Shares of Teekay Corporation (NYSE:TK) and subsidiary Teekay LNG Partners (NYSE:TGP) are up 23.4% and 15.2% respectively at 3 p.m. EDT on Oct. 22. Today's big jump follows news that a joint venture between Teekay LNG and a company partly owned by China's COSCO Shipping Tanker would no longer be held up by U.S. sanctions against the latter company.
A failure to resolve this issue would have caused a lot of problems for Teekay and Teekay LNG. The latter's share price fell 10% on Sept. 30, when it announced the impact of sanctions on its joint venture with a COSCO subsidiary.
Without diving too deep into the details, some of the terms of the ownership structure have been changed by COSCO, resulting in its subsidiary China LNG no longer being classified as a "Blocked Person." This resulted in Teekay LNG's 50-50 joint venture with China LNG no longer being caught up under that classification.
This is a real positive for Teekay LNG and its parent company, both of which will benefit from the cash flow that the joint venture with China LNG will generate. The energy industry has substantial need for shipping capacity to move liquefied natural gas from supply markets to places where there is growing demand. Today's big price increase for both stocks is an indicator that investors like both the removal of uncertainty, and the potential for this venture to drive big profits for Teekay and Teekay LNG.
But with that said, investors should be prepared for plenty of continued volatility. Though they are shipping companies at their core, these companies' exposure to the energy industry will lead to a lot more up-and-down days that may not be directly related to news about them.