetite of the market is doing in longer duration in that or was it sort of your choice to keep it short?

Mark Kremin -- President and Chief Executive Officer

Yeah, just kind of speaking to the -- you asked for rate indication. We have another analysts, you may have seen his report this morning, and he said that, Teekay -- TGP did not disclose the rate, though prevailing rates in April suggest the rate of at least $60,000 a day. And he's definitely right in terms of what the rate should be, at least. So that's on the term market.

We didn't see longer -- if you're talking about longer, I mean, this is term anyway. In terms -- if you were thinking five or more years, then that wasn't something that we saw available to us right now. I'm not sure we would have been necessarily wanted it. Our view hasn't changed much in that '21, '22 should be leaner years, but when you start to get into COVID recovery, for sure, start-up, restart-ups in '23, '24, '25, this is a rebalanced market. So I'm not sure we would have gone longer even if we had seen opportunities to go longer on the ship at this point.

Ben Nolan -- Stifel -- Analyst

Okay. And for -- I guess, my next question. So if it's OK, I have few more. So my next question, sort of, on the macro side, there is a lot of things that have to happen even this week. Chevron turning off the Kmart deal in the Mediterranean, which obviously reduces gas load to Israel and Jordan and the other areas there. I'm curious if you think that's a big deal from an LNG perspective?

And then probably even a bigger deal would be the final of the relation in the threat of potentially the Chinese not buying Australian LNG. Curious if that happens, what do you think it looks like from an LNG shipping perspective, even down to a lot of this ships that move cargo from Australia to China tend to be the little bit older ships, and I assume you need bigger, more efficient ships that we -- if you are coming from further away. In color, just sort of on what's happening right now? I mean -- and how much of that is maybe already reflected in sort of what we're seeing in the market?

Mark Kremin -- President and Chief Executive Officer

Yeah, maybe I'll touch on sort of a last question, which comes into this one. You asked about the fixed rate and you were alluding to the Oak Spirit. We also have a spot rate charter on the Creole. And if we look at the Baltic forward curves as of last night, you have basically $60,000 or so in upwards in Q2 that goes into the 70s in Q3. And then, in Q4, the Baltic forecast is in $100,000 a day. So the reason I bring this up, number 1, we will give you an indication of what we might get on the spot rate.

But more to your question about what's impacting, this is as of last night, how is the LNG being affected? I think we're not. We're still seeing something that's -- both physically and cyclically a pretty good year, despite all the COVID. If we look at to your question about Australia, in general, wherein specifically I should say, my understanding that I need to do more research on this, but it looks to be only affecting two small importers in China, which China has indicated that these guys should hold back a little bit on the exports out of Australia. I must say that if it affects them or others, that's not bad news for LNG at all. What that is, it is a short-term trade, I should say, a short haul trade. And we get far more rate uptick and new set of vessels on a longer trade. If it does turn out -- and again, at this point, I'm seeing only potentially two small imports in China. If it does turn out to be something larger, and I think China imports about 30% of their LNG from Australia at this point, we would be seeing a much longer ton miles presumably from wherever else they're going to get that LNG from. And so, I think it could be a positive, but I'm not, we're not betting on it.

Ben Nolan -- Stifel -- Analyst

Okay. And the last for me, and then I'll get back in the queue here. I don't want to overstaying my welcome. But in the -- you may have heard in the GasLog conference call, one of the things that they brought up related to their steam powered ships was the new regulations that aren't -- haven't been signed off on yet, but the ESI and carbon intensity stuff and that -- those may have detrimental impacts on the useful lives and the residual values of their steam powered ships potentially. You guys also have steam powered ships. There, if you have any thoughts on that or is that something that is -- would be meaningful and material at all to your business?

Mark Kremin -- President and Chief Executive Officer

Sure. So the first thing we have to see, the parties will reconvene next month. And what's been happening so far is that the industry is sort of on the [Indecipherable], the operational aspect of this. It's taking a broad brush. And I think when we -- the delegates need to get in June, perhaps, we'll see a carve out for LNG. And the reason I say this is because we have a certain amount of boil-off gas not in ships. And if you slow down -- you can slowdown, that's fine, but at some point, you're just going to combust that and burn that LNG without using it for fuel. So I think when you take a tighter look in June, perhaps the LNG space, we'll get a some type of exemption or dispensation from starting 2023 for anything steaming below boil-off or service speed rate, boil-off gas, suffice to say. So that's one thing.

When you look at all of our contracts currently at least, the slow steaming that might be requested or ordered by the charter is not going to be for our account. So we're really only looking at potentially if this is not a carve out, it be residual after the charters roll-off. And I think it's going to be relatively insignificant for us given the fixed portfolio we still have on our steam frankly.

Ben Nolan -- Stifel -- Analyst

Okay, great. Well, I guess that help. I'll get back in the queue. But I appreciate you taking the questions so far.

Operator

Our next question comes from Chris Tsung, Webber Research.

Chris Tsung -- Webber Research -- Analyst

Hey, Mark. Hey Scott. How are you guys?

Mark Kremin -- President and Chief Executive Officer

Hi, Chris.

Chris Tsung -- Webber Research -- Analyst

I wanted to just kind of ask if you can explain just a little bit more on the extension for the Arwa Spirit. Is this at the same rate when the charter was originally fixed or is it slightly above or below? Can you provide a little color there?

Mark Kremin -- President and Chief Executive Officer

Yeah, in my recollection, it is just slightly above where we were before.

Chris Tsung -- Webber Research -- Analyst

Okay, cool. And secondly, noticed in your sustainability report, there was a mention of installing liquefaction systems for vessels with the goal of helping improve efficiency performance is kind of, I guess, a little bit related to the previous question. And I kind of wanted to just ask, is there like a capex number that you're willing to share for this program? And also, the timing of this roll out, because based on that chart, it seems like you guys are just a bit away from the IMO 2030 EOI target, kind of, if you can touch on that?

Mark Kremin -- President and Chief Executive Officer

Yeah, we do have a capital upgrade program going on right now. It's basically just started. We have -- while we're doing scheduled dry dockings, we are upgrading some of our ships. The first one is the Murex, which is in dry-docking right now. It's reflecting a little bit. That's why you might see a slight dip in earnings -- sorry, next quarter, because of the dry-docking. But we are improving the reliquefaction on some -- certain of our vessels, and this will occur, both this year and next year on the scheduled dry-docking dates. I don't know, Scott, whether -- what we've disclosed in terms of capital -- capex figures?

Scott Gayton -- Chief Financial Officer

Yeah, we've got roughly $60 million is what we're assuming for the capex upgrades on those vessels. And importantly, from the shipyard, we actually did receive a warranty payment of around $45 million. So it's about a $15 million net to us, and we recognize and receive that $45 million like a year, year and a half ago, and just gone through those capex upgrades now. So like Mark said, we do expect to get through that over the next number of months here, and then those ships will be some of the most efficient in our fleet.

Chris Tsung -- Webber Research -- Analyst

Great. Thanks. That's it for me. Thanks, guys.

Mark Kremin -- President and Chief Executive Officer

Thank you.

Operator

Our next question comes from Liam Burke, B. Riley.

Liam Burke -- B. Riley -- Analyst

Yes, thank you. Good afternoon. When you look at the fleet, is there any thought as to with asset values continuing to rise to sell assets into the strength or do you want to continue to drive the cash flows entirely through longer-term charters?

Mark Kremin -- President and Chief Executive Officer

We're always interested -- I mean, we look at acquisition and divestment. We're open to both things. We're not married to any steel, frankly. But the -- we aren't really -- maybe not unique, but a good situation that our asset prices are very often times correlated to long-term charters. So you might see steamship going down in price or some other type of vessel type going up. The bottom line is, we have roughly 10 years of contract behind these. So we're not really asset players so much in terms of the divestment unless someone wants to pay for the backlog -- the contract backlog, which makes up much of TGPs value. So yes, we look at -- it's great that values would be increasing, but still contract value on most of our ships, which is -- it's more dear [Phonetic] to us.

Liam Burke -- B. Riley -- Analyst

Great. Thank you.

Operator

Our next question comes from Ben Nolan, Stifel.

Ben Nolan -- Stifel -- Analyst

Yeah, sorry to get back. So I actually have a couple more, believe it or not. I wanted to ask a little bit about on the capital side, maybe for you Scott. First of all, you talked a little bit about -- you always talked about maybe participating in Qatar tenders, and I assume, you're sort of gradually looking at other things. But with respect to the debt repayment, $200 million last year, what -- how do you think about is sort of the right cadence? What's the right amount of debt, and sort of -- when you begin to mix in growth that you -- we should think about sort of the debt balance going down on a go-forward basis?

Scott Gayton -- Chief Financial Officer

Yeah, we are going to continue to delever, and most of what we delever was actually just mandated amortization payments. We have a little bit around the edges that we can maybe put onto paying down some of our revolvers if we had excess cash or maybe not renewing one of our bonds that mature for maybe the same dollar value or not renewing it. Also, we can manage that absolute value of debt a little bit, but the majority of it is just mandatory amortization.

And then, I think, looking out to some of the growth that Mark talked about earlier, that's going to be delivering in '24, '25, I think, that delay helps us, because we will continue to delever through that regular amortization they talked about, the absolute dollar value of debt will continue to decrease. And also on a leverage, basis whether it's on a capital or on an EBITDA basis, to the point where we would be adding in debt and then obviously the cash flow at a point when we had continued to delever and really built up fair amount of flexibility.

I'd say, just to put it in context, if there was an asset that was -- if we were tendering today for ship that delivers tomorrow, and we still we're at a leverage target that was above what we want it to be, I'd say that would be significantly different, and probably tougher discussion that we would have to have compared to something that will deliver in a few years time once we have built up that flexibility through delevering.

Ben Nolan -- Stifel -- Analyst

Okay. So to put that all into numbers in $200 million, maybe $250 million a year is sort of the increases over where it was a little bit last year, but still sort of the net context. Is that fair?

Scott Gayton -- Chief Financial Officer

Yeah, we've talked about before that it's around $300 million is our regular amortization. We had a few things. That went the other way. Some of the dry-dock upgrades that Mark talked about, we had a swap payout that we made this quarters to enjoy the lower rates on the Tangguh, for example. So this quarter compared to a year ago, it shows $200 million on absolute terms. But I think on a normal, sort of, run rate basis, it's in that $275 million to $300 million range that we would continue to recognize over the next number of years in a row.

Ben Nolan -- Stifel -- Analyst

Okay, perfect. And then last, and this time, I mean, it for me is, if you have one of those preferreds that comes to you or it doesn't come to you, it's callable later this year. I'm curious where -- and its trading above par, I think, a 9% preferred, but I'm curious where you see that as part of your capital structure? I mean, is that something that maybe you look to refinance? Is that something that you think is more permanent capital and kind of like as there or conversely when -- if there is capital available if I can call it out, any context there?

Scott Gayton -- Chief Financial Officer

Sure. Yeah, so we do have a redemption right at par that comes up in October of this year. So that is a redemption rate that we have, and to bring out in at $25 a unit. And if we don't exercise it, it stays. So it's not like something that we have to do it all the day or we lose it. And I think that you're right, we look at it as pretty expensive debt at 9%. It was great at the time, and we issued it, and it saved us from reissuing common equity at prices which are not attractive. But if I had to look at my crystal ball, I probably would prefer not to have that as a piece of our capital structure.

I think that we would prefer to have the unsecured bonds, particularly in Norway, where we've got a pretty good following, you know regular way the mortgage debt, sale leaseback type debt, and then common equity. I think, the cleaner the better. And then right now, we could probably issue in Norway under 6%. The last deal that we did was around 5.75%. And obviously, there's been some movement in base rates since that time, but I think we could still do under 6%.

So there is an arc that we can definitely pick-up. And I think what you'll see us do is continue to monitor the market. We have great relationships directly with the investors in Norway, as well as with a lot of the banks that help us to issue. And as we get toward the end of the summer and really into Q3 and closer to maturity, I think we'll have to really analyse all those rates and see where we can best maximize the potential and just reduce our overall cost of capital, which is really key for us, especially as we're looking at tendering on the vessels. We really got to make sure that we're optimizing our balance sheet wherever possible.

Ben Nolan -- Stifel -- Analyst

All right. That's it. I appreciate. Thanks.

Operator

We have no further questions in the queue at this time. I would now like to turn the call back over to Company for closing remarks.

Mark Kremin -- President and Chief Executive Officer

Well, on behalf of Scott, myself and the entire Teekay LNG team, thank you very much for your support. We look forward to updating you next quarter.

Operator

[Operator Closing Remarks]

Duration: 38 minutes

Call participants:

Scott Gayton -- Chief Financial Officer

Mark Kremin -- President and Chief Executive Officer

Randy Giveans -- Jefferies -- Analyst

Ben Nolan -- Stifel -- Analyst

Chris Tsung -- Webber Research -- Analyst

Liam Burke -- B. Riley -- Analyst

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